How to shut shop, the Mumbai way

What does a company that wants to exit a business do when the state doesn't readily give permission to shut?

The answer, manufacturing companies in Maharashtra have found, is simple: Stop paying electricity and water bills for the factory.

The power or water company then cuts off power or water supply and, voila, the factory comes to a standstill. The company then sits back and waits.

After a year or two, if approaches the state labour commissioner, argues that it has no funds to pay its bills and losses have mounted. The labour commissioner then clears its closure.

This has happened in several cases recently. A textile mill applied to the state government several times unsuccessfully for permission to shut.

For over a year, it didn't pay its power bills.

In April this year, it approached the labour commissioner saying that over 1,500 workers had opted for a voluntary retirement scheme, though nearly 600 still remained on its rolls, that it didn't have the cash to meet its power and other bills and so it should be allowed to shut.

It was allowed to do so.

The workers, meanwhile, can do little but twiddle their thumbs. They remain without work and, in some instances, even pay for several months.

This helps persuade them that closing the factory would have been the lesser evil since they would at least have been paid their statutory dues.

Take the case of Laxman Mhatre. He has worked at a textile mill for the last 25 years. For the last five years, he has been reporting to work each day but has no work assigned to him.

"The mill will officially deny that no work is being given to us. But there is no power supply. These are just methods to get us to opt for a VRS."

Section 25 (O) of the Industrial Disputes Act states: "Where application has been made for closure, the appropriate lawman (labour commissioner), after making such inquiry as he thinks fit and after giving a reasonable opportunity to be heard to the employer, workmen and the persons interested in such closure, may, having regard to the genuineness and adequacy of the reasons stated by the employer, the interest of the general public and all other relevant factors order the closure."

Earlier, companies were required to seek the permission of the state labour department if they wished to shut. The state government did not permit closures because it didn't want to be perceived as being anti-labour.

But some three years ago, the power to sanction closures was transferred to the labour commissioner.

Explains Maharashtra Labour Minister Satish Chaturvedi: "Since the issue of closure is of a technical nature, these have been delegated to the labour commissioner instead of me holding hearings on the these matters and deciding as was the case earlier."

Over the last four months, the labour commissioner has given permission for several factories to close, after factories and textile mills approached the Board for Industrial and Financial Reconstruction and were declared sick.

Textile mills, in particular, did not bother too much if their cases were held up at BIFR.

But now mill owners are eager to sell their land and take up their cases vigorously with the labour commissioner because the government has said that it will acquire mill land if workers dues have not been paid.

So to buttress their case before the labour commissioner by arguing that they don't have funds, they've not been paying their power bills.

A random check with Mumbai's three power utilities showed that the company that's been at the receiving end is Tata Power because it services the mill area (BSES and BEST don't cover the area).

A Tata Power executive confirmed that several textile and companies had stopped paying their power bills but said he didn't know the reason for this.

So here's a tip for companies in other states that want to shut but can't -- stop paying your power and water bills, sit back and watch your factory come to a standstill and then tell the state authorities that you're deep in the red and don't have money to run the factory.

As for the power company, you can always pay it later.