Why Supreme Court Is Revisiting Justice Krishna Iyer's 48-Year Old Defintion Of 'Industry'

The Supreme Court is set to hear the correctness of the expansive definition of “industry” laid down in the 48 year old Bangalore Water Supply and Sewerage Board v. A. Rajappa(1978).

A bench headed by the Chief Justice of India Surya Kant and will comprise Justices BV Nagarathna, PS Narasimha, Dipankar Datta, Ujjal Bhuyan, Satish Chandra Sharma, Joymalya Bagchi, Alok Aradhe and Vipul M. Pancholi.

The hearing will commence on March 17, and it will conclude on March 18.

In this piece, we look at how the Bangalore Water Supply judgment interpreted “industry” and why a reference to the large bench came to be made.

What is the Bangalore Water Supply case?

In this case, the respondents were employees who had their wages reduced by the Appellant Bangalore Water Supply and Sewerage Board('the Board') for misconduct. Various sums were recovered from their wages. Challenging this, they filed a claims application under Section 33C(2) of the Industrial Disputes Act, 1947 ('1947 Act') before the Labour Court, alleging that the punishment imposed violated the principles of natural justice.

The issue arose when the Board raised a preliminary objection that it is not an industry under Section 2(j) of the 1947 Act.

Under the 1947 Act, industry means “any business, trade, undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft, or industrial occupation or avocation of workmen”.

It argued that the Board that it is a statutory board performing what is in essence a regal or sovereign function by providing the basic amenities to the citizens. The consequence of this plea was that the employees were not workmen and the Labour Court had no jurisdiction to decide the claim.

The preliminary objection came to be overruled by the Labour Court, against which the Board filed a writ petition before the Karnataka High Court. The High Court held that the Board was indeed an industry within the Act and therefore dismissed the writ petition. Consequently, special leave petitions were filed against the order.

What did the Supreme Court hold?

The SLP was dealt with by a seven-judge bench of the Supreme Court and came to be dismissed. The bench was headed by then Chief Justice M. Hameedullah Beg and comprised of Justice Y.V. Chandrachud, Justice P.N. Bhagwati, Justice V.R. Krishnaiyer, Justice Jaswant Singh, Justice V.D. Tulzapurkar, and Justice D.A. Desai.

The majority judgment was written by Justice Iyer(on behalf of Justice Bhagwati, Justice Desai and himself), and a separate opinion was penned by Chief Justice Beg, concurring with the main judgment. Justice Chandrachud also penned a separate opinion. Justice Singh wrote for Justice Tulzapurkar and himself.

Justice Iyer's judgment

Justice Iyer laid down the triple test and the dominant nature test to give a wide import to the definition of industry with the intent to make the Act “worker-oriented”. It said that the word "undertaking" should be read down to conform to a restrictive characteristic shared by the society of words before or after. 

The decisive test is the nature of the activity with a special emphasis on the employer-employee relationship.

In order to see if an organisation qualifies within the definition of industry, the triple test is to be applied. If an organisation has multiple activities, that's when the dominant test is applied to see if the organisation as a whole qualifies as an industry.

The triple tests for 'industry' are :

1. There must be an organised and systematic activity,
2. by cooperation between employer and employee (the direct and substantial element is chimerical), and
3. for the production and/or distribution of goods and services calculated to satisfy human wants and wishes (not spiritual or religious), but inclusive of material things or services for celestial bliss

As per this test, clubs, professions, educational institutions, cooperatives, charitable organisations, etc. were also held to be 'industry'

Other relevant factors

1. Absence of profit motive or gainful objective is irrelevant, whether the venture is in the public, joint, private or other sector. Eg- charity is an industry within the definition.
2. Government bodies performing welfare functions can still be industries

Dominant test:

1. The predominant nature of the services and the integrated nature of the departments will be the true test. Eg, universities may have teaching staff who may not be included within the definition of workmen, but other since other staff would fulfil the triple test, it would be industry.
2. The whole undertaking will be 'industry', although those who are not 'workmen' by definition may not benefit from the status.

Exceptions:

1. Purely sovereign functions qualify for exemption. But does not include the welfare activities of economic adventures undertaken by the Government or statutory bodies.
2. Even in departments discharging sovereign functions, if there are units which are industries and they are substantially severable, then they can be considered to come within sec. 2(j).

Other opinions

CJ Beg generally agreed with the majority but said that what is meant by the use of the term “sovereign” in relation to the activities of the State is more accurately brought out by using the term “governmental functions”. He said that those activities which are governed by constitutional provisions, as sovereign functions, should only be excluded from the sphere of industry.

Justice Singh said that the definition of industry only covers those activities “systematically and habitually carried on commercial lines for the production of goods or for rendering material services to the community”.

They said that despite the wide import given to the word industry, it would not be the intention of the legislature to include hospitals run on charitable basis or as a part of the functions of the Government or local bodies like municipalities and educational and research institutions whether run by private entities or by Government and liberal and learned professions like that of doctors, lawyers and teachers, the pursuit of which is dependent upon an individual's own education, intellectual attainments and special expertise within the definition.

How did the reference come to be made?

In 1982, an amendment was moved to narrow the definition of industry. As per the proposed definition,

1. any systematic activity,
2. carried on by co-operation between an employer and his workmen (whether such workmen are employed by such employer directly or by or through any agency, including a contractor)
3. for the production, supply or distribution of goods or services with a view to satisfy human wants or wishes (not being wants or wishes which are merely spiritual or religious in nature), whether or not,— (i) any capital has been invested for the purpose of carrying on such activity; or (ii) such activity is carried on with a motive to make any gain or profit

The Act was amended, but this amendment is yet to be notified.

The issue arose from the Chief Conservator of Forests v. Jagannath Maruti Kondhare,(1996) and State of Gujarat v. Pratamsingh Narsinh Parmar, (2001). In the Chief Conservator, a three-judge bench, applying the Bangalore Water Supply case, came to a conclusion that “social forestry department” is an industry.

Whereas, a two-judge bench in Narsinh Parmar came to the conclusion that the forest department of the State of Gujarat was not the industry for determining the termination of an employee.

Since the matter was heard by a seven-judge bench, a bench of five judges referred the matter to a larger bench. In 2005, a five-judge bench, headed by Justice N.Santosh Hegde, referred the Bangalore Water Supply case to a larger bench, in State of Uttar Pradesh v. Jai Bir Singh. It said that the Bangalore Water Supply judgment was not unanimous. The Court noted that the Bangalore Water judgment, which adopted a very expansive interpretation of “industry”, was not a fully unanimous decision and was delivered through multiple opinions expressed at different times, with significant divergence among the judges on key aspects such as the scope of sovereign functions and the exclusion of certain activities. This lack of clarity had led to conflicting interpretations in later cases and continuing litigation over whether various governmental, welfare and professional activities fall within the scope of industrial law.

The Court also observed that although Parliament amended the definition of “industry” through the Industrial Disputes (Amendment) Act, 1982, the revised definition excluding certain governmental and welfare activities had remained unenforced for over two decades. In this backdrop, the Court held that the experience of the working of the Act and the difficulties faced by courts, employers and employees justified reconsideration of the Bangalore Water precedent. It emphasised that an overly expansive interpretation of “industry” might have unintended consequences, including burdens on public welfare institutions and professional activities, and therefore the issue required a comprehensive re-examination by a larger bench.

In 2017, a 7-judge bench referred the matter to a 9-judge bench, since Bangalore Water supply case was rendered by a 7-judge bench.

What questions are before the larger bench?

1. Whether the test laid down in paragraphs 140 to 144 in the opinion rendered by Hon'ble Mr. Justice V.R. Krishna Iyer in Bangalore Water Supply and Sewerage Board's case (supra) to determine if an undertaking or enterprise falls within the definition of “industry” lays down correct law? And whether the Industrial Disputes (Amendment) Act, 1982 (which seemingly did not come into force) and the Industrial Relations Code, 2020 (with effect from 21.11.2025) have any legal impact on the interpretation of the expression “industry” as contained in the principal Act?
2. Whether 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 ID Act?
3. What State activities will be covered by the expression “sovereign function”, and whether such activities will fall outside the purview of Section 2(j) of the ID Act?

Case Details: STATE OF U.P. Vs JAI BIR SINGH | C.A. No. 897/2002