Excel Wear Etc. V. UNION OF INDIA & ORS

By Akanksha Singh[1]

In the Supreme Court of India

NAME OF THE CASEExcel Wear Etc V. UNION OF INDIA & ORS
CITATION1979 AIR 25, 1979 SCR (1)1009
DATE OF JUDGMENT29 September, 1978
APPELANTEXCEL WEAR ETC.
RESPONDENTUnion Of India & Ors
BENCH/JUDGEChandrachud, Y.V. ((Cj), Sarkaria, Ranjit Singh, Untwalia, N.L., Koshal, A.D., Sen, A.P. (J)
STATUTES/CONSTITUTION INVOLVEDConstitution of India Industrial Dispute Act 1947
IMPORTANT SECTIONS/ARTICLESConstitution of India – Article 19(6) & 19(g), 32 Industrial Dispute Act 1947- Section 25

ABSTRACT

Excel Wear was a legally recognised business with a facility where it produced clothing for export. A significant labour dispute was causing the factory to consistently lose money. The petitioner, who found it nearly hard to continue the factory’s operations, issued a notification on the State Government requesting advance consent for its closure. According to Sections 25 and 25R of the Industrial Dispute Act of 1947, the government declined clearance. According to Article-32 of the Constitution, the petitioner challenged this and filed it in the public interest.

INTRODUCTION

A company’s birth and demise are both caused by the legal procedure. A company’s life might be ended in a variety of ways. The members’ right to pass a resolution to wind up the company cannot be taken away by any of the provisions in the article, nor may the Court interfere with it by an injunction or otherwise. It is a statutory right of the company’s members. However, this freedom was restricted unreasonably and arbitrarily by the challenged provisions of Sections 25-O and 25-R of the Industrial Disputes Act, 1947, which authorised the government to deny an application for company closure without even recording reasons for the same.  As a result, the disputed clauses were challenged in Excel Wear v. Union of India.

The Excel Wear case concerns the right to close a business (whether the right to close a business may be denied only on the grounds that the workers would lose their jobs) and compensation to workers in the event of a business closure. Though the idea of voluntarily winding up is not explicitly articulated in this instance, members’ voluntary winding up is clearly part of the employer’s right to end his firm.

FACT OF THE CASE

Four writ petitions were filed in this matter contesting the constitutionality of sections 25-O and 25-R of the Industrial Disputes Act of 1947. Excel Wear, one of the applicants, is a registered partnership corporation whose members are Indian nationals. The petitioner has a business in Bombay where he manufactures export clothing. The petitioner’s plant employed around 400 people. Workers were extremely radical, hostile, aggressive, and unjustified beginning in August 1976, and the factory’s labour difficulties became unparalleled. Several instances have been detailed in the Writ Petition to substantiate the aforesaid accusations.

In May 1977, the Company almost ceased operations due to worker violence and strikes, and the Company placed a notice on the State Government of Maharashtra, requesting prior permission of the proposed closure of the enterprise in accordance with Section 25-O (1) of the Act. The State Government, however, declined to issue the authorization.

Another petition was filed by petitioner Acme Manufacturing Co. Ltd., who was forced to liquidate the business owing to significant losses suffered as a result of low productivity, major labour unrest, and indiscipline, which resulted in multiple attacks. On May 2, 1977, the Company applied to the State Government of Maharashtra for authorisation of the anticipated closure under Section 25-O (1) of the Act, but the State Government declined. In brief, one wanted the Company to be wound up owing to losses sustained as a result of worker violence and strikes, while the other wanted it to be closed due to enormous failure due to low productivity. The other two petitions were identical as well.

ISSUES RAISED BEFORE THE COURT

  1. Is A.19(1)(g) inclusive of the fundamental right to close a business?
  2. What if there is such a right, then are the constraints imposed by Sections 25-O and 25-R of the Act, which essentially needed prior clearance from the government for company closure, fair or not?

ARGUMENTS RAISED BY THE APPELLATE

  • Learned counsel for the appellant contends that The right to close a corporation is an essential component of the freedom to conduct a business guaranteed by Article 19(1)(g) of the Constitution. The challenged statute imposes an unreasonable and subjective limitation on the aforementioned constitutional freedom. It is not a limitation, but rather a rejection or elimination of the request. The limits imposed clearly go beyond the scope of Art. 19(6) of the Constitution.
  • In the instant matter, it is an admitted position that The right to pursue a business necessitates the right not to carry on a business, just as any other right mentioned in Article 19(1), such as the right to freedom of speech, includes the right not to speak, and the right not to join an association is implied in the right to create an association.
  • Learned counsel for the petitioner submitted that the limitations are unreasonable because-
    • The order is not required to contain a declaration of reasons under Section 25(o) of the Industrial Disputes Act.
    • When refusing permission to shut, no time restriction must be set.
    • Even if the justifications are acceptable and required, assent may be denied due to the ostensible public interest in labour welfare. In almost each scenario of closure, labour is certain to suffer as a result of unemployment.
    • Aside from the civil duty to be supported under subsection (5), the closure may be compulsive if it is made against the means alluded to in subsection (2), in which case it is met with criminal consequences under section 25-R Industrial Dispute Act.
    • Refusing to provide authorization would merely mean that the Company would continue to operate lawfully. However, the plant owner cannot be obliged to maintain the business and the production process, and hence one of the objectives of this provision cannot be met.
    • If doing business in the public interest is prohibited, an individual may engage in another trade. However, prohibiting the closure of an operational corporation destroys the right to close.
    • The legality of the challenged limits must be assessed from both a procedural and substantive standpoint. Subsection (2) of Section 25 D of the Industrial Dispute Act would not need any higher government authority to vote.

ARGUMENTS RAISED BY THE RESPONDENT

  • Learned counsel for the respondent submitted that the limits established by the challenged legislation were highly sensible and acceptable in order to put a stop to unfair labor conditions and employees’ health. It is a bold piece of legislation designed to safeguard a vulnerable part of society.
  •  Learned counsel for the respondent submitted that the limitation imposed was in the public interest, and there is a reasonableness presumption in favour of a legislation. Reliance has also been placed on social and security legislation as outlined by famous attorneys and judges from throughout the world. It was also said that the statute was covered by Article 31C of the Constitution.

RELATED PROVISIONS

Constitution of India

  • Article 32[2]: Remedies for enforcement of rights conferred by this Part

(1) The right to move the Supreme Court by appropriate proceedings for the enforcement of the rights conferred by this Part is guaranteed

(2) The Supreme Court shall have power to issue directions or orders or writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, whichever may be appropriate, for the enforcement of any of the rights conferred by this Part

(3) Without prejudice to the powers conferred on the Supreme Court by clause (1) and (2), Parliament may by law empower any other court to exercise within the local limits of its jurisdiction all or any of the powers exercisable by the Supreme Court under clause ( 2 )

(4) The right guaranteed by this article shall not be suspended except as otherwise provided for by this Constitution.

  • Article 19(g)[3]: to practise any profession, or to carry on any occupation, trade or business.
  • Article 19(6)[4]: Nothing in sub clause (g) of the said clause shall affect the operation of any existing law in so far as it imposes, or prevent the State from making any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by the said sub clause, and, in particular, nothing in the said sub clause shall affect the operation of any existing law in so far as it relates to, or prevent the State from making any law relating to,

(i) The professional or technical qualifications necessary for practising any profession or carrying on any occupation, trade or business, or

(ii) The carrying on by the State, or by a corporation owned or controlled by the State, of any trade, business, industry or service, whether to the exclusion, complete or partial, of citizens or otherwise

Industrial Dispute Act

  • Section 25[5]: Prohibition of financial aid to illegal strikes and lock- outs.- No person shall knowingly expend or apply any money in direct furtherance of support of any illegal strike or lock- out.

JUDGEMENT

The Supreme Court concluded that the freedom to close a business cannot be equated with the right to never start or carry on a business. The forceful argument advanced on favour of the employer by comparing the two rights and placing them on equal footing is not totally appropriate or reasonable. If a person does not establish a business at all, he may be forced to do so under any conditions. The negative component of the right to do business may be equated with the negative side of the right included in the idea of the right to free expression, the right to organise an association, or the right to acquire or keep property. Perhaps no condition or scenario can compel or coerce a person to talk, form an association, or obtain or keep property. However, by establishing reasonable constraints, he can be persuaded not to say anything, create an association, or acquire or own any property. A comprehensive prohibition of business can be achieved by imposing reasonable limits on the freedom to conduct business under Article 19(6).

As a consequence, all applications have been granted. It is argued that Section 25-O of the Act as a whole, as well as Section 25-R insofar as it pertains to the imposition of fines for infractions of Section 25-O’s provisions, are legally wrong and null and void for violating Article 19(1)(g) of the Constitution. As a result, the challenged orders issued under paragraph (2) of Section 25-O are ruled null and void in all circumstances, and the respondents are barred from applying them. To be clear, while the directives are based on the procedural illegality of the Act under which they were issued, the Court did not see the need to convey our judgement on their merits in any other way.

Analysis of the judgment

  1. From the judgment of M/s Hatisingh Mfg. Co. Ltd. v. Union of India[6] held that the freedom to carry on any business includes the right to establish, carry on, or close down any enterprise, and that the payment of remuneration to workers is not a prerequisite for the firm’s closure. In the current instance, the Court declared emphatically that it is incorrect to assert that an employer has no right to close down a firm once it has been established. If he has such a desire, as he clearly does, it cannot constitute a fundamental right incorporated in the right to conduct any business provided by Art. 19(1)(g) of the Constitution.
  2. The Court agreed that the owner should not be required to be a party to them or to damage the properties and business assets invested by preventing him from closing the undertaking. In a specific situation of performance mismanagement leading in poor labour relations or repeated losses, the State may take over the project. It will be harmonised with the goal of transforming India into a socialist state. Allowing the employer to continue operating is effectively an infringement on his fundamental right to do so.
  3. According to the Court, when a company closes, only a certain number of people lose their employment, while other workers become jobless. However, the Court has determined that the fact that workers are jobless cannot be used to justify not urging the firm to close its doors. Running the same company becomes unprofitable and inefficient.
  4. The Supreme Court ruled that subsections 25-O and 25-R were unconstitutional, violating Article 19(1)(g) of our Constitution. The Court determined that the challenged rules are an unjustified restriction on the right to close a firm, which is part of the freedom to carry on business granted by A19(1)(g) of the Constitution.
  5. From the case of Narendra Kumar v. Union of India[7] “In applying the reasonableness test, the Court must consider the question in the context of the facts and circumstances under which the order was made, taking into account the nature of the evil sought to be remedied by such law, the ratio of the harm caused to individual citizens by the proposed remedy, to the beneficial effect reasonably expected to result to the general public,” the Court reasoned. It will also be required to assess whether the restraint imposed by the legislation was justified in the interests of the general public.”
  6. The Court stated that it is exceedingly irrational to achieve the goal of preserving commodity production by ordering the employer not to close in the public interest in order to preserve output. The Court further noted that in the situation of genuine closures, even if the employers’ arguments are accurate, reasonable, and sufficient, the licence to close may be denied on the basis of public interest. As a result, the statute is unconstitutional since it allows the authorities to issue arbitrary, capricious, and one-sided orders.

CONCLUSION

The ruling in Excel Wear v. Union of India concluded that the reasons for which this Court threw down S. 25-O are equally applicable in determining the constitutionality of S. 25N. The Supreme Court agreed with the employees, ruling that the freedom to close a business could not be equated with the right not to create or operate a business at all. Following an examination of the relevant company law rules, it is possible to conclude that the right of the Company’s members to voluntarily winding up and the right of the workers to compensation have been appropriately balanced. At the same time, the right of businessmen to close their businesses (particularly the members’ freedom of voluntarily winding up) must be safeguarded. In the Excel Wear case, the Supreme Court correctly stopped businesspeople from being obliged to petition the government for permission to liquidate their businesses, which might have been easily rejected arbitrarily and without justification.

[1] Author is 4th  semester student of  ICFAI University, Dehradun.

[2] Article 32 of the Indian Constitution, https://indiankanoon.org/doc/981147/

[3] Article 19(g) of the Indian Constitution, https://indiankanoon.org/doc/935769/

[4] Article 19(6) of the Indian Constitution, https://indiankanoon.org/doc/626103/

[5] Section 25 in the Industrial Disputes Act, 1947, https://indiankanoon.org/doc/607947/

[6] Hatisingh Mfg. Co. Ltd. v. Union of India, 1960 AIR 923

[7] Narendra Kumar v. Union of India, 1960 AIR 430

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