Bangalore Water Supply and Sewerage Board v. Rajappa, AIR 1978 SC 548

Indian Legal System > Civil Laws > Labour Laws > Industrial Disputes Act, 1947 >Bangalore Water Supply Case

According to Section 2(j) of the Industrial Disputes Act, 1947,“industry” means any business, trade, undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft or industrial occupation or vocation of workmen. An industry exists only when there is a relationship between employers and employees, the former is engaged in business, trade, undertaking, manufacture or calling of employers and the latter is engaged in the calling, service, employment, handicraft or industrial occupation and avocation. Thus the definition can be considered to have two parts. The first part “any business, trade, undertaking, manufacture or calling of employers” is w.r.t. employer and the second part “any calling, service, employment, handicraft or industrial occupation or vocation of workmen” is w.r.t. employee. In this article, we shall discuss a landmark case Bangalore Water Supply and Sewerage Board v. Rajappa also called Bangalore Water Works Case, which gave triple test to decide the nature of the organization.

Facts of the Case:

The respondent employees were fined by the Appellant Board for misconduct and various sums were recovered from them. Therefore, they filed a Claims under Section 33C (2) of the Industrial Disputes Act, alleging that the said punishment was imposed in violation of the principles of natural justice.

The appellant Board raised a preliminary objection before the Labour Court that the Board, a statutory body performing what is in essence a regal function by providing the basic amenities to the citizens, is not an industry within the meaning of the expression under section 2(j) of the Industrial Disputes Act, and consequently the employees were not workmen and the Labour Court had no jurisdiction to decide the claim of the workmen.

This objection being over-ruled, the appellant Board filed two Writ ‘Petitions before the Karnataka High Court at Bangalore. The Division Bench of that High Court dismissed the petitions and held that the appellant Board is “industry” within the meaning ‘of the expression under section 2(j) of the Industrial, Disputes Act, 1947.

The appeals by Special Leave, considering “the chances of confusion from the crop ‘of cases in an area where the common man has to understand and apply the law and the desirability that there should be, comprehensive, clear and conclusive declaration as to what is an industry under the Industrial Disputes Act as it stands” were placed for consideration by a larger Bench. In view of the difficulty experienced by all of us in defining the true denotation of the term “industry” and divergence of opinion in regard thereto-as has been the case with this bench also-we think, it is high time that the Legislature steps in with a comprehensive bill to clear up the fog and remove the doubts and set at rest once for all the controversy which crops up from time to time in relation to the meaning of the aforesaid term rendering it necessary for larger benches of this Court to be, constituted which are driven to the necessity of evolving a working formula to cover particular cases.

Proceedings and Judgment:

In this case, a seven-judge bench of the Supreme Court exhaustively considered the scope of industry. The Supreme Court in this case by a majority of five with two dissenting overruled Safdarjung solicitors’ case, gymkhana, Delhi University, dhanrajgiri hospital and cricket club of India. It rehabilitated hospital mazdoor shabha and affirmed indian standards institution. The court followed banerji and corporation of city of Nagpur cases.

The seven-member Judges’ Bench consisting of Beg M. Hameedullah (Cj), Chandrachud Y.V., Bhagwati P.N., Krishna iyer V.R., Tulzapurkar V.D., Desai D.A. and Singh Jaswant 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.

Triple Test:

The Triple Test has requisites that are as follows:

1. Systematic Activity
2. Co-operation between the employer and employee
3. 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 organised 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 organising 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 inference is that all organised activity possessing the triple elements although not trade or business may still be industry provided the employer-employee basis, bears resemblance to what we find in trade or business. The consequences are professions, clubs, educational institutions, co-operatives, research institutions, charitable projects, and other kindered adventures, if they fulfil the triple test, cannot be exempted from scope of definition of industry under section 2(j) of the Act.

Dominant Nature Test:

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).

Post Bangalore Water Works Case:

In Coir Board, Ernakulam v. Indira Devai P. S., (2000) 1 SCC 224 case,  the two-judge bench of the supreme court said: “the definition of industry under the industrial disputes act was held to cover all professions, clubs, educational institutions, cooperatives, research institutions, charitable projects and anything else which could be looked upon as organised activity where there was a relationship of employer and employee and goods were produced or service was rendered. Even in the case of local bodies and administrative organisations the court evolved a ‘predominant activity’ test so that whenever the predominant activity could be covered by the wide scope of the definition as propounded by the court, the local body or the organisation would be considered as an industry. Even in those cases where the predominant activity could not be so classified, the court included in the definition all those activities of the organisation which could be so included as industry, departing from its own earlier test that one had to go by the predominant nature of the activity. In fact, chandrachud, j. (as he then was) observed that even a defence establishment or a mint or a security press could, in a given case, be considered as an industry. Very restricted exemptions were given from the all-embracing scope of the definition so propounded. For example, pious or religious missions were considered exempt even if a few servants were hired to help the devotees. Where normally no employees were hired but the employment was marginal the organisation would not qualify as an industry. Sovereign functions of the state as traditionally understood would also not be classified as industry though government departments which could be served and labelled as industry would not escape the industrial disputes act. The majority laid down the ‘dominant nature test for deciding of whether the establishment is an industry or not.”

The Court suggested that, the constitutional and competently enacted legislative provisions may well remove from the scope of industrial disputes act categories which otherwise may be covered thereby. The parliament must step in and legislate in a manner which will leave no doubt as to its intention. Doubting the correctness of the tests laid down in Bangalore water supply & sewerage board verses rajappa and pointing out the damaging effects of the extended meaning given to ” industry” is this case, a two-judge bench of the supreme court in coir board verses indira devai rs., observed that a larger bench should be constituted to reconsider Bangalore water supply & sewerage board M. Rajappa decision. It was further observed that since the notification bring into effect the 1982 amendment to s. 2(j) of the Industrial Disputes Act has not been issued by the executive so far the matter should be judicially re- examined. Hence matter referred to larger bench to reconsider the decision in that case. In coir boardv. Indira devai ps., the larger bench of the supreme court held that the Bangalore water supply and sewerage board v. Rajappa decision “does not require reconsideration”. The Supreme Court observed, “industry, therefore, cannot be strictly defined but only be described. Such a rule, however, leaves too wide a door open for speculation and subjective notions as to what is describable as an industry. It is best to look for a rough rule of guidance by considering what the concept of industry must exclude.”

Proposed Amendment of Definition of Industry:

The definition of “industry” was amended in 1982 and is reproduced below. It shall stand substituted w.e.f. The date to be notified.

(j) “industry” means any systematic activity carried on by co-operation between an employer and his workmen (whether such workmen are employed by such employer directly or by or through any agency including a contractor) for the production, supply or distribution of goods or services with a view to satisfy human wants or wishes (not being wants or wishes which are merely spiritual or religious in nature), whether or not—

1. any capital has been invested for the purpose of carrying on such activity; Or
2. such activity is carried on with a motive to make any gain or profit.

And includes

(a) any activity of the dock labour board established under section 5-a of the dock workers (regulation of employment) act, 1948;

(b) any activity relating to the promotion of sales or business or both carried on by an establishment.

But does not include

1. any agricultural operation except where such agricultural operations’ carried on in an integrated manner with any other activity (being any such activity as is referred to in the foregoing provisions of this clause and such other activity is the predominant one). Explanation. For the purpose of this sub-clause “agricultural operation ” does not include any activity carried on in a plant at ion as defined in clause (f) of section 2 the plantation labour act, 1951, or
2. hospital or dispensaries, or
3. educational, scientific, research or training institutions; or
4. institutions owned or managed by organisation wholly or substantially engaged in any charitable, social or philanthropic service; or
5. khadi or village industries; or
6. any activity of the government relatable to the sovereign functions of the government including all the activities carried on by the departments of the central government dealing with defence, research, atomic energy and space; or
7. any domestic service; or
8. any activity, being a profession practised by an individual or body of individuals, if the number of persons employed by the individual or body of individuals in relation to such profession is less than ten; or

(a) any activity, being an activity carried on by a co-operative society or a club or any other like body of individuals, if the number of persons employed by the co-operative society, club or other like body of individual in relating to such activity is less than ten.

It may be noted that the amendment has not yet been brought into force. The earlier definition of ‘industry’ still continues to be valid and effective. This definition has incorporated the triple test laid down in Bangalore water supply case, but has excluded many activities like hospitals, educational institutions, etc.

State of U. P. v. Jai Bir Singh

In State of U. P. verses Jai Bir Singh, (2005) 5 SCC 1 case, five judge bench of the supreme court observed that interpretation given by majority judges (Krishna Iyer, j. Speaking for himself and Bhagwati and Desai, jj) in banglore water supply & sewerage board verses a. Rajappa, (1978) is over expansive and one sided i.e., only worker oriented. The Apex Court held that it requires reconsideration by a larger bench for the following reasons:

1. the decision in Bangalore water supply case was not a unanimous decision;
2. of the five judges who constituted majority, three had given a common opinion but the two others had given separate opinions projecting a view partly different from the views expressed in the opinion of the other three judges;
3. majority opinion expressed the view that their interpretation was only tentative and temporary till the legislature stepped in and removed vagueness and confusion.
4. judges in the said decision rendered different opinions at different points of time in some instances without going through opinion of other three judges;
5. worker-oriented approach in construing the definition of industry, unmindful of the interest of the employer and the public who are the ultimate beneficiaries, is a one-sided approach and not in accordance with the provisions of the act;
6. “sovereign functions”, should not be confined to its traditional concept but should comprehend public welfare activities which government undertakes in discharge of its constitutional obligations and as such should fall outside the purview of “industry”. Hence, hospitals and educational and research institutions, etc. Should be kept outside the purview of “industry”;
7. even though the act was amended in 1982 yet it has remained unforced and confusion still prevails;
8. the judicial interpretation seems to be one of the inhibiting factors in enforcement of the amended definition. The helplessness of the legislature and the executive in bringing into force the amended definition makes reference imperative;
9. in Bangalore water supply case not all the judges in interpreting the definition clause invoked the doctrine of noscitur a sociis. Unanimous decision of a bench of six judges in Safdarjung Hospital expressing the view that although “profit motive” is irrelevant, in order to encompass the activity within “industry” the activity must be “analogous to trade or business in a commercial sense”;
10. experience of past years showing that the majority view in Bangalore water supply, instead of ushering in industrial peace, has given rise to large number of awards granting reinstatement in service and huge amounts of back wages to workers compelling the employers having moderate assets to close down their industries causing harm not only to employers and workers but to the public in general, they being the ultimate beneficiaries;
11. interpretation should be a balanced one having regard to the interest of the workers, the employers as also the public. Object of the act has to be kept in view;
12. liberal profession based on talent, skill and intellectual attainments such as those of lawyers, doctors, chartered accounts, architects, etc. Should not fall within “industry”. The supreme court concluded that it is, therefore, for the large bench of the supreme court to interpret the definition clause in the present context with the experience of all these years, keeping in view the unenforced amended definition of “industry”.

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. Hence the definition should be amended as per 1982 decision and implemented.