How the Harinagar Sugar Mills case redefined the boundaries between entrepreneurial liberty and worker protection
When Your Only Customer Walks Away
Picture this: You’ve been running a business for over three decades, serving just one client faithfully. Then one day, that client walks away, leaving you with no work, mounting costs, and a workforce you can no longer sustain. The logical step? Close down. But what if the law won’t let you?
This wasn’t a hypothetical scenario for Harinagar Sugar Mills Ltd. (HSML). For more than 30 years, their biscuit division had been the exclusive manufacturer for Britannia Industries Limited. When Britannia terminated their agreement in 2019, HSML found itself in an impossible position – a business with no business to do.
The company’s attempt to close down legally turned into a two-year legal battle that would ultimately reach the Supreme Court and establish a crucial precedent about the constitutional right to exit business.
What the Constitution Actually Says About Running a Business
Most people understand that Article 19(1)(g) of the Indian Constitution gives citizens the right to practice any profession or carry on any trade or business. It’s one of our fundamental rights – the freedom to choose how we earn our living. But here’s what many don’t realize: this right isn’t just about starting something new. It’s equally about knowing when to stop.
The Supreme Court, in a landmark judgment delivered by Justices Sanjay Karol and Prashant Kumar Mishra, made this crystal clear. The right to carry on trade or business, they ruled, inherently includes the right to shut it down. Think of it this way – if you have the freedom to enter into a marriage, you also have the freedom to seek divorce when things don’t work out.
But like most constitutional rights, this freedom isn’t absolute. It comes with responsibilities, especially toward those who depend on your business for their livelihoods.
How HSML Got Stuck in Legal Trouble
HSML’s story reads like a case study in how well-intentioned laws can sometimes create unintended hardships. The company had built its entire biscuit division around serving Britannia. When that relationship ended, they were left with specialised equipment, trained workers, and operational costs – but no customer base.
In August 2019, HSML filed for closure under the Industrial Disputes Act, following all prescribed procedures. They submitted Form XXIV-C as required by Maharashtra Rules, expecting the standard 60-day waiting period before deemed closure would kick in.
Instead, they ran into bureaucratic quicksand. The Deputy Secretary of the Maharashtra Government rejected their application, calling it “incomplete” and demanding revisions. Meanwhile, workers’ unions rushed to court, obtaining restraining orders against the closure. What should have been a straightforward administrative process turned into a legal maze
The Supreme Court’s Balancing Act
When the case reached the Supreme Court, the judges faced a classic constitutional dilemma: how to balance individual freedom with collective welfare. Their solution was both legally sound and practically wise.
The Court affirmed that the constitutional right to conduct business necessarily includes the right to cease operations. As they put it, “Article 19(1)(g) includes the right to shut down a business but is, of course, subject to reasonable restrictions.”
However, the Court didn’t stop at abstract constitutional principles. They examined the specific facts and found that HSML had indeed followed proper procedures. The application dated August 28, 2019, was complete and valid. The 60-day deemed closure period had expired by October 2019.
Crucially, the Court ruled that the Deputy Secretary had overstepped his authority. Under the Industrial Disputes Act, only the Minister could handle closure applications. The Deputy Secretary’s demands for revisions and his attempts to stall the process were legally invalid.
The Court Also Thought About the Workers
What makes this judgment particularly noteworthy is how the Court balanced legal rights with human compassion. While ruling in favor of HSML’s right to close, the judges didn’t ignore the workers’ plight.
In a move that exemplified judicial wisdom, the Court enhanced the compensation offered to workers by an additional ₹5 crores. This wasn’t legally required, but it showed that constitutional rights and social responsibility can coexist.
The Court also ruled that compensation already paid to employees during the litigation period wouldn’t be recoverable from HSML – essentially acknowledging the company’s good faith efforts throughout the legal battle.
Why This Case Matters for Indian Business History
This judgment gains additional significance when viewed against India’s constitutional history. The framers of our Constitution, drawing from the country’s rich trading heritage dating back to ancient silk routes, recognized that economic freedom was essential for national development.
Articles 301 to 307 of the Constitution, which deal with trade and commerce across state boundaries, reflect this vision of India as a unified economic entity. The freedom to start, run, and close businesses isn’t just about individual rights – it’s about creating a dynamic economy that can adapt to changing circumstances.
HSML’s case perfectly illustrates this principle. The company had served the economy faithfully for decades. When circumstances changed, forcing them to continue operations would have been economically wasteful and ultimately harmful to all stakeholders.
Conclusion: The Right to Begin, Continue, and End
The Harinagar Sugar Mills case will be remembered as a watershed moment in the evolution of business rights in India. By affirming that the constitutional right to conduct business includes the right to cease operations, the Supreme Court completed a circle that began with the framers’ vision of economic freedom.
This isn’t just about one company’s right to close down. It’s about creating a legal framework that respects individual choice while protecting collective interests. It’s about ensuring that economic decisions are made based on business realities rather than bureaucratic preferences.
Most importantly, it’s about recognizing that in a free society, the right to exit is as important as the right to enter. Whether we’re talking about businesses, relationships, or life choices, the freedom to say “no more” is fundamental to human dignity.
The Court’s decision to enhance worker compensation while upholding HSML’s closure rights shows that constitutional freedoms and social justice aren’t mutually exclusive. They can and should coexist in a well-functioning democracy.
As India continues its journey toward becoming a global economic powerhouse, judgments like Harinagar provide the legal certainty and flexibility that entrepreneurs, workers, and investors need. They remind us that the Constitution isn’t just a document of abstract principles but a living framework for balancing competing interests in a complex, evolving society.
The right to exit, now constitutionally affirmed, isn’t just about ending things. It’s about the freedom to make new beginnings when circumstances demand it. And in a rapidly changing world, that freedom might be the most important business right of all.
Read Judgement: Harinagar Sugar Mills Ltd. v. State of Maharashtra
The Harinagar Sugar Mills Ltd. v. State of Maharashtra case represents a significant development in constitutional law and business jurisprudence. While this analysis provides a comprehensive overview, specific legal advice should always be sought for individual circumstances.
