Permission for closure under Industrial Disputes Act a mirage

Article 19(1)(g) of the Constitution grants the fundamental right to a person to practice any profession or calling, including starting an industry. A consequential right to close the industry has also been recognised by various courts including the apex court.

However, restrictions on this right are placed on the grounds of public policy under Article 19(6) of the Constitution. One manifestation of this restriction is under Section 25(O) of Chapter V-B of the Industrial Disputes Act, 1947 (ID Act), which deals with closure apart from lay-off and retrenchment, that provides for an elaborate procedure to close down an industry employing 100 or more workmen. The procedure requires prior permission from the authority, to be sought at least 90 days in advance clearly stating the reasons for closure of industry.

Although the closure procedure looks simple, it is riddled with hurdles, wasting resources and causing a long-drawn court process.

Invariably, the application seeking permission to close the industry is not granted even when there are strong reasons to justify closure. A misplaced sympathy towards the retrenched employees seems to guide the authority forgetting that the benefit of quick redeployment of capital into productive activities far outweighs the temporary pain of retrenchment.

Denial of permission by the authority entitles the employer for a review but rarely does the authority retract its decision, leaving the employer to wait for one more year to re-apply for closure. Meanwhile, the employer is obliged to pay full wages and all other benefits to his workmen, eroding the already unviable unit further.

Many employers file a writ petition challenging the denial of permission to close. However, given the large backlog of cases in the courts, it takes 5–10 years before a decision is available, further eroding the value of the unit.

Even if permission for closure is granted by the authority, trade unions invariably file writ petitions in the High Court challenging the grant of permission and seeking status quo, which the courts generally grant. The employer is back to square one.

A case in point is the recent attempt by Parle group to close down its Bengaluru unit: A household name in biscuits, one of Parle’s 17 factories was in Bengaluru since 2001. The industrial climate was relatively peaceful until the end of March 2007. Thereafter, the workmen struck work for 3½ half months. Though the High Court directed the workmen to give a collective undertaking to maintain discipline and resume normal production, the truce did not last long.

One more round of litigation followed, with the suspension of one workman. Protesting workmen stopped work midway, causing extensive damage to in-process material and finished products, i.e., biscuits. Egged on by the union, workmen resorted to obstructing movement of men and material. The government intervened and work resumed from September 28, 2012. 400 days were lost to strike.

The situation continued to be grim, with workmen reporting to work wearing rings and chains and consuming gutka, paan, etc., in violation of food safety norms, forcing the management to dismiss six workmen. The agitating workmen protesting the dismissal stayed put in the factory for 50 days preparing food inside using LPG, having bath and even consuming alcohol within the factory. The High Court, taking a serious note of this free-for-all by the workmen directed them to obey interim orders and not take law into their hands. With great difficulty, the management evicted the striking workmen. The financial loss due to stoppage of production was around Rs 7 crore.

The management thereafter had no choice but to declare lock-out on March 15, 2013, followed by an application to close the factory on June 6, 2013, under Section 25(O) of the ID Act.

After a lengthy hearing, the Authority granted permission for closure of the factory on September 9, 2013, noting that for frivolous reasons, 190 workmen had abandoned work for 450 days in a span of 1½ years. The Authority said: “regarding the genuineness and adequacy of the reasons stated by the employer, which I feel in the present case is substantially and adequately proved beyond doubt, the intention of the employer is not to be in business and suffer further financial losses and industrial unrest in the unit.”

After the closure order, all the workmen were paid closure compensation and Gratuity as required under the ID Act.

The matter should have ended there but for the writ petition filed by the labour union seeking to quash the closure order which is still pending. After closure, the management shifted some machinery. A few big machines remain to be shifted, a task that has been held up pending final disposal of the writ petition.

The enormous loss due to delay and hurdles faced by the management begs the question as to what purpose is served by a law that neither allows an employer to run his factory smoothly nor close down an unviable factory.

The cause for this sorry state of affairs lies in Chapter 5B of the ID Act, which places an unconscionable burden on the employer employing 100 or more workmen. Unfortunately, the same Chapter 5B finds place as Chapter X under the newly proposed Industrial Relations Code 2020 (IR Code).

If India has to attract large investments, it is imperative that Chapter 5-B must be scrapped. No other country in the world, including China, has such provisions.

The phenomenal growth of the software industry in India was possible because software companies are not ‘factories’ and come under the definition of ‘establishment’ under the Shops and Commercial Establishments Act and have been kept out of the Chapter 5-B provisions.

India has paid a very high price by delaying reforms in the labour laws. Even the reforms being attempted now are only half-hearted. No investor likes to get entangled in endless legal hurdles due to the impractical provisions contained in Chapter 5-B. It is high time the government woke up and provided a labour regime that encourages massive investments to flow into Indian industry.

(The writer is an advocate and president, Karnataka Employers’ Association)