The Larger Establishments: Chapter X and the Three Hundred Threshold

Deemed permission is the consequence, under sections 78(5) and 79(4), of the Government failing to communicate an order within sixty days.

On an average per working day is how section 77 counts the workforce: not a headcount on a single day but an average across the preceding twelve months.

Genuineness and adequacy of the reasons is the standard the Government applies in sections 78(4), 79(3) and 80(2).

Section 77: which establishments

77(1): the Chapter applies to an industrial establishment:

• not being an establishment of a seasonal character or one in which work is performed only intermittently; and
• in which not less than three hundred workers, or such higher number of workers as may be notified by the appropriate Government, were employed on an average per working day in the preceding twelve months.

77(2): whether an establishment is of a seasonal character, or whether work is performed only intermittently, is decided finally by the appropriate Government.

77(3): "industrial establishment" for this Chapter means a factory under the Factories Act 1948, a mine under the Mines Act 1952, or a plantation under the Plantations Labour Act 1951.

The threshold, and why it is the most contested provision in the Code

Chapter VB of the repealed Industrial Disputes Act 1947 applied at one hundred workers. Section 77 applies at three hundred, and permits the appropriate Government to notify a higher number still.

The arithmetic of that change should be stated plainly. Every establishment employing between one hundred and two hundred and ninety-nine workers, which had been inside the permission regime since 1976, is now outside it. Those employers may lay off on compensation, retrench on one month's notice, and close on sixty days' notice to the Government, without asking anybody's consent.

The argument for the change is that a permission requirement deters investment and formal hiring: an employer who knows he cannot shed labour without consent will keep his workforce below the threshold, use contract labour, or not expand at all. Raising the threshold is said to encourage employers to grow past one hundred workers.

The argument against is that it removes the protection from precisely the establishments where it did most work, and that the power in section 77(1) to notify a higher number means the Chapter's reach can be narrowed further by executive act without Parliament.

Note also that the definition in section 77(3) is narrow. Only factories, mines and plantations. A large commercial establishment, however many people it employs, is outside Chapter X altogether.

And the count is an average. Not less than three hundred on an average per working day in the preceding twelve months, so a single peak does not bring an establishment in, and a single trough does not take it out.

Section 78: lay-off needs permission

78(1): no worker, other than a badli or casual worker, whose name is on the muster rolls of a Chapter X establishment shall be laid off except with the prior permission of the appropriate Government, obtained on an application, unless the lay-off is due to:

• shortage of power; or
• natural calamity; or
• in the case of a mine, fire, flood, excess of inflammable gas or explosion.

The exceptions are a short and telling list. Compare them with the causes of lay-off in section 2(t): shortage of coal, power or raw materials, accumulation of stocks, break-down of machinery, natural calamity, or any other connected reason. Only two of those survive as excuses here, plus the mine-specific four. So a Chapter X employer who lays off for a shortage of raw materials, or an accumulation of stocks, or a break-down of machinery, needs permission. The excused causes are the ones no employer could have prevented or foreseen.

78(2): the application is made electronically or otherwise in the prescribed manner, stating clearly the reasons for the intended lay-off, and a copy served simultaneously on the workers concerned.

78(3): where a mine has been laid off for fire, flood, excess of inflammable gas or explosion, the employer must, within thirty days from the commencement of the lay-off, apply for permission to continue it. So the emergency excuses the start, not the continuation.

78(4): the appropriate Government, after such enquiry as it thinks fit and after giving a reasonable opportunity of being heard to the employer, the workers concerned and the persons interested, may, having regard to the genuineness and adequacy of the reasons, the interests of the workers and all other relevant factors, by order and for reasons to be recorded in writing, grant or refuse permission, and communicate a copy to the employer and the workers.

78(6): the order is final and binding on all parties, subject to sub-section (7), and remains in force for one year.

78(7): the Government may, on its own motion or on the application of the employer or any worker, review its order within the prescribed time, or refer the matter to a Tribunal for adjudication. Proviso: where a reference is made, the Tribunal shall pass an award within thirty days.

Section 78(5): deemed permission

Where an application has been made and the appropriate Government does not communicate the order granting or refusing permission within sixty days from the date of the application, the permission applied for shall be deemed to have been granted as applied for on the expiration of that period, and the application shall be deemed to have been disposed of accordingly.

This sub-section decides how much the whole Chapter is worth in practice, and an answer must say so. The employer's protection against administrative inertia is complete: if the Government does not answer, he may proceed. The workers' protection correspondingly depends on the Government actually deciding within sixty days. Silence is consent, and it is consent as applied for.

Section 79: retrenchment needs three months and permission

79(1): no worker in a Chapter X establishment who has been in continuous service for not less than one year shall be retrenched until:

• (a) he has been given three months' notice in writing indicating the reasons for retrenchment and the period has expired, or he has been paid wages in lieu of such notice; and
• (b) the prior permission of the appropriate Government has been obtained on an application made in that behalf.

Set that beside section 70 and the differences are the answer to any comparison question.

79(2): the application states clearly the reasons and a copy is served simultaneously on the workers concerned.

79(3): the Government decides after such enquiry as it thinks fit and after a reasonable opportunity of being heard to the employer, the workers and persons interested, having regard to the genuineness and adequacy of the reasons, the interests of the workers and all other relevant factors, by order and for reasons to be recorded in writing.

79(4): deemed permission after sixty days, in the same terms as section 78(5).

79(5): the order is final and binding, subject to review or reference, and remains in force for a period, as with lay-off.

Section 80: closure needs ninety days and permission

80(1): an employer who intends to close down an undertaking of a Chapter X establishment shall apply, electronically or otherwise in the prescribed manner, for prior permission at least ninety days before the date on which the intended closure is to become effective, to the appropriate Government, stating clearly the reasons, and shall serve a copy simultaneously on the representatives of the workers.

Proviso: this does not apply to an undertaking set up for the construction of buildings, bridges, roads, canals, dams or other construction work.

80(2): the Government decides after such enquiry as it thinks fit and after giving a reasonable opportunity of being heard to the employer, the workers and the persons interested, having regard to the genuineness and adequacy of the reasons stated by the employer, the interests of the general public and all other relevant factors, by order and for reasons to be recorded in writing.

Note the change of consideration in sub-section (2), because it is deliberate and examinable. In sections 78(4) and 79(3) the Government weighs the interests of the workers. In section 80(2) it weighs the interests of the general public. A closure is the one decision whose effects reach beyond the workforce, and the statute says so.

Compare the notice periods across the three events, because MU can ask for them side by side:

Sections 81 and 82: what carries over

Section 81 repeats for Chapter X establishments the duty in section 68 to maintain a muster roll notwithstanding a lay-off, and to provide for entries by workers presenting themselves for work.

Section 82 applies to Chapter X establishments, so far as may be, the following provisions of Chapter IX:

• section 66, continuous service and its deeming provisions;
• section 71, the last-come-first-go rule;
• section 72, the right to preference in re-employment within one year;
• section 73, compensation on the transfer of an establishment; and
• section 76, the overriding effect and the more-favourable-benefit proviso.

So the substantive rules a worker relies on are common to both Chapters. What Chapter X adds is the permission requirement and the longer notice; what it does not do is create a separate code of entitlements.

Note what section 82 does not list. It does not carry over section 67, the lay-off compensation provision, or sections 70, 74 and 75, because Chapter X has its own sections 78, 79 and 80 for those events. And section 65 expressly excludes Chapter X establishments from sections 67 to 69 for exactly that reason.

A worked example

The facts. Two packaging plants in Wada under the same owner. Plant A employs 260 workers on an average per working day over the preceding twelve months. Plant B employs 480. Both are factories under the Factories Act 1948, neither is seasonal or intermittent.

Which Chapter applies to which? Plant A is below three hundred, so Chapter IX governs it. Plant B is at or above three hundred, so Chapter X governs it, and section 65 takes it out of sections 67 to 69 altogether.

The raw material fails to arrive and the owner wants to lay off at both plants.

At Plant A: he may lay off and must pay compensation under section 67 at fifty per cent. of basic wages and dearness allowance to qualifying workers. No permission is needed.

At Plant B: he may not lay off at all without the prior permission of the appropriate Government, section 78(1). A shortage of raw materials is not among the excused causes, which are shortage of power, natural calamity, and in a mine fire, flood, excess of inflammable gas or explosion. He must apply, stating clearly the reasons, and serve a copy on the workers concerned, section 78(2).

Change it: the failure is a power cut. Now shortage of power is an excused cause and he may lay off at Plant B without prior permission.

Change it again: Plant B is a mine and there has been an explosion. He may lay off at once, but must apply within thirty days for permission to continue the lay-off, section 78(3).

The Government does nothing for sixty-five days after the application. Under section 78(5) the permission is deemed to have been granted as applied for on the expiry of sixty days.

Change it: the Government refuses permission after forty days, giving reasons in writing. The order is final and binding and remains in force for one year, section 78(6). The employer may seek a review, or the Government may refer the matter to a Tribunal, which must pass an award within thirty days, section 78(7).

Now retrenchment. The owner wants to retrench thirty workers at each plant.

At Plant A: one month's notice in writing with reasons or wages in lieu, compensation of fifteen days' average pay per completed year and any part over six months at the time of retrenchment, and notice to the appropriate Government. Sections 70(a), (b) and (c).

At Plant B: three months' notice in writing with reasons or wages in lieu, and prior permission of the appropriate Government, sections 79(1)(a) and (b). The application must state the reasons and a copy must be served on the workers concerned.

Who goes, at either plant? Section 71's last-come-first-go rule, applied to Plant B by section 82: ordinarily the worker last employed in that category, unless for reasons to be recorded another is retrenched.

Eight months later the owner hires again at Plant B. Section 72, applied by section 82: the retrenched workers who are citizens of India must be given an opportunity to offer themselves and have preference over other persons.

Finally, closure.

At Plant A: sixty days' notice to the appropriate Government stating clearly the reasons, section 74(1), and compensation under section 75 as if retrenched.

At Plant B: an application for prior permission at least ninety days before the intended closure is to become effective, stating clearly the reasons, with a copy served on the representatives of the workers, section 80(1). The Government decides having regard to the genuineness and adequacy of the reasons, the interests of the general public, and all other relevant factors.

What this does NOT mean

It does not mean Chapter X replaces Chapter IX. Section 82 carries over sections 66, 71, 72, 73 and 76, so the substantive rules on continuous service, selection, re-employment, transfer and the more-favourable-benefit proviso are common.

It does not mean permission is needed for every lay-off in a large establishment. Shortage of power and natural calamity are excused, and in a mine fire, flood, excess of inflammable gas and explosion.

It does not mean an emergency lay-off in a mine may continue indefinitely. Section 78(3) requires an application within thirty days for permission to continue.

It does not mean the Government must decide. If it does not communicate an order within sixty days, permission is deemed granted as applied for.

It does not mean the threshold is fixed at three hundred. Section 77(1) lets the appropriate Government notify a higher number.

It does not mean every large employer is inside. Section 77(3) confines the Chapter to factories, mines and plantations, and section 77(1) excludes seasonal and intermittent establishments.

It does not mean the Government weighs the same things in each case. Sections 78(4) and 79(3) weigh the interests of the workers; section 80(2) weighs the interests of the general public.

Limits, criticism and amendments

The raising of the threshold from one hundred to three hundred is the most contested provision in the Code, and both arguments deserve to be stated fairly. Employers and several official committees argued that a permission requirement at one hundred workers discouraged firms from growing past that size, pushed employment into contract labour and informal arrangements, and made India's formal sector artificially small. Trade unions answered that the permission requirement was the only real check on arbitrary closure in the establishments where most organised workers are, and that raising the threshold removes protection from the very workers who had it.

The power in section 77(1) to notify a still higher number sharpens that criticism, because the Chapter's reach can then be reduced without returning to Parliament.

The deemed permission in sections 78(5) and 79(4) is the second great criticism. A protection that lapses when the protector fails to act is only as strong as the administration. Sixty days of silence produces permission as applied for, without any consideration of the genuineness of the reasons, the interests of the workers or the public interest that the sections otherwise require.

And the confinement to factories, mines and plantations in section 77(3) is increasingly out of date, since much large-scale employment is now in commercial and service establishments that the Chapter does not reach however many people they employ.

Against that, the Chapter retains real machinery. The Government must hear the employer, the workers and the persons interested; it must record reasons in writing; its order binds for a year; and section 78(7) provides for review or a reference to a Tribunal which must decide within thirty days.

Quick revision

• Section 77: Chapter X applies to a factory, mine or plantation, not seasonal or intermittent, employing not less than three hundred workers, or a higher number notified, on an average per working day in the preceding twelve months. The repealed Act's figure was one hundred. The seasonal question is decided finally by the appropriate Government.
• Section 78: no lay-off without prior permission, except for shortage of power, natural calamity, and in a mine fire, flood, excess of inflammable gas or explosion. Application states reasons; copy to the workers. Mine emergencies: apply within thirty days to continue. Government decides on genuineness and adequacy, the interests of the workers and all relevant factors, by order with reasons in writing. Order final and binding and in force one year; review or reference to a Tribunal, which decides within thirty days.
• Sections 78(5) and 79(4): no order communicated within sixty days and permission is deemed granted as applied for.
• Section 79: retrenchment needs three months' notice in writing with reasons or wages in lieu, and prior permission.
• Section 80: closure needs an application for prior permission at least ninety days before it takes effect, with a copy to the representatives of the workers; construction undertakings exempt; the Government weighs the interests of the general public.
• Section 81: maintain the muster roll notwithstanding a lay-off. Section 82: sections 66, 71, 72, 73 and 76 of Chapter IX apply here too.

Test yourself

1. To which establishments does Chapter X apply? Under section 77(1), to an industrial establishment, not being of a seasonal character or one in which work is performed only intermittently, in which not less than three hundred workers, or such higher number as the appropriate Government may notify, were employed on an average per working day in the preceding twelve months. By section 77(3) "industrial establishment" means a factory under the Factories Act 1948, a mine under the Mines Act 1952 or a plantation under the Plantations Labour Act 1951. By section 77(2) the question whether an establishment is seasonal, or whether work is performed only intermittently, is decided finally by the appropriate Government.

2. Compare retrenchment under section 70 with retrenchment under section 79. Under section 70, in an establishment outside Chapter X, a worker of one year's continuous service may be retrenched on one month's notice in writing indicating the reasons, or wages in lieu; compensation of fifteen days' average pay for every completed year and any part in excess of six months, paid at the time of retrenchment; and notice to the appropriate Government. Under section 79, in a Chapter X establishment, the notice is three months in writing indicating the reasons, or wages in lieu, and the employer must obtain the prior permission of the appropriate Government on an application stating clearly the reasons, a copy of which is served simultaneously on the workers concerned. The difference is notice against permission, and one month against three.

3. When may a Chapter X employer lay off without permission? Under section 78(1), only where the lay-off is due to a shortage of power, or a natural calamity, or, in the case of a mine, fire, flood, excess of inflammable gas or explosion. A shortage of raw materials, an accumulation of stocks or a break-down of machinery, all of which are causes of lay-off under section 2(t), require prior permission here. Where a mine has been laid off for one of the four mine-specific causes, section 78(3) requires the employer to apply within thirty days for permission to continue the lay-off.

4. What is the effect of the Government failing to decide an application? Under sections 78(5) and 79(4), where an application for permission has been made and the appropriate Government does not communicate the order granting or refusing permission within sixty days from the date of the application, the permission applied for is deemed to have been granted as applied for on the expiration of that period, and the application is deemed to have been disposed of accordingly. Silence is therefore consent, and it is consent on the employer's own terms, without any consideration of the genuineness of the reasons or the interests of the workers that the sections otherwise require.

5. What must an employer do to close a Chapter X establishment? Under section 80(1) he must apply, electronically or otherwise in the prescribed manner, for prior permission at least ninety days before the date on which the intended closure is to become effective, to the appropriate Government, stating clearly the reasons for the intended closure, and must serve a copy simultaneously on the representatives of the workers. An undertaking set up for the construction of buildings, bridges, roads, canals, dams or other construction work is exempt. Under section 80(2) the Government decides after such enquiry as it thinks fit and after giving a reasonable opportunity of being heard to the employer, the workers and the persons interested, having regard to the genuineness and adequacy of the reasons, the interests of the general public and all other relevant factors, by order and for reasons to be recorded in writing.

6. Comment on the raising of the threshold from one hundred to three hundred. Chapter VB of the repealed Industrial Disputes Act 1947 applied the permission requirement at one hundred workers; section 77 of the Code applies it at three hundred and allows the appropriate Government to notify a higher figure still. Every establishment employing between one hundred and two hundred and ninety-nine workers has therefore moved out of the permission regime and into Chapter IX, where lay-off is compensated, retrenchment needs one month's notice and notice to the Government, and closure needs sixty days' notice. The case for the change is that a permission requirement at one hundred discouraged firms from growing past that size and pushed employment into contract labour and informal arrangements, keeping the formal sector artificially small. The case against is that it withdraws the only substantial check on arbitrary closure from the establishments where most organised workers are employed, and that the power to notify a higher number allows the Chapter to be narrowed further by executive act without Parliament.