Non-Residential Club Won't Come Under MP Shops & Establishments Act Merely Because Food Supply Is There : Supreme Court

The Supreme Court has held that merely because a non-residential club is supplying meals and refreshments, the provisions of the Madhya Pradesh Shops and Establishments Act, 1958, will not become applicable to it.

A bench comprising Justices KM Joseph and PS Narasimha was deciding a case related to Bhilai Steel Club. Few employees, whose services in the club were terminated, approached the authority under the Madhya Pradesh Shops and Establishments Act, challenging their dismissals. The authority under the Act held the termination of services to be illegal and directed the reinstatement of the employees.

High Court's view

This was challenged by the Club before the High Court. The High Court reversed the authority's order on the ground that the Shops and Establishments Act was not applicable to the Bhilai Steel Club. The High Court noted that Section 3(j) exempted a non-residential club from the Act.

On a careful perusal of the bye-laws of the Club, the High Court observed that as per sub-clause (1) of clause (2) of the bye-laws its aim and objective is to provide to its members and their families the facilities usually obtainable in clubs of this nature, including the various facilities like the indoor and outdoor games etc. Availability of the catering services would not convert the establishment, which otherwise falls within the meaning of club as elucidated in the Halsbury, 4th Edn., Vol 6, para 201, into a 'restaurant or eating-house'. Therefore, extending the benefit of Section 3(j), the High Court held that the provisions of the Act could not be made applicable to Respondent No. 2.

Supreme Court affirms High Court's view

Appealing before the Supreme Court, the Counsel for the appellants(employees), Mr. Rajeev Kumar Bansal pointed out that the activity carried out at Respondent No. 2 amounted to 'supply of meals or refreshments' 'to a class of the public', which is squarely covered by the definition of 'restaurants or eating-house' under Section 2(23) of the Act.

Senior Advocate, Mr. Dhruv Mehta appearing on behalf of the respondents contended that, Section 2(22) defines 'residential hotel' as including 'residential club'. The core requirement to qualify as a 'residential hotel' is the provision of lodging, which would also be a core requirement for 'residential clubs'. The Club had no lodging facility and therefore, cannot be considered as a 'residential club'. In the light of the same, Mr. Mehta submitted that Respondent No. 2 being a non-residential club was entitled to avail the exemption under Section 3(j) of the Act.

To decide if the benefit of the exemption under Section 3(j) is to be provided to the respondents, the Supreme Court made two board enquiries -

i. Whether Respondent No. 2 was not a residential club?

ii. Whether Respondent No. 2 was a club?

The Supreme Court observed that the definition of 'residential hotel' in Section 2(22) includes 'residential club', which states that -

"Section 2 (22) - "residential hotel" means any premises in which a bona fide business is carried on of supplying for payment lodging or board and lodging to travellers and other members or class of members of the public and includes a residential club."

The Supreme Court observed that the indispensable requirement for a premise to qualify as a residential hotel is that it should provide lodging. In the said context the word 'residential' which qualifies the word 'club' would necessarily mean that lodging is provided in such a club. Clubs with lodging facilities would qualify as residential clubs and therefore, an establishment under Section 2(8) of the Act, whereas the ones without such facility would be considered as non-residential clubs and would not fall within the ambit of the Act.

Going on to the second enquiry, the Supreme Court referred to the definition of 'club' as enumerated in Daly's Club Law by J.N. Martin which reads as:

"The word "club" means essentially an association of individuals in a way that involves to some degree the factors of free choice (which connotes a power of exclusion), permanence, corporate identity and the pursuit as a common aim of some joint interest other than the acquisition of gain (or some mutual advantage directly connected with the acquisition of gain, such as those provided by membership of a professional society or trade union. It is the last- named qualification that distinguishes clubs from business or professional partnerships, and from trade unions and the like."

The Supreme Court observed that Respondent No. 2 had three different classes of members - members of Bhilai Steel Plant, MECON, HSCL, BRP; any other officers of SAIL found eligible to become a member of the club; associate members selected by the governing body. The premises was a private one with restricted entry. The bye-laws reflected that the Respondent No. 2 was a club. As per the aims and objectives of the club it contemplated providing members and their families with the facilities obtainable in a club of this nature, including indoor games like table tennis, billiards, cards, chess, carrom etc, and outdoor like tennis, badminton, squash etc. The bye-laws also contemplate a library, reading room and space for social gathering and swimming. The members and their families are also to be provided facilities for their cultural and intellectual advancement.

The Court noted that the members did not assemble at the club premises for the purpose of 'wholly or principally' having their meals or refreshment, but in connection with other activities, and serving meal, refreshment and drink are only incidental to such other activities.

Relying on the definition of 'club' and examining the facts of the case, the Supreme Court concluded that Respondent No. 2 was indeed a non-residential club and therefore, entitled to exemption. As the dismissal of the appellants from service cannot attract Section 58 of the Act when the respondents are exempted from ambit of the Act as per Section 3(j), the Supreme Court decided not to interfere with the judgment passed by the High Court.

[Case Title: P.B. Nayak And Ors. v. Managing Director, Bhilai Steel Plant And Ors. Civil Appeal No(s) 4613 of 2013]

Citation : LL 2021 SC 626

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