Article 19(1)(g) Includes Right To Shut Down A Business But It Is Subject To Reasonable Restrictions: Supreme Court

The Supreme Court observed that Article 19(1)(g) of the Constitution includes the right to shut down a business but the same is subject to reasonable restrictions.

The Court observed thus in Appeals preferred by Harinagar Sugar Mills Limited (Biscuit Division) and others, challenging the Judgment of the Bombay High Court.

The two-Judge Bench comprising Justice Sanjay Karol and Justice Prashant Kumar Mishra held, “The sum and substance are that Article 19(1)(g) includes the right to shut down a business but is, of course, subject to reasonable restrictions. This interplay of Article 19(1)(g) and Section 25-O of the Act engaged in the attention of a Constitution Bench of this Court in Excel Wear (supra), when it was cast with considering the constitutionality of Section 25-O as it then stood. It has subsequently been amended, challenged before this Court and upheld in Orissa Textile and Steel (supra), which we will discuss further ahead.”

The Bench explained that 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.

Senior Advocate Mukul Rohatgi represented the Appellants while AOR Seshatalpa Sai Bandaru represented the Respondents.

Brief Facts

The Appellant i.e., Harinagar Sugar Mills Limited (Biscuit Division) in short ‘HSML’, was engaged in biscuit manufacturing for Britannia Industries Limited (BIL). Such manufacturing by HSML had been exclusively for BIL, and had been ongoing for more than three decades, under Job Work Agreements (JWAs), granted by the latter to the former and extended from time to time. JWA was terminated by BIL in 2019 stating that the 180-day notice period as mandated by a clause would begin from June 1, 2019. Resultantly, applications for closure of business were made to the competent authorities as per Form XXIV-C prescribed under Rule 82-B(1) of the Industrial Dispute (Maharashtra) Rules, 1957 read with Section 25-O(1) of the Industrial Disputes Act, 1947. A letter sent by the Deputy Secretary, Maharashtra Government had informed HSML that they failed to disclose their efforts to prevent closure, nor had they given cogent reasons for closure.

They were, therefore, asked to resubmit their application. By way of reply, HSML furnished the particulars as asked for the 60-day period provided for under Section 25-O(3) of the Act ran out in October 2019. The authorities once again found the response lacking and asked to again resubmit the application. After their response, the Deputy Commissioner, Labour sent two letters to HSML asking them to be present for a meeting and conveying to them that the State Government was yet to grant permission for closure and as such, they should not close down the business on November 27, 2019. Workers’ unions on the same day as their letter also approached the Industrial Tribunal seeking to restrain HSML from going forward with the closure. An ad-interim order was passed by the Tribunal, granting the said relief. These letters were the subject matter of challenge before the High Court. As the Writ Petitions were dismissed, the case was before the Apex Court.

Reasoning

The Supreme Court in view of the above facts, noted, “… 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. This is evidenced by the provision extracted above providing for a detailed procedure to be followed when a person wishes to ‘shut shop’, but concomitant providing that 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.”

The Court reiterated that the administrative authorities are also required to give reasons for a decision made. It further said that the letter dated September 25, 2019 addressed by the Deputy Secretary to HSML cannot be constituted to be an Order since such Order to resubmit the application was without any authority as 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. … an employer seeking to close his business must show compelling and overriding circumstances”, it also observed.

Furthermore, the Court noted that if 60-day time period for the deemed closure is kept aside, the position is clear that for the last 32 years, HSML undertook work only from BIL and in doing so, the raw material and necessary plant and machinery were provided by the latter itself and upon receipt of the notice of closure, in an attempt to save the division, they tried to persuade BIL to reconsider its decision but were not met with success.

“We may add HSMC to have clarified that since inception no job work for anyone else was ever done and that now there is no further scope of executing work for anyone else. We are quite certain that this spells impossibility. It is not the case of the Respondent-State that the statement made by HSML is incorrect and that they had other opportunities ongoing and available, and despite the same, they had sought permission for closure. Then, we ask ourselves, when there is no opportunity or avenue for production, what shall the employees do?”, it added.

The Court remarked that there did indeed exist sufficient compelling circumstances for closure and hence, the High Court erred in placing reliance on Form XXIV-B, instead of XXIV-C which, resulted into an erroneous appreciation of statutory provisions.

Conclusion

The Court held that the application dated August 28, 2019 was complete in all respects, and the 60-day period for the deemed closure to take effect would be calculable from the said date.

“Second, the Deputy Secretary was not the appropriate Government who could have asked HSML to revise and resubmit the application for closure. That authority is only vested with the Minister concerned. The Minister did not, even in the slightest, consider the merits of the matter independently, much less with or without any application of mind. Sub delegation to the officer was not permitted by law, and, therefore, any communication made by him would be without any legal sanction”, it added.

Accordingly, the Apex Court allowed the Appeals, clarified that the money paid to the employees by the High Court’s Orders would not be recoverable from them, and enhanced the Appellants’ offer by a sum of Rs. 5 crores.

Cause Title- Harinagar Sugar Mills Ltd. (Biscuit Division) & Anr. v. State of Maharashtra & Ors. (Neutral Citation: 2025 INSC 801)

Appearance:

Appellants: Senior Advocate Mukul Rohatgi, AOR Praveen Kumar, Advocates Abhay Jadeja, Arun Unikrihnan, and Sunaina Kumar.

Respondents: AORs Seshatalpa Sai Bandaru, Aaditya Aniruddha Pande, Advocates Nitin Tambwekar, Shailesh S. Pathak, Siddharth Dharmadhikari, Bharat Bagla, Shrirang B. Varma, Sourav Singh, Aditya Krishna, and Adarsh Dubey.

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