Supreme Court of India
SUSHILABEN INDRAVADAN GANDHI & ANR.versusTHE NEW INDIA ASSURANCE COMPANY LIMITED & ORS.
- Citation
- 2020 INSC 336
- Decided
- 15 April 2020
- Disposal
- Appeal(s) allowed
- Bench
- R F NARIMAN
Holding
Dr. Alpesh Gandhi was an independent professional under a contract for service, so the policy's exclusion for deaths arising in the course of employment does not apply and the insurer is liable under endorsement IMT‑5.
Summary
The appellant, Sushilaben Gandhi, claimed compensation under a Motor Vehicles Act claim for the death of her husband, Dr. Alpesh I. Gandhi, who died in a bus accident owned by the Rotary Eye Institute. The insurer, New India Assurance, denied liability invoking a limitation of liability clause that excludes deaths occurring "in the course of employment" of the insured. The Supreme Court examined the nature of Dr. Gandhi's relationship with the Institute, finding that his contract was a "contract for service" with remuneration described as an honorarium, making him an independent professional, not a regular employee. Consequently, the exclusion clause did not apply and the endorsement IMT‑5, for which additional premium was paid, covered his death as an unnamed passenger. The Court set aside the Gujarat High Court judgment, restored the Motor Accident Claims Tribunal's award, and held the insurer liable for the full compensation.
Issues considered
- The nature of Dr. Alpesh Gandhi's contractual relationship with the Rotary Eye Institute – whether he was an employee or an independent professional.
- Whether the limitation of liability clause in the insurance policy excludes liability for his death.
- The applicability of endorsement IMT‑5 to the claim.
- The proper construction of the term "employment" in the policy, including the relevance of the contra proferentem rule.
Legislation cited
Subjects
Motor accident claimInsurance liabilityLimitation of liability clauseContract for serviceIndependent professionalContra proferentemEconomic reality testIMT‑5 endorsementEmployment definition
Judgment
32 [2020]
SUPREME COURT 9 S.C.R. 32
REPORTS [2020] 9 S.C.R.
A SUSHILABEN INDRAVADAN GANDHI & ANR.
v.
THE NEW INDIA ASSURANCE COMPANY
LIMITED & ORS.
B (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
C
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
D 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
E
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
F 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
G 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
H insured and his paid driver or cleaner – Additional premium was
32
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 33
ASSURANCE COMPANY
paid for endorsement IMT which would, therefore, be applicable in A
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 B
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 C
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. D
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 E
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, F
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 G
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] H
34 SUPREME COURT REPORTS [2020] 9 S.C.R.
A 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.
B
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
C 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;
D
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.
E 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
F 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
G 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
H
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 35
ASSURANCE COMPANY
Mohideen Sahib and Sons v. Secretary, United Beedi A
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.
B
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. C
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. D
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 E
[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 F
[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 G
[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
H
36 SUPREME COURT REPORTS [2020] 9 S.C.R.
A [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
B 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.
C
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
D 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
E 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
F 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
G 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
H
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 37
ASSURANCE COMPANY [R. F. NARIMAN, J.]
an accident caused by or arising out of the use Motor Car A
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 B
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 C
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 D
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 E
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 F
Compensation
a) Death only 100%
b) Total and irrecoverable loss of:
G
i) Sight of both eyes or of the actual 100%
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.
H
38 SUPREME COURT REPORTS [2020] 9 S.C.R.
A 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%
B c) Total and irrecoverable loss of:
i) the sight of one eye or the actual 100%
loss by physical separation of one
entire hand or one entire foot
C
ii) Use of a hand or a foot without
physical separation
100%
D
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
E 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
F 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
G are set out herein in full:
“SUB: CONTRACT FOR SERVICES AS HONORARY
OPHTHALMIC SURGEON AT ROTARY EYE INSTITUTE,
NAVSARI.
H
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 39
ASSURANCE COMPANY [R. F. NARIMAN, J.]
This contract on the captioned subject entered into between Dr. A
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. B
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 C
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 D
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;
E
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. F
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 G
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;
H
40 SUPREME COURT REPORTS [2020] 9 S.C.R.
A 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
B 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
C independently.
viii. Any other assignment that might get created in course of time
but not clearly visualized at present.
V. LEAVE RULES:
D 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.
E 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
F contingencies.
ii. That AIG will be entitled to 30 days of contingency leave during
each accounting year.
VII. CONDUCT RULES:
G 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.
H
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 41
ASSURANCE COMPANY [R. F. NARIMAN, J.]
VIII. ARBITRATION OF DISPUTES: A
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:
B
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: C
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
D
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. E
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: F
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 G
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.
H
42 SUPREME COURT REPORTS [2020] 9 S.C.R.
A 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
B
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?
C
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?
D 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 ?
E 3. What award and order?
My findings to the above issues are as under for the reasons to
follow: -
1. In the affirmative.
F 2. In the affirmative. As per finding.
2-A In the affirmative.
2-B In the negative
3. As per final order.”
G 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,
H
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 43
ASSURANCE COMPANY [R. F. NARIMAN, J.]
ultimately arrived at an income figure of INR 18,275 as the monthly A
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
B
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. C
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 D
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 E
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 F
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 G
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. H
44 SUPREME COURT REPORTS [2020] 9 S.C.R.
A 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.
B 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 IMT-
C 5, 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
D 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
E 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
F 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
G 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
H
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 45
ASSURANCE COMPANY [R. F. NARIMAN, J.]
man and a newspaper contributor, that the test would be whether work A
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,
B
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 C
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. D
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 E
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 F
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).” G
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 H
46 SUPREME COURT REPORTS [2020] 9 S.C.R.
A 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
B 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
C 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.
D 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
E 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
F 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
G 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
H
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 47
ASSURANCE COMPANY [R. F. NARIMAN, J.]
over the details of the work Pandurang did in the factory. The A
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. B
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. C
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. D
(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. E
(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 F
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 G
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
H
48 SUPREME COURT REPORTS [2020] 9 S.C.R.
A 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
B
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
C
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
D 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
E 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.
F 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
G [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
H follows:
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 49
ASSURANCE COMPANY [R. F. NARIMAN, J.]
“It seems that a sample agreement was produced before the High A
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 B
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 C
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 D
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 E
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 F
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 G
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 H
50 SUPREME COURT REPORTS [2020] 9 S.C.R.
A 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
B
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 so-
C called 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
D
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
E 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.”
F 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
G 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. Section 2(14) of the said Act defined a
‘person employed’ as meaning, in the case of a shop, a person wholly or
principally employed therein in connection with the business of the shop.
H The facts were set out in paragraph 7 of the said judgment as follows:
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 51
ASSURANCE COMPANY [R. F. NARIMAN, J.]
“7. The following facts appear from the finding of the learned A
Single Judge. All the workers are paid on piece-rate basis. The
Workers generally attend the shops every day if there is work.
The rate of wages paid to the workers is not uniform. The rate
depends upon the skill of the worker and the nature of the work.
When cloth is given for stitching to a worker after it has been cut,
B
the worker is told how he should stitch it. If he does not stitch it
according to the instruction, the employer rejects the work and he
generally asks the worker to restitch the same. When the work is
not done by a worker according to the instructions, generally no
further work would be given to him. If a worker does not want to
go for work to the shop on a day, he does not make any application C
for leave, nor is there any obligation on his part to inform the
employer that he will not attend for work on that day. If there is
no work, the employee is free to leave the shop before the shop
closes. Almost all the workers work in the shop. Some workers
are allowed to take cloth for stitching to their homes on certain
D
days. But this is done always with the permission of the proprietor
of the shop. The machines installed in the shop belong to the
proprietor of the shop and the premises and the shop in which the
work is carried on also belong to him.”
After referring to several judgments of this Court, the Court then
referred to judgments of the English and American Courts as follows: E
“19. In Cassidy v. Ministry of Health [(1951) 1 All ER 574, 579]
Lord Justice Sommerwell pointed out that the test of control of
the manner of work is not universally correct, that there are many
contracts of service where the master cannot control the manner
in which the work is to be done as in the case of a Captain of a F
ship.
20. In many skilled employments, to apply the test of control over
the manner of work for deciding the question whether the
relationship of master and servant exists would be unrealistic.
G
21. In Montreal v. Montreal Locomotive Works Ltd. etc. [(1947)
1 DLR 161 at p. 1969] Lord Wright said that a single test, such as
the presence or absence of control, was often relied on to determine
whether the case was one of master and servant, mostly in order
to decide issues of tortious liability on the part of the master or
superior and that in the more complex conditions of modern H
52 SUPREME COURT REPORTS [2020] 9 S.C.R.
A industry, more complicated tests have often to be applied. He said
that it would be more appropriate to apply a complex test involving:
(i) control; (ii) ownership of the tools; (iii) chance of profit; (iv)
risk of loss, and that control in itself is not always conclusive. He
further said that in many cases the question can only be settled by
examining the whole of the various elements which constitute the
B
relationship between the parties.
22. In Bank Voor Handel en Scheepvaart N.V. v. Slatford [(1952)
2 All ER 956 at 971] Denning, L.J., said:
“... the test of being a servant does not rest nowadays on
C submission to orders. It depends on whether the person is part
and parcel of the organisation....”
23. In U.S. v. Silk [331 US 704] the question was whether men
working for the plaintiffs, Silk and Greyvan, were ‘employees’
within the meaning of that word in the Social Security Act, 1935.
D The Judges of the Supreme Court of U.S.A., agreed upon the
test to be applied, though not in every instance upon its application
to the facts. They said that the test was not “the common law
test,” viz “power of control, whether exercised or not, over the
manner of performing service to the undertaking”, but whether
the men were employees “as a matter of economic reality”.
E Important factors were said to be “the degrees of control,
opportunities of profit or loss, investment in facilities, permanency
of relations and skill required in the claimed independent operation”.
xxx xxx xxx
F 25. In Market Investigations Ltd. v. Minister of Social Security
[(1968) 3 All ER 732] the Court said:
“I think it is fair to say that there was at one time a school
of thought according to which the extent and degree of the control
which B. was entitled to exercise over A. in the performance of
the work would be a decisive factor. However, it has for long
G
been apparent that an analysis of the extent and degree of such
control is not in itself decisive.”
26. It is in its application to skilled and particularly professional
work that control test in its traditional form has really broken down.
It has been said that in interpreting “Control” as meaning the power
H
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 53
ASSURANCE COMPANY [R. F. NARIMAN, J.]
to direct how the servant should do his work, the Court has been A
applying a concept suited to a past age.
“This distinction (viz., between telling a servant what to do
and telling him how to do it) was based upon the social conditions
of an earlier age; it assumed that the employer of labour was able
to direct and instruct the labourer as to the technical methods he B
should use in performing his work. In a mainly agricultural society
and even in the earlier stages of the Industrial Revolution the
master could be expected to be superior to the servant in the
knowledge, skill and experience which had to be brought to bear
upon the choice and handling of the tools. The control test was
well suited to govern relationships like those between a farmer C
and an agricultural labourer (prior to agricultural mechanization)
a craftsman and a journeyman, a householder and a domestic
servant, and even a factory owner and an unskilled ‘hand’. It
reflects a state of society in which the ownership of the means of
production coincided with the profession of technical knowledge D
and skill in which that knowledge and skill was largely acquired
by being handed down from one generation to the next by oral
tradition and not by being systematically imparted in institutions of
learning from universities down to technical schools. The control
test postulates a combination of managerial and technical functions
in the person of the employer i.e. what to modern eyes appears E
as an imperfect division of labour. [See Prof. Kahn-Freund in
(1951), 14 Modern Law Review, at p. 505] ’’
27. It is, therefore, not surprising that in recent years the control
test as traditionally formulated has not been treated as an exclusive
test. F
28. It is exceedingly doubtful today whether the search for a
formula in the nature of a single test to tell a contract of service
from a contract for service will serve any useful purpose. The
most that profitably can be done is to examine all the factors that
have been referred to in the cases on the topic. Clearly, not all of G
these factors would be relevant in all these cases or have the
same weight in all cases. It is equally clear that no magic formula
can be propounded, which factors should in any case be treated
as determining ones. The plain fact is that in a large number of
cases, the Court can only perform a balancing operation weighing H
54 SUPREME COURT REPORTS [2020] 9 S.C.R.
A up the factors which point in one direction and balancing them
against those pointing in the opposite direction [ See Atiyah, PS.
“Vicarious Liability in the Law of Torts”, pp. 37-38] .
29. During the last two decades the emphasis in the field has
shifted and no longer rests so strongly upon the question of control.
B Control is obviously an important factor and in many cases it may
still be the decisive factor. But it is wrong to say that in every
case it is decisive. It is now no more than a factor, although an
important one [See Argent v. Minister of Social Security and
Another, (1968) 1 WLR 1749 at 1759].”
C Ultimately, the Court found that two important considerations
clinched the issue in favour of deciding that the persons employed were
employed wholly or principally in connection with the business of the
shop. First and foremost, machines on which sewing took place were
supplied by the proprietor of the shop. And, secondly, supervision and
control in tailoring business terms would include the right to reject sub-
D standard work. These factors were held to outweigh the fact that such
persons did not have to work exclusively for the owner of the shop as
also that they are not obliged to work for the full day.
18. In Hussainbhai v. Alath Factory Thezhilali Union (1978)
4 SCC 257, this Court was confronted with persons who are engaged to
E make ropes from within a factory which manufactured ropes. What
was argued before the Court was that the workmen were not the
employer’s workmen but only the contractor’s workmen. The question
that came up for consideration was whether they are “workmen” within
the meaning of Section 2(s) of the Industrial Disputes Act. The test
F applied by this judgment to find out whether such persons are “workmen”
was as follows:
“5. The true test may, with brevity, be indicated once again. Where
a worker or group of workers labours to produce goods or services
and these goods or services are for the business of another, that
G other is, in fact, the employer. He has economic control over the
workers’ subsistence, skill, and continued employment. If he, for
any reason, chokes off, the worker is, virtually, laid off. The
presence of intermediate contractors with whom alone the workers
have immediate or direct relationship ex contractu is of no
consequence when, on lifting the veil or looking at the conspectus
H of factors governing employment, we discern the naked truth,
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 55
ASSURANCE COMPANY [R. F. NARIMAN, J.]
though draped in different perfect paper arrangement, that the A
real employer is the Management, not the immediate contractor.
Myriad devices, half-hidden in fold after fold of legal form
depending on the degree of concealment needed, the type of
industry, the local conditions and the like may be resorted to when
labour legislation casts welfare obligations on the real employer,
B
based on Articles 38, 39, 42, 43 and 43-A of the Constitution. The
court must be astute to avoid the mischief and achieve the purpose
of the law and not be misled by the maya of legal appearances.”
Applying this test, the economic reality of control of the employer
over the workman’s subsistence, skill and continued employment pointed
to such persons being direct employees of the owner. C
19. In Shining Tailors v. Industrial Tribunal II, U.P.(1983) 4
SCC 464, a 3-Judge Bench of this Court followed Silver Jubilee (supra)
to arrive at the conclusion that the persons employed were”workmen”
within the meaning of the U.P. Industrial Disputes Act, 1947.
D
20. In P.M. Patel & Sons v. Union of India (1986) 1 SCC 32,
this Court was faced with the important question as to whether the
workers employed at their homes in the manufacture of bidis are entitled
to the benefit of Employees’ Provident Funds and Miscellaneous
Provisions Act, 1952. After referring to the earlier judgments of this
Court, this Court held that the Silver Jubilee case (supra) made the E
law take a major shift from the earlier judgments on criteria to be applied
to determine relationship of master and servant, and pointed out that the
right of rejection of sub-standard bidis can constitute, in itself, an effective
degree of supervision and control, so as to render a finding that such
persons are “employees” within the meaning of Section 2 of the said F
Act.
21. In Indian Banks Assn. v. Workmen of Syndicate Bank
(2001) 3 SCC 36, this Court after referring to Silver Jubilee (supra)
found that Deposit Collectors employed by specified banks were entitledto
be treated as workmen. The court held: G
“26. We also cannot accept the submission that the banks have
no control over the Deposit Collectors. Undoubtedly, the Deposit
Collectors are free to regulate their own hours of work, but that is
because of the nature of the work itself. It would be impossible to
fix working hours for such Deposit Collectors because they have
H
56 SUPREME COURT REPORTS [2020] 9 S.C.R.
A to go to various depositors. This would have to be done at the
convenience of the depositors and at such times as required by
the depositors. If this is so, then no time can be fixed for such
work. However, there is control inasmuch as the Deposit Collectors
have to bring the collections and deposit the same in the banks by
the very next day. They have then to fill in various forms, accounts,
B
registers and passbooks. They also have to do such other clerical
work as the Bank may direct. They are, therefore, accountable to
the Bank and under the control of the Bank.”
22. In Indian Overseas Bank v. Workmen (2006) 3 SCC 729,
the question was whether the banks who employed jewel appraisers for
C loans were “workmen” within the meaning of Section 2(s) of the Industrial
Disputes Act. After distinguishing the Indian Banks case (supra), this
Court referred to Dharangadhara(supra),Silver Jubilee (supra),
Shining Tailors (supra) and Chintaman Rao (supra) and then held:
“17. The inferences culled out from the reading of those judgments
D can be summed up as follows:
(a) Where the contractors were substantially responsible for the
main and sole business, they would be treated as workers.
(b) One exception is that where in such cases flexibility of the
contract was at variance with the normal worker’s contract, the
E contractors would not be treated as workers.
(c) Where the contractor is in the nature of supplier of goods and
services, they are to be treated as supplier contractors and not
workmen.
18. At this juncture the distinction between jewel appraisers and
F the regular employees of the Bank can be noted.
Regular employees Jewel appraisers
1. Subject to qualification and 1. No
age prescribed. qualification/age.
2. Recruitment through 2. Direct engagement
employ-ment by the local Manager.
exchange/Banking Service
G Recruitment Board.
3. Fixed working hours. 3. No fixed working
hours.
4. Monthly wages. 4. No guaranteed
payment, only
commission paid.
5. Subject to disciplinary 5. No disciplinary
H control. control.
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 57
ASSURANCE COMPANY [R. F. NARIMAN, J.]
6. Control/supervision is 6. No control/ A
exercised not only with regard supervision over the
to the allocation of work, but nature of work to be
also the way in which the performed.
work is to be carried out.
7. Wages are paid by the 7. Charges are paid by
Bank. the borrowers. B
8. Retirement age. 8. No retirement age.
9. Subject to transfer. 9. No transfer.
10. While in employment 10. No bar to carry on
cannot carry on any other any avocation or C
occupation. occupation.
[Therefore, the jewel appraisers are not employees of the Bank."]
23. At this stage, it is important to advert to a fairly recent judgment
of the English Court of Appeal in E v. English Province of Our Lady
D
of Charity and Anr. 2012 EWCA Civ 938. In the aforesaid case, a
question arose as to whether the Roman Catholic Church would be
vicariously liable in a claim brought for damages alleging that a lady,
when she had been resident in a children’s home operated by a Roman
Catholic order of nuns, had been sexually abused by a priest appointed
by the diocesan bishop. Under the sub-heading “The hallmarks of the E
relationship of employer and employee” the court referred to various
earlier English judgments and the tests laid down as follows:
“64. I indicated early on at para 21, vicarious liability tended to
depend on the difference between employee and independent
contractor. If, as I believe, it is necessary to attempt to capture F
the essence of what it is that makes a man an employee, I must
examine those differences in more detail. Generally speaking, an
employee works under the supervision and direction of his
employer: an independent contractor is his own master bound by
his contract but not by his employers orders. An employee works
for his employer: an independent contractor is in business on his G
own account. In Ready Mixed Concrete (South East) Ltd v
Minister of Pensions and National Insurance [1968] 2 QB
497 (a case which I observe with envy occupied the court for six
days whilst we were allowed one only), MacKenna J said, at p
515, that a contract of service exists if these three conditions are H
fulfilled:
58 SUPREME COURT REPORTS [2020] 9 S.C.R.
A “(i) The servant agrees that, in consideration of a wage or other
remuneration, he will provide his own work and skill in the
performance of some service for his master. (ii) He agrees,
expressly or impliedly, that in the performance of that service he
will be subject to the others control in a sufficient degree to make
that other master. (iii) The other provisions of the contract are
B
consistent with its being a contract of service.”
He elaborated:
“Control includes the power of deciding the thing to be done, the
way in which it shall be done, the means to be employed in doing
C it, the time when and the place where it shall be done. All these
aspects of control must be considered in deciding whether the
right exists in a sufficient degree to make one party the master
and the other his servant.”
Later, at p 524, he commented on Lord Thankerton’s “four indicia”
D of a contract of service, said in Short v J & W Henderson Ltd
(1946) 62 TLR 427, 429 to be: “(a) The master’s power of selection
of his servant; (b) the payment of wages or other remuneration;
(c) the master’s right to control the method of doing the work;
and (d) the master’s right of suspension or dismissal.” MacKenna
J said:
E
“It seems to me that (a) and (d) are chiefly relevant in determining
whether there is a contract of any kind between the supposed
master and servant, and that they are of little use in determining
whether the contract is one of service. The same is true of (b),
unless one distinguishes between different methods of payment,
F payment by results tending to prove independence and payment
by time the relation of master and servant.”
65. That leaves control as an important distinguishing factor. The
example is often given of the difference between the chauffeur
and the taxi driver but it is not always as easy as that. As times
G have changed so control has become an unrealistic guide. It may
have been more meaningful when work was done by labourers
under the direction of employers who had the same or greater
technical skills than their workmen. Now that one is frequently
dealing with a professional person or a person of some particular
skill and experience, for example a brain surgeon, there can be no
H
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 59
ASSURANCE COMPANY [R. F. NARIMAN, J.]
question of the employer telling him how to do his work for in A
truth the skilled person is engaged for the very reason that he
possesses skills which the employer lacks. The emphasis placed
on control has thus been reduced. As Roskill J said in Argent v
Minister of Social Security [1968] 1 WLR 1749, 1758—1759:
“in the earlier cases it seems to have been suggested that the B
most important test, if not the all-important test, was the extent of
the control exercised by the employer over the servant. If one
goes back to some of the cases in the first decade of this century,
one sees that that was regarded almost as the conclusive test.
But it is also clear that as one watches the development of the
law in the first 60 years of this century and particularly the C
development of the law in the last 15 or 20 years in this field, the
emphasis has shifted and no longer rests so strongly upon the
question of control. Control is obviously an important factor. In
some cases it may still be the decisive factor, but it wrong to say
that in every case it is the decisive factor. It is now, as I venture to D
think, no more than a factor albeit a very important one.”
Roskill J’s test was, at p 1760:
“Finally it has been more recently suggested that the matter can
be determined by reference to what in modern parlance was called
economic reality. All these are matters which have to be borne in E
mind. To my mind, no single one is decisive. One has to look at
the totality of the evidence, at the totality of the facts found and
then apply them to the language of the statute. One cannot do
better than echo the words of Somervell LJ in Cassidy v Ministry
of Health [1951] 2 KB 343 , 352: ‘one perhaps cannot get much F
beyond this: “was his contract a contract of service within the
meaning which an ordinary person would give to the words?”’”
Roskill J also referred to Denning LJ’s views expressed
in Stevenson Jordan & Harrison Ltd v Macdonald &
Evans [1952] 1 TLR 101 , 111 and Bank voor Handel G
enScheepvaart NV v Slatford (No 2) [1953] 1 QB 248 , 295. In
the former Denning LJ said:
“One feature which seems to run through the instances is that,
under a contract of service, a man is employed as part of the
business, and his work is done as an integral part of the business;
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60 SUPREME COURT REPORTS [2020] 9 S.C.R.
A whereas, under a contract for services, his work, although done
for the business, is not integrated into it but is only accessory to
it.”
67. The Privy Council in the Lee Ting Sang case did, however,
give this help [1990] 2 AC 374, 382:
B “What then is the standard to apply? This has proved to be a most
elusive question and despite a plethora of authorities the courts
have not been able to devise a single test that will conclusively
point to the distinction in all cases. Their Lordships agree with the
Court of Appeal when they said that the matter had never been
C better put than by Cooke J in Market Investigations Ltd v
Minister of Social Security [1969] 2 QB 173 , 184–185: ‘The
fundamental test to be applied is this: “is the person who has
engaged himself to perform these services performing them as a
person in business on his own account?” If the answer to that
question is “yes”, then the contract is a contract for services. If
D the answer is “no”, then the contract is a contract of service. No
exhaustive list has been compiled and perhaps no exhaustive list
can be compiled of the considerations which are relevant in
determining that question, nor can strict rules be laid down as to
the relative weight which the various considerations should carry
E in particular cases. The most that can be said is that control will
no doubt always have to be considered, although it can no longer
be regarded as the sole determining factor; and that factors which
may be of importance are such matters as whether the man
performing the services provides his own equipment, whether he
hires his own helpers, what degree of financial risk he takes, what
F degree of responsibility for investment and management he has,
and whether and how far he has an opportunity of profiting from
sound management in the performance of his task.’”
68. To much the same effect is an earlier Privy Council case,
Montreal v Montreal Locomotive Works Ltd [1947] 1 DLR 161
G , where Lord Wright said, at p 169:
“In earlier cases a single test, such as the presence or absence of
control, was often relied on to determine whether the case was
one of master and servant, mostly in order to decide issues of
tortious liability on the part of the master or superior. In the more
H complex conditions of modern industry, more complicated tests
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 61
ASSURANCE COMPANY [R. F. NARIMAN, J.]
have to be applied. It has been suggested that a fourfold test A
would in some cases be more appropriate, a complex involving
(1) control; (2) ownership of the tools; (3) chance of profit; (4)
risk of loss. Control in itself is not always conclusive.”
He went on to say that:
“it is in some cases possible to decide the issue by raising as the B
crucial question whose business is it, or in other words by asking
whether the party is carrying on the business, in the sense of
carrying it on for himself or on his own behalf and not merely for
a superior.”
69. There being no single test, what one has to do is marshal C
various tests which should cumulatively point either towards an
employer/employee relationship or away from one. Adopting that
approach confirms that which is accepted as the common ground,
namely, that Father Baldwin is not a true employee. The test may
yet be useful to see whether he can be said to be an independent D
contractor, for if he is, the law is clear: the employer is not
vicariously liable for the torts of his independent contractor. I am
satisfied that Father Baldwin is no more a true independent
contractor than he is an employee. For a start, he has no contractual
relationship with his bishop. He is hardly a person in business on
his own account with a free hand to carry out the job, if it is a job, E
as and when he wishes.”
In concluding that the Church would be vicariously liable, the Court
then held:
“81. The result of each of the tests leads me to the conclusion F
that Father Baldwin is more like an employee than an independent
contractor. He is in a relationship with his bishop which is close
enough and so akin to employer/employee as to make it just and
fair to impose vicarious liability. Justice and fairness is used here
as a salutary check on the conclusion. It is not a stand alone test
for a conclusion. It is just because it strikes a proper balance G
between the unfairness to the employer of imposing strict liability
and the unfairness to the victim of leaving her without a full remedy
for the harm caused by the employer’s managing his business in a
way which gave rise to that harm even when the risk of harm is
not reasonably foreseeable.”
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62 SUPREME COURT REPORTS [2020] 9 S.C.R.
A 24. A conspectus of all the aforesaid judgments would show that
in a society which has moved away from being a simple agrarian society
to a complex modern society in the computer age, the earlier simple test
of control, whether or not actually exercised, has now yielded more
complex tests in order to decide complex matters which would have
factors both for and against the contract being a contract of service as
B
against a contract for service. The early ‘control of the employer’ test in
the sense of controlling not just the work that is given but the manner in
which it is to be done obviously breaks down when it comes to
professionals who may be employed. A variety of cases come in between
cases which are crystal clear - for example, a master in a school who is
C employed like other employees of the school and who gives music lessons
as part of his employment, as against an independent professional piano
player who gives music lessons to persons who visit her premises. Equally,
a variety of cases arise between a ship’s master, a chauffeur and a staff
reporter, as against a ship’s pilot, a taxi driver and a contributor to a
newspaper, in order to determine whether the person employed could be
D
said to be an employee or an independent professional. The control test,
after moving away from actual control of when and how work is to be
performed to the right to exercise control, is one in a series of factors
which may lead to an answer on the facts of a case slotting such case
either as a contract of service or a contract for service. The test as to
E whether the person employed is integrated into the employer’s business
or is a mere accessory thereof is another important test in order to
determine on which side of the line the contract falls. The three-tier test
laid down by some of the English judgments, namely, whether wage or
other remuneration is paid by the employer; whether there is a sufficient
degree of control by the employer and other factors would be a test
F
elastic enough to apply to a large variety of cases. The test of who owns
the assets with which the work is to be done and/or who ultimately
makes a profit or a loss so that one may determine whether a business is
being run for the employer or on one’s own account, is another important
test when it comes to work to be performed by independent contractors
G as against piece-rated labourers. Also, the economic reality test laid down
by the U.S decisions and the test of whether the employer has economic
control over the workers’ subsistence, skill and continued employment
can also be applied when it comes to whether a particular worker works
for himself or for his employer. The test laid down by the Privy Council
in Lee Ting Sang v. Chung Chi-Keung [1990] 2 A.C. 374, namely, is
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SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 63
ASSURANCE COMPANY [R. F. NARIMAN, J.]
the person who has engaged himself to perform services performing A
them as a person in business on his own account, is also an important
test, this time from the point of view of the person employed, in order to
arrive at the correct solution. No one test of universal application can
ever yield the correct result. It is a conglomerate of all applicable tests
taken on the totality of the fact situation in a given case that would
B
ultimately yield, particularly in a complex hybrid situation, whether the
contract to be construed is a contract of service or a contract for service.
Depending on the fact situation of each case, all the aforesaid factors
would not necessarily be relevant, or, if relevant, be given the same
weight. Ultimately, the Court can only perform a balancing act weighing
all relevant factors which point in one direction as against those which C
point in the opposite direction to arrive at the correct conclusion on the
facts of each case.
25. Given the fact that this balancing process may often not yield
a clear result in hybrid situations, the context in which a finding is to be
made assumes great importance. Thus, if the context is one of a beneficial D
legislation being applied to weaker sections of society, the balance tilts in
favour of declaring the contract to be one of service, as was done in
Dharangadhara (supra), Birdhichand (supra), D.C.Dewan (supra),
Silver Jubilee (supra), Hussainbhai (supra), Shining Tailors (supra),
P.M. Patel (supra), and Indian Banks (supra). On the other hand,
where the context is that of legislation other than beneficial legislation or E
only in the realm of contract, and the context of that legislation or contract
would point in the direction of the relationship being a contract for service
then, other things being equal, the context may then tilt the balance in
favour of the contract being construed to be one which is for service.
26. Looked at in this light, let us now examine the agreement F
between Dr. Alpesh Gandhi and the Respondent No. 3. The factors
which would lead to the contract being one for service may be enumerated
as follows:
(i) The heading of the contract itself states that it is a contract
for service. G
(ii) The designation of Dr. Gandhi is an Honorary Ophthalmic
Surgeon.
(iii) INR 4000 per month is declared to be honorarium as opposed
to salary.
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64 SUPREME COURT REPORTS [2020] 9 S.C.R.
A (iv) In addition to INR 4000 per month, Dr. Gandhi is paid a
percentage of the earnings of the Respondent No. 3 from
out of the OPD, Operation Fee component of Hospitalization
Bills, and Room Visiting Fees.
(v) The arbitration clause which speaks of disputes arising in
B the course of the tenure of this contract will be referred to
the Managing Committee of the Institute, the decision of
the Managing Committee being final, is also a clause which
is unusual in a pure master-servant relationship.
(vi) The fact that the appointment is contractual – for 3 years –
C and extendable only by mutual consent, is another pointer
to the fact that the contract is for service, which is tenure
based.
(vii) The fact that termination of the contract can be by notice
on either side would again show that the parties are dealing
D with each other more as equals than as master-servant.
(viii) Clause XI of the agreement also makes it clear that the
earlier appointment that was made of Dr. Gandhi would
cease the moment this contract comes into existence, Dr.
Gandhi no longer remaining as a regular employee of the
E Institute.
27. As against the aforesaid factors which would point to the
contract the contract being a contract for service, the following factors
would point in the opposite direction:
(i) The employment is full-time. Dr. Gandhi can do no other
F work, and apart from the seven types of work that Dr.
Gandhi is to perform under Clause IV, any other assignment
that may get created in the course of time may also be
assigned to him at the employer’s discretion.
(ii) Dr. Gandhi is to work on all days except weekly offs and
G holidays that are given to him by the employer. However,
what is important is that though governed by the leave rules
of the Institute as in vogue from time to time, Dr. Gandhi
will not be entitled to any financial benefit of any kind as
may be applicable to other regular employees of the Institute
under Clause V.
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SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 65
ASSURANCE COMPANY [R. F. NARIMAN, J.]
(iii) Dr. Gandhi will be governed by the Conduct Rules of the A
Institute as invoked from time to time and as applicable to
regular employees of the Institute.
(iv) That in the event of a proven case of indiscipline or breach
of trust, the Institute reserves a right to terminate the contract
at any time without giving any compensation whatsoever. B
28. If the aforesaid factors are weighed in the scales, it is clear
that the factors which make the contract one for service outweigh the
factors which would point in the opposite direction. First and foremost,
the intention of the parties is to be gathered from the terms of the contract.
The terms of the contract make it clear that the contract is one for C
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, D
he gets a share of the spoils as has been pointed out hereinabove. 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 E
by notice. The fact that Dr. Gandhi will devote full-time attention to the
Institute is the obverse side of piece-rated work which, as has been held
in some of the judgments hereinabove, can yet amount to contracts of
service, being a neutral factor. Likewise, 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. F
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. G
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
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66 SUPREME COURT REPORTS [2020] 9 S.C.R.
A test, that the contract entered into between the parties is one between
an Institute and an independent professional.
29. 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.Thus, in General Assurance Society Ltd. v.
B Chandumull Jain(1966) 3 SCR 500, this Court held:
“A contract of insurance is a species of commercial transactions
and there is a well-established commercial practice to send cover
notes even prior to the completion of a proper proposal or while
the proposal is being considered or a policy is in preparation for
C delivery…In other respects there is no difference between a
contract of insurance and any other contract except that in a
contract of insurance there is a requirement of uberrima fides
i.e. good faith on the part of the assured and the contract is likely
to be construed contra proferentem that is against the company
in case of ambiguity or doubt.”
D
30. This judgment has been cited with approval in United India
Insurance Co. Ltd. v. Pushpalaya Printers(2004) 3 SCC 694 as
follows:
“6. The only point that arises for consideration is whether the
E word “impact” contained in clause 5 of the insurance policy covers
the damage caused to the building and machinery due to driving
of the bulldozer on the road close to the building. It is evident from
the terms of the insurance policy that the property was insured as
against destruction or damage to whole or part. The appellant
Company agreed to pay towards destruction or damage to the
F property insured to the extent of its liability on account of various
happenings. In the present case both the parties relied on clause 5
of the insurance policy. Clause 5 is also subject to exclusions
contained in the insurance policy. That a damage caused to the
building or machinery on account of driving of vehicle on the road
G close to the building is not excluded. Clause 5 speaks of “impact”
by any rail/road vehicle or animal. If the appellant Company
wanted to exclude any damage or destruction caused on account
of driving of vehicle on the road close to the building, it could have
expressly excluded it. The insured possibly did not understand
and expect that the destruction and damage to the building and
H machinery is confined only to a direct collision by vehicle moving
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 67
ASSURANCE COMPANY [R. F. NARIMAN, J.]
on the road with the building or machinery. In the ordinary course, A
the question of a vehicle directly dashing into the building or the
machinery inside the building does not arise. Further, “impact” by
road vehicle found in the company of other words in the same
clause 5 normally indicates that damage caused to the building on
account of vibration by driving of vehicle close to the road is also
B
included. In order to interpret this clause, it is also necessary to
gather the intention of the parties from the words used in the
policy. If the word “impact” is interpreted narrowly, the question
of impact by any rail would not arise as the question of a rail
forcibly coming to the contact of a building or machinery would
not arise. In the absence of specific exclusion and the word C
“impact” having more meanings in the context, it cannot be confined
to forcible contact alone when it includes the meanings “to drive
close”, “effective action of one thing upon another” and “the effect
of such action”, it is reasonable and fair to hold in the context that
the word “impact” contained in clause 5 of the insurance policy
D
covers the case of the respondent to say that damage caused to
the building and machinery on account of the bulldozer moving
closely on the road was on account of its “impact”. It is also
settled position in law that if there is any ambiguity or a term is
capable of two possible interpretations, one beneficial to the insured
should be accepted consistent with the purpose for which the E
policy is taken, namely, to cover the risk on the happening of certain
event. Although there is no ambiguity in the expression “impact”,
even otherwise applying the rule of contra proferentem, the use
of the word “impact” in clause 5 in the instant policy must be
construed against the appellant. Where the words of a document
F
are ambiguous, they shall be construed against the party who
prepared the document. This rule applies to contracts of insurance
and clause 5 of the insurance policy even after reading the entire
policy in the present case should be construed against the insurer.
A Constitution Bench of this Court in General Assurance Society
Ltd. v. Chandmull Jain [AIR 1966 SC 1644 : (1966) 3 SCR 500] G
has expressed that (AIR p. 1649, para 11)
“in a contract of insurance there is requirement of uberrima fides
i.e. good faith on the part of the assured and the contract is likely
to be construed contra proferentem, that is, against the company
in case of ambiguity or doubt””. H
68 SUPREME COURT REPORTS [2020] 9 S.C.R.
A 31. Likewise, in Export Credit Guarantee Corpn. of India
Ltd. v. Garg Sons International (2014) 1 SCC 686, this Court held:
“11. The insured cannot claim anything more than what is covered
by the insurance policy. “The terms of the contract have to be
construed strictly, without altering the nature of the contract as
B the same may affect the interests of the parties adversely.” The
clauses of an insurance policy have to be read as they are.
Consequently, the terms of the insurance policy, that fix the
responsibility of the insurance company must also be read strictly.
The contract must be read as a whole and every attempt should
be made to harmonise the terms thereof, keeping in mind that the
C rule of contra proferentem does not apply in case of commercial
contract, for the reason that a clause in a commercial contract is
bilateral and has mutually been agreed upon. (Vide Oriental
Insurance Co. Ltd. v. Sony Cheriyan [(1999) 6 SCC 451] ,
Polymat India (P) Ltd. v. National Insurance Co. Ltd. [(2005)
D 9 SCC 174 : AIR 2005 SC 286] , Sumitomo Heavy Industries
Ltd. v. ONGC Ltd. [(2010) 11 SCC 296 : (2010) 4 SCC (Civ) 459
: AIR 2010 SC 3400] and Rashtriya Ispat Nigam Ltd. v. Dewan
Chand Ram Saran [(2012) 5 SCC 306 : AIR 2012 SC 2829] .)”
Likewise, in BHS Industries v. Export Credit Guarantee
E Corpn. Ltd.(2015) 9 SCC 414, this Court held:
“31. As has been held in Chandumull Jain [AIR 1966 SC 1644
: (1966) 3 SCR 500] by the Constitution Bench that in a contract
of insurance, there is a requirement of good faith on the part of
the insured and in case of ambiguity, it has to be construed against
F the company. As per other authorities, the insurance policy has to
be strictly construed and it has to be read as a whole and nothing
should be added or subtracted. That apart, as has been held in
Polymat India (P) Ltd. [(2005) 9 SCC 174] , it is the duty of the
Court to interpret the document as is understood between the
parties and regard being had to the reference to the stipulations
G contained in it.
xxx xxxxxx
35. The terms of the policy are to be strictly construed. There
can be no cavil about the proposition of law that in case of
ambiguity, the construction has to be made in favour of the insured”
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SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 69
ASSURANCE COMPANY [R. F. NARIMAN, J.]
32. In United India Insurance Co. Ltd. v. Orient Treasures A
(P) Ltd.(2016) 3 SCC 49, this Court quoted Halsbury’s Laws of England
as follows:
“37. In Halsbury’s Laws of England (5th Edn., Vol. 60, Para
105) principle of contra proferentem rule is stated thus:
“Contra proferentem rule.—Where there is ambiguity in the policy B
the court will apply the contra proferentem rule. Where a policy
is produced by the insurers, it is their business to see that precision
and clarity are attained and, if they fail to do so, the ambiguity will
be resolved by adopting the construction favourable to the insured.
Similarly, as regards language which emanates from the insured, C
such as the language used in answer to questions in the proposal
or in a slip, a construction favourable to the insurers will prevail if
the insured has created any ambiguity. This rule, however, only
becomes operative where the words are truly ambiguous; it is a
rule for resolving ambiguity and it cannot be invoked with a view
to creating a doubt. Therefore, where the words used are free D
from ambiguity in the sense that, fairly and reasonably construed,
they admit of only one meaning, the rule has no application.””
33. In Industrial Promotion & Investment Corpn. of Orissa
Ltd. v. New India Assurance Co. Ltd. (2016) 15 SCC 315, this Court
referred to the contra proferentum rule as follows: E
“10. We proceed to deal with the submission made by the counsel
for the appellant regarding the rule of contra proferentem. The
Common Law rule of construction “verba chartarum fortius
accipiuntur contra proferentem” means that ambiguity in the
wording of the policy is to be resolved against the party who F
prepared it. MacGillivray on Insurance Law [Legh-Jones,
Longmore et al (Eds.), MacGillivray on Insurance Law (9th
Edn., Sweet and Maxwell, London 1997) at p. 280.] deals with
the rule of contra proferentem as follows:
“The contra proferentem rule of construction arises only where G
there is a wording employed by those drafting the clause which
leaves the court unable to decide by ordinary principles of
interpretation which of two meanings is the right one. ‘One must
not use the rule to create the ambiguity — one must find the
ambiguity first.’ The words should receive their ordinary and
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70 SUPREME COURT REPORTS [2020] 9 S.C.R.
A natural meaning unless that is displaced by a real ambiguityeither
appearing on the face of the policy or, possibly, by extrinsic
evidence of surrounding circumstances.”
(footnotes omitted)
11.Colinvaux’s Law of Insurance [ Robert and Merkin (Eds.),
B Colinvaux’s Law of Insurance (6th Edn., 1990) at p. 42.]
propounds the contra proferentem rule as under:
“Quite apart from contradictory clauses in policies, ambiguities
are common in them and it is often very uncertain what the parties
to them mean. In such cases the rule is that the policy, being
C drafted in language chosen by the insurers, must be taken most
strongly against them. It is construed contra proferentem, against
those who offer it. In a doubtful case the turn of the scale ought
to be given against the speaker, because he has not clearly and
fully expressed himself. Nothing is easier than for the insurers to
D express themselves in plain terms. The assured cannot put his
own meaning upon a policy, but, where it is ambiguous, it is to be
construed in the sense in which he might reasonably have
understood it. If the insurers wish to escape liability under given
circumstances, they must use words admitting of no possible doubt.
E But a clause is only to be contra proferentem in cases of real
ambiguity. One must not use the rule to create an ambiguity. One
must find the ambiguity first. Even where a clause by itself is
ambiguous if, by looking at the whole policy, its meaning becomes
clear, there is no room for the application of the doctrine. So also
where if one meaning is given to a clause, the rest of the policy
F becomes clear, the policy should be construed accordingly.”
(footnotes omitted)”
34. 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
G 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
H the cover, but that as Dr. Alpesh Gandhi did not come within the scope
SUSHILABEN INDRAVADAN GANDHI v. NEW INDIA 71
ASSURANCE COMPANY [R. F. NARIMAN, J.]
of the Workmen’s Compensation Act, compensation payable due to his A
death in a motor accident would be covered by IMT-5. We see no reason
to disturb this finding. The inapplicability of endorsement IMT-16, as
additional premium had not been paid would, therefore, make no
difference on the facts of this case. Section-II, entitled “liability to third
parties” in the insurance policy dated 17.04.1997 set out hereinabove
B
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. The question that arises before
us is as to whether the expression “employment” is to be construed
widely or narrowly – if widely construed, a person may be said to
“employed” by an employer even if he is not a regular employee of the C
employer. However, the wider meaning that has been canvassed for by
the insurance company cannot possibly be given, given the language
immediately before, namely, “in the course of”, thereby indicating that
the “employment” can only be that of a person regularly employed by
the employer. Even otherwise, assuming that there is an ambiguity or
D
doubt, the contra proferentum rule referred to hereinabove, must be
applied, thus making it clear that such “employment” refers only to regular
employees of the Institute, which, as we have seen hereinabove, Dr.
Alpesh Gandhi was certainly not.
35. The Appellants placed reliance on an Order of this Court dated
05.03.2019 in C.A. 2488 of 2019 which reads as follows: E
“1. Leave granted.
2. The limited question to be examined arising from the impugned
order is the effect of the direction that the insurance company is
liable to pay only a sum of Rs.25,000/- and the balance amount F
may be recovered from the respondent No.2.
3. The appellant(s)/claimant(s) seeks to contend that it is impossible
for the appellants to enforce their remedy specially giving their
economic status.
4. On the conspectus of the matter and on hearing learned counsel G
for the parties, we consider it appropriate to direct that full amount
should be paid by respondent No.1-Insurance Company and the
amount beyond the liability to be paid by respondent No.1 may be
recovered by the Insurance company from respondent No.2.
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72 SUPREME COURT REPORTS [2020] 9 S.C.R.
A 5. The appeal accordingly stands disposed of. Parties to bear their
own costs.”
This Order seems to have been passed under Article 142 of the
Constitution on the facts of that case, without reference to any case
law. In the view that we have taken, it is unnecessary for us to place
B reliance on such Order.
36. In this view of the matter, we allow the appeal, set aside the
judgment of the Gujarat High Court and restore that of the Motor Accident
Claims Tribunal.
C
Devika Gujral Appeal allowed.
D
E
F
G
H
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