Welfare State Functions, Charitable Acts Can't Be Regarded As 'Industry': Centre Tells Supreme Court In 9-Judge Bench Hearing

The Union Government on Tuesday (March 17) told the Supreme Court that welfare activities and charitable functions undertaken by the State cannot be treated as “industry” under labour law, cautioning against an overbroad application of the test laid down in Bangalore Water Supply and Sewerage Board v. A. Rajappa (1978).Appearing before a nine-judge Constitution Bench, Attorney General for India R. Venkataramani submitted that while the “triple test” evolved in the 1978 judgment may be logically sound, its indiscriminate application has led to an unwarranted expansion of the definition of “industry”.Colonial understanding of sovereign does not apply anymore: AG“The triple test… is a good law,” the AG said, “but the issue arises in its overly broad application,” which risks bringing within its fold welfare schemes and governmental functions not intended to be treated as industrial activity.He emphasised that modern governance cannot be confined to traditional sovereign functions such as defence and maintenance of public order. Instead, the State operates as a welfare entity implementing wide-ranging socio-economic policies. Such activities may involve organisational elements resembling industrial undertakings, but these “incidental operational aspects” cannot be isolated and treated as independent industrial activity."Social welfare activities and schemes are the enterprises undertaken by the government department that cannot be considered as industrial activity for the purpose. Caution must be taken while applying the triple test to different activities, especially in relation to charitable organisations and government departments carrying out sovereign functions, government functions, constitutionally mandated functions," he said.The AG further argued that the 1978 ruling adopted a restrictive, colonial understanding of “sovereign functions,” which must now be revisited in light of India's constitutional framework. He also suggested that the Industrial Relations Code, 2020, though not directly applicable, could serve as an interpretative aid to avoid excessive expansion of the term “industry”."The modern state operates as a welfare state task in implementing wide-ranging socio-economic and development policies. Such activities undertaken by the state frequently involve organisational-operational elements, superficially resembling industrial undertaking; however, such incidental operational aspects deserve closer scrutiny and can't be isolated and treated as independent industrial activities which may undermine the broader government purposes," AG Venkataramani said.A nine-judge Bench headed by Chief Justice of India Surya Kant and comprising Justices BV Nagarathna, PS Narasimha, Dipankar Datta, Ujjal Bhuyan, Satish Chandra Sharma, Joymalya Bagchi, Alok Aradhe and Vipul M. Pancholi is currently examining whether the expansive interpretation adopted in Bangalore Water Supply requires reconsideration.Supporting the AG's position, Additional Solicitor General KM Nataraj (for State of UP) submitted that the concept of sovereign functions must be understood in the context of a constitutional democracy, rather than through a colonial lens. He pointed out that the 2020 Code exempts not only sovereign functions but also activities relatable to them.On a query by Justice BV Nagarathna as to whether a defence canteen would be exempt, the ASG responded in the affirmative, stating that such establishments fall within “relatable sovereign functions”. When asked about remedies available to employees in such cases, he indicated that they could approach civil courts, invoke writ jurisdiction under Article 226, or move administrative tribunals.Bench expresses reservations about using the 2020 Code to examine the 1978 judgmentThe Bench, however, expressed reservations about relying on subsequent legislation to interpret the 1978 judgment. Justice Joymalya Bagchi cautioned that using the 2020 Code as an interpretative tool could effectively give retrospective operation to a law intended to operate prospectively.On ASG saying the 2020 Code is clarifactory in nature, Justice Bagchi posed a question: "Would it not in effect, give a retrospective operation to the labour code when the legislature gave operative of the labour code from a posterior date of its passing, that is, from 2025? Now, if we in order to interpret or revisit the judgment, use 2020 as interpretative rules, would it not fall in re-legislating a prospective law as a retrospective law?"ASG clarified that he cautiously said that it is like a clarificatory law.On this, Justice Bagchi remarked: "Are you going to pass off a wolf in a sheep's clothing?... Once we interpret Bangalore in the shadow of the 2020 code, and we carve out sovereign functions by giving it a wider interpretation as learned Attorney and you are proposing, we are importing the restrictions of the 1982 amendment and the 2020 labour code, although the legislature did not introduce them...

Welfare State Functions, Charitable Acts Can't Be Regarded As 'Industry': Centre Tells Supreme Court In 9-Judge Bench Hearing

Gursimran Kaur Bakshi

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