S.25-O ID Act| Can't Permit Authority To Sit On Closure Application & Operate Deeming Provision: Madras HC Sets Aside Closure Of 2 Textile Mills

The Madras High Court has set aside notices for the closure of two Mills in Puducherry, whose history dates back to the French Colonial period, on the ground that provisions of the Industrial Disputes Act, 1947 were not complied with in its true spirit.

Justice S. Vaidyanathan noted that the Mills were closed without issuing any notice of enquiry under Section 25-O of the 1947 Act for making objection before the Authority concerned and without taking up the matter for hearing.

The Bench observed,

"Though the Government and the 6th Respondent have filed counter affidavits, narrating several details, including financial loss, etc, all these particulars should have been referred to in detail in an order after conducting an enquiry by the authority concerned and not after effecting the closure, which would amount to putting a cart before a horse."

It added, "the Government cannot keep the application for closure in a cold storage and wake up from slumber and say that deeming provision has come into play. The purpose of deeming provision provided under the Act is for a different aspect."

It allowed the writ petitions filed by two separate registered trade unions and passed a common order for both Swadeshi Cotton Mill and Bharathi Mills considering them as a single entity.

What is Section 25-O

Sub-section 1 provides that an employer who intends to close down an industrial establishment shall apply to the appropriate Government for prior permission, 90 days in advance, stating clearly the reasons for the intended closure. The same shall also be served on the representatives of the workmen.

Findings

Even if the closure happens due to the Government's non-communication of the order granting/ refusing the permission for shutting down the industry, the enquiry mentioned under Section 25(O)(2) after affording the concerned parties including the workmen and the employer cannot be dispensed with, observed the court.

If the Authority is allowed to operate the deeming provision without conducting any enquiry, the very purpose of the provisions of the Act itself will be defeated, as there is not even an attempt to conduct an enquiry, which is mandatory on the part of the concerned Authority under Section 25(O)(2) of the I.D.Act, 1947, observed the court.

"...The core issue involved is whether the deeming provision can be read in isolation, when the Authorities have not discharged their statutory obligation mentioned therein. After receipt of the application for closure under Section 25(O) of the I.D.Act, 1947, especially when more than 100 workmen were employed on an average per working day for the preceding twelve months, the issuance of notice to the Workmen or their representative and hearing all the parties, who are interested and likely to be affected, is obligatory before closing down an Undertaking within a period of 60 days", the court noted in the common order.

The single-judge bench also mentioned that even if the Government passes an adverse order, any employees can seek a reference to the Tribunal under Section 25 (O)(3) of I.D Act. The bench also noted that the Government cannot keep the application in 'cold storage' and then take the stand that the deeming provision has come into play on the expiry of 60 days. In the current case as well, none of the workmen was afforded a reasonable opportunity of being heard, the court noted.

About the suo motu impleaded IAS Officer who is the Secretary to Government, the court observed that he was at the receiving end of the court's wrath several times for discrepancies in many orders passed by him. The court was also of the opinion that some of the IAS Officers are still not familiar with various provisions of the Industrial Disputes Act.

"....This Court is of the view that Corporation is a part of the Government of Puducherry and in case any closure application is filed, it can be scrutinized by the concerned Authority and the matter can be straight away referred to a Tribunal, so that, instead of two adjudications, namely, one before the Authority and the other one before the Tribunal, a comprehensive decision can be taken. The I.D.Act, 1947 need to be amended to enable a Labour Court or Tribunal to decide the issue, as the IAS Officers, who are entrusted with such quasi judicial work, lacks familiarity with the strict provisions of the Act on account of their other administrative / official duties."

Background and Court's Observations

On account of financial unsustainability in continuing with the functioning of both Mills, the management decided to wind up the mills via a closure application and issued a closure notice dated 29th September, 2020. The closure notice mentioned that the mills will be wound up on 30th September, 2021. The argument of the petitioner was that no enquiry was conducted as envisaged in Section 25 (O) of the I.D Act by inviting objections from workmen, employers or other interested parties. Without taking up the matter for hearing, the government authority notified that both of them had culminated as 'deemed closures' on the expiry of 60 days. However, it was the government who chose not to pass any orders by disregarding the interested parties. The government contended that the financial loss was unbearable and there was no way the mills could be made operative again. 

The management of an entity cannot stick to the deeming provision that automatically comes into force on the expiry of 60 days from the date of representation made to the Government for closure. Relying on Orissa Textile & Steel Ltd. v. State of Orissa and Others, AIR 2002 SC 708, the bench observed that the appropriate Government would have to ascertain whether the information furnished is correct and whether the proposed action of closure is necessary and, if so, to what extent.

"If the present employer is allowed to stick on the deeming provision alone, it will set a bad precedent to other employers to follow the same and ensure that the Authority concerned does not pass any order within 60 days and thereafter, would extend the benefit of compensation on the ground that no order has been passed within 60 days and to say that in the light of deeming provision the closure has come into effect", the court clarified.

The court also added that though the government submitted an expert committee report to establish that trade unions were heard, it cannot be construed that it is a hearing under Section 25(O) of the I.D.Act, 1947, since:

i) Expert Committee is not an Authority, and

ii) Secondly, when there is a notice issued under Section 25(O) of the I.D.Act, 1947, the parties ought to have been heard.

This procedural irregularity will entitle the employees to get all the benefits as if there is no closure in the eye of law, the court underscored.

"When the Industrial Disputes Act was enacted in 1947, the powers have been conferred on the Government Officials to decide the quasi judicial matters and almost all the Establishments have obeyed the orders of the Authority under the various Labour Enactments. Now, they are under various pressure. The Appropriate Government must think of amending the provisions of the Act to ensure that the powers are vested with the Industrial Tribunal, thereby the Review provisions can be deleted.", the court opined by placing reliance on the the apex court decision in Krishna District Co-operative Marketing Society Limited vs. N.V.Purnachandra Rao, (1987) 4 SCC 99.

The court also added that SBTML can file a fresh application, complying with the provisions of Section 25(O) of the I.D.Act, 1947  in respect of all the employees, when taken as two separate entities and the authorities must consider the application afresh under Section 25(O)(4). The court also clarified that since the closure in itself is illegal due to procedural flaws, the workmen are entitled to normal wages as if they have not been laid off.

"It is made clear that this order is applicable only to those, who questioned the closure and will not apply to those, who received benefits and left", the court added. Relying on Management of Chandra Textiles Private Limited Coimbatore v. N. Palanisamy & Ors. (1987), the court opined that the Authority concerned / Labour Court / Tribunal will have to look into the doctrine of approbation and reprobation and in case an employee accepted any amount under protest, then he is entitled to agitate his grievance before the appropriate Forum.

Case Title: Swadeshi Panchalai Thozilalar v. The Secretary, Industries and Commerce & Sri Bharathi Mills Thozilalar Urimai Padukapppu Sangam v. The Secretary,Industries and Commerce

Case No: W.P.Nos.5360 and 5365 of 2021

Citation: 2022 LiveLaw (Mad) 8

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