M/S. Hatisingh Mfg. Co. Ltd. and Another vs Union Of India and Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 14 April 1960

Coram: J.C. Shah, Bhuvneshwar P. Sinha, Syed Jaffer Imam, A.K. Sarkar, K.N. Wanchoo

The case was styled M/s. Hatisingh Mfg. Co. Ltd. and Another versus Union of India and Others and was decided on 14 April 1960 by the Supreme Court of India. The judgment was authored by Justice J. C. Shah and the bench comprised Justices J. C. Shah, Bhuvneshwar P. Sinha, Syed Jaffer Imam, A. K. Sarkar, K. N. Wanchoo and K. N. The petitioners were the two companies named M/s. Hatisingh Manufacturing Company Limited and another, while the respondents were the Union of India together with additional parties. The official citation of the decision is reported as 1960 AIR 923 and also appears in the Supreme Court Reports as 1960 SCR (3) 528. Subsequent citations of the judgment include references such as R 1963 SC 630 (25), RF 1963 SC 1489 (19), E 1963 SC 1811 (104), R 1968 SC 1002 (8), R 1968 SC 1138 (37), RF 1969 SC 590 (4), R 1970 SC 778 (9), R 1974 SC 2349 (11), RF 1975 SC 1234 (25), RF 1979 SC 25 (12), R 1979 SC 170 (16), R 1984 SC 1194 (27), RF 1992 SC 1033 (60). The statutory provision under discussion was Section 25FFF(1) of the Industrial Disputes Act, 1947, as inserted by Act 18 of 1957, which dealt with compensation to workmen on the closure of an industrial undertaking and raised questions of constitutional validity under Articles 19(1)(g), 14 and 20 of the Constitution of India.

The principal issue presented to the Court concerned whether Section 25FFF(1) of the Industrial Disputes Act, 1947, which required payment of compensation to workmen upon the closure of an industrial undertaking, violated the guarantee of freedom to carry on business in Article 19(1)(g) of the Constitution, discriminated against employers under Article 14, or imposed a penalty contrary to Article 20(1). The petitioners argued that the provision imposed unreasonable restrictions on the right to close a business, created an inequitable distinction between employers who closed before 27 November 1956 and those who closed later, and penalised conduct that was not an offence. The Court held that the provision, including its proviso and explanation, did not offend Articles 19(1)(g), 14 or 20 and that its constitutional validity was beyond question. The Court further explained that the test for a reasonable restriction under Article 19(6) must consider the nature of the right, the public interest served, and the reasonableness of the restriction’s scope, rather than any abstract theoretical standard. It observed that the legislature’s use of the phrase “as if the workmen had been retrenched” was intended to treat closure similarly to retrenchment for the purpose of compensation, without equating closure with the procedural safeguards required for retrenchment under Section 25F. Consequently, the provision was deemed a valid exercise of legislative power aimed at providing social protection to workers facing unemployment due to closure.

In this case, the Court observed that Section 25FFF(1) of the Act did not forbid the closure of an industrial undertaking without the employer first paying compensation, serving notice, or paying wages in lieu of notice, and the provision imposed no conditions that had to be satisfied before a closure could take place. Nevertheless, the Court held that when a worker’s service ends because the undertaking is closed, that termination is to be treated in the same way as termination on the ground of retrenchment. The Court further reasoned that it is in the public interest that workers who become unemployed as a result of such closures should receive some measure of protection to help them through the period of unemployment. Because the challenged provision was intended to secure social justice, the Court said it was unnecessary to examine the employer’s motives or the good faith with which the closure was undertaken, referring to Indian Hume Pipe Co., Ltd. v. Their Workmen for support. The Court noted that wages paid in lieu of notice are generally insufficient to compensate for loss of a job, and therefore the requirement that an additional compensation be paid proportionate to the employee’s length of service could not be regarded as unreasonable. Likewise, the rule that fixed amounts of compensation be prescribed, without allowing a court to vary the amount on the basis of the employer’s capacity to pay or the loss suffered by the employee, was not unreasonable. The Court distinguished the payment of gratuity, which is a retirement benefit, from the statutory compensation that must be paid when an undertaking is closed; the existence of a gratuity under an industrial award did not make the additional compensation for closure unreasonable. Since the main provision requiring compensation was clearly constitutional, the Court concluded that the accompanying proviso was also constitutional. The Court further explained that the explanatory note to Section 25FFF(1) did not state that a closure could never be considered to arise from unavoidable circumstances such as financial difficulty or stock accumulation, and therefore it could not be said to be unreasonable even if some members of the public found it tedious. Citing Mohd. Hanif Quareshi and Others v. The State of Bihar and Bijay Cotton Mills Ltd. v. The State of Ajmer, the Court observed that a law that applies uniformly to all persons falling within its scope is not discriminatory and does not violate Article 14, even when it operates retrospectively. The challenged section did not make the payment of compensation a pre‑condition to closure, nor did it create any criminal liability, so sections 31(1) and 31(2) of the Act were inapplicable. Consequently, Article 20(1) of the Constitution was not attracted and there was no violation of that provision.

Counsel for petitioner No. 1 consisted of Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, appearing in petitions numbered 88 of 1957 and 103 of 1959. Counsel for petitioner No. 2 comprised I. M. Nanavati, S. N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, also in petitions 88 of 1957 and 103 of 1959. For petitioner No. 3, identified in petition 106 of 1957, the representatives were B. Sen, B. K. B. Naidu and I. N. Shroff. The respondents were represented by M. C. Setalvad, Attorney General of India, C. K. Daphtary, Solicitor General of India, B. R. L. Iyengar and R. H. Dhebar, who appeared for respondents I and II in petition 88 of 1957 and also for the respondents in petition 106 of 1957. In petition 103 of 1959, respondent No. 1 was defended by C. K. Daphtary, Solicitor‑General of India, N. S. Bindra and R. H. Dhebar, while respondent No. 2 was represented by Janardan Sharma. The intervenor was assisted by P. A. Mehta and G. Gopalakrishnan. The judgment was delivered on 14 April 1960 by Justice Shah.

In the three petitions before the Court, the petitioners challenged the constitutionality of section 25FFF(1) of the Industrial Disputes Act, No. XIV of 1947, as amended by Act 43 of 1953. Petition 88 of 1957 was filed by a cotton‑textile manufacturing company located in Ahmedabad. The machinery in the factory had been installed in 1893 and had never been replaced. The petitioners asserted that, because of its age, the factory had become an uneconomic undertaking and was consequently closed on 27 April 1957. Management had attempted to increase the number of spindles to improve profitability, but the effort failed. The company suffered annual losses, and in early 1956 the Registrar of Companies, Bombay, requested permission from the Central Government to wind up the company. That permission was not granted, and the factory continued operating until 28 April 1957, when it was finally shut down after a notice of closure had been issued in March 1957.

Petition 106 of 1957 concerned a coal mine that the petitioner had purchased in November 1953. The petitioner claimed to have made substantial investments, but persistent flooding from underground water caused the mine to operate at a loss, amounting to more than seven lakh rupees by February 1957. Facing these losses, the petitioner decided to close the mine, gave notice to the employees, paid one month’s salary to monthly‑wage workers and fifteen days’ wages to weekly and daily‑rated workers, and ceased operations on 10 February 1957.

Petition 103 of 1959 was filed by a company owning a spinning and weaving factory in Jamnagar. The factory, inaugurated in 1938, had become uneconomic, and the petitioners alleged that it had incurred continuous losses totaling approximately twenty‑eight lakh rupees by the end of 1957. In view of these accumulated losses, the weaving department of the factory was closed on 1 February 1957, and the entire establishment was shut down on 24 April 1957 after notice of closure was served on the employees.

In the matters before the Court, the department of the subject factory was shut down on 1 February 1957 and the whole factory ceased operation on 24 April 1957 after the employer gave a notice of closure to the employees. By way of their petitions, the three petitioners contested the validity of section 25FFF(1) of the Industrial Disputes Act, 1947, which obliges an employer to pay compensation to work‑men when an undertaking is closed. The petitioners argued that the closures were caused by circumstances beyond their control and therefore the statutory requirement to pay compensation should not apply to them. To understand the points raised, it is necessary to trace the relevant legislative history. The Parliament, by Act 43 of 1953, amended the Industrial Disputes Act, 1947 and inserted Chapter VA, comprising sections 25A to 25J. That Chapter introduced provisions for the payment of compensation in cases of lay‑off and retrenchment and laid down ancillary rules governing the employer’s liability to pay such compensation. Under section 25F, the law stipulated that no work‑man employed in any industry who had completed at least one year of continuous service could be retrenched unless the employer gave a notice of one month’s duration, or wages in lieu thereof, and, at the time of retrenchment, paid compensation equal to fifteen days’ average pay for each completed year of service or any part thereof in excess of six months. Retrenchment itself was defined by clause (oo) of section 2 as the termination of a work‑man’s service for any reason other than a disciplinary punishment. However, the 1953 amendment did not expressly create a liability for compensation where employment terminated because an industrial undertaking was closed. In the decision of Hariprasad Shivshankar Shukla v. A. D. Divekar, dated 27 November 1956, this Court held that the terms “retrenchment” as defined in section 2(oo) and “retrenched” in section 25F carry only their ordinary, accepted meaning—that is, the discharge of surplus labour for any reason other than disciplinary action—and do not extend to the termination of all work‑men on a bona‑fide closure of an industry or on a change of ownership or management. Subsequently, on 27 April 1957, the President of India promulgated Ordinance No. IV of 1957, which amended Chapter VA of the Industrial Disputes Act, 1947. That Ordinance introduced, with retrospective effect from 1 December 1956, a provision for the payment of compensation to work‑men whose employment terminated on transfer or closure of an industrial undertaking. The Ordinance was later superseded, with certain modifications, by Act 18 of 1957, which came into force on 6 June 1957 but was given retrospective operation from 28 November 1956. Section 25FFF, as incorporated by the amending Act, confers on every work‑man who has been in continuous service for not less than one year the right to notice and compensation in accordance with the provisions of section 25F, subject to the proviso that the maximum compensation payable is limited to three months’ average pay when the closure occurs due to circumstances beyond the employer’s control.

In this case, the Court noted that the provision under section 25FFF(1) grants every workman who has completed at least one year of continuous service immediately before the closure of an undertaking the right to receive notice and compensation as prescribed in section 25F. The provision further states that, according to the proviso to section 25F, the maximum compensation payable to a workman is limited to the average pay for three months when the closure occurs because of circumstances beyond the employer’s control. The Court explained that an undertaking that is shut down solely on the basis of financial difficulties, such as financial losses or the accumulation of undisposed stock, cannot be said to have been closed due to unavoidable circumstances beyond the employer’s control within the meaning of the proviso. The petitions challenge this compensation scheme on three distinct grounds. First, the petitioners argue that the scheme imposes unreasonable restrictions on the fundamental freedom guaranteed by Article 19(1)(g) of the Constitution, which includes the right of a citizen to carry on any business and, by implication, the right to close that business. Second, the petitioners contend that the scheme creates discrimination between employers who belong to the same corporate group and who are placed in similar circumstances, thereby violating the equality principle enshrined in Article 14 of the Constitution. Third, the petitioners maintain that the scheme penalises conduct that, at the time it was committed, was not an offence, and thus contravenes the protection against retrospective punishment contained in Article 20 of the Constitution.

The Court further observed that section 25FFF(1) is impugned on the basis that it conditions the closure of an undertaking on the payment of compensation, even when the closure is carried out in good faith by an employer who is unable to continue the business because of unavoidable circumstances. Moreover, the petitioners argue that the retrospective operation of the provision, applied to closures that occurred after a date arbitrarily fixed by the statute, is unjustified. They also contend that the compensation prescribed by the provision is not linked to the actual loss suffered by the employees due to termination of employment; instead, it is awarded at a standardized rate without regard to the employer’s capacity to pay. The language of subsection 1 of section 25FFF reads: “Where an undertaking is closed down for any reason, every workman who has been in continuous service for not less than one year in that undertaking immediately before such closure, shall, subject to the provisions of sub‑section (2), be entitled to notice and compensation in accordance with the provisions of section 25F, as if the workman had been retrenched.” The Court pointed out a significant difference in wording between section 25F and section 25FFF(1). While section 25F, whose constitutional validity is not before the Court, prescribes several conditions that must be fulfilled before a workman can be retrenched, section 25FFF(1) merely imposes the liability to give notice and to pay compensation when an undertaking is closed, resulting in the termination of employment for the workmen. Under section 25F, a workman cannot be retrenched until the employer has complied with specific procedural requirements, whereas section 25FFF(1) attaches the right to notice and compensation directly to the fact of closure, treating the workman as if he had been retrenched.

Section 25F prescribed three conditions that an employer had to satisfy before retrenching a workman: the workman had to receive one month’s written notice specifying the reasons for retrenchment or salary in lieu of that notice; the workman had to be paid retrenchment compensation calculated at fifteen days’ average salary for each completed year of service; and the notice had to be served in the manner prescribed on the appropriate Government. Section 25FFF(1), however, provided that if an undertaking was closed for any reason, the workman would be entitled to notice and compensation in accordance with the provisions of Section 25F, as though the workman had been retrenched. By the plain intention of Section 25FFF(1), the entitlement to notice and compensation arose directly from the closure of the undertaking; the provision did not intend to make the closure itself dependent on the payment of compensation or on the service of notice or payment of wages in lieu of notice. Consequently, an employer who intended to close his undertaking could serve a notice of termination of employment, and if he failed to do so, he would become liable to pay the workman wages for the notice period. When an undertaking closed, the workmen were clearly entitled to notice and compensation pursuant to Section 25F as if they had been retrenched, meaning they were eligible for both the compensation and a month’s notice or wages in lieu of such notice. Nevertheless, the phrase “as if the workman had been retrenched” indicated that the legislature did not intend to place closure on the same footing as retrenchment under Section 25F. While Section 25F imposed a prohibition against retrenchment until its prescribed conditions were fulfilled, Section 25FFF(1) did not prohibit termination of employment on closure of the undertaking even if compensation was not paid and notice was neither served nor wages in lieu of notice were provided. Thus, payment of compensation and wages for the notice period were not conditions precedent to the closure of an undertaking. Article 19(1)(g) of the Constitution guaranteed every citizen the freedom to carry on any trade or business, but this freedom was not absolute. Clause 8 of Article 19 permitted the operation of any existing law or any law made by the State, provided that such law imposed reasonable restrictions in the interest of the general public on the exercise of that right. In the public interest, the law could therefore impose restrictions on the freedom of citizens to start, carry on, or close their undertakings. Whether an impugned provision that placed a fetter on the exercise of the fundamental right under Article 19(1)(g) constituted a reasonable restriction in the interest of the public had to be determined not by reference to theoretical standards or predetermined patterns, but by examining the nature and incidents of the right, the public interest that the restriction sought to protect, and the reasonableness of the quality and extent of the restriction. By Act 18 of 1957, employers who closed their…

In this case, the Court observed that the provision of section 25FFF(1) made employers who closed their undertakings after November 27, 1958 liable to pay compensation at the rates prescribed by law, and that this liability also applied to undertakings that had been closed before the enactment of the impugned section. The Court held that a statute which creates a civil liability for a transaction that occurred prior to the date on which the statute came into force does not automatically constitute an unreasonable restriction on the exercise of a fundamental right. The Court referred to its own judgment dated November 27, 1956, in which it had held that section 25F did not support a claim for compensation for termination of employment resulting from the closure of an undertaking. The Parliament, acknowledging that earlier judicial interpretation, directed that for closures effected on or before the date of the judgment in the Hariprasad case, no compensation for termination of employment on account of such closures would be awarded. The Court noted that it was not disputed that, after the Hariprasad judgment, a considerable number of industrial undertakings were closed and that more than twenty‑five thousand workmen lost their jobs as a result of those closures. In view of these developments, the Parliament enacted section 25FFF(1), thereby imposing a liability on employers who closed their undertakings from November 27, 1958 onward to pay compensation to the affected workmen. The Court emphasized that the closure of an industrial undertaking terminates the employment of many employees, throws them into unemployment, and that it is in the interest of the general public to alleviate the misery caused by such unemployment. The Court then referred to the decision in Indian Hume Pipe Co. Ltd. v. The Workmen, wherein it had examined the rationale for granting compensation under section 25F, although it had not addressed the constitutional validity of that provision. In that judgment, the Court observed that retrenchment compensation was intended to provide workmen with some relief and to mitigate the hardship that arises when a retrenched employee is suddenly, through no fault of his own, cast onto the streets and forced to confront the grim problem of unemployment. The Court further observed that a workman naturally expects and looks forward to long‑term security of service, an expectation that is destroyed by retrenchment. Consequently, the object of retrenchment compensation was to give partial protection to the retrenched employee so that he could tide over the period of unemployment, as noted in the citation [1960] 2 S.C.R. 32. The Court held that loss of service because of closure stands on the same footing as loss of service because of retrenchment, because in both situations the employee is abruptly discharged through no fault of his own and faces identical hardships, whether the unemployment results from retrenchment or from the closure of a business. The Court concluded that if the true purpose of the impugned provisions is the achievement of social justice, it is immaterial to examine the motives of the employer or to decide whether the closure was bona fide. Finally, the Court remarked that wages in lieu of notice are ordinarily an inadequate form of compensation for loss of employment in an industrial setting.

The Court observed that, given the prevailing conditions in the labour market, a workman who lost his job could not reasonably be expected to obtain a comparable position within a month. Accordingly, Parliament deemed it appropriate to require the payment of additional compensation apart from wages in lieu of notice. The Court held that this requirement could not be characterised as unreasonable. Likewise, the Court found that linking compensation to the employee’s length of service was not unreasonable. An employee who remains in an industry for a considerable period acquires experience, develops aptitude in the specific trade, and becomes eligible for promotion and higher wages. By continuing in service, the employee also gains seniority and the prospect of advancement, both of which are lost upon sudden termination. On dismissal, the workman may be forced to seek employment at a lower level in a branch for which he lacks the requisite experience or may have to accept a similar job at a reduced grade. In view of these considerations, the Court concluded that Parliament’s decision to base compensation on the period of service was reasonable. The Court further rejected the argument that the limitation imposed by the provision was unreasonable because it standardises compensation rather than allowing a judicial tribunal to assess the amount based on the employer’s capacity and the employee’s loss. The Court explained that, instead of leaving the matter to be decided on a case‑by‑case basis amidst varied circumstances, Parliament fixed a clear standard by relating compensation to length of service, thereby providing an easily ascertainable basis for payment. Such standardisation, which eliminates the need for a tribunal to determine the quantum of compensation, is a recognised method of awarding compensation, especially where large numbers of workmen are affected in a similar situation. The absence of a provision for a judicial determination of the compensation amount therefore did not render the law unreasonable. The Court distinguished gratuity, described as a retiral benefit, from statutory compensation payable for termination due to closure of an undertaking, noting that the objectives of the two schemes are different. Consequently, the Court rejected the contention that it would be unreasonable to award statutory compensation under section 25FFF(1) simply because gratuity might also be claimable under a binding award. Ultimately, the Court affirmed that the impugned section, which mandates payment of compensation, is clearly connected to the object sought by Parliament, namely the attainment of social justice.

The Court explained that a workman’s entitlement to compensation arose because he was exposed to undeserved hardship, and the reasons for the closure of the undertaking might have no direct connection to that hardship. The provision that directed compensation at a rate of fifteen days’ wages for every completed year of service could not be described, as one of the petitioners’ counsel suggested, as “drastic in its scope and content.” The Court examined whether the impugned provision imposed an unreasonable restriction by creating liability for compensation that was unrelated to the employer’s capacity to pay. It noted that before this provision was enacted, industrial tribunals had assessed individual claims for compensation on their merits, and on occasion had refused compensation where the closure was bona‑fide and partly attributable to irresponsible conduct by the workmen. Those earlier decisions also demonstrated that, even when compensation was awarded, there was no fixed standard or principle governing the amount. The Court observed that, where a business continued to have the capacity to meet obligations such as dearness allowance, gratuity and provident‑fund contributions, that capacity might be relevant, because ignoring it could cause the business to fail and defeat the purpose of industrial adjudication concerning wage fixation, dearness‑allowance payment and the schemes intended to improve labour conditions. However, the Court clarified that when a business was closed, the capacity to pay was not a relevant consideration. Normally, a business capable of meeting wage and other expenses would not shut down; therefore, capacity to pay was to be taken into account only for a running business when assessing liability for wages, gratuity or dearness allowance. Once the undertaking was closed and the liability to pay compensation under the impugned section was not made a condition precedent, the amount the workmen could recover depended on the employer’s available assets. The workmen would be entitled to compensation only if the employer could meet the obligation; otherwise they would have to rank pro‑rata with other ordinary creditors. The legislature, the Court noted, had imposed restricted liability for closures caused by circumstances beyond the employer’s control. By the proviso to sub‑section 1 of section 25FFF, when an undertaking was closed due to such circumstances, the compensation payable to a workman could not exceed his average pay for three months. The Court further indicated that if the principal provision were not unconstitutional as an unreasonable restriction, the proviso would not be struck down on an independent ground.

The submission argued that the provision itself was not unconstitutional as an unreasonable restriction, but that the explanation attached to section 25FFF was unreasonable. The explanation states: “An undertaking which is closed down by reason merely of financial difficulties (including financial losses) or accumulation of undisposed of stocks shall not be deemed to have been closed down on account of unavoidable circumstances beyond the control of the employer within the meaning of the proviso to this sub‑section.” The effect of the challenged section together with its proviso is to place undertakings into two distinct categories. The first category comprises those closures that occur because of unavoidable circumstances beyond the employer’s control; the second category consists of all remaining closures. When a closure falls within the first category, the statutory ceiling on compensation is limited to the employee’s average pay for three months, regardless of the employee’s length of service. In the residual category, no such ceiling applies and liability remains unrestricted. In substance, the explanation functions as a definitional clause that delineates what situations shall not be regarded as closures caused by unavoidable circumstances beyond the employer’s control. Accordingly, employers who are forced to shut down their industrial undertakings solely because of financial difficulties, including financial losses, or because of the accumulation of undisposed stocks, are excluded from the benefit of the proviso to section 25FFF(1). The proviso was intended to limit the liability of employers who are compelled to close their undertakings due to unavoidable circumstances beyond their control; however, Parliament has expressly excluded from this category those employers whose closures are driven merely by financial difficulties or by the accumulation of undisposed stocks. While the explanation excludes closures attributable solely to financial difficulties or undisposed stocks from the benefit of restricted liability, it allows that when such financial difficulties or stock accumulation are accompanied by other circumstances, the closure may still be viewed as resulting from unavoidable circumstances beyond the employer’s control and therefore attract the proviso despite the explanation. For example, where an undertaking is shut down because of persistent losses that are not the fault of the employer, or because of stock accumulation arising from persistently unfavorable market conditions, the closure would ordinarily be treated as due to unavoidable circumstances beyond the employer’s control. The explanation further confers jurisdiction on the Tribunal to determine, in each case, whether the closure was caused by circumstances beyond the employer’s control and whether, on that basis, the employer is entitled to the benefit of the proviso. Nevertheless, the statute does not stipulate that no closure involving financial difficulty or stock accumulation, even when combined with other factors, can ever be regarded as due to unavoidable circumstances beyond the employer’s control; it applies only where the closure is solely attributable to those financial reasons.

In this case, the Court observed that a closure which is “merely” the result of financial difficulties or the accumulation of undisposed stock cannot automatically be regarded as occurring because of circumstances that lie beyond the employer’s control. The Court noted that a condition of financial distress or an excess of undisposed stock may be temporary, may arise from previous mismanagement that is directly attributable to the employer, or may even be created deliberately. Consequently, a shutdown caused by such financial problems or stock accumulation is not necessarily due to unavoidable circumstances that are outside the employer’s power. The Court further explained that even if a statute imposes restrictions that some citizens find irksome or consider unreasonable, this perception does not alone determine whether the restriction is reasonable. Referring to the decision in Mohd Hanif Quareshi and Others v. The State of Bihar, the Court quoted Chief Justice Das, stating that the court “cannot proceed on a general notion of what is reasonable in the abstract or even on a consideration of what is reasonable from the point of view of the person or persons on whom the restrictions are imposed.” The Court added that the right conferred by sub‑paragraph (g) is expressed in general language and would be absolute if not for the qualifying provision (6); therefore, any restriction may appear irksome to the person exercising the right, but the question of reasonableness must be judged by whether the restriction serves the interest of the general public. The Court also referred to Bijay Cotton Mills Ltd. v. The State of Ajmer, observing that while individual employers may find it difficult to continue business under minimum wage requirements, such difficulty alone does not justify striking down the law as unreasonable. Applying the explanation, the Court held that persons who, because of persistent losses or stock accumulation, find themselves unable to continue their business may still be denied the benefit of the proviso, and this denial does not render the explanation unreasonable. The tribunal tasked with determining whether an employer falls within the proviso’s scope is therefore empowered to examine the specific causes of the financial losses or stock buildup, to decide whether the closure was solely due to those financial factors or was caused by circumstances truly beyond the employer’s control, and to assess, in that context, whether the employer’s situation warrants the application of the proviso.

In this case, the Court observed that the legislature had not required the exclusion of stocks from the inquiry into an employer’s financial condition. It then examined the procedure established under section 33(c) of the Act for enforcing the liability to pay compensation, noting that this procedure treats the amount recoverable as arrears of land revenue. The Court held that, on its face, this method of recovery could not be described as unreasonable. The judgment further referred to certain State statutes, such as the Bombay Land Revenue Code (Act V of 1879), which provide for imprisonment of a defaulter who fails to pay land revenue. However, the Court explained that because the recovery mechanism in the present Act is a special civil mode, the existence of criminal penalties in other statutes does not render the civil liability for termination of employment unreasonable. After reviewing the relevant facts, the Court concluded that the limitations imposed by the contested provision, including its proviso, do not constitute unreasonable restraints on the employers’ fundamental right to conduct and close their businesses. Although the provision obliges employers to pay compensation to their employees, thereby restricting the freedom guaranteed by article 19(1)(g) of the Constitution, the Court found that the requirement serves the general public interest. Consequently, the provision is saved from constitutional attack by article 19(6). Turning to the equality clause, the Court held that article 14 is not violated by drawing a distinction between employers who closed their undertakings on or before 27 November 1956 and those who closed after that date. While the State may not deny any person equality before the law, the law in question applies uniformly to all persons within its scope from the date it becomes operative, and therefore does not create prohibited discrimination. The Court pointed out that when Parliament enacts a statute imposing civil liability prospectively, it necessarily differentiates between transactions that fall within the statute’s reach and those that occurred before its enactment. Such differentiation, the Court explained, does not amount to discrimination within the meaning of article 14, which targets unequal treatment of persons in similar circumstances. Moreover, the legislative power to impose civil liability for transactions completed before the enactment date is not curtailed. The Court further observed that if a statute imposing liability on post‑enactment transactions is accepted as non‑discriminatory, then a statute that imposes liability on transactions occurring after a fixed statutory date but before the law’s passage likewise cannot be said to practice discrimination. Finally, the Court clarified that article 14 addresses discrimination in the application of law between similarly situated persons, not the differentiation that naturally arises when a law governs certain transactions while excluding others that are outside its temporal scope.

The Court explained that a statute which imposes civil liability cannot be sheltered from the equality clause of Article 14 simply because it becomes operative on the very day it is passed. As soon as the law is in force, a separation arises between those transactions that will fall within its sweep after its commencement and those that occurred before the law came into effect. The latter transactions will not automatically be caught by the new provision, and this creates a differentiation that the Court held to be the very kind of discrimination that Article 14 proscribes. The reasoning therefore led to the conclusion that every law which creates civil liability would be vulnerable to being struck down on the ground of violation of Article 14, even where the statute is expressly prospective. The Court further observed that if a purely prospective statute creating civil liability escapes the reach of Article 14, then a statute that also imposes liability on transactions that took place before the date of its enactment cannot be said to escape Article 14 either. By pulling pre‑enactment transactions within its ambit, the statute in effect pulls back the operative date of the Act to a period prior to its own passage. This point was reiterated in the earlier discussion referred to as Re. III, where the Court had already set out reasons for its view.

Turning to the specific provisions under dispute, the Court held that the requirement to pay compensation and wages in lieu of notice, as contained in the impugned section, does not constitute a condition precedent to the lawful termination of employment. Rather, the section merely creates a enforceable right in favour of the employee and does not obligate the employer to perform any act before the closure of the undertaking. Accordingly, Section 31(2) of the Act, which provides for penal liability for contraventions of the Act, cannot be invoked to punish a failure to make the payment of compensation and wages for the notice period stipulated under Section 25FFF(1). Although the amending Act was indeed passed in June 1957 and made the liability to pay compensation applicable to all undertakings that closed on or after 26 November 1956, the Court stressed that the liability to pay compensation is not a condition precedent to the closure of a business. Consequently, an employer who fails to discharge that liability does not breach Section 25FFF(1). The Court clarified that a statute may either prohibit or command a particular act, and disobedience of either results in a statutory contravention. However, Section 25FFF(1) neither imposes a prohibition nor issues a command. While Section 25F expressly prohibits an employer from retrenching employees without satisfying certain conditions—and similar prohibitions appear in Sections 22 and 23, which could attract criminal liability if breached—there is no comparable prohibition against closing a business without paying compensation. Hence, Section 31(2) cannot be applied. Although Section 33(c) allows the enforcement of the compensation liability through coercive processes, such enforcement does not amount to a criminal infringement of Article 20(1) of the Constitution. The Court noted that a person may be imprisoned for failing to discharge a monetary liability under statutes such as the Bombay Land Revenue Code, but the mere failure to satisfy a civil liability does not, by itself, constitute an offence punishable under the Constitution’s protection of personal liberty.

The Court observed that the statute under consideration did not expressly describe the conduct in question as an offence. Consequently, the protection afforded by Article 20(1) of the Constitution could be invoked only against punishment for an act that the law had classified as an offence. Since the act, when performed, was not designated as an offence by the statute, Article 20(1) could not be invoked in this case. The Court further examined section 25FFF(1), together with its proviso and the accompanying explanation, and concluded that none of these provisions violated the constitutional guarantee of freedom of trade and commerce contained in Article 19(1)(g). Likewise, the Court found that the challenged provisions did not infringe the guarantees of equality before the law under Article 14, nor did they breach the protection against self‑incrimination in Article 20. On the basis of this reasoning, the Court held that the impugned provisions were constitutionally valid. Accordingly, the petitions challenging those provisions were dismissed. The Court ordered that the petitioners bear the costs of the proceedings and that only a single hearing fee would be payable. In summary, the petitions were dismissed with costs awarded to the respondents.