Contract of Service v. Contract for Service: What the Supreme Court held while upholding an MACT order of compensation for doctor's family

The Supreme Court yesterday upheld a Motor Accident Claims Tribunal order for payment of compensation to a doctor who met with a fatal accident in 1997 [Sushilaben Gandhi v. New India Assurance].While doing so, the Court held that the contract of employment in the present case was a "contract for service" and not a "contract of service.”.The Bench of Justices Rohinton Nariman and Ravindra Bhat had made some pertinent observations regarding the distinction between a contract for service and a contract of service, noting,."Ultimately, the Court can only perform a balancing act weighing all relevant factors which point in one direction as against those which point in the opposite direction to arrive at the correct conclusion on the facts of each case.Given the fact that this balancing process may often not yield a clear result in hybrid situations, the context in which a finding is to be made assumes great importance. Thus, if the context is one of a beneficial legislation being applied to weaker sections of society, the balance tilts in favour of declaring the contract to be one of service...".The appellants before the Supreme Court included the wife of one Dr. Alpesh Gandhi, an Honorary Ophthalmic Surgeon with Rotary Eye Institute, Navsari, who met with a fatal accident on June 9, 1997 while travelling in a bus owned by the medical institute. Dr Gandhi had entered into a contract dated May 4, 1996 with the institute. .The appellants had filed a petition under Section 166 of the Motor Vehicles Act, 1988 against the driver, the institute, and New India Assurance, claiming compensation for the death of Dr. Gandhi to the tune of Rs 1 crore.New India Assurance Company limited stated that the deceased, being an employee of the hospital, was not covered for death or injury arising out of and in the course of his employment, thereby excluding the liability of the insurance company altogether in the case.The Motor Accident Claims Tribunal decided that a total of Rs. 37,63,000 had to be paid to the family of the deceased. The tribunal made the insurance company and the institute jointly liable for the payment. It was further held that the contract between the Rotary Eye Institute and Dr. Gandhi was a contract for service..However, the tribunal order was challenged before the Gujarat High Court, which ruled in 2018 that the contract was a “contract of service”. Thus, the insurance company could not be held liable, except to the extent of Rs 50,000, the High Court had held. .In this background, the appellants approached the Supreme Court. The question before the Court was whether the deceased doctor can be said to be employed by the medical institute or had only entered into a contract for services as an independent professional.Another question was whether Dr Gandhi could have been said to have been in the employ of the institute on the date of the accident, as a result the limitation of liability provision in favour of the insurance company would kick in..While arriving at its decision on the first question, the Court proceeded to perform a "balancing act" of the factors surrounding the case.The Bench ruled that the factors which would lead to the contract being one for service included:The heading of the contract itself states that it is a contract for service, Rs 4,000 per month was declared to be honorarium as opposed to salary, The arbitration clause which speaks of disputes arising in the course of the tenure of this contract will be referred to the Managing Committee of the Institute, the decision of the Managing Committee being final, is also a clause which is unusual in a pure master-servant relationship The appointment was contractual – for 3 years – and extendable only by mutual consent, is another pointer to the fact that the contract is for service, which is tenure based.Against these, the Court compared factors which make it “of the service contract”. It finally ruled that factors which make the contract one for service outweigh the factors which would point in the opposite direction..As regards the second question on liability of the insurance company, the Court noted exemption of liability clauses in insurance contracts are to be construed in the case of ambiguity contra proferentum (against the party which proposed or drafted the contract or clause).The Bench went on to hold,.“The question that arises before us is as to whether the expression “employment” is to be construed widely or narrowly – if widely construed, a person may be said to “employed” by an employer even if he is not a regular employee of the employer. However, the wider meaning that has been canvassed for by the insurance company cannot possibly be given, given the language immediately before, namely, “in the course of”, thereby indicating that the “employment” can only be that of a person regularly employed by the employer.”.Thus, the Court allowed the appeal, set aside the High Court order, and restored the order of the tribunal..[Read the judgment]