Analysis of 'Industry' under Section 2(j) of the Industrial Disputes Act, 1947

The Evolving Jurisprudence of 'Industry' under Section 2(j) of the Industrial Disputes Act, 1947

Introduction

The definition of 'industry' encapsulated in Section 2(j) of the Industrial Disputes Act, 1947 (hereinafter "the Act"), stands as a cornerstone of Indian labour law. Its interpretation by the judiciary has been a dynamic and often contentious process, shaping the scope and applicability of the Act to a myriad of enterprises and activities. The Act's preamble itself states its objective: "Whereas it is expedient to make provision for the investigation and settlement of industrial disputes, and for certain other purposes hereinafter appearing" (*P. Janardhana Shetty And Another, v. The Union Of India*, Karnataka High Court, 1969). The determination of whether an entity constitutes an 'industry' is crucial, as it dictates the jurisdiction of various adjudicatory bodies and the rights and obligations of employers and employees under the Act. This article seeks to analyze the judicial evolution of the term 'industry', drawing primarily from landmark pronouncements of the Supreme Court of India and various High Courts, as reflected in the provided reference materials.

The Statutory Definition: Section 2(j) of the Industrial Disputes Act, 1947

Section 2(j) of the Industrial Disputes Act, 1947, defines 'industry' as follows:

"(j) '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;"

This definition, as noted in Secretary, Madras Gymkhana Club Employees Union v. Management Of The Gymkhana Club (1968 AIR SC 554, hereinafter Madras Gymkhana Club), comprises two parts: the first part refers to any business, trade, undertaking, manufacture, or calling of employers (denotation), and the second part includes any calling, service, employment, handicraft, or industrial occupation or avocation of workmen (connotation). The interpretation of these terms, particularly 'undertaking' and the overall ambit of the definition, has been the subject of extensive judicial scrutiny.

Judicial Evolution of 'Industry': Pre-Bangalore Water Supply Era

The early years of the Act saw the judiciary grappling with the breadth of Section 2(j), leading to a series of interpretations that progressively expanded, and at times contracted, its scope.

Early Interpretations and Broad Scope

A foundational interpretation was laid down in D.N. Banerji v. P.R. Mukherjee And Others (1952 AIR SC 1080, hereinafter D.N. Banerji). This case established that municipal activities could constitute an 'industry' even if they were not commercial or profit-driven (Madras Gymkhana Club summary, citing D.N. Banerji). The profit motive was deemed irrelevant.

This broad approach was further cemented in State Of Bombay And Others v. Hospital Mazdoor Sabha And Others (1960 AIR SC 610, hereinafter Hospital Mazdoor Sabha). The Supreme Court held that hospitals, even if non-profit, could qualify as 'industry'. The Court emphasized that "industry" encompasses activities undertaken systematically for the production or distribution of goods or services, with cooperation between employers and employees, aimed at satisfying human wants and wishes (not spiritual or religious). Capital investment was also not considered indispensable. The Court adopted a purposive approach, interpreting "industry" expansively to include entities like hospitals, aligning with the Act's objective to regulate industrial relations comprehensively in a modern welfare state. The maxim noscitur a sociis was dismissed as restrictive in this context.

Emergence of Restrictive Tests and Divergent Views

However, this expansive trend was not uniform. In National Union Of Commercial Employees And Another v. M.R Meher, Industrial Tribunal, Bombay And Others (1962 AIR SC 1080, hereinafter National Union of Commercial Employees), the Supreme Court held that the work of solicitors does not fall within the definition of 'industry'. The Court introduced a "working test" derived from Hospital Mazdoor Sabha, examining whether there is "direct and essential cooperation between capital and labor" in the production of goods or rendering of services. It concluded that liberal professions, relying heavily on individual intellectual and specialized skills, lacked this essential attribute, distinguishing them from industries. The support staff's roles were deemed ancillary.

Similarly, in University Of Delhi And Another v. Ram Nath And Others (1963 AIR SC 1873, hereinafter University of Delhi), educational institutions were excluded from the definition of 'industry'. The Court reasoned that the primary function of imparting education, a mission-oriented endeavor, did not align with the traditional industrial framework. Furthermore, the exclusion of teachers from the definition of "workman" under Section 2(s) of the Act was highlighted as indicative of legislative intent to keep educational matters outside the purview of the Act.

The case of Secretary, Madras Gymkhana Club Employees Union v. Management Of The Gymkhana Club (1968) further refined the interpretation. The Supreme Court held that a members' club, primarily serving its members' recreational interests, did not constitute an 'industry'. The Court emphasized that the activity must be analogous to trade or business and engage in the production or distribution of goods or services to the broader community, which the club did not. It stressed that not all organized entities with employees qualify as industries; the nature and purpose of the organization's activities are paramount.

A significant contraction occurred with Management Of Safdarjung Hospital, New Delhi v. Kuldip Singh Sethi (1970 SCC 1 735, hereinafter Safdarjung Hospital). The Supreme Court re-evaluated the status of hospitals, determining that certain hospitals, particularly those predominantly engaged in charitable activities, research, and training, rather than operating as commercial enterprises, did not constitute 'industry'. This decision, to an extent, overruled Hospital Mazdoor Sabha, critiquing its "extreme view." The Court emphasized that an industry embodies a collective enterprise where employers and employees collaborate to produce material goods or services, and the operations must align with definitions of trade, business, manufacture, or analogous commercial activities.

The Landmark Pronouncement: Bangalore Water Supply And Sewerage Board v. A. Rajappa And Others

The conflicting judicial pronouncements led to considerable uncertainty, which the Supreme Court sought to resolve in the landmark seven-judge bench decision of Bangalore Water Supply And Sewerage Board v. A. Rajappa And Others (1978 SCC 2 213, hereinafter Bangalore Water Supply). This judgment is pivotal in understanding the contemporary scope of Section 2(j).

The Context and the 'Triple Test'

Justice Krishna Iyer, delivering the majority judgment, critiqued the inconsistent interpretations and emphasized the need for a clear, authoritative definition. The judgment advocated for a functional and relational understanding of 'industry'. It laid down a "triple test" for identifying an 'industry':

  1. Systematic activity;
  2. Organized by co-operation between employer and employee (the direct and substantial element is pragmatic);
  3. For the production and/or distribution of goods and services calculated to satisfy human wants and wishes (not spiritual or religious, but including material services and services geared to celestial bliss, e.g., making on a large scale prasad or food).

The Court reiterated that the profit motive is irrelevant, and charitable institutions are not exempt if they satisfy this test. The term 'undertaking' was to be understood as analogous to trade or business in a commercial sense, but not necessarily for profit.

The 'Dominant Nature' Test

For enterprises with a complex of activities, Bangalore Water Supply endorsed the 'dominant nature' test. As summarized in General Manager, Telecom v. A. Srinivasa Rao And Others (1997 SCC 8 767), "Where a complex of activities, some of which qualify for exemption, others not, involves employees on the... dominant nature of the services or activities will be the true test."

Exceptions and Overruling of Prior Decisions

Bangalore Water Supply also carved out certain exceptions, though narrowly defined:

  • Casual activities (e.g., a club for a day).
  • Small clubs, gurukuls, etc., where the employer-employee relationship is not truly present in an organized manner.
  • Single doctors or lawyers (distinguishing them from organized professional services which could be an industry).
  • Sovereign functions of the State, strictly confined to primary and inalienable functions such as legislative, judicial, law and order, and defence.

Significantly, Bangalore Water Supply overruled Safdarjung Hospital, the reasoning in University of Delhi regarding educational institutions, and aspects of Madras Gymkhana Club. It largely reaffirmed the principles laid down in D.N. Banerji and Hospital Mazdoor Sabha.

Call for Legislative Clarity

While providing a comprehensive interpretation, Justice Iyer also highlighted the judiciary's role in interpreting rather than legislating and called for legislative intervention to provide definitive clarity to Section 2(j).

Application of Bangalore Water Supply Principles: Specific Sectors and Activities

The principles laid down in Bangalore Water Supply have since been applied to various sectors.

Sovereign Functions of the State

The exception for sovereign functions has been a subject of further judicial consideration. In Physical Research Laboratory v. K.G Sharma (1997 SCC 4 257, hereinafter PRL), the Supreme Court held that the Physical Research Laboratory, a government-funded research institution, was not an 'industry'. The Court found that PRL's activities, focused on research for governmental benefit without engagement in production or distribution of goods/services for market consumption, aligned with sovereign functions rather than commercial enterprises. This decision drew upon the exceptions in Bangalore Water Supply and distinguished sovereign functions from economic activities, referencing cases like Chief Conservator of Forests v. Jagannath Maruti Kondhare (1996) and Sub-Divisional Inspector of Post v. Theyyam Joseph (1996).

The Gujarat High Court in H.K Makwana v. State Of Gujarat (1994 SCC ONLINE GUJ 48) held that scarcity relief works undertaken by the State Government are sovereign functions, not industry, as they are intended to fulfill obligations towards people affected by natural calamities rather than being industrial or commercial enterprises. This followed the reasoning in J.J. Shrimali v. District Development Officer (1989).

In Md. Rajmohammad v. Industrial Tribunal-Cum-Labour Court, Warangal (2003 SCC ONLINE AP 8), the Andhra Pradesh High Court, relying on Supreme Court precedent (Himanshu Kumar Vidyaraihi v. State of Bihar), held that the Census Department was not an industry, considering its functions as sovereign.

Government Departments and Public Utilities

Applying the Bangalore Water Supply tests, the Supreme Court in General Manager, Telecom v. A. Srinivasa Rao And Others (1997) held that the Telecom Department of the Union of India is an 'industry'. This decision doubted the correctness of Sub-Divisional Inspector of Post v. Theyyam Joseph (1996) which had held certain postal functions not to be industry.

The Madhya Pradesh High Court in Centre Of Indian Trade Union And Anr. v. State Of Madhya Pradesh And Ors. (2002) noted that All India Radio and Doordarshan were held to be 'industry' by the Supreme Court (All India Radio v. Smt. Santosh Kumar, AIR 1998 SC 941), and an Agriculture Produce Marketing Committee was also held to be an 'industry' (Agriculture Produce Marketing Committee v. Shri Ashok Harikuni, AIR 2000 SC 3116).

In Dhari Gram Panchayat v. Saurashtra Mazdoor Mahajan Sangh And Another (1987 SCC 1 213), the question of whether the Octroi Department of a Panchayat was an industry (due to levy and collection of octroi being a sovereign function) was raised, but the Supreme Court decided the case on the grounds of mala fide action by the Panchayat, without expressing a definitive opinion on the 'industry' aspect in that specific context.

Educational, Research, and Charitable Institutions

Bangalore Water Supply effectively brought many educational, research, and charitable institutions within the fold of 'industry' if they satisfied the triple test, thereby unsettling the narrower views in University of Delhi and Safdarjung Hospital. However, as seen in PRL, research institutions undertaking sovereign functions can be excluded. For charitable institutions like hospitals, the Bangalore Water Supply test implies that if they are systematically organized and provide material services with employer-employee cooperation, they would be 'industry', irrespective of the charitable motive. The Calcutta High Court in Nathji Bhandar And Another v. State Of West Bengal And Others (2003 SCC ONLINE CAL 734) dealt with a temple board with diverse activities, including charitable ones, in the context of an industrial dispute, implying that such complex organizations could be considered industries based on their activities.

Liberal Professions and Clubs

While Bangalore Water Supply affirmed that individual practitioners of liberal professions (like single doctors or lawyers) would not be 'industry', it suggested that organized professional services could qualify. This nuanced the earlier blanket exclusion in National Union of Commercial Employees. Similarly, for clubs, while very small or casual clubs might be excluded, larger, systematically organized clubs providing material services through employees could fall within the definition, modifying the outcome of Madras Gymkhana Club based on the nature and scale of operations.

The Unnotified 1982 Amendment to Section 2(j)

In an attempt to provide legislative clarity, Parliament passed the Industrial Disputes (Amendment) Act, 1982, which substituted Section 2(j) with a new definition. This amended definition sought to explicitly exclude certain activities, such as hospitals and dispensaries (unless carried on for profit), educational, scientific, research, or training institutions, institutions owned or managed by organisations wholly or substantially engaged in charitable, social, or philanthropic services, khadi or village industries, and certain domestic services. It also sought to exclude activities of the government relatable to sovereign functions. However, as noted in General Manager, Telecom v. A. Srinivasa Rao And Others (1997), this amendment has not yet been brought into force by the Central Government through the requisite notification. Consequently, the interpretation of the unamended Section 2(j) as laid down in Bangalore Water Supply continues to be the governing law.

Interplay with 'Industrial Dispute' (Section 2(k)) and 'Workman' (Section 2(s))

The applicability of the Industrial Disputes Act, 1947, hinges not only on an entity being an 'industry' but also on the existence of an 'industrial dispute' as defined in Section 2(k) and the involvement of 'workmen' as defined in Section 2(s).

Section 2(k) defines an 'industrial dispute' as "any dispute or difference between employers and employers, or between employers and workmen, or between workmen and workmen, which is connected with the employment or non-employment or the terms of employment or with the conditions of labour, of any person" (cited in P. Janardhana Shetty, Rajasthan State Road Transport Corporation, and others). Initially, for an individual dispute to become an industrial dispute, it required espousal by a substantial body of workmen or a union (Maharashtra General Kamgar Union v. State Of Maharashtra And Others, 1995). However, the insertion of Section 2-A by the Industrial Disputes (Amendment) Act, 1965, deemed disputes arising from the discharge, dismissal, retrenchment, or termination of an individual workman as an industrial dispute, irrespective of espousal by other workmen or a union (P. Janardhana Shetty, H.S Rangaramu, Har Narain Ashok Kumar).

The definition of 'workman' in Section 2(s) (cited in Rajasthan State Road Transport Corporation, D.N. Banerji) includes persons employed in any industry to do manual, unskilled, skilled, technical, operational, clerical, or supervisory work, but excludes those in managerial or administrative capacities, or supervisors drawing wages above a certain limit and exercising managerial functions, among others. The exclusion of certain categories (e.g., teachers, as noted in University of Delhi) from the definition of 'workman' can influence whether the activity in which they are predominantly engaged is considered an 'industry' or if disputes involving them can be adjudicated under the Act.

Conclusion

The jurisprudential journey of Section 2(j) of the Industrial Disputes Act, 1947, reflects the judiciary's continuous effort to adapt a pre-independence legislative definition to the evolving socio-economic landscape of India. From early expansive interpretations to periods of restriction, the law culminated in the comprehensive framework laid down by Bangalore Water Supply And Sewerage Board v. A. Rajappa And Others. This decision, with its 'triple test' and 'dominant nature' principle, remains the authoritative guide for determining what constitutes an 'industry', pending the notification of the 1982 amendment.

The application of these tests to diverse sectors—ranging from government departments and research institutions to hospitals, educational bodies, and clubs—demonstrates the complexity inherent in the definition. The distinction between sovereign and non-sovereign functions, commercial and non-commercial activities (where profit motive is irrelevant but the activity must be analogous to trade or business), and the nature of employer-employee cooperation continue to be critical factors.

Despite the detailed exposition in Bangalore Water Supply, the call for legislative clarity persists. The unnotified 1982 amendment signifies a legislative intent that diverges in some respects from the current judicial interpretation, adding a layer of potential future change. Until such legislative intervention takes full effect, the principles enunciated by the Supreme Court, particularly in Bangalore Water Supply, will continue to govern the understanding of 'industry', fundamentally shaping the contours of industrial relations and dispute resolution in India.