Supreme Court: The Division Bench of K.M Joseph* and Pamidighantam Sri Barasimha, JJ., held that mere fact that food, refreshment and even liquor is being provided in Non-Residential Clubs by catering services, it will not make the club premises ‘wholly or principally’ related to supply of meals and refreshments to make it fall within the purview of M.P. Shops and Establishments Act, 1958.

The Appellants-employees of the Club had challenged the order of the High Court by which the order passed by the Appellate Authority, under Section 58(2) of the M. P. Shops & Establishments Act, 1958 came to be set aside. The appellants had approached the Appellate Authority under Section 58(2) complaining that their services were terminated illegally by the respondents which complaint was accepted by the Appellate Authority.

The respondent contended that the Act, 1958 would not be applicable on them by the virtue of exception crafted under S. 3(j), which had excluded clubs from the definition of establishment.

Findings of the Appellate Authority

The Appellate Authority found that the said exception would not be applicable as the establishment in question was not a club but was actually an eating house, exclusively to serve the class of the members of the Steel Club, a place of amusement/entertainment provided at costs or payment, food, drink and along with facilities for entertainment like games, etc. Further, the Authority opined that the appellants were employees and granted the relief to them by directing the Respondents to reinstate the appellants with full back wages. In the alternative the Respondents were directed to pay compensation to each of the appellants as calculated in the order without reinstatement.

Findings of the High Court

The High Court found that the Act could not be made applicable in view of the exemption available under Section 3(j) of the Act as the respondent-Club not being a residential club, stood exempted from the Act. Consequently, the High Court set aside the order of the Appellate Authority.

Observations and Analysis

The Bench noted,

“A club, which is not a residential club, may have been within the ambit of the word ‘establishment’ but for the fact that the word ‘residential hotel’ takes within its sweep only residential club. More importantly, the Act specifically exempts clubs which are not residential clubs.”

Observing the scheme of the Act, the Bench stated the rights conferred on an employee to appeal against the action of the employer of an establishment, is fundamentally based on there being an establishment, to which, the Act applies. In this regard, the word ‘establishment’ has been defined as meaning also a residential hotel in Section 2(22). A residential hotel has been defined as meaning any premises, in which, a bonafide business is carried on of supplying for payment, board or lodging, and lodging to travellers and other members or class of members of public and including a residential club. Therefore, a residential club, is treated as residential hotel, which in turn, is included in the definition of the word ‘establishment’.

Thus, noticing that the respondent-club was an establishment, the Bench posed itself with the question as to whether it was a club, which was not a residential club? Significantly, a club, which is residential, would not be entitled to the exemption provided in Section 3(j), whereas, a club which is non-residential is exempted.

Meaning of Residential Club

Words ‘residential club’ is found in the definition of the word ‘residential hotel’. A residential hotel is defined as any premises, where lodging or board and lodging (for payment) is provided to travellers and other members or class of members of the public. The Bench expressed,

“In other words, the distinction between a residential club, which would be an establishment under Section 2(8), and, a club, which is not a residential club, which would be exempted under the Act, is that in the former, there would be lodging provided, whereas, in the latter, the facility of lodging is not, as such, made available.”

Opining that it was not open under Section 3 (j) for the respondents to flaunt the appellation of the organisation as a club as the club could not become a cloak or made a front behind which what was done was as contained in Section 2(23); i.e. function as a ‘restaurant or eating house’, the Bench stated that if the activity which was carried out ‘wholly or principally’ was the business of supply of meals or refreshment to the public or to a class of public, then the employees working in connection would get the protection under the Act. At the same time, if there was genuinely a club where the members assemble not for the purpose of wholly or principally having their meals or refreshment but in connection with other activities and any meals, refreshment and drinks were also served then a distinction must indeed be drawn, and the exception would apply to the club.

Findings and Conclusion

Noticeably, the Appellate Authority found that the club did provide indoor and outdoor games and as far as those activities were concerned the Act would not apply, however, a bifurcation was made qua the catering service. Rejecting such bifurcation, the Bench concluded that respondent was a genuine club. The club did indeed provide various facilities to be availed by the members and others permitted to come to the club, however, it was to cater to their needs by way of food that the catering contract was entered into.

In the light of this state of facts and the definition of the word ‘restaurant and eating place’ the Bench held that the respondent club could not be characterized as premises which was ‘wholly or principally’ used for the business of supply of meals and refreshment to the public. Moreover, the members of the Club and their guests and family members could not be described as the ‘public’. Accordingly, it was held that no case was made out for interference with the impugned Judgment. The Appeal was dismissed and the impugned order was upheld.

[P.B. Nayak v. Bhilai Steel Plant,  2021 SCC OnLine SC 970, decided on 26-10-2021]

Kamini Sharma, Editorial Assistant has put this report together

Appearance by:

For the Appellants: Rajeev Kumar Bansal, Advocate

For Respondents: Dhruv Mehta, Senior Advocate assisted by Santosh Kumar, Advocate

*Judgment by: Justice K.M Joseph

Know Thy Judge| Justice K.M. Joseph

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