Summary: A business may be transferred as a going concern, but the employment relationships connected with that business do not necessarily move in the same manner. The acquisition by Rane (Madras) Limited of Hindustan Composites Limited Friction Business under a BTA dated 30 June 2026, for ₹370 crore on a slump-sale basis, illustrates the issue. Section 73 of the Industrial Relations Code, 2020 addresses the consequences of transfer of ownership or management of an establishment and protects qualifying workers where continuity of service, preservation of terms and the transferee’s future retrenchment liability are satisfied. The article identifies this as the “employee perimeter problem”: a BTA may specify which employees are intended to accompany the undertaking, but the contractual allocation between buyer and seller does not necessarily determine statutory employment rights. Vidyut Metallics Pvt. Ltd. v. Vidyut Metallics Employees demonstrates that employment relationships may be examined by reference to actual working arrangements, continuity, control and supervision rather than merely the wording of commercial agreements. The discussion also refers to Ashok Leyland Ltd. v. ACIT and Texmaco Rail & Engineering Ltd. v. State of Chhattisgarh to illustrate how transaction documentation may separately address employee continuity, service conditions, accrued benefits, records, appointment letters and unwilling employees. The article therefore advocates treating the employee schedule as a risk map identifying who transfers, who does not, service history, accrued entitlements, disputed liabilities and the contractual allocation of pre- and post-transfer obligations. The central conclusion is that a BTA cannot, by itself, settle every question concerning the continuation of employment.
The Employee Who Is Not in the Deal: Hidden Risk in Business Transfers
Introduction
A business may be transferred in a single transaction. An employment relationship rarely is.
This distinction is easy to overlook when a BTA describes an undertaking as a going concern and expressly includes its employees among other components being acquired. The recent acquisition by Rane (Madras) Limited of Hindustan Composites Limited Friction Business illustrates the point. Under the BTA dated 30 June 2026, RML agreed to acquire the Friction Business, including its assets, liabilities, contracts, licences and employees, as a going concern on a slump-sale basis for ₹370 crore.[1] The acquisition was subsequently completed on 20 August 2026.[2]
These transactions, however, raises a question that a conventional description of a “business transfer” does not answer. The Question About who exactly moves when the business moves?
Section 73 of the Industrial Relations Code provides that where ownership or management of an establishment is transferred, a worker with at least one year of continuous service is ordinarily entitled to notice and compensation as if retrenched, unless specified conditions relating to continuity of service, preservation of terms and the transferee’s future retrenchment liability are satisfied.[3] The provision therefore does not operate merely at the level of the commercial undertaking. It operates through the legal relationship between the worker and the employer.
This creates what may be termed the employee perimeter problem. A BTA can identify the employees intended to accompany the undertaking. Since the contractual agreement between buyer and seller cannot necessarily determine the entire legal consequences of employment. The question is therefore not simply whether employees are mentioned in the BTA. Rather it is about whether the transaction has correctly mapped the employment relationships, their continuity and the liabilities attached to them.
What BTA Transfers and What Law Recognizes
A slump sale is fundamentally a transaction concerning an undertaking. Employment law, however, asks a different set of questions.
Section 73 is significant because it recognises the transfer of an establishment while simultaneously protecting workers against the consequences that may otherwise follow from a change of employer. Its proviso exempts the transfer from the compensation consequence where the worker’s service is uninterrupted, the post-transfer terms are not less favourable and the new employer assumes liability for future retrenchment compensation calculated on the basis of continuous service.[4] The statutory design therefore makes continuity legally consequential. It is not enough for the buyer and seller to agree commercially that employees are “part of the undertaking”. The transaction must also determine how their employment history is to be treated after closing.
This distinction becomes particularly important because “employee” is not necessarily synonymous with “worker” under the IR Code. Section 73 specifically addresses qualifying workers, where Senior managerial personnel and contractual personnel fall outside the statutory definition. Consultants, secondees and other categories may occupy different legal positions even though a BTA may describe them collectively as employees. Therefore, an employee schedule in a BTA should not be viewed merely as a list of human resources moving from one company to another. It is potentially the document through which the parties attempt to identify against whom continuity, accrued benefits, pending claims and future liabilities will operate.
That is where transactional drafting encounters employment law.
When the Contract Says “Transferred”, But the Law Asks “Who Was the Employer?”
This difficulty is far from theoretical. In Vidyut Metallics Pvt. Ltd. v. Vidyut Metallics Employees, the Bombay High Court reviewed a slump-sale basis where a business was transferred, encompassing all assets, liabilities, records, and personnel.[5] The BTA contained broad provisions transferring business liabilities and imposing employment-related obligations upon the transferee. Nevertheless, a group of workmen had not consented for transfer of their employment. So, to examine this employment relationship Court relied on the actual employment relationship rather than treating the BTA as conclusive.
The Court expressly held that industrial adjudication is not confined to the wording of commercial agreements. Rather it shall be subjected to the working arrangement, continuity of employment and actual control and supervision.[6] The Court ultimately upheld that the concerned workmen had not been validly transferred and that their employment relationship with the original employer had continued.[7]
The significance of Vidyut Metallics lies beyond its particular facts. It demonstrates that a commercial transfer and an employment transfer are legally distinguishable events. A buyer and seller may agree that a liability has been assumed by the purchaser. That allocation may determine who bears the economic burden between the contracting parties. It does not necessarily determine whether an employee can enforce a statutory right against a particular employer and vice versa.
This distinction should be central to employment due diligence. Supposedly if an employee name is omitted from the transferred-employee schedule even though he who worked substantially for the transferred business or an employee with an unresolved disciplinary proceeding; or a worker whose accrued statutory benefits relate partly to the pre-transfer period. The commercial answer to “who bears the liability?” may be different from the employment-law answer to “who is the employer?”. The BTA therefore cannot be permitted to collapse these separate questions into one.
Transactional Practice Already Recognises the Problem
The architecture of sophisticated business transfers provides evidence that the employee relation requires separate treatment.
In Ashok Leyland Ltd. v. ACIT, the transaction documentation concerning a division transferred on a slump-sale basis contained provisions dealing with continuing employees. Moreover, the parties simultaneously entered into a separate Staff Transfer Agreement. Through which the question of protection of existing service conditions, continuity of service for retirement benefits, transfer of accrued retirement and welfare benefits, and cessation condition were addressed.[8] The significance is not that every transaction shall require a separate staff-transfer agreement. Instead, it demonstrates that parties themselves may recognise that transferring a business and transferring employment relationships involve different legal and operational questions.
Similarly, the BTA examined in Texmaco Rail & Engineering Ltd. v. State of Chhattisgarh contemplated the handover of employment records, communication regarding transfer, continuity of service and terms no less favourable than those applicable before transfer. The purchaser was also to issue fresh appointment letters, while the agreement contemplated a mechanism for employees who were unwilling to join.[9]
These provisions reveal an important drafting reality. Which could be realized by understanding that employee transfer is not a single event occurring automatically at closing. It may involve consent, documentation, continuity, benefit recognition and allocation of pre- and post-transfer liabilities.
Failure to distinguish the questions can create a particularly difficult post-closing dispute. The business may unquestionably belong to the purchaser, while the legal responsibility for an employee remains contested.
The Employee Schedule Should Become a Risk Map
The solution is not to treat Section 73 as a mechanical closing condition. Instead, employment diligence in a business transfer should produce an employee-risk map.
The first layer should identify the population being transferred and classify individuals according to their legal status. The second should map historical service and accrued entitlements. The third should identify disputed or contingent liabilities, including pending proceedings, statutory dues, severance exposure and claims relating to periods preceding closing. The fourth should establish the contractual allocation of those liabilities between buyer and seller without assuming that such allocation extinguishes statutory rights.
This approach is particularly important where employees do not consent to the proposed transfer. Vidyut Metallics demonstrates that such employees cannot simply be treated as having disappeared from the transaction because the BTA has transferred the undertaking.[10] Their employment status may continue to generate obligations even though the commercial undertaking has already moved.
For the purchaser, this means that an employee schedule should not merely answer “who comes with the business?” It should also answer “who does not, why, and what liability remains?”
The corresponding question is whether employees excluded from the transfer have been properly dealt with rather than merely omitted from the transaction documents. The result is a more useful conception of the BTA. Not simply a document allocating assets and liabilities, but a document that must accurately identify the boundary between the transferred undertaking and the employment relationships.
Conclusion
The conventional understanding of employment issues in business transfers tends to begin and end with continuity of service and compliance with the statutory conditions. Subject to its applicability to transferred workers. That approach is increasingly inadequate for complex slump-sale transactions.
The deeper problem lies in the disconnect between the business being transferred and the employment relationships attached to it. A business may be clearly defined for the purposes of the transaction, but the employees associated with that business necessarily are not. An employee may work exclusively for the transferred undertaking yet not be legally transferred to the purchaser. Conversely, the buyer and seller may agree between themselves that rights or liabilities will pass to the purchaser, without contractual allocation determining the employee’s statutory rights. The transaction may therefore settle what the parties intend to acquire, but it cannot, by itself, settle every question concerning the continuation of employment.
Section 73 of the IR Code makes continuity legally significant, but it does not convert the BTA into a substitute mechanism for employee welfare. Recent jurisprudence reinforces that courts may examine the substance of the employment relationship. Including actual continuity, control and supervision, rather than simply accepting the labels used in commercial agreements.
The employee schedule should be a risk map. It should identify who transfers, who does not, what service history follows, what liabilities survive closing and which obligations are merely allocated contractually between the parties. A transaction is not fully employment proof merely because the BTA says that employees are included. The real test begins where the BTA’s employee schedule ends.
[1] Rane (Madras) Ltd., Disclosure Under Regulation 30 of the Securities & Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (June 30, 2026).
[2] Rane (Madras) Ltd., Updates on Acquisition (Aug. 20, 2026).
[3] Industrial Relations Code, No. 35 of 2020, § 73 (India 2020).
[4] Id.
[5] Vidyut Metallics Pvt. Ltd. v. Vidyut Metallics Employees, W.P. No. 17274 of 2025, 2026 (Bom. H.C. May 7, 2026).
[6] Id.
[7] Vidyut Metallics, 2026:BHC-AS:21715-DB.
[8] Ashok Leyland Ltd. v. ACIT, ITA Nos. 2330 & 2618/Chny/2019 (ITAT Chennai July 7, 2025).
[9] Texmaco Rail & Eng’g Ltd. v. State of Chhattisgarh, W.P. No. 1594 of 2019 (Chhattisgarh H.C. June 14, 2022).
[10] Vidyut Metallics, 2026: BHC-AS:21715-DB.
