Explained: Public Utility Service

Reading time: 8-10 minutes.

The Union Ministry of Labor and Employment and the Department of Financial Services vide circular dated 20th April 2020 declared the banking industry as Public Utility Service. This decision comes in effect from 21st April 2020 till 21st October 2020. This is not a novel order as the banking industry falls under the public sector category under the Industrial Disputes Act, 1947. It has been a few decades where such orders are sporadically announced by the concerned ministry.

Such orders, according to the provisions laid down in section 2(n) of the Industrial Disputes Act, should not exceed 6 months. However, it may be extended by another order if the need emerges. This decision of the government comes on the anticipation of possible strikes by the bank employees. This may provoke chaos and result in escalating the already present struggles of the country’s economy.

What is a Public Utility Service (PUS)?

According to R. G. Hawtrey, PUS may be defined as “a service in which a tendency to a local monopoly needs an intervention of a public authority to defend the interests of the consumers.”

The fundamental characteristics of the public utility service are:

  • Supply of indispensable necessities
  • Consistent and non-transferable demand
  • Monopoly
  • Massive capital investments
  • Numerous powers of regulation and control for social advantage

Discussing the forms of the PUS, there are three main ones:

  • Public Authority
  • A private company (with complete or limited monopoly)
  • Public & Private company (Joint ownership)

Which banks will come under the PUS now?

There are many employees and unions in the banking sector. Their main aim is to negotiate wages every three years with the Indian Banks’ Association (IBA). All banks that are members of IBA will come under this latest order including:

  • All public sector banks,
  • Old generation private banks like HDFC Bank, ICICI Bank, Axis Bank & Federal Bank,
  • Some of the oldest foreign banks like HSBC, StanChart, and Citibank.

New generation private lenders like Kotak Bank, IndusInd Bank, and Yes Bank are outside the purview of IBA norms.

Significance of this development

Keeping in hindsight the impacts of the novel coronavirus which every country in the world is facing and suffering from, the Indian government came up with its latest decision of declaring banks as PUS. India is no exception to the sufferings meted out by this pandemic. It was essential to cure or at least allow the supply chain to recover from its ill-effects. A robust banking system plays an important role in such a scenario and might act as a bridge between two basic problems of economic recession and social welfare.

Banks around the globe will play a critical role in these times. This is because they act as “systemic stabilizers for their employees, their customers, and for the economies at large”. Banks provide multiple essential services such as cash and deposit services, credit extension, payment facilitation, and market-making among others. Thus, they need to be careful in their approach towards their workforce, the services they provide, and risk exposure.

This step by the government will ensure that such a bridge will form where banks can act not only as a relief provider for our economy but also for the people. The need for essential banking services through these trying times will continue.

A majority of households and businesses will be negatively affected by the unprecedented nature and extent of the current health crisis. The financial impact of quarantine measures will further stress those who are already in debt. Among businesses, the impact will vary from sector to sector. Industries including travel and tourism, entertainment, automotive, and oil and gas among others are most affected due to disruptions in the demand and supply chain. Small businesses that cannot shift to remote work and online delivery and those catering to the most vulnerable sectors are also likely to be severely affected. Those sectors are in immediate need of money supply which can only be ensured by banks.

Thus, the government’s decision will prove as a stimulus and provide the needed stability in the banking sector. This will help the country fight the pandemic. In such a situation, any form of inconvenience caused to the banking sector in forms of strikes and lockouts can impede the functioning of the banks.

In India, there is a fundamental right to protest under Article 19 of the Constitution but there is no such fundamental right for strikes. The right to strike is a legal right and comes with restrictions as laid down under the provisions of the Industrial Disputes Act. In All India Bank Employees Association v National Industrial Tribunal & Others (1962 AIR 171), the Hon’ble Supreme Court held that “the right to strike or right to declare lockout may be controlled or restricted by appropriate industrial legislation and the validity of such legislation would have to be tested not with reference to the criteria laid down in clause (4) of Article 19 of the Constitution but by totally different considerations.” Therefore, legislation can and does restrict the right to strike by deeming certain strikes illegal. If the strike is not as per the grounds laid down in sections 22, 23, 24, 10(3) and 10A (4A) of the Industrial Dispute Act, it will be considered illegal.

A person employed in PUS is not allowed to go on a strike if the requisites provided under the relevant sections are fulfilled. Thus, the government by declaring banks as PUS will ensure that the various unions in the banking sector are unable to call for a strike. There were disagreements all over the sector regarding the merging of banks. This step comes in the backdrop of the COVID-19 pandemic and previous disagreements. During this chaotic time, when the economy of the country is already struggling due to the spread of the highly contagious disease, the last thing the government would aspire for is a strike by the bank unions.

What is PUS under the Act?

Public Utility Service is defined under section 2(n) of the Industrial Disputes Act, 1947. This definition circumscribes six major industries and services that meet the regular exigencies of people. These are:

  • Railway service (for the carriage of passengers or goods),
  • Any service related to the working in a major dock or a port,
  • Any section of an industrial establishment upon which the safety of the workmen depends,
  • Any telegraph, telephone or postal service,
  • Any power, light, and water supplying industry, and
  • Any other industry specified in the First Schedule of the Industrial Disputes Act.

There are about 27 industries mentioned under the first schedule that may be transformed into a public utility service by the order of the appropriate government under section 2(n) (vi) of the Act. These industries include transport (other than railways) for the carriage of passengers or goods, banking, cement, coal, and iron and steel industry among others. They can be declared as PUS according to the urgency of the situations faced by the government. Thus, the government can transform any industry as PUS whenever the demand by the public at large rockets or according to any other such emergency.

Relevant provisions

As mentioned earlier, a public service utility is defined under section 2(n) of the ID Act. The provisions prohibiting strikes in PUS are laid down under sections 22, 23, 24, 25, and 26 of the Act.

The foremost rationale of the government’s present order is to prevent strikes by the bank unions and employees. The term ‘strike’ is defined under section 2(q) of the ID Act as “a cessation of work by a body of persons employed in any industry acting in combination or a concerted refusal, or a refusal under a common understanding, of any number of persons who are or have been so employed to continue to work or to accept employment”. Section 22 of this Act is of paramount significance as it discusses the prohibition of strikes and lock-outs. It prevents both the employers and the employees of public utility service from calling for a strike and a lock-out respectively. If a strike or a lock-out has to be called, it must be according to the provisions of this section. The pre-requisites for going on a strike are as follows:

  • The employee must give notice to the employer at least 6 weeks before going on a strike.
  • A strike cannot be permitted within 14 days of the abovementioned notice.
  • An employee cannot go on a strike before the expiry of the date of that strike.
  • A strike will not be authorized during the pendency of conciliation proceedings or 7 days after the conclusion of such a proceeding.

Similar provisions are in place for the lock-outs as well. Thus, it becomes clear that the employees of PUS are not barred from going on a strike. They, however, have to follow certain conditions. Section 23 of the Act lays down the provisions for the general prohibition of strikes and lock-outs.

Since the government has declared banks as a public utility, the banks’ employees have to follow the conditions as specified in section 22 in addition to section 23 of the ID Act. Thus, if those conditions are not met, the strikes would be considered as illegal strikes.

Section 24 defines illegal strikes and lock-outs. It states that any strike or lock-out will be illegal if it is in contravention of sections 22, 23, or contravention of an order made under sections 10(3), or section 10A(4A).

Moreover, section 25 prohibits financial aid to illegal strikes or lock-outs.

Critical analysis

Banks were included in the first schedule of the ID Act in 2001. It is not the first time that an order declaring banks as PUS is has been made. This has been a routine work for the government for the last few decades. Whenever the government introduces some reforms and there is an apprehension that there would be resentment from banking unions, the government makes such an order. This is done to prevent any disruptions that can be caused to the people and the nation’s economy due to the strikes or lock-outs.

The major reasons for a strike in an industry are working conditions, reduction in salaries, dismissal of workmen, and dissatisfaction with government policies among others. Recently, there was dissatisfaction in the banking sector about the merging of various banks. Considering the present situation where the nation has to put up a fight against the COVD-19 pandemic, the government found it essential to declare banks as a PSU. This step was taken under the provisions of the Industrial Disputes Act to prevent any disorder and confusion that might arise.

This order was necessary as the economy of the country is already suffering. Banks are the spine of an economy. They can impact economic growth, GDP, economic stabilization, as well as employment generation in direct and indirect ways. They also help to develop many other sectors of the economy. Thus, it was an essential step as it will not only curb the strikes but also protect the interests of the customers now. However, it cannot be ignored that a benefit to the economy and the people has come at the cost of curbing the voices of the unions in the banking sector.

The employees and officers of various banks have their unions, who negotiate for wage settlements with the IBA, every three years. There are also various decisions of the government to which these bank unions might not agree. Thus, the declaration of banks as PUS might have adverse impacts on the banks’ employees.

Conclusion

Recently, the Union Government declared banks as public utility services. This order will remain in effect for six months starting from 21 April 2020 till 21 October 2020. This notification was issued by the Labor Ministry on April 17 against the backdrop of the coronavirus pandemic. The main purpose of this order is to prevent the banking sector from going on strikes starting from 21st April. It will further help to bring stabilization in a dwindling economy and allow the government to look after the interests of the customers.

Author: Mansanwalpreet  from Rajiv Gandhi National University of law and Alisha Singh from Lloyd Law College, Greater Noida.

Editor: Arya Mittal from Hidayatullah National Law University, Raipur.

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