If the persons identified to be removed are managers, then you can give them notice (as per the contract of employment) and ask them to go. At the same time, if they are workers, you should follow the procedures outlined in the Industrial Disputes Act (not the Factories Act because the Factories Act is an Act that provides for welfare, safety, health, etc., of the workers employed and has nothing to do with employee disputes or retrenchment).
Retrenchment under the Industrial Disputes Act
As per the Industrial Disputes Act, you can retrench the employees if you find that there is overstaffing. However, you cannot select and terminate the workers to be retrenched; it should be the last worker in a particular department or division who should be terminated first. Again, if the termination is due to redundancy or overstaffing, then no person should be appointed in the place of workers you have retrenched. In case the business situation improves and you require additional manpower, it should be the workers who were retrenched who should be appointed then. You cannot hire freshers or new persons for that position.
Government Approval for Retrenchment
Moreover, if you have more than 100 workers in your factory, even to retrench one worker, you should get approval from the government. Certainly, if the number of workers is less than 100, only an intimation of your move to retrench workers to the government (Labour Department) is sufficient. In the case of factories employing 100 or more employees, the notice required to be given to retrench the workmen is three months. If you do not give three months' notice, you should pay the salary of three months in lieu of notice. In addition to this notice pay, you have to pay retrenchment compensation at the rate of 15 days' salary for every completed year of service of the workers whose services have been terminated. This is in addition to gratuity, which is payable to those who have completed 5 years' service.