Closure: Prevention and Regulation

This article is written by Gitesh Jain (Closure: Prevention and Regulation), Amity University, Rajasthan, Intern under Legal Vidhiya.

Introduction

Closure is a term used to describe the temporary shutdown of a business or organization. The reasons for closure can vary, but often include financial difficulties, legal issues, or health and safety concerns. In the wake of the COVID-19 pandemic, many businesses and organizations have been forced to close temporarily to prevent the spread of the virus.

Preventing closures requires proactive measures to ensure that businesses and organizations remain financially stable and are able to weather unexpected challenges. This can include measures such as creating emergency funds, providing financial assistance and incentives to struggling businesses, and offering training and support to help businesses adapt to changing market conditions.

Regulation is also an important aspect of preventing closures. Governments and regulatory bodies can establish policies and guidelines to help ensure that businesses and organizations operate in a safe and responsible manner. This can include requirements for health and safety standards, financial reporting and transparency, and compliance with local laws and regulations.

Overall, preventing closures and ensuring responsible regulation are key components of promoting a healthy and thriving economy. By taking proactive measures to support businesses and organizations, we can help ensure that they are able to survive unexpected challenges and continue to contribute to their communities.

Industrial Dispute Act, 1947

The Industrial Disputes Act, 1947 is a law in India that regulates the resolution of industrial disputes between employers and employees. The Act applies to all industries that fall under the definition of ‘industry’ as per the Industrial Disputes Act.

The main objective of the Act is to promote industrial peace and harmony by providing a legal framework for the prevention and resolution of industrial disputes. It lays down the procedures for the investigation, settlement and adjudication of disputes between employers and employees. The Act provides for the establishment of conciliation machinery, which is responsible for bringing the parties to a dispute to the negotiating table and helping them resolve their differences.

The Act defines a dispute as any disagreement between employers and employees, or between employers and workmen, or between workmen and workmen, which is connected with the employment or non-employment of a person or with the terms of employment or with the conditions of labor. The Act provides for three modes of settlement of disputes – conciliation, arbitration and adjudication. The conciliation process is the first step in the dispute resolution process. If conciliation fails, the matter is referred to a labor court or an industrial tribunal for adjudication. An award issued by an industrial tribunal or a labor court is binding on the parties to the dispute. The Act also provides for the recognition of trade unions and the regulation of their activities. The Act defines a trade union as any combination of workmen or employers formed for the purpose of regulating the relations between workmen and employers or between employers and workmen. The Act also lays down the procedure for the retrenchment of workmen and closure of an undertaking. An employer is required to give prior notice to the government and the workmen before retrenching any workmen or closing down an undertaking.

Overall, the Industrial Disputes Act, 1947 is an important legislation in India that regulates the resolution of industrial disputes and promotes industrial peace and harmony.

Closure

Under the Industrial Disputes Act, 1947, closure refers to the complete or partial shutdown of an industrial establishment or undertaking by the employer. The closure can be voluntary or forced, temporary or permanent, and can be due to various reasons such as financial difficulties, labor issues, or other unforeseen circumstances.

The Act lays down certain procedures that an employer must follow before closing down an undertaking. If the closure is due to unavoidable circumstances, such as natural calamities, the employer must give notice of the closure to the appropriate government authority and the workmen at least 15 days in advance. However, if the closure is for any other reason, the employer must give notice of the closure to the appropriate government authority and the workmen at least 60 days in advance. The Act also provides for the payment of compensation to workmen who are affected by the closure. If the closure is due to unavoidable circumstances, the employer is not required to pay any compensation. However, if the closure is for any other reason, the employer must pay compensation to the workmen equivalent to 15 days’ average pay for every completed year of continuous service.

If the closure is for any reason other than unavoidable circumstances, the employer must also apply for prior permission to close down the establishment to the appropriate government authority. The government may grant or refuse permission for the closure based on the reasons given by the employer and after considering the interests of the workmen.

Overall, the Industrial Disputes Act provides a legal framework for the closure of an industrial establishment and ensures that the interests of the workmen are protected in case of closure. It also provides for a conciliation process to resolve any disputes that may arise between the employer and the workmen in the event of closure.

Provisions of Closure of an undertaking under section 25(0):

Section 25(O) of the Industrial Disputes Act, 1947 provides for the closure of an undertaking or establishment, without prior permission from the appropriate government authority, if certain conditions are met. The following are the provisions of Section 25(O):

1. Conditions for closure: An employer can close down an undertaking or establishment without seeking prior permission from the appropriate government authority, if it has less than 50 workmen, and the employer pays compensation to the workmen equivalent to 15 days’ average pay for every completed year of continuous service.
2. Notice to the appropriate government authority: The employer is required to give notice of the closure to the appropriate government authority at least 60 days in advance, in the prescribed manner.
3. Notice to workmen: The employer is required to give notice of the closure to the workmen at least 60 days in advance, or pay wages in lieu of such notice.
4. Procedure for payment of compensation: The compensation payable to the workmen must be paid at the time of closure, or within 15 days from the date of notice of closure, whichever is earlier.
5. Penalty for non-compliance: If the employer fails to comply with the provisions of Section 25(O), it shall be punishable with imprisonment for a term of up to six months, or with a fine of up to Rs. 5,000, or both.

It is important to note that Section 25(O) is applicable only to establishments with less than 50 workmen. For establishments with 50 or more workmen, prior permission from the appropriate government authority is required for closure under Section 25(N) of the Industrial Disputes Act.

Undertakings covered under Section 25(0):

Under Section 25(O) of the Industrial Disputes Act, 1947, an employer can close down an undertaking or establishment without prior permission from the appropriate government authority, if it meets the following conditions:

1. The establishment has less than 50 workmen, and
2. The employer pays compensation to the workmen equivalent to 15 days’ average pay for every completed year of continuous service.

Therefore, only establishments that have less than 50 workmen are covered under Section 25(O). However, it is important to note that the term ‘workmen’ includes not only permanent employees, but also contractual, casual, and temporary workers who have worked for more than one year in the establishment.

It is also important to note that certain types of establishments are exempted from the provisions of the Industrial Disputes Act, and therefore, are not covered under Section 25(O). For example, establishments that are engaged in agricultural or horticultural operations, or in fishing or animal husbandry, are exempted from the Act. Similarly, establishments that are owned or controlled by the government are also exempted, unless they are engaged in commercial activities.

Procedure for Closure of an Undertaking:

The procedure for closure of an undertaking or establishment under the Industrial Disputes Act, 1947, depends on the number of workmen employed in the establishment, and the reason for the closure. The following are the general procedures for closure of an undertaking:

1. Closure of an undertaking with less than 50 workmen under Section 25(O): If an undertaking has less than 50 workmen, the employer can close down the establishment without seeking prior permission from the appropriate government authority, provided that the employer pays compensation to the workmen equivalent to 15 days’ average pay for every completed year of continuous service. The employer must give notice of the closure to the appropriate government authority and the workmen at least 60 days in advance.
2. Closure of an undertaking with 50 or more workmen under Section 25(N): If an undertaking has 50 or more workmen, the employer must seek prior permission from the appropriate government authority before closing down the establishment. The employer must give notice of the closure to the appropriate government authority and the workmen at least 60 days in advance. The government authority may grant or refuse permission for the closure after considering the reasons given by the employer and the interests of the workmen.
3. Voluntary retirement scheme (VRS): An employer may also opt for a voluntary retirement scheme (VRS) to facilitate the closure of the establishment. Under a VRS, the employer offers a voluntary retirement package to the workmen, which typically includes compensation, pension, and other benefits. The scheme must be mutually agreed upon by the employer and the workmen, and the terms and conditions of the scheme must be specified in a formal agreement.
4. Conciliation process: In case of any disputes arising between the employer and the workmen regarding the closure of the establishment, the Industrial Disputes Act provides for a conciliation process to resolve the disputes. The appropriate government authority may appoint a conciliation officer to mediate and bring about a settlement between the parties.

Undertakings excluded from obtaining prior permission before Closure:

The Industrial Disputes Act, 1947 provides for the closure of an undertaking or establishment with prior permission from the appropriate government authority in most cases. However, certain types of establishments are exempted from obtaining prior permission before closure. The following are the undertakings excluded from obtaining prior permission before closure:

1. Establishments with less than 100 workmen: As per Section 25FFA of the Industrial Disputes Act, an employer can close down an establishment without obtaining prior permission from the appropriate government authority, if the establishment has less than 100 workmen on its rolls. However, the employer must give notice of the closure to the government authority and the workmen at least 60 days in advance.
2. Establishments due to natural calamities: An employer can close down an establishment without obtaining prior permission from the appropriate government authority in case of a natural calamity, such as a flood, earthquake, or fire. The employer must give notice of the closure to the government authority and the workmen as soon as possible.
3. Establishments due to financial difficulties: An employer can close down an establishment without obtaining prior permission from the appropriate government authority in case of financial difficulties. However, the employer must pay compensation to the workmen equivalent to 15 days’ average pay for every completed year of continuous service, and must give notice of the closure to the government authority and the workmen at least 60 days in advance.
4. Establishments engaged in seasonal work: Establishments engaged in seasonal work, such as agricultural or horticultural operations, are exempted from the provisions of the Industrial Disputes Act. These establishments are not required to obtain prior permission before closure.

It is important to note that even if an establishment is exempted from obtaining prior permission before closure, the employer must still comply with the notice and compensation requirements as specified in the Industrial Disputes Act.

Grant and Refusal of Permission

Under the Industrial Disputes Act, 1947, an employer is required to obtain prior permission from the appropriate government authority before closing down an establishment, if the establishment has 50 or more workmen on its rolls. The government authority may grant or refuse permission for the closure after considering the reasons given by the employer and the interests of the workmen.

The following are the procedures for grant and refusal of permission for closure:

Grant of permission: If the government authority is satisfied with the reasons given by the employer for closure, and if the employer has complied with all the requirements of the Industrial Disputes Act, the authority may grant permission for the closure. The employer must give notice of the closure to the government authority and the workmen at least 60 days in advance.

Refusal of permission: If the government authority is not satisfied with the reasons given by the employer for closure, or if the employer has not complied with the requirements of the Industrial Disputes Act, the authority may refuse permission for the closure. In such cases, the employer may approach the Labor Court or the Industrial Tribunal for adjudication. The Labor Court or the Industrial Tribunal may then examine the reasons for closure and the interests of the workmen, and may either uphold the decision of the government authority or order the employer to reinstate the workmen with back wages.

Overall, the grant or refusal of permission for closure of an establishment is subject to the discretion of the appropriate government authority, and is based on the reasons given by the employer and the interests of the workmen. Employers must comply with the procedures specified in the Industrial Disputes Act to ensure that the interests of the workmen are protected in case of closure.

When is permission deemed to be granted?

Under the Industrial Disputes Act, 1947, an employer is required to obtain prior permission from the appropriate government authority before closing down an establishment, if the establishment has 50 or more workmen on its rolls. The government authority is required to either grant or refuse permission for closure after considering the reasons given by the employer and the interests of the workmen.

If the government authority does not communicate its decision within the specified time, the permission for closure is deemed to have been granted. The following are the time limits within which the government authority must communicate its decision:

1. Within 60 days of the receipt of the application for permission, if the establishment has less than 100 workmen on its rolls.
2. Within 90 days of the receipt of the application for permission, if the establishment has 100 or more workmen on its rolls.

If the government authority fails to communicate its decision within the specified time limit, the permission for closure is deemed to have been granted. However, it is important to note that the employer must still comply with the notice and compensation requirements as specified in the Industrial Disputes Act, even if permission is deemed to have been granted.

Appeal:

Under the Industrial Disputes Act, 1947, if the appropriate government authority refuses permission for the closure of an establishment, the employer may appeal to the Labor Court or the Industrial Tribunal, as the case may be, within 60 days from the date of the receipt of the order. The employer may also appeal to the Labor Court or the Industrial Tribunal if the government authority has granted permission subject to certain conditions that are not acceptable to the employer.

The following are the procedures for appeal:

1. Filing of appeal: The employer must file an appeal with the Labor Court or the Industrial Tribunal within 60 days from the date of the receipt of the order of the government authority. The appeal must be filed in the prescribed format and must be accompanied by the necessary documents.
2. Notice to the other party: The employer must serve a notice of appeal on the other party, i.e., the workmen or their representatives, within 7 days of the filing of the appeal.
3. Hearing of the appeal: The Labor Court or the Industrial Tribunal must hear the appeal within 45 days of the filing of the appeal. The employer and the workmen or their representatives must be given an opportunity to present their case and produce evidence.
4. Decision of the Labor Court or the Industrial Tribunal: The Labor Court or the Industrial Tribunal may either uphold the decision of the government authority or order the employer to reinstate the workmen with back wages. The decision of the Labor Court or the Industrial Tribunal is final and binding on both the parties.

Illegal Closure:

An illegal closure refers to a situation where an employer closes down an establishment without following the procedures and requirements specified in the Industrial Disputes Act, 1947. This is a serious violation of the law and can lead to legal consequences for the employer.

If an employer closes down an establishment without obtaining prior permission from the appropriate government authority or without giving notice to the workmen as required under the Industrial Disputes Act, such closure is deemed to be illegal. In such cases, the workmen are entitled to compensation for the closure.

The following are the legal consequences of an illegal closure:

1. Reinstatement with back wages: If an illegal closure has taken place, the workmen are entitled to reinstatement with back wages. The Labor Court or the Industrial Tribunal may order the employer to reinstate the workmen with full back wages.
2. Penalty for illegal closure: If the employer is found guilty of an illegal closure, he may be liable to pay a penalty. The penalty may be up to three months’ wages of the workmen.
3. Criminal prosecution: In some cases, the employer may also be liable to criminal prosecution for an illegal closure. The punishment for such an offense may include imprisonment and/or a fine.

Closure:

In conclusion, the closure of an establishment is a significant event that can have far-reaching consequences for the employer and the workmen. The Industrial Disputes Act, 1947, provides for the regulation of closures of establishments and seeks to protect the interests of the workmen in such situations.

Under the Act, an employer must obtain prior permission from the appropriate government authority before closing down an establishment, if the establishment has 50 or more workmen on its rolls. The government authority must consider the reasons given by the employer and the interests of the workmen before granting or refusing permission for closure.

If an employer closes down an establishment without following the procedures and requirements specified in the Act, such closure is deemed to be illegal and can lead to legal consequences for the employer. Therefore, it is important for employers to comply with the procedures and requirements specified in the Act to avoid any legal issues.

Overall, the Industrial Disputes Act provides a mechanism for the regulation of closures of establishments and seeks to protect the interests of the workmen. Employers must ensure that they follow the procedures and requirements specified in the Act to ensure that their interests are protected and to avoid any legal issues.

References:

1. https://thefactfactor.com/facts/law/civil_law/labour_laws/industrial_disputes_act/closure/460/
2. https://blog.ipleaders.in/industrial-disputes/
3. https://legalraj.com/articles-details/layoff-retrenchment-and-closure-under-the-industrial-disputes-act
4. https://www.legalservicesindia.com/article/2416/lay-off,-retrenchment-and-closure-under-Industrial-Disputes-Act.html
5. https://www.myadvo.in/blog/industrial-disputes-act-in-india/