The Critical Analysis of Bangalore Water Supply Case
The attention of the Supreme Court has recently been drawn to the definition of the term “industry” as stated in the Industrial Disputes Act, 1947. The uncertainty with regard to the definition assumes great importance as the machinery for the settlement of industrial disputes can only be set in motion when there exists a dispute relating to “industry”. However, it is next to impossible to classify a dispute as industrial or non-industrial without being certain of what exactly the term “industry” encompasses within its scope.
One of the most momentous decisions in this regard was Bangalore Water Supply and Sewerage Board v. A. Rajappa which overruled numerous other decisions of the Supreme Court but simplified the task for the legislature by placing major issues in the right perspective, major policy issues being best decided by the legislature and not by the judicial process. It is the analysis of this very judgement which is the subject of this paper.
The world is whirling forward holding the standard of “advancement” as industrialization. Industry involves an employer and employee, and progress postulates harmony and justice in industrial relations. Whether the system is capitalist or socialist, if friction and break-down afflict the smooth working of an industry, flames of “strike” and “lock-out” will spoil or stall production and victimize the society which is the ultimate beneficiary of the industrial discipline and the consequent flow of goods and services.
The Industrial Disputes Act was enacted with the purpose of providing machinery for the settlement of industrial disputes which had become a common feature due to industrial unrest in the post-war time where problems arose out of constant strife between the employers and employees. The consequence was a fall in production.
The object of labour legislations is to ensure fair wages and to prevent disputes so that production may not be adversely affected. The objects of the said Act are laid down as:
(i) Promotion of measures for security, amity and good relations between the employer and the employee.
(ii) Investigation into and settlement of industrial disputes between the employers and the employees, employers and employers, and employees and employees.
(iii)Prevention of illegal strikes and lock-outs.
(iv) Relief to workers in the matters of lay-off and retrenchment.
The function of law is to intervene and, by a just process, resolve the dispute.
According to section 2(j) of the Act:
“Industry means any business, trade, undertaking, manufacture or calling of employees and includes any calling, service, employment, handicraft or industrial occupation or avocation of a workman.”
This definition has its roots embedded in Section 4 of the Commonwealth Conciliation and Arbitration Act, 1904 of Australia, which states the definition of industry as: (i) Any business, trade, manufacture, undertaking or calling of employers on land or water; (ii) Any calling, service, employment, handicraft or industrial occupation or avocation of employers on land or water; and (iii) Any branch of an industry or a group of industries.
In the Bangalore Water Supply case, a seven-judge bench was constituted especially to examine the definition of “industry” and lay down the law on the subject. The Bench was presided over by Justice V. R. Krishna Iyer who assumed the role of a crusader-legislator and drafted a new definition of the term “industry”. Their ruling was a result of the various disputes arising in establishments that are not manufacturing industries but belong to categories of hospitals, educational and research institutions, Governmental departments, public utility services, professionals and clubs. The definition was accordingly expanded to cover those establishments which involved an employer-employee relationship, irrespective of the objectives of the organization in question.
The Landmark Judgment
As stated above, the subject in the case under analysis was a series of prior judgements of the Apex Court, which were overruled in giving the definition of “industry” wider amplitude therein. These are discussed hereunder.
It is the Safdarjung Hospital case which according to Justice Krishna Iyer gave a sharp bend to the course of the law necessitating the reversal of its ratio and in fact the seven-member bench had to be constituted for the specific purpose of reconsidering the case. In this case, the hospitals which were concerned with research and training components raised a question in as to whether they were covered by the definition of “industry” in Section 2(j) of the Act.
Justice Hidayatullah propounded the view that there were two conditions that needed to be satisfied for them to fall in the said definition namely, the end-product should be the result of co-operation between employers and the employees, and if the end-product is a service, it should be a material service, which has been described as that which involves an activity for providing the community with the use of something such as electric power, water, transportation, telephones etc. In a hospital, especially one engaged in research work, the services are those of professionally trained expert persons. The end-product namely, services rendered to the patient cannot be described as those brought into existence by the co-operation of employers and employees. The employers might have created the necessary conditions for rendering the service but the service is that of the doctor alone and is absorbed by the patient in the form of benefit which is not tangible. Hence, Justice Hidayatullah declined to include a non-material service within the scope of “industry”. This was criticized by Justice Iyer who said that it is transcendental to define material service as excluding professional service. Even non-material services now qualify as the product of industry and those engaged in rendering such services are also enveloped in the concept of “industry”. This undoubtedly represents a departure from the Safdarjung case.
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 there is no need for insistence upon the principle of partnership, the doctrine of direct and indirect nexus or the contribution of values by the employees. It 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 since it was a members’ club offering recreational and food facilities for its members with the help of a large retinue of employees. Justice Hidayatullah gave two reasons for withdrawing clubs from the scope of “industry”. Firstly, the activity of the club may be falling in the second part of the definition i.e. the work of the club is conducted with the aid of the employees who follow a ‘calling’ or ‘avocation’ but it cannot be described as a calling of the members of the club or of the managing committee of the club within the first part of the definition which is the actual denotation of an “industry”. The second reason given by him was that the club was a self-serving institution and the element of ‘undertaking’ analogous to trade or business is completely missing here. This was again criticized by Justice Iyer who says that it is the employees who work for wages and hence, 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. There is however, confusion here as Justice Hidayatullah is using “self service” to signify service to the club members only and not to non-members who are considered as outsiders but Justice Krishna Iyer is taking the word to mean service by the members themselves without assistance of employees. The Gymkhana case was held to be wrongly decided in the Banagalore Water Supply case.
Finally, in the Delhi University case, Miranda House Women’s College under the University of Delhi, closed down the amenity of running buses for the convenience of its students as they were incurring losses. The drivers of the buses were retrenched and they raised a dispute claiming retrenchment compensation. The question was whether the University of Delhi was an “industry”.
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 on the ground that it only takes in persons who are doing skilled or unskilled, manual, supervisory, technical or clerical work for hire or reward. The incidental activity of the subordinate staff may be industrial activity but that by itself cannot alter the predominant character of the institution. 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 under the Act.
Thus, finally until over-ruled by a larger bench or superseded by the legislative branch, the Court laid down the following definition of “industry”:
“I. 'Industry', as denned in Section 2(j) and explained in Banerji, 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 (iiia) 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.”
Thereby Safdarjung, Solicitors’ case, Gymkhana, Delhi University, Dhanrajgirji Hospital and other rulings whose ratio runs counter to the principles in this case were overruled, and Hospital Mazdoor Sabha was rehabilitated.
These observations reveal the difference of thought among different Judges who gave the diverse reasoning in the earlier rulings and the ones who gave the decision in the Bangalore Water Supply case, where to sum up it can be said that the definition of “industry” for the purposes of the Industrial Disputes Act was expanded to cover those establishments which involved an employer-employee relationship including hospitals, educational and research institutions, Governmental departments, public utility services, professionals and clubs, irrespective of the objectives of the organization in question.
The Aftermath: Criticism and Need for Review
The ruling by a five-judge Supreme Court Bench, recommending the setting up of a larger Bench to review the definition of “industry” as interpreted in law since 1978, is a wake up call to the legislature and the executive. The crux of the issue before the court in State of Uttar Pradesh v. Jasbir Singh taken up along with nine other civil appeals, was whether, for purposes of application of the Industrial Disputes Act 1947, the Bangalore Water Supply case that amplified the definition of “industry” should continue to be the law of the land.
Employers in many service establishments and Government departments, aggrieved by the ruling in the Bangalore Water Supply case raised demands for their exclusion from the ambit of the IDA. Parliament subsequently passed in 1982 an amendment to the IDA, which sought to exclude many kinds of establishments from the definition. However, the amendment was never notified.
The latest order of the Bench headed by Justice N. Santosh Hegde holds that the Iyer Bench order needs a review in view of the executive’s failure to notify and enforce the amended restrictive definition of “industry”. The Government had explained before courts that the 1982 amendment was not notified in view of the fact that no alternative machinery for redress of grievances of employees in establishments excluded by the amendment had been provided.
The Hegde Bench itself has pointed out that it was only in the absence of an unambiguous definition of industry in the IDA that the apex court delivered its ruling in 1978, and that at the same time, Justice Krishna Iyer had said that “our judgment has no pontifical flavour but seeks to serve the future hour till changes in the law or in industrial culture occur”.
No doubt, the question of a differentiated piece of industrial relations legislation for service establishments is becoming ever more relevant because the role of the service sector in the economy is growing. Services are also becoming a subject of international trade negotiations and are being opened to foreign capital. Many service activities such as health care, education, water and power supply, for long either the obligation or the prerogative of governments, are now undertaken by private entrepreneurs.
There is a need, on the one side, to protect the legitimate interests and democratic rights of workers in these sectors, and on the other, to minimize the scope for disruption of industrial peace in these vital sectors to protect the interests of the public. All these reasons are important enough to warrant a separate law for these services.
However, some observations made by the Hegde Bench in favour of a legal review of the 1978 ruling are on quite different lines and highly debatable. The order says that there is an “overemphasis on the rights of workers” in industrial law and that this has resulted in payment of “huge amounts as back wages” to workers illegally terminated or retrenched and that these awards “sometimes take away the very substratum of industry”.
Justice Krishna Iyer had remarked in his ruling (quoted by the Hegde order itself) that the “working class, unfamiliar with the sophistications of definitions and shower of decisions, unable to secure expert legal opinion, what with poverty pricing them out of the justice market and denying them the staying power to withstand the multi-decked litigative process, de facto is denied social justice if legal drafting is vagarious, definitions indefinite and court rulings contradictory”. These remarks were made in support of an expansive definition of “industry”.
The Hegde Bench ruling attributes what it calls “the inhibitions and the difficulties which are being exercised by the legislature and the executive in bringing into force the amended industrial law” to the interpretation of the definition of “industry” in the 1978 judgment. This also ignores the explanation given by the Government for non-enforcement of the restrictive amendment.
The apex court says that “an over-expansive interpretation of the definition of industry might be a deterrent to private enterprise in India where public employment opportunities are scarce”. However, neither economic theory nor the decades of growth of the market economy in developed countries testifies to protection of employees’ basic rights being a hurdle to progress. Thus the remarks on macroeconomic tendencies made by the latest ruling seem to be no more than assumptions.
Justice Chandrachud, a member of the Bench that delivered the 1978 verdict, had said that the “problem [of definition of industry] is far too policy-oriented to be satisfactorily settled by judicial decisions. Parliament must step in and legislate in a manner which will leave no doubt as to its intention”. These, are wise words.
The Supreme Court has restored judicial discipline and thereby prevented an unnecessary court-initiated turmoil in the area of labour law by giving a judgement in Bangalore Water Supply case. Seven Judges of the Apex Court had given a widely ranging definition of “industry” under the Act and ever since, the case has been applied as law throughout the country.
The Parliament which had amended the definition of “industry” in 1982 restricted the wide meaning given by the Bangalore Water Supply case. The new definition sought to exclude institutions like hospitals, dispensaries, educational, scientific and research or training institutes, institutions engaged in charitable, social philanthropic services. It was also proposed to exclude sovereign functions of the Government including activities like atomic energy, space and defense research. For all these institutions, a separate body was proposed to be created to address grievances, But after this legislatives mandate, the successive Governments have been reluctant to bring the said law into force by merely issuing a notification.
It remains a debatable point as to what the Apex Court would do if a petition moved for the enforcement of this definition in terms of A. K. Roy v. Union of India where it was held that a legislative mandate cannot be held in abeyance by the ruling politicians for an unreasonable period.
In 1998, when a two-Judges Bench of the Kerala High Court sought a reconsideration of the 1978 judgement in the Coir Board case, a three-Judges Bench of Chief Justice A. S. Anand, Justice S. P. Bharucha and M. K. Mukherjee said that the two judges were bound by the judgement of the larger bench in Bangalore Water Supply. In the opinion of the three judges, the said judgement did not require any reconsideration and they also sent out a silent but clear message that they will not step in where political executive has thought it wise to keep off.
The wide definition of “industry” has given opportunity to both the employer and the employee to raise issues i.e. one trying to pull out of this definition, to be out of the clutches of the said Act, and the other bringing within it to receive benefits under it. Due to the width of the periphery of the word “industry”, there is a tug-o-war between the two, in spite of the various decision of the Court.
 V. Krishna Iyer, Industrial Jurisprudence, The Hindu, July 10, 2001.
 Banaras Ice Factory Ltd. v. Its Workmen, AIR 1957 SC 168.
 Workmen of Dimakuchi Tea Estate v. Management of Dimakuchi Tea Estate, AIR 1958.
 Management of Safdarjung Hospital v. Kuldip Singh Sethi, 1970 (1) SCC 735.
 National Union of Commercial Employees v. M. R. Meher, AIR 1962 SC 1080.
 Madras Gymkhana Club Employees’ Union v. Gymkhana Club, 1967 II LLJ 720.
 University of Delhi v. Ram Nath
 AIR 1953 SC 58.
 1982 (1) SCC 271.
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