Closure of Undertaking

Indian Legal System > Civil Laws > Industrial Disputes Act, 1947 > Closure of Undertaking

Closure:

• The Industrial Disputes Act, 1947, originally does not contain the provisions relating to the closure of an industry. The provisions relating to the law of closure were inserted in the year 1957 in view of the Supreme Court judgment in case Hariprasad Shivshankar Shukla v/s. A.D. Diwelkar, AIR 1957 S.C 121
• Subsequently, over a period of years the law relating to closure has undergone a series of amendments from time to time and thus was consolidated to the present position in the year 1982.
• According to Section 2(cc) of the Industrial Disputes Act, Closure of an industry means the permanent closing down of a place of employment or part thereof.
• Section 2(cc) of the Industrial Disputes Act was inserted by the Industrial Disputes (Amendment) Act of 1982, (w.e.f. 21-8-1984)

Provisions of Closure of an undertaking under Section 25 (O):

•  Subsection (1): An employer who intends to close down an undertaking of an industrial establishment to which this Chapter applies shall, in the prescribed manner, apply, for prior permission at least ninety days before the date on which the intended closure is to become effective, to the appropriate government, stating clearly the reasons for the intended closure of the undertaking and a copy of such application shall also be served simultaneously on the representatives of the workmen in the prescribed manner:  PROVIDED that nothing in this sub-section shall apply to an undertaking set up for the construction of buildings, bridges, roads, canals, dams or for other construction work.
• Subsection (2):Where an application for permission has been made under subsection (l),the appropriate government, after making such enquiry as it thinks fit and after giving a reasonable opportunity of being heard to the employer, the workmen and the persons interested in such closure may, having regards to the, genuineness and adequacy of the reasons stated by the employer, the interests of the general public and all other relevant factors, by order. and for reasons to be recorded in writing, grant or refuse to grant such permission and a copy of such order shall be communicated to the employer and the workmen.
• Subsection (3):Where an application has been made under sub-section (1) and the appropriate government does not communicate the order granting or refusing to grant permission to the employer within a period of sixty days from the date on which such application is made, the permission applied for shall be deemed to have been granted on the expiration of the said period of sixty days.
• Subsection (4): An order of the appropriate government granting or refusing to grant permission shall, subject to the provisions of sub-section (5), be final and binding on all the parties and shall remain in force for one year from the date of such order.
• Subsection (5): The appropriate government may, either on its own motion or on the application made by the employer or any workman, review its order granting or refusing to grant permission under sub-section (2) or refer the matter to a Tribunal for adjudication: PROVIDED that where a reference has been made to a Tribunal under this sub-section, it shall pass an award within a period of thirty days from the date of such reference.
• Subsection (6):Where no application for permission under sub-section (l) is made within the period specified therein, or where the permission for closure has been refused, the closure of the undertaking shall be deemed to be illegal from the date of closure and the workmen shall be entitled to all the benefits under any law for the time being in force as if the undertaking had not been closed down.
• Subsection (7): Notwithstanding anything contained in the foregoing provisions of this section, the appropriate government may, if it is satisfied that owing to such exceptional circumstances as accident in the undertaking or death of the employer or the like it is necessary so to do, by order, direct that the provisions of sub-section (1) shall not apply in relation to such undertaking for such period as may be specified in the order.
• Subsection (8): Where an undertaking is permitted to be closed down under sub-section (2) or where permission for closure is deemed to be granted under sub-section (3), every workman who is employed in that undertaking immediately before the date of application for permission under this section, shall be entitled to receive compensation which shall be equivalent to fifteen days’ average pay for every completed year of continuous service or any part thereof in excess of six months.

Undertakings Covered Under Section 25(O):

• Those in which 100 or more workmen were employed on an average per working day for the preceding 12 months;
• Those which satisfy the definition of “an industrial establishment” contained in Section 25(L).

Procedure for Closure of an Undertaking:

• The procedure for the closure of an undertaking is specified in Subsection (1) of Section 25 (o) the Industrial Disputes Act, 1947.
• An employer who intends to close down an undertaking of an industrial establishment shall apply, for prior permission in the prescribed manner at least ninety days before the date on which the intended closure is to become effective, to the appropriate government.
• The notice should state clearly the reasons for the intended closure of the undertaking.
• The notice must seek prior permission of appropriate government for the intended closure.
• A copy of such application to the appropriate government shall also be served simultaneously to the representatives of the workmen in the prescribed manner.

Undertakings Excluded From Obtaining Prior Permission Before Closure:

• The exceptions are mentioned in Section 25 (o) Subsections (1) and (7) of the Industrial Disputes Act, 1947.
• As per Subsection (1) of Section 25(o) the provisions of Section 25(o) are not applicable to an undertaking set up for the construction of building, bridges, roads, canals, dams or for other construction work (infrastructure projects).
• As per Subsection (7) of Section 25(o), the appropriate government may if it is satisfied that owing to such exceptional circumstances as accident in the undertaking or death of the employer or the like it is necessary so to do, by the order can allow closure of establishment without approval notice.

Grant and Refusal of Permission:

• The grant or refusal of permission for closure of an undertaking is discussed in Subsection (2) of Section 25 (o) the Industrial Disputes Act, 1947.
• When an employer makes an application to the appropriate government for closure under the sub-section (l) of Section 25(o), the appropriate government conducts the necessary inquiry.
• A reasonable opportunity is given to the employer, the workmen, and persons interested in such closure of being heard. The appropriate government also verify genuineness and adequacy of the reasons stated by the employer. The interests of the general public and all other relevant factors are also considered.
• If the appropriate government is satisfied that the reasons for the intended closure of the undertakings are not  – (i) adequate and sufficient; or (ii) such closure is prejudicial to public interest, direct the employer not to close such undertaking.
• An order of the appropriate government granting or refusing to grant permission is final and binding on all the parties and remains in force for one year from the date of such order.

When is Permission deemed to be Granted?

• The concept of deemed permission is discussed in Subsection (3) of Section 25 (o) the Industrial Disputes Act, 1947.
• When an application has been made by an employer for permission for the closure of the undertaking under sub-section (1) and the appropriate government does not communicate the order granting or refusing to the permission of the closure of the undertaking to the employer within a period of sixty days from the date on which such application is made, Then the permission applied is deemed to have been granted on the expiration of the said period of sixty days.

Appeal:

• The provision for an appeal by the employer or any workman against the refusal or grant to the permission of the closure of an undertaking is discussed in Subsection (5) of Section 25 (o) the Industrial Disputes Act, 1947.
• The appeal should be made within 30 days from the date of an order of the refusal to the permission of the closure of an undertaking.
• The industrial tribunal within 30 days from the filing of appeal should affirm the order of the appropriate government or set aside it.
• The award by the tribunal is bound on all parties.
• The validity of the order of refusal for closure is for one year.

Illegal Closure:

• The topic of illegal closure is discussed in Subsection (6) of Section 25 (o) the Industrial Disputes Act, 1947.
• If an application for permission for the closure of the undertaking under sub-section (l) is not made at least ninety days before the date on which the intended closure is to become effective, to the appropriate government. then the closure is illegal Or
• The permission for closure has been refused, by the appropriate government then the closure of the undertaking is deemed to be illegal from the date of closure and the workmen are entitled to all the benefits under any law for the time being in force as if the undertaking had not been closed down

Closure Compensation to Workmen:

• The method of compensation to workmen after the closure of an undertaking is discussed in Subsection (8) of Section 25 (o) the Industrial Disputes Act, 1947.
• When an undertaking is approved or permitted or deemed to be permitted to be closed down, every workman in the undertaking who has been in continuous service for not less than one year immediately before the date of application for the permission is entitled to notice and compensation as specified in Section 25 (N) as if the said workman had been retrenched under that section.
• The compensation shall be equivalent to fifteen days’ average pay for every completed year of continuous service or any part thereof in excess of six months.

Provisions for Restarting of Closed Down Undertaking, S. 25(P):

• If the appropriate government is of opinion in respect of any undertaking of an industrial establishment to which Chapter V applies and which closed down before the commencement of the Industrial Disputes (Amendment) Act, 1976 (32 of 1976),
• Clause (a): that such undertaking was closed down otherwise than on account of unavoidable circumstances beyond the control of the employer;
• Clause (b): that there are possibilities of restarting the undertaking;
• Clause (c): that is necessary for the rehabilitation of the workmen employed in such undertaking before its closure or for the maintenance of supplies and services essential to the life of the community to restart the undertaking or both; and
• Clause (d): that the restarting of the undertaking will not result in hardship to the employer in relation to the undertaking,

• it may, after giving an opportunity to such employer and workmen, direct, by order published in the Official Gazette, that the undertaking shall be restarted within such time (not being less than one month from the date of the order ) as may be specified in the order.

Restarting of Closed Down Undertaking:

• The appropriate government has the power to order restarting of the closed down undertaking of an industrial establishment to which Chapter VB applies, and which were closed down prior to the commencement of the Amendment Act, 1976.
• It is to be noted that after 1976, the appropriate government has no power to restart the legally closed down undertakings.
• The closed down of the undertaking must be on account of unavoidable circumstances beyond the control of the employer. There is a possibility of restarting the closed down undertaking. Restarting of the closed undertaking is essential for well being of the workmen and society as a whole and after restarting there is no hardship to the employer.
• Before giving the order of restarting of the undertaking, the appropriate government is bound to give an opportunity to the employer and employee, and only thereafter, it satisfied, it may direct, by an order published in the Official Gazette, that the undertaking shall be restarted within the time (not less than one month from the date of the order) as may be specified in order.

Provisions for Penalty for Lay-Off and Retrenchment Without Permission S 25(Q):

• Any employer, who contravenes the provisions of section 25-M or section 25-N shall be punishable with imprisonment for a term which may extend to one month, or with fine which may extend to one thousand rupees, or with both.

Provisions for Penalty for Closure of Undertaking Without Permission S 25(R):

• Subsection (1): Any employer, who closes down an undertaking without complying with the provisions of sub-section (1) of section 25-O shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to five thousand rupees, or with both.
• Subsection (2): Any employer, who contravenes [an order refusing to grant permission to close down an undertaking under sub-section (2) of section 25-O or a direction given under section 25P], shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to five thousand rupees, or with both, and where the contravention is a continuing one, with a further fine which may extend to two thousand rupees for every day during which the contravention continues after the conviction.

Certain provisions of Chapter V-A to apply to an industrial establishment to which this Chapter applies S. 25 (S)

• The provisions of sections 25B, 25D, 25FF, 25G, 25H and 25J in Chapter V-A shall, so far as may be, apply also in relation to an industrial establishment to which the provisions of this Chapter apply.

Note: The definition of “continuous service” of Section 25(B) applies to all provisions contained in Section 25E to 25 R.

Indian Legal System > Civil Laws > Industrial Disputes Act, 1947 > Closure of Undertaking