# [1979] 1 S.C.R. 1009 - **Citation:** [1979] 1 S.C.R. 1009 - **Court:** Supreme Court of India - **Decided:** 1978-09-29 - **Case number:** Writ Petition No. 644 of 1977 - **Bench:** Y. V. Chandrachud, R. S. Sarkaria, N. L. Untwalia, A. 0. Koshal, A. P. Sen - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1979-1-s-c-r-1009-7485 - **Pages:** 38 ## Headnote llldustrial Dispures Act. 1947-Sections 25(0) and Section 25(R)-Constitu· lional Validity of-Whether right to close down an undertaking a fundamental . tory for any higher authority of the Government to take a decision. It may be taken even by a lower officer in the hierarchy. ( 4) The respondents• contentions :- (a) Some counsel for the respondents did not dispute that the right to close down a. business is an integral part of the right to carry on a business. fhey however, contended that the restrictions imposed by the impugned law are quite reasonable andl justified to put a stop to the unfair Jabour practice and for the-- welfare of the work.men. It is a progressive legislation for the protection of a weaker section of society. (b) Some other counsel for the respondents, however, did not accept that a right to close down a business is an integral part of the right to carry on any business. According to them, the total prohibition of closure only affects a part of the right to carry on the business and not a total annihilation of thi.s. The restriction imposed was in public interest and there ·is a presumption of reasonableness in favour of a statute. Reliance was aJso placed on social and welfare legislation as expounded by renowned jurists and judges abroad. It was also contended that the legisla.tion was protected' by Arlicle 31 C of the Constitution. • ) 1 • • • • • ' • • • ... EXCEL WEAR v. UNION (Untwalia, I.) 1011 . W Allowing the petitions, the Court HELD : The right to close down a business •cannot be equated with a right not• to 'start or carry on a business at all. The extreme proposition urged oi::J. beJfalf of the employer by equating the two rights and placing them at par is not qu'ite apposite and sound. If one does not start a business at all> then P'erhaps under no circumstances, he can be compelled to Start one. Such a D.egative aspect of a right to carry on a business may be equated with the negative aspect of the right embedded in the coocept of the right to freedom of speech, to form an association or to acquire or hold property. Perhaps under no circumstinces, a person can be compelled' to speak, to form an association or to acquire or hold a property. But by imposing reasonable restrictions, he coo be con1pelled not to speak, not to form an association or not to acquire or not to hold pro~ P.erty .' A total prohibition of business is possible by putting reasonable restric· tion,s under Artic1e 19(6) on the right to carry on a business. [1027 B-D, 10.28 A] Cooi·erjee B. Bharucha v. The Excise Commissioner and the Chief Commi~ sioner; Ailner & Ors.; [1954] SCR 873; Narendra Kumar & Ors'. v .. The Union of India & o;;. [1960] 2 SCR. 375 relied on. Ho.wever, the greater the restriction, the more the need for strict scrutiny by the Court. The contention put forward on behalf of the labour unions that the right to close down a business is not an integral part of the right to carry on a. bu.siness or that it is not a fundamental right at all is ahlo wrong. In one sense~ the right dOes appertain to property. But such a faint overlapping of the night io property engrafted in ArL 19(1)(!) or Art. 31 must not be allowed to ·cast any shade or eclipse ori the si.tnple nature of the right. However, the right to close down is not an absolute right. It can certainly be restricted, regul3.tect or controlled by law in the. interest of the general public. [1027 E, 1028 A-CJ Concept of socialism or socialistic stat.e has undergone changes from time to time, from country to country- and from thinkers to thinkers. But some basic concept still holds the field. In the case of Akadasi Padhan the question for consideration was whether a law creating a state monopoly is valid under the latter part of Article 19(6). The Court pointed out the difference between the doctrinaire approach to the problem of socialism, and the pragmatic one. But so long as the private ownership of an industry is recognised governs an over~ whelmingly Jarge proportion of our economic structure, it is not possible to say that principles of socialism and social justice can be pushed to such an extreme so as to ignore completely or to a very large extent the interests of another s~_ction of the public namely the private owners of the undertakings. [1030 G~H. 1031 E-GJ B c D E F Akadasi Padhan v. State of Orissa, [1963] Suppl. 2 SCR 691 referred to. G There are creditors and depositors and various other persons connected with er having dealings with the undertaking, whose rights are also affected by the impugned legislation. [1031 G] Section 25-G (2) does not require the giving of reasons in the order. In two of. the orders in the present cases, it is merely stated that the reasons for the intended closure are prejudicial to public interest suggesting thereby that the reasons given by the employers are correct, adequate and sufficient, yet they are prejudicial to the public interest. In cases of hon~ fide closuros, it would be H A B c D E F 1012 SUPREME COURT REPORTS [1979] 1 s.c.R. generally so. Yet the interest of labour for the time being is bound to sμ,ffer because it makes a worker unemployed. Suctil a situation as far as reasonably possible should be prevented. Public interest and social justice do require the protection of the labour. But it is not reasonable to give them prote.:tion against all unemployment after affecting the interests of so many pcrscns interested iru::luding persons who have· no connection with the management. It is not pa&sible to compel the employers to manage the undertaking even if they find that it is not safe or practicable to do· so. They cannot be asked to go on facing tremendous difficulties. of management even at the risk of their perron and property. They cannot be compelled to go on incurring losses year after year. [1032 C-FJ In the third Writ Petition, the Government has given two reasons, for refus~ ing to grant permission. Both of them are too vague to give an exact idea in support of the refusal of permission, to, close down. It says that the reasonA arc not adequate and sufficient and that the intended closure is prejudicial to the public interest. The latter reason will be universal in all cases of closure. The former demonstrates. to what extent the order can be unreasonable. If the reasons given by the petitioner in great detail are correct, as the impugned order suggests they are, it is preposterous to sa.y that they are not adequate and Ruffi~ cient for a closure. Such an unreasonable order was possible to be passed because of the unreasonableness of the law. Whimsically and capriciously, the authority can refuse permission to close down. [1033 B·E] If' the Government Order is not communicated to the employer within 90 days, strictly speaking, criminal liability in section 25(R) ma.y not be attracted, if on the expiry of that period an employer closes down the undertaking, But it seems the civil liability under Section 25(0) (5) will come into play even after the passing of the order of refusal of permission to close down on the expiry of the period of 90 days. Provision in Chapter V(B) of the Act sug. gests that the object of carrying on production can be achieved by the refusal to gra.nt permission although in the .objects and reasons of the amending act such an object seems. to be there although remotely and seccndly it i'J highly unreasonable to achieve the object by compelling the employee not to close down in public interest for maintaining production. The order passef manufacturing and selling Diesel Oil Engines, Mechanical Lubricators, Engine Valves and Push Rods etc. The petitioners were obliged • to decide to close down the undertaking due to huge losses incurred by them on account of low productivity, serious labour unrest and indiscipline resulting in various incidents of assaults or the like. The Company, therefore, applied to the State Government of Maharashtra <>n May 2, 1977 under section 25-0(1) of the Act for approval of the ~ intended closure. The State Government communicated their refusal in their letter dated the 29th July, 1977 enclosing therewith a copy of their order couched in identical terms as those in the case of Excel Wear. WRIT PETITIONS 959 AND 960 OF 1977 Mr. K. K. Singhvi, appearing for the petitioners in this case apart from supporting the argument of Mr. Nariman drew our attention to • the facts of this case which were more or less of a similar nature as in the case of Acme Manufacturing Co. Ltd. Petitioner No. 2 is a citizen of India and is a shareholder of Apar Private Ltd., petitioner No. 1. The Company owns a factory at Vithalwadi, Kalyan (Bombay) which manufactures aluminum rods, AAC and ACSR conductors, P.Y.C. cables and welding electrodes. Feeling compelled to take a decision to close down the factory, the Company served a notice on the State Government under section 25-0(1) of the Act on September 16, 1976: The Order of the State Government refusing permission to the petitioner company to close down the undertaking is dated the 23rd • December, 1976. The reasons for refusal given in this Order are ~slightly different. They are as follows :- . "And whereas the Government. of Maharashtra after considering the aforesaid notice is satisfied that the reasons for the intended closure of the said undertaking are not adequate and sufficient and the intended closure is prejudicial to the public interest;" • Broadly speaking the contention on behalf of the employers in all these cases is that a right to close down the business is an integral part of the right to carry on the business guaranteed under Article 19 ( 1) (g) ' of the Constitution of India. The impugned law imposes a restriction on the said fundamental right which is highly unreasonable, excessive and arbitrary. It is not a restriction but almost amounts to the destruction or negation of that right. The restriction imposed is manifestly beyond the permissible bounds of clause (6) of Article 19 of the A B c D E F G H A B c D 1018 SUPREME COURT REPORTS [I 979] I s.c .R. Constitution. The proposition canvassed for our consideration was - sometimes too bald and wide. It was submitted that a right to carry on the business includes a right not to carry on the business, just like ~ any other right mentioned in clause (1) of Article 19, such as, the right to freedom of speech includes a right not to speak and the right not to form an association is inherent in the right to form associations. , Similarly a right to acquire and hold property embraces within it a right not to acquire or hold property. The submission was that no body can be compelled to speak or to form an association, to acquire , or hold property and similarly no body can be compelled to carry on · any business. · t M/s. Lalit and Bhandare did not dispute the propo;ition that the right to close down the business is an integral part of the right to carry on the business. They, however, strenuously urged that the restrictions imposed by the impugned law are quite reasonable and justified to put a stop to the unfair labour practice and for the welfare of the workmen. It is a progressive legislation for the protection of a weaker section of the society. Mr. Deshmukh, however, did not accept that , a right to close down a business is an integral part of the right to carry on any business. He submitted that a right to closure is appurtenant to the ownership of the property, namely, the undertaking. The total prohibition of closure only affects a part of the right to carry on the business and not a total annihilation of this. The restriction imposed E was in public interest and there is a presumption of reasonableness in its favour. Mr. Nadkarni endeavoured to submit with reference to the high philosophies of Jurisprudence in relation to the social and welfare legislations, as expounded by renowned jurists and judges abroad, that the action of closing down a business is no right at all in any sense of • the term. Mr. Ramamurthi while supporting the main arguments put F forward on behalf of others led great stress in the point that the law is,,>-- protected by Article 31-C of the Constitution, a point which was merely touched by them but was seriously taken over by Mr. Ramamurthi. G H Before we enter into the focus of the discussion of the main point< • and their important aspects and facts it would be advantageous to refer to the relevant history of the development of this branch of the law. • The Act being Central Act 14 of !94 7 was passed in the year 1947. In 1953, an Ordinance was promulgated followed by Amending Act 43 of 1953 inserting Chapter VA containing Sections 25A to • 25J. New definitions of "Lay-Off" and "Retrenchment" were fur-· nished in· the Act in clauses (kkk) and ( oo) of Section 2. The heading of Chapter VA is "Lay-Off and Retrenchment". The relevant provisions of this Chapter were not meant to cover the small industrial ' ··--.... • • EXCEL WEAR v. UNION (Untwalia, !.) 1019 establishments in which less than 50 workmen were cmpio}ed or establishments of a seasonal character. Section 25C made a provision for certain amounts of compensation for workmen in case they are laidoff. Section 25F imposes certain conditions on the employers which are conditions precedent to retrenchment of workmen, such as, the giving of one me>nth's notice or wages in lieu thereof. Provision has also been made for payment e>f retrenchment compensation. Section 25FF dealt with compensation te> we>rkmen in case of transfer of undertakings. In Hariprasad Shivshankar Shukla v. A. D. Divikar(') this Court had occasiop. to consider the meaning of the term "retrenchment". It was opined that the word "retrenchment" means the discharge of surplus labour or staff by the employer for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action and de>es not include termination of services of all workmen on a bona fide closure of an industry. The question posed at page 134 by S. K. Das J ., who delivered the judgment on behalf of the Constitution Bench of this Court was whether the definition clause of the word 'retrenchment' covers cases of closure of business when the closure is real and bona fide? The answer given at page 137 was in the negative. Discharge of workmen on bona fide closure of business was held to be not retrenchment. On the view that Section 25F of the Act had no application to a closed or dead industry, no pronouncement was made in regard to the constitutional validity of the section if A B c D it were to take within its ambit a case of closure also. E After the decision of this Court in the case of Hariprasad Shivshanker (supra) was handed down the law was amended by an Ordinance followed by Amending Act 18 of 1957 with retrospective effect frcm November 28, 1956. Section 25FF was amended to make a provision for payment of compensation to workmen in case of transfer F of nndertakings and a provision was made in Section 25FFF for payment of compensation to workmen in case of closing down of an undertaking. It will be of use to read here sub-section ( 1) of Section 25FFF for the purpose of deciding some of the contentious questions in this case. It reads as follows :- "Where an undertaking is closed dowu for any reason whatse>ever, every workman who has been in continuous service for not less than one year in that undertaking immediately before such closure shall, subject to the provisions of sub-section (2), be entitled to notice and compensation in accordance with the provisions of section 25F, as if the workman had been retrenched. ( 1) [1957] S. C. R. 121 G H \. A B c D 1020 SUPREME COURT REPORTS [1979] I s.c.R. Provided that where the undertaking is closed down on account of unavoidable circumstances beyond the control of the employer, the compensation to be paid to the workman under clause (b) of section 25F, shall not exceed his average pay for three months. Explanation-An undertaking which is closed down by reason merely of- (i) financial difficulties (including financial losses); or (ii) accumulation of undisposed of stocks; or, (iii) the expiry of the period of the lease or licence granted to it; or (iv) in a case where the undertaking is engaged in mining operations, exhaustion of the minerals in the area in which operations are carried on; shall not be deemed to be closed down on account of nnavoidable circumstances beyond the control of the employer within the meaning of the proviso to this sub-section." It would be rwticed from the provision extracted above that normally it became necessary for an employer in a case of closure for any reason whatsoever to give notice and compensation to the workmen in accorE dance with the provisions of section 25F as if the workman had been retrenched. But the proviso clearly postulated that an undertaking may have to be closed down on account of unavoidable circumstances beyond the control of the employer. In that event a ceiling was put in the proviso on the amount of normal compensation payable. The F explanation added by Amending Act 45 of 1971 merely indicates that the reasons enumerated in clauses (i) to (iv) of the Explanation will not be deemed to be a closure brought about on account of unavoidable reasons beyond the control of the employer within the meaning of the proviso. Factually and really the said reasons may be said to fall within the expression "unavoidable circumstances beyond the control G of the employer." But the said reasons will not be deemed to be such that a workman should be made to get only a limited compensation a~d not the full normal compensation provided in section 25F. H The constitutional validity of section 25FFF(l) came to be considered by this Court in M/s Hatisingh Mfg. Co. Ltd. and another v. Unitm of India and Ors.('). The provision was construed in a manner which saved it from the attack on its vires. Since we are on this case. (!) [1960] · ~.C.R. 528. I • • • , • • EXCEL WEAR v. UNION (Untwalia, !.) 102! at this very stage we may refer to some very important views expressed therein which are decisive of some of the points raised in this case and. of great help in deciding some others. Shah J., as he then was, speaking for the Court pointed out at page 535 :-"By Article 19 ( 1) (g) of the Constitution freedom to carry on any trade or business is guaranteed to every citizen, but this freedom is not absolute." "In the interest of the general public", says the learned Judge, "the law may impose restrictions on the freedom of the citizens to start, carry on or close their undertakings." This clearly indicates, and the whole ratio of the case is based upon this footing, that the right to carry on any business includes a right to start, carry on or close down any undertaking. It has further been pointed out on the same page that "by s. 25FFF( 1), termination of employment on closure of the undertaking without payment of compensation and without either serving notice or paying wages in lieu of noitce, is, not prohibited. Payment of compensation and payment of wages for the period of notice are not therefore conditions precedent to closure." This is one of the main reasons given in the judgment to repel the attack on the constitutional validity of the provision. We, however, must hasten to add that it does not necessarily follow therefrom that if such payments are made conditions precedent to closure the provision will necessarily be bad. While judging the question as to whether the restrictions imposed by Sections 25-0 and 25-R are reasonable or not within the meaning of clause (6) of Article 19, we will have to keep in mind the principles enunciated in Hatising's case at page 535 thus:- "Whether an impugned provision imposing a fetter on the exercise of the fundamental right guaranteed by Art. 19 ( 1) (g) amounts to a reasonable restriction imposed in the interest of the general public must be adjudged not in the background of any theoretical standards or predeterrninate patterns, but in the light of the nature and incidents of the right the interest of the general public sought to be secured by imposing the restriction and the reasonableness of the quality and extent of the fetter upon the right." At pages 536-37 are to be found some important obseryations in the interest of the labour and we respectfully agree with them. They are as follows :- "Closure of an industrial undertaking involves terminaA B c D E F G tion of employment of many employees, and throws them into H the ranks of the unemployed, and it is in the interest of the general public that misery resulting fro!ll unemployment A B c D E F 1022 SUPREME COURT REPORTS [1979] 1 s.c.R. should be redressed. In Indian Hume Pipe Co. Ltd. v. The Workmen-[1960] 2 SCR 32 this Court considered the reasons for awarding compensation under s. 25F (though not its constitutionality). It was observed that retrenchment compensation was intended to give the workmen some relief and to soften the rigour of hardship which retrenchment brings in its wake when the retrenched workman is suddenly and without his fault thrown on the streets, to face the grim problem of unemployment. It was also observed that the workmen naturally expects and looks forward to security of service spread over a long period, but retrenchment destroys his expectations. The object of retrenchment compensation is therefore to give partial protection to the retrenched employee to enable him to tide over the· period of unemployment. Loss of service due to closure stands on the same footing as loss of service due to retrenchment, for in both cases, the employee is thrown out of employmeut suddenly and for no fault of his and the hardships which he has to face are, whether unemployment is the result of retrenchment or closure of business, the same." In case of retrenchment only a specified number of workmen loses their employment while in closure all the workmen become unemployed. By Amending Act 32 of 1972 section 25FFA was inserted in Chapter VA of the Act providing for the giving by the employer of 60 days' prior notice to the appropriate Government of his intention to close down any undertaking. Failure to do so entailed a liability to be punished under section 30A inserted in the Act by the same Amending Act. Chapter VB was inserted in the Act by Amending Act 32 of 1976 with effect from the 5th March, .1976. Under section 25K the provisions of this Chapter were made applicable to comparatively bigger industrial establishments in which not less than 300 workmen were G employed. Only three kinds of industries were roped in for the purpose of the rigour of the law provided in Chapter VB by defining "industrial establishment" in clause (a) section 2SL to mean :- H "(i) a factory as defined in clause (m) of section 2 of the Factories Act, 1948; (ii) a mine as defined in clause (j) of sub-section (1} of section 2 of the Mines Act, 1952; or ' • • • • • • • • I • • EXCEL WEAR v. UNION (Untwalia, /.) (iii) a plantation as defined in clause (f) of section 2 of the Plantations Labour Act, 1951." 1023 Section 25M dealt with the imposition of further restrictions in the matter of lay-off. Section 25N provided for conditions precedent to retrenchment of workmen. In these cases the vires of neither of the - ~ two sections was attacked. Rather, a contrast was made between the B said provisions with those of section 25-0 to attack the latter.