Closure of business must be disclosed with adequate, genuine reasons: Supreme Court

The Supreme Court has said that the right to close the business is subject to the interest of the general public and any application seeking permission for closure under the Industrial Disputes Act, 1947 must disclose adequate and genuine reasons that the authority has to have regard for.

A bench of Justices Sanjay Karol and Prashant Kumar Mishra pointed out, in certain cases, however, even if the reasons are genuine and adequate, it does not mean that permission to close ought to be granted.

Referring to Section 25-O, the court emphasised that if it is found that the reasons are generally adequate, and despite that the appropriate government decides for refusal of permission of foreclosure, then the interest of the general public involved in that particular case must be “compelling” and “overriding”; and the financial difficulty on its own cannot constitute the reason for shutting down the business.

The court referred to Orissa Textile and Steel Vs State of Orissa (2002) to underscore that an employer must demonstrate exceptional circumstances or an impossibility of running the business for the purpose.

The bench allowed an appeal filed by Harinagar Sugar Mills Limited (Biscuit division) against the Bombay High Court's judgment of February 17, 2023, which allowed the plea against the closure of the unit.

The court pointed out Article 19(1)(g) of the Constitution included the right to shut down a business but is, of course, subject to reasonable restrictions.

"All citizens of the country have freedom to choose a location of their choice and run the business as they deem it fit, subject to the reasonable restrictions that may be made by the legislature. When it comes to industry which is covered under Article 19, the field of the statute is occupied by the Industrial Disputes Act, 1947," the court emphasised.

If there exists the freedom to set up and run a trade/business as one sees fit, necessarily, there has to be a set of rights vesting with the proprietor/owner to take decisions as may be in his best interest. At the same time, it is true that the law does not permit such owner or proprietor to take any and all decisions without having considered and accounted for the impact that it shall have on the employees or workers that are part of this establishment, the bench said.

The court highlighted if the concerned Government does not take action with reasonable expediency, the business owner should not be saddled with the costs and responsibilities of running the business indefinitely, till such time the authority arrives at a proper and just decision.

It held that the application by the appellant of August 28, 2019, was complete in all respects, and the 60-day period for the deemed closure to take effect would be calculable from said date. Second, the Deputy Secretary was not the appropriate Government who could have asked the appellant to revise and resubmit the application for closure as that authority is only vested with the Minister concerned, who did not, even in the slightest, consider the merits of the matter independently, much less with or without any application of mind. Subdelegation to the officer was not permitted by law, and, therefore, any communication made by him would be without any legal sanction, the court said.

In the instant facts, the bench noted the application for closure was duly addressed to the authority, which was acknowledged to be on August 28, 2019. The Deputy Secretary, Ministry of Labour Government of Maharashtra, responded on September 25, 2019 stating that no sufficient reasons had been provided for closure.

Appellant HSML contended that the Deputy Secretary made such an order without the requisite authority since he was not the “appropriate Government” to deal with applications under section 25-O. The Respondent-State, on the opposite, contended that the internal noting placed on record before the High Court showed that the file had travelled up to the Minister, and, therefore, any action consequent to such approval by the Minister was in accordance with the law.

"We find it difficult to accept this contention for two reasons. There is no express authority resting with the Deputy Secretary. Second, reliance cannot be placed on internal noting to establish compliance with procedure," the bench said.

The court also pointed out Section 25-O specifically provided “by order and for reasons to be recorded in writing,” and so, reasons were a statutory necessity. With time, it is now settled that administrative authorities are also required to give reasons for a decision made, court said. 

"Reasons, therefore, are important and ought to be recorded. It could be said that the conclusion reached by the office of the Minister that HSML had not supplied sufficient reasons for closure would itself be sufficient to qualify as ‘reasons’. However, can an endorsement of the view taken by an undisclosed officer of the Ministry be said to be an ‘application of mind’ by the competent authority when the Minister is the sole authority? We think not," the bench said.

The decision had to be top down and not otherwise. Had it been that this conclusion of insufficiency of reasons was the Minister’s conclusion, and then they would have directed the Deputy Secretary to communicate the decision to HSML, then our conclusion may have been different, the bench said.

Court noted the letter of September 25, 2019, addressed by the Deputy Secretary to HSML could not be constituted to be an order since such order to resubmit the application was without any authority and it was not the appropriate government acting in that regard and not an order rejecting or accepting the application. The same conclusion can be reached on a second count - the ‘order’ suffered from the vice of non-application of mind by the competent authority, the bench held.

Section 25-O provides that the appropriate Government may, after making an enquiry and hearing all the concerned parties, pass an order in writing accepting or rejecting the application for closure. It also provides that if the appropriate Government does not communicate and order within 60 days of the date of application, there shall be deemed closure, the bench noted.

"We have held that the appropriate Government had not acted in respect of the application made by HSML since the Minister, who was the competent authority, had not applied his mind to the administrative ‘order’ nor, did the Deputy Secretary have the authority to do so. In other words, the appropriate Government failed to make and communicate any order on the application for closure. The deemed closure would, therefore, come into effect," the bench said.

The court noted the reasoning furnished by the Deputy Secretary to reject the application for closure made by HSML was insufficient, and it appeared to have been given for the sole purpose of rejecting the application without due application of mind.

Considering that some of the employees may, with the closure of this concern, be losing the only job they have known, and others may, through no fault of their own, be rendered unemployed, the bench enhanced the appellants’ offer by a sum of Rs 5 crores, thus making it Rs 15 crores instead of Rs 10 crores.

CASE TITLE: VAIBHAV Vs. THE STATE OF MAHARASHTRA

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