Visakhapatnam, October 30 2025 — In a significant decision affecting labour rights, the Andhra Pradesh High Court has held that the permanent shutdown of a specific unit of an industrial undertaking — even when the remainder of the business continues to operate — constitutes a “closure” under Section 25FFF of the Industrial Disputes Act, 1947 (ID Act). As a result, workmen who had been in continuous service for at least one year in that unit are entitled to notice and compensation.
The dispute involved an employee of Krishna Industrial Corporation Ltd, a company engaged in the purification of raw carbon dioxide, who was working in a specific unit of the company from 1999 until his retrenchment in 2007. The retrenchment followed a supply disruption of raw CO₂ gas, which forced the cessation of that unit’s operations. The company issued two cheques to him covering full & final settlement, including gratuity. The employee challenged the action, seeking absorption into other units of the corporation along with continuity of service and back wages.
The Labour Court dismissed his claim, and on further appeal, the High Court analysed whether this shutdown of one unit constituted “closure” under the Act or was merely a retrenchment. The High Court dismissed his prayer for absorption but held that closure provisions applied — entitling him (and similarly situated workers) to compensation.
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Section 25FFF of the ID Act stipulates that when an “undertaking is closed down for any reason whatsoever”, every workman in continuous service for not less than one year immediately before closure shall be entitled to notice and compensation “as if the workman had been retrenched”. Section 2(cc) of the Act defines “closure” to mean the permanent closing down of a place of employment or part thereof.
The High Court emphasised that it is not necessary for the employer’s entire establishment to be shut for Section 25FFF to apply. If a part or unit of the undertaking that has functional integrity with other units is permanently shut, that qualifies as a closure. “In other words, if the entire establishment is not shut down but only a specific unit or an undertaking is closed, provided such unit has no operational stability with other units or undertakings, the provisions of Section 25FFF … come into operation.”
The Court therefore concluded that the petitioner, though not entitled to re-absorption, was entitled to the compensation envisaged under Section 25FFF of the ID Act.
This judgment carries important implications for employers and labour in the organised sector.
Instead of only an entire undertaking, the closure of a distinct operational unit can trigger the rights under Section 25FFF.Workers of shut-down units now have a stronger basis to claim notice and compensation, even if the larger company survives through other units.Companies must recognise that shutting down a functional unit may expose them to obligations under the closure provision — not merely retrenchment liabilities.While reabsorption into other units may not be a right of workers but compensation is. The Court here made clear that the remedy lies in monetary compensation, not necessarily job reinstatement.
The Andhra Pradesh High Court’s decision underscores that the protective labours provisions under the Industrial Disputes Act are triggered not only by sweeping full-scale closures but also by strategic shutdowns of specific units — provided those units are operationally integral to the employer’s business. Workers affected by such unit closures now have a reinforced legal basis to claim compensation under Section 25FFF. Employers should take note and carefully evaluate unit shutdown plans in light of this precedent.
Source: LiveLaw
