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Vijay Kumar Mundhra Petitioner v. Union Of India And Others S
Delhi High Court
May 12, 1972
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Structured Summary of the Opinion (Hardayal Hardy, C.J.)
Factual and Procedural Background
This judgment disposes of two petitions: Civil Writ No. 17 of 1972 and Civil Writ No. 63 of 1972 under Article 226 of the Constitution. The subject industrial undertaking is the Osmanshahi Mills Limited (the company) at Nanded, Maharashtra.
- Petitioner in C.W. No. 17 of 1972: Shri Vijay Kumar Mundhra, who claims to be a registered shareholder and a director of the company.
- Petitioner in C.W. No. 63 of 1972: a partnership firm (referred to in the opinion as Messrs. Junjunwala Company) claiming to be one of the company's creditors.
Key factual and procedural milestones set out in the opinion:
- The company suffered losses from 1962 until March 1971 (except 1964-65) and its financial position deteriorated.
- On 28 April 1971 a provisional liquidator was appointed by the Bombay High Court and took charge of the assets (including the mill) on 7 May 1971 and closed the mill that day; the mill remained closed thereafter.
- Labour strength at the mill at the relevant time was about 4,000 workers (300 daily-wage and the rest "badliwalas") plus about 250 clerical/officer staff.
- Between October 1969 and December 1970 the company sent several modernisation/rehabilitation schemes to the Government of Maharashtra and sought financial assistance; negotiations included proposed loans and government guarantees.
- On 31 May 1971 the Central Government (purportedly under Section 15 of the Industries (Development & Regulation) Act, 1951) appointed an investigation committee to inquire into the company's affairs; the petitioner alleges he did not receive notice until much later.
- On 31 August 1971 the Central Government purported to make an order under Section 18A of the Industries Act (later rescinded).
- An Ordinance (Industries (Development & Regulation) Amendment Ordinance, 1971) was issued on 1 November 1971 and replaced by Act 72 of 1971 on 24 December 1971, which introduced Section 18AA (the provision under which action of 29 December 1971 was taken).
- On 29 December 1971 the Central Government purported to authorise (under Section 18AA) the Maharashtra State Textile Corporation to take over management and control of the mill; that is the impugned action challenged in these petitions.
- The petitions raise, in essence, whether the petitioners (a director/shareholder and a creditor) were entitled to be heard before the Section 18AA order was made and whether procedural fairness (natural justice) required prior notice/hearing.
Legal Issues Presented
- Whether respondents 1 to 3 were bound to hear the petitioners before the Central Government passed the order dated 29 December 1971 under Section 18AA of the Industries (Development & Regulation) Act, 1951.
- Whether a director/shareholder (the petitioner in C.W. No. 17) or a creditor (the petitioner in C.W. No. 63) has a right to be heard prior to the exercise of powers under Section 18AA, and if so, the nature and scope of that hearing.
- Whether the statutory scheme (including Article 352 emergency and Article 31-A of the Constitution) and the terms of the Industries Act preclude challenge to the statute and/or preclude application of the rules of natural justice to the impugned administrative action.
- Whether the conditions in clause (b) of Section 18AA were satisfied (specifically: closure for 3 months; prejudicial effect on the scheduled industry; financial and plant/machinery condition such that re-start is possible; re-start necessary in the public interest), and if so whether that satisfaction could be reached without giving the petitioners an opportunity to rebut documentary or other material on which the Central Government acted.
Arguments of the Parties
Petitioner's Arguments
- The petitioner (director/shareholder) contended that he was entitled to be heard before an order under Section 18AA was made because the order has civil consequences (loss of office as director, displacement of management) and thus the rule of audi alteram partem applies.
- Counsel conceded that Article 352 (emergency) and Article 31-A make the statute itself immune from challenge on certain fundamental-rights grounds, but argued that actions taken under the statute can still be attacked on other grounds (citing State of Orissa v. Binapani Dei) where an order was struck down for failure to afford a reasonable opportunity to show cause.
- The petitioner disputed that the third and fourth requirements of Section 18AA(b) were satisfied — submitting that the company's financial position and the plant/machinery condition made it impossible to re-start the mill without very large expenditures, and therefore management takeover was not justified.
- The petitioner argued that the conditions in clause (b) are conditions precedent and that the affected parties must have an opportunity to show that such conditions do not exist or are not established by the material relied upon by the Government.
- Various authorities were cited in support of the proposition that natural justice may be implied into a statute or administrative process even if the statute does not expressly require a hearing.
Respondents' Arguments
- Preliminary objection: only the company itself (Osmanashahi Mills Ltd.) could be aggrieved by an order under Section 18AA; an individual shareholder or director cannot ordinarily challenge an action affecting the company's rights unless his own rights are infringed (relying on Charanjit Lal and related authorities).
- The respondents argued that because a proclamation of emergency under Article 352 was in force and Article 31-A applied, the validity of Section 18AA could not be challenged on grounds of Articles 14 and 19; the petitioners conceded that point for constitutional attack on the statute.
- The Central Government contended it had documentary and other material (including the Investigation Committee report and the National Textile Corporation report) on which it formed satisfaction; the Investigation Committee had issued notices earlier but the petitioner and other directors failed or refused to appear.
- It was submitted that Section 18AA does not provide for a hearing and that the legislative scheme of the Industries Act expressly provides opportunities for hearing in some sections but not in Section 18AA — indicating a legislative intent not to require prior hearing there.
- The respondents argued that the statutory "restraints" and requirements in Section 18AA (the four conditions in clause (b)) and the documentary evidence available to the Government operate as safeguards in place of an implied rule of natural justice; giving notice would in the circumstances have been an idle formality.
- It was also argued that, in substance, the petitioner did not have civil rights affected in the sense that would render the action subject to mandatory natural justice protections in the way contended by the petitioner.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Charanjit Lal Chowdhuri v. Union of India (AIR 1951 SC 41) | Principle that an incorporated company may assert its rights, but an individual shareholder cannot complain of acts affecting the company's rights except to the extent they infringe his own rights. | Cited to question whether a solitary shareholder/director may challenge an order under Section 18AA; the Court noted the principle but did not finally resolve the point because it decided the case on the opportunity-to-hear issue and merits. |
| Dwarkadas Shrinivas v. The Sholapur Spinning and Weaving Co. Ltd. (AIR 1954 SC 119) | Distinction between ordinary shareholders and preference shareholders with partly paid-up liability relevant to standing and interests. | Used to distinguish factual differences about shareholders' positions; Court noted differences but did not rest decision solely on this precedent. |
| State of Orissa v. Dr. (Miss) Binapani Dei and others (AIR 1967 SC 1269) | Even where vires of a statute is not challenged, an order under a valid statute may be struck down for failure to afford reasonable opportunity when the order has civil consequences. | Relied upon by the petitioner to argue that an action under Section 18AA could be struck down for failure to give an opportunity; Court treated this authority as central to the question whether civil consequences require prior hearing. |
| Cooner v. Wandsworth Board of Works (1863) 14 C.B. (N.S.) 180 | Common-law principle that justice will supply omission of legislature: absence of positive words for hearing in a statute may be supplemented by common law to require hearing. | Petitioner relied on it (and later English authorities) to argue natural justice should be implied; Court considered the authority among others on implication of audi alteram partem. |
| State Bank of India v. Rajendar Kumar Singh and others (AIR 1969 SC 4) | Approval of common-law principle about implication of natural justice where statute is silent. | Cited as approving Cooner; Court considered it in the line of authorities about implied hearing obligations. |
| M/s East India Commercial Co. Ltd. v. Collector of Customs, Calcutta (AIR 1962 SC 1893) | Proceedings under some statutes are quasi-judicial; whether statute provides for notice or not, it may be incumbent to issue notice disclosing circumstances under which proceedings are initiated. | Petitioner relied on it to argue that notice was necessary; Court considered the case but distinguished quasi-judicial situations from the administrative-exercise here as argued by respondents. |
| Board of High School and Intermediate Education U.P. v. Kumari Chittra Srivastava (AIR 1970 SC 1039) | Whether a duty to issue show-cause notice before penalty depends on the nature of the order proposed to be passed, not on the authority's view of potential defences. | Cited by petitioner to stress the importance of hearing where civil consequences or penalties are involved; Court considered this authority in assessing whether Section 18AA attracts audi alteram partem. |
| Ridge v. Baldwin (1963) 2 All E.R. 66 | Reaffirmation of the requirement of natural justice in certain administrative decisions despite absence of explicit statutory words. | Used by petitioner to support implication of audi alteram partem; Court weighed this authority among others addressing implied natural justice obligations. |
| A.K. Kraipak & others v. Union of India (AIR 1970 SC 150) | Part of the line of Supreme Court decisions on rules of natural justice and the limits of administrative power. | Referred to in the context of the Court's review of whether natural justice supplements or is supplanted by statute; Court placed this in the broader jurisprudential context. |
| Union of India v. J.N. Sinha (AIR 1971 SC 40) | Statement that rules of natural justice operate only in areas not covered by valid law; natural justice supplements, not supplants, law and depends on nature and purpose of power. | Cited by the Court as an important modern authority describing when natural justice applies; the Court used it to balance statutory scheme vs. implied hearing obligations. |
| Barium Chemicals Ltd. v. Company Law Board (AIR 1967 SC 295) | Consideration of phrases such as "reasonable grounds to believe" as restraints on administrative power and as alternative safeguards to natural justice. | Respondents relied on it to argue that statutory restraints/requirements in the Act operate in lieu of a hearing; Court considered the analogy. |
| Nakkuda Ali v. M.F. Be S. Jayaratne (decisions of Lord Radcliffe, cited) | That "reason to believe" or "in the opinion of" may not always be purely subjective and may admit limited judicial scrutiny to ensure the opinion is founded on relevant facts. | Invoked by respondents' counsel to support the view that statutory "satisfaction" can be scrutinised for relevant facts and that such statutory restraints can substitute for mandatory hearing. |
| Radhayshyam Khare v. State of Madhya Pradesh (AIR 1959 SC 107) | Administrative action may require observance of ordinary rules of fair play. | Petitioner relied on it to show administrative decisions are subject to fair-play requirements; Court considered it as part of authorities on administrative fairness. |
| Chiranjit Lal Chowdhuri v. Union of India (1950 S.C.R. 869) | Reiterates that only those whose rights are directly affected may challenge constitutionality of law; courts deal with concrete facts, not hypothetical attacks. | Used by the Court to emphasise that the court should decide only concrete controversies arising from facts and not give advisory opinions. |
| Chuni Singh Behari Lal & others v. Union of India (A.I.R. 1968 Delhi 196) | Court concerned with facts of particular case in Article 226 petitions; the court does not adjudicate hypotheticals. | Cited to support the proposition that courts do not decide abstract questions absent a person directly aggrieved. |
| Heman Santlal Petn. v. State of Bombay (A.I.R. 1951 Bombay 121) | Bench observation that a court should decide only questions directly arising from factual matrix of the case. | Invoked by the Court to support restraint in addressing abstract constitutional issues when no one is directly aggrieved. |
| Mahomed Kalimuddin v. A.B. Steward (ILR 47 Calcutta 623) | Calcutta High Court observation that audi alteram partem applies to tribunals or bodies adjudicating matters involving civil consequences. | Petitioner cited it to support application of natural justice to administrative bodies; Court noted it among supporting authorities. |
| John v. Roes and others (1969) 2 All E.R. 274 | Observation that courts will not readily construe statutes as excluding natural justice unless legislative intention is plain and manifest. | Relied on by petitioner to argue against reading Section 18AA as excluding a hearing; Court considered the authority when analysing statutory intent. |
| Tuljansa Janardhansa Pawar (Assessee) v. Commissioner of Income-Tax, Bombay South (AIR 1950 Bombay 332) | Case invoked for the proposition that natural justice may be implied into statutory frameworks. | Petitioner relied upon it; Court considered it amongst other authorities on implied principles of natural justice. |
| K. Balagangadharan & others v. Central Road Traffic Board & Others (AIR 1957 T.C. 141) | Holding that permits cannot be cancelled/suspended unless fair opportunity is given to the holder. | Petitioner cited it to stress the need for prior hearing before penal or dispossessory administrative action; Court treated it as supportive authority. |
Court's Reasoning and Analysis
The Court proceeded by analysing (a) standing and who is "aggrieved", (b) the statutory text of Section 18AA, (c) whether the rule of natural justice (audi alteram partem) is implicitly required, and (d) whether the factual material justified the Government's satisfaction under Section 18AA(b).
1. Standing and preliminary objections:
- The respondents argued that only the company could be aggrieved and therefore challenge the order; the Court reviewed authorities (Charanjit Lal, Dwarkadas) addressing shareholder standing. The Court observed that the petitioner was a solitary shareholder/director, others had not joined, and the company itself had not complained; however, the Court chose not to finally determine this standing issue because it resolved the matter on the opportunity-to-hear and merits questions.
2. Constitutional and statutory constraints:
- The Court acknowledged counsel's concession that Article 352 (emergency) and Article 31-A prevented direct constitutional attack on the validity of Section 18AA under Articles 14/19. Still, counsel argued orders under a valid statute can be challenged on other grounds (eg. failure to afford a hearing), invoking Binapani Dei.
3. Construction of Section 18AA and the nature of the power:
- The Court set out clauses (1)–(3) of Section 18AA and identified the four factual preconditions in clause (b): (i) closed for at least three months; (ii) such closure prejudicial to the scheduled industry; (iii) financial/plant condition such that restart is possible; and (iv) restart necessary in the public interest.
- Petitioner's counsel accepted the first two but disputed (iii) and (iv). The Court rejected the petitioner's narrow temporal view that the "financial condition" meant only the instantaneous state of affairs at the moment of order; instead the Court held that financial condition includes the value of assets and the ability to raise or bear additional finances required for restarting the undertaking.
4. Evidence and documentary material:
- The Court reviewed the material that the Central Government had — including the Investigation Committee report submitted on 4 August 1971 and the National Textile Corporation reports — and extensive correspondence between the company and Government of Maharashtra demonstrating negotiations and proposed schemes for modernisation and working capital.
- The respondents asserted that the documentary evidence justified the Government's satisfaction under Section 18AA(b), and that the petitioner's allegations about obsolete machinery and impossibility of re-start were denied by the Government and contradicted by correspondence and governmental reports.
5. Natural justice and legislative scheme:
- The Court examined the argument that audi alteram partem is implicitly required by Section 18AA. It noted that Section 18AA contains no explicit requirement of hearing, and that the Industries Act elsewhere makes express provision for hearings in certain sections (e.g., Sections 10-A, 12, 15, 18-A, 18-C) while omitting it in others (including 18AA and 18G).
- The Court considered authorities on implied natural justice (Ridge v. Baldwin, East India Commercial, Binapani, Union of India v. J.N. Sinha, etc.). It observed that natural justice operates where law does not otherwise provide safeguards, but where statutory "restraints" or detailed requirements exist, those may operate as the statutory safeguard in place of implied procedural protections.
- The Court also noted that, in this case, the Government had documentary material, prior investigation steps (including notices by the Investigation Committee which the petitioner did not act upon) and ongoing negotiations and correspondence which showed the petitioners were not taken completely by surprise; in those circumstances providing a further hearing would have been an "idle formality".
6. Conclusion on merits:
- The Court concluded that the conditions in clause (b) of Section 18AA were satisfied on the material before the Government: the mill had been closed well over three months; closure was prejudicial; and the documentary material and plans indicated it was possible and necessary to restart the mill in the public interest with infusion of funds and a phased modernisation programme.
- Because the Government possessed documentary evidence and prior processes (investigation committee report, NTC report, correspondence), and because of the statutory scheme, the Court held the impugned order could not be successfully challenged by the petitioner on the grounds urged.
7. Specific relief as to creditors (C.W. No. 63):
- The Court observed that the effect of the impugned order on creditors is limited (e.g., section 18E(c) may bar continuation of winding-up proceedings or appointment of receiver without Central Government consent) but does not extinguish the creditors' claims; consequently the creditors' petition failed as well.
8. Costs and outcome:
- The petition by the director/shareholder was dismissed with costs (counsel's fee Rs. 1,000/-). The creditors' petition was also dismissed.
Holding and Implications
Holding:
Both petitions were dismissed.
Immediate consequences and implications (as stated or reflected in the opinion):
- The Central Government's order of 29 December 1971 authorising the Maharashtra State Textile Corporation to take over management under Section 18AA stands in the face of the challenges made in these petitions.
- For the director/shareholder petitioner: the challenge to the taking-over order failed; the Court did not allow his plea that he be afforded the prior hearing he sought, given the statutory scheme, existing documentary material, prior investigatory steps and the Court's view that a further hearing would have been an idle formality in the circumstances.
- For the creditor petitioner: the order's effect on winding-up proceedings is procedural (it may prevent continuation of winding-up or appointment of a receiver without Central Government consent) but it does not extinguish the creditor's substantive claim against the company; the creditor's petition was dismissed on that basis.
- The Court applied and reviewed existing authorities on natural justice and administrative powers to determine whether a statutory action required an implied prior hearing; the opinion reasons within established jurisprudence rather than announcing a new legal principle in express terms.
- The opinion does not expressly state that it is establishing a novel precedent; it places the decision in the context of existing Supreme Court and other precedents and decides the petitions on the facts and law as applied to the statutory scheme and documentary record.
Disposition: Petitions dismissed. Costs awarded in C.W. No. 17: counsel's fee Rs. 1,000/-.
Hardayal Hardy, C.J:— This judgment will dispose of two petitions viz., Civil Writ No. 17 of 1972 and Civil Writ No. 63 of 1972 under Article 226 of the Constitution. The petitioner in the first writ is Shri Vijay Kumar Mundhra of Calcutta who claims to be a registered share-holder, and director of the Osmanshahi Mills Limited situate in Nanded, State of Maharashtra, hereafter referred to as the company, while the petitioner in civil writ No. 63 is a partnership firm which claims to be a creditor of the said company.
The common question in both the cases is whether respondents 1 to 3 were bound to hear the petitioners before an order dated the 29th December, 1971, under Section 18AA of the Industries (Development and Regulation) Act, 1951 as amended, could be passed whereby the respondent No. 1 could authorise the taking over of the management of the whole of the industrial undertaking viz. the textile mill owned by the said company.
The company has been in existence since several years past. After the termination of the managing agency, the management of the company passed into the hands of a Board of Directors. In 1963, the Committee of management appointed by the Board was dissolved and the management finally passed into the hands of Shri J.P Maroo who was appointed Managing Director of the company for a period of three years with effect from 8th June 1963. His term was extended upto 7th June 1970 but owing to ill health he resigned from office as the Managing Director on 28th April, 1970 and acted in his capacity as Director till 14th August, 1970. On the resignation of Shri J.P Maroo as Managing Director, the company was being managed by the Board of Directors through a Committee of management consisting of three persons of whom the petitioner Shri Vijay Kumar Mundhra was a member.
Till the year 1961 the company made small profits but from 1962 till March 1971 the company sustained losses except that during the years 1964 and 1965 it made a sizable profit. The financial position of the company went on deteriorating and on 31st March, 1971 one of the creditors of the company M/s. Mistry Fozdar & Co. filed a petition in the High Court of Bombay for an order of winding up of the company. By an order dated April 28, 1971 a provisional Liquidator of the Company was appointed. He took charge of the assets of the company including the mill on 7th May, 1971 and immediately closed down the said mill on that very day. Since then the mill has remained completely closed. Many other creditors of the company, including M/s. Jhunjhunwala & Co. also filed winding up petitions in the Bombay High Court but although their petitions were admitted no further orders were passed on their petitions.
At the relevant time the total labour strength employed by the company in its mill was about 4000 workers of whom 300 were daily employed and the remaining were “badliwalas”. Besides the said workers there were on the muster rolls of the company clerks and officers etc. numbering 250.
The closure of the mill, particularly in a backward area of Maharashtra was a source of anxiety to all concerned. From October 1969 to December 1970 the company (both through the said J.P Maroo & its Directors) submitted to Government of Maharashtra several schemes for modernisation of the machinery of the mill in order to run the mill economically. In October 1970 the prices of cotton showed an up-ward trend even at the start of the season and in view of the continued losses and increased cotton prices, it became difficult to run the mill smoothly with full production without getting necessary finances. Negotiations were therefore started with the Government of Maharashtra. The company approached its bankers, the State Bank of Hyderabad on or about 5th January, 1971 for a loan of about Rs. 75,00,000/-. Although the Government had agreed to guarantee the loan the bankers turned down the company's request on the ground that they had very heavy commitments to the priority sector which would not permit them to grant the loan to the company.
Meanwhile the cotton prices were still rising and the company submitted an alternative proposal to Government of Maharashtra for issue of debentures of Rs. 95/- lacs and requested the Government to stand guarantee for the same. Negotiations were also carried on by the company to persuade the government to take the mill on lease but meanwhile as we have already said, the provisional Liquidator ordered the mill to be closed down.
On 5th August, 1971 the Government filed a petition under Section 397 of the Companies Act, 1956 in the High Court of Judicature at Bombay but before that on 31st May 1971, the Central Government in purported exercise of its powers under section 15 of the industries (development & regulation) act, 1951, hereafter to be referred to as the Industries Act, appointed a committee to make a full and complete investigation into the circumstances of the case set out therein.
The petitioner alleges that he did not come to know of the making of the said order nor did he receive any notice from the Committee of investigation till 28th July, 1971. He sent a letter which was followed by a telegram dated the 7th August, 1971 calling in question the validity of the said notice and the order made by the Government. He also submitted that he was desirous of placing all material to satisfy the respondents that there were no grounds for action under the Industries Act. These facts are not admitted by the respondents who say that the directors of the company willfully kept away from the investigation.
On 31st August, 1971 the Central Government passed an order in purported exercise of powers under Section 18A of the said Act which the petitioner alleges, came to his notice on or about 2nd September 1971 after it was published in the Gazette on 31st August, 1971. Pursuant to that order, the Maharashtra State Textile Corporation which was appointed authorised Controller under the order called upon the provisional Liquidator to hand over possession of the said mill to the Authorised Controller.
The orders passed by the Central Government were challenged by the petitioner in Civil Writ Petition No. 1011 of 1971 on which a rule nisi was issued by the Division Bench of this Court on 18-9-1971. On 26-10-1971 the interim order made by the Division Bench was varied by V.S Deshpande J. of this Court. We are however not concerned with that petition nor with the interim order made and varied by this Court, as that order was rescinded on 29-12-1971 by the Central Government in exercise of the powers under Section 18F of the said act.
On 1st day of November, 1971 an Ordinance called the Industries (Development & Regulation) Amendment Ordinance, 1971 was issued which was ultimately replaced by an act (being act 72 of 1971) on the 24th day of December, 1971, inter alia, adding section 18aa in the industries act, action under which is impugned in this petition.
On 29-12-1971 the Central Government in purported exercise of powers under section 18aa of the industries act, authorised the 10th respondent, viz. Maharashtra State Textile Corporation to take over the management and control of the whole of the undertaking of the mill at Nanded, subject to the terms and conditions mentioned in the said order.
In the counter affidavit filed on behalf of three respondents viz. Union of India (respondent No. 1) Joint Secretary to Government of India in the Ministry of Industrial Development and Internal Trade (respondent No. 2) and Shri S.K Sehgal who is sued by name as Joint Secretary in the said Ministry (respondent No. 3), the main facts are not denied. Some of the facts are no doubt denied and we will refer to them in due course. The said respondents have however raised a few preliminary objections. Respondent No. 10, viz. The Maharashtra State Textile Corporation have filed a separate counter affidavit supporting the pleas taken by respondents 1 to 3. We shall deal with those objections before we deal with the points raised on behalf of the petitioner.
In civil writ petition No. 63 the petitioner firm, Messrs. Junjunwala Company, is one among nine other concerns who are creditors of the company who have filed their respective petitions for the winding up of the said company in the High Court of Bombay. The case of the petitioner firm is that it should have been heard before an order under Section 18AA was passed by the Central Government. So, while in C.W No. 17 of 1972 the right to be heard prior to an order under Section 18AA is claimed by a Director & member of the company, in C.W No. 63 that right is claimed by a creditor. The questions that arise are whether they or anyone has such a right and if so, what is the nature & scope of hearing that may be given, if at all any hearing is to be given. We shall first deal with the case of a Director/member of the company.
The first preliminary objection raised by the respondents is that the only person who could be aggrieved by an order under Section 18AA of the Act is the company, namely, Osmanashahi Mills Limited, and inasmuch as the said company has not challenged the impugned order dated 29th December, 1971, the petition is liable to be rejected. The petitioner no doubt claims to be a registered share-holder of the company. He also claims to be a director of the company. But does that entitle the petitioner to challenge the impugned order as a share holder and director of the company ? In Charanjit Lal Chowdhurv v. The Union of India and others (AIR 1951 SC 41) (1), Mukherjea J. dealt with this question and it was said that an incorporated company can come forward for enforcement of its fundamental rights but is would not be open to an individual share-holder to complain of an act which affects the fundamental rights of the company except to the extent that it constitutes an infraction of his own right as well. It was also open to the old directors of the company who had been ousted from their position by reason of the enactment to maintain that they were directors still in the eye of law and on that footing the majority of share-holders could also assert the rights of the company as such. Fazl. Ali J. who agreed with Mukherjea J. said that the company and the share-holders were in law separate entities and if the allegation was that any property belonging to the company had been taken possession of without compensation and the right enjoyed by the company under Article 19 (1) (f) had been infringed, it would be for the company to come forward to assert or vindicate its own right and not for any individual share-holder to do so.
In Dwarkadas Shrinivas v. The Sholapur Spinning and Weaving Co. Limited and others (AIR 1954 SC 119) (2), Mahajan J. said that in AIR 1951 SC 41 Charanjit Lal was an ordinary share-holder of a fully paid-up share but in Dwarka Dass's case, the plaintiff and the other preference share-holders held partly paid-up preference shares on which their liability amounted to a sum of Rs. 16 lacks, the plaintiff alone being under a liability of Rs. 1,62,000/-. There was thus no comparison between the rights and liabilities of Charanjit Lal with the rights and liabilities of Dwarkadas Shrinivas and other preference share-holders.
In the present case the petition is by a solitary share-holder and a director of the company. The other share-holders and directors of the company have not come forward to join the petitioner. The company itself has also not complained of any infraction of its right. The contention urged on behalf of the petitioner is that in Dwarkadas's case, S.R Das J. had stated that the true principle in such cases is that only a person who is directly affected by a law can challenge the validity of that law and that a person whose own right or interest has not been violated or threatened, cannot impugne the law on the ground that some body else's right has been infringed. According to the petitioner's counsel, under clauses (a) and (e) of S. 18-B of the Industries Act, all persons incharge of the management, including persons holding office as managers or directors of the industrial undertaking immediately after the issue of the notified order, shall be deemed to have vacated their offices as such, and the persons if any, authorised under Section 18AA shall be for all purposes, the directors of the industrial undertaking and shall alone be entitled to exercise all the powers of the directors of the industrial undertaking.
Similarly under Section 18E where the management of an industrial undertaking is taken over by the Central Government, it shall not be lawful for the share-holders of the undertaking or any such person to nominate or appoint any person to be a director of the undertaking or to give effect to any resolution or to maintain in any court any proceeding for the winding up of such undertakings or for the appointment of a receiver in respect thereof except with the consent of the Central Government. The counsel's submission is that it is the interest of the petitioner as a share-holder and director which is directly affected by the order and therefore he had the right to challenge the validity of that order.
It seems to us that the impugned order temporarily takes over the management and control of the mill. The company would still continue to own the mill and whatever benefits are derived by the profits earned by resumption of production by the mill under the control of the authorised person, would automatically enure for the benefit of the shareholders. The other effect of the order is to remove the present management and the taking over of the management and control of the undertaking from its directors and managers by the authorised controller in the interest of the mill as well as the general public. The other directors have not joined the petition and it is not known what their attitude is going to be. For the present, the petitioner alone has come forward to challenge the validity of the notification. He neither represents the company nor does he represent the other directors. He also does not represent the other shareholders. It is, however, not necessary to give any finding on this point in the view that we are going to take on the question of opportunity of hearing.
The next objection relates to the petitioner's allegation on the basis of Articles 14 and 19 (1) (f) and (g) of the Constitution. The objection is that as the proclamation of emergency issued under Article 352 of the Constitution is in force the petitioner cannot assail the validity of the impugned notification on the basis of Article 19 of the Constitution. The petition is also not maintainable because of the provisions of Article 31-A of the Constitution. Under clause (b) of Article 31-A, notwithstanding anything contained in Article 13, no law providing for the taking over of the management of any property by the State for a limited period either in public interest or in order to secure the proper management of the property shall be deemed to be void on the ground that it is inconsistent with, or takes away or abridges any of the rights conferred by Articles 14, 19 or Article 31. The same also applies under clause (d) of Article 31-A to the extinguishment or modification of any rights of....... the directors or managers of corporations or of any voting rights of share-holders thereof.
Counsel for the petitioner conceded that in view of the emergency under Article 352 of the Constitution and Article 31-A the validity of Section 18-AA of the Industries Act cannot be challenged. He, however, submitted that though the statute itself cannot be challenged yet any action taken under it and the notification issued under section 18AA can be challenged not as offending Articles 14 and 19 of the Constitution but on other grounds. Counsel further submitted that although the validity of the statute cannot be challenged the impugned orders does involve civil consequences and therefore the case comes within the purview of State of Orissa v. Dr. (Miss) Binapani Dei and others (AIR 1967 SC 1269) (3) where the vires of F. R. 56 (j) was not challenged and yet the order was struck down because the respondent was not given reasonable opportunity to show cause against the proposed order. The question as to whether the impugned order involved civil consequences, was thus claimed to be the most crucial question in the case and led to a great deal of argument. As the question is intimately connected with the merits of the controversy, we decided to deal with it alongwith merits.
The following propositions were urged on behalf of the petitioner.
1. The obligation to hear a party and to preserve the principles of natural justice can arise even in a case where the statute under which the impugned action is taken is constitutional. Neither the proclamation of emergency under Article 352 nor Article 31-A of the Constitution nor any provision of the industries act abolishes the office of the director and therefore since clause (a) of Section 18B has the effect of the director of an undertaking vacating his office, unless the rule of audi alteram partem is observed the impugned order has to be struck down.
2. A party is entitled to a hearing before the passing of the order which adversely affects him to satisfy the authority that one or more of the conditions precedent to the exercise of power is not in existence.
3. The satisfaction regarding the existence of one or more of the conditions in section 18AA (b) must necessarily be based on the result of an inquiry and material. The party who is adversely affected, is entitled to an opportunity to contend that the evidence or material do not establish the existence of the essential conditions for the exercise of power.
4. The question whether there is a duty to hear a party depends upon the nature of the order and the consequence upon him and not on the authorities view of the nature of the reply or defence that the party affected may submit.
In order to appreciate the controversy, it is necessary to set out the provisions of clauses (1) to (3) of section 18AA of the Industries Act. The Section has also two other clauses, but they do not seem to be relevant:—
“18-AA (1) without prejudice to any other provision of this act, if, from the documentary or other evidence in its possession, the Central Government is satisfied, in relation to an industrial undertaking, that —
(a) the persons in charge of such industrial undertaking have, by reckless investments or creation of incumbrances on the assets of the industrial undertaking, or by diversion of funds, brought about a situation which is likely to affect the production of articles manufactured or produced in the industrial undertaking, and that immediate action is necessary to prevent such a situation; or
(b) it has been closed for a period of not less than three months (whether by reason of the voluntary winding up of the company owning the industrial undertaking or for any other reason) and such closure is prejudicial to the concerned scheduled industry and that the financial condition of the company owning the industrial undertaking and the condition of the plant and machinery of such undertaking are such that it is possible to restart the undertaking and such re-starting is necessary in the interests of the general public, it may, by a notified order, authorise any person or body of persons (hereafter referred to as the “authorised person”) to take over the management of the whole or any part of the industrial undertaking or to exercise in respect of the whole or any part of the undertaking such functions of control as may be specified in the order.
(2) The provisions of sub-section (2) of Section 18A shall as far as may be, apply to a notified order made under sub-section (1) as they apply to a notified order made under sub-section (1) of section 18A.
(3) Nothing contained in sub-section (1) and sub-section (2) shall apply to an industrial undertaking owned by a company which is being wound up by or under the supervision of the Court.”
It was also the common case of the parties that the impugned order was based on the provisions of clause (b) of section 18aa (1) and therefore the arguments were mostly confined to the provisions of that clause.
It will be seen that there are four requirements contemplated by clause (b). Firstly, the undertaking must have been closed for a period not less than 3 months; secondly, such closure should be prejudicial to the concerned scheduled industry; thirdly, the financial condition of the company owning the industrial undertaking and the condition of the plant and machinery of such undertaking are such that it is possible to re-start the undertaking; and fourthly, such re-starting is necessary in the interest of the general public.
Mr. Soli Sorabjee appearing for the petitioner did not dispute existence of the first two requirements of clause (b). He conceded that the mill has been closed for a period of not less than three months and that such closure was prejudicial to the concerned scheduled industry, namely, manufacture of textile goods. He, however, disputed the third and fourth requirements and submitted that the financial condition of the company owning the industrial undertaking, and the condition of the plant and machinery of such undertaking were such that it was not possible to re-start the undertaking. In this connection our attention was invited to the averments made by the petitioner in ground (b) of paragraph 28 of the petition. It was there said: “The financial position of the company is such that it is impossible to re-start the undertaking. The..... condition of the plant and machinery of the undertaking is out-dated and practically obsolete and is such that it is not possible to re-start the undertaking economically without incurring further losses. The petitioner says that it is impossible to re-start the undertaking unless very large amounts are expended towards repairs, re-placement and modernisation of the plant and machinery unless a provision is made for a working capital which again runs into lacs of rupees. The petitioner submits that no responsible persons acting with a sense of responsibility could have passed that impugned order.”
These averments have been denied in the counter-affidavit on behalf of respondents 1 to 3 and it is stated that the financial condition of the company owning the industrial undertaking and also the condition of the plant and machinery of the undertaking are such that it is possible to re-start the undertaking and such re-starting is necessary in the interest of the general public. The company itself had submitted several alternative schemes to the Government of Maharashtra aimed at showing that if the requisite finances for modernisation of plant and machinery and for working capital were forthcoming the company could run the undertaking economically and profitably.
Counsel for the petitioner argued that it was the financial condition of the company and the condition of the machinery and plant of the undertaking at the moment the impugned order was made, that had to be taken into consideration. We do not agree. On a true interpretation of the provisions of the Act, the financial condition of the company would include not only the value of the assets of the company but would also include the ability of the company to raise or bear the burden of additional finances required for restarting the undertaking. The report of the National Textile Corporation and also the report of the earlier Investigation Committee which had resulted in a previous order under Section 18-A would show that on additional funds being made available towards working capital, and the cost of modernisation of the machinery of the undertaking, it was possible to run the undertaking on a profitable and economical basis.
According to the counter-affidavit all that the undertaking required was a sum of Rs. 75.70 lacs (which includes Rs. 4 lacs on account of retrenchment compensation for 200 workers) which the Central Government along with Government of Maharashtra would be investing. Further with a view to make the undertaking a viable one in the long run, the Central Government intended to undertake modernisation programme in two phases over a period of two to three years costing Rs. 66.30 lacs for the first phase and Rs. 22.49 lacs in the second phase. Some of the machinery will be available on deferred payment basis and the Central Government jointly with the Government of Maharashtra would provide Rs. 57.99 lacs for the purchase of the remaining machinery. On the completion of the modernisation scheme, it was expected that the undertaking would make a profit of Rs. 25.70 lacs per annum before depreciation.
Counsel for the respondents invited our attention to several letters exchanged between the mill and the Government of Maharashtra during the period 1969 to May 1971 which clearly bring out the various schemes/proposals for modernisation and repair to the machinery and the plant of the undertaking and the provision of funds as working finances. Details of the machinery and plant which are in a good condition and those that had to be re-placed or modernised have been set out in that correspondence. Those details clearly show that the machinery is not practically obsolete as the petitioner wanted us to believe. The fact that the company was itself negotiating the raising of a loan from the State Bank of Hyderabad and also submitted several schemes to the Government of Maharashtra makes it plain that the undertaking can run smoothly with full production after getting the necessary finances.
The fourth requirement of the clause was not seriously disputed by the petitioner's counsel. All he said is that the real purpose of re-starting the mill is to provide employment to about 4000 workers who had remained idle on account of closure of the undertaking. Nanded is a small township and its prosperity largely depends on the working of the mill. In a welfare State, a mill that has been running for several years and has been providing employment to about 4000 workers cannot be allowed to be shut down. If funds can be procured by the company owning the mill which in addition to earning profits and interest on the loan can also provide employment to about 4000 workers we fail to see how its re-starting is not necessary in the interest of the general public.
If the requirements of clause (b) of Section 18-AA are satisfied the only other question that remains to be considered is whether there was material or other evidence in the possession of the Central Government to be satisfied that the management of the undertaking should be taken over by an authorised person to exercise such functions and control as may be specified in the order. It is there that considerable stress was laid by the petitioner's counsel on the existence of that evidence, documentary or otherwise, which the Central Government alleged was in its possession before it made the impugned order. It was urged that whatever evidence or material was there, it should have been shown to the petitioner and other directors of the company and they should have been afforded an opportunity to rebut that material or evidence. All the four contentions urged on behalf of the petitioner, are different facets of the same contention, namely, the observance of the rule of audi alteram partem and will therefore be treated together.
The respondent's answer is that before the first order under Section 18-A was passed on 31st August, 1971, a notice was issued to the petitioner and other directors of the company including the secretary of the company. Neither the Secretary nor the directors of the company including the petitioner chose to appear before the Investigation Committee appointed under Section 15 of the Industries Act. The Investigation Committee completed its report which was submitted to the Central Government on 4th August 1971 and after consideration of that report the Central Government made an order under Section 18-A of the Industries Act. At the stage of Investigation the petitioner and other directors of the company were given an opportunity of being heard but they avoided to do so. That report was obviously in the possession of the Central Government. Meanwhile the National Textile Corporation had also examined the affairs of the company and its report was in the possession of the Central Government. The stand taken by the Central Government however is that although it had documentary evidence in its possession on the basis of which it could arrive at a decision to take over the management of the undertaking, it was not incumbent upon the Central Government to disclose the material at any stage to the company or to give a hearing in that behalf.
The order under Section 18-A was no doubt revoked on 29th December 1971 and it may be said that having regard to the manner in which notices issued by the Investigation Committee were served on the directors and on the Secretary of the company that there were good reasons for rescinding that order.
It will be seen that Section 18-AA does not in terms provide for a hearing or opportunity. The argument advanced on behalf of the petitioner is that as a matter of construction of Section 18-AA the principle of natural justice is implicit in the section itself and therefore on a proper construction of the section no order can be passed thereunder unless the party affected by the order has had an opportunity of considering the evidence in the possession of the Central Government. On the other hand it is contended by Mrs. Shymala Pappu, counsel for respondents 1 to 3, that the legislature while enacting the Industries Act had provided for an opportunity of hearing in some sections of the statute while no such opportunity or hearing has been provided for in other sections. Section 18-AA is not one of those sections in which an opportunity for hearing has been provided for. Our attention was invited to Sections 10-A, 12, 15 and 18-A where an opportunity for a hearing has been provided for. In Section 18-C an opportunity has been given even to the persons whose contracts or agreements are to be cancelled or varied after the management of an industrial undertaking is taken over, to go to a court of law to ascertain the circumstances under which the contract or agreement was entered into; but Sections like 18-AA and 18-G do not provide for any opportunity for hearing. The scheme of the Act therefore discloses the legislative intent that in such cases the rule of audi alteram partem which is a facet of the rule of natural justice, is not to be observed.
Counsel for the petitioner does not dispute that under Section 18-AA there is no provision for application of principles of natural justice but he submits that though the statute does not expressly require a notice to be issued or hearing to be given to the parties adversely affected, there is in the eye of law a necessary implication that the parties adversely affected should be heard before an order to their prejudice is made.
The counsel referred us to the case of Cooner v. Wandsworth Board of Works (1863) 14 CB NS 180 (4) which was approve by the Supreme Court in State Bank of India v. Rajendar Kumar Singh and others (AIR 1969 SC 401) (5). Byles J. has said in that case that “although there are no positive words in a statute requiring that the party shall be heard, yet the justice of the common law will supply the omission of the legislature.” The same principle was re-affirmed in the case of Ridge v. Baldwin and others (1963) 2 All. E.R 66 (6).
Our attention was also invited to another decision of the Supreme Court in M/s. East India Commercial Co. Ltd., Calcutta and another v. Collector of Customs, Calcutta (AIR 1962 SC 1893) (7). It was observed by Subba Rao J. (as he then was) that the proceedings under the said section (section 167 (8) of the Sea Customs Act, 1878 read with Section 3 (2) of the Imports and Exports (Control) Act, 1947) are quasi judicial in nature. Whether a statute provides for a notice or not, it is incumbent upon the respondent to issue notice to the appellants disclosing the circumstances under which proceedings are sought to be initiated against them. Any proceedings taken without such notice would be against the principles of natural justice.
Reliance was also placed on a decision of the Supreme Court in the Board of High School and Intermediate Education U. P and others v. Kumari Chittra Srivastava and others (AIR 1970 SC 1039) (8) where Sikri J. (as his Lordship then was) observed:— “Whether a duty arises in a particular case to issue a show cause notice before inflicting a penalty does not depend on the authorities' satisfaction that the person to be penalised has no defence but on the nature of the order proposed to be passed”. The counsel submitted that it may be that if an opportunity is afforded to the petitioner he may have nothing substantial to say against the order that is proposed to be made, but he may as well have some thing substantial to urge against it. It is not for the Central Government to decide as to what his explanation or defence is likely to be. The Central Government may reject the explanation even if one is offered, but no order can be made without an opportunity having been afforded to the petitioner to have a say.
Another argument that was pressed by the counsel for the petitioner was that the conditions mentioned in clause (b) of Section 18-AA are in the nature of conditions precedent and no valid order under Section 18-AA can be passed unless each of the conditions and requirements mentioned therein are fulfilled. Under Article 31-A of the Constitution the vires of the Statute cannot be challenged, but if the conditions precedent to the applicability of Section 18-AA have not been satisfied the validity of the action taken under that section can be impeached.
The question raised by the petitioner's counsel is tied up with the question raised by Smt. Shymla Pappu on behalf of respondents 1 to 3. The plea put forth on behalf of these respondents is that the petitioner did not have any civil rights and since the order made by the Central Government is administrative in character the question of application of principles of natural justice does not arise. The cases cited by the petitioner's counsel are distinguishable on facts. The case of East India Company (7) relates to a quasi judicial order while the decision in AIR 1969 SC 4 relates to a case decided by a Court of law. The procedure followed by a court of law is judicial in character. Similarly the order in AIR 1970 SC 1039 was made by a quasi judicial authority. In all such matters therefore a notice has to be issued to the person whose rights and liabilities are going to be determined by a Tribunal or authority.
The latest judgment of the Supreme Court in the line of cases in which the case of Dr. (Miss) Binapani (3) can be placed, is to be found in Union of India v. J.N Sinha and another (AIR 1971 SC 40) (9). In that case two earlier decisions of the Supreme Court, namely the cases of Dr. (Miss) Binapani Dei (3) and A.K Kraipak and others v. Union of India and others (AIR 1970 SC 150) (10) were noticed by Hegde J. The rules of natural justice, the learned Judge said, operate only in areas not covered by any law validly made. In other words, they do not supplant the law but supplement it. Whether the exercise of a power conferred should be made in accordance with any of the principles of natural justice conferring the power, the nature of the power conferred, the purpose for which it is conferred and the effect of exercise of that power.
It is in the context of all these cases that we have to examine the contentions of the petitioner. In short these amount to this. The petitioner has a right to hold the office of a director of the company which he has to vacate as a consequence of the impugned order. This amounts to civil consequences ensuing as a result of the making of the order and so the rules of natural justice are automatically attracted. Inasmuch as no opportunity was afforded to the petitioner to oppose the order, it has to be struck down.
Mr. Sorabjee while adverting to the nature of the order and its consequences urged that what is relevant is not the defence or explanation that that party may have submitted, keeping in view that Article 31-A of the Constitution barred his right to impeach the validity of the statute, but that if an action to his prejudice was taken the petitioner should have an opportunity to come forward and challenge the validity of that action. The remedy under Article 226 of the Constitution was not confined to fundamental rights. If the order was bad on the ground of violation of principles of natural justice, the petitioner could complain and move this court for judicial review of that order.
Learned counsel first invited our attention to a Bench decision of the Calcutta High Court in Mahomed Kalimuddin v. A.B Steward (ILR 47 Calcutta 623) (11), and referred to the observation of Sir Asutosh Mookerjee J. that the maxim audi alteram partem “is not confined to the conduct of strictly legal tribunals but is applicable to other tribunals or body of persons invested with authority to adjudicate upon matters involving civil consequences to individuals”. He also referred to a decision of Magree J. in Johnv. Roes and others, (1969) 2 All. E. R. 274 (12) in which the learned Judge observed:—
“Even if the law permits the principles of natural justice to be effectually excluded by suitable drafting, I would not readily construe the rules as having achieved this result unless they left me in no doubt that this was the plain and manifest intention. Put a little differently I would say that if there is any doubt the applicability of principles of natural justice will be given the benefit of that doubt.”
Mr. Sorabjee then referred to a decision of Bombay High Court in Tuljansa Janardhansa Pawar…Assessee v. Commissioner Of Income-Tax, Bombay South, Bombay South (AIR 1950 Bombay 332) (13). Chagla C.J sitting with Tendolkar J. invoked the principles of natural justice impliedly if not expressly under the statute. We were also referred to a decision of Travancore-Cochin High Court in K. Balagangadharan and others v. Central Road Traffic Board & Others (AIR 1957 T.C 141) (14),. That was a case of cancellation of a permit and it was said that a permit could not be cancelled or suspended unless and until a fair opportunity was given to the person to state his case before he was punished.
Mr. Sorabjee lastly referred to the case of Radhayshyam Khare and others v. The State of Madhya Pradesh and others (AIR 1959 SC 107) (15) where S.R Dass C.J who spoke for the Court observed that in an administrative action also the State Government had to observe the ordinary rules of fair play.
Mrs. Shyamla Pappu, appearing for respondents 1 to 3, submitted that in Section 18-AA the language used by the legislature was “the Central Government is satisfied”. The satisfaction of the Central Government is to be based on the documentary or other evidence in its possession and the satisfaction is in relation to an industrial undertaking. Clause (b) of the section lays down four conditions being in existence before action can be taken. The formation of opinion is therefore subjective but the existence of circumstances relevant to the inference as the sin qua non for action must be demonstrable. If the action is questioned on the ground that no circumstances leading to an inference of the kind contemplated by the section exist, the action might be exposed to interference.
The case is therefore more or less on the same lines as in Barium Chemicals Limited and another v. Company Law Board and others (AIR 1967 SC 295) (16) Turning to a judgment of Shelat J. in that case Smt. Shyamla Pappu submitted that the words “reasonable grounds to believe” were considered by Lord Reid in Ridge v. Baldwin and others (1964 Appeal Cases 40) = (1963) (2 All. E. R. 66) (17) “to be a restraint on administrative power in the same way as compliance with the rules of natural justice is in a quasi judicial power which otherwise renders the power arbitrary. Turning again to the decision of Lord Radcliffe in Nakkuda Ali v. M.F Be S. Jayaratne (1951) /Appeal Cases (66) (13) Shrimati Shyamla Pappu submitted that the words “reason to believe” or “in the opinion of” do not always lead to the construction that the process of entertaining, “reason to believe” or “in the opinion” is altogether subjective process not lending itself even to a limited scrutiny by the Court that such a “reason to believe” or “opinion” was not founded on relevant facts or what Lord Radcliffe in Nakkuda Ali v. M.F Be S. Jayaratne (18) and Lord Reid in Ridge v. Baldwin & others (17) called the restraint as an alternative safeguard to rules of natural justice where the function is administrative.”
Smt. Shyamla Pappu submitted that if the conditions precedent in clause (b) of Section 18-AA are satisfied and we have already said that that is so, then there are “restraints” in the statute itself which take the place of principles of “natural justice.” In the present case the documentary or other evidence in the possession of the Central Government enabled it to be satisfied that the undertaking had been closed for a period of not less than 3 months. Indeed it was not disputed that the mill had been closed down for over 18 months before the impugned order was made and that the closure was prejudicial to the concerned scheduled industry which is self-evident with regard to the condition that the financial condition of the company owning the industrial undertaking and the condition of the plant and machinery of the undertaking are such that the mill could be re-started, the company and its directors were all along in correspondence with the Government of Maharashtra. It was their own case that the company had assets and the machinery and plant, but what was lacking was working finances and funds required for modernisation of the machinery and the plant. The necessary finances could be raised and effort was directed to it. The correspondence made this plan. The question is not about the defence that the petitioner could set up. In fact there was no question of setting up of any defence. Giving him a notice under these circumstances would have been an idle formality. Re-starting the mill was also necessary in the interests of the general public and there could be no two opinions about it.
It is settled law that advisory opinions or declaratory judgments on the constitutionality of legislation of the validity of an action under a valid law cannot be given, apart from some concrete injury or controversy, in the exercise of powers under Article 32 or Article 226 of the Constitution. In Chiranjit Lal Chowdhuri v. Union of India, etc. 1950 S.C.R 869, (19) Fazl Ali, J. noticed with approval that in a number of cases in the United States of America it has been held that no one except those whose rights are directly affected by a law can raise a question of the constitutionality of that law. The learned Judge agreed with the speech of Mukherjea, J. in this case who had reiterated the well settled dictum which we have enunciated above. The court is concerned with the facts of the particular case in disposing of a petition under Article 226 of the Constitution and so does not express its opinion on hypothetical facts or in the abstract (see Chuni Singh Behari Lal and others v. Union of India, A.I.R (1968 Delhi 196) (20). Chagla, C.J, in a Bench decision of the Bombay High Court in Heman Santlal…Petnr. v. State Of Bombay, A.I.R 1951 Bombay 121 (21), observed that a court should decide only those questions which directly arose from the facts of the particular case. This is particularly so when the court is dealing with the Constitution. In consequence, the court does not express opinion when nobody is really aggrieved by the action which is impugned and does not examine merely academically the impugned action of the legislature or the executive. The court is, therefore, both to interefere in the present case inasmuch as even if it be assumed that the petitioner has a right, which is justiciable, the facts of the case show that all the aspects on which the petitioner could be given a hearing were subject matter of correspondence and negotiations for quite some time and it is not as if the impugned action has been taken behind anyone's back or has come as a sudden unexpected event.
Indeed the correspondence shows that there was even a suggestion at one stage that the Government should take the mill on lease. If that proposal had materialised the control of the petitioner would have certainly ceased on the industrial undertaking which is taken over by the impugned order. We cannot help feeling that the real complaint of the petitioner is not what has been agitated in this court, but that he wanted control with the finances being supplied by the Government or a Government agency. An effort was made for some time past to raise funds either from the Government, or on its guarantee with the same object. Having failed there, he has now come forward to challenge the taking over of the undertaking.
It was urged that all public sector enterprises are running at a great loss and if the company was to be burdened with loans raised from the Central Government as well as the Government of Maharashtra, the company will become liable for payment of heavy liabilities. According to the counter-affidavit the company was to earn a profit of Rs. 25.75 lacs per annum before depreciation. That was purely guess work. Counsel for the petitioner also drew our attention to Section 29D that had been added by the Amendment of the Industries Act in December 1971. According to clause (a) every debt arising out of a loan obtained by the authorised person for carrying on the management of, or exercising functions of control in relation to, an industrial undertaking shall have priority over all other debts whether secured or unsecured, incurred before the management of such industrial undertaking was taken over. The result of this provision is that if a fresh liability of lacs of rupees is incurred by the authorised person, the loan will have priority even over secured creditors.
The question of Section 29D has not been raised in the writ petition nor has such a question been raised in writ petition No. 63 of 1972. Neither the petitioner nor any of the creditors in Civil Writ No. 63 of 1972 are secured creditors. We, therefore, do not consider it necessary to deal with the effect of Section 29D. Such a question may be considered in a more appropriate case. But so far as the petitioner is concerned, according to his own showing, the shares held by him are fully paid up. In fact, according to the figures supplied by him in paragraph 4 of the petition, a large number of shares held by the petitioner and others are equity shares which have been fully paid up by way of bonus shares by transfer from reserves. We are, therefore, not inclined to agree with the petitioner that if the authorised person is to raise loans from the Central Government and the Government of Maharashtra, the interest of the petitioner is likely to suffer in any way. A comparison between a private sector and a public sector enterprise has no meaning at all. The mill was closed for over 18 months. The company made every attempt to re-start it and failed. If working funds are provided and the machinery and the plant is modernised, there is no reason why it should not yield profits. It will also provide employment to about 4000 workers besides 300 persons working in the office. It will also provide employment to others who will deal with the fabrics manufactured by the mill.
In the circumstances, we are of the opinion that the impugned order cannot be challenged by the petitioner. The petition, therefore, fails and is dismissed with costs. Counsel's fee Rs. 1,000/-.
Coming to the case of creditors in C.W No. 63 of 1972, the only effect of the impugned order may be as contemplated by clause (c), section 18-E of the Industries Act, viz., the winding-up proceedings commenced by the petitioner may not be continued nor can a receiver be appointed without the consent of the Central Government. The effect of the order is not that the petitioner's alleged claim against the company is wiped out. Only one of the statutory remedies available to an un-secured creditor like the protection given by section 439 of the Companies Act, 1956, cannot be availed of without the consent of the Central Government. A right created by a statute can be taken away by the repeal of that statute or by amendment or by operation of another valid law. Thus no right of the petitioner has been violated in the eye of law. This petition is also, therefore, accordingly, dismissed.
Petitions dismissed.
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