Laundry Services Qualifies As “Manufacturing Process” Under Factories Act, Supreme Court Clarifies

Before, we dive into the facts of the case let's discuss "manufacturing process" as per the Section 2(k) of the Factories Act:

Section 2(k) “manufacturing process” means any process for:-

(i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal; or

(ii) pumping oil, water, sewage or any other substance; or

(iii) generating, transforming or transmitting power; or

(iv) composing types for printing, printing by letter press, lithography, photogravure or other similar process or book binding; or

(v) constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels; or

(vi) preserving or storing any article in cold storage;

Brief Facts

Ms. Namita Tripathi (“Respondent”) was an owner of a professional laundry set-up in Goa by the name and style of “White Cloud”, which comprised of six collection centres at various locations and one central processing unit in Goa. There were total of 58 employees, including 10 workers at the central processing unit. Following an inspection on 20.05.2019 conducted by the Labour Inspector at the premises of the Respondent where the business was being carried out, it was found that (i) no valid documents i.e. factory licence, approved plans, application and grant of registration etc., were maintained by the laundry owner as required under the Act and Rules; (ii) that the laundry business was registered under the local Goa, Daman & Diu Shops and Establishment Act, 1973, instead as a factory under the Act; (iii) the operations of the Respondent involved using the electric-powered machinery and employed more than nine (9) workers, bringing the setup within the ambit of the Factories Act. The conclusion of the inspection was that the “manufacturing process” was being conducted at the White Cloud laundry premises and Respondent was liable under Section 92 (Penalty of Offences) of the Act.

Also, during the investigation, the Labour Inspector sought information from the office of Regional Director, Employees State Insurance Corporation (“ESIC”), whereby it was confirmed that, for ESIC purposes, the Respondent was covered under the definition of factory as per Section 2(12) of the Employee's State Insurance Act, 1948 and not as a commercial establishment.

Court Intervention

The Judicial Magistrate First Class, Panaji (“JMFC”) took cognizance of the criminal complaint filed by the State of Goa (“Appellant”) under Section 92 of the Act and stated that the records shared by Appellant make a prima facie case against the Respondent. The Respondent approached the Bombay High Court (Goa Bench) seeking quashing of the summons as well as the complaint on the grounds (i) that the summons are unreasoned and suffer grave errors of facts and law; (ii) that the process of dry cleaning does not constitutes manufacturing process as per the Act; (iii) that the business of laundry is in nature of “service” and is not a manufacturing activity since the “product” of the business is intangible.

The order of the JMFC was quashed by the Bombay High Court, Goa Bench after perusing the facts and law on the matter and relying on the definition of “manufacture” under the Central Excise Act, 1944. This interpretation was appealed by the State before the Supreme Court. Thereafter, the matter was taken before the Supreme Court of India by the Appellant.

The Supreme Court overturned the Bombay High Court's order and the major observations by the Supreme Court are as follows:

(i) The Bombay High Court erroneously relied on the definition of “factory” given in Section 2(f) of the Central Excise Act, 1985 which was different from the definition of the “factory” given in the Act.

(ii) Bare perusal of the Act states clearly that the “factory" means any premises including the precincts thereof where ten or more workers are working and in any part of which a manufacturing process is being carried on with the aid of power would be covered therein.

(iii) The Act defines "manufacturing process" to mean any process for making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal.

(iv) That where the words of the statute are clear, then the plain meaning has to be given effect.

(v) Supreme Court also observed and distinguished the Punjab and Haryana High Court (“PHHC”) ruling ESI, Jullundur vs. Triplex Dry Cleaners & Ors., has gone to conclude that the use has to be in such a way that a new marketable commodity should come into being and it should be known commercially for being used as such or for selling the same. According to the PHHC, only if these ingredients are fulfilled would the definition of manufacturing process be attracted. The SCI has negated the reasoning given by the PHHC and stated to the contrary that the reasoning of the PHHC that a transformation has to ensue and the new Article must come into being and that it should be commercially known as another and different article is a totally an erroneous finding. The PHHC has clearly ignored the plain language of the section and has been completely oblivious about the welfare nature of the Statute. The PHHC has extrapolated the definition of "manufacture" as is in vogue in the Central Excise Act 1944.

(vi) Supreme Court also observed and distinguished the Punjab and Haryana High Court (“PHHC”) ruling ESI, Jullundur vs. Triplex Dry Cleaners & Ors., has gone to conclude that the use has to be in such a way that a new marketable commodity should come into being and it should be known commercially for being used as such or for selling the same. According to the PHHC, only if these ingredients are fulfilled would the definition of manufacturing process be attracted. The SCI has negated the reasoning given by the PHHC and stated to the contrary that the reasoning of the PHHC that a transformation has to ensue and the new Article must come into being and that it should be commercially known as another and different article is a totally an erroneous finding. The PHHC has clearly ignored the plain language of the section and has been completely oblivious about the welfare nature of the Statute. The PHHC has extrapolated the definition of "manufacture" as is in vogue in the Central Excise Act 1944.

(vii) That it is not necessary for a “manufacturing process” to result in a new marketable product. The process itself, if listed in Section 2(k) of the Act, is sufficient.

This landmark ruling from the Supreme Court clarifies the scope of "manufacturing process" under the Factories Act and reinforces the welfare nature of labour legislation. This landmark judgment clarifies that when interpreting the definitions, specifically under labour and employment laws, which are social legislations and made for the benefit of the workers employed, the paramount interest should be given to the objects and reasons of these social legislations. By this judgment a direction has been provided for all the subordinate Courts to keep the interest and values of social legislations as supreme, while adjudicating.

This judgment mandates compliance from businesses that previously operated in grey areas and ensures that workers engaged in such activities receive the statutory protections they are entitled to. It further specifically clarifies that any laundry business which involves washing, cleaning and dry cleaning of clothes, and has ten (10) or more workers employed in preceding 12 months with the intent for use, sale, transport, delivery, or disposal, shall fall within the definition of "manufacturing process” under the Act and need to get registered as a factory and apply for factory licence under the Act. In case of laundry set-ups not using power, the threshold to get registered as a factory increases to twenty (20) or more workers under the Act.

The author is an Advocate , views are personal.