SC scraps worker-friendly 1978 ‘industry’ precedent for new labour code
A nine-judge Constitution Bench of the Supreme Court ruled on the long-pending reference seeking reconsideration of the 1978 "industry" precedent under labour law
By a 6:3 majority, the Court held the reference validly made but largely retained the expansive "triple test" framework for cases still governed by the Industrial Disputes Act, 1947
The Court clarified that the term "industry" under the newer Industrial Relations Code, 2020 must be interpreted on its "own text and context" rather than being anchored to the 1978 precedent
The ruling applies prospectively — pending disputes under the 1947 Act continue to be decided using the older, worker-friendly test, while future disputes fall under the 2020 Code's own statutory definition
The 'Industry' Definition Under the Industrial Disputes Act, 1947
Section 2(j) of the Industrial Disputes Act, 1947 defines "industry" in broad, undefined terms, leaving courts to determine its scope through case law. This ambiguity led to decades of inconsistent rulings on whether hospitals, educational institutions, clubs, and government departments qualified as "industries" — a classification that determines whether their employees can access industrial dispute resolution machinery (conciliation, labour courts, tribunals) and protections against retrenchment.
Key Details
- A seven-judge Constitution Bench in Bangalore Water Supply & Sewerage Board v. A. Rajappa (1978 AIR 548) laid down the "triple test" — systematic activity, cooperation between employer and employee, and production/distribution of goods or services to satisfy human wants — to determine if an activity is an "industry," regardless of profit motive or capital investment
- The 1978 judgment excluded only a narrow set of activities (sovereign functions, purely spiritual/charitable activities without commercial trappings) from the definition, sweeping in hospitals, educational institutions and many government departments
- The 2026 nine-judge bench (led by the Chief Justice of India) heard final arguments in State of U.P. v. Jai Bir Singh and, by 6:3 majority, held that the 1978 triple test continues to govern disputes still pending under the 1947 Act
This ruling settles a reference that had remained unresolved for over two decades on whether the 1978 "triple test" was correctly decided; the Court chose to preserve it for the old Act rather than overturn it outright.
Industrial Relations Code, 2020 — A Codified, Standalone Definition
The Industrial Relations Code, 2020 is one of four labour codes that consolidated 29 central labour laws, including the Industrial Disputes Act, 1947, the Trade Unions Act, 1926, and the Industrial Employment (Standing Orders) Act, 1946. It provides its own express statutory definition of "industry" rather than leaving it to be judicially interpreted through precedent built on the older Act.
Key Details
- Section 2(p) of the Industrial Relations Code, 2020 defines "industry" as any systematic activity carried on by cooperation between employer and worker for production, supply or distribution of goods or services to satisfy human wants, excluding activities that are spiritual or religious in nature
- The Code expressly excludes institutions substantially engaged in charitable, social or philanthropic service, and government activities relating to sovereign functions (such as defence research, atomic energy and space) from the definition of "industry"
- The four labour codes (Wages, 2019; Industrial Relations, 2020; Social Security, 2020; Occupational Safety, Health and Working Conditions, 2020) were passed by Parliament in 2019–2020 but have seen phased, state-wise implementation
Because the 2020 Code now has its own express textual definition (Section 2(p)), the Supreme Court held that courts need not import the judicially expanded 1978 "triple test" into the new Code — future industry classification disputes will be decided by interpreting the Code's own wording, not by reflexively applying the older case law.
Doctrine of Prospective Overruling
Prospective overruling is a judicial technique where a court changes or clarifies the law but directs that the new position applies only to future cases, leaving past transactions and pending matters decided under the old rule undisturbed. It balances legal certainty with the need to correct or update precedent.
Key Details
- The doctrine was first invoked in India by the Supreme Court in I.C. Golaknath v. State of Punjab (1967), which held that a constitutional amendment curtailing fundamental rights would apply only prospectively
- Applying it here meant that the "triple test" continues unchanged for the 1947 Act (protecting settled expectations in ongoing litigation) while only future Industrial Relations Code, 2020 disputes get the fresh, text-based interpretation
- This avoids retrospectively unsettling decades of labour adjudications decided by relying on the 1978 precedent
The bench's choice to apply its ruling prospectively is what allowed it to both preserve the 1978 precedent's authority over pending Industrial Disputes Act matters and simultaneously free the new Code from being bound by it going forward.
- Bangalore Water Supply & Sewerage Board v. A. Rajappa, 1978 AIR 548 — seven-judge bench, laid down the "triple test" for "industry" under Section 2(j), Industrial Disputes Act, 1947
- 2026 ruling: nine-judge Constitution Bench, 6:3 majority, in the reference arising from State of U.P. v. Jai Bir Singh
- "Industry" is separately defined under Section 2(p) of the Industrial Relations Code, 2020
- Four labour codes (2019–2020) consolidated 29 central labour statutes; implementation has been phased across states