SC Revisits ‘Industry’ Definition: Impact on Workers, NGOs and Institutions

A New Dimension to the Definition of ‘Industry’: Far-Reaching Implications of the Supreme Court’s Ruling

Summary: The article examines the Supreme Court’s nine-Judge Bench ruling concerning the meaning of “industry” under Section 2(j) of the Industrial Disputes Act, 1947 and the continuing relevance of the landmark Bangalore Water Supply and Sewerage Board v. A. Rajappa ruling. It discusses the traditional “Triple Test”, the proposed emphasis on the commercial character of an activity, sovereign and welfare functions, and the significance of the Industrial Relations Code, 2020, which contains its own definition of “industry”. The article analyses the possible consequences for NGOs, charitable trusts, hospitals, educational institutions, government departments and workers, including the potential impact on industrial-dispute remedies, employment relations and future litigation. It further highlights the practical and judicial challenges that may arise from the application of different legal frameworks to legacy disputes under the Industrial Disputes Act and future disputes governed by the Industrial Relations Code.

The concept of ‘industry’ holds special significance in the history of Indian labor laws. Whether or not an organization is classified as an ‘industry’ determines the various legal rights and protections available to its workers. Consequently, the definition of ‘industry’ is not merely a legal term but a crucial factor influencing the relationship between workers and organizations. In the 1978 case of Bangalore Water Supply and Sewerage Board v. A. Rajappa, the Supreme Court established a ‘triple-test’ criterion to determine what constitutes an ‘industry’. These criteria paved the way for classifying not only traditional factories or manufacturing units but also various service-oriented organizations as ‘industries’. However, changing economic and social circumstances created a need to revisit this definition, lending great importance to the Supreme Court’s recent ruling. Against this backdrop, the Court’s examination of its historic 1978 judgment—and the implications thereof in the context of the new Industrial Relations Code, 2020—is highly significant. On August 20, 2026, a nine-judge Constitution Bench of the Supreme Court delivered a historic verdict—by a 5:4 majority—regarding the definition of the term ‘industry’. This ruling, delivered in the case of State of U.P. v. Jaybir Singh, narrows the scope of the famous ‘Triple Test’ established in the 1978 Bangalore Water Supply case and is set to impact the future implementation of labor laws. While reconsidering the definition of ‘industry’ under Section 2(j) of the Industrial Disputes Act, 1947, the Court has altered the framework of the definition that was originally shaped by Justice V.R. Krishna Iyer through the ‘Triple Test’ in the 1978 Bangalore Water Supply judgment.

What Was the 1978 ‘Triple Test’ Ruling?

In the 1978 case of Bangalore Water Supply and Sewerage Board v. A. Rajappa, a seven-judge bench significantly broadened the definition of ‘industry’. Accordingly, three criteria were used to determine whether an entity qualified as an ‘industry’:

1. Systematic/organized activity

2. Cooperation between employer and employees

3. Production/distribution of goods or services to satisfy human needs

Under these criteria, making a profit was not a requirement. Consequently, many government departments, hospitals, educational institutions, clubs, and NGOs fell within the ambit of ‘industry’, and their employees received protection under the Industrial Disputes Act.

What Changed With the 2026 Ruling?

The Supreme Court has not completely overturned the 1978 ruling but has suggested significant changes regarding its scope and future implementation. The current judgment spans 498 pages. While the majority view held that the ‘Triple Test’ had stood the test of time, they deemed it necessary to restructure it by adding a fourth component. Accordingly, the activity must possess a “commercial nature akin to trade or business.” Furthermore, the exemption for sovereign functions was expanded; not only core sovereign functions but also government welfare initiatives and schemes run through departments could now be excluded under the new definition. Most importantly, this ruling applies only prospectively. It has been clarified that this decision and the new test will not apply to past rulings or cases pending under the old Industrial Disputes Act; pending claims will continue to be adjudicated based on the 1978 test. This restructuring will not serve as the basis for the new Industrial Relations Code, 2020 [notified on November 21, 2025]. The Industrial Relations Code, 2020, will be interpreted based on its own text. The Code has already excluded charitable, social, and philanthropic services, as well as sovereign functions. Justice B.V. Nagarathna and three other judges disagreed with this interpretation, stating that the very premise of the reference was untenable. There is no need to alter a law that has remained stable for 48 years—especially since the old law has already been repealed—as doing so would create uncertainty. However, the situation differs regarding the new Industrial Relations Code, 2020. The 1978 judgment will not be binding when interpreting the term “industry” under this Code. Consequently, an opportunity has arisen to independently consider the concept of “industry” within the framework of the new Code. This implies that the definition of “industry” could evolve in a new context in the future, taking into account changing economic conditions and the evolving nature of organizations.

The 1978 judgment had established a very broad definition; entities such as hospitals, schools, colleges, charitable organizations, clubs, and municipalities were classified as “industries” even in the absence of a profit motive. The new judgment introduces two significant filters: the entity must possess a commercial character. Mere systematic work and employer-employee cooperation are no longer sufficient; the activity must exhibit a commercial nature akin to trade or business. Thus, an organization operating entirely on a charitable basis or providing free services will not qualify as an industry. Exemptions for government welfare activities have also expanded; previously, only the judiciary, police, and military were exempt, but now government schemes and welfare departments can also be excluded from the definition of “industry.” In practical terms, if 100 organizations were previously classified as industries, the new criteria could result in 30 to 40 of them falling outside that classification.

Impact of the Judgment

1. Created a Legal Vacuum Instead of Clarity

The Bench clarified that the earlier test would continue to apply to older cases, whereas the newly proposed test would be viewed merely as a “hypothesis.” Since the Industrial Relations Code, 2020, is to be interpreted independently, a sort of parallel legal regime has now emerged before the labour courts. Another crucial question is: how precise is the “commercial nature” test? No definitive, quantifiable criteria or clear parameters have been provided to define exactly what constitutes a “commercial nature.” For instance, the question remains unresolved as to whether a government hospital charging user fees, a university running fee-based courses, or a charitable trust operating a factory should be considered commercial in nature. Such ambiguity raises the likelihood of endless claims and litigation regarding this issue in the future. Similarly, expanding the scope of “sovereign functions” could prove risky. Today, many government tasks are executed through contractors or public-private partnerships. If such activities are broadly classified merely as “welfare-oriented sovereign functions,” the legal protections afforded to the workers engaged in them could be jeopardized. There is also a lack of clear consensus among judicial opinions on this entire matter. Given the significant divergence in stances across various court rulings, confusion is likely to arise in the future regarding which test High Courts should consider binding. Most importantly, the original reference dated back to 2005. The Court proposed a new test after a span of 21 years but clarified that this very test would not apply to the original case itself. Consequently, the very litigants for whose sake the reference was made do not receive the actual benefit of the new test. Consequently, while the verdict delivered after such a long period serves as a guiding precedent for the future, a significant limitation is that it does not provide tangible relief to the original litigants.

2. Will an NGO Earlier Classified as an “Industry” Continue to Remain an “Industry”?

The mere fact that an NGO or social organisation was earlier classified as an “industry” under the previous law does not necessarily mean that it will automatically continue to be treated as an “industry” under the new legal framework. Although its status may have been determined on the basis of the judicial tests applicable under the earlier law, its status under the new law will have to be examined afresh.

In particular, the judicial test applicable to cases arising under the earlier Industrial Disputes Act cannot simply be carried forward and applied to cases arising under the Industrial Relations Code, 2020. The two legal frameworks have to be considered independently, having regard to the definitions, statutory requirements and exclusions contained in the new Code.

Therefore, an NGO which was previously held to be an “industry” cannot be presumed to retain that status merely because of its earlier classification. Its present status will have to be determined by applying the provisions and criteria of the new law. In other words, the earlier classification does not, by itself, create a continuing or permanent status under the new legal framework.

3. Impact on NGOs, Trusts, Hospitals, and Educational Institutions

This change is likely to have the greatest impact on organizations in the service and social sectors. A crucial aspect here is that one can no longer draw a sweeping conclusion—as was done previously—that every organized service-providing entity constitutes an ‘industry’. In particular, the need to separately consider sovereign functions as well as activities of a welfare or charitable nature has been highlighted. Therefore, rather than focusing merely on an organization’s outward appearance, its objectives, operational methods, and actual nature become more significant considerations. This is likely to affect hospitals, non-governmental organizations (NGOs), trusts, and educational institutions. For instance, private or charitable hospitals employ large numbers of doctors, nurses, and other staff. Under earlier criteria, such institutions might have been classified as ‘industry’. However, future legal analysis may hinge on whether a hospital’s operations are primarily charitable and service-oriented or driven by a commercial motive. Similarly, many NGOs and trusts implement programs for social welfare—such as providing meals, skill development, education, or other socially beneficial activities. If the work of such organizations is fundamentally welfare-oriented, the question of bringing them within the ambit of ‘industry’ could be approached differently in this new context. Consequently, this verdict is likely to have significant implications for labor relations within these organizations. A similar situation may arise regarding educational institutions. Private schools, colleges, and universities employ large workforces; however, when defining ‘industry’, consideration may be given to whether the institution is commercial in nature or if its primary objective is the provision of educational services. Consequently, the possibility of legal disputes arising in various courts regarding educational institutions in the near future cannot be ruled out. This decision is also significant for municipal corporations and government departments. It may become necessary to distinguish between services such as water supply and sanitation, and the government’s regulatory or sovereign functions. Functions like granting licenses, regulation, or exercising fundamental sovereign powers cannot be evaluated using the same criteria as functions that provide services to the general public. A crucial aspect of this decision is the balance between worker protection and institutional efficiency. If an institution falls outside the ambit of an ‘industry,’ certain restrictions imposed by labor laws may be relaxed. As a result, the institution’s administrative and legal costs are likely to decrease. Institutions may gain greater flexibility in workforce management, which could help enhance efficiency and productivity in certain sectors.

4. Protection of Workers

If an organization falls outside the ambit of an ‘industry,’ its workers will lose certain protections available under the Industrial Disputes Act. This could impact aspects such as retrenchment, service conditions, the process of seeking redress in labor courts, and collective labor rights. Therefore, while organizations gain greater flexibility, it is crucial to ensure that fundamental worker protections are not eroded. This shift could also alter the nature of employment; some organizations might increasingly rely on contract or temporary staff rather than permanent employees. If such changes are driven by the aim to reduce the burden of labor law compliance, they could have long-term consequences for job stability. There is also a likelihood of indirect pressure on wages, employee benefits, and social security. From a long-term perspective, the reduction in worker protection could become a significant concern. If a large number of organizations fall outside the definition of ‘industry,’ the strength of labor unions and their collective bargaining capacity could diminish. Income inequality among workers might also increase. Furthermore, if workers are compelled to approach general civil courts instead of the industrial adjudication system, the process of securing justice could become more expensive and time-consuming. A narrower definition of ‘industry’ could offer many organizations relief from the stringent compliance requirements of the Industrial Disputes Act (such as restrictions on retrenchment). If many organizations exit the ‘industry’ ambit, their workers would lose access to specific protections; consequently, restrictions on retrenchment would be lifted, and rights regarding recourse to labor courts, strikes, and lockouts would undergo changes. If an organization is not classified as an ‘industry,’ compliance with laws regarding ‘minimum wages’ and ‘provident funds’ may become less stringent, potentially exerting downward pressure on workers’ wages. There is no immediate adverse impact—pending cases remain secure. However, the long-term outlook is negative. If more establishments in the health, education, and charitable sectors are excluded from the definition of ‘industry,’ millions of nurses, teachers, and NGO workers could lose the right to raise industrial disputes.

5. Legal and Judicial Implications

A wave of new litigation appears likely. Numerous lawsuits will now be filed to determine the definition of ‘industry’ under Section 2(p) of the Industrial Relations Code, 2020. Specifically, entities such as NGOs, private hospitals, universities, and trusts may initiate litigation claiming they do not qualify as an ‘industry.’ Although the Supreme Court has adopted a ‘clean slate’ approach, individual High Courts might interpret the definition of ‘industry’ differently—adopting either a broad or a narrow interpretation—until the Supreme Court provides further clarity. Currently, two parallel systems have emerged: older cases will proceed based on the ‘tripartite’ criteria established in 1978, while new cases will be governed by the criteria set out in the 2020 Code. This could introduce complexities into the legal process.

6. Production-Oriented Economy

The nature of the Indian economy has changed drastically since 1978. Alongside the production-oriented economy, the importance of the service sector, knowledge-based businesses, entrepreneurship, and various social organizations has grown. Consequently, there is a need to develop a legal definition that aligns with the modern economic landscape rather than the outdated industrial framework. From an investment perspective, this decision could prove to be somewhat positive. If the implementation of labor laws becomes clearer and aligned with the nature of the organizations, it could facilitate business planning for private investors. A more flexible environment could also emerge, encouraging new initiatives in the social and service sectors. Entrepreneurs and small-scale industries are also likely to benefit from this.

Conclusion

The Supreme Court’s decision should be viewed not merely as a reconsideration of an old ruling, but as an indication of the future direction of labor laws within the context of a changing economy. On one hand, organizations require the freedom to operate with efficiency and flexibility; on the other, the protection of workers’ just rights and social security is equally important. Ultimately, the Supreme Court has not entirely rejected the historic 1978 judgment. While retaining the established criteria for past cases, it has paved the way for adopting a distinct legal approach regarding the new Industrial Relations Code. Consequently, the future interpretation of the term ‘industry’ is likely to evolve by taking into account an organization’s nature, objectives, and actual operations. Striking the right balance between workers’ rights and organizational efficiency will be the true challenge of this new legal approach. The precise nature of this shift will become clearer over time through judicial rulings, administrative implementation, and the actual enforcement of the new Industrial Relations Code.