Supreme Court Revisits 1978 ‘Industry’ Test, Says Definition Needs Modification

The Supreme Court on Thursday held by a 5:4 majority that its landmark 1978 interpretation of what constitutes an “industry” under labour law requires modification, even as it said the core framework of that ruling has largely stood the test of time.

Chief Justice of India Surya Kant, who was part of the majority, said some elements of the earlier formulation needed to be expressed differently.

“We have felt that some of these constituent elements could have been articulated differently so as to better reflect the scope and contours of Section 2(j) (of the Industrial Disputes Act, 1947),” the CJI said.

CJI Kant and Justices Alok Aradhe, S.C. Sharma, Vipul Pancholi and P.S. Narasimha formed the majority. Justices B.V. Nagarathna, Dipankar Datta, Ujjal Bhuyan and Joymalya Bagchi dissented on the reformulation of the test.

Why The Definition Matters

The meaning of “industry” determines which establishments and employees fall within the framework of industrial labour law and can access statutory remedies relating to wages, working hours, strikes and protection against arbitrary dismissal, among other issues.

The question had for decades been governed by the Supreme Court’s 1978 ruling in Bangalore Water Supply and Sewerage Board v. A. Rajappa.

In that judgment, a seven-judge Bench laid down what became known as the “triple test”. An undertaking could qualify as an industry if it involved a “systematic activity”, was “organised by cooperation between employer and employee”, and was carried out “for the production and/or distribution of goods or services calculated to satisfy human wants and wishes”.

The court also held that profit motive was not essential, although purely spiritual or religious activities would not fall within the definition.

The broad interpretation brought a wide range of establishments within the reach of industrial law.

Pending Cases Will Continue Under 1978 Test

The court clarified that its modified approach would not disturb disputes already pending under the Industrial Disputes Act, 1947.

Such cases will continue to be decided using the original Bangalore Water Supply triple test.

“It is not intended to displace the governing legal position in respect to the pending process. Consequently, all matters presently pending before courts, governors, labor authorities, or other fora under the Industrial Disputes Act, 1947 may be adjudicated in accordance with the triple test as laid down in Bangalore Water Supply. We have not disturbed that because it will create artificial discrimination…” CJI Kant said.

The majority said the new formulation would operate prospectively and would not apply to pending proceedings.

Why The Case Returned To A Larger Bench

Over the years, differences emerged in the way later benches interpreted the 1978 judgment, prompting a reference to a nine-judge Constitution Bench.

The majority on Thursday held that the reference questioning the correctness of the earlier ruling was maintainable.

Justice Bagchi agreed that the reference itself was valid, but disagreed with the majority’s decision to reformulate the triple test.

Justice Nagarathna went further, holding that the 1978 judgment did not require interference.

She argued that the definition of “industry” should remain broad and that an activity should not automatically fall outside its scope simply because it is performed by the government.

“Social welfare activities and schemes or other enterprises undertaken by the government departments or their instrumentalities can be construed to be industrial activities for the purpose of section 2(j) of the Act depending on the nature of the activities,” Justice Nagarathna said.

“Because the government is doing these activities per se they cannot be excluded from the definition of industry. Hence, the test of who carries out the activity is not relevant. Rather, what is the nature of the activity and all other relevant factors of the activity have to be considered to determine whether the activity is an industrial activity or not,” she added.

Government And Unions Took Opposing Positions

The broad 1978 interpretation had, according to later benches, contributed to a “docket explosion” by bringing a larger number of disputes before labour courts.

Parliament later attempted to narrow the definition through amendments to the Industrial Disputes Act by excluding certain organisations. However, the Centre told the court in 2005 that there was no alternative dispute-resolution mechanism for employees who would fall outside the amended definition, allowing the 1978 position to continue.

When the case was taken up this year, the Supreme Court identified three broad issues for consideration. These included whether the Bangalore Water Supply test remained the correct interpretation of “industry”, whether later legislative developments had any bearing on it, whether government welfare and social-service activities could qualify as industrial activity, and what should fall within the State’s sovereign functions.

During three days of arguments, the government contended that the 1978 ruling had stretched the definition too far by bringing welfare and public functions within the scope of industrial activity.

Labour unions opposed changing the framework, arguing that the judgment had provided legal certainty for nearly five decades and that excluding workers without comparable protections could leave them with limited remedies.

The majority has now held that the 1978 framework requires modification, while preserving the old test for pending cases.