Definition Of Industry Under Industrial Dispute Act 1947 Law Essay

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The definition of the term industry was not included in the Trade Disputes Act, 1920. The new legislation, Industrial Disputes Act, that came in to existence in the year 1947 had included as section 2(j), the definition of the term industry [1] . The Act while doing, so had borrowed words from the Australian legislation called the Commonwealth Arbitration and Conciliation Act, 1904. Section 4 of the Australian Act had defined industry as "any business trade or manufacture and undertaking of calling of employees on land or water. Any calling of service, employment, handicraft or industrial occupation or avocation of employees on land or water and a branch of an industry or a group of industries…" The Industrial Disputes Act, 1947 has taken the first two paragraphs of its definition from this Australian legislation. But the term industry had not taken its full form just as yet. It has been the subject of controversy for many years through many different cases. The wide connotation that it has received today that is including in its ambit educational institutions, charitable societies, recreational clubs, trusts and religious bodies can be understood well by a study of the term through legislations and disputes throughout the years.

A very simple understanding of the word industry in a non technical way would be an undertaking where capital and labour and co-operate with each other to produce wealth. The Industrial Disputes Act, 1947(hereinafter 'the Act') is a welfare legislation and therefore the rules of interpretation say that the Act as to be given the widest ambit. There have been many instances in the past where the courts have had to increase the connotations of terms used in the Act. The case of D N Banerjee v. P R Mukherjee [2] was one of the first instances in which the Supreme Court had to deal with the ambit of the term industry as used in the Act. Chandrasekhar J in the case had elaborated on the need to interpret the legislation in picturesque words. He said that the limited concept of that an industry meant in earlier times must now yield place to a wider concept so as to take in various and varied forms of industry so that the disputed arising in connection with them must be settled without dislocation or disorganization of the needs of the society and in a manner more adapted to conciliation and settlement than the determination of rights and liabilities according to strict legal procedures and practices. The standpoint of the conflicts between labour and capital should change from status to contract. Without such measures the conflicts cannot be tackled in a satisfactory way.


The term Industry has been defined in the Industrial Disputes Act as any business, trade, undertaking, manufacture or calling of employers and includes any calling service, employment, handicraft, or industrial occupation or a vocation of workmen. The definition has been through many stages and phases of judicial scrutiny. The Apex court has vacillated on the issue and has finally reached a stand only subject to the change that time brings.

The researcher in this context will discuss in detail the 'Triple Test' laid down by the Supreme Court in the Bangalore Water Supply and Sewage Board v. A.Rajjappa [3] which is imperative for further discussion of anything in this regard.

The Bangalore Water Supply case was adjudicated by a seven Judge Bench in the year 1978. In the Seven Judge Bench decision of Bangalore, Justice Krishna Iyer laid down the following test for determining "industry"

Where (i) systematic activity (ii) organized by co-operation between employer and employee […] (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 i.e. making, on a large scale prasad or food), prima facie, there is an industry in that enterprise.

Absence of profit motive or gainful objective is irrelevant, be the venture in public, private or other sector.


If the organization is a trade or business it does not cease to be one because of philanthropy animating the undertaking. [4] 

But the learned Judge also laid down certain exceptions to the test in the same Judgment.

"Sovereign functions strictly, understood (alone) qualify for exemption, not the welfare activities and economic adventures undertaken by the State." [5] 

"If, in a pious or altruistic mission many employ themselves, free or for small honorium or like return, mainly drawn from sharing the purpose of the cause, such as lawyers running a free legal aid clinic or doctors serving in their spare hours in a free medical center or ashramities working at the bidding of their holiness, divinity or like personality, and the services are supplied free or at nominal costs and those who serve are not engaged for remuneration or on the basis of master servant relationship, then the institution is not industry even if stray servants, manual or technical are hired." [6] 

In the Bangalore Water Supply case the majority decision was given by a five Judge Bench with both Chief Justice Beg and Justice Chandrachud, categorically agreeing with the test laid down by Justice Krishna Iyer. The test, having the support of the majority in the Bangalore Bench, formed an authoritative precedent of seven Judges on the question of determining the meaning and scope of "industry". [7] 

The test placed all activities under industry irrespective of whether they are analogous to trade or business and places all establishments having the triple elements- systematic activity, co-operation between employer and employees and production and distribution of goods and services for satisfaction of human wants­­- within the ambit of industry. The test has only two exceptions namely one of sovereign functions and another of certain charitable organizations for most part not having an employer-employee relation. The case of Coir Board v. Indira Devi [8] described the test in the Bangalore Water Supply case as a 'sweeping test' as the test was very wide in its scope and virtually covered almost all establishments within "industry".


An unadorned definition of the institution of club is that they are voluntary organization formed by the members for their entertainment and pleasure. The functioning of such clubs are governed by their by laws framed for the purpose to regulate its management. Such bodies sometimes also employ large number of employees to cater to the demands of their members. Whether such clubs are industries or not is the fundamental question in our discussion.

In Madras Gymkhana Club Employees Union v. Gymkhana Club [9] the question whether a non proprietary members' club is an 'industry' came for consideration in the Supreme Court. The case came before the Supreme Court on appeal by way of special leave as the Industrial Tribunal, Madras by its award, September 2, 1964 had held that the management of Gymkhana Club, Madras was not liable to pay bonus to its workmen for the year 1962, as Club was not 'an industry'. The Madras Gymkhana Club, which was admittedly a member club, was not a proprietary club. The object of the club was to provide a venue for spots and games and facilities for recreation and entertainment. As part of its latter activities, it arranged dance, dinner and other parties and ran a catering department, which provided food and refreshments not only generally but also for dinners and parties on special occasions. The Supreme Court, while deciding the issue whether Madras Gymkhana Club was industry or not observed as follows:

"Every human activity in which enters the relationship of employers and employees, is not necessarily creative of an industry. Personal services rendered by domestic and other servants, administrative services of public officials, service in aid of occupants of professional men, such as doctors and lawyers etc., employment of teachers and so on may result in relationship in which there are employers on the one side and employees on the other but they must be excluded because they do not come within the denotation of the term 'industry'. [10] 

Primarily, therefore, industrial disputes occur when the operation undertaken rests upon the cooperation between employers and employees with a view to production and distribution of material goods, in other words, wealth, but they may arise also in cases where the cooperation is to produce material services. The normal cases are those in which the production or distribution is of material goods or wealth and they will fall within the expression trade, business and manufacture. Accordingly, the Court held that the Madras Gymkhana Club being a member's club is not industry thereby upsetting the position of the Calcutta High Court held in two earlier cases namely Bengal Club v. Santi Ranjan Sommadar [11] and Royal Calcutta Golf Club Mazdoor Union v. State of West Bengal. [12] 

This was soon followed by the decision in Cricket Club of India v. Bombay Labour Union [13] the question before the court was whether the Cricket Club of India was an 'industry' within the meaning of S.2 (j) of the Act. The club was a members' club and not a proprietary club, though was incorporated as a company under the Companies Act. The court said that the fact that the club catered for functions of outside agencies on certain occasions did not make it an industry inasmuch as these functions were arranged at the request of the members of the club from whom it realized the dues and who were responsible for payment to it. Basing on that reasoning and applying the principle of Madras Gymkhana club case, the Supreme Court held that the club is not an 'industry'.

However the 1978 decision in the Bangalore Water Supply Case [14] was a watershed as far as the issue was concerned. The decision overruled both the cases namely Madras Gymkhana and Cricket Club of India. Hence club would be an industry after 1978.

The question whether Club falls under the definition of industry within the meaning of Section 2(j) is covered by Justice Krishna Iyer. [15] It the beginning of his discussion about clubs the learned judge noted that the wide words used in Section 2(f) if applied without rational limitations, may cover every bilateral activity even spiritual, religious, domestic, conjugal, pleasurable or political. He also points out that the only ground to extricate clubs from the coils of industrial law (except specific statutory provision) is absence of employer- employee co-operation on the familiar luring-firing pattern.

While holding the judgment in the Madras Gymkhana Club 'wrongly decided' the judge points out that the ingredients necessary for an industry are present here and yet it is declared a non-industry because the club belongs to members only.  It is transcendental logic to jettison the inference of an 'industry' from such a factual situation on the ingenious plea that a club 'belongs to members for the time being and that is what matters'.

According to the judge Cricket Club of India stood in a worse position. The judge points out that an indefinite section of the community entering as the guests of the members also share in the services of the club. The testimony of the activities can leave none in doubt that this colossal 'club' is a vibrant collective undertaking which offers goods and services to a section of the community for payment and there is co-operation between employer and employees in this project. The plea of non-industry is un-presentable and exclusion is possible only by straining law to snapping point to salvage a certain class of socialite establishments. [16] 

The effect of the Bangalore Water Supply decision reverberated almost instantly. The Calcutta High Court in Tollygunge Club Ltd. v. Fifth Industrial Tribunal [17] stated that "The two decisions, viz., The Madras Gymkhana Club and the Cricket Club of India have been expressly declared to be no longer good law and reliance thereon in my view does not arise. The High Court is bound by the decisions of the Supreme Court"

The Punjab and Haryana High Court in Kanhaiya Lal vs Satluj Club [18] quashed the decision of the Labour Court, Ludhiana which had placed reliance on Madras Gymkhana and CCI decisions. The court said that in view of the authoritative pronouncement of the Supreme Court in the Bangalore Water Supply case, there can be no justification, legal or other, for holding that the Club does not fall within the definition of 'Industry'. The court found the finding recorded by the Labour Court is ex facie perverse.

The Bombay High Court in Ratilal B. Rajiv v. Tata Sports Club and Anr [19] relied heavily on the Bangalore Water Supply judgment. The court after through consideration of the judgment and the facts before it came to the conclusion that there is no manner of doubt that the Club falls within the definition of "industry" under section 2(j) of the Industrial Disputes Act in the light of principles laid down by the Apex Court in Bangalore Water Supply case.


It is herby argued the general trend among judicial decisions is that the definition of industry is better off wide in ambit and should have a liberal construction. Thus it is contented that the stand taken in the Bangalore Water Supply case to cover a wide rang of establishments, is justified to a certain extend.

The Industrial Disputes Act is a "welfare statute" and therefore must receive a liberal construction. The IDA, though laying down a mechanism for dispute resolution in an "industry" also provides for certain substantive rights to the workmen and understood in that sense, is "a welfare statute". Such "welfare statutes", because they provide beneficial provisions for workers and also because they ensure compliance of these beneficial provisions, must be liberally construed and the courts ought to give it the "widest operation, which its words would permit". [20] In this context, Justice Bhagwati in The Workmen of Indian Standards Institution v. The Management of Indian Standards Intuitions [21] , commented-

"Industrial Disputes act, 1947 is a legislation intended to bring about peace and harmony between management and labour in an industry so that production does not suffer and at the same time, labour is not exploited and discontented and therefore, the test must be so applied to give widest possible connotation to the word industry and the approach must be broad and liberal, not rigid or doctrinaire. We cannot forget that it is a social welfare legislation that we are interpreting and we must give such an interpretation as would advance the object and purpose of the legislation and give full meaning to it in the achievement to its avowed social objective." [22] 

The test in the Bangalore Water Supply case was itself very wide and the ambit of the term industry was blocked by only two exceptions. One, that of the sovereign functions and the second being certain charitable organizations not having an employer-employee relationship. Thus the test covers a wide range of establishments with a broad and liberal construction on "industry".

Besides the case laws on the point the legislation too has contemplated the widening of the definition of the term industry under the Act.

The Industrial Dispute Amendment Act (1982) has proposed amendments to Section 2 of the existing act. With regard to the issue at hand the proposed amendment has made considerable departure from the case law in the regard particularly the decision of the Supreme Court in the Bangalore Water Supply case. In explanation 9 to Section 2 the Amendment proposes that "any activity, being an activity carried on by a co-operative society or a club or any other like body of individuals, if the number of persons employed by the cooperative society, club or other like body of individuals in relation to such activity is less than ten" is an industry. [23] 


The decision of the Court in the Bangalore Water Supply case was a seminal moment as far as the question whether Recreational Clubs fall under the definition of Industry. The Court rejected the argument of exclusive nature of the clubs and the argument that they do not serve the community. These two arguments founded the basis of Justice Hidayathulah's decision in the Madras Gymkhana Club Case. The Court in the BWS case observed that the clubs are open to public for membership subject to their own rules. The court said that if there is productive cooperation between employer and employee then a conflict is bound arise between them, be it a social club, mutual benefit society, public service or professional office. Tested on this yardstick, most clubs will fail to qualify for exemption.

However the researcher feels that with the usage of such a sweeping test like the triple test, lot of institutions which were never envisaged to be industries have come under the purview of the Industrial Disputes Act. That the test is 'sweeping' has already been stated by the Apex court in the Coir Board Ernakulum Case. The researcher also does not subscribe the view of Justice Hidayatullah in the Madras Gymkhana Case that "size of the club or the largeness of its membership or the number or extent of there activities" should not be considered. On the other hand the researcher feels the size of the club should be made the sole criterion to base the decision as to whether a club qualifies to be an industry or not. His arguments are substantiated by the fact that the Industrial Dispute (Amendment) Act 1982 prescribes the same. [24] 

It is hereby argued that there is a need to adopt a middle path between the two decisions. It is submitted that a strict adherence to Justice Hidayatullah's position in Madras Gymkhana case will put every club outside the purview of the term industry and there by will confirm the concern of Justice Krishna Iyer that it is not reasonable to allow such an organized institution to be outside the bounds of the Act.

At the same time, the application of the triple test in the case of industries will bring every club under the purview of the term industry. There exists countless recreational clubs both in Rural and Urban India catering to various sections of the people. While some of them, the larger ones and the ones run on a grand scale have the character of industry the others are merely an association of people in pursuance to a collective interest in a particular activity that possess little or no attributes of an industry. A sweeping test on the likes of the 'Triple Test' will needless to say prove counterproductive thus depriving a sizeable section of the populace of an important source of entertainment or recreation or academic knowledge.

The 'collateral damage' as result of the triple test can be avoided by making the number of personnel the club employs as the criterion to distinguish the Clubs.

Having said that, the researcher concludes by placing reliance on Lord Denning's words that 'The duty of the court is to interpret the words that the legislature has used; those words may be ambiguous, but even if they are, the power and duty of the court to travel outside them on a voyage of discovery are strictly limited'.

Additionally the researcher feels that an over-expansive definition of the word `industry' might be a deterrent to private enterprises in India where employment opportunities are scarce. Needless to say, a worker-oriented approach in construing the definition of industry, unmindful of the interest of the employer, would be a one-sided approach and not in accordance with the provisions of the Act. There is an urgent necessity to interpret industrial law to ensure that neither the employers nor the employees were in a position to dominate the other.


Justice G.P Singh, 'Principles of Interpretation of Statute', EBC Publication, 2004

Rao E.M, 'O.P Malhotra Labor Law', Lexis Nexis Butterworths, 6th Ed, 2004

Misra S.N, S Kumar Misra, 'Labour and Industrial Law', 19th Ed, 2002

Online Sources

Extracts from the Industrial Dispute (Amendment) Act is available at: (last accessed 24th March 2010)