The term ‘manufacturing process,’ as defined in Section 2(k) of the Factories Act, 1948 (‘Factories Act’), encompasses a wide range of activities. Traditionally, judicial interpretations have classified an activity as a manufacturing process only if it results in the creation of a new and commercially distinct product. However, on 3 March 2025, the Supreme Court in State of Goa & Anr. v. Namita Tripathi[1] ruled that activities such as washing, cleaning, and dry-cleaning shall be considered as ‘manufacturing process' under the Factories Act, even if no new or distinct product is created. This landmark decision extends regulatory oversight, typically applied to manufacturing industries, to laundry and service-oriented industries, marking a significant shift in the application of the Factories Act.
This article analyses the judgment, the Supreme Court's observations, and its impact and implications that businesses, typically restricted to service-oriented activities, must take note of.
Factual background
An inspection of the premises of the respondent, a professional laundry service, by the Factories Inspector revealed several violations of the Goa Factories Rules, 1985 and the Factories Act. The respondent lacked factory-approved plans, operated without a valid factory license and had not applied for necessary registration and licensing. Consequently, the respondent was advised to comply with the Factories Act and submit the necessary applications to avoid potential criminal charges.
The respondent contended that their business was a service, not a manufacturing activity, and thus exempt from the Factories Act. Despite a personal hearing and further correspondence, the authorities found the explanations insufficient, leading to the filing of a complaint and the issuance of summons. The respondent challenged the summons before the High Court of Bombay at Goa, which quashed them, ruling that washing or cleaning activities do not constitute a manufacturing process, as no new marketable commodity is produced. Aggrieved by this, the appellants appealed to the Supreme Court.
The Supreme Court’s observations
Upon perusal of the factual background and examination of the Factories Act, including the object and purpose of the Factories Act, the Apex Court observed the following:
(✓) The Factories Act being a social welfare legislation, was introduced with the intention to benefit the broader workforce and should be interpreted in a way that advances and fulfils its legislative intent.[2]
(✓) The HC erred by relying on the definition of ‘manufacture’ under the Central Excise Act, 1944 (‘Central Excise Act’), which requires a transformation resulting in a new, commercially distinct article. The HC’s reliance on judgments under the Central Excise Act was misplaced, since the Factories Act specifically defines ‘manufacturing process,’ and courts are obligated to use this definition and refrain from borrowing the definition from other statutes unless exceptional circumstances indicate otherwise.
(✓) By applying the Rule of Plain Meaning[3], a straightforward reading of Section 2(k) of the Factories Act, makes it evident that the ‘washing or cleaning’ of any article or substance for the purpose of its delivery falls under the definition of a ‘manufacturing process.’ When the language of a statute is clear and unambiguous, the court must apply it as written, regardless of the consequences, as it reflects the intent of the legislature.
(✓) By applying the Mischief Rule of Interpretation[4], a comparison between the current factories legislation (Factories Act, 1948), and the antecedent factories legislation (Factories Act, 1934) highlighted the explicit inclusion of the terms ‘washing’ and ‘cleaning’ in the definition of ‘manufacturing process’ in the Factories Act, 1948). This inclusion was intended to broaden the scope of the Factories Act and include these activities within the purview of ‘manufacturing process’.
Ruling
Using the Rule of Plain Meaning, the respondent operations, i) involving usage of machinery for its services; ii) employing more than ten (10) workers; and iii) returning cleaned cloth/product to customers, qualified as a ‘manufacturing process’ under the Factories Act. Accordingly, the Apex Court held that the appellant falls under the definition of a ‘Factory’ carrying out a ‘manufacturing process’.
Consequently, the Supreme Court set aside the HC’s order and restored the complaint to the Judicial Magistrate First Class in Panaji.
Implications
This ruling of the Supreme Court sets aside the traditional erstwhile interpretation that a new product must be formed to constitute a manufacturing process under the Factories Act. This broadens the scope of the Factories Act to encompass businesses not traditionally considered part of the manufacturing sector, such as car washing facilities and e-commerce platforms that engage in ancillary services like cleaning, washing, packing, and refurbishment activities. For many businesses, smaller or larger in the service sector, this could necessitate significant changes in their compliance strategies, leading to increased administrative burden and costs and exposure to criminal proceedings in case of non-compliance.
Particularly, upon the application of the Factories Act, a mandatory registration under the Factories Act and multiple compliances arise on the business. In terms of cost-heavy compliances, owners will be required to (i) ensure a safe and hygienic working environment for all workers in terms of the scheme laid down under the Act, (ii) comply with statutory scheme of maximum weekly working hours, leaves and compensation to workers, (iii) provide adequate facilities at the premises for maintaining basic living and working conditions (such as for washing, sitting, shelters, rest rooms, lunch rooms etc.) (iv) implement specific safety measures for hazardous processes providing for the mandatory safe working conditions (such as provision of personal protective equipment).
However, ambiguity remains regarding whether activities such as secondary packaging and minor repairs etc., will now fall under the purview of a 'manufacturing process.' This uncertainty necessitates that businesses carefully reassess their operations to determine if they fall within the expanded definition, ensuring compliance with the relevant regulations to avoid penalties and prosecution. Non-compliance with the statutory obligations under the Factories Act can lead to prosecution and penalties for both the occupier and the manager. Continuing and repeated offenses may result in longer imprisonment terms and heftier fines. In addition, owners can also be held liable in specific cases of premises shared by multiple tenants. However, the occupier and manager have the right to contest the charges against them, subject to certain conditions stipulated in the Factories Act.
[The authors are Partner and Associate, respectively in Corporate and M&A practice at Lakshmikumaran & Sridharan Attorneys, New Delhi]
[1] Special Leave Petition (Crl.) No. 1959 of 2022
[2] Balwant Rai Saluja & Anr. v. Air India Ltd. & Ors, (2014) 9 SCC 407
[3] Jeewanlal Ltd. & Ors. v. Appellate Authority under the Payment of Gratuity Act & Ors., (1984) 4 SCC 356
[4] Steel Authority of India Ltd. & Ors. v. National Union Waterfront Workers & Ors., (2001) 7 SCC 1
