Corporation of the City of Nagpur v Its Employees (1960)

This is the case that settles how a municipal corporation is treated under the definition of "industry", and it does so with a distinction that outlived the statute it was construing: a corporation has a dual character. Some of its functions are regal (or sovereign) and fall outside the definition entirely; the rest are ordinary municipal services and are covered.

It also supplies the vocabulary later courts used. The test of "primary and inalienable functions" — legislation, administration of justice, maintenance of order, repression of crime — comes from here, and the distinction between regal and non-regal functions runs through Safdarjung Hospital, Bangalore Water Supply and the sovereign-function debate in State liability.

The appellant was the Corporation of the City of Nagpur, constituted under the City of Nagpur Corporation Act 1948.

Disputes arose between the Corporation and employees across its various departments about wage scales, gratuity, provident fund, house rent, confirmation and allowances. On 23 October 1956 the Government of Madhya Pradesh referred them under s. 39 of the Act to the State Industrial Court, Nagpur.

The Corporation's defence was jurisdictional: it was not an "industry" as defined by the Act, so the Industrial Court could not adjudicate at all.

On 13 February 1957 the Industrial Court made a preliminary order holding that the Corporation was an industry, leaving for evidence the further question whether each particular department was. A writ petition under Article 226 was dismissed as the award had meanwhile been made. On 3 June 1957 the Industrial Court awarded that the Corporation was an industry, that all its departments were covered, revised the pay scales and accepted the employees' major demands.

The Corporation petitioned the High Court at Nagpur again. A Division Bench rejected the contention that the Corporation was not an industry, but remanded the case to the State Industrial Court to decide department by department. Hence these three connected appeals.

1. Is a municipal corporation an "industry" within the definition?
2. Do the regal or sovereign functions of the State fall within the definition?
3. Where a corporation carries on both kinds of activity, how is the question decided?

Regal functions are outside the definition; the rest of the Corporation's activities are within it, and the question must be examined department by department.

The regal-function exclusion

The Court drew the line using authority from three jurisdictions:

• Lord Watson in Coomber v Justices of Berks (1883-84) 9 App Cas 61 at 74 described the administration of justice, maintenance of order and repression of crime as among "the primary and inalienable functions of a constitutional Government".
• Isaacs J, dissenting in The Federated State School Teachers' Association of Australia v The State of Victoria (1929) 41 CLR 569 at 585, put it precisely:

"Regal functions are inescapable and inalienable. Such are the legislative power, the administration of laws, the exercise of the judicial power. Non-regal functions may be assumed by means of the legislative power. But when they are assumed the State acts simply as a huge corporation, with its legislation as the character. Its action under the legislation, so far as it is not regal execution of the law is merely analogous to that of a private company similarly authorised."

On that footing: "It could not have been, therefore, in the contemplation of the Legislature to bring in the regal functions of the State within the definition of industry and thus confer jurisdiction on Industrial Courts to decide disputes in respect thereof. We therefore exclude the regal functions of a State from the definition of industry."

The dual character of a municipal corporation

The Corporation "functions under a statute and its powers, duties and liabilities are regulated by it. It is a juristic person and it can sue and be sued in its name. The statute constituting it may confer upon it some strictly regal functions and other municipal functions."

Two comparisons made the point:

• County Council of Middlesex v Assessment Committee of St George's Union (1896) 2 QBD 143 — premises used both for the administration of justice and for municipal purposes were rateable so far as occupied for municipal purposes and not rateable so far as occupied for the administration of justice, that being a function of the Crown.
• Vilas v City of Manila 220 US 345 — municipal corporations "exercise powers which are governmental and powers which are of a private or business character."

A municipal corporation is an "industry" in respect of those of its activities which are analogous to trade or business or which render material services to the community; but its regal (sovereign) functions — legislation, administration of justice, maintenance of order, repression of crime — are outside the definition. Where a corporation discharges both kinds of function, the question is decided activity by activity, not once for the whole body.

• D.N. Banerji v P.R. Mukherjee (1953) — a municipality (Budge Budge) is an industry; "undertaking" covers activity analogous to business though it is neither, and profit is irrelevant.
• City of Nagpur (this case, 1960) — adds the regal-function exclusion and the department-by-department approach.
• State of Bombay v Hospital Mazdoor Sabha (1960) — the "material services" test.
• Safdarjung Hospital (1970) — the high point of the retreat, requiring an activity analogous to trade or business.
• Bangalore Water Supply and Sewerage Board v A. Rajappa (1978) — the seven-judge triple test, which preserves a narrow exclusion for sovereign functions "strictly understood" while sweeping in almost everything else.

• Direct question: Is a municipal corporation an industry? Discuss. Give D.N. Banerji first, then this case for the dual character and the regal-function exclusion, then Bangalore Water Supply for the modern test.
• Definition worth quoting: Isaacs J's "Regal functions are inescapable and inalienable" — it is the crispest statement of the exclusion in the books.
• Point often missed: the enquiry is not whether the body as a whole is an industry. A corporation may be an industry for its water works and not for its magistracy. Say so, and cite the Middlesex rating case as the analogy the Court itself used.
• Cross-reference: the same regal/non-regal distinction appears in State liability in tort (sovereign functions) and under Article 12 — different questions, same vocabulary, and worth noting that the answers do not have to coincide.