Many co-operative housing societies face legal notices from former employees claiming bonus, leave wages or gratuity. Managing committees often feel confused—Are we treated like a company? Do labour laws apply to us?
The Bombay High Court has now answered the question “Do Labour Laws and Gratuity Apply to Housing Societies?” clearly in a recent judgment involving a residential co-operative housing society and its former Building Manager.
What Was the Dispute About?
A co-operative housing society had employed a Building Manager for several years. After his services were terminated, the employee did not challenge the termination. Instead, he approached two authorities:
- the Labour Court, claiming unpaid bonus and leave wages, and
- the Gratuity Authority, claiming gratuity for his years of service.
The society objected at the beginning itself. It argued that a residential housing society is not a business organisation and therefore labour laws and gratuity provisions do not apply to it.
However, both authorities rejected this objection and allowed the cases to continue. The society then approached the Bombay High Court.
Why Housing Societies Are Different from Companies
While deciding the case, the High Court first looked at why housing societies are formed.
The Court observed that housing societies are created by flat owners to:
- obtain ownership of land and building from the builder, and
- manage common facilities like lifts, water supply, security, cleaning and repairs.
These activities are done only for the personal use of members. The society does not carry on business, trade or commercial activity like a company or a shop. Monthly maintenance collected from members is not profit or income—it is only pooled money for expenses.
Is a Housing Society an “Industry”?
For labour laws to apply, the organisation must be an “industry”. The Court made it clear that:
- Simply employing staff does not make a housing society an industry.
- Running a members-only clubhouse or allowing mobile towers to reduce maintenance costs does not turn the society into a business.
- Services provided within a residential building are personal services to members, not commercial services to the public.
Unless a society is actually running a business—such as renting premises to outsiders or operating commercial facilities—it cannot be treated as an industry.
Therefore, the Labour Court had no authority to entertain recovery proceedings against the housing society.
Does the Gratuity Act Apply to Housing Societies?
The Court then examined whether a housing society can be treated as an “establishment” under the Maharashtra Shops and Establishments Act, which is necessary for the Gratuity Act to apply.
The Court explained this with a simple example:
- A private bungalow is not an establishment.
- If several flat owners come together and manage their homes through a society, it still remains residential in nature.
Just because employees are hired for maintenance, the society does not become a shop or commercial establishment. The law applies only where business, trade or profession is carried on.
The Court also clarified that:
- Contractors providing security or housekeeping services are commercial entities, which is why their employees receive statutory benefits.
- This does not mean the housing society itself becomes a commercial establishment.
Accordingly, the Gratuity Act was held not applicable to the housing society.
The Court clearly held that a residential co-operative housing society is neither an industry nor an establishment.