Labour is a significant cost, for all entities engaged in any business. For housing societies, employing labour can be onerous, due to its office bearers being honorary in nature and the unavailability of instant professional advice. The Bombay High Court has recently given a ruling, which has wide ramifications and implications on applicability of labour laws to housing societies.
Labour laws under the Industrial Dispute Act
As per the Industrial Dispute Act, 1947, anyone who employs any other person, for carrying out their activity, is deemed to be an industry and thus, all the labour laws apply to the person employing such other person, except for some specific exclusions made thereunder, for the armed forces, etc. This used to create problems for the person who employed any other person for carrying out work for him, as he was required to comply with various labour laws pertaining to working conditions, retrenchment process and payment of retirement benefits. The Supreme Court, in the case of Bangalore Water Supply, had diluted the definition of ‘industry’ under the Industrial Dispute Act, so as to exclude services that are personal in nature and those provided by people employed in the offices of professional like advocates, chartered accountants, solicitors, etc.
Bombay High Court ruling on applicability of labour laws to cooperative housing societies
M/s Arihant Siddhi Co-operative Housing Society Limited had employed a watchman, who was paid ex-gratia on termination of his services, upon reaching the age of 60 years. The watchman filed a dispute petition in the labour court later on, seeking direction to be given to the society for his reinstatement, with all back wages. The watchman contended that he was a permanent employee and was terminated, without proper inquiry and retrenchment compensation, as required under the Industrial Dispute Act. The society contested it and contended that the society was not an industry within the meaning of the Industrial Dispute Act and the services rendered by the watchman were of personal nature and therefore, he was not a workman as defined under the Industrial Dispute Act.
The labour court ruled in favour of the watchman, holding that the society was earning profit, by way of collecting advertisement charges for display of neon signs in the society’s premises, from some of its members who were carrying on commercial activities in the premises. It, thus, ordered for the watchman’s reinstatement with continuity of services and full back wages, while arriving at the conclusion that the society had a profit motive, in giving its place for advertisements.
The society then filed a petition in the Bombay High Court, against this order. The High Court quashed the order of the labour court, holding that just because the housing society was carrying on some commercial activity, which was not its main activity but just an adjunct to its main activity of providing services to its own members, the society cannot be treated as an industry. So, unless the commercial activity is a predominant activity, the entity carrying the activity cannot be covered under the definition of ‘industry’ under Industrial Dispute Act, as held by Supreme Court in the Bangalore Water Supply and Sewerage Board case.
Impact on Bombay HC verdict on the functioning of cooperative housing societies
The Bombay High Court has ruled that housing societies are not an industry and therefore, the provisions of various labour laws, are not applicable to them. This decision will come as a big relief to all housing societies, because, in order to avoid the compliance of labour laws and not to be caught on the wrong side of the law, the housing societies do not engage personnel for maintenance and watchmen directly. In order to avoid the liability of gratuity, provident fund, leave, etc., for these personnel under the labour laws, housing societies avail of services through contractors, who, many times, are inefficient. This method of employing watchman and other maintenance staff, costs the housing society 18 per cent, in terms of GST, as well as the profit margin of the contractors. Employing these people directly, instead of through contractors, will help the societies to do so on a short-term basis, help them to save money and give them better control over the staff. This can be especially beneficial for big housing societies where staff need to be employed in large numbers.
Providing services to its members, is the predominant nature of the activities of housing societies. Hence, even those societies, which earn other income, by providing space to place mobile towers on its terrace or hoardings for advertisement on its premises, will still be outside the definition of ‘industry’ under the Industrial Dispute Act. Even societies that have halls and other places to let out to its members, as well as outsiders, can take refuge under the plea that they predominantly provide services to their members.
(The author is a tax and investment expert, with 35 years’ experience)