Indian Legal System > Civil Laws > Labour Laws > Industrial Disputes Act, 1947 > Ambit of Definition of Industry
In this article, we will be studying working of different organizations to check whether the organization comes under the ambit of definition of industry or not.
In Bangalore Water Supply v. A. Rajappa, AIR 1978 SC 548 case, a seven-member Judges’ Bench was constituted to determine the scope of the industry. The triple test working principle was born in the case that is used to check the validity of different establishments. The Triple Test has requisites that are as follows:
- Systematic Activity
- Co-operation between the employer and employee
- Activity concerned with the production of goods and services for the satisfaction of human wants.
Here, the industry will not embody any religious services or other work undertaken out of spiritual bliss. The profit motive stands irrelevant when it comes to any venture. Through the triple test, the focus is concentrated on the functional part emphasizing the employer-employee relations. An establishment that is engaged in philanthropic activities does not cease to become an industry because of it. Thus, if all the above-stated provisions are complied with, then the undertaking can be termed as an ‘industry’ under section 2(j) of the Industrial Disputes Act, 1947.
Notes:
- Absence of profit motive or gainful objective is irrelevant wherever the undertaking is whether in the public, joint, private or other sector.
- The true focus is functional and the decisive test is the nature of the activity with special emphasis on the employer-employee relations.
- If the organization is a trade or business, it does not cease to be one because of philanthropy animating the undertaking.
All organized activity possessing the triple elements in (i) although not trade or business, may still be “industry”, provided the nature of the activity, viz., the employer – employee basis, bears resemblance to what we find in trade or business. This takes into the fold of “industry”, undertaking, callings and services, adventures analogous to the carrying on of trade or business. All features, other than the methodology of carrying on the activity, viz., in organizing the cooperation between employer and employee, may be dissimilar. It does not matter, if on the employment terms, there is analogy.
Application of these guidelines should not stop short of their logical reach by invocation of creeds, cults or inner sense of incongruity or outer sense of motivation for or resultant of the economic operations. The ideology of the Act being industrial disputes between employer and workmen, the range of this statutory ideology must inform the reach of the statutory definition, nothing less, nothing more. Hence, the Supreme Court observed that professions, clubs, educational institutions. co-operatives, research institutes, charitable projects and other kindred adventures, if they fulfill the triple tests listed above, cannot be exempted from the scope of Section 2(j).
The Supreme Court, in Bangalore Water Supply case laid down the following guidelines for deciding the dominant nature of an undertaking:
- Where a complex of activities, some of which qualify for exemption, others not, involves the employees on the total undertaking. Some of whom are not “workmen” or some departments are not productive of goods and services if isolated, nature of the department will be the true test. The whole undertaking will be “industry” although those who are not “workmen” definition may not be benefit by the status.
- Notwithstanding with previous clause, sovereign functions strictly understood alone qualify for exemption and not the welfare activities or economic adventures undertaken by Government or statutory bodies.
- Even in departments discharging sovereign functions, if there are units which are industries and they are substantially severable, then they can be considered to come within Section 2(j).
Sovereign Functions:
Earlier Sovereign functions were excluded from the ambit of the definition of industry. In Bangalore Water Supply and Sewerage Board v. A Rajiappa (AIR 1978 SC 548) case the Court has clearly said that Sovereign functions which are not involving employee-employer cooperation are excluded. Sovereign functions strictly understood alone qualify for the exemption, not the welfare activities or economic adventures undertaken by Government or statutory bodies. Even in departments discharging sovereign functions, if there are units which are industries and they are substantially severable then they can be considered to come within Section 2(j).
In Corpn. of City of Nagpur v. Employees (1960 I LLJ 523) case held that If a department of a municipality discharged many functions, some pertaining to “industry” and other non-industrial activities, the predominant function of the department shall be the criterion for the purposes of the Act.
The amendment Act 1982 (which has not been brought into force) has excluded any activity of the Government relating to sovereign functions of the Government, including all activities carried on by the department of the Central Government dealing with defence, research, atomic energy, and space.
Municipal Corporation:
If a department of a municipality discharges many functions some pertaining to industry and others non-industrial, the predominant function of the department shall be the criterion for the purpose of the Act. While in the exercise of delegated legal functions, the Municipal Corporation is not an industry. It is an industry; when its departments render services to the public at large, such as construction, lighting, transport, etc.
By these criteria following activities of Municipal corporation come under the ambit of definition of the industry: Tax, Public Conveyance, Fire Brigade, Lighting, Water Works, City Engineers, Enforcement (Encroachment), Sewerage, Health, Market, Public gardens, Education, Printing Press, Building and General administration.
In D.N. Banerjee v. P. R. Mukherjee, (AIR 1953 SC 58) case, the dispute was between employees working in the sanitary department of Budge Budge Municipalty and Administration. The dispute was regarded as an industrial dispute as both the definition of “industry” and “industrial dispute” were attracted. It was held that the departments those dealing with sanitation and electricity fall within the definition of Industry.
In Corpn. of City of Nagpur v. Employees (1960 I LLJ 523) case the Court held that If a department of a municipality discharged many functions, some pertaining to “industry” and other non-industrial activities, the predominant function of the department shall be the criterion for the purposes of the Act.
Hospitals and Charitable Institutions:
In State of Bombay v. Hospital Mazdoor Sabha (1960 AIR SC 610) case, the Supreme Court held the State is carrying on an ‘undertaking’ within Sec. 2(j) when it runs a group of hospitals for purpose of giving medical relief to the citizens and for helping to impart medical education. The court observed as follows: An activity systematically or habitually undertaken for the production or distribution of goods or for the rendering of material services to the community at large or a part of such community with the help of employees is an ‘undertaking. It is the character of the activity in question which attracts the provisions of Sec. 2 (j), who conducts the activity and whether it is conducted for profit or not, do not make a material difference. Thus, activities that have no commercial implications, such as hospitals carried on with philanthropic motives would be covered by the expression ‘undertaking’. The mere fact that Government runs such activity is immaterial. In case activity is industry if carried on by a private person, it would be so, even if carried on by the Government.
In Management of Safdarjung Hospital v. Kuldip Singh (AIR 1970 SC 1406) case, the decision in State of Bombay v. Hospital Mazdoor Sabha, 1960 AIR SC 610 case is overruled. it was held that a place of treatment of patients run as a department of the government was not an industry because it was a part of the sovereign functions of the government. Charitable hospitals run by Government or even private associations cannot be included in the definition of the industry because they have not embarked upon economic activities analogous to trade or business. If hospitals, nursing home or a dispensary is run as a business in a commercial way, there may be elements of the industry.
In Dhanrajgiri Hospital v. Workmen, AIR 1975 SC 2032 case, the main activity of the hospital was imparting of training in nursing and the beds in the hospital were meant for their practical training. It was held not to be an industry, as it was not carrying on any economic activity in the nature of trade or business.
Therefore, a charitable hospital run by a private trust, offering free services and employing a permanent staff is an industry as there is a systematic activity, a cooperation between employer and employees and rendering of services which satisfies human wants and wishes. Further, the services of employees are hired as in any other business.
In FICCI v. Workmen, AIR 1972 SC 763 case, the Court observed that exemptions to charitable institutions under Section 32(5) of Payment of Bonus Act is not relevant to the construction of Section 2(j), there is an industry in the enterprise, provided the nature of the activity, namely the employer-employee basis bears resemblance to what is found in trade or business. The true focus is functional and the decisive test is the nature of the activity with special emphasis on the employer-employee relations.
Charitable Institutions:
Category – 1:
Those institutions which get profit, but the profits are siphoned (used) for altruistic (unselfish) purposes. The first condition of organized and systematic activity is passed. There is an employee and employer cooperation. Hence the second test is passed. The employee-employer cooperation is for the production of goods and services for human wants. Hence the third test is also passed. To make a profit is the motive. (Actually, it is immaterial). Hence such charitable institutions come under the ambit of definition of “Industry”.
If the institution is run for production and or supply of goods and services with an eye on profit, it is plainly an industry. The fact that the whole or substantial part of profits so earned is diverted for purely charitable purposes does not affect the nature of the economic activity which involves the cooperation of employer and employee and results in the production of goods and services. The workers are not concerned about Where the profit is going. They work and receive wages and are treated like any other workmen in any similar industry. The application of the income for philanthropic purposes, instead of filling individual coffers, makes no difference either to the employees or to the character of the activities. The motive of the employer in the final disposal of products or profits is immaterial.
Category – 2:
Charitable institutions those make no profit but hire the service of employees as in any other business, but the goods/ services produced, are made available at a low or no cost to the needy and poor. The first condition of organized and systematic activity is passed. There is the hiring of employees as in any other business, there is employee and employer cooperation. Hence the second test is passed. The employee-employer cooperation is for the production of goods and services for human wants. Hence the third test is also passed. To make a profit is not the motive. (Actually, it is immaterial). Hence such charitable institutions come under the ambit of definition of “Industry”.
It is an allotropic modification of the first category. If a socially oriented kind person hires employees and, in cooperation with them, produces and supplies goods or services to the needy and the poor at a low price or free of cost, then he is doing for charity. As the workmen are concerned, they contribute their labour in return for wages and conditions of service similar to any other similar business. Both pay similar wages under similar working conditions. The charitable approach is towards the users of services and goods and not towards the workmen. The Industrial Dispute Act, 1947 regulates industrial relations between employers and employers,
employers and employee and employee and employee. The Act has nothing to do with the charity. The income-tax Act may give,
some rebates in taxes for such activity. The motive of the employer in the final disposal of products or profits is immaterial.
By this definition, Gandhi Ashrams producing cloth using cotton, charkhas, and handlooms are also termed as “Industry”.
Category – 3:
Charitable institutions that are oriented on a humane mission fulfilled by persons who work, not because they are paid wages, but they work out of their passion for the cause and get job satisfaction. The first condition of organized and systematic activity is passed. Here the second test fails, because there is no employer-employee relation. Everybody is working out of their passion. Hence such charitable institutions do not come under the ambit of definition of “Industry”.
In such cases, there is no concept of an employer or employee. Everybody is working for some cause without expectation of anything in return neither in monetary form nor in physical form.
Legal Firm:
In National Union of Commercial Employees v. M.R. Meher, it was held that a solicitor’s firm is not an industry, although specifically considered, it is organized as an industrial concern. The court held that a person following a liberal profession does not carry on his profession in any intelligible sense with the active co-operation of his employees. Subsidiary work which is purely incidental type and which is intended to assist the solicitor in doing his job has no direct relation to the professional service ultimately rendered by the solicitor. There is, no doubt, a kind of co-operation between the solicitor and his employees, but that co-operation has no direct or immediate relation to the advice or service which the solicitor renders to his client. However this was overruled by Bangalore Water Supply case. wherein it was held that in view of the infrastructure of the offices of professional persons, the contribution to the success of the institution comes not merely from the professional or specialist but from all those whose excellence in their respective spheres makes for total proficiency.
Conclusion:
The law in force presently is the interpretation of the original Section 2(j) as was laid down by Bangalore Water supply Case. The triple test formula is surely pro-labour as it seeks to bring more activities within the ambit of the Industrial Dispute Act 1947. Whenever any dispute arises to determine the validity of an establishment, the provisions of the triple test come into force. If the provisions comply with the work undertaken by the establishment, then it will be an industry under section 2(j) of the Act or else not. There might be times where the establishment is running on profit motive through the rendering of services. Here, the establishment imitates an industry but is not an industry in real. The triple test plays a significant role in the judgements passed by the Court while dealing with uncertain validities of business entities. Whenever any dispute arises, one should consider what type of work the establishment is engage in so that it helps to provide clarity in future.