Monday, 29 May 2017

“NGO Not an Industry, states court, dismissing case”

This has reference to a Report in the Mumbai Mirror of Sunday, 28th May 2017 captioned: “NGO Not an Industry, states court, dismissing case”

The report states: “Seven years after an NGO employee approached the Labour Court alleging unfair labour practices in the organisation, which is run by an ex-MLA, the court has dismissed the complaint saying that salaried NGO workers cannot approach Labour Courts.”

In our view, this matter has been examined over three decades ago by the Supreme Court in the landmark case “Bangalore Water Supply and Sewerage Board v. R. Rajappa” and whether a charitable institution is an industry or not is now a settled case law! The recent verdict can easily be challenged at a higher court of law.

What is Industry?
Section 2(j) of the Industrial Disputes Act, 1947 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”.
The first principle we need to understand is, industry exists only when there is relationship between employers and employees.
The Supreme Court had held: “Any activity will be industry if it fulfills the ‘triple test’, as under:
  1. Systematic and organized activity;
  2. With the cooperation between Employers and employees;
  3. For the production and distribution of good and services whether or not capital has been invested for this activity.”
The Supreme Court was clear in the understanding that it is immaterial whether or not there is profit motive or whether or not there is capital. If the organization is a trade or business it does not cease to be one because of philanthropy overriding or overshadowing the triple test and such organizations therefore cannot be exempted from the scope of definition of industry.
There is also the “Dominant nature” test. Where there are complex activities, the test would be predominant nature of services and integrated nature of departments.

The exceptions to industry are:
  • Casual activities (because they are not systematic);
  • Small clubs, cooperatives, research labs, gurukuls which have an essentially volunteer or non-employee character;
  • Single door lawyer taking help from clerk (because there is no organized labour);
  • Charitable activities carried on through volunteers e.g. free legal or medical service;
  • Sovereign functions, i.e., maintenance of law and order, legislative functions and judicial function.
Charitable Institutions
Charitable institutions fall under three categories:
  1. Those that generate profit (or surplus income), but the profits or surplus income is used only for charitable purposes;
  2. Those that make no profit or surplus income, but, hire the service of employees as in any other business, but the goods/ services which are the output, are made available at a low/subsidized or no cost to the indigent poor; and
  3. Those that are driven by mission to serve humanity and fulfilled by men and women who work, not because they are paid wages, but because they share the passion for the cause and derive job satisfaction.
The first two categories are industries, but not the third, on the assumption that they all involve co-operation between employers and employees.

What is an Undertaking?
Ultimately, it is the character of the activity in question which attracts the provisions of Sec. 2 (j). Who conducts the activity (a business or a charitable institution) and whether it is conducted for profit or not, does not make any material difference. An activity systematically or habitually undertaken for the production or distribution of goods or for the rendering of material services to the community at large or a part of such community with the help of employees is an ‘undertaking’.

Activities that have no commercial implications, such as hospitals with philanthropic motives would be covered by the expression ‘undertaking’. The mere fact that Government or a charitable trust runs such activity is immaterial.

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

In Dhanrajgiri Hospital v. Workmen, the main activity of the hospital was imparting of training in nursing and the beds in the hospital were meant for their practical training. It was held not to be an industry, as it was not carrying on any economic activity in the nature of trade or business.

However, in Bangalore Water Supply v A. Rajappa, the Supreme Court overruled Safdarjung Hospital and Dhanrajgiri Hospital cases, and approved the law laid down in Hospital Mazdoor Sabha case. It was held that hospital facilities are surely services and hence industries. The government departments while undertaking welfare activities cannot be said to be engaged in discharging sovereign functions and hence outside the ambit of Sec.2(j) of the Act.
Therefore, a charitable hospital run by a private trust, offering free services and employing a permanent staff is an industry as there is a systematic activity, a cooperation between employer and employees and rendering of services which satisfies human wants and wishes.

Is NGO and Industry or not?
Yes, NGO is an industry if there is a systematic activity, a cooperation between employer and employees and rendering of services which satisfies human wants and wishes. It matters not if the NGO runs solely on grants or donations or whether there is capital, profit or surplus or otherwise. 

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