Right To Do Business Includes Right To Shut Down | Supreme Court Upholds Article 19(1)(g) Protection
Kiran Raj
The Supreme Court of India Division Bench of Justice Sanjay Karol and Justice Prashant Kumar Mishra held that the closure of an industrial undertaking is deemed to have been granted under Section 25-O (3) of the Industrial Disputes Act, 1947, if the appropriate Government fails to communicate a decision within the stipulated period of 60 days. The Court allowed the appeals filed against the judgment of the Bombay High Court, which had earlier dismissed the petitions seeking recognition of closure of Harinagar Sugar Mills Limited (Biscuit Division) under the deemed closure provision.
The Bench held that the communication issued by the Deputy Secretary of the Government of Maharashtra did not amount to a valid order under Section 25-O, and the Minister, being the designated authority, had not exercised the power conferred by law. Consequently, the Court concluded that the employer’s application for closure was complete and that the delay in official response led to the operation of the statutory deeming fiction. The Court also enhanced the compensation offered to the employees and directed its disbursement within a specified timeframe, stating statutory compliance and procedural fidelity.
The dispute arose when Harinagar Sugar Mills Limited (Biscuit Division), engaged in manufacturing biscuits exclusively for Britannia Industries Limited (BIL), was served a termination notice by BIL on 24 May 2019. The termination, in terms of Clause 20.3.1 of the Job Work Agreement (JWA) dated 22 May 2007 and renewed on 23 October 2013, became effective from 1 June 2019, with the business relationship terminating on 27 November 2019.
Following the termination, Harinagar Sugar Mills Ltd. (HSML) filed an application for closure on 26 August 2019 under Form XXIV-C, as prescribed under Rule 82-B (1) of the Industrial Dispute (Maharashtra) Rules, 1957, read with Section 25-O (1) of the Industrial Disputes Act, 1947. The employer cited cessation of job work by BIL as the sole cause for the closure, stating that no alternative manufacturing avenues existed.
The application outlined the background of the exclusive job work relationship with BIL and informed authorities that the Biscuit Division had operated only under the said JWA for the past 32 years. Consequently, the undertaking had no other manufacturing arrangements and proposed to terminate the services of 178 permanent workmen. The company affirmed that statutory compensation as required under Section 25-N would be paid to affected employees.
On 25 September 2019, the Deputy Secretary, Government of Maharashtra, issued a letter to HSML stating that the company had not disclosed efforts made to prevent the closure nor provided cogent reasons for the proposed shutdown. The letter asked HSML to resubmit the application with detailed explanations regarding such efforts and justification.
In response, HSML sent a letter dated 10 October 2019 outlining attempts made to persuade BIL to continue the JWA. The company also provided details of discussions with other manufacturers such as Mondelez India Ltd., ITC Foods, and Parle Biscuits, all of which had declined to engage in job work. HSML asserted that the absence of alternative work made closure unavoidable.
Subsequently, on 4 November 2019, the authorities issued another letter noting that HSML had again failed to provide a full justification, especially regarding redeployment of employees or shifting to alternative production. This letter reiterated the request for resubmission of the closure application.
On 22 November 2019, HSML replied asserting that by virtue of Section 25-O (3), the closure application was deemed to be allowed as no communication had been received from the appropriate Government within 60 days of application. HSML stated that the authorities had become functus officio.
Meanwhile, the workers' unions objected to the proposed closure, alleging lack of bona fide intent and citing ulterior motives. They approached the Industrial Tribunal seeking an interim stay on the closure, which was granted on 26 November 2019.
The Government, through letters dated 20 and 22 November 2019, directed HSML not to proceed with the closure and asked them to attend a meeting on 26 November 2019. These letters were challenged in the writ petitions before the High Court.
The Bombay High Court held that the closure application was incomplete and the subsequent letter dated 10 October 2019, providing further reasons, was an acknowledgment of this deficiency. The Court also held that the letter of 25 September 2019 was a valid communication by the competent authority.
HSML challenged this decision before the Supreme Court, arguing that the Deputy Secretary was not the competent authority under the Act and that the closure was automatically deemed to have been approved under Section 25-O (3).
The Supreme Court examined the constitutionality and procedural scope of Section 25-O in light of past judgments, stating in Excel Wear v. Union of India, "...the right to close down a business is an integral part of the right to carry it on... It is wrong to say that an employer has no right to close down a business once he starts it. If he has such a right, as obviously he has, it cannot but be a fundamental right embedded in the right to carry on any business guaranteed under Article 19(1)(g) of the Constitution."
Regarding the authority to adjudicate on closure applications, the Court held, "There is no express authority resting with the Deputy Secretary... the Minister for Labour is a delegate of the State Government... According to the impugned judgment, a notification to this effect dated 25 June 2013 is present. However, the same is not on record."
The Court further stated, "We find it difficult to accept this contention... There is no express authority resting with the Deputy Secretary... reliance cannot be placed on internal noting to establish compliance with procedure."
Addressing the letter dated 25 September 2019, the Court observed, "Even if it is assumed that the letter was issued with approval from the Minister, it lacks the essential ingredient of application of mind... endorsement of a noting made by a subordinate officer cannot be ‘application of mind’... The decision had to be Top Down and not otherwise."
Further, the Court noted, "Reasons are a statutory necessity... Section 25-O specifically provides 'by order and for reasons to be recorded in writing'... even in administrative decisions, reasons must be furnished."
On the completeness of the application, the Court held, "The application for closure was duly addressed to the authority... stating reasons for closure, serving copies to the workers... The application was therefore complete in all respects."
Referring to the consequences of non-communication, the Court stated, "The appropriate Government failed to make and communicate any order on the application for closure... The deemed closure would, therefore, come into effect."
Further clarifying, the Court recorded, "We may add HSMC to have clarified that since inception no job work for anyone else was ever done and that now there is no further scope of executing work for anyone else. We are quite certain that this spells impossibility."
The Court held: "We hold that application dated 28th August 2019 was complete in all respects, and the 60-day period for the deemed closure to take effect would be calculable from said date."
The Court stated: "The Deputy Secretary was not the appropriate Government who could have asked HSML to revise and resubmit the application for closure. That authority is only vested with the Minister concerned. The Minister did not, even in the slightest, consider the merits of the matter independently, much less with or without any application of mind. Sub-delegation to the officer was not permitted by law, and, therefore, any communication made by him would be without any legal sanction."
On compensation, the Court recorded, "At the close of the hearing, Mr. Mukul Rohtagi, learned Senior Counsel had left the issue of further enhancement of the amount to the Court. Having given thoughtful consideration, we deem it just and proper to further enhance the appellants’ offer by a sum of Rs.5 crores, thus, making it Rs.15 Crores instead of Rs.10 Crores... Let the amount be released forthwith, as per their entitlement, in favour of the employees and, in any case, not later than eight weeks from the date of the judgment."
The Court also stated: "The appeals are allowed. It is, however, clarified that the money paid to the employees by orders of the High Court in the pendency of the writ petitions would not be recoverable from them."
Advocates Representing the Parties:
For the Petitioners: Mr. Praveen Kumar, Advocate-on-Record; Mr. Abhay Jadeja, Advocate; Mr. Arun Unikrihnan, Advocate; Ms. Sunaina Kumar, Advocate
For the Respondents: Mr. Nitin Tambwekar, Advocate; Mr. Shailesh S. Pathak, Advocate; Mr. Seshatalpa Sai Bandaru, Advocate-on-Record; Mr. Aaditya Aniruddha Pande, Advocate-on-Record; Mr. Siddharth Dharmadhikari, Advocate; Mr. Bharat Bagla, Advocate; Mr. Shrirang B. Varma, Advocate; Mr. Sourav Singh, Advocate; Mr. Aditya Krishna, Advocate; Mr. Adarsh Dubey, Advocate
Case Title: Harinagar Sugar Mills Ltd. (Biscuit Division) & Anr. v. State of Maharashtra & Ors.
Neutral Citation: 2025 INSC 801
Case Number: CA NO___ OF 2025 Arising out of SLP(C) 4268 of 2023
Bench: Justice Sanjay Karol, Justice Prashant Kumar Mishra
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