1984 (11) TMI 316 - SC - Indian Laws

Partners not employees under Employees State Insurance Act, 1948. Firm exempt from contributions. Appeal dismissed.

REGIONAL DIRECTOR EMPLOYEES A STATE INSURANCE CORPORATION Versus RAMANUJA MATCH INDUSTRIES

The Supreme Court held that partners are not considered employees under the Employees State Insurance Act, 1948. Therefore, the respondent firm, with ... Whether a partner of a firm is an 'employee ’ within the meaning of Section 2(9) of the Employees State Insurance Act, 1948? Held that:- A partner is not treated as an employee of his firm merely because he receives a wage or remuneration for work done for the firm. Once we hold that the three partners were not employees, on the admitted fact the total number of employees would be less than 20, the Act would not be applicable to the establishment in question. There is no merit in the appeal and the same is, therefore, to be dismissed. At the hearing the respondent was not represented; we, therefore, make no direction for costs. Issues Involved:1. Whether a partner of a firm is an 'employee' within the meaning of Section 2(9) of the Employees State Insurance Act, 1948.2. Whether the respondent firm is liable for contribution under the Act based on the inclusion of partners as employees.Issue-wise Detailed Analysis:1. Whether a partner of a firm is an 'employee' within the meaning of Section 2(9) of the Employees State Insurance Act, 1948:The core issue in this appeal is the interpretation of the term 'employee' as defined under Section 2(9) of the Employees State Insurance Act, 1948. The term 'employee' is defined to mean 'any person employed for wages in or in connection with the work of a factory or establishment to which the Act applies.' The definition of 'wages' under sub-section (22) of the same section includes 'all remuneration paid or payable, in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled.'The judgment emphasizes that to qualify as an employee under the Act, an individual must be employed for wages, which inherently involves a contract of employment. The dictionary meaning of 'employ' is 'to use the services of for some special business; to have or maintain in one's service,' which implies a relationship between an employer and an employee.The judgment further explores the legal position of a partner in a firm under the Partnership Act, 1932. Section 4 defines 'partnership' as a relationship involving mutual agency among partners. Section 18 declares every partner as an agent of the firm, and Section 19 states that an act of a partner binds the firm. The Supreme Court in Champaran Cane Concern v. State of Bihar and Anr. highlighted that in a partnership, each partner acts as an agent of the other, indicating a relationship of equality rather than subordination, which is essential in an employer-employee relationship.Citing the Full Bench of the Patna High Court in Seth Hira Lal & Anr. v. A Sheikh Jamaluddin and Anr., the judgment underscores that a partnership business is carried on by all or any one of the partners acting for all, reinforcing the notion that partners are not employees but co-owners of the business.The judgment also references various judicial opinions from American and English courts, supporting the view that a partner cannot be an employee of his firm. For instance, in Dube v. Robinson, it was held that a partner performing labor does not become an employee of the partnership. Similarly, in Ellis v. Joseph Ellis & Co., the Court of Appeal in England concluded that a partner cannot be regarded as a workman employed by the partnership, as it would imply being both master and servant, which is a legal impossibility.2. Whether the respondent firm is liable for contribution under the Act based on the inclusion of partners as employees:The respondent firm, engaged in manufacturing matches, was found by the Inspector to have 18 regular employees and three partners working for wages, thus meeting the statutory requirement of 20 employees under the Act. However, the respondent challenged this liability, arguing that partners should not be counted as employees.The Employees Insurance Court at Calicut ruled in favor of the respondent, and the High Court upheld this decision, following its earlier ruling in Regional Director of E.S.I. Corporation v. M/s. Oosmanja Tile Works, Alwaye, which held that partners are not employees.The Supreme Court, aligning with the Kerala High Court's view, rejected the Rajasthan High Court's contrary opinion in Regional Director of E.S.I. Corporation, Jaipur v. P.C. Kasliwal and Anr., which suggested that a partner could be an employee if drawing emoluments for work done.The judgment concludes that the statutory scheme of the Employees State Insurance Act does not support the inclusion of partners as employees. It emphasizes that beneficial legislation should be interpreted liberally to fulfill legislative intent but must adhere to the statutory scheme. Since the Act applies to establishments with 20 or more employees, and partners do not qualify as employees, the respondent firm does not meet the threshold for liability under the Act.Conclusion:The Supreme Court held that partners are not employees under the Employees State Insurance Act, 1948. Consequently, the respondent firm, with fewer than 20 employees excluding the partners, is not liable for contributions under the Act. The appeal was dismissed, and no costs were awarded as the respondent was not represented at the hearing.