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,

“Industry” means any business, trade, undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft, or industrial occupation or avocation of workmen;”

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.

c) If the nature of activity is with special emphasis on employer, employee relationship and true focus is functional.

d) If the organisation is trade or business, it will be covered by the definition of Industry though organisation is philanthropic.

With this judgement, besides manufacturing activity, professions such as Attorney, activities like Clubs, Educational Institutions, Co-operatives, Research Institutes, and Charitable Projects were also covered. Respective category of professions, clubs, co-operative etc may qualify for exemption from the definition of Industry. As held by the Hon’ble Supreme Court in this judgement, if no employees are entertained but in minimal matters, marginal employees are hired without destroying the non employee character of the unit.

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.