Should the Exception of Sovereign Functions in the Definition of Industry Be Done Away With?

Author: Shreya Khandelwal is a Fourth Year Student at The West Bengal National University of Juridical Sciences, Kolkata.

The article tries to uncover the true meaning of sovereign function exception to the definition of “industry” which has been created and supported through a number of judicial precedents. The confusion about the correct position still persists due to the lack of unanimity on the position of various judgments as well as the vague description of what actually constitutes a sovereign function. The author has tried to challenge the exception by discussing the aim of the Industrial Disputes Act, 1947 which is to prevent unfair labour practices, provide compensation to workmen and lay down the procedure for retrenchment. This is further supported by the stance taken by judges in various cases such as J Chandrachud in the landmark decision Bangalore Water Supply.

The industrialisation process in India started with the Britishers in the middle nineteenth century. In the initial phase, industrial workers had no status and were exploited discriminately. They worked on minimal wages for long hours under unhealthy conditions of working. The management was exploitative and authoritative. The labour legislation in India changed its discourse at a rapid rate after the First World War. The main aim of the labour legislation now was to provide relief in terms of health, safety and welfare of the workers besides maintaining labour – management relations via Workmen’ Compensation Act 1923, Factories Act 1911, Trade Disputes Act 1929 and Trade Unions Act 1926.

Labour laws now covered adjudications of industrial disputes besides state intervention in order to achieve social control via law to protect workers’ claim related to bonus, wages, retirement benefits, social security benefits, maternity benefits, welfare and protection of minimum economic well being. The current labour law deals with problems arising between employees and employers over social security and employment.

The word “industry” was for the first time defined in Section 2(j) of the Industrial Disputes (“ID”) Act. The definition does not explain industry in usual manner which makes it difficult to determine what all comes under the ambit of an industry. Therefore, the pertinent question is where the demarcation line should be drawn and what limitations can be imposed in interpreting the definition. One such exception is that of sovereign functions performed by state. The definition excludes government instrumentalities which perform sovereign functions from the definition of industry.  

The problem with this exception is twofold. First, it has not been conclusively defined by court what exactly constitute a sovereign function of the state. There is no unanimity is to what constitutes a sovereign function. The issue was last discussed in Jai Bir Singh, but the same was referred to a higher bench which has not been constituted till now and the issue is still hanging in lurch. Secondly, the exception makes no logical sense in today’s world as the same has been made on the basis of who is performing the activity. This means that if a private employer is engaging in a particular activity, the very same activity would be called an industry if it fulfils certain other criteria. But the activity would be taken out of the ambit of industry just because the employer is a state/state instrumentality. This difference of treatment has not been justified or explained by any court. The same position was taken by J Chandrachud in Bangalore Water Works Supply, where he argued that by carving out the exception of sovereign functions in the definition of industry, the focus has been shifted on who is engaging in the activity and not on the nature of the activity since sovereign functions can be carried out by state only. In doing so, we are rejecting the fundamental test for determination of an industry i.e. the nature of the activity which should be the determinant factor to conclude if any activity is industry or not. He further stated that no distinction should be made between an activity undertaken by a corporation in discharge of statutory functions or by State in exercise of inalienable function.

The ID Act is a beneficial legislation with a welfare basis intended to protect labour, promote their interests and manage crisis and stress where production may be halted due to strikes or lock outs. The goal is to provide better conditions to workers along with a peaceful co-existence with the management. However, the exception of sovereign functions in the definition is not a tenable one. The position taken up by Chandrachud justifies to a large extent why the exception of sovereign functions in the definition of industry should be done away with. Activities like water supply or fire fighting establishments carried out by Municipality are held as industries and so should be manufacturing of currency or arms. Just the fact that coins or arms can be manufactured by the State only is not sufficient to prove if any activity would be termed as an industry or not. If these activities are undertaken by private individuals, they would obviously be categorized as industries. The decisive factor is the nature of the activity and that does not depend on who performs it. So, if the State undertakes such activities, they should be classified as industries as well.

This position is supported by Items 8, 11, 12, 17 and 18 of the First Schedule read with Section 2(n)(vi) of the ID Act. These provisions were discussed in Hospital Mazdoor Sabha as “very significant” to indicate that a Mint or a Defence Establishment can be industry despite the fact that these activities can be carried out by State only in exercise of constitutional obligations. The printing of currency cannot be treated as a trade by State. Therefore, keeping in mind the nature of the activity, the State is said to be engaged as an industry when it performs such functions.

Further, the main purpose of the ID Act was to ensure that fair terms of employment exist between employer and employee, workmen and employers and workmen and workmen. The necessity of these fair terms of employment is equally relevant in activities carried out by government. When an activity is undertaken by government, the chances of disputes are almost similar to what if the same activity would have been undertaken by any private body. If the terms of employment are not fair, employees would obviously raise their concerns against them irrespective of who their employer is. The ID Act is a beneficial legislation and is intended to secure industrial peace and harmony by providing mechanism for settlement of industrial disputes. To confine the benefits of the statute just to workers working in the private sector would be a discriminatory practice as the workers performing sovereign functions of government are as much entitled to the benefits and redressal mechanism provided in the statute as their private sector counterparts.

The aim of the concerned legislation includes preventing unfair labour practices, providing compensation to workmen and laying down the procedure for retrenchment. These hurdles are present in any industry irrespective of who is carrying out the activity. The employees involved in performing sovereign functions are vulnerable to exploitation just like rest of the employees who are not a part of any sovereign function activity. This distinction of keeping the instrumentalities of government performing sovereign function outside the ambit of industry has been made on unjustifiable grounds and goes against the very idea of the ID Act

The scope of the word “industry” has been expanding rapidly to cater to the requirements of fast industrial progress and to have a satisfactory and fair tuning in the workmen and employer relationship in different fields of activity which is in the interest of economy and industrial peace.  It is necessary to expand how the concept of industry was understood in earlier times so as to include varied forms of activities. This is also required to settle the disputes quickly without hampering or dislocating the needs of the society where the method adopted for resolution of disputes should involve settlement and conciliation as compared to determination of liabilities and rights as per strict legal principles and process.

Similarly, number of diverse activities undertaken by the State is increasing. The concept of industry aims to be an effective instrument for industrial adjudication to achieve industrial harmony and peace. The sovereign functions of the government should not be excluded as industry which is essentially narrowing down the scope of industry. Even if some of the activities are excluded as sovereign functions just because they are undertaken by the State, it would rob the dynamic nature of the legislation. The problems faced by workers and resultant disputes in the industries managed by private corporations are not completely absent in government corporations or the government instrumentalities which are supposed to perform the “sovereign functions”. It cannot be left on specialized legislations to make rules for the workers that come under their purview as held by J Beg in Bangalore Water Works. There is no justifiable basis of distinction between the strict sovereign functions and welfare and economic activities performed by Government. Therefore, such distinction should not be used to include certain kinds of activities within the purview of industry and leave the remaining. It’s high time a legislative amendment is brought which removes the exclusion of sovereign functions in the definition of industry and provides a definite answer which is currently not available due to confusing and sometimes contradictory judgments passed by different courts and judges.






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