The Delhi High Court on Monday held that the office of a Controller General of Patents, Designs and Trade Marks is an industry under Section 2(j) of the Industrial Disputes Act and it directed reinstatement of workers illegally retrenched from their services.
It also held that the Supreme Court's verdict in Umadevi v. State of Karnataka, (2006) 4 SCC 1, does not impact the powers of a labour court or power of judicial review of the high court under Article 227 of the Constitution, to order reinstatement of victims of unfair labour practices.
Not Performing a Sovereign Function
The court resisted the argument that the office of office Controller General was performing a "sovereign function" and that it did not qualify the dominant nature test, stipulated by the seven-judge Constitution Bench of the Supreme Court in Bangalore Water Supply & Sewerage Board v. A. Rajappa, (1978) 2 SCC 213.
Justice C Hari Shankar made it made clear that,
- every function, rendered by the Government, is not sovereign,
- all sovereign functions are not insulated from Section 2 (j) of the ID Act, and
- sovereign functions, which are core, inalienable and, thus, "strictly" sovereign, alone, escape the clutches of Section 2(j).
Reliance was placed on Chief Conservator of Forests v. Jagannath Maruti Kondhare, (1996) 2 SCC 293, whereby it was held that "strict" sovereign functions, alone, are excepted from the ambit of Section 2 (j) of the ID Act.
Justice Hari Shankar observed that Sovereign functions become inalienably sovereign only when it is impossible to delegate them to any other authority. However, in the present case, grant of patents was not a function that could not be delegated or entrusted to any private entity.
"only such functions may be regarded as "inalienably sovereign", as could not, constitutionally and at any point of time, ever be delegated to a private authority, as they are incapable of being discharged by private persons. The fact that, in view of the statutory dispensation, existing at a particular point of time, the function is required to be discharged by the Government, or by a governmental authority, would not, ipso facto, be sufficient to characterise the function as "sovereign"," he observed.
Reliance was placed on State of Bombay v. Hospital Mazdoor Sabha, (1960) 2 SCR 866, whereby the Supreme Court had held that "if a business or activity could not be carried on by a private individual or group of individuals, it could not be an industry; while if it could be, it might fall within the scope of 'industry'".
Nature of Sovereign Function Exempted From ID Act
The court then held that functions such as collection of tax, maintenance of public law and order, legislation, external relations, and eminent domain, which have, at all times, to be performed by the Government, and by the Government alone, would qualify as "strictly" or "inalienably" sovereign functions, and establishments performing such functions cannot be regarded as 'industry'. Reliance was placed on Agricultural Produce Market Committee v. Ashok Harikuni, (2000) 8 SCC 61.
Making an account of core functions performed by the office of the Controller General, the court said,
"…these functions, though multifarious, cannot be treated as inalienably sovereign, or akin to the functions of taxation, eminent domain, legislative functions, administration and maintenance of law and order, internal and external security and police pardon. Nor, in the opinion of this Court, can they be regarded as core sovereign functions which, are constitutionally incapable of delegation."
Analogy with Trade or Business
The court held that "analogy" with trade or business is an essential sine qua non for an establishment to be an 'industry' within the meaning of Section 2(j) of the ID Act; and this analogy could be inferred in the running of the establishment, not in the manner in which its proceeds are used.
Reference was also made to the "triple-test", postulated in the Bangalore Water Supply case. it prescribed that to be an industry, an establishment must be engaged in systematic activity, providing services which are of inestimable worth, to the patent-seeking public, and should function in a manner analogous to trade and business.
Finding the triple-test to be satisfied, the court held,
"The office of the Controller General, ex facie, satisfies the triple test. It is run analogously to trade or business, in that it involves a mammoth establishment, employing several employees, who work for wages, and is also commercial in the manner in which it deals with those who approach it, in that a person, who seeks grant of a patent or design, or registration of a trade mark, cannot expect to get it free; he has to apply for it, and, apart from fulfilling other requisite formalities, pay the prescribed fee. Analogy to trade or business is, therefore, in my opinion, intrinsic in the manner in which the office of the Controller General is run. The activity of the office of the Controller General is systematic and, unquestionably, the office renders valuable service to the public patent-, design-, or trade mark-seekers."
The court thus directed reinstatement of Respondents, within two weeks, along with payment of 40% of their last drawn wages, as back wages.
Impact of Umadevi's Case
The judgment rendered in Umadevi's case dealt with the execution and regularization of temporary and ad hoc services. It held that such people cannot claim to be appointed automatically on the ground that their services were utilized on temporary basis for considerably long periods. The same could not, the court held, be applied in matters of illegal retrenchment of workmen who had been in continuous service.
The court relied on recent decision rendered by a three Judges bench of the Supreme Court in State of J&K v. District Bar Association, Bandipora, (2017) 3 SCC 410, which endorsed the following principles postulated in Maharashtra State Road Transport Corporation v Casteribe Rajya Parivahan Karamchari Sangathana, (2009) 8 SCC 556, on the power of Labour Courts and Industrial Tribunals to direct regularization:
"State of Karnataka v. Umadevi is an authoritative pronouncement for the proposition that the Supreme Court (Article 32) and the High Courts (Article 226) should not issue directions of absorption, regularisation or permanent continuance of temporary, contractual, casual, daily wage or ad hoc employees unless the recruitment itself was made regularly in terms of the constitutional scheme.
[It] does not denude the Industrial and Labour Courts of their statutory power under Section 30 read with Section 32 of the MRTU and PULP Act to order permanency of the workers who have been victims of unfair labour practice on the part of the employer under Item 6 of Schedule IV where the posts on which they have been working exist."
Case Title: Union of India v. Raj Kumar Shah (with other connected matters)
Case No.: WP (C) 3495/2015
Quorum: Justice C Hari Shankar