Understanding the Triple Test Issue with the IDA Act

During the twentieth century a new branch of jurisprudence known as industrial jurisprudence developed in our country.  Industrial jurisprudence, is a development of mainly post- independence period although its birth may be traced back to the industrial revolution. Today, in the era of industrialization, a large section of the Indian population is affected by this law. Therefore, the industrial laws play an important role in regulating the national economy of a country.

The Industrial Disputes Act came into force on April 1, 1947. The object as laid down in the preamble of the Act is to make provision for the investigation and settlement of the industrial dispute. The Act aims to bring industrial peace, harmony and economic justice by providing machinery and procedure for the investigation and settlement of industrial disputes by negotiations.

The Industrial Disputes Act provides the definition of ‘industry’ in the Section 2(j) of the act. The definition and its interpretation has been a contentious issue since years. 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”.

In the landmark judgment of Bangalore Water Supply v. A. Rajappa, the Supreme Court exhaustively considered the scope of industry and laid down the following test, which is popularly also known as “the triple test”, to ascertain what an industry is.

It was stated that where there is a

1. systematic activity,
2. organized by co-operation between employer and employee,
3. for the production and/or distribution of goods and services calculated to satisfy human wants and wishes, prima facie,

there is an ‘industry’ in that enterprise.

The following points were also emphasized in this case:

• Industry does not include spiritual or religious service or services geared to celestial bliss.
• Absence of profit motive or gainful objective is irrelevant, be venture in the public joint, private or other sector.
• The true focus is functional and the decisive test is the nature of the activity with the special emphasis on the employer-employee relations.
• If the organization is a trade or business it does not cease to be one because of philanthropy animating the undertaking.

Discontent with triple test rule

This judgement and the triple test has being used for a quiet a long time as a settled law in the industrial matters to construe the identity of an organization – if it is an industry or not. However, this experience does not seem to appear entirely happy. Instead of leading to industrial peace and welfare of the community, which was the ultimate aim of the Industrial Dispute Act, its application has done more damage than good, not only to the organizations but also to employees and the economy ultimately. Without actually realizing , the SC in the Bangalore Water Supply, gave very wide expansion to the term ‘industry’ and by its implication included educational institution, charitable institutions and all other liberal profession into its sweep. The reason being, that every time an organization which though did not intent to be an industry somehow fell under the ambit of “industry” by coinciding with any one of the wide conditions of triple test.

For instance, in case of a voluntary organization which run workshop in order help poor or destitute woman to earn some income by organizing some activities like preparing of spices, pickles. In this case, only small number of persons were employed to assist in the activities and the income earned by these activities was distributed to the women who were given such work. Now, technically speaking, such organization would be termed as an industry, if following the triple test, despite the fact that itwas not organized like industries and even do not have the means or manpower to run it as industries. In consequence to which, a large number of such voluntary welfare schemes have been abandoned because of the wide interpretation given to the term industry.

Considering the disastrous consequence of this widened definition, the government amended the definition of industry in the Industrial Disputes Act in 1982. Although it is yet to come into force.

Now is defining moment for industry

In the year 2005, SC in the case of State of UP v. Jai Bir Singh sought a reconsideration of the 38-year-old verdict by a larger bench as the verdict was said to carry an “over-emphasis on the rights of the workers.”It was felt that such an over-expansive interpretation of the definition of industry might be a deterrent to private enterprise in India where public employment opportunities are scarce. Moreover, in the present business scenario the industries needs to be competitive in both domestic and international markets in order to survive and such stringent laws would act as an obstacle in their progress.

The question before the bench was whether the social forestry department of State, which undertakes a scheme for improvement of the environment, would be covered by the definition of “industry” under Section 2(j) of the Industrial Dispute Act. The point of issue before the bench was whether the amended definition of the industry, which is in now the part of statute though not enforced, was a relevant piece of legislation which could be used to replace the existing definition of industry. The case witnesses much discussion and deliberations however, the matter still remains disputed.

Conclusion

The law in force presently is the interpretation of the original Section 2(j) as was laid down by Bangalore Water supply Case. The triple test formula is surely pro-labour as it seeks to bring more activities within the ambit of the Industrial Dispute Act 1947. In practical terms, the labour forces of the country are much better position now, than they would have been had the amended S. 2(j) been notified as because the amended S. 2(j) excludes some categories of employment which squarely comes within the fold of Rajappa’s case. However, at the same time its implications weigh heavily on the organizations carrying out welfare activities though not intending to be an industry. It’s been a long time since the matter has been disputed, so now is the high time that this debate shall be ended.