RIGHT TO CLOSE vs. DUTY TO JUSTIFY: SUPREME COURT CLARIFIES SECTION 25-O OF THE INDUSTRIAL DISPUTE ACT 1947

INTRODUCTION

In a significant ruling clarifying the procedural requirements under Section 25-O of the Industrial Disputes Act, 1947, the Supreme Court, by a Bench of Justice Sanjay Karol and Justice Prashant Kumar Mishra in Harinagar Sugar Mills Ltd. (Biscuit Division) v. State of Maharashtra(Arising out of SLP(C)No.4268 of 2023), decided on 4 June 2025), held that the State Government’s failure to issue a reasoned order within the statutory period led to a deemed approval for the closure of the industrial undertaking. The Court also emphasized the limits of delegation, the importance of procedural compliance, and the constitutional rights of employers under Article 19(1)(g) of the Constitution.

 

BACKGROUND OF THE CASE

Harinagar Sugar Mills Ltd. (HSML), through its Biscuit Division, had been engaged exclusively in job-work manufacturing for Britannia Industries Ltd. (BIL) for over 32 years. Upon the termination of this long-standing agreement in May 2019, HSML had no alternative manufacturing activity and applied to the Maharashtra Government on 28^th August 2019 under Section 25-O for closure of the Unit. The Application was met with multiple communications from the Deputy Secretary, requesting resubmissions and further justifications.

When the State Government did not issue a final reasoned order within the statutory 60-day period, HSML asserted that permission for closure stood deemed granted. The State, however, relied on a communication dated September 25, 2019, as a rejection and contended that the application was incomplete. The matter ultimately reached the Supreme Court after the Bombay High Court upheld the State’s position.

 

KEY LEGAL ISSUES

1. Whether the letter dated 25 September 2019 was a valid “order” under Section 25-O (2)?
2. Whether the Deputy Secretary is legally competent to issue such an order in place of the “appropriate Government”?
3. Whether the deemed closure under Section 25-O (3) validly triggered?

 

 

SUPREME COURT’S ANALYSIS AND FINDINGS

The Supreme Court held that the State Government failed to comply with the statutory mandate under Section 25-O (2) of the Industrial Disputes Act, 1947, as no valid, reasoned order was passed within the prescribed 60-day period from the date of HSML’s closure application. The Court found that the Deputy Secretary, who issued a communication asking for additional details, was not the “appropriate government” under the law. Moreover, there was no valid delegation of authority, and no formal notification authorizing him to act was produced. As such, the communication dated 25 September 2019 lacked legal force and could not be treated as a rejection or decision under the Act.

The Court emphasized that internal file noting and endorsements do not constitute formal government orders, especially when statutory provisions expressly require written orders with recorded reasons. It further ruled that HSML’s supplementary communication did not imply that the original application was incomplete, and voluntarily furnishing more information does not defeat the statutory right to deemed approval. Since the State failed to act within the 60 days, the application for closure stood deemed approved under Section 25-O (3). The Court accordingly allowed the appeal and upheld the legality of the closure while enhancing compensation for workers to ₹15 crores.

 

BALANCING FUNDAMENTAL RIGHTS AND LABOUR WELFARE

The Court reiterated that the right to close a business is a facet of Article 19(1)(g) of the Constitution, though subject to reasonable restrictions. Relying on precedents such as Excel Wear v. Union of India, (1979), and Orissa Textiles v. State of Orissa, (2002), it held that statutory silence cannot frustrate this fundamental right. If the State fails to act within the timeline, it cannot indefinitely delay closure decisions.

 

RELIEF AND COMPENSATION

The Court allowed the appeal and upheld the deemed closure, but also acknowledged the hardship caused to 178 workers. Noting HSML’s willingness to compensate, the Court enhanced the proposed compensation from ₹10 crores to ₹15 crores, in addition to statutory dues like gratuity, to be disbursed within eight weeks.

 

 

 

CONCLUSION

The Judgment in Harinagar Sugar Mills Ltd. v. State of Maharashtra is a landmark clarification on the interplay between business autonomy and labour protection. It affirms that while employers cannot unilaterally shut down operations without due process, the State must also comply strictly with procedural mandates. By ensuring that statutory deadlines and constitutional rights are respected, the ruling safeguards both industrial peace and economic freedom.

 

 

SHAKTI ANAND

4^th Year Law Student,

ICFAI, Dehradun

 

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