Sushilaben Indravadan Gandhi & Another vs. The New India Assurance Company Limited and Others

“INTRODUCTION”.

“The dilemma of how to determine if someone is an employee or a contractor has been brought up constantly before India’s highest court, the Hon’ble Supreme Court of India (“Supreme Court”). The Supreme Court has established the criteria that must be met before a person may be considered an employee of their company. While considering an insurance claim, the Supreme Court has elaborated on the distinction between a “contract of service” and a “contract for service” in the case of Sushilaben Indravadan Gandhi & Others v. The New India Insurance Company Ltd & Others.”[1]

BRIEF FACTS OF THE CASE

“Dr. Alpesh Gandhi, the deceased husband of Sushilaben Indravadan Gandhi, had entered into a contract for services (“Contract”) as an Honorary Ophthalmic Surgeon with Rotary Eye Institute, Navsari, (“Institute”). The fatality occurred when the driver of an Institute-owned minibus lost control of the vehicle and crashed. The victim was severely injured and died as a result of his wounds. The Institute had purchased a full auto insurance policy (the “Policy”) from The New India Insurance Company (the “Company”) a few months prior to the incident. The Policy’s limitation of liability provision indicated that it protected the insured, but it did not extend coverage to Institute staff. “If an unnamed passenger, other than the insured or his paid driver attendant or cleaner, or a person in the insured’s employ who is covered by the Workman Compensation Act, 1923 and is engaged in and upon the service of the insured at the time of injury, sustains an injury, the Institute will receive compensation from the Company. This endorsement, IMT 5, cost the Institute an additional premium. Employees of the Institute were not covered by the Policy even after the IMT 5 was implemented.”

“After Dr. Alpesh Gandhi’s untimely passing, his family filed a claim for INR 1 crore in compensation with the Motor Accidents Claims Tribunal (“Tribunal”) under Section 166 of the Motor Vehicles Act, 1988 (MACP No.1326 of 1997). The petition named the driver, the Institute, and the Company as defendants. The Company argued that the petition should be denied because the deceased was an Institute employee, which would make the Company immune to liability under the Policy. However, after due consideration, the Tribunal ruled in favour of the petition, finding that the Contract was a “contract for service” and that the deceased could not be considered to have been in the Institute’s employ at the time of the accident. The Tribunal found that the Appellants were entitled to compensation in the amount of Rs. 37,63,100/- (Rupees Thirty Seven Lakhs Sixty Three Thousand One Hundred Only), and it ordered the three Respondents to pay it jointly and severally.”

GUJARAT HIGH COURT DECISION

“Nevertheless, the Gujarat High Court disagreed with the lower court, ruling that the contract between Dr. Gandhi as well as the hospital constituted a “Contract of service,” and that the respondent was entitled to compensation in the amount of Rs. 50,000, with the remaining expenditures to be covered by the Hospital.”

ISSUES BEFORE THE HON’BLE SUPREME COURT

The issue of the case that was noted by the Supreme Court are as follows:

1) Whether the deceased had a “contract of service” or “contract for service” with the said hospital, i.e., whether he could be considered as an employee of the hospital?

2) Whether the policy between the company and the hospital will cover the deceased on the basis of the contractual agreement shared by the deceased and the hospital?

ARGUMENTS PRODUCED BEFORE THE COURT

1. “The appellant’s defence counsel relied heavily on the decision of Dharangadhara Chemical Works Ltd. v. State of Saurashtra[2] to argue that the deceased’s arrangement with the hospital was a “contract for service” rather than an employment relationship. As the dead was not a regular employee, his contract did not entitle him to any of the financial perks afforded to other workers under the hospital’s leave policy. The hospital paid the deceased an honorarium of Rs. 4000 for his efforts.”
2. “The respondent’s counsel argued that the departed should not be classified under IMT-5 but rather IMT-16 since the contract was a contract of service, making the deceased an employee of the hospital. The defendant company would not cover the deceased since the hospital did not pay for the endorsement of IMT-16.”

OBSERVATION OF THE HON’BLE SUPREME COURT

“The Supreme Court referred to various judgments and the tests laid down in these judgments to determine whether the Contract is a ‘contract for service’ or a ‘contract of service’. “The Supreme Court thereafter made the following observations:”

1. The earlier test of an employer’s control has given way to more complex tests, with factors both for and against the contract being a “contract of service” as opposed to a “contract for service,” because society has evolved from a simple agrarian society to a complex modern society in the computer age. This is only one of several criteria that help establish whether a transaction is a “contract of service” or “contract for service.” Furthermore, the control test plainly fails when it comes to experts who may be engaged, as it is impossible to control not just the task that is provided but also the method in which it is to be done.
2. That whether a person employed is integrated into the employer’s business or is a mere accessory thereof is another important test.
3. A test flexible enough to apply to a wide range of instances is the three-pronged one given forth by several English rulings, namely, whether salary or other payment is paid by the employer, if there is a sufficient degree of control by the employer, and other criteria.
4. Another essential factor in determining whether work is to be completed by independent contractors as opposed to piece-rated employees is identifying who owns the assets with which the job is to be done and/or who ultimately generates a profit or loss.
5. In determining whether a worker is an independent contractor or an employee, the economic reality test established by many U.S. cases and the test of whether the employer has economic control over the worker’s subsistence, skill, and continuous employment may both be used.
6. To find the appropriate answer, it is also crucial to assess whether or not the individual who has hired himself to do the work is acting as a sole proprietor.

“The Supreme Court ruled that there is no universal standard that can be used everywhere that would always provide the right conclusion. It noted that, especially in a complicated hybrid scenario, determining whether the contract to be interpreted is a “contract of service” or a “contract for service” requires a combination of all the applicable criteria applied on the totality of the circumstances in each case. The applicability of the aforementioned considerations depends on the specifics of each instance. The Supreme Court concluded that it must strike a careful balance between competing considerations before reaching a decision. The Supreme Court said that the circumstances surrounding a decision are crucial. The balance would shift in favour of recognizing the contract as one of service if it were used in the context of a law that helps the most vulnerable members of society. But if the context isn’t a helpful law or it’s merely a contract, and the law or contract itself seems to favour a contract for service, then, all else being equal, the contract should be interpreted as one for service. Hence, the Supreme Court, after examining the foregoing, concluded that the considerations contributing to render the Contract a ‘contract for service’ significantly exceeded the reasons suggesting differently. The Supreme Court also ruled that the Contract is between the Institute and a freelance expert by using the economic reality test.”

“Finally, the Supreme Court reversed the High Court’s decision and reinstated the Tribunal’s ruling. To compensate for the new, complex modern society and the emergence of independent professionals contracted by employers to provide services, the Supreme Court, while passing the judgement, laid down various tests to determine the nature of the relationship between an employer and an employee beyond the earlier control test.”

“CONCLUSION”

An essential ruling for differentiating “Contract of Service” from “Contract for Service” is presented above. The Court’s decision helps clarify that it is not uncommon for people to be denied benefits because different laws apply to the same situation. The Court’s decision that no single criterion may be used to define “workman” is significant. In addition, the ‘Test of Control’ is not the only criterion to consider when deciding whether or not a person is an employee. The case stressed socioeconomic considerations and argued that in cases of legal ambiguity, socio-benefit statutes should be invoked to provide recompense for the most in need. Regarding the social welfare and benefit of the society, the Supreme Court’s decision in this case promotes in extending the grounds for determination of the test and the definition itself, which is a welcome development and actually establishes a positive precedent for future decisions in the same topic.

[1] Sushilaben Indravadan Gandhi & Another v. The New India Assurance Company Limited and Others, Civil Appeal No. 2235 of 2020.

[2] Dharangadhara Chemical Works Ltd. v. State of Saurashtra, 1957 AIR 264.