How Is Industry' Defined Under Labour Laws in India?
How Is Industry' Defined Under Labour Laws in India?
How Is Industry' Defined Under Labour Laws in India?
Industrial Disputes Act, 1947 came into effect immediately after independence and the
object of the Act was to provide for effective machinery for investigation and settlement
of industrial disputes. Section 2(j) of the Act of 1947 provides for definition of Industry.
The definition of Industry as provided in Section 2(j) of the Industrial Disputes Act, 1947
reads as under,
No write up on the subject, in the backdrop of labour laws in India, is possible without
referring to the land mark judgement of the Hon’ble Supreme Court, Bangalore Water
Supply and Sewerage Board V/s A. Rajappa and Ors., decided on 21.2.1978 and
7.4.1978. In this landmark judgement 7 judge bench of the Hon’ble Supreme Court
considered pros and cons of the definition of Industry, referred earlier pronouncements
and decided the scope of definition of Industry under the Industrial Disputes Act, 1947.
The judgement of the Hon’ble Supreme Court in the matter of Bangalore Water Works
consists of 182 paragraphs and has considered all the previous cases on the subject. The
summary of the judgement is as under –
a) Where (I) Systematic activity (II) Organised by Co-operation between employer and
employee (III) For the production and/or distribution of goods and services calculated to
satisfy human wants and wishes (inclusive of material things or services geared to
celestial bliss i.e. making on large scale or Prasad or food is an industry)
b) Absence of profit motive or gainful objective is irrelevant, be the venture in the public,
joint, private or other sector.
Even pious or altruistic missions have been considered to be out of the ambit of the
definition of Industry if mainly drawn, by sharing in the purpose or common cause, for
E.g. – lawyers volunteering to run a free legal services clinic or doctors serving in their
spare hours in a free medical centre or Asharm-ites working at the bidding at the
Holiness, Divinity and the services are supplied free or at nominal costs and those who
serve are not engaged for remuneration or on the basis of Master and Servant
relationship.
Even in case of sovereign functions if there are units which are Industries and which are
substantially severable then they were considered to be falling within the ambit of
definition of Industry. Constitutional and competitively enacted legislative provisions
removing certain activities from the scope of the Act, which otherwise are likely to be
covered by the interpretation of Industry, were held to be out of ambit of the definition
of Industry.
The Hon’ble Supreme Court held that in deciding whether an enterprise is an industry,
the absence of profit motive or gainful objective is irrelevant. The Hon’ble Supreme Court
also held that whether the venture is public/joint or private or other sector is also
irrelevant. The Hon’ble Apex Court also observed that absence of capital does not qualify
an enterprise for exemption from the scope of Section 2(j) of the Act.
The Hon’ble Supreme Court also observed that welfare economic activities undertaken
by the Government or statutory bodies not being sovereign functions are covered by the
definition of Industries. The judgement also brought research institutes, educational
institutions, hospitals, professions like attorney, co-operative societies, clubs,
philanthropic enterprises, performing business functions within the definition of Industry.
Charitable Institutions make no profits but hire the services of employees as in other like
businesses.
The Hon’ble Supreme Court held that from the point of view of workers there is no charity,
they are concerned about the disposal of end products. The Hon’ble Supreme Court felt
that noble objectives, pious purposes are no reasons to bring charitable institutions out
of the definition of Industry. The Hon’ble Supreme Court also felt that if kind hearted
businessmen or high minded industrialist or service minded operated, hire employees
and provide services to the lowly and the lost, the needy and ailing, without charging
them any price or receiving a negligible return is a charity but as far as workmen are
concerned, they contribute their labour in return for wages and conditions of service and
therefore such an activity is covered by the definition of Industry. While holding that
Attorney’s office is an industry, the Hon’ble Supreme Court in the same judgement
excluded single lawyer, rural medical practitioner or urban doctor with little assistant
and/or menial servant. The Hon’ble Supreme Court also held that if Club or other like
collective has basic and dominant self service mechanism, presence of stray employees
will not bring such a club within the definition of Industry, however the Hon’ble Court also
observed that there should be absence of employer-employee co-operation. The Club
should be self serving and should not hire employees to manage their activities except
part time sweeper etc.
The interpretation of the definition of Industry by the Hon’ble Supreme Court brought a
large ambit of activities under the definition of Industry. A large number of institutes,
particularly, charitable institutes, universities approached the Union of India for an
amendment in the definition of Industry and accordingly Industrial Disputes Act, was
amended in the year 1982. Sub section 2 of Section 1 of the Amendment Act states that
the Act shall come into force on such a date as the Central Government may, by
notification in the Gazette, appoint. However, although the Act has amended the
definition of Industry in 1982, the amended provision is not brought into force.
On this background, in the year 2005, the Hon’ble Supreme Court, 5 Judge Bench,
decided on 5.5.2005, in the matter of State of UP V/s Jai Bir Singh, that the cases stated
in the cause title be placed before the Hon’ble Chief Justice of India for constituting a
suitable larger bench for reconsideration of the judgement of Supreme Court in the case
of Bangalore Water Works. The latest perusal of the records of the Supreme Court of
India show that, the said matters are presently pending before a 7 Judge Bench of the
Hon’ble Supreme Court.
On this background, in today’s business world the definition of Industry as held by the
Hon’ble Supreme Court, in the year 1978, certainly requires reconsideration not only from
the point of view of amendment of 1982 but also from the point of view of present
industrial/business scenario. Today with liberalization, a manufacturer in India may have
to compete with manufacturer from all over the world. In the business world, what
matters most is competitiveness and pricing with quality. Therefore if Indian business
houses have to compete with manufacturers in China where restrictions are not as severe
as in India, the manufacturers in India will not be able to compete with their Chinese
counterparts. While doing so, however, welfare of the workforce and compliance with
Indian employment laws shall also have to be kept in mind.
The Constitution of Bench is pending since 2005. It is not certain when finally Bench will
be constituted and judgment will come. Till that time the law as set by Bangalore Water
Works will prevail. Based on the judgement of Bangalore Water Works by the Hon’ble
Supreme Court the following activities have been considered ‘Industry’ by various Courts;
Public Works Department of Government (State of Punjab V/s Hari Dass & Anr, 1999)
Doordarshan (All India Radio V/s Santosh Kumar, 1998)
Tata Sports Club (Ratilal B Ravji V/s Tata Sports Club & Anr., 1997)
Research Institute (Central Council for Research in Ayurveda and Siddha V/s Central
Government Industrial Tribunal & Anr, 2010
This write up is placed to enable the viewers of the site to understand intricacies of
definition of Industry.
The definition of “industry” has evolved and expanded significantly over a period
of time by the legislative acts and judicial decisions. The journey of such evolution
has been symbolic primarily because of lack clarity in the legislative intent as
embodied in the law and conflicting judicial approaches regarding the ambit of
such definition. This paper shall be classified into four parts[1].
Part I
Section 2 (j) of the Industrial Disputes Act, 1947[2] can be divided into two
components. The first component enumerates as the statutory meaning of
‘industry’[3]; the second component provides as to what does an industry
includes[4] within its definition. This definition is not exhaustive and cannot be
treated as restricted in any sense has therefore been subjected to immense
judicial scrutiny. The landmark judgement is the Bangalore Water Supply case,
enlarged the definition to a large extent and over-ruled case precedents which
were a part of narrow interpretation, that is to say, before the Bangalore Water
Supply case clubs[5], hospitals[6], universities[7], solicitor firms[8], government
departments were excluded from the definition of industry but after
the Bangalorejudgement they have been declared as industry. The triple test of
the Bangalore case forms the quintessential part of the amended definition of
industry in 1982. The triple test provides that a) systematic activities b) organized
by cooperation between employer and employees c) for the production of goods
and services calculated to satisfy human wants and wishes would constitute
industry. However, this test was subjected to exceptions, namely, industry does
not include spiritual or religious services; absence of profit motive or gainful
objective is irrelevant (although an organisation will not cease to be a trade or
business because of philanthropy animating the undertaking) The main test is the
nature of activity with emphasis of employer-employee relationship therefore all
organized activities that satisfy the triple test will constitute industry
including undertakings, callings and services, adventures’ analogous to the
carrying on of trade or business. Thus, professions, clubs, educational
institutions, cooperatives, research institutes, charitable projects and (vii) other
kindred adventures will not be exempted from Section 2(j) of the Act, 1947
provided the triple test is fulfilled. The Apex Court also enunciated the dominant
nature criterion or test according to which a limited category of professions,
clubs, co-operatives little research labs, and even gurukulas may qualify for
exemption if substantively no employees are hired but only in minimal matters
some marginal employees are hired without disturbing the non-employee
character of the unit. Also, lawyers volunteering to run a free legal services clinic
or doctors serving in their spare hours in a free medical centre or if such services
are supplied at a nominal cost and the those who serve are not paid remuneration
based on master servant relationship then such an institution would not constitute
industry even if servants, manual or technical, are hired.
PART II
In the aftermath of the Bangalore case, the legislature intervened and amended
the definition of industry which although re-iterated the ratio of the Bangalore
case but also excluded certain public utility services and welfare activities from
its domain. The amendment (not yet enforced) provided that any systematic
activity carried on by co-operation between an employer and his workmen
(including independent contractor) for the production, supply or distribution of
goods or services with a view to satisfy human wants( excluding spiritual or
religious activities). The definition precludes hospitals or dispensaries;
educational, scientific, research or training institutions; institutions owned or
managed by organisations substantially engaged in any charitable, social or
philanthropic service; khadi or village industries; 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; number of individual employed in a
profession or co-operative society or a society are less than ten. Further clarity
in the definition of industry was enunciated in the case of Physical Research
Laboratory case[9] in which it was held that a research institute, of the
Government department, was not an industry although it carried out systematic
activities with the help of employees but did not produce or distribute services to
satisfy human wants and therefore there was absence of commercial motive.
Also, the Apex Court has held that the Bangalore case is the law of the land and
the proposed amendment is not binding yet (as it has not been enforced)
therefore the Telecommunication Department of the Government is an ‘industry’
because it is engaged in a commercial activity and do not discharge any of the
sovereign functions of the State[10]. Similarly, the functions which are carried on
by All India Radio and Doordarshan cannot be said to be confined to sovereign
functions as they carry on commercial activity for profit by getting commercial
advertisements telecast i.e. except the sovereign function all other activities of
employers would be covered within the sweep of term ‘industry’ as defined under
Section 2(j) of the Act, 1947[11].
PART III
Part IV
The preceding three parts have elucidated the gradual evolution in the definition
of industry. This paper takes into consideration the rationale of the Government,
which also forms the foundation of the definition provided in the Draft Code Bill,
2015, for not implementing the amended definition of 1982 i.e. there is no
alternative machinery for redressal of the service disputes of the employees of
the categories exempted from the definition[16]. However, this paper is of the
view that there is need to remove the inhibitions and difficulties faced by the
executive in implementing the law, that is to say, the legislature should draft a
concise definition with certain restrictions and exemptions; for such exempted
categories new legislations should be carved to address any redresses of the
employees. It is conceded that demands of the competing sectors have to be
taken into account but that should not act as an excuse for non-implementation
of legislative intent by the executive. Therefore, the judgement of the Coir
Band and Jai Bir Singh seems to be the correct position that such sweeping
definition of industry in the Bangalore case needs to crystallised and refined
taking into consideration the interests of workmen and employers equally and for
achieving the object of the Act, 1947 i.e. growth of industry by harmonisation of
employer-employee relation. Similarly, the overarching definition of industry
provided in the Draft Code Bill, 2015 which merely reiterates the Bangalore case
with no specific exceptions requires modification along the same lines so that
floodgates to litigation are not opened.
One of the important tests that the Courts have laid down while examining the
nature of work performed by an employee is to see if the work involves a certain
minimal degree of creativity and exercise of intellectual skill, and taking an
initiative in the absence of supervision or control. Simply put, if the employee is
required to think on his feet in performing his functions, is required to make
certain decisions independently as to his functioning, and is not subject to
supervision and control in respect of matters in which he makes independent
decisions, then such factors can lead to a conclusion that he is not a workman.
This should be differentiated from the ideas of ‘skilled’ and ‘technical’ work as laid
down in the definition of ‘workman’ in the Act. A driver of staff cars of a factory
is a skilled worker. Similarly a typing clerk is a skilled worker. A railway engine
driver may be considered a workman doing technical work. But an editor of a
newspaper, or a chartered accountant, whose main duties are not clerical and are
of the type which require some application of the mind and initiative, are not
workmen.
For the purpose of this Note, we shall examine the examples of a teacher, a
marriage counselor and a computer software / hardware professional to
determine whether these may fall within the definition of ‘workman’ under the
Act.
Teacher:
Ordinarily, the primary function of a teacher is to impart education. There is
usually a syllabus to be followed, but the teacher has the independence to teach
the syllabus in such manner as he thinks fit, and normally it requires creativity
and initiative on the part of the teacher to carry out his functions.
In Miss A. Sundarambai v. Government of Goa, Daman and Diu & Ors. [1989 1
LLJ 61], the Supreme Court of India held as under:
Thus, a teacher, though performing work that requires skill, and even technical
knowledge and application, is not a workman.
Marriage Counselor:
Thus, from our analysis above, and the pronouncement of the Bombay High Court
shows that a marriage counselor is not workman.
Software Engineer:
As has been aforestated, in the absence of case law on the subject, the cardinal
rule in determining whether a computer software or hardware professional can
be classified as a ‘workman’ will be to look at the actual nature of work performed
and will naturally be on a case to case basis. But, as seen from the points above,
the general functions of a computer software or hardware professional are such
that he may be considered to be excluded from the definition of a ‘workman’
under the Act.
CONCLUSION
The definition of workman is intentionally open ended and courts tend to interpret
it as widely as possible to protect more and more employees.
Certain general tests to show that an employee is not a workman are to examine
if his job mainly involves a certain amount of creativity, initiative, independent
judgement, and is not mainly of a clerical nature, or only involving manual labour
without proper application of mind, or any such clerical or manual work is only
incidental to his main working. However, these should not be considered the only
guidelines to determine whether or not an employee is a workman, and it may
differ on a case to case basis.
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INTRODUCTION
The Courts have interpreted this definition and have identified various determining factors to
know whether a person is "workman" or not. The factors which should be considered
are (a) whether there is a Master-Servant relationship;1 (b) when a person is performing various
functions which overlap in their characteristics, the nature of main function for which the
claimant is employed should be considered;2 (c) work is either manual, skilled, unskilled,
technical operational, clerical or supervisory in nature, the mere fact that it does not fall within
the exception would not render a person to be workman; and (d) that the exceptions are not
applicable.3Further, designation, source of employment, method of recruitment, terms and
conditions of employment/contract of service, the quantum of wages/pay and the mode of
payment should not be considered while determining whether a person can be termed as
"workman."4
Over a period of time, courts have interpreted specific points of contention in the definition under
the ID Act which has enlarged the scope of the legislation. This note discusses some of the
important components of section 2(s) and their interpretation by the courts below.
1.1 A person working in purely managerial and/or supervisory capacity does not fall within the
definition of workman under ID Act. However, when a person performs multifarious functions,
the nature of the main function performed by the person has to be considered to determine if the
person is a "workman." The designation of a person is not a conclusive factor in determining the
nature of work. Even if a person is designated as supervisor, the employer has to prove that his
work and his duties were in nature of a supervisor.5
1.2 To squarely fall within the exception, the person must be (a) employed in a supervisory
capacity; (b) draw more than INR 6500 as wages; and (c) primarily perform the functions of
managerial nature. The emphasis really is to exclude those persons who are performing mainly
managerial work and are employed in supervisory capacity i.e. evaluating the work of their
subordinates. A managerial work includes powers and duties related to hiring and firing of new
employees, grant of leave to employees and actual participation in the policy of the business.
The managerial functions may not be performed as a consequence of a written contract but may
be implied from the powers vested in a person or the nature of his duties. A mere leader of a
team who makes checks and forwards it to seniors for consideration cannot be said to be
covered within the exception.6 Further, a supervisor earning less than 6,500/- may also raise an
industrial dispute for an increment in wages which may eventually exclude him from the
definition of workman.7
2.1 Courts have not formulated an explanation as to who are considered as people employed in
"manual and operational work." Manual or operational work may be classified as one that
requires no special set of skills. It is mostly associated with physical labour. By way of
exception, the courts have excluded such works which need imaginative or creative quotient.
A work that requires training would imply that the work is of special nature and requires a
distinct application of mind. It is not considered a manual/clerical/operational work or technical
work. However, in a few cases the courts have deviated from strict interpretation and excluded
ancillary creative works while considering the definition of "workman." A person suggesting
ways to increase sale is using an imaginative minds and therefore, is out of the scope of this
definition. However, a person carrying out such ideas by distributing pamphlets or engaging in
door-to-door publicity will be covered as a "workman" under the ID Act.
2.2 A salesperson may use various techniques to convince the consumers but that is not
considered as use of creative or imaginative faculty and such sales person, even if he goes
through a training to acquire knowledge about the product, will not be excluded from the
definition of a workman.8
3. Part Time and Full Time workman
The number of working hours is not considered while determining whether a person qualifies as
"workman" or not. However, there must exist a master-servant relationship between the
employee and his employer. An independent contractor cannot be termed as a workman. The
employer must be in a position to control the manner of employee‟s work.
The ID Act does not differentiate between part-time, full time, casual, daily wage,9 regular or
permanent workman. All such individuals are subject to ID Act if they fulfill the ingredients as
provided in section 2(s).10
Conclusion
To give effect to the objects of this Act, the courts have followed a purposive approach while
interpreting the term workman‟ and industrial dispute‟. The emphasis is laid on the nature of
duties and powers conferredon an employee rather than the designation.
This bulletin is prepared by Kanchan Modak (under the supervision of Ankush Goyal, Senior
Associate), a 4thyear law student at NLIU Bhopal, who interned at PSA.