“Possible Unemployment Of Workers No Ground To Continue Business”: Bombay HC Allows General Motors To Close Plant Over ₹9656 Crore Loss

The Bombay High Court recently upheld Industrial Tribunal's order allowing automotive manufacturing company General Motors to close its plant in Talegaon, Maharashtra, after noting accumulated loss of Rs. 9656.87 Crores till 2022.

Justice Milind Jadhav dismissed two writ petitions by General Motors Employees Union challenging Industrial Court's orders allowing General Motors India Private Limited to close down its Talegaon MIDC plant under Section 25-O of the Industrial Disputes Act, 1947.

“if a Company approaches the Court for closure of its establishment on the ground of accumulated losses in accordance with law, then in that event the possible unemployment of the workers cannot be a ground to compel the Company to run its business and refuse closure…What is significant to be noted in the present case is that the Company has suffered significant losses over the past 28 years and at the end of the financial year 2021-2022, the progressing accumulated losses are Rs.9656.87 Crores”, the court observed.

Key Facts

General Motors initially decided to close its Halol Plant in 2017 due to accumulated losses of Rs. 8,500 Crores and shifted its focus to exporting vehicles from the Talegaon Plant. Attempts to transfer business operations, including the Talegaon plant, to Great Wall Motors, China, failed.

On November 20, 2020, General Motors applied for the Talegaon Plant's closure, which was rejected by the government on January 18, 2021. In the company's review application, the government referred the matter to the Industrial Tribunal on March 19, 2021.

In 2021, lay-off notices were issued due to the Covid-19 pandemic, and around 484 workers availed the separation benefit of Rs.25 to 35 lakhs each under its Voluntary Separation Scheme. It terminated the remaining workmen.

On April 19, 2023, the union filed an application claiming that the Reference had become infructuous. The Industrial Tribunal, on April 28, 2023, rejected this application.

The Talegaon plant was sold to Hyundai in 2023. On June 27, 2023, during the pendency of the Reference before the Industrial Tribunal, the company filed a second closure application.

Throughout this, there were multiple rounds of litigation between the employee union and the company before the industrial court, Bombay HC, Apex court, as well the government challenging the reference, closure applications, acquisition deals, layoffs and service conditions.

The Industrial Tribunal eventually passed an award on June 30, 2023, permitting the closure of the Talegaon plant with effect from April 30, 2021.

The Challenge

The employee union challenged the tribunal's June 30, 2023 order allowing closure as well as the order dated April 28, 2023. The union's primary contention was that the Reference became infructuous one year after the rejection of the first Closure Application.

The union asserted that, according to Section 25-O(6) of the ID Act, the order denying closure should remain effective for one year. If reference is made, the tribunal should issue an award within thirty days as per Section 25-O(4). The Reference in this case was made within one year, but the tribunal's decision occurred over two years from the date of reference and the date of rejection of the first Closure Application. The union contended that as the reference remained undecided, it became infructuous after one year from rejection of closure application.

Verdict

The court clarified that the Apex court decision in Vazir Glass Works Ltd. v. Maharashtra General Kamgar Union (1996), cited by the union, is limited to cases where the Review and consequential Reference are made after one year from the date of the rejection of Closure Application. If the Reference is made within one year, it would be valid even if it is actually heard and disposed, after the expiry of one year, the court held. It cited various subsequent decisions establishing that the time frames mentioned in Sections 25-O(6) and 25-O(4) are 'directory' and 'not mandatory.'

The court noted that the company had accumulated losses due to challenges like rising vehicle costs, high finance rates, policy changes, evolving emission norms, market competitiveness, and the dynamic nature of customer preferences contributing to the losses.

The court refuted the union's argument emphasizing profits in certain financial years by pointing out the progressively increasing accumulated losses. It underscored the company's documented efforts to recover from financial distress, establishing that closure was decided after all efforts failed.

The court highlighted that the industrial tribunal examined the company's balance-sheets, and the company's witness faced a cross-examination after which the losses were established. The company is not a public limited company, or a company concerned with public utility that can be forced to continue its operations despite accumulated losses, the court observed.

The court rejected the union's objection regarding the format of the closure application and asserted that there is substantive compliance with the format. The court dismissed the union's objection due to its participation in prior proceedings without objection.

Addressing the retrospective fixation of the closure date as April 30, 2021, the court noted that workers received full wages until their subsequent termination on July 12, 2021, and opined that the closure date was not prejudicial to the workers.

The court remarked that the union's inconsistent approach with numerous objections and applications caused delays, contributing to a protracted legal process. Therefore, the court upheld the impugned orders and dismissed both writ petitions filed by the union.

Case no. – Writ Petition Nos. 7992 and 9311 of 2023

Case Title – General Motors Employees Union v. General Motors India Pvt. Ltd.