Which is Industrial Establishment under Sec 25(N) of ID Act, 1947

Hi Senior Members,

1. Does IT companies come under the purview of the industry as defined under Section 2(j) of the Industrial Disputes Act, 1947?

2. Does Section 25(N) apply to the industry as given in Section 2(j)? Because Section 25(L) referring to Chapter V(B) to which Section 25(N) also belongs says:

"25L. Definitions. For the purposes of this Chapter:
(a) 'industrial establishment' means:
(i) a factory as defined in clause (m) of Section 2 of the Factories Act, 1948 (63 of 1948);
(ii) a mine as defined in clause (i) of subsection (1) of Section 2 of the Mines Act, 1952 (35 of 1952); or
(iii) a plantation as defined in clause (f) of Section 2 of the Plantations Labour Act, 1951 (69 of 1951)."

So, my question is, in 25(L), they have given a narrower meaning of industry than Section 2(j). Here it mentions only Factory, Mine, and Plantation as industrial establishments.

Kindly enlighten me with your wisdom on which view is correct. Please mention any case laws.

For the application of Chapter VB (relating to obtaining permission from the appropriate government for laying off, closure, retrenchment, etc.), the establishment should be a factory, mine, or plantation. At the time of the enactment of the ID Act, the scope of the organized sector was limited to factories, mines, and plantations, and hence commercial establishments, which cover the larger employment sector as of now, were not given importance. The objective of Chapter VB was to differentiate between big establishments, i.e., establishments employing 100 employees, from small establishments employing less than 100 or even less than 50 employees.

The matter is a question of law because IT companies are not solely service industries, but most of them do produce 'goods'. The Supreme Court has also accepted this view in TCS's case. Though in Seelan Raj R and Ors vs. Presiding Officer 1st Additional Labour Court and Ors, the Apex Court has taken a view that IT companies do not fall under the scope of factories; it was accepted in principle that they do manufacture some goods. But there is no direction from the Supreme Court to the effect that Chapter VB will apply to IT Companies and other commercial establishments employing 100 or more employees.

A close reading of the verdict in the Cholamandalam Software case (management of Cholamandalam Software Limited Vs Addl. Labour Commissioner...) will also help you to decide whether a software company employing 100 or more employees will come under the purview of Chapter VB.

Until the matter is settled by the Supreme Court, the issue would continue to be open to varied views on what is the best course to adopt and whether or not Chapter VB (Section 25N, etc.) of the ID Act applies to them and whether they should seek prior permission from the authorities for retrenchment of employees, closure, or transfer of the undertaking.

Hi Madhu Sir,

Many thanks for your insightful views.

So, I just want to be sure whether IT companies come under sec 2(j) of the ID Act, 1947 for the application of Sec 25(F) of the said act? Any case laws please.

Certainly, YES, because IT companies are industries since they have an employee-employer relationship. As such, they are registered under the state's Shops and Commercial Establishments Act. Since there is nothing mentioned in the said Act (Shops Act) regarding the settlement of disputes, layoff, retrenchment, etc., the provisions of the ID Act will have to be referred to. This is also true in the case of factories coming under the Factories Act; in the absence of any provision regarding settlement of disputes or procedures for closing down, the ID Act is to be referred to.

The only confusion arises with regard to the scope of Section 25L and the application of Section 25N, which are applicable to industrial undertakings defined under the Factories Act, Mines Act, and Plantation Labour Act employing 100/300 employees. At the same time, provisions relating to layoff (Section 25B), payment of layoff compensation (Section 25C), and an employer's liability to maintain a Muster roll (Section 25E) may not be applicable to establishments other than factories, mines, or plantations. However, this does not mean that a commercial establishment (such as an IT company) can declare a layoff without paying any layoff compensation (at the rate of 50% of average wages). It should be interpreted such that companies employing fewer than 50 workers and those without standing orders specifying the manner in which a layoff can be declared have no right to lay off their workmen. In case they lay off employees, the employees would be entitled to FULL SALARY during the period of layoff, as was decided in Workmen Vs. Firestone Tyre & Rubber Co (1976 (1) LLJ 493 SC).

Section 25F, which refers to procedures for retrenchment in a company that is neither a seasonal establishment nor an establishment to which Chapter VB applies (as we saw above, industrial establishments employing more than 100 employees), reads as: "No workman employed in any 'industry' who has been in continuous service..." There is no special treatment under this section. Moreover, various court interpretations suggest that retrenchment in software companies without following Section 25F is illegal.