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Whether restaurants fall under the category of industry or not know with relevant case laws

This article written by Eleen, Intern at Rana & Rana Law Firm



An industry means any economic activity which consists of processing of any raw material or providing any service. Section 2(j) of the Industrial Disputes Act defines industry as- ‘Any business, trade, undertaking, manufacture, or calling of employers and includes any calling, service, employment, handicraft or industrial occupation or avocation of workmen’.

So, to understand whether a restaurant falls under the category of industry or not, we have to understand the type of work restaurant do. Restaurant is said to be an establishment where food is prepared and served to customers in exchange for money.

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The Shop and Establishment Act, 1948 defines establishment as:-‘a shop, restaurant, eating-house, residential hotel, lodging house, theatre or any place of public amusement or entertainment and includes a commercial establishment and such other establishment as the Government may by notification declare to be an establishment for the purpose of this Act’.

A restaurant is a business which provides services as well as products to an individual. The service is waiting tables, managing and the staff which brings the food from the kitchen to the table whereas the product here is the food made by the chef of the restaurant.

In a restaurant, raw food is bought and food (along with beverages) is prepared which is sold to the customer. Apart from selling products, intangible services such as table service and cooking are also provided. Herein, the source of income is the money derived from serving food to the costumers.


The definition of ‘industry’ has evolved and expanded significantly over a period of time by various judicial decisions. The sequence of various judicial interpretation about what is to be included in the definition of ‘Industry’ under Industrial Dispute Act, 1947 had a narrow scope initially, however by the emergence of Triple Test in the case of Bangalore Water Supply v. A. Rajappa (1978 SCR (3) 207) the scope of interpretation has been widened.

D.N. Banerjee v. P.R. Mukherjee (1953 SCR 302):

FACTS:- In this case the Municipality dismissed two of its employees, Mr. P.C. Mitra, a Head clerk and Mr. P.N. Ghose, a Sanitary Inspector on charges for negligence, insubordination and indiscipline. The Municipal Workers Union of which the dismissed employees were members questioned the propriety of the dismissal and the matter was referred to the Industrial Tribunal. The Tribunal directed reinstatement and the award was challenged by the Municipality on the ground that its duties being connected with the local Self-Government it was not an industry and the dispute was not an industrial dispute and therefore, reference of the dispute to the tribunal was bad in law.

The Supreme Court observed ‘that in the ordinary or non-technical sense industry or business means an undertaking where capital and labour co-operate with each other for the purpose of producing wealth in the shape of goods, tools etc. and for making profits’. In the opinion of the Court every aspect of activity in which the relationship of master and servant or employer and employees exists or arises does not become an industry. It was further observed that 'undertaking' in the first part and industrial occupation or avocation in the second part of section 2(j) obviously mean much more than what is ordinarily understood by trade or business. The definition was apparently intended to include within its scope what might not strictly be called a trade or business. Neither investment of capital nor profit making motive is essential to constitute an industry as they are generally, necessary in a business.

A public utility service such as railways, telephones, and the supply of power, light or water to the public may be carried on by private companies or business corporations and if these public utility services are carried on by local bodies like a Municipality, they do not cease to be an industry. For the reasons stated above Municipal Corporation was held to be an industry.

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State of Bombay v. Hospital Mazdoor Sabha (AIR 1960 SC 610):

FACTS:-The Hospital Mazdoor Sabha was a registered Trade Union of the employees of hospitals in the State of Bombay.The services of two of its members were terminated by way of retrenchment by the Government and the Union claimed their reinstatement through a writ petition. It was urged by the State that the writ application was misconceived because hospitals did not constitute an industry. The group of hospitals were run by the State for giving medical relief to citizens and imparting medical education.

The Supreme Court held the group of hospitals to be industry and observed as follows:

(1)- The State is carrying on an 'undertaking' within Section 2(j) when it runs a group of hospitals for purpose of giving medical relief to the citizens and for helping to impart medical education.

(2)- An activity systematically or habitually undertaken for the production or distribution of goods or for the rendering of material services to the community at large or a part of such community with the help of employees is an undertaking. (3) It is the character of the activity in question which attracts the provisions of Section 2(j), Who conducts the activity and whether it is conducted for profit or not make a material difference.

(4)- The conventional meaning attributed to the words, 'trade and business' has lost some of its validity for the purposes of industrial adjudication... it would be erroneous to attach undue importance to attributes associated with business or trade in the popular mind in days gone by.

Management of Safdarjung, Delhi v Kuldeep Singh (AIR 1970 SC 1407):

FACTS:- In this case there is a dispute between the management of the Tuberculosis Hospital, New Delhi and its workmen represented by the Aspatal Karamchari Panchayat regarding pay scales, and other facilities demanded by the workmen. The Management has taken the preliminary objection that the Industrial Disputes Act does not apply since the hospital is not an industry and is not run as such. The management, therefore, questions the reference to the Tribunal under section 10(1) (d) of the Industrial Disputes Act. So, the issue raised was whether Tuberculosis Hospital is an industry or not.

The Supreme Court was of the opinion that ‘an industry exists only when there is a relationship between employers and employees, the former engages in business, trade, undertaking, manufacture or calling of employers and latter engaged in any calling, services employment or industrial occupation’.

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These are the basic requirements of any industry along with economic activity with regard to that trade or business. The court also defined what does the term ‘service’ means. 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. Such material services qualify to be included as industry.

But for professionals like doctors, lawyers and teachers material service do not arise as they are not engaged in occupation in which employers and employees co-operate.

And therefore, organizations like hospitals and educational institutions do not fall within industry.

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Bangalore Water Supply v. A. Rajappa (1978 SCR (3) 207):

FACTS:- A. Rajappa was an employee of Bangalore water supply & sewerage board. A labour dispute arose between the board and employee, which could not be solved peacefully. The dispute was that all employee were fined by Bangalore water supply board for misconduct, Fine was too heavy and not reasonable. This is the main reason why employees were opposing against this decision. A Rajappa & Others filled an application under section 33(2) of Industrial Dispute Act, 1947. They said that the fine which was imposed on them was violation of natural justice. In defence to this the board said that they were not industry under section 2(j) of Industrial Dispute Act, 1947 and therefore labour court has no jurisdiction to hear this case. So, the question before the court was what is an industry under section 2(j) of Industrial Dispute Act, 1947.

The Supreme Court laid down a test called ‘the triple test’ to identify whether an organisation is an industry or not. The test lays down three criteria- ‘systematic activity’, ‘organized by co-operation between employer and employee’, ‘for the production and/or distribution of goods and services calculated to satisfy human wants and wishes’. If these three criteria are fulfilled then the enterprises are prima facia an industry. There were certain exceptions to this, such as, industry does not include spiritual or religious services, absence of profit motive or gainful objective is irrelevant.

The Supreme Court on the basis of afore said interpretations, refused to accept the narrow meaning of definition of Industry as given by Bangalore water supply & sewerage board and has recognized the wider definition of Industry by following the triple test.


From the explanation above, we can conclude that the raw material i.e., vegetables, fruits, spices are processed to make food and are served to the customers in return of money. Applying the triple test [Bangalore Water Supply v. A. Rajappa (1978 SCR (3) 207)] on restaurants, we have to understand that the employees have to actively cooperate and along with this, there has to be an immediate or direct relationship of this cooperation with the services rendered.

Further, an industry only includes material services or things. In restaurant food/beverages are provided with the aim to earn income by satisfying the wants of human and there is a relationship between the employer and employees, such as- chef, manager and waiters. When we apply the definition of industry provided under Management of Safdarjung, Delhi v Kuldeep Singh (AIR 1970 SC 1407) on restaurants, it can be said that restaurant is a business wherein the employer calls for employees to perform the services, like cooking. Relying on D.N. Banerjee v. P.R. Mukherjee (1953 SCR 302) a restaurant is an undertaking because it requires capital and the employees co-operate with each other, so that they can provide service to the customers.

We can also take another point of view i.e., Goods and Services Tax to understand the stand of restaurant as a part of the industry. The reason why we are looking at Goods and Services Tax is that under the aforesaid regime, tax is being levied on the sale and purchase of goods and services. A restaurant is said to be a service and 5% Goods and Services Tax on food services is provided by restaurants (both air-conditioned and non a/c). This helps us in understanding that restaurant falls under the category of food service being provided to costumers. Along with this point of view, if we read the definition of industry, we can see that there is an economic activity being done by providing a service.

Therefore, when the above-mentioned case laws and Goods and Services tax is applied on restaurants, we can conclude that restaurants fall under the category of industry.

Now, since we have established that restaurant is the part of industrial sector, a question arises that restaurant falls under which kind of industry, this will further help in establishing that restaurant is indeed a part of industry. The hospitality industry amongst other things contains of any establishment that is providing food/beverages, tourism, lodging. This industry is a broad category found under service industry. As in the restaurants the food is prepared and served. People are employed to prepare the food, serve it and maintain the restaurant as well. There are chefs, managers, cleaning staff and other employees who manage the restaurants and provide costumer with a service i.e., the food. With this we can come to the conclusion that restaurant is a part of service industry.

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