1978 (2) TMI 204 - SC - Indian Laws

Supreme Court defines 'industry' under Section 2(j) to include educational institutions, hospitals, clubs regardless of profit motive

BANGALORE WATER SUPPLY & SEWERAGE BOARD Versus A. RAJAPPA

The SC held that the definition of 'industry' under Section 2(j) of the Industrial Disputes Act, 1947 should be interpreted broadly and functionally. The ... Meaning and scope of the term 'industry' as defined in Section 2(j) of the Industrial Disputes Act, 1947 - phrase 'analogous to industry' - doctrine of direct co-operation and the features of liberal professions - triple tests of 'systematic activity, co-operation between employer and employee and production of goods and services - definition of 'public utility service' - Are establishments, run without profit motive. industries - Are Charitable institutions industries - Undertakings governed by a no-profit no-loss rule - Do, clubs or other organisations (like the Y.M.C.A.) whose general emphasis is not on profit-making but fellowship and self-service, fit into the definitional circle - Could a lawyer's chambers or chartered accountant's office, a doctor's clinic or other liberal profession's occupation or calling be designated an industry - Would a University or college or school or research institute be called an industry. KRISHNA IYER, J. - HELD THAT:- The wings of the 'industry' have been spread wide in section 2(j) and brought out in the decision in Corporation case 'was concerned with a dispute between a employees. The major issue considered there the much disputed expression analogous to the carrying on of a trade or business'. Even so the scope of 'industry' was investigated by the Bench in the City of Nagpur [1960 (2) TMI 53 - SUPREME COURT], which affirmed Banerji and Baroda. The Court took the viewthat the words used in the definition were prima facie of the widest import and declined to curtail, the width of meaning by invocation of noscitur a sociis. Even so, the Court was disinclined of spread the not too wide by expanding the elastic expressions calling, service employment and handicraft. To 'be 'over-inclusive may be impractical and so while accepting the enlargement of meaning by the device' of inclusive definition the Court cautioned Education - We have extensively excerpted from the vigorous dissent because the same position holds good for India which AS emerging from feudal illiteracy to industrial education. In Gandhi's India basic education and handicraft merge and in the latter half of our century higher education involves field studies, factory training, house surgeoncy and clinical education, and, sans such technological training and education in humanities, industrial progress is self-condemned. If education and training are integral to industrial and agricultural activities, such services are part of industry even if high browism may be unhappy to acknowledge it. It is a class-conscious, inegalitarian outlook with an elitist aloofness which makes some people shrink from we accepting educational institutions, vocational or other as industries. The definition is wide, embraces training for industry which, in truth, ensconces all processes of producing goods and services by employeremployee cooperation. Education is the nidus of industrialization and Itself is industry. Liberal Professions - We mean no disrespect to the members of the professions. Even the judicial profession or administrative profession cannot escape the winds of social change. We may add that the modern world, particularly the third world, can hope for a human tomorrow only through professions for the people, through expertise at the service of the millions. Indian primitivism can be banished only by pro bono publico professions in the field of law, medicine, education, engineering and what not. But hat radicalism does not detract from the thesis that 'industry' does not spare professionals. Even so, the widest import may still self-exclude the little moffusil lawyer, the small rural medico or the country engineer, even though a hired sweeper or factotum assistant may work with him. We see no rationale in the claim to carve out islets. Look. A solicitor's firm or a lawyer's firm becomes successful not merely by the talent of a single lawyer but by the cooperative operations of several specialists, juniors and seniors. Likewise the ancillary services of competent stenographers, paralegal supportive services are equally important. The same test applies to other professions. The, conclusion is inevitable that contribution to the success of the institution-every professional unit has an institutional good-will and reputation-comes not merely from the professional or specialist but from all those whose excellence in their respective parts makes for the total proficiency. We have, therefore, no doubt that the claim for exclusion on the score of liberal professions is unwarranted from a functional or definitional angle. The flood-gates of exemption from the obligations, under the Act will be opened if professions flow out of its scope. The result of this discussion is that the solicitors' case is wrongly decided and must, therefore, be' over-ruled. We must hasten, however, to repeat that a small category, perhaps large in numbers in the muffasil, may not squarely fall within the definition of industry. A single lawyer, a rural medical practitioner or urban doctor with a little assistant and/or menial servant may ply a profession but may not be said to run an industry. That is not because the employee does not make a contribution nor because the profession is too high to be classified as a trade or industry with its commercial connotations but because there is nothing like organised labour in such employment. The image of industry or even quasi-industry is one of a plurality of workmen, not an isolated or single little assistant or attendant. The latter category is more or less like personal avocation for livelihood taking some paid or part-time from another. The whole purpose of the Industrial Disputes Act is to focus on resolution of industrial disputes and regulation of industrial relations and not to meddle with every little carpenter in a village or blacksmith in a town who sits with his son or assistant to work for the customers who trek in. The ordinary spectacle of a cobbler and his assistant or a cycle repairer with a helper, we come across in the payments of cities and towns, repels the idea of industry and industrial dispute. For this reason, which applies all along the line, to small professions, petty handicraftsmen, domestic servants and the like, the solicitor or doctor or rural engineer, even like the butcher, the baker and the candlestick maker, with an assistant or without, does not fall within the definition of industry. In regular industries, of course, even a few employees are enough to bring them within sec. 2(s). Otherwise automated industries will slip through the net. Since the substantial grounds on which we reject the reasoning have already been set out elaborately. The premises relied on is that the bulk. of the employees in the university is the teaching community. Teachers are not workmen and cannot raise disputes under the Act. The subordinate staff being only a minor category of insignificant numbers, the institution must be excluded, going by the predominant character test. It is one thing to say that an institution is not an industry. It is altogether, another thinking to say that a large number of its employees are not workmen' and cannot therefore, avail of the benefits of the. Act so the institution ceases to be an industry. The test is not the predominant number of employees entitled to enjoy the benefits of the Act. The true test is the predominant nature of the activity. In the case of the university or an educational institution, the nature of the activity is, ex hypothesis education which is a service to the community. Ergo, the university is an industry. The error has crept in, if we may so say with great respect, in mixing up the numerical strength of the personnel with the nature of the activity. With evening classes, correspondence courses, admissions unlimited, fees and government grants escalating, and certificates and degrees for prices, education legal, medical, technological, school level or collegiate-education-is riskless trade for cultural 'entrepreneurs and hapless posts of campus (industrial) unrest. Imaginary assumptions are experiments with untruth. Our conclusion is that the University of Delhi case [1963 (4) TMI 71 - SUPREME COURT], was wrongly decided and that education can be and is, in its institutional form, an industry. Are Charitable Institutions Industries ? What is different is the charitable object. What is. common is the nature of the employer employees relations. The conclusion, notwithstanding the humanitarian overtones, is that such organisations are also industries. Of course, in Bombay Pinjrapole the same conclusion was reached but on different and, to some extent faulty reasoning. For, the assumption in the judgment of Mitter J., is that if the income were mostly from donations and the treatment of animals were free, perhaps such charity, be it a hospital for humans or animals, may not be an industry. We agree with the holding, not because Pinjrapoles have commercial motives but because, despite compassionate objectives, they share business-like orientation and operation. In this view, section 2(j) applies. Does research involve collaboration between employer and employee ? For instance, the discoveries of Thomas Alva Edison made him fabulously rich. It has been said that his brain had the highest cash value in history for he made the world vibrate with the miraculous discovery of recorded, sound. Unlike most inventors, he did not have to wait to get his reward in heaven; he received, it munificently on this gratified and grateful earth, thanks to conversion of his inventions into, money a plenty. Research benefits industry. Even though a research institute may be a separate entity disconnected from the many industries which funded the institute itself, it can be regarded as an Organisation, propelled by systematic activity, modeled on co-operation between employer and employee and calculated to throw up discoveries and inventions and useful solutions which benefit individual industries and the nation in terms of goods and services and wealth. It follows that research institutes, albeit run without profit-motive, are industries. True Shri Tarkunde is right if Safdarjung [1970 (1) TMI 89 - SUPREME COURT] is rightly decided. The concluding portions of that decision proceed on the tooting that research and training have an exclusionary effect. That reasoning, as we have already expounded, hardly has our approval. Clubs : Clubs are exclusive; they cater to needs and pleasures of members, not of the community as such and this latter feature salvages them from the clutches of industrial regulation. We do not agree, Clubs are open to the public for membership subject to their own bye-laws and rules. But any member of the community complying with those conditions and waiting for his turn has reasonable chance of membership. Even the world's summit club-the United Nations has cosmic membership subject to vetoes, qualifications, voting and what not. What we mean is that a club is not a limited partnership but formed from the community. Moreover, even the most exclusive clubs of imperial vintage and class snobbery admit members' guests who are not specific souls but come from the unrefused community or part of a community. Clubs speaking generally are social institutions enlivening community life and are the fresh breath of relaxation in a fadedsociety. They serve a section and answer the doubtful test of serving the community. They are industry. The Madras Gymkhana Club [1967 (10) TMI 67 - SUPREME COURT], a blue-blooded, members' club has the socialite cream of the city on its rolls. It offers choice facilities for golf, tennis and billiards, arranges dances, dinners and refreshments, entertains and accommodates guests and conducts tournaments for members and non-members. These are all activities richly charged with pleasurable service. For fulfilment of these objects the club employs officers, caterers, and others on reasonable salaries. Does this club become an industry? The label matters little; the substance is the thing. A night club for priced nocturnal sex is a lascivious 'industry'. But a literary club, meeting weekly to read or discuss poetry, hiring a venue and running solely by the self-help of the participants, is not. We are intrigued by this reason. The ingredients necessary for an industry are present here and yet it is declared a non-industry because the club belongs to members only. A company belongs to the shareholders only; a co-operative belongs to the share members only; a firm of experts belongs to the partners only. And yet, if they employ workmen with whose co-operation goods and services are made available to a section of the community and the operations are organised in the manner typical of business method and Organisation, the conclusion is irresistible that an 'industry' emerges. Likewise, the members of a club may own the institution and become the employers for that reason. It is transcendental logic to jettison the inference, of an 'industry' from such a factual situation on the ingenious plea that a club 'belongs to members for the time being and that is what matters'. We are inclined to think that that just does not matter. The Gymkhana case, we respectfully hold, is wrongly decided. We over-rule Safdarjung, Solicitors' case, Gymkhana, Delhi University, Dhanrajgirji Hospital and other rulings whose ratio runs counter to the principles enunciated above, and Hospital Mazdoor Sabha is hereby rehabilitated. We conclude with diffidence because Parliament which has the commitment to the political nation to legislate promptly in vital areas like industry and trade and articulate the welfare expectations in the conscience' portion of the constitution, has hardly intervened to restructure the rather clumsy, vaporous and tall-aud-dwarf definition or tidy up the scheme although Judicial thesis and anti-thesis, disclosed in the two decades long decisions, should have produced a legislative synthesis becoming of a welfare State and Socialistic Society, in a world setting where I.L.O. norms are advancing and India needs updating. We feel confident, in another sense, since counsel stated at the bar that a bill on the subject is in the offing. The rule of law, we are sure, will run with the rule of Life-Indian Life-at the threshold of the decade of new development in which Labour and Management, guided by the State, will constructively partner the better production and fair diffusion of national wealth. This Court thus established core principles emphasizing a broad, functional, and purposive interpretation of 'industry,' focusing on the nature of organized activity and employer-employee relations rather than profit motive or traditional notions of trade or business. It rejected artificial exclusions based on profession, charity, education, or government ownership, except for narrowly defined sovereign functions. We have stated that, save the Bangalore Water Supply and Sewerage Board-appeal, we are not disposing of the others on the merits. We dismiss that appeal with costs and direct that all the others be posted before a smaller bench for disposal on the merits in accordance with the principles of Law herein laid down. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court centered on the precise meaning and scope of the term 'industry' as defined in Section 2(j) of the Industrial Disputes Act, 1947. The issues included:What is the ambit and meaning of 'industry' under the Act, given its wide and somewhat ambiguous statutory definitionRs.Whether the definition of 'industry' should be given a broad, purposive construction or be restricted by implied limitations such as the presence of profit motive, capital investment, or direct employer-employee cooperation.Whether various categories of undertakings and occupations fall within the definition of 'industry,' including:Governmental or state-run enterprises and whether sovereign or governmental functions are excluded.Charitable institutions and whether they qualify as industries despite lack of profit motive.Educational institutions and whether education can be considered an industry.Liberal or learned professions such as lawyers, doctors, and accountants, and whether they fall within the scope of 'industry.'Clubs and social organizations, and their status as industries or non-industries.Research institutions and whether research activities constitute industry.Cooperative societies and credit unions and their classification as industries.The validity of judicially created tests such as 'direct and essential cooperation' between employer and employee, 'analogous to trade or business,' and the 'predominant nature' test.The appropriateness of overruling or affirming previous judicial decisions, including the landmark Safdarjung Hospital case and others that created exceptions or limitations on the meaning of 'industry.'The role of judicial interpretation versus legislative action in clarifying the definition and scope of 'industry.'2. ISSUE-WISE DETAILED ANALYSISMeaning and Scope of 'Industry' under Section 2(j)The Court recognized that the statutory definition of 'industry' is expressed in wide terms: 'any business, trade, undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft, or industrial occupation or avocation of workmen.' However, the definition is nebulous and has led to confusion and conflicting interpretations.The Court emphasized the necessity of a purposive and contextual interpretation, taking into account the Act's objectives-investigation and settlement of industrial disputes to promote industrial peace and social justice. It rejected a narrow or literal approach that would exclude many activities simply because they lack profit motive or capital investment.Precedents such as D. N. Banerji v. R. P. Mukherjee and Corporation of the City of Nagpur v. Its Employees were reaffirmed for their broad and inclusive interpretation of 'industry,' which includes organized activities involving cooperation between employer and employee for producing goods or rendering services to the community.The Court rejected the notion that 'industry' must be confined to profit-making enterprises or those with direct employer-employee cooperation strictly related to production. Instead, it endorsed a functional and dynamic approach that reflects the evolving socio-economic context and constitutional values, including the welfare state principles enshrined in Part IV of the Constitution.Governmental and Sovereign FunctionsThe Court examined whether activities undertaken by the State or government bodies fall within the definition of 'industry.' It rejected the traditional doctrine that sovereign or regal functions of the State are categorically excluded from the scope of industrial law. Instead, it held that only 'primary and inalienable functions of constitutional government,' such as administration of justice, defense, and legislative functions, are exempt.Other governmental activities, including public utilities, hospitals, and municipal services, even if undertaken by the State, are industries if they meet the criteria of organized activity involving employer-employee relations producing goods or services for the community. The Court emphasized that the nature of the activity, not the identity of the employer, determines whether it is an industry.It noted that statutory provisions or constitutional articles (e.g., Articles 309-311) may expressly or impliedly exclude certain categories of employees or activities from the Act, but in the absence of such provisions, government-run enterprises are within the scope of 'industry.'Charitable InstitutionsThe Court analyzed the status of charitable institutions under the definition of 'industry,' identifying three broad categories:Charitable enterprises that produce profits but apply them for altruistic purposes.Institutions that produce goods or services for the needy at low or no cost but employ workers under wage-based contracts.Institutions run by volunteers or devotees who work without wages or employer-employee relations, motivated purely by altruism or spiritual devotion.The Court held that the first two categories qualify as industries because they involve organized, systematic activities with employer-employee relations producing goods or services, regardless of profit motive. The third category, where there is no economic relationship or wage basis and work is voluntary, does not constitute an industry.It emphasized that charitable motive or absence of profit does not exclude an enterprise from being an industry if the organizational and employment criteria are met. The focus is on the nature of the activity and the employer-employee relationship, not on the altruistic intent or destination of profits.Educational InstitutionsThe Court considered whether education is an industry. It rejected the earlier decision in the University of Delhi case, which held that education is not an industry because teachers are excluded from the definition of 'workman.'The Court reasoned that education is a systematic, organized activity involving cooperation between employers and employees (including non-teaching staff), producing services of material value to the community. It held that the predominant nature of the activity is determinative, not the numerical strength of employees classified as 'workmen.'The Court rejected the argument that education is a mission or vocation exempt from industrial law and held that education, including universities, colleges, and research institutes, is an industry for the purposes of the Act. Ancillary activities such as printing presses, transport services, and administration within educational institutions also fall within the ambit of industry.Liberal and Learned ProfessionsThe Court addressed whether professions such as lawyers, doctors, accountants, and other learned professions are industries. Earlier decisions, including the Solicitor's case, had excluded liberal professions based on the absence of direct cooperation between employer and employee and the intellectual nature of the work.The Court rejected these exclusions, holding that the doctrine of direct and essential cooperation is impractical and unworkable in modern complex organizations. It recognized that all employees, including clerical, support, and menial staff, contribute to the success of professional enterprises and thus form part of an industry.The Court acknowledged the sociological critiques of professions as monopolistic and self-serving but emphasized that from a legal and functional perspective, professions are subject to industrial law if they involve organized employer-employee relations producing services for the community. It overruled the Solicitor's case and other rulings that excluded liberal professions.However, the Court recognized that small-scale, isolated professional practices with minimal or no organized employees may not constitute an industry due to the absence of organized labor relations.Clubs and Social OrganizationsThe Court examined whether clubs, including social, sports, and recreational clubs, are industries. It held that most clubs with organized activities, employing staff for services such as catering, maintenance, and administration, constitute industries because they involve employer-employee relations producing services for a section of the community.The Court distinguished between large, professionally run clubs and small, self-serving clubs where members themselves perform services without hired employees. The latter may be exempt from the definition of industry.The Court criticized earlier rulings such as the Gymkhana Club and Cricket Club of India cases for excluding such clubs from the ambit of industry, holding those decisions wrongly decided.Research InstitutionsThe Court held that research institutes are industries if they involve organized employer-employee cooperation producing services or goods of material value to the community, even if run without profit motive. It rejected the reasoning of the Safdarjung case, which excluded research and training institutions from the definition of industry.Cooperative Societies and Credit UnionsThe Court held that cooperative societies, including credit unions, are industries because they are legal entities employing workers and engaged in trade or business-like activities. The organizational and employer-employee relations bring them within the scope of the Act.Judicial Interpretation and Legislative RoleThe Court acknowledged the difficulties and ambiguities arising from the wide and vague statutory definition and the conflicting judicial decisions over decades. It emphasized the need for judicial interpretation to provide working principles and clarity but recognized that ultimate resolution requires legislative action to amend and clarify the law.The Court expressed hope that Parliament would promptly enact comprehensive legislation to define 'industry' and related terms clearly to avoid further litigation and confusion.3. SIGNIFICANT HOLDINGSThe Court laid down authoritative principles on the meaning of 'industry' under the Industrial Disputes Act, overruling earlier conflicting decisions and clarifying the scope of the term. Key holdings include:'Industry, as defined in Sec. 2(j) and explained in Banerji, has a wide import. Where (i) systematic activity, (ii) organized by cooperation between employer and employee, (iii) for the production and/or distribution of goods and services calculated to satisfy human wants and wishes (not spiritual or religious but inclusive of material things or services geared to, celestial bliss e.g. making, on a large scale, prasad or food), prima facie, there is an 'industry' in that enterprise.''Absence of profit motive or gainful objective is irrelevant, be the venture 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 organisation is a trade or business, it does not cease to be one because of philanthropy animating the undertaking.''Although sec. 2(j) uses words of the widest amplitude in its two limbs, their meaning cannot be magnified to overreach itself. 'Undertaking' must suffer a contextual and associational shrinkage as explained in Banerji and in this judgment, so also, service, calling and the like.''Professions, clubs, educational institutions, cooperatives, research institutes, charitable projects and other kindred adventures, if they fulfil the triple tests listed above, cannot be exempted from the scope of sec. 2(j).''A restricted category of professions, clubs, cooperatives and even Gurukulas and little research labs, may qualify for exemption if in simple ventures substantially and going by the dominant nature criterion substantively, in single simple ventures, no employees are entertained but in minimal matters, marginal employees are hired without destroying the nonemployee character of the unit.''If in a pious or altruistic mission many employ themselves, free or for small honoraria, or likely return mainly by sharing in the purpose or cause... then the institution is not an industry even if stray servants, manual or technical, are hired.''The dominant nature test: where a complex of activities, some of which qualify for exemption others not, involves employees on the total undertaking, some of whom are not 'workmen' as in the University of Delhi case or some departments are not productive of goods and services if isolated, even then, the predominant nature of the services and the integrated nature of the departments... will be true test.''Notwithstanding the previous clauses, sovereign functions, strictly understood, alone qualify for exemption, not the welfare activities or economic adventures undertaken by government or statutory bodies.''Constitutional and competently enacted legislative provisions may well remove from the scope of the Act categories which otherwise may be covered thereby.''We over-rule Safdarjung, Solicitors' case, Gymkhana, Delhi University, Dhanrajgirji Hospital and other rulings whose ratio runs counter to the principles enunciated above, and Hospital Mazdoor Sabha is hereby rehabilitated.'The Court thus established core principles emphasizing a broad, functional, and purposive interpretation of 'industry,' focusing on the nature of organized activity and employer-employee relations rather than profit motive or traditional notions of trade or business. It rejected artificial exclusions based on profession, charity, education, or government ownership, except for narrowly defined sovereign functions.The Court also recognized the practical difficulties in applying some judicial tests and underscored the need for legislative clarity to provide certainty and reduce litigation.