Is Right To Close An Undertaking A Fundamental Right

In a progressive and reassuring move, the Hon’ble Calcutta High Court recently upheld one of the most critical facets of the fundamental right to carry on business under Article 14(1)(g) of the Constitution of India, 1950 being the right to close one’s business. In a writ petition filed by DIC India Ltd., (“the Company”) through ORTIS Law Offices, the Hon’ble Calcutta High Court vide order dated 28.02.2024, set aside the Order passed by the labor department of West Bengal whereunder the Company was refused permission to close its manufacturing unit under Section 25-O of the Industrial Disputes Act, 1947.

The petitioner before the Hon’ble Calcutta High Court was DIC India Ltd., a public listed company and a subsidiary of DIC Asia Pte Limited Singapore, which is one of India’s leading ink manufacturers. The Company was operating one of its manufacturing units in Kolkata, West Bengal. Assessing the losses being incurred by its Kolkata unit, the Company took a commercial decision of closing it down. The Company accordingly filed an application under Section 25-O of the Industrial Dispute Act, 1947 before the labour department of the State of West Bengal seeking permission to do so which was rejected by the department inter-alia on the ground that the workers’ interests would allegedly be jeopardized and the same could have a     potential effect on the livelihood of people or the businesses being undertaken around the factory. This prompted the Company to file the writ petition before the Hon’ble Calcutta High Court.

Before the Hon’ble Calcutta High Court, it was argued on behalf of the Company that the right to close an undertaking is a fundamental right and is subsumed in the right to carry on a business as guaranteed under Article 19(1)(g) of the Constitution of India, 1950. It was further argued that a company could not be compelled to incur losses where it has adequate and sufficient reasons to close its undertaking. It was further argued that the workmen of the Company working at the kolkata unit had already taken voluntary retirement from service under a VRS scheme floated by the Company. 

Reliance was placed on the Supreme Court’s judgment, Orissa Textile & Steel Limited v. State of Orissa and Ors., (2002) 2 SCC 578, where the constitutionality of Section 25-O of the Industrial Dispute Act, 1947 was examined at great length. In the said Judgement, it was clarified that while Section 25-O of the Industrial Disputes Act, 1947 allows the government to refuse permission to close an undertaking, this power must be exercised sparingly and only when the reasons are of such compelling or overriding nature or where public interest so demands, such as cases where the establishment is manufacturing vaccines or drugs for an epidemic prevalent at that particular point of time, or where the establishment is manufacturing products for the defence of India. It was argued that such exceptional circumstances carved out by the Supreme Court could not be misused to violate the commercial autonomy of a company by compelling it to continue running a loss-making enterprise. It was thus pointed out that by no stretch of imagination could a manufacturing unit for printing inks fall within the ambit of exceptional scenarios envisaged by the Supreme Court. 

The Hon’ble Calcutta High Court held that the decision to close an undertaking is a commercial decision in which the State can have no say and further clarified that the potential effect of such closure on the livelihood of people or the businesses being undertaken around the factory cannot be reasons to deny closure under Section 25-O of the Industrial Disputes Act, 1947. In view of such findings, the Hon’ble High Court of Calcutta accorded permission to the Company to close its undertaking at Kolkata vide an order dated 28.02.2024. 

This Order lends a sigh of relief to commercial enterprises by reinforcing that the fundamental right to carry on business under Article 19(1)(g) of the Constitution of India would subsume within itself the right to close an undertaking. The order of the Hon’ble Calcutta High Court paves the way for other courts in this country to protect the commercial autonomy and wisdom of the corporates and also to promote the Central Government’s endeavors of encouraging ease of doing business in India. 

Before the Hon’ble High Court, DIC India Ltd. was represented by Mr. Jishnu Saha, Senior Advocate and Mr. Sandeep Grover, Mr. Aditya Nayyar, Mr. Ishwer Upneja, Ms. Swati Mittal, Ms. Aashna Agarwal from ORTIS Law Offices and Mr. Akyaprava Sen. The Respondents were represented by Mr. Somnath Ganguli, Ld. A.G.P. and Ms. Priyamvada Singh.