A) ABSTRACT / HEADNOTE

The Supreme Court in Harinagar Sugar Mills Ltd. (Biscuit Division) & Anr. v. State of Maharashtra & Ors. examined the scope of Section 25-O of the Industrial Disputes Act, 1947 and the constitutional protection under Article 19(1)(g) concerning the right of an employer to close down an undertaking. The central issue revolved around whether the communication dated 25 September 2019, issued by the Deputy Secretary of the State Government, could be construed as an “order” rejecting the closure application of Harinagar Sugar Mills Ltd. (HSML). The Court further dealt with whether the doctrine of “deemed closure” under Section 25-O(3) was attracted when the statutory period lapsed without a valid order being issued by the “appropriate Government.”

The Court held that the Deputy Secretary was not competent to pass an order since the power under Section 25-O vested solely with the Labour Minister of Maharashtra. It clarified that internal file notings or mere endorsement of subordinate officers cannot substitute the “application of mind” required from the competent authority. The judgment reiterated that administrative orders affecting fundamental rights must be reasoned and top-down in decision-making. Since no valid order was communicated within the prescribed period, the principle of deemed closure under Section 25-O(3) was held applicable.

The decision reaffirmed that while the right to close a business is integral to Article 19(1)(g), it remains subject to reasonable restrictions protecting workers’ livelihood and public interest. Yet, when the government fails to act expeditiously, employers cannot be indefinitely burdened with running loss-making undertakings. The judgment harmonised constitutional freedoms with statutory safeguards, fortifying procedural fairness and accountability in labour law adjudication.

Keywords: deemed closure, Section 25-O, Industrial Disputes Act, appropriate government, right to shut down business, administrative orders, application of mind, workers’ rights, Article 19(1)(g), industrial peace.

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The present judgment arises from the industrial dispute between Harinagar Sugar Mills Ltd. (Biscuit Division) (HSML) and the State of Maharashtra concerning the legality of closure of its undertaking engaged in manufacturing biscuits for Britannia Industries Ltd. under long-standing job work agreements. The abrupt termination of the agreement by Britannia left HSML without alternative business avenues, compelling it to seek closure under Section 25-O of the Industrial Disputes Act, 1947. The statute mandates prior governmental permission for closure, but also incorporates a deeming provision where failure of timely decision-making by the State results in automatic approval of closure.

The appellants submitted their closure application on 28 August 2019 in the prescribed form, affecting 178 permanent workmen. The Deputy Secretary of the Maharashtra Government, however, responded by letter dated 25 September 2019, citing insufficiency of reasons and directing resubmission. HSML, by reply dated 10 October 2019, reiterated efforts to explore alternative job contracts but emphasized impossibility of continuing operations. Despite this, subsequent letters dated 4 November, 20 November, and 22 November 2019 persisted in requiring resubmission, all issued beyond the statutory 60-day deadline. HSML accordingly invoked Section 25-O(3), claiming deemed closure w.e.f. 27 October 2019.

The Bombay High Court, however, upheld the State’s stand that the application was incomplete and hence, the deeming provision was not attracted. Aggrieved, HSML appealed to the Supreme Court. The Supreme Court had to decide whether the Deputy Secretary’s communication constituted a valid order, whether the Minister alone was competent, and whether the statutory fiction of deemed closure applied. The dispute necessitated a delicate balance between employers’ constitutional right under Article 19(1)(g) to shut down an undertaking and workers’ statutory protection against arbitrary closure.

D) FACTS OF THE CASE

Harinagar Sugar Mills Ltd. (Biscuit Division) was incorporated under the Companies Act, 1956 and operated a biscuit manufacturing facility exclusively for Britannia Industries Ltd. (BIL) for over three decades. The business arrangement was governed by Job Work Agreements (JWAs) renewed periodically, the last being effective from 2013 until 2023. On 24 May 2019, BIL issued a termination notice under clause 20.3.1 of JWA with effect from 27 November 2019, thus discontinuing all operations.

Consequent to this, HSML filed an application for closure on 28 August 2019 before the Maharashtra Labour Department under Section 25-O(1) read with Rule 82-B(1) of Industrial Dispute (Maharashtra) Rules, 1957, affecting 178 permanent employees. The closure notice explained that since the division exclusively manufactured for BIL, termination left no business avenues. The company undertook statutory obligations to pay retrenchment compensation as per Section 25N.

On 25 September 2019, the Deputy Secretary of the State Government rejected the application as incomplete, citing failure to disclose cogent reasons or preventive efforts, and directed resubmission. HSML replied on 10 October 2019, furnishing details of attempts to secure contracts with Mondelez, ITC, and Parle, all of which were unsuccessful.

Despite this, on 4 November 2019, the authorities again directed resubmission, stating inadequacy in exploring employee absorption and alternative product diversification. Meanwhile, the 60-day period under Section 25-O(3) expired on 27 October 2019. On 22 November 2019, HSML declared deemed closure and claimed functus officio status of the authorities. The Deputy Commissioner issued further notices on 20 and 22 November 2019 summoning meetings.

Workers’ unions opposed closure, alleging mala fide and lack of bona fide efforts. The Industrial Tribunal granted interim relief restraining closure. The Bombay High Court dismissed HSML’s writ petitions, holding that deemed closure was inapplicable since the applications were incomplete. The Supreme Court thus had to address the legality of deemed closure and competence of the Deputy Secretary’s communications.

E) LEGAL ISSUES RAISED

i. Whether the communication dated 25 September 2019 issued by the Deputy Secretary could be construed as a valid “order” rejecting the closure application under Section 25-O(2) of the Industrial Disputes Act, 1947?

ii. Whether the “appropriate Government” under Section 25-O meant the Labour Minister alone, and whether the Deputy Secretary had authority to act on closure applications?

iii. Whether the appellants were entitled to the benefit of deemed closure under Section 25-O(3) when no valid order was communicated within the statutory period of 60 days?

iv. Whether the High Court erred in holding that the closure application was incomplete, thereby negating deemed permission?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for HSML, led by Mukul Rohatgi, Sr. Adv., contended that the High Court erred in interpreting the closure application as incomplete. The appellants argued that the application was filed in the prescribed Form XXIV-C under Rule 82-B(1), not Form XXIV as wrongly assumed by the High Court. The statutory form contained all essential particulars. Supplementary information later furnished did not imply original incompleteness. Reliance was placed on State of Haryana v. Hitkari Potteries (2001) 10 SCC 74, where deemed closure was upheld despite belated rejection.

It was argued that the Deputy Secretary had no competence under law to issue directions or reject applications. Under Section 39 of the Industrial Disputes Act, delegation of powers requires official notification. No such notification authorizing the Deputy Secretary existed. The power rested exclusively with the Labour Minister as held in Orissa Textile and Steel v. State of Orissa (2002) 2 SCC 578. The letter dated 25 September 2019 was thus void ab initio.

Further, internal file notings cannot constitute orders. Reliance was placed on Bachhittar Singh v. State of Punjab, AIR 1963 SC 395; Sethi Auto Services Station v. DDA (2009) 1 SCC 180; and Shanti Sports Club v. Union of India (2009) 15 SCC 705, which held that internal notings lack legal effect unless communicated as formal orders.

The appellants submitted that Section 25-O(3) mandates deemed permission after 60 days. The legislative history in Excel Wear v. Union of India (1978) 4 SCC 224 demonstrates that absence of a time limit renders the provision unconstitutional under Article 19(1)(g). The 60-day stipulation is mandatory and non-extendable. Failure of timely order attracts automatic deemed closure.

Thus, HSML claimed entitlement to closure as on 27 October 2019, with the subsequent letters of 4, 20, and 22 November 2019 being illegal, functus officio, and contrary to statutory scheme.

G) RESPONDENT’S ARGUMENTS

The State of Maharashtra and the workers’ union opposed the appeals, arguing that HSML’s application was incomplete and misleading. They contended that Section 25-O(1) requires disclosure of genuine efforts to avoid closure, adequate reasons, and exploration of alternatives such as worker absorption or diversification. HSML’s failure to disclose these details initially justified the Deputy Secretary’s direction to resubmit.

The respondents argued that deemed closure under Section 25-O(3) cannot be invoked independently of the enquiry and hearing mandated under Section 25-O(2). Since workers were not heard, closure could not be deemed. Reliance was placed on Sree Meenakshi Textile Mills Ltd. v. Madurai Textile Workers Union (1979) 38 FLR 213 (Madras HC), where courts held that the protection of workers’ livelihood prevails unless adequate enquiry is held.

It was further contended that the Deputy Secretary acted upon internal notings approved by the Minister, hence the letter dated 25 September 2019 represented the Minister’s decision. The respondents stressed that workers’ right to livelihood under Article 21 and Section 25-O(6) must be given primacy. Since HSML had other divisions and resources, efforts to accommodate workers were mandatory.

The respondents also argued that no question of law arose warranting Supreme Court interference under Article 136. They maintained that the High Court’s findings were sound and closure could not be deemed granted in the absence of complete disclosure and genuine reasons.

H) RELATED LEGAL PROVISIONS

i. Section 25-O(1), (2), (3) Industrial Disputes Act, 1947 – Procedure for closure of undertakings, requirement of prior permission, deemed closure provision.

ii. Rule 82-B(1), Industrial Dispute (Maharashtra) Rules, 1957 – Prescribed forms for closure application (Form XXIV-C).

iii. Article 19(1)(g) Constitution of India – Right to practise any profession or carry on any trade, occupation, or business, subject to reasonable restrictions.

iv. Article 21 Constitution of India – Right to livelihood as part of right to life.

v. Section 39 Industrial Disputes Act, 1947 – Delegation of powers by appropriate government through official notification.

I) JUDGEMENT 

The Supreme Court held that the Deputy Secretary’s communication dated 25 September 2019 was not a valid “order” under Section 25-O(2). The authority to decide closure applications vested exclusively with the Minister for Labour, as per delegated notification. No material showed delegation to the Deputy Secretary. Relying on Bachhittar Singh and Pimpri Chinchwad New Township Development Authority v. Vishnudev Coop. Housing Society (2018) 8 SCC 215, the Court reiterated that internal file notings lack legal sanctity.

The Court clarified that administrative orders affecting rights must contain recorded reasons, as mandated by Section 25-O(2). Endorsement of subordinate notings by the Minister does not constitute application of mind. Orders must flow top-down, not bottom-up. Thus, the letter dated 25 September 2019 suffered from both want of authority and non-application of mind.

Consequently, the appropriate Government failed to make and communicate any order within the statutory 60-day period. By operation of Section 25-O(3), deemed closure came into effect from 27 October 2019. The subsequent letters dated 4, 20, and 22 November 2019 were held without authority and functus officio.

The Court further observed that while financial difficulty alone cannot justify closure (Orissa Textile and Steel), impossibility of business operations due to termination of exclusive contracts constituted adequate and genuine reason. Since HSML attempted alternatives unsuccessfully, the closure was bona fide.

Accordingly, the appeals were allowed, the High Court judgment was set aside, and HSML was declared entitled to deemed closure effective 27 October 2019.

a. RATIO DECIDENDI

The ratio decidendi of the case is that only the appropriate Government, i.e., the Labour Minister in this case, is competent to decide closure applications under Section 25-O. Any communication by subordinate officers without express delegation is invalid. Internal file notings or ministerial endorsements of subordinate views cannot substitute statutory requirement of recording reasons in an order.

Further, failure of the appropriate Government to communicate a reasoned order within 60 days automatically triggers deemed closure under Section 25-O(3). The statutory fiction is mandatory and cannot be diluted by procedural delays, requests for resubmission, or incomplete applications, unless rejected within time.

b. OBITER DICTA

The Court observed that while the right to shut down a business is an integral part of Article 19(1)(g), it is subject to reasonable restrictions balancing public interest and workers’ rights. Closure cannot be based on mere financial difficulty but must demonstrate impossibility or compelling circumstances. However, when government authorities fail to act with due expedition, employers cannot be indefinitely burdened.

The Court also emphasized the necessity of recording reasons in administrative decisions. This promotes transparency, accountability, and judicial review. A “top-down” decision-making approach ensures that the competent authority applies its mind independently, rather than merely endorsing subordinate notes.

c. GUIDELINES

The Court laid down the following guiding principles:

i. Under Section 25-O, the “appropriate Government” must act through the competent Minister or duly notified delegate; subordinate officers cannot assume jurisdiction without explicit delegation.

ii. Administrative orders rejecting closure applications must be reasoned, recorded in writing, and communicated to both employer and workers as required by statute.

iii. Internal notings, endorsements, or unofficial communications cannot constitute valid orders.

iv. If the appropriate Government fails to communicate an order within 60 days, deemed closure under Section 25-O(3) is automatic, irrespective of subsequent directions or communications.

v. Employers must show bona fide and adequate reasons, including efforts to avoid closure, but impossibility of continuing operations due to external factors (such as termination of exclusive contracts) can constitute sufficient justification.

vi. Workers’ livelihood rights remain protected through compensation under Section 25N and Section 25-O(6), ensuring balance between employer’s rights and employee protection.

J) CONCLUSION & COMMENTS

This judgment is significant in reinforcing procedural fairness and statutory timelines in closure disputes under the Industrial Disputes Act, 1947. It underscores that while closure affects the livelihood of workers, employers’ constitutional right to shut down cannot be frustrated by bureaucratic delays or unauthorized communications. The Court struck a balance by upholding deemed closure while reiterating workers’ entitlement to compensation.

The decision strengthens jurisprudence on Article 19(1)(g), affirming that closure is part of the fundamental right to carry on trade or business, though circumscribed by statutory safeguards. It also reinforces the principle that quasi-judicial functions cannot be sub-delegated without express authority, preserving accountability of decision-makers.

Importantly, the judgment clarifies that statutory deeming fictions must be given full effect. Allowing procedural deficiencies or indefinite resubmission requests to defeat deemed closure would render the provision nugatory and unconstitutional.

From a labour law perspective, the case highlights the tension between industrial peace and business autonomy. It compels governments to act within strict statutory limits, ensuring timely decisions to prevent uncertainty for both employers and employees. By aligning procedural integrity with constitutional freedoms, the Court has advanced clarity in closure jurisprudence, likely guiding future disputes on industrial shutdowns and deemed permissions.

K) REFERENCES

Important Cases Referred
i. Cooverjee B. Bharucha v. Excise Commr., [1954] SCR 873 : (1954) 1 SCC 18.
ii. Hindustan Antibiotics Ltd. v. Workmen, [1967] 1 SCR 652 : 1966 SCC OnLine SC 106.
iii. Excel Wear v. Union of India, [1979] 1 SCR 1009 : (1978) 4 SCC 224.
iv. Orissa Textile and Steel v. State of Orissa, [2002] 1 SCR 309 : (2002) 2 SCC 578.
v. Bachhittar Singh v. State of Punjab, AIR 1963 SC 395.
vi. Sethi Auto Services Station v. DDA, (2009) 1 SCC 180.
vii. Shanti Sports Club v. Union of India, (2009) 15 SCC 705.
viii. Star Enterprises v. CIDCO, (1990) 3 SCC 280.
ix. State of Haryana v. Hitkari Potteries, (2001) 10 SCC 74.
x. Pimpri Chinchwad New Township Development Authority v. Vishnudev Coop. Housing Society, (2018) 8 SCC 215.
xi. Ajaib Singh v. Sirhind Coop. Marketing Society, (1999) 6 SCC 82.
xii. Mahabir Jute Mills Ltd. v. Shibban Lal Saxena, (1975) 2 SCC 818.
xiii. Sree Meenakshi Textile Mills Ltd. v. Madurai Textile Workers Union, 1979 (38) FLR 213.

Important Statutes Referred
i. Industrial Disputes Act, 1947 – Sections 25-O, 25N, 39.
ii. Industrial Dispute (Maharashtra) Rules, 1957 – Rule 82-B(1), Form XXIV-C.
iii. Constitution of India – Articles 19(1)(g), 19(6), 21.