Court’s Decision
The Supreme Court ALLOWED THE APPEAL, setting aside the High Court’s decision. The complaint and summons were restored, and the case was remanded to the Judicial Magistrate for further proceedings.
Facts
The case revolves around whether a laundry service business falls under the definition of a “factory” under the Factories Act, 1948. The dispute originated from an inspection conducted on May 20, 2019, at the premises of a commercial laundry service. The inspection revealed:
- The laundry did not have factory-approved plans, violating Rule 3 of the Goa Factories Rules, 1985, read with Section 6 of the Factories Act, 1948.
- The premises were being used as a factory without a valid license, violating Rule 4 of the Rules read with Section 6 of the Act.
- No application for registration and grant of a license had been submitted, violating Rule 6 of the Rules read with Section 6 of the Act.
The inspection report further noted that:
- More than nine workers were employed at the premises.
- No muster roll for May 2019 was maintained.
- The business involved washing and cleaning of clothes, using machinery, making it a manufacturing process under Section 2(m)(i) of the Factories Act.
- The laundry service was warned to apply for registration, failing which a criminal offense under the Act would be considered.
The respondent (laundry service) replied on May 30, 2019, arguing that:
- The laundry operated under a brand name and was a professionally run service business.
- It had 58 employees across different collection centers and 10 workers at the central processing unit.
- A similar inspection in 2005 resulted in no legal action.
- Under the Factories Act, washing and dry cleaning did not constitute “manufacturing processes.”
- The business was registered under the Shops and Establishments Act, treating it as a service industry rather than manufacturing.
Following further correspondence, the Inspectorate of Factories and Boilers obtained information from the Employees’ State Insurance Corporation (ESIC), confirming that the laundry business was covered under the ESIC Act.
Subsequently, the Judicial Magistrate First Class (JMFC), Panaji, issued a summons on December 4, 2019, initiating legal proceedings.
The respondent then approached the High Court of Bombay at Goa, seeking to quash the complaint and summons, primarily arguing that:
- The order issuing the summons lacked reasoning and application of mind.
- Dry cleaning was a service, not a “manufacturing process,” under the Factories Act.
The High Court accepted these arguments and quashed the complaint and summons.
Dissatisfied with this ruling, the State authorities appealed to the Supreme Court.
Issues Before the Court
The central issue before the Supreme Court was:
Whether the laundry service in question, which involved washing and dry cleaning, constituted a “manufacturing process” under Section 2(k) of the Factories Act, 1948, and whether the premises fell under the definition of a “factory” under Section 2(m) of the Act.
Petitioner’s (Appellant’s) Arguments
The appellants (State authorities) argued that:
- The Factories Act clearly defines “manufacturing process” to include “washing” and “cleaning” of any article or substance with a view to its use, sale, transport, delivery, or disposal. The laundry service’s activities fell within this definition.
- The business employed more than ten workers and used machinery powered by electricity, meeting the requirements of Section 2(m)(i) of the Factories Act.
- The High Court erred in concluding that a transformation into a new commercial product was required for an activity to be considered a manufacturing process.
- The Factories Act is welfare legislation intended to regulate working conditions and provide health, safety, and welfare measures for employees.
- The High Court wrongly relied on Triplex Dry Cleaners, a Punjab and Haryana High Court ruling based on the ESIC Act before its amendment, making it inapplicable.
Respondent’s (Defendant’s) Arguments
The respondent (laundry service) argued that:
- Dry cleaning is a service industry, not a manufacturing activity, because it does not result in a new marketable product.
- The business is registered under the Shops and Establishments Act, which governs service industries, not the Factories Act.
- The Factories Act only applies to businesses that manufacture goods or transform substances into different articles. Laundry services merely clean existing items.
- The High Court was correct in ruling that a “manufacturing process” requires the creation of a new, commercially distinct product.
- Several precedents supported the claim that washing and dry cleaning do not qualify as manufacturing processes.
Analysis of the Law
The Supreme Court analyzed:
- Section 2(m) of the Factories Act (Definition of “Factory”): A factory includes premises where ten or more workers are employed in a “manufacturing process” with the aid of power.
- Section 2(k) of the Act (Definition of “Manufacturing Process”): Washing and cleaning are explicitly listed under activities considered as a manufacturing process.
- The legislative intent behind the Factories Act: It is a social welfare law meant to regulate working conditions in establishments employing workers.
- The Mischief Rule of statutory interpretation: The 1948 Act expanded the scope of “manufacturing process” beyond the 1934 Act to include washing and cleaning, indicating clear legislative intent.
Court’s Reasoning
The Supreme Court ruled that:
- The High Court’s ruling was erroneous in requiring transformation into a new product. The plain meaning of Section 2(k) includes washing and cleaning.
- The laundry service’s use of machinery and employment of more than 10 workers qualified it as a “factory” under Section 2(m).
- The Factories Act’s purpose is worker protection, and businesses engaging in washing and cleaning must comply with its safety and welfare provisions.
- The respondent was already registered under the ESIC Act as a factory, further proving that the establishment met the definition under the Factories Act.
- The complaint and summons were valid, and the High Court wrongly quashed them.
Implications
- Laundry services employing more than 10 workers and using power-based machinery will now fall under the Factories Act.
- Similar service-based industries involving cleaning, repairing, or altering articles may also be considered “manufacturing processes.”
- Increased regulatory compliance and worker protection obligations for commercial laundries.