Union Government Urges 9-Judge Bench to Reconsider Overbroad ‘Industry’ Definition; Warns Welfare Schemes & Charitable Functions Cannot Be Treated as Industrial Activity

The Union Government on Tuesday told the Supreme Court that welfare activities and charitable functions undertaken by the State cannot be treated as “industry” under labour law, cautioning against an overbroad application of the triple test laid down in Bangalore Water Supply and Sewerage Board v. A. Rajappa (1978).

Appearing before the nine-judge Constitution Bench headed by Chief Justice of India Surya Kant, Attorney General for India R. Venkataramani submitted that while the triple test evolved in the 1978 judgment may be logically sound, its indiscriminate application has led to an unwarranted expansion of the definition of “industry”.

“The triple test… is a good law,” the AG said, “but the issue arises in its overly broad application,” which risks bringing within its fold welfare schemes and governmental functions not intended to be treated as industrial activity.

He emphasised that the modern State operates as a welfare entity implementing wide-ranging socio-economic policies. Such activities may involve organisational elements resembling industrial undertakings, but these “incidental operational aspects” cannot be isolated and treated as independent industrial activity.

“Social welfare activities and schemes or other enterprises undertaken by the Government Departments or their instrumentalities cannot be construed to be ‘industrial activities’ for the purpose of Section 2(j) of the ID Act. Caution must be taken while applying the triple test to different activities, especially in relation to charitable organisations and government departments carrying out sovereign functions, government functions, constitutionally mandated functions,” the AG submitted.

The AG further argued that the 1978 ruling adopted a restrictive, colonial understanding of “sovereign functions,” which must now be revisited in light of India’s constitutional framework. He also suggested that the Industrial Relations Code, 2020, though not directly applicable, could serve as an interpretative aid.

Supporting the AG’s position, Additional Solicitor General KM Nataraj (for State of UP) submitted that the concept of sovereign functions must be understood in the context of a constitutional democracy, rather than through a colonial lens. He pointed out that the 2020 Code exempts not only sovereign functions but also activities relatable to them.

When Justice BV Nagarathna queried whether a defence canteen would be exempt, the ASG responded in the affirmative, stating that such establishments fall within “relatable sovereign functions”.

The Bench, however, expressed reservations about relying on the 2020 Code to interpret the 1978 judgment. Justice Joymalya Bagchi cautioned that using the Code as an interpretative tool could effectively give retrospective operation to a law intended to operate prospectively.

Clarifying the scope of the reference, the CJI stated that the Court would confine itself to examining whether the 1978 judgment was correctly decided on its own terms, without importing restrictions from the unnotified 1982 amendment or the 2020 Code.

The nine-judge Bench is examining whether the expansive interpretation of “industry” adopted in the 1978 judgment authored by Justice VR Krishna Iyer requires reconsideration.

In Bangalore Water Supply, a seven-judge bench had held that any systematic activity organised by cooperation between employer and employee for the production or distribution of goods and services could fall within the definition of industry, even if the organisation was not engaged in profit making.

The reference arises out of a 2002 appeal in State of Uttar Pradesh v. Jai Bir Singh. In 2005, a five-judge bench referred the matter to a larger bench. In 2017, a seven-judge bench referred it to the present nine-judge Bench.

Arguments will continue tomorrow.

Case Title: State of U.P. v. Jai Bir Singh 
Case No.: C.A. No. 897/2002