“Deemed Closure & the Proper Authority under Section 25-O”: Supreme Court Clarifies Competent Authority and Time-Limits for Industrial Closures

1. Introduction

On 4 June 2025 the Supreme Court delivered a landmark decision in Harinagar Sugar Mills Limited (Biscuit Division) & Anr. v. State of Maharashtra & Ors. (2025 INSC 801). The case revolves around the procedure for shutting down an industrial undertaking under Section 25-O of the Industrial Disputes Act, 1947 (ID Act). When Britannia Industries Limited terminated a 32-year “job-work” arrangement, Harinagar Sugar Mills Ltd. (HSML) decided to close its biscuit factory in Mumbai. HSML applied for permission to close on 28 August 2019, but the State Labour Department repeatedly asked it to “re-submit” the application. The High Court of Bombay held that no “deemed permission” arose because HSML’s application was “incomplete”.

The Supreme Court has now reversed that view, laying down three critical propositions:

1. Only the “appropriate Government” (here, the Labour Minister) can decide a Section 25-O application; sub-delegation to a Deputy Secretary without express notification is impermissible.
2. Internal file-notings or unsigned endorsements cannot constitute a valid “order” refusing permission.
3. If no reasoned order is communicated within 60 days, permission to close is automatically deemed to have been granted, even where the department raises queries about the application’s completeness.

2. Summary of the Judgment

• The Supreme Court allowed HSML’s appeals, set aside the Bombay High Court’s judgment, and declared that permission to close the unit stood deemed granted on 27 October 2019 (60 days from the original application).
• The letters issued by the Deputy Secretary on 25 September and 4 November 2019 lacked legal authority and could not stop the deeming fiction.
• The Court enhanced HSML’s voluntary compensation to workers from ₹10 crore to ₹15 crore, in addition to statutory gratuity (~₹4 crore), to be released within eight weeks.
• Payments already made under High Court directions were declared non-recoverable from employees.

3. Analysis

3.1 Precedents Cited & Their Influence

1. Excel Wear v. Union of India (1978) 4 SCC 224 – Struck down the original Section 25-O for being unreasonable; recognised the employer’s fundamental right to close a business under Article 19(1)(g).
2. Orissa Textiles & Steel v. State of Orissa (2002) 2 SCC 578 – Upheld the amended Section 25-O and prescribed that refusal of closure is lawful only on “compelling or overriding” public interest.
3. Bachhittar Singh v. State of Punjab AIR 1963 SC 395; Sethi Auto Services (2009) 1 SCC 180; Shanti Sports Club (2009) 15 SCC 705 – Common thread: internal file notings do not create binding orders unless formally communicated.
4. Pimpri-Chinchwad New Township Development Authority (2018) 8 SCC 215 – Reaffirmed that file notings lack “legal sanctity”.
5. Star Enterprises v. CIDCO (1990) 3 SCC 280 – Insisted on recording and communicating reasons in administrative decisions affecting rights.

These precedents collectively guided the Court to insist on (a) competence of the decision-maker, (b) recording of reasons, and (c) adherence to statutory timelines, failing which the deeming provision prevails.

3.2 Legal Reasoning

1. Statutory Text. Section 25-O(2) mandates a reasoned written order by the “appropriate Government”. Section 25-O(3) says that if no such order is communicated within 60 days, permission “shall be deemed to have been granted”.
2. Who is the “appropriate Government”? Maharashtra had, by notification, delegated the power to the Labour Minister. No further delegation to subordinates was produced. Because Section 39 ID Act demands a formal Gazette notification for any sub-delegation, the Deputy Secretary’s letter was ultra vires.
3. Application of Mind & Recording of Reasons. Even assuming the Deputy Secretary had authority, a mere endorsement that “reasons are inadequate” — lifted from an unidentified officer’s noting — does not satisfy the requirement of “reasons to be recorded in writing”. The order must originate from the competent authority and show personal application of mind.
4. No Concept of “Suspending” the 60-Day Clock. The statute sets a firm deadline; there is no provision for pausing or extending it on the ground of an “incomplete” application unless the application is demonstrably deficient on its face. Here, HSML’s Form XXIV-C was complete; later clarifications did not render the original filing defective.
5. Constitutional Balance. The Court restated that the right to close a business is integral to Article 19(1)(g) but remains subject to reasonable restrictions serving public interest (drawing on Cooverjee Bharucha, Hindustan Antibiotics, etc.). Section 25-O is such a restriction, yet its safeguards—competent authority, reasons, timeline—must be strictly enforced.

3.3 Impact of the Decision

• Tighter Compliance for State Labour Departments. Ministers (or other duly notified authorities) must personally sign or expressly approve orders; internal memos will no longer suffice.
• Enforcement of Statutory Timelines. The 60-day deeming provision is now reaffirmed as a “bright-line” rule; States cannot prolong enquiries by seeking repeated “re-submissions”.
• Constraints on Sub-Delegation. Unless delegation is expressly published under Section 39, subordinate officials cannot dispose of closure applications.
• Employer Strategy. Employers are encouraged to file well-documented closure applications and rely on the deeming fiction if the State remains inert.
• Worker Protection. Although the Court sided with the employer on closure, it simultaneously ensured substantial ex-gratia compensation, signalling that economic rights of employees remain a judicial concern.
• Future Litigation. Challenges may shift from “whether closure is justified” to “whether the competent authority acted within 60 days and with reasons”. Administrative law doctrines will thus play a bigger role in industrial disputes.

4. Complex Concepts Simplified

Appropriate Government

The authority (Central or State) empowered to administer the ID Act for a particular industry. It must decide closure, lay-off, retrenchment applications.

Deemed Permission

A legal fiction where permission is automatically granted if the authority fails to act within a statutory period.

Functus Officio

Latin for “having performed its office”; once a statutory time-limit lapses, the authority loses power to decide.

Sub-Delegation

The passing on of delegated powers to another subordinate. Under Section 39 ID Act it must be via Gazette notification; quasi-judicial powers cannot be casually sub-delegated.

Application of Mind

The decision-maker must actively consider the facts, law, and evidence before issuing an order; rubber-stamping is impermissible.

5. Conclusion

The Supreme Court’s ruling in Harinagar Sugar Mills decisively clarifies the procedural rigour required of State authorities under Section 25-O. An industrial establishment’s fundamental right to close can only be curtailed by a reasoned, timely order of the proper authority. Failure to meet those benchmarks inevitably triggers the statute’s deeming provision, making the closure lawful by operation of law. The judgment thus fosters administrative accountability while balancing the interests of labour through enhanced compensation. Going forward, both employers and government departments must navigate Section 25-O with heightened diligence, mindful that the Supreme Court will not condone procedural shortcuts or indefinite bureaucratic delays.