Is the Right to Close Down a Business a Fundamental Right?
AdministrationAUTHOR: Thanush S, Government Law College, Thiruvananthapuram
Introduction
Article 19(1)(g) of the Indian Constitution guarantees every citizen the freedom to “practice any profession, or to carry on any occupation, trade or business.” This has been interpreted to include not only the liberty to start and operate a business, but also the “negative” freedom to discontinue it. In Harinagar Sugar Mills Ltd. (Biscuit Division) & Anr. v. State of Maharashtra & Ors.[1], the Supreme Court expressly held that Article 19(1)(g) “includes the right to shut down a business”. The Court emphasised that this fundamental right is subject only to reasonable restrictions, notably the procedural safeguards for workers under labour law.[2]
Article 19(1)(g) and the Business Closure Right
The constitutional guarantee in Article 19(1)(g) has historically been given broad scope. In Excel Wear Etc. v. Union of India[3], a Constitution Bench struck down earlier closure regulations in the ID Act as unreasonable, holding that the right to carry on business implicitly includes the right to close it down if necessary. Later cases such as Orissa Textile & Steel[4] reaffirmed that closure is “an integral part” of the freedom to carry on any business. In Harinagar, the Court reiterated this position: a business cannot be “forced to run indefinitely in face of administrative inaction”. As the Court noted in sum, “the sum and substance are that Article 19(1)(g) includes the right to shut down a business”.
Article 19 freedoms, including the business right, are subject to reasonable restrictions under Article 19(6). The Industrial Disputes Act, 1947 provides one such framework, balancing entrepreneurial choice against workers’ welfare. Section 25-O of the ID Act sets out a detailed procedure: an employer must apply with reasons for closure, and the State must grant or refuse permission by reasoned order within 60 days. Section 25-O(3) creates a “deemed permission” if no order is passed in time. These statutory requirements have been upheld as valid measures under Article 19(6) so long as they are reasonable.
In Harinagar, the interplay between Article 19(1)(g) and Section 25-O was central. The Court recognised that while an owner’s decision to close is constitutionally protected, it is validly regulated by procedures “to ensure that the interests of workers are protected”. The state’s power to investigate and require compensation for affected workers was acknowledged as a legitimate restriction. But the Court stressed that such restrictions must not become arbitrary barriers. In this way, Article 19(6) allows closure regulations, but only if enacted and applied fairly.
Harinagar Sugar Mills Ltd. Case (2025)
In the Harinagar case, the Mumbai-based company operated a biscuit unit for Britannia Industries. When Britannia ended the contract in 2019, Harinagar had no other viable work. The company applied under Section 25-O(1) to close the unit and sought permission to terminate 178 employees, undertaking to pay statutory severance. The State labour department requested more information and directed Harinagar to reapply, without issuing any reasoned order within 60 days. Eventually Harinagar challenged this in court.
The Supreme Court, in a judgment by Justices Karol and Mishra (4 June 2025), held that Harinagar’s closure application was essentially complete and valid. Crucially, since no valid order (with reasons) was communicated by the appropriate authority within the statutory 60-day period, permission to close was deemed granted by operation of law under § 25-O(3). The Court found that the Deputy Secretary’s letter asking for resubmission was not a competent “order” under the Act. Only the Labour Minister had authority to issue the order, and in any event the Minister had not applied his mind or recorded reasons independently. Internal file notings could not substitute a reasoned administrative decision.
On Article 19 grounds, the Court reaffirmed Excel Wear’s principle that closure is a facet of fundamental business freedom. It rejected arguments that an employer has no right to exit once the business has begun: to the contrary, such exit decisions are implicit in the liberty to carry on any enterprise. The Court also reiterated that mere financial strain is not in itself an unreasonable ground to shut a factory, but an owner must demonstrate “exceptional circumstances” or impossibility of continuation. This ensures that closure rights are exercised only when truly necessary, reflecting the balance mandated by Article 19(6).
On remedy, the Court enhanced the company’s offer of employee compensation (beyond earlier interim payments) rather than blocking the shutdown. It directed Harinagar to pay additional dues to workers within eight weeks, emphasising social justice. In sum, Harinagar held that Harinagar’s failure to secure a statutorily valid refusal meant that its right to close prevailed. The appeals were allowed, closure was deemed effective, and workers received due benefits.
International Comparisons
United States: The U.S. Constitution contains no explicit “right to do or stop business.” Historically, the Supreme Court once recognized freedom of contract as a fundamental liberty[5], but that era ended with West Coast Hotel Co. v. Parrish[6]. Today, economic regulations (including business closure laws) are generally reviewed under the rational-basis test[7]. Private companies may challenge regulation under due process or equal protection in limited cases, but there is no sustained federal doctrine shielding a right to unilaterally terminate operations. In practice, U.S. entrepreneurs rely on contract law, bankruptcy law, and state labour laws, rather than constitutional commands, when closing businesses.
Germany: The Basic Law[8] explicitly guarantees economic freedoms. Article 12(1) of the act provides that “All Germans shall have the right freely to choose their occupation or profession, [and] to practice a trade or business”. This has been interpreted by the Federal Constitutional Court to protect the freedom to conduct a business, subject to statutory limitations (such as environmental or labour regulations). Article 14 guarantees property rights, further undergirding entrepreneurs’ autonomy over their assets. While a specific “right to close” is not separately enumerated, the combination of Articles 12 and 14 means a business owner’s decision to liquidate or cease operations would be viewed as part of their occupational and property freedoms. Any state interference must satisfy strict proportionality review.
United Kingdom / Europe: The UK has no written economic-rights clause. Business activities are governed largely by statute, e.g. Companies Act, labour statutes. Under the Human Rights Act, Article 1 of Protocol 1 of the European Convention on Human Rights[9] protects “peaceful enjoyment of possessions,” which includes business property or licences. This has been used to protect investor interests or property expropriation, but does not confer a free-standing “exit right.” Notably, during UK membership of the EU, the EU Charter of Fundamental Rights, Article 16[10], which is now inapplicable post-Brexit, expressly recognised “the freedom to conduct a business”[11]. That provision meant EU law could invalidate national rules unduly restricting business conduct. Today the UK relies on general legal principles; business closures are treated as commercial decisions regulated by contract law and insolvency law, not as fundamental constitutional guarantees.
These international examples show that modern constitutions often guard economic liberties in various ways. The Indian recognition of a business owner’s “negative” liberty to discontinue operations aligns with trends in civil-law countries that enshrine occupational freedom. At the same time, all systems balance this against social objectives (labour protection, consumer safety, etc.), generally through statutes that must pass proportionality. India’s solution in Harinagar, a constitutional right to close subject to clear statutory procedure, is consistent with this comparative pattern.
Conclusion
The Harinagar Sugar Mills judgment makes clear that under Indian law a business owner enjoys a constitutionally protected choice to end operations. The Supreme Court affirmed that Article 19(1)(g) grants not only the right to carry on a business but also the right to cease it. At the same time, this right is exercised “subject to reasonable restrictions” laid down by labour laws (principally Section 25-O). The case reinforces Excel Wear’s legacy: closure rules are permissible only if procedurally fair and justified in the public interest. Practically speaking, Harinagar held that an administrative failure to make a reasoned decision in time cannot block a willing closure; the owner’s Article 19(1)(g) freedom will prevail via the deeming provision.
In the broader constitutional context, India’s approach is neither anomalous nor radical. Many democracies recognise economic freedoms that include entrepreneurial discretion, while allowing statutory limits for social policy. Harinagar thus contributes to a well-developed doctrine that economic liberties are fundamental rights, though limited by law. It provides a clear legal rule: the right to close is fundamental, but it must be exercised in compliance with labour statutes. Future disputes will focus on whether any new restrictions meet the Article 19(6) threshold. For now, Harinagar stands as a landmark reaffirmation of the entrepreneurial freedom to “shut shop” when necessary, balanced by a commitment to employee welfare.
[1] Harinagar Sugar Mills Ltd. (Biscuit Div.) & Anr. v. State of Maharashtra & Ors., 2025 INSC 801.
[2] § 25-O, The Industrial Disputes Act, No. 14 of 1947, India Code (1947)
[3] Excel Wear Etc. v. Union of India & Ors., (1978) 2 S.C.C. 1016 (India).
[4] Orissa Textile & Steel Ltd. v. State of Orissa & Ors., (Jan. 17, 2002) AIR 2002 SC 708, 2002 (2) SCC 578 (India).
[5] Lochner v. New York, 198 U.S. 45 (1905)
[6] West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937)
[7] Williamson v. Lee Optical, 348 U.S. 483 (1955)
[8] Basic Law for the Federal Republic of Germany, art. 1, May 23, 1949, Bundesgesetzblatt [BGBl.] I at 1, as amended by the Act of December 20, 2024, BGBl. I at 439.
[9] Protocol No. 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms, art. 1, Mar. 20, 1952, Europ. T.S. No. 9, 213 U.N.T.S. 221.
[10] Charter of Fundamental Rights of the European Union, art. 16, Dec. 12, 2007, 2007 O.J. (C 303) 6.
[11] Hilary Hogan, The Origins and Development of Article 16 of the Charter of Fundamental Rights, 2 Eur. L. Open 753 (2024), https://www.cambridge.org/core/journals/european-law-open/article/origins-and-development-of-article-16-of-the-charter-of-fundamental-rights/4162DE27F81BC8CBC3D41D3E0DC2945C.
