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Taxation

Supreme Court Nine-Judge Bench Ruling on the Definition of “Industry”

30/08/2026

Summary

On 20 August 2026, a nine-judge Constitution Bench of the Supreme Court delivered its judgment in State of Uttar Pradesh v Jai Bir Singh, resolving a reference that had been pending in one form or another since 2002. The reference sought reconsideration of the seven-judge decision in Bangalore Water Supply and Sewerage Board v A. Rajappa (1978), which gave the term “industry” under Section 2(j) of the Industrial Disputes Act, 1947 its famously wide meaning through the “Triple Test”.

The outcome is one of continuity. Bangalore Water Supply has not been overruled; every dispute pending under the repealed 1947 Act continues to be decided on the existing Triple Test; and the definition of “industry” under Section 2(p) of the Industrial Relations Code, 2020 is to be interpreted afresh, on its own text and scheme, uninfluenced by the earlier jurisprudence.

For most employers, no immediate compliance change arises. The significance of the ruling lies in how “industry” will be construed under the new Code in the years ahead.

The Statutory Context

The Definition of Industry Under the Industrial Disputes Act, 1947

Under the erstwhile regime, Section 2(j) of the Industrial Disputes Act, 1947 defined “industry” as any business, trade, undertaking, manufacture or calling of employers, and included any calling, service, employment, handicraft or industrial occupation or avocation of workmen.

The words were of the widest amplitude, and Parliament left their outer boundary undefined; it therefore fell to the courts to determine which establishments were covered, and the question was litigated almost continuously from 1953 onwards.

The Triple Test Under Bangalore Water Supply (1978)

In Bangalore Water Supply (1978), a seven-judge Bench settled the position through the Triple Test. An undertaking is prima facie an “industry” where there is:

  1. A systematic activity.
  2. Activity organised by cooperation between employer and employee.
  3. Production or distribution of goods and services calculated to satisfy human wants and wishes.

 

Profit motive and capital investment were held irrelevant. On this footing, professions, clubs, educational institutions, cooperatives, research institutes and charitable projects answering the test were all held to be industries.

Only a narrow band of sovereign functions remained outside, and even within government departments, severable industrial units stayed covered. Undertakings with mixed activities were classified by their dominant nature.

The Definition Under the Industrial Relations Code, 2020

Section 2(p) of the Industrial Relations Code, 2020, in force from 21 November 2025, substantially codifies the inclusionary limbs of that test.

“Industry” means any systematic activity carried on by cooperation between an employer and worker, including workers engaged by or through a contractor, for the production, supply or distribution of goods or services with a view to satisfy human wants or wishes, other than wants or wishes that are merely spiritual or religious in nature, and irrespective of capital investment or profit motive.

The definition then departs from the case law by enacting four express exclusions:

  1. Institutions owned or managed by organisations wholly or substantially engaged in charitable, social or philanthropic service.
  2. Activities of the appropriate Government relatable to its sovereign functions, including the departments of the Central Government dealing with defence research, atomic energy and space.
  3. Domestic service.
  4. Any other activity notified by the Central Government.

The Structural Difference Between the Two Regimes

The essential difference, therefore, is structural. What Bangalore Water Supply achieved through judge-made tests, subject to a single narrow judge-made exception, the Code now achieves through statutory text, with exclusions that are both wider and express.

Most notably, charitable, social and philanthropic institutions, which the 1978 decision brought within “industry”, are now expressly capable of standing outside it. The present judgment ensures that these exclusions will be construed on the statutory text alone, and not read down by reference to the older jurisprudence.

What the Court Has Decided

The Bench delivered five separate opinions. Three operative outcomes command the assent of the entire Court:

(a) Pending Matters

All proceedings pending before courts, tribunals and labour authorities under the Industrial Disputes Act, 1947 shall continue to be adjudicated in accordance with the Triple Test laid down in Bangalore Water Supply.

(b) Concluded Matters

Judgments, awards, settlements and determinations that have attained finality remain undisturbed.

(c) Interpretation of the New Code

Section 2(p) of the Industrial Relations Code, 2020 is to be interpreted independently, on its own text, scheme and object. Bangalore Water Supply is not to be regarded as the “sheet anchor” for interpretation of the Code, and nothing in the judgment governs, or forecloses any future constitutional challenge to, the Code.

The Chief Justice’s Opinion and the Reformulated Test

On the merits, the opinion of the Chief Justice, for himself and three other Judges, records the view that certain aspects of the Triple Test were susceptible to refinement, and sets out a reformulated test.

The principal change is a requirement that the goods or services concerned possess a discernible commercial character analogous to trade or business, which raises a prima facie presumption that the undertaking is an “industry”.

The Court was, however, careful to make this reformulation expressly prospective and hypothetical in character. It does not displace the governing legal position for any pending proceeding, and the Chief Justice’s opinion itself directs that pending matters proceed on the original test.

Positions Taken by the Remaining Judges

The remaining five Judges either held that Bangalore Water Supply is correct law requiring no reconsideration, or found the question unnecessary to answer given the repeal of the 1947 Act.

Maintainability of the Reference

The maintainability of the reference was upheld by a 6:3 majority. The net position is that no majority of the Court has displaced Bangalore Water Supply for any purpose.

What Does Not Change for You

No Immediate Change for Mainstream Commercial and Industrial Establishments

For mainstream commercial and industrial establishments, the judgment effects no change in day-to-day compliance. An establishment answering the description of an “industry” on the wide Bangalore Water Supply reading will, in the ordinary course, also fall within Section 2(p) of the Industrial Relations Code, which itself codifies the essential elements of the Triple Test:

  • Systematic activity.
  • Cooperation between employer and worker.
  • Production, supply or distribution of goods or services to satisfy human wants or wishes.
  • No dependence on capital investment or profit motive.

Existing Industrial Relations Code Obligations Remain Unaffected

Obligations under the Industrial Relations Code relating to standing orders, grievance redressal, retrenchment, lay-off, closure and dispute resolution continue unaffected.

Legacy disputes under the 1947 Act, wherever pending, continue on the settled wide definition. The judgment gives neither side any fresh coverage argument in those proceedings, and concluded matters cannot be reopened on its basis.

What to Review Now

The forward significance of the ruling lies in the express statutory exclusions in Section 2(p), which will now be developed on their own terms, unburdened by the restrictive gloss the earlier case law placed on comparable concepts.

We recommend the following:

1. Legacy Dispute Inventory

Map all proceedings pending under the Industrial Disputes Act and confirm with counsel on record that coverage positions remain framed on the Bangalore Water Supply test, and that no counterparty seeks to reopen concluded matters in reliance on this judgment.

2. Group Entity Classification

Entities owned or managed by organisations wholly or substantially engaged in charitable, social or philanthropic service, such as trusts, foundations, CSR vehicles, hospitals or educational arms, may now sit within an express statutory exclusion whose contours will be settled afresh.

Classification positions for such entities should be revisited rather than assumed from the older case law.

3. Policy and Documentation References

Standing orders, HR policies and dispute resolution frameworks that define or assume “industry” or “industrial establishment” by reference to pre-Code jurisprudence should be aligned to the language of the Industrial Relations Code.

4. Watch Items

Monitor the following developments:

  • The anticipated constitutional challenge to the Industrial Relations Code, which the Bench has expressly left unaffected.
  • Any notification by the Central Government excluding further activities from the scope of Section 2(p).

Entity-Level Classification Review

Where the coverage position of a group entity under Section 2(p) merits closer examination, we would be pleased to undertake an entity-level classification review as a separately scoped exercise.

 

The contents of this article is for information purposes only and nothing in this article should be construed as legal advice.