Battle of definitions: What counts as ‘industry’ and who is left out

The definition of ‘industry’ under the Industrial Disputes Act (ID Act), 1947 (now the Industrial Relations Code, 2020) determines whether a hospital worker can challenge an unfair dismissal, whether a municipal employee has the right to organise, and whether university staff can raise a wage dispute before the tribunal. For over 70 years, courts have wrestled with this question. The ID Act’s social justice framework conceptualises the relationship between employer and worker as a social one, not a private contract between equals. The State, therefore, regulates the structural inequality inherent in such relations. But the entire exercise depends on what counts as industry.

Section 2(j) of the ID Act defines ‘industry’ broadly to encompass most of the organised workplaces. This breadth invited litigation almost immediately. In D N Banerji v. P R Mukherji (1953), the Supreme Court was asked whether the Act extended to a municipality and its workers. It ruled that it did, rejecting profit motive and capital investment as necessary conditions. What counted was the systematic cooperation between employer and employees towards producing goods or delivering services. In that sense, a municipality running welfare services was functionally no different from a factory.

Hospital Mazdoor Sabha (1960) carried this logic further. Justice Gajendragadkar’s ‘triple test’ required systematic organised activity, cooperation between employer and employee, and an orientation towards satisfying material human needs. The Court also drew a firm line around ‘sovereign functions’, confining its interpretation to defence, foreign affairs, legislation, and the administration of justice. These functions were termed ‘regal’ and fell outside the Act’s reach; welfare functions did not. The reasoning had a certain democratic plainness. If a private citizen could run the same operation, the State had no business claiming governmental privilege for it; workers within it were entitled to the same protections as any other employee.

That clarity proved short-lived. Through the 1960s and 1970s, the sovereign function exception was stretched beyond recognition. In Safdarjung Hospital v. Kuldeep Singh (1970), a two-judge bench held that Safdarjung Hospital was not an industry simply because it was government-run. This conflated State operation with sovereign character, precisely the error Hospital Mazdoor Sabha had warned against. The logic was dangerous as the welfare State expanded into hospitals, schools, utilities, and housing boards, and more workers were stripped of legal protection. 

The contradictions across benches eventually necessitated a seven-judge bench. In Bangalore Water Supply and Sewerage Board v. A. Rajappa (1978), Justice Krishna Iyer delivered what remains the most consequential judgment in Indian labour law on this question. The triple test of Hospital Mazdoor Sabha was restored and consolidated; Safdarjung was expressly overruled. The sovereign function was confined to primary and inalienable State functions such as defence, legislation, and justice. Everything else required functional assessment based on facts using the triple test. Institutional identity alone could not substitute for an examination of operational reality.

All seven judges in BWSSB called for legislative intervention. Parliament responded with the Industrial Disputes (Amendment) Act, 1982, which proposed excluding hospitals, educational institutions, charitable organisations, and government departments from the definition of ‘industry’. The amendment was never notified. When courts asked why, in Union of India v. Shree Gajanan Maharaj Sansthan (2002), the Executive admitted that exclusion could not take effect until alternative dispute mechanisms were created for affected workers. Strip workers of that classification without replacing it, and they are left with nothing. Four decades on, those alternatives remain unbuilt. 

The Industrial Relations Code, 2020 — one of three labour codes passed amid considerable controversy — retains the structure of the triple test but restores the categorical exclusions that BWSSB had struck down, such as hospitals, educational institutions, government departments, and charitable organisations. Workers in these sectors, upon the Code’s commencement, are outside the Act’s protective framework. The government’s own earlier justification for not notifying the 1982 amendment that exclusion without alternatives amounts to abandonment applies with equal force here. That concern has never been addressed.

The matter is now pending before a nine-judge bench of the SC, following a referral first made in State of UP v. Jai Bir Singh (2005). The referral itself has been criticised; nine-judge benches are conventionally reserved for fundamental constitutional questions, whereas the definition of ‘industry’ is one of statutory interpretation. 

For decades, workers in hospitals, universities, and municipal bodies have relied on BWSSB to get their protection. What the present Bench can usefully do is sharpen the sovereign function exception, confining it strictly to constitutionally reserved State functions such as the armed forces, the judiciary, and core governance machinery. The ‘dominant-nature test’ should be restated with enough clarity to foreclose evasion by smaller benches. And the Court, as unanimously urged by all seven judges in 1978, should call upon the Parliament to amend the definition in the IR Code to eliminate exclusions while upholding BWSSB until alternative industrial dispute resolution mechanisms are put in place. 

The BWSSB got something fundamentally right: legal structures cannot determine who deserves substantive rights. India’s Constitution did not treat the Directive Principles as decorative text. They were framed with an inclusive intent and are not mere guidelines; they are constitutional guarantees, which do not depend on whether one’s pay cheque comes from the State or the private sector. The word ‘industry’ is an important legislative threshold. What rides on its interpretation is the right of millions of working people in India to a legal voice and to dignity at work. 

The writer is an associate professor and director, Centre for Labour Law Research and Advocacy at the National Law University, Delhi

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.)