Excel Wear & Others v. Union of India & Others
Bench: Division Bench — 5 Judges (Y.V. Chandrachud CJ, A.C. Gupta, S.N. Shinghal, N.L. Untwalia & P.N. Bhagwati JJ)
Parties
Facts of the Case
Excel Wear, a garment manufacturing company, sought to close down its business due to persistent losses. Section 25-O of the Industrial Disputes Act required an employer to obtain prior government permission before closing an establishment with 100 or more workers. The government denied permission. Excel Wear challenged Section 25-O as an unreasonable restriction on its right to carry on business (and the right to close it) under Article 19(1)(g).
Legal Issues Before the Court
- 1Does Article 19(1)(g) (right to carry on any profession or business) include the right to close down a business?
- 2Is Section 25-O Industrial Disputes Act — requiring government permission before closing an establishment — an unreasonable restriction on Article 19(1)(g)?
The Judgment
The Supreme Court held that the right to carry on any profession, trade, or business under Article 19(1)(g) includes the right to close down the business. A provision that absolutely restricts the right to close a business — or subjects it to government veto — is an unreasonable restriction on Article 19(1)(g). Section 25-O in its then form was struck down as imposing an unreasonable restriction. The right to close a business is a necessary concomitant of the right to start and carry on one.
Key Principles Laid Down
RIGHT TO CLOSE BUSINESS IS PART OF ARTICLE 19(1)(g): The right to carry on business under Article 19(1)(g) includes, as its necessary corollary, the right to exit — to close, wind up, or discontinue the business. A State cannot compel a person to indefinitely continue a business they wish to close.
ABSOLUTE PROHIBITION ON CLOSURE IS UNREASONABLE: An absolute requirement of prior government permission before closing a business — with the government having an unfettered veto — goes beyond what can be justified as a reasonable restriction under Article 19(6). Some regulation is permissible (notice periods, settlement of dues) but an outright veto is unreasonable.
WORKER WELFARE — LEGITIMATE BUT LIMITED AIM: Worker welfare and preventing unemployment are legitimate state interests that can justify some regulation of business closure. However, these interests do not justify compelling an economically unviable enterprise to continue indefinitely.
REASONABLE RESTRICTIONS CAN INCLUDE NOTICE AND COMPENSATION: The Court indicated that requiring employers to give notice, pay retrenchment compensation, and follow a procedure before closure would be reasonable restrictions on the closure right. What is unreasonable is the requirement of prior government permission as a substantive veto.
Impact on Indian Law
Excel Wear (1978) is the foundational case on the right to close a business under Article 19(1)(g). It is cited in every challenge to labour law provisions that restrict an employer's ability to retrench workers or close an establishment. The Industrial Disputes Act has been amended multiple times since Excel Wear — the current provisions on closure (Chapter VB) are tested against the Article 19(1)(g) standard established here. The case is relevant to understanding the constitutionality of the labour law reforms in India (Code on Industrial Relations, 2020 etc.).
Frequently Asked Questions
Does an employer have the right to close down their business under the Indian Constitution?
Yes. Excel Wear (1978) held that Article 19(1)(g) — the right to carry on any profession, trade, or business — includes the right to close down the business. A law requiring prior government permission (with a veto power) before closure is an unreasonable restriction on this right. Procedural regulation (notice, compensation) is permissible; absolute prohibition or government veto is not.