'Industry' definition: Supreme Court 9-judge Bench modifies triple test of 1978 BWSSB verdict

A nine-judge bench of the Supreme Court by a 5:4 majority on Thursday modified the definition of 'industry' as interpreted in 1978 in the seven-judge bench judgment in Bangalore Water Supply & Sewerage Board (BWSSB) v. R Rajappa & Others.

The judgment was delivered by a nine-judge Constitution Bench comprising Chief Justice of India (CJI) Surya Kant and Justices BV Nagarathna, PS Narasimha, Dipankar Datta, Ujjal Bhuyan, Satish Chandra Sharma, Joymalya Bagchi, Alok Aradhe and Vipul M Pancholi.

The Court had reserved its judgment on March 19 after hearing arguments over three consecutive days.

Today, five of the nine judges on the bench ruled that certain aspects of the triple test and the accompanying guidelines formulated in Bangalore Water Supply require further refinement, while the essential framework laid down therein has stood the test of time.

"We have felt that some of these constituent elements could have been articulated differently so as to better reflect the scope and contours of Section 2(j). Therefore, we propose to reformulate the triple test," CJI Kant said, while pronouncing the verdict.

Four judges on the Bench, Justices BV Nagarathna, Dipankar Datta, Ujjal Bhuyan and Joymalya Bagchi, dissented.

Pertinently, the Court also said that today's ruling will remain applicable only prospectively and will not apply to pending disputes/ cases. It also refrained from examining the new definition of 'industry' under the Industrial Relations Code, 2020.

The Court also said that the pending cases may be decided in accordance with earlier definition.

"It is not intended to prejudice the legal position in respect of pending proceedings. Consequently, all matters presently pending before courts, tribunals, labour authorities or other fora under the Industrial Disputes Act, 1947 may be adjudicated in accordance with the triple test as laid down in Bangalore Water Supply," CJI Kant said.

Verdict in a nutshell

- Triple test laid down in 1978 Bangalore Water Supply case modified;

- Ruling will be applicable only prospectively and will not apply to pending disputes/ cases;

- Original Bangalore Water Supply triple test to govern all pending cases under the now-repealed Industrial Disputes Act, 1947;

- Court refrains from examining new definition of 'industry' under Industrial Relations Code, 2020.

Background

The reference required the Court to reconsider its landmark seven-judge ruling in Bangalore Water Supply and Sewerage Board v. A. Rajappa of 1978, which gave the term "industry" a wide interpretation and evolved what subsequently came to be known as the "triple test".

Under that test, an activity would ordinarily qualify as an industry where there is systematic activity, organised cooperation between employer and employee and production or distribution of goods or services calculated to satisfy human wants and wishes.

The ruling treated profit motive and capital investment as largely irrelevant to this inquiry and consequently gave Section 2(j) in the The Industrial Disputes Act a wide reach.

The correctness of the ruling eventually came to be questioned in State of Uttar Pradesh v. Jai Bir Singh. In 2005, a five-judge Constitution Bench referred the issue for consideration by a larger Bench after expressing reservations about the wide interpretation adopted in Bangalore Water Supply.

The reference remained pending for more than two decades before the nine-judge Bench took it up for final hearing in March this year.

Dissents

While the majority held the reference to be maintainable, Justice Nagarathna wrote a separate opinion and observed that there was no need to revisit the definition given in Bangalore Water Supply. She said there was no need to refer the matter to a larger bench in 2005.

The judge said the interoperation of the definition of "industry" in Section 2(j) has to be broad-based. She also said that merely because a function is performed by the State, it ought not to mean that it is exempted from the definition of "industry".

"Social welfare activities and schemes or other enterprises undertaken by government departments or their instrumentalities can be construed to be industrial activities for the purposes of Section 2(j) of the Act, depending upon the nature of the activities," Justice Nagarthana added.

Justice Datta along with Justice Bhuyan said the reference made by the five-judge Bench in Jai Bir Singh was not necessary and serves no practical, jurisprudential or doctrinal purpose.

"The reference seeks to disturb a quietus that has held the field for nearly half a century. Finality in law would be undermined without any corresponding public interest being served. We must remember that institutional credibility lies in respecting finality, not in perpetuating doubt. Absent compelling justification, none of which exists here, the chapter must be treated as closed," Justice Datta wrote.

While Justice Bagchi said that the reference was maintainable, he disagreed on merits with the majority-led by CJI Kant.

"On merits, however, I am unable to agree with the reformulation of the triple test propounded in Bangalore Water Supply, vis-a-vis the definition of "industry", by the Chief Justice. In this regard, I respectfully concur with the opinions of my learned sister Justice Nagarathna and my learned brother Justice Datta that the triple test propounded in Bangalore Water Supply correctly determines the scope and ambit of "industry" under the 1947 Act," the judge said.

The triple test in Bangalore Water Supply, while remaining faithful to the text, extended the beneficial object of the law to all employer-employee disputes wherever the stakeholders are engaged in an organised, systematic activity akin to trade and commerce to produce goods and services for the satisfaction of human needs, and did not restrict it merely to activities which are run on commercial lines, Justice Bagchi said.

"The criticism that it converts every organised human endeavour into an industry is misplaced, for the triple test, in fact, carves out just and proper exceptions in cases of casual and non-systematic activities like domestic service, individual professions, small and unorganised clubs, associations or persons," he added.

During the hearing of the reference, Attorney General R Venkataramani, appearing for the Union, told the Court that the triple test and the "dominant nature test" were themselves good tests, but their application had gone too far and resulted in the indiscriminate inclusion of activities within the definition of industry.

He argued that governmental and welfare functions, and particularly functions relatable to sovereignty, required a more differentiated approach.

On the other hand, Senior Advocate Indira Jaising argued that no case had been made out for revisiting a judgment that had governed labour jurisprudence for decades.

She submitted that the Industrial Disputes Act was beneficial legislation intended to give workers access to remedies unavailable in ordinary civil proceedings, including reinstatement and the power of industrial adjudicators to examine the proportionality of punishment.

Jaising also opposed making "commercial motive" a threshold requirement. She further argued for a narrow conception of sovereign functions, contending that many services once considered governmental are today also performed by private actors.

A majority of the judges on the bench today held the reference maintainable.

The Bench was assisted by Senior Advocates JP Cama and Parthasarathi Sengupta as amici curiae.