Confused About Office Regulations: Factory Act or Shop and Establishment Act?

I am working in a manufacturing company, where we have a shop-floor (factory) on the ground floor and an office on the first floor. The factory will be governed by the Factory Act of 1948, but which act will be applicable for the office? Will it be the Factory Act or the Shop and Establishment Act? If the office is governed by the Shop and Establishment Act, what will be the number of paid holidays?

Please help to solve my problem.

Regards,
Shikha

Applicability of Acts Based on Premises Location

If the office and factory are located on the same premises, then the Factories Act is applicable. If they are located in two different premises, the office is covered by the Shops and Establishment Act. Leave and working days will be as per the Shops Act if it is located in a different premise.

There is one more argument, and I do not subscribe to that view. Even if it is located on the same premises, only those employees connected with the manufacturing process will be covered by the Factories Act, and others not connected with the manufacturing process will be covered under the Shops and Establishment Act.

Covered Category:

- All in Production
- Maintenance
- Plant services
- Purchase
- Planning
- Time office
- Payroll staff
- Stores
- Design office
- Quality control

Not Covered:

- Sales and Marketing
- Finance
- EDP

But generally, Inspectors accept these employees as part of the Factory if they are located on the same premises. If you want to treat them differently, you can. However, practically, it will create many issues; hence, we recommend covering all employees under the Factories Act if they are located on the same premises.

Regards,
Sivasankaran

It appears that your factory is located in Maharashtra. If so, the relevant Act that needs to be looked into is the Bombay Shops and Establishments Act since Shops Acts are State Acts.

Understanding the Bombay Shops Act

Section 70 of the Bombay Shops Act clarifies your doubt. Section 70 of the Bombay Shops Act lays down that where any shop or commercial establishment is located within the precincts of the factory and is not connected with the manufacturing process, the Bombay Shops Act will apply to such a shop unless the Government, by way of notification, extends the application of the Factories Act to such a shop. This must clear your doubt.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai
[Phone Number Removed For Privacy Reasons]

It is the relevance between activities that will decide whether your office will be covered under the Shops and Establishments Act or the Factory Act. Under the Bombay Shops and Establishment Act, there is a provision that where any shop or commercial establishment situated within the precincts of a factory is not connected with the manufacturing process of the factory, the provisions of this act, i.e., the Bombay Shops and Establishment Act, shall apply to it.

Since your office and factory are on the same premises, it will be tedious to segregate the manufacturing activities from your office activities. You will be attracting two compliance authorities, one under the S&E Act and another under the Factories Act.

Make a decision accordingly. For the sake of convenience, I would suggest you go for registration under the Factories Act.

As per the Factories Act, Section 2(m), a factory means and includes any premises, including the precincts, where a manufacturing process goes on. Since your factory is on the ground floor and offices are on the second floor in the same premises, your registration under the Factories Act would suffice, and there is no need to go for registration under the Shop & Establishment Act. However, make sure that in your license and other reports under the Factories Act, you include the employees working in offices as well. Hope this clarifies.

Regards,
KK

The Section 2(m) of the Factories Act defines “factory” as any premises, including the precincts thereof:

(i) Where ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or

(ii) Where twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on.

Please refer to the words 'premises' and 'in any part of which'. These suggest that if a manufacturing process is being carried out in any part of the premises and the number of workers meets the qualifying number as stated above, then it should be covered under the Factories Act, 1948.

Mr. Mohanty has rightly explained that an office and manufacturing process will be covered under the Factories Act, so leave will be provided as per the Factories Act.

Regards,
JS Malik

I have misunderstood the facts of your query in haste, mistaking "shop-floor" as "shop" instead of "factory." Since the factory is located on the ground floor and the office is on the first floor, and both are within the same premises and precincts, and also as the work of the head office is connected with that of the factory, the Factories Act is applicable as Mr. Mohanty and Malik explained. I stand corrected.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai
[Phone Number Removed For Privacy Reasons]

If you have registered your establishment under the Factory Act of 1948, then all workers will be covered under the Factory Act.

This query is as interesting as it is quizzical. It's really funny to think that an office and a factory are two different entities just because they are located on different floors. If this argument could be extended, almost 60-80% of establishments would fall under the Shops Act. What a way to interpret the law! Practically, can any office be independent of its production/sale/service activity? Come on, be practical as well. Did you receive the appointment order from the company or from the shop? A factory and its office are inseparable.

To cite one example, a beedi-making laborer who makes beedies at his/her house and gives back the beedies produced in his/her house to their employer is also considered to be a factory worker. For your information, his house and the factory are in two different places (even the 'within the precincts' principle is also irrelevant here - please refer to PF Act case laws).

Regards,
Kumar.S.

The significance of the "premises and precincts" principle cannot be negated altogether since it is a part of the definition of a factory itself under the Factories Act, with some exceptions as explained by you. For example, in the instant query itself, if the head office is located outside the premises of the factory and precincts of the factory, it is debatable whether such an administrative office will still be part of the factory and is covered by the Factories Act.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Understanding Applicable Laws for Different Entity Locations

This is a basic concept: as long as the entity is one and the same, there cannot be two different laws applicable just because they are located in different places and they are of different categories. They are covered by a common wage agreement, so PF, ESI, etc. The attached write-up/reference may help. There are also many references on this issue.

Regards,
Kumar.S.

I have experienced the same situation! We have a factory on the ground floor and the administrative office situated on the first floor. Upon consulting an advocate, I obtained shops and commercial establishment registration for the administration floor. Now, the inspector of factories has objected that even though the administration office is in the same premises, it has to be covered only under the Factories Act. Please kindly review the definition of "factory."

I hope this information gives you enough scope to act accordingly.

Thanks,

Naresh Gadde
Andhra Pradesh

Legal Perspective on Applicability of Acts

It is interesting to note that the query posed by Ms. Shikha Joshi generated a lively discussion on the contentious issue of whether the Factories Act or the Shops Act is applicable to the head office that administers the affairs of the factory. I appreciate the opinion of Mr. Kumar S. and the attachment provided by him containing some decisions on the factory, which is really informative. However, I would like to offer a different legal perspective on this issue.

I observe that the decisions contained in the attachment on the factory arose under the Employees' State Insurance Act 1948, but not under the Factories Act. Though the definition of a factory under the ESI Act is similar to that in the Factories Act, it is not pari materia (on par with) the definition under the Factories Act since both Acts have different objectives.

Objective of the Factories Act

The object of the Factories Act is to regulate the working conditions of factory workers by initiating measures to protect them against ill-health, hazards, and perils of working in a factory. Thus, the definition of a factory needs to be understood not only with reference to the definition of the manufacturing process under Sec.2(k) but also with reference to the definition of 'worker' under Sec.2(l) of the Factories Act, which defines a worker as a person involved in the manufacturing process or cleaning of machines or any work incidental or connected with the manufacturing process.

Thus, the Factories Act does not intend to cover an employee who is doing a clerical job or administrative work in a cozy, well-ventilated head office, sitting under a fan or air conditioner, and does not face flames, fire, fumes, or feeble light, and who is not likely to be exposed to ill health, hazard, or accident, whether the office is located in the same premises or compound or at different premises.

In the case of Inspector of Labour v. General Manager ILTD, 1982 II LLN 174 (APHC), it was held that a clerical establishment located in a separate wing in the same compound was not considered a factory.

In Commonwealth Trust India Ltd v. Labour Commissioner 2009 II LLJ 494 (Ker HC), it was held that a head office that runs a factory is not an industrial establishment and hence should be covered by the Shops and Establishments Act.

However, where the work of some personnel may not be directly connected with the manufacturing process but is incidental to it, as in the case of Time Keepers who need to supervise the workers, they may fall within the ambit of 'worker' under the Factories Act.

It is also permitted under law to have two sets of service conditions for two different classes of employees.

Objective of the ESI Act

On the other hand, the object of the ESI Act is to extend financial and medical help to an employee once he is struck by such ill health, hazard, or accident in the discharge of his duties. The ESI Act does not refer to the beneficiaries under the Act as 'workers' but refers to them as 'employees' to include not only the employees working in the manufacturing process but also those working in head offices within the definition of employee and factory by applying principles of 'unity of function' or 'nexus with the manufacturing process,' etc. Therefore, the definition of a factory under the ESI Act is wider than that under the Factories Act.

It is an established principle of law that unless an expression used in one Act is on par with that in another Act, its meaning under one Act cannot be imported into another Act since each Act is a self-contained code to serve different purposes. Thus, the words and expressions need to be understood within the four corners of the said Act only. An administrative office looking after the affairs of a factory can be termed as part of the factory under the ESI but need not necessarily be so under the Factories Act. Thus, the issue is vexatious and cannot be dealt with on grounds of administrative convenience but only on grounds of legal prudence.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Supreme Court Judgment on "Precincts" Under the Factory Act

Please also go through the Supreme Court judgment on the "Precincts" under the Factory Act itself as discussed in the attachment. It all depends on how we intend to interpret the judgments. There are many judgments by various High Courts and by the Supreme Court. These judgments not only concern the Factory Act but also relate to PF/ESI and other acts. Some readers may view the judgment as very old and not relevant to the references made. Nevertheless, it would be in the best interest of the individuals involved not to interpret the law too narrowly.

Regards,
Kumar S.

Seeking Expert Opinion on Applicability of Shops and Establishments Act

I am working with an automobile dealer who sells cars and provides services such as repairing, denting, painting, washing, and greasing. We also sell spare parts, so our operations are known as 3S (Sales, Spares, and Services). These activities are carried out on the same premises where we have 100 employees working in our organization.

We also have factory licenses, but I would like an expert opinion from your side on whether the provisions of the Shops and Establishments Act are applicable to us, considering that we sell cars on the premises.

Thank you.

I would like to know: What is the minimum and maximum HP required for the Shop Act & Establishment? Secondly, can manufacturing activity be carried out under the Shop & Establishment Act in Maharashtra?

Regards,
Dinesh