# SUSHILABEN INDRAVADAN GANDHI & ANR v. THE NEW INDIA ASSURANCE COMPANY LIMITED & ORS

- **Citation:** [2020] 9 S.C.R. 32
- **Court:** Supreme Court of India
- **Decided:** 2020-04-15
- **Case number:** Civil Appeal No. 2235 of 2020
- **Bench:** R. F. Nariman, S. Ravindra Bhat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sushilaben-indravadan-gandhi-anr-v-the-new-india-assurance-company-limited-ors-34869
- **Pages:** 41

## Headnote

Motor Vehicles Act, 1988: s.166 - Comprehensive Private Car
'B' Policy - Fatal accident - A surgeon working in respondent no.3
hospital was travelling in a bus owned by the hospital which met
with an accident due to rash and negligent driving of the driver of
the bus - The surgeon was seriously injured and ultimately
succumbed to his injuries - Claim for compensation by his wife -
The policy contained a clause that the insurance company would
not be liable where death or injury arose out of and in the course
of employment of such person by the insured - Insurance company
denied the claim on the ground that the deceased surgeon was an
employee of the hospital, thereby excluding the liability of insurance
company - Tribunal held that the contract was a contract for service
as a result of which the deceased could not have been held to be in
the employment of respondent no.3 and insurance company was
liable - However, High Court held that since the contract was a
contract of service, the insurance company could not be held liable
- Whether the surgeon could have been said to be the employee of
respondent no.3 on the date of accident as a result of which the
limitation of liability provision in favour of insurance company would
kick in - Held: The intention of the parties is to be gathered from
the terms of the contract - The contract between the surgeon and
the hospital was for three years extendable only by mutual consent
and his remuneration was described as honorarium - The terms of
the contract was one for service, and that with effect from the date
on which the contract begins, the surgeon would no longer remain
as a regular employee of the hospital, making it clear that his services
were no longer be as a regular employee but as an independent
professional - Also, there was endorsement IMT-5 which provided
personal accidental cover to unnamed passengers other than the
insured and his paid driver or cleaner - Additional premium was
[2020] 9 S.C.R. 32
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paid for endorsement IMT which would, therefore, be applicable in
the facts of this case, the deceased being one such unnamed
passenger - High Court's order is set aside and the order of tribunal
is restored.
Allowing the appeal, the Court
HELD: 1. The intention of the parties is to be gathered
from the terms of the contract. The terms of the contract makes
it clear that the contract is one for service, and that with effect
from the date on which the contract begins, Dr. Gandhi shall no
longer remain as a regular employee of the Institute, making it
clear that his services are now no longer as a regular employee
but as an independent professional. Secondly, the remuneration
is described as honorarium, and consistent with the position that
Dr. Gandhi is an independent professional working in the Institute
in his own right, he gets a share of the spoils. Thirdly, he enters
into the agreement on equal terms as the agreement is for three
years, extendable only by mutual consent of both the parties.
Fourthly, his services cannot be terminated in the usual manner
of the other regular employees of the Institute but are terminable
on either side by notice. The fact that Dr. Gandhi must devote
his entire attention to the Institute would not necessarily lead to
the conclusion that de hors all other factors the contract is one of
service. Equally important is the fact that it is necessary to state
Dr. Gandhi will be governed by the Conduct Rules and by the
Leave Rules of the Institute, but by no other Rules and even
though the Leave Rules apply to Dr. Gandhi, since he is not a
regular employee, he is not entitled to any financial benefit as
might be applicable to other regular employees. Equally,
arbitration of disputes between Dr. Gandhi and the Institute being
referred to the Managing Committee of the Institute would show
that they have entered into the contract not as master and servant
but as employer and independent professional. A conspectus of
all the above wo

## Text

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SUPREME COURT REPORTS
[2020] 9 S.C.R.
SUSHILABEN INDRAVADAN GANDHI & ANR.
v.
THE NEW INDIA ASSURANCE COMPANY
 LIMITED & ORS.
(Civil Appeal No. 2235 of 2020)
APRIL 15, 2020
[R. F. NARIMAN AND S. RAVINDRA BHAT, JJ.]
Motor Vehicles Act, 1988: s.166 - Comprehensive Private Car
'B' Policy - Fatal accident - A surgeon working in respondent no.3
hospital was travelling in a bus owned by the hospital which met
with an accident due to rash and negligent driving of the driver of
the bus - The surgeon was seriously injured and ultimately
succumbed to his injuries - Claim for compensation by his wife -
The policy contained a clause that the insurance company would
not be liable where death or injury arose out of and in the course
of employment of such person by the insured - Insurance company
denied the claim on the ground that the deceased surgeon was an
employee of the hospital, thereby excluding the liability of insurance
company - Tribunal held that the contract was a contract for service
as a result of which the deceased could not have been held to be in
the employment of respondent no.3 and insurance company was
liable - However, High Court held that since the contract was a
contract of service, the insurance company could not be held liable
- Whether the surgeon could have been said to be the employee of
respondent no.3 on the date of accident as a result of which the
limitation of liability provision in favour of insurance company would
kick in - Held: The intention of the parties is to be gathered from
the terms of the contract - The contract between the surgeon and
the hospital was for three years extendable only by mutual consent
and his remuneration was described as honorarium - The terms of
the contract was one for service, and that with effect from the date
on which the contract begins, the surgeon would no longer remain
as a regular employee of the hospital, making it clear that his services
were no longer be as a regular employee but as an independent
professional - Also, there was endorsement IMT-5 which provided
personal accidental cover to unnamed passengers other than the
insured and his paid driver or cleaner - Additional premium was
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paid for endorsement IMT which would, therefore, be applicable in
the facts of this case, the deceased being one such unnamed
passenger - High Court's order is set aside and the order of tribunal
is restored.
Allowing the appeal, the Court
HELD: 1. The intention of the parties is to be gathered
from the terms of the contract. The terms of the contract makes
it clear that the contract is one for service, and that with effect
from the date on which the contract begins, Dr. Gandhi shall no
longer remain as a regular employee of the Institute, making it
clear that his services are now no longer as a regular employee
but as an independent professional. Secondly, the remuneration
is described as honorarium, and consistent with the position that
Dr. Gandhi is an independent professional working in the Institute
in his own right, he gets a share of the spoils. Thirdly, he enters
into the agreement on equal terms as the agreement is for three
years, extendable only by mutual consent of both the parties.
Fourthly, his services cannot be terminated in the usual manner
of the other regular employees of the Institute but are terminable
on either side by notice. The fact that Dr. Gandhi must devote
his entire attention to the Institute would not necessarily lead to
the conclusion that de hors all other factors the contract is one of
service. Equally important is the fact that it is necessary to state
Dr. Gandhi will be governed by the Conduct Rules and by the
Leave Rules of the Institute, but by no other Rules and even
though the Leave Rules apply to Dr. Gandhi, since he is not a
regular employee, he is not entitled to any financial benefit as
might be applicable to other regular employees. Equally,
arbitration of disputes between Dr. Gandhi and the Institute being
referred to the Managing Committee of the Institute would show
that they have entered into the contract not as master and servant
but as employer and independent professional. A conspectus of
all the above would certainly lead to the conclusion, applying the
economic reality test, that the contract entered into between the
parties is one between an Institute and an independent
professional. Even otherwise, it is well-settled that exemption of
liability clauses in insurance contracts are to be construed in the
case of ambiguity contra proferentum. [Paras 28, 29][65-C-H;
66-A-B]
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA
ASSURANCE COMPANY
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SUPREME COURT REPORTS
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2. The High Court held in the impugned judgment that as
additional premium had been paid so as to attract the applicability
of IMT-5, in any case the Insurance Company would be liable
under the policy to pay compensation in the case of death to
unnamed passengers other than the insured and his paid driver
or cleaner, Dr. Alpesh Gandhi being one such unnamed passenger.
This was done on the footing that the exception to IMT-5 was
that a person in the employ of the insured coming within the scope
of the Workmen's Compensation Act, 1923 is excluded from the
cover, but that as Dr. Alpesh Gandhi did not come within the
scope of the Workmen's Compensation Act, compensation
payable due to his death in a motor accident would be covered by
IMT-5. There is no reason to disturb this finding. Section-II,
entitled "liability to third parties" in the insurance policy exempts
the insurance company from the death of a person carried in a
motor car where such death arises out of and in the course of the
employment of such person by the insurer. [Para 34][70-G-H;
71-A-B]
General Assurance Society Ltd. v. Chandumull Jain
[1966] 3 SCR 500; United India Insurance Co. Ltd. v.
Pushpalaya Printers (2004) 3 SCC 694 : [2004] 2 SCR
631; Export Credit Guarantee Corpn. of India Ltd. v.
Garg Sons International (2014) 1 SCC 686 : [2013] 1
SCR 336; BHS Industries v. Export Credit Guarantee
Corpn. Ltd. (2015) 9 SCC 414 : [2015] 8 SCR 366;
United India Insurance Co. Ltd. v. Orient Treasures (P)
Ltd. (2016) 3 SCC 49 : [2016] 1 SCR 1; Industrial
Promotion & Investment Corpn. of Orissa Ltd. v. New
India Assurance Co. Ltd. (2016) 15 SCC 315
- relied on.
Sarla Verma v. DTC (2009) 6 SCC 121 : [2009] 5 SCR
1098; Dharangadhara Chemical Works Ltd. v. State of
Saurashtra [1957] SCR 158; National Insurance
Company Limited v. Balakrishnan (2013) 1 SCC 731 :
[2012] 12 SCR 565; Chintaman Rao v. State of M.P.
[1958] SCR 1340; Birdhichand Sharma v. First Civil
Judge [1961] 3 SCR 24; Shankar Balaji Waje v. State
of Maharashtra [1962] 1 Suppl. SCR 24; D.C. Dewan
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Mohideen Sahib and Sons v. Secretary, United Beedi
Workers' Union [1964] 7 SCR 646; Silver Jubilee
Tailoring House v. Chief Inspector of Shops &
Establishments (1974) 3 SCC 498 : [1974] 1 SCR 747;
Hussainbhai v. Alath Factory Thezhilali Union (1978)
4 SCC 257 : [1978] 3 SCR 1073; Shining Tailors v.
Industrial Tribunal II, U.P. (1983) 4 SCC 464; P.M.
Patel & Sons v. Union of India (1986) 1 SCC 32 :
[1985] 3 Suppl. SCR 55; Indian Banks Assn. v. Workmen
of Syndicate Bank (2001) 3 SCC 36 : [2001]1 SCR
1011; Indian Overseas Bank v. Workmen (2006) 3 SCC
729 : [2006] 3 SCR 19 - referred to.
E v. English Province of Our Lady of Charity and Anr.
2012 EWCA Civ 938; Lee Ting Sang v. Chung
Chi-Keung [1990] 2 A.C. 374 - referred to.
Halsbury's Laws of England 5th Edition, Vol. 60 -
referred to.
Case Law Reference
[2009] 5 SCR 1098
referred to
Para 7
[1957] SCR 158
referred to
Para 10
[2012] 12 SCR 565
referred to
Para 10
[1958] SCR 1340
referred to
Para 13
[1961] 3 SCR 24
referred to
Para 14
[1962] 1 Suppl. SCR 24
referred to
Para 15
[1964] 7 SCR 646
referred to
Para 16
[1974] 1 SCR 747
referred to
Para 17
[1978] 3 SCR 1073
referred to
Para 18
(1983) 4 SCC 464
referred to
Para 19
[1985] 3 Suppl. SCR 55
referred to
Para 20
[2001] 1 SCR 1011
referred to
Para 21
[2006] 3 SCR 19
referred to
Para 22
[1966] 3 SCR 500
relied on
Para 29
[2004] 2 SCR 631
relied on
Para 30
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA
ASSURANCE COMPANY
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[2013] 1 SCR 336
relied on
Para 31
[2015] 8 SCR 366
relied on
Para 32
[2016] 1 SCR 1
relied on
Para 33
(2016) 15 SCC 315
relied on
Para 34
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2235
of 2010.
From the Judgment and Order dated 26.07.2018 of the High Court
of Gujarat at Ahmedabad in R/First Appeal No. 1201 of 2012.
O. P. Bhadani and Vikas Kochar, Advs. for the Appellants.
S. L. Gupta, Ms. Gunjan Sharma, Ashutosh Sharma, Ms. Mata
Prasad Singh, Ranjana R. Singh, Kudeep Singh Tomar, S. S. Gupta,
Varinder Kumar Sharma and Deepak Anand, Advs. for the Respondents.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
1. Leave granted.
2. On 09.06.1997, the husband of the Appellant No.1, who was a
surgeon, was travelling in a mini-bus that was owned by the Rotary Eye
Institute, Navsari (the Respondent No. 3 herein) along with other medical
staff of the said Institute. The mini-bus had been driven with excessive
speed, as a result of which at around 8.30 P.M. when the mini-bus was
passing through the Gandevi-Navsari Road, near Kabhar Patiya, the
driver of the mini-bus lost control and the vehicle turned turtle. The
husband of Appellant No.1 was seriously injured and ultimately
succumbed to his injuries.
3. On 17.04.1997, the Respondent No. 3 had entered into a
comprehensive Private Car 'B' Policy from the New India Assurance
Company Limited (the Respondent No. 1 herein). The aforesaid
Insurance Policy was valid from 24.04.1997 till 20.04.1998. The limitation
of liability clause which has been relied upon by the impugned judgment
of the High Court is set out as follows:
 "SECTION II LIABILITY TO THIRD PARTIES
1. Subject to the limits of liability as laid down in the Schedule
hereto the Company will indemnify the insured in the event of
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an accident caused by or arising out of the use Motor Car
against all sums including claimant's costs and expenses which
the insured shall become legally liable to pay in respect of
(a) death of or bodily injury to any person including occupants
carried in the motor car (provided such occupants are not
carried for hire or reward) but except so far as it is necessary
to meet the requirements of Motor Vehicles Act, the Company
shall not be liable where such death or injury arises out of and
in the course of the employment of such person by the insured."
In addition, endorsement IMT-5 states:
"I.M.T.5. Personal Accidental cover to unnamed passengers
other than the insured and his paid driver or cleaner.
In consideration of the payment of an additional premium it is
hereby understood and agreed that the Company undertakes
to pay compensation on the scale provided below for bodily
injury as hereinafter defined sustained by any passenger other
than the insured and/or his paid driver attendant or cleaner
and/or a person in the employ of the insured coming within the
scope of the Workman Compensation Act, 1923 and subsequent
amendments of the said Act and engaged in and upon the
service of the insured at the time such injury is sustained whilst
mounting into dismounting from or travelling in but not driving
the motor car and caused by violent accidental external and
visible means which independently of any other cause shall
within three calendar months of the occurrence of such injury
result in:
Scale of
Compensation
a) Death only
100%
b) Total and irrecoverable loss of:
i) Sight of both eyes or of the actual
loss by physical separation of the two
entire hands or two entire feet or of one
entire hand and one entire food or of
such loss of one eye and such loss of
one entire hand or of one entire foot.
100%
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA
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SUPREME COURT REPORTS
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There is no dispute that additional premium was paid for
endorsement IMT-5, which will therefore be applicable in the facts of
this case. It is also undisputed that endorsement IMT-16, which deals
with a general liability to employees of the insured who may be travelling
in the employer's car, other than paid drivers, may also be covered on
payment of an additional premium. It is undisputed on the facts of this
case that as far as endorsement IMT-16 is concerned, no such additional
premium was paid.
4. The husband of the Appellant No.1, Dr. Alpesh I. Gandhi, had
entered into a contract for services, dated 04.05.1996, as an Honorary
Ophthalmic Surgeon at the aforesaid Respondent No. 3 institute. Since
the important question to be determined in this appeal is whether Dr.
Alpesh I. Gandhi can be said to be employed by the Respondent No. 3
or has only entered into a contract for services with the Respondent No.
3 as an independent professional, the terms of the contract being important
are set out herein in full:
"SUB: CONTRACT FOR SERVICES AS HONORARY
OPHTHALMIC SURGEON AT ROTARY EYE INSTITUTE,
NAVSARI.
ii) Use of two hands or two feet, or
of one hand and one foot or of
such loss of sight of one eye and
such loss of use of one hand or one
foot.
100%
c) Total and irrecoverable loss of:
i) the sight of one eye or the actual
loss by physical separation of one
entire hand or one entire foot
ii) Use of a hand or a foot without
physical separation
100%
100%
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This contract on the captioned subject entered into between Dr.
ALPESH I. GANDHI, hereinafter referred to as AIG and the
Rotary Eye Institute, Navsari, hereinafter referred to as REIN,
has become effective from dated 01-04-1996 and the same is
governed by the following terms and conditions.
I.DESIGNATION: Honorary Ophthalmiç Surgeon.
II.HONORARIUM: Rs. 4000/- P.M
III.OTHER COMPENSATIONS: That for the Honorary Services
to REIN, AIG will be compensated as follows:
i. AIG will be paid 10% of the appropriate percentage of the total
money set aside every month out of the OPD collection at the
REIN;
ii. AIG will also be paid 10% of the appropriate percentage of the
total money set aside every month out of the Operation Fee
component of the Hospitalization Bills collected by REIN from
the Institute patients;
iii. AIG will also be entitled to 10% of the appropriate percentage
of the total money set aside every month out of the Room Visiting
Fees component of the Hospitalization Bills collected by REIN
from the Institute patients;
NOTES:
a. That the above compensations are in addition to the Honorarium
as stated at clause II above;
b. That the Patients Hospitalized under AIG's care will have to
be visited by AIG for the post-operative care.
IV. TIME DEVOTION AND DUTIES:
That the AIG will be devoting full time to the REIN to cater to the
following:
i. The examination of OPD patients both in the morning and the
afternoon sessions;
ii. The Operations of paying as well as non-paying Patients as per
the schedules fixed by the Institute Management;
iii. The emergency cases of all natures;
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA
ASSURANCE COMPANY [R. F. NARIMAN, J.]
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iv. Attending the routine as well as special Diagnostic and Operative
Camps as finalized by the competent authority of the Institute;
v. Participation in the R & D activities programmed and planned
by the R & D Department of the Institute;
vi. Presenting research papers at the National and International
Medical Conferences on behalf of the R & D Department of the
Institute upon authorization by the competent authority of the
Institute;
vii. Training of junior doctors and other paramedical staff of the
Institute to make them competent enough to handle the cases
independently.
viii. Any other assignment that might get created in course of time
but not clearly visualized at present.
V. LEAVE RULES:
That AIG will be governed by the leave rules of the Institute as in
vogue from time to time. AIG will, however, not be entitled to any
financial benefit of any kind as that might be applicable to other
regular employees of the Institute as far as the leave rules are
concerned.
VI. WEEKLY OFFS AND HOLIDAYS:
i. That AIG will be entitled to weekly offs as well as public holidays
as decided by the Institute for each accounting year.
 That Hon. Hospital Superintendent, however, shall have the
rights to make alterations in the same depending upon the Hospital
contingencies.
ii. That AIG will be entitled to 30 days of contingency leave during
each accounting year.
VII. CONDUCT RULES:
That AIG will be governed by the conduct rules of the Institute as
in vogue from time to time and as applicable to the regular
employees of the Institute.
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VIII. ARBITRATION OF DISPUTES:
That the disputes, if any, arising in course of the tenure of this
contract will be referred to the Managing Committee of the Institute
and the decision of the Managing Committee will be final.
IX. TENURE OF CONTRACT:
That this contract is operative for a period of THREE YEARS
effective from 1-4-96.
This period can, however, be extended from time to time with the
mutual consent.
X. TERMINATION OF CONTRACT:
That a notice of clear THREE MONTHS will have to be given.
i. By REIN to AIG, if the institute wishes to terminate this contract
or in lieu of notice period the institute shall have to pay an amount
(to AIG) equivalent to the Hon. Amount paid to AIG for last three
months just preceding the month of termination of contract;
ii. By AIG to REIN, if AIG wishes to terminate this contract or in
lieu of the notice period AIG shall have to pay an amount (to
REIN) equivalent to the Hon. Amount paid to him by the Institute
for the last three months just preceding the month of termination
of the contract.
NOTE: That in the event of the proven case indiscipline or breach
of Trust, the REIN reserves the right to terminate the contract at
any time without giving any compensation whatsoever.
XI. EXPIRATION OF THE PRESENT EMPLOYMENT:
That with effect from 1st April 96, AIG shall no longer remain as
the regular employee of the Institute and that the earlier
appointment order No. 10795 dtd. 03-04-1995 automatically
becomes null and void."
5. The Appellants filed a petition under Section 166 of the Motor
Vehicles Act, 1988, being MACP No.1326 of 1997, against the driver,
the Respondent No. 3 and the Respondent No.1, in which they claimed
compensation for the death of Dr. Alpesh I. Gandhi at INR 1 crore. The
petition stated that Dr. Gandhi was 28 years old at the time of his death
and was earning a monthly income of INR 13,000.
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA
ASSURANCE COMPANY [R. F. NARIMAN, J.]
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6. Despite being served, the Respondent No. 2 and the Respondent
No. 3 chose to remain absent before the Tribunal. The Respondent No.
1 filed its written statement where it denied the material averments made
by the Appellants and, in addition, submitted that the deceased being an
employee of the hospital was not covered for death or injury arising out
of and in the course of his employment, thereby excluding the liability of
the insurance company altogether in the case. The Tribunal framed the
following issues and answered them as follows:
"1. Whether the applicants prove that the deceased died due to
the rash and negligent driving on the part of the driver, opponent
No.1 of the vehicle involved in the accident?
2. Whether the applicants are entitled to get compensation? If
yes, what amount and from whom?
2-A Whether the claimant prove that the risk of the deceased is
covered in the policy issued to the hospital?
2-B Whether the opponent No.3 proves that the risk of the
deceased is not covered in the policy, because of the deceased
being an employee of the hospital and the death is caused during
the course of employment as the Sec-II of the terms and conditions
of the policy exclude such risk ?
3. What award and order?
My findings to the above issues are as under for the reasons to
follow: -
1. In the affirmative.
2. In the affirmative. As per finding.
2-A In the affirmative.
2-B In the negative
3. As per final order."
7. By way of findings of fact, it found that the driving license in
favour of the driver was valid, and that the driver was rash and negligent
in driving the vehicle, which led to the death of Dr. Alpesh Gandhi. The
Tribunal then found that the said Doctor was earning an annual income
of INR 1,47,000. Following Sarla Verma v. DTC(2009) 6 SCC 121, the
Tribunal, after considering deductions as well as future prospects,
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ultimately arrived at an income figure of INR 18,275 as the monthly
income. The Tribunal then applied the multiplier of '17' to the annual
income of INR 2,19,300, making a total of INR 37,28,100/-. Consortium
expenses were added as INR 25,000; Funeral expenses as INR 10,000,
thereby arriving at a total compensation figure of INR 37,63,100 which
had to be paid together with interest at 8% per annum. Importantly, all
three Respondents were made jointly and severally liable to pay the
aforesaid amount. This was on the basis that on an analysis of the contract
entered into between the Respondent No. 3 and Dr. Alpesh Gandhi, the
contract was a contract for service, as a result of which the deceased
could not have been held to have been in the employment of the
Respondent No. 3.
8. The impugned judgment of the High Court dated 26.07.2018,
after analyzing the provisions of the contract for services dated 04.05.1996
between the Respondent No. 3 and Dr. Gandhi came to the opposite
conclusion, stating that since the contract was a contract of service, the
Insurance Company could not be held liable except to the extent of INR
50,000, which was arrived at after setting out Regulation 27 of the General
Regulations of the Indian Motor Tariffs dated 01.08.1989, by which the
maximum cover for policies of the kind involved in this case to third
persons where the premium paid is INR 25 per person, in addition to the
premium paid for the policy, the capital sum insured per person would
only be INR 50,000. Thus, the liability of the Insurance Company was
pegged to INR 50,000, the liability of the Respondent No. 2 and the
Respondent No. 3 being for the balance amount.
9. The vexed question that arises for consideration is as to whether
Dr. Alpesh Gandhi could have been said to have been in the employ of
the Respondent No. 3 on the date of the accident, as a result of which
the limitation of liability provision in favour of the Respondent No. 1 as
set out hereinabove would kick in.
10. Shri Vikas Kochar, learned counsel appearing on behalf of the
Appellants, has taken us through the contract between Dr. Gandhi and
the Respondent No. 3 and has emphasised that the contract is one for
services, and that an honorarium of INR 4000 per month is paid. Further,
Dr. Gandhi will not be entitled to any financial benefits as might be
applicable to other regular employees so far as the leave rules are
concerned, making it clear that Dr. Gandhi is not, therefore, a regular
employee of the Respondent No.3. He also emphasised the fact that Dr.
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA
ASSURANCE COMPANY [R. F. NARIMAN, J.]
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Gandhi no longer remains as a regular employee of the institute with the
coming into force of this new arrangement between the parties. He then
placed reliance on Dharangadhara Chemical Works Ltd. v. State of
Saurashtra 1957 SCR 158 and National Insurance Company Limited
v. Balakrishnan (2013) 1 SCC 731.
11. Learned counsel appearing on behalf of Respondent No. 1
has supported the judgment of the High Court, stating that on a holistic
reading of the agreement between the Respondent No. 3 and Dr. Alpesh
Gandhi, dated 04.05.1996, the contract is one of service and not for
service. Even otherwise, the learned counsel argued that the High Court
was wrong in stating that the insured was covered by endorsement IMT5, by which personal accident cover to unnamed passengers other than
the insured and his paid driver or cleaner will be extended to the extent
of 100% where death is caused, on payment of an additional premium.
The learned counsel states that IMT-5 would not be applicable in the
facts of this case, but that IMT-16 would be applicable. Since additional
premium has not been paid to apply IMT-16, the Insurance Company is
not liable to indemnify the insured in respect of any liability arising for
death sustained by an employee in respect of the accident in connection
with the motor vehicle in question.
12. This Court has in a series of judgment indicated the tests to be
followed in order to determine, in the context of the Industrial Disputes
Act and the Factories Act, as to whether different kinds of persons who
supply goods or services could be said to be "in the employ" of the
employer. Thus, in Dharangadhara (supra), the question posed before
the Court was whether the salt manufactured by a class of professional
laborers, known as agarias, from rain water that got mixed with saline
matter in the soil, could be said to be in pursuance of contracts of service
with the appellant, as a result of which they would then be entitled to be
treated as workmen under the Industrial Disputes Act. After setting out
the definition of "workman" under Section 2(s) of the said Act, this
Court referred to the earliest test laid down to distinguish between a
contract of service and a contract for service, namely, that whereas in
the latter case, the master can order or require what is to be done, in the
former case, he can not only order or require what is to be done, but also
how it shall be done. After referring to a number of English judgments,
the Court then held, giving the example of a ship's master, a chauffeur,
and a reporter on the staff of a newspaper as against a ship's pilot, a taxi
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man and a newspaper contributor, that the test would be whether work
is done as an integral part of the business of the employer, in which case
it would be a contract of service, or whether it was done as an accessory
to such business, in which case it would be a contract for service. Other
tests that were laid down were as to whether the master had the power
to select the servant, whether he paid wages or other remuneration,
whether the master had the right to control the method of doing the
work, and whether the master had the right to suspend or dismiss the
employee. Ultimately, the true test, according to the judgment, was held
to be as follows:
"The principle which emerges from these authorities is that the
prima facie test for the determination of the relationship between
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, or to borrow the words of
Lord Uthwatt at p. 23 in Mersey Docks and Harbour Board v.
Coggins & Griffith (Liverpool) Ltd. [(1952) SCR 696, 702] "The
proper test is whether or not the hirer had authority to control the
manner of execution of the act in question.
The nature or extent of control which is requisite to establish the
relationship of employer and employee must necessarily vary from
business to business and is by its very nature incapable of precise
definition. As has been noted above, recent pronouncements of
the Court of Appeal in England have even expressed the view
that it is not necessary for holding that a person is an employee,
that the employer should be proved to have exercised control over
his work, that the test of control was not one of universal application
and that there were many contracts in which the master could not
control the manner in which the work was done (Vide observations
of Somervelle, L.J. in Cassidy v. Ministry of Health, (supra),
and Denning, L.J. in Stevenson, Jordan and Harrison Ltd. v.
Macdonald and Evans, (supra)."
Ultimately, the Court held that it would be a question of fact to be
decided by all the circumstances of the case. It was further held that the
mere fact that the agarias did piece-rated labour, the work being seasonal,
and the fact that they can engage others to do the work for them, would
not detract from the fact that they are professional labourers who have
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been hired by the employer. Finally, the Court refused to exercise its
discretion to interfere with the Industrial Tribunal's finding that on the
facts of the case these agarias would have to be considered as workmen
under the Industrial Disputes Act.
13. In Chintaman Rao v. State of M.P. 1958 SCR 1340, this
Court held that Sattedars and their coolies were not workers within the
meaning of Section 2(1) of the Factories Act. In so holding, the Court
referred to the judgment of Dharangadhara (supra) and held that the
fact that bidi rolling was done outside the factory premises, and that
such rolling can be done at any time that the Sattedar chooses clinched
the issue in favour of the fact that Sattedars and their coolies were
independent contractors. The court then hedged its decision by stating
that it was not intended to lay down that under no circumstances can a
Sattedar be considered to be a worker within the meaning of the Factories
Act. Ultimately, everything depends on the terms of the contract entered
into between such person and the employer.
14. In Birdhichand Sharma v. First Civil Judge (1961) 3 SCR
24, this Court found on facts that the persons employed in a bidi factory,
who could work at the time they chose, on a piece-rated basis, the caveat
being that if they came after mid-day they were not allowed to work,
even though the factory closed at 7 PM, that such persons were workers
under the Factories Act. The earlier two judgments of this court were
discussed and emphasis was laid on the fact that the persons who were
employed had to work within the factory premises and had to report to
work before mid-day. Further, the "right of control" was extended to
mean that so long as there is some amount of supervision by the
management, inasmuch as the management has the right to reject the
bidis prepared if they do not come up to the proper standard, would
indicate that such persons would be workers.
15. In Shankar Balaji Waje v. State of Maharashtra 1962 Supp
(1) SCR 24, this Court set out the established facts between one
Pandurang, who was employed by the owner of a factory manufacturing
bidis, and the employer, as follows:
"The first contention is based on the established facts of the case
which, it is submitted, do not make out the relationship of master
and servant between the appellant and Pandurang, inasmuch as
they indicate that the appellant had no supervision and control
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over the details of the work Pandurang did in the factory. The
following are the established facts:
(1) There was no agreement or contract of service between the
appellant and Pandurang.
(2) Pandurang was not bound to attend the factory for the work
of rolling bidis for any fixed hours of work or for any fixed period.
He was free to go to the factory at any time he liked and was
equally free to leave the factory whenever he liked. Of course,
he could be in the factory during the hours of working of the
factory.
(3) Pandurang could be absent from work on any day he liked.
He could be absent up to ten days without even informing the
appellant. If he was to be absent for more than ten days he had to
inform the appellant, not for the purpose of taking his permission
or leave, but for the purpose of assuring the appellant that he had
no intention to give up work at the factory.
(4) There was no actual supervision of the work Pandurang did in
the factory.
(5) Pandurang was paid at fixed rates on the quantity of bidis
turned out. There was however no stipulation that he had to turn
out any minimum quantity of bidis in a day.
(6) Leaves used to be supplied to Pandurang for being taken home
and cut there. Tobacco to fill the bidis used to be supplied at the
Factory. Pandurang was not bound to roll the bidis at the factory.
He could do so at his place, on taking permission from the appellant
for taking tobacco home. The permission was necessary in view
of Excise Rules and not on account of any condition of alleged
service.
(7) At the close of the day, the bidis used to be delivered to the
appellant and bidis not up to the standard, used to be rejected."
On these facts, the judgment in Birdhichand(supra) was
distinguished and that of Chintaman Rao (supra) applied. The Court
held:
"Further, the facts of the case indicate that the appellant had no
control and supervision over the details of Pandurang's work. He
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could not control his hours of work. He could not control his days
of work. Pandurang was free to absent himself and was free to
go to the factory at any time and to leave it at any time according
to his will. The appellant could not insist on any particular minimum
quantity of bidis to be turned out per day. He could not control the
time spent by Pandurang on the rolling of a bidi or a number of
bidis. The work of rolling bidis may be a simple work and may
require no particular supervision and direction during the process
of manufacture. But there is nothing on record to show that any
such direction could be given.
xxx xxxxxx
It is true, as contended for the State, that persons engaged to roll
bidis on job work basis could be workers, but only such persons
would be workers who work regularly at the factory and are paid
for the work turned out during their regular employment on the
basis of the work done. Piece-rate workers can be workers within
the definition of 'worker' in the Act, but they must be regular
workers and not workers who come and work according to their
sweet will. It is also true, as urged for the State, that a worker,
within the definition of that expression in the Act, need not be a
whole-time worker. But, even then, the worker must have, under
his contract of service, an obligation to work either for a fixed
period or between fixed hours. The whole conception of service
does not fit in well with a servant who has full liberty to attend to
his work according to his pleasure and not according to the orders
of his master.
We may say that this opinion further finds support from what we
hold on the second contention. If Pandurang was a worker, the
provisions about; leave and leave wages should apply to him. We
are of opinion that they do not and what we say in that connection
reinforces our view that Pandurang was not a worker as the three
criteria and conditions laid down in Shri Chintaman Rao case
[1958 SCR 1340] for constituting him as such are not fulfilled in
the present case."
16. In D.C. Dewan Mohideen Sahib and Sons v. Secretary,
United Beedi Workers' Union (1964) 7 SCR 646, the Court set out a
sample agreement which disclosed the facts of the case before it, as
follows:
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"It seems that a sample agreement was produced before the High
Court, which provided inter alia for the following terms:
(1) That the proprietor should supply the tobacco and the
bidi leaves;
(2) that the intermediary should engage premises of his own
and obtain the requisite licence to carry on the work of having the
bidis rolled there;
(3) that at no time should more than nine bidi rollers work
in the premises of that intermediary;
(4) that the intermediary should meet all the incidental
charges for rolling the bidis including the cost of thread and the
remuneration paid to the bidi rollers;
(5) that for every unit of 1000 bidis rolled and delivered by
the intermediary to the proprietor, the latter should pay the stipulated
amount, after deducting the cost of the tobacco and the bidi leaves
supplied by the proprietor;
(6) that the intermediary should not enter into similar
engagement with any other industrial concern;
(7) that the price of the raw materials and price to be paid
for every unit of 1000 bidis rolled and delivered were to be fixed
at the discretion of the proprietor.
Besides these conditions, the contract also provided that it was
liable to termination on breach of any of the conditions, and that
the proprietors had no connection with and that they assumed no
responsibility for the bidi workers who had to look to the
intermediary for what was payable to them for rolling the bidis."
The earlier judgments of this Court were referred to. After applying
the tests laid down in the said judgments, this Court found:
"There is in our opinion little doubt that this system has been
evolved to avoid regulations under the Factories Act. Further there
is also no doubt from whatever terms of agreement are available
on the record that the so-called independent contractors have really
no independence at all. As the appeal court has pointed out they
are impecunious persons who could hardly afford to have factories
of their own. Some of them are even ex-employees of the
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appellants. The contract is practically one-sided in that the
proprietor can at his choice supply the raw materials or refuse to
do so, the so-called contractor having no right to insist upon the
supply of raw materials to him. The so-called independent
contractor is even bound not to employ more than nine persons in
his so-called factory. The sale of raw materials to the so-called
independent contractor and resale by him of the manufactured
bidis is also a mere camouflage, the nature of which is apparent
from the fact that the so-called contractor never paid for the
materials. All that happens is that when the manufactured bidis
are delivered by him to the appellants, amounts due for the socalled sale of raw materials is deducted from the so-called price
fixed for the bidis. In effect all that happened is that the so-called
independent contractor is supplied with tobacco and leaves and is
paid certain amounts for the wages of the workers employed and
for his own trouble. We can therefore see no difficulty in holding
that the so-called contractor is merely an employee or an agent of
the appellants as held by the appeal court and as such employee
or agent he employs workers to roll bidis on behalf of the appellants.
The work is distributed between a number of so-called independent
contractors who are told not to employ more than nine persons at
one place to avoid regulations under the Factories Act. We are
not however concerned with that aspect of the matter in the present
appeals. But there can be no doubt that the workers employed by
the so-called contractors are really the workmen of the appellants
who are employed through their agents or servants whom they
choose to call independent contractors."
17. The next case in chronological order is of seminal importance
in deciding which side of the line a particular set of facts would lead to a
conclusion that a contract is one for service or of service. Thus, in Silver
Jubilee Tailoring House v. Chief Inspector of Shops &
Establishments (1974) 3 SCC 498, this Court had to determine whether
there is a relationship of employer and an employee between a tailoring
shop and persons employed by the owner of the shop for stitching purposes
under Section 2(14) of the Andhra Pradesh (Telangana Area) Shops
and Establishments Act, 1951.