The Supreme Court has ruled that an employer has a fundamental right to close down business under Article 19(1)(g) of the Constitution, which guarantees him the right to practise any trade.

The court allowed the closure of a unit manufacturing biscuits for Britannia Industries Limited (BIL) by overruling a Bombay High Court verdict.

A bench of Justices Sanjay Karol and Prashant Kumar Mishra passed the verdict on an appeal of Harinagar Sugar Mills Ltd (HSML) against the high court's February 17, 2023, order.

“The Constitution under Article 19 provides for the freedom of trade, profession, occupation and business. Meaning thereby that all citizens of the country have the freedom to choose a location of their choice and run it 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 apex court said.

“Article 19(1)(g) includes the right to shut down a business but is, of course, subject to reasonable restrictions,” it added.

HSML was engaged in biscuit manufacturing for BIL for over three decades under successive job work agreements. The latest agreement of May 22, 2007, was terminated by BIL with effect from November 20, 2019, following a six-month notice period.

HSML applied for closure of its operations under Section 25-O of the Industrial Disputes Act, 1947, submitting the application on August 28, 2019, and notifying its workers shortly thereafter.

The industrial tribunal and Bombay High Court, through concurrent orders, took the view that the company could not close its business, prompting HSML to file the appeal.

Justice Karol said Section 25-O provides that the appropriate government (Maharashtra in this case) might, after making an enquiry, pass an order accepting or rejecting the application for closure. If the appropriate government does not communicate its order within 60 days of the application, permission to close must be deemed granted.

"…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 (labour) have the authority to do so. In other words, the state government failed to communicate any order on the application for closure. The deemed closure would, therefore, come into effect," the apex court said.

However, in a relief to the workers, the bench enhanced the severance compensation from ₹10 crore to ₹15 crore.