Supreme Court Industry Definition Labour Law Case

The Supreme Court is set to decide Thursday how broadly the term “industry” should be defined under India’s labour law, in a ruling that could determine whether workers in hospitals, educational institutions, welfare bodies, and government-run social services are covered by industrial-dispute protections.

The nine-judge bench, headed by Chief Justice Surya Kant and comprising Justices B V Nagarathna, P S Narasimha, Dipankar Datta, Ujjal Bhuyan, Satish Chandra Sharma, Joymalya Bagchi, Alok Aradhe, and Vipul M Pancholi, reserved its verdict on March 19 after three days of hearing.

The bench had been constituted to reconsider the correctness of the 1978 ruling in Bangalore Water Supply and Sewerage Board vs A Rajappa, which adopted a wide meaning of the term “industry” under the Industrial Disputes Act.

The 1978 case in which a seven-judge bench led by then CJI M Hameedullah Beg, in an opinion authored by Justice V R Krishna Iyer, held that any establishment could be treated as an industry if it carried on an organised activity through cooperation between employers and employees to provide goods or services, regardless of the profit motive.

That interpretation widened the Act’s reach considerably. Institutions not conventionally seen as industries, educational institutions, hospitals, charitable organisations, etc, came under the ambit of this definition. The ruling brought hospitals, universities, and even government welfare departments within the Act’s fold, a result later benches called a “docket explosion”.

Parliament tried 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.

Why the case returned to the Supreme Court

The present reference arises from the State of Uttar Pradesh vs Jai Bir Singh case. In 2005, a five-judge Constitution Bench questioned whether the broad interpretation in the ruling in Bangalore Water Supply and Sewerage Board vs A Rajappa still held up and referred the matter to a larger bench.

Since the original ruling came from a seven-judge bench, the case eventually reached the current nine-judge bench.

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 the 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 judgment 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.