How the Supreme Court ruling redefined ‘industry’

Why in the News

A nine-judge Constitution Bench of the Supreme Court revisited the definition of “industry” laid down in Bangalore Water Supply and Sewerage Board v. A. Rajappa (1978), examining how that definition interacts with the term “industry” as newly defined under the Industrial Relations Code, 2020. The 1978 ruling had given “industry” a wide, functional definition covering any organised activity involving cooperation between employer and employee for producing goods or services, regardless of profit motive. The Industrial Relations Code, 2020 narrows this definition by carving out specific exclusions. The Bench’s majority and minority opinions diverge on whether Parliament’s narrower statutory definition can override the Bangalore Water Supply test for constitutional purposes.

What did the Bangalore Water Supply test originally hold?

1. Triple test for “industry”: The 1978 ruling held that any activity involving systematic cooperation between an employer and workers to produce or distribute goods or services qualifies as an industry, irrespective of whether the entity is charitable, religious, sovereign, or run by the government.
2. Sovereign function exception, narrowly read: The 1978 Bench exempted only inalienable sovereign functions of the State, such as legislation, defence, and the administration of justice, from the definition.
3. Wide coverage of welfare and professional bodies: The test brought hospitals, educational institutions, and clubs employing staff within the definition of “industry,” extending industrial-dispute protections to their employees.
4. Persistent legislative attempts to narrow it: Parliament had earlier attempted to codify a narrower definition through an amendment that was never brought into force, leaving the 1978 test operative for over four decades.

What does the Industrial Relations Code, 2020 change?

1. Statutory definition narrows the exclusions: The Industrial Relations Code, 2020 (the law consolidating the Trade Unions Act 1926, the Industrial Employment (Standing Orders) Act 1946 and the Industrial Disputes Act 1947 into a single code) defines “industry” with specific carve-outs for institutions engaged in charitable, social, or philanthropic services not for profit.
2. Government departments performing sovereign functions excluded: The Code writes into statute an exclusion for departments discharging sovereign functions, aligning more closely with a narrower reading than the 1978 test.
3. Domestic and hospital work carved out selectively: The Code excludes certain categories, such as purely domestic service, while leaving other categories, including some hospitals, to be decided case by case.

Where do the majority and minority views diverge?

1. Majority view on legislative competence: The majority holds that Parliament may legislatively define “industry” for the purposes of a labour statute, and that a narrower statutory definition prevails over the judicially evolved 1978 test within the Code’s own field of operation.
2. Minority view on protective intent: The minority holds that a legislative narrowing of “industry” risks excluding workers in charitable, educational, and welfare institutions from industrial-dispute protections that the 1978 Bench extended to them.
3. Divergence on precedent’s continuing force: The majority treats Bangalore Water Supply as persuasive but non-binding once Parliament legislates a definition, while the minority treats it as continuing to bind interpretation of undefined terms outside the Code’s specific carve-outs.

Conclusion

The ruling settles, for now, that Parliament’s statutory definition of “industry” under the Industrial Relations Code, 2020 governs disputes falling within the Code, narrowing the wide protective sweep the Bangalore Water Supply test had given workers across charitable, educational and welfare institutions for over four decades. Litigation over which specific institutions fall inside or outside the Code’s carve-outs is expected to continue as the Code is implemented.

Back2Basics: Industrial Relations Code, 2020

1. One of the four labour codes consolidating 29 central labour laws, this one merging the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946, and the Industrial Disputes Act, 1947.
2. Raises the threshold for prior government permission before layoffs, retrenchment or closure from 100 to 300 workers in an establishment.
3. Introduces a statutory recognition mechanism for trade unions and a two-member negotiating council where no single union has majority membership.
4. Notified but implemented in phases, with States framing their own rules under it.

Matching Previous Year Question

“[2024, GS3, 15 marks] Discuss the merits and demerits of the four ‘Labour Codes’ in the context of labour market reforms in India. What has been the progress so far in this regard?”