Full Judgment Text
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PETITIONER:
CHIEF COMMISSIONER, DELHI AND ORS.
Vs.
RESPONDENT:
FEDERATION OF INDIAN CHAMBERS OF COMMERCE ANDINDUSTRY, NEW D
DATE OF JUDGMENT30/04/1974
BENCH:
SARKARIA, RANJIT SINGH
BENCH:
SARKARIA, RANJIT SINGH
CHANDRACHUD, Y.V.
GOSWAMI, P.K.
CITATION:
1974 AIR 1527 1975 SCR (1) 348
1975 SCC (3) 64
CITATOR INFO :
RF 1984 SC1700 (14)
ACT:
Delhi Shops and Establishments Act, (7 of 1954), s. 2 (5)
and (27)-’Shop’ and ’Commercial establishment’ scope of.
HEADNOTE:
The respondent was required by the Chief Inspector of Shops
and Establishments to register its establishment’ under the
Delhi Shops and Establishments Act, 1954. The respondent
contended that it was not an ’establishment’ which is
defined in s. 2(9) as meaning ’a shop or a commercial estab-
lishment’ and did not comply with the direction.
Proceedings for prosecution of its Secretary were
instituted, where-upon the respondent filed a petition in
the High Court for quashing the order of the appellant and
for directing the Magistrate not to proceed with the
complaint. Before the High Court the appellant contended
that the respondent was a ’commercial establishment’
because, the activity of the respondent amounted to a
’Profession’, and alternatively, that the case fell within
the latter part of the definition of ’commercial
establishment’ in s. 2(5), inasmuch as its activities were
connected with trade and business generally, but, it was not
urged that the activity of the respondent amounted to
carrying on any ’business or trade’ in its premises.
The writ petition was allowed by the High Court, holding
that premises of the respondent were not a ’commercial
establishment’. In appeal to this Court it was contended
that the activities of the respondent amounted to a ’trade
or business’, that therefore it was a ’commercial
establishment’ and that the matter was covered by Management
of the Federation of Indian Chambers of Commerce and
Industry v. Sri R. K. Mittal [1972] 2 S.C.R. 353.
Allowing the appeal.
HELD :-(1) It is not proper to shut out the contentions of
the appellant now raised about the activity of the
respondent being a ’trade or business’ merely on the ground
that the point was not properly put before the High Court.
The question is only one of drawing a correct inference
about the point in issue from the material already on record
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and will not require any additional material for decision.
[354E-F]
(2)A place, in order to fall within the definition of
’commercial establishment’ must, in the first instance, be
’premises’. and secondly, should be premises wherein, (a)
any trade, business or profession is carried on, or (b) any
work in connection with or incidental or ancillary thereto
is carried on. [353C-D]
(3) The registered office of the respondent is ’premises’.
[353D]
(4) All the activities of the respondent are business
activities and are carried on systematically. Though the
profit made by it is ploughed back for its purposes as set
out in its Memorandum of Association and is not distributed
among its members. Therefore, the decision in Mittal’s case
[1972] 2 S.C.R. 353 that the activity of the respondent is
in the nature of ’business or trade’ is correct and that
case does not require reconsideration. [356A-E. 357D-E]
(5)A systematic activity can be a business activity even
if no dividends are declared or profits shared. [356F-G]
In the matter of Incorporated Council of Law Reporting for
England and Wales [1889] 2 Q.B.D. 279, applied.
(6)The premises of the respondent, therefore, are a
’commercial establishment. [357E]
349
(7)For the application of the Act to the respondent it is
immaterial whether its activities bring its premises within
the ambit of a ’shop’ or ’commercial establishment, within
the meaning of the Act. In Mittal’s case it was held that
the activities of the respondent are also in the nature of
material services within the wider definition of ’industry’
and, any premises where services are rendered to customers
fall within the definition of a ’shop. [356E-F]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1604 of 1967.
From the judgment and order dated the 8th February, 1967 of
Le Delhi High Court in Civil Writ No. 531-D of 1964.
P.P. Rao and R. N. Sachthey, for the appellants.
G.P. Pai, P. C. Bhartari and O. C. Mathur, for
respondents nos. 1 & 2.
The Judgment of the Court was delivered by-
SARKARIA J. Whether the Federation of Indian Chambers of
Commerce and Industry, New Delhi (Respondent 1) is a
"commercial establishment" within the meaning of s.2(5) of
the Delhi Shops ,and Establishments Act, 1954 (for short the
Act) is the sale question that falls for determination in
this appeal by certificate directed against the judgment
dated February 8, 1967 of the High Court of Delhi.
The facts bearing on this question may now be stated:
Respondent 1 (hereinafter referred to as the Federation) is
a Company registered under s. 26 of the Indian Companies
Act, 1913. The primary objects of the Federation as given
in the Memorandum of Association are
"(a) To promote Indian business in matters of
inland and foreign trade, transport, industry
and manufactures, finance and all other
economic subjects and to encourage Indian
banking, shipping and insurance.
(b) To encourage friendly feeling end
unanimity among business community and
association on all subjects connected with the
common good of Indian business.
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(c) To secure organised action on all
subjects mentioned above.
(d) To collect and disseminate statistical
and other information and to make effort for
the spread of commercial and economic
knowledge.
(e) To take all steps by lawful means which
may be necessary for promoting supporting or
opposing legislation or other action affecting
the aforesaid economic interests and in
general to take the initiative to assist and
promote trade commerce and industry.
(f)To provide for arbitration in respect of
disputes arising, in the course of trade,
industry or transport or other business
matters, and to secure the services
350
of expert technical and other men to that end
if necessary or desirable.
(g) To conduct, undertake the conduct of and
participate in national and international
exhibitions.
(h) To set up museums or show-rooms, to
exhibit the products of India and other
countries and to participate in such
activities.
(1) To secure the interests and well-being
of the Indian business communities abroad.
(k) To attain those advantages by united
action which each member may not be able to
accomplish in its separate capacity.
(m) To help in the Organisation of Chambers
of Commerce or Commercial Associations in
different commercial centres of the country.
(n)
(O)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
(x)
(y) To sell or dispose of the undertaking of
the Federation or any part thereof for such
consideration as the Federation may think fit
and in particular for shares, debentures, or
securities of any other association or company
having objects altogether or in similar to
those of the Federation.
(z) To take or otherwise acquire and hold
shares in any other association or company
having objects altogether or in part similar
to those of the Federation.
(zl) To establish a Trust or Trusts and/or
appoint Trustees thereof from time to time and
vest the funds or the surplus income or any
property of the Federation in the Trustees who
shall hold and deal with the funds, surplus
income or property in such manner as the
Committee may decide.
(z2)
351
(z3)To draw, make, accept, discount, execute
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and issue bills of exchange, promissory notes,
bills of lading, warrants, debentures and
other negotible instruments or securities.
(z4)
(4) The income and property of the
Federation, whencesoever derived, shall be
applied solely towards the promotion of the
objects of the Federation as set forth in the
Memorandum of Association; and no portion
thereof shall be paid or transferred directly
or indirectly, by way of dividend, bonus, or
otherwise by way of profit to the members of
the Federation......
The Articles of Association inter alia provide that a
Chamber or an Association can become an ordinary member of
the Federation on payment of annual subscription of Rs.
1,000,/- or such higher amount as may from time to time be
fixed by the Federation in addition to the admission fee of
Rs. 5001-. The scales of subscription on the basis of
turnover, deposits or premia for associate members have also
been prescribed.
The Chief Inspector of Shops and Establishments, Delhi
(Appellant 2 herein) called upon the Federation to register
its establishment ’he under the Act The Federation failed to
comply with the direction and contended that it was not an
"establishment" as defined in s. 2(9) of the Act. This
contention did not find favour with the Chief Inspector who,
in consequence, made a complaint under the Act for
prosecution of the Secretary of the Federation (Respondent 2
herein) under the appropriate penal provisions of the Act in
the Court of the Magistrate. 1st Class, Parliament Street,
New Delhi. The Federation then moved the High Court under
Article 226 of the Constitution for bringing up and quashing
the order, dated February 4, 1964 passed by the Chief
Inspector (Appellant 2). They further prayed for a writ of
Prohibition directing the Magistrate not to proceed with the
complaint.
Before the High Court, the contention of the Federation was
that the premises in which the registered office of the
Federation is located is not a "commercial establishment"
within the meaning of s. 2(5) of the Act which, in
consequence had no application.
From the side of the present appellant, at first a half-
hearted attempt was made to show that the Federation is
carrying on a profession as it is "tendering advice to all
businessmen and traders". This contention was negatived in
these terms :
" .... that contention overlooks the fact
that the advice in question is not tendered
for any consideration. It is done in the
interest of trade and business of the country.
The 1st petitioner is not tendering any advice
or giving any assistance to any trader in
particular. It deals with the trade or busi-
ness in general to secure the interest of the
country. it is predominantly a charitable
organization and not a professional one."
352
It was then contended that the activities of the Federation
carried on in the premises in question amounted to "work in
connection with, or incidental or ancillary" to trade or
business in general within the latter part of the definition
of "commercial establishment". This contention was also
rejected with the observation that since the earlier part of
the definition refers to "some particular business or trade
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carried on in a premises" the words "any-work in connection
with or incidental or necessary thereto" obviously refer to
such particular business or trade and not to trade or
business in general’. In the result, it was held that the
premises of the Federation were not a commercial establish-
ment, and the writ petition was allowed. A certificate,
however, was granted under Article 133(1) (c) of the
Constitution that the case was fit for appeal to this Court.
Hence this appeal.
Before dealing with the contentions canvassed before us, it
will be useful to notice briefly, the scheme and the
relevant provisions of the Act.
The title of the Act is Delhi Shops and Establishments Act,
1954. The main object of the Act as stated in its preamble
is "regulation of hours of work, payment of wages, leave,
holiday, terms of service and other conditions of work of
persons employed in shop, commercial establishment,
establishments for, public entertainment or amusement and
other establishments and to provide for certain matters
connected therewith." Section 1(4) indicates its extent and
application. It shall apply in the first instance. only to
the municipal areas, notified areas of Delhi and New, Delhi
etc., but Government may by notification extend or apply it
to shops and establishments in the other local area or
areas. The definitions of "commercial establishment",
"establishment" and "shop" given in sub-sections (5), (9)
and (27) of section 2 are material for our purpose. They
read
"Commercial establishment" means any premises
wherein any trade, business or profession or
any work in connection with, or incidental or
ancillary thereto is carried on and includes a
society registered under the Societies
Registration Act, 1860, and charitable or
other trust, whether registered or not, which
carries on any business, trade or profession
or work in connection with or incidental or
ancillary thereto,’ journalistic and printing
establishments, quarries and mines not
governed by the Mines Act 1952, educational or
other Institutions run for private gain and
premises in which business of banking,
insurance, stocks and shares, brokerage or
produce exchange is, carried on, but does not
include a shop or a factory registered under
the Factories Act, 1948, or theaters, cinemas,
restaurants, eating houses residential hotels,
clubs or other places of public amusement or
entertainment."
"Establishment" means a shop, a commercial
establishment, residential hotel, restaurant,
eating house, theatre or other places of
public amusement or entertainment to which
this Act applies and includes such other
establishment as Government may by
notification in the Official Gazette,
35 3
declare to be an establishment for the
purposes of the Act. "
" Shop" means any premises where goods are
sold, either by retail-or wholesale- Or where
services are rendered to customers, and
includes an office, a stoic-room, godown,
warehouse or workhouse, or work place, whether
in the same premises or otherwise, used in or
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in connection with such trade or business but
does not include a factory or commercial
establishment."
It will be seen that while the definition of "establishment"
includes, a ’shop’ and ’commercial establishment, the
definitions of ’shop’ and commercial establishment’ are
mutually exclusive. Further, the definition of "commercial
establishment" is wider than that of "shop". A place in
order to fall within the definition of "commercial
Establishment" must in the first instance be "premises".
Secondly, it should be premises wherein (a) any trade,
business or profession is carried on, or (b) any work in
connection with or incidental or ancillary thereto is
carried on. Sub-clause (b) is only ancillary to (a). There
is no, doubt that the registered office of the Federation is
premises. The controversy centres round the questions
whether the activity of the Federation carried on in these
premises is a "trade, business or profession" within the
meaning of pari (a) of the definition.
This question is not res integra. It came up for
consideration before this Court in Management of the
Federation of Indian Chambers of Commerce and Industry v.
Their workman, Shri R. K. Mittal.(1) After considering its
Memorandum of Association, Articles of Association and other
material, which was more or less the same, as in the present
case, it was held by this Court that the activity of this
Federation is in the nature of a business or trade.
Mr. Rao, learned Counsel for the appellants strongly relies
on the aforesaid decision.
Mr. Pai, learned Counsel for the Federation has firstly
raised a preliminary objection that before the High Court,
at no stage, it was urged on behalf of the Appellants that
the activity of the Federation carried on in the premises
was a business or trade. It is added that a half-hearted
argument was adVanced that its activity was a ’profession’
and that, too, was soon given UP In these circumstances, it
is submitted, the appellants should not be allowed to commit
a volte-face and take up in this Court a stand which was
either not taken or was given no in the High Court. In the
alternative, learned Counsel contends that even if this plea
is allowed to be raised, then also the primary activity of
the Federation cannot, by any stretch of reasoning, be
called a ’trade, business of profession within the
definition of "commercial establishment" given in the Act.
According to Counsel, the activity of the Federation is one
of general utility; the only source of its income is from
subscriptions. The occasional exhibitions or , museums
organised by it are activities which are only incidental or
ancillary to the primary charitable object of the
Federation. No divi-
(1) [1972] 2 S.C.R. 353.
354
dends are declared, no profits are shared or divided among
the Individual members, and no goods are sold or exchanged.
in support of his contentions, learned Counsel has referred
to Commissioner of Income-tax v. Andhra Chamber of
Commerce.(,)
Mr. Pai further maintains that the ratio in R. K. Mittal’s
case (supra) is not applicable to the instant case because
the definition of "’industry" in s. 2(j) of the Industrial
Disputes Act, 1947 is far wider than that of "commercial
establishment" in s. 2(5) of the Act.
Mr. Pai further doubts the correctness of the decision in R.
K. Mittal’s case (supra) inasmuch as it holds that the
activity of the Federation partakes the character of trade
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or business. This finding, it is urged, is based on a
misapprehension of facts and requires reconsideration. It
is pointed out that it was wrongly assumed in Mittal’s case
(supra) that the Federation, was systematically assisting
not only its members but also other business-men and
industrialists even if they were not its members. The fact
of the matter is that the Respondent is a Federation of
Federations and not an association of any individual
traders, industrialists or businessmen.
As regards the preliminary objection, it is true that before
the High Court, it was not argued that the activity of the
Federation amounts to the carrying on of any business or
trade in the premises in question. All that was attempted
to argue there was, that its activity amounted to a
’profession’. Alternatively, it was contended that the case
fell within part (b) of the definition of "commercial
establishment" inasmuch as its activities were connected
with trade and business, generally.
We do not think it proper to shut out the contentions now
raised before us about the activity of the Federation being
a trade or business, merely on the ground, that the point
was not properly put before the High Court. This point will
not require any additional material for its decision. The
question is only of drawing a correct inference ’about the
point in issue from the material already on record. We,
therefore, overrule the preliminary objection.
This takes us to the merits of the case. In R. K. Mittal’s
case, this Court was considering the activity of this
Federation in the context of ’industry’ as defined in s.2(j)
of the Industrial Disputes Act. That definition reads:
" "Industry" means any business, trade,
undertaking, manufacture or calling of
employers and includes any calling, service,
employment, handicraft or industrial occupa-
tion or evocation of workmen."
It will be seen that "any business, trade" is an element
common to the definitions of "commercial establishment" and
"industry" given in the respective statutes. That was why
the question, whether the ,activity of the Federation is a-
business or trade activity, was directly
(1) [1965] 1 S.C.R. 565.
355
and substantially in issue in R. K. Mittal’s case. therein,
the Memorandum of Association, Articles of Association and
the other material placed before the court were closely
examined. The entire case law was surveyed. The
contentions now canvassed were also raised and considered in
that case. Jagnmohan Reddy J. speaking for the Court,.
posed the question for decision thus :
"In our view the linch-pin of the definition
of ’industry’ is to ascertain the systematic
activity which the organization is discharging
namely, whether it partakes the nature of a
business or trade; or is an undertaking or
manufacture or calling of employers".
(emphasis added)
The answer given to this question has been correctly summed
up, in the head-note of the Report, as under:
"The above being the position in law the were
fact that the appellant Federation had
charitable aims and objects would not take it
out of the definition of industry. An
examination of the activities of the
Federation showed that the Federation carried
on systematic activities to assist its members
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and other businessmen and industrialists and
even to non-members as for instance in giving
them the right to subscribe to their bulletin;
in taking up their cases and solving their
difficulties and in obtaining concessions and
facilities from them from the Government.
These activities were business activities and
material services rendered to businessmen,
traders and industrialists who are members of
the constituents of the Federation. There
could be no doubt that the Federation was an
industry within the meaning of s.2(j) of the
Act."
(The crucial words are those that have been
underlined).
The case under the Income-tax Act wherein the main object of
the organization was charitable, were also considered and
found of little assistance. It was observed that:
"the object of an Organisation may be
charitable but nevertheless its activity may
be commercial so as to satisfy the definition
of an industry as explained and illustrated by
this Court particularly in Safdarjang
Hospital’s case.(1) We could therefore
envisage an institution having its aims and
objects charitable and yet its activities
could bring it within the definition of
industry".
The above observations were made in the context of the
definition of industry’ but they are equally applicable in
the present case. The very definition of "commercial
establishment" indicates that the activity of a registered
society, charitable or other trust will not take it out of
the definition if the activity carried on by it amounts to a
busi-
(1)[1971] 1, S.C.R. 177.
356
ness, trade or profession or any work in connection
therewith or incidental thereto.
No doubt, the effective membership-as distinguished from
Honorary membership-of the Federation is open only to
Chambers of Commerce or Commercial Associations of requisite
strength and standing, but the fact remains that it carries
on systematic activities not only to assist its members but
also other traders or businessmen members of the
constituents of the Federation. It has set up Tribunals for
arbitration in disputes arising between individual traders
or business concerns in the course of trade, industry or
other business matters. It takes up with the concerned
authorities the specific difficulties experienced by the
trade in the day today business and endeavours to attain for
the traders and industrialists those material advantages by
unified action which they may not be able to achieve in
their individual capacity. It helps businessmen and
industrialists by securing for them the services of expert
technical men (vide clauses (f) and (k) of the Memorandum of
Association). It undertakes regular publication of
periodicals, bulletins, Reviews etc. for the benefit of
businessmen, big or small and- whether or not they are
members of the Federation. These publications are available
on payment of subscription or price even to individual
businessmen or traders who are not members of the
Federation. All these are business activities are carried
on systematically. We therefore do not think that R. K.
Mittal’s case (supra) was incorrectly decided and needs
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reconsideration.
It is true that in R. K. Mittal’s case (supra) it was held
that these activities of the Federation are also in the
nature of material services within the wider definition of
’industry’. Though the rendering or services is not
specifically mentioned as an element of the definition of
"commercial establishment", yet this very element appears in
the definition of ’shop’ in s. 2(27) of the Act. Any
premises where services are rendered to customers fall
within the definition of a "shop". These services are
material services. For the application of the Act to the
Federation, it is immaterial whether its activities bring
its premises within the ambit of a "shop" or a "commercial
establishment’.
It is well settled that a systematic activity can be a
business activity even if no dividends are declared or
profits shared.
In the matter. of Incorporated Council of Law Reporting for
England and Wales, (1) the Queens Bench was considering the
interpretation of the expression "trade or business" in s.
11 of the English Customs and Inland Revenue Act 1885 with
reference to the activity of the Incorporated Council of Law
Reporting for England and Wales. The association was
established for the objects of preparing and publishing
under gratuitous professional control, reports of judicial
decisions; of issuing digests and other publications
relating to legal subjects. In carrying them out the
association employed editors, reporters, printers, and
publishers and supplied its publications to subscribers and
others for payment. It was condended that the activity of
the Association was not "a business or trade" because by the
Memorandum of Associ-
(1) [1889] 2 Q. B. D. 279.
357
ation all the property and income of the association were
applicable solely to the promotion of the above objects, and
no part thereof could be paid as dividend or otherwise, to
any member.
Holding that the association was established for a "trade or
business", Lord Coleridge C. J. repelled the contention in
these terms:
"Though it may be true that in the great
majority of cases the carrying on of a trade
does, in fact, include the idea of profit, yet
the definition of the mere word ’trade’ does
not necessarily mean something by which a
profit is made. But putting aside the
question whether they carry on a trade, how
can it be denied that the Council carry on a
business? They are incorporated; they have a
secretary; they employ editors, reporters, and
printers; they print books, they sell those
books, they do all that is ordinarily done in
carrying on the business of a bookseller."
The above observations apply mutatis mutandis to the
activity of the Federation. It will bear repetition that
the Federation also publishes periodicals, bulletins etc.
and issues the same to member free of this Court in R. K.
Mittal’s case (supra) we would hold that the commercial or
industrial exhibitions, runs museums and makes profits. Of
course, that profit is ploughed back for the purposes of the
Federation as set out in its Memorandum of Association, and
is not distributed among its members. But that does not
alter the ’fact that its activity is a trading or business
activity.
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For all the foregoing reasons, particularly in view of the
decision of this Court in R. K. Mittals case, (supra) we
would hold that the pre-premises of the Federation are a
"commercial establishment" within the meaning of s. 2(5) of
the Act.
In the result we allow this appeal, set aside the judgment
of the High Court and dismiss the writ petition. In the
circumstances of the case we make no order as to costs.
V.P.S. Appeal allowed.
358