The National Union of Commercial Employees and Another v. M. R. Meher, Industrial Tribunal, 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. 24 of 1961
Decision Date: 13 February 1962
Coram: P. B. Gajendragadkar, A. K. Sarkar, K. N. Wanchoo
In this case the Supreme Court of India delivered its judgment on 13 February 1962. The matter was heard by a bench composed of Justices P. B. Gajendragadkar, A. K. Sarkar and K. N. Wanchoo. The petitioners were the National Union of Commercial Employees and another, while the respondents were M. R. Meher, the Industrial Tribunal of Bombay, together with additional parties. The judgment is reported in the All India Reporter at page 1080 of the 1962 volume and also appears in the Supreme Court Reporter Supplement 3 at page 157. The case is cited in numerous subsequent reports, including the 1964, 1968, 1969, 1970, 1972, 1976, 1978, and 1988 Supreme Court law reports. The statutory provision at issue was section 2(j) of the Industrial Disputes Act, 1947 (14 of 1947). The petitioners challenged a decision of the Industrial Tribunal, arguing that the respondents, a firm engaged in the work of solicitors in Bombay, were not engaged in an “industry” within the meaning of the Act and that the reference made by the State Government to the Tribunal was therefore incompetent.
The Court recorded that the respondents were a partnership of solicitors who, for the fiscal years 1956‑57 and 1957‑58, were claimed by their employees to be liable for payment of a bonus. The respondents contended that their profession of solicitors did not constitute an industry under section 2(j) and that the dispute therefore could not be classified as an industrial dispute for the purposes of the Act. The Court held that the work of solicitors does not fall within the definition of “industry” prescribed in section 2(j). It explained that the essential feature of an industry is the direct cooperation between capital and labour, or between an employer and his employees, for the production of goods or the rendering of services. By contrast, a person practising a liberal profession does not operate with such direct cooperation; the principal capital contributed by the professional is his special intellectual and educational expertise, not tangible assets or machinery. Consequently, the Court concluded that a liberal profession such as that of a solicitor lies outside the statutory definition of industry, and any dispute between the solicitors and their employees cannot be referred to an Industrial Tribunal. In arriving at this conclusion the Court distinguished the decision in State of Bombay v. The Hospital Mazdoor Sabha (1960 2 SCR 866) and approved the observations in Brij Mohan Bagaria v. N. Chatterjee (AIR 1958 Cal 460), D. P. Dunderdele v. G. P. Mukherjee (AIR 1958 Cal 465), and the principles set out in Federated Municipal and Shire Council Employees’ Union of Australia v. Melbourne Corporation (1919 26 CLR 508). The judgment was rendered under the civil appellate jurisdiction as Civil Appeal No. 24 of 1961, arising from the judgment and order dated 20 November 1958 of the Bombay High Court in Special Civil Application No. 2789 of 1958.
In this appeal, which was taken from the judgment and order dated 13 February 1962 of the Bombay High Court in Special Civil Application No 2789 of 1958, counsel A.S. R. Chari and K.R. Choudhuri appeared for the appellants, while counsel S.T. Desai and V.J. Merchant represented respondents Nos 2 and 4 together with the intervenor, the Bombay Incorporated Law Society. The appeal was decided by Justice Gajendragadkar. The dispute that gave rise to the proceedings involved the National Union of Commercial Employees and another as appellants and the respondents, who were partners in an attorneys’ firm styled M/s Pereira Fazalbhoy & Co., namely Pereira, Fazalbhoy and Desai. In August 1957 the union wrote to the firm, setting out on behalf of its members certain demands concerning the payment of bonus for the financial years 1955‑56 and 1956‑57, as well as other related matters. Because the parties failed to reach an agreement, the controversy was referred to the Conciliation Officer. The officer was unable to secure a settlement and consequently submitted a report of failure to the Government of Bombay. Following that report, the State Government referred the question of bonus for the years 1956 and 1957 to an Industrial Tribunal for adjudication under section 12(5) of the Industrial Disputes Act (No 14 of 1947). Before the tribunal the respondents raised a preliminary objection, contending that the profession they practiced was not an “industry” within the meaning of the Act; therefore the dispute was not an “industrial dispute” covered by the legislation, the Government’s reference was incompetent, and the tribunal consequently lacked jurisdiction to hear the matter. The tribunal accepted this objection and recorded a finding that it had no jurisdiction because the controversy did not qualify as an industrial dispute. The appellants challenged that order by filing a special civil application before the Bombay High Court under Articles 226 and 227 of the Constitution. After hearing the rival submissions, the High Court concluded that the respondents’ firm did not constitute an industry and that, as a result, the dispute between the firm and its employees could not be characterised as an industrial dispute falling within the scope of the Act. Accordingly, the High Court held that the Industrial Tribunal was correctly barred from making an order on the reference and dismissed the writ petition filed by the appellants. The appellants subsequently obtained a certificate from the High Court, and this appeal is presented before this Court on the basis of that certificate. The precise question now posed for determination is whether the respondents’ firm, which carries on the work of solicitors in Bombay, can be aid
To decide whether the respondents’ firm could be regarded as an industry under section 2(j) of the Act, the Court found it necessary to refer to its own earlier decision in State of Bombay v. The Hospital Mazdoor Sabha (1). Both sides accepted that the present dispute must be examined in the light of that precedent, and the Court therefore set out the effect of the earlier ruling. In the Hospital case (1), the Court examined two related questions: first, whether the persons employed as ward servants in the J. J. Group of Hospitals, Bombay, which were under State control, qualified as “workmen” within the meaning of the Act; and second, whether the Hospital Group itself could be described as an “industry” under the same provision. The Court answered both questions affirmatively. In doing so, it considered the scope and meaning of the term “industry” as defined in section 2(j) of the Act.
The Court held that the language of section 2(j) is intended to be inclusive and therefore possesses a wide import that must be given a broad interpretation. Nevertheless, the Court emphasized that even though the provision uses words of very wide denotation, a fair and just line must be drawn to exclude certain callings, services or undertakings from its reach. The Court warned that if every word were given its fullest possible meaning, then every service and every calling—including a servant performing purely personal or domestic duties or even a casual service—would fall within the definition. It stated that the term “service” was not meant to cover service rendered in any capacity or for any reason.
Consequently, the Court turned to the task of determining where that line should be drawn and what reasonable limitations could be implied when interpreting the broad language of section 2(j). The Court articulated a working principle, observing that an activity systematically or habitually undertaken for the production or distribution of goods, or for the provision of material services to the community at large or to a part of that community, with the assistance of employees, constitutes an undertaking. Such an activity typically involves cooperation between employer and employees, aims to satisfy material human needs, and must be organized or arranged in the manner in which trade or business ordinarily is organized. The activity must not be casual, nor must it be carried out for the personal benefit of the employer or for pleasure. Accordingly, the manner of organization, the requisite cooperation between employer and employee, and the objective of rendering material service to the community are features that help distinguish activities that fall within the ambit of section 2(j) from those that do not.
In the earlier judgment, the Court identified several characteristics that distinguish activities to which Section 2(1) of the Act applies. Relying on this working principle, the Court concluded that the State was carrying on an undertaking by operating the group of hospitals that was the subject of the earlier case. While examining hospitals, the Court referred to a material circumstance supporting the view that the management of hospitals qualifies as an industry under the Act. Section 2(n) of the Act defines “public utility service” and lists five separate categories of such services. Clause (VI) of Section 2(n) provides that any industry mentioned in the Schedule is also a public utility service. In 1956, Entry No. 9 was added to the First Schedule, indicating that services rendered in hospitals and dispensaries fall within this category. Since the validity of this entry was not contested, the inclusion of hospital and dispensary services in the First Schedule made it undeniable that a hospital would be an industry under the Act; otherwise, services provided in hospitals could not be regarded as public utility services. Accordingly, the Court held that by operating the J.J. Hospital Group in Bombay, the State Government was conducting an undertaking that constituted an industry under Section 2(j).
The matter now before the Court is whether the working test laid down in the Hospital case should be applied to the dispute between the parties in the present appeal. Counsel for the appellants, Mr Chari, argued that, in determining whether the respondents are carrying on an industry within the meaning of Section 2(j), a distinction must be drawn between professional services rendered by an individual acting alone and similar services rendered by a firm composed of several partners. He suggested that professional services performed individually occupy a different position from those delivered in an organised and institutionalised manner. According to Mr Chari, when professional services become institutionalised, the provisions of Section 2(j) become applicable because such organised services necessarily involve cooperation between the employers and the employees hired by the firm to perform various categories of work. He further contended that employing different categories of staff facilitates the work of solicitors, enabling them to handle more matters more quickly and efficiently, and that this cooperation between employees and their employers within a solicitors’ firm satisfies the working test articulated by the Court in the Hospital case.
In our opinion, the distinction sought to be drawn by Mr Chari between professional service rendered by an individual and that rendered by a firm is not logical for the purpose of applying the test in question.
In this case, the Court observed that drawing a distinction between a solicitor who practices alone and a solicitor who works within a firm was not logical for applying the test in question. The Court explained that whatever is true of a firm of solicitors would also be true of an individual solicitor working by himself, because both the firm and the individual engage different categories of employees to perform various types of work. Consequently, the cooperation that exists between the employees who work in a solicitor’s office and the employer, who is the solicitor, could be attributed to the work of a single solicitor just as easily as it could be attributed to the work of a firm. The Court therefore held that if, as Mr Chari argued, a firm of solicitors is to be regarded as an industry under the Act, the office of an individual solicitor could not escape the application of the definition contained in section 2(j). For that reason, the Court found it unreasonable to confine the analysis to the narrow ground suggested by Mr Chari, namely, to limit attention to the organisational or institutionalised aspect of a solicitors’ firm.The Court then referred to the earlier Hospital case, where it had spoken of the organisation of an undertaking involving the cooperation of capital and labour, or of the employer and his employees. In that earlier decision the Court meant that such cooperation was essential and necessary for the purpose of rendering a material service or for the purpose of production. The Court noted that the concept of industry postulates a partnership between capital and labour, or between the employer and his employees, as illustrated in the authority reported in (1) [1960] 2 S.C.R. 866. Under this partnership the employer contributes his capital while the employees contribute their labour, and the joint contribution of capital and labour leads directly to the production that the industry seeks to achieve. In other words, the cooperation between capital and labour, or between the employer and his employees, which is treated as a “working test” in determining whether any activity amounts to an industry, must be the cooperation that is directly involved in the production of goods or in the rendering of a service.The Court warned that it could not be suggested that every form of human activity in which capital and labour cooperate, or in which an employer and employees assist each other, automatically qualifies as an industry. The distinguishing feature of an industry, the Court said, is that for the production of goods or for the rendering of services, the cooperation between capital and labour, or between the employer and his employees, must be direct and essential. To illustrate this principle, the Court described a textile mill, where the employer supplies capital and installs the necessary machinery and the employees provide their labour, cooperating to produce textile goods. When referring to textile labour in the context of industrial disputes under the Act, the Court meant the workmen who are engaged in the actual production of textile goods. It was evident that, in a textile mill, a large majority of workmen in most departments contribute directly to the production process. Even if a small minority of workmen are not directly concerned with manufacturing the goods, their work is so integrally connected with that of the majority that they are treated as part of the same labour force. Thus, the Court concluded that a textile mill is regarded as an industry because capital and labour jointly contribute to the production of goods, which is the object of the mill.
It was observed that workers in textile mills contributed directly in one form or another to the manufacture of textile products. Even in a textile mill a very small minority of workmen might not be directly involved in producing textile goods, yet their tasks were integrally linked to the work performed by the majority of employees, and therefore they were treated as part of the same labour force. Consequently, there could be no doubt that when a textile mill was regarded as an industry, the reason lay in the fact that capital and labour jointly contributed to the production of the goods that constituted the mill’s objective. The contribution of capital consisted of providing the necessary machinery and financing, while the labour of the employees supplied the human effort required for operation. The joint effort of both capital and labour was essential and direct, satisfying the test for an industrial undertaking. This analysis emphasized that the presence of a few workers whose duties were not directly related to fabric production did not alter the overall classification of the mill as an industry, because their work remained essential to the overall production process. The Court further noted that the principle applied uniformly across all departments of a textile mill, reinforcing the view that the entire workforce, irrespective of individual roles, formed a single, cooperative labour force essential to manufacturing.
The discussion then turned to hospitals, describing how patient care began with proper diagnosis followed by either medical or surgical treatment according to the case requirements. In medical cases, patients received prescribed treatment and remained in the hospital for further care; in surgical cases, patients underwent operations and were kept in the hospital until discharge. Throughout this period, all of the patients’ needs had to be met, including provision of food, nursing assistance, periodic medical help, and other incidental services necessary for recovery. The cooperation of hospital employees was therefore directly involved in delivering the various services that the hospital was obligated to provide. Although patients were attracted to hospitals primarily because of the doctors or surgeons, the hospital’s purpose was not fulfilled merely by performing an operation or issuing a prescription. After treatment was determined, an admitted patient required continuous medical assistance, nursing care, food, and other supportive services until discharge, and all these services were part of the hospital’s established mission. The employees of the hospital cooperated to render these services, satisfying the test of cooperation between employer and employees for a properly organised and maintained hospital. It was also acknowledged that the quality, importance, and nature of services differed among various categories of hospital staff, yet every class of employee performed essential duties that contributed to the overall objective of providing care to patients.
In the Court’s view, hospitals meet the test of cooperation between an employer and its employees because the services provided to patients require the coordinated effort of all categories of hospital staff. The Court then considered whether a solicitors’ firm could be said to satisfy the same test. At first glance, a solicitors’ firm appears to be an organised industrial concern, with various categories of servants each assigned distinct duties and functions. However, the Court emphasized that the professional service rendered by a solicitor, whether acting alone or together with partners, is essentially an individual service that depends on the solicitor’s own professional equipment, knowledge and efficiency.
Work performed by clerical or incidental staff in a solicitor’s firm is intended only to assist the solicitor in performing his professional duties and does not have a direct relationship to the core professional service ultimately provided to the client. For example, a solicitor may employ a clerk to type his opinion or may retain menial servants to keep his chambers clean and orderly. In a prosperous practice, the number of clerks and menial servants may be considerable. Nonetheless, the tasks performed by typists, stenographers, menial servants or other employees are not directly concerned with the service the solicitor delivers to his client, and therefore they cannot be said to satisfy the test of cooperation between employer and employees that is relevant to the purpose of the statute.
The Court acknowledged that efficient operation of a solicitor’s practice requires the keeping of accounts and handling of correspondence, which in turn necessitates the employment of clerks and accountants. Yet the Court asked whether the work of a clerk who types correspondence or of an accountant who maintains the books has any direct or essential nexus with the legal advice that the solicitor is duty‑bound to give to his client. The Court answered this question in the negative. While there is certainly some form of cooperation between a solicitor and his employees, that cooperation does not have a direct or immediate connection to the professional service rendered to the client.
Consequently, the Court found it difficult to accept the argument that a solicitor’s firm, engaged in the work of an attorney, constitutes an “industry” within the meaning of section 2(j) of the relevant Act. Although the language of section 2(1) is broad, the Court noted that earlier decisions have required a fair and just limitation on the breadth of those words, and a functional test has been articulated for this purpose. Applying that test to the facts of the present appeal, the Court concluded that the work carried out by the respondents as a solicitor’s firm does not fall within the definition of an industry under the statute.
It was held that the work carried out by a firm of solicitors does not qualify as an industry within the meaning of section 2(j) of the Act. This conclusion was the view of the Bombay High Court, and the Court agreed that this view was correct. The same position had also been taken by the Calcutta High Court in the decisions of Brij Mohan Bagaria v. N. C. Chaterjee, reported in 1958 A.I.R. 1938 Cal. 460, and D. P. Dunderdele v. G. P. Mukherjee, reported in A.I.R. Cal. 465. When the question is examined in a broad and general manner, it is not easy to imagine that a liberal profession such as that of an attorney was intended by the Legislature to fall within the definition of “industry” under section 2(j). The concept of liberal professions possesses special and distinctive features that do not readily allow their inclusion within the strict confines of industrial law. An industrial dispute, by definition, arises between capital and labour in enterprises where the two combine to produce goods or render services. Such a combination of capital and labour is absent in the case of liberal professions. A person practising a liberal profession does not conduct his work in any intelligible sense with the active cooperation of his employees; the principal, and often the sole, capital that the professional brings to the endeavour is his own intellectual and educational equipment. Because of these considerations, which cannot be ignored, the Court thought that a liberal profession such as that of an attorney must be deemed to lie outside the definition of “industry” contained in section 2(j).
The Court also referred to the observations of Isaacs and Rich JJ in Federated Municipal and Shire Council Employees’ Union of Australia v. Melbourne Corporation, reported in (1919) 26 C.L.R. 508, 554. Those learned judges formulated the concept of an industrial dispute as follows: industrial disputes occur when, in relation to operations in which capital and labour are contributed in cooperation for the satisfaction of human wants or desires, the parties engaged in that cooperation dispute the basis to be observed concerning either a share of the product or any other terms and conditions of their co‑operation. This formula excludes the extreme positions of both claimant and respondents. It specifically excludes professions such as legal and medical practice because they are not carried on in any intelligible sense by the cooperation of capital and labour and therefore do not fall within the sphere of industrialism. Conversely, where the necessary cooperation exists, the formula includes disputes between employers and employees, between employees themselves, and between employers themselves. The implication is that for an “industry” to give rise to an industrial dispute, the industry must not be merely an abstract concept; it must be acting in association with its co‑operator “capital” in some form. This reasoning reinforces the view that the work of a solicitor’s firm is not an industry within the meaning of section 2(j).
The Court observed that the result of an industrial undertaking is, in effect, the product of the combined efforts of the employer and the employees, and this observation supports the view previously adopted regarding the nature of cooperation between the two parties. The cooperation relevant to the test must be the collaboration between the employer and his employees that is essential for achieving the purpose of the enterprise, and the service rendered by the enterprise should arise directly from the joint efforts of both employer and employees. One additional, albeit minor, point required further consideration. Counsel for the petitioner argued that it would be futile for the respondents to maintain that the work of their firm does not fall within the meaning of an industry under section 2(j) simply because they have described their activity as the business of solicitors. The partnership deed executed by the various partners of the firm, as examined, provided, among other things, that all expenses of the partnership business or any losses incurred in carrying on that business would be borne out of the partnership’s profits or capital. Counsel relied on the use of the term “business” in that clause to support his contentions. In support of this argument, counsel referred to a decision of Farwell J. in the case of Dickson v. Jones, reported in 1939 3 All E.R. 182. In that case the Court examined the validity of an agreement between a solicitor, the plaintiff, and his junior clerk, who had subsequently been articled to the solicitor. The agreement prohibited the clerk, at any time thereafter, from practising as a solicitor within a radius of fifteen miles from the Town Hall in Hanley, or from soliciting any client of the solicitor. Farwell J. held that the combination of a restriction covering an area as extensive as a fifteen‑mile radius and extending for the entire life of the clerk was, in the circumstances, broader than necessary to protect the plaintiff and therefore unenforceable as an undue restraint of trade. The argument presented was that the validity of the solicitor‑clerk agreement was tested on the ground that it constituted a restraint of trade, and consequently the solicitor’s work must be classified as “trade” within the meaning of section 2(j). This line of reasoning, however, lacks force. Even if the respondents’ partnership deed describes the partnership’s activity as the business of solicitors, that description does not assist the petitioners in establishing that the work undertaken by the firm constitutes an industry under section 2(j). The work of a solicitor may, in a loose sense, be described as business, and if solicitors entered into a restraint of trade agreement, its validity would have to be assessed on the basis that their work is of a business nature, not that it automatically qualifies as an industry.
In this case the Court observed that the relevance of the respondents’ own description of their activity as a “business” was minimal when the central question was whether that activity fell within the meaning of “industry” as defined in section 2(j). The Court reiterated that the term “industry” was defined in very expansive language, encompassing a wide range of activities, and therefore a mere reliance on the parties’ label could not by itself resolve the issue. Because of this broad definition, the Court emphasized that it was necessary to draw a clear and equitable line to delineate the scope of the term, and that such a demarcation required the application of an appropriate working test. The Court explained that the purpose of this test was to ensure that the classification was grounded in a fair assessment of the nature of the work rather than in the parties’ subjective terminology. Consequently, the Court held that the argument that the respondents themselves referred to their activity as a “business” offered no assistance in determining whether the work constituted an industry for the purposes of the statute. As a result, the appeal was dismissed, the appellant’s case failed, and no order as to costs was made.