New Delhi: In February 1978, the Supreme Court established a “triple test” to determine if an enterprise qualifies as an industry, a definition that decides which workers are entitled to labour law protections.
According to the definition, it must involve systematic activity, organised cooperation between employer and employee, and production and/or distribution of goods and services to satisfy human wants and wishes, while excluding purely spiritual or religious services.
Now, 48 years later, the top court will decide if this interpretation of “industry” laid down in the famous Bangalore Water Supply & Sewerage Board v. A. Rajappa verdict needs reconsideration.
In a major constitutional decision, which will have wide ramifications for India’s labour prospects, a nine-judge bench will start hearing arguments on Tuesday to determine whether the matter even needs a relook, in the first place.
The judges are Chief Justice of India Surya Kant, Justices B.V. Nagarathna, P.S. Narasimha, Dipankar Datta, Ujjal Bhuyan, Satish Chandra Sharma, Joymalya Bagchi, Alok Aradhe and Vipul M Pancholi.
This call to relook started in 2002, when the 1978 verdict by a seven-judge Supreme Court bench was challenged by a petition by the State of Uttar Pradesh in the case of State of UP v. Jai Bir Singh in the top court.
Later, in 2005, describing the Bangalore Water Supply case as a “docket explosion”, a five-judge bench termed the verdict too “worker-oriented” and referred this petition to a larger bench to reconsider.
In 2017, a Supreme Court bench of seven judges decided that the issue needs to be relooked at.
The nine-judge bench’s hearing will conclude on Wednesday.
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What exactly was the 1978 Bangalore Water Supply verdict?
The case originated from a labour dispute where the Bangalore Water Supply and Sewerage Board recovered fines from several of its employees for alleged misconduct.
The employees filed a claim application under Section 33C (2) of the Industrial Disputes Act, asserting that the punishment violated principles of natural justice.
The board objected, arguing that as a statutory body performing “regal functions” by providing basic amenities to citizens, it was not an “industry” and therefore fell outside the jurisdiction of the Labour Court.
After the Karnataka High Court dismissed the board’s petitions, the matter was referred to a larger bench of the Supreme Court to resolve the “definitional dilemma” once and for all.
This is when the Supreme Court laid down the “triple test” for the definition of industry, clarifying that the true focus is “functional” and emphasizing the nature of the activity and the employer-employee relationship rather than the legal form of the organisation.
A major breakthrough of this case was the declaration that the profit motive is irrelevant. The court ruled that even if an organisation is governed by a “no-profit-no-loss” rule or is motivated by philanthropy, it does not cease to be an industry if it meets the triple test.
Consequently, charitable institutions that produce goods or services using hired labour are considered industries.
The court reasoned that from the perspective of a workman, it matters little whether the employer is commercial or compassionate; the labour provided is the same.
It ruled that “sovereign functions” should be strictly limited to primary and inalienable constitutional duties such as legislation, the administration of law, and judicial power.
Welfare activities, economic adventures, and commercial functions undertaken by the state as part of its duties in a welfare state are not exempt.
The court noted that since private individuals can run water supply or fire-fighting services, the fact that the state performs them does not change their industrial nature.
Inclusion of schools, hospitals, and clubs
The 1978 ruling explicitly brought several previously disputed sectors under the definition of industry, such as educational institutions.
The court overruled previous decisions to hold that education is an industry, as it is a “service” to the community organised through employer-employee cooperation.
Even if run for medical relief or research without profit, hospitals are industries due to their systematic provision of material services, it said.
Most clubs were categorized as industries because they involve systematic service provided by paid staff (cooks, waiters, etc.) to satisfy the material needs of members.
The court in 1978 also ruled that professions like law and medicine are not exempt if they are organised in a systematic, business-like manner involving a plurality of workmen.
For complex organisations involved in multiple activities, the Court introduced the “dominant nature test”.
If an undertaking has some departments that are industrial and others that are not, the predominant nature of the services and the integrated nature of the departments determine the status of the entire organisation.
If the main function is industrial, the entire undertaking is treated as an industry, and even employees in non-industrial departments (like administration or finance) are entitled to the benefits of the Industrial Disputes Act.
Differing opinions
A seven-judge bench of then Chief Justice M. Hameedullah Beg, Justices Y.V. Chandrachud, P.N. Bhagwati, V.R. Krishna Iyer, Jaswant Singh, V. D. Tulzapurkar and D. A. Desai unanimously agreed to dismiss the board’s appeal.
They held divergent views regarding the scope of the definition of “industry”.
The leading opinion, delivered by Justice Krishna Iyer on behalf of himself and Justices Bhagwati and Desai, established the broad “triple test” that explicitly brought educational institutions, research institutes, clubs, and charitable projects within the ambit of the act.
Then Chief Justice Beg and Justice Chandrachud provided concurring opinions. Chandrachud emphasised that even inalienable state functions, such as a mint or a security press, could be industries if the nature of the activity itself was industrial.
In contrast, Justices Jaswant Singh and Tulzapurkar expressed a more restricted view, applying the ‘noscitur a sociis’ doctrine to argue that the definition should only cover activities undertaken on commercial lines.
‘Noscitur a sociis’ is a legal doctrine which means “a word is known by the company it keeps”.
They specifically contended that charitable hospitals, schools, and liberal professions (like law and medicine) should be excluded because the contribution of the employees to the final professional service is so marginal that the end product cannot be viewed as the “fruit of cooperation” between employer and employee.
Fragmented legislations
The Supreme Court judgement had asked Parliament to make a law.
Parliament passed the Industrial Disputes (Amendment) Act in 1982, which explicitly excluded specific categories like educational, scientific, research, and training institutions, as well as charitable organisations, from the definition of “industry”.
Contentiously, this was never notified, keeping the definition of industries in the dark.
In 2019 and 2020, India enacted four labour codes—Code on Wages, 2019, Industrial Relations Code, 2020, Code on Social Security, 2020 and Occupational Safety, Health and Working Conditions Code, 2020—to consolidate 29 Central labour laws into a unified framework. These were announced to be implemented in November 2025.
However, facing an implementation hurdle and serious backlash from trade unions, these labour codes have also not been notified to date.
The 1978 Supreme Court verdict also urged Parliament to pass definitive legislation regarding the labour laws.
“In view of the difficulty experienced by all of us in defining the true denotation of the term ‘industry’ and divergence of opinion in regard thereto… it is high time that the Legislature steps in with a comprehensive bill to clear up the fog and remove the doubts and set at rest once for all the controversy which crops up from time to time in relation to the meaning of the aforesaid term rendering it necessary for larger benches of this Court to be, constituted which are driven to the necessity of evolving a working formula to cover particular cases,” it said.
(Edited by Sugita Katyal)