J.B. Mehta, J.
1. The petitioner registered Trade Union challenges In this petition award at Annexure H, dated November 18, 1971, by which respondent No. 1 Labour Court ( Shri D.M. Vin) in terms held that the Reference in question was incompetent. The petitioners have in the alternative challenged the action of respondent No. 2 Panchayat by passing resolution at Annex F, dated July 1, 1969, by which the Sarpanch of respondent No. 2 Panchayat sought to terminate the services of all the concerned 10 clerks, purporting to comply with the order of reinstatement of this Court of the 10 concerned clerks on that day on the ground that such arbitrary and mala fide order must be quashed in exercise of the powers under Articles 226 and 227. Respondent No. 2 Panchayat had 10 clerks working in the Octroi Department. They were served a notice on September 25, 1967, for their discharge with effect from November 1, 1967 on the ground that it was more economical to collect octroi through a contractor and so, the contract of collection was to be given from November 1, 1967 and their services were not required. The petitioner union therefore took the matter in conciliation and respondent No. 2 Panchayat got intimation of conciliation proceedings on October 27, 1967. In spite of the pendency of the said proceedings, respondent No. 2 Panchayat relieved these 10 clerks from November 1, 1967. The Government, therefore, referred this industrial dispute to the Special Labour Court of Mr. D.M. Vin. In Reference No. 16 1968 there was no plea raised that respondent No. 2 Panchayat was not an industry covered by the Act. At that time plea was taken that the Act did not apply because the Panchayat service was Government service and such a semi-Government body was not governed by the Act. That contention was negatived by the Labour Court in its award, dated November 13, 1968 at Annex. C. The Tribunal further held that such a change of introduction of rationalisation and reduction of posts falling under Items 10 and 11 of Schedule IV of the Industrial Disputes Act, 1947, hereinafter referred to as 'the Act', was in plain violation of Section 9A and was, therefore, ineffective. It was also held that this change was during the pendency of conciliation proceedings and, therefore, it violated mandatory provision of Section 33(1). Finally, it was held that no compensation was paid as required by the mandatory terms of Section 25F(b) and the termination order of these 10 clerks violated even those provisions. The Labour Court held that it had no material at that time for coming to the conclusion that the contract of the collection of octroi was given in such way that it would amount to exploitation of labour. Therefore, the Labour Court did not introduce in the award protective provisions which would prevent such exploitation of labour and did not issue directions to the Panchayat to discontinue the contract system of collecting octroi. At the same time the Labour Court recommended the Panchayat to see that the 10 clerks were absorbed in future vacancies, and also to all of them awarded retrenchment compensation except in the case of Mr. Raval for two months. The petitioner Union being dissatisfied with this award filed a writ petition before this Court, being Special C.A. No. 516 of 1969 claiming reinstatement for all these 10 clerks. At the hearing a settlement was arrived at and this Court on June 18, 1969 passed an order as per the consent terms directing reinstatement of all these 10 clerks with continuance of service. They had to report for duty on July 1, 1969. They were to be paid 66% of their wages from the date of discharge till the date of reinstatement. It was further directed that if the amount agreed as per this settlement was not paid on or before December 31, 1969, the whole amount was to carry interest at 6% from November 1, 1967 and necessary certificate for recovery of the amount as arrears of land revenue was to be issued. It was amazing that on that very day on which these 10 clerks reported for duty as per the consent terms of July 1, 1969, the Sarpanch admits before the Labour Court in his deposition, that they were merely made to sit in the office and their services were terminated as per the resolution at Annex. F of the Panchayat by offering them retrenchment compensation and one month's notice pay. In the said resolution It is stated that the Panchayat had passed a resolution right from December 29, 1962 to introduce collection of octroi through contractor so that economy can be effected and it would be convenient. Therefore, Government's permission was obtained and contract system was introduced from November 1, 1967. These octroi clerks whose services were terminated were reinstated because proper legal procedure was not followed. As their continuance in service was not economical to the Panchayat, as per the resolution, dated June 25, 1969, they were to be retrenched under Section 25(F) on payment of retrenchment compensation and notice pay and to be relieved after office hours on July 1, 1969, especially as Panchayat's financial position was weak and octroi was the only source of revenue and there were many pending works. Under the circumstances the Panchayat did not require the services of these 10 clerks by way of economic measure and as contract was given for octroi collection, there was no work for these clerks and, therefore, they were retrenched. It was further stated that as regards the aforesaid amount due to them of retrenchment compensation and notice pay, these clerks were directed to collect the same. They were further informed that if that amount was not collected that day the amount would be sent by cheque by registered post and Panchayat would not be responsible in that connection. After the clerks were so retrenched fresh reference was made by the State on October 16,1969 in respect of the two demands for reinstatement with back wages and with compound interest at 9% and for abolition of the contract system. It should be noted at this stage that neither in the written statement nor at any stage before the hearing any contention was raised that this activity of the municipality was not an industry. The Labour Court in its award has stated that at the time of hearing only a legal contention was raised on behalf of the Panchayat that the activity of the octroi section was not an industrial activity and therefore reference was not competent. Such a mixed question of law and facts has been sought to be decided by the Labour Court only from arguments as it treated it as a purely legal contention. The Labour Court proceeded on the assumption that the binding decision in the Nagpur Corporation case AIR 1960 S.C. 675 stood overruled in the light of latest decisions. The Labour Court assumed from some stray sentences in the evidence of the Sarpanch, even though there was no cross-examination of the concerned workmen, that the octroi section was the watertight department and its workers were not transferable. Therefore, on an assumption of these facts and ignoring the entire previous history and ignoring even the statutory provision in Section 180 that the octroi collection can be farmed out, the Labour Court held that this being regal function of tax collection, the activity was non-industrial activity and, therefore, the present reference was incompetent. Fortunately, the Labour Court has recorded its alternative finding on merits of the dispute. First, it held that the order of termination of services of its 10 clerks was obviously mala fide and that the Panchayat was going back on the consent terms, and, therefore, its action could not be sustained. The Labour Courts however, surprisingly held, inconsistent with its earlier award, that the provisions of Section 9A were not contravened this time as relieving of these ten clerks would not amount to reduction in the number of posts in the Panchayat. The Labour Court further held that the earlier award as it stood amended by the consent order of this Court was not in any manner contravened by the impugned action. Therefore, on merits, as regards demand No. 1, in view of the fact that the order was absolutely mala fide, the Labour Court treated it as a fit case to order reinstatement of all these 10 workmen, with the compensation equivalent to the back wages which they would have earned from the date of their discharge July 1, 1969, till the date of reinstatement of service. As regards the second demand, the Labour Court in view of the fact that the contract system was sought to be implemented by exploiting labour by passing such mala fide, arbitrary orders held that the proper course would be to issue directions to the Panchayat to discontinue the contract system from the date when the existing contract had come to an end. As however the Reference was held to be incompetent, no such proposed directions were given. That is how the petitioner Union has filed the present petition challenging the aforesaid award as well as, in the alternative, the impugned order terminating services of the aforesaid 10 clerks.
2. The Sarpanch in terms in para 11 of his affidavit stated that by contract system the work of collecting octroi was handed over to the contractor but the other work was being done by the clerks already existing on the staff on the date of the settlement i.e. July 1, 1969. He further stated that the octroi department was in existence on that day and, it was not correct to say that because the work of collecting octroi was handed over to the contractor, the existence of the octroi department itself was abolished Therefore, he denied that there was any breach of the earlier award as it stood modified by the order of this Court as per the consent terms. On the footing that the octroi department was the water-tight department, the Sarpanch tried to support the order of the Labour Court.
3. Mr. Majmudar rightly challenges the award of the Labour Court as perverse, patently erroneous and on a complete misconception of law at least on five grounds:
(1) That even though this attempted rationalisation was held to have been introduced on November 1,1967, in violation of Section 9A, the same Labour Court has recorded wholly inconsistent conclusion in these proceedings that there was no violation of Section 9A at all by fresh discharge of the same 10 clerks on that very day on which they were reinstated.
(2) That such a mala fide device of making workers sit in the office and reducing them on the very day amounted to non-compliance with the binding terms of the award as it stood modified by the order of this Court as per the consent terms.
(3) That ignoring the settled law the Labour Court had held that Section 25F(b) was not contravened by this act.
(4) That in absence of any pleading or issue and even when there was no case put to the concerned workmen when they were examined, the Labour Court had no jurisdiction to make out such a new case on facts from some stray sentences in the evidence of the Sarpanch that the octroi section was water tight compartment and the workmen therein were not transferable at all.
(5) That the Labour Court erroneously assumed that the binding decision in Nagpur Corporation case, : (1960)ILLJ523SC was overruled and, there fore, it had patently erred in net giving effect to this settled law of the land.
4. On the first question the legal position is now well settled as to the true scope and ambit of Section 9A of the Act. In M/s. Tata Iron Steel Co. Ltd. v. Its Workmen : [1972]83ITR403(SC) , their Lordships in terms held that Section 9A lays down that a change in the conditions of service in respect of any matters specified in the IVth Schedule shall not have effect unless a notice was given to the workmen likely to be affected by such change. Pointing out importance of these provisions their Lordships held that the notice for effecting such a change was of great importance. The real object and purpose of Section 9A seems to be to afford an opportunity to the workmen to consider the effect of the proposed change and if necessary to present their point of view on the proposal. Such consultation further served to stimulate a feeling of common joint interest of the management and workmen in the industrial progress and increased productivity. This approach on the part of the industrial employer would reflect his harmonious and sympathetic co-operation in improving the status and dignity of the industrial employees in accordance with the egalitarian and progressive trend of our industrial jurisprudence, which strives to treat the capital and labour as co-sharers and to break away from the tradition of labour's subservience to capital. In that case a weekly off of Sunday was to be altered to some other weekly day of rest which would not involve any financial loss to the workers. Their Lordships however held that Sunday as a weekly day of rest has a special significance. The workmen would like to have weekly rest day on a Sunday when their school going children have a holiday so that the entire family may be able to take part in recreation or other social activities. Their Lordships held that in order to effectively achieve the object underlying Section 9A, it would be more appropriate to place on the Fourth Schedule read with Section 9A a construction liberal enough to include change of weekly rest days from Sunday to some other weekday. As this mandatory provision of Section 9A was not followed their Lordships held that such a change introduced in the weekly off without following the provisions of Section 9A was ineffective and the previous schedule of week days must be held to be still operating. On that footing the employees were held to have been locked out illegally by their Lordships. In the present case, Schedule IV items 10 and 11 are attracted of rationalisation which is likely to lead to retrenchment of the workmen and of reduction in the number of persons employed in any department not occasioned by circumstances over which the employer had no control. The same Labour Court rightly held on the earlier occasion that this change of rationalisation and reduction of 10 posts of Panchayat clerks resulted in the reduction in the octroi department and having been effected without following the procedure of sec: 9A was ineffective change by giving octroi collection to the contractor in a way so as to result in retrenchment of these workmen and, therefore, it was really inoperative change as held by their Lordships. That was the decision of this very same Labour Court at the time of earlier award. The only further thing was that the Labour Court had not made it completely inoperative by issuing a direction of reinstatement but it merely recommended reemployment of those 10 concerned clerks and directed payment of mere retrenchment compensation and some additional compensation. The Labour Court had held that even the mandatory provision of Section 33(1) was contravened as change was effected during the pendency of conciliation proceedings, and even the mandatory provision of Section 25F(b) was not complied with. The Labour Court was not convinced that this Panchayat was bent upon exploiting labour and, therefore, it did not give a direction for its discontinuing the contract system. That is why when the writ petition came up for hearing, the Panchayat had to agree to the consent terms awarding reinstatement of these 10 clerks. Therefore, the effect of the order as per the consent terms of this Court was that the change had become completely inoperative so far as these 10 clerks were concerned, although for revenue purposes farming out of octroi levy as provided under Section 180 of the Act was allowed to be continued. The Labour Court has now realised that this action of the contractor has resulted in exploitation of labour but it surprisedly held that Section 9A procedure was not required to be followed. The Labour Court has spoken in inconsistent voices, probably forgetting what it had said in the earlier award, that this rationalisation and reduction of posts was entirely an illegal change in plain violation of Section 9A and other mandatory provisions. Therefore, so far as the panchayat was concerned until Section 9A procedure was followed, this status-quo position continued and the Panchayat posts of clerks in clerical cadre remained unrationalised and unreduced until they were duly retrenched by following Section 9A procedure, Admittedly, no procedure was followed before passing the impugned resolution. Therefore, on these admitted facts, Section 9A was surely contravened and the Labour Court's finding is entirely perverse on that score.
5. Even as regards the second contention of Mr. Majmudar, the effect of the first award as it stood modified by the consent order of this Court was that there was no such rationalisation and reduction of posts and these 10 posts continued in the clerical cadre of respondent No. 2 Panchayat. So long as the posts continued in the Panchayat and to which these employees were reinstated by the order of this Court, there can be no such retrenchment without following mandatory procedure of Section 9A. The effect of the reinstatement direction in the context of these facts was that until due procedure was followed for rationalisation or achieving object of economic measure for reducing these ten posts, these posts clearly continued. So long as the posts continued, such a public body could never seek to discharge these employees by employing this subterfuge of resolution that work was not there for them and that is why these employees were discharged. Therefore, once the Labour Court held that it was mala fide action of not implementing the consent terms, it was bound to hold that the industrial award was set at naught by this action. It was not in implementation of the award that this action was taken but in flagrant violation of the award, which reinstated the 10 concerned clerks, because clerical strength was not reduced by following proper legal procedure for effecting rationalisation. Respondent No. 2 Panchayat was conscious of this fact because it has in terms stated in the resolution that reinstatement was done as proper legal procedure was not followed. Legal procedure was only to resort to the machinery of Section 9A. Once that notice of change is given, if no agreement is arrived at by mutual consultation, there would be conciliation proceedings and reference before the Labour Court. If there would be no settlement, there would be adjudication and it is only if the adjudicator permits the change, that the change could be effected. Such a Change of introduction of rationalisation resulting in large scale rationalisation is bound to lead to breach of industrial peace. Therefore, the industrial law has insisted on this machinery of notice of change under Section 9A so that the matter can be amicably settled by mutual consultation by an agreement or settlement or by adjudication. That is why safeguards are made for status-quo being maintained by the provisions like Section 33 even during the conciliation and during the pendency of adjudication proceedings. Strikes and lock-outs are proscribed during the period. Therefore, in the context of such scheme when the Labour Court in the earlier proceeding held that proper procedure was not followed for effecting this rationalisation or reduction in strength of the clerical cadre by the Panchayat, the Labour Court never meant that by merely effecting retrenchment by attempting to follow the procedure in Section 25F, such a rationalisation could be effected. That was a plain answer recorded in the earlier award that such rationalisation could not be effected without going through the mandatory procedure of Section 9A. Therefore, when the Panchayat sought to retrench these employees on the very same day on which they were reinstated without following the mandatory procedure of Section 9A, the Labour Court should have held that in view of the earlier award not only provisions of Section 9A were contravened but that the earlier award was also completely contravened and flouted by this mala fide action.
6. In that view of the matter, the third point raised by Mr. Majmudar would not be very material. It is true that in National Iron and Steel Company Ltd. v. State of West Bengal A.I.R. 1967 S.C. 1206 at page 1210 their Lordships settled the legal position as regards Section 25F that when a workman is retrenched by offering him a notice pay and retrenchment compensation and he is asked to go forthwith, he has to be paid at the time when he was asked to go and should not be asked to collect his dues afterwards, otherwise there would be non-compliance with the mandatory provisions of Section 25F if the workman is asked to collect his dues from the office on a subsequent day. In the present case it is true that the workmen were asked to collect the dues on that very day. The concerned workman has in terms deposed in his evidence at Ex. U-4 that they were told that the amount mentioned in the notice should be accepted by them. When however they went to accept the money, no such amount was there. Disbursement was made by the clerk who was concerned with the accounts. The talk was with the Secretary and he stated that he did not go to the accounts clerk to accept compensation because there was no talk to go there and accept the amount. As soon as the cheque was sent, all the workmen had accepted the same. In the evidence of the Sarpanch at Ex. C-5, it is merely stated that the amounts were offered to them at 11-0 A.M. and they were not accepting the same and so cheques were prepared and sent on that day by registered post. The Panchayat failed to examine the concerned clerk to show that the amounts were kept ready on that day. Therefore, merely an offer to pay was not strict compliance with Section 25F. In any event, as we hold that the procedure of rationalisation and retrenchment as required under Section 9A had not been followed, the present retrenchment was obviously illegal and mala fide and, therefore, it is not necessary to conclude this question, although we find much substance in Mr. Majmudar's contention in this connection.
7. As regards the next question, it is surprising that the Labour Court permitted this new case of facts being made out, even though there was no pleading, no issue and nothing was suggested on this material question of fact in the cross-examination of the concerned workmen. The Labour Court merely picked up a few lines from the deposition of the Sarpanch as under:
Persons working in the octroi section have to do work only concerning collection of octroi. No other work is being entrusted to them. Persons working in the octroi section are not transferred to any other section. Persons working in any other section are not transferred to octroi section.
In Bhagat Singh v. Jaswant Singh A.I.R. 1966 S.C. 1861, at page 1863, their Lordships reiterated the legal position laid down by their Lordships of the Privy Council in Siddiq Mahomed Shah v. Mst. Saran , that where a claim has never been made in the defence presented, no amount of evidence can be looked into upon a plea which was never put forward. In that case, their Lordships had to deal with a case where in the written statement there was no plea that the adoption was against the custom. There was no issue to that effect with respect to any such specific custom. The mere fact that the issues as framed did involve consideration of the validity of the adoption and of the ancestral nature of the land in suit was held by their Lordships as not sufficient to clothe vague allegation of the written statement with the definiteness of the requisite pleadings. Their Lordships held that it would not be incumbent on the parties to lead evidence for or against the existence of certain custom and the plaintiff's case not coming within it. An opportunity was not sought to amend the pleading. Their Lordships in terms observed that it was true that evidence was led by both the parties about the custom and about the ancestral nature of the land in suit. But in view of the absence of any specific issue about custom, it was possible that adequate evidence bearing on the question may not have been led. These observations would be all the more apposite in such a labour dispute, especially where this point which was a mixed question of law and facts was not raised at any stage throughout the entire earlier award; nor even before this Court in the writ petition. The matter was settled by the consent terms. Further, even in the new reference this point was raised at no earlier stage. Even at the hearing the point was permitted by the Labour Court as a purely legal contention. It was, therefore, surprising that the Labour Court by picking up some stray sentences from the evidence of the Sarpanch sought to make out a new case on facts which was never pleaded at the earlier stage and which is thoroughly inconsistent with the earlier award that the octroi section was a water-tight section and the clerks in that section were not transferable and were exclusively allotted to that section. It would be causing great prejudice to the labour if a new case on facts was thus sought to be made out by the Labour Court only in the arguments. The Labour Court had no jurisdiction therefore to look at the evidence for considering this mixed question of law and facts on which there was no plea and no issue and no cross-examination of the workmen concerned. The Labour Court throws the burden on the workmen by saying that they had not cross-examined the Sarpanch. This is under complete misconception of the true legal position as pointed out by us. Therefore, it would not be open to the Panchayat to raise this mixed question of law and facts by raising a point in arguments. We should therefore proceed on the footing that this was a pure legal contention permitted on the basis of the undisputed facts. The undisputed facts were that rationalisation and reduction of clerical strength was not permitted by the Labour Court on the simple ground that the requisite mandatory procedure of Section 9A was not followed by the Panchayat. That is why by consent terms the concerned workmen who were rendered unemployed by this illegal rationalisation were reinstated in their original posts. There was work for these employees in the posts which were not allowed to be reduced by effecting rationalisation. On these undisputed facts it was not necessary to answer the abstract question whether the activity of octroi collection was industrial activity for one can never look at this octroi section by itself. There was a further undisputed fact that even the law permitted farming out of octroi under Section 180 of the Gujarat Panchayats Act, 1961, hereinafter referred to as 'the Act'. Section 180 enacts that it shall be lawful for a Gram-Panchayat to lease at the public auction or by private contract collection of octroi. It is in this context that in the earlier award the contract system was allowed to continue so long as there was no exploitation of labour. Reinstatement of the workers was agreed upon and, therefore, the collection of octroi by way of farming out this octroi collection was allowed to continue. In such a context the Nagpur City Corporation case, : (1960)ILLJ523SC completely concluded the question that this was an industrial activity and this tax department was an industrial activity.
8. In Nagpur Corporation v. Its Employees : (1960)ILLJ523SC at pages 679 and 681 their Lordships referred to the classic decision of Lord Watson in Coomber v. Berks Justices (883) 9 A.C. 61 at page 74, where only the functions such as administration of justice, maintenance of order and repression of crime were considered as among the primary and inalienable functions of a constitutional Government. Even according to the Australian cases, regal functions were inescapable and inalienable. Such were the legislative power, the administration of laws, the exercise of judicial power. That is why their Lordships in terms held that these regal functions must be distinguished from the non-regal functions and regal functions could never be intended by the Legislature to be brought within the definition of the term 'industry' so as to confer jurisdiction on the Industrial Court to decide the dispute. Their Lordships were however particular in confining this ratio to regal functions strictly so called, such as making of laws, disposal of certain cases judicially etc., which alone must be excluded from the definition of 'industry' and no other welfare activities which were analogous to trade or business. In that context the test was applied as laid down by the Australian cases for distinguishing regal functions from trade activity. At page 683 when the Learned Counsel wanted to distinguish municipal activities into three kinds of activities viz. service departments, administrative department and tax department, their Lordships in terms held that there was no justification for such artificial division of municipal activities. Barring the regal functions of a municipality if such other activities are undertaken by other individual would be industry, they then would equally be industry in the hands of the municipality. Their Lordships categorically held that it would be unrealistic to draw a line between a department doing a service and a department controlling or feeding it. Supervision and actual performance of service were integral parts of the same activity. In other words, whether these three functions are carried on by one department or divided between three departments, the entire organisational activity would be an industry. Their Lordships drew support from the decision of Baroda Municipality v. Its workmen : (1957)ILLJ8SC where also it was pointed out that no distinction must be made between the earning and spending departments of the municipality to take in some under the definition of industry and exclude others from it. Further proceeding their Lordships pointed out that if the financial and administration departments were solely in charge of the industrial activity of a municipality, there can be no difficulty in treating these two departments also as part of the industry. If, however, these two departments may not only be in charge of the particular activity or service covered by the definition of industry but also in charge of other activity falling outside the definition of industry, a working rule would have to be evolved for doing justice by applying the test whether such department was primarily and predominantly concerned with industrial activity or incidentally connected therewith. That is why at page 684 six propositions are laid down as under:
The definition of industry in the Act is very comprehensive. It-is in two parts; one part defines from the stand point of the employer and the other from the stand point of the employee. If an activity falls under either part of the definition, it will be an industry within the meaning of the Act. (2) The history of the industrial disputes and the legislation recognises the basic concept that the activity shall be an organised one and not that which pertains to private or personal employment. (3) The regal functions described as primary and inalienable functions of the State though statutorily delegated to a corporation are necessarily excluded from the purview of the definition. Such regal functions shall be confined to legislative power, administration of law and judicial power. (4) If a service rendered by an individual or a private person would be an industry, it would equally be an industry in the hands of a corporation. (5) If a service rendered by a corporation is an industry, the employees in the departments connected with that service, whether financial, administrative or executive, would be entitled to the benefits of the Act. (6) If a department of a municipality discharges many functions, some pertaining to industry as defined in the Act and other non-industrial activities, the predominant functions of the department shall be the criterion for the purposes of the Act.
These tests were applied to various departments-assessment department, tax department, enforcement department, etc. As to tax department their Lordships held at page 685 that there was nothing to show the allocation of a separate staff for the different functions and same staff did the work connected with assessment and collection of water rates as well as scavenging taxes. Such rates were really fees for the service rendered by the Municipality for scavenging and supply of water which could be undertaken by a private firm or an individual for remuneration and was, therefore, industrial activity. Their Lordships did not rest content by basing their conclusion on this narrow basis but it was supported on a broader basis as under:
There cannot be a distinction between property tax and other taxes be collected by the municipality for the purpose of designating the tax department as an industry or otherwise. The scheme of the Corporation Act is that taxes and fees are collected in order to enable the municipality to discharge its statutory function. If the functions so discharged arc wholly or predominantly covered by the definition of 'industry' it would be illogical to exclude the tax department from the definition. While in the case of private individuals or firms services are paid in cash or otherwise, in the case of public institutions as the services are rendered to the public, the taxes collected from them constitute a fund for performing those services. As most of the services rendered by the municipality come under the definition of 'industry' we should hold that the employees of the tax department are also entitled to the benefits under the Act.
The same was said of the enforcement department as that activity could also be undertaken by the individual provided he had that power. At page 688, in connection with the assessment department, again their Lordships reiterated that no distinction should be made with regard to the assessment of tax so called and that of fees and rates. The same staff did the assessment connected with not only taxes so called but also other fees and rates. As most of the staff came in the definition of industry, the assessment department must be held to be an industry under the Act. Their Lordships in this context also further supported the conclusion by reference to the fact that the same staff did the work of assessment of house tax as well as other taxes and the work of the department was predominantly connected with the assessment of scavenging tax and water rate. Therefore, the test of paramount and predominant duty was fulfilled. Finally, even the general administration department which coordinated the functions of all other departments was also held to be an industry on the ground that if various departments collated with this department were industries, this department would also be a part of the industry as their working would depend upon (he proper working of this administration department for otherwise there would be confusion and chaos. Even the test of predominant activity was also fulfilled.
9. After this decision, the Labour Court could hardly hold that if such a contention was allowed as a pure contention of law, the octroi department of the Panchayat in question was not an industry. The regal functions have been confined to regal functions strictly so called as per test No. 3, that is only to primary and unalienable regal functions by way of legislative power, administration of law and judicial power. It is, therefore, obvious that such a tax department which collects charges in order to enable the Panchayat to discharge its statutory functions of rendering municipal services was surely industry and could never b treated as regal function. The conclusion in Nagpur Corporation case has been reached as regards tax and assessment departments on the broader basis that there could be no distinction between property tax and other taxes collected by the Municipal body for the purpose of designating the tax department as an industry or otherwise, and that it would be wholly illogical to exclude the tax department from the definition of 'industry'. The test of paramount, predominant duty, or activity or function was incidentally applied by their Lordships on an assumption that the tax department was not an integral part of the municipal service. The municipal service which is undertaken from this capital collected from taxes would always have the tax department as an integral part and, therefore, the test of paramount and predominant duty or activity or function would not be necessary to be invoked. It is only when the municipal undertaking has both industrial and non-industrial distinct activities that test was envisaged by their Lordships.
10. In the present case, the argument of regal function could never be raised when the statute itself contemplates the collection of octroi being farmed out to a private individual, and it was actually done in the present case right from November 1967 and which was the cause of all this trouble. Therefore, this was not a primary, inescapable and unalienable function but incidental, alienable function. Besides, the tax department could not be disputed in the present case to be a part and parcel of the Panchayat undertaking, in view of the scheme of the Act to finance municipal services laid down in Schedule 1. Section 88 of the Act provides that subject to the provisions of the Act it shall be the duty of the Panchayat to make as far as its finances permit a reasonable provision in regard to or any of the matters specified in Schedule I. Schedule 1 refers to such matters of sanitation, health, public work etc. Section 99 provides of what a Gram Fund shall be constituted, which includes proceeds of any tax under Section 99(2)(b). Section 100(1) provides that all fees received under the Act shall be applied subject to the provisions of and for the purposes of the Panchayat Act. Therefore, merely by looking at Section 178(1)(ii) that octroi was a tax, the Labour Court could not jump to the conclusion that tax department was not an industrial activity or that it was a regal function in the context of these undisputed facts, especially when the matter was already concluded by the earlier award and was no longer res-Integra. In Serur Municipality v. Workmen : (1960)IILLJ657Bom , which was decided on April 14, 1960, which is a binding decision on this Bench, the Division Bench consisting of S.T. Desai and V.S. Desai, JJ. in terms held at page 80 that from the facts it was clear that there was no separate cadre of employees for the octroi department and that there was one cadre of clerks for all the departments and the clerks were transferable from one department to the other. Some clerks had worked in other departments including octroi. The municipality never regarded the department as separate and distinct activity. Therefore, Naka clerks of the octroi were held to be engaged in the integral activities of the municipality. They were, therefore, held to be engaged in that integral activity and not solely and exclusively confined to any one department. This binding decision was completely applicable to the facts of the present case, where at no stage any serious attempt was made to show that octroi section was a water-tight section and was not an integrated activity of the municipality and that the clerical cadre did not cover octroi clerks. In fact the reinstatement was agreed upon by the Panchayat even when the contractor was continued only for farming out revenue. Once the Panchayat reinstated these clerks, it is obvious that they were integrated in the Panchayat clerical cadre. That is why on the day of reinstatement they were asked to sit in the office. Even the Sarpanch states that under the contract system only the work of collection of octroi was handed over to the contractor while the other work was given to the octroi department, already existing on the date of the settlement and also on July 1, 1969, the octroi department was in existence even on the date of affidavit September 13, 1972. The Sarpanch says that it is not correct to say that because the work of collection of octroi was handed over to the contractor, the existence of octroi department was itself abolished. Therefore, on admitted facts, the octroi department was an integrated activity of the Panchayat and that is why when rationalisation was sought to be effected it was held to be reduction in the number of posts in the clerical cadre in the earlier award and the change was made ineffective and inoperative by reinstating these concerned clerks in the Panchayat clerical cadre. In that view of the matter, so far as the facts of the present case are concerned, this legal contention could never arise and the wider question could not have been reached by the Labour Court and the controversy should have been answered in the light of the aforesaid binding decision.
11. We may at this stage point out that a Division Bench of the Punjab High Court consisting of Grover, J. and Khanna, J. (as they then were) in Municipal Committee v. Ramlal Jain A.I.R. 1965 Punjab 15 had taken the same view so far as the octroi peon was concerned, by treating the entire question as completely concluded by the Nagpur Corporation case AIR 1960 S.C. 675 by holding that octroi duty or terminal tax together with other taxes enable the municipality to discharge its statutory functions which would be predominantly covered by the definition of industry' and, therefore, the employees of the octroi section were also industrial employees-workmen as that was the industrial activity.
12. Even on the wider legal question, which would not really arise on the present facts there is hardly any substance in Mr. Shah's contention, and the Labour Court was wholly wrong in assuming that the Nagpur Corporation case stood overruled. D.A. Desai, J. speaking for the Division Bench consisting of himself and P.D. Desai, J. in the case of Dhari Gram Panchayat v. Its Safai Kamdar 12 G.L.R. 287 categorically held at page 302 that binding decision was not expressly or impliedly overruled by the later decisions of the Supreme Court, including those in the case of Madras Gymkhana Club case, : (1967)IILLJ720SC , Cricket Club of India case : (1969)ILLJ775SC , and Safdargunj Hospital case : (1970)IILLJ266SC by the Full Bench of six Judges. At page 300 our Learned Brother rightly pointed out that it would not be open to them to disregard this direct authority of the Supreme Court. Our learned Brother in terms pointed out that the decisions in B.N. Banerjee's case A.I.R. 1963 S.C. 58 and in Nagpur Corporation case, : (1960)ILLJ523SC , had at no time been overruled in the aforesaid three subsequent decisions of the Supreme Court.
13. No doubt Mr. Shah made a valiant effort to distinguish this decision of our learned Brother D.A. Desai, J. by pointing out that there the controversy was as regards the Safai Kamdars or the conservancy and sanitation services which were really industrial services. That decision could have no application to such a tax department like octroi department which was a regal function. The test as to whether an individual could perform such activity having been expressly disapproved by their Lordships in the larger Full Bench decision in Safdargunj Hospital case, the ratio of Nagpur Corporation case where the definition of industry was widely interpreted must be deemed to be completely overruled. This contention of Mr. Shah is based on a complete misconception and the distinction which he seeks to make has hardly any justification.
14. In Safdargunj Hospital case by the Full Bench of six Judges in : (1970)IILLJ266SC , the learned Chief Justice qualified his observations which were made in the earlier decision in Madras Gymkhana case A.I.R. 1968 S.C. 564. The two parts of the definition of 'industry' in Section 2(j), where the first part said that it meant 'any business, trade, undertaking, manufacture or calling of employers' and the second inclusive part which included any calling, service, employment, handicraft or industrial occupation or avocation of workmen,' were dealt with in the earlier decision by concluding as under:
If the activity can be described as an industry with reference to the occupation of the employers, the ambit of the industry, under the force of the second part takes in the different kinds of activity of the employees mentioned in the second part. But the second part standing alone cannot define industry.... By the inclusive part of the definition the labour force employed in an industry is made an integral part of the industry for purposes of industrial disputes although industry is ordinarily something which employers create or undertake.
These observations in the Madras Gymkhana Club case were sought to be qualified by the learned Chief Justice by pointing out at page 1411 that it was not necessary to view the definition in two parts. Both the parts of the definition were not to be read in isolation as if they were different industries but only as aspects of the occupation of employers and employees in the industry, as two counterparts in one industry. The definition as a whole denotes a collective enterprise in which employers and employees were associated. In such collective enterprise, the employers follow their avocation as detailed in the first part of the definition, and employ workmen who follow one of the avocations detailed for workmen. The definition defines 'industry' with reference to employer's occupation but includes employees, for without the two there can be no industry. Therefore, it was held that an industry was only to be found when there were employers and employees, the former relying upon the services of the latter to fulfil their own occupations. But every case of employment was not necessarily productive of an industry i.e. domestic employment, administrative services, service in aid of occupation of professional men, public officials, etc. At page 1412 it was pointed out that the word 'industry' in this definition must take its colour from the definition, and it disclosed that a workman was to be regarded as one employed in an industry if he was following one of the vocations mentioned in conjunction with his employers engaged in the vocations mentioned in relation to the employers. Therefore, industry was to be found when the employers were carrying on any business, trade, undertaking, manufacture or calling of employers. If they were not, there was no industry as such. It was pointed out that a narrow meaning had been given by the earlier decisions in Banerjee's case, A.I.R. 1953 S.C. 258, and Baroda Municipality's case, : (1957)ILLJ8SC by restricting the meaning of 'undertaking' to an enterprise analogous to trade or business. Therefore, it was held that industry must be accepted to mean only trade and business, manufacture or undertaking, analogues to trade or business, for the production of material goods or wealth and material services. The expression 'material services' was also explained at page 1413, where the emphasis was not on what the employees did but upon the productivity of a service organised as an industry and commercially valuable. Therefore, services of professional men involving benefit to individuals according to their needs, such as, doctors, teachers, lawyers, solicitors etc., were easily distinguishable from an activity such as transport service. The latter was of a commercial character in which something was brought into existence quite apart from the benefit to particular individuals. It was production of this something which was described as the production of material services. That is why their Lordships explained the Gymkhana Club case and held that non-profit making members' clubs were not employed in trade or industry and their employees were not entitled to engage in trade disputes with the clubs. The solicitor's firm and University were also not held to be industry as those services were rendered by the employees who were engaged in aid of professional men and the services were not material services. Therefore, the conclusion is reached at page 1414 that even though it was not necessary that there must be a profit motive, the enterprise must be analogous to trade or business in a commercial sense. The conclusion in the Gymkhana Club case was reiterated as under:
before the work engaged can be described as an industry, it must bear the definite character of trade or business or manufacture or calling or must be capable of being described as an undertaking resulting in material goods or material services.
Thereafter, the Hospital Mazdoor Sabha case : (1960)ILLJ251SC was referred at page 1414, and it was pointed out that it proceeded on the assumption that there need not be an economic activity since employment of capital and profit motive were considered unessential. This assumption was held to be erroneous because the economic activity may not be related to capital and profit-making alone. An economic activity could exist without the presence of both. Similarly, it was pointed out how inappropriate in this context was the test as to whether a hospital can be run by a private individual or group of individuals. It was held that a hospital could be run as a business proposition and for profit and so a Government hospital run without profit must bear the same character. This was held not to be the right test in this context because that test was always employed to distinguish between the regal functions of the Government or local authorities and their functions analogous to business but it could not be used in the present context. Their Lordships had in terms approved the Australian decision where it was pointed out that from the industrial point of view it did not matter whether the expenditure was made by the municipal authority by fares from passengers or from rates as such a question of profit making was important only from the income-tax point of view. That is why their Lordships at page 1415 in terms pointed out that these observations only indicated that in those activities in which Government took to industrial ventures, the notion of profit-making and the absence of capital in the true sense of the word was irrelevant. That is why the Hospital Mazdoor Sabha case was held to have taken the extreme view which was not justified. At page 1415 it was pointed out that the named services in the definition of a public utility service answer the test of an industry run on commercial lines to produce something which the community could use. They were brought into existence in a commercial way and were analogous to business in which material goods were produced and distributed for consumption. That is why Safdargunj Govt. Hospital was held at page 1415 as not having embarked on an economic activity which could be said to be analogous to trade or business, as there was no evidence that it was more than a place where persons could get treated. This was a part of the function of the Government and the hospital was run as a department of the Government and it could not be held to be an industry. This decision could hardly help Mr. Shah for the larger contention that Nagpur Corporation case stood overruled. Even the Hospital Mazdoor Sabha case was only held to be taking extreme view of the matter which was not justified. It is true, their Lordships had in terms observed even in Madras Gymkhana case A.l.R. 1968 S.C. 554 at page 563 and Mr. Shah vehemently relied upon this observation, 'that the word 'undertaking' must be defined as' any business or any work or project which one engages in or attempts as an enterprise analogous to business or trade'. This was the test laid down in Banerjee's case A.l.R. 1953 S.C. 58 and followed in the Baroda Borough Municipality case A.l.R. 1957 S.C. 110. 'Its extension in the Corporation case was unfortunate and contradicted the earlier cases'. What their Lordships had in mind was that 'undertaking' could not have a wider but a restricted meaning because of the collocation of the five terms in the first part of the definition. Even though the definition was in two parts, giving meaning and with an inclusive part, it could not be widely interpreted because of the inclusive part, so as to cover every occupational activity from the point of view of only employees. It is the first part of the definition which must be first fulfilled to find out what is industrial activity. The entire nexus was the word 'industry', which was in two parts. The two aspects were emphasised from employers' point of view and employees' point of view to bring out clearly what was industrial activity. Therefore, the decision of the Full Bench only emphasises the correct reading of the definition as per the statutory meaning in the first part of the definition and that is why undertaking got a narrow meaning as analogous enterprize to commercial, economic activity organised as such. Therefore, the Corporation case's observations were only to that extent undermined, which were laid down in the first test, in the six tests laid down in that decision. The rest of the decision completely holds good. There is equally no substance in the contention of Mr. Shah that the test laid down as to whether an individual could undertake this activity has been completely given a go bye by the later decision. Mr. Shah vehemently relied on the passage from the Madras Gymkhana Club case A.l.R. 1968 S.C. 554 (563) where it was pointed out as under:
The Act in terms contemplates cases of industrial disputes where the Government or a local authority or a public utility service may be the employer.' The expansion of Governmental or municipal activity in fields of productive activity is a feature of all developing welfare States. This is considered necessary because it leads to welfare without exploitation of workmen and makes the production of material goods and services cheaper by eliminating profits. Government and local authorities act as individuals do and the policy of the Act is to put Government and local authorities on a par with private individuals. But Government cannot be regarded as an employer within the Act if the operations are Governmental or administrative in character. The local authorities also cannot be regarded as industry unless they produce material goods or render material services and do not share by delegation in Governmental functions or functions incidental thereto. There is no essential difference between educational institutions run by municipalities and those run by universities. And yet a distinction is sought to be made on the dichotomy of regal and municipal functions.
These observations could hardly be pressed into service by Mr. Shah as they only emphasise that the Government or the local authority could not be regarded as industry unless they produce material goods or render material services and do not share by delegation in Governmental functions or functions incidental thereto. Their Lordships were only emphasising the industrial nexus which would bring in even governmental and local authorities into the definition of industry, if their enterprise was also industrial enterprise producing material goods or rendering material services. The second aspect is mentioned to emphasise the first that in such industrial activity, the Government does not share by delegation in governmental functions or functions incidental thereto. This was the very test adopted in the Nagpur Corporation case. It is true that in the Hospital Mazdoor Sabha case this test was held to be in that context wrongly invoked without first deciding whether it was an industrial enterprise or not. The test was however held to be most appropriate to determine whether the activity was industrial activity or was a regal function. In fact, in the further para in Madras Gymkhana Club case on the same page 563 the learned Chief Justice had in terms pointed out that the work for which labour of workmen was required must be productive and the workmen must be following an employment, calling or industrial avocation. The salient fact in this context was that the workmen were not their own masters but rendered service at the behest of masters. This followed from the second part of the definition of industry. Then again when private individuals were the employers, the industry was run with capital and with a view to profits. These two circumstances might not exist when Government or a local authority entered upon business, trade, manufacture or an undertaking analogous to trade. Further proceeding, it was held in the next para that the labour force included not only manual or technical workmen but also those whose services were necessary or considered ancillary to productive labour of others, but did not include anyone who, in industrial sense would be regarded by reason of his employment or duties as ranged on the side of the employers. Such were persons working in a managerial capacity or highly paid supervisors. Their Lordships have in terms held that in case of a local authority when it is engaged in industrial enterprise producing such material services, even if the charges come not from private capital but from taxation and the concern is not run with a view to profit-making, such enterprise by the Government or local authority would be industrial enterprise and the labour force engaged therein in rendering these material services would not only be covered, but also those who are necessary or considered ancillary to the productive labour of others would be included. Therefore, such clerks in the tax department in this integrated municipal service must be held to be workmen engaged in the industrial activity undertaken by this Panchayat enterprise. Even in the latest decision in Federal Indian Chamber of Commerce v. R.K. Mitlal : (1971)IILLJ630SC , their Lordships have explained all the earlier decisions and have pithily culled out the entire ratio at page 777 as under:
It appears to us that the tests for determining whether a dispute is an industrial dispute or not have been enunciated and the principles crystallised, as a result of the several decisions of this Court which is what are applicable to this case. There is therefore no warrant to allow any other element to be added to the criteria laid down for determining what an industry is: In our view the linch-pin of the definition of industry is to ascertain the systematic activity which the organisation is discharging, namely, whether it partakes the nature of a business or trade, or is an undertaking or manufacture or calling of employers. If it is that and there is cooperation of the employer and the employee resulting in production of material services, it is an industry, notwithstanding that its objects are charitable or that it does not make profit or even where profits are made, they are not distributed among the members.
Applying the aforesaid test, it is obvious that the Panchayat was an industrial enterprise which was discharging its municipal functions laid down in Schedule I and was by way of an integrated activity collecting charges for its services in the form of taxation, including octroi. The employer's enterprise being one for rendering material services, the undertaking was analogous to business or trade and it satisfied the first part of the definition. If this was so, there was obviously a cooperative enterprise of the employer and employees resulting in the production of the material services, irrespective of the fact whether in the particular tax department a clerk was rendering only incidental services so that taxes would be available for financing these services. Therefore, such a panchayat or municipal service would be an industry even as per the latest decision and the Nagpur Corporation case could never be said to have been overruled. In the aforesaid last decision their Lordships had even pointed out at page 775 that even charitable organisations were not excluded because of the object being charitable. As pointed out at pages 776-777 the Panjrapole when engaged in economic activity of production and the sale of milk was held to be an industry in the Bombay Panjrapole case, : (1971)IILLJ393SC , as also a commercial pharmacy in Lalit Hart Ayurvedic College Pharmacy v. Its Workers' Union : (1960)ILLJ250SC . In that view of the matter, the Labour Court was obviously in error in proceeding on an assumption that the Nagpur Corporation case was overruled. Mr. Shah vehemently relied upon the decision of the Maharashtra High Court by a Division Bench consisting of Padhye and Vimadalal JJ. in Abdul Sabirkhan v. Municipal Council, Bhandara 71 Bom. L.R. 823, which has been followed by the Labour Court, wherein the octroi department of the local authority was not held to be an industry in view of the decision in Madras Gymkhana Club case. At page 828 even the decision in Serur Municipal case was in terms not dealt within view of the latest decision in Madras Gymkhana case. The learned Judges had proceeded on the assumption that the activity of levy and collection of octroi was regal function. Attention of the learned Judges was not drawn to the tax department and assessment department in the Nagpur Corporation as it appears at page 827 that only those departments were held to have been considered which looked after the welfare of the community by providing water, light, sanitation etc. and on that ground octroi department was sought to be distinguished. In fact, the entire Nagpur Corporation case rested on a much broader footing and as earlier pointed out by us this ratio has never been overruled in any decision of the Supreme Court and, therefore, this view of the Maharashtra Division Bench could hardly be accepted by us. Besides, that decision is based on its own special facts where the learned Judges assumed the activity of the octroi department as a completely water-tight section and, therefore, that decision could have hardly any bearing on the undisputed facts in the present case. In any event, as pointed out by our Brother D.A. Desai, J. this Court can hardly hold that the binding decision in the hagpur Corporation case has been overruled. Therefore, the Labour Court was obviously in error in not giving effect to the aforesaid binding decision including the Nagpur Corporation case, especially so far as the legal contention was only allowed to be raised without disputing any of the material facts.
15. In this view of the matter, as the Labour Court has recorded the alternative findings, it would not be necessary to remand this matter, and we would allow the petition by exercising our powers under Article 227 to make the final award, as proposed on merits even by the Labour Court. After such a length of time any further remand would prolong the agonies of these unfortunate clerks and would be a mere exercise in futility.
16. In that view of the matter, this petition must be allowed by reversing the view of the Labour Court and by holding that the present Reference was competent. We must further hold that not only the present order terminating the services of these clerks was mala fide but it was in plain violation of Section 9A of the Act and was in contravention of the earlier binding award in this connection; and that this change of rationalisation and retrenchment was wholly illegal and ineffective change. Therefore, for these reasons, as regards demand No. 1 we would make the award which was proposed to be made on merits by respondent No. 1, as this is a fit case looking to the facts of the case where all these concerned 10 clerks must be forthwith reinstated on payment of full compensation equivalent to full wages, with their due allowance and benefits, which they would have earned from the date of discharge July 1, 1969, till the date of reinstatement in service, deducting the amount which had already been paid to them under the cheques sent by of notice pay and retrenchment compensation. So far as demand No. 2 is concerned, the contract system was sought to be exploited and, therefore, we agree with the Labour Court and order that it should be discontinued from the date on which existing contract comes to an end, in so far as it seeks to affect these existing employees without following any procedure in law for affecting this rationalisation.
17. We accordingly make the final award as regards the two demands in question. Rule is accordingly made absolute. Respondent No. 2 shall pay the costs of the petitioners. We also make it clear that as we have held the present reference to be competent and have accordingly made the award in this matter as aforesaid, it is not necessary to exercise our writ jurisdiction directly against the impugned mala fide action of the Panchayat and we express no opinion in this connection.
18. While parting we are constrained to observe that such a responsible public body has been passing such mala fide, patently illegal and arbitrary orders in spite of the fact that the industrial adjudication machinery has in terms held that the proper legal procedure has not been followed for affecting this rationalisation or reduction. Even when reinstatement was ordered by this Court, by adopting this subterfuge all these employees have been rendered unemployed on the very day. Therefore, this is a fit case where a copy of this judgment must be sent to the Government for taking such action as advised under Section 370 of the Act as we find no reason why the tax-payer should ultimately pay for such wholly arbitrary mala fide acts by flouting all legal provisions.