In 5-4 ruling, Supreme Court for tweaking definition of industry, exempts pending matters

A fine print of the ruling prescribing the new formulation of the definition is awaited. The definition of an “industry” – earlier under the erstwhile Industrial Disputes Act, 1947 and now under the Industrial Relations Code, 2020, which is set to replace it – determines employees under which workplaces are entitled to statutory protections. The wide net cast by the 1978 definition enabled workers to have a legal recourse regarding wages, working hours, strikes and protection against arbitrary dismissal, among other things.

The majority ruling said that while pending disputes under the Industrial Disputes Act will continue to be decided under the framework laid down in its landmark 1978 Bangalore Water Supply and Sewerage Board v A Rajappa judgement, prospective cases will be governed by the modified definition. However, even the modified definition will not apply to pending cases.

“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.

In the 1978 ruling, the Supreme Court laid down what came to be known as the “triple test” for identifying an industry. It held that an undertaking would qualify as an industry if there was “systematic activity”, “organised by cooperation between employer and employee”, “for the production and/or distribution of goods or services calculated to satisfy human wants and wishes.” The court said it did not matter whether the activity is driven by profit, though purely spiritual or religious activities would not be covered.

With differences in how this judgement was interpreted in subsequent rulings, the case was referred to a nine-judge bench for reconsideration.

The majority opinion on Thursday held that the reference questioning the correctness of the 1978 ruling was maintainable.

Justice Bagchi held that while the reference to a nine-judge bench was valid, he disagreed with the majority opinion on the reformulation of the triple test.

Justice Nagarathna, however, found that the 1978 ruling did not require any interference or modification. The judge said that the definition ought to be broad-based and that merely because a function is performed by the State, it cannot be exempted from the definition of “industry.”

“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. 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,” Justice Nagarathna said.

The 1978 definition resulted in what later benches called a “docket explosion” bringing more cases to the labour courts. Parliament attempted to narrow the definition through the Industrial Disputes (Amendment) Act, excluding several organisations, but the Centre told the court in 2005 that no alternative dispute-resolution mechanism existed for employees who would fall outside the amended definition, so the 1978 position continued to hold.

In February this year, the Supreme Court identified three broad questions for consideration — whether the test laid down in the Bangalore Water Supply ruling remains the correct interpretation of the term “industry,” and whether later legislative developments, including the Industrial Relations Code, 2020, have any bearing on it.

The other questions are whether welfare schemes and social service activities run by government departments count as an industrial activity, and what constitutes a “sovereign function” of the state and whether such functions fall outside the ambit of labour law altogether.

Over a three-day hearing, the government argued that the Bangalore Water Supply ruling had stretched the definition of “industry” to cover welfare and public functions that were never intended to be regulated as industrial activity.

Labour unions argued that the judgement has provided a stable framework for nearly five decades and that excluding workers from the Act without comparable protections would leave them with little recourse.