Reconsidering the ‘Industry’ Doctrine: The Supreme Court’s Nine-Judge Review of Bangalore Water Supply v. A. Rajappa

Introduction

Few judgments in the field of Indian labour laws have been as controversial as the judgment which was given in Bangalore Water Supply & Sewerage Board vs. A Rajappa (1978). In a judgment by a seven-judge bench, the Supreme Court had interpreted the term “industry” in Section 2(j) of the Industrial Disputes Act, (IDA) 1947 in such a way that it included within its ambit not just commercial enterprises and factories but also hospitals, charitable institutions, schools, and even public utility undertakings.

Fifty years down the road, the Supreme Court is once again reconsidering this issue. It is currently examining whether the judgment delivered in Bangalore Water Supply & Sewerage Board vs. A Rajappa (1978) is valid or not, and whether the expansive interpretation offered by the Court needs to be reconsidered. This review isn’t just academic; it bears tremendous significance for labour rights, public administration, governance, and industrial relations in India.

This re-evaluation presents itself as a constitutional and policy fork in the road. One party seeks to expand labour rights coverage, while the other fears that an overly generous interpretation would have led to the conflation of governmental functions with those of the private sector.

This blog post explores the background behind the BWS judgment, the logic of the Supreme Court in its decision, developments in the law following BWS, the practical issues brought about by the BWS judgment, and the significance of the present nine-judge bench review.

Historical Background: The Confusion Before BWS

Before the 1978 decision, there was ambiguity in the interpretation of Section 2(j) of the IDA. It defines industry in wide terms such as any “business, trade, undertaking, manufacture or calling of employers”. It includes services, employment, handicrafts, and industrial employment of workers, but does not explicitly define whether government organizations, philanthropic organizations, and professional organizations fall under it.

In prior cases, the courts had made a rather restrictive view. In University of Delhi v. Ram Nath (1963), the Supreme Court ruled that educational institutions do not fall within the scope of ‘industries’ because an educational institution cannot have a profit motive. Similarly, in Safdarjung Hospital v. Kuldip Singh (1970), it was decided that hospitals would not fall within the scope of industries because they perform charitable service and therefore cannot be regarded as industries.

There was thus confusion between two different approaches - profit motive approach or functional approach, making the status of employees of hospitals, university, and statutory bodies uncertain regarding labour laws. This resulted in people raising questions, which led to the case of Bangalore Water Supply and Sewerage Board v. A. Rajappa.

What Happened in Bangalore Water Supply?

The controversy began when employees working for the Bangalore Water Supply and Sewerage Board contested the disciplinary action taken against them by the Board. The latter contended that it did not constitute an "industry" as per Section 2(j) of the IDA, thus making its applicability to the matter unwarranted.

The case was referred to a seven-member Constitution Bench in the Supreme Court. Justice V.R. Krishna Iyer authored the majority judgment, which is considered one of the landmark judgments in labour jurisprudence in India.

The Triple Test : For the purpose of identifying an industry, the court formulated the "triple test" according to which:

• There must be a systematic activity;

• This activity should require cooperation between the employer and employee;

• The activity must be directed towards the production or distribution of goods and services which are produced for satisfying the needs and wants of the consumers.

Under this approach, the court held that profit motive has no significance; organizations involved in welfare activities could still be considered industries if they passed the "triple test."

Moreover, the court clarified that what mattered was the nature of activity and not the nature of institution; thus hospitals, educational institutions, associations, scientific research organizations, and governmental agencies could all be classified within the definition of industry.

Sovereign Functions Exception : Although the court adopted an expansive interpretation, it strictly excluded sovereign functions of the state including enacting law, conducting judicial proceedings and maintaining peace and order. However, the court failed to explain clearly what constitutes sovereign functions leading to a lot of confusion thereafter.

Judicial Philosophy Behind the Decision : From Justice Krishna Iyer’s line of reasoning, we can infer that the ruling of the court was influenced by the philosophy that prevailed among judges at that time (the seventies). The judgment was based on the principle of Directive Policies of the State and also social welfare because the court viewed labour policies from the perspective of social justice.

Therefore, the judgment served to safeguard workers from being deprived of their rights due to them working in non-commercial sectors.

The Immediate Impact of BWS

BWS judgment brought major changes in labour laws of India.

Expanded Coverage of Workers’ Rights : Following this judgement, employees working in educational institutions, hospitals, charitable organizations, utility services, and research establishments started availing themselves of assistance from the Industrial Disputes Act. There was an expansion in scope for collective bargaining, industrial matters, protection against retrenchment, and claims of unfair labour practice.

Functional Approach Over Institutional Identity : The judgment made labour law less dependent on classifications and more functional. Irrespective of whether an establishment was governmental, charitable, or any other type, worker-employer co-operation was the important factor.

Increase in Litigation : In fact, BWS judgement resulted in increased litigation cases as courts had to determine whether particular establishments were industries. Educational institutions, cooperative societies, NGOs, and public authorities frequently found themselves entangled in court cases.

Post-BWS Developments and Judicial Retreat

While BWS began as the fundamental guideline, further rulings by the courts exhibited increasing discomfort with the broad scope of its principles.

The Industrial Disputes (Amendment) Act, 1982 : In light of the criticisms of BWS, Parliament introduced the Industrial Disputes (Amendment) Act, 1982. It sought to re-define the meaning of industry and explicitly exclude some categories, including hospitals, educational institutions, research organizations, and charities.

However, the amendment was never implemented.

It generated a paradoxical scenario where, on one hand, Parliament was at odds with the BWS judgment, while, on the other, the amendment remained inoperative for decades.

Coir Board v. Indira Devi (1998) : In the case of Coir Board v. Indira Devi, the Supreme Court had put into question the validity of BWS judgment and referred the case to the larger bench. The Supreme Court wanted to know whether education and welfare institutions should be considered to be industries. However, no final reconsideration took place for a long period of time.

State of U.P. v. Jai Bir Singh : Again, the question about the validity of BWS was raised in the State of U.P. v. Jai Bir Singh and the Supreme Court referred the case to the larger bench due to doubts about the correctness of BWS judgment.

It was pointed out that the broad construction gave rise to serious problems both conceptual and practical. Namely, the Supreme Court wondered whether it had become very difficult to define a border between sovereign functions and non-sovereign functions. This eventually paved the way for the present nine-judge bench review.

Why the BWS Doctrine Became Problematic

Though the judgment in the BWS case was viewed as an attempt to bolster workers’ rights, it was soon found that the decision led to certain issues from both theoretical and practical perspectives.

Excessive generalization of the term "industry" : One of the major concerns is that BWS expanded the scope of the word “industry” beyond what was meant by the IDA statute.

The Industrial Disputes Act was designed to address industrial disputes in business and industry arising out of organized economic activities. However, including universities, hospitals, and charitable organizations within the purview of the IDA statute appears to be inconsistent with the unique nature and purpose of such institutions. For instance, equating educational institutions to factories undermines the importance of education as a distinct social institution.

Confusion Regarding Sovereign Functions : It was silent about sovereign functions but failed to define them.

Presently, the work of government encompasses numerous welfare and regulatory functions performed through statutory corporations and public undertakings. It is difficult to ascertain whether such operations constitute sovereign or industrial activities. For this reason, judges have employed various approaches leading to uncertainties in the law.

Administrative and Financial Burdens : The application of dispute procedures from industry to hospitals, educational institutions, and public administration created a great deal of extra administration.

Public organizations frequently found themselves embroiled in labour disputes, strikes, and litigation processes. According to critics, this made operations inefficient and diverted funds from essential public services.

Incompatibility with Contemporary Economic Realities : There have been a lot of changes in the Indian economy since 1978. Liberalization, privatization, gig economy, and an increase in the services sector have transformed the relationship between the employer and the employee. The BWS approach is considered outdated by some because it was developed in the context of a labour-intensive economy, which no longer exists today.

Judicial Over reach : A key criticism against the judgement of the Bangalore Water Supply case is that while the role of the court was to interpret the statute in accordance with the letter of the law, in this particular judgement, it actually exceeded its jurisdiction and made new laws.

It is argued that rather than just interpreting section 2(j) of the Industrial Disputes Act, 1947, the court expanded its interpretation in a manner that substantially modified the legislation.

Industrial Disputes Act is enacted to regulate disputes between employers and workers that arise out of industrial and commercial operations. However, with the "triple test" introduced by the court, the definition of "industry" included places such as universities, hospitals, charitable institutions, social welfare institutions, clubs, and research institutions. Thus, what mattered was not the business nature of the institution, but the mode of employer-employee relationship.

Critics argue that the court deviated from the true intention of Parliament by interpreting the legislation in a way which extended its ambit to welfare institutions and other public authorities.

Conclusion

The recent decision to reconsider the case of Bangalore Water Supply v. A. Rajappa, through a nine-member bench, can be considered as one of the most important decisions of current labour law in India. This is because the 1978 decision demonstrated the Supreme Court’s dedication to social justice and the welfare of labour by interpreting the concept of industry extensively according to the provisions of the Industrial Disputes Act, 1947.

Using the ‘triple test’ formula, the Court intended to ensure that labourers working in welfare and public organizations do not lose their rights due to the fact that they worked in organizations which do not function like ordinary businesses, in spite of the above-mentioned positive intention, the case became a source of problems in terms of legal doctrine and practice. First of all, the overly wide definition of industry resulted in the blurring of differences between business, welfare, and sovereign purposes and thus caused confusion. Universities, hospitals, and other public and welfare organizations started being treated as organizations engaged in industrial activity which had been initially meant for purely industrial and commercial companies. Thus, the judgment was seen as judicial activism that exceeded the intentions of legislation.

A restrictive reading of “industry” would mean depriving many thousands of employees of the protection offered by labour law, especially in services and public works departments. As such, the question facing the Supreme Court is not just that of determining whether BWS is correct or not, but that of rethinking labour law doctrine in order to make it compatible with contemporary economic conditions while remaining true to the Constitution’s social justice principle. The case currently being heard by the nine-member bench is, therefore, not only a matter of statutory interpretation. It is an even larger constitutional issue about the need to strike the right balance between labour welfare on one hand, and administrative efficiency on the other, and also between judicial intervention and the supremacy of Parliament.

Author: Rajat Singhvi, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

Endnotes

1. Bangalore Water Supply and Sewerage Board v A Rajappa (1978) 2 SCC 213.

2. Industrial Disputes Act 1947, s 2(j).

3. State of Uttar Pradesh v Jai Bir Singh (Civil Appeal No 897 of 2002), Order dated 16 February 2026, Supreme Court of India (referring the correctness of Bangalore Water Supply to a Nine-Judge Bench and identifying the issues for reconsideration).

4. Supreme Court of India, 'Listed on 17 March 2026 – Nine-Judge Bench in State of Uttar Pradesh v Jai Bir Singh' (Official Cause List, 2026), reiterating the constitutional questions concerning the interpretation of "industry" under section 2(j) of the Industrial Disputes Act, 1947.

5. Industrial Relations Code 2020, s 2(p) (definition of "industry"), read with the Supreme Court's observations on its possible impact on interpreting section 2(j) of the Industrial Disputes Act, 1947.

6. Supreme Court Observer, 'Definition of "Industry": Case Background' (8 April 2026), explaining the issues before the Nine-Judge Bench, the "triple test" laid down in Bangalore Water Supply, and the broader implications for Indian labour jurisprudence.