Supreme Court Redefines the Meaning of ‘Industry’

Source: The Hindu

Why in News?

• A nine-judge Constitution Bench of the Supreme Court, headed by CJI Surya Kant, delivered a 5:4 verdict on the meaning of “industry” under labour law.
• The Court held that the broad interpretation given in Bangalore Water Supply & Sewerage Board v. R. Rajappa (1978) will not govern future disputes under the Industrial Relations Code (IRC), 2020.
• The ruling marks an important shift in labour jurisprudence, particularly concerning workers’ rights, industrial peace, State functions and ease of doing business.

Key Points

• 1978 Bangalore Water Supply judgment: 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, under which an activity was considered an industry when it involved:

o   Systematic activity

o   Cooperation between employer and employee

o   Production or distribution of goods or services to satisfy human wants and wishes.

• Profit motive was not considered essential, bringing institutions such as hospitals, educational institutions, municipalities, clubs and certain welfare activities within the scope of labour-law protection.
• The judgment also developed the Dominant Nature Test for organisations performing multiple or integrated activities.
• Being classified as an industry determines whether employees can access statutory labour protections and mechanisms relating to wages, working conditions, unionisation, strikes, collective bargaining and dismissal.
• The expansive interpretation subsequently contributed to extensive litigation, described by a later Constitution Bench as “docket explosion”, particularly after liberalisation, privatisation and globalisation, when many activities shifted from the public to the private sector.
• Majority view: The definition of “industry” under Section 2(p) of the Industrial Relations Code, 2020 must be interpreted independently and should not be burdened by the 1978 interpretation of the repealed Industrial Disputes Act.
• The 1978 judgment continues to apply to pending/legacy disputes under the Industrial Disputes Act, 1947, but will not determine future disputes under the IRC, 2020.
• The Court is expected to provide a more detailed formulation of the modified test for determining what constitutes an industry.
• Justice B.V. Nagarathna's dissent, joined by Justices Dipankar Datta and Ujjal Bhuyan, opposed reconsideration of the 1978 judgment. She argued that its broad approach remains relevant in an economy transformed by privatisation and liberalisation.
• The dissent maintained that an activity does not automatically become a sovereign function merely because it is performed by the State. Government welfare schemes and services may qualify as industrial activities depending on their nature.
• Justice Nagarathna also supported retaining the Dominant Nature Test, focusing on the character of the activity rather than merely the identity of the organisation performing it.
• Justice Joymalya Bagchi took a nuanced position: he agreed that the IRC should not be governed by the 1978 judgment in future disputes but disagreed with the majority's proposed reformulation of the Triple Test.
• The Industrial Disputes (Amendment) Act, 1982 attempted to narrow the definition of “industry”, but the relevant provision was never brought into force.
• Between 2019–2020, Parliament consolidated 29 labour laws into four Labour Codes:

o   Code on Wages, 2019

o   Industrial Relations Code, 2020

o   Occupational Safety, Health and Working Conditions Code, 2020

o   Code on Social Security, 2020

• The significance of the judgment will depend on the eventual formulation of the new test and whether it can reduce litigation while preserving statutory protection for workers.
• The broader policy challenge is to balance worker protection and prevention of exploitation with flexibility and efficiency for enterprises and public institutions.