In a significant ruling that provides clarity on the legal status of residential associations, the Bombay High Court has held that a cooperative housing society (CHS) or an apartment owners' association, formed for collective building management, does not constitute an 'establishment' under the Payment of Gratuity Act, 1972. The judgment, delivered by Justice Sandeep Marne on January 5, brings relief to numerous housing societies across Maharashtra by stating they are not liable to pay gratuity to their employees under this law.
Core Legal Issue and Judgment
The court was hearing a petition filed by Apsara Cooperative Housing Society, challenging proceedings initiated against it by its former building manager. The employee, who worked from August 2013 until October 2022, had approached a Labour Court seeking payment of gratuity dues amounting to over Rs 4.5 lakh along with other unpaid wages. The society, represented by advocate Mahesh Shukla, contested the maintainability of these proceedings.
Justice Marne's analysis centered on whether a CHS, formed by flat owners to manage their building, qualifies as an 'industry' under the Industrial Disputes Act, 1947, or a shop-like 'establishment' under the Maharashtra Shops Act and, consequently, the Payment of Gratuity Act. The court concluded in the negative.
"Merely because house owners come together and decide to manage their houses and building collectively and, for that purpose, employ workers/employees, an association of house owners would not be an 'establishment'," the judgment stated. It emphasized that the activity of business, trade, or commerce is essential for any entity to fall within the definition of 'establishment' under the Maharashtra Shops Act.
Arguments and Court's Reasoning
Advocate Shukla argued that a housing society does not engage in any systematic commercial activity. He pointed out that the mere presence of a telecommunication antenna and a clubhouse on the society's premises does not translate to carrying out a 'systematic activity' that would bring it under labour laws.
On the other side, the ex-manager's lawyer, advocate Ashish Nagwekar, contended that the employee was denied bonus and leave wages, justifying the invocation of the Labour Court's jurisdiction. He also argued that if contractors' employees (like security guards) receive statutory benefits, a directly employed manager should too.
The High Court found this comparison "misplaced." It distinguished that contractors work for different entities that may themselves fall under the Shops Act, whereas the petitioner society "does not carry out any trade or business." The judgment clarified that even charitable or other trusts are covered by the Shops Act only if they carry on a business, trade, or profession.
Implications and Relief for Societies
This ruling sets a crucial precedent, dismissing the proceedings initiated against Apsara CHS. It effectively shields cooperative housing societies and similar residential associations from being classified as 'establishments' under the Payment of Gratuity Act, unless they are demonstrably engaged in commercial trade.
The court's interpretation means that for a society or association to be liable for gratuity payments under the Act, it must employ 10 or more persons and be engaged in a trade or business. The collective management of a residential building by its owners, even if it involves employing staff, does not meet this threshold.
This judgment brings legal certainty to a long-debated issue, potentially affecting countless housing societies in Mumbai and across Maharashtra that employ building managers, maintenance staff, and other personnel. It underscores the distinction between commercial enterprises and non-commercial collective bodies formed for residential self-management.
