Hi,
We have a manufacturing firm (Ltd - unlisted) for almost 30 years. The company is shutting down due to high competition and low profits. The laborers have a union and are members of CITU. Most of the laborers have been working for around 20 years. What is the process for shutting down the company and what are the liabilities of the company towards the laborers?
Thank you.
From India, Guwahati
We have a manufacturing firm (Ltd - unlisted) for almost 30 years. The company is shutting down due to high competition and low profits. The laborers have a union and are members of CITU. Most of the laborers have been working for around 20 years. What is the process for shutting down the company and what are the liabilities of the company towards the laborers?
Thank you.
From India, Guwahati
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Dear Akshyagar,
Closure of a place of employment or part thereof is a subject matter dealt with by the Industrial Disputes Act, 1947 in its Chapters V-A and V-B based on the number of workmen employed therein. Therefore, had you mentioned the total number of employees employed in the Company in the cadre of workman as defined under Section 2(s) of the Industrial Disputes Act, 1947 as of the current date or the average number per working day for the preceding twelve months, the answer could have been conveniently restricted to that extent. Anyway, let me try to present a brief answer with a request to go through the relevant sections of the Act and Rules for further details.
A) If the total number of workmen employed in the industry is less than 100:
The relevant section covering closure is Section 25-FFA. When the total number of workmen employed in the industry is 50 and above but less than 100 on average per working day in the preceding 12 months, the employer intending to close down the undertaking should serve a notice in the prescribed manner on the appropriate Government stating clearly the reasons for the intended closure prior to 60 days.
In addition, on the effective date of closure, the employer has to pay compensation to every workman who has been in the service of the establishment for not less than one year as per Section 25-F of the Act as if he is retrenched. That is one month's notice or pay in lieu of, and retrenchment compensation at the rate of 15 days' average pay for every completed year of service or in part thereof in excess of six months.
B) If the total number of workmen employed in the industry is 100 or above:
The relevant section under the Act is Section 25-O which you can go through for complete details. In short, closure of an industrial undertaking under this section is subject to the prior sanction of the appropriate Government. Ninety days before the intended date of closure, the employer has to submit an application in the prescribed manner seeking permission to close down the undertaking to the Government and simultaneously serve a copy of the application on the representative of the workmen/their unions. When such an application seeking permission for closure is received, the appropriate Government has to conduct an inquiry by affording opportunities of being heard to the employer, workmen, and other interested persons and pass an order in writing granting or refusing permission to close down the undertaking within a period of sixty days. If no orders have been communicated by the Government within 60 days from the date the application was made, the permission applied for would be deemed to have been granted after the expiry of the 60-day period.
If the permission to close down is granted or deemed to have been granted, as the case may be, every workman employed in the establishment before the date of application for closure would be entitled to compensation at the rate of 15 days' average wages for every completed year of service or in part thereof in excess of six months.
Apart from the above-mentioned closure compensation, the affected workmen are entitled to other terminal benefits like gratuity under the Payment of Gratuity Act, 1972, salary for the annual leave with wages or earned leave at credit as per the establishment-specific law applicable, proportionate bonus for the accounting year under the Payment of Bonus Act, 1965 up to the date of closure.
In fact, no employer would prefer to close down an industrial undertaking just on account of temporary setbacks experienced in the short run because at times closing down might be costlier and more cumbersome than revival. However, continued losses coupled with adverse market conditions may push the employer to the corner, and he may decide to close down for reasons beyond his control. But it would not be a welcome decision for the employees as their livelihood suddenly becomes at stake, and they would naturally decide to avert it by fighting tooth and nail or demand hefty closure compensation. Therefore, it would be better for the management to negotiate with the union of workmen to arrive at an amicable Voluntary Separation Scheme and make the closure a peaceful and painless affair.
From India, Salem
6108Closure of a place of employment or part thereof is a subject matter dealt with by the Industrial Disputes Act, 1947 in its Chapters V-A and V-B based on the number of workmen employed therein. Therefore, had you mentioned the total number of employees employed in the Company in the cadre of workman as defined under Section 2(s) of the Industrial Disputes Act, 1947 as of the current date or the average number per working day for the preceding twelve months, the answer could have been conveniently restricted to that extent. Anyway, let me try to present a brief answer with a request to go through the relevant sections of the Act and Rules for further details.
A) If the total number of workmen employed in the industry is less than 100:
The relevant section covering closure is Section 25-FFA. When the total number of workmen employed in the industry is 50 and above but less than 100 on average per working day in the preceding 12 months, the employer intending to close down the undertaking should serve a notice in the prescribed manner on the appropriate Government stating clearly the reasons for the intended closure prior to 60 days.
In addition, on the effective date of closure, the employer has to pay compensation to every workman who has been in the service of the establishment for not less than one year as per Section 25-F of the Act as if he is retrenched. That is one month's notice or pay in lieu of, and retrenchment compensation at the rate of 15 days' average pay for every completed year of service or in part thereof in excess of six months.
B) If the total number of workmen employed in the industry is 100 or above:
The relevant section under the Act is Section 25-O which you can go through for complete details. In short, closure of an industrial undertaking under this section is subject to the prior sanction of the appropriate Government. Ninety days before the intended date of closure, the employer has to submit an application in the prescribed manner seeking permission to close down the undertaking to the Government and simultaneously serve a copy of the application on the representative of the workmen/their unions. When such an application seeking permission for closure is received, the appropriate Government has to conduct an inquiry by affording opportunities of being heard to the employer, workmen, and other interested persons and pass an order in writing granting or refusing permission to close down the undertaking within a period of sixty days. If no orders have been communicated by the Government within 60 days from the date the application was made, the permission applied for would be deemed to have been granted after the expiry of the 60-day period.
If the permission to close down is granted or deemed to have been granted, as the case may be, every workman employed in the establishment before the date of application for closure would be entitled to compensation at the rate of 15 days' average wages for every completed year of service or in part thereof in excess of six months.
Apart from the above-mentioned closure compensation, the affected workmen are entitled to other terminal benefits like gratuity under the Payment of Gratuity Act, 1972, salary for the annual leave with wages or earned leave at credit as per the establishment-specific law applicable, proportionate bonus for the accounting year under the Payment of Bonus Act, 1965 up to the date of closure.
In fact, no employer would prefer to close down an industrial undertaking just on account of temporary setbacks experienced in the short run because at times closing down might be costlier and more cumbersome than revival. However, continued losses coupled with adverse market conditions may push the employer to the corner, and he may decide to close down for reasons beyond his control. But it would not be a welcome decision for the employees as their livelihood suddenly becomes at stake, and they would naturally decide to avert it by fighting tooth and nail or demand hefty closure compensation. Therefore, it would be better for the management to negotiate with the union of workmen to arrive at an amicable Voluntary Separation Scheme and make the closure a peaceful and painless affair.
From India, Salem
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