ID Act | Article 19(1)(g) Includes the Right to Shut Down One’s Business, But the State Cannot Evade Responsibility by Administrative Apathy: Supreme Court

If the Government Sleeps on Closure Requests, Employers Cannot Be Held Hostage to Inaction”, Supreme Court of India rendered a judgment of far-reaching significance in the case Harinagar Sugar Mills Ltd. (Biscuit Division) & Anr. v. State of Maharashtra & Ors., where it upheld the right of an employer to shut down its operations under the doctrine of “deemed approval” under Section 25-O(3) of the Industrial Disputes Act, 1947. Holding the Maharashtra Government’s bureaucratic inertia to be in direct violation of the statutory mandate, the Court ruled that “the appropriate Government failed to make and communicate any order on the application for closure. The deemed closure would, therefore, come into effect.”

This judgment clarifies the balance between an employer's fundamental right to close a business under Article 19(1)(g) and the obligations imposed under labor welfare legislation.

Termination of Business Relationship Triggers Legal Battle Over Closure

Harinagar Sugar Mills Ltd. (HSML) had for over three decades manufactured biscuits solely for Britannia Industries Ltd. (BIL) under a Job Work Agreement. That commercial relationship ended abruptly with a notice dated May 24, 2019, terminating the agreement effective November 27, 2019. As the Biscuit Division had no independent line of work or other clients, it initiated closure proceedings under Section 25-O of the Industrial Disputes Act by applying to the State Government on August 28, 2019.

“The Biscuit Division has no other alternative but to close down the manufacturing activities,” HSML stated categorically in its closure application.

Instead of processing the application, the State Government sent a letter through the Deputy Secretary on September 25, 2019, demanding resubmission with further details. Despite HSML furnishing a detailed reply on October 10, no formal order was passed within the statutory 60-day period.

The pivotal question before the Court was whether the closure application stood automatically approved under Section 25-O(3), given that no rejection or approval was communicated within the prescribed timeline. The Court delivered a powerful ruling in favour of the employer while warning governments not to abdicate their statutory duties.

On the invalidity of the State’s communication, the Court held:

“The Deputy Secretary was not the appropriate Government who could have asked HSML to revise and resubmit the application for closure. That authority is only vested with the Minister concerned.”

Moreover, the Court rejected the State’s reliance on internal file notings by bureaucrats as evidence of the Minister’s decision, stating:

“Reliance cannot be placed on internal noting to establish compliance with procedure… a mere noting in the official files… carries with it no legal sanctity.”

Addressing whether HSML’s application was complete and warranted statutory deemed approval, the Court was unequivocal:

“We hold that application dated 28th August 2019 was complete in all respects, and the 60-day period for the deemed closure to take effect would be calculable from said date.”

Employer's Right to Shut Shop is Constitutionally Protected — But Not at the Cost of Workers’ Rights

In a nuanced analysis of Article 19(1)(g) and Section 25-O, the Court reminded both the employers and the State of their respective obligations. It affirmed the employer’s constitutional right to shut down operations, while emphasizing that such closures must pass through procedural safeguards intended to protect workers from sudden unemployment.

“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 Article 19(1)(g) of the Constitution.”

Yet, it reminded employers that mere financial hardship is insufficient to justify closure unless circumstances make it “impossible to continue.”

In this case, the Court found HSML’s reasons to be genuine and compelling:

“This spells impossibility. It is not the case of the Respondent-State that the statement made by HSML is incorrect… Then, we ask ourselves, when there is no opportunity or avenue for production, what shall the employees do?”

Deemed Closure Upheld; Supreme Court Enhances Compensation to Workers

While vindicating HSML’s right to closure, the Court also considered the plight of nearly 178 permanent workmen and others likely rendered unemployed by the factory shutdown.

“Considering that some of the employees may be, with the closure of this concern, losing the only job they have known… we appreciate the gesture made by HSML.”

Taking judicial notice of HSML’s prior offer to pay ₹10 crores in compensation beyond statutory dues, the Court enhanced it to ₹15 crores: “We deem it just and proper to further enhance the appellants’ offer by a sum of Rs.5 crores, thus, making it Rs.15 Crores instead of Rs.10 Crores.”

The Court ordered that this sum be distributed among eligible employees within eight weeks.

Final Words of the Court: “If the State Does Not Decide, The Law Will”

In concluding its detailed judgment, the Supreme Court sent a clear message to administrative authorities:

“The law does not permit such owner or proprietor to take any and all decisions without having considered… the impact that it shall have on the employees… But concomitant [to the obligations] is the provision that if the concerned Government does not take action with reasonable expediency, the business owner should not be saddled with the costs and responsibilities of running the business indefinitely.”

Date of Decision: June 4, 2025