Bangalore Water Supply Case Study

Labour Law - Bangalore Water Supply Case

The term industry is defined in Section 2 (j) of the Industrial Dispute Act in these words, industry means any business, trade, undertaking, manufacture or calling of employees and includes any calling, service, employment, handicraft or industrial occupation or avocation of workman. The definition has undergone variegated judicial interpretations. A definition is ordinarily the crystallization of legal concepts promoting precision and rounding off blurred edges but the definition in Section 2 (j) viewed in retrospect has achieved the opposite.
Starting form D.N. Banerjee v. P.R. Mukherjee and passing through various cases Supreme Court has given conflicting decision regarding definition of the term industry. In some cases Supreme Court has, having liberal attitude, given a very wide interpretation and in some cases a narrow interpretation has been given. A bench of seven Judges in Bangalore Water Supply and Sewerage Board v. A. Rajappa , wherein the question was whether the activity of the Board fell within the ambit of ‘industry’, it went haywire and far beyond the confines of the case in the name of judicial activism to bring every conceivable activity in the sweep of the industry. The meaning which was given to the term ‘industry’ is so wide and wild that it covers perhaps any systematic activity under the sun leading to obscurity.
Bangalore Water Supply and Sewerage Board v. A. Rajappa, still holds the field as it was the largest Judge Bench decision on the issue but there are cases which have, though not permissible under the doctrine of ‘precedent’, decided in contrary to the decision of the Bangalore Water Supply case. A five judge Bench of the Supreme Court has decided to refer the matter of reviewing the Bangalore Water Supply case to a larger Bench.


“Until specific legislative mandates emerge from Parliament the court may mould the old, but not make the new law. Interstitially, from the molar to the molecular is the limited legislative role of the Court, as Justice Holmes said………….” This was observed by Justice Krishna Iyer in Gujarat Steel Tubes Ltd. V. Mazdoor Sabha , but, only if he could have kept his words in words in Bangalore Water Supply and Sewerage Board v. A. Rajappa, where he actually drafted a new ‘definition’ of the term ‘industry’ assuming the role of a crusader-legislator. The broad sweep of the judgment brought within the Industrial Dispute Act several institutions like educational institutions, solicitor’s offices, State departments and even charitable institutions.
Issues and Decision:
The issue in the case was that whether Bangalore Water Supply and Sewerage Board will fall under the definition of ‘Industry’ and in fact, particularly the issue was what is an ‘Industry’ under Section 2(j) of the Industrial Dispute Act? As mentioned above that actually a new definition to the term ‘industry’ was drafted, judges have gone in-depth and tried to wipe out the confusion and wilderness of the meaning of the term ‘Industry’.
Whether Charitable Institutions are Industry?
Held: Charitable institutions fall into three categories: (a) those that yield profit, but the profits are siphoned off for altruistic purposes; (b) those that make no profit but hire the services of employees as in any other business, but the goods and 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 he cause and derive job satisfaction. The first two are industries but not the third, on the assumption that they all involve co-operation between employers and employees.
(a) If a business is run, with the aim of earning profit, for the production and/or supply of goods and services the business is an industry. Such a business is an economic activity which involves the co-operation of employer and employee and the fact that a substantial amount of the profit is used for charitable purposes does not affect the nature of the economic activity. The workers are not concerned with the destination of the profits. They work for wages and are treated like any other workman in any other industry. all the features of an industry are fully present.
(b) If a kind-hearted businessman or industrialist hires employees and in co-operation with them, produces and supplies goods or services to the needy without charging any price or receiving a negligible return, he may be charitable and his enterprise a charity, but as far as the workmen are concerned, they contribute labor in return for wages and for them, the charitable employer is like any other commercial minded employer. The beneficiaries of the charity are the indigent consumers and not the workmen. Even if the employees are shown some concession and even if the motive and project may be to encourage and help poor families and find them employment, the compassionate industrialist is still an industrialist.
(c) If however a philanthropic devotion is the basis for the charitable foundation or establishment and the institution is headed by one who whole heartedly dedicate himself for the mission and pursues it with passion, then the undertaking is not industrial if it attracts others into the institution, provided they work not for wages but for sharing in the cause and its fulfillment. It is not the charitable impulse, in such a case that extricates the institution from Section 2(j), but because there is no economic relation such as is found in trade or business between the head who employs and the others who emotively flock to render service.

Do clubs and other organizations whose general emphasis is not on profit-making but fellowship and self-service fit into the definitional circle?
Held: The only ground to extricate clubs form the coils of industrial law is absence of employer-employee co-operation. In our country, it is a common phenomenon that workers and the weaker sections of the society form small clubs or groups to satisfy their cultural thirst and mainly for recreation. They are usually self-serving and unless and until this strict condition is fulfilled, peoples’ organs cannot be non-industries. These self-service clubs do not have hired employees to cook or serve or to provide other service for recreation. The members come and arrange things for themselves. Those interested in particular pursuits organize those terms themselves. There are elected members and secretary and one of them maintains small accounts or clerical items. On special evenings all contribute efforts to make a good show, excursion, joy, picnic or anniversary celebration. The dynamic aspect is self-service. The central thrust is that if a club or other like collectivity has a basic and dominant self-service mechanism, a marginal element of employer-employee relation will not make such self-serving club a conventional club whose verve and virtue are taken care of by paid staff, and the members’ role is to enjoy.
Such big clubs are industries. These clubs are not limited partnership but formed from the community. They are open to the public for membership subject to their own bye-laws and rules. Moreover, these clubs of rich peoples admit members’ guests who are not specific souls but come from community or part of a community. They serve a section and answer the doubtful test of serving the community. They are industry.

Would a university or college or school or research institute be called an industry?
Held: The bulk of the employees in the university is the teaching community. Teachers are not workmen and cannot raise disputes under the Act. The subordinate staff being only a minor category of insignificant numbers, the institution must be excluded, going by the predominant character test. It is one thing to say that an institution is not an industry. It is altogether another thinking to say that a large number of its employees are not 'workmen' and cannot therefore avail of the benefits of the Act so the institution ceases to be an industry. The test is not the predominant number of employees entitled to enjoy the benefits of the Act. The true test is the predominant nature of the activity. In the case of the university or an educational institution, the nature of the activity is, ex hypothesi, education which is a service to the community. So long services are part of the wealth of nation, education being a service it is industrial.

Could a lawyer’s chamber or chartered accountant’s office, a doctor’s clinic or other liberal profession’s occupation or calling be designated an industry?
Held: Regarding liberal professions like lawyers, doctors etc., the test of direct co-operation between capital and labour in the production of goods or in the rendering of service, or that co-operation between employer and employee is essential for carrying out the enterprise and the service rendered is unworkable. Every employee in a professional office, be he a para-legal assistant or full-fledged professional employee or, down the ladder, a mere sweeper or janitor, every one makes for the success of the office, even the mali who collects the flowers. In the sophisticated organization of expert services, all occupations have central skills, an occupational code of ethics, a group culture, some occupational authority and some permission to monopoly practice from the community. But a professional in our egalitarian ethos is like any other man of common clay plying a trade or business and assent cannot be given to the cult of the elite in carrying out islands of exception to industry. The contribution to the success of the institution cones not merely from the professional or specialist but from all those, whose excellence in their respective parts makes for the total proficiency. Therefore, the claim for exclusion on the score of liberal professions is unwarranted. Even so, a single lawyer a rural medical practitioner or urban doctor with a little assistant and menial servant may ply a profession but may not be said to run an industry. That is, not because the employee does not make a contribution nor because the profession is too high to be classified as a trade or industry with its commercial connotations, but because there is nothing like organized labour in such employment. The image of industry or even quasi-industry is one of plausibility of workmen, not an isolated or single little assistant or attendant.

Are governmental functions, stricto sensu, industrial and if not, what is the extent of the immunity of instrumentalities of government?
Held: Sovereign functions be kept out of the scope of industry. Sovereign functions of the State cannot be included under the definition of the term ‘industry. Although what such functions are has been aptly termed ‘the primary and inalienable functions of a constitutional government’. The ‘primary and inalienable functions’ are law making, maintenance of law and order, defense and dispensation of justice. In any case, it is open to Parliament to make law which governs the State's relations with its employees. Articles 309 to 311 of the Constitution of India, the enactments dealing with the Defence Forces and other legislation dealing with employment under statutory bodies may, expressly or by necessary implication, exclude the operation of the Industrial Disputes Act, 1947.
Sovereign functions, strictly understood, alone qualify for exemption, not the welfare activities or economic adventures undertaken by government or statutory bodies. Even in departments discharging sovereign functions, if there are units which are industries and they are substantially severable, then they can be considered to come within Section 2(j).

Whether Sovereign or Regal functions will be industry?
Held: Only sovereign and regal functions of State are out side the purview of the coil of industrial law. The question arises that what is sovereign or regal function. They are the State’s very primary and inalienable functions. State has three wings viz. Legislature, Executive and Judiciary and hence there primary and inalienable function that is law making, maintenance of law and order, defense and justice dispensation are only sovereign and regal functions of State.

Whether Municipal Corporations Industry?
Held: All the undertakings that are analogous to trade or business are industries. The analogy with trade or business is in the ‘carrying out’ of the economic adventure. So the parity is in the mode of operation, in the working--not in the purpose of the project or in the disposal of the proceeds but in the organization of the venture, including the relations between labour and management. If the mutual relations, the method of employment and the process of co-operation in the carrying out of the work bears close resemblance to the organization, method, remuneration, relationship of employer and employee and the like then it is industry. If the nature of the activity is para-trade or quasi business, it is no moment that it is undertaken in the private sector, philanthropic sector or labour sector; it is industry.
Whether Hospital is Industry?
Held: Hospitals run by the government as part of its sovereign functions with the sole object of rendering free service to the patience are not industry. But all other hospitals, both public and private; whether charitable or commercial would be industry if they fulfill the triple test.

What is the meaning of the term ‘industry’?
Held: 'Industry', as defined in Section 2(j) and explained in Bauerji, has a wide import. (a) Where (i) systematic activity, (ii) organized by co-operation between employer and employee, (the direct and substantial element is chimerical)(iii) for the production and/or distribution of goods and services calculated to satisfy human wants and wishes (not spiritual or religious but inclusive of material things or services geared to celestial bliss e.g. making, on a large scale, prasad or food), prima facie, there is an 'industry' in that enterprise.
(b) Absence of profit motive or gainful objective is irrelevant, be the venture in the public, joint private or other sector.
(c) The true focus is functional and the decisive test is the nature of the activity with special emphasis on the employer-employee relations.
(d) If the organisation is a trade or business it does not cease to be one because of philanthropy animating the undertaking.
II. Although Section 2(j) uses words of the widest amplitude in its two limbs, their meaning cannot be magnified to overreach itself.
(a) 'Undertaking' must suffer a contextual and associational shrinkage as explained in Banerji and in this judgment, so also, service, calling and the like. This yields the inference that all organized activity possessing the triple elements in I (supra), although not trade or business, may still be 'industry' (provided the nature of the activity, viz. the employer—employee basis, bears resemblance to what we find in trade or business. This takes into the fold of 'industry' undertakings, callings and services adventure 'analogous' to the carrying on of trade or business'. All features, other than the methodology of carrying on the activity viz. in organizing the co-operation between employer and employee may be dissimilar. It does not matter, if on the employment terms there is analogy.
III. Application of these guidelines should not stop short of their logical reach by invocation of creeds, cults or inner sense of incongruity or other sense of motivation for or resultant of the economic operations. The ideology of the Act being industrial peace, regulation and resolution of industrial disputes between employer and workmen, the range of this statutory ideology must inform the reach of the statutory definition. Nothing less, nothing more.
(a) The consequences are (i) professions, (ii) Clubs (iii) educational institutions (iii) co-operatives, (iv) research institutes (v) charitable projects and (vi) other kindred adventures, if they fulfil the triple tests listed in I (supra), cannot be exempted from the scope of Section 2(j).
(b) A restricted category of professions, clubs, co-operatives and even Gurukulas and little research labs, may qualify for exemption if in simple ventures substantially and going by the dominant nature criterion substantatively, in single simple ventures, no employees are entertained but in minimal matters, marginal employees are hired without destroying the non-employee character of the unit.
(c) If in a pious or altruistic mission many employ themselves, free or for small honoraria, or likely return mainly by sharing in the purpose or cause, such as lawyers volunteering to run a free legal services clinic or doctors serving in their spare hours in a free medical centre or ashramites working at the bidding of the holiness, divinity or like central personality and the services are supplied free or at nominal cost and those who serve are not engaged for remuneration or on the basis of master and servant, relationship, then, the institution is not an industry even if stray servants, manual or technical, are hired. Such eleemosynary or like undertakings alone are exempt—not other generosity, compassion, developmental passion or project.
IV The dominant nature test :
(a) Where a complex of activities, some of which qualify for exemption, others not, involves employees on the total undertaking, some of whom are not 'workmen' as in the University of Delhi Case or some departments are not productive of goods and services if isolated, even then, the predominant nature of the services and the integrated nature of the departments as explained in the Corporation of Nagpur, will be true test. The whole undertaking will be 'industry' although those who are not 'workmen' by definition may not benefit by the status.
(b) Notwithstanding the previous clauses, sovereign functions, strictly understood, alone qualify for exemption, not the welfare activities or economic adventures undertaken by government or statutory bodies.
(c) Even in departments discharging sovereign functions, if there are units which are industries and they are substantially severable, then they can be considered to come within Section 2(j).
(d) Constitutional and competently enacted legislative provisions may well remove from the scope of the Act categories which otherwise may be covered thereby.

Sovereign Functions:
According to Bangalore Water Supply and Sewerage Board v. A. Rajappa sovereign functions of the State cannot be included in industry. They can aptly be termed as the primary and inalienable functions of a constitutional government. Services governed by Articles 309 to 311 of the Constitution of India, by the enactments dealing with the Defense Forces and other legislation dealing with employment under statutory bodies may, expressly or by necessary implication, exclude the operation of the Industrial Disputes Act, 1947. The functions which are strictly performed by State are inalienable functions of Government such as maintaining law and order, making laws, defense, and justice dispensation. It is only these functions where the State enterprise can escape from the coil of industrial law.
But present stage is a stage of welfare State where State has to perform so many functions for the welfare of citizens. At the stage of laissez faire, maintenance of law and order and defense were the only functions to be performed by States and the traditional concept of sovereign functions was including only maintenance of law and order and defense of State. But in a welfare State government has to perform so many functions, apart from maintenance of law and order and defense of State, as enshrined under the Directive Principles of State Policy in part IV of the Constitution of India. Every democratic state in the welfare society has to achieve a goal of wellbeing of its citizens and part IV requires State to achieve the goal. It imposes a duty on the State to undertake may activities and therefore the extent of sovereign functions may not be confined to the three wings but there may be other functions which are inalienable. In view of the constitutional duty imposed on State to undertake many activities as provided by Part IV of the Constitution of India, the extent of sovereign functions may not be confined to aforesaid functions in as much as other functions may also be inalienable and they would not be, undertaken by any private agency in a meaningful way.
In Shrimali v. District Development Officer , wherein there was an undertaking of famine and draught relief works by State government by introducing certain schemes to provide relief and some works were also provided to the affected people, instead of distributing doles. The question arose that whether such functions be sovereign functions. It was held that it would be difficult to hold the undertaking to be an industry. What really follows from this judgment is that apart from the aforesaid three functions, there may be some other functions also regarding which a view could be taken that the same too is a sovereign function.
As to which function could be, and should be, taken as regal or sovereign function was again examined in N. Nagendra Rao v. State of AP , in which case Sahai J. speaking for the Bench examined this question in detail and observed that it would all depend on the nature of the power and manner of its exercise. As per the decision in this case, one of the tests to determine whether the executive function is sovereign in nature is to find out whether the State is answerable for such action in Courts of Law. It was state by Sahai J. that acts like defense of the country, raising armed forces and maintaining it, making peace or war, foreign affairs, power to acquire and retain territory, are functions which are indicative of external sovereignty and are political in nature. They are, therefore, not amenable to the jurisdiction of ordinary civil courts inasmuch as the State is immune from being sued in such matters. But, then according to this decision the immunity ends there. It was then observed that in a welfare State, functions of the State are not only the defense of the country or administration of justice or maintaining law and order but extends to regulating and controlling the activities of people in almost every sphere, educational, commercial, social, economic, political and even marital. Because of this the demarcating line between sovereign and non-sovereign powers has largely disappeared.
The aforesaid shows that if we were to extend the concept of sovereign functions to include all welfare activities, the ratio in Bangalore Water Supply case would get eroded and substantially.
And in fact there are sets of cases who have actually dissented from Bangalore Water Supply v. A. Rajappa on the concept of sovereign functions or regal functions, though they have not challenged it. Because of the sets of dissenting cases the confusion that, are governmental functions, stricto sensu, industrial and if not, what is the extent of the immunity of instrumentalities of government, still persists. In Des Raj v. State of Punjab it was held that having regard to the activities of irrigation department of State of Punjab and applying the tests laid down in various decisions of Supreme Court and particularly applying the dominant nature test enunciated in Bangalore Water Supply case it must be held that the irrigation department of State of Punjab is an industry.
Now it was the turn of telecommunication and postal department to be scrutinized. Regarding telecommunication and postal department also there were conflicting decisions wherein in some cases the department was held to be an industry and is some cases the conclusion was opposite. In Sub Divisional Inspector of Post v. Theyyam Joseph , wherein respondent was appointed as a substitute to the regularly appointed ED Packer, who had not joined duty after training. The appointment so made dehors the rule. About two years later his services were terminated. It was held that India as a sovereign, socialist, secular, democratic, republic has to establish an egalitarian social order under the rule of law. The welfare measures partake the character of sovereign function and the traditional duty to maintain law and order is no longer the concept of the sovereign function. The Directive Principle of State Policy under Part IV of the Constitution of India and the performance of duties, provided therein, are constitutional functions. One of the functions of the State is to provide telecommunication facilities to general public and an amenity, and so is an essential part of the sovereign functions of the State as a welfare state. It is, therefore, not an industry.
Incidentally this decision was rendered without any reference to the seven-judge Bench decision in Bangalore Water Supply case. In a latter two judge Bench decision in Bombay Telephone Canteen Employees’ Association case this decision was followed for taking the view that the Telephone Nigam is not an ‘industry’.
Then came General Manager, Telecom. V. A. Sriniwas Rao , which overruled the Theyyam Joseph case and it was held that Theyyam Joseph is in direct conflict with the seven-Judge Bench decision in Bangalore Water Supply case and it is not permissible to take a contrary view or to bypass that decision so long as it holds the field.
Such conflict again arose in Chief Conservator of Forest v. Jagannath Maruti Kondare and State of Gujarat v. Pratamsingh Narsinh Parmar , where in the former case forest department of State of Maharashtra was held to be an industry and in the later case it was held that forest department of State of Gujarat is not an industry. In the case of Chief Conservator of Forest v. Jagannath Maruti Kondare , scheme named Panchgaon Parwati Sheme was framed as per the government resolution based on the policy decision taken in April 1976. The scheme was to be initially for a period of five years and an area of about 245 hectares situated in a hill platue on the southern outskirts and within easy access of Pune city was selected for creation of a park under bioaesthetic development for the benefit of the urban population. The appellant conservator of forests contended that the scheme as well as the social forestry work undertaken had to be regarded as part of inalienable or sovereign functions of the State and therefore not an industry within the meaning of the Industrial Dispute Act, 1947.
Rejecting the contention the Supreme Court held that the dichotomy of sovereign and non-sovereign functions of the State does not really exist. Whether a particular function of the State is or is not a sovereign function, depends on the nature of the power and manner of its exercise. The Scheme in question cannot be regarded as a part of inalienable or inescapable function of State for the reason that the scheme was intended even to fulfill the recreational and educational aspiration of the people. There can be no doubt that such a work could well be undertaken by an agency which is not required to be even an instrumentality of the State. Therefore the forest department of the State is an industry.
But then in State of Gujarat v. Pratamsingh Narsinh Parmar , wherein the question for consideration was whether the forest department in the State of Gujarat where the respondent was appointed as a clerk can be held to be an industry within the meaning of the said expression under the Industrial Dispute Act, so that an order of termination, without complying with the provisions of Section 25-F of the Act would get vitiated. It was held that if a dispute arises as to whether a particular establishment or part of it where an appointment has been made is an industry or not, it would be for the person concerned who claims the same to be an industry, to give positive facts for coming to the conclusion that it constitute an industry. Ordinarily a department of government cannot be held to be an industry and rather it is a part of the sovereign functions. The respondent in the writ petition had made no assertion with regard to the duty which e was discharging and with regard to the activity of the organization where he had been recruited, though no doubt he had been contended that the order of dismissal was vitiated for non compliance of Section 25-F. In the absence of assertion by the petitioner as well as the job of the establishment where he had been recruited, the High Court wholly erred in law in applying the principles enunciated in Jagannath Maruti Kondhare to hold that the forest department could be held to be an industry.
Due to the apparent conflict between these two cases, again a matter was referred to the constitutional Bench of five judges in State of UP v. Jai Bir Singh . In this case it was held that a caveat has to be entered on confining ‘sovereign functions’ to the traditional so described as ‘inalienable functions’ comparable to those performed by a monarch, a ruler or a non-democratic government. The learned judges in the Bangalore Water Supply a Sewerage Board case seem to have confined only such sovereign functions outside the purview of ‘industry’ which can be termed strictly as constitutional functions of the three wings of the State i.e. executive, legislature and judiciary. The concept of sovereignty in a constitutional democracy is different from the traditional concept of sovereignty which is confined to ‘law and order’, ‘defense’, ‘law making’ and ‘justice dispensation’. In a democracy governed by the Constitution the sovereignty vests in the people and the State is obliged to discharge its constitutional obligations contained in the Directive Principles of the State Policy in Part - IV of the Constitution of India. From that point of view, wherever the government undertakes public welfare activities in discharge of its constitutional obligations, as provided in part-IV of the Constitution, such activities should be treated as activities in discharge of sovereign functions falling outside the purview of ‘industry’. Whether employees employed in such welfare activities of the government require protection, apart from the constitutional rights conferred on them, may be a subject of separate legislation but for that reason, such governmental activities cannot be brought within the fold of industrial law by giving an undue expansive and wide meaning to the words used in the definition of industry.
Purpose of the Act:
In Bangalore Water Supply and Sewerage Board v. A. Rajappa , Krishna Iyer, J., speaking for himself and on behalf of the other two Hon’ble Judges agreeing with him, proceeded to deal with the interpretation of the definition of ‘industry’ on a legal premise that the Industrial Dispute Act is a worker oriented Statute and so must be construed accordingly. There are sets of cases, though they do challenge the decision in Bangalore Water Supply case, but actually dissented from it. But for the first time, in year 1998, a two Judge Bench decision, in Coir Board v. Indira Devi P.S. called for a reconsideration of the law as laid down by Bangalore Water Supply and Sewerage Board . In this case there was a coir board situated in Ernakulam performed the following functions:- (i) promotion of coir industry; (ii) opening of markets for achieving the object in (i); and (iii) providing facilities to make coir industry’s products more marketable. The court came to a prima facie conclusion that the coir board is not set up to run any industry. Further it was held that looking to the uncertainty prevailing in this area and in the light of the experience of the last two decades in applying the test laid down in the case of Bangalore Water Supply and Sewerage Board , it is necessary that the decision in Bangalore Water Supply and Sewerage Boards case is re-examined. The experience of the last two decades does not appear to be entirely happy. Instead of leading to industrial peace and welfare of the community (which was the avowed purpose of artificially extending the definition of industry), the application of the Industrial Disputes Act to organizations which were, quite possibly not intended to be so covered by the machinery set up under the Industrial Disputes Act, might have done more damage than good, not merely to the organisations but also to employees by the curtailment of employment opportunities.
. Hence an order of reference to Chief Justice for constituting a larger Bench of more than seven Judges, if necessary was passed. However when the matter was listed before a three-Judge Bench, the request for constituting a larger Bench was refused both on the ground that the Industrial Dispute Act had undergone an amendment and that the matter did not deserve to be referred to a larger Bench as the decision of seven Judges in Bangalore Water Supply case was binding on the Benches of lesser strength. But such inhibitions did not limit the power of a five Judge Bench which was constituted on a reference made due to apparent conflict between the judgment of two different Benchs of the Supreme Court. The experience of judges in Coir Board case was not derived from the case in which the observations were made. The experience was from the cases regularly coming to this Court through the labour courts. It is experienced by all dealing in industrial law that over-emphasis on the rights of the workers and undue curtailment of the rights of the employers to organize their business, through employment and non-employment, have given rise to large number of industrial and labour claims resulting in awards granting huge amounts of back wages for past years, allegedly as legitimate dues of the workers, who are found to have been illegally terminated or retrenched. Industrial awards granting heavy packages of back wages sometimes result in taking away the very substratum of the industry. Such burdensome awards in many cases compel the employer having moderate assets to close down industries causing harm to interests of not only the employer and the workers but also the general public who is the ultimate beneficiary of material goods and services from the industry. The awards of reinstatement and arrears of wages for past years by labour courts by treating even small undertakings of employers and entrepreneurs as industries is experienced as a serious industrial hazard particularly by those engaged in private enterprises. The experience is that many times idle wages are required to be paid to the worker because the employer has no means to find out whether and where the workman was gainfully employed pending adjudication of industrial dispute raised by him.
In State of UP v. Jai Bir Singh , it was held that “with utmost respect, the statute under consideration cannot be looked at only as a worker-oriented statute. The main aim of the statute as is evident form its preamble and various provisions contained therein, is to regulate and harmonise relationships between employers and employees for maintaining industrial peace and social harmony. The definition clause read with other provisions of the Act under consideration deserves interpretation keeping in view interests of the employer, who has put his capital and expertise into the industry and the workers who by their labour equally contribute to the growth of the industry. It is a peace of social legislation. In interpreting, therefore, the industrial law, which aims at the promotion\of social justice, interests both of employers, employees and in a democratic society, people, who are the ultimate beneficiaries of the industrial activities, have to be kept in view. A worker oriented approach in construing the definition of industry, unmindful of interest of the employer or the owner of the industry and the public, would be a one sided approach and not in accordance with the provisions of the Act.

Very wide expansion of the term ‘industry’:
In Bangalore Water Supply case the term ‘industry’ was given a very wide expansion and it included educational institution, charitable institutions and liberal profession into its wide sweep. The reasoning given as regards the educational institutions was that they satisfy the triple test and based on its predominant nature it is an industry though teachers are not workmen. As regards charitable institutions the first two categories- (i) where the enterprise like any other, yields profits, but they are siphoned off for altruistic objects; (ii) where the enterprise makes no profit, but hires the services of employees for producing goods and services- will be industry and the reasoning given was there is employer-employee relation. In relation to liberal and learned professions, the majority opinion in Rajappa’s case was that they will constitute industry and the reasoning given was that the contribution to the good will and reputation of an organization comes not only from the professionals but from all others employed under him as well.
The elimination of profit motive or a desire to generate income as the purpose of industrial activity has led to a large number of philanthropic and charitable activities being affected by the Industrial Disputes Act. In a number of cases where the organisation is run by voluntary social workers, they are unable to cope with the requirements of Industrial Disputes Act. This has led to a cessation of many welfare activities previously undertaken by such organisations which has deprived the general community of considerable benefit and the employees of their livelihood. There are many activities which are undertaken not with a view to secure any monetary return-whether one labels it as livelihood, income or profit, but for other more generous or different motives. Such activities would not normally be labeled as industrial activities, but for the wide interpretation given judicially to the term ‘industry’ in the Industrial Disputes Act. For example, a number of voluntary organizations used to run workshops in order that the poor and more particularly poor or destitute woman may earn some income. Voluntary welfare organizations organized activities like preparation of spices, pickles or they would secure small orders from industries for poor woman. A small number of persons were employed to assist in the activities. The income earned by these activities was distributed to the women who were given such work. Other voluntary organizations organized tailoring or embroidery classes or similar activities for poor woman and provided an outlet for the sale of the work produced by them. These persons would otherwise have found it impossible to secure a market for their products. Such organizations are not organized like industries and they do not have the means or manpower to run them as industries. A large number of such voluntary welfare schemes have had to be abandoned because of the wide interpretation given to the term industry.
Apart from such activities, there may be other activities also which are undertaken in the spirit of community service, such as charitable hospitals where free medical services and free medicines may be provided. Such activities may be sustained by free services, given by professional men and women and by donations. Sometimes such activities may be sustained by using the profits in the paid section of that activity for providing free services in the free section. Doctors who work in these hospitals may work for no returns or sometimes for very nominal fees. Fortunately, philanthropic instinct is far from extinct. Can such philanthropic organisations be called industries? The definition needs re-examination so that, while the workers in an industry have the benefit of industrial legislation, the community as such is not deprived of philanthropic and other vital services which contribute so much to its well-being. Educational services and the work done by teachers in educational institutions, research organisations, professional activities, or recreational activities amateur sports, promotion of arts--fine arts and performing arts, promoting crafts and special skills, all these and many other similar activities also require to be considered in this context.


The law in force presently is the interpretation of the original Section 2(j) by Rajappa’s Case. Focusing solely on the merits of the case it is a super judgment which has taken into consideration the social and economic culture of our country. The decision is distinctly pro-labour as it seeks to bring more activities within the fold of the Industrial Dispute Act 1947. In practical terms, the labour forces of the country are much better position now, than they would have been had the amended S. 2(j) been notified. This is because the amended S. 2(j) excludes some categories of employment which squarely comes within the fold of Rajappa’s case.
But at the same time, a glance at the judgment would suggest that it is actually a different law altogether as compared to the original S. 2(j). The question really is whether the judiciary is entitled to embark on such an expedition. Even in a democracy, following the theory of separation of powers, the judiciary has implied authority to fill in the gaps left by the legislature. But, a glance at Rajappa’s case and the decisions preceding it would suggest that the judiciary went far ahead than merely filling the gaps lift by the legislature.

 Goswamy, V.G.; Labour Industrial Laws, 8th Ed.; Central Law Agency, Allahabad; 2004.
 Malhotra, O.P.; The Law of Industrial Dispute, Vol. 1; 6th Ed.; Lexis Nexis Butter Worths, 2004.
 Mishra, S.N.; Labour and Industrial Laws, 21st Ed.; Central Law Publications, Allahabad; 2005.
 Garner, Bryan A.; Black’s Law Dictionary; 7th Ed.; West Group, St. Paul Minn. 1999.
 Hornby, A.S.; Oxford Advanced Learner’s Dictionary, 6th Ed. Oxford University Press, 2000.
 Manohar, V.R. and Chitaley W.W.; The AIR Manual, Vol. 44; 5th Ed.; All India Reporter Pvt. Ltd., Nagpur; 1989.
 Malik Surendra; Supreme Court Decennial Digest; Eastern Book Company; 1981-1990.
 Malik Surendra; Supreme Court Quinquennial Digest; Eastern Book Company; 1991-19995.
 Malik, Surendra and Malik Sumeet; Supreme Court Yearly Digest; Eastern Book Company.

Serious and wide-ranging implications of the issue fall for determination, a seven-judge benchobserved.

A nine-judge constitution bench will decide whether or not to review the definition of “industry” as interpreted by Justice Krishna Iyer in Bangalore water supply case, a seven-judge bench has ruled.

The seven judge constitution bench, last month, had heard a batch of cases on the question whether it or a nine-judge bench should review the definition of “industry” as interpreted by Justice Krishna Iyer, as part of another seven-judge bench, way back in 1978.

Chief Justice TS Thakur, in a two-para order, said serious and wide ranging implications of the issue fall for determination in the instance reference order and it should be heard by a nine-judge bench.

In the landmark Bangalore Water Supply and Sewerage Board v A.Rajappa case, decided by the seven-judge bench, Justice VR Krishna Iyer had amplified the definition of “industry”, as the result of disputes arising in establishments that are not manufacturing industry, but belong to categories such as hospitals, educational and research institutions, government departments, public utilities, professions and clubs. In 2005, a five-judge bench, headed by Justice N Santosh Hegde, had expressed serious doubts on the correctness of this order and had referred it to a larger seven-judge bench.

Read the order here.

This article has been made possible because of financial support from Independent and Public-Spirited Media Foundation.

Topics: Bangalore Water Supply Case | Chief Justice TS Thakur | Justice Krishna Iyer | Justice N Santosh Hegde | Supreme Court of India

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