Recently, while dealing with the dispute arising from the termination of a long-standing manufacturing agreement, the Supreme Court underscored the importance of proper authority and reasoned decision-making under labour laws, in the case of the closure of a production division, resulting in the termination of its employees. The Apex Court addressed the critical issues concerning the closure of industrial undertaking under Industrial Disputes Act, 1947, and the interplay with Article 19(1)(g) of the Constitution, which guarantees the freedom to carry on trade or business, including the right to close it, subject to reasonable restrictions.
Brief Facts:
The case arose from the termination of a long-standing Job Work Agreement between Harinagar Sugar Mills Ltd. (HSML) and Britannia Industries Ltd. (BIL), for exclusive biscuit manufacturing. After BIL terminated the agreement, HSML applied for closure of its Biscuit Division under Section 25-O(1) of the Industrial Disputes Act, 1947, citing the loss of business. The State Government initially found the closure application insufficient and requested additional details. HSML submitted a reply explaining its efforts to find alternative work. The State again sought further information regarding employee absorption and alternative production avenues. Meanwhile, the worker’s union obtained an interim order from the Industrial Tribunal restraining the closure. HSML’s writ petitions challenging the State’s communications were dismissed by the Bombay High Court. HSML then filed an appeal before the Supreme Court.
Contentions of the Appellant:
HSML contended that the High Court erred in relying on the wrong statutory form, leading to a flawed interpretation of the closure process. It maintained that the closure application was complete at the time of filing, and subsequent responses did not indicate any deficiency. The communication from the Deputy Secretary was not a formal order under Section 25-O(2) but merely a request for details. As no order was issued within the mandatory 60-day period, deemed approval under Section 25-O(3) stood triggered. HSML further argued that the Deputy Secretary lacked the requisite authority, as powers were not duly delegated by the appropriate government. Consequently, the State’s later communications had no legal force and failed to satisfy statutory requirements.
Contentions of the Respondent:
The State contended that its communication refusing closure permission was valid and went unchallenged by HSML. It argued that the exclusion of the recognized union undermined workers’ interests and violated the protective purpose of Section 25-O. Deemed approval under Section 25-O(3), it claimed, was inapplicable as the application failed to meet the statutory requirements, and no inquiry or hearing under Section 25-O(2) was conducted. HSML’s later submissions were seen as an admission of incompleteness. The State also asserted that the Industrial Tribunal’s interim stay and the pending writ petition barred the closure, and its inquiries regarding worker absorption were necessary to uphold employee rights under Section 25-O(6).
Observation of the Court:
The Bench identified two key questions: whether the letter dated September 25, 2019, constituted a valid order under Section 25-O(2), and whether the “appropriate Government” acted appropriately, impacting the applicability of the deemed closure provision under Section 25-O(3).
The Division Bench of Justice Sanjay Karol and Justice Prashant Kumar Mishra observed, “The letter dated 25 September 2019 addressed by the Deputy Secretary to HSML cannot be constituted to be an order since such order to resubmit the application was without any authority since it was not the appropriate Government acting in that regard and not an order rejecting or accepting the application. The same conclusion can be reached on a second count - the ‘order’ suffered from the vice of non-application of mind by the competent authority.”
Further, the Bench observed that the letter dated September 25, 2019, lacked the requisite application of mind, as it merely endorsed a subordinate’s noting without independent reasoning, thus failing to satisfy the statutory requirement of a reasoned order under Section 25-O(2) of the Industrial Disputes Act, 1947. The Bench emphasized, “The decision had to be Top Down and not otherwise,” stressing the necessity of the Labour Minister’s independent consideration as the competent authority.
The Court held that the application dated August 28, 2019, was complete, as it clearly stated that HSML had no manufacturing avenues post-BIL’s termination. The Court queried, “When there is no opportunity or avenue for production, what shall the employees do?” The absence of a valid order within the 60 days under Section 25-O(3) triggered deemed closure on October 27, 2019, and the High Court’s reliance on the incorrect Form XXIV-B was erroneous, leading to a misapplication of statutory provisions.
Proceeding further, the Bench clarified that if there exists the freedom to set up and run a trade/business as one sees fit, necessarily, there has to be a set of rights vesting with the proprietor/owner to make decisions as may be in his best interest. At the same time, it is true that the law does not permit such an owner or proprietor to take any decisions without having considered and accounted for the impact that it shall have on the employees or workers that are part of this establishment, added the Bench. The Bench therefore emphasized, “This is evidenced by the provision extracted above providing for a detailed procedure to be followed when a person wishes to ‘shut shop’, but concomitant providing that if the concerned Government does not take action with reasonable expediency, the business owner should not be saddled with the costs and responsibilities of running the business”.
When HSMC has clarified that, since inception, no job work for anyone else has ever been done, and it is not the case of the Respondent-State that the statement made by HSML is incorrect, and that they had other opportunities ongoing and available, and despite the same, they had sought permission for closure, the Bench concluded that there did indeed exist sufficient compelling circumstances for closure.
The decision of the Court:
In the light of the foregoing discussion, the Apex Court allowed the appeals, holding that the High Court erred in relying on Form XXIV-B instead of Form XXIV-C and in deeming the application incomplete. The Court clarified that payments made to employees during the pendency of the writ petitions are not recoverable. Additionally, HSML’s compensation offer was enhanced from Rs. 10 crores to Rs. 15 crores, to be distributed among eligible workers within eight weeks from June 4, 2025.
Case Title: Harinagar Sugar Mills Ltd. Vs. State of Maharashtra & Ors.
Case No.: SLP(C)No.4268/2023
Coram: Justice Sanjay Karol and Justice Prashant Kumar Mishra
Counsel for Appellant: Senior Advocate Mukul Rohatgi, AOR Praveen Kumar, Advocates Abhay Jadeja, Arun Unikrihnan, and Sunaina Kumar.
Counsel for Respondent: AORs Seshatalpa Sai Bandaru, Aaditya Aniruddha Pande, Advocates Nitin Tambwekar, Shailesh S. Pathak, Siddharth Dharmadhikari, Bharat Bagla, Shrirang B. Varma, Sourav Singh, Aditya Krishna, and Adarsh Dubey.
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