The Bombay High Court has clarified that a factory closure cannot be deemed illegal merely because of subsequent land development or alleged mala fide intent, if the statutory threshold for mandatory government permission under Chapter V-B of the Industrial Disputes Act, 1947 is not met. The judgment underscores the importance of precise legal thresholds, voluntary exits, and the limits of judicial inquiry into employer motive.
Background & Facts
The Dispute
The petitioners, Echjay Forging Industries Pvt. Ltd. (formerly Echjay Forgings Pvt. Ltd.), operated a steel forging factory at Kanjur (East), Mumbai. In early 2012, facing severe global recession and rising inflation, the petitioners decided to relocate manufacturing operations to Khalapur, Raigad. A notice dated 10 February 2012 was displayed informing employees of the proposed shift and introducing a Voluntary Retirement Scheme (VRS). The respondents - four employees - did not accept the VRS.
Key Facts
- Total workforce at the factory in 2012: approximately 129 employees (workmen and staff)
- On 10 February 2012, notice of proposed relocation and VRS was issued
- Complaint (ULP) No. 142 of 2012 was filed by employees challenging the relocation and seeking interim relief
- On 23 August 2012, the Industrial Court ordered continuation of work at the Mumbai factory
- Petitioners challenged this order via Writ Petition No. 8850 of 2012; Single Judge granted stay
- Division Bench of this Court set aside the stay on 15 October 2012 and remanded for fresh consideration
- During pendency, employees formed two unions: Akhil Bharatiya Asanghathit Shramik General Kamgar Union (for workmen) and a Staff Committee (for staff)
- Settlements were reached with 76 workmen and 49 staff members (total 125 employees) on mutually agreed terms
- Settlements provided for voluntary resignation, payment of monetary compensation, and release from all claims
- Resignations under settlements were effective from 19 June 2012
- On 7 March 2013, the 125 employees filed a purshis before the Industrial Court seeking deletion of their names from Complaint (ULP) No. 142 of 2012; the Court allowed the request
- The four respondents did not sign any settlement and continued employment
- On 21 June 2013, petitioners issued notice of permanent closure of the factory
- Termination letters were issued to the four respondents on account of closure; statutory dues were paid
- Average number of employees during the 12 months preceding closure (21 June 2012 to 21 June 2013): 84.85 (as per muster rolls submitted by petitioners)
- Respondent No. 1, in cross-examination, admitted his affidavit’s claim of 129 employees was based on advocate’s instructions and he could not substantiate it
- On 29 July 2013, the four respondents filed Complaint (ULP) No. 248 of 2013 challenging the closure and termination
- Industrial Court, by order dated 20 July 2016, held closure illegal under Items 9 and 10 of Schedule IV of the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971, and directed payment of 50% wages till superannuation
- Factory premises were later converted to residential use; multiple buildings constructed and sold
Procedural History
- 10 February 2012: Notice of proposed relocation and VRS issued
- 23 August 2012: Industrial Court ordered continuation of work
- 2012: Writ Petition No. 8850 of 2012 filed by petitioners; Single Judge granted stay
- 15 October 2012: Division Bench set aside stay and remanded
- 19 June 2012: Effective date of resignations under settlements
- 7 March 2013: Purshis filed by 125 employees for deletion from Complaint (ULP) No. 142 of 2012; allowed
- 21 June 2013: Notice of permanent closure issued
- 29 July 2013: Complaint (ULP) No. 248 of 2013 filed by four respondents
- 20 July 2016: Industrial Court held closure illegal and ordered 50% wage payment till superannuation
- 24 December 2025: Additional Affidavit filed by petitioners confirming factory no longer exists
- 13 March 2026: Judgment reserved
- 26 March 2026: Judgment pronounced
The Parties' Positions
Petitioners: Argued that closure was lawful because:
- 125 of 129 employees had voluntarily resigned under valid settlements
- Average workforce during preceding 12 months was 84.85, below the 100-employee threshold under Section 25-K
- No pending proceeding under Section 33 of the Industrial Disputes Act existed
- Settlements were binding on those who accepted them; respondents had no locus to challenge them
- Subsequent land use change could not retroactively invalidate closure
Respondents: Argued that:
- Closure was a sham to sell land for residential development
- Settlements were collusive and mala fide, orchestrated with a union
- Statutory threshold of 100 employees was met
- Closure violated Sections 33, 18, 25-N, and 25-O of the Industrial Disputes Act
- Closure occurred during pendency of proceedings, violating subsisting orders
Relief Sought
Petitioners sought quashing of the Industrial Court’s order dated 20 July 2016 and dismissal of Complaint (ULP) No. 248 of 2013. Respondents sought continuation of the order directing 50% wage payment till superannuation.
The Legal Issue
The central question was whether the closure of an industrial establishment can be held illegal under the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971, when the statutory threshold of 100 workmen under Section 25-K of the Industrial Disputes Act, 1947 is not met, and the majority of employees have voluntarily resigned under binding settlements.
Arguments Presented
For the Petitioner
Learned counsel argued that Chapter V-B of the Industrial Disputes Act, including Section 25-O, applies only if an establishment employs 100 or more workmen on average per working day during the preceding 12 months. The petitioners produced muster rolls showing an average of 84.85 employees. Respondent No. 1 admitted his affidavit’s claim of 129 employees was based on legal advice, not personal knowledge. The 125 employees who accepted settlements voluntarily resigned; their exit was not retrenchment. Section 33 was inapplicable as no proceeding of the nature contemplated under it was pending. The Industrial Court erred in examining the validity of settlements to which respondents were not parties. The closure’s motive, even if questionable, cannot override statutory compliance.
For the Respondent
Learned counsel contended that the closure was a pretext to dispose of land for residential development, as evidenced by subsequent construction and sale of flats. The settlements were collusive, orchestrated by union office-bearers in bad faith. The original strength of 129 employees satisfied the Section 25-K threshold. The closure occurred during pendency of proceedings, violating Section 33 and existing court orders. The Industrial Court rightly inferred mala fide intent and granted relief under Items 9 and 10 of Schedule IV of the ULP Act.
The Court's Analysis
The Court undertook a meticulous review of statutory applicability, evidentiary burden, and procedural propriety. It emphasized that Section 25-O of the Industrial Disputes Act, which mandates prior government permission for closure, applies only if the establishment employs 100 or more workmen on average per working day during the preceding 12 months. This is not a presumption but a threshold requiring affirmative proof.
"The burden to prove that the number of workmen exceeded the statutory limit lies upon the respondents, which burden they have failed to discharge."
The petitioners submitted detailed muster rolls showing an average of 84.85 employees. The respondents offered no credible evidence to rebut this. Crucially, Respondent No. 1 admitted in cross-examination that his affidavit’s figures were based on his advocate’s instructions and he could not substantiate them. The Court held this admission fatally undermined the respondents’ case.
The Court further clarified that voluntary resignation under a settlement is legally distinct from retrenchment. The 125 employees who accepted compensation and resigned could not be counted as retrenched. The Industrial Court erred in treating them as such and in examining the validity of settlements to which the respondents were not parties.
"Once the employees accepted benefits and left service, that chapter had come to an end. It could not have been reopened indirectly in these proceedings."
The Court rejected the notion that subsequent land use change (conversion to residential) could retroactively prove mala fide intent at the time of closure. The legality of closure must be judged on the facts and circumstances prevailing at the time it was effected.
The Court also held that Section 33 requires a pending proceeding of a specific nature - such as an industrial dispute before a Labour Court or Tribunal - and mere pendency of a ULP complaint or writ petition does not trigger its protection. No such proceeding was pending that would have barred closure.
The Industrial Court’s reliance on motive and its failure to apply the correct legal tests rendered its findings unsustainable. The relief of 50% wages till superannuation was based on the erroneous premise of illegal closure and was therefore invalid.
The Verdict
The petitioners succeeded. The Bombay High Court quashed and set aside the Industrial Court’s order dated 20 July 2016 in Complaint (ULP) No. 248 of 2013. The complaint was dismissed. The direction to pay 50% wages to the respondents till superannuation was vacated. There shall be no order as to costs. The closure was held lawful as the statutory threshold under Section 25-K was not met, and the majority of employees had voluntarily resigned under binding settlements.
What This Means For Similar Cases
Statutory Thresholds Are Non-Negotiable
- Practitioners must establish the average number of workmen over the preceding 12 months using payroll records, muster rolls, and attendance data
- Mere historical headcount is irrelevant; only the 12-month average matters under Section 25-K
- Employers must document and preserve daily attendance records to defend against claims of threshold violation
Voluntary Resignations Nullify Retrenchment Claims
- Settlements with majority employees, if voluntary and documented, extinguish claims of unfair labour practices for those who accepted them
- Employees who do not sign settlements cannot challenge the validity of settlements entered into by others
- Retrenchment under Section 25-F applies only to those terminated without voluntary exit; resignation is not retrenchment
Motive Cannot Override Legal Compliance
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Subsequent land use changes or development plans cannot be used to infer illegal intent at the time of closure
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Courts must focus on the employer’s position at the time of closure: financial distress, operational feasibility, and statutory compliance
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Allegations of collusion require concrete evidence - not suspicion or circumstantial inference
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Practitioners should avoid relying on general allegations of mala fide; instead, focus on statutory non-compliance or procedural defects
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Employers should ensure settlements are documented, signed, and accompanied by payment receipts to create an unassailable record
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Industrial Courts must not conflate ULP proceedings with adjudication of civil settlements; scope of inquiry must be strictly confined to the complaint’s allegations
