State of Bombay v The Hospital Mazdoor Sabha (1960)

This is the high-water mark of the expansive reading of s. 2(j) before Bangalore Water Supply, and it is the case that puts hospitals inside the definition. It matters for three distinct contributions.

First, it supplies the working principle that dominated the field for a decade: an activity systematically or habitually undertaken for the production or distribution of goods or for the rendering of material services to the community with the help of employees is an undertaking.

Second, it settles a point of statutory construction that is examinable on its own — that noscitur a sociis cannot be used to cut down s. 2(j), because the wider words were deliberately chosen and the second clause is an inclusive definition.

Third, it fixes the sovereign functions exception at its narrowest: only the "primary and inalienable functions of a constitutional Government" are outside, and the welfare activities of a modern State are not.

It is also the decision that Safdarjung Hospital would overrule ten years later, and that Bangalore Water Supply would restore.

Respondents 2 and 3, Mrs. Vatsala Narayan and Mrs. Ruth Isaac, were employed as ward servants in the J.J. group of Hospitals, Bombay. The Superintendent issued notices terminating their services with effect from the dates named, and their services were in fact terminated. In their place two State servants discharged from the Civil Supplies Department were appointed.

Respondent 1, the Hospital Mazdoor Sabha, a registered trade union, together with the two women, petitioned the High Court under Article 226 alleging that the retrenchment was void for non-compliance with the mandatory provisions of ss. 25F and 25H, and claiming a writ of mandamus for reinstatement.

The Court set out the undisputed facts about the group, and these are worth keeping because they show how completely a State undertaking it was. The group consists of five hospitals. In 1835 Sir Robert Grant, then Governor of Bombay, desired to start an institution for imparting medical education in the Presidency; the proposal was sanctioned by the Board of Directors of the East India Company, funds of Rs. 44,000 were collected and an equal amount contributed by the Directors for the College building. The foundation of the Medical College building was laid in 1843 and completed in 1845. About that time the idea of a hospital for the sick "of all classes and castes" was mooted; Sir Jamsetjee Jeejibhoy offered a donation, Government contributed, and the J.J. Hospital was formally opened on 15 May 1845. The other four hospitals were built in course of time from donations.

Except for a small amount of Rs. 10,000, the whole expenditure — "in the neighbourhood of Rs. 27 lakhs" — was met by the State out of the budget grant under the head "38-Medical". The group was under the administrative control of the Surgeon-General; its day-to-day affairs were conducted by a Superintendent who was a full-time State employee; the residential staff, Resident Medical Officers, Assistant Medical Officers, Housemen, Nurses and others were all full-time employees paid on establishment pay bills. The group served as the clinical training ground for students of the Grant Medical College. It was thus run and managed by the State "to provide medical relief and to promote the health of the people of Bombay".

Tendolkar J, hearing the petition, declined to decide what he called the "somewhat ticklish question" whether the group constituted an industry, holding that even assuming the Act applied the orders were not void: non-compliance with s. 25F did not invalidate them, and the respondents could seek a remedy under s. 25I. The petition was dismissed.

The Court of Appeal reversed. It held that the impugned orders had not complied with the mandatory provisions of s. 25F and were therefore invalid and inoperative, which made it necessary to decide the larger issue whether the Act applied to hospitals. It was inclined to remit that question to Tendolkar J, but counsel on both sides requested it to decide the point itself, it being a question of law, so as to avoid a remand and a further appeal. It answered it in favour of the respondents, allowed the petition and issued mandamus.

The State appealed on a certificate of fitness. Two questions arose: whether contravention of s. 25F rendered the orders invalid; and whether the group of hospitals was an industry within the Act.

The facts were not in dispute: the two respondents had been retrenched, albeit to make room for Government servants with longer service retrenched on the closure of the Civil Supplies Department, and compensation under s. 25F(b) had not been paid at the time of retrenchment.

Section 25F(b) provides that no workman employed in any industry who has been in continuous service for not less than one year shall be retrenched until he has been paid, at the time of retrenchment, compensation equivalent to fifteen days' average pay for every completed year of service or any part thereof in excess of six months.

On a plain reading, the Court held, "the requirement prescribed by it is a condition precedent for the retrenchment of the workman." The section says no workman shall be retrenched until the condition is satisfied. "It is difficult to accede to the argument that where the section imposes in mandatory terms a condition precedent, non-compliance with the said condition would not render the impugned retrenchment invalid."

Tendolkar J's contrary view rested on s. 25I, which provides for the recovery of monies due from employers under Chapter V. The Court rejected it: the words of s. 25F(b) being mandatory and their effect plain and unambiguous, s. 25I covers the recovery of monies other than those specified in s. 25F(b), of which there are several other instances under Chapter V. Failure to comply with s. 25F(b) therefore rendered the orders invalid and inoperative.

That holding is itself the standing authority on retrenchment compensation, and it is why the definitional question had to be answered: s. 25F applies only to "a workman employed in any industry".

Starting with the words

Section 2(j) provides that "industry" means any business, trade, undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft, or industrial occupation or avocation of workmen.

The Court took the constituent words one by one. "Undertaking", according to Webster, means "anything undertaken; any business, work or project which one engages in or attempts, an enterprise". "Trade", according to Halsbury, in its primary meaning is "exchange of goods for goods or goods for money", and in its secondary meaning "any business carried on with a view to profit whether manual or mercantile, as distinguished from the liberal arts or learned professions and from agriculture". "Business" is a wider term, not synonymous with trade, meaning practically "anything which is an occupation as distinguished from a pleasure". Calling, in its ordinary sense, is one's usual occupation or vocation, and "service" is likewise very wide.

"Prima facie, if the definition has deliberately used words of such wide import, it would be necessary to read those words in their wide denotation; and so read, Hospitals cannot be excluded from the definition."

The rejection of noscitur a sociis

The State's principal argument of construction was noscitur a sociis — that words susceptible of analogous meaning, coupled together, take their colour from one another, the more general being restricted to a sense analogous to the less general; hence "undertaking" and the rest should take the colour of the attributes conventionally associated with "business and trade". Ejusdem generis, the Court noted, "is only an illustration or specific application of the broader maxim".

The Court was "not impressed". Noscitur a sociis "is merely a rule of construction and it cannot prevail in cases where it is clear that the wider words have been deliberately used in order to make the scope of the defined word correspondingly wider." It applies only where the legislative intention in associating wider with narrower words is doubtful or unclear, or where the meaning of the wider words is itself doubtful. Earl of Halsbury LC's observation in The Corporation of Glasgow v Glasgow Tramway and Omnibus Co. Ltd. was applied: words "so wide in their application that I should have thought it impossible to qualify or cut them down by their being associated with other words on the principle of their being ejusdem generis".

Two supporting points of construction were added:

• The object and scope of the Act — provision for the investigation and settlement of industrial disputes — appear from the definitions of "industrial dispute", "wages", "workman" and "employer", and the definition of public utility service is "very significant": "one has merely to glance at the six categories … to realise that the rule of construction on which the appellant relies is inapplicable".
• Section 2(j) does not define "industry" in the usual way by stating only what it means. The first clause gives the statutory meaning; the second clause deliberately brings in several other items in an inclusive way. "It is obvious that the words used in an inclusive definition denote extension and cannot be treated as restricted in any sense … Where we are dealing with an inclusive definition it would be inappropriate to put a restrictive interpretation upon terms of wider denotation."

The rejection of the conventional meaning of trade

"The conventional meaning attributed to the words 'trade and business' has lost some of its validity for the purpose of industrial adjudication." Industrial adjudication "has necessarily to be aware of the current of socio-economic thought around; it must recognise that in the modern welfare State healthy industrial relations are a matter of paramount importance". It "does not and should not adopt a doctrinaire approach"; it must evolve working principles and avoid abstract generalisations; but it "cannot hark back to old-age notions about the relations between employer and employee or to the doctrine of laissez faire". Hence it would be erroneous "to attach undue importance to attributes associated with business or trade in the popular mind in days gone by".

But a line must be drawn

The Court was equally clear that the words cannot be given their widest possible meaning:

"It is clear, however, that though s. 2(j) uses words of very wide denotation, a line would have to be drawn in a fair and just manner so as to exclude some callings, services or undertakings. If all the words used are given their widest meaning, all services and all callings would come within the purview of the definition; even service rendered by a servant purely in a personal or domestic matter or even in a casual way would fall within the definition."

So the real question became: given that profit motive and investment of capital are conceded on both sides not to be necessary under s. 2(j), what attributes must be common between trade and business on the one hand and "undertaking" and the other items on the other?

The sovereign functions exclusion

Some activities can be excluded "without any difficulty". Stated negatively, "the activities of the Government which can be properly described as regal or sovereign activities are outside the scope of s. 2(j). These are functions which a constitutional Government can and must undertake for governance and which no private citizen can undertake." That was not in dispute.

The State pressed for more: that in view of the Directive Principles in Part IV and the ideal of a welfare State, the excluded field should be extended to cover the welfare activities Governments now undertake. The Court refused. The excluded activities are those "pithily described by Lord Watson as 'the primary and inalienable functions of a constitutional Government'" in Coomber v Justices of Berks, "and it is only these activities that are outside the scope of s. 2(j)." And then the sentence that decides the point:

"It sounds incongruous and self-contradictory to suggest that activities undertaken by the Government in the interests of socio-economic progress of the country as beneficial measures should be exempted from the operation of the Act which in substance is a very important beneficial measure itself."

The definition of "employer" in s. 2(g)(i) — the prescribed authority, or the head of the department, in relation to an industry carried on by or under the authority of a department of the Central or a State Government — "clearly indicates that the Legislature intended the application of the Act to activities of the Government which fall within s. 2(j)".

The private-citizen test

The Court then applied what is in effect a test of transposition. Ask "whether an activity of a like nature would be an undertaking if it were carried on by a private citizen or a group of private citizens." A hospital run by private citizens for profit would plainly be an undertaking very like a trade or business. Profit motive being unnecessary, a hospital run by a private citizen without charging any fees would nevertheless be an undertaking. "Thus the character of the activity involved in running a hospital brings the institution of the hospital within s. 2(j)." Does it make a difference that the hospital is run by Government? "In our opinion, the answer to this question must be in the negative. It is the character of the activity which decides the question … who conducts the activity and whether it is conducted for profit or not do not make a material difference."

The conduct and running of the group of Hospitals by the State amounted to an undertaking under s. 2(j), the relevant provisions of the Act applied, the retrenchment without compensation under s. 25F(b) was invalid, the order of the High Court was confirmed and the appeal was dismissed with costs.

The working principle — the passage to learn

"It is difficult to state these possible attributes definitely or exhaustively; as a working principle it may be stated that 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. Such an activity generally involves the co-operation of the employer and the employees; and its object is the satisfaction of material human needs. It must be organised or arranged in a manner in which trade or business is generally organised or arranged. It must not be casual nor must it be for oneself nor for pleasure."

The distinctive features of activities to which s. 2(j) applies are therefore: the manner in which the activity is organised or arranged; the condition of co-operation between employer and employee necessary for its success; and its object of rendering material service to the community. "Judged by this test there would be no difficulty in holding that the State is carrying on an undertaking when it runs the group of Hospitals in question."

Note the three negative limbs — not casual, not for oneself, not for pleasure. The "not for oneself" limb is the seed of the later self-service reasoning about members' clubs.

Quid pro quo is irrelevant

It was argued that even if profit motive is unnecessary, the person carrying on the activity must receive some consideration in return. The Court held that this argument "though … put in a slightly different form, in substance … is really based on the idea that profit motive is necessary". "If the absence of profit motive is immaterial why should an activity be excluded from s. 2(j) merely because the person responsible for the conduct of the activity expects no consideration, does not want any quid pro quo and is actuated by philanthropic or charitable motive?" In deciding whether an activity is an undertaking under s. 2(j) "the doctrine of quid pro quo can have no application."

The legislative corroboration

By Act 36 of 1956 three entries were added to the First Schedule, which enumerates industries that may be declared public utility services under s. 2(n)(vi): Defence Establishment; services in hospitals and dispensaries; and Fire Brigade service. Since an activity cannot be declared a public utility service unless it first falls under s. 2(j) and is an industry, the addition "can be reasonably taken as evidence of legislative intention" corroborating the conclusion independently reached. The entry was not in the Schedule when the present reference was made; but "after the addition of the relevant entry in the First Schedule it would not be open to anybody to suggest that service in hospitals does not fall under s. 2(j)."

D.N. Banerji v P.R. Mukherjee — the Court set out the Budge Budge Municipality litigation and quoted the two crucial passages: that neither the investment of capital nor a profit-earning motive "seems a sine qua non or necessary element in the modern conception of industry"; and the conclusion that the definitions include disputes between municipalities and their employees "in branches of work that can be said to be analogous to the carrying out of a trade or business". It was "because of this positive decision that the appellant has fairly conceded" that the absence of profit motive or of capital makes no material difference. The present appeal, the Court said, had to decide the further question what attributes make an activity analogous to trade or business. It added a pointed remark: "it would be difficult to suggest that though the sanitary department of a local body is an undertaking under s. 2(j) a hospital run by a Government is not."

Baroda Borough Municipality v Its Workmen — it is "now finally settled" that a municipal undertaking of that nature is an industry, and that "industrial dispute" includes disputes between municipalities and their employees in branches of work analogous to the carrying on of a trade or business. That case concerned a claim for bonus, which was rejected, and the Court declined to go into criticism of its reasoning as irrelevant here.

Sri Vishuddhananda Saraswathi Marwari Hospital v Their Workmen — the Labour Appellate Tribunal had held as early as 1952 that a hospital is an undertaking within s. 2(j), the definition being of wide amplitude with "no good reason for cutting down its natural meaning so as to limit its operation to profit-making enterprises only". That view had never been doubted in subsequent industrial adjudication.

The Federated State School Teachers' Association of Australia v The State of Victoria — by majority, the educational activities of the State were held not to be an industry, the occupation of teachers not an industrial occupation, and the dispute not an industrial dispute. But Isaacs J dissented emphatically, and it is his dissent the Court approved: that industrial adjudicators "must be conversant with the current knowledge on the subject and … should not ignore the constant currents of life around them"; that industrial enterprises "contribute more or less to the general welfare of the community"; and his formula, repeated from the Australian municipal case, that "industrial disputes occur when in relation to operations in which capital and labour are contributed in co-operation for the satisfaction of human wants or desires, those engaged in co-operation dispute as to the basis to be observed …". "According to the learned judge, the question must always be decided by determining the true character of the activity in question."

The Court then entered an express reservation candidates should never omit: "we are not expressing any opinion on the question as to whether running an educational institution would be an industry under the Act; that question does not arise in the present proceedings."

Brij Mohan Bagaria v Chatterjee (N.C.) — the Calcutta High Court had held a dispute between an attorney and his dismissed employees outside the Act, Sinha J observing that "however extended the meaning be given to the word industry … we cannot include within their concept the case of an individual who carries on a profession dependent upon its own intellectual skill", adding that "every case must be decided upon its own facts". The Supreme Court expressly refrained from deciding the position of attorneys, doctors and lawyers, but disapproved the learned judge's criticism of the Bombay view on hospitals: "the criticism made by the learned judge against the inclusion of hospitals within s. 2(j) is not well-founded." It noted that the Bombay High Court had taken the same view on attorneys in National Union of Commercial Employees v Meher (Pereira Fazalbhoy & Co.).

D.N. Banerji had held that a municipality's trade-analogous branches are an industry, and had left open what makes an activity "analogous to trade or business". This case answers that question, and answers it functionally: systematic or habitual activity, employer–employee co-operation, material services to the community, organised in the manner of trade or business, not casual, not self-serving, not for pleasure. Profit, capital and quid pro quo all drop out; only the "primary and inalienable functions of a constitutional Government" are excluded.

Read with its two reservations — education left open, and the professions left open — the judgment marks the furthest point the expansive reading reached before the retreat. Its vulnerable phrase is "material services", because a later Bench could ask what makes a service material, and its vulnerable premise is that a Government hospital is no different from a private one.