Section 75 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.
Section 75 of the Industrial Relations Code, 2020 gives a worker of a closed undertaking the same notice and compensation as a retrenched worker, provided the worker has at least one year of continuous service. A lower cap applies where the closure is due to unavoidable circumstances beyond the employer's control, and there are special rules for mines and construction projects.
Where an establishment is closed down for any reason whatsoever, every worker with not less than one year of continuous service immediately before the closure is entitled to notice and compensation under section 70 as if retrenched. If the closure is due to unavoidable circumstances beyond the employer's control, the section 70(b) compensation is capped at three months' average pay. Financial difficulty, unsold stock, expiry of a lease or licence, and (for mines) exhaustion of minerals do not count as such circumstances. A contravention is punishable under s.86(3) with a fine of fifty thousand to two lakh rupees.
The basic rule: closure is treated as retrenchment
Section 75(1) borrows the retrenchment scale in section 70. A worker who meets the one-year test is entitled to:
| Item | Source |
|---|---|
| One month's notice in writing with reasons, or wages for the notice period in lieu | s.70(a) |
| Compensation equal to fifteen days' average pay (or average pay of such days as the appropriate Government notifies) for every completed year of continuous service or any part thereof in excess of six months | s.70(b) |
Section 75(1) says the worker is entitled to notice and compensation "in accordance with the provisions of section 70, as if the worker had been retrenched". The third limb of s.70, notice on the appropriate Government, is dealt with separately for closure in section 74 (sixty days) and section 80 (prior permission). Our article on sections 68 to 70 covers the retrenchment conditions in full. For payroll teams, the money side is where our payroll compliance audit work usually begins.
"Continuous service" is defined in section 66 of the Code, which treats a worker as in continuous service for a year if the worker has actually worked 240 days in the preceding twelve months (190 days below ground in a mine). See sections 65 and 66. "Average pay" is defined in s.2(d); see wages and average pay.
The three-month cap
The proviso to s.75(1) says that where the undertaking is closed down on account of unavoidable circumstances beyond the control of the employer, the compensation under clause (b) of section 70 shall not exceed the worker's average pay for three months. Two limits on this proviso are easy to miss:
- It caps only the compensation under s.70(b). The text does not cap or remove the notice (or pay in lieu) under s.70(a).
- The Explanation narrows what counts as "unavoidable circumstances". An establishment closed merely because of (i) financial difficulties, including financial losses; (ii) accumulation of un-disposed stocks; (iii) expiry of the period of a lease or licence granted to it; or (iv) in a mining undertaking, exhaustion of the minerals in the area, is not deemed closed on account of unavoidable circumstances. So an employer cannot use ordinary losses or a lapsed lease to reach the cap.
Example. A cold-storage business closes because its lease ended and was not renewed. The Explanation rules out the cap, so each worker with a year of service receives one month's notice (or pay in lieu) and fifteen days' average pay for each completed year and part of a year above six months. A worker with seven years and eight months of service counts eight years.
Mines: exhaustion of minerals
Section 75(2) removes the right to notice and compensation where a mining undertaking is closed merely because the minerals in the area are exhausted, but only if all three conditions are met:
- The employer gives alternative employment, within a radius of twenty kilometres of the closed undertaking, from the date of closure, at the same remuneration and on the same terms and conditions as immediately before.
- The worker's service is not interrupted by the alternative employment.
- The employer is legally liable, under the terms of the alternative employment or otherwise, to pay retrenchment compensation on the basis that service has been continuous and uninterrupted.
Section 75(3) gives "minerals" and "mining operations" the meanings in clauses (a) and (d) of section 3 of the Mines and Minerals (Regulation and Development) Act, 1957.
Construction undertakings
Section 75(4) covers an undertaking set up for the construction of buildings, bridges, roads, canals, dams or other construction work.
| Situation | Result |
|---|---|
| Closed because the work is completed within two years of the undertaking being set up | No compensation under s.70(b) |
| Work not completed within two years | Notice and compensation under s.70 for every completed year of continuous service or any part thereof in excess of six months |
Note how the text words the first case: no worker is entitled to "any compensation under clause (b) of section 70". It is silent on notice in that case, so read the provision in full when advising.
Penalty and procedure
Section 86(3) punishes an employer who contravenes section 75 with a fine of not less than fifty thousand rupees and up to two lakh rupees; for a second or subsequent offence after conviction, s.86(4) provides a fine of one lakh to five lakh rupees, or imprisonment up to six months, or both. The penalty under s.86(3) can be imposed by the officer appointed under s.85(1) after an enquiry; see sections 84 and 85 and rule 44 of the Central Rules. The full schedule is in section 86(1) to (6).
Section 75 sets no separate procedure. The Central Rules do not add a rule specific to closure compensation; rule 29 deals with the closure notice and rule 35 with the Chapter X permission application. These rules apply to Central-sphere establishments. Where the State Government is the appropriate Government, the State's rules apply.
On tax, see our guide on tax on retrenchment compensation and confirm the current income-tax position before payout. For the old-law view, read retrenchment compensation calculation.
Need help working out closure dues?
Closure payouts combine notice pay, compensation, gratuity, bonus and leave encashment, and each is computed on a different base. Our payroll compliance audit team can review the calculation, check eligibility against service records and prepare the worker-wise statement. Keep your service records and last twelve months of pay ready.
Key takeaways
- One year of continuous service gives the closure entitlement; it is priced as if the worker were retrenched.
- Unavoidable circumstances cap s.70(b) compensation at three months' average pay, but losses, unsold stock and lease expiry do not qualify.
- Mining closure by exhaustion of minerals needs alternative employment within twenty kilometres on the same terms.
- Construction undertakings completed within two years owe no s.70(b) compensation.
- Default attracts a fine under s.86(3), with a higher scale for repeat offences.
Read next
- Section 74: sixty days' notice of closure
- Sections 68 to 70: conditions precedent to retrenchment
- Section 73: compensation on transfer of ownership or management
- Tax on retrenchment compensation
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.