Law and You > Labour Laws > The Industrial Relations Code, 2020 > Industry under Industrial Relation Code, 2020
Understanding how “industry” is defined is very important in understanding labour laws. This understanding determines the applicability of rights, protections, and obligations for workers and employers. Labour laws often provide specific protections related to wages, working conditions, and collective bargaining. A clear definition of industry ensures that workers in various sectors receive appropriate protections tailored to their unique circumstances. Policymakers rely on definitions of industry to craft effective labour policies. An accurate understanding aids in addressing the specific needs of different industries, ensuring that regulations promote fair labour practices and economic growth. In labour disputes, the definition of industry can be pivotal in determining jurisdiction and the applicability of specific labour laws. Clarity in this area aids courts and tribunals in making informed decisions. Defining industry helps in analyzing labour market trends, workforce dynamics, and economic conditions. This analysis is vital for forecasting labour needs and addressing workforce challenges. With the rise of gig economies and new forms of work, a flexible definition of industry allows labour laws to adapt to emerging labour models, ensuring that all workers are protected.
Definition of Industry:
According to Section 2(p) of the Industrial Re3lations Code, 2020 “industry” means any systematic activity carried on by co-operation between an employer and worker (whether such worker is 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,
but does not include —
(i) institutions owned or managed by organisations wholly or substantially engaged in any charitable, social or philanthropic service; or
(ii) 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
(iii) any domestic service; or
(iv) any other activity as may be notified by the Central Government.
An industry exists only when there is a relationship between employers and employees, the former is engaged in business, trade, undertaking, manufacture or calling of employers and the latter is engaged in the calling, service, employment, handicraft or industrial occupation and avocation.
The Scope of the Term “Industry”:
In Budge Municipality v. P.R. Mukerjee, 1953, I. LLJ 195 case, two employees of the Municipality who were the members of Municipality Workers Union were suspended by the Chairman on the charges of the negligence, insubordination, and indiscipline. The workers were dismissed from the service saying that their explanations were unsatisfactory. The union questioned the dismissal and the matter was referred by the Government of West Bengal to the Industrial Tribunal for adjudication. The Tribunal directed the worker’s reinstatement in their respective offices by making an award saying that the suspension of two employees was of victimization. The Municipality under Article 226 of the Indian Constitution took the matter to the High Court. The petition was dismissed and leave was granted under Article 132(1) of the Indian Constitution to make an appeal to the Supreme Court.
The Supreme Court analyzed this situation in the light of the Australian Judgment given in Federated Municipal and Shire Council Employees Union of Australia Vs Melbourne Corporation, 23. CLR 508 and observed that through every activity in which the relationship of employer and employee existed commonly understood at the industry, but still a wider and more comprehensive interpretation has to be given to such words to meet the rapid industrial progress and to bring about industrial peace, and economy and a fair.
In Madras Gymkhana Club, Employees Union v. Management of Madras Gymkhana Club, AIR, 1968 SC 554 case, it was observed that “if the activity can be described as an industry with reference to the occupation of the employers, the ambit of the industry, under the force of the second part takes in the different kinds of activity of employees mentioned in the second part. But the second standing alone cannot define the industry. By the inclusive part of the definition, the labour force employed in any industry is made an integral part of the industry for the purpose of industrial disputes although the industry is ordinarily something which employers create or undertake”. The Court held that if employer’s work cannot be regarded as an industry, the persons he employs cannot be industrial workmen, and nor can a dispute between him and employees be treated as an industrial dispute.
In Management of Sufdarjang Hospital, Delhi Vs Kuldip Singh, AIR 1970 SC 1407 case, the Supreme Court observed that “an industry exists only when there is relationship between employers and employees, the former engage in business, trade, undertaking, manufacture or calling of employers and latter engaged in any calling, service employment, handicraft or industrial occupation or avocation. There must be an enterprise in which the employers will follow their avocations as detailed in the definition and employ workmen. Therefore the basic requirement of ‘industry’ is that the “employers must be carrying on any business, trade, undertaking, manufacture or calling of employers”. The Court observed that a place of the 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 the 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 the industry.
In Bombay Panjarapole Bhuleshwar v. Its Workmen, AIR 1971 SC 2422 case, the object of the institution was to look after the cattle, the sale of milk was a regular activity which brought in profits, and therefore, the undertaking was treated as an industry. The Court pointed out that the activity of the institution is a compassionate activity but it shares a business-like orientation and operation. The Court observed that where an establishment carries activities of different types, it is the dominant purpose that will determine where it is an “industry”.
In the Workmen of I. S. Institution v. I. S. Institution, AIR, 1976 SC 145 case, the Court held that the “industry is ordinarily something which employers create or undertake”. which is gradually yielding place to the modern concept which regards the industry as a joint venture undertaken by employers, and workmen, an enterprise which equally belongs to both. Here it is not necessary to view the definition of the industry under section 2(j) of the Industrial Dispute Act in two parts.
In Bowra Colliery v. its Workmen, 1962 I LLJ 378 SC case, the Court held that though a domestic servant has a calling or occupation, he is not employed in the industry, as personal employment is counterposed to the concept of industrial vocation.
All decisions of the Supreme Court agreed that an undertaking to be within the definition in section 2(j) must be read subject to a limitation, namely, that it must be analogous to trade or business. The Supreme Court in many cases evolved certain working principles to provide guidance in determining attributes and characteristics which would specify that an undertaking is analogous to trade or business.
In State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610 case, the Supreme Court held that “hospital” to be industry within the scope of Section 2 (j) and relied upon the “inclusive part” of the definition and also the definition of employer under Sec. 2 (g) which includes an industry carried on by or under the authority of any department of the Central Government or a State Government. he Court observed that activities having no commercial implications, such as hospitals carried on with philanthropic motives would be covered by the expression ‘undertaking’. The mere fact that the 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. This view was approved by the Supreme Court in Banglore Water Works case.
Attributes of an Industry:
- In State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610 case, the Supreme Court held that the activity by the institution must involve the habitual or systematic production or distribution of goods or the rendering of material services to the community at large or a part thereof. Similarly, the activity should neither be only for pleasure or for oneself alone nor be of casual nature.
- In D. N. Banerjee v. P. R. Mukherjee, (1953) I LLJ 195 SC case, the Court observed that the Supreme Court held that the activity by the institution must be similar in nature to the organization of business or trade. The Court also held that the activity must, in the first instance, fall within the first part of the definition of the industry, and the second part will indicate what is included from the workmen’s angle.
- In the National Union of Commercial Employee v. M.R. Meher, (1962) I LLJ 720 SC case, the Court held that the activity by the institution must involve employee-workmen co-operation effort. However, a mere employer-employee relationship by itself does not result in an industry.
- In the Corporation of City of Nagpur v. Its Employees, AIR 1960 SC 675 case, the Court held that the activity by the institution must involve the satisfaction of material needs, and not of spiritual needs. The court also held that the activity should not be in exercise merely of government functions.
- The employment must not be personal, such as in the case of domestic servants.
- In Palace Administrative Board v. State of Kerala, AIR 1960 Ker 151 case, the Court observed that once the above attributes are found, it is immaterial whether the activity is carried out by an individual, corporation, local body, or State.
From the above case laws, we can see, that there was no clear test to decide, whether a given activity is “industry” or not.
Triple Test Proposed in Bangalore Water Works Case:
In Bangalore Water Supply and Sewerage Board v. A Rajappa, AIR 1978 SC 548 case, a seven Judges Bench of the Supreme Court carried out an in-depth study of the definition of the term industry in a comprehensive manner, and after considering various previous judicial decisions on the subject and in the process, it rejected some of them, while evolving a new concept of the term “industry”.Thusthe decision of this case overruled several earlier decisions and widened the ambit of the term “Industry”. After discussing the definition from various angles, in the above case, the Supreme Court laid down the following tests to determine whether an activity is covered by the definition of “industry” or not. It is also referred as the triple test.
- Systematic and organized activity
- Organized with the cooperation between employers and employees
- For the production and distribution of good and services 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) whether or not capital has been invested for this activity prima facie, there is an “industry”
i. The absence of profit motive or gainful objective is irrelevant, be the venture in public, joint, private or other sectors.
ii. The true focus is functional and the decision test is the nature of the activity with special emphasis on the employer and employee relations.
If the organization is a trade or business, it does not cease to be one because of philanthropy animating the undertaking
In view of the above points and the consequences of the decision given in the Bangalore Water Supply case activities that such as professions, clubs, educational institutions, cooperatives, research institutes, charitable projects, and other kindred adventures if they fulfill the above Triple test, cannot be exempted from the scope of section 2(j) of the Industrial Disputes Act, 1947. The decisions of Management of Sufdarjang Hospitals, Delhi v. Kuldip Singh, N. N. U. C. Employees Vs Industrial Tribunal AIR, 1962 SC 1080, the University of Delhi v. Ramnath AIR, 1963 SC 1873, Dhanrajgiri Hospital v. Workmen AIR, 1975 SC 2032, and such other rulings have been overruled.
Criteria for Determining Dominant Nature of the Undertaking
The Supreme Court, in Bangalore Water Supply case laid down the following guidelines for deciding the dominant nature of an undertaking:
(a) Where a complex of activities, some of which qualify for the exemption, others not, involves the employees on the total undertaking. Some of whom are not “workmen” or some departments are not productive of goods and services if isolated, nature of the department will be the true test. The whole undertaking will be “industry” although those who are not “workmen” definition may not be benefited by the status.
(b) Notwithstanding the previous clause, sovereign functions strictly understood alone qualify for the exemption and 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 an undertaking from the scope of the Act.
The Bangalore Water Supply case’s interpretation of the “industry” and the consequent amendment of the definition do not appear to have eliminated the confusion and the controversy surrounding the definition. Because, in Coir Board, Ernakulam, Cochin v. Indira Devi P.S., AIR 1998 S.C. 2801 case, a Two Judge Bench of the Supreme Court, by pointing out the “uncertainty” surrounding the definition of “industry”, suggested that Bangalore Water Supply case’s decision be reconsidered by a larger Bench. While not entertaining the suggestion or the plea, the Supreme Court has ruled: “The judgment delivered by seven learned judges of this Court in Bangalore Water Supply case does not, in our opinion, require any reconsideration on a reference made by a two-Judge Bench of this Court, which is bound by the Judgement of the larger Bench”. (1999) 1 LLJ 1109 (SC).
In the judgment, it is said that it is immaterial whether or not there is a profit motive or whether or not there is capital. Hence the businesses having philanthropic or charitable cause if satisfy the triple test shall come under the scope of the definition of industry.
The Exceptions to Above Definition:
- Casual activities (because they are not systematic).
- Small clubs, cooperatives, research labs, gurukuls which have an essential nonemployee character.
- Single door lawyer taking help from a clerk (because there is no organized labour).
- Selfless charitable activities carried on through volunteers e.g. free legal or medical service.
- Sovereign functions – strictly understood, i.e., maintenance of law and order, legislative functions and judicial function.
All organized activity possessing the triple elements as prescribe in the judgment although not trade or business, may still be “industry”, provided the nature of the activity is systematic and on the employer-employee basis similar to in any trade or business. This takes into the fold of “industry”, undertaking, callings and services, adventures similar to the carrying on of trade or business.
Hence, the Supreme Court observed that professions, clubs, educational institutions. co-operatives, research institutes, charitable projects, and other kindred adventures, if they fulfill the triple tests listed in (1), cannot be exempted from the scope of Section 2(j) i.e. they should be considered an “industry”. In the next article, we shall apply the triple test to various activities.
Post Bangalore Water Works Case:
In Coir Board, Ernakulam v. Indira Devai P. S., (2000) 1 SCC 224 case, the two-judge bench of the supreme court said: “the definition of industry under the industrial disputes act was held to cover all professions, clubs, educational institutions, cooperatives, research institutions, charitable projects and anything else which could be looked upon as organised activity where there was a relationship of employer and employee and goods were produced or service was rendered. Even in the case of local bodies and administrative organisations the court evolved a ‘predominant activity’ test so that whenever the predominant activity could be covered by the wide scope of the definition as propounded by the court, the local body or the organisation would be considered as an industry. Even in those cases where the predominant activity could not be so classified, the court included in the definition all those activities of the organisation which could be so included as industry, departing from its own earlier test that one had to go by the predominant nature of the activity. In fact, chandrachud, j. (as he then was) observed that even a defence establishment or a mint or a security press could, in a given case, be considered as an industry. Very restricted exemptions were given from the all-embracing scope of the definition so propounded. For example, pious or religious missions were considered exempt even if a few servants were hired to help the devotees. Where normally no employees were hired but the employment was marginal the organisation would not qualify as an industry. Sovereign functions of the state as traditionally understood would also not be classified as industry though government departments which could be served and labelled as industry would not escape the industrial disputes act. The majority laid down the ‘dominant nature test for deciding of whether the establishment is an industry or not.”
The Court suggested that, the constitutional and competently enacted legislative provisions may well remove from the scope of industrial disputes act categories which otherwise may be covered thereby. The parliament must step in and legislate in a manner which will leave no doubt as to its intention. Doubting the correctness of the tests laid down in Bangalore water supply & sewerage board verses rajappa and pointing out the damaging effects of the extended meaning given to ” industry” is this case, a two-judge bench of the supreme court in coir board verses indira devai rs., observed that a larger bench should be constituted to reconsider Bangalore water supply & sewerage board M. Rajappa decision. It was further observed that since the notification bring into effect the 1982 amendment to s. 2(j) of the Industrial Disputes Act has not been issued by the executive so far the matter should be judicially re- examined. Hence matter referred to larger bench to reconsider the decision in that case. In coir board v. Indira devai ps., the larger bench of the supreme court held that the Bangalore water supply and sewerage board v. Rajappa decision “does not require reconsideration”. The Supreme Court observed, “industry, therefore, cannot be strictly defined but only be described. Such a rule, however, leaves too wide a door open for speculation and subjective notions as to what is describable as an industry. It is best to look for a rough rule of guidance by considering what the concept of industry must exclude.”
Conclusion:
The definition of “industry” in labour laws is a foundational element that shapes the landscape of workers’ rights and protections. It determines the scope of legal coverage for various sectors, ensuring that appropriate regulations are applied to address the unique needs of different types of work. A precise and adaptable definition is essential for effective policymaking, dispute resolution, and economic analysis, particularly in an era characterized by rapid changes in the labour market, including the rise of gig work and new employment models.
Moreover, a clear definition helps safeguard workers’ rights and fosters equitable labour practices, contributing to overall social and economic stability. As the nature of work continues to evolve, ongoing dialogue and re-evaluation of what constitutes “industry” will be critical in ensuring that labour laws remain relevant and effective in protecting all workers, thereby promoting fair labour standards and enhancing workforce well-being.