Author: Sankalp Pissay
Abstract
The seven-judge bench decision of the Supreme Court of India in Bangalore Water Supply and Sewerage Board v. A. Rajappa,[1] is a landmark judgment which deals with the definition of the word ‘industry’ as it features in Section 2(j) of the Industrial Disputes Act, 1947. The judgment attempted to clarify the confused and contradictory jurisprudential history and heritage which had clouded the interpretation of the word ‘industry’. While it is a very significant decision and indicated a clear, and distinctly pro-labour, direction for the Indian Judiciary to move towards in the realm of Labour Law, it also came with a lot of shortcomings and pitfalls, and has been heavily criticized for that. Internationally, especially in the South Asian nations, it has received a lot of attention; and other jurisdictions (Pakistan and Bangladesh, in particular) have either adopted it or rejected it for specific reasons. It is also debatable if the interpretive gymnastics which the word ‘industry’ has been subjected to in this judgment, will continue to hold sway in India, in light of the following factors: the amendment of Section 2(j) of the Industrial Disputes Act, enacted in 1982, which is yet to be notified; the fact that the judgment itself is pending reconsideration in front of a larger nine-judge bench, which is yet to be constituted; and, the new Labour & Industrial Law Codes which are being debated in and enacted by the BJP-led Parliament.
Background
“The glorious uncertainty of the law was a thing well known and complained of, by all ignorant people, but all learned gentlemen considered it as its greatest excellency.”[2] ‘The glorious uncertainty of the law’ is what seven learned judges of the Indian Supreme Court set out to clarify in 1978, when it was felt that the word ‘industry’, as it features in S. 2(j) of the Industrial Disputes Act, 1947, needed to be clearly defined. The definition had been explored and interpreted on numerous occasions by the Court in the past, but since there were many conflicting decisions on this issue, a seven-judge bench had been constituted to settle the controversy. But even while trying to untie this legal knot, the plurality opinion authored by Justice Krishna Iyer noted that their attempt merely, “seeks to serve the future hour till changes in the law or in industrial culture occur.”[3]
Section 2(j), in its unamended and current form, reads, “‘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.”[4] This legal definition has its roots in Australia, and Australian authorities are commonly looked to for the purposes of shedding light on its meaning.[5] The first time this definition came up for interpretation before the Indian Supreme Court was in D.N. Banerjee v. P.R. Mukherjee,[6] and while the decision in this case was upheld in A. Rajappa, it is immaterial for our purposes to discuss it in detail.
Later on, in 1960, in State of Bombay v. Hospital Mazdoor Sabha,[7] Justice Gajendragadkar, relying on the Banerji case, held that, “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. Such an activity generally involves the co-operation of the employer and the employees; and its object is the satisfaction of material human needs. It must be organised or arranged in a manner in which trade or business is generally organised or arranged. It must not be casual nor must it be for oneself nor for pleasure. Thus the manner in which the activity in question is organised or arranged, the condition of the co-operation between employer and the employee necessary for its success and its object to render material service to the community can be regarded as some of the features which are distinctive of activities to which s. 2(j) applies.”[8] It was also held that a profit motive was unnecessary for an undertaking to qualify as an industry. The reason why such a lengthy reproduction of a passage from this judgment is necessary, is that this broadly worded interpretation of ‘industry’ was later on approved and expanded upon further in A. Rajappa.
But there was another strand of cases, culminating in the decisions in Gymkhana Club,[9] Safdarjung Hospital[10] (popularly known as the Kurji Holy Family Hospital case) and Dhanrajgiri Hospital,[11] which departed from the broad definition adopted in Hospital Mazdoor Sabha. The lines of reasoning drawn in the first two judgments by Chief Justice Hidayatullah, and followed in Dhanrajgiri Hospital, were ‘numerous’, ‘subtle’, ‘self-contradictory’, ‘puzzling’ and ‘difficult to reconcile’,[12] and were overruled in A. Rajappa, hence need not be discussed in detail.
The decision in A. Rajappa
The decision in A. Rajappa relied on Banerji and Hospital Mazdoor Sabha and laid down two tests – the triple test and the dominant nature test. The triple test states that for an industry to exist, the following features must be present –
- Systematic activity;
- Co-operation between employers and employees; and
- Production and/or distribution of goods and services calculated to satisfy human wants and desires (not spiritual or religious but inclusive of material things or services geared to celestial bliss).[13]
Absence of profit motive is irrelevant,[14] and the dominant nature test, which comes into play when the Triple Test is not sufficient, states that it is the “predominant nature of the services and the integrated nature of the departments”[15] of the undertaking which will be taken into account, and while the whole undertaking may qualify as an industry, only workmen will benefit from such status, and not those employees who are not workmen under the Industrial Disputes Act.
The aftermath
One of the major motivating factors behind the decision was Labour Welfare, which Justice Krishna Iyer in his plurality opinion stated was the object of Articles 38, 39 and 43 of the Constitution of India, and must animate a worker-oriented statute like the I.D. Act.[16] Hence, the Court adopted these two tests which broadly construed the definition of industry.
But such an approach came under direct criticism even as it was announced, as the dissenting opinion authored by Justice Jaswant Singh and joined by Justice Tulzapurkar which was delivered over a month after the plurality opinion was, objected to the Court’s definition including certain charitable and governmental undertakings, and those bodies dependent upon individual efforts and skills.[17]
In 1982, in response to this decision, the Parliament amended S. 2(j), but has not yet notified the same. The content and the effect of that amendment, if and when notified, will be discussed below, but it may be noted that the dicta of A. Rajappa continues to be the law on the definition of an industry.
Matters came to a head in 1998, when a division bench decision[18] authored by Justice Sujata Manohar, opined that A. Rajappa had several drawbacks, and that it had “done more damage than good, not merely to the organisations but also to employees by the curtailment of employment opportunities.”[19] The bench believed that the decision in A. Rajappa needed reconsideration, but in 2000, a 3-judge bench constituted by Chief Justice A.S. Anand refused to refer the matter to a larger bench.[20]
In 2005, however, a Constitution Bench[21] subjected A. Rajappa to severe criticism,[22] and stated that since the amendment had not yet been notified, it became imperative that the judiciary reconsider this issue and place an interpretation upon ‘industry’ to bring it in line with the amended but unenforced definition. In fact, the bench noted that the amendment had not yet been notified because judicial interpretation seemed to be an inhibiting factor in its enforcement.[23] The bench noted that the main object of the I.D. Act was not labour welfare, but industrial peace and social harmony,[24] and an over-expansive definition of industry would deter private enterprise.[25] Pursuant to this decision, a 7-judge bench was constituted, which referred the matter, to be examined in light of the questions raised in the reference order passed by the Constitution Bench, to a 9-judge bench, which is yet to be constituted.[26]
International Reception of A. Rajappa
The decision in A. Rajappa has received a lot of international attention. Specifically, its definition of ‘industry’ was adopted by the Supreme Court of Pakistan, but was rejected by the Supreme Court of Bangladesh (High Court Division).
In 1996, a 3-judge bench of the Supreme Court of Pakistan was interpreting S. 2(xiv) of the Industrial Relations Ordinance, 1979, which defines ‘industry’.[27] The court discussed in detail the decision in A. Rajappa, and noted, in a similar vein as the Indian Supreme Court, that the legislation in question was “basically a beneficial Legislature which provide for protection of the rights of labour classes. Its object amongst other is to ameliorate the conditions of workers. Such a legislation has to be construed liberally and beneficially. A restricted constructure (sic) of the provisions of the I.R.O. would defeat the manifest objective of the legislation.”[28] Hence, the Supreme Court of Pakistan adopted the reasoning of the Indian Supreme Court in A. Rajappa, when it came to defining what an industry was.
But in 2004, a Division Bench of the Bangladesh Supreme Court rejected the reasoning of A. Rajappa.[29] While noting that the decision in A. Rajappa was historical,[30] and subjecting it to great praise, the court refused to adopt it, and observed that, “We shall, rather, interpret any piece of legislation as it unfolds itself in its ordinary meaning and judge it from a compassionate point of view, keeping in mind, the background for which a particular legal provision has been enacted but at the same time, it should be jealously guarded that it should not overreach it purposes.”[31]
Thus, we can see that while A. Rajappa has received considerable attention in the subcontinent, its reception remains mixed at best.
A. Rajappa’s future in India
In 1982, the I.D. Act was amended, and s. 2(c) of the Amendment Act,[32] was a direct attempt by the Parliament to supersede the decision in A. Rajappa. The new definition was much clearer and lucid, and would have undoubtedly limited the holding of the plurality opinion authored by Justice Iyer. The relevant part of the new section defined industry as “any systematic activity carried on by cooperation 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— (b) any activity relating to the promotion of sales or business or both carried on by an establishment ”,[33] but excluded from its ambit many undertakings which the decision in A. Rajappa, brought within the definition of industry, such as hospitals or dispensaries; and activities, such as professions practised by an individual or body of individuals, or those carried on by a co-operative society or a club or any other like body of individuals, if the number of persons employed in connection to the above-mentioned activities is less than ten.
Since this amendment has not been notified, the decision in A. Rajappa continues to hold the field. But that may not be the case for long, as the Constitution Bench in Jai Bir Singh specifically stated that it was now the job of the judiciary to act where the government is reluctant, and use the amendment as an interpretive aid and bring the definition of industry in line with legislative intent. It is inevitable that the 9-judge bench (which is yet to be constituted) will take this suggestion of the Constitution Bench into account, and if not overrule, will significantly depart from A. Rajappa’s reasoning.
But even this may soon become unnecessary, as an Industrial Relations Code was introduced in the Lok Sabha in 2019, which, if enacted, will replace the I.D. Act. However, the definition of industry in the bill is broader than the 1982 amendment. Nine types of activities and undertakings were excluded in the 1982 Amendment,[34] while the new Code excludes only four activities from qualifying as an industry.[35]
At first blush, the Bill seems to include within its ambit activities which have traditionally never been considered industrial, or those activities which were meant to be excluded in the 1982 amendment. But the Code leaves it open to the Central Government to exclude any of such activities by notification, which is a welcome step and lends flexibility to the definition.
On December 23rd, 2019, this Code was referred to a standing committee, and the committee delivered their report on April 23rd 2020.[36] The Standing Committee made specific recommendations to the Ministry of Labour and Employment to reconsider its decision to exclude charitable organizations (especially those which run educational institutions) and domestic services from the ambit of industry, and also alter the phrasing of the section so as to narrow down and restrict the discretion of the central government in excluding any activity from the section’s application.[37]
If accepted, these recommendations will largely take us back to the position as laid down in A. Rajappa, and the problems identified by the Supreme Court in Jai Bir Singh and Coir Board will largely be superseded. But since the Standing Committee and the Ministry of Labour and Employment have greater access to expertise, and the resources to communicate with most of the stakeholders, it would be better, in my opinion, if it is the Legislature which alters and lays down the policy and the law, in any field generally, and with respect to the definition of industry particularly, rather than the Supreme Court, regardless of how broad or narrow the ultimate position adopted is.
If enacted, this Code will render the reference to a 9-judge bench made in Jai Bir Singh largely infructuous and unnecessary, and will hopefully demystify and clarify the definition of industry in Indian Labour Jurisprudence.
[1] (1978) 2 SCC 213.
[2] Richard Brinsley Sheridan, Parliamentary History, 1820, as cited in, David S. Shrager and Elizabeth Frost (eds), The Quotable Lawyer (Aditya Books 1992) 36 [17.7].
[3] A. Rajappa (n 1) 228 [2].
[4] Industrial Disputes Act 1947, s. 2(j).
[5] A. Rajappa (n 1) 229 [8]; see also, as an illustration, Rangaswami v. Registrar of Trade Unions AIR 1962 Mad. 231, 233 [12].
[6] 1953 SCR 302.
[7] (1960) 1 L.L.J. 251 (SC).
[8] Ibid.
[9] Secretary, Madras Gymkhana Club Employees Union v. Management of the Gymkhana Club (1967) 2 L.L.J. 720 (SC).
[10] Management of Safdarjung Hospital v. Kuldip Singh Sethi (1970) 1 SCC 735.
[11] Dhanrajgiri Hospital v. Workmen (1975) 4 SCC 621.
[12] See, A. Rajappa (n 1) 279 [135], 280 [136].
[13] Ibid 282 [140].
[14] Ibid.
[15] Ibid 283 [143].
[16] Ibid 230 [12].
[17] Ibid 299 [185]. Incidentally, Chief Justice Chandrachud delivered a concurring opinion (see, pg. 293) on the same date as the dissent, and he was of the opinion that the definition of industry was even wider than the one given by the majority.
[18] Coir Board, Ernakulam v. Indira Devi P.S. (1998) 3 SCC 259.
[19] Ibid 269 [19]. The reasoning given by the court was that many undertakings, such as the ones “run by voluntary social workers, … are unable to cope with the requirements of Industrial Disputes Act.” (see, pg. 269 [21]).
[20] Coir Board, Ernakulam v. Indira Devi P.S. (2000) 1 SCC 224.
[21] State of U.P. v. Jai Bir Singh (2005) 5 SCC 1.
[22] For a detailed discussion, see, Anubhav Khamroi & Anujay Srivastava, ‘A Critical Analysis of Bangalore Water Supply decision: A Bugaboo of an One-sided Judicial Interpretation Concerning the Meaning of “Industry”’ [2019] 8(1) JGRA 73, 75.
[23] Jai Bir Singh (n 21) 27 [40].
[24] Ibid 24 [33].
[25] Ibid 25 [35]. This concern for private enterprise gains special significance when looked at in light of the liberalization and privatization of the Indian economy which commenced in the 1990s.
[26] State of U.P. v. Jai Bir Singh (2017) 3 SCC 311.
[27] Agriculture Workers’ Union v. The Registrar of Trade Unions LEX/SCPK/0153/1996.
[28] Ibid [23].
[29] Chittagong City Corporation, represented by its Mayor v. Md. Afzal Hossain LEX/BDHC/0080/2004.
[30] Ibid [14].
[31] Ibid [16].
[32] The Industrial Disputes (Amendment) Act, 1982, No. 46 of 1982.
[33] Ibid s. 2(c).
[34] Ibid. The activities which were exclude were: Agricultural operations; educational, research or training institutions; khadi or village industries; and the activities, such as professions practised by an individual or body of individuals, or those carried on by a co-operative society or a club or any other like body of individuals, if the number of persons employed in connection to the above-mentioned activities is less than ten.
[35] The Industrial Relations Code, 2019, Bill No. 364 of 2019, s. 2(m). The activities which are excluded from the definition of industry are as follow –
- 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.
[36] See, ‘The Industrial Relations Code, 2019’ (PRS India, 2020) < https://www.prsindia.org/billtrack/industrial-relations-code-2019> accessed 13 May 2020.
[37] Standing Committee on Labour, The Industrial Relations Code, 2019 (Eighth Report) paras 7.16-7.18.
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