Closure in labour law – iPleaders

Closure in labour law – iPleaders

This article has been written by Aarushi Mittal. The article discusses closure in labour law, specifically what it is and the various provisions pertaining to it.

It has been published by Rachit Garg.

Labour law in India includes several important acts (like The Minimum Wages Act 1948, The Factories Act 1948, The Trade Unions Act 1926, The Payment of Wages Act 1936, etc.)  that address and provide legal restrictions and rights for the working population and their employers. Out of these, the Industrial Disputes Act, 1947 (hereinafter referred to as the Act or I.D. Act) came into being with the purpose of fostering peace by settling industrial disputes. Although its main objective is to maintain a balance between the interests and welfare of both labour and industry, it also puts in place important procedures for the closing down of industrial establishments; this is defined in the Act as “closure.

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Closure is a term that refers to the indefinite shutting down of an establishment, factory business, or organisation. Factors such as low profits, poor marketing, bad management, tough competition, failure to pay taxes, etc. could result in closures. However, regardless of the reasons for the closure of any establishment, its process is governed by the different labour laws prevalent in the country. These laws ensure that the rights of all the stakeholders involved in the business of the said establishment (employees, workers, investors, suppliers, customers, etc.) are protected in the process.

Definition of closure

Closure is defined under Section 2(cc) of the I.D. Act, which was inserted by the Industrial Disputes (Amendment) Act, 1982 (46 of 1982). It defines closure as the “permanent closing down of a place of employment or part thereof.” Such closure may be either forced or voluntary and can be a result of various reasons. 

The Industrial Disputes Act lays down the procedure to resolve and investigate industrial disputes or disagreements between employers and their employees. The same is done in three ways, namely; through arbitration, adjudication, or conciliation, as provided by the statute. Its provisions apply to all businesses, establishments, undertakings, or manufacturers that fall under the meaning of ‘industry’ in Section 2(gg)(j) of the Act.

The Act, in its original form, did not provide for any laws relating to the closure of industrial establishments. It was expressly defined only in 1956 in the landmark judgement Hariprasad Shivshankar Shukla v. A.D. Diwelkar (1956). Here, the Supreme Court differentiated between the closure of an establishment and retrenchment. In due course, the laws pertaining to closure were inserted into the Act in 1976 and later in 1982. Depending on the reasons for doing so, the Act lays out the steps that the employer must take if they decide to close their business or establishment. For instance, if the closure is due to certain inevitable circumstances, the Act states that the workers are not entitled to any compensation beyond the average of three months of their wages (Section 25FFF). In case the closure is for any other reason, they must be given notice not less than 60 days in advance, and the affected employees must be adequately compensated(Section 25FFA). 

Essentially, the Act provides the legal rules and restrictions under Sections 25FFA, 25FFF, 25-O, 25P, 25R, and 30A pertaining to the closure of industrial undertakings and businesses to safeguard the interests of the stakeholders involved. 

Chapters VA and VB of the Act lay down the provisions dealing with the closure of industrial establishments. The following are the relevant Sections of the Act:

Section 25FFA

Section 25FFA(1) requires the employer of an establishment undergoing closure to serve a notice informing their workmen and the appropriate government authority of such closure at least sixty days in advance of its date of effect. Such notice must clearly indicate the cause for the closure of the establishment. However, this Section is not applicable to the establishment in the following cases:

  1. In an establishment, business or undertaking where-

(i) the number of workmen employed is not more than fifty, or

(ii) the number of workmen employed on an average per working day in the last twelve months is less than fifty. 

  1. In an undertaking established for the purpose of constructing dams, canals, bridges, buildings, dams, roads, or for any other construction project or work.

Nevertheless, if the concerned government authority is satisfied that due to certain unprecedented situations, such as an accident at the undertaking, the death of the employer, or reasons of necessity, they may pass an order instructing that the terms of sub-section (1) shall not be applicable to that undertaking for a specified time period (Section 25FFA(2)).

Section 25FFF 

Section 25FFF provides for compensation to be paid to the workmen of the establishment undergoing closure. As per subsection (1), when the business or establishment undergoes closure “for any reason whatsoever,” every workman, employed for at least a continuous period of one year must be given compensation and notice immediately before the closure. The same must be as per the provisions of Section 25(F), which pertains to the retrenchment of the workers. Furthermore, if the undertaking/business/establishment is closed down owing to certain unavoidable situations that are beyond the employer’s control, the compensation owed to the workmen according to Section 25F(b), shall not be more than the average of three months of his salary.

The Section includes an explanation pertaining to unavoidable circumstances causing closure. If an undertaking or business is closed for the following reasons, it shall not be considered to have closed due to inescapable or inevitable circumstances beyond the employer’s control. 

  1. financial hardship (includes losses); or
  2. accumulation of undisposed stocks; or
  3. expiration of the license or period of lease granted; or
  4. where the undertaking is engaged in mining operations and depletion of the minerals of the area in which such operations are being carried out.

Sub-section (2) states that no workman would receive compensation under Section 25F(b) when any undertaking or business that was established for the purpose of construction (buildings, bridges, roads, canals, dams, or for any other construction project) is closed down due to the completion of such construction work within two years from the date on which it had been set up. However, in cases where the work is not completed within two years, the workmen are provided with both compensation and notice as per the relevant provisions.

Section 25-O

Section 25-O lays down the procedure for closing down any business or undertaking. Employers that intend to shut down an industrial establishment have to apply for prior permission in the specified manner. This application must be submitted to the concerned government not less than ninety days before the date of the closure becomes effective. The reasons meriting such closure must be stated clearly, and a copy of the application must be simultaneously supplied to the representatives of the workmen. The manner and further steps that need to be taken to effectuate the closure are discussed in detail under the heading “Procedure for closure.”

Section 25-O applies to only those establishments or undertakings that have not more than fifty workmen. For all establishments with fifty or more workmen, prior permission for closure from the concerned government authorities is to be obtained as per Section 25N of the Act.

Section 25P

Section 25P of the Act deals with the restarting of those undertakings that were closed down before the introduction of the Industrial Disputes (Amendment) Act, 1976. If the concerned government authority is of the opinion regarding such an undertaking-

  1. that such undertaking was closed down otherwise than due to inevitable or exceptional situations beyond the employer’s control;
  2. of the existence of prospects of re-establishing the business/company/undertaking;
  3. that it is essential for the rehabilitation of the workers employed in the undertaking before its closure or for the maintenance of services and supplies necessary to the life of the community to re-establish the undertaking or both; and
  4. that reinstating the undertaking would not cause the employer any hardship or difficulties relating to the undertaking,

it may, after giving a chance to the employer and workers, instruct, by an order published in the Official Gazette, that the establishment be reinstated within a specified period.

Interestingly, the concerned government authority has no power to legally restart any undertaking or establishments closed down after 1976.

Section 25R

Section 25R discusses the penalty for closure in case the procedure set out by the law is not adhered to. Any employer who closes an establishment without adhering to the terms of Section 25-O(1) shall be punished with “imprisonment for a term which may extend to six months, or a fine up to five thousand rupees, or with both.”  Further, if any employer violates an order rejecting permission for closure (Section 25-O(2)) or a direction (Section 25P) shall be made punishable with “imprisonment which may extend to one year, or a fine up to five thousand rupees, or with both.” In case the violation or breach is continuing in nature, the employer may be further fined with an “amount that may extend to two thousand rupees for every day the violation continues.

Section 30A

Section 30A provides a punishment for any employer who closes down any establishment or undertaking without adhering to the terms of Section 25(FFA). Such employers are punishable with “imprisonment of not more than six months, or with a fine not exceeding five thousand rupees, or with both.

As mentioned earlier in the article, until 1956, there was no clear mention of the term closure in any Act or piece of legislation. With the enactment of the Industrial Disputes (Amendment) Act, 1976, a new provision was added under Section 25-O (old Section 25-O). Its constitutional validity was challenged before the Supreme Court in the landmark case of Excel Wear Etc. v. Union of India and Others (1978).

Excel Wear v. Union of India and Others (1978)

Brief summary of the facts of the case 

In Excel Wear v. UOI (1978), Excel Wear, a partnership firm that manufactured and exported garments, filed a petition challenging the constitutionality of Sections 25(O) and 25(R) of the I.D. Act. The firm had around 400 workmen employed in their factory. The petitioners submitted that since 1976, the relationship between the workers and the administration had worsened and grown tense. They claimed that the workmen became aggressive and participated in illegal strikes. As a result, it became nearly impossible to continue the functioning of the business, and the petitioners served a notice to the Maharashtra government for approval of the closure (under Section 25-O(1)). However, the government rejected the application and refused to approve the closure. They believed that permitting the closure would be detrimental to the public interest.

Main issues involved 

The main issue before the Court was whether the right to close down an undertaking was a fundamental right granted by the Constitution of India. The petitioners argued that the right to close down a business was a part of their fundamental right to carry on a business provided by Article 19(1)(g) of the Constitution. They contended that Section 25-O imposed a restriction on this fundamental right, which could not be lawfully permissible. 

Court’s judgment and other observations

The Court held that the right to close down a business or undertaking could not be equated to the right not to start or carry on a business at all. However, such a negative aspect of a right to carry on business could be equated with the negative aspect of theright to form associations present in Article 19 of the Constitution (Freedom of Speech). They found that by no means could a person be forced to form an association or speak, but with the imposition of reasonable restrictions, said person may be prevented from speaking or forming associations. In other words, a complete prohibition of business may be permissible by imposing restrictions within reason under Article 19(6) – the right to carry on business. 

However, the Court also disagreed with the argument put forward by the labour unions that the right to close down a business was not an essential part of the right to carry on business or a fundamental right at all. They established that although the right to close down does relate to property (the right to property under Article 19(1)(f) was omitted), this does not take away from the simple nature of this right. Nevertheless, the right to close down was not absolute and could be regulated, restricted, or controlled by the law. Furthermore, the Court noted that the “principles of socialism and social justice could not be pushed to such an extreme so as to ignore completely or to a very large extent the interests of another section of the public, namely the private owners of the undertakings.

From the wording of Section 25-O(2), the Court observed that it did not require the government to provide any reasons for refusing permission for closure. In the present case, they had merely stated that the closure would be detrimental to the public. This means that although the reasons supplied by the petitioners were adequate and correct, since they were detrimental to the public interest, permission was refused. Further, no time limit was specified while refusing permission, and the refusal order was not subject to any further review by way of revision or appeal. The Court found the restriction to be highly unreasonable and excessive within the meaning of Article 19(6), not permitting an employer to shut down his business to interfere with his right to carry on the business. It declared Section 25-O in its entirety to be unconstitutional and violative of Article 19(1) of the Constitution.

As a consequence of the legislative gap created by the Supreme Court in Excel Wear, Section 25-O of the I.D. Act was amended by Act 46 of 1982.

On January 17, 2002, the Supreme Court’s Constitution Bench decided to hear the case concerning the constitutionality of Section 25-O of the Act, incorporated by the Amendment Act 46 of 1982 (amended Section 25-O). However, before the Supreme Court judgement in M/S Orissa Textile and Steel Co. Ltd. v. State of Orissa and Others (2002), multiple High Courts had decided differently on the issue. The following are some important judgments that led to the 2002 Supreme Court judgement.

Maulins of India Ltd and Another v. State of West Bengal And Others (1988)

Brief summary of the facts and issues involved

In Maulins of India Ltd. v. State of West Bengal (1988), the petitioner company (Maulins of India) had two factories, one in Calcutta and the other in Punjab. The company had submitted an application to the concerned authority for permission to close down the Calcutta factory. The reasons cited by the company for the closure were the increased cost of labour, decrease in sales, market depression, and remaining stock of unsold goods due to the poor take-off of the company’s products. Due to the above, the company had accumulated a large amount of losses in the last three years. The petitioners claimed that it had become unfeasible for the factory to continue to function. The concerned authority here was the Deputy Secretary of the Department of Labour. They contended that the respondent’s (labour union’s) submissions were heard in their (petitioner company’s) absence. Further, they were given no opportunity to make counter-arguments to the representations made by the labour unions. Subsequently, the Deputy Secretary refused to grant permission for closure. The petitioner appeared before the Calcutta High Court seeking to challenge the said order and have it quashed on the grounds of prima facie errors and violation of principles of natural justice. Further, the petitioners contend that Section 25-O in its entirety be struck down on the grounds of being unconstitutional and violative of Article 19(1)(g) of the Constitution of India

Court’s judgment and other observations

The Calcutta High Court after a thorough examination of the old Section 25-O against the new amended Section 25-O held that the amended Section was unconstitutional and was to be set aside. It was held that the mere fact that the closure would lead to the unemployment of workers or a decrease in production would not be enough to deny permission, especially when it had become impossible to carry out the functioning of the undertaking. The Court opined that the amended Section still suffered from the infirmities that led to the striking down of the old Section. Under the new Section, although the concerned government authority was required to consider the adequacy and genuineness of the reasons, these terms were never defined. What reasons are considered to be ‘genuine’ or ‘adequate’ are not provided. Neither are the instances under which permission is to be refused mentioned. The Court found this unreasonable and held Section 25-O to be ultra vires Article 19(1)(g) of the Constitution. Further, the Court held that the petitioner had not been given sufficient opportunity to deal with the representation made by the Labour Unions- which was contrary to the principles of natural justice. To this effect, it directed the General Secretary’s order refusing permission for closure to be quashed.

D.C.M. Ltd. v. Lieutenant Governor, Delhi and Others (1989)

Brief summary of the facts and issues involved

In D.C.M. Ltd. v. Lt. Governor (1989), the petitioners were refused permission under Section 25-O of the I.D. Act to close down their undertaking, Delhi Cloth Mills. Prior to this, the petitioners had filed another petition {D.C.M. Ltd. v. UOI (1989)} seeking to quash the letter of the Lt. Governor that communicated this refusal. Here further relief is sought by the petitioners before the Delhi High Court, to declare Section 25-O to be ultra vires Article 14 and Article 19(1)(g) of the Constitution of India.

The petitioners submitted that the Mill was located in a non-conforming industrial area and therefore could not continue its operations at the site. Furthermore, heavy and large-scale industries were not authorised to be located in the Union Territory of Delhi. They claimed that the undertaking had become economically unenviable and unlucrative. The petition detailed the reasons for closure as well as the losses suffered over the past few years. Given these reasons, the petitioners had decided to close down the establishment.

Court’s judgment and other observations

The full Bench of the Court upheld the constitutionality of the amended Section 25-O. It was observed that in Excel Wear, Section 25-O was held constitutionally invalid on the ground that “it did not require giving of reasons in the order,” and as a result, the authority could arbitrarily and whimsically reject permission for closure. The Court ruled that the amended Section 25-O had incorporated the procedural safeguard of documenting reasons. For instance, in the present case, the Lt. Governor must indicate his reasoning and basis for rejecting the permission for closure. The Court established that when the appropriate government authority failed to provide the reasoning for the same, it could be inferred that he had no good reason. 

In the present case, although the High Court upheld the vires of Section 25-O, it directed for the Lt. governor’s order to be quashed. The Bench found that the Governor had wrongly exercised his discretion and ordered him to grant permission for the closure of the Mill.

Union of India v. Stumpp, Schedule and Somappa Ltd. (1989)

Brief summary of the facts and issues involved

UOI v. Stumpp, Schedule, and Somappa Ltd. (1989) was an appeal of the order passed by a single-judge bench of the same Court. The company, party to this case, sought the permission of the State government to close down one of its units under Section 25-O. They claimed that the undertaking had become unprofitable and had reached a point where closure was necessary. However, the State government refused to grant permission. The present case is an appeal before the Karnataka High Court, challenging the validity of the State government’s order and the constitutionality of Section 25-O. The petitioners contend that the terms of the Section impose unreasonable restrictions on the fundamental rights of an employer (under Article 19(1)(g)).

Court’s judgment and other observations

The single-judge bench of the Karnataka High Court had held Section 25-O to be constitutionally invalid (Stumpp Schedule and Somappa Ltd. v. State of Karnataka, Union of India (1985)). The present Bench analyzing the ratio of the Excel case, found that it was not possible to declare the Section to be unconstitutional and violative of Article 19(1)(g). It was held that the amended Section was stripped of all the infirmities of the former Section 25-O and required the government authority to provide an adequate reason for its decision.

Insofar as the undertaking goes, the Bench was of the opinion that “time is the best healer.” The undertaking had continued to operate as the employer and workers had amicably settled their dispute. Therefore, the Court found that the employer had no immediate reason to ask for its closure.

Laxmi Starch Ltd. and Others v. Kundara Factory Workers Union (1991)

Brief summary of the facts and issues involved

In Laxmi Starch and Ors v. Kundara Factory Workers’ Union (1991), the petitioners requested permission for the closure of their industrial undertaking, which was refused by the government under Section 25-O(2). The matter was then referred to the Industrial Tribunal, which rejected the application, holding that there were no grounds for reviewing the decision. As a result, the permission to close the establishment was rejected. Subsequently, the petitioners filed a petition before the Kerala High Court to set aside Section 25-O as unconstitutional, quash the award of the Industrial Tribunal, and direct the government to provide permission for closure.

Court’s judgment and other observations

The Kerala High Court came to the conclusion that Section 25-O was not violative of Article 19(1)(g), as the restrictions imposed are reasonable and lie within the limits of Article 19(6). They found that there was no arbitrariness involved in the Section and therefore could not be struck down as unconstitutional. However, like in the Delhi Cloth Mills case, the Court directed the appropriate government body to grant permission for closure. On the question of whether the Industrial Tribunals award was liable to be quashed, the Court ruled in the negative. It held that it could not be said that the Industrial Tribunal had gone beyond its power in passing the said award and therefore refused to quash the same. It was established that it was up to the Government or Industrial Tribunal, to carefully consider all the facts and arrive at a decision regarding the “genuineness and adequacy of the reasons for closure.” The same must be made, taking into account the factors mentioned under Section 25-O, as well as the public interest.

Orissa Textile and Steel Ltd. v. State of Orissa and Others (2002)

Brief summary of the facts and issues involved 

In Excel Wear, the Supreme Court declared the then Section 25-O to be unconstitutional. The Section was substituted by a Central Act 46 of 1982 that inserted the amended Section 25-O in the I.D. Act. In the present case (Orissa Textile and Steel Ltd. v. State of Orissa & Ors. (2002)), the constitutional validity of the amended Section 25-O was challenged before the Supreme Court. The petition was initially filed before the Orissa High Court but had been referred to a Constitution Bench at the Apex Court.

Court’s judgment and other observations

The bench compared the former Section 25-O, the amended Section 25-O and Section 25-N, whose constitutionality was upheld in the Meenakhi Mills case. It was observed that Section 25-N and Section 25-O were similar in substance, and the reasons for their enactment were the same. The Court, after making a comparative analysis of the provisions and analysing the previous judgements, upheld the constitutional validity of Section 25-O of the I.D. Act. The Court ruled that there was nothing vague or ambiguous in the amended Section. It found that it would be impossible for Section 25-O to list out all the different situations or contingencies that could arise in reality. Every case pertaining to this Section, i.e., one that involved granting permission for closure, was unique and had to be decided on the basis of its facts and circumstances at that time. The amended Section only set out guidelines to make such a decision and was not ultra vires of the Constitution. 

As mentioned earlier, Section 25-O(1) of the I.D. Act specifies the procedure to be followed to close down an establishment. The employer that wishes to close down the business or establishment must apply for permission for closure to the concerned government authority. Such permission must be applied for not less than ninety days before the date of the closure and must clearly lay out the reasons for the closure. Simultaneously, a copy of this application must also be served to the workers and employees of the establishment. 

Undertakings excluded from obtaining prior permission before closure

Certain undertakings and establishments are excluded from obtaining prior permission before closure. In other words, the provisions of this Section do not apply to all those businesses that are set up to carry out any form of construction work or projects. Besides this, the concerned government may be satisfied that, due to some extraordinary circumstances, such as an accident in the factory or business, an employer’s death, etc., closure can be allowed without the requirement of prior approval.

Section 25-O(2) of the Act discusses the grant and refusal of closure. Once the application is submitted by the employer according to Section 25-O(1), the concerned authority must conduct an enquiry into said application that it considers appropriate and sufficient. The workers, employers, and all other interested parties must be given a reasonable opportunity to be heard. The interests of the general public and other relevant factors must also be taken into consideration. If the government is satisfied that the reasons for closure stated by the employer are “genuine and adequate,” they may grant permission to close the establishment. The reasons on the basis of which permission is granted or refused are to be recorded in writing and furnished to both employers and workers.

This order of the government shall be “final and binding” on all the involved parties as per sub-section 4. It will remain in force for a period of one year from when the order was made.

When is permission for closure deemed to be granted

As per Section 25-O(3), in case the concerned authority fails to communicate the granting or refusing of permission for closure within sixty days from when the application was submitted, the permission is deemed to be granted on the sixtieth day. 

Section 25-O(5) of the Act lays down the provisions relating to appeal. The concerned authority may either, on its own accord or on an application by any worker or employer, review its order- granting or refusing permission, or referring the matter to a Tribunal for adjudication. The appeal must be made not later than thirty days after the order refusing permission for closure. The Tribunal must pass an award not later than thirty days from the matter being referred to it. The award is binding on all parties.

Section 25-O (6) of the Act discusses illegal closure. In case no application for prior permission is made as per the provisions of the Section, or if permission is not granted, the closure shall be considered illegal. In other words, if the application for permission is not made at least ninety days before the closure or the government has refused to grant permission, the closure is illegal. All the workers shall be entitled to all the benefits they would normally receive if there were no closure. However, when permission is granted and the establishment is allowed to close down, the workmen are entitled to receive an amount of compensation as specified in subsection (8) of Section 25-O.

The following are certain significant judgements pertaining to closure in India.

Managing Director, Karnataka Forest Development Corporation Ltd. v. Workmen of Karnataka Pulpawood Ltd. (2007)

Brief summary of the facts and issues involved

In Managing Director, Karnataka Forest Development Corporation Ltd. v. Workmen of Karnataka Pulpawood (2007), two appeals against the decision of the Karnataka High Court were filed before the Supreme Court. The respondents in this case were workmen of Karnataka Pulpwood Ltd. It was a joint sector government company of Karnataka Forest Development Corporation Ltd. and Karnataka Harihar Polyfires Ltd. that was running at a loss. It was decided that the company was to be wound up, and the appropriate steps had to be taken in this regard. Subsequently, the government granted the necessary permission for closure. Furthermore, the government passed an order directing that the respondent workmen be absorbed into the service of the appellant company. The impugned order was challenged in the present appeal.

Court’s judgement and other observations

The Supreme Court allowed the appeal and ruled that in the event that an establishment or undertaking is closed, the only right that the workmen are entitled to is to obtain adequate compensation as provided by the Act. If they believe that any other right has accrued to them, they must approach the appropriate forum for redress.

S. G. Chemical and Dyes Trading Employees Union v. S. G. Chemicals and Dyes Trading Limited and Others (1986)

Brief summary of the facts and issues involved 

In S.G. Chemical and Dyes Trading Employees Union v. S.G. Chemical and Dyes Trading Ltd. (1986), the respondent company was operating in three different locations in Bombay. Its Pharmaceutical division was at Worli, the Marketing and Sales division was at Churchgate, and the Laboratory and Dyes Division at Trombay. The holding company had a chemicals and dye factory in Gujarat, which was sold out in 1984. The buyer company preferred to conduct sales through their distribution channels and therefore did not require the employees and other staff members to work in their registered office. Subsequently, they intimidated the government of Maharashtra about their intention to close down their registered office via notice as per the provisions of the I.D. Act. The notice mentioned the number of workmen to be ninety, but on closure, the company terminated the services of only 84 employees- allowing the remaining six to continue working. The Employees Union lodged a complaint with the Industrial Tribunal contending that the closure was in violation of Section 25-O and thus the workers were still employed and entitled to their wages. They contended that there was functional integrity amongst the three offices of the company; therefore, the total number of employees exceeded one hundred, and the company was required to apply for prior permission for closure under Section 25-O. Since the company failed to do so, the closure was illegal. The Industrial Tribunal dismissed the case, ruling that Section 25-O would not apply since there were never more than a hundred employees at Trombay. Further, the Churchgate office was not part of the Trombay factory and was not an industrial establishment as per the meaning of Chapter V-B. The Tribunal found that even if Section 25-O were to apply, a violation of the same would not constitute an act of unfair labour practice under the relevant provisions of the Maharashtra Act. This decision of the Tribunal was challenged before the Supreme Court in the present case.

Court’s judgement and other observations

The Supreme Court held that the closure of the Churchgate division of the company was illegal as it was contrary to the terms of Section 25-O. As a result, the workmen whose services were terminated continued to be employees of the company and were retrospectively entitled to the entirety of their wages and other allowances. The Court found that the Act did not require an undertaking to be in the same location or premises as the industrial establishment. It is not feasible for all the stages that lead to the manufacture of the finished product to be carried out in the same place. Further, the Churchgate division and the Trombay factory carried out functions that were not separate or independent from each other but were so integrally connected that they constituted a single establishment. 

The combined number of employees at the Trombay and Churchgate divisions was one hundred and fifty. Thus, if the respondent company wished to close down the division, it would have to satisfy the provisions of Section 25-O of the Act and not Section 25-FFA.

Closure refers to the shutting down of an industrial undertaking, business, or factory. For it to be considered valid, certain steps need to be taken by the employer before they can close down the establishment. Non-adherence to these steps results in a penalty, and the closure is deemed illegal. 

As a result of the COVID-19 pandemic, many businesses and industries have been forced to close down. The I.D. Act discusses the procedure and requirements necessary to effect this closure. Closure is a significant event and has extensive and widespread consequences for all its stakeholders. The law tries to balance the interests of all the persons involved and affected and protects their rights and needs. 

What is the difference between lock-out, strike, and closure under the Industrial Disputes Act?

Lock-out Strike Closure
Section Lock-out is defined under Section 2(l) of the Act. Strike is defined under Section 2(gg)(q) of the Act. Closure is defined under Section 2(gg)(cc) of the Act.
Definition It refers to the “temporary closing of a place of employment, or the suspension of work, or the refusal by the employer to continue to employ persons. It refers to the “cessation of work” by workers employed in an industry or undertaking.  It refers to the indefinite or permanent shutting down of an establishment, factory business, or organisation.
Declared by The employers or owners of the industry or undertaking declare a lock-out. The employees or workmen of the industry declare a strike. The employers declare the closure by following the procedure given in the Act.
Causes The causes of a lock-out may be financial problems, political disturbances, management issues, etc. Such a stoppage of work may be an act in collaboration, a concerned refusal, or a refusal under some common consideration by a group of employees. Factors such as low profits, poor marketing, bad management, tough competition, failure to pay taxes, etc. could result in closures.

What is the difference between layoffs, retrenchments, and closures under the Industrial Disputes Act?

The differences between layoffs, retrenchments, and closures are discussed in the table below.

Layoff Retrenchment Closure
Section Layoff is defined under Section 2(gg)(kkk) of the Act. Retrenchment is defined under Section 2(gg)(oo) of the Act. Closure is defined under Section 2(gg)(cc) of the Act.
Definition It refers to the “refusal, inability or failure” of the employer to provide employment to his workers or employees. It refers to the “termination” of the services of the workman by the employer. It refers to the indefinite shutting down of an establishment, factory business, or organisation.
Causes On account of shortage of raw materials, power, coal breakdown of machinery, accumulation of stocks, natural calamity, or any other connected reason. It is for any reason other than punishment. It does not include voluntary retirement, retirement on reaching the age of superannuation (if the same is stipulated in the worker’s employment contract), or termination on the grounds of continued ill health. Factors such as low profits, poor marketing, bad management, tough competition, failure to pay taxes, etc. could result in closures.
Special Provisions Special provisions pertaining to lay-off are provided under Section 25(M). Special provisions pertaining to retrenchment are provided under Section 25(N). Special provisions pertaining to closure are provided under Section 25(O).

What is the difference between employees and workmen?

Indian laws dealing with industries ordinarily categorise employees as ‘workmen’ or ‘non-workmen’. Persons referred to as ‘workmen’ are granted various legal protections and entitlements, for instance, severance compensation and prior notice and compensation in case of retrenchment or closure of the industrial establishment. ‘Workmen’ are those persons employed in such establishments to do any unskilled, manual, technical, clerical, skilled, supervisory, or operational work for hire or reward. It does not include


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