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Section 75: Compensation to workers in case of closing down 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 74 All 104 Sections of Industrial Relations Code, 2020 Section 76

Legal Commentary & Landmark Judgments: Section 75

Section 75 of the Industrial Relations Code, 2020 prescribes the statutory compensation payable to continuous service workers upon the permanent closing down of an industrial undertaking, incorporating a vital statutory ceiling limiting compensation to three months' average pay where closure is compelled by unavoidable circumstances beyond the employer's control.

  • Statutory Entitlement to Closure Compensation: Where an undertaking is closed down for any reason whatsoever, every worker who has been in continuous service for not less than one year immediately before closure is entitled to notice and compensation in accordance with the provisions of Section 70 (fifteen days' average pay for every completed year of continuous service).
  • Unavoidable Circumstances Beyond Control Exception: Where the undertaking is closed down on account of unavoidable circumstances beyond the control of the employer, the statutory compensation payable to any worker shall not exceed their average pay for three months, providing relief to businesses struck by force majeure.
  • Statutory Deeming Proviso (Non-Unavoidable Commercial Grounds): An undertaking shall NOT be deemed to be closed down on account of unavoidable circumstances beyond the control of the employer if it is closed down by reason merely of: (i) financial difficulties (including financial losses); or (ii) accumulation of undisposed stocks; or (iii) the expiry of the period of the lease or licence granted to it; or (iv) in cases of mining, exhaustion of minerals in the area.
Key Landmark Precedents:
  • Hariprasad Shivshankar Shukla v. A.D. Divikar 1957 SCR 121 / AIR 1957 SC 121: The 5-Judge Constitution Bench held that retrenchment under the original Industrial Disputes Act applied only to continuing businesses; following this landmark decision, Parliament enacted Section 25FFF (now Section 75) to explicitly grant severance compensation to workmen upon the closure of an industrial undertaking.
  • Kalinga Tubes Ltd. v. Their Workmen AIR 1969 SC 90: The Supreme Court held that closure resulting from acute, persistent, and violent labour unrest that completely paralyzed production and endangered life fell within 'unavoidable circumstances beyond the control of the employer', entitling the management to invoke the statutory 3-month compensation cap.
  • Hathisingh Manufacturing Co. Ltd. v. Union of India AIR 1960 SC 923: The Constitution Bench upheld the constitutional validity of Section 25FFF, ruling that imposing closure compensation on employers is a reasonable restriction under Article 19(6) designed to protect workers against sudden distress caused by business shutdown.
Courtroom Practice & Strategic Litigation Guidance:

In planning closure under Section 75, calculate 15 days' average pay per completed year of service (or part thereof exceeding 6 months) for each continuous worker. Do NOT attempt to cap compensation at three months by pleading accumulated balance-sheet losses, bank NPA declarations, or commercial lease expiry, as these are expressly excluded by the statutory Explanation. To claim the 3-month cap, establish an act of God, destructive flood, war, catastrophic structural destruction, or statutory ban rendering continued operation legally impossible.

Section 74 All 104 Sections of Industrial Relations Code, 2020 Section 76