Definition of “Industry”| Judgement Summary
Definition of “Industry”On 21 February 1978, a seven-judge Bench of the Supreme Court clarified the meaning of the term “industry” under Section 2(j) of the Industrial Disputes Act, 1947. The Court adopted a broad interpretation of the definition and articulated what later came to be known as the “triple test” for determination.
Applying this approach, the Court held that the Bangalore Water Supply and Sewerage Board (BWSSB) is an industry within the meaning of the Act. It observed that organised activities involving cooperation between employer and employee for the production or distribution of goods or services would ordinarily fall within the scope of Section 2(j).
Justice V.R. Krishna Iyer delivered the leading opinion for himself and Justices P.N. Bhagwati and D.A. Desai. Chief Justice M.H. Beg and Justice Y.V. Chandrachud delivered concurring opinions. Justice Jaswant Singh, writing for himself and Justice V.D. Tulzapurkar, delivered a dissenting opinion.
We summarise the 81 page Judgement.
Confusion in earlier case law
At the outset, the Bench noted uncertainty around the meaning of “industry” due to conflicting judicial decisions. Earlier rulings had adopted different approaches to determine whether institutions such as hospitals, clubs, universities and government departments could fall within the definition. In Justice Krishna Iyer’s words, landmark cases had taken a “zigzag course”.
Section 2(j) of the Industrial Disputes Act, 1947 defines “industry” as “any business, trade, undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft, or industrial occupation or avocation of workmen.” The Court held that the interpretation of Section 2(j) must advance the Act’s primary objective of facilitating investigation and settlement of industrial disputes. It emphasised that the word “undertaking” cannot be read in isolation and must be understood in light of the words around it.
The “triple test” for industry
Three elements were identified in this decision that ordinarily characterise an industry;
- a systematic activity,
- cooperation between employer and employee, and
- the production or distribution of goods or services calculated to satisfy human wants and wishes, excluding purely spiritual or religious services.
The Court clarified that the absence of profit motive is irrelevant and activities carried out by charitable institutions or public bodies may still fall within the definition if these three elements are established.
Nature of the activity is decisive
The Judgement noted that the decisive factor is the nature of the activity, not the identity of the employer. The fact that an activity is undertaken by the government or a statutory body does not remove it from the scope of the Act. It observed that in a welfare state, the government increasingly undertakes commercial and economic functions, and these activities cannot be excluded from labour law protections merely because they are performed by public authorities.
The Court therefore rejected arguments that public utility services carried out by statutory bodies should automatically fall outside the scope of the definition of industry.
The dominant nature test
The Court held that it is the “predominant nature of services” that determines the nature of an undertaking, even if some of the services do not independently qualify as industrial.
In doing so, the Court overruled earlier decisions including University of Delhi v Ram Nath (1963) which had excluded universities from the scope of “industry”. It clarified that educational institutions are not automatically exempt and held that where an establishment performs a complex set of activities, the integrated character of its departments must be considered.
Limited exclusion for sovereign functions
The Court clarified that only a narrow category of sovereign functions falls outside the Act.
Chief Justice Beg observed that the term “sovereign” should properly be confined to activities involving the ultimate exercise of governmental authority. Welfare or economic activities undertaken by the State cannot be treated as sovereign merely because they are carried out by government agencies.
Justice Krishna Iyer clarified that even within departments discharging sovereign functions, if there are units that qualify as industries and are “substantially severable,” those units may still fall within the scope of Section 2(j).
Dissenting opinion
Justices Singh and Tulzapurkar held that the definition of “industry” should be confined to activities systematically undertaken on commercial lines with the cooperation of employees for the production or distribution of goods or the rendering of material services.
In their view, institutions such as hospitals run on charitable basis, educational and research institutions and liberal professions such as those of doctors, lawyers and teachers should not fall within the definition. These activities, they reasoned, depend primarily on individual intellectual skill and expertise, and the contribution of employees to the final service is too marginal to treat them as industries.
They also observed that the continuing uncertainty surrounding the scope of the definition required legislative intervention, noting that “it is high time that the Legislature steps in with a comprehensive bill to clean up the fog.”