A

PROJECT REPORT

ON

“CONSTITIUTIONAL VALIDITY OF SECTION 25-O OF ID ACT,1946”

IN PARTIAL FULFILLMENT OF THE REQUIREMENT

PRESCRIBED FOR

B.A. LLB (HONS.) SEMESTER-V

Submitted To: Submitted By;

Mr. Saurabh Mishra Name: Shubham Agarwal

Assistant Professor Registration No. : 161401099

MANIPAL UNIVERSITY, JAIPUR

(Dehmi Kalan, Jaipur-Ajmer Highway, Jaipur-303007)

2017

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ACKNOWLEDGEMENT

I hereby acknowledge the help and support of the teachers, who helped me in compiling this
project. I thank the faculty and management of Manipal University Jaipur, School of Law, as
the resources that were necessary to complete the project were provided by them.
I am highly indebted to my teacher “Mr. Saurabh Mishra” for his guidance and constant
supervision as well as for providing necessary knowledge regarding the subject at hand and
also for his support in completing the project.
I would like to express my gratitude towards my parents and friends for their kind
cooperation and encouragement which help me in completion of this project.

_______________
Shubham Agarwal

CERTIFICATE

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This is to certify that Mr. Shubham Agarwal, student of B.A. LL.B. (hons.) semester V,
School of Law Manipal University Jaipur has completed his project work entitled
“Constituional Validity of Section 25-O of Industrial Disputes Act,1946” under my
supervision and guidance.
It is further certified that the candidate has made sincere efforts for the completion of this
project.

_______________
Mr. Saurabh Mishra

I. INTRODUCTION..................................................................................................................................6
II LEGISLATIVE AND JUDICIAL DEVELOPMENT.......................................................................................6
Legislative response .............................................................................................................................8
III REVIEW OF AMENDED SECTION .....................................................................................................10

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Reasoned decision ..............................................................................................................................14
Time limit ...........................................................................................................................................15
Deemed permission ...........................................................................................................................15
Review of the order granting or refusing permission .........................................................................16
Exceptional circumstances ..................................................................................................................16
IV Conclusion ......................................................................................................................................17

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I. INTRODUCTION

THE CONSTITUTION bench of the Supreme Court on January 17, 2002 in M/S Orissa
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Textile and Steel Co. Ltd. v. State of Orissa and Others decided an extremely important issue
relating to constitutional validity of section 25-0 of the Industrial Disputes Act, 1947
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incorporated by the Amendment Act 46 of 1982 (hereinafter referred to as the amended
section 25-0). The court by upholding the validity of the amended section 25-0 has settled the
controversy at rest.
Prior to the Supreme Court decision under review, the high courts were, however, divided on
the issue of constitutional validity of amended section 25-0. While the Delhi High Court in
D.C.M, Ltd v. Lieutenant Governor* and the Kerala High Court in Laxmi Starch v. Kundra
Factory 
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Workers Union upheld the constitutionality of section 25-0 of the Industrial Disputes Act,
1947 (hereinafter referred to as ID Act) the Karnataka High Court in Union   of   India  v.
5 
Stumpp Schedule and Somappa Ltd. and the Calcutta High Court in Maulis of India Ltd. v.
State of West Bengal^ held section 25-0 as a whole and section 25-R in so far as it relates to
awarding of punishment for violation of section 25-0 of the ID Act to be constitutionally
invalid for violation of article 19(1 )(g) of the Constitution. The Kerala High Court in Laxmi
Starch case while upholding the validity of the amended section 25-0 observed that section
25-0 (as amended by Act 46 of 1982) is not violative of article 19(l)(g) as restrictions are
reasonable within the limits of article 19(6) of the Constitution- The provision is also not
violative of article 14 of the Constitution because (i) no arbitrariness is involved, as the
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classification is on a rational basis as between big establishments and small ones having
intelligible difference and reasonable nexus to the object and (ii) it is not lacking in
procedural safeguards to avoid or correct arbitrariness.
II LEGISLATIVE AND JUDICIAL DEVELOPMENT
In order to appreciate the response of the Supreme Court it is necessary to examine the
legislative and judicial development.
Prior to 1953 the words "lay-off and "retrenchment" were not used in any legislative
enactment in India. In 1953 sections 2(kkk)  and 2(oo)  of the ID Act defined lay-off and
retrenchment. Further, chapter VA was added which, inter   alia,  provided for lay-off and
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retrenchment compensation. However, in Barsi Light Railway Company v. Jogleker (K.N.),
the Supreme Court severely curtailed the meaning of the legislative definition of
"retrenchment", and correspondingly increased the residuary area of discharge wherein, save
in establishment having a gratuity scheme, workmen were not entitled to any severance pay;
rendered sixty-six words, out of a total of eighty words used in the definition, useless

11. 2002 LLR 225.

2. This provision came into force with effect from 21.8.1984.
3 AIR 1989 Del 193.
4 (1992) Lab \C 1337 (Ker).
5. (1989) 2 LLJ4.
6. (1989) 2 LU400.

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appendage; misread legislative intendment in enacting section 33 of the Industrial Disputes
(Amendment) Act, 1956, and, on the whole, threw the provisions of the Industrial Disputes
Act out of the gear. The Industrial Disputes (Amending) Act of 1957, thereafter, made a
valiant effort to restore the status   quo   ante.  It specifically provided for payment of
retrenchment compensation on transfer as well as on closure of an undertaking. The
provisions of chapter VA of the ID Act were applicable to industrial establishments
employing 50 or more persons.
In 1972, by the amending Act, section 25 FF-A was inserted in chapter VA of the ID Act
providing for sixty days' notice by the employer prior to closing down any establishment
employing 50 or more persons. Failure to do so entailed a liability to be punished. Though
this provision provided for the notice it did not contain any provision for prevention of lay-
off, retrenchment or closure. Further, the Act did not provide for any prior scrutiny of the
reasons of such closure.
Cases of large-scale lay-off, retrenchment and closure have also been reported time and
again. Consequently, the state government and national apex bodies approached the Central
Government to take legislative measures for preventing arbitrary action of the management in
retrenching their workmen. Accordingly, the Industrial Disputes (Amendment) Act, 1976 was
enacted. This chapter is applicable to industrial establishments, which are factories, mines
and plantations2 employing 300 or more workmen. Section 25-0 added a new provision for
preventing the closure. A new provision has also been made under section 25R for re-starting
of an already closed undertaking under stated circumstances. The penal provision for
violation of the provisions relating to closure has also been made under section 25R.
The constitutionality of 1976-amendment of section 25-0 was challenged before the Supreme
Court in Excel Wear v. Union of India?" The constitution bench struck down section 25-0 of
the Industrial Disputes Act, 1947 (as it then stood) for the following reasons:
(I) Section 25-0 did not require giving of reasons in the order. Even if the reasons were
adequate and sufficient, permission to close could be denied in the purported public interest
of labour as it had been left to the whims and caprice of the authority to decide one way or
the other. Thus, the order could be whimsical and capricious.
(ii) No time limit was prescribed whilst refusing permission to close down.
(iii) There was no deemed provision for according approval in section 25-0. The result would
be that if the government order was not communicated to the employer within 90 days,
strictly speaking, the criminal liability under section 25-F may not be attracted if on the
expiry of that period the undertaking is closed, but the civil liability under section 25-0 (5)
would come into play on the expiry of period of 90 days.
(iv) The order passed by the authority was not subject to any scrutiny by any higher authority
or tribunal either in appeal or revision and the order could not be reviewed.
(v) The employer was compelled to resort to the provision of section 25-N even after
approval of closure.
(vi) The restriction imposed was more excessive than was necessary for the achievement of
the object and thus highly unreasonable. It was suggested that there could be several other

27 1 LLJ 243 (SC).

8 (1978)2 LU 527 (SC).

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methods to regulate and restrict the right of closure e.g. by providing for extra compensation
over and above the retrenchment compensation.

Legislative response
In order to fill the gap created by the Supreme Court in Excel Wear  section 25-0 of the
Industrial Disputes (Amendment) Act was amended by Act 46 of 1982.
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In Workmen   of   Meenakshi   Mills   Ltd.  v. Meenakshi   Mills   3 a five judges bench of the
Supreme Court while considering the constitutional validity of section 25-N (as amended in
1984) held that it does not suffer from the vice of unconstitutionally on the ground that it is
violative of the fundamental right guaranteed under article 19(l)(g) of the Constitution and is
not saved by article 19(6) of the Constitution. Accordingly the court negatived the following
submissions:
(i) Adjudication by a judicial body available in the case of retrenchment under section
25-F has been substituted by an administrative order passed by an executive
authority in the case of retrenchment under section 25-N and thereby a function,
which was traditionally performed by industrial tribunals, labour courts, has been
conferred on an executive authority.

(ii) No guidelines have been prescribed for the exercise of the power by the appropriate
government or authority under sub section (2) of section 25-N and it would be
permissible for the authority to pass its order on policy considerations which may
have nothing to do with an individual employer's legitimate need to reorganize its
business. The requirement that reasons must be recorded by the appropriate
government or authority for its order under sub-section (2) of section 25-N is not a
sufficient safeguard against arbitrary action since no yardstick is laid down
forjudging the validity of those reasons.

(iii) There is no provision for appeal or revision against the order passed by the
appropriate government or authority refusing to grant permission to retrench under
sub-section (2) of section 25-N. Judicial review under article 226 of the Constitution
is not an adequate remedy.

39. (1992) 2 LLJ 295.

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(iv) The provisions are ex facie  arbitrary and discriminatory in as much as while the
workmen have a right to challenge, on facts, the correctness of an order passed under
sub-section (2) granting permission for retrenchment before the industrial tribunal by
seeking a reference under section 10 of the Act, the management does not have a
similar right to challenge the validity of an order passed under sub-section (2)
refusing to grant permission for retrenchment. Ill Review of amended section 25-0

III REVIEW OF AMENDED SECTION 
In order to see whether the vices pointed out in the Excel Wear's case have been cured it is
necessary to examine whether the amended section 25-0 has cured the defects pointed out in
Excel Wear's  case for declaring it to be ultra vires  the Constitution. For the purpose, the
Supreme Court compared section 25-0 (as it then stood), the amended section 2 5 - 0 and
section 25- N as
considered in Meenakshi
Mills'  case After making
a comparative
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analysis it observed
that (i) Section 25-0
is in substance akin
to section 25-N as it then
stood; (ii) Both sections
25-N and 25-0 are not
contained in chapter V
B; and (iii) The object and
reasons for enacting these
provisions are the same
and must be kept in
mind whilst
considering
amended section 25-0.

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Reasoned decision
In Excel Wear's case, one of the reasons why section 25-0 (as it then stood) was struck down
was that it did not require giving of reasons.
Now under the amended section 25-0 the order granting or refusing permission has to be in
writing and be a reasoned order. In sub-section (2) of section 25-0, Parliament had used the
expression "the appropriate Government may, if it is satisfied that the reasons for intended
closure of the undertaking are not adequate or sufficient or such closure is prejudicial to the
public interest" which implied that the order refusing to grant permission to close down the
undertaking was to be passed on a subjective satisfaction of the appropriate government
about the adequacy or the sufficiency of the reasons for the intended closure being prejudicial
to the public interest.
While agreeing with the aforesaid view in the case under review the court observed that
under the unamended section 25-0, the order was to be passed on a subjective satisfaction of
the appropriate government. The words used in amended section 25-0 are:
The appropriate Government may, after making such enquiry as it thinks fit, and after giving
a reasonable opportunity of being heard to the employer, the workmen and persons interested
in such closure may, having regard to the genuineness and adequacy of the reasons stated by
the employer, interest of the general public and all other relevant factors by order and for
reasons to be recorded in writing, grant or refuse to grant such permission.
The Supreme Court (in the case under review) while analysing the scope of the aforesaid
provision ruled:
(i) the appropriate government before passing an order is bound to make an enquiry.
(ii) the order passed by the appropriate government shall be in writing and contain reasons.
(ni) the employer is required to give notice by filling up a form in
which he has to give precise details and information.

(IV) the requirement to make an enquiry postulates (as held in Meenakshi Mills'  case) an
enquiry into the correctness of the facts stated by the employer in the notice served by him
and also all other relevant facts and circumstances including the bona fide of the employer.

(v) an opportunity to be heard should be afforded to the employer, workmen and all persons
interested.

(vi) the information which the employer is required to give would enable the appropriate
government to make up its mind and collect necessary facts for the purposes of granting or
refusing permission. The appropriate government would have to ascertain whether the
information furnished is correct and whether the proposed action is necessary and, if so, to
what extent.

(vii) the making of an enquiry, the affording of an opportunity to the employer, the workmen
and all interested persons and the necessity to pass a written order containing reasons
envisages exercise of functions which are not purely administrative in character but quasi-

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judicial in nature.

(viii) the words the "appropriate government, after making such enquiry, as it thinks fit" (as
held in Meenakshi Mills'  case ) does not mean that the government may dispense with the
enquiry at its discretion. These words only mean that the government has discretion about the
nature of the enquiry it is to make.

Time limit
In Excel Wear case the Supreme Court struck down section 25-0, as no time limit had been
fixed while refusing permission to close down. This is now cured by sub-section (4) of the
amended section 25-0 that provides that the order of the appropriate government shall remain
in force for one year from the date of such order. Thus, at the end of the year it is always open
to the employer to apply again for permission to close. The court rejected the argument of the
employer that he would not be able to apply again (at the end of the year) on the same
grounds and observed:
‘In our view if the reasons were genuine and adequate, the very fact that they have persisted
for a year more is sufficient to necessitate a fresh look. Also, if the reasons have persisted for
a year, it can hardly be said that they are the same. The difficulties faced during the year,
provided they are genuine and adequate, would by themselves be additional grounds. Also by
the end of the year the interest of the general public or the other relevant factors, which
necessitated refusal of permission on the earlier occasion, may not prevail. The appropriate
government would necessarily have to make a fresh inquiry, give a reasonable opportunity of
being heard to the employer, workmen and all concerned. In our view, providing for a period
of one year makes the restriction reasonable.’
The court, accordingly, held that providing for a period of one year makes the restriction
reasonable. If the reasons were genuine and adequate, the very fact that they have persisted
for a year more is sufficient to necessitate a fresh look. Also, if the reasons have persisted for
a year, it can hardly be said that they are the same. The difficulties faced during the year,
provided they are genuine and adequate, would by themselves be additional grounds. Also, by
the end of the year the interest of the general public or the other relevant factors, which
necessitated refusal of permission on the earlier occasion, may not prevail. The appropriate
government would necessarily have to make a fresh enquiry, give a reasonable opportunity of
being heard to the employer, workmen and all concerned.

Deemed permission
The Supreme Court held the defect has also been cured by incorporating a deeming clause in
sub-section (3) of section 25-0 which provides that if the appropriate government does not
communicate the order within a period of 60 days from the date on which the application is
made, the permission applied for shall be deemed to have been granted.

Review of the order granting or refusing permission

Let us turn to examine as to whether the amended sub-section (5) of section 25-0 which
provides that the appropriate government may, either on its own or on an application made by

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the employer or any workman, review its order granting or refusing permission or refer the
matter to a tribunal for adjudication and if a reference is made to a tribunal (under this sub-
section) then the tribunal should pass its award within a period of 30 days from the date of
such reference, cure the defects as pointed out in Excel Wear case.

In order to examine the above issue it is necessary to examine the contention of the employer,
namely, (i) it is left to the discretion of the appropriate government to either review or make a
reference; and (ii) there is no right in the employer to compulsorily seek a review or a
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reference. The court rejected the aforesaid contentions and observed:
A proper reading of sub-section (5) of amended section 25-0 shows that in the context in
which it is used, the word "may" necessarily means, "shall". Thus the appropriate
Government "shall" review the Order if the employer or the workman makes an application
in that behalf, it shall refer the matter to a Tribunal for adjudication. As submitted by the
learned Attorney General, in a review the appropriate Government would have to make an
enquiry into all necessary facts, particularly into the genuineness and adequacy of the reasons
stated by the employer. An opportunity of being heard would have to be given to the
employer, workmen and all interested persons. The order on review would have to be in
writing giving reasons. Thus, in exercising powers of review the appropriate Government
would be performing quasi-judicial functions.
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The court added:
Sub-section (5) of amended Section 25-0 provides that award should be passed within a
period of 30 days from the date of reference. Even though it does not provide any time frame
within which the review is to be disposed off, it is settled law that the same would have to be
disposed off within a reasonable period of time. In our view, a period of 30 days would be a
reasonable period for disposing of a review also. This review and/or reference under amended
Section 25-0 would be in addition to a judicial review under Article 226 or Article 32.

Exceptional circumstances
The Supreme Court, while dealing with the amended sub-section (7) of section 25-0 which
provides that if there are exceptional circumstances or accident in the undertaking or death of
the employer or the like, the appropriate government could direct that provision of sub-
section (1) would not apply to such an undertaking, held that it recognizes that if there are
exceptional circumstances then there could be no compulsion to continue to run the business.
The court, however, made it clear that it is not laying down that some difficulty or financial
hardship in running the establishment would be sufficient. It added that the employer must
show that it has become impossible to continue to run the establishment. The court held that
from this point of view the restrictions imposed are reasonable and in the interest of general
public.

IV Conclusion
It should now be possible to draw certain conclusions about the trend of judicial
pronouncements and the role of the Supreme Court while considering the vires  of the
provisions relating to lay-off, retrenchment and closure under chapter VB of the Industrial
Disputes Act, 1947. A survey of decided cases in the post 1990 period shows that the
Supreme Court has upheld the constitutional validity of sections 25-N and 25-0 of the ID Act.

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However, in this process the Supreme Court in the case under review has drawn an analogy
from section 25-N in Meenakshi Mills' case and generally extended the principles laid down
therein while considering the constitutionals of section 25-0. However, the court was cautious
in interpreting the words "the appropriate government, after making enquiry, as it thinks fit"
to mean that the appropriate government has a discretion about the nature of enquiry it is to
make. It does not mean that it may dispense with the enquiry at its discretion.
While dealing with nature of function performed by the appropriate government in exercising
powers of review the court ruled that it performs judicial functions. The court being aware of
the financial hardship in running the establishment pointed out that in such a situation the
employer must prove that it had become impossible for him to continue to run the
establishment. Justifying the constitutional validity of the amended section 25-0 the court
pointed out the phrase "in the interest of the general public" is a phrase of definite
connotation and a known concept. This phrase, as used in amended section 25-0, has been
bodily lifted from article 19(6) of the Constitution of India.

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