SC keeps labour protection intact in pending cases, leaves ‘industry’ definition under new code open

The Supreme Court on Thursday kept existing labour protections intact in pending disputes under the now-repealed Industrial Disputes Act, including those involving government bodies. It retained the nearly five-decade-old test for what qualifies as an ‘industry’, while leaving the definition under the Industrial Relations Code, 2020, open for future cases.

The 5:4 majority ruling, delivered by a nine-judge Constitution Bench led by Chief Justice of India Surya Kant, drew a clear line between disputes under the old and new labour regimes. While holding that the reference was maintainable, the court refused to disturb the ‘Triple Test’ laid down in the 1978 judgment to determine what makes an ‘industry’ under Section 2(j) of the Industrial Disputes Act, 1947. Workers in pending cases will continue to be covered by the existing test, while government bodies cannot claim an automatic exemption. However, whether hospitals, universities, non-profits and welfare bodies qualify as ‘industries’ under the 2020 code remains unsettled.

The top court, however, said certain aspects of the test and the accompanying guidelines could be refined to better reflect the scope of the provision. The 1978 framework, it held, has “stood the test of time”.

The Triple Test looks at whether an activity is organized, involves cooperation between employers and workers, and involves the production or provision of goods or services to meet human needs.

This means the 1978 test will continue to apply to pending disputes under the old Industrial Disputes Act. The court said its reformulation of certain parts of the earlier test will apply prospectively. In other words, the changes will apply to future cases, and will not reopen those already decided.

The court made clear that the 1978 Bangalore Water Supply judgment cannot automatically be used to interpret the definition under the new code. The new law will have to be interpreted separately, based on its own language and framework.

This means the judgment does not immediately settle whether organizations such as hospitals, universities, non-profit institutions or welfare bodies will qualify as ‘industries’ under the new labour code. That question remains open for future cases.

The case of public utilities

The dispute that led to the 1978 ruling involved employees of the Bangalore Water Supply and Sewerage Board that had argued it was not an ‘industry’ under the Industrial Disputes Act because it was a public body providing essential services.

The Supreme Court rejected the narrow approach and gave the word ‘industry’ a wider meaning. It said an organization could fall within the definition if it carried out an organized activity involving cooperation between employers and workers to provide goods or services. The court also made it clear that making a profit was not necessary.

This broad interpretation meant that labour protections could extend beyond traditional factories and commercial businesses. Institutions such as hospitals, educational institutions, clubs and some government bodies could be covered within the definition if they met the test.

The nine-judge bench considered whether activities carried out by the government should automatically be excluded from the definition of industry. It said a government department does not automatically fall outside the definition simply because the activity is carried out by the state. What matters is the nature of the activity and other relevant factors, it said.

Similarly, the court said that not every activity performed by the government can automatically be treated as a sovereign function and excluded from labour law.

This means the government cannot simply argue that an activity is outside labour protection because it is performed by a government body. The nature of the particular activity will have to be examined.

The judgment, therefore, creates a distinction between past disputes under the old law and future disputes under the new code.

Simply put, the Supreme Court has not thrown out the 1978 ruling. It has retained the basic test for pending cases, but made some changes applicable to future ones under the old law, and left the meaning of ‘industry’ under the new labour code open for another day.

Legal experts said the judgment is unlikely to bring any immediate change for workers with disputes pending under the old law.

“For workers, nothing changes in the near term. Pending cases, past awards and concluded settlements continue to be governed by the 1978 test,” said Indranil D. Deshmukh, partner and head of disputes at Cyril Amarchand Mangaldas.

Deshmukh said the definition under the new code will now have to be litigated from scratch, particularly because it contains specific exclusions for charitable, social and philanthropic services and sovereign functions. This could have implications for hospitals, schools and universities run by trusts and societies, depending on how courts interpret the charitable exclusion.

“The nine-judge Bench's decision to reformulate rather than discard the triple test signals an attempt to sharpen, not narrow, the scope of 'industry' under the Industrial Disputes Act.” said Ashutosh K. Srivastava, partner at SKV Law Offices.