Governmental Functions Cannot Be Treated As Industrial Activity: Centre Tells Supreme Court

The Central government yesterday opened arguments in the reference made to a 9-judge bench on the definition of “industry”. Attorney General R Venkataramani has told a CJI Kant led 9-judge bench that social welfare schemes and governmental functions cannot be treated as “industrial activity”, even if they involve organisational or operational elements resembling commercial undertakings.

Centre has argued that while the expansive “triple test” for defining industry, evolved in the 1978 Bangalore Water Supply case remains sound in law, its indiscriminate application has blurred the line between commercial activity and constitutionally mandated governance.

It is the Centre's stand that the final determination of what constitutes a “sovereign function” should rest with the executive. It has aslo urged court to refrain from exhaustively defining sovereign function while making the government's decision subject to judicial review— to determine what activities fall within that category.

The Supreme Court recently constituted a 9-judge bench which will is hearing the case on scope of definition of the term “industry” as defined under Section 2(j) of the Industrial Disputes Act, 1947. Hearing in the matter commenced on March 17, 2026, by a bench comprising Chief Justice of India Surya Kant, Justices BV Nagarathna, PS Narasimha, Dipankar Datta, Ujjal Bhuyan, SC Sharma, Joymalya Bagchi, Alok Aradhe and Vipul M Pancholi.

Appeals were referred to a Nine-Judge Bench to consider the correctness of the judgment rendered by a Seven-Judge Bench in Bangalore Water Supply and Sewerage Board vs. A. Rajappa, and concomitantly to also re-consider the interpretation of the expression “industry” as defined in Section 2(j) of the Industrial Disputes Act, 1947.

The bench will be adjudicating the following broad issues:

(i) Whether the test laid down in paragraphs 140 to 144 in the opinion rendered by Hon’ble Mr. Justice V.R. Krishna Iyer in Bangalore Water Supply and Sewerage Board’s case to determine if an undertaking or enterprise falls within the definition of “industry” lays down correct law? And whether the Industrial Disputes (Amendment) Act, 1982 (which seemingly did not come into force) and the Industrial Relations Code, 2020 (with effect from 21.11.2025) have any legal impact on the interpretation of the expression “industry” as contained in the principal Act?
(ii) Whether social welfare activities and schemes or other enterprises undertaken by the Government Departments or their instrumentalities can be construed to be “industrial activities” for the purpose of Section 2(j) of the ID Act?
(iii) What State activities will be covered by the expression “sovereign function”, and whether such activities will fall outside the purview of Section 2(j) of the ID Act?
(iv) Any other issue(s) that may arise during the course of hearing before the Nine-Judge Bench.

The nine-judge bench will consider the correctness of Bangalore Water-Supply & Sewerage Board v R. Rajappa (1978), in which a seven-judge bench had endorsed a wide definition. The definition allowed a large number of institutions and its employees to receive protection under the Industrial Disputes Act. The question was referred to a larger bench in May 2005 by a Constitution Bench of five-judges in State of Uttar Pradesh vs. Jai Bir Singh. In the said case supreme court had noted that though section 2(j) used words of very wide denotation, a line would have to be drawn in a fair and just manner so as to exclude some services or undertakings. It has thus called for the court to reconsider where the line should be drawn and what limitations can and should be reasonably implied in interpreting the wide words used in section 2(j).

"In construing the definition clause and determining its ambit, one has not to lose sight of the fact that in activities like hospitals like hospitals and education, concepts like right of the workers to go on `strike' or the employer's right to `close down' and `lay off' are not contemplated because they are services in which the motto is `service to the community'. If the patients or students are to be left to the mercy of the employer and employees exercising their rights at will, the very purpose of the service activity would be frustrated.", the Supreme Court had further said in Jai Bir Singh.

Pressing demands of the competing sectors of employers and employees and the helplessness of legislature and executive in bringing into force the Amendment Act compel us to make this reference, it had then said. In January 2017, a seven-judge bench, led by then CJI T.S. Thakur stated that a Bench of nine-judges will hear the case. The Supreme Court's decision in this matter will clarify a question that has been pending before it for over 20 years.

Case Title: STATE OF U.P. Vs JAI BIR SINGH

Bench: Chief Justice of India Surya Kant, Justices BV Nagarathna, PS Narasimha, Dipankar Datta, Ujjal Bhuyan, SC Sharma, Joymalya Bagchi, Alok Aradhe and Vipul M Pancholi

Hearing Date: March 18, 2026