Whether a Law Firm Constitutes an Industry?: The Triple Test doctrine

This blog is authored by Arkadyuti Sarkar, Shyambazar Law College, University of Calcutta, during his internship with NitiNyaya Law Offices.

The question of what constitutes an industry for the first time arose in the Bangalore Water Supply vs R. Rajappa and the principles of the triple test were laid down. The meaning of “industry” has undergone significant evolution and expansion over time. The rationale behind such dynamism is various legislative and judicial decisions. Primarily, the transformation is symbolic due to a lack of transparency in the legislative intent as embodied under the law and conflicting judicial approaches regarding the ambit of the term.

To understand what constitutes an industry we must first understand the definition of an Industry.

Meaning of Industry   

As defined in Britanica.Com an Industry is a group of productive enterprises or organizations that are involved in the production or supply of goods, services, or income sources. According to Section 2(j) of the Industrial Disputes Act, 1947, ”industry” refers to any business, trade, undertaking, manufacture, or calling of employers and is inclusive of any calling, service, employment, handicraft, or any avocation or occupation of the workmen related to the industry.

Thus the definition consists of two parts. The first part refers to any business, trade, undertaking, manufacture, or calling of employers. Whereas, the second part includes any calling, service, employment, handicraft, or any avocation or occupation of the workmen related to the industry.

However, this definition under the Industrial Disputes Act dismisses some general notions that are associated with an industry. For instance, when it is said that an industry has been set up by an individual or a group of individuals then there would be an assumption that there has been an investment of a certain amount of capital and that the industry has been established for the purpose of large scale production of goods to the public or possibly to render material services to the community for revenue generation with a profit motive. The judiciary, however, has ruled that neither capital investment nor the profit motive is a sine qua non in ascertaining whether an organization or institution would be deemed as an industry or not.

In Employees Union vs Madras Gymkhana Club, the Supreme Court held that if the activity in an organization is capable of being described as industrial with reference to the employers’ occupation, the ambit of the industry, under the force of the second part takes in the different kinds of activity as mentioned therein. But the second part is incapable alone in defining the industry. By the inclusive part of the definition, the labor so employed in any industry is an integral part of such industry for the purpose of industrial disputes although industry generally refers to something that the employers create or undertake.

In Management of Safdarjung Hospital v. Kuldip Singh, the apex court held that a place for treating the patients run as a governmental department was not an industry as it was a part of the functions of the government. Charitable hospitals run by the Government or even the private associations cannot be included within the definition of the industry since they have not embarked upon economic activities analogous to a trade or business. If hospitals, nursing home, or a dispensary is run as a business in a commercial manner, then there may be a presence of elements of the industry.

Triple Test Doctrine

The Supreme Court of India in Bangalore Water Supply and Sewerage Board v. R. Rajappa, elaborated upon the scope of the industry and laid down the following test:

 

1. 1. There is a systematic activity in an organization;

1. 1. Such activity is a result of the cooperation between the employer and the employee;
   2. Such activity is intended towards the production and/or distribution of commodities calculated for the satisfaction of human wants and wishes;

1.  

then there is a prima facie existence of an “industry” in such an organization.

The Apex court further introspected the following points in the same case:

• The absence of any profit motive or capital investment is immaterial while ascertaining the existence of industry;

1. 1. An industry is only inclusive of material services or things. Spiritual or religious services or services toward celestial bliss, i.e. making of prasad on a huge scale shall not be regarded as an industrial activity for the purpose of the test;

1. 1. If the main purpose of an organization is trade or business then it does not cease to be an industry by becoming involved in philanthropic activities;

1. 1. The true focus is functional and the ascertaining test is the nature of the activity while especially emphasizing the employer-employee relationship.

1. 1. Dominant nature test – whether there occur complex activities, the test would depend upon the predominant nature of services and the integrated nature of the departments. All departments integrated with the industry will be deemed as an industry.

Exceptions

In the same case, the following were held not to come within the ambit of the industry:

• • Casual activities as they are non-systematic.

• • Small clubs, cooperatives, research labs, gurukuls inclusive of an essentially non-employee character.

• • Single door lawyer taking clerical assistance as there is an absence of organized labor.

• • Selfless charitable activities that are carried on by the means of volunteers; for e.g. free legal or medical service.

• • Sovereign functions – enforcement and maintenance of law and order, legislative functions, and judicial functions.

Whether a Law Firm is an Industry as per the test?

In National Union of Commercial Employees v. M.R. Meher, the Supreme Court held that a solicitor’s firm cannot be deemed as an industry, although on specific consideration, it is organized similar to an industrial concern. The court also held that an individual following a liberal profession does not carry on the same in any intelligible sense with his employees actively cooperating, and the principal capital brought by him into his profession is his intellectual and educational equipment having special and peculiar significance.

Subsidiary work that is purely incidental and intended towards assisting the solicitor in performing his job has no direct nexus with the professional service ultimately rendered by such solicitor. There is, without doubt, a kind of co-operation existing between the solicitor and his employees, but that same has no direct or immediate relationship with the advice or service rendered to the client.

However this decision was overruled in the Bangalore Water Supply case, wherein it was held that in view of the infrastructure of the official space of professional persons, the contribution towards the success of the institution is not merely a product of the labor of the professional or specialist but also from all those whose excellence in their respective spheres generates absolute proficiency.

Thus functional cooperation between employer and employees is imperative for the total quality of service. However, in the categories of such and allied professions in absence of such co-operation, they are not to be considered as industries.

References

• Labour and Industrial Law (29th Ed.) by Surya Narayan Mishra
• Bangalore Water Supply vs. R Rajappa & Others; 1978 AIR 548
• Secretary, Madras Gymkhana Club … vs Management Of The Gymkhana Club, 1968 AIR 554
• Management of Safdarjung Hospital v. Kuldip Singh, AIR 1970 Sc 1407
• National Union of Commercial Employees v. M.R. Meher, 1962 AIR 1080