By Dr Swati Jindal Garg
In Indian labour law, few words have carried as much socio-economic weight as “industry”. To the layperson, it may conjure images of factories, machinery and assembly lines. To a labour lawyer, however, the word has a far greater significance. It determines whether workers fall within the protective framework of industrial legislation—rights relating to retrenchment, lay-offs, compensation and the resolution of industrial disputes.
For nearly five decades, the legal compass was the Supreme Court’s landmark 1978 judgment in Bangalore Water Supply & Sewerage Board vs A Rajappa. Justice VR Krishna Iyer’s expansive interpretation transformed the meaning of “industry”, extending it far beyond conventional factories and commercial enterprises.
Now, a nine-judge Constitution bench of the Supreme Court has revisited that historic formulation. In a significant ruling, the bench headed by Chief Justice of India Surya Kant has refined aspects of the 1978 doctrine while stopping short of dismantling its essential framework.
The judgment is, therefore, less a demolition of the Bangalore Water Supply edifice than an attempt to redraw some of its boundaries.
THE VERDICT IN A NUTSHELL
The 1978 judgment had laid down the famous “Triple Test” for determining whether an activity constituted an industry. There had to be systematic activity, organised cooperation between employer and employee, and the production or distribution of goods or services calculated to satisfy human wants and wishes.
Profit motive was not considered essential. Nor was the presence of capital. The emphasis was on the nature of the activity and the relationship between employer and employee.
The consequence was a remarkably broad interpretation of industrial activity. Universities, hospitals, research institutions, clubs, charitable organisations and various public-sector and welfare activities could, depending on their character, come within the scope of industrial law.
The Constitution bench has now held that aspects of this formulation require refinement. The character of the activity assumes greater significance, particularly in distinguishing organised economic activity from functions that are essentially governmental, administrative or otherwise outside the industrial sphere.
At the same time, the Court has taken care not to unsettle existing litigation. Disputes pending under the Industrial Disputes Act, 1947, will continue to be governed by the legal position flowing from Bangalore Water Supply. The new formulation will operate prospectively.
That distinction is crucial. It means that workers whose disputes are already before labour courts or tribunals will not suddenly lose the protection under which their claims arose.
The Court has also refrained from determining how “industry” should be interpreted under Section 2(p) of the Industrial Relations Code, 2020. The new statutory regime will, therefore, have to be interpreted on its own terms.
THE LONG ROAD TO 1978
The controversy over the meaning of “industry” goes back to the early years of the Industrial Disputes Act.
In decisions such as DN Banerji and Corporation of the City of Nagpur, the Supreme Court adopted a relatively expansive approach, holding that certain municipal activities could fall within the statutory definition.
The judicial pendulum subsequently swung in the other direction. In cases involving hospitals, universities and research institutions, the Court narrowed the scope of the definition, stressing the absence of a commercial character.
The result was uncertainty. Institutions with similar functions could find themselves on opposite sides of the legal divide, while workers were left unsure whether they were entitled to the protections of industrial law.
It was against this backdrop that a seven-judge Constitution bench considered the issue in Bangalore Water Supply in 1978.
Justice Krishna Iyer’s judgment sought to bring clarity. His Triple Test established that an industry could exist where there was systematic activity, organised cooperation between employer and employee, and the production or distribution of goods or services designed to satisfy human wants and wishes.
The formulation was deliberately broad. The Court made clear that the absence of a profit motive did not automatically take an activity outside the definition. Nor did the absence of traditional industrial machinery or capital.
The emphasis was on organised activity and the employment relationship.
The judgment became a landmark in Indian labour jurisprudence and was widely regarded as a major affirmation of the principle that labour protections should depend on the substance of an activity rather than merely on the label or status of the organisation carrying it out.
THE PUSHBACK
Over time, however, questions emerged about the outer limits of the 1978 doctrine.
Governments and public institutions argued that an excessively broad definition could bring fundamentally different activities within the same industrial framework. Welfare schemes, educational institutions, government departments and other public bodies could find themselves exposed to industrial disputes and labour litigation in circumstances where their functions were not essentially commercial.
The issue came to a head in State of Uttar Pradesh vs Jai Bir Singh in 2005. A five-judge bench expressed reservations about the consequences of the expansive interpretation and referred the question for reconsideration by a larger bench.
It was this reference that eventually brought the issue before the nine-judge Constitution bench.
But the India of 2026 is very different from the India of 1978.
The economy has undergone profound changes. Privatisation, outsourcing, contractual employment and public-private partnerships have blurred the traditional distinction between public and private activity. The service sector has expanded dramatically, while the conventional factory is no longer the defining image of employment.
The Court was, therefore, confronted with a difficult question: how should a legal test framed almost half a century ago operate in an economy that has changed so fundamentally?
A DIVIDED BENCH
The Constitution bench produced a sharp division of opinion, reflecting a larger philosophical debate about the purpose and reach of labour law.
The majority approach favoured refinement rather than wholesale rejection of Bangalore Water Supply. It recognised the continuing importance of the 1978 framework, but sought a more precise method of determining whether an activity possesses the character of an industry.
The concern was that applying the Triple Test mechanically could bring activities fundamentally different from conventional economic enterprises within the same legal framework.
The dissenting judges took a different view. Justice BV Nagarathna and those who joined her opinion regarded the 1978 formulation as an important instrument of social justice that did not require dilution. In an economy increasingly shaped by privatisation, outsourcing and fragmented employment arrangements, they warned against narrowing the protection available to workers.
At the heart of the disagreement is a fundamental question: should labour law primarily focus on the vulnerability of the worker and the existence of an organised employment relationship, or should greater weight be given to the nature and purpose of the activity itself?
The two approaches represent different conceptions of the social bargain underlying labour legislation.
WHAT HAPPENS NOW?
For workers involved in existing disputes, the immediate position remains relatively stable. Pending proceedings under the Industrial Disputes Act continue to be governed by the Bangalore Water Supply framework.
The larger uncertainty lies ahead.
The Industrial Relations Code, 2020, has created a new statutory framework, and the Supreme Court has deliberately left its definition of “industry” to be considered independently.
That means a fresh body of jurisprudence will eventually emerge around the new Code.
The questions are likely to be significant. How should hospitals, universities, charitable institutions, government bodies and service-sector organisations be treated? Where should the boundary lie between governmental functions and economic activity? And how can labour protections remain meaningful in an economy where traditional employment structures are steadily disappearing?
The Supreme Court has not provided a final answer to all these questions. Instead, it has marked a new point of departure.
For nearly half a century, Bangalore Water Supply provided the dominant answer to the question of what constitutes an “industry”. The latest judgment does not erase that legacy. It qualifies it, confines its retrospective reach and leaves the new statutory regime to develop on its own terms.
The debate, therefore, is far from over.
At its core lies the enduring tension between two competing imperatives: the need to protect the dignity and security of labour, and the need to ensure that the law recognises the very different character of modern economic and public activity.
Where that line will finally be drawn remains one of the most important question.
—The author is an Advocate-on-Record practising in the Supreme Court,
Delhi High Court and all district courts and tribunals in Delhi
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