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Section 73: Compensation to workers in case of transfer of undertakings

The Industrial Relations Code, 2020 (Act No. 35 of 2020) • Official Statutory Text & Plain English Practice Guide

Statutory Mandate
Chapter IX: Lay-off, Retrenchment and Closure
Competent Labour Forum
Act No. 35 of 2020
Section 72 All 104 Sections of Industrial Relations Code, 2020 Section 74

Legal Commentary & Landmark Judgments: Section 73

Section 73 of the Industrial Relations Code, 2020 governs the rights of workers upon the transfer of ownership or management of an industrial establishment, guaranteeing statutory retrenchment notice and compensation to continuous service employees unless the transferee employer provides complete continuity of service, non-derogated working conditions, and statutory recognition of past tenure.

  • Deemed Retrenchment on Transfer of Undertaking: Where the ownership or management of an industrial establishment is transferred, whether by agreement (slump sale, asset purchase, merger, demerger) or by operation of law (statutory vesting, court-directed auction), every worker who has been in continuous service for not less than one year immediately before transfer is entitled to notice and compensation in accordance with Section 70, as if retrenched.
  • The Tripartite Cumulative Immunity Proviso: The liability to pay transfer compensation does NOT arise if three conditions are conjunctively satisfied: (a) the service of the worker has not been interrupted by such transfer; (b) the terms and conditions of service applicable to the worker after transfer are not in any way less favourable than those applicable immediately before transfer; and (c) the new employer is legally liable, under the terms of transfer or otherwise, to pay the worker in the event of retrenchment compensation on the basis of continuous uninterrupted service.
  • Allocation of Statutory Liability: If any of the three cumulative conditions under the proviso is breached, the transferor employer remains strictly liable to pay retrenchment compensation on the date of transfer; the worker cannot be forced to accept inferior terms or a break in service under the new management.
Key Landmark Precedents:
  • Anakapalle Co-operative Agricultural & Industrial Society Ltd. v. Workmen AIR 1963 SC 1489: The 5-Judge Constitution Bench established that Section 25FF (now Section 73) was enacted to protect workers upon transfer of undertakings; workers have no common law right to force absorption upon an unwilling transferee, but if the transferee fails to guarantee the tripartite conditions, the transferor must pay statutory retrenchment compensation.
  • South Arcot Electricity Distribution Co. Ltd. v. N.K. Balakrishnan (1970) 2 SCC 88: The Supreme Court held that the right to compensation under Section 25FF accrues against the transferor management on the transfer date; failure to satisfy any one of the three cumulative proviso requirements crystallizes the worker's monetary claim immediately.
  • Management of Express Newspapers Ltd. v. Workers AIR 1963 SC 569: Clarified that a genuine transfer of an undertaking terminates the relationship between the transferor and workmen, triggering statutory severance obligations unless the transferee expressly covenants to preserve continuous service and all accrued benefits.
Courtroom Practice & Strategic Litigation Guidance:

In drafting Business Transfer Agreements (BTAs), share purchase agreements, or slump sale contracts, corporate counsel must incorporate express covenants addressing Section 73: (1) an unconditional declaration that the transferee assumes all employees without break in service; (2) confirmation that existing emoluments, provident fund, and gratuity entitlements remain unimpaired; and (3) an express assumption of liability to reckon past service with the transferor for future retrenchment or retirement. If a worker declines the transfer despite identical terms, obtain a written refusal to defeat severance claims.

Section 72 All 104 Sections of Industrial Relations Code, 2020 Section 74