Is a Software Development Company a Factory or a Service? Seeking Your Insights

Dear all,

I have one query for your suggestions. A software development company prepares, develops, and sells software in the market. Whether it should be covered under the Factories Act as a manufacturing company or the Shops and Establishments Act as a service industry.

Thanks,
JS Malik

It comes under the Shops and Establishments Act. Ours is the Shop & Establishment Act, and we are in the same field as mentioned above.

Regards,
Rajasekar

Many such organizations are registered under the Shops & Establishments Act. However, I am of the opinion that such concerns should fall under the Factories Act. Manufacturing activities are also being carried out in software development. This is not limited to the provision of intangible services but involves developing and shaping usable goods. In fact, the Shops and Establishments Act is expected to cover only organizations engaged in trading activities.

Regards,
Madhu.T.K

Dear Members,

When the Appropriate Govt./ Chief Inspector of Factories does not consider these IT & IT Enabled Industries as conducting any manufacturing processes under the Factories Act, 1948, then why should we stress for coverage under this Act? The Labour Deptt. Shop Act wing is handling registrations under the Shops & Commercial Establishment Act. The Government must have also examined the matter at their level. Members are requested to inform us whether IT units are covered under the Factories Act, 1948 in other states.

Regards,
R.N. Khola

Dear sir,

In this case, no raw materials are converted (manufactured) into finished products. I think that is the reason software companies are not covered under the purview of The Factories Act 1948.

Regards,
Amol

Many state amendments in the Factories Act and the basic Act itself, permitting women to work during night shifts, were made with a view to providing such benefits to the IT industry. There has been a clear nexus between the IT sector and the Factories Act in policy decisions concerning such permissions by the appropriate authorities. In many court decisions quashing the prohibition laid down in section 66(1)(b) of the Factories Act, a special reference to the IT sector could be understood.

Regards,

Madhu.T.K

Hi Malik,

I agree with Rajasekar, IT companies should be covered under the 'Shop & Establishment Act'. I am in a similar sector and my company is covered under the 'Shop & Est' Act.

Regards,
Prachi

Hi Madhu,

Could you please let me know if publishing companies like 'India Today Group' also come under the Shops and Establishment Act?

Regards,
Girija

Registration under the respective State Shops and Establishments Act is a labor department registration for the establishment. The terms and conditions of service of working journalists and newspaper employees will be governed by a separate Act, namely, the Working Journalists and Other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955. Under this Act, some special treatment is given to newspaper employees. Accordingly, the minimum period of service for eligibility for gratuity is three years (whereas it is 5 years for all employees other than in newspaper establishments), and the minimum notice period required under the ID Act for retrenchment of an Editor is six months, while for others in the newspaper industry, it is three months.

Regards,
Madhu.T.K

Dear Girija,

In our opinion, publishing companies like 'India Today' are covered under the Factories Act, 1948 and not under the Shop Act. A publishing unit comes under the definition of a factory (section 2(m)(i)) under the Factories Act, 1948, while offices situated at different places will come under the purview of the Shops and Establishments Act.

Regards,
R.N. Khola
Sr. Associate
Skylark Associates, Gurgaon (Haryana)

This matter is under consideration before a larger bench of the Hon'ble Supreme Court of India. In the case of WP No. 3133 of 1993 titled Management of Cholamandalam Software Ltd. v/s. Presiding Officer, 1 Additional Labour Court Madras, the Hon'ble High Court of Madras while addressing a question under the ID Act, also addressed the question of whether the company was a 'factory' and engaged in any 'manufacturing process'. The Hon'ble Judge found that Explanation II to Section 2(m) of the Factories Act, 1948, clearly excludes the premises on which electronic data processing or computer units are installed and wherein no other manufacturing process is being carried on, from the scope of the definition of 'factory'.

A Division Bench of the Madras High Court upheld this judgment. The aggrieved workmen filed an appeal before the Hon'ble Supreme Court. The Supreme Court noticed that the key question in this case is whether the activity of data processing and preparation of software falls within the meaning of 'manufacturing process' under the Factories Act, 1948. The Hon'ble Supreme Court further referred the matter to a larger bench for consideration. The decision of the Hon'ble Apex is still awaited.

Regards,

Jpratap

Dear,

You are advised to go through The Delhi Shop Act & Rules made thereunder for framing the Industrial Health & safety policy.

Regards,

R.N.Khola
(Labour Law & Legal Consultants)
09810405361

Clarification on Shops and Establishments

Shops and establishments are the correct ones. These are not factories.