‘Industry Cannot be Divorced From Commerce’: What SC Judges Said While Revisiting Key Verdict

New Delhi: After the Supreme Court examined a much-debated legal framework for what qualifies as an industry, Chief Justice Surya Kant wrote a four-judge opinion saying it is too broad because it does not require that the activity concerned must have a commercial character to it.

In an opinion written on behalf of himself as well as three other judges on the nine-judge constitution bench, Chief Justice Kant said the so-called ‘triple test’ for what qualifies as an industry under the 1947 Industrial Disputes Act would have been more appropriate had it accounted for the commercial character for an activity.

Thus, the four-judge opinion issued on Thursday (August 20) proposed a ‘hypothetical reformulation’ of the test that would have required an industry to involve the production, distribution or provision of goods or services with a “discernible commercial character analogous to trade or business”.

Though the Modi government had repealed the 1947 Act last November with the introduction of its Industrial Relations Code of 2020, the CJI's four-judge opinion specifically said that the original ‘triple test’ must “not be regarded as the sheet anchor” in interpreting the Code.

When the Supreme Court was called upon to clarify what an industry is under the Industrial Disputes Act of 1947, it had formulated the ‘triple test’ in its Bangalore Water Supply judgment of 1978. According to this test, an industry must entail

i. systematic activity that is
ii. organised by cooperation between employer and employee
iii. for the production and/or distribution of goods and services calculated to satisfy human wants and wishes

But the CJI's four-judge opinion on Thursday held that the triple test was flawed because it did not take into consideration the commercial character of an activity.

“Industrial activity cannot be wholly divorced from its commercial character,” it says. Bringing this into the picture would have filtered out activities that the 1947 Act was never meant to include, the four judges argued.

So they suggested that the third aspect of the ‘triple test’ would have been more appropriate if it contained the following additional words:

‘… goods and services possessing a discernible commercial character that is analogous to trade or business and calculated to satisfy material human wants and wishes …’

Given that the old ‘triple test’ brought into industry's ambit a large range of workplaces – media reports note that it included hospitals, educational institutes and municipalities – as well as welfare-oriented activities, the four judges reasoned in their opinion on Thursday that their “hypothetical reformulation” would not harm workers' interests.

“The introduction of such a consideration does not denude workmen of statutory protection, nor does it dilute the welfare orientation of the [Act],” they argued. “Rather, it serves to ensure that the definition of ‘industry’ remains tethered to the nature of the activity undertaken, thereby preventing the concept from expanding beyond its intended statutory bounds.”

They also said that the reformulated ‘triple test’ will not apply to pending cases involving the now-repealed 1947 Act – in other words, the original framework and the Bangalore Water Supply verdict will apply to such matters. “Our observations are confined exclusively to the interpretation of section 2(j) [which defined an industry] of the ID Act and the jurisprudence that has evolved around the triple test,” they said.

As for the Industrial Relations Code that has replaced the Act, the four-judge opinion said that Bangalore Water Supply, which contains the original ‘triple test’, shall not be regarded as a “sheet anchor” in interpreting the Code.

At the same time, any issues arising from the Code shall be interpreted on its own basis, “uninfluenced by the reformulation of the triple test undertaken in the present judgment”, they said.

Notably, the definition of an industry under section 2(p) of the Code draws from Bangalore Water Supply. It characterises an industry as “any systematic activity carried on by co-operation between an employer and worker … for the production, supply or distribution of goods or services with a view to satisfy human wants or wishes”, before introducing some caveats.

One of those caveats excludes “institutions owned or managed by organisations wholly or substantially engaged in any charitable, social or philanthropic service”.

Chief Justice Kant authored the majority opinion on behalf of himself as well as Justices Satish Chandra Sharma, Alok Aradhe and Vipul Pancholi. Justices B.V. Nagarathna issued a dissenting opinion. Justice Dipankar Datta also issued a dissenting opinion, on behalf of Justice Ujjal Bhuyan and himself. Justice P.S. Narasimha issued a concurring opinion and Justice Joymalya Bagchi issued an independent opinion.

In her dissenting opinion, Justice Nagarathna said that a reconsideration of Bangalore Water Supply was unwarranted. One of the reasons why, she argued, was that it would “definitely cast its shadow on the definition of 'industry' under section 2(p) of the IR Code”.

Thursday's judgment comes after the bench reserved verdict in the matter on March 19 this year, in turn after it heard arguments for two days.

This article was edited to correct errors at 9:30 pm on Saturday. The Wire regrets the errors.

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