J SARABHAI AND CO Vs. NEW SWADESHI MILLS OF AHMEDABAD
LAWS(GJH)-1966-9-9
HIGH COURT OF GUJARAT
Decided on September 26,1966

J.SARABHAI AND COMPANY Appellant
VERSUS
NEW SWADESHI MILLS OF AHMEDABAD LIMITED Respondents

JUDGEMENT

P.N.BHAGWATI - (1.) This Summons has been taken out by the applicants for a direction that the respondent Company should pay to the applicants a sum of Rs. 39 619 ps. under Clause 6 of the Scheme of Arrangement or Compromise sanctioned by this Court by an order dated 6th December 1962. Clause 6 of the Scheme requires the respondent to pay to the employees (including workmen clerks technicians officers watch and ward staff) of the Bharathand Textile Manufacturing Company Limited arrears of wages and the claim of the applicants is that they were employees of the Bharathkand Textile Manufacturing Company Limited for the period 21st January 1961 to 31st March 1962 and they are therefore entitled to recover from the respondent the sum of Rs. 39 619 ps. representing the arrears of wages due to them from the Bharatkhand Textile Manufacturing Company Limited (hereinafter referred to as the Company) for work done during the said period. The applicants are a partnership firm and they were appointed as Dalals by the Company for sale of cloth manufactured by the Company throughout the whole of India on the terms and conditions recorded in an agreement dated 10th April 1961. Pursuant to their employment as Dalals under the said agreement the applicants acted as Dalals for sale of cloth manufactured by the Company from 21st January 1961 upto 31st March 1962 and after giving credit to the Company for various payments made to the applicants from time to time a sum of Rs. 66 33 ps. became due and payable by the Company to the applicants as on 31st March 1962. The applicants were therefore unsecured creditors of the Company in the sum of Rs. 66 33 ps. at the date when the Scheme was put forward for the sanction of the Court. Clause 6 of the Scheme made provision for payment of arrears of wages unpaid bonus wages in lieu of leave and gratuity to the employees of the Company and so far as unsecured creditors of the Company other than its employees were concerned Clauses 7 7 and 7B of the Scheme provided that the unsecured creditors should lodge their claims before the Official Liquidator of this Court on or before 20th November 1963 and such claims should be verified by Messrs. C. C. Chokshi and Company Auditors and in case any unsecured creditors disputed the verification the claim should be taken to the learned Judge taking Company matters and his decision would be final and the unsecured creditors should be entitled to receive payment of 40 per cent of the verified claims from the respondent. A machinery was devised by Clauses 7 7 and 7B of the Scheme for making payment of 40 per cent of the verified claims and it was provided that the amount representing 40 per cent of the verified claim should be paid by the purchaser to Shri C. C. Gandhi and Shri M. M. Thakore learned advocates appearing on behalf of some of the creditors and they should distribute the said amount amongst the unsecured creditors according to 40 per cent of the verified claims. The scheme also provided that unsecured creditors whose claims were admitted in the books of the Company and shown in the statements annexed to the affidavit filed by Shri Ravindra Gunvantlal in Court on 3 December 1963 should also be entitled to receive 40 per cent of their admitted claims from out of the amount to be handed over by the respondent to Shri C. C. Gandhi and Shri M. M. Thakore. The claim of the applicants for Rs. 66 33 ps. was admitted in the books of the Company and was shown in the statements annexed to the affidavit of Shri Ravindra Gunvantlal dated 3rd December 1963 and a sum of Rs. 26 413 ps. representing 40 per cent of the said claim was therefore paid by Shri C. C. Gandhi and Shri M. M. Thakore to the applicants. The applicants thereupon took out the present Summons claiming to recover the balance of Rs 39 619 ps. from the respondent on the ground that they were employees of the Company and the amount due to them from the Company represented arrears of wages within the meaning of Clause 6 of the Scheme. Now there is no doubt that if the applicants were employees of the Company the sum of Rs. 39 619 ps. repesenting the balance of the amount of Dalali due to them would be arrears of wages and the applicants would be entitled to recover the same from the respondent under Clause 6 of the Scheme. But for reasons which I shall presently state it is clear that the applicants could not possibly be regarded as employees of the Company and the claim made by them in this Summons on the basis that they were such employees and the amount due to them represented arrears of wages under Clause 6 of the Scheme must therefore be rejected.
(2.) In order to determine the legal relationship between the applicants and the Company it is necessary to look at the agreement dated 10th April 1961 which recorded the terms and conditions on which the applicants were appointed as Dalals by the Company. The agreement in its opening part declared that the Company has appointed the applicants as its cloth Dalals for the whole of India and the applicants have agreed to their appointment as such for The purpose of selling cloth manufactured by the Company for the period commencing from 21st January 1961 and ending on 20th January 1966 on the terms and conditions contained in the agreement. Clauses 1 and 2 of the agreement then proceeded to state as follows:- 1 That the Dalals shall have the sole and exclusive rights of selling the cloth manufactured by the Company provided that nothing herein contained shall be deemed to prevent the Company from supplying or selling the cloth direct to persons or firms or concerns or creating other selling agencies for any defined territories provided the Dalals are paid their Dalali on such sales effected directly by the Company or through others. 2 That the Dalals guarantee the bona fides of the offers brought by them and further guarantee that if the Company accept such offers the offers will fulfil his part of the contract for the sale resulting from such offer and its acceptance. Clause 3 provided that the offers brought by the applicants shall be deemed to have been accepted by the Company if and only if accepted by the Company in writing and Clause 4 stipulated that the applicants shall not effect any sale under the agreement except with the express consent of the Company as to the terms or otherwise. The applicants agreed under Clause 5 of the agreement to be responsible to the Company to a limited extent for non-payment of any amount by the merchants to whom the cloth of Company was sold by the applicants as Dalals of the Company. Clause 9 of the agreement made a provision in regard to sales of cloth effected by the Company to parties outside India and the provision it made was: 9 That notwithstanding anything contained herein the Dalals shall not be considered as Agents for any purpose whatever with respect to sales of cloth effected by the Company to parties outside India directly. However the Dalals will act as cloth Dalals for all sales for export to customers in India. The Company however reserves the right to appoint or sell through other selling agents in any specific territory for the purpose of their sales to Exporters and pay any additional commission to such Commission Agents. Clause 10 provided for payment of Dalali to the applicants at the rate of half per cent on net sale proceeds received by the Company on all sales of cloth effected either through the Dalals or otherwise. And lastly Clause 17 laid an obligation on the applicants to carry out and abide by and faithfully follow any instructions which might be given to them from time to time by the Company relating to the matters arising under the agreement. These were the relevant provisions of the agreement and the question is whether the agreement constituted the applicants employees of the Company.
(3.) Now it is difficult to see how any relationship of employer and employee can be spelt out from these provisions of the agreement. It is clear beyond doubt that by the agreement the applicants were appointed selling agents for the whole of India for the sale of cloth manufactured by the Company and the legal relationship between the Company and the applicants was that of principal and agent and not that of employer and employee. Mr. V S. Parikh learned advocate appearing on behalf of the applicants contended that the proper test for the purpose of determining the relationship of master and servant is the existence of the right in the master to supervise and control the work done by the servant not only in the matter of directing what work the servant is to do but also the manner in which he shall do his work and submitted that the application of this test showed that the Company was the master and applicants were the servants. He relied particularly on clauses 3 4 and 17 of the agreement and urged that these clauses conferred right on the Company to supervise and control the manner of execution of the work to be done by the applicants and the relationship between them was therefore that of master and servant and not that of principal and agent. Now it is undoubtedly true and it is so laid down by several decisions of the Supreme Court of which only one need be mentioned namely Dhrangadhra Chemical Works Ltd. v. State of Saurashtra A.I.R. 1957 S. C. 264 that the relationship of master and servant imports the existence of the right in the employer not only to supervise and control the work but also the manner in which the work is to be done. The proper test to use the words of Lord Uthwatt in Mersey Docks and Harbour Board v. Coggins & Griffith (Liverpool) Ltd. (1947) 1 A.C. 1 at page 23: is whether or not the hirer had authority to control the manner of execution of the act in question. But the application of this test to the facts of the present case does not yield the result contended for by Mr. V. S. Parikh. Clauses 3 4 and 17 on which reliance has been placed merely set out what is implicit in the relationship of principal and agent and lay down certain restrictions on the right of the agent and certain safeguards for the principal. Clause 3 of the agreement states that offers brought by the applicants shall be deemed to be accepted by the Company only if the Company signifies the acceptance in writing. This provision appears to have been made for the purpose of avoiding any confusion or misunderstanding which may perhaps arise between the applicants and the Company. Clause 4 then says that the applicants shall not effect any sales under the agreement except with the express consent of the Company as regards the terms or otherwise. This provision merely recognises the right of the principal to lay down the terms and conditions of the sales which the agent is authorized to effect on his behalf. Clause 17 requires the applicants to carry out and follow any instructions which might be given to them from time to time by the Company in matters arising under the agreement and this provision is also in no way inconsistent with the relationship of principal and agent. The agent must necessarily act in the matter of the agency according to the instructions of the principal. None of these clauses relied upon by Mr. V. S. Parikh provides that the Company shall be entitled to dictate to the applicants the manner or method of doing the work of sole selling agency. The word Dalal in Gujarati means a broker or agent and when the agreement in terms says that the applicants are appointed Dalals for sale of cloth manufactured by the Company it is impossible to hold that the applicants are not brokers or agents appointed by the Company but are employees of the Company. Clause 1 of the agreement confers sole and exclusive right on the applicants to sell the cloth manufactured by the Company with a reservation that the Company may if it thinks fit sell cloth direct to persons or firms or create other selling agencies for any defined territories. But in that case the Company would still have to pay Dalali to the applicants on sales effected directly or through other selling agencies. The use of the words other selling agencies clearly suggests that the applicants are selling agents of the Company. The provision in clause 2 of the agreement that the applicants guaranteed the fulfilment of the contracts by merchants and the provision in clause 5 that the applicants shall be responsible to a limited extent for non-payment of any amount by the merchants are the usual provisions in a sole selling agency agreement and negative the relationship of master and servant. The agreement read as a whole leads to one and only one conclusion namely that this is an agreement between principal and agent and not an agreement between master and servant. I am therefore of the view that the legal relationship between the Company and the applicants under the agreement was not that of master and servant and the applicants were not employees of the Company within the meaning of clause 6 of the Scheme. The claim made by the applicants in the Summons must therefore be rejected. The Summons therefore fails and is dismissed with costs. Summons dismissed.;


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