THE CONSTITUTIONAL VALIDITY of section 25(o) of the Industrial Disputes Act, 1947 as amended in 1982 was subject to the conflicting judicial opinions of two High Courts. The Delhi High Court and the Kerala High Court approved of the amended section as constitutionally valid. The Karnataka High Court and  the Calcutta High Court pronounced judgements against its constitutional validity. A recent judgement the five-judge constitutional bench of the Supreme Court settled the controversy by upholding the constitutional validity of the section in the case of Orissa Textile and Steel Company Limited Vs. The State of Orissa and others (2002 LLR, 225).

In order to appreciate the impact of the Supreme Court`s judgement, it is necessary to understand the history of this controversial section, which lays down conditions and procedure for closing down an industrial establishment.

The word "closure" was not defined in the original I.D.Act.  It was inserted as definition under section 2(cc) by an amendment in 1982.  When in the Barsi Light Railway Company Vs Joglekar K.N. (1957 I LLJ, 243 SC) case, the Supreme Court curtailed the meaning of the legislative definition of retrenchment as not applicable to cases of closure of an entire undertaking, it left the workers of a closed undertaking without any severance pay. Severance pay equivalent to the retrenchment compensation was made compulsory for discharged employees of a closed undertaking by inserting section 25(fff) in 1957.

In 1972, section FFA was inserted in chapter VA of I.D.Act, which made a 60- day notice mandatory by the employer before closing down an establishment employing 50 or more workers.  Failure to do so invited penalty.  The Act still did not provide for any preventive measures in case of closure nor did it provide for any prior scrutiny of the reasons for closure. As large-scale lay-off, retrenchment and closure continued to haunt Indian industry, I.D.Act was further amended in 1976 with a special provision relating to industrial establishments employing more than 300 workers (now 100 workers). It was done by inserting chapter V-B.  Section 25(o) contained in chapter V-B lays down the conditions and procedure which an employer has to observe when an industrial establishment (other than those engaged in construction work) is to be closed down. The conditions and procedure in brief are:

1. An employer must serve a 90-day notice stating the reasons
2. Government can refuse permission if the reasons are inadequate or insufficient or prejudicial to public interest
3. Closure is illegal and workers are entitled to full benefits if the employer does not apply for permission or when the permission is refused

Section 25(o) was struck down in Excel Wear Vs Union of India and Other`s case(1978 II-LLJ 527, SC) in 1978. The reasons were:

1. Section 25(o) did not require the government to give any reasons for refusing permission to close. Permission could be denied in public interest by whimsical and capricious order
2. No time limit was fixed while refusing permission to close down.
3. The order was not subject to any scrutiny by a higher authority including the authority passing the order
4. Even after approval for closure was granted, an employer has to comply with the liability under section 25(n) for notice and compensation as if it was retrenchment
5. The restriction on closure was excessive
6. If the Government Order was not communicated within 90 days of the employer`s application there was no "deeming provision" for according automatic approval.  Even if the government did not communicate its approval within 90 days, the employer was still not legally free to close down without incurring civil liability

By amending the Act in 1982, the legislature attempted to cure the defects pointed out in the Excel Wear case by introducing the following changes in section 25(o):

1. Government should write a reasoned order granting or refusing permission after giving a reasonable opportunity to the employer and the workers to be heard.  It has to pass an order after ascertaining the genuineness of the reason stated by the employer and in the interest of the general public. The powers of the government while passing an order upon the notice of the employer should not be merely administrative but quasi-judicial in nature
2. An order of the government will remain in force for one year. Earlier, there was no time limit for refusing permission to close down an industrial establishment.  Thus, at the end of the year it is always open to the employer to apply again for permission to close
3. A new sub-section (3) says if the government does not communicate its order within 60 days, the permission will be deemed to have been granted
4. Government can either on its own or on an application by the employer or workmers review its order granting or refusing permission or refer the matter to a Tribunal for adjudication.  This corrects the defect that an order of the authority is not subject to any scrutiny
5. The objection raised in the Excel Wear`s case was that even after approval for closure was granted, an employer has to comply with the liability under section 25(n). It has been remedied by the amended section 25(o)(8) which requires only payment of compensation equivalent to 15 days` average pay for every completed year of continuous service. It has dropped the requirement of giving a further three-month notice under section 25(n)
6. Supreme Court did not accept the  objection that restrictions on closure are excessive. The court laid down that if there are exceptional circumstances or an accident in the undertaking or the death of the employer or similar conditions, the government could direct that prior permission for closure may be dispensed with. In such a situation, the restrictions imposed on an employer`s fundamental right under Article 19(1)(g) will be reasonable and within the boundaries of Article  19(6) of the Constitution

From the observations of the Supreme Court in the case of Orissa Textile and Steel Company Limited it is clear that  an uncertainty has been settled for the time being and an employer must now observe the procedural and substantive aspects of the amended section 25(o) while closing down an industrial establishment employing more than 100 workers.  It has settled the controversy that phrases like "in the interest of the general public" are capable of definite connotation and concrete example and therefore, cannot be challenged as vague.  It has also endorsed its original contention that the right to closure is subject to reasonable restriction under Article 19(6) of the Constitution.