M J Antony: Closure of units made complex

OUT OF COURT

Labour law reforms have been hanging fire for more than a decade. Protagonists of drastic reforms have met stiff resistance from trade unions, leaving laws like the Industrial Disputes Act of 1947 untouched by change in the economic climate.

The courts have to construe the provisions of laws as they are and the scope of interpreting labour laws to match the times is limited.

Those who cry for reforms would point out the judgement of the Supreme Court delivered last fortnight, in Oswal Agro Furane Ltd vs Workers' Union as a ground for making drastic changes in the Industrial Disputes Act. An industrial unit running at heavy losses is not allowed to close down without fulfilling rigorous conditions.

Under Section 25-O of the Act, prior permission of the government is a mandatory requirement for closing down an industrial undertaking. This involves tortuous enquiries and procedures. The workers' interests have to be taken care of. Even if there is a settlement with a section of the workers, disputes are bound to arise over compensation.

In any case, if the sick unit has not received permission from the government, the closure itself becomes illegal. In this case, both issues arose and the Supreme Court ruled against the company.

The two issues in the appeal of the company were: whether in a case of closure of a unit, prior permission of the appropriate government was imperative and second, whether a settlement arrived at by and between the employer and the workers would prevail over the statutory requirements.

In this case, the company was a 100 per cent export-oriented unit for paddy processing. In view of lack of demand for its products in the international market, it sold them in the local market without the necessary certificates.

The company was taken to court and the Supreme Court, in 1996, held that it was liable to pay Rs 50 crore to the state under different heads. Apparently unable to bear the huge liability, it served notice on the Punjab government in terms of Section 25-O of the Act. Notices were also issued to the workers; it is claimed that there was a settlement with them.

In the event, there was no permission from the state government and the trade union questioned the alleged settlement. Thus, the company was again before the court.

The Punjab and Haryana high courts ruled that the notice of closure was illegal as the company had not obtained the mandatory permission from the state government.

The court further said that even if there was a settlement with the workers, it could not be sustained in law as a valid closure was itself the foundation for such settlement. On three other points, too, the high court went against the company. On appeal, the Supreme Court only confirmed the high court's view of law.

The interpretation of the law involves the terms of Section 25 of the Act, which has undergone so many amendments that run from A to O. Constitution benches have dissected the various provisions, throwing more heat and less light on the subject.

In Excel Wear vs Union of India (1978), the court had held that an employer has a fundamental right not to carry on any business. But it has not made the issue simpler.

In a later judgement in the Meenakshi Mills case (1992), a Constitution bench laid down four more complex propositions. Regarding settlement with the workers, the present judgement said that it could not be entered into in contravention of the provisions of Chapters VA and VB of the Act, which have also undergone numerous alterations.

That is where the law stands now. In this background, no one will dispute that the law should be clearer and simpler. This itself is a stupendous task. Anyone who tries to touch on this subject even more drastically has to expect a titanic clash of politics and economics.