What Counts as an “Industry” Under Indian Law? Supreme Court to Decide on March 17-18

The Supreme Court of India will revisit the definition of “industry” under the Industrial Disputes Act, 1947, a ruling that could directly influence the interpretation and implementation of the Industrial Relations Code, 2020.

For businesses and foreign investors, the decision will affect labor compliance exposure, workforce restructuring flexibility, unionization risk, and obligations in public-private and welfare-linked operations.

India’s apex court will convene a nine-judge Constitution Bench on March 17-18, 2026, to reconsider the scope of the term “industry” under the Industrial Disputes Act (IDA), 1947. The matter carries critical implications for the reach of labor law protections across public and private sector activities.

The Bench, led by the Chief Justice of India (CJI) Surya Kant, along with SC Justices Joymalya Bagchi and Vipul M. Pancholi, has directed parties to file updated or additional written submissions by February 28, 2026. The court has indicated that hearings will be concluded within the scheduled two-day window.

Key constitutional questions

The Constitution Bench will examine the interpretative framework laid down in Bangalore Water Supply and Sewerage Board vs. R. Rajappa & Others, 1978. In that landmark ruling, Justice V.R. Krishna Iyer articulated the “triple test” to determine whether an entity qualifies as an industry:

1. Systematic and organized activity
2. Employer-employee relationship
3. Production or distribution of goods and services to satisfy human needs

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The SC, in its March 17-18 convening, will also address:

• Whether the enacted Industrial Disputes (Amendment) Act, 1982, has had any legal effect given that it was never fully brought into force.
• Whether subsequent legislative developments, including the Industrial Relations (IR) Code, 2020, have altered or superseded the statutory meaning of “industry.”
• Whether welfare schemes and social service activities undertaken by government departments or state instrumentalities fall within the IDA’s ambit.
• Which sovereign or core state functions, if any, should fall outside Section 2(j) of the IDA.

Notably, the IR Code, 2020, retains a broad definition of “industry,” while excluding sovereign functions and certain charitable or philanthropic activities. The Court’s ruling may influence how this definition is interpreted once the labor codes are fully operational.

Background: Judicial divergence and reference to larger bench

The issue has a long procedural history marked by conflicting judicial interpretations. In 1996, a three-judge bench, relying on the 1978 precedent, held that a social forestry department constituted an “industry.” However, a two-judge bench in 2001 adopted a narrower interpretation, creating doctrinal inconsistency.

Recognizing the far-reaching consequences of the definition, a five-judge bench in 2005 referred the matter for authoritative reconsideration, observing that the interpretation required a comprehensive re-evaluation in light of evolving economic realities and the dormant 1982 amendment. In 2017, a seven-judge bench led by former Chief Justice T. S. Thakur concluded that the matter warranted adjudication by a nine-judge Constitution Bench due to its substantial and systemic implications.

Why the definition of industry matters

The interpretation of “industry” directly determines the applicability of core labor protections under the IDA, including:

• Collective bargaining rights
• Industrial dispute resolution mechanisms
• Retrenchment and layoff safeguards
• Closure and restructuring compliance

The expansive reading in the 1978 ruling brought hospitals, educational institutions, clubs, and certain state welfare activities within the IDA’s regulatory framework. A narrower interpretation could materially recalibrate the boundaries of labor regulation, particularly for state-led social services and quasi-sovereign functions.

Understanding the “triple test” for determining an industry in India

In the 1978 judgment, the Supreme Court clarified that the concept of “industry” is not confined to factories or manufacturing units. It can also include structured service-oriented activities. Here are the three elements of the triple test:

1. Systematic and organized activity: The activity must be regular, structured, and carried out in an organized manner. It should not be occasional, isolated, or purely voluntary in nature.

For example, courts have applied this principle in cases such as Workmen of Northern Railway Zonal Training School Mess Canteen Karamchari Union vs. Management of Mess Committee, Uttar Railway Zonal Training School, where the focus was on whether the work was conducted in a systematic and continuous way.

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2. Employer-employee relationship: There must be a clear relationship between an employer and employees who work together toward a common objective. The presence of supervision, control, and wage payment typically indicates such a relationship.

This requirement was examined in decisions such as Child Guidance Centre vs. Government of NCT of Delhi, where the court assessed whether structured employment arrangements existed.

3. Production or provision of goods or services: The activity must involve producing goods or providing services intended to meet human needs or wants. Importantly, the motive of earning profit is not decisive. Even nonprofit or charitable organizations can fall within the definition if they satisfy the other elements.

This principle was discussed in Elizabeth Jean Marsh v. Presiding Officer, Labor Court, where the emphasis was placed on the nature of the activity rather than its profitability.

Key clarification under India’s triple test: Profit motive is not essential

The Supreme Court has made it clear that earning profit is not a necessary condition for an activity to qualify as an industry. What matters is whether the activity is systematic and organized, there is an employer-employee relationship, and goods or services are produced to satisfy human needs.

If these elements are present, the activity may be treated as an industry, even if it is charitable, welfare-oriented, or government-run. 

In essence, the triple test shifts the focus from the purpose of the organization to the functional nature of its operations and its employment structure.

Business and investor insights

Regulatory risk and cost structuring

For investors, particularly in public-private partnerships (PPPs), the scope of “industry” affects:

• Applicability of retrenchment compensation requirements
• Mandatory notice periods for workforce restructuring
• Unionization exposure and collective dispute risks
• Closure and downsizing approvals

A narrower interpretation may reduce compliance burdens in certain sectors. Conversely, reaffirmation of the expansive 1978 test would maintain a high regulatory threshold for employment actions.

Public sector and quasi-public entities

Government departments, statutory authorities, and state instrumentalities engaged in welfare delivery could face continued labor litigation exposure if classified as “industries.” This has implications for:

• Fiscal liabilities of states
• Contract staffing and outsourcing models
• Monetization and disinvestment strategies involving public assets

Investors evaluating acquisitions or concessions involving state-linked entities should closely monitor how sovereign versus commercial functions are demarcated.

Interaction with the IR Code, 2020

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The ruling may shape how courts interpret the definition of “industry” under the IR Code once implemented. If the court narrows the scope, it could influence subordinate legislation, compliance frameworks, and enforcement practices across states.

This is particularly relevant for multinational enterprises recalibrating India workforce models in anticipation of labor code enforcement.

CLICK HERE: India’s Industrial Relations Code, 2020: FAQs on Implementation

Sectoral impact

Industries potentially affected include:

1. Healthcare and hospital chains
2. EdTech and private education operators
3. Non-governmental organizations (NGOs) and social enterprises
4. Renewable energy and environmental service projects implemented through state departments
5. Infrastructure concessionaires

Clarity from the Supreme Court would enhance legal predictability, an important factor in long-term capital allocation decisions.

Strategic and legal implications

The 2026 review is expected to settle longstanding ambiguities in Indian labor jurisprudence. By clarifying whether labor law extends to state welfare activities and certain public functions, the ruling could reshape compliance obligations for government departments, public sector undertakings, and private entities operating in quasi-public domains.

Given the economic and institutional consequences, the forthcoming judgment is likely to become a defining precedent in India’s labor law architecture.

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