1. In the two Writ Petitions, presented by a public limited Company-Stumpp, Schuele and Somappa Limited and one of its share-holders, the following question of law arises for consideration :
'Whether S. 25-O of the Industrial Disputes Act, 1947 ('the Act' for short) which requires the permission of the appropriate Government for closing down an industry to which part V-B of the Act applies is void on the ground that it is violative of the fundamental right guaranteed under Art. 19(1)(g) of the Constitution of India ?'
2. The facts and circumstances which have given rise to the above question, briefly, are as follows :
(i)(a) Prior to the amendment of the Act by the Industrial Disputes Amendment Act, 1976, there was no condition imposed by any of the provisions of the Act requiring an owner of an industry to secure the permission of the appropriate Government to close down the industry. Similarly there was no such condition for effecting lay-off or retrenchment. With the object of imposing restraints on the decisions of the owners of industries in the matter of laying off or retrenching their workmen and also in the matter of closures, with the object of protecting the workmen against rendering them unemployed, and also to maintain the tempo of production and productivity, part V-B was inserted into the Act containing Ss. 25-K and 25-S. This chapter was made applicable to industries which are not seasonal and which are factories or plantations or mines employing not less than 300 employees vide Ss. 25-K and 25-L. In particular S. 25-O which was made applicable to all industries to which Part V-B was applicable except industries engaged in construction of buildings, roads, etc., provided that an owner could close down his industry only with the previous approval of the appropriate Government. Section 25-R made the act of closure of an industry without prior permission as also an act of closure contrary to the direction of the Government issued under S. 25(O) or 25(P), punishable with imprisonment and/or fine to the extent specified in sub-Ss. (1), (2) and (3) of S. 25(R).
(b) The Supreme Court was called upon to consider the constitutional validity of S. 25(O) in the case of Excel Wear v. Union of India [1978-II LLJ 527]. The Supreme Court declared the section void as offending Art. 19(1)(g) of the Constitution.
(c) Thereafter a new S. 25-O was inserted into the Act with certain modifications, by the Industrial Disputes (Amendment) Act 1982 (Act 46 of 1982). By this amendment Chapter V-B which was earlier made applicable to industries employing not less than 300 workmen was made applicable to industries employing not less than 100 workmen.
(ii) The first petitioner is a public limited company registered under the Companies Act. It was incorporated as a Company on 19th December, 1969. It has established a spring manufacturing unit at Bangalore. The second petitioner is a share-holder of the first petitioner-company. In the spring factory, the company has employed about 1000 workmen. There was another company at Bangalore by name 'Nippon Electronics (India) Limited'. The financial position of the said company became precarious and was on the verge of closure in the year 1981. According to the petitioners, the nationalised banks and some of the public financial institutions who had advanced money to Nippon Electronics (India) Limited, brought pressure on the petitioner-company to take over Nippon Electronic (India) Limited. Though the petitioner was unwilling to take over that sick unit, it had to yield to the pressure of the financial institutions as they were also financiers to the petitioner-company. Therefore, it was taken over with effect from 31st December, 1981. The amalgamation was approved and given effect to with effect from 31st December, 1981 by the order of the High Court dated 6th June, 1984. After the change of management, the petitioner-company tried to revive the sick unit. A capital investment of Rs. 28 lakhs was made for modernisation of the existing plant to reduce the cost of production. Financial assistance to the extent of Rs. 90 lakhs was provided from the springs division to the Electronics Division, namely, Nippon Electronics. Several other steps for improving marketing network providing additional working capital, reduction of 15 managerial staff and others were taken to improve the factory. Inspite of the above steps, the electronics division incurred loss of Rs. 107 lakhs from July 1981 as follows :
1981-82 Rs. 24 lakhs1982-83 Rs. 14 lakhs1983-84 Rs. 69 lakhs-----------------Rs. 107 lakhs----------------- Further during the five months commencing from January to May 1985, there was loss of about Rs. 17 lakhs. In the circumstances, the petitioner decided to close down the Electronics Division with effect from 1st August, 1985. But in view of S. 25(O) of the Act, as the petitioner is required to seek permission of the State Government to close the industry the petitioner made an application to the State Government on 30th April, 1985 under S. 25-O of the Act. The application reads :
'Form of notice for permission of closure to be given by an employer under Sub-s. (1) of S. 25-O of the Industrial Disputes Act, 1947 (14 of 1947).
dated 30th April, 1985. To The Secretary, Government of Karnataka, Social Welfare & Labour Dept., Multi-strayed Building, Bangalore-1. Sir, (WITHOUT PREJUDICE)Under S. 25-O of the Industrial Disputes Act, 1947 (14 of 1947) we hereby inform you that we propose to close down the undertaking specified below to Stumpp, Schuele & Somappa Ltd. (Electronics Division) w.e.f. 1st August, 1985 for the reasons explained in the Annexure and Enclosures 1 to 9.
2. The number of workmen whose services will be terminated on account of the closure of the undertaking is 300.
3. Permission is solicited for the proposed closure.
4. We hereby declare that in the event of approval for the closure being granted, every workman in the undertaking to whom Sub-s. (7) of the said S. 25-O applies will be given notice and paid compensation as specified in S. 25-N of the Industrial Disputes Act, 1947 (14 of 1947) as if the workmen had been retrenched under that section.
Yours faithfully, for Stumpp, Schuele & Somappa Ltd., (Electronics Division) Sd/- M. R. Ramesh, Managing Director.' The reasons for closing down the electronics division set out along with the application reads :
'Reasons for Proposed Closure :
Nippon Electronics (India) Limited, was at the verge of closure during November 1981 due to enormous losses. At this juncture, Stumpp Schuele & Somappa Ltd. were forced to try to revive the unit at the instances of Bankers and Financial Institutions and eventually amalgamate Nippon Electronics (India) Limited with it. The court order of the High Court of Karnataka dated 6th June, 1984 gave effect to the amalgamation of Nippon Electronics (I) Ltd., with Stumpp, Schuele & Somappa Ltd., effective from 31st December, 1981. Nippon Electronics is now being run as Electronics Division of Stumpp Schuele & Somappa Limited.
Consequent to the takeover of the management, additional working capital was arranged from the Bankers, new machinery valued at Rs. 28 lakhs was installed with finance from Industrial Credit & Investment Corporation of India Limited. Stumpp Schuele & Somappa Limited has put in Rs. 90 lakhs till date in the Electronics Division. Inspite of the above, the division has incurred losses of Rs. 103 lakhs after July 1981 as follows :
1981-82 Rs. 24 lakhs 1982-83 Rs. 14 lakhs 1983-84 (provisional) for 18 months Rs. 65 lakhs ----------- Tota : 103 lakhs -----------Further, the electronics Division is far from being revived and continues to incur heavy losses of around Rs. 4 lakhs per month. The Springs Division, having already put in Rs. 90 lakhs in the Electronics Division do not now have any further capacity to pump in any more funds since they themselves have consequently reached a bad financial situation.
Further there is no future for the Electronics Division at the present level of operations, since our competitors are able to sell at much lower prices because of their very low labour costs, in view of the fact that the percentage of labour cost is 35% to turnover in our case as against 8 to 12% in the case of our competitors. This has resulted in our losing a major share of market to our competitors. If the unit is to run in a viable manner the labour strength has to be drastically reduced. This apart the very high rate of wage is also a factor which is making the unit non-viable.
From our experience it has been found that if the unit is to stop making losses it has to continue manufacturing only the four types of Capacitors, namely :
2. Locus Ignition.
4. Motor Run (Seasonal).
Thus to operate economically we have to cater to the limited market of above four items only. For this the labour strength has to be drastically reduced and also there has to be a wage reduction.
The above state of affairs made it necessary to probe into the matter and based on critical analysis of the financial position of the Electronics Division the management proposed certain economy measures namely reduction in emoluments and strength of the workmen. But the workmen and the Union did not at all co-operate with the management in the said matter. Hence the hope of running the unit on economically viable basis is shattered.
In view of the above the Electronics Division is financially non-viable and the management is left with no option but to close the same. If this is not done, the Springs Division will also have to be closed down throwing out of employment about 1000 additional persons.'
The workmen of the Electronics Division represented by respondent No. 3 - trade union filed its objection. The relevant portion of the same reads :
'1. The management of Stumpp, Schuele and Somappa Ltd., (Electronics Division) have given us a copy of their letter dated 30th April, 1985 along with its enclosures. All the typed annexures are not at all legible. It is extremely difficult to read them. The enclosures running to 10 pages dated 17th April, 1985 which are photostat copies are legible and which are marked as Enclosure-1. However, again the other typed enclosures are not clearly legible. However, Enclosure-B which is a cyclostyled copy is legible.
Hence we request you to be kind enough to direct the management to immediately provide us with copies which are clearly legible to enable us to submit our objections.
2. But however we write to state the following reply to the enclosure No. 8 wherein the Management have stated regarding the reasons for the proposed closure. The reasons given by the management for the proposed closure are not bona fide and germane. The alleged losses shown are due to gross mismanagement. We sincerely feel that the management themselves are responsible for making the industry 'sick'. The alleged 'sickness' also is not a bonafide one. They have shown losses for the years 1981 to 1984. This is not a correct position at all. It is pertinent to note that these losses are shown as losses of Nippon Electronics (India) Ltd., and not of Stumpp Schuele & Somappa Ltd. We submit that when once the amalgamation has taken place between Nippon Electronics (India) Ltd., and Stump Schuele and Somappa Ltd., and that scheme of amalgamation is deemed to have come into effect on 31st December, 1981 the Balance Sheet and Profit and Loss Accounts of Stumpp Schuele and Somappa Ltd., have to be taken into consideration as Nippon Electronics (India) Ltd., has become a part and parcel of Stumpp Schuele and Somappa Ltd., and for the relevant years and profits are as follows :
Profit before tax : 1981 : Rs. 47,93,362-001982 : Rs. 27,71,917-001983 : Rs. 31,65,021-003. The alleged losses are merged and profits have come out ultimately. Hence the reason of alleged losses cannot be taken into consideration. The management have themselves stated in their enclosure 8 that Nippon Electronics is now being run as a Division of Stumpp Schuele and Somappa Ltd., hence Nippon Electronics cannot be separated or isolated and shown as the Management have attempted. This kind of attempt on the part of the management is made with ulterior motives.
4. The statement that Stumpp Schuele and Somappa Ltd., have no further funds is not true as their balance sheets reveal enormous finances.
It is absolutely false to state that the Electronics Industry has no future. In fact there is a bright future for only electronics. The present electronics Division is the first of its kind in the entire state of Karnataka and it is the seniormost industry. It has earned even Export Award. Only due to gross mismanagement the present dead lock has come into effect. The alleged high labour cost is not true. Most of the employees are senior employees and they have good experience to their credit. Hence it is natural that they are drawing little better emoluments. But the number of staff members employed is abnormally high and their emoluments also are very high. In fact recently the Union gave a written suggestion to the Management on 24th April, 1985 showing how many persons employed by them were doing no work but were drawing huge salaries. A copy of it is herewith enclosed which is self-explanatory. Further the management have not complied with the provisions of law.
6. Under the circumstances, we request you not to give permission for closure.'
Thereafter, the State Government made order dated 27th June, 1985 (Annexure-D) rejecting the request of the petitioner for closing the electronics division with effect from 1st August, 1985. The order reads :
The management of Stumpp Schuele and Somappa Ltd., (Electronics Division) Bangalore in their application cited above, received on 2nd May, 1985 have sought the permission of the Government under S. 25(O) of the Industrial Disputes Act, 1947, for the closure of their factory w.e.f. 1st August, 1985.
Order No. SWL 204 LLD 85, B'lore, 27th June, 1985.
On the issues regarding the closure of the M/s. Stumpp Schuele and Somappa Ltd., (Electronics Division), Bangalore, a hearing was given to both the Union and the Management on 18th June, 1985 at 11.00 a.m.
The most uneconomic condition of Electronics Division resulting from high labour cost, cut-throat competition from small scale producers etc., have been raised as main reasons by the management to support the demand for closure. The accumulated losses so far have been more than Rs. 100 lakhs. To rehabilitate the Electronics Wing, viz., Nippon Electronics more than Rs. 90 lakhs have been pumped in from the main concern viz., M/s. Stumpp, Schuele and Somappa. Inspite of this, Nippon Electronics has been continuously running at a loss and the management is not in a position to run the division at all, otherwise, it will be resulting in the sickness of not only Nippon Electronics, but also Stumpp Schuele and Somappa, a normally healthy and good concern.
The union contended that the Nippon Electronics having been amalgamated with the Stumpp Schuele & Somappa Ltd., cannot alone be closed down as the provision of closure is meant for an undertaking that its the whole industry. By virtue of amalgamation Nippon Electronics had become a part and parcel of Stumpp, Schuele & Somappa and any loss or profit will have to be shared by the entire concern, irrespective of the fact whether separate annual accounts and balance sheets are being prepared or not. M/s. Stumpp Schuele and Somappa have been running at profit and have there is no justification in the demand for the closure based on recurring losses. The losses from the Electronics Division have been caused by the mismanagement of the industries. At any rate, when Nippon Electronics was taken over by Stumpp, Schuele & Somappa, they knew very well the fact that it has been continuously running at a loss that cannot be raised as a reason for closure at this stage. It was also pointed out that large quantity of the work meant for Nippon Electronics are being transferred to small scale industries run mainly by the previous Executives of the company.
On behalf of the management it was pointed out that the new amended section of the Industrial Disputes Act 2(CC) provides specifically for the closure of part of the establishment also. This part he quoted profusely from the decision of the Supreme Court in case of Indian Leaf Tobacco Development Co. Ltd., v. Workmen, Guntur and Straw Board ., v. Workmen which held that the stoppage of a section, division or branch of business can also be considered as closure. The management further pointed out that the fact that the accounts are kept separately and separate balance sheets and accounts are normally kept, even though it accepted that the consolidated accounts for 1983-84 has been found. The management emphasised once again the fact that the Electronics Division has been running at terrible loss. The allegation of mismanagement etc., have been rebutted. Summing up the reply of the management it was pointed out that the management cannot be forced to run the division which is incurring a loss.
From the amended definition of closure, it has appeared from the various decisions quoted that there is no doubt that application for closure for a particular division of an undertaking can be entertained. Hence, the argument on behalf of the workers that only the total undertaking will have to be considered does not stand good.
From the history of the case, as well as the formal and informal discussions during the arguments, it is clear that various proposals for running the industry are under consideration between the management and the workers. These involved certain suggestions regarding reduction of staff and other serious economic matters. The Government is of the view that taking into consideration the totality of the situation, and also that time is certainly not ripe of resorting to the extreme step of the closure of this institution, there is definite scope for taking less drastic steps by mutual discussions. Under such a condition, the industry can be run more economically, efficiently if not profitably. Under the circumstances, Government do not agree that an adequate case is built up for closing the industry atleast at this stage. Hence the request sought for by the management for closure is rejected.'
Aggrieved by the said order and the provisions of S. 25-O of the Act, the petitioners have presented the two writ petitions praying for striking down S. 25-O of the Act as also the order of the State Government.
3. The plea of the petitioners is as follows (i) The fundamental right guaranteed under Art. 19(1)(g) of the Constitution to do business includes the right to close down the business. Clause (6) of Art. 19 only empowers the State to impose reasonable restrictions in public interest on the exercise of such right. The conditions imposed by S. 25-O for closing down the business, namely the securing of permission by the Government to do so is no reasonable restriction as could be imposed under Art. 19(6). The Supreme Court of India in its decision in the case of Excel Wear - (1) held that the right to close down a business was part of the fundamental right guaranteed under Art. 19(1)(g) to do business and struck down S. 25-O of the Act as it stood then as violative of Art. 19(1)(g). Again the Parliament has introduced a new S. 25-O with certain modifications by Industrial Disputes (Amendment) Act, 1982. The said modifications are merely superficial and the vice pointed out by the Supreme Court in the case of Excel Wear's case (supra) in respect of old S. 25-O continues to exist in the new Section. For the same reasons on which the old S. 25-O was struck down the new S. 25-O is also liable to be struck down on the ground of violation of Art. 19(1)(g).
(ii) The Government rightly rejected the plea of the workmen that closure of electronics unit cannot be effected without also closing the Springs unit as there was no functional integrality between the two industries, they being entirely different and the one was situated 8 kilometers away from the other. In fact, that position in law is beyond doubt in view of the decision of the Supreme Court in Workmen v. Straw Board Manufacturing Co., : (1974)ILLJ499SC , is also the clear definition of the word 'closure' in S. 2(cc) of the Act.
The State Government also noted that there had been a loss of more than 100 lakhs already. Nevertheless, the State Government rejected the permission to close down, stating that the industry can be run economically and efficiently if not profitably, and the time was not ripe for resorting to the extreme step of the closure of the institution. The running of industry any longer not only results in ruination of the electronics division but also results in the ruination of the springs division which is a healthy industrial establishment employment more than 1000 employees. Therefore, the impugned order is unreasonable, whimsical and arbitrary.
4. The Union of India in its statement of objections, after setting out the grounds on which old S. 25-O was struck down and the improvements effected in the new S. 25-O, has stated thus :
'With reference to the averments in para. 18.10 it is submitted that as already pointed out the restrictions that are sought to be imposed on an employer u/s 25-O of the Act are only regulatory and not totally prohibitive and is accordingly not violative of Art. 19(1)(g) of the Constitution. The restrictions are neither violative of Arts. 21 or 300A of the Constitution. It is submitted that the petition lacks material averments as to how the provisions are violative of these articles and they have not made out a case for it. The contention that S. 25-O is unconstitutional on this ground is untenable and bad.
5. With reference to para. 18-12 it is submitted with S. 25-O as it stands at present after the amendment in the year 1982 was legislated keeping in view the decision of the Supreme Court in the Excel Wear case and is valid.
5.1 With reference to the averments in para. 18.13 it is submitted that the restrictions that are imposed under S. 25-O of the Act are reasonable and proper guidelines have been provided to the appropriate Government to come to a decision on an application for permission to close down an industry. The contention relating to the violation of Art. 21 is misconceived and untenable on the face of it. The contention relating to the violation of Art. 300A is also unfounded and the section is in no way violative of Art. 300A of the Constitution. As already pointed out earlier, the Hon'ble Supreme Court has held in the Excel Wear case that the right to close down an industry being part of Art. 19(1)(g) of the Constitution cannot be put at higher pedestal than the right to commence an industry itself and when once it is provided for in the constitution to regulate the commencing of an industry, it is a fortiarari so that the right to close down an industry case also be regulated and it cannot be an absolute right.
5.2 The penalty provided for under S. 25-R being only in respect of the violations of the provisions of S. 25-O, which as submitted above is valid and that too in accordance with the procedure established by law, S. 25-R is in no way violative of Art. 21 of the Constitution.
6. With reference to the contentions in para. 18.14 it is submitted that the provision being a regulatory one and in general public interest and also in the interest of the labour, the petitioner cannot find fault with the same.
7. With reference to the averments in para. 18.15 it is denied that the refusal to grant permission or otherwise is left to the caprice and whims of the authority. There are sufficient guidelines provided for in S. 25-O of the Act, to the appropriate Government in dealing with an application for permission to close down under S. 25-O and is, therefore, not violative of Art. 14 of the Constitution of India. A mere reading of S. 25-O as amended by Act 46 of 1982 makes patent the fallacy in the argument of the petitioner.
8. With reference to the averments in para. 18.16 as already submitted, S. 25-O is only regulatory measure and is not destructive of any rights of the petitioners.
9. With reference to the averments in para. 18.17 it is respectfully submitted that the Parliament has advisedly provided for the review of an order passed under S. 25-O(1) in the light of the decision of the Hon'ble Supreme Court in Excel Wear Case (supra). The contention of the petitioners that the remedy is illusory is totally misconceived and presumptive. It is respectfully submitted that the petitioners have not understood the scope and concept of the power for review. The amended S. 25-O of the Act has made all the changes necessary to be constitutional in the light of the decision of the Supreme Court and the averments to the contra are false and unfounded.
10. With reference to the averments in para. 18.18 of the petition it is submitted that the provisions of Ss. 25-O and 25-R are not violative of any of the fundamental rights of the petitioners and as such there is no question of S. 25-O of the Act being contrary to Art. 12(2) of the Constitution.
11. With reference to the averments in para. 18.19 it is submitted that S. 25-O does not prohibit the closing down of an industry in the circumstances illustrated by the Hon'ble Supreme Court in the case of General Labour Union Bombay v. B. V. Chavan & others (supra). It is the petitioners who are reading such an interpretation into the provision. It is an elementary principle of interpretation that an act or section should be so construed as to render it constitutional and not read it in a manner to render it unconstitutional.'
This plea of the Union of India is supported by the State of Respondent 3 workmen. Learned counsel for the respondents, in support of their contention that S. 25-O was not violative of Art. 19(1)(g) also relied on the judgment of the Supreme Court in Excel Wear's case (supra).
6. In order to appreciate their submission, it is necessary to set out the provisions of old S. 25-O and new S. 25-O. They read :-
----------------------------------------------------------------------------- Section 25-O (Old) Section 25-O (New) 1 2 --------------------------------------------------------------------------- NINETY DAYS NOTICE TO BE GIVEN PROCEDURE FOR CLOSING DOWN AN OF INTENTION TO CLOSE DOWN ANY UNDERTAKING : UNDERTAKING : 1. An employer who intends to 1. An employer who intends to close down an undertaking of close down an undertaking of an an industrial establishment to industrial establishment to which this chapter applies shall which this chapter applies shall serve, for previous approval at in the prescribed manner apply, least ninety days before the for prior permission at least date on which the intended ninety days before the date on closure is to become effective, which the intended closure is to a notice in the prescribed become effective, to the manner, on the appropriate appropriate government, stating Government stating clearly the clearly the reasons for the reasons for the intended intended closure of the closure of the undertaking. 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 provided that nothing in this Section shall apply to an sub-section shall apply to an undertaking set up for the undertaking set up for the construction of buildings, construction of the buildings, bridges, roads, canals, dams bridges, roads, canals, dams or for other construction work. or for other construction work. 2. On receipt of a notice under 2. Where an application for Sub-s. (1) the appropriate permission has been made under government may, if it is Sub-s. (1) the appropriate satisfied that the reasons for government, after making such the intended closure of the enquiry as it thinks fit and undertaking are not adequate after giving a reasonable and sufficient or such closure opportunity of being heard to is pre-judicial to the public the employer, the workmen and interest, by order, direct the the persons interested in such employer not to close down such closure may, having regard to undertaking. the genuineness and adequacy of the reasons stated by the employer, the interest 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. 3. Where a notice has been served 3. Where an application has been on the appropriate government by made under Sub-s. (1) and the an employer under Sub-s. (1) of appropriate government does not S. 25FFA and the period of notice communicate the order granting has not expired at the commencement or refusing to grant permission of the Industrial Dispute to the employer within a period (Amendment) Act, 1976, such of sixth days from the date on employer shall not close down the which such application is made, undertaking but shall, within a the permission applied for shall period of fifteen days from such be deemed to have been granted commencement, apply to the on the expiration of the said appropriate government for period of sixty days. permission to close down the undertaking. 4. Where an application for 4. An order of the appropriate permission has been made under government granting or refusing Sub-s. (3) and the appropriate to grant permission shall, government does not communicate subject to the provisions of the permission or the refusal Sub-s. (5), be final and binding to grant the permission to the on all the parties and shall employer within a period of remain in force for one year two months from the date on from the date of such order. which the application is made, the permission applied for shall be deemed to have been granted on the expiration of the said period of two months. 5. Where no application for 5. The appropriate Government may, permission under Sub-s. (1) either on its own motion or on is made, or where no the application made by the application for permission employer, or any workman review under Sub-s. (3) is made within its order granting or refusing the period specified therein or to grant permission under Sub-s. where the permission for closure (2) or refer the matter to a has been refused, the closure of tribunal for adjudication. the undertaking shall be deemed Provided that where a reference to be illegal from the date of has been made to a tribunal closure and the workman shall under this sub-section, it be entitled to all the benefits shall pass an award within a under any law for the time being period of thirty days from the in force as if no notice had date of such reference. given to him. 6. Notwithstanding anything 6. Where no application for contained in Sub-s. (1) and permission under Sub-s. (1) is Sub-s. (3) the appropriate made within the period specified government may, if it satisfied therein or where the permission that owing to such exceptional for closure has been refused, the circumstances as accident in closure of the undertaking shall the undertaking or death of the be deemed to be illegal from the employer or the like it is date of closure and the workmen necessary so to do by order, shall be entitled to all the direct that the provisions of benefits under any law for the Sub-s. (1) Sub-s. (3) shall not time being in force as if the apply in relation to such undertaking has not been closed undertaking for such period as down. may be specified in the order. 7. Where an undertaking is 7. Notwithstanding anything approved or permitted to be contained in the foregoing closed down under Sub-s. (1) provisions of this section, the or Sub-s. (4) every workman appropriate government may, if in the said undertaking who it is satisfied that owing to has been in continuous such exceptional circumstances service for not less than as accident in the undertaking one year in that undertaking or death of the employer or the immediately before the date like it is necessary so to do, of application for permission by order, direct that the under this section shall be provisions of Sub-s. (1) shall entitled to notice and not apply in relation to such compensation as specified in undertaking for such period as S. 25N as if the said workman may be specified in the order. had been retrenched under that section. 8. Where an undertaking is permitted to be closed down under Sub-s. (2) or where permission for closure is deemed to be granted under Sub-s. (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 day's average pay for every completed year of continuous service or any part thereof in excess of six months.The underlined portions of the new section are the material improvements effected to the Section after the judgment of the Supreme Court, on which the learned counsel for the respondents rely to show that new section is bereft to all the vices pointed out in Excel Wear's case (supra). The improvements are :
(1) In sub-s. (2) the specific grounds which are required to be considered by the Government concerned before according or rejecting permission to close down have been specified.
(2) The Government is required to record reasons for refusing or according permission.
(3) The order passed either granting or refusing permission would be in force for only one year; therefore a fresh application after the said date is permissible
(4) The order passed is again subject to review by the State Government and there is also provision for referring the matter to the Tribunal with the requirement that the Tribunal should dispose of the reference within one month from the date of reference.
In view of these safeguards provided in the new section, counsel for the respondent submitted that the section does not suffer from any such infirmity which renders it invalid on the ground that it comes into conflict with the right guaranteed under Art. 19(1)(g) of the Constitution.
7. In view of these rival pleas, the question set out first arises for consideration. Both the parties rely on the same judgment of the Supreme Court, namely, 'Excel Wear' (supra). Therefore the answer to the question entirely depends upon the ratio of that judgment, in that, if the new S. 25-O suffers from the same basic infirmities with which the old S. 25-O suffered, which brought the section into conflict with Art. 19(1)(g), then applying the law laid down by the Supreme Court in the case the provision has to be struck down. If on the other hand those basic infirmities have been cured, the validity of the Section has to be upheld.
8. I shall now proceed to analyse the judgment of the Supreme Court in Excel Wear's case (supra).
(i) In the first instance, the Supreme Court considered whether the right to close down a business was an integral part of the fundamental right to carry on any business guaranteed under Art. 19(1)(g) of the Constitution. On behalf of the management and the workmen extreme stands were taken. The employers contended, just as on-one be compelled to start a business, no one can be compelled to continue the business and therefore no condition could be imposed which affects the exercise of right to close down a business. As against this, the workmen contended that while it was not obligatory for anyone to start a business, once a person started a business, employed workmen and carried on the business for some time, he had no fundamental right to close it down. The Supreme Court rejected both these extreme contentions. Following its earlier dictum in the case of M/s. Hatisingh . v. Union of India [1960-II L.L.J. 1], the Supreme Court reiterated that the right to close down business was an integral part of the right to do business of choice of a citizen guaranteed under Art. 19(1)(g). The relevant portion of the judgment reads : 'But then, as pointed out by this Court in Hatisingh's case (supra) the right to close down a business is an integral part of the right to carry it on. It is not quite correct to say that a right to close down a business can be equated or placed at par as high as the right not to start and carry on a business at all. The extreme proposition urged on behalf of the employers by equating the two rights and placing them as par is not quite opposite and sound. Equally so, or rather, more emphatically we do reject the extreme contention put forward on behalf of the Labour Unions that right to close down a business is not an integral part of the right to carry on a business, but it is a right appurtenant to the ownership of the property or that it is not a fundamental right at all. It is wrong to say that an employer has no right to close down a business once he starts it. If he has such a right, as obviously he has, it cannot but be a fundamental right embedded in the right to carry on any business guaranteed under Art. 19(1)(g) of the Constitution.'
In paragraph 22 of the judgment, as many as fifteen grounds on which validity of old S. 25(O) was attacked by the petitioner therein were set out.
9. The Supreme Court next proceeded to consider the validity of the contention of the petitioner therein and the points urged for the respondents therein in defence of the validity of the Section. Some of the points were considered in paragraph 25. [of 1978-II L.L.J. 527 at 538, 539]. It reads :
'In contrast to the other provisions S. 25-O25-O(2) does not require the giving of reasons in the order. In two of the impugned orders communicated to the petitioners, Excel Wear and Acme ., it is merely stated that the reasons for the intended closure are prejudicial to public interest suggesting thereby that the reasons given by the employers are correct, adequate and sufficient, yet they are prejudicial to the public interest. In cases of bona fide closures it would be generally so. Yet the interest of labour for the time being is bound to suffer because it makes a worker unemployed. Such a situation as far as reasonably possible, should be prevented. Public interest and social justice do require the protection of the labour. But is it reasonable to give them protection against all unemployment after affecting the interest of so many persons interested and connected with the management apart from the employers. Is it possible to compel the employer to manage the undertaking even when they do not find it safe and practicable to manage the affairs Can they be asked to go on facing tremendous difficulties of management even at the risk of their person and property Can they be compelled to go on incurring losses year after year As we have indicated earlier, in S. 25-FFF retrenchment compensation was allowed in cases of closure and if closure was occasioned on account of unavoidable circumstances beyond the control of the employers a ceiling was put on the amount of compensation under the proviso. The explanation postulates the financial difficulties including financial losses or accumulation of undisposed stocks, etc. as the closing of an undertaking on account of unavoidable circumstances beyond the control of the employer but by a deeming provision only the ceiling in the matter of compensation is not made applicable to the closure of an undertaking for such reasons. In 1972 by insertion of S. 25-FFA in Chapter V-A of the Act, an employer was enjoined to give notice to the Government of an intended closure. But Gradually the net was cast too wide and the freedom of the employer tightened to such an extent by introduction of the impugned provisions that it has come to a breaking point from the point of view of the employers. As in the instant cases, so in many others, a situation may arise both from the point of view of law and order and the financial aspects that the employer finds it impossible to carry on the business any longer. He must not be allowed to be whimsical or capricious in the matter ignoring the interest of the labour altogether. But that can probably be remedied by awarding different slabs of compensation in different situations. It is not quite correct to say that because compensation is not a substitute for the remedy of prevention of unemployment, the latter remedy must be the only one. If it were so, then in no case closure can be or should be allowed. In the third case namely that of Apar Private Ltd., the Government has given two reasons, both of them being too vague to give any exact idea in support of refusal of permission to close down. It says that the reasons are not adequate and sufficient (although they may be correct) and that the intended closure is prejudicial to the public interest. The latter reason will be universal in all cases of closure. The former demonstrates to what extent the order can be unreasonable. If the reasons given by the petitioner in great detail are correct, as the impugned order suggests they are, it is preposterous to say that they are not adequate and sufficient for a closure. Such an unreasonable order was possible to be passed because of the unreasonableness of the law. Whimsically and capriciously the authority can refuse permission to close down. Cases may be there, and those in hand seem to be of the nature, where if the employer acts according to the direction given in the order he will have no other alternative but to face ruination in the matter of personal safety and on the economic front. If he violates it, apart from the civil liability which will be of a recurring nature, he incurs the penal liability not only under S. 25-R of the Act but under many other statutes.'
From the above paragraph, the following points emerge :
i) An employer cannot be compelled to go on incurring losses year after year by compelling him to run the industry though he is unwilling. He cannot also be compelled to run the industry when for other valid reasons he decides to close down the industry.
ii) In closing down the industry, the employer cannot be allowed to be whimsical or capricious and ignore the interest of the labour, but this can be remedied by awarding different slabs of compensation in different situations.
iii) The mere fact that compensation is not a substitute for prevention of unemployment, is no ground to say that refusing permission alone is the only remedy. Any such view would mean a closure can be never be allowed.
The Supreme Court held that in view of the aforesaid reasons refusal to accord permission to close down the industry which was suffering loss, unreasonable and such unreasonable rejection was possible because of the unreasonableness of the law itself, that is, old S. 25(O). The Supreme Court also pointed out, if the industry is running under loss and still it was compelled to continue, it would face ruination and if it violates the order refusing permission, the owner would incur the penal liability not only under S. 25-R of the Act, but under many other statutes.
10. The Supreme Court next considered whether the object of ensuring continued production could be regarded as a valid basis to hold that the provision for refusing permission incorporated in the old S. 25-O was in public interest. The Supreme Court held thus :
'26. .... Intrinsically no provision in Chapter V-B of the Act suggests that the object of carrying on the production can be achieved by the refusal to grant permission although in the Objects and Reasons of the Amending Act such an object seems to be there although remotely and secondly it is highly unreasonable to achieve the object by compelling the employer not to close down in public interest for maintaining the production.'
In paragraph 27 of the judgment, the Supreme Court pointed out that there was no provision for scrutiny of the order passed by any higher authority or Tribunal and there was no right conferred on the employer to seek a review.
The Supreme Court then pointed out that it was not possible to strike a balance between the parallel and conflicting interest and as that was the position arising out of the claim of the employer that he has the right to close down his business and it has become inevitable to close it and the rival claim of the workers that he had no such right as it would affect their interest and render them unemployed. The relevant portion of the judgment reads :
'29. It is not always easy to strike a balance between the parallel and conflicting interests. Yet it is not fair to unreasonably tilt the balance in favour of one interest by ignoring the other. Mr. Nadkarni relied upon the following passage of Frankfurter J., while expressing his view on 'Balance of interest.' :
'I cannot agree in treating what is essentially a problem striking balance between the competing interest as an exercise in absolutes.
Learned counsel also referred to a note on 'Government and Liberty' from 'Paradoxes of Legal Science' by Benjamin Cardozo which is to the following effect :
As the social conscience is awakened, the conception of injury is widened and insight into its cause is deepened that area of restraint is therefore increased.'
Nobody can have a quarrel with these basic principles however high sounding or unreasonable they may appear to be on their fact. But yet no jurisprudence of any country recognizes that the concept of injury is widened and the area of restraint is broadened to an extent that it may result in the annihilation of the person affected by the restraint.'
The observation of the Supreme Court in the above paragraph shows that a restraint imposed on the right to close the business might result in the annihilation of the person affected by the restraint and therefore cannot be held as valid.
The Supreme Court then considered its earlier decision under the minimum wages in Unichoyi v. State of Kerala [1961-I L.L.J. 631], in which the Supreme Court had said that if an employer had no capacity to pay the minimum wages, he had no right to carry on the business.
The relevant portion of the judgment reads :
'30. In case of fixation of minimum wages the pleas of the employer that he has not got the capacity to pay even minimum wages and, therefore, such a restriction on his right to carry on the business in unreasonable has been repeatedly rejected by this Court to wit U. Unichoyi v. State of Kerala : (1961)ILLJ631SC . But this principle, rather in contrast, illustrates the unreasonableness of the present impugned law. Nobody has got a right to carry on the business if he cannot pay even the minimum wages to the labour. He must then retire from business. But to tell him to pay and not to retire even if he cannot pay is pushing the matter to an extreme.'
Thereafter, the Supreme Court referred to its earlier judgment in Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills Mazdoor Union [1957-I L.L.J. 235] and pointed out than when the closure is real and bona fide there cannot be an industrial dispute at all. The Supreme Court further held that with the object or preventing unjust or mala fide closures, the Law may impose deterrent conditions for the exercise of the right. At para 34 of the judgment, the Supreme Court held that in order to prevent closure the State may take over the industry but to prevent closure would be an infraction of the fundamental right of the owner.
11. Before proceeding to consider the rival contentions, I shall set out the gist of the ratio of the judgment of the Supreme Court in Excel Wear's case (supra), which is as follows :
(i) Right to close down a business is part and parcel of the fundamental right to carry on business under Art. 19(1)(g) of the Constitution, though it cannot be put as high as the right not to be compelled to do business.
(ii) Just as there can be reasonable restrictions on the exercise of fundamental right to carry on business within the limits permitted under Clause (6) of Art. 19 there could also be reasonable restrictions on the exercise of fundamental right to close down the business, but the exercise of the right cannot be made impossibly by providing that securing of permission of the Government, which may be granted or refused, a condition precedent for the exercise of the right.
(iii) The exercise of the right to close a business cannot be prevented on the ground that the closure results in unemployment of workers in the industry or affects production.
(iv) The difficulties to the workmen arising out of unemployment consequent on closure of an industry can be remedied by awarding different slabs of compensation in different situation but to refuse permission to close down a business for preventing unemployment is not valid.
(v) In order to prevent unemployment as also to maintain production, the State, if it so chooses provide for the taking over of the industry by the State but an employer cannot be forced to continue the business for achieving those objects.
(vi) The law can impose such conditions or restrictions on the exercise of the right which would deter an unfair, whimsical, unjust or mala fide closures, but cannot prevent the exercise of the right.
(vii) Old S. 25-O was violative of Art. 19(1)(g) as that section prescribed the securing of the permission of the Government for closing an industry, while leaving it to the discretion of the Government either to grant or reject permission and thereby made the exercise of the right impossible in cases in which permission was refused, which could be done not withstanding the real difficulties and real intention of the owner to close the industry.
12. The question now for consideration is : Whether the improvements made in the new Section removes the vices which were found in old S. 25-O and which constituted the basis for striking down of the provision
13. Learned counsel for the respondents submitted that the new S. 25-O was beyond reproach in view of the following valuable safeguards incorporated in it :
I (a) holding an inquiry as the Government deems fit.
(b) to give reasonable opportunity of being heard.
(c) to consider all other relevant facts.
(d) to record reasons in writing.
(e) to grant the permission, if not decided to refuse.
(f) communication of the order in writing.
II. A provision for review of the order by the Government.
III. A provision for reference of the question to a Tribunal with a requirement that such reference should be decided within a month.
IV. The order refusing permission remains in force only for one year, which means after the expiry of one year a fresh application could be made.
Learned counsel maintained that in view of these improvements, the new S. 25-O only amounts to reasonable restriction on the exercise of the right to close down a business and therefore not violative of Art. 19(1)(g).
14. I shall now consider whether the improvements are such as would save the new section from the vice of unconstitutionality.
(i) a. The old Section required the Government to examine whether the reasons for the intended closure of an industry were adequate and sufficient and whether closure was prejudicial to public interest.
b. The new Section requires the Government to consider the adequacy and genuineness of the reasons given for intended closure, interest of the general public and all other relevant factors.
It may be seen that except that a few more words are employed in the new Section, in substance, both the provisions are to the same effect. They require the Government to examine the adequacy and sufficiency of the reason for closure having due regard to public interest. Therefore, the addition of the words hardly make any difference.
(ii) The new Section requires the Government to take a decision on the application seeking permission to close an industry after inquiry. The old Section required the Government to satisfy itself as to whether the permission should be granted.
Here also the difference is nil, for, the old Section required the Government to satisfy itself as to the adequacy and genuineness of the reason for closure and such satisfaction could be arrived at only after collection of necessary data and inquiry. Therefore, this aspect also make no difference.
(iii) The new Section requires the Government to give reasonable opportunity of being heard to both the employer and the workmen. There was no specific provision in the old Section to give an opportunity of hearing.
Even the adding of the requirement of giving reasonable opportunity of being heard does not make any difference for, an order under old S. 25-O which would have had serious civil consequences could have been made only after complying with the rules of natural justice to hear the party on whom the civil consequences fall as a result of the order. See : State of Orissa v. Miss. Bina Pani Dei : (1967)IILLJ266SC ; A. K. Kraipak v. Union of India : 1SCR457 , Mohinder Singh Gill v. Election Commissioner : 2SCR272 . Thus the duty to hear was there even though it was not specifically incorporated in S. 25-O as it was required to be regarded as superadded to it. Therefore, the requirement to here the employer incorporated in the new S. 25-O does not materially alter the position.
15. Learned counsel for the respondents submitted that the main ground on which old S. 25-O was struck down in the case of Excel Wear Case (supra), was that there was no requirement to record reasons for refusing permission to close an industry and further after passing of such an order there was no provision for review or appeal. To substantiate this submission, they relied on the following paragraph of the judgment :
'25. In contrast to the other provisions, S. 25(O)(2) does not require the giving of reasons in the order.
*** *** ***27. The order passed by the authority is not subject to any scrutiny by any higher authority or tribunal either in appeal or revision. The order cannot be reviewed either. We were again asked to read into the provisions that successive applications can be made either for review of the order or because of the changed circumstances. But what will the employer do even if continuing the same circumstances make it impossible for him to carry on the business any longer Can he ask for a review ?'
As both these defects have been cured in the new Section, applying the ration in Excel Wear's case (supra), the validity of new Section 25(O) has to be upheld for the reason, with the requirement to record reasons, the section has become a reasonable restriction on the exercise of the fundamental right of an employer to close his industry and therefore not violative of Clause (g) of Art. 19.
16. The above contention is advanced on the basis that the Supreme Court struck down old S. 25-O only because it did not require the Government to record its reasons and the Act did not provide for any review. The basis itself is wrong. A reading of the judgment in Excel Wear's case (supra) would show that the substantial basis for striking down the old S. 25-O was that under that Section, even if the reasons for closing down an industry were good and genuine, still the permission to close down could be rejected. In other words an unreasonable order could be made well within the scope of the power conferred under the Section because the section itself was unreasonable. The Supreme Court, no doubt, pointed out that there was also no provision for recording reasons as also for review or revision. But the real ground for striking down S. 25(O) was that the exercise of the right was made dependent on the permission of the Government, which could be refused even if the reasons for closure was good.
17. It is also pertinent to point out that unless a provision which requires the recording of reasons in an order is intended to enable the citizen aggrieved by the order to resort to a remedy, through which he could secure the relief if the reasons recorded are proved to be untenable, that requirement does not save the provision of the vice of unconstitutionality with which it otherwise suffers. This aspect has been explained by the Supreme Court in the case of Dwaraka Prasad v. State of Uttar Pradesh : 1SCR803 . Relevant portion of the judgment reads :
'(8) The more formidable objection has been taken on behalf of the petitioners against Clause 4(3) of the Control Order which relates to the granting and refusing of licences. The licensing authority has been given absolute power to grant or refuse to grant, renew or refuse to renew, suspend, revoke, cancel or modify any licence under this Order and the only thing he has to do is to record reasons for the action he takes. Not only so, the power could be exercised by any person to whom the State Coal Controller may choose to delegate the same, and the choice can be made in favour of any and every person. It seems to us that such provision cannot be held to be reasonable.
No rules have been framed and no directions given on these matters to regulate or guide the discretion of the Licensing Officer. Practically the order commits to the unrestrained will of a single individual the power to grant, withhold or cancel licences in any way he chooses and there is nothing in the order which could ensure a proper execution of the power or operate as a check upon injustice that might result from improper execution of the same. Mr. Umrigar contends that a sufficient safeguard has been provided against any abuse of power by reason of the fact that the licensing authority has got to record reasons for what he does.
This safeguard, in our opinion, is hardly effective; for there is no higher authority prescribed in the order who could examine the propriety of these reasons and revise or review the decision of the subordinate officer. The reasons, therefore, which are required to be recorded are only for the personal or subjective satisfaction of the licensing authority are not for furnishing any remedy to the aggrieved person.'
Therefore, if in the impugned provision the specific grounds which, if made out, entitled the employer to secure the permission were set out and the section made it obligatory for the Government to accord permission, if one or more grounds so specified were made out, with a further provision that reasons must be recorded in the event of refusing permission, such a provision might perhaps be regarded as a reasonable restriction on the exercise of the right, for, the aggrieved employer could even in the absence of any appeal to a specified authority enforce his right and secure the relief through a petition under Art. 32 or 226, if he is able to prove that he had made good one or more of the grounds which entitled him to secure the permission, but had been refused by recording reasons which were perverse.
18. But without specifying the grounds, which if made out, entitles the owner of an industry to secure permission to close it down, a mere provision for recording reasons does not save it from the vice of unconstitutionality, for, even if such an order struck down on the ground that the permission had been rejected arbitrarily, it is of no use to the owner as it does not have the effect of according permission, and the position of the owner remains the same, i.e., he cannot close down the business without permission. Even if there were to be a direction to the Government to reconsider the matter, again the permission can be rejected.
19. To make the point more clear, I shall refer to paragraph 25 of the judgment in the case of Excel Wear case (supra). Wherein the Supreme Court posed the following questions :
(i) Is it possible to compel the employer to manage the undertaking even they do not find it safe and practicable to manage the affairs
(ii) Can they be asked to go on facing tremendous difficulties of management even at the risk of their person and property
(iii) Can they be compelled to go on incurring losses year after year
The answer is implicit in the questions, an obvious NO. The further discussion in the paragraph would show that if one of the above grounds constituted the real basis for an application seeking permission for closure, not according of permission would be unreasonable and the fact that closure results in unemployment of workmen would also be not a valid ground to deny the permission. Similarly at paragraph 26 the Supreme Court pointed out that even the reason that in the interest of production permission could be refused was not valid. Hence, any provision which gives scope to the passing of such an order cannot be regarded as reasonable. Therefore, the requirement to record reasons after inquiry and hearing, is no answer to the challenge to new S. 25-O that it was violative of Art. 19(1)(g).
20. This being the position, a further discretionary power conferred on the Government to review the order or to make a reference to the Tribunal or that the order would be in force for one year, does not in any way remove the vice inherent in S. 25-O(2).
21. In my view the new S. 25-O is not at all in the nature of a restriction imposed on the exercise of the right to close down the business. The nature of restrictions on the exercise of the right in public interest which could be imposed in view of Clause (6) of Art. 19 must be such as would enable a person who desires to exercise his right guaranteed under Art. 19(1)(g) to do so, if the conditions specified by Law exist and/or the conditions imposed by law were to be complied with by him. Further the conditions, the existence of which are made necessary for the exercise of the right, must be reasonable and the conditions required to be complied with must be such, the compliance with which is reasonably possible. In S. 25-O the conditions which must exist for the exercise of the right are not specified. Similarly S. 25-O does not specify the conditions, which, if fulfilled permission would be granted. On the other hand securing of permission of the Government, which is not within the hands of the owner, itself is a condition to be complied with for exercising the right of closure. To put it in a nut shell, the section is not in the nature of fetter on the exercise of the right, but a provision which empowers the Government to put a shutter on the exercise of the right, irrespective of the fact that the reasons to close down the industry are valid and may be even beyond the control of the employer.
22. The facts of this case clearly established how the section operates as a shutter on the exercise of the right. The reason given by the petitioners for its decision to close down the business is that it had suffered heavy loss during the last three consecutive years and the total loss for the three years was more than Rs. 100 lakhs. This statement was supported by the audited certified balance sheets. This factual statement has not been found to be untrue. The petitioner also stated that the attempt of the petitioner to continue the industry by drastically reducing the labour in consultation with respondent No. 3 - Union has also failed and that in view of the mounting losses, there was no alternative that to close down the industry. The Government, however, refused the permission on the ground that the industry could be run more economically and efficiently, if not profitably, and proceeded to state that adequate case was not built up for closing the industry at least at this stage. As observed by the Supreme Court in Excel Wear's (supra), how can an industry be compelled to continue its business in the face of continued losses over the years Inspite of the said ground having been made out by producing the certified balance sheets, the Government refused to accord permission.
At this stage, I may refer to a similar predicament in which the State Government is placed in W.P. Nos. 8012 and 8013 of 1983 pending before this Court. From the undisputed facts of that case, it is clear that the administrative of Gowribidanur Sahakara Sakkare Karkhane - a sugar factory established under co-operative sector having suffered heavy losses, was taken over by the State Government on 4th November, 1981 under the provisions of Karnataka Relief Undertakings (Special Provisions) Act, 1977, which provides for such take over by the Government of certain categories of sick industries. Being unable to contain the losses, the Government permitted the lay-off w.e.f. 16th April, 1985. Legality of that action has been challenged by the workmen in the two petitions. The workmen complain that even lay-off compensation has not been paid for want of funds. Learned counsel for the factory-respondent in that case, who is appearing for the petitioner in this case and the learned Advocate General, who were asked by the Court after the case was heard in part to find out as to whether factory would be reopened, have informed the Court that as the Government had already spent over a hundred lakhs, the Government had decided to close the factory as it cannot bear any further financial burden. Though that is the position of the Government with its enormous financial resources, the Government thought fit to refuse permission to the petitioners. Such an unreasonable order is possible because of the unreasonableness of the provision itself. This was the defect pointed out by the Supreme Court in old S. 25-O and it continues to exist in the new S. 25-O.
23. Learned counsel for the workmen, however, submitted that though at the initial stage, an employer can be said to be the owner of the assets of an industry, once it is established and is carried on for several years with the aid of labour force, the employer cannot be regarded as the absolute owner of all the assets like plant and machinery, stock-in-trade, immovable properties, etc., which have been created not merely on account of investment by the employer but also on account of the hard labour put in day and night by the workmen. In support of this submission, they relied on the judgment of the Supreme Court in National Textile Workers' Union v. P. R. Ramakrishnan [1983-I L.L.J. 45]. That was a case which arose out of an application made under S. 433 of the Companies Act before the Company Court praying for an order of winding up of a company which was carrying on a few industries. The question for consideration before the Supreme Court was whether the workmen had sufficient interest to oppose the application. The Supreme Court held that they had sufficient interest and the right to oppose the application. Relevant paragraph of the judgment on which the learned counsel for workmen relied reads : at Para 6 of [1983-I L.L.J. 45] at Page 56.
'6. We are concerned in these appeals only with the relationship of the workers vis-a-vis the company. It is clear from what we have stated above that it is not only the shareholders who have supplied capital who are interested in the enterprise which is being run by a company but the workers who supply labour are also equally, if not, more interested because what is produced by the enterprise is the result of labour as well as capital. In fact the owners of capital bear only limited financial risk and otherwise contribute nothing to production while labour contributes a major share of the product. While the former invest only a part of their moneys, the latter invest their sweet and toil, in fact their life itself. The workers therefore have a special place in a socialist pattern of society. They are not mere vendors of toil, they are not a marketable commodity to be purchased by the owners of capital. They are producers of wealth as much as capital, very much more. They supply labour without which capital would be impotent and they are at the least, equal partners with capital in the enterprise.'
Relying on the above passage, learned counsel submitted that the employer cannot claim the right to close down the industry.
24. It is beyond doubt that the capital and labour are the two wheels on which an industry moves. An industry cannot move on one wheel, i.e., the capital. Therefore at any given point of time, in respect of an industry carried on for over a period, its assets cannot be regarded as belonging to the employer, who invested the capital and had spent his time and energy in managing the industry, absolutely. All the assets over and above the original investment and a reasonable return on it, are certainly the product of joint effort of both the employer and workmen. The latter has certainly a legitimate claim over the asserts. Therefore, they could be deemed to be partners. But even so their right would be to secure, on dissolution, their share, in the form of compensation, but have no right to prevent dissolution and compel the owner to continue the business. In the case of National Textile Workers' Union, the Supreme Court recognised the right of workmen to oppose an application before the Company Court, for an order for the wind up of a company under S. 433 of the Companies Act. That is a different aspect. From that it does not follow that the workmen have the right to compel an employer to continue to run an industry even when an employer decides to close it down. In fact under the Companies Act, S. 484 provides for the voluntary winding up of a company by passing a special resolution to the effect. The commencement of winding up and consequences of such a resolution is provided in Ss. 486 and 487 of the Companies Act. They read :
'486. A voluntary winding up shall be deemed to commence at the time when the resolution for voluntary winding up is passed
487. In the case of a voluntary winding up, the company shall from the commencement of the winding up, case to carry on its business, except so far as may be required for the beneficial winding up of such business :
Provided that the corporate state and corporate powers of the company shall continue until it is dissolved.'
In such a case, the workmen of industry/factory which contributes the business of the company cannot have any say in the matter, under the Companies Act. But in view of S. 25-O the company is required to file an application seeking permission to close the industry and such an application could be opposed by the workmen. However, as the right to close down a business is part of fundamental right under Art. 19(1)(g) of the Constitution, such an opposition of the workmen cannot be countenanced when the employer decides to close down the industry.
25. The only rightful claim of the workmen in the event of closure of an industry, therefore, would be for substantial compensation. It is true that under new Sub-s. (8) of S. 25-O the compensation provided is just fifteen days' salary for every completed year of service, the same rate which is fixed under S. 25-F in cases of retrenchment. In the case of retrenchment of service of one or more workmen, the workers as a class would continue to have the benefit arising out of a continuing industry, whereas in the case of closure the workmen as a class would be thrown out of employment and the industry and its assets do not ensure to their benefit any longer. Though the industry might be closed owing to loss, the sale of plant, machinery, stock-in-trade and immovable property might leave a substantial surplus after satisfying the liabilities. In fact in this case also it is alleged that the immovable property in the hands of the petitioner which admittedly belonged to the electronics division, are very valuable.
26. Therefore, the workmen might have a grouse against S. 25-O(8) on the ground that it is unfair to and discriminatory against workmen who lose employment on closure of an industry for, the Act treats apparently unequal situations, namely, the loss of employment of all the workmen consequent on closure and termination of service of an individual workman by way of retrenchment in the same manner, in the matter of compensation payable, in that, S. 25-F(b) provides for payment of fifteen days' salary for every completed year of service to a retrenched workman and S. 25-O(8) also provides for payment of compensation only at the rate of 15 days' salary for every completed year of service on closure of an establishment. As a result, if in a given case, if the Government accords permission to the closure of an industry by its owner, it is true the workmen whose services stand terminated consequent on closure, would have to take compensation just at the rate of 15 days' wages for every completed year of service, and therefore it is obvious that the provision completely ignores the contribution of workmen in the creation of assets of the industry existing on the date of closure over and above the investment and a reasonable return on it.
27. In fact the Supreme Court in the case of Excel Wear case (supra), while answering the submission that an employer might decide to close down an industry in a whimsical capricious manner and bring misery to the employees and therefore a provision which prohibits closure without permission of the Government was in implementation of socialism, which is one of the objectives of the Constitution as indicated in the Preamble to the Constitution, said :-
'25. ... He must not be allowed to be whimsical or capricious in the matter ignoring the interest of the labour altogether. But that can probably be remedied by awarding different slabs of compensation in different situations. It is not quite correct to say that because compensation is not a substitute for the remedy of prevention of unemployment, the latter remedy must be the only one. If it were so, then in no case closure can be or should be allowed.
*** *** ***30. ... It would thus be seen that in the matter of giving appropriate and reasonable relief to the labour even after the closure of the business the facts which were in existence prior to it can form the subject matter of an industrial dispute. Even assuming that strictly speaking all such matters cannot be covered in view of the decision of this Court we could understand a provision of law for remedying these drawbacks. The law may provide to deter the reckless, unfair, unjust or mala fide closure.'
28. Thus it may be seen that though an employer could not be forced to continue an industry against his willingness, a provision for payment of substantial amount as compensation to prevent whimsical or mala fide closures could be made by law. In the light of the observations of the Supreme Court in respect of bigger industries governed by Chapter V-B of the Act, the law could not only provide for payment of substantial minimum amount as closure compensation to the workmen, but also provide for payment of still higher compensation through adjudication if the assets of the industry after closure justified the grant of such additional compensation. It is true that this aspect has been lost sight of while incorporating sub-s. (8) of S. 25-O. This is therefore a matter for the Legislature to consider.
29. Learned counsel for the respondents, however, relying on the statement of objects and reasons annexed to the Bill, through which Part V-B containing old S. 25-O of the Act was introduced, as also the statement of objects and reasons through which new S. 25-O was introduced into the Act, made the following submission.
The object of Part V in general and of S. 25-O in particular were two :
A. To maintain the tempo of industrial production and productivity.
B. To prevent unemployment which would be the inevitable result of closure of an industry.
Both these objects are in public interest and therefore S. 25-O which imposes restrictions on the exercise of the right to close an industry by way of making the securing of prior permission from the Government falls within the scope of Clause (6) of Art. 19 and therefore not violative of Art. 19(1)(g).
30. The Supreme Court in the case of Excel Wear (supra), has considered both the aspects and has rejected them vide paragraphs 24, 25, 26 and 30, extracted earlier. From these paragraphs, the following aspects are clear :
(1) By not permitting closure, the investors, creditors, depositors, share holders stand ignored and it is unreasonable to visit them with such consequences in order to prevent loss of employment to workers.
(2) The fact that a closure results in unemployment cannot be a valid ground to prevent closure of an industry by its owner in the exercise of his right guaranteed under Art. 19(1)(g), and if it were to be regarded as valid, in no case an owner could be permitted to close his industry.
(3) It is highly unreasonable to compel an owner of an industry not to close down for maintaining production, though it is open to the State to provide for its take over by the State.
(4) The area of restraint in public interest cannot be broadened to the extent of bringing about annihilation of the persons affected by the restraint.
Thus it may be seen, the power to refuse permission to close an industry was held to be unreasonable. In fact, if permission is refused, the only result would be, the industry would be kept live forcibly only to suffer the pain until it collapses.
31. It is settled law that if closure is not real, the workmen can raise an industrial dispute and secure relief through industrial adjudication, but if closure is real, irrespective of the reason or motive of the owner to close, it cannot be a subject matter of industrial dispute. I fail to see how any one can be forced to continue an industry when one considers it impracticable or impossible to carry on the industry on account of (i) continued financial loss; (ii) his own incapacity to properly manage the industry; (iii) his unwillingness to continue the industry for reasons such as his own failing health or want of proper successor or on account of his desire to lead a retired life and devote his time for social service or for any reasons whatsoever. In this behalf, observations of the Supreme Court in the case of Workmen v. Straw Board Manufacturing Co. [1974-I L.L.J. 499] are apposite. They read : as under at page 507.
'No employer can be compelled to carry on his business if he chooses to close in truth and reality for reasons of his own.'
Therefore, any law which compels him to run the industry and makes his refusal to run the industry punishable, cannot but be regarded as unreasonable and in some cases it might become tyrannical. Therefore, it was open for the State to provide that an employer desirous of closing industry must be substantial amount as compensation to the workmen becoming unemployed, and could also provide for the take over of the industry. The impugned provision does not impose any such restriction or provide for any such consequence, i.e., the take over by the State of the industry, but only provides for compelling an owner of an industry to continue to run it against his will by requiring the owner to secure permission and leaving liberty for the Government to refuse permission.
32. In conclusion, I am of the opinion that the new S. 25-O of the Act has been enacted in the teeth of the judgment of the Supreme Court in the case of Excel Wear (supra) and in the light of the law declared by that judgment, the Section is liable to be struck down.
33. For these reasons, I answers the questions set out first as follows :
'S. 25-O of the Industrial Disputes Act which requires the permission of the appropriate government for closing down an industry to which Part V-B of the Act applies is void on the ground that it is violative of the fundamental right guaranteed under Art. 19(1)(g) of the Constitution of India'.
34. In view of my answer as above, the impugned order made under S. 25-O does not survive.
35. In the result, I make the following order :
(i) The writ petitions are allowed.
(ii) Section 25-O of the Industrial Dispute Act is declared invalid as offending Art. 19(1)(g) of the Constitution.
(iii) A writ of mandamus shall issue to the respondents 1 and 2 not to enforce the provisions of S. 25-O of the Act against the petitioners.