The Supreme Court’s latest ruling on the meaning of “industry” has brought an important labour-law debate back into focus. A nine-judge Constitution Bench examined the long-standing “triple test” laid down in the 1978 Bangalore Water Supply case and clarified how it should apply to disputes under the old Industrial Disputes Act.
The judgment also draws a clear line between the earlier law and the Industrial Relations Code, 2020, making the decision important for workers, employers and organisations dealing with labour disputes.
Supreme Court’s ‘Industry’ Verdict: What the Triple Test Means for Labour Law
The Supreme Court has delivered an important nine-judge Constitution Bench verdict on how the term “industry” should be understood under India’s labour law framework. The decision settles an old legal controversy for cases that are still governed by the repealed Industrial Disputes Act, 1947, while making it clear that the newer Industrial Relations Code, 2020 will have to be interpreted separately.
Why was the definition of ‘industry’ controversial?
The dispute goes back to Section 2(j) of the Industrial Disputes Act, 1947. The provision used a broad definition of an industry, which led to repeated questions about whether institutions such as hospitals, educational bodies, charitable organisations and certain government departments could fall within labour-law protections.
The issue became particularly important because being classified as an “industry” could determine whether employees received protections available under the Industrial Disputes Act.
In 1978, the Supreme Court addressed the question in the landmark Bangalore Water Supply and Sewerage Board v. A Rajappa case. A seven-judge bench adopted a broad approach and developed what came to be known as the “triple test.”
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What is the 1978 triple test?
Under the framework established in the Bangalore Water Supply case, an establishment could generally come within the meaning of an industry when three basic elements were present:
- There was a systematic and organised activity.
- The activity involved cooperation between employers and employees.
- The activity was directed towards producing or supplying goods or services intended to meet human needs.
Importantly, the Court had held that an organisation did not necessarily escape the definition simply because it was not operating for profit.
The 1978 ruling also recognised that establishments carrying out multiple activities could be examined according to their dominant nature. At the same time, certain genuinely sovereign governmental functions were treated differently.
Why did the Supreme Court revisit the issue?
The 1978 judgment remained controversial for decades. Parliament subsequently attempted to narrow the definition through amendments to the Industrial Disputes Act in 1982. The proposed changes sought to keep several categories, including certain hospitals, educational and research institutions and charitable bodies, outside the definition.
However, those amendments were never brought into operation.
Meanwhile, different Supreme Court benches reached varying conclusions in cases concerning government departments and welfare-related activities. In 2005, a five-judge bench in State of Uttar Pradesh v. Jai Bir Singh raised concerns about the earlier interpretation and referred the issue to a larger bench. The matter eventually reached the present nine-judge Constitution Bench.
A divided nine-judge Constitution Bench
The latest ruling was not unanimous. The judges expressed different views on whether the earlier interpretation needed to be changed and whether the reference itself was properly made.
The Constitution Bench produced five separate opinions.
A group led by Chief Justice Surya Kant considered the reference valid. Justice P S Narasimha and Justice Joymalya Bagchi also agreed that the matter could be examined by the larger bench.
Justice B V Nagarathna took a different view regarding the basis on which the matter had been referred. Justice Dipankar Datta also criticised the earlier reference, observing that a long-established precedent should not ordinarily be reopened without a compelling legal reason.
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Did the Supreme Court scrap the triple test?
No.
This is one of the most important aspects of the judgment.
Although the judges differed over the scope and future application of the 1978 approach, the Court did not replace the triple test with a new test for pending proceedings under the old Industrial Disputes Act.
Therefore, cases that are still pending under the repealed law and require a determination of whether an establishment falls within Section 2(j) will continue to be decided using the principles established in the Bangalore Water Supply judgment.
Why did some judges want a narrower approach?
Chief Justice Surya Kant suggested that the triple test required some calibration. His view was that an activity should possess a recognisable commercial or economic character similar to trade or business before it is treated as an industry.
Such an approach would not make profitability a compulsory condition. However, it could keep activities that are completely detached from an economic enterprise outside the definition.
This would potentially distinguish ordinary economic activities from purely charitable work and core sovereign functions.
Other judges were more supportive of retaining the traditional broad approach.
Justice B V Nagarathna, Justice Dipankar Datta and Justice Joymalya Bagchi highlighted the worker-protection objective of labour legislation. Their reasoning was that making commercial activity an additional requirement could leave workers in institutions such as schools and hospitals without statutory protection merely because those organisations did not operate for profit.
What happens to the new Industrial Relations Code?
The Supreme Court has made an important distinction between the old Industrial Disputes Act and the Industrial Relations Code, 2020.
The Court clarified that the 1978 interpretation should not automatically be used to interpret the new Code.
The Industrial Relations Code contains its own definition of “industry” and its own exclusions. Among other things, the newer framework expressly keeps certain charitable and philanthropic institutions, domestic services and sovereign government functions outside its definition.
Therefore, courts will have to examine the language and structure of the new Code independently rather than simply importing the 1978 judicial interpretation into it.
What about government welfare activities?
Another important question concerned government departments.
The judgment indicates that an activity cannot be treated as a sovereign function simply because it is performed by the government or is connected with public welfare.
The exclusion is meant for core and inalienable governmental functions.
This distinction matters because governments perform many activities that involve ordinary administrative, economic or service-oriented work. Merely having the State as the employer does not automatically place every such activity outside labour-law protections.
What does the verdict mean for workers and employers?
For workers involved in long-running cases under the old Industrial Disputes Act, the decision provides important clarity. Their cases will not suddenly be judged using a newly narrowed definition of industry.
For employers, the ruling provides a clearer understanding of which legal framework applies depending on whether a dispute arises under the repealed legislation or the newer labour-code regime.
The judgment also prevents decades-old disputes from being reopened simply because the Supreme Court has now examined the broader legal question.
Why is this judgment significant?
The decision is significant for three main reasons.
First, it preserves continuity for pending cases.
Workers and employers involved in disputes under the old Industrial Disputes Act will continue to operate under the established 1978 framework.
Second, it separates old and new labour law.
The Court has clearly stated that the Industrial Relations Code must be interpreted on its own terms.
Third, it keeps the debate over the scope of labour protection alive.
The different opinions show the tension between two competing concerns: extending labour protection widely enough to protect workers, while ensuring that activities that are fundamentally different from economic enterprises are not unnecessarily brought within the definition of an industry.
Bottom line
The Supreme Court’s nine-judge verdict does not simply erase the landmark 1978 Bangalore Water Supply ruling. Instead, it creates a practical distinction between old pending disputes and the new labour-law framework.
For pending matters under the Industrial Disputes Act, the established triple test remains relevant. But when courts interpret the Industrial Relations Code, 2020, they must begin with the wording and scheme of that legislation rather than automatically applying the 1978 precedent.