By Anirudh Shastree
The Maharashtra Shops and Establishments Act, 1948, is a legislation to regulate the conditions of work in shops and commercial establishments and has been in force in the State of Maharashtra for the last 57 years. The first Shops Act was enacted in the year 1939. The application of the Maharashtra Shops & Establishments Act, 1948 is confined to municipal areas specified in Schedule I, and the State Government of Maharashtra has extended the operation of the Act to other areas having a population of more than 25,000 people.
In an important amendment on date 1st May, 1960, with the formation of the Maharashtra State from the ‘Bombay State’, the name and scope were adjusted. As per the Act, “shop” means “any premises where goods are sold or where services are rendered to customers, and includes an office, a store room, godown, warehouse, whether in the same business or otherwise mainly used in connection with such trade or business, but does not include a factory, a commercial establishment, residential hotel, an eating house, theatre, or other place of entertainment.”
Key definitions under the Act include:
- Commercial Establishment (Section 2(4)): Means “an establishment which carries on any business, trade, profession, or any work in connection with or incidentally or ancillary to any business, trade, profession and includes establishment of any of the following: (i) Legal Practitioners, (ii) Medical Practitioners, (iii) architect, (iv) Engineering firm, (v) tax consultant, (vi) Society registered under Societies Registration Act 1860” and does not include a factory, shop, residential hotel, restaurant, eating house, theatre, or other place of public amusement.
- Establishment (Section 2(8))
- Shop (Section 2(27))
The Dilemma: Factory vs. Shop
Corporate offices and information technology companies remain as a shop or commercial establishment only until they are not connected with a “manufacturing process.” If a shop is connected with any manufacturing process, then the provisions of the Factories Act, 1948 will apply to it.
Section 70 of the Maharashtra Shops and Establishments Act, 1948 has extended the operation of the Factories Act, 1948 and made it applicable to persons working in the precincts of a factory to whom the Maharashtra Shops & Establishments Act, 1948 does not apply. Section 70 (titled “Persons employed in factory should be governed by Factories Act and not by this Act”) clarifies that a premise or precinct can either be a factory or a shop:
- “Nothing in this Act shall be deemed to apply to a factory to which the provisions of the Factories Act, 1948 apply.”
- “Where any shop or commercial establishment is situated within the precincts of a factory and is not connected with the manufacturing process of the factory, the provisions of Maharashtra Shops & Establishments Act, 1948 shall apply to it.”
- “Provided further that, the State Government by notification in its official Gazette, apply all or any of the provisions of the Factories Act, 1948 to any shop or commercial establishments situated within the precincts of a factory and on application of the Act to Shop or commercial establishment, the provisions of the Act namely The Maharashtra Shops & Establishments Act, 1948, shall cease to apply to it.”
Exemption for Electronic Data Processing and Computer Units
The Factories Act, 1948 shall not apply to an “electronic data processing unit or a computer unit.” In the definition of “Factory” under Section 2(m) of the Factories Act, 1948, Explanation II states that:
“The mere fact that an Electronic Data Processing Unit or a Computer Unit is installed in any premises or a part thereof, shall not be construed to make it a factory if no manufacturing process is being carried on in such premises or a part thereof.”
Section 2(m) emphasizes the terms “manufacturing process” and “industrial establishments.” Explanation II grants exemption or immunity to electronic data processing units or computer units from being brought within the purview of welfare legislations, especially labor laws, if no physical manufacturing process takes place. This is likely why IT companies that develop software or provide allied software services fall under the purview of the Shops Acts of respective states.
Regarding corporate offices where no manufacturing process takes place:
- If a corporate office is not in the premises or precincts of a factory and is functioning separately, it is covered under the Shops and Establishments Act.
- If the corporate office is within the premises/precincts of a factory, it is covered under the Factories Act, 1948.
Loopholes in the Digital and E-Commerce Era
- Virtual Offices and Work-From-Home: In most states (such as Maharashtra), the Shops Act was passed in 1948 when the internet did not exist and virtual offices were science fiction. Because start-up entrepreneurs today often choose to work from home or collaborate remotely, virtual offices that are not physically established under the Act remain outside the purview of registration.
- E-Commerce Platforms: In the era of e-commerce where goods are sold online through websites and no physical walk-in shops exist on the ground, a potential loophole arises: since no customers purchase directly from a physical shopfront, registration under traditional interpretations might be questioned. However, if an e-commerce entity also entertains walk-in clients and sells products/services directly on-site, that loophole no longer applies.
Relevant Judicial Precedent
In Seelan Raj v. Presiding Officer, 1st Additional Labour Court ((2001) 4 SCC 634), the question of whether data processing and software preparation for customers constitutes a manufacturing process—and whether the premises constitute a factory—was referred to a larger bench. The court pronounced that Explanation II does not control the main provision of Section 2(m) of the Factories Act, 1948; it merely sets out an exemption to clarify that the installation of an electronic data processing or computer unit does not automatically render a place a factory unless an actual physical manufacturing process is carried on. Consequently, information technology companies fall under the Shops and Establishments Act due to the inclusion of the word “services” in its scope.