{"id":352467,"date":"2025-07-05T11:30:42","date_gmt":"2025-07-05T06:00:42","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=352467"},"modified":"2025-07-05T11:32:59","modified_gmt":"2025-07-05T06:02:59","slug":"right-to-trade-vs-worker-protection-industrial-closure","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2025\/07\/05\/right-to-trade-vs-worker-protection-industrial-closure\/","title":{"rendered":"Right to Trade versus Protection of Workers: Legal Safeguards on Closure of Industrial Establishments"},"content":{"rendered":"
\n

Introduction<\/h2>\n

The perplexing intersection between the right to (or not to) do lawful trade, and the statutory protection of workers, was brought into focus by the Supreme Court of India through its recent decision in Harinagar Sugar Mills Ltd. (Biscuit Division)<\/span> v. State of Maharashtra<\/span>1<\/sup><\/a>. This judgment examines how the constitutional guarantee of the right to carry on or cease business under Article 19(1)(g<\/span>)2<\/sup><\/a> interacts with the regulatory framework of the Industrial Disputes Act, 1947<\/a>3<\/sup><\/a> (ID Act, 1947). Central to this case is the recognition that while the Constitution4<\/sup><\/a> protects economic autonomy, the statutory scheme envisaged under our labour regulations impose procedural and substantive checks on the closure of industrial undertakings so as to ensure a balance between business freedom and social justice.<\/p>\n

Factual background<\/h2>\n

For over three decades, Harinagar Sugar Mills Ltd. (HSML) operated its biscuit division solely as a contract manufacturer for Britannia Industries Limited (BIL), under a series of job work agreements (JWA). When BIL exercised its contractual right to terminate the JWA in 2019, after giving due notice, HSML found itself with no alternative business and therefore operating\/running the factory was no longer commercially viable. Faced with this crisis, HSML invoked Section 25-O<\/a>5<\/sup><\/a> of the ID Act, 1947<\/a>; a provision that governs the closure of industrial undertakings employing more than one hundred workers. Section 25-O requires employers to seek prior permission from the appropriate Government before closing an undertaking, and sets out a detailed process, designed to balance business exigencies with worker protections. Section 25-O(3), which is relevant for the present case, reads as follows:<\/p>\n

25-O. Procedure for closing down an undertaking.<\/span>\u2014(3) Where an application has been made under sub-section (1) and the appropriate Government does not communicate the order granting or refusing to grant permission to the employer within a period of sixty days from the date on which such application is made, the permission applied for shall be deemed to have been granted on the expiration of the said period of sixty days.<\/p>\n

The law, therefore, mandates that the \u201cappropriate Government\u201d must communicate its decision on the closure request made by an entity, within 60 days, failing which, permission for closure shall be \u201cdeemed to be granted\u201d. In the present case, HSML’s application for closure, which was affecting 178 permanent workers, was met with repeated queries and demands for further justifications from the Maharashtra Government. The authorities questioned whether HSML had made adequate efforts to find new business, diversify or absorb workers elsewhere. Despite HSML’s submissions detailing how it had reached out to other major biscuit manufacturers and explaining the lack of alternatives, the Government did not issue a final order within the statutory 60-day period.<\/p>\n

This factual backdrop gave rise to the following essential legal questions:<\/p>\n

(i<\/span>) Does the right to close a business, protected under Article 19(1)<\/a>(g<\/span>) of the Constitution<\/a>, override or coexist with the procedural safeguards for workers under Section 25-O?<\/p>\n

(ii<\/span>) What is the effect of Government inaction or delay under Section 25-O(3)? Does statutory silence amount to \u201cdeemed permission\u201d?<\/p>\n

(iii<\/span>) How should the law respond to the unique vulnerabilities of contract manufacturers, whose business models may leave them with no viable options once a principal contract ends?<\/p>\n

Judicial history<\/h2>\n

The interplay between Article 19(1)<\/a>(g<\/span>) of the Constitution<\/a>, guaranteeing the fundamental right to practice any profession, trade, or business and the ID Act, 1947’s<\/a> closure provisions, have long been treading a judicial tightrope. In India, the right to close a business has evolved through a complex interplay of judicial interpretation, legislative amendments, and global economic realities. In most constitutional democracies, the right to exit a market is recognised as a core aspect of economic freedom, acknowledged in conventions like the OECD Guidelines for Multinational Enterprises, 2011 Edition<\/span>6<\/sup><\/a>, which stress that governments should not unduly impede a company’s decision to restructure or close operations, provided social responsibilities are met. In India, however, this freedom has always been tempered by a strong tradition of labour protection.<\/p>\n

The Bombay High Court in 1978 in Excel Wear<\/span> v. Union of India<\/span>7<\/sup><\/a> struck down Sections 25-O and 25-R8<\/sup><\/a> as unconstitutional for violating Article 19(1)(g<\/span>), observing that the right to close a business is an \u201cintegral part\u201d of the right to carry on trade. The Supreme Court later upheld this reasoning, emphasising that while restrictions are permissible, they must not render the right illusory.<\/p>\n

In Orissa Textile & Steel Ltd.<\/span> v. State of Orissa<\/span>9<\/sup><\/a>, the Supreme Court clarified that statutory closure procedures must not become a \u201cveiled prohibition\u201d, mandating authorities to assess applications through the lens of genuine business viability rather than abstract notions of public interest. This case upheld the amended Section 25-O and established that economic unviability constitutes valid grounds for closure. Thereafter a nuanced shift emerged as the Supreme Court underscored that procedural compliance under Section 25-O cannot override substantive worker protections. However, it stopped short of defining what constitutes \u201cadequate steps\u201d to avoid closure, a gap later exploited in bureaucratic delays.<\/p>\n

Prior to the present case, the courts had not squarely decided two critical issues:<\/p>\n

(i<\/span>) Whether statutory timelines for government decisions under Section 25-O(3) create enforceable rights (deemed permission) or mere directions\/guidelines.<\/p>\n

(ii<\/span>) How courts and statutory authorities should assess closure applications when businesses operate solely as captive units for single clients, with no diversification avenues.<\/p>\n

Analysis and decision<\/h2>\n

The Supreme Court in the present case began by reaffirming that the right to close a business is a protected facet of Article 19(1)<\/a>(g<\/span>) of the Constitution<\/a>, as recognised in Excel Wear case<\/span>10<\/sup><\/a>. However, this right is not absolute and is subject to reasonable restrictions11<\/sup><\/a> in the public interest. Section 25-O<\/a> of the ID Act, 1947<\/a>, is one such statutory restriction, requiring prior Government permission for closure and mandating a fair process for both employers and employees.<\/p>\n

Further, a central question was the effect of Government inaction within the statutory 60-day period under Section 25-O(3). The Court held unequivocally that if the Government fails to communicate its order within 60 days of the closure application, permission for closure is \u201cdeemed to be granted\u201d. This, the Court reasoned, is a legislative safeguard against bureaucratic delay and ensures that the statutory process cannot be rendered nugatory by administrative inaction. The Court stated as follows:<\/p>\n

10.<\/span> 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 take decisions as may be in his best interest. At the same time, it is true that the law does not permit such owner or proprietor to take any and all decisions without having considered and accounted for the impact that it shall have on the employees or workers that are part of this establishment. This is evidenced by the provision extracted above providing for a detailed procedure to be followed when a person wishes to \u201cshut shop\u201d, but concomitant providing that if the Government concerned does not take action with reasonable expediency, the business owner should not be saddled with the costs and responsibilities of running the business indefinitely, till such time the authority arrives at a proper and just decision. The sum and substance are that Article 19(1)(g<\/span>) includes the right to shut down a business but is, of course, subject to reasonable restrictions.<\/p>\n

The Court further examined the correspondence between HSML and the Government, noting that HSML had made credible efforts to avoid closure, including reaching out to other biscuit manufacturers (Mondelez, ITC, Parle) and attempting to persuade Britannia to continue the contract. The authorities\u2019 repeated demands for further justification, even after these efforts were documented, were found to be excessive and not in keeping with the statutory mandate. The Supreme Court emphasised that the statutory scheme under Section 25-O is designed to prevent arbitrary or indefinite delays by the authorities, which could otherwise frustrate the substantive rights of employers. The Court scrutinised the Government’s conduct, finding that the Deputy Secretary’s request for further details from HSML could not be construed as an order (whether interim or final) as per Section 25-O(2). Consequently, the failure of the authority to act within the prescribed timeline of 60 days is liable to trigger the statutory deeming provision, thus reinforcing the principle that administrative inaction cannot be used to subvert legislative intent.<\/p>\n

The Court also recognised the unique vulnerability of businesses like HSML, which operate solely as units for a single principal. The judgment12<\/sup><\/a> acknowledged that, in such cases, the end of the principal contract effectively leaves the manufacturer with no viable business alternative. The law, the Court held, cannot require the impossible, and if all reasonable avenues have been explored and exhausted, closure may be inevitable. Importantly, the Court clarified that even when closure is deemed permitted under Section 25-O(3), the employer remains bound to provide notice and compensation to workers as per Section 25-N13<\/sup><\/a>. The statutory scheme is designed to ensure that workers are not left without recourse, even as the employer’s right to closure is recognised.<\/p>\n

The Supreme Court while setting aside the Bombay High Court’s judgment14<\/sup><\/a> held that, by operation of law, HSML’s application for closure stood allowed as of the expiry of the 60-day period. However, the Court directed that all statutory dues and compensation to workers be paid strictly in accordance with the Act and as undertaken by HSML.<\/p>\n

Conclusion<\/h2>\n

This decision15<\/sup><\/a> is not just about statutory interpretation, it is a reflection on the realities of modern industrial operations. The Court, while upholding the procedural rights of HSML, implicitly acknowledges the limitations of regulatory frameworks in addressing the economic fallout for workers when business models collapse overnight.<\/p>\n

Harinagar Sugar Mills case<\/span>16<\/sup><\/a> is a reminder that, in the world of contract manufacturing, the end of a contract can spell the end of an enterprise. The law provides a process, but not always a solution, for the human and economic consequences that follow. The judgment thus probes the limits and contours of a business’s right to closure, situating it within the broader constitutional realities and the ever-evolving landscape of industrial relations in India. In doing so, the Supreme Court not only interprets the black letter of the law but also acknowledges the social contract that underpins the world of work, where every closure is not just a corporate decision, but a human story with ripples far beyond the factory gates.<\/p>\n<\/div>\n

\n

*Partner, Numen Law Offices.<\/span><\/strong><\/p>\n

**Associate, Numen Law Offices.<\/span><\/strong><\/p>\n

1.<\/a> 2025 SCC OnLine SC 1303.<\/a><\/p>\n

2.<\/a> Constitution of India, Art. 19(1)(g)<\/a>:<\/p>\n

19. Protection of certain rights regarding freedom of speech, etc.\u2014<\/span> (1) All citizens shall have the right\u2014<\/p>\n

(g<\/span>) to practise any profession, or to carry on any occupation, trade or business.<\/p>\n

3.<\/a> Industrial Disputes Act, 1947.<\/a><\/p>\n

4.<\/a> Constitution of India.<\/a><\/p>\n

5.<\/a> Industrial Disputes Act, 1947, S. 25-O \u2014 Procedure for closing down an undertaking.<\/a><\/p>\n

6.<\/a> OECD (2011), OECD Guidelines for Multinational Enterprises, 2011 Edition, OECD Publishing, Paris, available at:<\/span> <95735-48004323.pdf<\/a>><\/p>\n

7.<\/a> (1978) 4 SCC 224.<\/a><\/p>\n

8.<\/a> Industrial Disputes Act, 1947, S. 25-R \u2014 Penalty for closure.<\/a><\/p>\n

9.<\/a> (2002) 2 SCC 578.<\/a><\/p>\n

10.<\/a> (1978) 4 SCC 224.<\/a><\/p>\n

11.<\/a> Constitution of India, Art. 19(6).<\/a><\/p>\n

12.<\/a> Harinagar Sugar Mills case, 2025 SCC OnLine SC 1303.<\/a><\/p>\n

13.<\/a> Industrial Disputes Act, 1947, S. 25-N \u2014 Conditions precedent to retrenchment of workmen.<\/a><\/p>\n

14.<\/a> Excel Wear case, (1978) 4 SCC 224.<\/a><\/p>\n

15.<\/a> Harinagar Sugar Mills case, 2025 SCC OnLine SC 1303.<\/a><\/p>\n

16.<\/a> 2025 SCC OnLine SC 1303.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

by Arush Khanna* and Sayjal Deshpande**<\/p>\n","protected":false},"author":67011,"featured_media":352475,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[20271,77550],"tags":[84762,84761,84758,21654,84702,84760,84759],"class_list":["post-352467","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-experts_corner","category-numen-law-offices","tag-employee-protection","tag-factory-shutdown-rules","tag-industrial-closure-law","tag-industrial-disputes-act","tag-legal-safeguards","tag-trade-vs-labor-law","tag-worker-rights"],"yoast_head":"\nRight to Trade vs Worker Protection in Industrial Closures | SCC Times<\/title>\n<meta name=\"description\" content=\"Examining legal safeguards balancing trade rights and worker protection during industrial establishment closures under Indian labor law.\" \/>\n<meta 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The Industrial Relations Code, 2020 Industrial Relations Code has been introduced for amalgamating, simplifying and rationalising the relevant provisions of \u2013\u2013 (a) the Trade Unions Act, 1926; (b) the Industrial Employment (Standing Orders) Act, 1946; and (c) the Industrial Disputes Act,\u2026","rel":"","context":"In "Legislation Updates"","block_context":{"text":"Legislation Updates","link":"https:\/\/www.scconline.com\/blog\/post\/category\/legislationupdates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":236038,"url":"https:\/\/www.scconline.com\/blog\/post\/2020\/09\/21\/del-hc-if-a-petition-involving-industrial-dispute-has-no-exceptional-circumstances-but-does-have-statutory-remedy-available-can-it-still-be-entertained-by-court-hc-discusses-scs-principles\/","url_meta":{"origin":352467,"position":2},"title":"Del HC | If a petition involving industrial dispute has no ‘exceptional circumstances ‘ but does have statutory remedy available, can it still be entertained by Court? HC discusses SC’s principles","author":"Bhumika Indulia","date":"September 21, 2020","format":false,"excerpt":"Delhi High Court:\u00a0J.R. Midha, J., while addressing the present petition observed the principle laid down by the Supreme Court of India with regard to Industrial Disputes. Challenge in the Present petition Trade Union of PTI Employees and Federation of four PTI Employees' Unions have challenged the retrenchment of 297 employees\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":347620,"url":"https:\/\/www.scconline.com\/blog\/post\/2025\/05\/13\/go-slow-actions-in-indian-industrial-law-a-case-for-reclassification-and-reform\/","url_meta":{"origin":352467,"position":3},"title":"Go-Slow Actions in Indian Industrial Law: A Case for Reclassification and Reform","author":"Editor","date":"May 13, 2025","format":false,"excerpt":"by Anushka Jain*","rel":"","context":"In "Op Eds"","block_context":{"text":"Op Eds","link":"https:\/\/www.scconline.com\/blog\/post\/category\/op-ed\/legal-analysis\/"},"img":{"alt_text":"Go-Slow Actions in Indian Industrial Law","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/05\/shared-image-2025-05-13T090027.354.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/05\/shared-image-2025-05-13T090027.354.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/05\/shared-image-2025-05-13T090027.354.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/05\/shared-image-2025-05-13T090027.354.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":287825,"url":"https:\/\/www.scconline.com\/blog\/post\/2023\/03\/25\/workmen-challenging-retrenchment-order-employer-not-follow-s-25-f-industrial-disputes-act-jammu-and-kashmir-and-ladakh-high-court-legal-news-updates\/","url_meta":{"origin":352467,"position":4},"title":"Workmen won’t be estopped from challenging retrenchment order if employer does not follow S. 25-F of Industrial Disputes Act: Jammu and Kashmir and Ladakh HC","author":"Sucheta","date":"March 25, 2023","format":false,"excerpt":"Jammu and Kashmir and Ladakh High Court stated that workmen can challenge their retrenchment order even after accepting retrenchment amount in case their employer has not followed the mandate of S. 25-F of Industrial Disputes Act, 1947","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Jammu and Kashmir and Ladakh High Court","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/03\/MicrosoftTeams-image-742.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/03\/MicrosoftTeams-image-742.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/03\/MicrosoftTeams-image-742.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/03\/MicrosoftTeams-image-742.png?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":197470,"url":"https:\/\/www.scconline.com\/blog\/post\/2018\/06\/26\/existence-of-an-employer-employee-relationship-is-a-sine-qua-non-for-protection-under-section-33-of-industrial-disputes-act-1947\/","url_meta":{"origin":352467,"position":5},"title":"Existence of an \u2018employer-employee\u2019 relationship is a sine qua non for protection under Section 33 of Industrial Disputes Act, 1947","author":"Bhumika Indulia","date":"June 26, 2018","format":false,"excerpt":"Bombay High Court: A Single Judge Bench comprising of S.C. Gupte, J. allowed a writ petition filed by \u2018IDBI Bank Ltd.\u2019 and dismissed the order of the Central Government Industrial Tribunal (Mumbai) passed in an application preferred by the respondent- workers union under Section 33 of Industrial Disputes Act, 1947.\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2016\/09\/Bombay-HC.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2016\/09\/Bombay-HC.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2016\/09\/Bombay-HC.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2016\/09\/Bombay-HC.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2016\/09\/Bombay-HC.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/352467","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/67011"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=352467"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/352467\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/352475"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=352467"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=352467"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=352467"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}