Chiranjit Lal Chowdhuri Vs. The Union of India & Ors [1950] INSC 38 (4 December 1950)
KANIA, HIRALAL J. (CJ) FAZAL ALI, SAIYID SASTRI, M. PATANJALI MUKHERJEA, B.K.
DAS, SUDHI RANJAN
CITATION: 1951 AIR 41 1950 SCR 869
CITATOR INFO :
F 1951 SC 318 (19) RF 1952 SC 59 (5) F 1952 SC 75 (8,21,43,54,70) RF 1952 SC 123 (45) RF 1952 SC 252 (101,106) E 1953 SC 215 (6) F 1953 SC 404 (7) R 1954 SC 92 (5) D 1954 SC 119 (1) E 1954 SC 314 (4) F 1955 SC 74 (7) R 1955 SC 191 (5) R 1956 SC 20 (13) F 1956 SC 246 (50,65) E 1956 SC 479 (5) F 1957 SC 503 (15,16) R 1957 SC 877 (16) D 1957 SC 927 (9) E 1958 SC 538 (11,12,17) RF 1958 SC 578 (211) R 1958 SC 731 (15) RF 1958 SC 956 (15) R 1959 SC 648 (26) RF 1959 SC 725 (11,12) F 1960 SC 356 (8) R 1960 SC 457 (9) R 1960 SC 554 (9) D 1960 SC1080 (28) R 1962 SC 458 (21) F 1962 SC1044 (5) R 1963 SC 222 (22) R 1963 SC 864 (27) F 1963 SC1241 (84) HO 1963 SC1811 (13,28,84,104,105,112) RF 1965 SC 190 (4) F 1970 SC 564 (16,54,78) E 1970 SC2182 (7) F 1971 SC1594 (7,8,9) R 1971 SC1737 (45) RF 1973 SC 106 (11) RF 1973 SC1461 (227,265,2130) RF 1973 SC2720 (9) R 1974 SC 849 (10) RF 1974 SC1389 (251) R 1975 SC 583 (39) R 1978 SC 327 (6) F 1978 SC 597 (189) F 1978 SC 771 (44) R 1980 SC 161 (10) RF 1983 SC 1 (168) F 1983 SC 75 (5) F 1984 SC 866 (4) R 1984 SC1707 (17) RF 1986 SC1370 (77,78) R 1988 SC1487 (31) RF 1991 SC 672 (33) RF 1992 SC 1 (132,133) R 1992 SC1277 (22,85,87,96)
ACT:
Sholapur Spinning and Weaving Company (Emergency Provisions) Act (XXVIII of 1950)--Act dismissing managing agents of a company, removing its directors, authorising Government to appoint new directors, and curtailing rights of shareholders in the matter of voting, etc.--Validity--Whether infringes fundamental rights--Right not to be deprived of property save by authority of law--Right to acquire, hold and dispose of property--Right to equal protection of law--Constitution of India, Arts. 14, 19 (1) (f), 19(5), 1, 32--" Deprivation of property ", "Property., ,, acquisition", "taking possession., "equal protection ", meanings of--Right to apply under Art. 32--Corporation's right to apply--Shareholders' right.
HEADNOTE:
The Governor-General of India, finding that on account of mismanagement and neglect a situation had arisen in the affairs of the Sholapur Spinning and Weaving Company Ltd.
which had prejudicially affected the production of an essential commodity and had caused serious unemployment amongst a certain section of the community, and that an emergency had thereby arisen which rendered it necessary to make special provision for the proper management and administration of the said company, promulgated an Ordinance, which was subsequently reenacted in the form of an Act of the Legislature called the sholpur Spinning and Weaving Company (Emergency Provisions)Act, 1950, the net result of which was that the Managing Agents of the said company were dismissed, the directors holding office at the time automatically vacated their office, the Government was authorised to appoint new directors, the rights of the shareholders of the company were curtailed in the matters of voting, appointment of directors, passing of resolutions and applying for winding up, and power was also given to the Government to further modify the Indian Companies Act in its application to the company; and in accordance with the provisions of the Ordinance new directors were appointed by the Government. A shareholder of the company made an application under Art. 32 of the Constitution for a declaration that the Act was void and for enforcement of his fundamental rights by a writ of mandamus against the Central Government, the Government of Bombay and the directors, restraining them from exercising any powers under the Act and from interfering with the management of the company, on the ground that the Act was not within the Legislative competence 870 of the Parliament and infringed his fundamental rights guaranteed by Arts. 19 (1) (f), 31 and 14 of the Constitution and was consequently void under Art. 13. The company was made a respondent and opposed the petition.
Held per KANIA C.J., FAZL ALI, MUKHERJEA and DAS JJ.(i) that the impugned Act did not infringe any fundamental right of the petitioner under Art. 31 (1), as if did not deprive the company or the petitioner of any property save under authority of law;
(ii) that the impugned Act did not infringe any fundamental right guaranteed by Art. 31 (2.) inasmuch as it did not authorise the "acquisition" of any property of the company or of the shareholders or "the taking possession" of the property of the petitioner, namely, the shares which he held in the company, though he was disabled from exercising some of the rights which an ordinary shareholder in a company could exercise in respect of his shares, such as the right to vote, to appoint directors, and to apply for winding up;
and, if the Act had authorised the "taking possession" of the property of the company, the petitioner was not entitled to any relief on that score under Art. 32;
(iii) that, as the Act did not impose any restrictions on the petitioner's right "to acquire, hold and dispose of" his shares, there was no infringement of Art. 19 (1) (f);
and assuming that the restrictions imposed on the right of voting etc. were restrictions on the right to acquire, hold or dispose of property within Art. 19 (1) (f), such restrictions were reasonable restrictions imposed in the interests of the public, namely, to secure the supply of a commodity essential to the community and to prevent serious unemployment amongst a section of the people, and were therefore completely protected by cl. (5) of Art. 19.
Held also per KANIA C.J., FAZL ALI, and MUKHERJEA JJ.
(PATANJALI SASTRI AND DAS JJ. dissenting).--that though the Legislature had proceeded against one company only and its shareholders, inasmuch as even one corporation or a group of persons can be taken to be class by itself for the purposes of legislation, provided there is sufficient basis or reason for it and there is a strong presumption in favour of the constitutionality/of an enactment, the burden was on the petitioner to prove that there were also other companies similarly situated and this company alone had been discriminated against, and as he had failed to discharge this burden the impugned Act cannot be held to have denied to the petitioner the right to equal protection of the laws referred to in Art. He and the petitioner was not therefore entitled to any relief under Art. 32.
Per PATANJALI SASTRI J.--As the impugned Act plainly denied to the shareholders of this particular company the protections of the law relating to incorporated Joint Stock Companies as embodied in the Indian Companies Act. it was Prima facie within 871 the inhibition of Art. 14; and, even though when a law is made applicable to a class of persons or things and the classification is based on differentia having a rational relation to the object sought to be attained, it can be no objection to its constitutional validity that its application is found to affect only one person or thing. since the impugned Act selected a particular company and imposed upon it and its shareholders burdens and disabilities on the ground of mismanagement and neglect of duty on the part of those charged with the conduct of its undertaking no question of reasonable classification arose and the Act was plainly discriminatory in character and within the constitutional inhibition of Art. 14. Whilst all reasonable presumptions must undoubtedly be made in favour of the constitutional validity of a law made competent legislature, no such presumption could be raised in this case as on the face of it the Act was discriminatory and the petitioner could not be called upon to prove that similar mismanagement existed in other companies. The issue was not whether the impugned Act was ill-advised or not justified by the facts on which it was based but whether it transgressed the explicit constitutional restriction on legislative power imposed by Art. 14.
Per DAs J.--The impugned Act, ex facie, is nothing but an arbitrary selection of a particular company and its shareholders for discriminating and hostile treatment, and, read by itself, is palpably an infringement of Art. 14 of the Constitution. Assuming that mismanagement and neglect in conducting the affairs of a company can be a basis of classification and that such a classification would bear a reasonable relation to the conduct of all delinquent companies and shareholders and may therefore create no inequality, a distinction cannot be made between the delinquent companies inter se or between shareholders of equally delinquent companies, and one set cannot he punished for its delinquency while another set is permitted to. continue, or become, in like manner, delinquent without any punishment unless there be some other apparent difference in their respective obligations and unless there be some cogent reason why prevention of mismanagement is more imperative in one instance than in the other. The argument that the presumption being in favour of the Legislature, the onus is on the petitioner to show that there are other individuals or companies equally guilty of mismanagement prejudicially affecting the production of an essential commodity and causing serious unemployment amongst, certain section of the community does not, in such circumstances, arise, for the simple reason that here there has been no classification at all and, in any case, the basis of classification by its very nature is much wider and cannot, in its application, be limited only to this company and its shareholders; and that being so, there is no reason to throw on the petitioner the almost impossible burden of proving that there are other companies which are in fact precisely and in all particulars similarly situated. In any event the petitioner, 872 may well claim to have discharged the onus of showing that this company and its shareholders have been singled out for discriminating treatment by showing that the Act, on the face of it, has adopted a basis of classification which, by its very nature, cannot be exclusively applicable to this company and its shareholders but which may be equally applicable to other companies and their shareholders and has penalised this particular company and its shareholders, leaving out other companies and their shareholders who may be equally guilty of the alleged vice of mismanagement and neglect of the type referred to in the preamble in the Ordinance.
Per PATANJALI SASTRI, MUKHERJEA and DAS JJ. (KANIA, C.J,, dubitante).--In so far as the petitioner's rights as a shareholder were curtailed he was entitled to apply for relief under Art. 30, in his own right on the ground that the Act denied to him the equal protection of the laws and therefore contravened Art. 14 even though the other shareholders did not join him in the application.
Per MUKHERJEA J.--The fundamental rights guaranteed by the Constitution are available not merely to individual citizens but to corporate bodies as well except where the language of the provision or the nature of the right, compels the inference that they are applicable only to natural persons. An incorporated company, therefore, can come up to the Supreme Court for enforcement of its fundamental rights and so may the individual shareholders to enforce their own;
but as the company and its shareholders are in law separate entities, it would not be open to an individual shareholder to complain of a law which affects the fundamental right of the company except to the extent that it constitutes an infraction of his own rights as well. In order to redress a wrong to the company the action should prima facie be brought by the company itself.
Article 32 of the Constitution is not directly concerned with the determination of the constitutional validity of particular enactments, what it aims at is the enforcement of fundamental rights guaranteed by the Constitution and to make out a case under the Article it is incumbent on the petitioner to establish not merely that the law complained of is beyond the competence of the Legislature but that it affects or invades his fundamental rights guaranteed by the Constitution, of which he could seek enforcement by an appropriate writ or order.
Under Art. 32 the Supreme Court has a very wide discretion in the matter of framing writs to suit the exigencies of particular cases and an application under the article cannot be thrown out simply on the ground that the proper writ or direction has not been prayed for.
In the context in which the word "acquisition" is used in Art. 31 i2) it means and implies the acquiring of the entire title of the expropriated owner whatever the nature or extent of that right might be, 873 The guarantee against the denial of equal protection of the laws does not mean that identically the same rules of law should be made applicable to all persons within the territory of India in spite of differences of circumstances and conditions. It means only that there should be no discrimination between one person and another if as regards the subject-matter of the legislation their position is the same.
Quaere : Whether the word "property" in Art. 31 means the totality of the rights which the ownership of the property connotes, and whether clause (1) of Art. 31 contemplates only confiscation or destruction of property in exercise of what are known as police powers in American law for which no compensation is necessary.
DAS J.--The question whether an Act has deprived a person of his "property" must depend on whether it has taken away the substantial bulk of the rights constituting his property. Where the most important rights possessed by the shareholders of a company are still preserved by an Act even though certain privileges incidental to the ownership of the shares have been put in abeyance, the shareholders cannot be said to have been deprived of their "property" in the sense in which that word is used in Art. 19(1) (f) and Art. 31.
If on the face of the law there is no classification at all, or at any rate none on the basis of any apparent difference specially peculiar to the individual or class affected by the law, it is only an instance of an arbitrary selection of an individual or class for discriminating and hostile legislation and, therefore, no presumption can, in such circumstances, arise at all Assuming, however, that even in such a case the onus is thrown on the complainant, there can be nothing to prevent him from proving, if he can, from the text of the law itself, that it is actually and palpably unreasonable and arbitrary and thereby discharging the initial onus.
The right to vote, to elect directors, to pass resolutions and to present an application for winding up, are privileges incidental to the ownership of a share, but they are not by themselves apart from the share, "property" within the meaning of Art. 19 (1) (f) and Art. 31; and even assuming that they are "property" such rights cannot be said to have been acquired or taken possession of by the Government in this case within Art. 31 (2). The language of clause (1) of Art. 31 is wider than that of clause (2), for deprivation of property may well be brought about otherwise than by acquiring or taking possession of it and in such a case no question payment of compensation arises.
FAZAL ALI MUKHERJEA and DAS JJ.--Except in the matter writs in the nature of habsas corpus no one but those whose rights are directly affected by a law can raise the question of the constitutionality of a law and claim relief under Art. 39. A corporation being a different entity from the shareholders, a 112 874 share-holder cannot complain on the ground that the rights of the company under Arts. 19 (1) (f) or 31 are infringed.
FAZL ALl J.--A classification which is arbitrary and which is made without any basis is no classification and a proper classification must always rest upon some difference and must hear a reasonable and lust relation to the things in respect of which it is proposed. But the presumption is always in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of constitutional principles.
Though Art. 14 lays down an important fundamental 'right, which should be closely and vigilantly guarded, a doctrinaire approach which might choke all beneficial legislation should not be adopted, in construing it. i A.K. Gapalan v. The State ([1950] S.C.R. 87), Minister of State for the Army v. Dalziel (68 C.L.R 261), Yick Wo v. Hopkins (118 U.S. 356), Southern Railway Co. v. Greene (216 U.S. 400), Gulf C. & S.F. Co. Ellis (165 U.S. 150), Middleton v. Texas Power and Light & Co. (249 U.S. 152), Badice v. New York (264 U.S. Pennsylvania Coal Co. v. Mahon (960 U.S. 3931, McCabe v. Archison (235 U.S. 151), Jeffrey Manufacturing Co. v. Blang (935 U.S. 571), Newark Natural Gas and Fuel Co. v. City of Nework U.S-403), Truax v. Raich (939 U.S.
33), Buchanan v. W'arley (245 U.S. 60) Darnell v. The State of Indiana (226 U.S. 388), Lindely v. Natural Carbonic Gas Co. (220 U.S. 618), and Barbier v. Connolly (113 U.S. 27) referred to.
ORIGINAL JURISDICTION: Petition No. 72 of 1950.
Petition under article 32 of the Constitution of India for a writ of mandamus.
V.K.T. Chari, J.S. Dawdo, Alladi Kuppuswami, and C.R. Pattabhi Raman, for the petitioner.
M.C. Setalvad, Attorney-General for India (G. N. Joshi with him) for opposite party Nos. 1 and 2.
G.N. Joshi, for opposite party Nos. 3 to 5 and 7 to 10.
1950. December 4. The Court delivered Judgment as follows.
KANIA C.J.--This is an application by the holder of one ordinary share of the Sholapur Spinning and Weaving Company Ltd. for a writ of mandamus and certain other reliefs under article 32 of the Constitution of India. The authorized capital of the company is Rs. 48 lakhs and the paid-up capital is Rs. 32 lakhs, half of which is made up of fully paid ordinary shares of Rs. 1,000 each.
875 I have read the judgment prepared by Mr. Justice Mukherjea. In respect of the arguments advanced to challenge the validity of the impugned Act under articles 31 and 19 of the Constitution of India, I agree with his line of reasoning and conclusion and have nothing more to add.
On the question whether the impugned Act infringes article 14, two points have to be considered. The first is whether one individual shareholder can, under the circumstances of the case and particularly when one of the respondents is the company which opposes the petition, challenge the validity of the Act on the ground that it is a piece of discriminatory legislation, creates inequality before the law and violates the principle of equal protection of the laws under article 14 of the Constitution of India. The second is whether in fact the petitioner has shown that the Act runs contrary to article 14 of the Constitution. In this case having regard to my conclusion on the second point, I do not think it is necessary to pronounce a definite opinion on the first point. I agree with the line of reasoning and the conclusion of Mr. Justice Mukherjea as regards the second point relating to the invalidity of the Act on the ground that it infringes article 14 of the Constitution and have nothing more to add.
In my opinion therefore this petition fails and is dismissed with costs.
FAZLALI J.--I am strongly of the opinion that this petition should be dismissed with costs.
The facts urged in the petition and the points raised on behalf of the petitioner before us are fully set forth in the judgments of my brethren, Sastri, Mukherjea and Das JJ., and I do not wish to repeat them here. It is sufficient to say that the main grounds on which the Sholapur Spinning and Weaving Company (Emergency Provisions) Act, 1950 (Act No. XXVIII of 1950), which will hereinafter be referred to as "the Act", has been assailed, is that it infringes three fundamental rights, these being:-876 (1) the right to property secured by article 31 of the Constitution;
(2) the right to acquire, hold and dispose of property, guaranteed to every citizen by article 19 (1) (f); and (3) the right to equal protection of the laws, guaranteed by article 14.
It has been held in a number of cases in the United States of America that no one except those whose rights are directly affected by a law can raise the question of the constitutionality of that law. This principle has been very clearly stated by Hughes J. in McCabe v. Atchison(1), in these words :---"It is an elementary principle that in order to justify the granting of this extraordinary relief, the complainant's need of it and the absence of an adequate remedy at law must clearly appear. The complainant cannot succeed because someone else may be hurt. Nor does it make any difference that other persons who may be injured are persons of the same race or occupation. It is the fact, clearly established, of injury to the complainant -not to others--which justifies judicial interference." On this statement of the law, with which I entirely agree, the scope of the discussion on this petition is greatly restricted at least in regard to the first two fundamental rights. The company and the shareholders are in law separate entities, and if the allegation is made that any property belonging to the company has been taken possession of without compensation or the right enjoyed by the company under article 19 (1) (f) has been infringed, it would be for the company to come forward to assert or vindicate its own rights and not for any individual shareholder to do so. In this view, the only question which has to be answered is whether the petitioner has succeeded in showing that there has been an infringement of his rights as a shareholder under articles 31 and 19 (1) (f) of the Constitution. This question has been so elaborately dealt with by Mukherjea J., that I do not wish to add anything to what he has said in his judgment, and all that is necessary for me to say is that I adopt his conclusions, (1) 235 u.s. 151.
877 without committing myself to the acceptance of all his reasonings.
The only serious point, which in my opinion, arises in the case is whether article 14 of the Constitution is in any way infringed by the impugned Act. This article corresponds to the equal protection clause of the Fourteenth Amendment of the Constitution of the United States of America, which declares that "no State shall deny to any person within its jurisdiction the equal protection of the laws". Professor Willis dealing with this clause sums up the law as prevailing in the United States in regard to it in these words:-"Meaning and effect of the guaranty--The guaranty of the equal protection of the laws means the protection of equal laws. It forbids class legislation, but does not forbid classification which rests upon reasonable grounds of distinction. It does not prohibit legislation, which is limited either in the objects to which it is directed or by the territory within which it is to operate. 'It merely requires that all persons subjected to such legislation shall be treated alike under like circumstances and conditions both in the privileges conferred and in the liabilities imposed.' 'The inhibition of the amendment .... was designed to prevent any person or class of persons from being singled out as a special subject for discriminating and hostile legislation'. It does not take from the states the power to classify either in the adoption of police laws, or tax laws, or eminent domain laws, but permits to them the exercise of a wide scope of discretion, and nullifies what they do only when it is without any reasonable basis.
Mathematical nicety and perfect equality are not required.
Similarity, not identity of treatment, is enough. If any state of facts can reasonably be conceived to sustain a classification, the existence of that state of facts must be assumed. One who assails a classification must carry the burden of showing that it does not rest upon any reasonable basis."(') Having summed up the law in this way, the same learned author adds :--"Many different classifications (1) Constitutional Law by Prof. Willis, (1st Edition).
p.579.
878 of persons have been upheld as constitutional. A law applying to one person or one class of persons is constitutional if there is sufficient basis or reason for it." There can be no doubt that article 14 provides one of the most valuable and important guarantees in the Constitution which should not be allowed to be whittled down, and, while accepting the statement of Professor Willis as a correct exposition of the principles underlying this guarantee, 1 wish to lay particular emphasis on the principle enunciated by him that any classification which is arbitrary and which is made without any basis is no classification and a proper classification must always rest upon some difference and must bear a reasonable and just relation to the things in respect of which it is proposed.
The petitioner's case is that the shareholders of the Sholapur company have been subjected to discrimination visa vis the shareholders of other companies, inasmuch as section 13 of the Act subjects them to the following disabilities which the shareholders of other companies governed by the Indian Companies Act are not subject to:-:
"(a) It shall not be lawful for the shareholders of the company or any other person to nominate or appoint any person to be a director of the company.
(b) No resolution passed at any meeting of the shareholders of the company shall be given effect to unless approved by the Central Government.
(c) No proceeding for the winding up of the company or for the appointment of a receiver in respect thereof shall lie in any court unless by or with the sanction of the Central Government." Primafacie, the argument appears to be a plausible one, but it requires a careful examination, and, while examining it, two principles have to be borne in mind :--(1) that a law may be constitutional even though it relates to a single individual, in those cases where on account of some special circumstances or reasons applicable to him and not applicable to others, 879 that single individual may be treated as a class by himself;
(2) that it is the accepted doctrine of the American courts, which I consider to be well-founded on principle, that the presumption is always in favour of the constitutionality of an enactment, and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles. A clear enunciation of this latter doctrine is to be found in Middleton v. Texas Power and Light Company(1), in which the relevant passage runs as follows :-"It must be presumed that a legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based upon adequate grounds." The onus is therefore on the petitioner to show that the legislation which is impugned is arbitrary and unreasonable and there are other companies in the country which should have been subjected to the same disabilities, because the reasons which led the Legislature to impose State control upon the Sholapur company are equally applicable to them.
So far as article 14 is concerned, the case of the shareholders is dependent upon the case of the company and if it could be held that the company has been legitimately subjected to such control as the Act provides without violation of the article, that would be a complete answer to the petitioner's complaint.
Now, the petitioner has made no attempt to discharge the burden of proof to which I have referred, and we are merely asked to presume that there must necessarily be other companies also which would be open to the charge of mismanagement and negligence. The question cannot in my opinion be treated so lightly. On the other hand, how important the doctrine of burden of proof is and how much harm can be caused by ignoring it or tinkering with it, will be fully illustrated, by referring to the proceedings in the Parliament in connection with the enactment of the (1) 248 U.S. 1152,157.
880 Act, where the circumstances which necessitated it are clearly set out. I am aware that legislative proceedings cannot be referred to for the purpose of construing an Act or any of its provisions, but I believe that they are relevant for the proper understanding of the circumstances under which it was passed and the reasons which necessitated it.
A reference to the Parliamentary proceedings shows that some time ago, a representation was made on behalf of a section of the shareholders of the Sholapur company to the Registrar of Joint Stock Companies in Bombay, against the conduct of the managing agents, and the Government of Bombay was moved to order a special inquiry into the affairs of the company. For the purpose of this inquiry, two special inspectors were appointed by the Bombay Government and their report revealed "certain astounding facts" and showed that the mill had been grossly mismanaged by the Board of Directors and the managing agents. It also revealed that the persons who were responsible for the mismanagement were guilty of certain acts and omissions which brought them under the purview of the law. The Bombay Government accepted the report of the inspectors and instructed the Advocate General of Bombay to take legal proceedings against certain persons connected with the management of the company.
Thereafter, the Government of India was approached by the Provincial Government and requiested to take special action in order to secure the early opening of the mill. The Government of India found that they had no power to take over the management of a particular mill, unless its working could be ensured through the existing management acting under the direction of a Controller appointed under the Essential Supplies Act, but they also found that a peculiar situation had been created in this case by the managing agents themselves being unable or unwilling to conduct the affairs of the company in a satisfactory and efficient manner. The Government of India, as a matter of precaution and lest it should be said that they were going to interfere unnecessarily in the affairs 881 of the company and were not allowing the existing provisions of the law to take their own course, consulted other interests and placed the matter before the Standing Committee of the Industrial Advisory Council where a large number of leading industrialists of the country were present, and ultimately it was realized that this was a case where the Government could rightly and properly intervene and there would be no occasion for any criticism coming from any quarter. It appears from the discussion on the floor of the House that the total number of weaving and spinning mills which were closed down for one reason or other was about 35 in number. Some of them are said to have closed for want of cotton, some due to overstocks, some for want o[ capital and some on account of mismanagement. The Minister for Industry, who sponsored the Bill, in explaining what distinguished the case of the Sholapur mill from the other mills against whom there might be charges of mismanagement, made it clear in the course of the debate that "certain conditions had to be fulfilled before the Government can and should intervene", and he set out these conditions as follows :-"(1) The undertaking must relate to an industry which is of national importance. Not each and every undertaking which may have to close down can be taken charge of temporarily by Government.
(2) The undertaking must be an economic unit. If it appears that it is completely uneconomic and cannot be managed at all, there is no sense in Government taking charge of it. If anything, it will mean the Government will have to waste money which belongs to the taxpayer on an uneconomic unit.
(3) There must be a technical report as regards the condition of the plants, machinery, etc. which either as they stand, or after necessary repairs and reconditioning can be properly utilised.
(4) Lastly,--and this is of considerable importance there must be a proper enquiry held before Government take any action. The enquiry should show that 113 882 managing agents have so misbehaved that they are no longer fit and proper persons to remain in charge of such an important undertaking."(1) It appears from the same proceedings that the Sholapur mill is one of the largest mills in Asia and employs 13,000 workers. Per shift, it is capable of producing 25 to 30 thousand pounds of yarn, and also one lakh yards of cloth.
It was working two shifts when it was closed down on the 29th August, 1949. The closure of the mill meant a loss of 25 lakhs yards of cloth and one and a half lakhs pounds of yarn per month. Prior to 1947, the highest dividend paid by the company was Rs. 525 per share and the lowest Rs. 100, and, in 1948, when the management was taken over by the managing agents who have been removed by the impugned Act, the accounts showed a loss of Rs. 30 lakhs, while other textile companies had been able to show very substantial profits during the same period.
Another fact which is brought out in the proceedings is that the. managing agents had acquired control over the majority of the shares of the company and a large number of shareholders who were dissatisfied with the management had been rendered powerless and they could not make their voice heard. By reason of the preponderance of their strength, the managing agents made it impossible for a controller under the Essential Supplies Act to function and they also made it difficult for the company to run smoothly under the normal law.
It was against this background that the Act was passed, and it is evident that the facts which were placed before the Legislature with regard to the Sholaput mill were of an extraordinary character. and fully justified the company being treated as a class by itself. There were undoubtedly other mills which were open to the charge of mismanagement, but the criteria adopted by the Government which, in my opinion, cannot be said to be arbitrary or unreasonable, is not applicable (1) parliamentary Debates, Volume III, No. 14; 31st March 1950, pp.2394 5 883 to any of them. As we have seen, one of the criteria was that a mere allegation of mismanagement should not be enough and no drastic step such as is envisaged in the Act should be taken without there being a complete enquiry. In the case of the Sholapur mill, a complete enquiry had been made and the revelations which were made as a result of such enquiry were startling.
We are familiar with the expression "police power" which is in vogue in the United States of America. This expression simply denotes that in special cases the State can step in where its intervention seems necessary and impose special burdens for general benefit. As one of the judges has pointed out, "the regulations may press with more or less weight upon one than upon another, but they are designed not to impose unequal or unnecessary restrictions upon anyone, but to promote, with as little individual inconvenience as possible, the general good."(1) It need not be emphasized that the principles underlying what is known as police power in the United States of America are not peculiar to that country, but are recognized in every modern civilized State.
Professor Willis dealing with the question of classification in exercise of police power makes the following observations:
"There is no rule for determining when classification for the police power is reasonable. It is a matter for judicial determination, but in determining the question of reasonableness the Courts must find some economic, political or other social interest to be secured, and some relation of the classification to the objects sought to be accomplished.
In doing this the Courts may consider matters of common knowledge, matters o[ common report, tile history of the times, and to sustain it they will assume every state of facts which can be conceived of as existing at the time Of legislation. The fact that only one person or one object or one business or one locality is affected is not proof of denial of the equal protection of the laws. For such (1) Per Field J. in Barbier v. Connally. 113 U S. 27.
884 proof it must be shown that there is no reasonable basis for the classification." In this particular case, the Government initially took control of the Sholapur Company by means of an Ordinance (Ordinance No. II of 1950), of which the preamble runs as follows :"Whereas on account of mismanagement and neglect a situation has arisen in the affairs of the Sholapur Spinning and Weaving Company, Limited, which has prejudicially affected the production of an essential commodity and has caused serious unemployment amongst a certain section of the community;
And whereas an emergency has arisen which renders it necessary to make special provision for the proper management and administration of the aforesaid Company;
Now, therefore,........................ " In the course of the Parliamentary debate, reference was made to the fact that the country was facing an acute cloth shortage, and one of the reasons which apparently influenced the promulgation of the Ordinance and the passing of the Act was that the mismanagement of the company had gravely affected the production of an essential commodity. The facts relating to the mismanagement of this mill were carefully collected and the mischief caused by the sudden closing of the mill to the shareholders as well as to the general public were fully taken into consideration. Therefore, it seems to me that to say that one particular mill has been arbitrarily and unreasonably selected and subjected to discriminatory treatment, would be an entirely wrong proposition.
Article 14 of the Constitution, as already stated, lays down an important fundamental right, which should be closely and vigilantly guarded, but, in construing it, we should not adopt a doctrinaire approach which might choke all beneficial legislation.
The facts to which I have referred are to be found in a public document, and, though some of them may (1) Constitutional Law by Prof. Willis (1st Edition) p. 580.
885 require further investigation forming as they do part of a one-sided version, yet they furnish good prima, facie grounds for the exercise of the utmost caution in deciding this case and for not departing from the ordinary rule as to the burden of proof. In the last resort, this petition can be disposed of on the simple ground that the petitioner has not discharged the onus which lies upon him, and I am quite prepared to rest my judgment on this ground alone.
I think that the petitioner has failed to make out any case for granting the writs or directions asked for, and the petition should therefore be dismissed with costs.
PATANJALI SASTRI J.--This is an application under article 32 of the Constitution seeking relief against alleged infringement of certain fundamental rights of the petitioner.
The petitioner is a shareholder of the Sholapur Spinning and Weaving Company, Limited, Sholapur, in tim State of Bombay, (hereinafter referred to as "the Company "). The authorised share capital of the Company consisted of 1590 fully paid up ordinary shares of Rs. 1,000 each, 20 fully paid up ordinary shares of Rs. 500 each and :32,000 partly paid up redeemable cumulative preference shares of Rs. 100 each, of which Rs. 50 only was paid up. Of these, the petitioner held one ordinary share in his own name and 80 preference shares which, however, having been pledged with the Bank of Baroda Ltd., now stand registered in the Bank's name.
The company was doing flourishing business till disputes arose recently between the management and the employees, and in or about August, 1949, the mills were temporarily closed and the company, which was one of the largest producers of cotton textiles, ceased production. Thereupon, the Governor-General intervened by promulgating on the 9th January, 1950, an Ordinance called the Sholapur Spinning and Weaving Company (Emergency Provisions) Ordinance (No. II' of 1950), which empowered tim Government of India to 886 take over the control and management of the company and its properties and effects by appointing their own Directors and to delegate all or any of their powers to the Provincial Government. In exercise of the powers thus delegated, the Government of Bombay appointed respondents 3 to 9 as Directors to take charge of the management and administration of the properties and affairs of the company. Subsequently, on 10th April, '1950, the Ordinance was repealed and was replaced by an Act of Parliament containing similar provisons, namely the Sholapur Spinning and Weaving Company (Emergency Provisions) Act (No. XXVIII of 1950) (hereinafter referred to as the "impugned Act").
The petitioner complains that the impugned Act and the action of the Government of Bombay pursuant thereto have infringed the fundamental rights conferred on him by articles 11, 19 and 31 of the Constitution with the result that the enactment is unconstitutional and void, and the interference by the Government in the affairs of the company is unauthorised and illegal. He accordingly seeks relief by way of injunction and mandamus against the Union of India and the State of Bombay impfended as respondents 1 and 2 respectively in these proceedings and against respondents a to 9 who are now in management as already stated. The company is irapleaded proforma as the 10th respondent.
Before discussing the issues involved, it is necessary to examine the relevant provisions of the impugned Act in order to see in what manner and to what extent the petitioner's rights have been affected thereby. The preamble to the repealed Ordinance stated that "on account of mismanagement and neglect a situation has arisen in the affairs of the Sholapur Spinning and Weaving Company, Limited, which has prejudicially affected the production of an essential commodity and has caused serious unemployment amongst a certain section of the community and that an emergency has arisen which renders it necessary to make special provision for the proper management and administration of the aforesaid 887 Company." This preamble was not reproduced in the impugned Act. Section a empowers the Central Government to appoint as many persons as it thinks fit to be directors of the company "for the purpose of taking over its management and administration." Section 4 states the effect of the order appointing directors to be that (1) the old directors shall be deemed to have vacated their office, (2) the contract with the managing agents shall be deemed to have been terminated, (3) that the properties and effects of the company shall be deemed to be in the custody of the new directors who are to be "for all purposes" the directors of the company and "shall alone be entitled to exercise all the powers of the directors of the company whether such powers are derived from the Companies Act or from the memorandum or articles of association or otherwise." Section 5 defines the powers of the new directors. They are to manage the business of the company "subject to the control of the Central Government" and shall have the power to raise funds offering such security as they think fit, to carry out necessary repairs to the machinery or other property in their custody and to employ the necessary persons and define the necessary conditions of their service. Section 12 provides for the restoration of the management to directors nominated by the shareholders when the purpose of the Government's intervention has been fulfilled. Section 13 is important and reads thus: "13. Application of the Companies Act.--(1) Notwithstanding anything contained in the Companies Act or in the memorandum or articles of association of the company (a) it shall not be lawful for the shareholders of the company or any other person to nominate or appoint any person to be a director of the company; (b) no resolution passed at any meeting of the shareholders of the company shall 'be given effect to unless approved by the Central Government; (c) no proceeding for the winding up of the company or for the appointment of a receiver in respect, thereof shall lie in any Court unless by or with the sanction of the Central Government. (2) Subject.
888 to the provisions contained in sub-section (1) and to the other provisions of this Act. and subject to such exceptions, restrictions and limitations as the Central Government may, by notified order, specify, the Companies Act shall continue to apply to the company in the same manner as it applied thereto before the issue of the notified order under section 3." By section 14 the provisions of the Act are to have effect "notwithstanding anything inconsistent therewith contained in any other law or in any instrument having effect by virtue of any law other than this Act." Section 16 provides for delegation of powers to the Government of Bombay to be exercised subject to the directions of the Central Government, and section 17 bars suits or other proceedings against the Central Government or the Government of Bombay or any director "for any damage caused or likely to be caused by anything which is in good faith done or intended to be done in pursuance of this Act." As a result of these provisions all the properties and effects of the company passed into the absolute power and control of the Central Government or its delegate the Government of Bombay, and the normal functioning of the company as a corporate body came to an end. The shareholders have been reduced to the position of interested, if helpless, onlookers while the business is carried on against their will and, may be, to their disadvantage by the Government's nominees. The declared purpose of this arrangement was, according to the Preamble of the repeated Ordinance to keep up the production of an essential commodity and to avert serious unemployment amongst a certain section of the community.
The question accordingly arises whether the impugned Act. which thus affects the petitioner and his co-shareholders, while leaving untouched the shareholders of all other companies, including those engaged in the production of essential commodities, denies to the petitioner the equal protection of the laws under article 14 of the Constitution.
The correct approach to 889 this question is first to see what rights have been conferred or protection extended to persons similarly situated.
The relevant protection is to be found in the provisions of the Indian Companies Act which regulates the rights and obligations of the shareholders of incorporated companies in India. Section 21 of the Act assures to the shareholders the protection of the stipulations contained in the memorandum and articles of association by constituting. them a binding contract, so that neither the company nor the shareholders have the power of doing anything inconsistent therewith. The basic right of the shareholders to have their undertaking managed and conducted by the directors of their own choice is ensured by section 83B. Their right to exercise control and supervision over the management by the directors by passing resolutions at their general meeting is regulated by various provisions of the Act. The important safeguard of winding up the company in certain unfavourable circumstances either through court or by the shareholders thems elves voluntarily is provided for in sections 162 and 203. All these rights and safeguards, on the faith of which the shareholders embark their money in their undertaking, are abrogated by the impugned Act in the case of the shareholders of this company alone. In fact, the Central Government is empowered to exclude, restrict or limit the operation of any of the provisions of the Companies Act in relation to this company. It is thus plain that the impugned Act denies to the shareholders of this particular company the protection of the law relating to incorporated joint stock companies in this country is embodied in the Companies Act and is primafacie within the inhibition of article 14.
It is argued, however, that article 14 does not make it incumbent on the Legislature always to make laws applicable to all persons generally, and that it is open to the Legislature 'to classify persons and things and subject them to the operation of a particular law according to the aims and objects which that law is designed to secure. In the present case, Parliament, 114 890 it was said, came to the conclusion, on the materials placed before them, that the affairs of the company were being grossly mismanaged so as to result in the cessation of production of an essential commodity and serious unemployment amongst a section of the community. In view if the detriment thus caused to public economy, it was competent for Parliament to enact a measure applicable to this company and its shareholders alone, and Parliament must be the judge as to whether the evil which the impugned Act was designed to remedy prevailed to such an extent in this company as to call for special legislation. Reliance was placed in support of this argument on certain American decisions dealing with the equal protection clause of the Fourteenth Amendment of the Federal Constitution. It is, however, unnecessary to discuss those decisions here, for it is undeniable that equal protection of the laws cannot mean that all laws must be quite general in their character and application.' A legislature empowered to make laws on a wide range of subjects must of necessity have the power of making special laws to attain particular objects and must, for that purpose, possess large powers of distinguishing and classifying the persons or things to be brought under the operation of such laws, provided the basis of such classification has a just and reasonable relation to the object which the legislature has in view. While, for instance, a classification in a law regulating labour in mines or factories may be based on age or sex, it may not b`e based on the colour of one's skin. It is also true that the class of persons to whom a law is made applicable may be large or small, and the degree of harm which has prompted the enactment of a particular law is a matter within the discretion of the law-makers. It is not the province of the court to canvass the legislative judgment in such matters. But the issue here is not whether the impugned Act was ill-advised or not justified by the facts on which it was based, but whether it transgresses the explicit constitutional restriction on legislative power imposed by article 14.
891 It is obvious that the legislation is directed solely against a particular company and shareholders and not against any class or category of companies and no question, therefore, of reasonable legislative classification arises.
If a law is made applicable to a class of persons or things and the classification is based upon differentia having a rational relation to the object sought to be attained, it can be no objection to its constitutional validity that its application is found to affect only one person or thing.
For instance, a law may be passed imposing certain restrictions and burdens on joint stock companies with a share capital of, say, Rs. 10 crores and upwards, and it may be found that there is only one such company for the time being to which the law could be applied. If other such companies are brought into existence in future the law would apply to them also, and no discrimination would thus be involved.
But the impugned Act, which selects this particular company and imposes upon it and its shareholders burdens and disabilities on the ground of mismanagement and neglect of duty on the part of those charged with the conduct of its undertaking, is plainly discriminatory in character and is, in my judgment, within the constitutional inhibition of article
14. Legislation based upon mismanagement or other misconduct as the differentia and made applicable to a specified individual or corporate body is not far removed from the notorious parliamentary procedure formerly employed in Britain of punishing individual delinquents by passing bills of attainder, and should not, I think, receive judicial encouragement.
It was next urged that the burden of proving that the impugned Act is unconstitutional lay on the petitioner, and that, inasmuch as he has failed to adduce any evidence to show that the selection of this company and its shareholders for special treatment under the impugned Act was arbitrary, the application must fail. Whilst all reasonable presumption must undoubtedly be made in support of the constitutional validity of a law made by a competent legislature, the circumstances of the present case would seem, to my 892 mind to exclude such presumption. Hostile discrimination is writ large over the face of the impugned Act and it discloses no grounds for such legislative intervention. For all that appears no compelling public interests were involved.
Even the preamble to the original Ordinance was omitted.
Nor did respondents 1 and 2 file any counter-statement in this proceeding explaining the circumstances which led to the enactment of such an extraordinary measure. There is thus nothing in the record even by way of allegation which the petitioner need take steps to rebut. Supposing, however, that the impugned Act was passed on the same grounds as were mentioned in the preamble to the repealed Ordinance, namely, mismanagement and neglect prejudicially affecting the production of an essential commodity and -causing serious unemployment amongst a section of the community, the petitioner could hardly be expected to assume the burden of showing, not that the company's affairs were properly managed, for that is not his case, but that there were also other companies similarly mismanaged, for that is what, according to the respondents, he should prove in order to rebut the presumption of constitutionality. In other words, he should be called upon to establish that this company and its shareholders were arbitrarily singled out for the imposition of the statutory disabilities. How could the petitioner discharge such a burden ? Was he to ask for an investigation by the Court of the affairs of other industrial concerns in India where also there were strikes and lock outs resulting in unemployment and cessation of production of essential commodities? Would these companies be willing to submit to such an investigation ? And even so, how is it possible to prove that the mismanagement and neglect which is said to have prompted the legislation in regard to this company was prevalent in the same degree in other companies ? In such circumstances, to cast upon the petitioner a burden of proof which it is as needless for him to assume as it is impracticable to discharge is to lose sight of the realities of the case.
893 Lastly, it was argued that the constitutionality of a statute could not be impugned under article 32 except by a person whose rights were infringed by the enactment. and that, inasmuch as there was no infringement of the individual right of a shareholder, even assuming that there was an injury to the company as a corporate body, the petitioner was not entitled to apply for relief under that article.
Whatever validity the argument may have in relation to the petitioner's claim based on the alleged invasion of his right of property under article 31, there can be little doubt that, so far as his claim based on the contravention of article 14 is concerned, the petitioner is entitled to relief in his own right As has been pointed out already, the impugned Act deprives the shareholders of the company of important rights and safeguards which are enjoyed by the shareholders of other joint stock companies in Indian under the Indian Companies Act. The petitioner is thus denied the equal protection of the laws in his capacity as a shareholder, and none the less so because the other shareholders of the company are also similarly affected. The petitioner is the reled to seek relief under article 32 of the Constitution.
In this view it becomes unnecessary to consider the questions raised under articles 19 and 31 of the Constitution.
In the result]t, I would allow the application.
MUKHERJEA J.--This is an application presented by one Chiranjitlal Chowdhuri, a shareholder of the Sholapur Spinning and Weaving Company Limited (hereinafter referred to as the company), praying for a writ of mandamus and certain other reliefs under article 32 of the Constitution.
The company, which has its registered office within the State of Bombay and is governed by the provisions of the Indian Companies Act, was incorporated with an authorised capital of Rs. 48 lakhs divided into 1590, fully paid up ordinary shares of Rs. 100 each, 20 fully paid up ordinary shares of Rs. 500 each and 32,000 partly paid up cumulative preference shares of Rs. 100 each. The 894 present paid up capital of the company is Rs. 32 lakhs half of which is represented by the fully paid up ordinary shares and the other half by the partly paid up cumulative preference shares. The petitioner states in his petition that he holds in his own right three ordinary shares and eighty prefercnce shares in the company, though according to his own admission the ,preference shares do not stand in his name but have been registered in the name of the Baroda Bank Limited with which the shares are pledged. According to the respondents, the petitioner is the registered holder of one single ordinary share in the company.
It appears that on July 27, 1949, the directors of the company gave a notice to the workers that the mills would be closed, and pursuant to that notice, the mills were in fact closed on the 27th of August following. On January 9, 1950, the Governor-General of India promulgated an Ordinance which purported to make special provisions for the proper management and administration of the company. It was stated in the preamble to the Ordinance that "on account of mismanagement and neglect, a situation has arisen in the affairs of the Sholapur Spinning and Weaving Company Limited which has prejudicially affected the production of an essential commodity and has caused serious unemployment amongst a certain section of the community ", and it was on account of the emergency arising from this situation that the promulgation of the Ordinance was necessary. The provisions of the Ordinance, so far as they are material for our present purpose, may be summarised as follows:
Under section 3 of the Ordinance, the Central Government may, at any time, by notified order, appoint as many persons as it thinks fit, to be directors of the company for the purpose of taking over its management and administration and may appoint one of such directors to be the Chairman.
Section 4 provides that on the issue of a notified order under section 3 all the directors of the company holding office as such immediately before the issue of the order shall be deemed to have vacated their offices. and any existing 895 contract of management between the company and any managing agent thereof shall be deemed to have terminated. The directors thus appointed shall be for all purposes the directors of the company duly constituted under the Companies Act and shall alone be entitled to exercise all the powers of the directors of the company. The powers and the duties of the directors are specified in section 5 and this section inter alia empowers the directors to vary or cancel, with the previous sanction of the Central Government, any contract or agreement entered into between the company and any other person if they are satisfied that such contract or agreement is detrimental to the interests of the company.
Section 10 lays down that no compensation for premature termination of any contract could be claimed by the managing agent or any other contracting party. It is provided by section 12 that so long as the management by the statutory directors continues, the shareholders would be precluded from nominating or appointing any person to be a director of the company and any resolution passed by them will not be effective unless it is approved by the Central Government.
This section lays down further that during this period no proceeding for winding up of the company, or for appointment of a receiver in respect thereof could be instituted in any court, unless it is sanctioned by the Central Government, and the Central Government would be competent to impose any restrictions or limitations as regards application of the provisions of the Indian Companies Act to, be affairs of the company. The only other material provision is that contained in section 15, under which the Central Government may, by notified order, direct that all or any of the powers exercisable by it under this Ordinance may be exercised by the Government of Bombay.
In accordance with the provisions of section 15 mentioned above, the Central Government, by notification issued on the same day that the Ordinance was promulgated, delegated all its powers exercisable under the Ordinance to the Government of Bombay, 896 On the next day, the Government of Bombay appointed respondents 3 to 7 as directors of the company in terms of section 3 of the Ordinance. On the 2nd of March, 1950, the respondent No. 9 was appointed a director and respondent No.
5 having resigned his office in the meantime, the respondent No. 8 was appointed in his place. On the 7th of April, 1950, the Ordinance was repealed and an Act was passed by the Parliament of India, known as the Sholapur Spinning and Weaving Company (Emergency Provisions)Act which re-enacted almost in identical terms all the provisions of the Ordinance and provided further that all actions taken and orders made under the Ordinance shall be deemed to have been taken or made under the corresponding provisions of the Act. The preamble to the Ordinance was not however reproduced in the Act.
The petitioner in his petition has challenged the constitutional validity of both the Ordinance and the Act. As the Ordinance is no longer in force and all its provisions have been incorporated in the Act, it will not be necessary to deal with or refer to the enactments separately. Both the Ordinance and the Act have been attacked on identical grounds and it is only necessary to enumerate briefly what these grounds are.
The main ground put forward by the petitioner is that the pith and substance of the enactments is to take p
