Full Judgment Text
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PETITIONER:
MANAGER, M/S. PYARCHAND KESARIMAL PONWAL BIDI FACTORY
Vs.
RESPONDENT:
OMKAR LAXMAN THANGE & ORS.
DATE OF JUDGMENT:
27/09/1968
BENCH:
SHELAT, J.M.
BENCH:
SHELAT, J.M.
BHARGAVA, VISHISHTHA
CITATION:
1970 AIR 823 1968 SCR (2) 272
ACT:
Industrial Dispute--Transfer of employment from one
employer to another--Such transfer must be preceded by
termination of employment with first employer and a new
contract--Establishment to whom services of employee are
lent by employer has no right to dismiss employee from
service.
HEADNOTE:
The appellant-firm had a number of factories including
one at Kamptee in Vidharba. Its head office was also
situated there,. The factory at Kamptee and the head office
were treated as separate establishment. the factory being
registered under the Factories Act and the Head Office under
the C.P. and Berar Shops and Establishments Act, 1947.
Respondent No. 1 was originally employed at the aforesaid
factory but later he was directed to work at the head
office. When the Head Office dismissed him from service he
challenged the order of dismissal by an application under s.
16 of the C.P. & Berar Industrial Disputes settlement Act.
The Assistant Commissioner dismissed the application holding
that Respondent No. 1 at the material time was not an
employee of the factory but was employed in the Head Office.
The Industrial Court refused, in revision, to interfere with
the Assistant Commissioner’s order. Respondent No.. 1 filed
a writ petition under Art. 226 of the Constitution. The
High Court observed that unless it was established that the
employment of Respondent No. 1 in the factory was legally
terminated it could be assumed merely because he was direct
to work in the head office, that his employment was changed
and the head office was substituted as his. employer in
place of the said factory., As the order passed by the
Assistant Commissioner was not clear on this question the
High Court remanded the case for disposal according to law.
The firm appealed to this Court.
HELD: (i) A contract for service is incapable of
transfer unilaterally. Such a transfer of service from one
employer to another can only be effected by a tripartite
agreement between the employer, the employee and the third
party, the effect of which would be to terminate the
original contract of service by mutual consent and to. make
a new contract between the employee and the third party. So
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long as the contract of service is not terminated, a new
contract is not made as aforesaid, and the employee
continues to be in the employment of the employer.
Therefore, when an employer orders him to: do certain work
for another person the employee still continues to be i.n
his employment. The only thing that happens in such a case
is that he carries out the orders of his master. The.
employee has the right to claim his wages from the employer
and not from the third party to whom his services are lent
or hired. It may be that such a third party may pay his
wages during the time that he has hired his services, but
that is because of his agreement with the employer. that
does not preclude the employee from claiming his wages from
the employer. the hirer may also. exercise control and
direction in the doing of the thing for which he is hired or
even the manner in which it is to be done. But if the
employee fails to. carry out his direction he cannot
273
dismiss him and can only complain to the employee. The
’right of dismissal vests with the employer. [279 &F]
Such being the position in law, in the present case the
High Court was right in- setting aside the order of the
Assistant Commissioner and the Industrial Court on the
ground that unless a finding was reached on the facts of the
case that the contract of service with the said factory came
to an end and a fresh contract with the head office came
into being, Respondent No. 1 continued to be in the
employment of the factory and the head office therefore was
not competent to dismiss him. [281 F]
Mersey Docks and Harbour Board v. Coggins & Griffith
(Liverpool) Ltd. [1947] A.C. 1 at 17, Century Insurance Co.
Ltd. v. Northern Ireland Road Transport Board, [1942] A.C.
509, Quarman v. Burnett, (1840) 6 M. & W. 499’, Jones v.
Scullard, [1898] 2 Q.B. 565, Nokes v. Doncaster Amalgamated
Collieries, Ltd. [1940] 3 All England Law Reports 549 and
Denham v. Midland Employees Mutual Assurance Ltd., [1955] 2
Q.B. 437, referred to.
Jestamani Gulabrai Dholkia v. The Scindia Steam
Navigation Company [1961] 2 S.C.R. 811, distinguished.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 793 of
1966.
Appeal by special leave from the judgment and order
dated August 21, 1964 of the Bombay High Court, Nagpur Bench
in Special Civil Application No. 353 of 1963.
M.N. Phadke, Naunit Lal and B.P. Singh, for the
appellant.
D.D. Verma and Ganpat Rai, for respondent No. 1.
The Judgment of the Court was delivered by
Shelat, J. This appeal, by special leave, is directed
against the order of the High Court of Bombay (Nagpur Bench)
which set aside the orders of the Assistant Commissioner of
Labour and the Industrial Court, Nagpur and remanded the
case to the Assistant Commissioner.
The appellant-firm conducts a number of bidi factories
at various places in Vidharba including the one at Kamptee.
Its head office is also situate there. The factory at
Kamptee and the head office have always been treated as
separate entities though owned by the same firm.
Consequently, the head office was registered under the
Central Provinces & Berar Shops and Establishment Act, 1947
and the factory at Kamptee was registered under the
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Factories Act. The factory has also its own standing orders
certified under the Central Provinces & Berar Industrial
Disputes Settlement Act, 1947. Respondent 1 was originally
employed in the factory at Kamptee. Two or three years
thereafter he was directed to work at the head office and
worked therein for about six years prior to the impugned
order of dismissal passed against him by the munim of the
head office. Aggrieved by the order he flied
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an application under s. 16 of the C.P. & Berar Industrial
Disputes Settlement Act alleging that the said order was
incompetent and illegal. The appellant-firm contended that
at the material time Respondent 1 was employed as a clerk in
the head office, that the head office was a separate entity,
that the dismissal order had not been passed ’by the
appellant-firm as the owner of the said factory, that the
firm, as such owner, was wrongly impleaded and that the
application was misconceived.
The Assistant Commissioner dismissed the application
holding that Respondent 1 at the material time was not the
employee in the factory, but was employed in the firm’s head
office. He relied on the fact that the head office and the
factory had separate rules, that Respondent 1 used to sign
his attendance in the register of the head office, that he
was being paid his salary by the head office, and lastly,
that his name was not on the muster roll of the factory. He
also found that whereas the staff of the head office was
governed by the C.P. & Berar Shops & Establishments Act, the
factory was governed by the C.P. & Berar Industrial Disputes
Settlement Act. Against the dismissal of his ,application,
Respondent 1 filed a revision application before the
Industrial Court, Nagpur. The Industrial dismissed the
application holding that the only question raised before
it was whether Respondent 1 was the employee of the head
office and that that being purely a question of fact, he
could not interfere with the finding of fact arrived at by
the Assistant Commissioner. Respondent 1 thereafter filed a
writ petition in the High Court challenging the said orders.
The High Court held that it was possible in law for an
employer to have various establishments where different
kinds of work would be done, in which case an employee in
one establishment would be liable to be transferred to
another establishment. But the High Court observed that
unless it was established that the employment of Respondent
1 in the factory was legally terminated it could not be
assumed, merely because he was directed to work in the head
office, that his employment was changed and the head office
was substituted as his employer in place of the said
factory. As the order passed by the Assistant Commissioner
was not clear on this question, the High Court remanded the
case for disposal according to law.
Mr. Phadke for the appellants, raised the following
contentions against the High Court’s order: (1) that the
High Court made out a new case for Respondent 1, in that
Respondent 1 had never challenged the validity of the order
of dismissal on the ground that there was no change of
employment, and that therefore, the head office was
incompetent to order his dismissal, (2) that the facts of
the case justified the conclusion that Respondent 1 had
ceased to be the employee of the factory, and (3) that in
any event he must be held to have given an implied consent
to
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his being treated as the employee of the head office. In
support of these contentions he relied upon the fact that
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Respondent 1 had worked at the. head office for the last six
years without any protest, that his name was on the
attendance register of the head office, that it was the head
office which paid his salary, and lastly, that he worked in
the head office under the direction and control of the munim
of that office.
As to the first contention, it would not be correct to
say that the High Court made out a new case for the first
time for Respondent 1 which was not pleaded by him before
the Assistant Commissioner. In para 1 of his application he
had expressly averred that about three years after his
employment in the factory he had been ordered to work in the
head office. In reply to the application the appellants
conceded that though Respondent 1 was first employed in the
factory and had worked there for about three years, he had
thereafter been transferred to and been working as a clerk
in the head office. There was, however, no averment in that
reply that the contract of service of Respondent 1 with the
said factory was at any time put an end to or that when he
was directed to work in the head office a fresh contract of
service was entered into. between. him and the head office.
The Assistant Commissioner in his said order held that the
head office and the factory were two separate establishments
registered under two different Acts, and, therefore,
subject to different provisions of law. He further held that
since Respondent 1 was not actually working in the factory
and his name did not figure in the factory’s muster roll and
was not paid his wages by the factory, the applicant could
not be said to be an employee of the said factory. In his
revision application before the Industrial Court, Respondent
1 made an express plea that when he was directed to work in
the head office, he had received no notice from the factory
that his services were terminated there or that he had
henceforth become the employee of the head office. It is
clear from these pleadings that it was not for the first
time in the High Court that Respondent 1 contended as to the
incompetence of the head office to take disciplinary action
against him and to pass the order of dismissal. The first
contention of Mr. Phadke, therefore, cannot be accepted.
As regards the second and the third contentions, there
is no dispute that though the head office and the said
factory belong to the same proprietors, they were always
treated as two distinct entities registered under two
different Acts, that Respondent 1 was employed first in
the factory where he worked for 2 or 3 years and was
thereafter ordered to work at the head office where
admittedly he worked for about six years before the impugned
order terminating his services was passed. The question,
therefore, which the Assistant Commissioner and the
Industrial Court had to decide, in view of the pleadings of
the parties, was whether
276
Respondent 1 had ceased to be the employee of the factory
and was in the employment of the head office at the time
when the impugned order was passed, or whether his services
were simply lent to the head office and he continued all
along to be the employee of the factory ?
The general rule in respect of relationship of master
and servant is that a subsisting contract of service with
one master is a bar to service with any other master unless
the contract otherwise provides or the master consents. A
contract of employment involving personal service is
incapable of transfer. Thus, where a businessman joins a
partnership firm and takes his personal staff with him into
the firm, his staff cannot be made the staff of the firm
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without the consent of the other partners. of. Mersey Docks
and Harbour Board v. Coggins & Griffith (Liverpool) Ltd.(1).
In certain cases, however, it is. possible to say that an
employee has different .employers, as when the employer, in
pursuance of a contract between him and a third party, lends
or hires out the services of his employee to that third
party for a particular work. Such an arrangement, however,
does not effect a transfer of the contract of service
between the employer and his employee, but only amounts to a
transfer of the benefit of his services. of. Century
Insurance Co. Ltd. v. Northern Ireland Road Transport
Board("). In such cases where a third party engages another
person’s employee it is the general employer who is normally
liable for the tortuous acts committed by the employee and
his liability is not affected by the existence of a contract
between him and the third party under which the services of
the employee are lent or hired out for a temporary period to
such third party. In order to absolve the employer from the
liability and to make the person who. temporarily engages
the employee or hires his services it is necessary to prove
that the relationship of master and servant was temporarily
constituted between such third party and the employee, and
that it existed at the time when the tortuous act was
committed by the employee. There is, however, a
presumption against there being such a transfer of an
employee as to make the hirer or the person on whose behalf
the employee is temporarily working and a heavy burden rests
on the party seeking to establish that the relationship of
master and servant has been constituted pro hac vice between
the temporary employer and the employee of. Mersey Docks
and Harbour Board v. Coggins & Griffith (Liverpool)
Ltd.(1). In cases where an employer has hired out or lent
the services of his employee for a specific work and such an
employee has caused damage to another person by his tortuous
act, the question often arises as to who of the two, i.e.
the employer or the person to whom such services are hired
out or lent, is [1947] A.C. 1 at 17. (2)
[1942] A.C. 509.
277
vicariously responsible for such damage. In cases
commonly known as cranes and carriage cases, courts in
England evolved the rule of the employee being temporarily
the employee of such third party to impose the
responsibility on him if it was established that in the
matter of the act, in the performance of which the tortuous
act was committed, such third party had exercised control
and direction over the performance of the act in question
and the manner in which it was to be performed. The classic
case commonly cited and in which this rule was applied is
Quarman V. Burnett (1) of. also Jones v. Scullard(2) where
Lord Russel applied the test of the power to, direct and
control the act in performance of which damage was caused to
another person. The position in law is, therefore, clear
that except in the case of a statutory provision to the
contrary, a right to the service of an employee cannot be
the subject matter of a transfer by an employer to a third
party without the employee’s consent. Thus, in Nokes v.
Doncaster Amalgamated Collieries, Ltd. (3) where an order
was made under s. 154 of the Companies Act, 1929
transferring all the assets and liabilities of a company to
another company. Viscount Simon held that such an order did
not mean that contracts of service between the appellant and
the transferer-company also stood transferred. The
principle that even in cases where the services of an
employee are lent to a third party temporarily for a
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particular work, the employee still remains the employee of
the employer is illustrated in Denham v. Midland Employees
Mutual Assurance Ltd.(4). There Eastwoods Ltd. employed Le
Grands to make test borings on their property. Le Grands
provided two skilled drillers with plant and tackle to carry
out the borings and Eastwoods Ltd. agreed to provide one of
the labourers, one Clegg to assist those skilled men free of
charge to Le Grands. While the said work .was being carried
out, Clegg was killed in circumstances in which Le Grands
were liable to pay damages to his widow on the ground that
his death was caused on account of the negligence of Le
Grands or their servants. Le Grands sought to be
indemnified by their insurers against their said liability.
They were covered by two policies, one with the Midland
Employers Mutual Assurance Ltd. in respect of their
liability to the employees and the other with Lloyds in
respect of their liability to the public in general. The
policy issued by the Midland Employers Mutual Assurance Ltd.
provided that if any person "under a contract of service"
with the insured were to sustain any personal injury by
accident caused during the period of employment, and if
the insured became liable to pay damages for such injury the
association would indemnify the insured against all sums for
which he would be so liable. The policy issued by the
Lloyds indemnified Le Grands for any sums for which they
might become liable to
(1) [1840] 6 M. & W. 499.
(2) [1898] 2 Q.B. 565.
(3) [1940] 3 All England Law Reports 549.
(4) [1955] 2 Q.B.437.
278
pay in respect of death or accidental bodily injury to
persons and loss or damage to. property arising in or out of
the business of borings carried out by Le Grands. The
question was whether at the time of his death Clegg was the
servant of Le Grands and under "a contract of service" with
them as provided in their policy with the Midland Assurance
Ltd. Dealing with that question, Denning, L.J. observed
that the difficulty which surrounded such a subject arose
because of the concept that a servant of a general employer
may be transferred to a temporary employer so as to become
for the time being his .servant. Such a concept was, he
said, a very useful device to place liability on the
shoulders of the one who should properly bear it, but did
not affect the contract of service itself. No contract of
service can be transferred from one employer to another
without the servant’s consent and such consent is not to be
raised by operation of law but only by the real consent in
fact of the man express or implied. He further observed:
"In none of the transfer cases which has
been cited to us had the consent of the man
been sought or obtained. The general employer
has simply told him to go and do some
particular work for the temporary employer and
he has gone. The supposed transfer, when it
takes place, is nothing more than a device---a
very convenient and just device, mark you--to
put liability on to the temporary employer;
and even this device has in recent years been
very much restricted in its operation. It
only applies when the servant is transferred
so completely that the temporary employer has
the right to. dictate, not only what the
servant is to do, but also how he is to do
it."
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Applying these principles to the facts before him, he
observed that he had no doubt that if a third person had
been injured by the negligence of Clegg in the course of his
work, Le Grands and not Eastwoods would be liable to such
third person. So. also, when Clegg himself was killed, Le
Grands were liable to his widow on the same footing that
they were his masters and not merely invitors. These
results were achieved in law by holding that Clegg became
the temporary servant of Le Grands. He further observed
that there was no harm in thus describing him so long as it
was remembered that it was a device designed to cast
liability on the temporary employer. However, on the
question whether Clegg was "under a contract of service"
with Le Grands, he held that he was not, for his contract of
service was with Eastwoods. They had selected him and paid
his wages and they alone could suspend or dismiss him.
Clegg was never asked to consent to a transfer of the
contract of service and he never did so. If he was not paid
his wages or if he was wrongfully dismissed from
279
the work, he could sue Eastwoods for the breach of contract
and no one else. If he failed to turn up for work,
Eastwoods alone ’could sue him. He could, therefore, see no
trace of a contract of service with Le Grands except the
artificial transfer raised by law so as to make Le Grands
liable to others for his faults or liable to him for their
own faults and that the artificial transfer so raised cannot
be said to be a contract of service within the said policy
of assurance. Le Grands, therefore, were not entitled to
’be indemnified by the Midland Assurance Company under the
employers’ liability policy but were entitled to be
indemnified by Lloyds under their public liability policy.
A contract of service being thus incapable of transfer
unilaterally, such a transfer of service from one employer
to another can only be affected by a tripartite agreement
between the employer, the employee and the third party, the
effect of which would be to terminate the original contract
of service by mutual consent and to make a new contract
between the employee and the third party. Therefore, so long
as the contract of service is not terminated, a new contract
is not made as aforesaid and the employee continues to be in
the employment of the employer. Therefore, when an
employer orders him to do a certain work for another person
the employee still continues to be in his employment. The
only thing that happens in such a case is that he carries
out the orders of his master. The employee has the right to
claim his wages from the employer and not from the third
party to whom his services are lent or hired. It may be
that such third party may pay his wages during the time that
he has hired his services, but that is because of his
agreement with the employer. That does not preclude the
employee from claiming his wages from the employer. The
hirer may also exercise control and direction in the doing
of the thing for which he is hired or even the manner in
which it is to be done. But if the employee fails to carry
out his directions he cannot dismiss him and can only
complain to the employer. The right of dismissal vests in
the employer.
Such being the position in law, it is of the utmost
importance in the present case that the appellants at no
time took the plea that the contract of employment with the
factory was ever terminated or that the respondent gave his
consent, express or implied, to his contract of service
being transferred to the head office, or that there was a
fresh contract of employment so brought about between him
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and the head office. Unless, therefore, it is held from the
circumstances relied upon by Mr. Phadke that there was a
transfer of the contract of service or that Respondent 1
gave his consent, express or implied, to such a transfer,
Respondent 1 would continue to be the servant of the
factory. Since the case has been remanded to the Assistant
Commissioner, we refrain from making any observations as
regards the effect of the admissions
280
said to have been made by Respondent 1 and relied on by the
Assistant Commissioner.
Mr. Phadke, however, relied on Jestamani Gulabrai
Dholkia v. The Scindia Steam Navigation Company(1) in
support of his contention that there was a transfer of the
contract of employment and that it was not a mere transfer
of the benefit of the services of Respondent 1. In that
case the appellants were originally in the service of the
Scindia Steam Navigation Company. In 1937 Air Services of
India Ltd. was incorporated. In 1943, the Scindias
purchased the ASI and by 1946 ASI became a full-fledged
subsidiary of the Scindias. Between 1946 to 1951 the
Scindias transferred several of their employees including
the appellants to the ASI. The Scindias had a number of
such subsidiary companies and it was usual for them to
transfer their employees to such companies and also to
recall them whenever necessary. In 1953, the Government of
India decided to nationalise the airlines operating in India
with effect from June 1953. On April 6, 1953 the appellants
wrote to the Scindias to recall them to their original posts
but the Scindias refused to do so as they were not in a
position to absorb them. They pointed out that a Bill,
called the Air Corporation Bill, 1953, was pending before
Parliament, that under cl. 20 thereof persons working with
ASI on the appointed day would become the employees of the
Corporation, that under that clause they had the option to
resign if they did not wish to join the Corporation and that
if the appellants exercised that option. the Scindias would
treat them as having resigned from their service. The Act
was passed on May 28, 1953. Sec. 20 of the Act provided
that every employee of an existing air company employed by
such company prior to July 1, 1952 and still in its
employment immediately before the appointed day, shall, in
so far as such employee is employed in connection with the
undertaking which has vested in the Corporation by virtue of
the Act, become, as from the appointed date, the employee of
the Corporation in which the undertaking has vested. On
june 8, 1953 the appellants made a demand that if the
Corporation were to retrench any persons from the staff
loaned to ASI within the first five years, the Scindias
should take them back. The Scindias refused. None of the
appellants had exercised the option provided by s. 20 (1 ).
On August 1, 1953 ASI became vested in the Corporation and
s. 20( 1 ) came into force as from that date. The
appellants contended inter alia that the contract of service
between them and the Scindias was not transferable. The
contention was rejected on the ground that by reason of s.
20(1) the contract of service of the appellants stood
transferred to the Corporation and that though the
appellants were not originally recruited by ASI and were
transferred by the Scindias to the said company,
(1) [1961] 2 S.C.R. 811.
281
they were the employees of ASI and were such
employees on the appointed day and since they had not
exercised the option under s. 20( 1 ) they became the
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employees of the Corporation by operation of that provision.
The Scindias, therefore, were no longer concerned with them.
It is true that the appellants were transferred to ASI on
condition that they would receive the same remuneration
and other benefits as they were getting in the Scindias and
further that it was possible to contend that Scindias
alone could dismiss them. But the learned Judges
explained that these were special terms applicable to the
appellants. But in spite of them they still had become the
employees of the ASI and were such employees on the
appointed day. It seems that this conclusion was reached on
the footing that since ASI was the subsidiary company of
the Scindias like several other subsidiary companies, and it
was. usual for the Scindias to transfer any of their
employees to such subsidiary companies, the appellants on
their transfer were deemed to have consented to become the
employees of ASI in spite of the right of the Scindias to
recall them whenever necessary and further that the
appellants continued to be and were the employees of the ASI
on the appointed day and were, therefore, governed by s.
20(1 ) if the Act. It is clear that this was a case of
employees becoming the employees of the Corporation by
virtue if the operation of a statute. The decision,
therefore, is not an authority for the proposition that an
employer can transfer his employee to a third party without
the consent of such employee or’ without terminating the
contract of employment with him. That being the position,
the case of Jestamani v. The Scindia Steam Navigation(x)
cannot assist Mr. Phadke.
In our view the High Court was, right in setting aside
the order of the Assistant Commissioner and the Industrial
Court on the ground that unless a finding was reached on the
facts of the case that the contract of service with the said
factory came to an end and a fresh contract with the head
office came into being Respondent 1 continued to be in the
employment of the factory and the head office, therefore,
was not competent to dismiss him. The appeal, therefore,
fails and is dismissed with costs.
G.C. Appeal dismissed.
(1) [1961] 2 S.C.R. 811.
282