By Palak Verma and Aditya Tomar, Amity University, Noida
Editor’s Note: The present paper discusses the scope of term ‘industry’ as it appears in the Industrial Disputes Act, 1947. Through judicial decisions, it has been analyzed if charitable institutions, hospitals and legal firms are industries.”
Sec.2 (j) of the Industrial Disputes Act, 1947 defines ‘industry’ as any business, trade, undertaking, manufacture, or calling of employers and includes any calling, service, employment, handicraft or industrial occupation or avocation of workmen”.
An industry exists only when there is 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.
Sec. 2(j) gives the definition of industry, which was elaborated upon by the Supreme Court in the Bangalore Water Supply and Sewerage Board v. R. Rajappa[i]. The term industry has been given a wide scope and the judgment overruled several earlier decisions. The court held-
1. Any activity will be industry if it fulfills the ‘triple test’, as under:
- Systematic and organized activity
- With the cooperation between Employers and employees
- For the production and distribution of good and services whether or not capital has been invested for this activity.
2. It is immaterial whether or not there is profit motive or whether or not there is capital.
3. If the organization is a trade or business it does not cease to be one because of philanthropy animating the triple test, cannot be exempted from scope of definition of industry.
4. Dominant nature test – whether there is complex of activities, the test would be predominant nature of services and integrated nature of departments. All departments integrated with industry will also be industry.
5. The exceptions to industry are-
Casual activities (because they are not systematic).
Small clubs, co – operatives, research labs, gurukuls which have an essentially non employee character.
Single door lawyer taking help from clerk (because there is no organized labour).
Selfless charitable activities carried on through volunteers e.g. free legal or medical service.
Sovereign functions – strictly understood, i.e., maintenance of law and order, legislative functions and judicial function.
These fall into three categories –
(a) Those that yield profit, but the profits are not siphoned off for altruistic purposes;
(b) Those that make no profit but hire the service of employees as in any other business, but the goods/ services which are the output, are made available at a low or no cost to the indigent poor; and
(c) Those that are oriented on a humane mission fulfilled by men who work, not because they are paid wages, but because they share the passion for the cause and derive job satisfaction.
The first two categories are industries, but not the third, on the assumption that they all involve co-operation between employers and employees.
In State of Bombay v. Hospital Mazdoor Sabha,[ii] 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 an 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[iii], 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 functions of the government. Charitable hospitals run by Government or even private associations cannot be included in the definition of 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 industry.
In Dhanrajgiri Hospital v. Workmen[iv] , 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.
In Bangalore Water Supply v A. Rajappa[v], the Supreme Court overruled Safdarjung Hospital and Dhanrajgiri Hospital cases, and approved the law laid down in Hospital Mazdoor Sabha case. It was held that hospital facilities are surely services and hence industries. The government departments while undertaking welfare activities cannot be said to be engaged in discharging sovereign functions and hence outside the ambit of Sec.2(j) of the Act.
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 co – operation 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 National Union of Commercial Employees v. M.R. Meher,[vi] 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, and the principal/sole capital which he brings into his profession is his special and peculiar intellectual and educational equipment.
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 [vii], 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.
Thus functional cooperation between employer and employees is essential for the total quality of service. But in the categories of such and allied professions when such co-operation is missing they are not industries.
A legal consultant firm employing two law graduates stenographer and a peon is an industry.
Edited by Kudrat Agrawal
[i] AIR 1978 SC 548.
[ii] AIR 1960 SC 610.
[iii] AIR 1970 SC 1406.
[iv] AIR 1975 SC 2032.
[v] AIR 1978 SC 548.
[vi] AIR 1962 SC 1080.
[vii] AIR 1978 SC 548.