Supreme Court Reconsiders the Meaning of “Industry”: The Future of the Bangalore Water Supply Test Under Indian Labour Law

The Supreme Court’s nine-judge Constitution Bench has revisited the nearly five-decade-old interpretation of “industry” under the Industrial Disputes Act, 1947. The reference raises important questions concerning the scope of labour protection, governmental and welfare activities, sovereign functions and the transition to the Industrial Relations Code, 2020.

Introduction

Few judicial decisions have exercised as much influence over Indian labour jurisprudence as Bangalore Water Supply & Sewerage Board v. A. Rajappa, (1978) 2 SCC 213. For nearly five decades, the judgment has provided the principal framework for determining whether an establishment or undertaking constitutes an “industry” under Section 2(j) of the Industrial Disputes Act, 1947 (“ID Act”).

Its expansive interpretation brought a wide range of activities including hospitals, educational institutions, research organisations, charitable establishments and certain government activities within the potential reach of industrial relations legislation.

The breadth of the decision, however, has also generated sustained judicial and legislative debate. Questions arose as to whether every organised activity involving employer-employee cooperation should be treated as an “industry”, whether welfare-oriented governmental activities should attract the same framework as commercial enterprises, and how “sovereign functions” of the State should be distinguished from activities capable of being characterised as industrial.

These questions eventually reached a nine-judge Constitution Bench of the Supreme Court in the reference arising from State of U.P. v. Jai Bir Singh.

The reference is particularly significant because the Industrial Disputes Act has since been replaced by the Industrial Relations Code, 2020 (“IR Code”), which came into force on 21 November 2025. The Supreme Court’s consideration therefore sits at the intersection of established precedent, a repealed statutory framework and the current labour-law regime.

What Did Section 2(j) of the Industrial Disputes Act Provide?

Section 2(j) of the ID Act defined “industry” broadly to mean any business, trade, undertaking, manufacture or calling of employers, and included any calling, service, employment, handicraft or industrial occupation or avocation of workmen. The statutory language was deliberately broad. However, the provision did not provide an exhaustive explanation of the circumstances in which an undertaking would qualify as an industry. This resulted in considerable litigation, particularly in relation to establishments that did not operate as conventional profit-making businesses.

The central question was therefore not merely whether an establishment generated profits, but what characteristics of an activity made it sufficiently industrial in nature to attract the ID Act.

The Bangalore Water Supply “Triple Test”

The Supreme Court addressed the issue comprehensively in Bangalore Water Supply & Sewerage Board v. A. Rajappa in 1978. Justice V.R. Krishna Iyer’s majority opinion developed what subsequently became known as the “triple test”. Broadly, an activity would fall within the meaning of “industry” where there was:

1. Systematic activity;
2. Organised cooperation between employer and employee; and
3. Production or distribution of goods or services calculated to satisfy human wants and wishes.

The Court also made clear that the absence of a profit motive was not, by itself, sufficient to exclude an establishment from the definition of industry. This was a significant departure from narrower approaches that sought to associate “industry” primarily with commercial or profit-making enterprises.

The Dominant Nature Principle

The judgment also developed a dominant nature test for establishments carrying on multiple activities. Where an undertaking performs several functions and some activities may independently qualify for exclusion, the character of the undertaking is assessed by examining its predominant and integrated nature rather than artificially separating every function.

This principle became particularly important for large institutions such as universities, hospitals, public authorities and government establishments having multiple departments and functions.

Why Did Bangalore Water Supply Become Controversial?

The breadth of Bangalore Water Supply produced two competing concerns.

From the employees’ perspective, a wide definition ensured that workers employed in establishments beyond traditional factories and commercial businesses could potentially access the remedies and protections available under industrial relations legislation.

From the employers’ and governmental perspective, however, an excessively broad interpretation risked treating fundamentally different activities alike. For example, a private manufacturing enterprise, a public hospital, a university, a charitable institution and a government department may all have employees and organised systems of work. But their statutory objectives, sources of funding, public responsibilities and institutional structures can be fundamentally different.

The difficult question was therefore whether the existence of an organised employer-employee relationship should itself be sufficient to bring such establishments within the labour-dispute framework. The distinction became particularly important in cases involving government departments and sovereign functions.

What Are “Sovereign Functions”?

Bangalore Water Supply recognised an exclusion for sovereign functions, strictly understood. The difficulty has been determining what constitutes a sovereign function for this purpose.A narrow understanding generally focuses on functions that are inherently governmental and incapable of being performed by private actors in the ordinary course, such as core functions connected with governance, administration of justice, defence and maintenance of law and order.

By contrast, governmental activities involving economic, commercial, welfare or service delivery functions may not automatically qualify as sovereign merely because the State performs them. This distinction has significant practical consequences.

A government department may perform both inherently governmental functions and activities involving substantial employer-employee cooperation in the delivery of goods or services. The question then becomes whether the undertaking, or a severable unit within it, can properly be characterised as an industry.

The Supreme Court’s consideration of this issue is therefore important not only for labour law but also for understanding the legal boundary between State action as governance and State action as service delivery or economic activity.

The Legislative Response: The 1982 Amendment

Parliament subsequently enacted the Industrial Disputes (Amendment) Act, 1982, which sought, among other things, to modify the statutory definition of “industry”. However, the relevant amendments to Section 2(j) were not brought into force. This created an unusual situation: legislative intervention had been attempted, but the amended definition did not become the operative statutory standard. Consequently, courts continued to apply the existing statutory language as interpreted through Bangalore Water Supply.

The fact that Parliament had enacted an amendment but had not brought it into operation became an important part of the later debate concerning whether the judicial interpretation should continue unchanged.

The Road to the Nine-Judge Constitution Bench

The issue eventually came before the Supreme Court in State of U.P. v. Jai Bir Singh. In 2005, a five-judge Constitution Bench expressed reservations regarding the correctness and breadth of the Bangalore Water Supply interpretation and referred the matter for consideration by a larger Bench. The matter subsequently reached a seven-judge Bench, which in 2017 considered it appropriate for the question to be examined by a nine-judge Bench because the original Bangalore Water Supply decision itself had been delivered by a seven-judge Bench.

The Supreme Court ultimately constituted a nine-judge Constitution Bench headed by Chief Justice Surya Kant. The Bench comprised Justices B.V. Nagarathna, P.S. Narasimha, Dipankar Datta, Ujjal Bhuyan, Satish Chandra Sharma, Joymalya Bagchi, Alok Aradhe and Vipul M. Pancholi. The Court heard the matter in March 2026 and reserved judgment on 19 March 2026.

What Questions Were Before the Nine-Judge Bench?

The reference raised questions extending beyond the mechanical application of the triple test. The Court was called upon to consider, broadly:

• Whether the test formulated in paragraphs 140–144 of Justice Krishna Iyer’s opinion in Bangalore Water Supply continues to represent the correct interpretation of “industry”;
• Whether the unnotified 1982 amendment has any relevance to the interpretation of Section 2(j);
• Whether the subsequent Industrial Relations Code, 2020 affects the legal position;
• Whether social welfare activities and schemes undertaken by government departments or their instrumentalities can constitute industrial activities; and
• What governmental activities should be treated as “sovereign functions” and therefore excluded from the definition of industry.

These questions demonstrate why the reference is considerably more consequential than a conventional dispute concerning the status of one particular establishment.

The Significance of the Industrial Relations Code, 2020

The reference also raises an important transitional question. The Industrial Disputes Act has now been replaced by the Industrial Relations Code, 2020, which came into effect on 21 November 2025. This creates a distinction between:

1. Disputes and causes of action governed by the earlier ID Act; and
2. Employment and industrial-relations questions arising under the current labour-code framework.

The Supreme Court proceedings therefore concern a statutory definition that is no longer the principal definition governing future industrial relations.

Nevertheless, the decision remains important because disputes arising from earlier periods may continue to require interpretation of the ID Act. Further, the reasoning adopted by the Supreme Court on concepts such as “industry”, employer-employee relationships, governmental functions and the limits of judicial interpretation may influence the understanding and application of the current statutory framework.

The Court was specifically asked to consider whether the Industrial Relations Code has any legal impact on the interpretation of the expression “industry” under the earlier legislation.

Why the Distinction Matters for Employers

The question of whether an establishment is an “industry” is not merely definitional. Under the earlier industrial-relations framework, classification could determine whether employees had access to statutory mechanisms concerning:

• Industrial disputes;
• Conciliation and adjudication;
• Retrenchment and related protections;
• Reinstatement-related remedies;
• Collective labour relations; and
• Other statutory protections available under the ID Act.

Consequently, organisations operating in sectors such as healthcare, education, research, social welfare, public utilities and charitable services have historically had to consider whether their activities could attract the ID Act. For employers, the Supreme Court’s reconsideration therefore has implications for employment structuring, workforce classification, dispute management and historical labour-law exposure.

Why the Decision Matters for Government Departments and Public Institutions

The sovereign-function question is particularly significant for governments and public authorities. A blanket proposition that every government activity is either an industry or a sovereign function would be inadequate. Modern governments frequently perform a combination of regulatory, administrative, welfare, commercial and service-delivery functions. The more difficult legal exercise is to identify:

1. The nature of the function being performed;
2. The statutory source of the function;
3. Whether the activity involves organised production or provision of services;
4. The relationship between the institution and its employees;
5. Whether the relevant activity is integrated with other functions; and
6. Whether a particular unit can be treated as substantially severable from a sovereign function.

This functional analysis is likely to remain relevant even as Indian labour law moves from the ID Act to the labour-code regime.

Implications for Hospitals, Universities and Charitable Institutions

The Bangalore Water Supply framework had particular relevance for institutions that traditionally did not perceive themselves as “industries”. Hospitals, educational institutions and charitable organisations may nevertheless employ substantial workforces, operate through organised administrative structures and provide services to members of the public.

The Supreme Court’s reconsideration consequently raises an important question: should the legal character of an establishment depend principally upon the nature of the service it provides, the manner in which that service is organised, the existence of a profit motive, or the statutory and institutional character of the entity? The answer has potential consequences for hospitals, universities, research institutions, NGOs, charitable trusts and other service-sector organisations.

Importantly, the analysis should not be reduced to the proposition that “non-profit organisations are exempt” or that “all hospitals are industries”. The legal position historically depended upon the nature and organisation of the activities in question.

The Transition Problem: What Happens to Pending Disputes?

One of the most consequential aspects of any reconsideration of Bangalore Water Supply is its treatment of cases arising under the repealed ID Act. A change in precedent can potentially affect disputes that were initiated years before the transition to the Industrial Relations Code.

During the March 2026 hearing, counsel specifically raised concerns about the practical consequences of altering a precedent that had governed labour disputes for almost five decades, including the effect on matters already decided or pending before courts and tribunals.

The Bench also indicated that the doctrine of prospectivity could be considered if required. Accordingly, the final judgment’s treatment of prospective versus retrospective application is likely to be as important for practitioners as the substantive definition itself.

What Employers Should Do Now

Irrespective of the precise contours of the final Supreme Court ruling, employers and institutions that may have historically fallen within the scope of the ID Act should undertake a structured review of their labour-law exposure.

For Employers: Organisations should consider:

• Identifying disputes, proceedings and claims arising under the ID Act that remain pending;
• Reviewing whether any ongoing litigation depends upon the Bangalore Water Supply interpretation;
• Mapping employees and establishments against the applicable provisions of the Industrial Relations Code;
• Reviewing collective bargaining and industrial-dispute mechanisms applicable to the workforce;
• Identifying government, welfare or charitable functions that may require a separate legal analysis; and
• Preserving historical employment records relevant to pending disputes.

For Public Institutions

Government departments, statutory bodies, universities and hospitals should consider undertaking a function-by-function assessment, rather than assuming that the public character of the institution either automatically excludes or automatically attracts labour legislation.

For Charitable and Non-Profit Organisations

Charitable status or the absence of a profit motive should not, by itself, be treated as determinative. The organisation should examine the actual nature, structure and manner of the activities being undertaken.

Key Takeaways

The litigation surrounding Bangalore Water Supply illustrates an important feature of Indian labour law: the definition of an “industry” can determine the practical boundary of statutory labour protection. The Supreme Court’s reconsideration is significant for five principal reasons:

1. It revisits one of the most influential labour-law precedents of the last five decades.
2. It addresses whether the traditional triple test remains suitable for contemporary employment relationships.
3. It requires clearer principles for distinguishing industrial activities from the State’s genuinely sovereign functions.
4. It raises difficult transitional questions because the ID Act has been replaced by the Industrial Relations Code, 2020.
5. The eventual treatment of pending proceedings may determine the practical impact of any change in precedent.

Conclusion

The Bangalore Water Supply judgment transformed the understanding of “industry” in Indian labour jurisprudence by moving the inquiry away from a narrow focus on commercial or profit-making activity and towards the nature of organised employer-employee activity. Nearly five decades later, the Supreme Court’s reconsideration reflects the changing character of employment and the State’s expanding role in delivering public and welfare services.

The significance of the nine-judge Constitution Bench proceedings therefore extends beyond the technical interpretation of Section 2(j) of the repealed Industrial Disputes Act. At stake is a broader question: how should Indian labour law draw the boundary between commercial activity, public service, welfare functions and sovereign governance?

For employers, government institutions and service-sector organisations, the eventual answer will have implications not only for historical industrial disputes but also for how employment relationships are understood within India’s evolving labour-law framework.

Last Updated on 20 August, 2026