Holding

The cooperative milk societies are not liable to pay ESI contributions because the contractors' workers are not employees under Section 2(9) of the Employees' State Insurance Act, 1948.

Summary

The Supreme Court examined whether two cooperative milk producer societies were liable to pay Employees' State Insurance (ESI) contributions for workers employed by contractors to transport milk. The societies argued that the contractors' workers were neither directly employed by them nor worked on their premises or under their supervision, as required by Section 2(9) of the Employees' State Insurance Act, 1948. The Court held that mere entry onto the premises for loading and unloading does not satisfy the "on the premises" test, and the societies did not exercise the degree of supervision contemplated by the statute. Consequently, the workers did not fall within the definition of "employee" and the societies were not the principal employers. The appeals were allowed, setting aside the orders directing the societies to pay the ESI contributions.

Issues considered

Whether workers employed by contractors for milk transportation are "employees" under Section 2(9) of the Employees' State Insurance Act, 1948.
Whether the cooperative societies, as principal employers, are liable to pay ESI contributions for such workers.
Interpretation of the terms "supervision" and "on the premises" within the statutory definition of employee.
Whether the contractor can be deemed an agent of the principal employer under the Act.

Legislation cited

Employees' State Insurance Act, 1948s. 2(13), s. 2(17), s. 2(9), s. 45A, s. 75, s. 76, s. 77, s. 82(2)
Indian Contract Act, 1872s. 182

Subjects

Employees' State Insurance Actdefinition of employeeprincipal employercontractor liabilitysupervisionon the premisescooperative societiesESI contribution

Judgment

(2010] 5 S.C.R. 232

A :ypfl~~MWNAGl~G' DIRECTOR7 HASSAN~CO~O'PERA'flvEot
.... :~l(K PRODUCER':S·SOCIETY UNION LIMITED. ,
J =·~··. ,~,,··, ~-· -. ·~1 ·: ·;; v.~· ...
THE ASSISTANT REGIONAL DIRECTOR EMPLOYEES .
STATE INSURANCE CORPORATION
B (Civil Appeal No. 3816 of 2010)
, APRIL 26; 2010
[R.V. RAVEENDRAN AND R.M. LODHA, JJ.)

C Employees' State Insurance Act, 1948-·ss. 45A and 2(9)
~ Employee - Payment of ES/ contributions - Co-operative
Milk Producer's Societies engaged in purchase of milk and
pasteurization of the same - Workers employed by
contractors in performance of contract 'awarded to them for
D tra_nsporlation of milk·:_ Liability of Milk societies to pay ES/
contribution in respect of the workers - Held: Not liable -
Workers employed by contractors in performance of contract
awarded to them for transportation of milk, not covered by the
definition of 'employee' uls. 2(9) - No evidence to show that
E workers who did loading and unloading of milk cans were
directly employed by Milk Societies - Also they are not
employed on the premises of Milk Societies - Said workers
did not work under the supervision of Milk Societies .

Words and phrases:
F
Expression 'supervision' - Meaning of - In the context
of s. 2(9) of the Employees' State Insurance Act, 1948.

The appellants Co-operative Milk Producer's
G Societies, namely HCMPSU Ltd. and BURDCMPS Union,
were engaged in purchase of milk and pasteurization of
the same. The appellant awarded contract for
transportation of milk for a specific period at a particular
rate to the contractor. The contractor employed workers
H 232
M.D., HASSAN COO. MILK PRODUCER'S SOCT. UNION LTD. v. 233
ASSISTANT REGIONAL DIRECTOR, E.S.l.C.

for· the same. The inspection of the. appellant's A
establishment was carried out. The concerned authority
passed an order uls. 45A of the Employees' State
Insurance Act, 1948 calling upon the appellants to pay
contribution in respect of workers employed for
transportation and procurement of milk together with B
interest. The appellant challenged the order before the
Employees' State Insurance Court and the same was
dismissed. The High Court upheld the order. Hence the
appeals.

Allowing the appeals, the Court
c
HELD: 1.1 Merely being employed in connection with
the work of an establishment, in itself, does not entitle a
person to be an 'employee'; he must not only be
employed in connection with the work of the D
establishment but also be shown to be employed in one
or other of the three categories mentioned in s. 2(9) of the
Employees' State Insurance Act, 1948. [Para 17) [251-A-
B]
E
Royal Talkies, Hyderabad and Others v. Employees
State Insurance Corporation (1978) 4 SCC 204, relied on.

Regional Director, Employees' State Insurance Corpn.,
Madras v. South India Flour Mills (P) Ltd. (1986) 3 SCC 238;
Kirloskar Brother Ltd. v. Employees' State Insurance F
Corporation (1996) 2 SCC 682; Rajakamal Transport and
Another v. Employees' State Insurance Corporation,
Hyderabad (1996) 9 SCC 644; Transport Corporation of India.
v. Employees' State Insurance Corporation and Another
(2000) 1 SCC 332; Mis. Saraswat Films v. Regional Director, G
E. S. I. Corporation Trichur JT 2002 (Suppl 1) SC 454,
referred to.

1.2. It is not the case of any of the parties nor there
is any evidence to show that the persons who did loading
H
234 SUPREME COURT REPORTS [2010) 5 S.C.R.

A and unloading were directly employed by the appellants.
Section 2(9)(i) is, therefore clearly not attracted as it .
covers the workers who are directly employed by the
principal employer. Clause (ii) of s. 2(9) requires either (a)
that the person to be an employee should be employed
B on the premises of the factory or establishment, or (b) that
the work is done by the person employed under the
supervision of the principal employer or his agent on
work which is ordinarily part of the factory or
establishment or which is preliminary to the work carried
c on in or incidental to the purpose of the factory or
establishment. The expression "on the premises of the
factory or establishment" comprehends. presence of the
. persons on the premises of the factory or establishment
for execution of the principal activity of the industrial
establishment and not casual or occasional presence.
0
[Para 18] [251-C-F]
1.3. For the purposes of loading and unloading the
milk cans, the truck driver and loaders enter the premises
of t~e appellants but mere entry for such purpose cannot
E be treated as an employment of those persons on the
premises ,of. the factory or establishment. The said
expression does not comprehend every person who
enters the' factory for whatever 'purpose. This is not and
can never' be 'said to be the p,u~pose of the expression.
F The persons employed by the contractor for loading and
unloading 9f milk cans are not the persons employ13d on
the premises of the appellants' establishment. [Pa~a 18]
[251-F-H; 252-A]
"
2.1. Although, E.SJ. Court in respect of the ap~ellants
G in separate orders, recorded a finding that such workers
work under the supervision of the principal employer and
the said finding has not been interfered with by the High
Court but it is difficult to accept the said ,finding. The
ordinary· meaning of the word 'supervision•' is 'authority
H 1to direct' or 'supervise' i.e., to oversee. The expression
M.D., HASSAN COO. MILK PRODUCER'S SOCT. UNION LTD. v. 235
ASSISTANT REGIONAL DIRECTOR, E.S.l.C.

'supervision of the principal employer' u/s. 2(9) means A
something more than mere exercise of some remote or
indirect control over the activities or the work of the
workers. Supervision for the purposes of s. 2(9) is
'consistency of vigil' by the principal employer so that if
need be, remedial measures may be taken or suitable B
directions may be given for satisfactory completion of
~ work. A direct disciplinary control by the principal
~- employer over the workers engaged by the contractors
-- may also be covered by the expression 'supervision of
the principal employer'. The circumstances, as in the case c
of HCMPSU Ltd., that the authorized representatives of
the principal employer are entitled ·to travel in the vehicle
of the contractor free of charge or in the case of
BURDCMPS Union, that the principal employer has right
to ask for removal of such workers who misbehave with
0
their staff are not the circumstances which may even
remotely suggest the control or interference exercised by
the appellants over the worker~ engaged by the
contractor for transportation of milk. From the
agreements entered into by the appellants with the
contractors, it does not transpire that the appellants have E
arrogated to themselves any supervisory control over
the workers employed by the contractors. The said
workers were under the direct control of the contractor.
Exercise of supervision and issue of some direction by
the principal employer over the activities of the contractor F
and his employees is inevitable in contracts of this nature
and that by itself is not sufficient to make the principal
employer liable. That the contractor is not an agent of the
principal employer u/s. 2(9)(ii) admits of no ambiguity.
[Para 22) [254-8-H; 255-A-B] G

2.2. No evidence was collected by the E.S.I.
Corporation during the inspection of the appellants'
establishments or from the contractors that the
appellants have any say over the terms and conditions
H
236 SUPREME COURT REPORTS [2010] 5 S.C.R.

~ ~ ·.. . ~ r ' ' .· ·· t ··
A of employment' of these employees or that the appellants
have any thing to do with logistic operations of the
contractors. As a matter of fact, there is nothing on
record to show that principal employer had any
knowledge about the number of persons engaged by the
B contractors or the names or the other details of such
persons. There is also no evidence that the appellants
were aware of the amount payable to each of these
workers. In the circumstances, even if it be held that the
transportation of milk is incidental to the purpose of
c factory or establishment, for want of any supervision of
the appellants on the work of such employees, these
employees are not covered by the definition of 'employee'
u/s. 2(9) of the Act. [Para 22] [255-A-D]
C.E.S.C. Limited and Ors. v. Subhash Chandra Bose and
D Ors. (1992) 1 sec 441, relied on.
Halsbury's Laws of England (Hai/sham Edition) Vol. I p
145, para 350, referred to.
Case Law Reference:
E
(1986) 3 sec 23.8 Referred to. Para 13
(1996) 2 sec 682 Referred to. Para 13
(1996) 9 sec 644 Referred to. Para 13
F (2000) 1 sec 332 Referred to. Para 13
JT 2002 (Suppl 1) SC 454Referred to. Para 13 -
(~978) 4 sec 204 Relied on. Para 18
G (1992) 1 sec 441 Relied on. Para 22
CIVIL APPELLATE JURISDICTION : Qivil Appeal No.
3816 of 2010.
From the Judgment & Order dated 28.9.2005 of the High
H Court of Karnataka at Bangalore in MFA No. 2349 of 2004.
M.D.. HASSAN COO. MILK PRODUCER'S SOCT. UNION LTD. v. 237
ASSISTANT REGIONAL DIRECTOR, E.S.l.C.

WITH A
C.A. No.3817 of 2010.

A.S. Bhasme and Nikhil Nayyar for the Appellant.

V.J. Francis and Sanjeev Anand for the Respondent. B

The Judgment of the Court was delivered by

R.M. LODHA, J. 1. Leave granted.

2. These two appeals, by special leave, are concerned with C
the liability of the appellants to pay ESI contribution in respect
of the workers employed by the contractors in performance of
the contract awarded to them for transportation of milk.

3. The two appeals arise out of different proceedings. Brief 0
narration of facts in relation to each of the appellants may be
set out first.

Hassan Cooperative Milk Producer's Society Union
Limited (for short, 'HCMPSU Ltd.').
E
4. HCMPSU Ltd. is a federal society. Its main business is
purchasing milk and pasteurization of the same. The milk
procured by member societies is transported in lorries/vans to
the appellant's dairy. For that purpose, contract is awarded on
the basis of rate per kilometer to the lowest bidder. The F
contractor collects the milk from the various societies in cans
on specified routes and transports to the appellant's dairy. The
empty cans are retransported and returned to the respective
member societies. On September 23, 1994, a show cause
notice was issued by the Assistant Regional Director, G
Employees' State Insurance Corporation, Bangalore to the
HCMPSU Ltd. calling upon them to furnish explanation and
show cause as to why action should not be taken against them
for non-payment of contribution under the Employees' State
Insurance Act, 1948 (for short, '1948 Act') in respect of the H
238 SUPREME COURT REPORTS [2010) 5 S.C.R.

A employees of the appellant. It is not in dispute that this notice
related to the employees engaged by the contractors for the
transportation of milk. The appellant responded to the show
cause notice by filing their reply on October 10, 1994, inter-alia,
stating therein {a) that the main business of the appellant is to
B process milk, receive .and sell the same to the public in the
concerned districts through their agents. The appellant does not
appoint the officers and subordinates to collect the milk from
the societies located in different places and (b) that appellant
calls for tenders and awards the contract for transportation of
c milk for specified period at a particular rate per kilometer. The
contractors engage workers for that work but such workers are
neither directly nor indirectly employees of the appellant and;
the appellants have no control over such employees nor they
t supervise their work. The wages or salary of such workers have
also not been paid by the appellant. Another notice was also
0
issued by the concerned authority to which reply was submitted
by the appellant stating therein that the workers so engaged
by the contractors do not work in the premises of the appellant's
establishment and for this reason also 1948 Act is not
applicable. It appears that inspection of the appellant's
E establishment was conducted by the concerned authority under
the 1948 Act and thereafter an order under Section 45A ·of
1948 Act came to be passed on March 21/24, 1995 calling
upon the appellant to pay contributions totaling Rs. 65,834/- for
the period April 1, 1989 to March 31, 1990 in respect of the
F workers employed for transportation and procurement of milk
together with interest payable at the rate of 12 per cent per
annum upto August 31, 1994 and 15 per cent from September
1, 1994 till the date of actual payment, within a period of 15
days from the date of receipt of the order. The appellant
G challenged the aforesaid order under Section 75 read with
Sections 76 and 77 of 1948 Act before the Employees' State
Insurance Court at Mysore (ESI Court). The ESI Court did not
find any merit in the application and dismissed the Sal'!le vide
order dated January 29, 2004 holding that the work of
H
M.D., HASSAN COO. MILK PRODUCER'S SOCT. UNluN LTD. v. 239
ASSISTANT REGIONAL DIRECTOR, E.S.l.C. [RM. LODHA, J.]

employees engaged by the contractors is incidental to the main A
work carried out by the appellant and that supervision over the
work of such employees by the appellant is also established.
The appellant challenged the\aforesaid order before High Court
of Karnataka by filing statutory appeal under Section 82(2) of
1948 Act which has been dismissed by the impugned order. B

The Bangalore Urban and Rural Oistrict Co-operative Milk
Producers Societies Union Limited (for short,
'BURDCMPS Union')

5. BURDCMPS Union is a cooperative society. By virtue C
of a tripartite agreement, Bangalore Dairy became its unit w.e.f.
September 1, 1988. Bangalore Dairy was earlier a constituent
of Karnataka Dairy Development Corporation and
subsequently became a constituent of Karnataka Milk
Federation. For the purpose of transportation, distribution and D
procurement of milk and milk products, Bangalore Dairy used
to entrust the work to independent contractors after inviting
tenders. The said contractors were being paid charges on
kilometer basis. The appellant adopted the same system. An
ins!)ection was conducted by ESI Inspector in respect of E
transportation of milk and milk products through transport
contractors for the period from October 1985 to December
1991 and from January 1992 to March 1993. On October 13,
1993, a notice indicating tentative determination of dues was
issued to the appellant to show cause as to why contribution F
under 1948 Act should not be recovered from them. In response
to the show cause notice, the appellant appeared through its
representative and contested the liability. It appears that the
authority asked the appellant to bifurcate the wage element
involved in the amount paid to the contractors and produce the G
same for verification which was ·not done. The Assistant
Regional Director, Bangalore by his order dated September
6, 1994 finally determined an amount of Rs. 4,81,313/- for the
period from October 1985 to March 1993 and held that the said
amount was liable to be paid by the appellant within 15 days
H
240 SUPREME COURT REPORTS [2010] 5 S.C.R.

A from the date of receipt of the order. In the said order, interest
at the rate of 12 per cent per annum was also ordered to be.
paid. The appellant challenged the aforesaid order before ES!
• I
Court, Bangalore under Section 75 of 1948 Act. ESI Court
dismissed the applica_tion vide order dated October 30, 1999.
B The appellant then. filed an appeal under Section 82 of 1948
Act before the Karnataka High Court which· too was dismis!?ed
on August 24, 2007. ··

6. 1948 Act Was enacted to provide for certain benefits to
employees in case of sickness, maternity and employment
C injury and for certain incidental matters. That the Act is
beneficial legislation admits of no doubt. It is appropriate at this
stage to refer to definition of terms, 'contribution', 'employee',
'immediate employer', 'principal employer' and 'wages'
occurring in 1948 Act.
D
7. 'Contribution' is defined in Section 2 (4) which means
the sum of money payable to the Employees State Insurance
Corporation by the principal employer in respect of an employee
and includes any amount payable by or on behalf of the
E employee in accordance with the provisions of 1948 Act. '

8. 'Employee' is defined in Section 2(9) as follows :

"S. 2(9).- "employee" means any person employed for
wages in or i~ connection with the work of a factory or
F establishment to which this Act applies and-

(i) who is directly employed by the principal employer,
on any work of, or incidental or preliminary to or
connected with the work of, the factory or·
establishment', whether such work is done by the
G
employee in the factory or establishment or
elsewhere; or

(ii) who is employed by or through an immediate
employer, on the premises of the factory or
H
M.D., HASSAN COO. MILK PRODUCER'S SOCT. UNION LTD. v. 241
ASSISTANT REGIONAL DIRECTOR, E.S.l.C. [R.M. LODHA, J.]

establishment or under the supervision of the A
principal employer or his agent on work which is
ordinarily part of the work of the factory or
establishment or which is preliminary to the work
carried on in or incidental to the purpose of the
factory or establishment; or B

(iii) whose services are temporarily lent or let on hire
to the principal employer by the person with whom
the person whose services are so lent or let on hire
has entered into a contract of service;
c
and includes any person employed for wages on any work
connected with the administration of the factory or
establishment or any part, department or branch thereof
or with the purchase of raw materials for, or the distribution
or sale of the products of, the factory or establishment or D
any person engaged as apprentice, not being an
apprentice engaged under the Apprentices Act, 1961 (52
of 1961 ), or under the standing orders of the
establishment; but does not include -
E
(a) any member of [the Indian] naval, military or air
forces; or

(b) any person so employed whose wages (excluding
remuneration for overtime work) exceed such
wages as may be prescribed by the Central F
Government] a month:"

Provided that an employee whose wages
(excluding remuneration for overtime work) exceed
such wages as may be prescribed by the Central G
Government at any time after (and not before) the
beginning of the contribution period, shall continue
to be an employee until the end of that period;"

9. Section 2(13) defines 'immediate employer' while
H
242 SUPREME COURT REPORTS [2010] 5 S.C.R.

A Section 2(17) defines 'principal employer'. The definitions of
'immediate employer' and 'principal employer' in the 1948 Act
are as follows

"S. 2(13).- "immediate employer", in relation to employees
employed by or through him, means a person who has
B
undertaken the execution, on the premises of a factory or
an establishment to which this Act applies or under the
supervision of the principal employer or his agent, of the
whole or any part of any work which is ordinarily part of
the work of the factory or establishment of the principal
c employer or is preliminary to the work carried on in, or
incidental tQ the purpose of, any such factory or
establishment, and includes a person by whom the
services of an employee who has entered into a contract
of service with him are temporarily lent or let on hire to the
D principal employer and includes a contractor"

"S. 2 (17) "principal employer" means-

(i) in a factory, the owner or occupier of the factory and
includes the managing agent of such owner or
E
occupier, ·the legal representative of a deceased
owner or occupier, and where a person has been
named as the manager of the factory under the
Factories Act, 1948 (63 of 1948), the person so
named;
F
(ii) in any establishment under the control of any
department of any Government in India, the authority
appointed by such Government in this behalf or
where no authority is so appointed, the head of the
G Department;

(iii) in any other establishment, any person responsible
for the supervision and control of the establishment;"

10. Section 2 (22) defines 'wages' thus :
H
M.D., HASSAN COO. MILK PRODUCER'S SOCT. UNION LTD. v. 243
ASSISTANT REGIONAL DIRECTOR, E.S.l.C. [RM. LODHA, J.]

"S. 2 (22).- "wages" means all remuneration paid or A
payable in cash to an employee, if the terms of the contract
of employment, express or implied, were fulfilled and
includes any payment to an employee in respect of any
~ period of authorized leave, lock-out, strike which is not
illegal or lay-off and other additional remuneration, if any, B
paid at intervals not exceeding two months, but does not
include-

(a) any contribution paid by the employer to any pension
fund or provident fund, or under this Act;
c
(b) any traveling allowance or the value of any traveling
concession;

(c) any sum paid to the person employed to defray special
expenses entailed on him by the nature of his 0
employment; or

(d) any gratuity payable on discharge;"

11. Sections46 to 73 in Chapter-V provide for claims and
benefits such as sickness benefit, maternity benefit, E
disablement benefit, medical benefit, etc.

12. The answer to the controversy presented before us has
to be found primarily from Section 2(9) which defines
'employee' and the terms of agreements. Section 2(9) has
F
been extensively analysed by this Court in Royal Talkies,
Hyderabad and Others v. Employees State Insurance
Corporation 1 thus :

"14. Now here is a break-up of Section 2(9). The clause
contains two substantive parts. Unless the person G
employed qualifies under both he is not an 'employee'.
Firstly, he must be employed "in or in connection with" the
work of an establishment. The expression "in connection
with the work of an establishment" ropes in a wide, variety
- --
1. (1978) 4 sec 204. H
244 SUPREME COURT REPORTS [2010) 5 S.C.R.

A of workmen who may not be employed in the
establishment but may be engaged only in connection with
the work of the establishment. Some nexus must exist
between the establishment a.nd the work of the employee
but it may be a loose connection. 'In connection with the
B work of an establishment' only postulates some connection
between what the employee does and the work of the
establishment. He may not do anything directly for the
establishment; he may not do anything statutorily obligatory
in the establishment; he may not even do anything which
c is primary or necessary for the survival or smooth running
of the establishment or integral to the adventure. It is
enough if the employee does some work which is ancillary,
\
incidental or has relevance to or link wlth the object of the
establishment. Surely, an amenity or facility for.the
customers who frequent the establishment has connection
D
with the work of the establishment. The question is not
whether without that amenity or facility the establishment
cannot be carried on but whether such amenity or facility,
even peripheral may be, has not a link with. the
establishment. Illustrations may not be exhaustive but may
E be informative. Taking the present case, an establishment
like a cinema theatre is not bound to run a canteen or keep
a cycle stand (in Andhra Pradesh) t?.ut no one will deny that
a canteen service, a toilet service, a car park or cycle
stand, a booth for sale of catchy film literature on actors,
F song hits and the like, surely have connection with the
cinema theatre and even further the venture. On the other
hand, a bookstall where scientific works or tools are sold
or a stall where religious propaganda is done, may not
have anything to do with the cinema establishment and
G may, therefore, be excluded on the score that the
employees do not do any work in connection with the
establishment, that is, the theatre. In the case of a five-star
hotel, for instance, a barber shop or an arcade, massage
parlour, foreign exchange counter or tourist assistance
H
M.D., HASSAN COO. MILK PRODUCER'S SOCT UNION LTD. v. 245
ASSISTANT REGIONAL DIRECTOR, E.S.l.C. [RM. LODHA, J.]

counter may be run by some one other than the owner of A
the establishment but the employees so engaged do work
in connection with the establishment or the hotel even
though there is no obligation for a hotel to maintain such
an ancillary attraction. By contrast, not a lawyer's chamber
or architect's consultancy. Nor, indeed, is it a legal B
ingredient that such adjunct should be exclusively for the
establishment if it is mainly its ancillary.

15. The primary test in the substantive clause being thus
wide, the employees of the canteen and the cycle stand C
may be correctly described as employed· in connection
with the work of the establishment. A narrower construction
may be possible but a larger ambit is clearly imported by
a purpose-oriented interpretation. The whole goal of the
statute is to make the principal employer primarily liable
for the insurance of kindred kinds of employees on the D
premises, whether they are there in the work or are merely
in connection with the work of the establishment.

16. Merely being employed in connection with the work of
an establishment, in itself, does not entitle a person to be E
an 'employee'. He must not only be employed in
connection with the work of the establishment but also be
shown to be employed in one or other of the three
categories mentioned in Section 2(9).

17. Section 2(9)(1) covers only employees who are directly F
employed by the principal employer. Even here, there are
expressions which take in a wider group of employees
than traditionally so regarded, but it is imperative that any
emplo:1ee who is not directly employed by the principal
employer cannot be eligible under Section 2(9)(1). In the G
present case, the employees concerned are admittedly
not directly employed by the cinema proprietors.

18. Therefore, we move down to Section 2(9)(i1). Here
again, the language used is extensive and diffusive H
246 SUPREME COURT REPORTS . (2010] 5 S.C.R.

A imaginatively embracing all possible alternatives of
employment by or through an independent employer. In
such cases, the 'principal employer' has no direct
employment relationship since the 'immediate employer'
of the employee concerned is some one else. Even so,
B such an employee, if he works (a) on the premises of the
establishment, or (b) under the supervision of the principal
employer or his agent "on work which is ordinarily part of
the work of the establishment or which is preliminary to the
work carried on in or incidental to the purpose of the
c establishment", qualifies under Section 2(9)(ii). The
plurality of persons engaged in various activities who are
brought'into the definitional net is wide and considerable;
and all that is necessary is that the employee be on the
premises or be under the supervision of the pr.incipal
employer or his agent. ,A.ssuming that the last part of
D
Section 2(9)(il) qualifies both these categories, all that is
needed to satisfy that requirement is that the work done
by the employee must be (a) such as is ordinarily (not
necessarily nor statutorily) part of the work of the
establishment, or (b) which is merely preliminary to the
E work carried on in the establishment, or (c) is just
incidental to the purpose of the establishment. No one can
seriously say that a canteen or cycle stand or cinema
magazine booth is not even incidental to the purpose of
the theatre. The cinema goers ordinarily find such work an
advantage, a facility, an amenity and some times a
necessity. All that the statute requires is that the work
should not be irrelevant to the purpose of the
establishment. It is sufficient if it is incidental to it. A thing
is incidental to another if it merely appertains to something
G else as primary. Surely, such work should not be
extraneous or contrary to the purpose of the establishment
but need not be integral to it either. Much depends on time
and place, habits and appetites, ordinary expectations and
social circumstances. In our view, clearly the two
H
M.D., HASSAN COO. MILK PRODUCER'S SOCT. UNION LTD. v. 24 7
ASSISTANT REGIONAL DIRECTOR, E.S.l.C. [RM. LODHA, J.]

operations in the present case, namely, keeping a cycle A
stand and running a canteen are incidental or adjuncts to
the primary purpose of the theatre."

13. The masterly analysis and clear exposition of the term
'employee' as defined in Section 2(9) done by V.R. Krishna
B
Iyer, J. in Royal Talkies 1 has been consistently followed in
subsequent decisions. Some of these decisions are : (1)
Regional Director, Employees' State Insurance Corpn.,
Madras v. South India Flour Mills (P) Ltd. 2 ; (2) Kirloskar
Brother Ltd. v. Employees' State ln.surance Corporation 3; (3) C
RaJakamal Transport and Another v. Employees' State
Insurance Corporation, Hyderabad4; (4) Transport Corporation
of India v. Employees' State Insurance Corporation and
Anothef' and (5) M/s. Saraswat Films v. Regional Director,
ES.I. Corporation,. Trichur. 6
D
14. In the light of the definition of the 'employee' under
Section 2(9) as interpreted by this Court in Royal Tafkies1 and
subsequent decisions, we may examine the question as to
whether the workers employed by the contractors in
performance of the contract awarded to them by the appellants E
for transportation of milk are covered by Section 2(9). The
reference to relevant clauses of the agreement at this stage will
be appropriate.

15. The relevant clauses of the agreements between
HCMPS Union and contractors are : F

"(1) That in consideration of the H C M P S U Ltd.,
paying to the contractor at the rate of Rs. 2.50
(Rupees two and fifty paise only) per Kilometer of
G
2. (1986) 3 sec 238.
3. (1996) 2 ·sec 682.
4. (1996) 9 sec 644.
5. (2000) 1 sec 332.
6. JT 2002 (Suppl 1) SC 454. H
248 SUPREME COURT REPORTS [2010] 5 S.C.R.

A journey, the contractor hereby agrees to transport
the Milk from the places on routes specified in
schedule-1 annexed to this agreement, which all·
·shall form part of this agreement.

J2) It is further agreed that the rate of specified above
B
shall include the cost of loading the milk at the
points specified as above into the vehicles,
transporting the same on the routes specified to the
specified Dairy/Chilling Centres and unloading the
same at the specified Dairies/Chilling centre. The
c contractor also bring back the empty cans, bottles,
etc. to the place from where he had taken them out.

(7) The contractor shall ply the vehicles owned by him
and shall provide/produce the vehicles with the
D registration certificate tax paid receipts,
comprehensive insurance certificate and all the
specified for the purpose of satisfying the ownership
of the vehicles and road worthiness of the vehicles
and farther undertakes to replace the such vehicles
E which in the option of the authorities of the.HCMP
SUL are not fit for the purpose of transporting the
milk as agreed to.

(9) The contractor shall make his own arrangements for
the engaging the workers required for loading and
F unloading and transport operations and further
agrees to abide by the provisions of the contract
labour (Regulation and Abolition) Act, in the matter
of. payment of their wages etc. and further indemnify
the HCMP SUL against any claim by such workers.
G
(14) The contractor shall strictly confirm to the various
instructions to be given from time to time by the
authorities of the HCMPSU Ltd., with regard to the
safe transportation of the can milk/sachet Milk and
H other materials as agreed to under this contract.
M.D., HASSAN COO. MILK PRODUCER'S SOCT. UNIOW,LTD. v. 249
ASSISTANT REGIONAL DIRECTOR, E.S.l.C. [R.M. LODHA, J.]

(17) The contractors further agreed that the addition to A
his workmen he shall allow the staff authorized
representatives of HCMPSU Ltd, including the
officials of the Milk Producing Co-operatives
societies to travel free of charges in the contractors
whi~. B

(26) (i) If any employee/representative of the contractor·
is found pilfering and/or adulterating and/or
destroying the milk and other items entrusted to the
contractor during th~ transportation or during/
loading/unloading operations to the premises of the C
milk producers Union/societies the contractor shall
responsible for the loss and the contractor shall
make good all such losses incurred by DCs from
the day of default upto 15 days H C M P S U Ltd.,
may at its discretion forfeit the security, deposit and D
terminate the contract.

(ii) If any employee of representative of the
Contractor misbehaves and or indulges in
disorderly conduct with the staff of the milk E
producers union/societies, or with the members of
the General public the H C M P S U Ltd., may
require the contractor to remove such undesirable
persons from the transport work. The contractor
shall not reemployed such undesirable persons who F
have been removed from the transport work either
by the contractor himself or by any other contractor
engaged by H C M P S U Ltd., "

16. As regards the agreements between BURDCMPS
Union and contractors, the relevant clauses are : G

"(1) In consideration of payment of transport charges by
the Dairy the Contractor at the rate of Rs.6-40
(Rupees six and paise forty only) per K.M. of
journey, the contractor shall carry in his motor H
250 SUP1.REME COURT REPORTS [2010] 5 S.C.R.

.A vehicles and deliver at the appointed sale points
the· Dairy products entrusted to him for such
purpose, once in the morning and one in the evening
or as required by the Dairy daily. The Contractor,
who files tenders for more than two routes should
B have one standing vehicle for replacement in the
event of any breakdown of his vehicle during the
transport of Dairy products. After delivery of the
Dairy products at all the sale point, the Contractor
shall deliver all the teens, crates containers and
c returned dairy products to the Dairy immediately
upon arrival at the Dairy.

(5) No person other than the persons employed by the
Dairy or the contractor for the purpose of Transport,
shall be carried in any vehicle of the contractor while
D it is engaged in the performance of this contract.

(6) The contractor shall promptly remove any employee
of his who behaves improperly with the Dairy staff
or the selling agents or their men at the sale points,
E on a complaint by the Dairy.

(7) If any pilferage or shortage or adulteration is found
to have occurred in the course of transport, the full
value of the Dairy property pilfered, short found or
adulterated shall be recoverable by the Dairy from
F the contractor. If any pilferage or shortage or
adulteration is found to have occurred in the course
of transport for second time, the contractor will also
incur the liability for cancellation of the contract in
addition to his liability to pay full value of the Dairy
G property pilfered, short-found or adulterated."

17. We shall assume, to test the validity of the contention,
in favour of the E.S.I. Corporation that workers engaged by the
contractor (immediate employer) for transportatior:i of milk have
H been employed in connection with the work of the principal
M.D., HASSAN COO. MILK PRODUCER'S SOCT. UNION LTD. v. 251
ASSISTANT REGIONAL DIRECTOR, E.S.l.C. (R.M. LODHA, J.)

employer and these employees, thus, qualify under first A
substantive part of Section 2(9). But as stated in Roya/
Talkies1 that merely being employed in connection with the
work of an establishment, in itself, does not entitle a person to
be an 'employee'; he must not only be employed in connection
with the work of the establishment but also be shown to be B
employed in one or other of the three categories mentioned in
Section 2(9). Are these workers covered by any of these
categories?

18. It is not the case of any of the parties nor there is any C
evidence to show that the persons who did loading and
unloading were directly employed by the appellants. Section_
2(9)(i) is, therefore clearly not attracted as it covers thework:ers
who are directly employed by the principal employer. As a
matter of fact, the thrust of the arguments centred round clause
(ii) of Section 2(9). This clause, requires either (a) that the D
person to be an employee should be employed on the premises
of the factory or establishment, or (b) that the work is done by
the person employed under the supervision of the principal·
employer or his agent on work which is ordinarily part of the
factory or establishment or which is preliminary to the work E
carried on in or incidental to the purpose of the factory or
establishment. The expression "on the premises of the factory
or establishment" comprehends presence of the persons on the
premises of the factory or establishment for execution of the
principal activity of the industrial establishment and not casual F
or occasional presence. We shall again assume in favour of
the E.S.I. Corporation that for the purposes of loading and
unloading the milk cans, the truck driver and loaders enter the
premises of the appellants but mere entry for such purpose
cannot be treated as an employment of those persons on the G
premises of the factory or establishment. We are afraid, the said
expression does not comprehend every person who enters the
factory for whatever purpose. This is not and can never be said
to be the purpose of the expression. It has to be held that the
persons employed by the contractor for loading and unloading H
252 SUPREME COURT REPORTS [2010) 5 S.C.R.

A of milk cans are not the persons employed on the premises of
the appellants' establishment.

1~- Now, the next question is, can these workers, in the
facts and circumstances of the case, be said to be working
under the supervision of the appellants. It is appropriate to refer
8
to a decision of this Court in c.i=.s.c. Limited and Others v.
Subhash Chandra Bose and Others7 . In that case, the question
that fell fo~ consideration was, whether on the facts found, the
right of the principal employer to reject or accept work on
C completion, on scrutinizing compliance with job requirements,
as accomplished by a contractor, the immediate employer;
through his employees, is in itself an effective and meaningful
"supervision" as envisaged under Section 2(9) of the 1948 Act.
The majority view explained :

D "14 ....... In the textual sense 'supervision' of the principal
employer or his agent is on 'work' at the places envisaged
and the word 'work' can neither be construed so broadly
to be the final act of acceptance or rejection of work, nor .
so narrowly so as to be supervision at all times and at each
E and every step of the work. A harmonious construction
alone would help to carry out the pu(pose of the Act, which
would mean moderating the two extremes. When the
employee is put to' work under the eye and gaze of the
principal employer, or his agent, where he can be watched
F secretly, accidentally, or occasionally, while the work is in
progress, so as to scrutinise the quality thereof and to
detect faults therein, as also put to timely remedial
measures by directions given, finally leading to the
satisfactory completion and acceptance of the work, that
would in our view be supervision for the purposes of
G
Section 2(9) of the Act. It is the consistency of vigil, the
proverbial 'a stich in time saves nine'. The standards of
vigil would .of course depend on the facts of each case.
Now this function, the principal employer, no doubt can

H 7. (1992) 1 sec 441.
M.D., HASSAN COO. MILK PRODUCER'S SOCT. UNION LTD. v. 253
ASSISTANT REGIONAL DIRECTOR, E.S.l.C. [R.M. LODHA, J.)

delegate to his agent who in the eye of law is his second A ·
self, i.e., a substitute of the principal employer. The
immediate employer: instantly, the electrical contractors,
can by statutory compulsion never be the agent of the
principal employer. If such a relationship is permitted to be
established it would not only obliterate the distinction B
between the two, but would violate the provisions of the Act
as well as the contractual principle that a contractor and a
contractee cannot be the same person ..........".

20. The decision also referred to the definition of "agent" C
drawn in Halsbury's Laws of England (Hailsham Edition) Vol. I
at page 145, para 350 which is as follows :

"An agent is to be distinguished on the one hand from a
servant, and on the other from an independent contractor.
A servant acts under the direct control and supervision of D
his master, and is bound to conform to all reasonable
orders given to him in the course of his work; an·
independent contractor, on the other hand, is entirely,·'
independent of any control or interference and merely
undertakes to produce a specified result,. employing his E
own means to produce that result. An agent, though bound
to exercise his authority in accordance with all lawful
instructions which may be given to him from time to time
by his principal, is not subject in its exercise to the direct
· control and supervision of the principal." F

21. After taking into consideration Section 182 of the Indian
Contract Act, 1872 that defines 'agent', the majority view
recorded its conclusion thus :

"20. Thus on both counts, the principal question as well G
as the subsidiary question must be answered against the
ESIC holding that the employees of the electrical
contractors, on the facts and circumstances, established
before the Division Bench of the High Court, do not come
in the grip of the Act and thus all demands made towards H
254 SUPREME COURT REPORTS [2010] 5 S.C.R.

A ,ESI contribution made against the CESC and the electrical
contractors were invalid. We affirm the view of the High
Court in that regard."

. 22. Although, E.S.I. Court in respect of the appellants in
separate orders, has recorded a finding that such workers work
8
unde( the supervision of the principal employer and the said
finding has not been interfered with by the High Court but we
find it difficult to accept the said finding. The ordinary meaning
of the word 'supervision' is 'authority to direct' or 'supervise'
C i.e., to oversee. The expression 'supervision of the principal
employer' und.er Section 2(9) means something more than mere
exercise of some remote or indirect control over the activities
or the work of the workers. As held in C.E.S.C. Ltd.7 that
supervision for the purposes of Section 2(9) is 'consistency of
vigil' by the principal employer so that if need be, remedial
D measures may be taken or suitable directions given for
satisfactory completion of work. A direct disciplinary control by
the principal employer over the workers engaged by the
contractors may also be covered by the expression 'supervision
of the principal employer'. The circumstances, as in the case
E of HCMPSU Ltd., that the authorized represefltatives of the
principal employer are entitled to travel in the vehicle of the
contractor free of charge or in the case of BURDCMPS Union,
that the principal employer has right to ask for removal of such
workers who misbehave with their staff are not the
F circumstances which may even remotely suggest the control or
interference exercised by the appellants over the workers
engaged by the contractor for transportation of milk. From the
agreements entered into by the appellants with the contractors,
it does not transpire that the appellants have arrogated to
G them.selves any supervisory control over the workers employed
by the contractors. The said workers were under the direct
control of the contractor. Exercise of supervision and issue of
some direction by the principal employer over the activities of
the contractor and his. employees is inevitable in contracts of
H this nature and that by itself is not sufficient to make the principal
M.D., HASSAN COO. MILK PRODUCER'S SOCT. UNION LTD. v. 255
ASSISTANT REGIONAL DIRECTOR, E.S.l.C. [RM. LODHA, J.]

employer liable. That the contractor is not an agent of the A
principal employer under Section 2(9)(ii) admits of no
ambiguity. This aspect _has been succinctly explained in
C.E.S.C. Ltd.7 with which we respectfully agree. No evidence
has been collected bf the E.S.I. Corporation during the
inspection of the appellants' establishments or from the B
contractors that the appellants have any say over the terms and
conditions of employment of these employees or that the
appellants have any thing to do with logistic operations of the
contractors. As a matter of fact, there is nothing on record to
show that principal employer had any knowledge about the c
number of persons engaged by the contractors or the names
or the other details of such persons. There is also no evidence
that the appellants were aware of the amount payable to each
of these workers. In the circumstances, even if it be held that
the transportation of milk is incidental to the purpose of factory
0
or establishment, for want of any supervision of the appellants
on the wori< of such employees, in our opinion, these
employees are not covered by the definition of 'employee'
under Section 2(9) of the Act.

23. As a result of the foregoing discussion, both appeals E
are allowed and the impugned orders are set aside. No order
as to costs.

N.J. Appeals allowed.

. I