Last week, the Supreme Court’s nine-judge Constitution Bench, by a 6:3 majority, held that pending labour disputes under the old Industrial Disputes Act will continue to be decided using the definition of “industry” laid down by the court in 1978. The court left the definition under the Industrial Relations Code, 2020 open, saying the new law must be interpreted independently. Mint explains
What was the dispute?
The issue dates back to the 1978 Bangalore Water Supply and Sewerage Board v. A. Rajappa case, where the Supreme Court gave a broad meaning to “industry”. It said organizations providing goods or services could fall under labour laws even without a profit motive. This came to be known as the Triple Test.
The broad definition potentially covered hospitals, universities, charities, clubs and some government bodies. The issue resurfaced in 2005 in State of Uttar Pradesh v. Jai Bir Singh. As a smaller Bench could not reconsider the 1978 ruling, the matter was eventually referred to a nine-judge Bench.
What did the majority rule?
The majority of the nine-judge Constitution bench, headed by Chief Justice Surya Kant, retained the basic Triple Test but refined its application. It said courts should also consider whether the goods or services have a “discernible commercial character” similar to trade or business.
Profit-making, however, is still not necessary. Being a charity, hospital, university or government body does not automatically decide whether an organization is an industry. Courts will have to look at the actual nature of their activities. The dominant-nature test will also continue to apply where an organization carries out different activities.
The ruling, therefore, does not automatically take non-profit or welfare institutions outside labour-law protection. Their activities will have to be examined to determine whether they fall within the definition.
What did the dissenting judges say?
The judges differed mainly on whether the 1978 ruling needed to be reconsidered. Justice B.V. Nagarathna said there was no need to reopen Bangalore Water Supply. The old law had been repealed and replaced by the Industrial Relations Code, 2020, and the 1978 ruling had governed labour law for nearly five decades. Reconsidering it could create uncertainty in pending cases.
She favoured keeping the old interpretation for existing disputes and interpreting the new Code separately.
Justice Joymalya Bagchi agreed that the reference could be heard but sided with Nagarathna and Justice Dipankar Datta in retaining the 1978 Triple Test. Justice P.S. Narasimha said the 1978 ruling should continue for pending cases, while the new Code should be interpreted independently.
Akanksha Dua, partner, Obhan Mason, called Nagarathna’s dissent a “powerful reaffirmation of worker protection”, saying the nature of an activity, rather than its charitable or government status, should determine labour rights.
Will this create more litigation?
Lawyers say the ruling could lead to fresh litigation as courts begin interpreting the new Code’s definition independently. This could be particularly important for non-profit, educational and welfare institutions, where it may not be clear whether their activities qualify as an “industry”.
Abhinay Sharma, managing partner, ASL Partners, said the ruling could open a new phase of litigation because the Supreme Court has left the definition of “industry” under the Industrial Relations Code, 2020 to be interpreted independently.
Employers and workers, therefore, do not yet have a clear Supreme Court precedent on the new definition. Future cases, particularly involving healthcare, education, charities and government welfare, could determine its scope and create a new body of case law.
“There may be some uncertainty until courts determine how the Code’s new definition and its express exclusions, for example, charitable, social and philanthropic institutions and sovereign government functions, practically operate. These questions are likely to generate future litigation,” said Mathuvanthy Mathavan, partner, Poovayya & Co.
What does it mean for workers and employers?
According to lawyers, the ruling ensures continuity for workers in pending disputes, who will continue to receive protections under the old law, including safeguards against unfair practices and arbitrary termination. This is particularly relevant for workers in healthcare, education, non-profits and government welfare bodies.
“By confirming that all pending disputes under the 1947 Act remain governed by the classic triple test, the Supreme Court has insulated millions of workers across healthcare, academia, non-profits, and state welfare wings from sudden legal exposure,” said Dua of Obhan Mason.
For employers, however, the transition could create uncertainty, particularly for non-profits, educational trusts, hospitals and welfare institutions, as the applicable legal framework will depend on when a dispute arose. Existing court rulings may not clearly indicate how these organisations will be treated under the new Industrial Relations Code, 2020.
“For employers, the transition could mean different outcomes for similar institutions depending on when a dispute arose and which law applies. Therefore, employers will need to carefully assess which legal framework governs their dispute during the transition period,” said Abhinay Sharma, managing partner, ASL Partners.
For now, pending disputes will continue under the old framework, while future cases will have to be decided under the Industrial Relations Code, 2020.