SUBJECT- LABOUR LAW - I

TOPIC- INDUSTRIAL RELATIONS CODE

SYNOPSIS

▪ Introduction
▪ Objective, Scope & Applicability of the IRC, 2020
▪ Important Definitions related to the Question
▪ Issue I
 Relevant Sections related to the issue
 The Triple Test
 Conclusion
▪ Issue II
 Relevant case laws
▪ Issue III
 Relevant Case Laws
▪ Conclusion

INTRODUCTION

The President of India, Shri Ram Nath Kovind,

signed three new labour legislation codes on September 28, 2020: “The Industrial Relations
Code, 2020”, “the Occupational Safety, Health, and Working Conditions Code, 2020”, and “the
Code on Social Security, 2020 ("Codes")”1. The Codes' enactment date has yet to be announced

1
Industrial Relations Code, 2020. No. 35 OF 2020.
https://egazette.nic.in/WriteReadData/2020/222118.pdf

1
by the Indian government. Furthermore, the rules governing the Codes are yet to be released. The
Industrial Relations Code of 2020 establishes a wider structure for protecting workers' rights to
form unions, reducing conflict among employers and employees, and establishing rules for
resolving industrial conflicts. The Industrial Relations Code of 2020 unifies and modifies the
legislations governing trade unions, working conditions in industrial establishments or
undertakings, and the investigation and resolution of industrial disputes 2. The Indian
Constitution's Concurrent List includes Labour. As a result, both the Parliament and state
governments have the authority to introduce labour legislation. According to the central
government, there is as many as 100 state and 40 central legislation governing different facets of
labour, including the “settlement of labour disputes”, “working conditions, social security, and
wages”3. The amended legislation was deemed to be complicated, with outdated clauses and
contradictory definitions, by “the Second National Commission on Labor (2002)”. It was
suggested that central labour legislations be consolidated into wider categories such as industrial
relations, employment, social security and safety and health and working standards to make
enforcement easier and maintain standardization in labour legislations. The “Ministry of Labour
and Employment” proposed four bills in 2019 to merge 29 central legislations. “Wages,
Industrial Relations, Social Security, and Occupational Safety, Health, and Working Conditions
are all covered by these Codes”. Although Parliament has passed the 2019 Wage Code, bills in
the other three areas have been referred to the Standing Committee on Labour. All three bills
have received a report from the Standing Committee. On September 19, 2020, the
government replaced these Bills with new ones.

The Code was created by combining, standardizing, and replacing the below mentioned three
central labour laws:

 “The Trade Unions Act of 1926.”

 “The Industrial Employment (Standing Orders) Act of 1946.” And;
 “The 1947 Industrial Disputes Act.”

2
Industrial Dispute Act, 1947. No. 14 of 1947.
https://labour.gov.in/sites/default/files/THEINDUSTRIALDISPUTES_ACT1947_0.pdf
3
Harman Singh. India: L & E Laws Overhaul. Mondaq. Oct 19, 2020. https://www.mondaq.com/india/employee-
benefits-compensation/995350/le-laws-overhaul.

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OBJECTIVE, SCOPE & APPLICABILITY OF THE IR CODE

OBJECTIVES

 The Code was established to protect employers' and workers' rights and interests by
facilitating labour reforms and making it easier to do business.
 The Code's goal is to achieve “industrial peace and harmony” as the central goal in
settling labour conflicts, as well as to enhance industry's growth by establishing a
harmonious and cordial relationship among employers and the employees.  

SCOPE AND APPLICABILITY

The Code aims to harmonies and modify the legislations governing trade unions, working
standards in industrial establishments and undertakings, and the swift resolution of industrial
disputes. The following domains are governed by the code:

 “Registration of Trade Union”

 “Cancellation of Trade Union”
 “Alteration of Name of Trade Union”
 “Formation of Work Committee”
 “Incorporation of a Registered Trade Union”
 “Recognition of Negotiating Union”
 “Preparation of Standing Order”
 “Register of Standing Order”
 “Constitution of Industrial Tribunal”
 “Illegal Strikes and Lock-outs”
 “Procedure for Retrenchment and Re-employment of Retrenched Worker”
 “Compensation to Workers in case of Transfer of Establishment”
 “Prohibition of Lay-off”
 “Closure of an Industrial Establishment4”

4
Ministry: Labour & Employment. The Industrial Relation Code, 2020. PRS Legislative Research.
https://prsindia.org/billtrack/the-industrial-relations-code-2020.

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 IMPORTANT DEFINITIONS RELATED TO THE QUESTION

DEFINATION OF INDUSTRY AS PER IRC, 2020- SECTION 2 (P)-

Any organized action conducted through co-operation within an employer and an

employee (whether such employee is working directly by such employer or by any organization,
including a contractor) for the manufacture, delivery, or distribution of products or services
towards the aim of satisfying human needs or desires is referred to as “industry” (“not being
wants or wishes which are merely spiritual or religious in nature”) whether or not, —

I) “any capital has been invested for the purpose of carrying on such activity”; or

II) “such activity is carried on with a motive to make any gain or profit”,

The meaning of "industry" in the IR Code expressly rules out the below mentioned categories:

 “Any institutions owned or managed by organizations wholly or substantially engaged in

any charitable, social, or philanthropic service”; or 
 “Any activity of the appropriate Government relatable to the sovereign functions of the
appropriate Government including all the activities carried on by the departments of the
Central Government dealing with defense research, atomic energy and space”; or
 “any domestic service”; or
 “Any other activity as may be notified by the Central Government”5.

INDUSTRIAL DISPUTE- SECTION 2 (Q) OF IRC, 2020

It refers to any disagreement or conflict among employers and employers, or between employees
and employers, or between employees and employees, that is related to an individual's
employment or non-employment, terms of employment, or working conditions, and involves any

5
Industrial Relations Code, 2020. No. 35 OF 2020.
https://egazette.nic.in/WriteReadData/2020/222118.pdf

4
disagreement or conflict among an individual employee and an employer related to, or emerging
out of "discharge, dismissal, retrenchment or termination of such worker.6"

EMPLOYEE – SECTION 2 (l) OF IRC, 2020

“Employee” refers to an individual employed via an industrial firm to perform any “skilled,
semi-skilled, or unskilled manual, operational, supervisory, managerial, administrative,
technical, or clerical work” for hire or pay, whether or not the conditions of employment are
explicit or implicit, and also requires anyone who has been deemed an employee by the
“appropriate government”, but excludes any member of the Union's Armed Forces;

EMPLOYER – SECTION 2 (M) OF IRC, 2020

“Employer” refers to an individual who hires one or more employees or workers in his or her
establishment, either directly or indirectly, or on his or her own behalf or on behalf of another
person, and where the establishment is run by some division of the central or state governments.
“The power established by the head of the department in this regard, or the head of the
department if no authority is specified, and in the case of a local authority, the chief executive of
that authority, and includes”-
i) The occupier of the factory as stated in section 2(n) of the Factories Act, 1948, and, where a
person has been appointed as a factory manager under section 7(1)(f) of such act, the person so
named;
ii) In the case of any other establishment, the person who, or the authority that, has ultimate
power over the establishment's affairs, and where such affairs are entrusted to a manager or
managing director, that manager or managing director;
iii) contractor;
iv) and legal representative of a deceased employer.

ANSWER 1 A. –

6
Industrial Dispute Act, 1947. No. 14 of 1947.
https://labour.gov.in/sites/default/files/THEINDUSTRIALDISPUTES_ACT1947_0.pdf

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YES, “A hospital runs by the Ministry of Health, Government of India for treatment of patients
and conduct of research in medical sciences” does falls within the ambit of the definition of
Industry. Provided the government does not run it as a part of its sovereign function.
However,
all the landmark cases are based on the Industrial Dispute Act of 1946. There have been different
opinions and different interpretation of different judges. The ‘TRIPLE TEST’ rule which is
used for defining an institution or establishment as an industry or not was laid down in one the
most landmark cases i.e., “the Bangalore water supply and Sewerage board v. R Rajappa.7”
This ‘Triple Test’ was the outcome of a bunch of cases in which the issue of defining an industry
was delt. These cases have been mentioned below in this answer.

RELEVANT SECTION-

 Section 2 (j) of the Industrial Dispute Act, 1946,

“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, --
(i) any capital has been invested for the purpose of carrying on such activity; or
(ii) 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 5A of the Dock Workers
(Regulation of Employment) Act, 1948 (9 of 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 operation is
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; or
(2) hospitals or dispensaries; or (3) educational, scientific, research or training institutions; or (4)

7
The Bangalore Water Supply and Sewerage Board v. R Rajappa. 1978 AIR 548, 1978 SCR (3) 207.
https://indiankanoon.org/doc/1149369/.

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institutions owned or managed by organizations wholly or substantially engaged in any
charitable, social or philanthropic service.”

 Section 2 (p) of the Industrial Relation Code, 2020.

“Industry means any systematic activity carried on by co-operation between an employer and
worker (whether such worker is 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, —
(i) any capital has been invested for the purpose of carrying on such activity; or (ii) such activity
is carried on with a motive to make any gain or profit,
but does not include —
(i) institutions owned or managed by organizations wholly or substantially engaged in any
charitable, social or philanthropic service; or
(ii) any activity of the appropriate Government relatable to the sovereign functions of the
appropriate Government including all the activities carried on by the departments of the Central
Government dealing with defense research, atomic energy and space; or
(iii) any domestic service; or
(iv) any other activity as may be notified by the Central Government.8”

 The definition of Industry in the section 2 (p) of the IR Code 2020, is largely based on the
observation of courts made on the Bangalore water supply and Sewerage board v R
Rajappa and the cases prior to this case and the ‘Triple test’ laid down in the same case.

 The amendment to the definition of Industry was also brought in the year 1982,
however it was not notified by the central government. And hence, was not enforced. In

8
Garima Pahwa. The Bangalore Water Supply v. R. Rajappa. Legal Service India.
http://www.legalserviceindia.com/legal/article-2943-the-bangalore-water-supply-v-s-r-rajjapa.html#:~:text=The
%20Supreme%20Court%20has%20restored,in%20Bangalore%20Water%20Supply.

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 this regard, a case was also filed by the “Shri Gajanan Maharaj Sansthan v Union of
India.9”

 In the aforementioned case a Mandamus was filed against the central government to
bring the amended definition into force. However, the court refused to direct Mandamus
to the government and hence, it was not enforced.

RELEVANT CASES

There are a number of important cases which paved the path for the ‘Triple test’ rule and
established the definition of industry as it is now.

· In the case of, “State of Bombay v Hospital Mazdoor Sabha10”,

Issue before the court- Whether a hospital come under the purview of section 2 (j) of the
Industrial Dispute Act i.e., can it be considered as an industry?
Judgement- The apex court ruled that when the state operates a set of hospitals for the
goal of providing medical services to people and assisting in the transmission of medical
education, it is carrying on a "undertaking" within the meaning of Sec. 2(j). The court
made the following observations:
i) An ‘undertaking' is a systematically or habitually conducted task for the manufacture or
distribution of goods or the providing of material services to the community at large or a
section thereof with the assistance of employees.
ii) The nature of the action in consideration is what triggers the provisions of Section 2
(j); who performs the activity and whether it is done for benefit or not makes no
difference.
Therefore, the term "undertaking" will include activities which have no commercial
consequences, such as hospitals run for philanthropic reasons. It makes no difference that
the government is in charge of such activities. Even if carried out by the government, an

9
Shri Ganesh Majaraj Sansthan v. Union of India. WRIT PETITION NO. 5810 OF 2019.

10
Hospital Mazdoor Sabha V. State of Bombay. 1960 AIR 610, 1960 SCR (2) 866

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 action that would be classified as industry if carried out by a private citizen would be
classified as such.
▪ In the case of “Ahmedabad Textile Industry’s Research Association v. The State of
Bombay & Ors.11”
Issue before the court- Whether an association for research setup and maintained by the
textile industry and employing and other staff was an industry or not.
Judgement- Applying the test which was laid down in the State of Bombay v. Hospital
Mazdoor Sabha i.e., the material service test, the court held that the activity of the
association was an industry because
i) It was it was providing material services to a part of the community,
ii) It was carried with the help of employees and
iii) It was organized in a manner similar to trade or business and there was a co-operation
between the employers and the employees.
And hence, it was held that a research association also falls under the definition of industry.

▪ In the case of “Management of Safdarjung Hospital v Kuldip Singh12”

Issue before the court: This case also had the same issue, that whether a hospital is
considered as an industry or not. In this case the decision given in the State of Bombay v.
Hospital Mazdoor Sabha, was reversed and the term material service was first time
explained.
Judgement: Justice Hidayatullah delivered the judgement and held that “Material
services involve an activity carried on through co-operation between employers and
employees to provide the community with the use of something such as electric power,
water, transportation, mail delivery, telephones and the like.” Such material services are
eligible for inclusion in Industry. Material service, on the other hand, does not apply to
practitioners such as doctors, advocates, and educators because they do not work in
occupations where employers and workers cooperate. And also, it does not enter any
economic activity sphere and is not analogues to any trade or business. As a result,
entities such as hospitals and educational establishments are not considered industry. It is
11
Ahmedabad Textile Industry’s Research Association v. State of Bombay & Ors. 1961 AIR 484, 1961 SCR (2)
480.
12
Management of Safdarjundd Hospital v. Kuldip Singh. AIR 1970 SC 1407, 1970 (20) FLR 399, (1970) IILLJ 266
SC, (1970) 1 SCC 735, 1971 1 SCR 177

9
 immaterial that whether a hospital is run by a government or a private association or a
charitable trust.

▪ In the case of, “Dhanrajgiri Hospital v Workmen13”, in this case also same issue was
raised.
Judgement- the hospital's primary function was to provide medical training and the
hospital's beds were designated for this purpose. It was ruled that it was not an industry
because it did not engage in any commercial activity resembling trade or business.

THE TRIPLE TEST RULE

The Apex Court thoroughly studied the ambit of an industry in historic case of Bangalore Water
Supply v. A. Rajappa, and ruled down the below mentioned testing criterion, which is widely
acknowledged as "the triple test," to determine what an industry is. It was asserted that where
there is a:
 Structured or systematic activity;
 Systematized by an employer-employee cooperation; and
 Evidently there seems to be a ‘industry' within the enterprise for the production and/or
distribution of goods and services adapted to meet human needs and wants and wishes.

In this matter, the below mentioned points were also emphasized:

 Spiritual or religious services, as well as services directed at celestial joy, are not
included in industry.
 Whether an enterprise is in the governmental, commercial, or other sphere, the
unavailability of a profit making or a profitable purpose is immaterial.
 The primary concentration is functional, and the type of the activities, with a particular
focus on employer-employee relationships, is the deciding factor.
 If the organization is a trade or business, it's doesn't ceases to be one due to the presence
of philanthropy activity.

Dhanrajgiri Hospital v. Workmen. AIR 1975 SC 2032, 1975 (31) FLR 301, 1975 LablC 1488, (1975) IILLJ 409
13

SC, (1975) 4 SCC 621, 1975 (7) UJ 707 SC

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CONCLUSION

Hence, the given situation passes all the three-test laid down by the courts Hence, it will come
under the ambit of an industry. Those hospitals which are run by the Government as part of
its sovereign functions with the sole objective of rendering free service to the patients are not
industry. But all other hospitals, both public and private; whether charitable or commercial
world be industry if they satisfy the ‘Triple test’ which was laid down in Bangalore water supply
case. In the Bangalore water supply case, the seven-judge bench reversed a number of its
previous judgements. The Safdarjung hospital case being one of them. The court also restored
the judgement of the Hospital mazdoor Sabha case. The hospital conducting research part would
also come under industry as it was held in the Ahmedabad textile research association case.

QUESTION 1 B.

RELIGIOUS INSTITUTIONS:
NO, Religious Institutions of any Religion does not come under the ambit of an industry. The
reason behind this is that, the religious institutions does not pass the Triple test rule, laid down
by the judiciary.
· The religious institution does not have a systematic or structured activities.
· The religious institutions may or may not have the employer and employee relationship
in the form of Priest or Pandits and people working under them.
· The religious institutions do offer the goods and service to satisfy human needs and to
serve them. Like in Gurdwaras, but it cannot be considered as a material services because
these are spiritual and religious wishes.
And hence the religious institutions cannot be considered as industries.

RELEVANT CASE LAWS

· In the matter of “Orissa High Court in Harihar Bahinipati v. State of Orissa 14” the
court stated that,

14
Orissa High Court in Harihar Bahinipati v. State of Orissa. AIR 1966 Ori 35, 1965 (10) FLR 313.

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Considering (I) there was no interaction of labour and wealth and no material services were
delivered (Spiritual and religious services were delivered) (II) the principal role was
of spirituality rather than secular, and (III) no material human wants and needs were addressed,
maintaining peace and social order in Shri Jagannath Temple, Puri was beyond the scope of
industry.
· In the matter of “Shiromani Gurudwara Prabandhak Committee, Patiala v.
Presiding Officer15”,
The Court stated that the “Gurudwara Prabandhak Committee”, which was serving Karah-
prasad, was also establishing a communal kitchen, which meant that the langar will not fall under
the scope of industry. This is neither a commercial enterprise nor a corporation; instead, it
performs solely religious ceremonies and functions.

ANSWER 1 C.

NO, “Schools and Collages run by charitable institutions” does not fall under the definition of
Industry. Provided that it does not passes the “Triple test” and it has clearly been mentioned in
the Section 2(P) of the IRC, 2020. If the aforementioned institution passes the “Triple test”, and
hence, would be considered as an industry.

RELEVANT CASES

In the case of “University of Delhi v Ram Nath16”,

Issue before the court: Whether the University of Delhi comes under the definition of Industry?
Judgement: In this case, the court narrowed the concept of service, it held that the education
institution would not fall within the meaning of industry because
i) Their aim was imparting education and the teacher’s profession is not to be equated with the
industrial worker.
ii) It is not analogues to trade or business or not similar to undertaking.

15
Shiromani Gurudwara Prabandhak Committee, Patiala v. Presiding Officer.(2003) 135 PLR 462
16
University of Delhi v Ram Nath. 1963 AIR 1873, 1964 SCR (2) 703

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However, this judgement was reversed in the case of Bangalore water supply & Sewerage board
v R Rajappa. While reversing the previous judgement the court stated that, “the true focus is
functional and the decisive nature of the activity with special emphasis on the employer
employee relations.’’ BUT, the point to be noted here is that, the university of Delhi was not
wholly or substantially engaged in charitable work.
Moreover, the court in the case of
· Ahmedabad Textile Industries Research Association, held that, a university, a college,
a research center, or a teaching institution would constitute an industry if the triple tests
of “systematic activity,” “cooperation between employer and employee,” and “production
of goods and services” were applied solely. The aforementioned organizations were
considered “industry” in the above-mentioned case. The Same Principle will also apply
here, That it was not engaged in any charitable work wholly or substantially.
· And in the Bangalore water supply case, the Court proceeded on to examine the
"nature of activity" performed out by charitable organizations or institutions, and the
below mentioned here components were established:
· In circumstances when profit is made but is donated or used to charity.
· In circumstances when profit is not made and there is a employer
and employee relationship. However, services for the underprivileged are offered at no
cost.
· When it is centered on a humanitarian objective and people are working because they
are enthusiastic about it and get enjoyment from it instead of for monetary gain,

According to Iyer J., philanthropic organizations formed on the first two of categories mentioned
above can be classified as industries, however the third cannot.

· In the matter of Bombay Pinjarapole v. The Workmen17,

The apex court was of the view that, Pinjrapole was founded as a charitable organisation
dedicated only to the protection and treatment of injured and handicapped animals. The
organization's appearance changed dramatically as a result, when a dairy farm was established.
In respect of both people employed and income, the amount of dairy provided to injured and ill

17
Bombay Pinjarapole v. The Workmen .1971 AIR 2422, 1972 SCR (1) 202

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animals was small when matched to that marketed. The organization and its employees had a
disagreement about the adjustment of the pay range and other working standards. On appeal, the
court ruled that, the organization’s activities constituted an industry. After failing to get their
case heard in the Bombay High Court, the Pinjrapole took their case to the Apex Court. The
Apex Court likewise determined that the Pinjrapole was operating an industry, and also that the
facts that the organization had only bought cows and stud bulls once made absolutely no impact
to the issue as to whether their actions of keeping cows and bulls could be classified solely as an
investment. Although it was a charitable institution but the activities, they were engaging in
was not in any sort a charitable work. Because they started making profit and reduced the
charitable work.

CONCLUSION

The inference drawn from the aforementioned theories, sections, and case laws a clear and
explicit conclusion can be drawn. In the first scenario, where the given facts mentioned about the
hospitals run by the government and for the purpose of research also. According to the given
fact, this will come under the ambit of Industry unless it is run by the government for sovereign
functions like Military hospitals. In the second scenario, the given facts mention about the
religious institution, which will not come under the ambit of the industry because it does not pass
the triple test laid down by the court. And the third scenario, mentions about the schools and
universities run by the charitable institutions. Only because the fact that it is run by a charitable
institution would not ceases to be an industry. The court has stated that if it passes the rule of
triple test then, it will be considered as an industry. However, based upon the given question it
will be not considered as an industry. There have been many ambiguities regarding this topic and
this has been subjected to discussions in numerous cases. These cases ultimately paved the path
for the judgement that has been given in the Bangalore water supply case, which is one of the
most important cases in this regard.

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