The Management of Safdarjung Hospital v Kuldip Singh Sethi (1970)

This is the high point of the retreat from the expansive definition of "industry". It is the decision that takes hospitals back out of s. 2(j), and it does so by rejecting outright the reasoning of Hospital Mazdoor Sabha.

Its importance lies in three propositions that governed the field until 1978. An undertaking is within s. 2(j) only if it is analogous to trade or business in a commercial sense. "Material services" means services organised as an industry and commercially valuable, not services depending on professional knowledge and skill given individually to individuals. And the First Schedule argument — that Parliament, by listing "service in hospitals and dispensaries" among industries which may be declared public utility services, had settled the question — fails, because an activity must be an industry before it can be notified.

It is the last of the four cases in this line before Bangalore Water Supply, and it is the decision that made the seven-judge reference necessary.

The judgment disposed of three appeals together, raising a common question of law: whether these hospitals can be regarded as industries within the Industrial Disputes Act. They also raised separate questions on the merits.

C.A. No. 1705 of 1969 — Safdarjung Hospital, New Delhi (by special leave). Kuldip Singh Sethi, a Lower Division Clerk in the Hospital, applied under s. 33C(2) for computation of salary due to him in the pay scale of store-keepers. He had been appointed a Store-keeper on 26 October 1956 in the scale Rs. 60–5–75. That scale was revised to Rs. 110–180 on 1 July 1959 on the recommendations of the Second Pay Commission; two or three months later the pay was re-fixed and the time scale became Rs. 110–131 with the usual allowances; on 1 July 1962 his basic pay was fixed at Rs. 131. On 26 November 1962 the Government of India in the Ministry of Health re-revised the scale of Store-keepers to Rs. 130–5–160–8–200–EB–8–280–10–300 with the usual allowances, the order to take effect from the date of issue. He complained that the Management had failed to give him that scale and claimed Rs. 914 for the period 26 November 1962 to 31 May 1968.

The Management replied that he was not a workman but a Government servant governed by the Conditions of Service for Government Servants, and could not invoke the Act because Safdarjung Hospital was not an industry. The Labour Court, following State of Bombay v Hospital Mazdoor Sabha, held the Hospital to be an industry and Sethi a workman entitled to proceed under s. 33C(2), found his claim sustainable on the merits, and made an award of Rs. 914.

C.A. No. 1781 of 1969 — Tuberculosis Hospital, New Delhi (by special leave). A dispute between the Management and its workmen, represented by the Aspatal Karamchari Panchayat, regarding pay scales and other facilities. The Management objected that the Act did not apply because the Hospital was not an industry and was not run as such, and questioned the reference under s. 10(1)(d). A preliminary issue was framed: Is T.B. Hospital an industry or not? The Management emphasised the Hospital's functions: it is run by the Tuberculosis Association of India as a research institute where training is given to medical graduates of Delhi University for the D.T.C.D. and D.C.H. courses; postgraduates and undergraduates of the All India Institute of Medical Sciences are trained there; and nurses from the Delhi College of Nursing and from the Safdarjung, Lady Hardinge and Holy Family Hospitals receive training. It was admitted that the Hospital has paid and unpaid beds, but submitted that treatment of tuberculosis is part of research, training and education, so that the Hospital "has affinity to a University and not to a Hospital proper". The Tribunal held that neither the research nor the training nor the affiliation made any difference, the case falling within Hospital Mazdoor Sabha, and held the Hospital to be an industry.

C.A. No. 1777 of 1969 — Kurji Holy Family Hospital, Patna (by certificate). The Hospital took disciplinary action against two employees; the matter was taken up by the Kurji Holy Family Hospital Employees Association; and the State of Bihar made a reference under s. 10 to the Labour Court, Patna. The Management objected that a hospital was neither a trade nor a business nor an industry, so that the reference was incompetent. The Patna High Court decided the point against the Management, following Hospital Mazdoor Sabha, and held that Secretary, Madras Gymkhana Club Employees Union v Management of the Gymkhana Club had not weakened that decision.

Counsel submitted that Hospital Mazdoor Sabha had been "considerably shaken" by Madras Gymkhana Club, where it was observed that it "was one which might be said to be on the verge" and that there were reasons to think it "took an extreme view of an industry". Relying on that observation, counsel asked for a reconsideration, conceding that the case was not yet overruled.

The Court accordingly heard argument on the general question — whether a hospital can be an industry, and whether all hospitals or only some under special conditions — and also on the merits, in case Hospital Mazdoor Sabha were held applicable.

Section 2(k) defines "industrial dispute" without referring to an industry; "but the dispute, on the grammar of the expression itself, means a dispute in an industry", so s. 2(j) must be examined.

In Gymkhana Club the Court had kept the employers' and workmen's notions apart, holding that the denotation of "industry" is in the first part and the full connotation in the second: "if the activity can be described as an industry with reference to the occupation of the employers, the ambit of the industry, under the force of the second part, takes in the different kinds of activity of the employees … But the second part standing alone cannot define 'industry'."

Hidayatullah CJ qualified that approach. Comparing the definition with s. 4 of the Australian Commonwealth Conciliation and Arbitration Act, he held it "not necessary to view our definition in two parts":

"The definition read as a whole denotes a collective enterprise in which employers and employees are associated. It does not exist either by employers alone or by employees alone. It exists only when there is a relationship between employers and employees … An industry is only to be found when there are employers and employees, the former relying upon the services of the latter to fulfil their own occupations."

This is the direct answer to Hospital Mazdoor Sabha's reliance on the second clause as an inclusive extension. On this reading the two parts are "two counterparts in one industry", not separate categories of industry.

But every case of employment is not productive of an industry. "Domestic employment, administrative services of public officials, service in aid of occupations of professional men, also disclose relationship of employers and employees but they cannot be regarded as in the course of industry." That follows from s. 2(s), which defines a workman as a person employed in any industry to do skilled or unskilled manual, supervisory, technical or clerical work for hire or reward, and expressly excludes persons subject to the Army, Air Force or Navy Acts, persons employed in the police service or as officers or employees of a prison, persons employed mainly in a managerial or administrative capacity, and persons employed in a supervisory capacity drawing wages exceeding five hundred rupees per mensem or exercising functions mainly of a managerial nature. "The word 'industry' in this definition must take its colour from the definition."

The Court adopted the conclusion of Gymkhana Club:

"Primarily, therefore, industrial disputes occur when the operation undertaken rests upon co-operation between employers and employees with a view to production and distribution of material goods, in other words, wealth, but they may arise also in cases where the co-operation is to produce material services."

It took the constituent words from Halsbury: "trade" is (a) exchange of goods for goods or goods for money, and (b) 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" means an enterprise which is an occupation as distinguished from pleasure; "manufacture" is a kind of productive industry in which the making of articles or material, often on a large scale, is by physical labour or mechanical power; "calling" denotes the following of a profession or trade.

Lord Wright's observation in Bolton Corporation that "trade" is a term of the widest scope was accepted as true so far as it goes — "we even speak of work, especially of skilled work, as a trade, e.g. the trade of goldsmiths" — but the word as used in the statute "must be distinguished from professions although even professions have 'trade unions'". In the collocation of the terms, they have "a definite economic content of a particular type" and have been uniformly accepted as excluding professions, being concerned only with the production, distribution and consumption of wealth and the production and availability of material services. Hence:

"Industry has thus been accepted to mean only trade and business, manufacture, or undertaking analogous to trade or business for the production of material goods or wealth and material services."

Why professions are outside

"A profession ordinarily is an occupation requiring intellectual skill, often coupled with manual skill. Thus a teacher uses purely intellectual skill while a painter uses both. In any event, they are not engaged in an occupation in which employers and employees co-operate in the production or sale of commodities or arrangement for their production or sale or distribution and their services cannot be described as material services."

What "material services" means — the key passage

"Material services are not services which depend wholly or largely upon the contribution of professional knowledge, skill or dexterity for the production of a result. Such services being given individually and by individuals are services no doubt but not material services. Even an establishment where many such operate cannot be said to convert their professional services into material services. Material services involve an activity carried on through co-operation between employers and employees to provide the community with the use of something such as electric power, water, transportation, mail delivery, telephones and the like. In providing these services there may be employment of trained men and even professional men, but the emphasis is not on what these men do but upon the productivity of a service organised as an industry and commercially valuable."

The services of doctors, teachers, lawyers and solicitors — benefiting individuals according to their needs — are thus "easily distinguishable from an activity such as transport service", which "is of a commercial character in which something is brought into existence quite apart from the benefit to particular individuals. It is the production of this something which is described as the production of material services."

This is the narrowest definition of "material services" in the whole line, and it inverts the sense in which Hospital Mazdoor Sabha had used the phrase.

The argument for the workmen, and why it failed

Mr. Ramamurti, for the workmen, relied on Citrine's Trade Union Law (3rd edn., p. 609): "whilst the words 'trade' and 'industry' are separately capable of a wide interpretation, when they occur in conjunction the tendency of the courts is to give them a narrow one." Citrine criticised that tendency as unnecessarily excluding from the category of workmen "teachers employed by local authorities, university employees, nurses and others employed under the National Health Service, the domestic staff of the Houses of Parliament and Civil Servants who are not employed in 'trading' or 'industrial' undertakings", since a person doing the same type of work for a commercial undertaking is within the definition; on his view any person gainfully employed must be within it. On that strength counsel contended that not Hospital Mazdoor Sabha but the earlier cases — University of Delhi v Ram Nath and National Union of Commercial Employees v M.R. Meher — should be reconsidered and overruled.

The Court rejected the submission. "The reason for these cases, as also the Gymkhana Club case, lies in the kind of establishment with which we are concerned." Gymkhana Club, followed and applied in Cricket Club v Labour Union, had held that non-profit-making members' clubs are not employed in trade or industry and their employees cannot engage in trade disputes with the clubs; that view found support in Hotel and Catering Industry Training Board v Automobile Proprietary Ltd. "The Solicitors case cited by Mr. Ramamurti was so decided because there the services rendered by the employees were in aid of professional men and not productive of material goods or wealth or material services. The other case of University was also decided as it was, for the same reason."

The proposition stated

"It, therefore, follows that before an industrial dispute can be raised … there must be first established a relationship of employers and employees associating together, the former following a trade, business, manufacture, undertaking or calling of employers in the production of material goods and material services and the latter following any calling, service, employment, handicraft, or industrial occupation or avocation of workmen in aid of the employers' enterprise. It is not necessary that there must be a profit motive but the enterprise must be analogous to trade or business in a commercial sense."

And, adopting Gymkhana Club: "before the work engaged in can be described as an industry, it must bear the definite character of 'trade' or 'business' or 'manufacture' or 'calling' or must be capable of being described as an undertaking resulting in material goods or material services."

The Court said "at once" that "if a hospital, nursing home or dispensary is run as a business in a commercial way there may be found elements of an industry there. Then the hospital is more than a place where persons can get treated for their ailment. It becomes a business." That concession defines the whole holding: it is not hospitals as such that are excluded, but hospitals not run commercially.

It then took Hospital Mazdoor Sabha apart on three grounds.

First, the two-part reasoning. That case had reasoned that the second part of the definition extended the first by including other items of industry. "As we have pointed out the first and the second parts of the definition are not to be read in isolation as if they were different industries but only as aspects of the occupation of employers and employees in an industry. They are two counterparts in one industry."

Second, the assumption about economic activity. Hospital Mazdoor Sabha "proceeds on the assumption that there need not be an economic activity since employment of capital and profit motive were considered unessential. It is an erroneous assumption that an economic activity must be related to capital and profit-making alone. An economic activity can exist without the presence of both." In other words, the Court agreed that capital and profit are unnecessary — but held that it does not follow that the activity need not be economic at all.

Third, the private-citizen test. Having rejected "the true test applied in other cases before", Hospital Mazdoor Sabha had asked "can such activity be carried on by private individuals or group of individuals?", and, holding that a hospital could be run as a business proposition and for profit, concluded that a hospital run by Government without profit must bear the same character. "With respect, we do not consider this to be the right test. That test was employed to distinguish between the administrative functions of Government and local authorities and their functions analogous to business but it cannot be used in this context." Once it was emphasised in the same case that the activity must be analogous to business and trade and productive of goods or material services, "there was no room for the other proposition that privately run hospitals may in certain circumstances be regarded as industries."

The Australian source, re-read. The Court held that the expression "satisfying material human needs" evolved in Hospital Mazdoor Sabha "bore a different meaning" from what Isaacs and Rich JJ had said in Federated Municipal and Shire Council Employees of Australia v Melbourne Corporation. It set out their passage again — industrial disputes occur where capital and labour are contributed in co-operation for the satisfaction of human wants and desires, and "it cannot matter whether the expenditure is met by fares from passengers or from rates" — and construed it thus: "The observations in the Australian case only indicate that in those activities in which government takes to industrial ventures, the notion of profit-making and the absence of capital in the true sense of the word are irrelevant. The passage itself shows that industrial disputes occur in operations in which employers and employees associate to provide what people want and desire, in other words where there is production of material goods or material services."

The conclusion is blunt: "In our judgment the Hospital Mazdoor Sabha case took an extreme view of the matter which was not justified."

It was argued that after the amendment adding "service in hospitals and dispensaries" to the list of industries which may be declared public utility services, there was no scope for saying hospitals are not industries: Parliament had accepted that the definition covers a hospital. The Court gave the point "close attention", since it had been noticed in Hospital Mazdoor Sabha itself.

The definition in s. 2(n) names: any railway service or any transport service for the carriage of passengers or goods by air; any section of an industrial establishment on whose working the safety of the establishment or its workmen depends; any postal, telegraph or telephone service; any industry which supplies power, light or water to the public; any system of public conservancy or sanitation; and, under clause (vi), any industry specified in the First Schedule which the appropriate Government may, if satisfied that public emergency or public interest so requires, by notification declare to be a public utility service, for a period not exceeding six months in the first instance, extendable by like notification by periods not exceeding six months at a time.

The intention behind the provision "is obviously to classify certain services as public utility services with special protection for the continuance of those services". The named services "answer the test of an industry run on commercial lines to produce something which the community can use … brought into existence in a commercial way and … analogous to business in which material goods are produced and distributed for consumption."

The First Schedule originally contained five entries — Transport (other than railways) for the carriage of passengers or goods, by land, water or air; Coal; Cotton textiles; Food stuffs; Iron and steel. The Court's argument from these is the clinching one: "It is obvious that general headings are given here. Coal is not an industry but certain aspects of dealing with coal is an industry and that is what is intended … Similarly, cotton textiles or food stuffs or iron and steel, as the entries stand, are not industries. Therefore the heading of the First Schedule and the words of clause (vi) presuppose the existence of an industry which may be notified as a public utility service."

The list was extended to ten items by Act 36 of 1956 with effect from 10 March 1957, the new items being Banking, Cement, Defence Establishments, Service in hospitals and dispensaries, and Fire Brigade Service. Later, by notifications under s. 40, which empowers Governments to add to the Schedule, nine more were added: Indian Government Mints, India Security Press, Copper Mining, Lead Mining, Zinc Mining, Iron ore mining, Service in any oil field, any service in or in connection with the working of any major port or dock, and Service in the Uranium Industry. Most of these are items in which "an industry proper involving trade, business, manufacture or something analogous to business can be found", and "it is hardly to be thought that notifications can issue in respect of enterprises which are not industries to start with."

"Therefore to apply the notification, the condition precedent of the existence of an industry has to be satisfied … The law does not work the other way round … Parliament has not attempted to declare that notwithstanding the definitions of 'industry', 'industrial disputes', 'workman' and 'employer', every hospital is to be regarded as an industry. All that has been provided is that an 'industry' may be notified as a public utility service. That is insufficient to convert non-industries under the Act to industries."

This directly rejects the "legislative corroboration" on which Hospital Mazdoor Sabha had relied.

Safdarjung Hospital (C.A. 1705 of 1969). "It is obvious that Safdarjung Hospital is not embarked on an economic activity which can be said to be analogous to trade or business. There is no evidence that it is more than a place where persons can get treated. This is a part of the functions of Government and the Hospital is run as a Department of Government. It cannot, therefore, be said to be an industry."

On the merits as well, the claim failed. Sethi had chosen to be a Lower Division Clerk, and the security he had furnished as a Store-keeper was refunded to him. He applied for the post on 31 May 1962, drew attention to his application on 14 July 1962, and it was recommended on 9 August 1962. "It was only after 26 November 1962, when the scale of Store-keepers was raised to Rs. 130–300, that he changed his views." His representation of 12 December 1962 was forwarded with the Medical Superintendent's remark that incumbents of the posts of Store-keepers could not be given the upgraded scale, and there were matters pending against him precluding appointment in that scale. On 11 August 1966 the Director General wrote that the Ministry of Health and Family Planning had stated "it was not intended that the revised scale of Rs. 110–131 (previous scale of Rs. 60–75) should be further revised to Rs. 130–300, as all incumbents of the posts carrying the pay scale of Rs. 110–131 were promoted from Class IV and did not possess the requisite qualifications prescribed for posts carrying pay scale of Rs. 130–300." Both on the question of law and on the merits, Sethi was not entitled to the store-keepers' scale; the award of Rs. 914 was wrong; the appeal was allowed and the order set aside, with no order as to costs.

Tuberculosis Hospital (C.A. 1781 of 1969). The Hospital "is not an independent institution. It is a part of the Tuberculosis Association of India. The hospital is wholly charitable and is a research institute. The dominant purpose of the Hospital is research and training, but as research and training cannot be given without beds in a hospital, the hospital is run. Treatment is thus a part of research and training." It could not be described as an industry; the Tribunal's order on the preliminary point was reversed, the reference under s. 10(1)(d) was incompetent, and the appeal was allowed without costs.

Kurji Holy Family Hospital (C.A. 1777 of 1969). "The objects … are entirely charitable. It carries on work of training, research and treatment. Its income is mostly from donations and distribution of surplus as profit is prohibited. It is, therefore, clear that it is not an industry as laid down in the Act." The reference by the State of Bihar was incompetent; the appeal was allowed without costs, save that in the first case the earlier order of the Court was to be given effect to.

Read against the earlier cases, the movement is exact.

D.N. Banerji had said that neither capital nor profit is a sine qua non, and had confined its holding to branches of municipal work "analogous to the carrying out of a trade or business". Hospital Mazdoor Sabha had taken that phrase and filled it functionally — systematic activity, employer–employee co-operation, material services to the community — and had used the second, inclusive clause of s. 2(j) and the private-citizen test to bring a Government hospital in.

Safdarjung keeps the words and reverses the content. It agrees that profit motive is unnecessary, but insists the enterprise be "analogous to trade or business in a commercial sense"; it refuses to read the second clause as an independent extension; it discards the private-citizen test as one devised for a different purpose; and it redefines "material services" so as to exclude precisely the professional, individually-rendered services a hospital provides. The result is that a hospital is an industry only if run commercially, and a charitable or research hospital, or one run as a department of Government, is not.

Note also what the Court endorsed in passing: the reasoning of University of Delhi v Ram Nath and of the solicitors' case is expressly approved, on the ground that the employees' services were in aid of professional men and not productive of material services. By 1970, therefore, the position was: municipality in; State hospital out; university out; members' club out.

It is this state of the authorities — a functional test in one line of cases and a commercial test in another, neither able to displace the other — that made a larger Bench unavoidable.