Ahmedabad Textile Industry's Research Association vs State of Bombay and Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 22 of 1959

Decision Date: 17 November 1960

Coram: K.N. Wanchoo, P.B. Gajendragadkar, A.K. Sarkar

In the matter titled Ahmedabad Textile Industry’s Research Association versus the State of Bombay and others, the judgment was delivered on 17 November 1960 by the Supreme Court of India. The opinion was authored by Justice K. N. Wanchoo, and the bench was composed of Justices K. N. Wanchoo, P. B. Gajendragadkar and A. K. Sarkar. The citation for the decision is reported as 1961 AIR 484 and 1961 SCR (2) 480, with subsequent references appearing in various law reports and citators. The case invoked the Industrial Disputes Act, 1947, specifically section 2(j), which defines the term “industry”.

The appellant, an association founded in 1947, was created with the purpose of establishing a textile research institute that would undertake scientific work connected with the textile trade, related industries and any allied activities deemed necessary. The finances of the association were supported partly by contributions from its member mills and partly by grants from the Government and other sources. The association carried out its work in an organised and systematic manner, aiming to provide material services to its members, namely the member‑mills, by discovering improved processes of manufacture. These services were intended to achieve greater efficiency, rationalisation and cost reduction for the member‑mills. The association employed persons, including technical staff, who received remuneration for their work; however, the employees did not acquire any proprietary rights in the results of the research, as such results were the property of the association. The overall arrangement of the association resembled the manner in which a trade or business is ordinarily organised.

A dispute subsequently arose between the association and its workmen concerning matters such as the wage scale, dearness allowance and the payment of house‑rent allowance. The dispute was referred for adjudication under the Industrial Disputes Act. The association challenged the reference, contending that it was not an “industry” within the meaning of section 2(j) of the Act. It argued that the association was essentially a research centre engaged in educational activity and therefore bore no analogy to trade or business activities. The central question before the Court was whether the appellant qualified as an undertaking under section 2(j) and whether its activities satisfied the criteria laid down in the earlier decision of State of Bombay v. Hospital Mazdoor Sabha.

The Court examined the organisation and arrangement of the association’s activities, the necessary cooperation between employer and employee for the success of the venture, and the object of rendering material service to the community. It observed that these features were distinctive characteristics to which section 2(j) of the Act could be applied. The Court held that, in the present case, the manner in which the association was organised clearly demonstrated that the undertaking as a whole was of the nature of business and trade, organised with the object of discovering ways and means by which member‑mills could obtain larger profits in connection with their industries. Accordingly, the activity of the association fell within the definition of “industry” in section 2(j) of the Industrial Disputes Act and could not be treated as a purely educational institution. Thus, the association was an undertaking within the meaning of the provision, and the dispute between it and its employees qualified as an industrial dispute properly referred for adjudication under the Act. The Court further noted that the test laid down in State of Bombay v. Hospital Mazdoor Sabha was satisfied. The Association is an undertaking within the meaning of S. 2(j) of the Act. When this dispute arose between the Association and its employees it was an industrial dispute and could be properly referred for adjudication under the Act. The State of Bombay v. The Hospital Mazdoor Sabha, [1960] 2 S.C.R. 866 followed. The Federated States School Teachers' Association v. … could be

In determining whether the activities of the association fell within the scope of section 2(j) of the Industrial Disputes Act, the Court considered certain characteristics that would identify an activity as one to which the provision could be applied. The Court observed that the way the association was organized demonstrated that, as a whole, it functioned like a business or trade. Its purpose was to discover methods and means that would enable the member mills to achieve larger profits in connection with their own industries. Because the association’s work was directed toward improving commercial outcomes for its members, the Court held that its activity matched the definition of “Industry” contained in section 2(j) of the Act. The Court further stated that the association could not be treated as a purely educational institution and that it satisfied the criteria set out in the earlier decision of State of Bombay v. Hospital Mazdoor Sabha. Consequently, the Court concluded that the association qualified as an undertaking within the meaning of section 2(j). When the dispute emerged between the association and its employees, it therefore constituted an industrial dispute that could be properly referred to a tribunal under the Act. The Court followed the precedent established in State of Bombay v. Hospital Mazdoor Sabha, [1960] 2 S.C.R. 866, and noted that the decision in Federated States School Teachers’ Association v. The State of Victoria, (1929) 41 C.L.R. 569, was not applicable to the present facts.

The judgment was delivered in the Civil Appellate Jurisdiction in Civil Appeal No. 22 of 1959. The appeal was filed by special leave against the award dated 31 October 1957 issued by the Industrial Tribunal, Bombay, in Reference (I.T.) No. 141 of 1957. Counsel representing the appellant included the Attorney‑General for India and two additional advocates, while the first respondent was represented by three advocates and the third respondent, the President of the Engineering Mazdoor Sabha, was also represented. The case was heard on 17 November 1960, and the opinion was authored by Justice Wanchoo. The appeal challenged an award that arose from a dispute referred by the Government of Bombay for adjudication. The dispute concerned the wage scale, dearness allowance, and house‑rent allowance payable to certain employees of the appellant. The appellant’s principal argument before the Tribunal was that the reference was not competent under the Industrial Disputes Act, No. XIV of 1947, because the appellant did not constitute an “industry” within the meaning of the Act. The Tribunal rejected this contention, held the reference valid, and proceeded to consider the merits of the case, which are not the subject of the present appeal. The sole issue before the Court was whether the Tribunal erred in concluding that the appellant fell within the definition of “industry,” thereby making the reference competent. Section 2(j) of the Act defines “Industry” as any business, trade, undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft, or industrial occupation or avocation of workmen. The principal question before the Tribunal, and now before this Court, was whether the appellant qualified as an undertaking under this definition.

The question of what constitutes an undertaking for the purpose of section 2(j) has been examined by this Court in a series of decisions, the most recent being the case of State of Bombay versus Hospital Mazdoor Sabha, in which the issue was whether a hospital operated by the government qualified as an undertaking under section 2(j). That judgment observed that although the language of section 2(j) is extremely wide, it is necessary to draw a fair and just line so as to exclude certain callings, services, or enterprises. If every term in the provision were given its fullest possible meaning, the definition would extend to all services and all callings, even those rendered by a servant in a purely personal, domestic, or casual capacity. Consequently, the Court had to determine where the line should be drawn and what reasonable limitations should be implied in interpreting the expansive terminology of section 2(j). The argument that the word “undertaking” in section 2(j) must be understood as synonymous with trade or business, thereby requiring an activity to involve an economic enterprise in which capital is invested and which is carried on for profit or for the production or sale of goods by the employment of labour, was not fully accepted. The Court pointed out that an activity may be regarded as an industry even where the profit motive is absent, and it held that the absence of any capital investment does not automatically exclude an activity from the ambit of section 2(j). The judgment then proceeded to consider what categories of activity could be excluded from the meaning of “undertaking” for the purposes of section 2(j). It was observed that sovereign activities of the government, which are properly described as the primary and inalienable functions of a constitutional government and which no private citizen can perform, lie outside the scope of section 2(j). These sovereign activities were defined in the words of Lord Watson as “the primary and inalienable functions of a constitutional government,” although this exclusion does not necessarily encompass activities undertaken by the government in the pursuit of its welfare policies. The Court also noted that while the presence of a profit motive is a relevant circumstance in assessing whether an undertaking is an industry within the meaning of section 2(j), its absence does not preclude such classification. The discussion then turned to the attributes that would render an activity an undertaking under section 2(j) on the basis that it is analogous to trade or business. The Court acknowledged that it is difficult to state these attributes in a definitive or exhaustive manner, but it indicated that, as a working principle, certain characteristics may be considered in determining whether an activity qualifies as an undertaking within the meaning of the provision.

It was stated that an activity which is undertaken systematically or habitually for the purpose of producing or distributing goods, or for rendering material services to the community at large or to a part of that community, and which is carried out with the assistance of employees, would qualify as an undertaking within the meaning of the Act, provided that the activity is organised in a manner comparable to trade or business. Consequently, the way in which the activity is organised or arranged, the necessity of co‑operation between employer and employee for its success, and the objective of rendering material service to the community were identified as distinctive features of activities to which section 2(j) would apply. The Court therefore had to determine whether the appellant’s activity satisfied the tests laid down in the earlier discussion and, if so, whether it could be treated as an undertaking within the meaning of section 2(j). To make that determination, it was necessary to examine the objects for which the appellant‑association was founded and the specific activities that it was conducting. The principal argument advanced by the learned Attorney‑General was that the appellant‑association functioned as a research centre engaged in educational activity and therefore bore no analogy to a trade or business. In support of that contention, the Attorney‑General relied on a decision of the Australian High Court in The Federated State School Teachers’ Association v. The State of Victoria, where the Court held that educational activities carried out by the State under appropriate statutes and regulations did not constitute an industry within the meaning of section 4 of the Commonwealth Conciliation and Arbitration Act. The appellant‑association had been founded in 1947, and its founders’ object was to establish a textile research institute for the purpose of carrying out research and other scientific work connected with the textile trade or industry and with other trades and industries allied to it or necessary for it. The research undertaken was intended to investigate the manufacture and improvement of materials used in the textile industry, to enhance the utilisation of the industry’s products, to improve machinery and appliances employed by the industry, and to refine various manufacturing processes so as to achieve greater efficiency, rationalisation and cost reduction. Additional objectives included researching conditions of work, conducting time‑and‑motion studies, addressing fatigue and rest periods, standardising methods of work, improving factory conditions, and preventing diseases and accidents arising from employment in a textile mill. To accomplish these objectives, the association was authorised to establish, equip and maintain laboratories, workshops or factories and to conduct experiments; to prepare, edit, print, publish and circulate books, papers, periodicals and other literature; and to create and maintain museums, libraries and collections of scientific data, statistics and other information related to the industry, disseminating that material through reading papers, lectures, advisory services and the appointment of advisory officers.

The association was empowered to employ or retain skilled, professional and technical advisers and workers for the purposes of the association, paying such fees or remuneration as it deemed appropriate; it was also authorized to establish, assist or maintain schools and colleges devoted to textile research, to endow scholarships and bursaries, and to support students engaged in research work. In addition, the association could promote the discovery, investigation and dissemination of the nature and merits of inventions, improvements, processes, materials and designs that might be usable by its members for any purpose within the textile industry. Consequently, although the stated object of the association was research, that research was expressly directed toward assisting member mills in improving their production methods so as to achieve greater efficiency, rationalisation and cost reduction. The fundamental basis of the research carried out by the appellant was therefore to aid the textile industry, and particularly the member mills, in attaining larger profits, a goal primarily pursued through the employment of technical personnel on a remunerated basis. Rule 13 of the association’s Rules and Regulations provides that any member who believes that its interests are adversely affected by a proposed research project may lodge an objection with the government against the undertaking of that research. Read together with Rule 45, this provision means that once an objection is made, the proposed research may not proceed until the government has decided on the objection, although the government retains the discretion to order the research to continue while the objection is under consideration. The administration of the appellant‑association was vested in a council whose majority consisted of representatives of the textile industry. Research activities were conducted, as earlier noted, under the supervision of a Director of Research and by technical personnel who were generally paid employees of the association. All such personnel were required to give an undertaking to maintain strict secrecy concerning any research undertaken and to refrain from using or exploiting in private any special knowledge, invention or process they might acquire. Moreover, any invention or process could be implemented only to the extent and at the time permitted for common use by all members of the association, in strict conformity with the Rules and Regulations framed by the council. The effect of Rule 42 of those Rules and Regulations was to establish that the outcomes of the research were the property of the association rather than of the individual researcher, and that such results were to be available for use by the association’s members.

Rule 44, as enacted under the Rules and Regulations made by the Council, required that every employee of the association who was engaged in research enter into a written contract. Under that contract the employee agreed, in consideration of his employment, to hold exclusively for the benefit of the association and to assign to the association, without charge, all rights and ownership in any discoveries, inventions, designs or other results that arose during the course of such employment and research. These provisions demonstrated that although the appellant association was created for the purpose of conducting research, the principal objective of that research was to benefit the members of the association. The expenses of maintaining the association were met partially by contributions from its members and partially by grants from the government and other sources. Consequently, it was evident that the association had been established to carry out textile‑industry research jointly for the advantage of its members; otherwise each member mill would have been required to set up its own separate research department as part of its own operations. The Court considered whether, in these circumstances, the association could be characterised as an undertaking of a purely educational character, thereby falling within the Australian case previously cited. After examining the objects and the Rules and Regulations of the appellant association, the Court concluded that the association satisfied the criteria articulated in the Hospital case and therefore qualified as an undertaking within the meaning of section 2(j). The Court observed that the activity was systematically undertaken, its purpose being to provide material services to a segment of the community—namely the member mills—by discovering manufacturing processes and other technical improvements aimed at achieving greater efficiency, rationalisation and cost reduction for those mills. This activity was carried out with the assistance of employees, specifically technical personnel, who, as employees of the association, possessed no rights in the results of the research they performed. The Court further noted that the association was organised and arranged in a manner comparable to the way a trade or business is generally organised. It required cooperation between the employer—the association—and its employees—the technical personnel and other staff—a cooperation essential for success because the employer supplied the funds necessary to pursue the association’s objectives. The Court emphasized that the object of the association was clearly to render material service to its member mills by discovering manufacturing processes and related innovations with a view to securing greater efficiency, rationalisation and cost savings. Accordingly, the Court held that the activities of the association bore little resemblance to those of an institution devoted solely to education. Although the employees who had raised the present industrial dispute did not themselves contribute directly to the research undertaken by the association, the manner in which the association was structured, and the fact that the technical personnel who performed the research were also employees without any proprietary rights in the outcomes, plainly demonstrated the commercial and industrial nature of the undertaking.

The Court observed that the undertaking in its entirety possessed the character of a business and trade, as earlier described in the decision reported at (1) [1960] 2 S.C.R. 866, and that its purpose was to discover methods and means by which the member mills could achieve larger profits in connection with their respective industries. In light of this description, the Court stated that it had no hesitation in concluding that the appellant‑association was engaged in an activity that falls squarely within the definition of the term “industry” found in section 2(j) of the relevant legislation, and that such activity could not be likened to a purely educational institution. Accordingly, the Court held that when a dispute emerged between the appellant‑association and certain of its employees, the dispute qualified as an industrial dispute and therefore was properly referable to the adjudicatory machinery provided for under the Act. On the basis of this reasoning, the Court concluded that the appeal could not succeed. Consequently, the appeal was dismissed, and the appellant was ordered to pay one set of costs. The dismissal of the appeal was thereby affirmed.