Home Karnataka Shops and Establishment Act The Karnataka Shops and Establishment Act, 1961

Karnataka Shops and Establishment Act

The Karnataka Shops and Establishment Act, 1961

December 1, 2022

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This article has been written by Sarthak Mittal, a student at the Vivekananda Institute of Professional Studies of Indraprastha University, Delhi. The discussion in the article will be supported by various provisions of the Act and relevant court judgments. Moreover, it also sheds light on the Act’s history, applicability, and important definitions, among other things. This article elucidates the operation of the Karnataka Shops and Establishment Act, 1961.

it has been published by Rachit Garg.

Table of Contents

Introduction

India is dominated by the unorganised sector, where there are no formal agreements between the workers and the employer. This gives rise to the question of whether there is any legislation that provides for such workers, who are mostly employed in shops or other services rendered by commercial establishments. The Department of Labor supervises all the premises where any trade, business, or profession is carried out. The Department of each state also ensures that there exist shops and establishment act in each state to regulate the working of all shops and commercial establishments within its state.

The Karnataka Shops and Establishment Act, 1961, is a local Act of Karnataka that aims to regulate all shops and commercial establishments operating within the state of Karnataka. The Act makes registration for all such establishments mandatory and provides for the appointment of a labor inspector to supervise such establishments. This creates a legal framework that ensures that there is a record of all such establishments, The Act also deals with aspects like hours of work, intervals for rest and meals, leave policy, cleanliness, etc. As a result, the unorganized sector falls within the purview of the court and the chief inspector appointed under this act.

Historical background of the Karnataka Shops and Establishment Act, 1961

Every state has its Shops and Establishment Act, which helps in the regulation of conditions of work and employment in shops and commercial establishments present in the respective states. These acts are mostly based on a model act provided by the center, which is adopted with necessary implications by all states. All acts are pari materia to each other as all have a common issue to resolve. The Act has an expansive definition of shops and commercial establishments, which helps in the inclusion of almost all the establishments operating within the territory of Karnataka.

Applicability and extent of Karnataka Shops and Establishment Act, 1961

The Karnataka Shops and Establishment Act, 1961, came into force on 1st October 1964 by notification of the state government and applies to a set of 80 districts mentioned in Schedule I and also to the Belgaum Area, Gulbarga Area, Mangalore and Kollegal Area, and Mysore Area, which have been repealed by Section 42 of the Act with prospective effect. Further, Section 43 repeals the Weekly Holidays Act, 1942, with prospective effect. Furthermore, the State Government has been conferred with the power to make rules under this Act through Section 40 of the Act.

Premises exempted from the operation of the Act

The following premises has been exempted from the operation of this Act by Section 3 of the Act:-

Offices except for commercial undertakings under the control of the Central Government, State Government, or any local authority.
Railway services, railway dining cars, water transport services, communication services like telephone, telegraph, or postal, any system of public conservancy or sanitization, and Industries which supply electricity or water to the public.
Establishments like hospitals where sick, infirm, or mentally unfit people are taken care of.
Offices of banking companies, the establishment of food corporation of India.
Offices of medical or legal practitioners given that less than 3 employees should be employed.
Persons who have been excluded from the purview of the Act include any person who is employed at a position of management in any occupation, persons who have intermittent nature of work, clearing and forwarding clerks which are responsible for the dispatch of goods as they are employed in preparatory or complementary work.

Further, the Section provides that the State Government, by notification, can remove such exemptions and include any person or establishment within the purview of such an Act.

Important definitions under the Karnataka Shops and Establishment Act, 1961

Commercial establishment

The word “commercial establishment” has been defined in Section 2(e) of the Act, which is divided into two parts exhaustive and inclusive. The first part of the definition uses the word “means,” which gives it an exhaustive interpretation, and defines a commercial establishment as being an establishment for commercial, trading, banking, or insurance purposes or an establishment or any administrative service where people are employed mainly for office work, hotels, restaurants, boarding houses, eating houses, cafes, other refreshment houses, theatres, or any other establishment or place for public amusement.

The second half of the definition is inclusive, as it allows the state government to include any other establishment or place under the ambit of a commercial establishment by notification.

Employee

In accordance with Section 2(g) of the Act, the employee can be any person who has been wholly or for most of the time employed directly in such an establishment or in relation to such an establishment. This gives the definition a wider ambit, as it will not only include the employees who are employed for a full day but also those employees who are hired seasonally or hired part-time. The definition also includes those employees who may be employed for any activity that is not the primary activity of the establishment. Further, the definition goes on to clarify its ambit by expressly including all workers who are employed permanently, periodically, on a contractual basis, on a piece-rate basis, or on a commission basis. Further, by including apprentices, the definition specifies that even if an employee is not getting any reward for his labour, he can be included in the definition.

Furthermore, the residuary clause has been added to the definition, which aims to include all members of the staff of a factory or industrial establishment who fall outside the ambit of the Factories Act, 1948. The definition also excludes any family member of the employee from its ambit, as they have been included in the definition of the word “employer.”

Employer

Section 2(h) of the Act defines an employer as a person who has ownership of the establishment or someone who has control over the affairs of the establishment. The definition expressly includes family members of the employer, any person who has general control over the establishment’s affairs, and any agent who works within the given capacity.

Shop

The word “shop” has been defined in Section 2(u) of the Act as a premise where trade or business of any kind is carried on or where services are carried on for the customers. The word “shop” includes its offices, storerooms, godowns, and warehouses, which can be in the same premise or in another premise, given that when they are claimed to be in another premise, there has to be a nexus drawn between another premise, and the usage in such trade or business. The definition also excludes “commercial establishments” and shops attached to factories falling within the scope of the Factories Act, 1948, from its ambit.

In the case of Airfreight Ltd. v. State of Karnataka (1999), the Supreme Court held that one of the most essential elements of any premise to fall within the ambit of a commercial establishment or shop is that it should be running for a profit-making motive, and the definitions of commercial establishments and shops should be construed liberally in line with the purpose of the act, which is to have government supervision over the functioning of such establishments.

The Apex Court upheld the decision of the High Court observing that the main activity being led in the premise was handling the incoming and outgoing ships and acting as a clearing forward agent. Other activities being led included acting as a facilitator in the export and import of goods and also delivering the goods domestically through door-to-door delivery. The Supreme Court held that all the activities seen in toto fall under the ambit of the definition of “commercial establishments.“

Further, in the case of Hindu Jea Band v. Regional Director, ESI Corpn (1987) the question arose whether a place of retail services can be called a shop under the definition of the Act. The Hon’ble Supreme Court clarified and affirmed that such kinds of retail, when done for profit-making purposes, can fall under the ambit of “shop.”

Furthermore, in the case of International Ore and Fertilizers (India) (P) Ltd. v. ESI Corpn (1987), the petitioner in the case provided services related to the unloading and surveying of the goods. No goods being aided ever came to the petitioner’s premises but were directly sent to the purchaser’s premises. The question arose whether the mere lending of services in this case made the premises from where the petitioner operated a shop. The Court in the following case observed that even in such cases, the premises from where the person retails the services will amount to a “shop.” The same question arose in the case of Cochin Shipping Co. v. ESI Corpn. (1992), where the court again reiterated that the company that operates from a premise to render services systematically for commercial purposes will be said to be operating in a “shop.” In the case of ESI Corpn. v. R.K. Swamy (1994), the court held that an expansive meaning should be given to the word “shop” and held that premises from which advertising services are rendered will also fall into the definition of “shop.”

Registration process under the Karnataka Shops and Establishment Act, 1961

Registration

Every commercial establishment and shop has to get registered under the Act, and for the same purpose, such establishments are to send the statement in the prescribed form along with the fees. If the establishment exists before the commencement of the Act the application should be made within 30 days from the date of commencement of the Act and if it is a new establishment that came into existence after the commencement of the Act then the application should be made within 30 days from its establishment. If the officer is satisfied with the correctness of the statements, then the certificate shall be issued, which will remain valid for 5 years and can be renewed later. Earlier, the validity of the certificate was only for a period of one year, but through an Amendment in 1997, the period was extended up to 5 years, and the amendment was given prospective effect. The process of renewal and registration is pari materia to each other.

Deemed registration

On the other hand, if the officer is not satisfied with the correctness of the statements, he shall return the statements and fees within 30 days from the date of receipt, along with the reasons for refusing to register the establishment. It is pertinent to note that on failing to do the same, the establishment will be deemed to be registered. On such legal fiction being carved out, the employer shall send a self-certification statement along with an acknowledgment of the fact that he has got the deemed benefit by registered post to the authority, and the employer shall display the same self-certification in the establishment in lieu of the registration certificate. However, the same is to be replaced with the registration certificate if he subsequently receives it. If any employer falsely claimed the benefit of the deemed registration, then he will be liable to punishment of imprisonment for at least 6 months and a fine of up to Rupees 5,000. The provisions concerning the registration of an establishment have been provided under Section 4 of the Act.

Changes in the establishment or closure of the establishment

Even if there is any change in the statements given during registration, the employer should inform the inspector of the changes, and on being satisfied with such changes, the inspector shall make changes to the existing registration certificate or issue a fresh certificate, as the case may be. The changes shall be notified to the inspector within 15 days of such changes being made. Further, even the closure of the establishment should be communicated to the inspector, and the certificate should be returned to the inspector, who, being satisfied with the correctness of the statements, may remove such establishments from the register and cancel the registration certificate. It is pertinent to note that the inspector has been empowered to cancel the registration suo moto if he believes that the establishment has been closed. The provisions regarding the changes in the establishment and closure of establishment have been provided in Sections 5 and 6 of the Act respectively

Appointment order

Further, the Act also aims to document the terms of services of any employee being hired by the employer in such an establishment by mandating the issuance of an appointment order by the employer to the employee within 30 days of the date of such appointment, and if the employee has been appointed before the commencement of the Act, then the issuance of the appointment order should be within 30 days of the commencement of the Amendment Act of 1997. The provisions with respect to the appointment order have been provided under Section 6A of the Act.

Hours of work

A humane work environment

The directive principles embedded in Part IV of the Indian Constitution direct that the state come up with suitable legislation for securing just and humane conditions of work under Article 42 and that all workers should be guaranteed a minimum wage, and working conditions that ensure a decent standard of living along with social and cultural opportunities. The same directives have been followed in all the state acts to ensure that the unorganized sector is regulated properly and no employee working under such establishments is forced to work under inhumane conditions due to his economic difficulties. To ensure the same, the Act provides for the maximum number of hours of work that an employee can be subjected to.

Working hours in a day

Section 7 of the Act provides that no employee can be forced to work for more than 9 hours a day and 48 hours a week. Further, no child between the ages of 14 and 18 should be allowed to work for more than 5 hours a day. Furthermore, Section 9 of the Act provides that there should be at least 1 hour for the rest of the employees in such a way that the employee doesn’t have to work for a stretch of more than 5 hours continuously. Section 10 enumerates that, inclusive of such periods of rest, the total time for which an employee has to be in the establishment spread over a day shall not exceed 12 hours a day.

Overtime

The proviso to Section 7 also provides that there can be overtime working hours for an employee, however, the total number of work hours should not exceed 10 in a day, inclusive of such overtime. The provision provides an exception to such a rule on days of stock-taking and preparation of accounts. The proviso to such proviso provides that overtime hours should not exceed 50 hours in a period of continuous 3 months. Further, Section 8 provides that such overtime work is entitled to wages at a double rate than normal wages where the provision also defines what constitutes “normal wages”.

Weekly holidays

Section 12 of the Act provides for a mandatory holiday every week. There should be a day that has been specified by the employer at the beginning of the year that will be the day of the weekly holiday. The notice regarding such a day should be placed in a conspicuous part of the establishment. The employer shall not alter such days more than once every 3 months and shall also inform the inspector about such alterations. Further, the employer can seek permission from the state government to make his establishment function for a whole week, ensuring that each employee in the establishment gets to rest for one whole day in a week. The employee should not be called to an establishment for anything related to the work on such a day, and no wages shall be deducted due to such a weekly holiday.

Annual leave

The Act provides for basic annual leaves with and without wages and how the same should be computed in ratio to the working days. However, the Act makes it clear that if a contract, award, or agreement between the employer and employee entitles the employee to more leave than what has been mentioned in this Act, then no such right of the employee should be prejudiced by the Act.

Paid leaves

The computation of paid leaves should be at a rate of one day for every 20 working days in the case of an adult and 15 working days in the case of a child between the ages of 14 and 18 years. Paid leaves also include maternity leave not exceeding 12 weeks. It is pertinent to note that Article 43 of the Indian Constitution provides for the directive policy of state-making laws for providing maternity leave. Paid leaves can also include leaves of up to 12 days on account of sickness, accident, or any other reasonable cause during the first 2 years of continuous employment.

The paid leaves that have been earned but not taken as per the above computation can be carried forward to the succeeding year; however, the number of paid leaves carried forward should not exceed 45 days. In the case of unpaid leave, there is no such limit on carry forwarding.

The Act further provides that paid leaves that are not taken make the employee entitled to cash benefit equivalent to the same on discharge or dismissal from his employment. Such wages for untaken paid leaves can also be recovered through the initiation of proceedings under the Payment of Wages Act, 1936. Further, the Act also lays down an elaborate procedure that should be followed for applying for leave.

Protection of children and women in such establishments

Article 24 of the Constitution of India prohibits the employment of children in any factory, mine, or other hazardous form of employment. However, it is Section 24 of the Act that prohibits the employment of children under the age of 14 in any establishment.

Section 25 of the Act before the Amendment of 2020 contained a prohibition on the employment of women during the night in any establishment; however, the state government could have exempted only information technology services-related establishments from the operation of this Section upon such establishments fulfilling requisite conditions pertaining to transportation and security of women. However, Section 25 was substituted by amendment on 19^th October 2020 whereby, all establishments were able to employ women during the night given that they follow a set of 16 conditions enumerated in the Section and also provides cancellation of registration certificate as an effect of non-compliance with any condition in Section 25.

Section 30(3) of the Act provides that, in contravention of Sections 24 and 25 of the Act, the employer should be liable to punishment of imprisonment from 3 to 6 months on the first offence and on any subsequent offence to imprisonment from 6 months to 1 year, and along with or in lieu of such terms of imprisonment, the employer should be liable for a fine that may extend from 10,000 to 20,000 rupees. Section 33A of the Act provides that the labour officer, instead of prosecuting, can compound any of the offences punishable under this Act except for contravention of Sections 24 and 25.

A written complaint made by the Inspector initiates prosecution under this Act. Such a complaint should be made within 6 months from the date of the commission of the alleged offence. Further, only courts of Judicial Magistrate Second Class and above can try such offences.

Conclusion

The Act helps in the regulation of the working of shops and commercial establishments in the state of Karnataka by providing a legal framework governing the terms of employment between the employer and the employee. The economic problem in India can be solved through an increase in production, and one way of increasing production is to have an efficient workforce, which can be obtained by giving due regard and consideration to the needs of the employee and not by exploitation. The Act aims at providing a healthy working environment for employees in such shops and establishments by allowing them due compensation for their overtime and earned leaves, by fixing working hours and working days, and also by providing them the benefit of maternity leave. Apart from the economic advantages, the Act helps in protecting the fundamental rights of employees and ensures that no person gets exploited due to his economic exigencies.

It is pertinent to note that the efficacy of law depends on its draftsmanship and more than that, on its implementation. The legal provisions are articulate and cogent; thereby, now that the authorities are in charge of the implementation of the act, they should make sure that the benefits of the Act reach the citizens.

Frequently Asked Questions (FAQs)

Does Karnataka Shops and Establishment Act, 1961 have a mandatory application in Karnataka?

As per Section 1, the application of the Act extends to the whole of Karnataka, and Schedule I of the Act provides a list of 80 districts that are governed by this Act. The Act has repealed all the other acts on the same matters that are dealt with under this Act under Sections 42 and 43 of the Act. It is also pertinent to note that each establishment comes under the purview of the chief inspector as soon as it gets registered under this Act, and such registration has been made mandatory by Section 4 of the Act, as the word “shall” has been used in the given provision. Further, it is pertinent to note that the Act ensures registration by imposing a penalty under Section 30 of the Act, which extends to Rs. 1,000 on the first conviction and Rs. 2,000 on the second conviction.The language used in the Act clearly emphasizes the fact that all establishments should mandatorily follow all the provisions of the Act.

Is leave encashment mandatory as per the Karnataka Shops and Establishment Act, 1961?

Section 16 of the Act deals with the encashment of leaves and makes it mandatory for the employer to provide an equivalent cash benefit to the employee where the employee has not taken the leaves he was entitled to, based on the employee’s average daily working hours and earnings for the day. The Act goes further and clarifies that the employee should not be deemed to be working overtime during any of such days, and thereby, the overtime bonus should be excluded from such encashment. However, the provision provides benefits like clearness allowance and food grains, and other articles that are provided to the employees during the concessional sales should be calculated monetarily and then should be compensated to the employee. Section 18 of the Act further provides that employees can initiate recovery proceedings under the Payment of Wages Act, 1936, in case the employer denies such payment. It is the right of the employee to claim encashment of leaves and the mandatory duty of the employer to provide him with the same; however, if the employee has been negligent with his right and fails to claim the same, there is no provision to compel the employer to pay out of his own free will.

Is the Act mandatorily applicable in Banglore?

Schedule I of the Act, read with Section 1, Sub-Section (4) expressly provides a list of places where the Act is applicable. Item No. 3 in the Schedule also mentions Bangalore as a place where the Act is applicable. Thereby, it can be concluded that all establishments within the city of Bangalore are regulated by the Karnataka Shops and Establishment Act, 1961.

What is e-Karmika?

E-Karmika is an electronic platform that has been set up by the Department of Labour in Karnataka in accordance with the Karnataka Establishment and Shops Act, 1961. Through this portal, an employer can file an application to get his shop or commercial establishment registered under the Act. The portal can also be used to apply for the issuance of a duplicate certificate, the renewal of a certificate, or to file for any amendments to an existing certificate. The portal can also help any employer seek exemptions from the provisions of weekly holidays or women being employed on night shifts. The registration fees vary from Rs. 300 to Rs. 75,000 depending on the number of employees employed in the establishment, the fees may also vary from district to district. Apart from the online mode, registrations can also be through physical applications, which are filed at KarnatakaOne Centres. The registration process has been made easy and transparent by allowing online registrations and providing all information regarding the registration process on the e-Karmika portal.

References

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