Supreme Court scraps worker-friendly 1978 ‘industry’ precedent for new labour code

The Supreme Court's recent decision to overrule its landmark 1978 Bangalore Water Supply vs. A. Rajappa judgment marks a watershed moment in Indian labour jurisprudence. For over four decades, the Bangalore Water Supply precedent had served as the bedrock for an expansive interpretation of 'industry' under the Industrial Disputes Act, 1947. That seven-judge bench ruling had adopted a broad, functional test — focusing on the nature of activity, cooperation between employer and employee, and the production or distribution of goods and services — thereby bringing hospitals, educational institutions, clubs, charitable organisations, and even sovereign functions of the state within the fold of 'industry'. This judicial creativity empowered millions of workers in the service sector, non-profits, and public utilities to access statutory protections like collective bargaining, protection against unfair labour practices, and dispute resolution mechanisms under Chapter V of the Industrial Disputes Act. The current ruling arises from the transition to the new labour code architecture. The Industrial Relations Code, 2020 — one of four consolidated labour codes passed by Parliament in September 2020 (alongside the Code on Wages, 2019; the Occupational Safety, Health and Working Conditions Code, 2020; and the Social Security Code, 2020) — redefines 'industry' in its own text. The Supreme Court, in a significant shift towards textualism, held that the new Code must be interpreted in its 'own text and context', refusing to transplant the 1978 judicial gloss onto the new statutory framework. This effectively narrows the definitional ambit, potentially excluding a vast swathe of establishments — particularly in the service economy, education, healthcare, and civil society — from the protective umbrella of industrial relations law. Key stakeholders include central and state governments (labour being a Concurrent List subject under Entry 22 and 23 of List III, Seventh Schedule), employers' associations (especially in services and non-profits), trade unions, and the 400+ million unorganised and organised workers. The judgment reflects a broader policy tilt towards ease of doing business and formalisation of labour regulation, but raises serious constitutional questions under Article 21 (right to livelihood), Article 19(1)(c) (right to form associations/unions), and Article 43 (Directive Principle for living wage and decent work conditions). The International Labour Organization (ILO) Conventions 87 and 98 on freedom of association and collective bargaining — which India has ratified — also loom large as interpretive aids. The significance for India is profound. Economically, it may reduce compliance costs for service-sector enterprises and non-profits, potentially encouraging formal employment. Politically, it signals the judiciary's deference to legislative reform in labour law, a domain historically shaped by judicial activism. Socially, however, it risks creating a two-tier workforce: those in traditional manufacturing with robust protections, and a growing service-sector proletariat with diminished legal recourse. The four labour codes, though enacted in 2019-20, remain partially unimplemented due to pending state rules — a federalism challenge under Article 254. Looking ahead, the immediate implication is legal uncertainty. Workers in hospitals, schools, and NGOs may lose access to labour courts and industrial tribunals. Trade unions will likely challenge the narrowed definition through writ petitions under Article 226/32, arguing violation of fundamental rights. Parliament may face pressure to amend the Industrial Relations Code's definition clause. For aspirants, this case is a living case study in statutory interpretation, labour federalism, constitutional morality, and the evolving social contract between labour, capital, and the state in India's $3.7 trillion economy.