Banglore Water Supply & Sewage Board Vs. A.

Rajappa

CITATION:- 1978 1978 AIR 548 SCR (3) 207 1978 SCC (2) 213
Prior History:

From the Judgment and Order dated July 5, 1974 of the Karnataka High Court in Writ Petitions

868 and 2439 of 1973, From the Judgments and Order dated April 15, and June 11, of the

Andhra Pradesh High Court in Writ Appeals 205 and 231 of 1975.

INTRODUCTION:- This case is a landmark judgement under Industrial

Disputes Act, 1947, which provides clarity on what the term “industry” encompasses within its
scope. The judgement established the triple test and the dominant nature test for the scope of the
definition of “industry”, defined under Section 2 (j) of the Act.

In the Solicitor’s case Justice Gajendragadkar withdrew liberal professions from the purview of
“industry” by propounding a distinctive test of ‘direct and indirect nexus’. However, this new
doctrine was again rejected in Bangalore Water Supply as was held that every employee in a
professional office makes for the success of the office.
In the Gymkhana case, the question was whether the Madras Gymkhana Club was an industry or
not. Justice Hidayatullah gave reasons for withdrawing clubs from the scope of “industry”.
However the same was criticized and overruled by Justice Krishna Iyer on the ground that it is
the employees who work for wages and produce the goods and services, not the club members.
When all the services are rendered by hired employees, how can the nature of the activity be
described as self-service.

In the Delhi University case, a college closed down the amenity of running buses as they were
incurring losses. The drivers of the buses were retrenched raising a dispute claiming
retrenchment compensation. The question was whether the University of Delhi was an
“industry”.

THE MINORITY VIEW

The Triple Test for Scope of the definition of “Industry”

(a) systematic activity

(b) co-operation between employer and employee
(c) production and distribution of goods and services calculated to satisfy human wants and
wishes

ACT :
“INDUSTRY” Industry in Section 2(j) of the Industrial Disputes Act, 1947-Triple test to be

applied the dominant nature test-Whether the statutory body performing what is in essence regal

functions by providing the basic amenties to the citizens is outside the scope of the definition.

ISSUES:
The respondent employees were fined by the Appellant Board for misconduct,and and various

sums were recovered from them. Therefore, they filed a Claims Application No. 5/72 under

Section 33C (2) of the Industrial Disputes Art. alleging that the said punishment was imposed in

violation of the principles of natural justice. The appellant Board raised a preliminary objection

before the Labour Court that the Board, a statutory body performing what is in essence a regal

function by providing the basic amenities to the citizens, is not an industry within the meaning of

the expression under section 2(j) of the Industrial Disputes Act, and consequently the employees

were not workmen and the Labour Court had no jurisdiction to decide the claim of the workmen.

This objection being over-ruled, the appellant Board filed two Writ ’Petitions viz. Nos. 868 and

2439 of 1973 before the Karnataka High Court at Bangalore. The Division Bench of that High

Court dismissed the petitions and held that the appellant Board is "industry" within the meaning

’of the ,expression under section 2(i) of the Industrial, Disputes Act, 1947. The appeals by

Special Leave, considering "the chances of confusion from the crop ’of cases in an area where

the common man has to understand and apply the law and the desirability that there should be, ?

comprehensive, clear and conclusive declaration as to what is an industry under the Industrial

Disputes Act as it stands" were placed for consideration by a larger Bench. HELD Per M. H.

Beg, C.J. (concurring with Bhagwati, Krishna Iyer and Desai, JJ. 1. The term "analogous to the

trade or business" could not cut down the scope of the term "industry". The said words can

reasonably mean only activity which results in goods made and manufactured or service

rendered which are capable of being converted into saleable ones. They must be capable of

entering the world of "res commercium", although they may be kept out of the market for some
reason. It is not the motive of an activity in making goods or running a service but the possibility

of making them marketable if one who makes goods or renders service so desires, that should

determine whether the activity lies within the domain or circle of industry. But even this may not

be always a satisfactory test. By this test the type of services which are rendered purely for the

satisfaction of spiritual or psychological urges of persons rendering those services would be

excluded. Whenever an industrial dispute would arise between either employers or their

workmen or between workmen and workmen, it should be considered an area within the sphere

of "industry" but not otherwise. In other words, the nature of the activity will be determined by

the conditions which give rise to the likelihood of the occurrence of such disputes and their

actual occurrence in the sphere. [220D, G, 22 1 A-B] *Judgments published in the order and date

as delivered. 208 "D. N. Banerje’s case [1953] SCR 302; Corporation of City of Nagpur v. Its

Employees [1960] 2 SCR 942; State of Bombay and Others v. The Hospital Mazdoor Sabha and

Others [1960] 2 SCR 866 referred to and followed. 3. The term "sovereign should be reserved

technically and more correctly for the sphere of ultimate decisions. Sovereignty operates on a

sovereign plane, of its own. Only those services which are governed by separate rules and

constitutional provisions such as Articles 310 and 311 should, strictly speaking be excluded from

the sphere of industry by a necessary implication. [221E, G] H. H. Kesvananda Bharati

Sripathagalavaru v. State of Kerala [1973] Supplemental S-C-R, Page-1 referred to. 4. The

special excludes the applicability of the general. Certain public utility services which are carried

out by governmental agencies or Corporations are treated by the Act itself as within the sphere of

industry. If express rules under other enactments govern the relationship between the State as an

employer and its servants as employees, it may be contended on the strength of such provisions
that a particular set of employees are outside the scope of the Industrial Disputes Act. [221G-H,

222A] . The State today increasingly undertakes commercial functions and economic activities

and services as part of its duties in a welfare state. Hence to artificially exclude state-ran industry

from the sphere of the Act, unless the statutory provisions expressly or by necessary implication

have that effect, would not be correct. [222F- 223A] Rajasthan State Electricity Board v.

Mohanlal [1967] 3 SCR 377; Rajasthan v. Mst. Vidyawanti & Anr. [1962] Supplemental 2 SCR

989 at 1002 referred to. Per Chandrachud J. 1. Section 2(j) of the Industrial Disputes Act (1947)

which defines, "industry" contains words of wide import, as wide as the Legislature could have

possibly made them. The problem of what limitations could and should be reasonably read in

interpreting the wide words used in section 2(j) is far too. policy oriented to be satisfactorily

settled by judicial decisions. The Parliament must step in and legislate in ’a manner which will

leave no doubt as to its intention. That alone can afford a satisfactory solution to the question

which has agitated and perplexed the judiciary at all levels. [284H, 286A-B] 2. Hospital

Mazdoor Sabha was correctly decided in so far as it held that the JJ Group of hospitals was an

industry but the same cannot be said in regard to the view of the Court that certain activities

ought to be treated as falling outside the definition clause. [287C-D] 3. There is no justification

for excepting the categories of public utility activities undertaken by the Government in the

exercise of its inalienable function,., under the constitution, call it regal or sovereign or by any

other name, from the definition of "industry". If it be. true that one must have regard to the nature

of the activity and not to who engages in it, it is beside the point to enquire whether the activity

is undertaken by the State, and further, if so, whether it is undertaken in fulfilment of the State’s

constitutional obligations or in discharge of its constitutional functions. In fact, to concede the

benefit of an exception to the State’s activities which are in the nature of sovereign functions is

really to have regard not so much to the nature of the activity as to the consideration who

engages in that activity; for, sovereign functions can only be discharged by the State and not by a

private person. If the State’s inalienable functions are excepted from the sweep of the definition

contained in section 2(j), one shall have it is the nature of the activity is an industry. Indeed, in

this respect, it should make no difference whether 209 on the one hand, an activity is undertaken

by a corporate body in the discharge of its statutory functions or, on the other, by the State itself

in the exercise of its inalienable functions. If the water supply and sewerage schemes or fire

fighting establishments run by a Municipality can be industries sought to be the manufacture of

coins and currency, arms and ammunition and the winning of oil and uranium. The fact that these

latter kinds of activities are, or can only be, undertaken by the State does not furnish any answer

to the question whether these activities are industries. When undertaken by a private individual

they are industries, therefore, when undertaken by the State,they are industries. The nature of the

activity is the determining factor and that does not change according to who undertakes it. Items

8, 11, 12, 17 and18 of the First Schedule read with section 2 (n) (vi) of the Industrial Disputes

Act render support to this view. These provisions which were described in Hospital Mazdoor

Sabha as ’very significant’ at least show that, conceivably, a Defence Establishment, a Mint or a

Security Press can be an industry even though these activities are, ought to be and can only be

undertaken by the State in the discharge of its constitutional obligations or functions. The State

does not trade when it prints a currency note or strikes a coin. And yet, considering the nature of

the activity, it is engaged inan industry when it does so. [287E-H, 288A-B] 4. A systematic

activity which is organised or arranged in a mannerin which the trade or business is generally
organised or arranged would bean industry despite the fact that it proceeds from charitable

motives. It is inthe nature of the activity that one has to consider and it is upon the application of

that test that the State’s inalienable functions fall within the definition of industry. The very same

principles must yield the result that just as the consideration as to who conducts the activity, is

irrelevant for determining whether the activity is an industry so is the fact that the activity is

charitable in nature or is undertaken with a charitable motive. The status or capacity corporate or

constitutional, of the employer would have, if at all, closer nexus, than his motive on the question

whether the activity is an industry. The motive which propels the activity is yet another step

removed and ex hypothesi can have no relevance on the question as to what is the nature of the

activity. It is never true to say that the nature of the activities is charitable. The subjective motive

force of an activity can be charity but for the purpose of deciding whether an activity is an

industry one has to look at the process involved in the activity, objectively. The jural foundation

of any attempt to except charitable enterprises from the scope of the definition can only be that’

such enterprises are not undertaken for profit. But then, that clearly, is to introduce the profit

concept by a, side wind, a concept which has been rejected consistently over the years. If any

principle can be said to be settled law in this vexed field it is this : the twin consideration of

profit motive and capital investment is irrelevant for determining whether an activity is an

industry. Therefore, activities which are dominated by charitable motives either in the sense that

they involve the rendering of free or near free services or in the sense that the profits which they

yield are diverted to charitable purposes, are not beyond the pale of the definition of section 2(j).

It is as much beside the point to inquire who is the employer as it is to inquire, why is the activity

undertaken and what the employer does with the profits, if any. [288C-H, 289A] 5.By this test a
Solicitor’s establishment would be an industry. A Solicitor undoubtedly does not carry on a trade

or business when he acts for his client or advises him or pleads for him, if and when pleading is

permissible to him. He pursues a profession which is variously and justifiably described as

learned, liberal or noble. But it is difficult to infer from the language of the definition in section

2(j) that the Legislature could not have intended to bring in a liberal profession like that of an

Attorney within the ambit of the definition of ’industry’. [289A-B] National Union of

Commercial Employees & Another v. M. R. Meher. Industrial Tribunal Bombay & Ors. [1962]

Supplemental 3 SCR 157 dissented from. 210 6.In Hospital Mazdoor Sabha the Court while

evolving a working principle stated that an industrial activity generally involves, inter alia, the

cooperation of the employer and the employees. That the production of goods or the rendering of

material services to the community must be the direct and proximate result of such cooperation is

a further extension of that principle and it is broadly by the application thereof that a Solicitor’s

establishment is held not to attract the definition clause. These refinements are, with respect not

warranted by the words of the definition, apart from the consideration that in practice they make

the application of the definition to concrete cases dependent upon a factual assessment so highly

subjective as to lead to confusion and uncertainty in the understanding of the true legal position.

Granting that the language of the definition is so wide that some limitation ought to be read into

it, one must stop at a point beyond which the definition will skid into a domain too rarefied to be

realistic. Whether the cooperation between the employer and the employee is the proximate

cause of the ultimate product and bears direct nexus with it is a test which is almost impossible

of application with any degree of assurance or certitude. It will be as much true to say that the

Solicitor’s Assistant, Managing Clerk, Librarian and the Typist do not directly contribute to the
intellectual end product which is a creation of his personal professional skill, as that, without

their active assistance and cooperation it will be impossible for him to function effectively. The

unhappy state of affairs in which the law is marooned will continue to baffle the skilled

professional and his employees alike as also the Judge who has to perform the unenviable task of

sitting in judgment over the directness of the cooperation between the employer and the

employee, until such time as the legislature decides to manifest its intention by the use of clear

and indubious language. Beside the fact that this Court has so held ’in National Union of

Commercial Employees the legislature will find a plausible case for exempting the learned and

liberal professions of Lawyers, Solicitors, Doctors, Engineers, Chartered Accountants and the

like from the operation of industrial laws. But until that happens, in the present state of the law it

is difficult by judicial interpretation to create exemptions in favour of any particular class.

[289C-H] 7.The case of the clubs, on the present definition is weaker still. The definition

squarely covers them and there is no justification for amending the law so as to exclude them

from the operation of the industrial laws. The fact that the running of clubs is not a calling of the

club or its managing committee, that the club has no existence apart from its members that it

exists for its members though occasionally strangers take the benefit of its services and that even

after the admission of guests, the club remains a members’ self-serving institution does not touch

the core of the problem. [290A-B] Per Iyer J. (on behalf of Bhagwati, J. J. Desai J. and himself.)

(1)’Industry as defined ’in Sec. 2(j) and explained in Banerji’s case has a wide import. [282A]

I.(a) Where (i) systematic activity, (ii) organized by cooperation 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 venturein 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. [282A-

C] II. Although section 2(j) uses words of the widest amplitude in its two limbs, their meaning

cannot be magnified to overreach itself. [282D] 211 (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, adventures’

analogous to the carrying on of trade or business’. All features, other than the methodology of

carrying on the activity viz. in organizing the cooperation between employer and employee, may

be dissimilar. It does not, matter, if on the employment terms there is analogy. [282D-E]

III.Application of these guidelines should not stop short of their logical reachby invocation of

creeds, cults or inner sense of incongruity or outer senseof 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 (iv) cooperatives, (v) research institutes (vi)
charitable projects and (vii) other kindred adventures, if they fulfil the triple tests listed in

(supra), cannot be exempted from the scope of section 2(j). (b)A restricted category of,

professions, clubs, cooperatives and even gurukulas and little research labs, may qualify for

exemption if, in simple ventures, substantially and going by the dominant nature criterion,

substantively 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 like return, mainly drawn 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 on asramites 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. [282F-H, 283A-C] 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 the 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 of 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 sec. 2(j). (d)Constitutionally and competently enacted

legislative provisions may well remove from the scope of the Act categories which otherwise

may be covered thereby. [283C-F] 212 Management of Safdarjung Hospital, New Delhi v.

kuldip Singh Sethi [1971] 1 SCR 177=AIR (1970) S.C. 1407 Dhanrajgiri Hospital v. Workmen

AIR 1975 S.C. 2032, National Union of Commercial Employees & Anr. V. M. R. Meher,

Industrial Tribunal, Bombay AIR [1962] S.C. 1080. Rabindranath Sen & Ors. v. First Industrial

tribunal, West Bengal AIR [1963], Cal. 310;. University of Delhi & Anr. v. Ramnath & Ors. AIR

[1963] S.C. 1873; Madras Gymkhana Club v. Employees’ Union v. Management AIR [1968]

S.C. 554. Cricket Club of India v. Bombay Labour Union & Anr. [1969] 1 SCR 600= AIR

[1969] SC 276 over-ruled; Hospital Mazdoor’s case AIR 1960 S.C. 610 approved. Per Jaswant

Singh J. (on behalf of Tulzapurkar J and himself). 1.Despite the width of the definition it could

not be the intention of the legislature that categories 2 and 3 of the charities alluded. to in the

leading judgment, hospitals run on charitable basis or as a part of the functions of the

Government or local bodies like Municipalities and educational and, research institutions

whether run by private entities or by Government and liberal and learned professions like that of

doctors, lawyers and teachers, the pursuit of which is dependent upon an individuals own

education, intellectual attainments and special expertise should fall within the pale of the

definition. [290G-H, 291A] 2.The definition in s. 2(j) of the Act is limited to those activities

systematically or habitually undertaken on commercial lines by private entrepreneurs with the

cooperation of employees 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. In the case of liberal

professions, the contribution of the usual type of employees employed by the professionals to the

value of the end product (viz. advice and services rendered to the client) is so marginal that the

end product cannot be regarded as the fruit of the cooperation between the professional and his

employees. [291A-C] 3.The need for excluding some callings, services and undertakings from

the purview of the aforesaid definition has been felt and recognised by this Court from time to

time while explaining the scope of the definition of’ "industry". [291C-D] OBSERVATION :

4.It is high time that the Legislature steps in with a comprehensive bill to clean up the fog and

remove the doubts and set at rest once for all the controversy which crops up from time to time

in relation to the meaning of the aforesaid term rendering it necessary for larger Benches of this

Court to be constituted which are driven to the necessity of evolving a working formula to cover

particular cases. [292 A-B)] J

Judgement:
The judgement established the triple test and the dominant nature test for the scope of the
definition of “industry”, defined under Section 2 (j) of the Act.

In the Solicitor’s case Justice Gajendragadkar withdrew liberal professions from the purview of
“industry” by propounding a distinctive test of ‘direct and indirect nexus’. However, this new
doctrine was again roffice.

Universities were held to be excluded from the ambit of “industry” since the predominant
activity of the University is teaching and teachers are not “workers” as defined in the Act. This
case was also criticized in Bangalore Water Supply by saying that education is a service to the
community and hence, university is an industry. The teaching staff of the University was not
held to be “workmen” but the non-teaching staff would come within the scope of the said term so
that they are able to take the benefits.
The SC court in Bangalore Water Supply, held that industry is one where there is (a) systematic
activity organised by (b) co-operation between employer and employee for (c) production and
distribution of goods and services calculated to satisfy human wants and wishes – the Triple
Test.

The consequences of applying the aforesaid triple test is: (i) professions (ii) clubs (iii)
educational institutions, cooperatives, (v) research institutes (vi) charitable projects and (vii)
other kindered adventures, if they fulfil the triple test [(a), (b) and (c)] enumerated here above,
cannot be exempted from the definition of “Industry”.

The ruling also established a dominant nature test:

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 the true test. The whole undertaking will be ‘industry’.
Even in sovereign functions, if there are units which are industries and they are severable, can be
considered to come within section 2(j).

CONCLUSION:

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.