Sushilaben Indravadan Gandhi v. New India Assurance Company Limited

A surgeon on a hospital minibus died in an accident. The hospital's insurer said he was an employee, so its policy excluded the claim. The Supreme Court asked whether his contract was a contract of service (employment) or a contract for services (an independent professional's work). It held he was an independent professional. It added that an unclear exclusion in an insurance policy is read against the insurer.

Quick Revision

Read the full judgment: Indian Kanoon (unofficial copy)

Parties

Sushilaben Indravadan Gandhi and another — appellants. Appellant No. 1 is the wife of Dr. Alpesh I. Gandhi, the deceased. The judgment does not name the other appellant.

The New India Assurance Company Limited — respondent No. 1; the insurer under the policy.

Respondent No. 2 — the driver of the mini-bus. He did not appear before the Tribunal (para 6). The judgment does not name him.

Rotary Eye Institute, Navsari — respondent No. 3; the Institute that owned the mini-bus, insured it and had the contract with Dr. Gandhi.

Shri Vikas Kochar — counsel for the appellants (para 10).

Procedural History

1. The appellants filed MACP No. 1326 of 1997 under Section 166 of the Motor Vehicles Act, 1988, against the driver, the Institute and the insurer. They claimed INR 1 crore (para 5).
2. The driver and the Institute did not appear, though served. The insurer filed a written statement denying the claim and pleading the employment exclusion (para 6). The Tribunal framed issues on rash driving, entitlement to compensation, whether the risk was covered and whether the exclusion applied. It answered the first two and the issue on cover in the affirmative, and the issue on the exclusion in the negative (para 6).
3. The Motor Accident Claims Tribunal found rash and negligent driving and a valid licence. It held the contract was one for service and made all three respondents jointly and severally liable for INR 37,63,100 with interest at 8 per cent per annum (para 7).
4. 26 July 2018. The Gujarat High Court reached the opposite view. It held that the contract was one of service and held the insurer liable only up to INR 50,000 (para 8).
5. The appellants appealed to the Supreme Court by special leave, and leave was granted (paras 1, 9).
6. 15 April 2020. The Supreme Court allowed the appeal, set aside the High Court judgment and restored the Tribunal's judgment (para 36).

Facts

1. 9 June 1997. The husband of Appellant No. 1, a surgeon, was travelling with other medical staff in a mini-bus owned by the Rotary Eye Institute, Navsari. The driver drove at excessive speed and lost control at about 8.30 P.M. on the Gandevi-Navsari Road, near Kabhar Patiya. The vehicle overturned, and he died of his injuries (para 2).
2. On 17 April 1997 the Institute took a comprehensive Private Car B Policy from the New India Assurance Company, valid from 24 April 1997 to 20 April 1998 (para 3).
3. Section II of the policy covered liability to third parties, including death of or injury to any person, including occupants not carried for hire. It excluded death or injury arising out of and in the course of the person's employment by the insured, except as needed to meet the Motor Vehicles Act (para 3).
4. Endorsement IMT-5 gave personal accident cover to unnamed passengers other than the insured, his paid driver, attendant or cleaner, and persons in his employ within the Workmen's Compensation Act, 1923. Death attracted 100 per cent compensation. Additional premium was paid for IMT-5 (para 3).
5. Endorsement IMT-16 covered general liability to employees of the insured travelling in the car, other than paid drivers, on payment of additional premium. No such premium was paid for IMT-16 (para 3).
6. Dr. Alpesh I. Gandhi had a contract for services dated 4 May 1996 as Honorary Ophthalmic Surgeon at the Institute. It was effective from 1 April 1996 (para 4).
7. The contract fixed an honorarium of Rs 4,000 per month. It also paid him 10 per cent of the appropriate percentage of money set aside from OPD collections, the operation fee component of hospitalisation bills and room visiting fees. These were in addition to the honorarium. He had to visit patients hospitalised under his care for post-operative care (para 4).
8. He was to devote full time to the Institute. His duties included OPD examinations, operations, emergency cases, camps, research and development, presenting papers, training junior doctors and any other assignment that might arise (para 4).
9. He was governed by the Institute's leave rules but had no financial benefit applicable to regular employees. He had weekly offs, public holidays and 30 days' contingency leave. He was governed by the Institute's conduct rules as applicable to regular employees (para 4).
10. Disputes went to the Managing Committee of the Institute, whose decision was final. The contract ran for three years from 1 April 1996, extendable by mutual consent (para 4).
11. Termination needed three months' notice from either side, or payment of the honorarium for the last three months in lieu. For proven indiscipline or breach of trust, the Institute could terminate at any time without compensation (para 4).
12. Clause XI said that from 1 April 1996 he was no longer a regular employee. It said his earlier appointment order No. 10795 dated 3 April 1995 became null and void (para 4).
13. The appellants claimed INR 1 crore. They said Dr. Gandhi was 28 years old and earned INR 13,000 per month (para 5).
14. The Tribunal found annual income of INR 1,47,000. Following Sarla Verma v. DTC, it arrived at monthly income of INR 18,275 after deductions and future prospects, and applied a multiplier of 17 to INR 2,19,300, making INR 37,28,100. It added INR 25,000 for consortium and INR 10,000 for funeral expenses, giving INR 37,63,100 (para 7).
15. The High Court limited the insurer's liability to INR 50,000, relying on Regulation 27 of the General Regulations of the Indian Motor Tariffs dated 1 August 1989. For policies of this kind, with premium of INR 25 per person, the capital sum insured per person is INR 50,000. The driver and the Institute had to pay the rest (para 8).

Issues Raised

1. Was Dr. Alpesh Gandhi in the employ of the Institute on the date of the accident, so that the limitation of liability in the policy applied (para 9)?
2. Was his contract with the Institute a contract of service or a contract for service?
3. Does the policy exclusion for death arising out of and in the course of employment by the insured apply to Dr. Gandhi, and how is the word employment to be read?
4. Was the High Court right that endorsement IMT-5 applied and IMT-16 was not needed (para 34)?
5. If the exclusion is ambiguous, how is it to be construed?

Arguments Contended

For the appellants (Shri Vikas Kochar):

• The contract is one for services. An honorarium of INR 4,000 per month is paid (para 10).
• Dr. Gandhi is not entitled to financial benefits applicable to regular employees under the leave rules, so he is not a regular employee (para 10).
• With the new arrangement he no longer remains a regular employee (para 10).
• He relied on Dharangadhara Chemical Works Ltd. v. State of Saurashtra, 1957 SCR 158, and National Insurance Company Limited v. Balakrishnan, (2013) 1 SCC 731 (para 10).
• They also relied on an order of this Court dated 5 March 2019, which directed the insurer to pay the full amount and recover the excess from another respondent (para 35).

For respondent No. 1 (the insurer):

• On a holistic reading, the contract is one of service and not for service. The High Court's judgment is right (para 11).
• In any case, the High Court was wrong to say that IMT-5 covered the insured. IMT-5 would not apply, but IMT-16 would (para 11).
• Since no additional premium was paid for IMT-16, the insurer is not liable to indemnify the insured for liability arising from the death of an employee in the accident (para 11).

Court's Reasoning

The judgment has numbered paragraphs and one opinion, delivered by Nariman, J. Both Judges signed it. Steps follow the order of the paragraphs.

Nariman, J. (judgment of the Bench)

1. Noted: The Court sets out the accident, the policy with Section II and the exclusion, and endorsement IMT-5 with its scale of compensation. Additional premium was paid for IMT-5 and not for IMT-16 (paras 2, 3).
2. Noted: The important question is whether Dr. Gandhi was employed by the Institute or had only a contract for services as an independent professional. The Court therefore sets out the contract in full (para 4).
3. Noted: The Court records the claim, the Tribunal's findings and award, and the High Court's contrary view (paras 5-8).
4. Noted: The difficult question is whether Dr. Gandhi was in the Institute's employ on the date of the accident, so that the limitation of liability in favour of the insurer would apply (para 9).
5. Noted: The Court records the rival submissions of counsel for the appellants and for the insurer (paras 10, 11).
6. Noted: In a series of judgments under the Industrial Disputes Act and the Factories Act, this Court gave tests for deciding whether persons supplying goods or services are in the employ of an employer (para 12).
7. Noted: In Dharangadhara, agarias made salt from rain water and saline soil. The question was whether they worked under contracts of service and were workmen under Section 2(s) of the Industrial Disputes Act (para 12).
8. Noted: The earliest test was that in a contract for service the master can order what is to be done. In a contract of service he can also order how it is to be done. Dharangadhara gave the examples of a ship's master, a chauffeur and a staff reporter, against a ship's pilot, a taxi man and a newspaper contributor (para 12).
9. Noted: A further test was whether the work is done as an integral part of the employer's business, or as an accessory. Other tests were the power to select the servant, payment of wages, the right to control the method of work and the right to suspend or dismiss (para 12).
10. Noted: The prima facie test is the right of the master to supervise and control the work, including the manner of doing it. The nature and extent of control vary from business to business and cannot be precisely defined. Recent English cases say control is not a test of universal application (para 12).
11. Noted: Dharangadhara held it is a question of fact on all the circumstances. Piece rates, seasonal work and the freedom to engage others did not stop the agarias from being professional labourers hired by the employer. The Court did not interfere with the Industrial Tribunal's finding that they were workmen (para 12).
12. Noted: In Chintaman Rao v. State of M.P., sattedars and their coolies were held not to be workers under Section 2(1) of the Factories Act. Bidi rolling was done outside the factory and at any time they chose. The Court said it did not lay down that a sattedar can never be a worker, and everything depends on the contract terms (para 13).
13. Noted: In Birdhichand Sharma v. First Civil Judge, persons in a bidi factory working at chosen times on piece rates were held to be workers. They worked inside the premises and had to report before mid-day. Some supervision, such as the right to reject substandard bidis, showed control (para 14).
14. Noted: In Shankar Balaji Waje v. State of Maharashtra, the established facts about Pandurang included free attendance, no fixed hours, no supervision and no minimum output. Birdhichand was distinguished and Chintaman Rao applied. A worker must have, under a contract of service, an obligation to work for a fixed period or between fixed hours (para 15).
15. Noted: In D.C. Dewan Mohideen Sahib and Sons v. Secretary, United Beedi Workers' Union, a sample agreement with intermediaries was set out. The Court found the system evolved to avoid the Factories Act and the so-called independent contractors had no real independence. They were employees or agents of the appellants (para 16).
16. Noted: Silver Jubilee Tailoring House v. Chief Inspector of Shops & Establishments is of seminal importance. The question was whether tailors were persons employed under Section 2(14) of the A.P. (Telangana Area) Shops and Establishments Act, 1951. The facts in para 7 of that judgment are set out (para 17).
17. Noted: Silver Jubilee reviewed English and American cases. Lord Justice Somervell in Cassidy v. Ministry of Health said control of the manner of work is not universally correct. Lord Wright in Montreal v. Montreal Locomotive Works proposed a test of control, ownership of tools, chance of profit and risk of loss. Denning L.J. in Bank Voor Handel en Scheepvaart v. Slatford asked whether the person is part and parcel of the organisation (para 17).
18. Noted: U.S. v. Silk looked at economic reality, with degrees of control, opportunities of profit or loss, investment, permanency and skill required. Market Investigations v. Minister of Social Security said the extent of control is not decisive on its own (para 17).
19. Noted: Silver Jubilee said the control test, in its traditional form, has broken down for skilled and professional work. The distinction between telling a servant what to do and how to do it suited an earlier age. It said the search for one formula is doubtful. The Court can only weigh the factors, and control is no longer decisive (para 17).
20. Noted: Silver Jubilee found two considerations decisive for the tailors. The proprietor supplied the machines, and the right to reject sub-standard work is supervision and control. These outweighed the facts that the tailors did not work exclusively for the shop or for the full day (para 17).
21. Noted: Hussainbhai v. Alath Factory Thezhilali Union applied an economic control test. Where workers produce goods or services for another's business, that other is the real employer. He has economic control over their subsistence, skill and continued employment. Intermediate contractors do not matter once the veil is lifted. Courts must see through paper arrangements. This applies where labour legislation casts welfare obligations on the real employer, based on Articles 38, 39, 42, 43 and 43-A of the Constitution (para 18).
22. Noted: Shining Tailors v. Industrial Tribunal II, U.P., a 3-Judge Bench, followed Silver Jubilee and held the persons were workmen (para 19).
23. Noted: P.M. Patel & Sons v. Union of India held that Silver Jubilee made a major shift in the law. The right to reject sub-standard bidis can itself show effective supervision and control, so home bidi workers were employees under the Provident Funds Act (para 20).
24. Noted: Indian Banks Assn. v. Workmen of Syndicate Bank held Deposit Collectors to be workmen. They were accountable to the bank and under its control, though free to regulate their own hours (para 21).
25. Noted: Indian Overseas Bank v. Workmen, after distinguishing Indian Banks and referring to Dharangadhara, Silver Jubilee, Shining Tailors and Chintaman Rao, held jewel appraisers not to be employees. It summed up that contractors substantially responsible for the main business are workers, but not those whose flexible contracts differ from a normal worker's, and not suppliers of goods and services. It contrasted regular employees with appraisers on ten points (para 22).
26. Noted: E v. English Province of Our Lady of Charity, an English Court of Appeal case on vicarious liability, set out the hallmarks of employment. Its test included three conditions from MacKenna J. in Ready Mixed Concrete: wage, control to a sufficient degree, and other terms consistent with service (para 23).
27. Noted: That case also stated Lord Thankerton's four indicia from Short v. J & W Henderson Ltd. MacKenna J. said the power of selection and dismissal are of little use in deciding whether the contract is one of service. Control is the important distinguishing factor, but its emphasis has reduced for skilled persons such as a brain surgeon (para 23).
28. Noted: It cited Roskill J. in Argent v. Minister of Social Security: control is now no more than a factor, though a very important one. No single factor is decisive and one looks at the totality of facts. Denning L.J. in Stevenson Jordan & Harrison v. Macdonald & Evans said a person under a contract of service is employed as part of the business, and under a contract for services his work is only accessory to it (para 23).
29. Noted: It also cited the Privy Council in Lee Ting Sang v. Chung Chi-Keung, adopting Cooke J.'s fundamental test: is the person performing the services as a person in business on his own account? Factors include equipment, helpers, financial risk, investment and management, and chance of profit (para 23).
30. Noted: It cited Montreal v. Montreal Locomotive Works again on the fourfold test and on whose business it is. It concluded that no single test applies and the tests must be marshalled cumulatively. It held that Father Baldwin was not a true employee and not a true independent contractor either. His relationship with his bishop was close enough to employment to make vicarious liability just and fair. Justice and fairness was used as a check on the conclusion and not as a stand-alone test (para 23).
31. Held: Society has moved from a simple agrarian one to a complex modern one. The simple control test, whether or not exercised, has yielded to more complex tests. It breaks down for professionals. Control has moved from actual control to the right to exercise it, and is one factor among others. The Court gave examples of clear cases: a school music master employed like other staff, against an independent piano teacher who teaches visitors at her premises. It also set a ship's master, a chauffeur and a staff reporter against a ship's pilot, a taxi driver and a newspaper contributor (para 24).
32. Held: The tests that help decide whether a contract is of service or for service are (para 24):
    • Whether the person is integrated into the employer's business or is a mere accessory.
    • The three-tier test: whether wages or remuneration are paid, whether there is sufficient control, and other factors.
    • Who owns the assets and who makes a profit or loss, so as to see whether the business is run for the employer or on one's own account.
    • The economic reality test and economic control over the worker's subsistence, skill and continued employment.
    • The Lee Ting Sang test of whether the person performs the services as a person in business on his own account.
33. Held: No one test of universal application can ever yield the correct result. A conglomerate of all applicable tests on the totality of the facts yields the answer, particularly in a hybrid situation. Not all factors are relevant or carry the same weight. The Court performs a balancing act (para 24).
34. Held: Because balancing may not give a clear result in hybrid cases, the context assumes great importance. Under beneficial legislation for weaker sections, the balance tilts towards a contract of service. Dharangadhara, Birdhichand, D.C. Dewan, Silver Jubilee, Hussainbhai, Shining Tailors, P.M. Patel and Indian Banks are cited as examples (para 25).
35. Held: Where the context is other than beneficial legislation, or only in the realm of contract, and points to a contract for service, the context may tilt the balance towards a contract for service, other things being equal (para 25).
36. Noted: The factors pointing to a contract for service in this case are (para 26):
    • The heading says it is a contract for service.
    • His designation is Honorary Ophthalmic Surgeon.
    • INR 4,000 a month is an honorarium, not a salary.
    • He also gets a percentage of OPD, operation fee and room visiting fee earnings.
    • The arbitration clause, with disputes going to the Managing Committee, is unusual in a pure master-servant relationship.
    • The three-year appointment, extendable only by mutual consent, is tenure based.
    • Termination by notice on either side shows the parties deal more as equals.
    • Clause XI ends his earlier regular appointment.
37. Noted: The factors pointing the other way are (para 27):
    • The employment is full time and he can do no other work, and any other assignment may be given at the employer's discretion.
    • He works all days except weekly offs and holidays. He is governed by the leave rules but gets no financial benefit as other regular employees.
    • He is governed by the Institute's conduct rules as applicable to regular employees.
    • For proven indiscipline or breach of trust, the Institute can terminate at any time without compensation.
38. Held: The factors for a contract for service outweigh those pointing the other way. First, the parties' intention gathered from the contract is that he is no longer a regular employee but an independent professional. Second, the remuneration is an honorarium plus a share of earnings (para 28).
39. Held: Third, he contracts on equal terms: three years, extendable only by mutual consent. Fourth, his services are terminable by notice on either side, unlike regular employees (para 28).
40. Held: Full-time devotion is the other side of piece-rated work, which can still be a contract of service, so it is a neutral factor. Devoting his whole attention to the Institute does not, by itself, make the contract one of service. He is governed by conduct and leave rules but by no other rules. He gets no financial benefit as regular employees do. Referral of disputes to the Managing Committee shows employer and independent professional (para 28).
41. Held: On the economic reality test, the contract entered into between the parties is one between an Institute and an independent professional (para 28).
42. Held: Even otherwise, exemption of liability clauses in insurance contracts are to be construed in the case of ambiguity contra proferentem, against the insurer (para 29).
43. Noted: General Assurance Society Ltd. v. Chandumull Jain (Constitution Bench) held that a contract of insurance is like other contracts, except that it needs uberrima fides (good faith) from the assured. It is likely to be construed contra proferentem against the company in case of ambiguity or doubt (para 29).
44. Noted: United India Insurance Co. Ltd. v. Pushpalaya Printers approved Chandumull Jain. It held that the word impact in a policy covered damage from a bulldozer moving close to the building. There was no express exclusion of that kind of damage. Where words are ambiguous, they are construed against the party who prepared the document, and a reading beneficial to the insured is accepted. The Court applied the rule even though it found the word impact not ambiguous (para 30).
45. Noted: Export Credit Guarantee Corpn. of India Ltd. v. Garg Sons International says an insured cannot claim more than the policy covers and its terms are construed strictly and as a whole. It says contra proferentem does not apply to a commercial contract whose clause is bilateral and mutually agreed (para 31).
46. Noted: BHS Industries v. Export Credit Guarantee Corpn. Ltd. repeated that the insured owes good faith and that ambiguity is construed against the company. The policy is read strictly and as a whole, and nothing is added or subtracted (para 31).
47. Noted: United India Insurance Co. Ltd. v. Orient Treasures (P) Ltd. quoted Halsbury's Laws of England on the contra proferentem rule. Where a policy is the insurers' document, they must see that precision and clarity are attained, or the ambiguity is resolved in the insured's favour. The reverse also holds: language that comes from the insured is read in the insurer's favour if the insured created the ambiguity. The rule works only where words are truly ambiguous and cannot be invoked to create doubt (para 32).
48. Noted: Industrial Promotion & Investment Corpn. of Orissa Ltd. v. New India Assurance Co. Ltd. gave the rule, in the maxim verba chartarum fortius accipiuntur contra proferentem, and quoted MacGillivray and Colinvaux. If insurers wish to escape liability, they must use words admitting of no possible doubt. The assured is read in the sense in which he might reasonably have understood the policy. One must find the ambiguity first and not use the rule to create it. If the whole policy makes the meaning clear, the rule does not apply (para 33).
49. Held: The Court sees no reason to disturb the High Court's finding that IMT-5 applied because additional premium was paid. Dr. Gandhi did not come within the Workmen's Compensation Act, 1923, so his death was covered. IMT-16 not being paid for makes no difference (para 34).
50. Held: The insurer's wider meaning of employment cannot be given, given the words in the course of, which show employment means a person regularly employed. the wider meaning that has been canvassed for by the insurance company cannot possibly be given (para 34).
51. Held: Even if there were ambiguity, the contra proferentem rule must be applied. Employment refers only to regular employees, and Dr. Gandhi was not one (para 34).
52. Noted: The appellants relied on the Order of 5 March 2019. There the High Court had limited the insurer to Rs 25,000, and the claimants said they could not enforce the balance. This Court directed the insurer to pay in full and recover the excess from another respondent. The Court said it appears to have been passed under Article 142 of the Constitution on its own facts without reference to case law. It was unnecessary to rely on it (para 35).
53. Held: The appeal is allowed. The judgment of the Gujarat High Court is set aside and that of the Motor Accident Claims Tribunal is restored (para 36).

S. Ravindra Bhat, J.

He sat on the Bench and signed the judgment. The reported judgment gives no separate opinion by him. Nariman, J. delivered the judgment.

Authorities

• Sarla Verma v. DTC, (2009) 6 SCC 121. Followed by the Tribunal on deductions and future prospects (para 7).
• Dharangadhara Chemical Works Ltd. v. State of Saurashtra, 1957 SCR 158. Relied on by the appellants. The Court set out its tests for master and servant (paras 10, 12).
• National Insurance Company Limited v. Balakrishnan, (2013) 1 SCC 731. Relied on by the appellants. The judgment does not discuss it further (para 10).
• Chintaman Rao v. State of M.P., 1958 SCR 1340. Cited: sattedars and their coolies were independent contractors on the facts (para 13).
• Birdhichand Sharma v. First Civil Judge, (1961) 3 SCR 24. Cited: bidi workers within the premises were workers (para 14).
• Shankar Balaji Waje v. State of Maharashtra, 1962 Supp (1) SCR 24. Cited: Birdhichand distinguished, Chintaman Rao applied (para 15).
• D.C. Dewan Mohideen Sahib and Sons v. Secretary, United Beedi Workers' Union, (1964) 7 SCR 646. Cited: so-called contractors were employees or agents (para 16).
• Silver Jubilee Tailoring House v. Chief Inspector of Shops & Establishments, (1974) 3 SCC 498. Treated as of seminal importance. Its review included Cassidy v. Ministry of Health [(1951) 1 All ER 574, 579]; Montreal v. Montreal Locomotive Works Ltd. [(1947) 1 DLR 161]; Bank Voor Handel en Scheepvaart N.V. v. Slatford [(1952) 2 All ER 956]; U.S. v. Silk [331 US 704]; Market Investigations Ltd. v. Minister of Social Security [(1968) 3 All ER 732]; Argent v. Minister of Social Security [(1968) 1 WLR 1749, 1759]; Atiyah, Vicarious Liability in the Law of Torts, pp. 37-38; and Prof. Kahn-Freund, (1951) 14 Modern Law Review, p. 505 (para 17).
• Hussainbhai v. Alath Factory Thezhilali Union, (1978) 4 SCC 257. Cited: the economic control test (para 18).
• Shining Tailors v. Industrial Tribunal II, U.P., (1983) 4 SCC 464 (3-Judge Bench). Followed Silver Jubilee (para 19).
• P.M. Patel & Sons v. Union of India, (1986) 1 SCC 32. Cited: Silver Jubilee shifted the law (para 20).
• Indian Banks Assn. v. Workmen of Syndicate Bank, (2001) 3 SCC 36. Cited: Deposit Collectors were workmen (para 21).
• Indian Overseas Bank v. Workmen, (2006) 3 SCC 729. Cited: jewel appraisers were not employees (para 22).
• E v. English Province of Our Lady of Charity and Anr., 2012 EWCA Civ 938. Cited at length on the hallmarks of employment. It refers to Ready Mixed Concrete (South East) Ltd v. Minister of Pensions and National Insurance [1968] 2 QB 497; Short v. J & W Henderson Ltd. (1946) 62 TLR 427, 429; Cassidy v. Ministry of Health [1951] 2 KB 343, 352; Stevenson Jordan & Harrison Ltd v. Macdonald & Evans [1952] 1 TLR 101, 111; Bank voor Handel en Scheepvaart NV v. Slatford (No 2) [1953] 1 QB 248, 295; Lee Ting Sang v. Chung Chi-Keung [1990] 2 AC 374, 382; and Market Investigations Ltd v. Minister of Social Security [1969] 2 QB 173, 184-185 (para 23).
• Mersey Docks and Harbour Board v. Coggins & Griffith (Liverpool) Ltd., (1952) SCR 696, 702. Quoted inside Dharangadhara for Lord Uthwatt's test of authority to control the manner of execution (para 12).
• General Assurance Society Ltd. v. Chandumull Jain, (1966) 3 SCR 500 (AIR 1966 SC 1644) (Constitution Bench). Followed: insurance contracts are read contra proferentem (paras 29, 30, 31).
• United India Insurance Co. Ltd. v. Pushpalaya Printers, (2004) 3 SCC 694. Followed (para 30).
• Export Credit Guarantee Corpn. of India Ltd. v. Garg Sons International, (2014) 1 SCC 686. Cited. It refers to Oriental Insurance Co. Ltd. v. Sony Cheriyan, (1999) 6 SCC 451; Polymat India (P) Ltd. v. National Insurance Co. Ltd., (2005) 9 SCC 174; Sumitomo Heavy Industries Ltd. v. ONGC Ltd., (2010) 11 SCC 296; and Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306 (para 31).
• BHS Industries v. Export Credit Guarantee Corpn. Ltd., (2015) 9 SCC 414. Cited (para 31).
• United India Insurance Co. Ltd. v. Orient Treasures (P) Ltd., (2016) 3 SCC 49. Cited, quoting Halsbury's Laws of England, 5th Edn., Vol. 60, no. 105 (para 32).
• Industrial Promotion & Investment Corpn. of Orissa Ltd. v. New India Assurance Co. Ltd., (2016) 15 SCC 315. Cited, quoting MacGillivray on Insurance Law, 9th Edn., p. 280, and Colinvaux's Law of Insurance, 6th Edn., p. 42 (para 33).
• Order of the Supreme Court dated 5 March 2019. Relied on by the appellants. The Court did not rely on it (para 35).

The judgment has no footnotes.

Provisions

• Section 166, Motor Vehicles Act, 1988: the claim petition for compensation (para 5).
• Section 2(s), Industrial Disputes Act: the definition of workman, applied in Dharangadhara, Hussainbhai and Indian Overseas Bank (paras 12, 18, 22).
• Section 2(1), Factories Act: defines worker, used in Chintaman Rao and the bidi cases (paras 13-16).
• Section 2(14), A.P. (Telangana Area) Shops and Establishments Act, 1951: defines a person employed, in the case of a shop, as a person wholly or principally employed in connection with the business of the shop (para 17).
• Employees' Provident Funds and Miscellaneous Provisions Act, 1952: considered in P.M. Patel (para 20).
• U.P. Industrial Disputes Act, 1947: considered in Shining Tailors (para 19).
• Workmen's Compensation Act, 1923: its workmen are excluded from IMT-5. Dr. Gandhi did not come within it (paras 3, 34).
• Regulation 27, General Regulations of the Indian Motor Tariffs, 1 August 1989: capped the sum insured per person at INR 50,000 for the premium paid (para 8).
• Section II of the policy and endorsements IMT-5 and IMT-16: the liability exclusion and the passenger covers (paras 3, 34).
• Article 142 of the Constitution: the basis on which the Court thought the Order of 5 March 2019 was passed (para 35).

Judgement

1. The appeal is allowed (para 36).
2. The judgment of the Gujarat High Court is set aside (para 36).
3. The judgment of the Motor Accident Claims Tribunal is restored (para 36). It made all three respondents jointly and severally liable for INR 37,63,100 with interest at 8 per cent per annum (para 7).
4. The judgment does not state any order as to costs.

Legal Principle / Ratio

Whether a contract is of service or for service depends on all relevant factors on the totality of the facts, with the context tilting the balance. A contract with an independent professional is a contract for service. An exclusion in an insurance policy is read strictly and, if ambiguous, against the insurer. The key holding: No one test of universal application can ever yield the correct result.

Subsequent Treatment

Analysis from the later judgment's own text. It names this case.

Mahakali Sujatha v. The Branch Manager, Future Generali India Life Insurance Company Limited — 2024 INSC 296, Civil Appeal No. 3821 of 2024, Supreme Court of India, B.V. Nagarathna and Augustine George Masih, JJ., decided 10 April 2024. The case concerned a life insurance claim and the insured's answers to proposal queries. The Court recorded that counsel for the appellant relied on Sushilaben Indravadan Gandhi, in which it was observed that an exemption of liability clause in an insurance contract must be construed contra proferentem against the insurer in case of ambiguity (¶ 46). It noted that Sushilaben had relied on Export Credit Guarantee Corpn. v. Garg Sons International, which says the rule does not apply to a commercial contract (¶ 46). On the contra proferentem discussion, the Court found the proposal queries unclear. It held that the insured's answers could not be used to deny the benefit of the policy by repudiating the claim (¶ 46).

Other later cases (not summarized): none.

Comparative Analysis

Analysis from the supplementary judgment only.

• Sushilaben applied contra proferentem to an exclusion clause in a motor insurance policy, as a further ground for reading employment as regular employment (Sushilaben, paras 29, 34). Mahakali Sujatha applied the rule to unclear queries in a life insurance proposal form (Mahakali, ¶ 46).
• Both Courts used Garg Sons for the limit that the rule does not apply to a commercial contract whose clause was mutually agreed (Sushilaben, para 31; Mahakali, ¶ 46).

Critical Analysis

Analysis based on the judgment text.

• The Court said that the factors are weighed in a balancing act and that not every factor carries the same weight. It gave no fixed formula.
• The Court treated full-time devotion as a neutral factor. It did not say how a court should treat it in other contracts.
• The Court said contra proferentem applies only where there is real ambiguity. It decided the main point on the contract and the words in the course of, and used the rule as a further ground.
• The Court said the Order of 5 March 2019 appears to have been passed under Article 142. It left it aside as it had taken a different view.

Significance

• The case collects the Indian and English tests for telling a contract of service from a contract for service.
• It shows that context, such as beneficial legislation, can tilt the balance.
• It restates that ambiguity in an insurance exclusion is read against the insurer.

Exam-Important Points

• Rule first: there is no single test. The courts weigh control, integration into the business, ownership of assets, chance of profit, economic reality and whether the person is in business on his own account.
• Control is one factor, not decisive. It has moved from actual control to the right to control.
• Context matters: under beneficial legislation the balance tilts towards service. In contract it may tilt towards a contract for service.
• An honorarium plus a share of earnings, a fixed tenure by mutual consent and termination by notice point to an independent professional.
• Exclusion clauses in insurance policies are read contra proferentem where there is real ambiguity. Trap: the rule does not create ambiguity.
• The wider reading of employment was rejected because of the words in the course of.

Prepared from the full text of the judgment. Paragraph numbers follow the official Supreme Court judgment text; law reports may number the same paragraph differently.