Case Brief: S.M. Ghosh v. National Sheet and Metal Works, Ltd. 

INTRODUCTION

​The case of “S.M. Ghosh v. National Sheet and Metal Works, Ltd.,” decided on June 7, 1950, by the Calcutta High Court, is concerned with the interpretation and application of Section 12 of the “Workmen’s Compensation Act, 1923.” Specifically, the contractor’s appeal, S.M. Ghosh, is against the Commissioner for Workmen’s Compensation’s ruling holding him liable to indemnify “National Sheet and Metal Works, Ltd.” (the principal employer) for the compensation paid to an injured workman. The central issue is determining whether the work subcontracted; i.e., painting a factory shed is a form of work that is “ordinarily part of the trade or business of the principal,” as stipulated under “Section 12(1)” of the Act, thus triggering the indemnity provision under “Section 12(2)”. This case provides valuable insights into the extent and scope of the principal employer’s liability and the contractor’s liability to indemnify under the “Workmen’s Compensation Act”.

FACTS

The facts of the case are as follows:

The accident leading to this case is against Ezad Baksh, who was a painter working for the appellant, S.M. Ghosh, a contractor. In the course of painting a factory shed of the respondent, “National Sheet and Metal Works, Ltd.,” Ezad Baksh was seriously injured due to a fall from scaffolding by accident. The factory shed was one of the premises of National Sheet and Metal Works, Ltd. Ezad Baksh’s left knee injury necessitated surgery and resulted in a permanent partial disability to the extent of fifty percent.

Notably, Ezad Baksh did not sue for compensation from his immediate employer, contractor S.M. Ghosh. Instead, he sued for compensation against National Sheet and Metal Works, Ltd., the principal employer who had hired the services of S.M. Ghosh for the specific job of painting their factory shed.

It was conceded by all parties concerned that the accident happened in the course of and arising out of the employment of Ezad Baksh. The Commissioner for Workmen’s Compensation thus determined the quantum of compensation payable to be Rs. 1,470, and the correctness of this amount was not questioned in the subsequent proceedings.

The only question placed before the Commissioner was whether or not S.M. Ghosh as the contractor (opposite party No. 2) was legally bound to indemnify National Sheet and Metal Works, Ltd. (opposite party No. 1) against the compensation which they were obliged to pay to the injured worker. The Commissioner decided in favor of National Sheet and Metal Works, Ltd. and held the facts to come within the provision of “Section 12(2)” of the “Workmen’s Compensation Act” and therefore S.M. Ghosh became liable to indemnify. This decision prompted S.M. Ghosh to file the instant appeal before the Calcutta High Court.

ISSUE RAISED

​ The pivotal legal issue before the Calcutta High Court can be phrased in terms of the following questions:

1. Did the contractor S.M. Ghosh, in doing the painting work on the factory shed, perform “the whole or any part of any work which is ordinarily part of the trade or business of the principal,” “National Sheet and Metal Works, Ltd.,” as required by “Section 12(1) of the Workmen’s Compensation Act, 1923”?

2. If the response to the first is in the affirmative, does the principal employer National Sheet and Metal Works, Ltd., have a valid right to recover indemnity from the contractor S.M. Ghosh under “Section 12(2) of the Workmen’s Compensation Act, 1923”?

PETITIONER’S ARGUMENTS

The main argument advanced by the appellant, S.M. Ghosh, the contractor, was that the Commissioner for Workmen’s Compensation had misapplied “Section 12” of the “Workmen’s Compensation Act” to the facts of the case. Specifically, the appellant contended that the painting of the factory shed was not work normally incidental to the business or trade operations of “National Sheet and Metal Works, Ltd.”

The learned opinion in favor of the appellant referred to the absence of evidence being placed by the workman or National Sheet and Metal Works, Ltd. to indicate that the work of painting was part of the normal business activities of the respondent company. Indeed, the name “National Sheet and Metal Works Ltd.” necessarily suggested an enterprise involved in the production of sheet metal articles, and not the business of offering painting services.

The burden of proving that the work performed in the contract was normally incidental to the business of the principal was on the party who wanted to invoke Section 12. Such a party, in this case, would either be the injured workman or the principal employer for seeking indemnity. The failure to provide such evidence meant that the conditions for the invocation of “Section 12(1)” were not met.

Accordingly, the appellant submits that without the application of “Section 12(1)”, the question of indemnity under “Section 12(2)” cannot be entertained. The Commissioner’s ruling made, based on the fact that the sole occupation of the factory shed by the principal business made the painting work an ordinary part of that business, was held to be a misreading of the section. The appellant had submitted that the words “ordinary part of the trade or business” refer to the routine and necessary activities of the principal business, and not to ancillary operations incidental to their premises.

RESPONDENT’S ARGUMENTS

The main contention advanced in favour of the respondent, “National Sheet and Metal Works, Ltd.,” was that the painting of the factory shed was work performed in the course of and for the purposes of their business or trade. They contended that the upkeep of the factory buildings, including the painting of the shed, was essential to the efficient operation and maintenance of their manufacturing plant.

The learned Commissioner, in his judgment, appeared to support this rationale, stating that “A factory shed is erected certainly for purposes of owner’s business. The contract was patently as envisioned under Section 12(1).” It is likely that the respondent used this interpretation as grounds for their argument, asserting that any work which is necessary for the maintenance and operation of their business premises should be construed to be for the purposes of their trade or business. Moreover, “National Sheet and Metal Works, Ltd.” first acknowledged their liability as the primary employer under “Section 12” and then sought indemnity against the contractor, S.M. Ghosh, as is allowed under “Section 12(2)”. The reason for seeking indemnity from them was based on the Commissioner’s conclusion that they were indeed liable as the primary employers.

But it is worth noting that the respondent did not appeal against the Commissioner’s original finding that they were liable to pay compensation to the workman. Their concern was only to recover the indemnity from the contractor. This tactical approach ultimately turned out to be a relevant consideration by the High Court in finding them primarily liable.

JUDGEMENT

The Calcutta High Court, presided over by Chief Justice Harries, granted the contractor S.M. Ghosh’s appeal, thereby overturning the Commissioner for “Workmen’s Compensation’s order, compelling him to indemnify National Sheet and Metal Works, Ltd.”

The Court’s reasoning was drawn on a technical interpretation of Section “12(1) of the Workmen’s Compensation Act”. The Chief Justice reiterated that to be made under this sub-section, there are two requirements which must be fulfilled:

1. The principal should have made a contract with some other person in the course of or for the purposes of his trade or business activities.

2.  The activity the contractor set out to perform must be activity that is within the usual trade or business of the principal.

The Court did find that the first prerequisite probably was met since gearing up to paint a factory shed would constitute activity pertaining to the business of the factory owner for maintenance of their property but held that the second prerequisite wasn’t fulfilled.

The Court noted that there was no indication whatever that painting operations would typically be any part of the business or activities of “National Sheet and Metal Works, Ltd.” The company name itself was an indication that its main business was the manufacture of sheet metal products. The Court distinguished between activities which are incidental to or related to the principal’s business and activities which are usual and necessary to the business. Absent evidence to the contrary, painting a factory shed fell into the former category.

The Court referred the case of “Rabia v. Agent, G.I.P. Rly. (1929) 53 Bom. 203” to refer to this principle. In said case, Bombay High Court laid down that installing a transmission line with a view to supplying current for the working of the electricity into the railway was not quintessentially in furtherance of the principal work of the railway in the transmission of passengers and freight, notwithstanding its being critical to their running of the affair.

Applying the said logic to the current case, the Calcutta High Court stated that painting the factory shed was not established to be part of the regular activities included in the production of sheets and metal products. It followed that “Section 12(1)” of the Act did not apply. “National Sheet and Metal Works, Ltd.,” therefore, cannot be considered to be the “principal” employer in the case of painting work under such a section.

Since the “Section 12(1)” application was mandatory for the functioning of the “Section 12(2)” quoted indemnity clause, the Court ruled that the order directed by the Commissioner towards S.M. Ghosh to indemnify “National Sheet and Metal Works, Ltd.,” was legally unsustainable.

The Court held that, although the Commissioner held National Sheet and Metal Works, Ltd. liable primarily to pay the workman, the company did not appeal against such holding. Although the High Court challenged the Commissioner’s determination of primary liability, it was not in a position to intervene as no appeal had been filed. That reality, however, did not refrain from the Court in setting aside the indemnity order against the contractor.

CONCLUSION 

The decision in “S.M. Ghosh v. National Sheet and Metal Works, Ltd.” is of utmost significance as it clarifies the operation of “Section 12 of the Workmen’s Compensation Act, 1923.” The Court has clearly distinguished between acts done exclusively for the trade or business of the principal and acts which are normally and naturally part of that trade or business. The main conclusion from this case is that for a principal employer to take responsibility for paying a worker hired by a contractor, and then to recover indemnity from the contractor, the outsourced activity must relate to work that is normally and routinely done as part of the principal’s business activities. Activities that fall under the category of ancillary or maintenance, such as the painting of a factory shed for a manufacturing company, do not necessarily satisfy this requirement unless tangible evidence supports a contrary conclusion. Further, the case highlights the importance of maintaining procedural precision. Even though the High Court found the initial order accusing the principal as questionable, its inability to act because of the lack of an appeal highlights the binding nature of judicial decisions that go unappealed. Briefly, the judgment rendered by the Calcutta High Court in this case protected the contractor against unjust liability to indemnify the principal employer and thus reconfirmed a stricter interpretation of “Section 12” and emphasized the need for clear evidence to determine that the contracted work is indeed a usual part of the principal’s trade or business. This judgment is an essential precedent for the interpretation of the liability of principal employers and the indemnity liabilities of contractors under the “Workmen’s Compensation Act.”