'Industry': The Conceptual Analysis

Some words this chapter uses

Systematic activity means activity carried on in an organised, regular way, as opposed to something casual or isolated.

Sovereign functions are the inalienable functions of the State that no private person could perform: the making of law, the administration of justice, defence, the police power. The expression is used narrowly.

Eleemosynary means dependent on or supported by charity. It is the word the Court used for the narrow exception it allowed.

Dominant nature test is the rule for an undertaking that carries on several activities at once: you ask what its predominant activity is rather than dissecting it department by department.

Prima facie means at first sight, on the face of it, unless something displaces it.

The Code's definition, taken apart

Section 2(p) has three parts: a positive test, two things that do not matter, and four exclusions.

The positive test, which is the triple test in statutory words

An industry is any systematic activity:

• carried on by co-operation between an employer and worker, whether the worker is employed by the employer directly or by or through any agency, including a contractor;
• for the production, supply or distribution of goods or services;
• with a view to satisfy human wants or wishes, not being wants or wishes which are merely spiritual or religious in nature.

Notice the words "or by or through any agency, including a contractor". Contract labour does not take an activity out of the definition. That closes an avoidance route that would otherwise be obvious.

The two things that do not matter

The activity is an industry whether or not:

• any capital has been invested for the purpose of carrying it on; or
• it is carried on with a motive to make any gain or profit.

So a loss-making undertaking is an industry, and so is one that never intended to make money. A statutory board, a municipal water supply, a State transport corporation: all are industries if the positive test is satisfied. This is the single most useful sentence in the definition for a student, because the employer's instinctive argument is always "we are not a business".

The four exclusions, and this is where the Code departs from the case law

The definition does not include:

• (i) institutions owned or managed by organisations wholly or substantially engaged in any charitable, social or philanthropic service;
• (ii) any activity of the appropriate Government relatable to the sovereign functions of the appropriate Government, including all the activities carried on by the departments of the Central Government dealing with defence research, atomic energy and space;
• (iii) any domestic service;
• (iv) any other activity as may be notified by the Central Government.

Exclusion (i) is the important one and it reverses part of Bangalore Water Supply, as the next section explains.

Exclusion (ii) is narrower than it looks and wider than the case law. It is narrower because it exempts activity "relatable to the sovereign functions", which is the old language, so a Government undertaking that is simply carrying on a business is not saved. It is wider because it names three departments outright, defence research, atomic energy and space, and takes all their activities out, which the case law would not have done for severable industrial units inside them.

Exclusion (iv) is a delegated power. The Central Government may notify further exclusions, so the boundary of this definition can move without an amendment to the Code.

The case the definition is built on

Bangalore Water-Supply and Sewerage Board v. R. Rajappa, AIR 1978 SC 548, (1978) 2 SCC 213, a Bench of seven Judges: Beg CJ, Chandrachud, Bhagwati, Krishna Iyer, Jaswant Singh, Tulzapurkar and Desai JJ.

Facts. The Board, a statutory body supplying water and sewerage services in Bangalore, imposed penalties on some of its employees, who raised a dispute. The Board contended that it was not an "industry" within section 2(j) of the Industrial Disputes Act 1947, so that the Act did not apply to it at all. The question went to seven Judges because the Court's own earlier decisions on hospitals, universities, clubs and professional firms could not be reconciled with one another.

Held. The Board was an industry, and the Court laid down the tests that have governed ever since.

The triple test. Where there is (i) systematic activity, (ii) organised by cooperation between employer and employee, (iii) for the production or distribution of goods and services calculated to satisfy human wants and wishes, not spiritual or religious, there is prima facie an industry.

Profit is irrelevant. The absence of a profit motive or gainful objective does not matter, whether the venture is in the public, joint, private or any other sector.

The focus is functional. The decisive test is the nature of the activity, with special emphasis on employer-employee relations. An organisation that is a trade or business does not cease to be one because philanthropy animates the undertaking.

The consequences the Court drew expressly. Professions, clubs, educational institutions, cooperatives, research institutes, charitable projects and other kindred adventures cannot be exempted if they satisfy the triple test. A narrow exception survives for genuinely eleemosynary ventures: where people employ themselves free or for small honoraria, mainly drawn by sharing in the purpose, such as lawyers running a free legal services clinic or doctors serving in their spare hours in a free medical centre, and those who serve are not engaged for remuneration or on a master-and-servant basis, the institution is not an industry even if stray servants are hired.

The dominant nature test. Where a complex of activities is carried on, some qualifying for exemption and some not, the predominant nature of the services and the integrated nature of the departments is the true test. The whole undertaking will be an industry, although those who are not workmen by definition do not benefit by the status.

Sovereign functions. Only sovereign functions strictly understood are exempt, and not the welfare activities or economic adventures undertaken by Government or statutory bodies. And even in a department discharging sovereign functions, units which are industries and are substantially severable are covered.

What it overruled. Safdarjung Hospital, Dhanrajgiri Hospital, National Union of Commercial Employees v. M.R. Meher, University of Delhi, Madras Gymkhana Club and Cricket Club of India were overruled. Hospital Mazdoor Sabha was approved.

Why it matters. Section 2(p) of the Code is largely this judgment turned into a statute, and reading the two beside each other is how a student sees what survived and what did not.

What the Code kept, and what it changed

This table is the answer to any question that asks how far Bangalore Water Supply still governs.

The single change to remember is the charitable one. A hospital run by a charitable trust, or a school run by a philanthropic society, was an industry on Bangalore Water Supply and is not one under section 2(p), provided the organisation owning or managing it is wholly or substantially engaged in charitable, social or philanthropic service.

Section 2(r): the dominant nature test, codified

Bangalore Water Supply's dominant nature test does not appear in section 2(p). It appears in the definition of "industrial establishment or undertaking" in section 2(r), which means an establishment or undertaking in which any industry is carried on, with a proviso for the mixed case:

Where several activities are carried on and only one or some of them are an industry, then:

• (i) the severable unit rule. If any unit carrying on an activity which is an industry is severable from the other units which are not carrying on or aiding such activity, that unit is deemed to be a separate industrial establishment.
• (ii) the predominant activity rule. If the predominant activity, or each of the predominant activities, is an industry, and the other activities are not severable from it and are for the purpose of carrying on or aiding it, the entire establishment or undertaking, or the unit, is deemed to be an industrial establishment.

So the two limbs point in opposite directions and that is deliberate. Where the industrial part can be cut out, it is cut out and treated on its own. Where it cannot, the whole thing goes with the predominant activity.

The case that shows the definition still has an edge

State of U.P. v. Jai Bir Singh, (2005) 5 SCC 1, a Bench of five Judges.

Facts. The question was whether a State's social forestry department, a welfare scheme carried out by Government, was an industry. The Court found that the width Bangalore Water Supply had given to section 2(j) made almost every organised activity an industry, and that Parliament had tried to narrow the definition by the Industrial Disputes (Amendment) Act 1982, which substituted a new section 2(j) with express exclusions, but had never brought that amendment into force.

Held. The Court did not decide the point. It held that the Court must reconsider where the line should be drawn and what limitations should reasonably be implied in the wide words of section 2(j), observing that both the legislature and the executive were silent and had kept an important amended provision dormant on the statute book for twenty-three years, and that the pressing demands of the competing sectors of employers and employees, and the helplessness of the legislature and the executive in bringing the Amendment Act into force, compelled the reference. It directed the cases to be placed before the Chief Justice of India for constituting a suitable larger Bench for the reconsideration of Bangalore Water Supply.

Why it matters, and how to use it. It lets a student state the position honestly rather than pretending the law was settled: the leading case stood referred for reconsideration, and a legislative attempt to narrow the definition sat un-commenced for a generation. What the Code has now done is what the 1982 amendment tried to do, by writing a fresh definition with express exclusions. That is the closing sentence of a good essay on this topic.

A boundary case worth carrying from Module I. In Tamil Nad Non-Gazetted Government Officers' Union v. Registrar of Trade Unions, AIR 1962 Mad 234, worked in [What a Trade Union Is: The Definition], the Madras High Court dismissed the union's appeal and held that the core of the civil services is integrated with the inalienable and regal functions of government, that those activities cannot be an industry and that such civil servants cannot be workmen, while quasi-government agencies and subsidised undertakings that are industrial in character stand on a different footing. That is the same line section 2(p)'s sovereign-functions exclusion draws.

A worked example

The facts. Consider five undertakings in Thane district.

(a) The municipal water supply department, which lays pipes, treats water and bills consumers, and makes no profit. An industry. There is systematic activity, cooperation between employer and workers, and the supply of a service to satisfy human wants. Section 2(p) says in terms that it does not matter that no capital was invested or that there is no motive to make gain or profit, and this is the very activity Bangalore Water Supply was about.

(b) A hospital run by a trust wholly engaged in charitable service, charging nominal fees. NOT an industry, on the Code. Exclusion (i) in section 2(p) takes out institutions owned or managed by organisations wholly or substantially engaged in charitable, social or philanthropic service. Note carefully that on Bangalore Water Supply the answer would have been the opposite, because that case held philanthropy animating an undertaking does not exempt it and expressly refused to exempt charitable projects. This is where the Code departs from the case, and an answer that gets it right will say so.

(c) A private hospital run for profit. An industry, and comfortably so.

(d) A cook and a driver employed in a private household. NOT an industry. Exclusion (iii), domestic service.

(e) A Government-owned factory making machine tools, inside a department that also runs a defence research laboratory. Take the two parts separately. The defence research activity is excluded outright by exclusion (ii), which takes out all the activities of Central Government departments dealing with defence research, atomic energy and space. The machine tool factory is not a sovereign function; it is an economic adventure, and Bangalore Water Supply says such adventures of Government or statutory bodies are not exempt. Whether it is a separate industrial establishment is then answered by the proviso to section 2(r): if the unit is severable from the units not carrying on or aiding an industry, it is deemed a separate industrial establishment.

Now a mixed case. A company runs a manufacturing plant and, on the same premises, a small dispensary for its workers. The dispensary standing alone might be argued to be something else. Under the second limb of the proviso to section 2(r), the predominant activity is manufacture, which is an industry, and the dispensary is not severable from it and exists to aid it, so the entire establishment is an industrial establishment.

What this does NOT mean

It does not mean profit is required. The definition says the opposite, twice over: neither invested capital nor a gain or profit motive is necessary.

It does not mean a Government body is outside. Only activity relatable to sovereign functions is excluded, plus the three named Central departments. A State transport undertaking or a municipal water supply is an industry.

It does not mean Bangalore Water Supply is dead. Its triple test is what section 2(p) enacts. What it does mean is that the case can no longer be cited for the proposition that a charitable institution is an industry, because the Code excludes it.

It does not mean a temple or a religious body is automatically outside. The exclusion in the positive test is of wants or wishes which are merely spiritual or religious. Bangalore Water Supply made the point vividly: making prasad or food on a large scale is a material service.

It does not mean the dominant nature test has gone. It has moved: it is now in the proviso to section 2(r), in two limbs.

It does not mean the boundary is fixed. Exclusion (iv) lets the Central Government notify further exclusions.

Limits, criticism and amendments

The charitable exclusion is the most criticised feature of section 2(p), and the criticism is the one Bangalore Water Supply made in advance. A hospital or school does not become a kinder employer because its owner is a trust, and the worker who cleans its wards does the same work for the same wage as one in a private hospital across the road. The Court's answer in 1978 was that the focus is functional and that philanthropy animating an undertaking is irrelevant to the position of the people it employs. Parliament has now decided otherwise.

Naming three Central departments is unusual drafting. Defence research, atomic energy and space are taken out entirely, which removes even the severable industrial units inside them that Bangalore Water Supply would have covered.

The notification power in exclusion (iv) is a standing criticism. The scope of the whole Code can be narrowed by executive notification, without Parliament.

And the long silence is part of the story. Parliament passed an amendment narrowing "industry" in 1982 and never commenced it; the Supreme Court complained about exactly that in Jai Bir Singh in 2005 and referred its own leading case for reconsideration; and the definition was finally settled by a new Code in 2020, which came into force in 2025. A student who tells that story in three sentences has answered the "conceptual analysis" the syllabus asks for.

Quick revision

• Section 2(p): systematic activity, by co-operation between employer and worker (including through a contractor), for the production, supply or distribution of goods or services to satisfy human wants or wishes not merely spiritual or religious; whether or not capital invested; whether or not carried on for gain or profit.
• Four exclusions: charitable, social or philanthropic institutions; activity relatable to sovereign functions, including all activities of the Central departments dealing with defence research, atomic energy and space; domestic service; anything the Central Government notifies.
• Bangalore Water Supply, AIR 1978 SC 548, seven Judges: the triple test; profit irrelevant; focus functional; philanthropy does not exempt; professions, clubs, educational institutions, cooperatives, research institutes and charitable projects are in, subject to a narrow eleemosynary exception; the dominant nature test; only sovereign functions strictly understood are out, and severable industrial units within them are in. Overruled six cases; approved Hospital Mazdoor Sabha.
• The Code reverses it on charity and on domestic service.
• Section 2(r) proviso: severable industrial unit is a separate industrial establishment; otherwise the predominant activity carries the whole undertaking.
• Jai Bir Singh, (2005) 5 SCC 1: referred Bangalore Water Supply to a larger Bench; the 1982 amendment narrowing the definition was kept dormant for twenty-three years.

Test yourself

1. Define "industry" under the Code and state its exclusions. Section 2(p) defines it as any systematic activity carried on by co-operation between an employer and worker, whether employed directly or through any agency including a contractor, for the production, supply or distribution of goods or services with a view to satisfy human wants or wishes, not being wants or wishes merely spiritual or religious in nature, whether or not capital has been invested and whether or not the activity is carried on with a motive to make gain or profit. It excludes institutions owned or managed by organisations wholly or substantially engaged in charitable, social or philanthropic service; activity of the appropriate Government relatable to its sovereign functions, including all activities of the Central Government departments dealing with defence research, atomic energy and space; domestic service; and any other activity notified by the Central Government.

2. State the triple test and the dominant nature test. On Bangalore Water-Supply and Sewerage Board v. R. Rajappa, AIR 1978 SC 548, the triple test is that where there is systematic activity, organised by cooperation between employer and employee, for the production or distribution of goods and services calculated to satisfy human wants and wishes, not spiritual or religious, there is prima facie an industry; and the absence of a profit motive is irrelevant in any sector. The dominant nature test is that where a complex of activities is carried on, some qualifying for exemption and some not, the predominant nature of the services and the integrated nature of the departments is the true test, so that the whole undertaking is an industry although those who are not workmen do not benefit by the status.

3. A hospital run by a wholly charitable trust dismisses a ward attendant. Is the Code available to him? No, on the Code as it stands. Section 2(p) expressly excludes institutions owned or managed by organisations wholly or substantially engaged in any charitable, social or philanthropic service, so the hospital is not an industry, the attendant is not a worker employed in an industry, and the Code's machinery does not apply. The answer would have been the opposite under Bangalore Water Supply, which held that an organisation does not cease to be a trade or business because philanthropy animates it and expressly refused to exempt charitable projects. This is the clearest instance of the Code departing from the case law by statute.

4. Does it matter that an undertaking makes no profit, or that no capital was invested in it? No. Section 2(p) says an activity is an industry whether or not any capital has been invested for the purpose of carrying it on and whether or not it is carried on with a motive to make any gain or profit. Bangalore Water Supply had already held the absence of a profit motive or gainful objective irrelevant, in the public, joint, private or any other sector.

5. What happened in Jai Bir Singh, and why does it matter now? In State of U.P. v. Jai Bir Singh, (2005) 5 SCC 1, a Bench of five Judges declined to decide whether a social forestry department was an industry and instead referred Bangalore Water Supply to a larger Bench for reconsideration, observing that Parliament had substituted a narrower definition of industry by the Industrial Disputes (Amendment) Act 1982 and had kept it dormant on the statute book for twenty-three years, and that the helplessness of the legislature and executive compelled the reference. It matters because it dates the dissatisfaction with the wide judicial definition and explains why section 2(p) of the Code now carries express exclusions: the Code has done by a fresh definition what the 1982 amendment failed to do.

6. An establishment runs a printing press and a research wing that is not an industry. Which provision decides the position, and how? The proviso to section 2(r), which defines "industrial establishment or undertaking". If the unit carrying on the industry is severable from the units that neither carry on nor aid such activity, that unit is deemed to be a separate industrial establishment. If instead the predominant activity is an industry and the other activities are not severable from it and exist to carry on or aid it, the entire establishment or undertaking, or the unit, is deemed to be an industrial establishment. That proviso is where Bangalore Water Supply's dominant nature test now lives.