A nine-judge Supreme Court bench last week held that the triple test laid down in 1978 for what constitutes an ‘industry’ under the Industrial Disputes Act will govern old disputes. Four judges did propose changing the test. The harder questions now arise under the Industrial Relations Code, writes Arka Majumdar
l What is this case about?
IN 1978, A seven-judge Bench in Bangalore Water Supply & Sewerage Board v. A. Rajappa (BWS) gave the term “industry” a wide meaning. It laid down a three-part test: there had to be a systematic activity, cooperation between employer and employee, and production or distribution of goods or services satisfying human wants. Profit motive did not matter. Nor did it matter whether the activity was in the public or private sector. Professions, clubs, educational institutions, cooperatives, research institutes and charitable projects could all be industries if they met the test.
In January 2002, a three-judge bench dealing with a social forestry scheme referred the industry formulation in BWS for reconsideration. A five-judge bench widened the reference in 2005 and referred BWS itself for reconsideration. In January 2017, seven judges sent the matter to nine. The nine-judge bench framed four questions of its own in February 2026: whether the 1978 test was correct, whether government welfare activities could be industries, what counted as a sovereign function, and whether the 1982 amendment and the Industrial Relations Code, 2020 (IR Code) affected the answer.
l What did the nine-judge bench actually decide?
BY 6:3, THE Court held that the reference had been validly made. Justices B.V. Nagarathna, Dipankar Datta and Ujjal Bhuyan took the view that the reference was unnecessary or not maintainable.
On the actual test, however, there was no majority for change. Chief Justice Surya Kant, writing for himself and three other judges, proposed adding a requirement that the goods or services must have a “discernible commercial character”. Justices Nagarathna, Datta, Bhuyan and Joymalya Bagchi declined to change the 1978 test. Justice Pamidighantam Sri Narasimha agreed that the reference was maintainable, but did not join the proposed new test. The result is straight-forward: no new test has replaced BWS. All nine agreed that pending disputes under the old Act should continue to be decided under the 1978 test. The four-judge opinion also expressly protected concluded judgements, awards and settlements from being reopened.
l What did the four judges want to change?
FIRST, THEY WANTED to add commercial character to the test. Second, they would have removed two carve-outs: one for very small ventures without a real employee structure, and another for genuinely altruistic missions largely staffed by people working free or for small honoraria. Third, they would have changed the treatment of sovereign functions. They also noted that some government activities carried out to meet constitutional obligations may not have the commercial character required by their proposed test.
The practical difference could have been significant. A government hospital charging nothing could still qualify as an industry. Under the four-judge approach, whether its activity has a commercial character would also have become relevant. The same issue could arise for a welfare-oriented research body, a club or a state welfare scheme.
l How does the Industrial Relations Code define ‘industry’?
SECTION 2(P) OF the IR Code puts much of the triple test directly into the statute. It speaks of systematic activity carried on through cooperation between employer and worker, whether directly or through a contractor, for producing, supplying or distributing goods or services that satisfy human wants. It also says capital investment and profit motive do not matter.
But it has added specific exclusions. The definition does not include institutions owned or managed by organisations wholly or substantially engaged in charitable, social or philanthropic service; activities of the appropriate government relatable to its sovereign functions; domestic service; and any other activity which the central government may exclude by notification. And Section 2(p) does not say what criteria the Centre must use if it decides to exclude other activities by notification.
l What has the ruling left unresolved?
THE MAIN PROBLEM is that nobody has yet interpreted the new definition. Again, the four-judge opinion itself creates another question. Its case for adding commercial character relies on the principle that words take meaning from the words around them. Under Section 2(j) of the Industrial Disputes Act, broad words such as “undertaking” sat alongside narrower words such as “business”, “trade” and “manufacture”.
But Parliament has now removed that old list. It has instead put the three-part test directly into Section 2(p) and then added specific exclusions. A future court may thus say that those exclusions are Parliament’s chosen way of narrowing the definition, and that it would be wrong to add a separate commercial-character requirement which Parliament itself did not write into the section.
That is what the judgment leaves behind. It settles the old regime: pending disputes remain governed by the 1978 test and concluded matters stay closed. But for disputes under the IR Code, employers should expect an argument before they get a settled rule.
The writer is a partner at Argus Partners