Supreme Court Refines “Industry” Test: Bangalore Water Supply Rule to Govern All Pending ID Act Cases

In a landmark labour-law ruling, a nine-judge Constitution Bench of the Supreme Court has reconsidered the meaning of “industry” under Section 2(j) of the Industrial Disputes Act, 1947.

By a 5:4 majority on the merits, the Court held that certain aspects of the well-known “triple test” formulated in Bangalore Water Supply and Sewerage Board v. A. Rajappa require further refinement. However, the Court expressly protected pending proceedings and concluded disputes from the effect of the reformulation.

The ruling was delivered on 20 August 2026 by a Bench comprising Chief Justice of India Surya Kant and Justices B.V. Nagarathna, P.S. Narasimha, Dipankar Datta, Ujjal Bhuyan, Satish Chandra Sharma, Joymalya Bagchi, Alok Aradhe and Vipul M. Pancholi.

Key ruling at a glance

• The reference to the nine-judge Bench was held maintainable by a 6:3 majority.

• By a 5:4 majority, the Court found that parts of the 1978 triple test required refinement.

• The essential framework of Bangalore Water Supply was not completely discarded.

• The reformulated test will operate prospectively.

• All pending proceedings under the Industrial Disputes Act, 1947 must continue to be decided according to the original Bangalore Water Supply test.

• Final judgments, settlements and determinations will remain undisturbed.

• The ruling must not be treated as an interpretation of the Industrial Relations Code, 2020.

The operative position has been reported consistently by LiveLaw and the Supreme Court Observer.

What was the Bangalore Water Supply “triple test”?

In its 1978 judgment, a seven-judge Bench adopted a broad and functional interpretation of “industry”. An establishment or activity would ordinarily qualify as an industry where the following three elements were present:

1. There is a systematic and organised activity.

2. The activity is carried out through cooperation between an employer and employees.

3. The activity concerns the production or distribution of goods or the rendering of services calculated to satisfy human wants or wishes.

Under this approach, the nature of the activity was more important than the identity or status of the organisation. The absence of a profit motive or capital investment was generally considered irrelevant.

Consequently, government departments, hospitals, educational institutions, research organisations, charitable bodies and other non-commercial establishments could potentially fall within the definition, depending on the nature and dominant character of their activities.

Why was the 1978 ruling reconsidered?

The broad interpretation led to recurring disputes over whether welfare schemes, governmental departments, universities, hospitals, research institutions and charitable organisations should be treated as industries.

A five-judge Bench in State of U.P. v. Jai Bir Singh referred the matter for reconsideration in 2005. In 2017, a seven-judge Bench directed that the reference be placed before a nine-judge Bench because Bangalore Water Supply itself had been decided by seven judges.

The principal questions included:

• Whether the 1978 triple test correctly interpreted Section 2(j);

• Whether governmental welfare activities could constitute industrial activities;

• Which State functions should be treated as sovereign functions and kept outside the definition; and

• Whether subsequent legislative developments affected the interpretation of the expression “industry”.

The nine-judge Bench heard final arguments in March 2026 and reserved its decision. The official Supreme Court hearing transcript records the competing arguments concerning profit motive, welfare functions, sovereign activities and the continuing relevance of the 1978 test.

Pending cases will continue under the old test

The most important practical clarification is that the reformulated test will not displace the law governing pending Industrial Disputes Act proceedings.

Accordingly, matters presently pending before labour courts, industrial tribunals, courts, labour authorities or other forums under the 1947 Act must be adjudicated by applying the original triple test laid down in Bangalore Water Supply.

Employers cannot rely upon the new reformulation to retrospectively change the legal basis of an existing dispute. Similarly, employees involved in pending proceedings will not lose the benefit of the legal test applicable when their cases were instituted.

Concluded matters cannot be reopened

The Court has also protected legal finality. Judgments, settlements, awards and determinations that are no longer open to challenge will remain unaffected.

Therefore, the ruling does not provide a ground to reopen:

• final labour-court or tribunal awards;

• binding settlements;

• concluded retrenchment or reinstatement proceedings;

• determinations that have attained finality; or

• previously concluded disputes concerning an establishment’s status as an industry.

Industrial Relations Code, 2020 remains independent

The Court specifically confined its interpretation to Section 2(j) of the Industrial Disputes Act, 1947.

The judgment must not be treated as an interpretation of “industry” under Section 2(p) of the Industrial Relations Code, 2020. The Code contains its own statutory language and exclusions and will have to be interpreted independently on its text, scheme and legislative context.

This distinction is especially important because the Industrial Relations Code came into force on 21 November 2025, replacing the earlier Industrial Disputes Act framework.

Practical implications for employers and HR professionals

Organisations should first identify which legislation governs the particular dispute.

• Pending proceeding under the Industrial Disputes Act, 1947: Apply the original Bangalore Water Supply triple test.

• Final or concluded matter: The decision, award or settlement remains undisturbed.

• Proceeding governed by the Industrial Relations Code, 2020: Examine the definition and exclusions under Section 2(p) independently.

• Governmental, charitable, educational, medical or welfare establishment: Do not assume automatic inclusion or exclusion. The nature of the activity, employer–employee relationship, statutory framework and applicable exclusions must be examined.

• Mixed-function establishment: Review the dominant nature of the undertaking and the character of its severable departments or units.

Classification as an “industry” is only one stage of the legal analysis. The individual must also satisfy the applicable definition of “worker” or “workman”, and the dispute must otherwise fall within the governing labour legislation.

Conclusion

The Supreme Court has sought to balance doctrinal refinement with legal certainty.

While the majority concluded that aspects of the nearly five-decade-old test required reformulation, it declined to unsettle pending or concluded proceedings. The original Bangalore Water Supply test therefore remains decisive for pending cases under the Industrial Disputes Act, 1947.

For future disputes under the Industrial Relations Code, 2020, the meaning of “industry” will have to be determined independently, without automatically importing the interpretation developed under the repealed legislation.