Karnataka High Court
Bangalore Club vs Senior Labour Inspector, Viii Circle, ... on 17 December, 1993
Equivalent citations: ILR1994KAR277, 1994(1)KARLJ365, (1994)IILLJ47KANT
ORDER S. Rajendra Babu, J.
1. The petitioner is the Bangalore Club which is a member club but not registered under the Societies Registration Act. The contention advanced on behalf of the petitioner is that the members of an unregistered Club are the joint owners of all the properties of the club, when they supply goods to their members, there is no contract between the two parties as in the eye of the law, an unregistered Club and its members, constitute a single entity and further while so supplying goods, there is no transfer of absolute or general property, in the things supplied, by one person to another. It is submitted that the true legal effect of supply of an article by the club to one of its members is the release of joint right of all the members in his favour. It is therefore contended that the petitioner in carrying on its activities for recreation or entertainment such as outdoor and indoor games, library and health club facilities or in providing other facilities for the benefit and the convenience of members or to their guests will not constitute it as a shop or a commercial establishment for the purpose of the Karnataka Shops and Commercial Establishments Act, 1961. As to the nature of the activities carried on useful reference may be made to the decision rendered in Cosmopolitan Club v. Deputy Commercial Tax Officer, . In that decision it was held that clubs of this type as the petitioner are 'social for members' not conducted for gain or for profit, but with the objective of providing amenities to its members for meeting in the Club premises, for recreative and social activities varying from strenuous games to pastimes of less vigorous character, for social intercourse, for interchange of ideas on variety of topics, serious and light, ranging from ethics and philosophy to the prattle of idle gossip. In that decision it was further elaborated that the necessity to sustain and refresh members of a club indulging in these generally wholesome social and recreative activities by a supply of refreshments both liquid and solid. The expenses of the Club are met from the contributions made by the members in the shape of entrance fees and periodical subscriptions and other charges. These clubs which are member clubs consists of different kinds of members who are resident members, temporary members, visiting members, lady members and so on. Incidental to the objects of the club they maintain establishments for preparing and supplying to their members refreshments. It also maintains Bars for the benefit of their members. Goods are purchased for the consumption of their members out of the club's funds. Only members or their guests are supplied with refreshments and drinks. The members are charged for the supplies made. No sale is effected to non-members. Normally cash transactions are not permitted. The value of the article supplied is ordinarily charged in the monthly bills of the members. The prices of the articles are fixed by the committee of the club.
2. Under the Act an establishment is defined under Section 2(i) to mean a shop or a commercial establishment. Again shop or commercial establishments are separately defined. A commercial establishment is defined under Section 2(e) which means (i) commercial or trading or banking or insurance establishment; (ii) an establishment or administrative service in which persons are engaged or employed in office work; (iii) a hotel, restaurant, boarding or eating house, a cafe or any other refreshment house; (iv) a theatre or any other place of public amusement or entertainment; and (v) all the establishments as the State Government may by notification declare to be a commercial establishment for the purposes of the Act.
3. A shop is defined under Section 2(u) of the Act. (i) where any trade or business is carried on; (ii) or where services are rendered to customers and includes offices, store-rooms, godowns and warehouses. The other part of definition may not be relevant for the present purpose. In order to attract the definition of commercial establishment it must be a place of work and an activity is carried on which has an element of commerce or trade. In order to come within the first clause of the definition referred to above, it must be rendering administrative service in which persons are engaged in office work or a hotel or a restaurant. I have referred to in detail the activities carried on by the club. None of these activities have an element of trade or business. In fact the only part of the activity carried on by the petitioner that is relied upon by the respondent is the supply of refreshment made by the club to its members. I may examine whether there is any element of commercial trading activity in such transactions. In fact when such a question arose before this Court in the case of Century Club v. State of Mysore, 1965 (1) Mys. L. J. 65 this Court explained the nature of transaction carried on by such a club and stated that it is necessary to examine the relationship between the club and its members to answer the question. In Graff v. Evans, 8 QBD 373, Field, J. answered such a question as follows :
"I think Foster (member who was supplied with liquor in retail) was an owner of the property together with all the other members of the club. Any member was entitled to obtain the goods on payment of the price. A sale involves the element of a bargain. There was no bargain here, nor any contract with Graff (the manager of the Club) with respect to the goods. Foster was acting upon his rights as a member of the club, not by reason of any new contract, but under his old contract of association by which he subscribed a sum to the funds of the club, and became entitled to have ale and whisky supplied to him as a member at a certain price. I cannot conceive it possible that Graff could have sued him for the price as the price of goods sold and delivered. There was no contract between two persons, because Foster was vendor as well as buyer. Taking the transaction to be a purchase by Foster of all the other members' shares in the goods, Foster was as such a co-owner as the vendor, I think it was a transfer of a special property in the goods to Foster, which was not a sale within the meaning of that section".
If there is a club whose members owned the liquors consumed or other goods which are utilised by them, there is distribution as opposed to sale of those liquors no matter how the club was conducted. In that event considering the nature of the transaction carried on in the club, the club cannot be held to be a commercial establishment of any one of the nature referred to above nor it can be considered to be a shop for there is no activity which involves trade or business or some service rendered to a customer, for a member of a club is not a customer as such to whom services are rendered. In that view of the matter it cannot be stated that the club can be a commercial establishment which is rendering service or is carrying on business or trade to classify it as a shop.
4. Learned counsel for the respondent however relied on certain decisions of this Court where the element of profit need not be considered in ascertaining the nature of the establishment. But that is not the basis upon which I am looking at the matter. What we are concerned in the present case is whether a club where services of the nature referred to by me earlier is an establishment for the purpose of the Act. If it is not an establishment for the purpose of the Act, the question of profit motive or absence thereof would be irrelevant. However, the learned Government Advocate submitted that in Section 3(2) of the Act while providing for exemption, there is a reference to clubs, therefore, it must be deemed that clubs are also establishments. But it would all depend upon the nature of the activity carried on in the club. If a club engages itself in sale of goods to non-members or render certain services to non-members such a club can certainly be classified as an establishment for the purpose of the Act. But as long as services are rendered or amenities provided only to members or their guests it is by reason of contract entered into by them being members of the association and not otherwise. Such service cannot by any stretch of imagination come within that class of club which is referred to in Section 3(2) of the Act. Hence, I find great force in the contention advanced on behalf of the petitioners. The communication sent to the petitioner making applicable the provisions of the Act is quashed. The respondent is restrained from giving effect to the impugned notice. Petition allowed. Rule made absolute accordingly.