Is right to close down business a fundamental right? Supreme Court answers

The Supreme Court recently held that a business has the fundamental right under Article 19 of the Constitution to shut down its operations but must follow the process laid down under labour laws [Harinagar Sugar Mills Ltd. (Biscuit Division) & Anr. vs. State of Maharashtra & Ors.]..In a judgment delivered on June 4, a bench of Justices Sanjay Karol and Prashant Kumar Mishra said that if the State government fails to respond to a closure request within the legal time limit, permission to close the business will be treated as granted by default."The sum and substance are that Article 19(1)(g) includes the right to shut down a business but is, of course, subject to reasonable restrictions," the Court said relying on its previous judgments.These restrictions can be deduced from Section 25O of the Industrial Disputes Act, 1947 as per which the right to close the business is subject to the interest of the general public, the Court said.Any application seeking permission for closure must disclose adequate and genuine reasons, In certain cases, however, even if the reasons are genuine and adequate, it does not mean that permission to close ought to be granted, the Bench further held.Financial difficulty on its own cannot constitute the reason for shutting down the business and an employer must demonstrate exceptional circumstances or an impossibility of running the business, the Bench made it clear..The Court was was hearing appeals filed by Harinagar Sugar Mills Ltd. (Biscuit Division) [HSML], whose factory in Mumbai had been manufacturing exclusively for Britannia Industries, for over three decades.After Britannia terminated its job work agreement in May 2019, the company decided to close the unit and filed an application under Section 25-O of the Industrial Disputes Act, 1947 on August 28, 2019..The company stated that it had no other clients, no independent machinery and no alternative means to continue production. It also issued closure notices to 178 workers, stating that it was left with no option after the end of its only contract. On September 25, the Maharashtra Labour Department responded through its Deputy Secretary, asking the company to resubmit the application with more details. HSML replied on October 10, explaining that it had tried to secure other contracts with companies like ITC, Parle and Mondelez but received no response. On November 4, the State once again said the application was incomplete and asked for resubmission..Aggrieved by the same, the company approached the Bombay High Court. The High Court dismissed the company's challenge and agreed with the Labour Department holding that the application for closure was incomplete. HSML then approached the Supreme Court. .Before the Supreme Court, the company argued that the law requires the State to either grant or reject the closure application within 60 days, failing which permission is deemed to have been granted. It also contended that only the Labour Minister is authorised to decide closure applications, and the Deputy Secretary had no power to issue the September 25 communication. The Court agreed and held that the Deputy Secretary had no authority under the law to act on the closure application. There was also no official notification under Section 39 of the Industrial Disputes Act delegating such power to the officer. .The State attempted to justify the communication by relying on internal file noting to suggest that the Minister had approved the response. The Court rejected this argument. “Reliance cannot be placed on internal noting to establish compliance with procedure,” the bench held.Even if the Minister had approved the noting, it could not be treated as a valid order since it lacked independent reasoning or application of mind, the Court said. It underscored that administrative decisions, especially those affecting workers’ rights, must be reasoned and transparent..The Court also noted that the closure application clearly explained the company’s situation. It had worked only for Britannia, used Britannia’s raw materials and machinery, and had no business prospects left. It tried contacting other companies but failed..The Bench held that the 60-day period under Section 25-O(3) of the Act began on August 28, the day the application was submitted. Since no valid order was passed or communicated within that time, the company had the legal right to close the unit.The Court also found that the Bombay High Court had relied on the wrong form under the Industrial Dispute (Maharashtra) Rules, 1957. The High Court examined Form XXIV, which applies to retrenchments, instead of Form XXIV-C, which applies to closure of undertakings..As a result, the Supreme Court set aside the High Court’s decision and allowed the appeal. However, it recorded HSML’s offer to pay compensation to the workers in addition to the statutory dues like gratuity. The company had already deposited ₹4 crore and had offered to pay ₹10 crore more. The Court directed that the compensation amount be increased to ₹15 crore and disbursed to eligible workers within eight weeks..The petitioners were represented by advocates Praveen Kumar, Abhay Jadeja, Arun Unnikrishnan and Sunaina Kumar. The respondents were represented by advocates Nitin Tambwekar, Shailesh S Pathak, Seshatalpa Sai Bandaru, Aaditya Aniruddha Pande, Siddharth Dharmadhikari, Bharat Bagla, Shrirang B Varma, Sourav Singh, Aditya Krishna and Adarsh Dubey..[Read Judgment]