Court’s Decision
The Supreme Court allowed the appeals filed by Harinagar Sugar Mills Ltd. (HSML) and held that the closure of its biscuit manufacturing division would be deemed to have been permitted under Section 25-O(3) of the Industrial Disputes Act, 1947, as no valid order was passed by the appropriate Government within the statutory time limit. The Court ruled that:
“The Deputy Secretary was not the appropriate Government… The Minister did not… consider the merits of the matter independently, much less with or without any application of mind.”
Further, invoking judicial restraint and recognising the consequences of closure for the employees, the Court enhanced the company’s offer and directed:
“Let the amount be released forthwith, as per their entitlement, in favour of the employees… not later than eight weeks from the date of the judgment.”
Facts
Harinagar Sugar Mills Ltd. (Biscuit Division), which operated as a contract manufacturer for Britannia Industries Ltd. (BIL) for over three decades, received a termination notice from BIL in May 2019. Given that it had no other business avenues, the company applied for closure of its undertaking under Section 25-O(1) of the Industrial Disputes Act on 28 August 2019. HSML sought to terminate the services of 178 workers and gave an undertaking to comply with compensation obligations under the Act.
However, the Government of Maharashtra, through its Deputy Secretary, responded that the reasons provided were insufficient and asked the company to re-submit the application. Even after additional details were provided by HSML in October 2019, further communication from the government on 4 November 2019 again sought fresh submissions. Workers’ unions challenged the closure before the Industrial Tribunal, which granted interim relief.
Issues
- Whether the letter dated 25 September 2019 by the Deputy Secretary could be treated as an ‘order’ under Section 25-O(2)?
- Whether HSML was entitled to the benefit of deemed permission for closure under Section 25-O(3)?
- Whether the Deputy Secretary could be considered the ‘appropriate Government’ under the Act?
- Whether the State complied with the statutory duties under Section 25-O while refusing closure?
Petitioner’s Arguments
HSML argued that:
- The letter dated 25 September 2019 was not a valid ‘order’ under Section 25-O(2) as it lacked reasons and was not passed by the Minister, who alone was authorised.
- The State failed to pass any order within 60 days from the date of application, and thus deemed closure applied.
- Reliance on Form XXIV (instead of XXIV-C) by the High Court was incorrect and led to an erroneous conclusion.
- There was no provision for re-submission of closure applications under the Act, and procedural defects cannot override statutory rights.
HSML referred to the Constitution Bench ruling in Excel Wear v. Union of India (1978) and its affirmation in Orissa Textile and Steel v. State of Orissa (2002) to assert that the right to close a business is a fundamental right subject only to reasonable restrictions.
Respondent’s Arguments
The State and Workers’ Union contended:
- The communication dated 25 September 2019, issued with the Minister’s approval (as shown in internal notings), constituted an order rejecting the application.
- The application was incomplete, and HSML’s act of submitting additional details confirmed this.
- Closure without exploring avenues for alternative employment or redeployment of workers was not justifiable.
- The workers were not given notice of the enquiry under Section 25-O(2), defeating the object of the provision.
- No deemed permission could arise from an incomplete application.
Analysis of the Law
The Court elaborated on the constitutional and statutory scheme:
- Article 19(1)(g) guarantees the freedom to carry on a business, which includes the right to close it, subject to reasonable restrictions.
- Section 25-O of the Industrial Disputes Act mandates a specific procedure for closure, including filing a complete application, opportunity of hearing, and reasoned order from the competent authority within 60 days.
The Court emphasised:
“Section 25-O specifically provides ‘by order and for reasons to be recorded in writing’… With time, it is now settled that administrative authorities are also required to give reasons for a decision made.”
It held that internal notings could not substitute a valid, reasoned, and communicated order by the competent authority. The Deputy Secretary was not authorised, and the Minister had not applied his mind independently.
Precedent Analysis
The Court relied on:
- Excel Wear v. Union of India, (1978) 4 SCC 224: Struck down earlier iteration of Section 25-O for lack of procedural safeguards.
- Orissa Textile and Steel v. State of Orissa, (2002) 2 SCC 578: Upheld the amended Section 25-O, holding that restrictions on closure were permissible if they satisfied tests of public interest and procedural fairness.
- Pimpri Chinchwad New Township v. Vishnudev Coop. Housing Society, (2018) 8 SCC 215: Held that internal government notings do not constitute valid decisions.
- Star Enterprises v. CIDCO, (1990) 3 SCC 280: Emphasised that administrative orders must be reasoned and communicated.
Court’s Reasoning
The Court concluded that:
- The letter dated 25 September 2019 lacked legal authority and could not be treated as an ‘order’.
- The appropriate Government had failed to pass any order within 60 days, thereby invoking deemed permission under Section 25-O(3).
- The company had disclosed its dependency on BIL and failed efforts to find alternative job work, demonstrating a compelling case for closure.
“This spells impossibility… When there is no opportunity or avenue for production, what shall the employees do?”
Conclusion
The Court held that HSML’s closure application was complete, and in the absence of any valid order by the competent authority, deemed permission under Section 25-O(3) stood granted. The appeals were allowed. The payments made under interim orders were held to be non-recoverable from employees.
The Court further directed HSML to pay an additional Rs. 5 crores (over and above Rs. 10 crores already offered and Rs. 4 crores paid as gratuity), to be disbursed to eligible workers within eight weeks.
Implications
- Reinforces that the right to close a business is constitutionally protected and cannot be curtailed by administrative delay or inaction.
- Clarifies that internal file notings do not constitute orders under statutory schemes requiring reasoned decision-making.
- Strengthens procedural safeguards for employers under Section 25-O and ensures accountability of State authorities.
- Provides relief to employees while balancing industrial freedom with social justice through compensatory payments.
