Section 73 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
When the ownership or management of an establishment passes to a new employer, section 73 gives each worker with at least one year of continuous service the notice and compensation of section 70, as if he had been retrenched. The right falls away only if three protective conditions are all met. This matters in every sale, merger, slump sale or takeover of a business with staff.
Where ownership or management of an establishment is transferred, by agreement or by operation of law, to a new employer, every worker with not less than one year of continuous service immediately before the transfer is entitled to notice and compensation in accordance with section 70 as if retrenched (s.73). The proviso removes the entitlement only if (a) service is not interrupted, (b) the new terms are not less favourable, and (c) the new employer is legally liable to pay retrenchment compensation on the basis of continuous service without interruption by the transfer.
The rule
Section 73 says: "Where the ownership or management of an establishment is transferred, whether by agreement or by operation of law, from the employer in relation to that establishment to a new employer, every worker who has been in continuous service for not less than one year in that establishment immediately before such transfer shall be entitled to notice and compensation in accordance with the provisions of section 70 as if the worker had been retrenched".
| Element | Text |
|---|---|
| Trigger | Transfer of ownership or management of an establishment |
| Mode | "by agreement or by operation of law" |
| Who benefits | Every worker with not less than one year of continuous service in that establishment immediately before the transfer |
| What they get | Notice and compensation under s.70 as if retrenched |
Some points follow from the words.
- Any mode of transfer. Sale, lease-type arrangements or a change by law all qualify if ownership or management passes to a new employer. The Code does not list transactions; the test is that ownership or management is transferred to a new employer.
- Continuous service has the meaning in s.66, including deemed service (see sections 65 and 66). The one year is measured in "that establishment" and "immediately before such transfer".
- Compensation "in accordance with s.70". Section 70 sets one month's notice (or pay in lieu), fifteen days' average pay per completed year (or part over six months) and the Government notice; see sections 68 to 70. The section does not say the worker's contract ends; it says the entitlement arises "as if the worker had been retrenched".
- The section does not limit the right by establishment size; s.65's exclusions are stated for ss.67 to 69 only. Whether any other limit applies to a given case should be checked against the Code as a whole.
The proviso: no entitlement if three conditions are met
"Nothing in this section shall apply to a worker in any case where there has been a change of employers by reason of the transfer, if—
| Condition | Text |
|---|---|
| (a) | "the service of the worker has not been interrupted by such transfer" |
| (b) | "the terms and conditions of service applicable to the worker after such transfer are not in any way less favourable to the worker than those applicable to them immediately before the transfer" |
| (c) | "the new employer is, under the terms of such transfer or otherwise, legally liable to pay to the worker, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer" |
All three must hold; the conditions are joined by "and" in the text. The words "in any way less favourable" set a demanding test on terms. Condition (c) needs the new employer to be legally liable, whether under the transfer agreement or otherwise, to pay compensation counting the old service. A promise that is not legally binding on the new employer does not meet it.
Example (invented). A company sells its plant as a going concern. Workers move to the buyer without a break (condition (a) met), on the same pay and leave (condition (b) met), and the sale agreement makes the buyer liable to pay retrenchment compensation counting service with the seller (condition (c) met). Section 73 does not apply and the seller owes no s.73 compensation. If the buyer offers a lower allowance structure, condition (b) fails and workers with one year of service are entitled to notice and compensation as if retrenched.
Practical steps in a business transfer
| Step | Why |
|---|---|
| List workers with one year of continuous service at the transfer date | They are the s.73 group |
| Compare post-transfer terms with pre-transfer terms line by line | Condition (b) says "in any way less favourable" |
| Put a clause in the transfer document making the buyer liable for compensation on the basis of continuous service | Condition (c) |
| Confirm no gap in service on transfer | Condition (a) |
| If any condition cannot be met, compute s.70 compensation and serve notice | Otherwise liability arises |
Deal documents often deal with employee liabilities in the warranties. Our labour law compliance team can help you map which workers are covered and how the clauses meet the three conditions. For tax on any compensation paid, see tax on retrenchment compensation, and for the old-law comparison on transfers and closure see Industrial Disputes Act 1947: retrenchment, closure and strike-lockout rules.
Rules, Forms and recovery
The Central Rules, 2026 (G.S.R. 342(E), 8 May 2026) contain rule 27 (Form XIII notice of retrenchment) and rule 37 (re-skilling fund) for retrenchment. The text of s.73 says only that the worker is entitled to notice and compensation "in accordance with the provisions of section 70"; whether rules 27 and 37 apply to a s.73 case is not stated in the rule text reviewed, so check it with the authority or your advisor. Unpaid compensation under Chapter IX can be recovered by the route in s.59 (see section 59). Where the State Government is the appropriate Government, State rules apply.
Need help with a business transfer?
Whether you are a seller, a buyer or a union, the three conditions should be tested before signing. Our labour law compliance team can help you review the workforce position and the transfer documents.
Key takeaways
- A transfer of ownership or management, by agreement or operation of law, triggers notice and s.70 compensation for workers with one year of continuous service (s.73).
- The entitlement is "as if the worker had been retrenched".
- It does not apply if service is uninterrupted, new terms are not in any way less favourable, and the new employer is legally liable on the basis of continuous service.
- All three conditions must be met.
- Check each worker's service and terms line by line.
Read next
- Section 68-69-70: laid-off workers and conditions precedent to retrenchment
- Section 71-72: procedure for retrenchment and re-employment of retrenched workers
- Section 65-66: application of chapter and continuous service
- Retrenchment compensation calculation: formula and examples
Disclaimer: Based on the Industrial Relations Code, 2020 (as enacted) and, where noted, the Industrial Relations (Central) Rules, 2026 (G.S.R. 342(E), 8 May 2026), as on 30 September 2026. The Code is in force from 21 November 2025; some provisions may be notified later, and State Governments make their own rules for establishments where the State is the appropriate Government. Verify the current position before acting.