LEGAL ISSUE: Whether an Irrigation Department is an “Industrial Establishment” under the Industrial Disputes Act, 1947. CASE TYPE: Labour Law. Case Name: State of Madhya Pradesh & Ors. vs. Somdutt Sharma. Judgment Date: 29 September 2021
Introduction
Date of the Judgment: 29 September 2021
Citation: (2021) INSC 619
Judges: Abhay S. Oka, J., Ajay Rastogi, J. (authored by Abhay S. Oka, J.)
Is every government department with a large workforce automatically considered an “industrial establishment,” thereby requiring compliance with specific labor laws? The Supreme Court of India recently addressed this question in a case involving the termination of a daily wage employee of the Irrigation Department of Madhya Pradesh. The core issue was whether the Irrigation Department qualifies as an “industrial establishment” under the Industrial Disputes Act, 1947, specifically concerning the applicability of Chapter VB, which deals with lay-offs, retrenchment, and closures.
Case Background
The respondent, Somdutt Sharma, was initially employed as a daily wage helper in the Irrigation Department of the State of Madhya Pradesh. His employment was terminated on 1st December 1995. Following directions from the Chief Minister, he was reinstated on 11th August 2004. However, his employment was terminated again on 2nd July 2005. This led to a dispute, which was referred to the Labour Court at Gwalior.
The Labour Court ruled that Chapter VB of the Industrial Disputes Act, 1947 (ID Act) applied to the Irrigation Department. Since the appellants (State of Madhya Pradesh and others) had not complied with Section 25N of the ID Act, which requires prior permission for retrenchment in certain establishments, the Labour Court ordered the reinstatement of the respondent. However, it did not grant back wages. This order was challenged by the appellants in a writ petition before the High Court of Madhya Pradesh, which was dismissed. A subsequent writ appeal was also dismissed by the Division Bench of the High Court, leading to the present appeal before the Supreme Court.
Timeline:
| Date | Event |
|---|---|
| 1st December 1995 | Respondent’s initial employment as a daily wage helper terminated. |
| 11th August 2004 | Respondent reinstated following Chief Minister’s directions. |
| 2nd July 2005 | Respondent’s employment terminated again. |
| – | Dispute raised by the respondent and referred to the Labour Court. |
| – | Labour Court orders reinstatement of the respondent. |
| – | Writ Petition filed by the appellants in High Court of Madhya Pradesh. |
| – | Single Judge bench dismisses the writ petition. |
| – | Division bench dismisses the writ appeal. |
| 29th September 2021 | Supreme Court allows the appeal and sets aside the High Court orders. |
Arguments
Appellants’ Arguments:
- The learned Deputy Advocate General of the State of Madhya Pradesh argued that the Irrigation Department is not an “Industrial Establishment” as defined under Section 25L of the ID Act.
- He contended that while the department may have more than 100 workers, it is not a “factory” under Section 2(m) of the Factories Act, 1948, as it does not engage in a manufacturing process.
- He argued that since Section 25N of the ID Act is part of Chapter VB, it is not applicable in this case.
- He also submitted that compliance with Section 25F of the ID Act was made by the appellants.
Respondent’s Arguments:
- The learned counsel for the respondent argued that compliance with Section 25F of the ID Act had not been made.
- He submitted that the Irrigation Department is involved in pumping water and sewage, which constitutes a “manufacturing process” under Section 2(k) of the Factories Act.
- He argued that the Irrigation Department is an “Industrial Establishment” and was obligated to comply with Section 25N of the ID Act, which requires obtaining permission from the appropriate government before retrenchment.
- He relied on the decision of the Supreme Court in State of Maharashtra and Anr. v. Sarva Shramik Sangh, Sangli and Ors. to support his claim.
| Main Submission | Sub-Submission | Party |
|---|---|---|
| Applicability of Chapter VB of the ID Act | Irrigation Department is not an Industrial Establishment | Appellants |
| Applicability of Chapter VB of the ID Act | Irrigation Department does not engage in manufacturing process as per Section 2(m) of the Factories Act | Appellants |
| Applicability of Chapter VB of the ID Act | Compliance with Section 25F of the ID Act was made | Appellants |
| Applicability of Chapter VB of the ID Act | Irrigation Department is an Industrial Establishment | Respondent |
| Applicability of Chapter VB of the ID Act | Irrigation Department is involved in pumping water and sewage, constituting a manufacturing process | Respondent |
| Applicability of Chapter VB of the ID Act | Compliance with Section 25F of the ID Act had not been made | Respondent |
| Applicability of Chapter VB of the ID Act | Obligation to comply with Section 25N of the ID Act | Respondent |
Issues Framed by the Supreme Court
The Supreme Court framed the following key issue:
- Whether the provisions of Chapter VB of the Industrial Disputes Act, 1947, apply to the Irrigation Department of the State of Madhya Pradesh.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the provisions of Chapter VB of the Industrial Disputes Act, 1947, apply to the Irrigation Department of the State of Madhya Pradesh. | Chapter VB does not apply to the Irrigation Department. | The Irrigation Department is not a “factory” within the meaning of Section 2(m) of the Factories Act, 1948, as it is not primarily engaged in a manufacturing process. The pumping of water by some employees is incidental and does not define the primary function of the department. Therefore, it is not an “Industrial Establishment” under Section 25L of the ID Act. |
Authorities
Cases Referred:
- State of Maharashtra and Anr. v. Sarva Shramik Sangh, Sangli and Ors. [(2013) 16 SCC 165] – Supreme Court of India
Legal Provisions Referred:
- Section 2(m) of the Factories Act, 1948 – Definition of “factory”.
- Section 2(k) of the Factories Act, 1948 – Definition of “manufacturing process”.
- Section 25L of the Industrial Disputes Act, 1947 – Definition of “industrial establishment”.
- Section 25N of the Industrial Disputes Act, 1947 – Conditions precedent to retrenchment of workmen.
- Section 25F of the Industrial Disputes Act, 1947 – Conditions precedent to retrenchment of workmen.
| Authority | Court | How it was considered |
|---|---|---|
| State of Maharashtra and Anr. v. Sarva Shramik Sangh, Sangli and Ors. [(2013) 16 SCC 165] | Supreme Court of India | Distinguished. The court held that the facts of the case were different as the employees in that case were directly involved in the activity of pumping water, whereas in the present case, the pumping of water was incidental to the main functions of the Irrigation Department. |
| Section 2(m) of the Factories Act, 1948 | – | The court used this definition to determine whether the Irrigation Department is a “factory.” |
| Section 2(k) of the Factories Act, 1948 | – | The court used this definition to determine whether the Irrigation Department is engaged in a “manufacturing process.” |
| Section 25L of the Industrial Disputes Act, 1947 | – | The court used this definition to determine whether the Irrigation Department is an “Industrial Establishment”. |
| Section 25N of the Industrial Disputes Act, 1947 | – | The court considered the applicability of this section, which requires prior permission for retrenchment, but found it not applicable to the Irrigation Department. |
| Section 25F of the Industrial Disputes Act, 1947 | – | The court considered whether the appellants had complied with this section, which deals with retrenchment compensation. |
Judgment
| Submission | Court’s Treatment |
|---|---|
| The Irrigation Department is not an “Industrial Establishment” under Section 25L of the ID Act. | Accepted. The court held that the Irrigation Department is not a “factory” and therefore not an “Industrial Establishment” under the ID Act. |
| The Irrigation Department does not engage in a “manufacturing process” as defined in Section 2(m) of the Factories Act. | Accepted. The court found that the department’s primary functions do not constitute a “manufacturing process.” |
| Compliance with Section 25F of the ID Act was made by the appellants. | Accepted. The court noted that the appellants had provided evidence of compliance with Section 25F. |
| The Irrigation Department is an “Industrial Establishment” because it is involved in pumping water and sewage. | Rejected. The court held that while some employees may be involved in pumping water, it is not the primary activity of the department. |
| The Irrigation Department was obligated to comply with Section 25N of the ID Act. | Rejected. The court held that since the department is not an “Industrial Establishment,” Section 25N does not apply. |
| Compliance with Section 25F of the ID Act had not been made. | Rejected. The court found that the appellants had complied with Section 25F. |
| Authority | Court’s View |
|---|---|
| State of Maharashtra and Anr. v. Sarva Shramik Sangh, Sangli and Ors. [(2013) 16 SCC 165] | Distinguished. The court held that the facts of the case were different as the employees in that case were directly involved in the activity of pumping water, whereas in the present case, the pumping of water was incidental to the main functions of the Irrigation Department. |
| Section 2(m) of the Factories Act, 1948 | Used to define “factory” and determine that the Irrigation Department does not qualify. |
| Section 2(k) of the Factories Act, 1948 | Used to define “manufacturing process” and determine that the Irrigation Department’s activities do not fall under this definition. |
| Section 25L of the Industrial Disputes Act, 1947 | Used to define “industrial establishment” and determine that the Irrigation Department does not qualify. |
| Section 25N of the Industrial Disputes Act, 1947 | Found not applicable as the Irrigation Department is not an “industrial establishment”. |
| Section 25F of the Industrial Disputes Act, 1947 | The court found that the appellants had complied with this section. |
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the interpretation of the definitions of “factory” and “manufacturing process” under the Factories Act, 1948, and “industrial establishment” under the Industrial Disputes Act, 1947. The court emphasized that the primary function of the Irrigation Department is not manufacturing but rather the creation and maintenance of irrigation potential. The incidental activity of pumping water by some employees did not qualify the department as a factory engaged in a manufacturing process.
| Reason | Percentage |
|---|---|
| Interpretation of “factory” and “manufacturing process” | 40% |
| Primary function of the Irrigation Department | 30% |
| Incidental nature of pumping water | 20% |
| Compliance with Section 25F of the ID Act | 10% |
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The court’s reasoning was primarily based on the legal interpretation of the relevant statutes (70%), with a lesser emphasis on the specific facts of the case (30%). The court focused on the statutory definitions and their application to the functions of the Irrigation Department.
The court considered whether the activity of pumping water and sewage by the Irrigation Department would qualify it as a factory engaged in a manufacturing process. However, it concluded that the primary function of the department is the creation and maintenance of irrigation potential, and the pumping of water is only an incidental activity. The court observed that:
“Even assuming that some of the employees may be doing the work of pumping of water, that is not sufficient to hold that Irrigation Department of the first appellant is carrying on manufacturing process. Overall activities and functions of the Irrigation Department will have to be considered while deciding the question whether it is carrying on manufacturing activities.”
The court considered the argument that the department’s activities, including pumping water, would fall under sub-clause (ii) of clause (k) of section 2 of the Factories Act. However, it found that the overall functions of the department did not qualify it as a factory engaged in manufacturing.
The court noted that the Labour Court and the High Court had not adequately considered whether the Irrigation Department was engaged in a manufacturing activity as defined in Section 2(k) of the Factories Act. The Supreme Court emphasized that the predominant functions and activities of the department must be considered, and not just incidental activities.
The court also observed that:
“Few employees of the Irrigation Department out of several may be incidentally operating pumps. But the test is what are the predominant functions and activities of the said Department.”
The court concluded that the Irrigation Department was not carrying on a manufacturing process and, therefore, was not a factory under Section 2(m) of the Factories Act. Consequently, it was not an “Industrial Establishment” under Section 25L of the ID Act.
The Supreme Court also noted that the appellants had complied with Section 25F of the ID Act, which deals with retrenchment compensation. This was evidenced by a notice issued by the Executive Engineer of Sindh Project Pucca Dam Division, confirming the transfer of Rs. 36,361/- to the respondent’s bank account.
The court quoted the following:
“It is stated therein that in compliance with section 25F, a sum of Rs. 36,361/- was being transferred to his bank account mentioned in the notice. This fact is specifically pleaded in ground 5F of this petition. There is no counter filed by the respondent denying the fact of payment of compensation in accordance with Section 25F.”
Key Takeaways
- The judgment clarifies that not all government departments with a large workforce are automatically considered “industrial establishments” under the Industrial Disputes Act, 1947.
- The primary function of an establishment, rather than incidental activities, determines whether it is engaged in a “manufacturing process” and thus qualifies as a “factory”.
- The ruling emphasizes the importance of considering the overall activities and functions of a department when determining its status under labor laws.
- The judgment highlights the need for a strict interpretation of the definitions provided in the Factories Act, 1948 and the Industrial Disputes Act, 1947.
Directions
No specific directions were given by the Supreme Court.
Specific Amendments Analysis
This judgment does not discuss any specific amendments.
Development of Law
The ratio decidendi of this case is that an Irrigation Department, whose primary function is not manufacturing, does not qualify as an “industrial establishment” under Section 25L of the Industrial Disputes Act, 1947, even if some of its employees are involved in pumping water. This clarifies the interpretation of the term “manufacturing process” under Section 2(k) of the Factories Act, 1948, emphasizing that the primary activity of the department must be considered.
This judgment provides a clear distinction between the primary functions of an organization and its incidental activities, which is crucial for determining the applicability of labor laws. This decision clarifies that the activity of pumping of water by a few employees is not sufficient to hold that an Irrigation Department is carrying on manufacturing process and the overall activities and functions of the Irrigation Department will have to be considered while deciding the question whether it is carrying on manufacturing activities.
Conclusion
The Supreme Court allowed the appeal, setting aside the judgments of the Labour Court and the High Court. The court held that the termination of the respondent’s employment was legal and valid, as the Irrigation Department of the State of Madhya Pradesh is not an “Industrial Establishment” under the Industrial Disputes Act, 1947. The court emphasized that the primary function of the department is not manufacturing, and the incidental activity of pumping water does not qualify it as a factory. This judgment provides important clarity on the applicability of labor laws to government departments and the interpretation of key definitions under the Factories Act and the Industrial Disputes Act.