Supreme Court Redefines the Meaning of ‘Industry’

Context:

Recently, The Supreme Court’s nine-judge Constitution Bench, headed by Chief Justice of India Surya Kant, delivered a 5:4 verdict on the meaning of “industry” under labour law. The Court held that the expansive interpretation given in Bangalore Water Supply & Sewerage Board v. R. Rajappa (1978) will not govern future disputes under the Industrial Relations Code (IRC), 2020.

About Bangalore Water Supply Case, 1978:

• • • In 1978, a seven-judge Bench gave an expansive interpretation to “industry” under Section 2(j) of the Industrial Disputes Act, 1947. It evolved the Triple Test, requiring:
      • Systematic activity;
      • Cooperation between employer and employee; and
      • Production or distribution of goods or services to satisfy human wants.
    • Profit motive was held unnecessary. Consequently, institutions such as hospitals, educational institutions, municipalities and clubs could fall within labour-law protection. The Court also evolved the Dominant Nature Test for organisations performing multiple activities.

Why Does the Definition Matter?

• • • Whether an establishment qualifies as an industry determines the applicability of labour protections and industrial dispute-resolution mechanisms. The broad 1978 interpretation enabled workers to seek remedies concerning wages, working conditions, unionisation, strikes, collective bargaining and dismissal.
    • However, it also generated extensive litigation, particularly after liberalisation, privatisation and globalisation (LPG) increased private participation in activities traditionally performed by the State.

Supreme Court’s Majority View:

• • • The majority held that Section 2(p) of the Industrial Relations Code, 2020 must be interpreted on a clean slate. It should not be burdened by the interpretation of Section 2(j) of the repealed Industrial Disputes Act.
    • Thus, the 1978 judgment remains applicable to legacy disputes under the 1947 Act, but will not determine future disputes under the IRC. The Court indicated that the earlier Triple Test may require reformulation under the new statutory framework.

Section 2(p) of the Industrial Relations Code, 2020:

• • • Section 2(p) defines “industry” through a systematic activity carried out through cooperation between an employer and workers for producing, supplying or distributing goods or services. The definition applies irrespective of capital investment or profit motive.
    • It also expressly excludes certain charitable, social and philanthropic activities, specified government activities relating to defence research, atomic energy and space exploration, and other categories that may be excluded by the Central Government.
    • Thus, Section 2(p) represents a new statutory framework and cannot simply be interpreted by mechanically importing the jurisprudence developed under Section 2(j)

Significance:

• • • The judgment seeks to provide legal clarity, reduce litigation and distinguish legacy disputes from the new labour regime. However, its success will depend on the precise formulation of the new test.
    • India needs a balanced labour framework that promotes worker dignity, social security and collective bargaining while providing enterprises and public institutions adequate flexibility.