The Supreme Court’s nine-Judge Bench, in its much-awaited judgment on the meaning of 'industry' under the Industrial Disputes Act, 1947, delivered a split verdict with no clear majority emerging in support of the new test proposed by Chief Justice of India Surya Kant. The verdict resulted in a 4-4-1 outcome, reflecting deep judicial divergence on the correctness of the 1978 Bangalore Water Supply judgment.
Four judges, comprising Chief Justice Surya Kant, Justice Satish Chandra Sharma, Justice Alok Aradhe, and Justice Vipul Pancholi, endorsed the need to reconsider the triple test laid down by Justice V.K. Krishna Iyer in the Bangalore Water Supply & Sewerage Board v. A. Rajappa case. Their joint judgment held that the existing test, which includes systematic and organised activity, cooperation between employer and employee, and production or distribution of goods and services directed towards satisfaction of human wants and wishes (excluding purely spiritual or religious activities), extends beyond the statutory intent of the Industrial Disputes Act, 1947.
The Chief Justice-led bench observed that Justice Iyer’s interpretation, by encompassing social initiatives, charitable undertakings, and welfare activities without requiring a profit motive, risks extending the reach of the Act beyond its core purpose of regulating and resolving industrial disputes in the context of industrial employment. It stated that it is difficult to attribute to the Legislature an intention that every organised venture involving employer-employee cooperation should be encompassed within the definition of 'industry'.
In contrast, four judges — Justice B.V. Nagarathna, Justice Dipankar Datta, Justice Ujjal Bhuyan, and Justice Joymalya Bagchi — specifically affirmed the correctness of the Bangalore Water Supply judgment. They maintained that the triple test correctly captures the functional character of an enterprise and should not be disturbed, irrespective of the sector in which the entity operates, provided it meets the criteria of systematic organisation and employer-employee cooperation.
Justice P.S. Narasimha constituted the fifth outcome, agreeing that the Bangalore Water Supply judgment need not be disturbed but on a different ground. He held that since the Industrial Disputes Act, 1947 has been repealed and replaced by the Industrial Relations Code, 2020, the question of interpreting the 1947 Act has become academic, and therefore, no alteration to the existing interpretation is warranted.
The CJI-led bench proposed a revised test for defining 'industry', retaining the first two limbs of the Bangalore Water Supply test — systematic and organised activity, and cooperation between employer and employee — but modifying the third limb to require a 'discernible commercial character analogous to trade or business' in the production, distribution, or provision of goods or services. It clarified that while the absence of profit or gainful objective remains irrelevant, the commercial nature of the activity cannot be considered wholly irrelevant in determining whether an undertaking qualifies as 'industry'.
The bench further noted that governmental entities discharging sovereign or regal functions remain outside the ambit of 'industry', reaffirming that the exemption for sovereign functions, as recognised in Bangalore Water Supply, is to be construed narrowly. It agreed that governmental functions governed by a distinct constitutional or statutory framework are not to be included within the definition of industry under the Act.
The judgment, while highlighting the disagreement among the judges, underscores the functional approach to defining industry, with the decisive test being the nature of the activity and the existence of an employer-employee relationship. The split verdict leaves the interpretation of 'industry' under the repealed Industrial Disputes Act, 1947 without a definitive authoritative clarification from the Supreme Court.