The Hon’ble Supreme Court, in the case of General Manager, U.P. Cooperative Bank Limited. vs. Achchey Lal & Anr., Civil Appeal Numbers 2974 of 2016, decided on 11.09.2025, clarified the legal principles governing the determination of an employer-employee relationship where workers are engaged through an intermediary, in this case, a registered employees’ cooperative society running a canteen inside the bank premises.
The Court held that mere infrastructural support, subsidies, or statutory obligation to maintain a canteen do not, by themselves, create an employer-employee relationship. Instead, the determination must be made using a multi-factor test, including who appoints, who pays wages, who holds disciplinary control, and who exercises direct supervision.
Applying these settled principles, the Hon’ble Supreme Court held that the canteen workers engaged by the employees’ society were not employees of the bank, set aside the reinstatement orders of the Labour Court and the High Court, and reaffirmed that control and supervision and not mere financial support form the core of a master-servant relationship.
FACTS
U.P. Cooperative Bank Limited (hereinafter referred to as “the Appellant”), is a statutory cooperative institution engaged in providing banking and financial services across the State of Uttar Pradesh. In compliance with its obligations toward staff welfare, the Appellant provided space, infrastructure, utensils, furniture, and partial financial subsidies for running an employees’ canteen within its premises.
To operate this canteen, the employees of the Appellant formed a registered society known as the U.P. Cooperative Bank Employees’ Canteen Society (hereinafter referred to as “the Society”). The Society independently managed the canteen’s affairs, including procurement of raw materials, determining menu prices, and engaging manpower.
The Society appointed four individuals, Achchey Lal and three others (hereinafter collectively referred to as “the Respondents”) to work in the canteen. These appointments were made exclusively by the Society, which paid their salaries from its own funds generated through canteen operations and subsidies occasionally extended by the Appellant.
Subsequently, due to financial constraints and reduction in subsidies, the Society was compelled to shut down the canteen, resulting in the termination of services of the Respondents.
Aggrieved, the Respondents raised an industrial dispute claiming that they were, in effect, employees of the Appellant. They asserted that the Appellant exercised control and supervision over their work, fixed their work hours, and provided financial assistance that was indirectly used to pay their wages.
The Labour Court accepted the Respondent’s claim and held that a master-servant relationship existed between the Appellant and the Respondents. It directed reinstatement with full back wages. The High Court affirmed the Labour Court’s decision.
Being aggrieved by this, the Appellant filed a civil appeal before the Hon’ble Supreme Court disputing the existence of an employer-employee relationship and arguing that the Respondents were the employees solely of the Society, an independent and duly registered entity.
ISSUES
- Whether the Respondents, appointed and paid by the employees’ Society, could legally be treated as employees of the Appellant?
- Whether the Appellant exercised sufficient control, supervision, or integration to constitute a master-servant relationship?
- Whether infrastructural support and subsidy to the Society amounts to employer status?
CONTENTIONS OF THE PARTIES
The Appellant argued that the Labour Court and High Court erred in holding that the Respondents were Appellant’s employees. It was submitted that no employer-employee relationship existed, as the canteen was operated entirely by an independently registered Cooperative Society formed by the Appellant’s employees.
The Appellant further contended that it never issued appointment letters, maintained service records, fixed wages, or paid salaries to the Respondents. All payments were made by the Society from its own funds, and the Appellant’s involvement was limited to providing premises, utilities, and subsidies as a welfare measure.
It was further submitted that the Appellant did not exercise disciplinary authority, supervision, or control over the Respondents’ day to day activities. Since key elements of the employer-employee relationship were absent, the Appellant could not be treated as the employer.
The Appellant maintained that the lower courts misapplied the multi-factor test, ignoring that every relevant factor, recruitment, payment, disciplinary power, and control pointed only to the Society as the employer
The Respondents, on the contrary contended that, despite the Society’s formal existence, they were in substance employees of the Appellant. It was submitted that the Appellant exercised effective control and supervision, dictated working hours, and integrated the canteen into its daily functioning, thereby satisfying the traditional “control test.”
The Respondents further argued that the Society was merely an intermediary and financially dependent on the Appellant, whose subsidies and assistance ultimately funded their wages.
It was further submitted that the canteen existed exclusively for the Appellant’s employees, operated in the Appellant’s premises, and followed the Appellant-mandated norms, proving the Respondents were an integral part of the Appellant’s establishment.
The Respondents argued that the canteen’s closure resulted from the Appellant withdrawing support, making their termination attributable to the Appellant. Hence, reinstatement with back wages, as ordered by the Labour Court and High Court, was justified
DECISION AND FINDINGS
The Hon’ble Supreme Court examined the central issue whether the Respondents engaged by the employees’ Society could legally be treated as employees of the Appellant under applicable labour law principles. The Court undertook an extensive analysis of the multi-factor employer-employee test and clarified the legal position governing such disputes.
The Supreme Court first reiterated that determining an employer-employee relationship requires a holistic evaluation of multiple factors and not a single determinative test. These include:
- who appoints the workers,
- who pays their wages,
- who has the authority to dismiss,
- who controls the manner of work, and
- the degree to which the work is integrated into the establishment’s core functions.
The Court emphasized that the prima facie test for establishing a master-servant relationship is the extent of control and supervision over the day to day functioning of the Respondents, not merely the existence of financial assistance or infrastructural support.
Applying these principles to the facts, the Supreme Court found that there was no material to establish any direct control exercised by the Appellant over the Respondents. Although the Appellant had provided space, utilities, and subsidies to the Society, there was no evidence that the Appellant appointed the workmen, determined their wages, conducted disciplinary proceedings, maintained their service records, or supervised their daily activities.
To the contrary, the evidence demonstrated that the canteen was entirely managed by the employees’ Society, which independently hired, supervised, and paid the Respondents from its own funds. The Court held that such support from the Appellant was merely to fulfill statutory obligations under the Standing Orders and did not convert the Respondents into Appellant’s employees.
The Supreme Court also took note of the Labour Court and the Allahabad High Court’s findings, observing that both had relied excessively on the Appellant’s provision of infrastructure while failing to appreciate the absence of any direct administrative or supervisory control over the Respondents. The Court clarified that ownership of premises or provision of subsidies cannot, by itself, create an employer-employee relationship.
After evaluating the factual matrix through the established multi-factor tests, the Supreme Court concluded that the Respondents were employees of the Society and not of the Appellant. The Society was the appointing authority, disciplinary authority, and wage-paying entity and therefore the real employer.
Accordingly, the Supreme Court allowed the Appellant’s appeal, set aside the judgment of the High Court, and held that the Appellant could not be directed to reinstate the Respondents or pay back wages.
AMLEGALS REMARKS
The Court’s approach in this case signals an important doctrinal clarification: control, supervision, and managerial authority continue to be the decisive indicators of employment. By holding that the Appellant’s role was limited to offering premises, utilities, and subsidies without any evidence of appointment, wage fixation, disciplinary authority, or day to day supervision, the judgment draws a clear line between support for a welfare activity and employer control over such activity. This demarcation is crucial for organisations that provide facilities through independent societies, cooperatives, or outsourced agencies.
For businesses, particularly those mandated to provide statutory canteen facilities or other welfare services, this judgment offers critical guidance. Infrastructure support, subsidies, or indirect benefits cannot, by themselves, create an employment relationship. What matters is who exercises real, substantive control over the workers and their service conditions. As long as the management of such facilities is demonstrably independent and the principal employer does not interfere in hiring, supervision, wages, or discipline, the risk of being treated as the employer remains low.
Overall, this decision brings much needed clarity to an area that frequently results in litigation and inconsistent judicial outcomes. It strengthens the principle that employment relationships must be proved through concrete, objective factors, and not inferred merely on the basis of welfare obligations or incidental support. For organisations across sectors, this judgment reinforces the value of well-structured outsourcing and cooperative service models, provided they are accompanied by clear demarcation of roles and responsibilities.
For any query, feel free to reach out to rohit.lalwani@amlegals.com