A) ABSTRACT / HEADNOTE

The Supreme Court in M/s Hatisingh Manufacturing Co. Ltd. and Another v. Union of India and Others, [1960] SCR 528, upheld the constitutional validity of Section 25FFF(1) of the Industrial Disputes Act, 1947 as amended by Act 18 of 1957. The judgment addressed constitutional challenges under Articles 14, 19(1)(g), and 20 of the Indian Constitution. It held that closure of an industrial undertaking, while not prohibited, could legally mandate compensation to workers in order to protect their right to livelihood, ensuring social justice without violating employers’ fundamental rights. The Court ruled that the provision neither imposes unreasonable restrictions nor contravenes equality or penal clauses of the Constitution. The Court emphasized that industrial closures causing unemployment must not be immune to legal scrutiny in a welfare state, and that standardized compensation aligned with the length of service was reasonable.

Keywords: Section 25FFF(1), Industrial Disputes Act, right to closure, compensation, Article 19(1)(g), Article 14, Article 20, fundamental rights, retrenchment, constitutional validity, social justice.

B) CASE DETAILS

i) Judgment Cause Title: M/s Hatisingh Manufacturing Co. Ltd. and Another v. Union of India and Others

ii) Case Number: Petitions Nos. 88 & 106 of 1957 and 103 of 1959

iii) Judgment Date: April 14, 1960

iv) Court: Supreme Court of India

v) Quorum: B.P. Sinha, C.J., Jafer Imam, A.K. Sarkar, K.N. Wanchoo, and J.C. Shah, JJ.

vi) Author: Justice J.C. Shah

vii) Citation: [1960] 3 SCR 528

viii) Legal Provisions Involved:

• Section 25FFF(1) of the Industrial Disputes Act, 1947

• Article 14 of the Constitution of India

• Article 19(1)(g) and Article 20(1) of the Constitution of India

ix) Judgments Overruled by the Case: None explicitly overruled; however, it distinguished the ruling in Hariprasad Shivshankar Shukla v. A.D. Divikar, [1957] SCR 121.

x) Law Subjects: Constitutional Law, Labour Law, Industrial Law, Social Justice Law.

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

This judgment emerged from a constitutional challenge to Section 25FFF(1) introduced into the Industrial Disputes Act, 1947 by Amendment Act 18 of 1957. The section mandated payment of compensation to workers upon closure of an industrial undertaking, aligning it with provisions applicable to retrenchment. Petitioners, including a textile mill and coal mine, challenged the section’s retrospective application, claiming it infringed their fundamental rights under Article 19(1)(g) (right to business), Article 14 (right to equality), and Article 20(1) (protection from ex post facto laws).

Previously, the Supreme Court in Hariprasad Shivshankar Shukla v. A.D. Divikar, [1957] SCR 121, had ruled that closure does not amount to retrenchment, creating a gap in worker protection upon closure. The Parliament responded with the 1957 amendment, triggering litigation from affected industries. The constitutional challenge raised the question of balancing workers’ rights to livelihood with employers’ freedom to conduct business in a changing industrial economy.

D) FACTS OF THE CASE

Three different petitioners operating under diverse industrial sectors challenged the provision:

1. Hatisingh Manufacturing Co. Ltd., a textile company in Ahmedabad, shut its operations in April 1957 due to uneconomical conditions after incurring losses since 1956.

2. Petitioner in Petition No. 106/1957, a coal mine owner, closed his mine in February 1957 due to flooding and financial losses amounting to Rs. 7 lakhs.

3. Petitioner in Petition No. 103/1959, a textile company in Jamnagar, closed its weaving department in February 1957 and the entire factory by April 1957 due to Rs. 28 lakhs of loss.

All these closures occurred after November 27, 1956, the retrospective date fixed under the impugned provision. Each petitioner had served notice to employees but challenged the requirement to pay retrenchment-equivalent compensation under Section 25FFF(1) despite the closures being bona fide and due to financial duress.

E) LEGAL ISSUES RAISED

i. Whether Section 25FFF(1) of the Industrial Disputes Act infringes upon Article 19(1)(g) by imposing unreasonable restrictions on the right to close a business.

ii. Whether the section creates unconstitutional classification under Article 14, by differentiating employers based on the date of closure.

iii. Whether the retrospective imposition of compensation obligations amounts to penal liability, violating Article 20(1).

F) PETITIONER/ APPELLANT’S ARGUMENTS

i. The counsels for Petitioner / Appellant submitted that:

The impugned provision violated Article 19(1)(g) by treating closure as requiring prior conditions and liabilities, thus interfering with business autonomy. They contended that the freedom to close a business is as vital as the freedom to conduct it. Imposing compensation even in cases of bona fide closure placed an undue burden and deterred industrial efficiency.

They also argued that Section 25FFF(1) applied retrospectively, thereby penalizing closures that were valid under law at the time of occurrence. This retrospective burden, they claimed, violated Article 20(1).

Finally, the classification between employers who closed before November 27, 1956, and those who closed after was arbitrary and violated Article 14, as both sets belonged to the same class of employers under similar economic duress.

G) RESPONDENT’S ARGUMENTS

i. The counsels for Respondent submitted that:

The Union of India argued that the right to close a business was not absolute under Article 19(1)(g) and could be regulated under Article 19(6). The provision ensured social justice, protected public interest, and addressed the problem of mass unemployment caused by industrial closures.

They stressed that Section 25FFF(1) did not prevent closure. It merely imposed a post-closure obligation to compensate employees to safeguard their right to livelihood, aligning with constitutional directives.

Regarding retrospectivity, they claimed that it did not impose criminal liability and thus did not attract Article 20(1). Finally, the differentiation based on the closure date was legitimate classification, based on a defensible legislative cut-off following the Hariprasad decision.

H) RELATED LEGAL PROVISIONS

i. Section 25FFF(1), Industrial Disputes Act, 1947:
Introduced to provide compensation upon closure of industrial undertakings for workers with at least one year of continuous service. The section specifies payment terms “as if the workman had been retrenched”, creating parity with Section 25F for closures. The proviso limits liability to three months’ pay where closure results from unavoidable circumstances. The explanation excludes closures due solely to financial difficulty or unsold stocks from that proviso’s relief.

ii. Article 19(1)(g), Constitution of India:
Guarantees the freedom to practice any profession or carry on any occupation, trade or business, subject to reasonable restrictions in public interest under Article 19(6).

iii. Article 14, Constitution of India:
Mandates equality before the law and equal protection of laws. Forbids arbitrary classification unless based on intelligible differentia with rational nexus to the legislative objective.

iv. Article 20(1), Constitution of India:
Prohibits retrospective criminal legislation. No person shall be convicted for an act that was not an offence at the time it was committed.

I) JUDGEMENT

a. RATIO DECIDENDI

i. The Supreme Court upheld the validity of Section 25FFF(1), ruling that it did not impose any pre-closure conditions. It merely imposed a post-closure civil liability for compensation, and therefore did not infringe Article 19(1)(g).

The Court held that compensating workers due to sudden unemployment from closure served a public interest, aligning with social justice goals under Directive Principles. The provision ensured minimal economic protection for retrenched employees and was therefore a reasonable restriction.

The Court further held that the cut-off date of November 27, 1956, chosen by the legislature, was rational since it followed the Hariprasad ruling. Hence, Article 14 was not violated. Additionally, since no criminal penalty attached to failure to compensate, Article 20(1) was not applicable.

b. OBITER DICTA 

i. The Court observed that closure due to financial loss or unsold inventory may not always be deemed “beyond the control of the employer.” Such losses may stem from mismanagement or deliberate manipulation, and hence exclusion from the proviso was justified.

ii. It reiterated that standardization of compensation simplifies adjudication and reduces burden on industrial tribunals, especially during mass closures, and is therefore not unreasonable.

c. GUIDELINES

1. Closure of business does not require permission or clearance; employers remain free to close under Article 19(1)(g).

2. Compensation to workmen upon closure is mandatory as a civil liability, not a condition precedent.

3. Retrospective civil liability is constitutionally valid if it serves public interest and does not result in criminal punishment.

4. Classification between employers based on date of closure is permissible if linked to a legislative or judicial milestone.

5. The “unavoidable circumstances” must involve more than financial distress to attract reduced compensation liability.

J) CONCLUSION & COMMENTS

The judgment represents a progressive articulation of social welfare jurisprudence in post-independence India. By affirming the legislature’s power to impose closure compensation, the Court highlighted the constitutional commitment to labour welfare. It rejected the claim that such compensation was punitive, emphasizing that business freedom is subject to social accountability.

The judgment remains a cornerstone in labour law jurisprudence, balancing economic liberty with socio-economic justice. It paved the way for subsequent protective labour regulations and inspired the rational expansion of workers’ rights within constitutional limits. Importantly, it clarified that not every retrospective liability is unconstitutional—an important distinction in welfare law.

K) REFERENCES

a. Important Cases Referred

i. Hariprasad Shivshankar Shukla v. A.D. Divikar, [1957] SCR 121.
ii. Indian Hume Pipe Co. Ltd. v. Their Workmen, [1960] 2 SCR 32.
iii. Mohd. Hanif Quareshi and Others v. State of Bihar, [1959] SCR 629.
iv. Bijay Cotton Mills Ltd. v. State of Ajmer, [1955] 1 SCR 752.

b. Important Statutes Referred

i. Industrial Disputes Act, 1947, Section 25FFF(1), Section 25F, Section 33(c), Section 31(2).
ii. Constitution of India, Articles 14, 19(1)(g), 20(1).
iii. Bombay Land Revenue Code, 1879, regarding recovery methods.