Manager, M/S. Pyarchand Kesarimal
Ponwal Bidi Factory Vs. Omkar Laxman Thange & Ors  INSC 235 (27
27/09/1968 SHELAT, J.M.
CITATION: 1970 AIR 823 1968 SCR (2) 272
Industrial Dispute--Transfer of employment
from one employer to another--Such transfer must be preceded by termination of
employment with first employer and a new contract--Establishment to whom
services of employee are lent by employer has no right to dismiss employee from
The appellant-firm had a number of factories
including one at Kamptee in Vidharba. Its head office was also situated there,.
The factory at Kamptee and the head office were treated as separate
establishment. the factory being registered under the Factories Act and the
Head Office under the C.P. and Berar Shops and Establishments Act, 1947.
Respondent No. 1 was originally employed at
the aforesaid factory but later he was directed to work at the head office.
When the Head Office dismissed him from service he challenged the order of
dismissal by an application under s. 16 of the C.P. & Berar Industrial
Disputes settlement Act.
The Assistant Commissioner dismissed the
application holding that Respondent No. 1 at the material time was not an employee
of the factory but was employed in the Head Office.
The Industrial Court refused, in revision, to
interfere with the Assistant Commissioner's order. Respondent No.. 1 filed a
writ petition under Art. 226 of the Constitution. The High Court observed that
unless it was established that the employment of Respondent No. 1 in the
factory was legally terminated it could be assumed merely because he was direct
to work in the head office, that his employment was changed and the head office
was substituted as his. employer in place of the said factory., As the order
passed by the Assistant Commissioner was not clear on this question the High
Court remanded the case for disposal according to law.
The firm appealed to this Court.
HELD: (i) A contract for service is incapable
of transfer unilaterally. Such a transfer of service from one employer to
another can only be effected by a tripartite agreement between the employer,
the employee and the third party, the effect of which would be to terminate the
original contract of service by mutual consent and to make a new contract
between the employee and the third party. So long as the contract of service is
not terminated, a new contract is not made as aforesaid, and the employee
continues to be in the employment of the employer.
Therefore, when an employer orders him to: do
certain work for another person the employee still continues to be in his
employment. The only thing that happens in such a case is that he carries out
the orders of his master. The employee has the right to claim his wages from
the employer and not from the third party to whom his services are lent or
hired. It may be that such a third party may pay his wages during the time that
he has hired his services, but that is because of his agreement with the
employer. that does not preclude the employee from claiming his wages from the
employer. the hirer may also. exercise control and direction in the doing of
the thing for which he is hired or even the manner in which it is to be done.
But if the employee fails to. carry out his direction he cannot 273 dismiss him
and can only complain to the employee. The 'right of dismissal vests with the
employer. [279 &F] Such being the position in law, in the present case the
High Court was right in- setting aside the order of the Assistant Commissioner
and the Industrial Court on the ground that unless a finding was reached on the
facts of the case that the contract of service with the said factory came to an
end and a fresh contract with the head office came into being, Respondent No. 1
continued to be in the employment of the factory and the head office therefore
was not competent to dismiss him. [281 F] Mersey Docks and Harbour Board v.
Coggins & Griffith (Liverpool) Ltd.  A.C. 1 at 17, Century Insurance Co.
Ltd. v. Northern Ireland Road Transport Board,  A.C. 509, Quarman v.
Burnett, (1840) 6 M. & W. 499', Jones v. Scullard,  2 Q.B. 565, Nokes
v. Doncaster Amalgamated Collieries, Ltd.  3 All England Law Reports 549
and Denham v. Midland Employees Mutual Assurance Ltd.,  2 Q.B. 437,
Jestamani Gulabrai Dholkia v. The Scindia
Steam Navigation Company  2 S.C.R. 811, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 793 of 1966.
Appeal by special leave from the judgment and
order dated August 21, 1964 of the Bombay High Court, Nagpur Bench in Special
Civil Application No. 353 of 1963.
M.N. Phadke, Naunit Lal and B.P. Singh, for
D.D. Verma and Ganpat Rai, for respondent No.
The Judgment of the Court was delivered by
Shelat, J. This appeal, by special leave, is directed against the order of the
High Court of Bombay (Nagpur Bench) which set aside the orders of the Assistant
Commissioner of Labour and the Industrial Court, Nagpur and remanded the case
to the Assistant Commissioner.
The appellant-firm conducts a number of bidi
factories at various places in Vidharba including the one at Kamptee.
Its head office is also situate there. The
factory at Kamptee and the head office have always been treated as separate
entities though owned by the same firm.
Consequently, the head office was registered
under the Central Provinces & Berar Shops and Establishment Act, 1947 and
the factory at Kamptee was registered under the Factories Act. The factory has
also its own standing orders certified under the Central Provinces & Berar
Industrial Disputes Settlement Act, 1947. Respondent 1 was originally employed
in the factory at Kamptee. Two or three years thereafter he was directed to
work at the head office and worked therein for about six years prior to the
impugned order of dismissal passed against him by the munim of the head office.
Aggrieved by the order he flied 274 an application under s. 16 of the C.P.
& Berar Industrial Disputes Settlement Act alleging that the said order was
incompetent and illegal. The appellant-firm contended that at the material time
Respondent 1 was employed as a clerk in the head office, that the head office
was a separate entity, that the dismissal order had not been passed 'by the
appellant-firm as the owner of the said factory, that the firm, as such owner,
was wrongly impleaded and that the application was misconceived.
The Assistant Commissioner dismissed the
application holding that Respondent 1 at the material time was not the employee
in the factory, but was employed in the firm's head office. He relied on the
fact that the head office and the factory had separate rules, that Respondent 1
used to sign his attendance in the register of the head office, that he was being
paid his salary by the head office, and lastly, that his name was not on the
muster roll of the factory. He also found that whereas the staff of the head
office was governed by the C.P. & Berar Shops & Establishments Act, the
factory was governed by the C.P. & Berar Industrial Disputes Settlement
Act. Against the dismissal of his ,application, Respondent 1 filed a revision
application before the Industrial Court, Nagpur. The Industrial dismissed the
application holding that the only question raised before it was whether
Respondent 1 was the employee of the head office and that that being purely a
question of fact, he could not interfere with the finding of fact arrived at by
the Assistant Commissioner. Respondent 1 thereafter filed a writ petition in the
High Court challenging the said orders.
The High Court held that it was possible in
law for an employer to have various establishments where different kinds of
work would be done, in which case an employee in one establishment would be
liable to be transferred to another establishment. But the High Court observed
that unless it was established that the employment of Respondent 1 in the
factory was legally terminated it could not be assumed, merely because he was
directed to work in the head office, that his employment was changed and the
head office was substituted as his employer in place of the said factory. As
the order passed by the Assistant Commissioner was not clear on this question,
the High Court remanded the case for disposal according to law.
Mr. Phadke for the appellants, raised the
following contentions against the High Court's order: (1) that the High Court
made out a new case for Respondent 1, in that Respondent 1 had never challenged
the validity of the order of dismissal on the ground that there was no change
of employment, and that therefore, the head office was incompetent to order his
dismissal, (2) that the facts of the case justified the conclusion that
Respondent 1 had ceased to be the employee of the factory, and (3) that in any event
he must be held to have given an implied consent to 275 his being treated as
the employee of the head office. In support of these contentions he relied upon
the fact that Respondent 1 had worked at the. head office for the last six
years without any protest, that his name was on the attendance register of the
head office, that it was the head office which paid his salary, and lastly,
that he worked in the head office under the direction and control of the minim
of that office.
As to the first contention, it would not be
correct to say that the High Court made out a new case for the first time for
Respondent 1 which was not pleaded by him before the Assistant Commissioner. In
para 1 of his application he had expressly averred that about three years after
his employment in the factory he had been ordered to work in the head office.
In reply to the application the appellants conceded that though Respondent 1
was first employed in the factory and had worked there for about three years,
he had thereafter been transferred to and been working as a clerk in the head
office. There was, however, no averment in that reply that the contract of
service of Respondent 1 with the said factory was at any time put an end to or
that when he was directed to work in the head office a fresh contract of
service was entered into. between. him and the head office.
The Assistant Commissioner in his said order
held that the head office and the factory were two separate establishments
registered under two different Acts, and, therefore, subject to different
provisions of law. He further held that since Respondent 1 was not actually
working in the factory and his name did not figure in the factory's muster roll
and was not paid his wages by the factory, the applicant could not be said to
be an employee of the said factory. In his revision application before the
Industrial Court, Respondent 1 made an express plea that when he was directed
to work in the head office, he had received no notice from the factory that his
services were terminated there or that he had henceforth become the employee of
the head office. It is clear from these pleadings that it was not for the first
time in the High Court that Respondent 1 contended as to the incompetence of
the head office to take disciplinary action against him and to pass the order
of dismissal. The first contention of Mr. Phadke, therefore, cannot be
As regards the second and the third
contentions, there is no dispute that though the head office and the said
factory belong to the same proprietors, they were always treated as two
distinct entities registered under two different Acts, that Respondent 1 was
employed first in the factory where he worked for 2 or 3 years and was
thereafter ordered to work at the head office where admittedly he worked for
about six years before the impugned order terminating his services was passed.
The question, therefore, which the Assistant Commissioner and the Industrial
Court had to decide, in view of the pleadings of the parties, was whether 276
Respondent 1 had ceased to be the employee of the factory and was in the
employment of the head office at the time when the impugned order was passed,
or whether his services were simply lent to the head office and he continued
all along to be the employee of the factory ? The general rule in respect of
relationship of master and servant is that a subsisting contract of service
with one master is a bar to service with any other master unless the contract
otherwise provides or the master consents. A contract of employment involving
personal service is incapable of transfer. Thus, where a businessman joins a
partnership firm and takes his personal staff with him into the firm, his staff
cannot be made the staff of the firm without the consent of the other partners.
of. Mersey Docks and Harbour Board v. Coggins & Griffith (Liverpool)
In certain cases, however, it is. possible to
say that an employee has different .employers, as when the employer, in
pursuance of a contract between him and a third party, lends or hires out the
services of his employee to that third party for a particular work. Such an
arrangement, however, does not effect a transfer of the contract of service
between the employer and his employee, but only amounts to a transfer of the
benefit of his services. of. Century Insurance Co. Ltd. v. Northern Ireland
Road Transport Board("). In such cases where a third party engages another
person's employee it is the general employer who is normally liable for the
tortuous acts committed by the employee and his liability is not affected by
the existence of a contract between him and the third party under which the
services of the employee are lent or hired out for a temporary period to such
third party. In order to absolve the employer from the liability and to make
the person who. temporarily engages the employee or hires his services it is
necessary to prove that the relationship of master and servant was temporarily
constituted between such third party and the employee, and that it existed at
the time when the tortuous act was committed by the employee. There is,
however, a presumption against there being such a transfer of an employee as to
make the hirer or the person on whose behalf the employee is temporarily
working and a heavy burden rests on the party seeking to establish that the
relationship of master and servant has been constituted pro has vice between
the temporary employer and the employee of. Mersey Docks and Harbour Board v.
Coggins & Griffith (Liverpool) Ltd.(1). In cases where an employer has
hired out or lent the services of his employee for a specific work and such an
employee has caused damage to another person by his tortuous act, the question
often arises as to who of the two, i.e.
the employer or the person to whom such
services are hired out or lent, is  A.C. 1 at 17. (2)  A.C. 509.
277 vicariously responsible for such damage.
In cases commonly known as cranes and carriage cases, courts in England evolved
the rule of the employee being temporarily the employee of such third party to
impose the responsibility on him if it was established that in the matter of
the act, in the performance of which the tortuous act was committed, such third
party had exercised control and direction over the performance of the act in question
and the manner in which it was to be performed. The classic case commonly cited
and in which this rule was applied is Quarman V. Burnett (1) of. also Jones v.
Scullard(2) where Lord Russel applied the test of the power to, direct and
control the act in performance of which damage was caused to another person.
The position in law is, therefore, clear that except in the case of a statutory
provision to the contrary, a right to the service of an employee cannot be the
subject matter of a transfer by an employer to a third party without the
employee's consent. Thus, in Nokes v.
Doncaster Amalgamated Collieries, Ltd. (3)
where an order was made under s. 154 of the Companies Act, 1929 transferring
all the assets and liabilities of a company to another company. Viscount Simon
held that such an order did not mean that contracts of service between the
appellant and the transferer-company also stood transferred. The principle that
even in cases where the services of an employee are lent to a third party
temporarily for a particular work, the employee still remains the employee of
the employer is illustrated in Denham v. Midland Employees Mutual Assurance
Ltd.(4). There Eastwoods Ltd. employed Le Grands to make test borings on their
property. Le Grands provided two skilled drillers with plant and tackle to
carry out the borings and Eastwoods Ltd. agreed to provide one of the
labourers, one Clegg to assist those skilled men free of charge to Le Grands.
While the said work .was being carried out, Clegg was killed in circumstances
in which Le Grands were liable to pay damages to his widow on the ground that
his death was caused on account of the negligence of Le Grands or their
servants. Le Grands sought to be indemnified by their insurers against their
They were covered by two policies, one with
the Midland Employers Mutual Assurance Ltd. in respect of their liability to
the employees and the other with Lloyds in respect of their liability to the
public in general. The policy issued by the Midland Employers Mutual Assurance
provided that if any person "under a
contract of service" with the insured were to sustain any personal injury
by accident caused during the period of employment, and if the insured became
liable to pay damages for such injury the association would indemnify the
insured against all sums for which he would be so liable. The policy issued by
the Lloyds indemnified Le Grands for any sums for which they might become
liable to (1)  6 M. & W. 499.
(2)  2 Q.B. 565.
(3)  3 All England Law Reports 549.
(4)  2 Q.B.437.
278 pay in respect of death or accidental
bodily injury to persons and loss or damage to. property arising in or out of
the business of borings carried out by Le Grands. The question was whether at
the time of his death Clegg was the servant of Le Grands and under "a
contract of service" with them as provided in their policy with the
Midland Assurance Ltd. Dealing with that question, Denning, L.J. observed that
the difficulty which surrounded such a subject arose because of the concept
that a servant of a general employer may be transferred to a temporary employer
so as to become for the time being his .servant. Such a concept was, he said, a
very useful device to place liability on the shoulders of the one who should
properly bear it, but did not affect the contract of service itself. No
contract of service can be transferred from one employer to another without the
servant's consent and such consent is not to be raised by operation of law but
only by the real consent in fact of the man express or implied. He further
"In none of the transfer cases which has
been cited to us had the consent of the man been sought or obtained. The
general employer has simply told him to go and do some particular work for the
temporary employer and he has gone. The supposed transfer, when it takes place,
is nothing more than a device---a very convenient and just device, mark you--to
put liability on to the temporary employer;
and even this device has in recent years been
very much restricted in its operation. It only applies when the servant is
transferred so completely that the temporary employer has the right to.
dictate, not only what the servant is to do, but also how he is to do it."
Applying these principles to the facts before him, he observed that he had no
doubt that if a third person had been injured by the negligence of Clegg in the
course of his work, Le Grands and not Eastwoods would be liable to such third
person. So. also, when Clegg himself was killed, Le Grands were liable to his
widow on the same footing that they were his masters and not merely invitors.
These results were achieved in law by holding that Clegg became the temporary
servant of Le Grands. He further observed that there was no harm in thus
describing him so long as it was remembered that it was a device designed to
cast liability on the temporary employer. However, on the question whether
Clegg was "under a contract of service" with Le Grands, he held that
he was not, for his contract of service was with East woods. They had selected
him and paid his wages and they alone could suspend or dismiss him.
Clegg was never asked to consent to a
transfer of the contract of service and he never did so. If he was not paid his
wages or if he was wrongfully dismissed from 279 the work, he could sue
Eastwoods for the breach of contract and no one else. If he failed to turn up
for work, Eastwoods alone 'could sue him. He could, therefore, see no trace of
a contract of service with Le Grands except the artificial transfer raised by
law so as to make Le Grands liable to others for his faults or liable to him
for their own faults and that the artificial transfer so raised cannot be said
to be a contract of service within the said policy of assurance. Le Grands,
therefore, were not entitled to 'be indemnified by the Midland Assurance
Company under the employers' liability policy but were entitled to be
indemnified by Lloyds under their public liability policy.
A contract of service being thus incapable of
transfer unilaterally, such a transfer of service from one employer to another
can only be affected by a tripartite agreement between the employer, the
employee and the third party, the effect of which would be to terminate the
original contract of service by mutual consent and to make a new contract
between the employee and the third party. Therefore, so long as the contract of
service is not terminated, a new contract is not made as aforesaid and the
employee continues to be in the employment of the employer. Therefore, when an
employer orders him to do a certain work for another person the employee still
continues to be in his employment. The only thing that happens in such a case
is that he carries out the orders of his master. The employee has the right to
claim his wages from the employer and not from the third party to whom his
services are lent or hired. It may be that such third party may pay his wages
during the time that he has hired his services, but that is because of his
agreement with the employer. That does not preclude the employee from claiming
his wages from the employer. The hirer may also exercise control and direction
in the doing of the thing for which he is hired or even the manner in which it
is to be done. But if the employee fails to carry out his directions he cannot
dismiss him and can only complain to the employer. The right of dismissal vests
in the employer.
Such being the position in law, it is of the
utmost importance in the present case that the appellants at no time took the
plea that the contract of employment with the factory was ever terminated or
that the respondent gave his consent, express or implied, to his contract of
service being transferred to the head office, or that there was a fresh
contract of employment so brought about between him and the head office.
Unless, therefore, it is held from the circumstances relied upon by Mr. Phadke
that there was a transfer of the contract of service or that Respondent 1 gave
his consent, express or implied, to such a transfer, Respondent 1 would
continue to be the servant of the factory. Since the case has been remanded to
the Assistant Commissioner, we refrain from making any observations as regards
the effect of the admissions 280 said to have been made by Respondent 1 and relied
on by the Assistant Commissioner.
Mr. Phadke, however, relied on Jestamani
Gulabrai Dholkia v. The Scindia Steam Navigation Company(1) in support of his
contention that there was a transfer of the contract of employment and that it
was not a mere transfer of the benefit of the services of Respondent 1. In that
case the appellants were originally in the service of the Scindia Steam
Navigation Company. In 1937 Air Services of India Ltd. was incorporated. In
1943, the Scindias purchased the ASI and by 1946 ASI became a full-fledged
subsidiary of the Scindias. Between 1946 to 1951 the Scindias transferred
several of their employees including the appellants to the ASI. The Scindias
had a number of such subsidiary companies and it was usual for them to transfer
their employees to such companies and also to recall them whenever necessary.
In 1953, the Government of India decided to nationalise the airlines operating
in India with effect from June 1953. On April 6, 1953 the appellants wrote to
the Scindias to recall them to their original posts but the Scindias refused to
do so as they were not in a position to absorb them. They pointed out that a
Bill, called the Air Corporation Bill, 1953, was pending before Parliament,
that under cl. 20 thereof persons working with ASI on the appointed day would
become the employees of the Corporation, that under that clause they had the
option to resign if they did not wish to join the Corporation and that if the
appellants exercised that option. the Scindias would treat them as having
resigned from their service. The Act was passed on May 28, 1953. Sec. 20 of the
Act provided that every employee of an existing air company employed by such
company prior to July 1, 1952 and still in its employment immediately before
the appointed day, shall, in so far as such employee is employed in connection
with the undertaking which has vested in the Corporation by virtue of the Act,
become, as from the appointed date, the employee of the Corporation in which
the undertaking has vested. On june 8, 1953 the appellants made a demand that
if the Corporation were to retrench any persons from the staff loaned to ASI
within the first five years, the Scindias should take them back. The Scindias
refused. None of the appellants had exercised the option provided by s. 20 (1
On August 1, 1953 ASI became vested in the
Corporation and s. 20( 1 ) came into force as from that date. The appellants
contended inter alia that the contract of service between them and the Scindias
was not transferable. The contention was rejected on the ground that by reason
of s. 20(1) the contract of service of the appellants stood transferred to the
Corporation and that though the appellants were not originally recruited by ASI
and were transferred by the Scindias to the said company, (1)  2 S.C.R.
281 they were the employees of ASI and were
such employees on the appointed day and since they had not exercised the option
under s. 20( 1 ) they became the employees of the Corporation by operation of
The Scindias, therefore, were no longer
concerned with them.
It is true that the appellants were
transferred to ASI on condition that they would receive the same remuneration
and other benefits as they were getting in the Scindias and further that it was
possible to contend that Scindias alone could dismiss them. But the learned
Judges explained that these were special terms applicable to the appellants.
But in spite of them they still had become the employees of the ASI and were
such employees on the appointed day. It seems that this conclusion was reached
on the footing that since ASI was the subsidiary company of the Scindias like
several other subsidiary companies, and it was. usual for the Scindias to
transfer any of their employees to such subsidiary companies, the appellants on
their transfer were deemed to have consented to become the employees of ASI in
spite of the right of the Scindias to recall them whenever necessary and
further that the appellants continued to be and were the employees of the ASI
on the appointed day and were, therefore, governed by s. 20(1 ) if the Act. It
is clear that this was a case of employees becoming the employees of the
Corporation by virtue if the operation of a statute. The decision, therefore,
is not an authority for the proposition that an employer can transfer his
employee to a third party without the consent of such employee or' without
terminating the contract of employment with him. That being the position, the
case of Jestamani v. The Scindia Steam Navigation(x) cannot assist Mr. Phadke.
In our view the High Court was, right in
setting aside the order of the Assistant Commissioner and the Industrial Court
on the ground that unless a finding was reached on the facts of the case that
the contract of service with the said factory came to an end and a fresh
contract with the head office came into being Respondent 1 continued to be in
the employment of the factory and the head office, therefore, was not competent
to dismiss him. The appeal, therefore, fails and is dismissed with costs.
G.C. Appeal dismissed.
(1)  2 S.C.R. 811.