Supreme Court reaffirms: Right to close a business is fundamental; but not absolute

In a landmark ruling that balances entrepreneurial freedom with worker rights, the Supreme Court has reaffirmed that an employer’s decision to shut down business operations is protected under the Constitution but must be exercised in compliance with statutory safeguards under the Industrial Disputes Act, 1947. The Court held that the right to close a business is an integral part of the freedom to carry on any occupation under Article 19(1) (g) of the Constitution. However, this right is not unqualified and must be harmonized with obligations towards employees and the public interest.

The judgment came in the case of Harinagar Sugar Mills Ltd. (Biscuit Division) v. State of Maharashtra, where the employer had sought to close its biscuit manufacturing unit following the termination of its contract with Britannia. In accordance with Section 25-O of the Industrial Disputes Act, Harinagar submitted an application to the State Government seeking permission to close down the undertaking. The Maharashtra government, however, failed to pass a final order within the statutory 60-day period, merely stating that the application was “incomplete.” Harinagar approached the courts, arguing that as per the statute, the closure must be deemed approved once the 60-day window expired without a formal decision.

The Supreme Court agreed. It held that when the government does not issue a conclusive order within the 60-day period prescribed under Section 25-O (3), the application for closure is deemed to have been granted. The Court emphasized that while businesses cannot be forced to run against their will, closures must follow due process, including notice, justification, and worker compensation. The procedural safeguard is not a bureaucratic hurdle but a constitutional checkpoint to ensure that closure decisions are not arbitrary or designed to defeat labour protections. Critically, the Court also clarified that financial difficulty alone does not entitle an employer to close down an establishment. The reasons cited must be genuine and compelling, and the closure should not defeat larger public interest. In Harinagar’s case, even though the deemed approval stood, the Court directed the employer to pay an additional ₹15 crore in compensation to the affected workers, apart from statutory dues highlighting the judiciary’s commitment to a fair deal for labour even as it upholds the business’s autonomy.

This judgment provides much-needed clarity on the legal contours of closure under the Industrial Disputes Act. Employers cannot simply walk away from operations without following the statutory mechanism, and at the same time, State Governments cannot arbitrarily delay or deny closure applications without proper reasons. The principle is simple: entrepreneurial freedom must coexist with responsible exit. By reinforcing that the right to close a business is a fundamental facet of economic liberty yet conditional upon adherence to labour welfare laws the Supreme Court has once again struck a delicate but essential balance between economic reform and social justice.