SC agrees to hear AITUC challenge to definition of ‘industry’ in new law

Why in the News

The Industrial Relations Code (IRC), 2020 has replaced a broad, court-made meaning of ‘industry’ with a statutory definition that exempts charitable, sovereign and notified activities. The Supreme Court has agreed to hear a petition by the All India Trade Union Congress (AITUC) Tamil Nadu, which calls the definition “deliciously vague”. The case will decide how many workers the Code actually protects.

What does ‘industry’ mean under the Code?

1. What it is: ‘Industry’ is the legal label that decides which workplaces fall under the IRC. It works like a gate: workers inside get the Code’s legal protections, workers outside do not.
2. Section 2(p): The Code defines industry as any systematic activity carried on by co-operation between employer and worker to produce, supply or distribute goods or services that satisfy human wants or wishes.
3. The exemptions: The definition then excludes three sets of activity:
   • institutions wholly or substantially engaged in charitable, social or philanthropic service;
   • “any activity of the appropriate government relatable to sovereign functions“, meaning tasks only the state performs;
   • “any other activity as may be notified by the Central government”.
4. The takeaway: Each exemption shrinks the workforce the Code protects, and the last lets the Centre shrink it further by notification alone.

What does the petition argue?

1. Vagueness: The union argues the definition is vague, especially because its exemptions stretch from charitable bodies to the government’s sovereign functions.
2. Bench’s question: A Bench headed by the Chief Justice of India heard the plea. The Chief Justice asked whether there is “a problem with the definition of ‘industry’”.
3. Triple test: The union’s senior counsel argued that the definition fails the ‘triple test’ for an industry that the Supreme Court laid down in 1978.

Why does the 1978 ruling still matter?

1. Bangalore Water Supply case: A seven-judge Constitution Bench decided Bangalore Water Supply and Sewerage Board v. A. Rajappa (1978). Justice V.R. Krishna Iyer wrote the judgment.
2. The triple test: The Court held that an activity is an ‘industry’ if it is systematic or organised, runs on employer-employee cooperation, and produces goods or services that satisfy human wants.
3. Wider coverage: The ruling brought even hospitals, educational institutions and municipalities within ‘industry’.
4. Review overtaken: A nine-judge Bench reviewed that reading of Section 2(j) of the Industrial Disputes Act, 1947 in August. The Code’s arrival had already made the reference largely infructuous, meaning without practical effect.
5. New definition stands alone: The Chief Justice had observed that Section 2(p) of the Code “is not burdened by” the interpretation of Section 2(j), so the 1978 reading does not automatically govern it.

Challenges

1. Charitable sector workers: Staff of hospitals, schools and non-profits lose the Code’s protections if their employer qualifies as substantially charitable.
2. Open notification power: The Centre can exclude any activity by notification, so coverage can shrink without a vote in Parliament.
3. Legal uncertainty: Until the Court rules, employers and unions in civic bodies and institutions cannot tell whether earlier coverage survives.
4. Rules still pending: Detailed central and state rules under the Labour Codes are still being finalised, which adds to the uncertainty.

Way Forward

1. Objective tests: The Centre should set clear criteria in rules for “substantially” charitable service and for sovereign functions.
2. Parliamentary scrutiny: Every notification excluding an activity should be laid before Parliament with reasons.
3. Tripartite consultation: The Ministry of Labour and Employment should consult unions and employers before notifying any exclusion.
4. State alignment: All states should finalise their rules under the Codes so that one uniform regime applies.

Conclusion

The Code is in force, and the Supreme Court has now admitted a challenge to how far its definition of ‘industry’ reaches. No hearing date has been reported, so the next milestone is the Court’s decision on whether the narrower statutory definition can stand.

Back2Basics: Industrial Relations Code, 2020

1. Four Labour Codes: The IRC sits alongside the codes on wages, social security and occupational safety. Together they replaced 29 central labour laws, three of which the IRC merges.
2. In force: The Codes came into force on 21 November 2025.
3. Retrenchment threshold: An establishment can now close or retrench workers without government permission if it employs fewer than 300 workers, up from 100.
4. Fixed-term employment: It gives fixed-term workers wage and social security parity with permanent staff.

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?”