INDUSTRY UNDER INDUSTRIAL DISPUTES ACT, 1947

Introduction

Industrial Disputes Act is an act is formulated by our law makers to secure industrial peace
and harmony by providing a systematic procedure and machinery for the investigation and
settlement of industrial disputes by negotiations. The main purpose of the Industrial Disputes
Act, 1947 is to ensure fair terms between employers and employees as well as workmen and
employers. It helps not only in preventing the industrial disputes but also help in finding the
measures to settle such disputes so that the production of the organization is not hampered.

DEFINITION

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”.

This definition is too generic and has led to numerous contradicting interpretations. Because
of varied forms of industry, especially after rapid industrial progress and widest language
used in the definition, the concept of industry expanded in all directions. The present
definition continues to be as originally enacted in the Industrial disputes Act 1947. Though
this definition has not undergone any amendment, it has undergone variegated judicial
interpretations.

ATTRIBUTES OF “INDUSTRY” THROUGH JUDICIAL INTERPRETATION

The definition of “industry” has evolved and expanded significantly over a period of time by
the legislative acts and judicial decisions.

(i) State of Bombay V. Hospital Mazdoor Sabha

In this case the Supreme Court held that the activity held by the institutions
involves the habitual production and distribution of goods or rendering of
materials services to the community at large. Similarly the activity should neither
be only for pleasure nor be of a casual nature.

(ii) D. N. Banerjee V. P.R.Mukherjee

In this case the court observes that the activity by the institution must be similar in
the nature to the organization of business. The court also held that the activity
must fall within the ambit of first part of the definition of industry, and the second
part will indicate what is included for the workmen from the perspective of second
part of the definition.

(iii) Corporation Of City of Nagpur V. Employees

 In his case the court held that the activity by the institutions must involve the
satisfaction of the material needs, and not spiritual needs. The court also held that
the activity should not be done merely for the government purposes.

(iv) National Union of Commercial Employee V. M.R. Meher

In this case the court held that the activity held by the institution must involve the
employee and the workmen’s effort. However, the mere the employer-employee
relationship does not result into an industry.

The Bangalore Water Supply Case, gave a very wide interpretation of the term "industry", the
landmark case has created injustice to a lot of organizations. The case was also one proving
that Educational Institutes, charitable institutions, clubs, solicitor firms etc., come under the
definition of "industry".
Facts of Bangalore Water Supply Case

A. Rajappa was an employee of the Bangalore Water Supply and Sewerage Board. The
Bangalore Water Supply Board imposed fines on the respondent employees for instances of
misconduct and successfully recovered various sums as penalties. Here, the imposed fine was
highly unreasonable and unfair. In response, the employees initiated Claims under Section
33C(2) (Section 33C: Recovery of money due from an employer) of the Industrial Disputes
Act, asserting that the disciplinary actions taken against them was against the principles of
natural justice.

Contentions:

The Bangalore Water Supply Board contending that the Board, being a statutory body
responsible for providing essential amenities to citizens, essentially fulfils a sovereign
function and therefore does not qualify as an “industry” as defined under section 2(j) of the
Industrial Disputes Act. Consequently, it was argued that the employees were not classified as
“workmen,” thus challenging the jurisdiction of the Labour Court to adjudicate upon the
employees’ claim.

Issues:

Whether a statutory body, engaged in activities essential for providing basic amenities to
citizens, which were considered as regal (sovereign) functions, could be classified as an
“industry” under the definition provided in Section 2(j) of the Industrial Disputes Act, 1947.

Decision of the Labour Court and Karnataka High Court:

The Labour Court ruled in favour of the employees. Subsequently, the Bangalore Water
Supply Board submitted two Writ Petitions before the Karnataka High Court in Bangalore.
The Division Bench of the High Court dismissed these petitions, asserting that the Appellant
Board indeed falls under the definition of an “industry” as stated in section 2(i) of the
Industrial Disputes Act, 1947.

Judgement of the Supreme Court

In Bangalore Water Supply Case, a seven-judge panel of the Supreme Court conducted a
comprehensive examination of the scope of “industry.” The majority decision, endorsed by
five judges, with two judges dissenting, overruled previous judgments such as Safdarjung
Solicitors’ case. It upheld the principles established in the Hospital Mazdoor Shabha.

Triple Test

Bangalore Water Supply Case devised a triple test to determine whether an activity can be
called industry or not.

An activity will be termed as industry where there is:

(i) A Systematic activity,

 (ii) Organized by cooperation between employer and employee (the direct and
substantial element is commercial),
(iii) Activity Pertaining to production and distribution of Goods and Services satisfy
Human Needs (not spiritual or religious but inclusive of material things) or
services geared to celestial bliss, i.e. making, of a large scale prasad or (food),
prima facie enterprise.

Religious services: Religious services or other activities rooted in spiritual fulfilment are not
encompassed within the definition of “industry.” The motive for profit is irrelevant in this
context. The triple test directs attention to the functional aspects, specifically focusing on the
relationship between employer and employee.

Philanthropic activities: Philanthropic activities do not disqualify an establishment from

being classified as an “industry.” Consequently, if an undertaking satisfies all the
aforementioned criteria, it can be labelled as an “industry” under section 2(j) of the Industrial
Disputes Act, 1947.

Also, it has been established by the Supreme court that:

(i) Absence of a profit motive: The absence of a profit motive does not negate the
nature of an undertaking, regardless of whether it is in the public, joint, private, or
another sector.
(ii) Nature of the activity: The emphasis is on functionality and the crucial criterion
is the nature of the activity, particularly the relationship between employer and
employee.
(iii) Philanthropic nature: The philanthropic nature of an endeavour does not alter its
classification as a trade or business.
(iv) Organised activities possessing the triple elements described earlier may qualify
as “industry” even if they are not strictly trade or business. The presence of
employer-employee dynamics resembling those in trade or business is pivotal,
even if other features differ.

The Supreme Court in Bangalore Water Supply Case determined that professions, clubs,
educational institutions, cooperatives, research institutes, charitable projects and similar
ventures if they meet the triple test criteria, fall within the scope of Section 2(j). In essence,
organised activities fulfilling the triple elements, even if they do not strictly align with trade
or business, can be considered “industry” if the employer-employee relationship resembles
that of trade or business.

Dominant Nature Test

There are a number of organizations/establishments, which occupy their employees in a

number of activities. The Bangalore Water Supply Case, has aided this query as well, by
asserting the dominant-nature test. If any organization has numerous job roles, so for those, if
any of the departmental roles have their main function as detrimental under "industry”, will
be considered as the industry.
Sovereign Functions: As An Exemption: The sovereign functions of the government are not
under the definition of the Section 2 (j) of the Industrial Dispute Act, 1947. But, if within
departments engaged in sovereign functions, if there are units that operate as industries and
are largely separable, they may fall within the scope of Section 2(j). Welfare activities or
economic endeavours undertaken by government or statutory bodies do not qualify for the
exemption.

In cases where a combination of activities involves both exempt and non-exempt elements
and engages employees across the entire undertaking, the nature of the predominant
department determines whether the whole undertaking qualifies as an “industry.”

Hence, Bangalore Water Supply and Sewerage Board will be classified as an “industry”
under the definition provided in Section 2(j) of the Industrial Disputes Act, 1947.

Conclusion

Bangalore Water Supply Summary: The Bangalore Water Supply case involved a seven-
judge Supreme Court panel that defined “industry.” It introduced the “triple test,” focusing on
systematic activity, employer-employee cooperation and goods/services production for
human needs. Philanthropic activities or lack of profit motive were irrelevant.

The ruling encompassed organised activities meeting these criteria as “industry,” irrespective
of trade/business and extended to professions, clubs, educational institutions, etc. The
“dominant nature test” determined an undertaking’s nature based on the most significant
department. Sovereign functions were exempted and separable industry units within
sovereign departments fell within Section 2(j) of the Industrial Disputes Act.
The exceptions to industry are-

(i) Casual activities (because they are not systematic).

(ii) Small clubs, co–operatives, research labs, gurukuls which have an essentially non
employee character.
(iii) Single door lawyer taking help from clerk (because there is no organized labour).
(iv) Selfless charitable activities carried on through volunteers e.g. free legal or
medical service.
(v) Sovereign functions – strictly understood, i.e., maintenance of law and order,
legislative functions and judicial function.

Observing the various circumstances, the definition of the term "Industry" was amended by
the means of the Amendment, 2020.

Under the IR Code the definition of "industry" specifically excludes the following:

• Institutions owned or managed by organisations 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 defence research, atomic energy and space; or

• any domestic service; or

• Any other activity as may be notified by the Central Government.

This Amendment gave a relaxation to all those institutes and organizations which were
suffering because of falling under the definition of "Industry"

Charitable Institutions

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.

Hospitals
In State of Bombay v. Hospital Mazdoor Sabha, 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, 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 , 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, 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.

Legal Firm

In National Union of Commercial Employees v. M.R. Meher, 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, 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.
Whether 'Educational Institutions' would come within the meaning of 'Industry'

Brief : The Hon’ble Supreme Court in the final judgment stated that it could not have been
the policy of the Act to treat education as an industry for benefit of a very minor and
insignificant number of subordinate staff. Section 2(j) of Industrial Dispute Act defines an
industry as any business, trade, under-taking, manufacture or calling of employers and any
calling, service, employment, handicraft, or industrial occupation or avocation of workmen
does not include education work as the subordinate staff plays a minor part. It is true that like
all educational institutions the University of Delhi employs subordinate staff and this
subordinate staff does the work assigned to it; but in the main scheme of imparting education,
this subordinate staff plays such a minor, subsidiary and insignificant part that it would be
unreasonable to allow this work to lend its industrial color to the principal activity of the
University which is imparting education. The work of promoting education is carried on by
the University and its teachers and if the teachers are excluded from the purview of the Act, it
would be unreasonable to regard the work of imparting education as industry only because its
minor, subsidiary and incidental work may seem to partake of the character of service which
may fall under s. 2(j).

University Of Delhi And Ors. Vs. Ram Nath

Facts: Ram Nath and Asgar Masih were providing their services as bus drivers in Miranda
House, University College for Women. Appellants terminated the services of Respondent on
the ground that the running of the buses for girl students had resulted in a loss. This appeal by
special leave arose out of the petition filed against University of Delhi and Principal, Miranda
House, University College for Women claiming retrenchment amount under the Industrial
Disputes Act, 1947 as the respondent services were no longer required. The petitions made by
the respondents were resisted by Appellant no.1on the ground that Appellant no. 1 was not an
employer under section 2(g),that the work carried on by it was not an industry under section
2(j) and the applications made under section 33C(2) were incompetent. The tribunal rejected
the objections contended by the Appellants and passed an order in favor of the respondents
directing the Appellants to pay retrenchment compensation. Validity of the award was
challenged under Supreme Court.

Issue: Whether ‘Educational Institutions’ would come within the meaning of ‘Industry’.

Judgement: The Hon’ble Supreme Court in the final judgment stated that it could not have
been the policy of the Act to treat education as an industry for benefit of a very minor and
insignificant number of subordinate staff. Section 2(j) of Industrial Dispute Act defines an
industry as any business, trade, under-taking, manufacture or calling of employers and any
calling, service, employment, handicraft, or industrial occupation or avocation of workmen
does not include education work as the subordinate staff plays a minor part. It is true that like
all educational institutions the University of Delhi employs subordinate staff and this
subordinate staff does the work assigned to it; but in the main scheme of imparting education,
this subordinate staff plays such a minor, subsidiary and insignificant part that it would be
unreasonable to allow this work to lend its industrial color to the principal activity of the
University which is imparting education. The work of promoting education is carried on by
the University and its teachers and if the teachers are excluded from the purview of the Act, it
would be unreasonable to regard the work of imparting education as industry only because its
minor, subsidiary and incidental work may seem to partake of the character of service which
may fall under s. 2(j)