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In the previous post, I argued that the decision  of the seven-judge bench of the Supreme Court to refer the correctness of Bangalore Water Supply and Sewage Board vs Rajappa [“BWSSB”] to a nine-judge bench was incorrect. In particular, the high threshold for referral – i.e., that the decision up for reconsideration be manifestly wrong – was not met, either in the five-judge referral order in State of U.P. vs Jai Bir Singh, or in the two-paragraph seven-judge order. In this post, I shall argue that not only is there nothing “manifestly wrong” with the reasoning in BWSSB, but also, Justice Krishna Iyer J.’s majority opinion laid down law that was entirely correct. Consequently, when the nine-judge bench is eventually assembled, it ought to uphold the BWSSB verdict.

Recall that the only question in BWSSB was the scope of the term “industry” under the Industrial Disputes Act, 1947. The question is extremely important, because the panoply of rights that workers can avail under industrial law exist only if they work in an “industry”. Consequently, any widening or narrowing of the definition would end up including or excluding a very large number of workers within the ambit of industrial law and its accompanying rights and protections.

Section 2(j) of the Industrial Disputes Act defines “industry” as “any business, trade, undertaking, manufacture or calling of employees and includes any calling, service, employment, or industrial occupation or avocation of workmen.” In BWSSB, the majority laid down a three-part definition of “industry”: first, “an industry is a continuity, is an organized activity, is a purposeful pursuit – not an isolated adventure, desultory excursion or casual, fleeting engagement motivelessly undertaken”secondly, an “industry’ cannot exist without co-operative endeavour between employer and employee“; and thirdly, “an industry… is geared to utilities in which the community has concern… [that is] economic utilities – material goods and services…”

My argument shall proceed as follows. First, I will show that, far from being a radical legal innovation, BWSSB only restated the law that had been consistently laid down by the Supreme Court in its first five decisions dealing with the definition of “industry”. Secondly, the reason why BWSSB was necessary in the first place was that between 1964 and 1978, the various benches of the Supreme Court had qualified and tweaked the basic test to a degree that was causing serious confusion in the law. These tweaks – I shall argue – were not only incorrect, but also internally contradictory. BWSSB correctly identified the contradictions, and restored the test as it stood in 1964. Thirdly, while BWSSB is commonly understood to have brought clubs, universities and hospitals within the meaning of “industry” (which – it is argued – is much too radical a position), this is a wrong reading of the judgment. What BWSSB actually did was to hold that clubs, universities and hospitals cannot automatically be excluded from the definition of industry. The distinction is subtle, but hugely important. And lastly, the judgment in BWSSB makes sense in the broader context of Indian industrial relations law.

A. BWSSB as a Restatement of Law

Between 1954 and 1964, the Supreme Court decided five cases that dealt with the meaning of “industry”. In its first judgment, D.N. Bannerjee vs P.R. Mukherjee, the Court considered the question from first principles. While noting that there existed an intuitive definition of the word “industry”, the Court also held that the text and scheme of the Industrial Disputes Act – and the historical context in which it was enacted (i.e., to provide a method of peaceful resolution of disputes between capital and labour) – suggested that the statute contemplated a wider definition. The Court held that “industry” and “industrial dispute” would include situations which “affect large groups of workmen and employers ranged on opposite sides on some general questions on which each group is bound together by a community of interests-such as wages, bonuses, allowances, pensions, provident fund, number of working hours per week, holidays and so on.” The test was whether the enterprise in question was carrying on work that was “analogous to a trade or business.” 

After Bannerjee was followed in Baroda Borough Municipalitythe position of law was restated in State of Bombay vs Hospital Mazdoor SabhaHospital Mazdoor Sabha is particularly important, because the argument was made before the Court that a hospital could not, in any sense, be conceptualised as an industry. Rejecting this argument, the Court made it clear that “too much reliance cannot be placed on what are described as the essential attributes or features of trade or business as conventionally understood. The conventional meaning attributed to the words “trade and business” has lost some of it validity for the purpose of industrial adjudication.” So what was the meaning of “industry”? The Court answered it by explicating Bannerjee’s test of “analogous to a trade or business“, which, in its view, included “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.” 

In Hospital Mazdoor Sabha, therefore, we see the concrete explication of the three-part test: “systematic activity”, “production of goods or services”, and “employer/employee cooperation”. Notably, the Court draws this out of the principles that were laid down in Bannerjee: in particular, that the definition of industry under the statute is wider than its “intuitive” definition; that “industry” is to be understood in the context of the purpose of the Industrial Disputes Act, which was to provide a mechanism for reconciling disputes between capital and labour; and that an industry ought to be “analogous” to a trade or business. And Hospital Mazdoor Sabha was then followed and further restated in Corporation of the City of Nagpur vs Its Employees and Ahmedabad Textile Research Association vs State of BombayThe three-part test, therefore, was affirmed in three separate judgments of the Supreme Court. It was this three-part test that was expressly restored by the Court in BWSSB.

B. The Unjustified Departures from the Three-Part Test

The departures from the three-part test began in 1964, with National Union of Commercial Employees vs M.R. MeherThe Court held that a firm of solicitors did not constitute an industry. It did so by introducing a tweak to the third part of the three-part test: not only had there to be cooperation between employers and employees, but it had to have a “direct” nexus with the good or the service produced. The Court held that the work of a cleaner or an accountant in a solicitors’ firm did not have this “direct relationship”.

However, a little thought will reveal that the “direct nexus” test is subjective to the point of being unworkable. It the Court is trying to establish a causal relationship between the contribution of an employee to the final “product”, on what basis does it discount the work of the cleaner in maintaining the office in which the solicitors meet their clients, or the accountant who maintains the books? And if the “direct nexus” test has an underlying normative basis – as it must – the Court does not explain or justify it (for a more detailed critique of the underlying normative assumptions, see the Case Index on this blog).

The second departure took place the same year, in University of Delhi vs A.R. Ramnath. Here, the Court held that the University of Delhi was not an “industry” because a majority of its employees – teachers – did not qualify as “workmen” under the Industrial Disputes Act. This reasoning is as unconvincing as the “direct effect” test in Meher, because what it effectively does is to use one part of the Industrial Disputes Act – the definition of “workmen” to cut down the scope of an entirely different part – “industry” – without explaining how that textual move is justified. It also raises the strange situation where the scope of my rights as a workman under industrial law is solely determined by the work profile of my colleagues.

Four years later, the Supreme Court repudiated the “direct effect” test in Meher, but added a third wrinkle. In Madras Gymkhana, it held that the Gymkhana Club was not an “industry” because “viewed from… the employer’s occupation, [it] do[es] not satisfy the test.” In other words, But this, effectively, was precisely what the Court’s first five judgments had held could not be done: the Court could not substitute its own intuitive view of what was or wasn’t an industry.

A fourth and final departure was made in Safdarjung Hospital, where the Court held that the Safdarjung Hospital was not an industry on the basis of a distinction between the provision of “material” and “non-material” services and “commercial” and “non-commercial” services, neither of which it fleshed out or justified. In fact, it had been held in a consistent line of cases that the commercial aspect was not relevant in determining whether or not an enterprise constituted an industry. It is easy to see why: such a holding would take government-run enterprises entirely outside the scope of the Industrial Disputes Act. It also brings us back to the problematic view espoused in Ramnath: that my rights as a worker are made contingent upon something else: in this case, the motive with which my employer is carrying on his activity.

On the other hand, there were a number of judgments that restated the original three-part test, even after Safdarjung Hospital [see Case Index]. Consequently, the law stood in need of clarification. BWSSB clarified it by overruling Safdarjung Hospital, Madras Gymkhana, Ramnath, and Meher, and restoring Hospital Mazdoor Sabha and the cases before it. As I have argued above, the departures made in these cases from the three-part test could not be justified, either from the perspective of the scheme of the Industrial Disputes Act, or from its context and history. Consequently, BWSSB was correct in overruling them.

C. The Distinction Between Exclusion and Inclusion

In the public discourse, one criticism of BWSSB is that it expanded the definition of “industry” far too much, by bringing in clubs, hospitals and universities within the scope of the term. This reading of BWSSB is not correct. At no point during his Majority opinion does Krishna Iyer J. hold that clubs, hospitals and universities are in each and every circumstance industries. What he does hold is that there is nothing inherent in the nature of clubs, hospitals and universities that allows them to claim exemption from the Industrial Disputes Act simply by virtue of being clubs, hospitals and industries. In each specific case, one must apply the three-part test. If the enterprise meets the conditions of the three-part test, then it is an industry. If it doesn’t, it is exempted. As Krishna Iyer J. himself points out, small hobby clubs (for example) will almost never satisfy the three-part test, that requires a certain systemic activity on a certain scale. On the other hand, if you look at something like the Madras Gymkhana – which, at the time of the judgment, had 800 members and 194 employees – there is no reason why it should not fall within the definition of “industry”.

Here again, BWSSB was simply restating an important principle. As the Supreme Court had held in Bannerjee, and then subsequently, the historical context in which the Industrial Disputes Act was passed, and the text of Section 2(j), implied a wider definition than the intuitive, common-sense meaning of “industry” would have. Consequently, there could be no a priori exclusion of enterprises that did not meet a particular judge’s visualisation of what an “industry” might look like. As the Court had pointed out in Hospital Mazdoor Sabha, the Industrial Disputes Act was a very conscious departure from the laissez faire approach to industrial relations that had held the field until then; consequently, “in construing the wide words used in s. 2(j) it would be erroneous to attach undue importance to attributes associated with business or trade in the popular mind in days gone by.” The basic idea – to repeat – is that workmen engaged in enterprises that have reached a certain scale and systematisation, are vulnerable to certain forms of exploitation, which the Industrial Disputes Act is meant to prevent. Whether that enterprise is a charity, or a hospital, or a university, that basic truth remains the same.

When seen from this perspective, BWSSB no longer appears to be a radical expansion of the meaning of “industry”. All that Krishna Iyer J.’s majority opinion did was to hold that the three-part test was to be applied across the board, with no exceptions.

D. The Broader Context

In 1982, soon after BWSSB, the legislature amended the definition of “industry” under the Industrial Disputes Act, taking agricultural, educational and certain other activities outside the scope of industrial law. This was a specific response to the judgment. However, the amendment was never notified by the Executive. Consequently, it has not yet come into force. During the five-judge referral hearings in 2005, the Court asked the Executive why it hadn’t notified the amendment. The Executive answered that this was because no alternative forum had been set up where the workmen who would be excluded by the new definition, could take recourse to rights-protective and dispute-resolution mechanisms.

The Executive’s response to the Court is particularly telling. To understand it in its full context, we need to go back to the 1940s. Broadly, there are two models of industrial dispute resolution. One model – call it the Trade Union model – aims at achieving a certain balance of power between the Management and the workforce. It does this by passing laws that strengthen collective bargaining organs such as trade unions, protects the right to strike, and so on. However, after creating a legislative framework that strengthens the collective bargaining power of employees, the legislature does not then interfere with the outcome of the employer-employee bargaining (subject, of course, to exceptional situations).

In the second model, a third party is introduced into the relations between employers and employees: the government. The government is supposed to be a neutral and impartial arbitrator between the competing interests. Such a legislative framework envisions a strong role for the government, by making it an active participant in the adjudicatory provisions set up to deal with labour disputes. This is accompanied by what is called a set of “floor level” rights for workers, which can be enforced against their employers, as compensation for the inevitable weakness of trade unions that this model involves.

In the 1940s and 50, India chose the second model. As numerous judgments have noted, the Industrial Disputes Act severely curtails the right to strike. Trade Unions continue to be regulated under a 1926 colonial law. On the contrary, under the Industrial Disputes Act, the government is involved at every level – at conciliation proceedings, in deciding which disputes to “refer” for adjudication, in granting permission for closures and retrenchments, etc. And, simultaneously, the Act provides a set of protective rights to workers in cases of closures, retrenchments etc. This is also the case in companions laws such as the Factories Act, the Minimum Wages Act etc.

Why is this relevant? It is relevant because in deciding to go with the tripartite government-employer-employee model, along with “floor rights”, at the expense of a model that would make collective bargaining its focus, Parliament created a legislative framework where the all-important thing was statutory coverage: that is, workers who were within the ambit of industrial law had access to a set of rights and remedies that workers who were outside its ambit didn’t have, and had no effective way of fighting for, either through their trade unions, or otherwise. And this is why the Executive’s refusal to notify the 1982 amendment until laws are passed that create an alternative forum makes perfect sense: if the 1982 amendment was simply notified, then many thousands of workers would lose the most basic legal protections, without any alternative.

Under the tripartite framework discussed above, it therefore makes sense for the judiciary to provide an expansive interpretation to the definitional provisions that will determine who can access rights under industrial law: that is, the definition of “industry”, the definition of “workman” etc (this is subject, of course, to the constraints placed by the text itself). This was what was understood by the Court in its earlier judgments, and what was emphasised once more in BWSSB.

E. Conclusion

BWSSB was correctly decided. It restated the law on the definition of “industry” by restoring the three-part test, which had been developed in earlier judgments, paying substantial attention to the scheme of the Industrial Disputes Act, and the historical context in which it had been enacted. It overturned judgments that had departed from the three-part test, and it was correct to do so, because these departures were both contradictory, and unjustified more broadly. It was not a radical judgment, but a conservative one, only holding that no enterprise could automatically claim exemption under the Industrial Disputes Act. And its reasoning was consonant with the overall statutory and philosophical framework that constitutes Indian industrial law.

It ought to be upheld.

(Disclaimer: The author was part of the legal team that appeared in State of UP vs Jai Bir Singh (2016) on behalf of the New Trade Union Initiative, arguing against referral).

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