Hey Shweta,
I recommend the following
1. Never mix up non-performance, redundancy, lack of projects, making loss, and restructuring for profit while discussing this topic with the management or employees.
2. If you trust your MD and having excellent rapport, then only continue with this project. My honest suggestion is to act carefully and never become a scapegoat.
3. If you are having people come under the classification 'workmen', recommendation from your labour law advisor is a must before any further action.
4. As you know well, Layoff is the most difficult and painful exercise in India. Once done, the blackmark stay forever and unfortunately HR will be at the receiving end. It is not ethical to come all on a sudden and say "Hey, you guys are not performing and I don't have money to pay. So fired".
5. Study the problems, make all sorts of information to see the real problem. No sales, no viability, no market, no cash to run business, etc. Then what ? winding up the business through proper channel.
6. Restructuring by removing a fraction of employees is pretty tough in India. If it is the wish of the management, as an employee, you have no choice. However prepare it with due diligence.
6.1 Understand the expectation of management - what is the expected outcome. Could be resize the firm, save office space, reduce capital cost by 50% and so on. Make a statement and start from there.
6.2 If your organisation has no formal performance appraisal process, HR can not announce that Mr.ABC is an under performer. However as per appointment order terms, management can dismiss anybody from employment by giving notice and compensation.
6.3 The standard way of performance related separation require, regular performance check, placing under performers in a periodical PIP (performance improvement programme), PIP review, sending the case to a committee for final decision and then separation.
There are many rude and unethical practices (unnecessary transfers, blame game, keeping employees idle, not paying salary in time, push for unrealistic targets etc.) to coerce employees and expel from the company. I recommend not to follow such unfair practices.