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Supreme Court Holds Deemed Closure Valid Where No Proper Order Issued by Competent Authority — “Business Cannot Be Forced to Run Indefinitely in Face of Administrative Inaction” | Article 19(1)(g) Guarantees the Freedom to Close a Business Subject to Reasonable Restrictions

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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

  1. Whether the letter dated 25 September 2019 by the Deputy Secretary could be treated as an ‘order’ under Section 25-O(2)?
  2. Whether HSML was entitled to the benefit of deemed permission for closure under Section 25-O(3)?
  3. Whether the Deputy Secretary could be considered the ‘appropriate Government’ under the Act?
  4. Whether the State complied with the statutory duties under Section 25-O while refusing closure?

Petitioner’s Arguments

HSML argued that:

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:


Analysis of the Law

The Court elaborated on the constitutional and statutory scheme:

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:


Court’s Reasoning

The Court concluded that:

“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

Also Read: Supreme Court Sets Aside Detention Under Kerala Anti-Social Activities Act—Preventive Detention Must Not Be Used to Clip the Wings of an Accused Under Bail; No Material to Show Threat to Public Order

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