Excel Wear v Union of India (1979)

This is the leading Indian authority for a proposition that sounds obvious once stated and was fiercely contested at the time: the right to carry on a business includes the right to stop carrying it on. A law forcing an unwilling owner to keep his undertaking running is not regulating a fundamental right; it is destroying it.

It matters for the exam because it is the constitutional case in a paper otherwise almost entirely statutory, and because it is half of a pair. Excel Wear struck down s. 25-O; Orissa Textile & Steel Ltd v State of Orissa (2002) upheld the re-enacted s. 25-O. Read together they show that the objection to Chapter V-B was always procedural, not substantive — the point examiners look for. It also matters because IR Code Chapter X is modelled on the post-1982 section, which is why the Code's closure provisions are constitutionally secure.

Excel Wear was a partnership firm manufacturing garments for export, with its factory at Bombay, employing about 400 workmen.

Industrial relations deteriorated sharply from 1976. The firm's case was that the workmen had become militant and indisciplined, that there had been repeated stoppages and stay-in strikes, that supervisors had been assaulted or intimidated, and that carrying on the business had become impossible. On the firm's case this was not a closure to defeat the workmen; it was a surrender.

Chapter V-B had been inserted by the Industrial Disputes (Amendment) Act 1976. As enacted, s. 25-O required an employer in an establishment to which the Chapter applied — then 300 or more workmen — who intended to close down an undertaking to apply to the appropriate Government for prior permission, and forbade closure without it.

On 2 May 1977 the firm applied to the Government of Maharashtra for permission to close. Permission was refused, on the footing that closure would be prejudicial to the public interest.

The firm petitioned the Supreme Court under Art. 32, challenging s. 25-O and s. 25-R(2), which made contravention punishable with imprisonment, on the ground of Art. 19(1)(g) — the right to practise any profession or to carry on any occupation, trade or business.

1. Is the right to close down a business part of the right guaranteed by Art. 19(1)(g)?
2. If it is, is the restriction imposed by s. 25-O a reasonable restriction in the interests of the general public within Art. 19(6)?
3. Does a requirement of prior Government permission for closure amount to a restriction, or to something beyond restriction altogether?
4. Is s. 25-R(2) valid?

For the firm. The right to carry on a business necessarily includes the right to decide not to carry it on. A law compelling a man to continue a business he wishes to abandon does not restrict the right; it extinguishes it, and Art. 19(6) permits only reasonable restrictions, not destruction. And the section was arbitrary on its face: refusal without reasons, no time limit, no appeal, review or independent adjudication, and indefinite operation.

For the Union. The right to close is not on the same footing as the right to carry on; it is a right to destroy what the right to carry on protects. Closure throws hundreds of families out of employment and can be used as a weapon against organised labour — a lock-out under another name. In a welfare State committed by Part IV to securing the right to work, the interests of the workmen and of the public justify subjecting closure to control.

Section 25-O as it then stood was struck down as an unreasonable restriction on the right guaranteed by Art. 19(1)(g), together with s. 25-R(2) so far as it related to s. 25-O.

The reasoning has several distinct strands, and you should give them separately:

• The right to close down is part of the right to carry on a business protected by Art. 19(1)(g) — though it does not stand on the same high footing as the right not to start a business. A restriction on closure is therefore a restriction on a fundamental right and must be justified under Art. 19(6).
• No reasons were required, which made the order effectively unreviewable: a court cannot test the reasonableness of a decision whose grounds are undisclosed.
• No time limit. An employer could be kept waiting indefinitely while continuing to fund an undertaking he wished to shut.
• No appeal, no review, no independent adjudication. The refusal was final in substance.
• The order operated indefinitely, so even a change of circumstances gave no fresh opportunity.
• The discretion was practically unfettered, guided by no statutory criteria.
• The near-impossibility of reopening. An employer refused permission and made to continue a business he cannot run is in a position from which there is no recovery, and the section offered no mechanism for revisiting it.
• Compelling an owner to keep an unwanted undertaking alive comes close to forced labour.

The qualification that carries the case. The Court did not hold that closure is beyond regulation, or that a prior-permission regime is inherently unconstitutional. It struck down this section for these defects, leaving Parliament free to legislate again with a fair procedure — which it did.

The distinction from nationalisation. This is the part most often missed and it is worth a paragraph. The Union relied on the State's power, preserved by Art. 19(6)(ii), to carry on any trade or business to the exclusion of citizens. The Court's answer was that the two things differ in kind. Nationalisation transfers the undertaking to the State, which then takes the burden, the risk and the loss, and the owner is compensated and released. Section 25-O did neither. It left the undertaking, the losses and the liabilities with the unwilling private owner and simply forbade him to stop. A power to take over cannot justify a power to compel an owner to go on running something at his own cost for the public benefit; Directive Principles may support the former, but they do not convert the latter into a reasonable restriction.

The ratio has two limbs:

1. The right to close down a business is part of the right to carry on a business under Art. 19(1)(g) — though of a lesser order than the right to start or to continue — so a law restricting closure must satisfy Art. 19(6).
2. Section 25-O as enacted in 1976 imposed an unreasonable restriction and was void, because it required no reasons, fixed no time limit, provided no appeal, review or independent adjudication, operated indefinitely, and conferred an unguided discretion.

Both limbs were necessary to the result.

The obiter includes the observations comparing compelled continuance to forced labour and the remarks on Directive Principles. The distinction from nationalisation is better treated as part of the reasoning on reasonableness — it answers the Union's principal argument — and so is close to ratio rather than pure obiter.

Note what the case is not authority for. Not that retrenchment or lay-off cannot be regulated by a permission regime — s. 25-N and s. 25-M were not before the Court, and s. 25-N was later upheld. Not that closure compensation is unconstitutional. And not for any threshold figure: when Excel Wear was decided Chapter V-B applied at 300 workmen, the reduction to 100 coming in 1982, effective 1984.

The structural move is the refusal to let the importance of the State's objective do the work of reasonableness. Everyone accepted that closure causes hardship and that the State may intervene. The question under Art. 19(6) is not whether the end is legitimate but whether the means bear a reasonable relation to it — and a permission regime with no reasons, no deadline, no appeal and no expiry is not a calibrated means. It is an unstructured veto.

The second move is to focus on who bears the cost. Where the State restricts a business in the public interest, the public normally shares the burden — by compensation, by taking over, or by limiting the restriction in time. Section 25-O placed the entire burden on one private owner, indefinitely and without recourse. That asymmetry is the real vice, and it is why the nationalisation comparison is so effective.

The third move is the careful grading of the right — part of the same right as the right to trade, but of a lower order. That is what allowed Orissa Textile to uphold the substituted section; had Excel Wear placed closure on the highest footing, no permission regime could have survived.

The substituted s. 25-O. The Industrial Disputes (Amendment) Act 1982, in force from 1984, substituted a new s. 25-O addressing each identified defect. Learn this table; it is the fastest way to show you understand both cases.

| Excel Wear defect | Cure in the substituted s. 25-O | |---|---| | No reasons required | Order to be made "for reasons to be recorded in writing" | | No hearing | Reasonable opportunity of being heard to employer, workmen and interested persons | | No time limit | Deemed permission if no order communicated within sixty days | | No appeal, review or adjudication | Government may review, or refer the matter to a Tribunal, which must award within thirty days | | Order of indefinite duration | Order remains in force for one year | | No guiding criteria | Regard to the genuineness and adequacy of the reasons, the interests of the general public and all relevant factors | | No compensation on a permitted closure | Fifteen days' average pay for every completed year and any part in excess of six months |

The same amendment reduced the Chapter V-B threshold from 300 to 100 workmen.

Orissa Textile & Steel Ltd v State of Orissa (Supreme Court, Constitution Bench, 17 January 2002). The substituted s. 25-O was challenged on the footing that Excel Wear had settled that a prior-permission regime for closure is unconstitutional per se. Held: the substituted s. 25-O is valid. Excel Wear had struck down the old section for its specific defects and had not laid down that prior permission is inherently bad. The new section supplies reasons, a hearing, a time limit, deemed permission, a review, a reference to an independent Tribunal, a fixed period of operation and compensation; with those safeguards the restriction is reasonable within Art. 19(6). The Court also rejected the argument that reducing the threshold from 300 to 100 made the provision arbitrary.

The retrenchment counterpart, s. 25-N, was upheld on similar reasoning in Meenakshi Mills Ltd v Union of India (1992).

The Industrial Disputes Act 1947 was repealed on 21 November 2025 by IR Code 2020, s. 104(1)(c). Section 25-O no longer exists.

Does Excel Wear survive? Yes — as constitutional law, which is why the repeal does not touch it. That the right to close a business is part of Art. 19(1)(g), and that a restriction on closure must satisfy Art. 19(6), is a proposition about the Constitution, not about the Industrial Disputes Act. The repeal removes the provision that failed the test; the test stands, and every closure provision in the Codes is measured against it.

The successor provision is IR Code 2020, s. 80 ("Procedure for closing down an industrial establishment"), in Chapter X. It follows the post-1982 model that Orissa Textile upheld, and every Excel Wear safeguard is there: s. 80(1) requires prior permission to be applied for at least ninety days before the intended closure, stating the reasons, with a copy served on the workers' representatives (construction of buildings, bridges, roads, canals and dams excepted); s. 80(2) requires a reasonable opportunity of being heard, regard to the genuineness and adequacy of the reasons and the interests of the general public, and an order "for reasons to be recorded in writing"; s. 80(3) gives deemed permission if no order is communicated within sixty days; s. 80(4) limits the order to one year; s. 80(5) provides review, or reference to a Tribunal which must award within thirty days; s. 80(6) makes closure without permission illegal from the date of closure, the workers getting all benefits as if it had not closed; and s. 80(8) gives compensation of fifteen days' average pay (or such days as notified) for every completed year of continuous service and any part in excess of six months.

The threshold is the substantive change, and the most examinable point here. Chapter V-B applied at 100 or more workmen. IR Code s. 77(1) applies Chapter X to an industrial establishment — not seasonal, not intermittent — in which not less than three hundred workers, or such higher number as may be notified by the appropriate Government, were employed on an average per working day in the preceding twelve months. The threshold triples, and the appropriate Government may raise it further by notification without returning to Parliament. "Industrial establishment" here means a factory, a mine or a plantation (s. 77(3)). Most establishments which once needed permission to close now fall instead under Chapter IX — s. 74, sixty days' notice, and s. 75, closure compensation.

Because s. 80 reproduces the safeguards Orissa Textile held sufficient, Chapter X is constitutionally secure on the Excel Wear test. And raising the threshold to 300 raises no fresh Excel Wear problem — it reduces the restriction on Art. 19(1)(g); the criticism of that change comes from the workers' side.

Under the Code. IR Code 2020, s. 80 carries s. 25-O forward with the post-1982 safeguards that Orissa Textile & Steel (2002) held sufficient. The change is the threshold: s. 77 applies Chapter X at 300 or more workers instead of 100, with power in the appropriate Government to raise it further by notification. Excel Wear is constitutional law and is unaffected by the repeal.