CLOSURE OF UNDERTAKING OF AN INDUSTRIAL ESTABLISHMENT

BREIF ANALYSIS

The Industrial Disputes Act, 1947 (“IDA”) lays down the law regarding closing of an
undertaking in India. Closure of an undertaking includes the closure or stoppage of a part of the
business or activities of an industry.

The rules with respect to closure are different for-

(a) an industrial establishment which is a factory where a manufacturing process is being

carried on with or without the aid of power, a mine or a plantation (“Industrial
Establishments”); and

(b) other establishments and Industrial Establishments where less than 50 workmen are
employed.

In case an employer intends to close down an Industrial Establishment where 100 or more
workmen are employed:

The employer should apply for prior permission to the appropriate Government at least 90 days
before the date on which the intended closure is to become effective stating the reasons for the
closure with a copy to the workmen. In case permission is granted for closure of undertaking,
compensation shall be payable to the workmen. Compensation shall be paid at the rate of 15
days’ average pay for every completed year of continuous service or any part thereof in excess
of 6 months.

Employers intending to close other establishments or Industrial Establishments where less

than 50 workmen are employed: (Normal retrenchment procedure u/s 25F)

Employer will have to pay compensation. Every workman who has been in continuous service
for not less than 1 year immediately before the closure shall be entitled to 1 month’s notice for
termination of his services or payment in lieu thereof and compensation equivalent to 15 days’
average pay for every completed year of continuous service or any part thereof in excess of 6
months. However, in case of unavoidable circumstances beyond the control of the employer the
compensation payable to the workmen shall not exceed the average pay for 3 months.
PERMISSION FROM GOVERNMENT:

An employer intending to close an undertaking shall be required to serve a notice at least 90

days before the date of the closure upon the appropriate Government providing the reasons for
the closure.

However no such notice is required in case of an undertaking employing less than 50 workmen.