SC upholds broad 'industry' definition for pending cases under old labour law
NEW DELHI: The Supreme Court on Thursday settled a long-standing debate over the expansive definition of 'industry' under the Industrial Disputes Act, 1947. A nine-judge Constitution bench unanimously upheld the 'triple test' laid down in the 1978 Bangalore Water Supply case, affirming that a broad interpretation protects workmen from arbitrary retrenchment. However, the ruling applies only to cases pending under the ID Act, not to disputes arising under the new Industrial Relations Code, 2020.
The bench, comprising Chief Justice Surya Kant and Justices B V Nagarathna, P S Narasimha, D Datta, U Bhuyan, S C Sharma, J Bagchi, A Aradhe and V M Pancholi, held that the triple test — systematic activity, functional relationship between employer and employee, and engagement in production or distribution of goods/services to satisfy human wants, excluding purely spiritual activities — remains valid. The court said this definition would cover temples, charitable organisations, hospitals, NGOs and even government public works agencies, provided a distinct employer-employee relationship exists.
The ruling comes after a week of arguments in which several state governments, particularly those ruled by opposition parties, had urged the court to narrow the definition. They argued that sovereign functions, charitable activities, and work unrelated to business or trade should not fall within the ambit of 'industry'. Attorney General R Venkataramani also submitted that the court must consider the changed economic climate post-liberalisation, cautioning that an overly broad definition could include irrigation departments or research institutions.
Rejecting these submissions, the bench observed that welfare activities of the state do not escape scrutiny under Section 2(j) of the ID Act merely because they are charitable in nature. “Mere vesting of duties on a state by statute or Constitution does not clothe it with sovereign immunity from industrial law,” Justice Bagchi said, reading the unanimous opinion. He added that in a constitutional democracy, sovereignty is limited to core and inalienable functions for which governments are answerable politically, not judicially exempt.
At the same time, the court clarified that its ruling would not serve as a “sheet anchor” for deciding the validity of provisions of the Industrial Relations Code, 2020, which came into effect on November 21, 2025. The bench noted that pending petitions challenging the IRC would be adjudicated independently, and the current judgement applies only to cases under the ID Act.
The court also acknowledged that the 1978 judgement had carved out reasonable exceptions for casual and non-systematic activities, such as domestic service, individual professionals, and small unorganised clubs. These exceptions remain intact.
Legal experts say the ruling provides clarity for thousands of pending industrial disputes, but the practical impact may be limited as the new code governs future disputes. The judgement reinforces the protective intent of labour legislation while leaving room for the new statutory framework to evolve.
