The Shops and Establishment Act implication on Demergers


The Shops and Establishment Act is a State legislation Act in India, and each State has framed its own rules for the Act. The object of this Act is to provide statutory obligation and rights to employees and employers in the unauthorized sector of employment, i.e., shops and establishments. This Act is applicable to all persons employed in an establishment with or without wages, except the members of the employers’ family.

Regulations under the Act:

This act lays down the following rules:

  • Working hours per day and week.
  • Guidelines for spread-over, rest interval, opening and closing hours, closed days, national and religious holidays, overtime work.
  • Rules for employment of children, young persons and women.
  • Rules for annual leave, maternity leave, sickness and casual leave, etc.
  • Rules for employment and termination of service.
  • Maintenance ofREGISTERS and records and display of notices.
  • Obligations of employers as well as employees.

Offices and establishments are defined in The Shops and Establishments Act. Establishment refers to a commercial establishment, defined as any premises wherein any trade, business or professional service, or any work in connection with, incidental or ancillary thereto, is carried out.

Registration under the Act

In the context of Maharashtra Shop and Establishment Act, 2017, after Demerger, if number of workers working in an establishment crosses the limit prescribed in the Act, i.e. 10 workers, then the employer will require to get that establishment registered under the Act which earlier was not required to be registered. Based on the location of the establishment, applicable State Act needs to be referred.

Issues to be considered before filling scheme of Demerger or arrangement

Demerger transaction generally involves transfer of undertaking ( including shops, Offices , establishments). And as part of undertaking even workers/ employees are transferred. So, following issues need to be addressed before entering into Demerger transaction:-

  • Whether the terms and conditions of service are as favorable to workers/ employees, as they were before such transfer?
  • Whether the Acquirer (Resulting Company) is committed to pay the workers/ employees their dues as if their employment had been continuous and uninterrupted by the transfer?
  • Whether workers/ employees’ written consent –accepting the terms and conditions of employment in the new company have been obtained? And, if not whether it would constitute potential grounds for dispute – under Industrial Disputes Act, 1947?

Apart from these worker/ employees issue, there are other administrative issues that need to be addressed:-

  • Whether the transfer of undertaking will require new registration (fresh), or can the existing license be transferred in the name of Resulting Company?
  • Or, whether Resulting Company register the acquired shop/ enterprises under existing license?
  • Or, whether the Resulting Company should obtain registration shop/ enterprises wise?
  • Or, whether the registration available – entity wise (i.e. one registration for all the shop/ enterprises owned by that entity)?

You can consult us for solution addressing the above issues. And in addition to these we can help you secure business interests & objectives, considering not only the current requirements but also anticipating future business dynamics.