Dwarkadas Shrinivas of Bombay Vs. The Sholapur Spinning & Weaving Co. Ltd. & Ors [1953] INSC 87 (18 December 1953)
SASTRI, M. PATANJALI (CJ) MAHAJAN, MEHR CHAND DAS, SUDHI RANJAN BOSE, VIVIAN HASAN, GHULAM
CITATION: 1954 AIR 119 1954 SCR 674
CITATOR INFO :
R 1954 SC 92 (26) R 1954 SC 728 (25) R 1955 SC 41 (6,7) E 1957 SC 676 (6) R 1958 SC 328 (9,10,34) F 1958 SC 578 (158) R 1959 SC 308 (6) D 1959 SC 648 (38) R 1960 SC 554 (7,28) R 1960 SC1080 (23) RF 1961 SC1684 (28,29) R 1962 SC 305 (29) D 1962 SC 458 (24) R 1963 SC1811 (14) RF 1967 SC 856 (9) RF 1967 SC1643 (179,227) RF 1968 SC 394 (10,13) R 1970 SC 564 (16,55,75) RF 1970 SC2182 (7) R 1971 SC1594 (9) R 1973 SC 106 (42) RF 1973 SC1461 (1057) R 1978 SC 597 (67,157) R 1978 SC 803 (35) RF 1980 SC1682 (66) RF 1982 SC 149 (604) E&R 1987 SC 180 (10) RF 1988 SC1136 (27,29) F 1989 SC1629 (15)
ACT:
Sholapur. Spinning and Weaving Company (Emergency Provisions) Ordinance II of 1950, replaced by Act XXVIII of 1950--Whether ultra vires art. 31 of the Constitution--Arts. 19 and 31-- Scope of--Whether different.
HEADNOTE:
The Sholapur Spinning and Weaving Co., Ltd., was incorporated under the Indian Companies Act, 1913, with an authorised capital of Rs. 48 lakhs divided into 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 cumulative preference shares of Rs. 100 each, the paid up capital of the Company being Rs. 32 lakhs comprised of Rs. 16 lakhs fully' paid up ordinary shares and Rs. 16 lakhs partly paid up preference shares, Rs. 50 being unpaid on each of the 32,000 cumulative preference shares.
The Company did good business and declared high dividends for some time ;'but in the year 1949 there was accumulation of stocks and financial difficulties. On the 27th July, 1949, the Directors gave notice of 675 their decision to close the Mills to the workers, and pursuant to this notice the Mills were closed. This created a labour problem and to solve it the Government on he 5th October, 1949, appointed a Controller to supervise the affairs of the Mills under the Essential Supplies Emergency Powers Act, 1946. On the 9th November, 1949, the Controller in order to resolve the deadlock decided to call in more capital and asked the Directors of the Company to make a call of Rs. 50 per share, on the preference shareholders, the amount remaining unpaid on each of the preference shares. The Directors refused to comply with this requisition, as in their judgment, this was not in the interests of the Company.
Thereupon the Governor-General on the 9th January, 1950, promulgated the impugned Ordinance, under which the Mills could be managed and run by the Directors appointed by the Central Government. On the 9th January, 1950, the Central Government acting under s. 15 of the Ordinance delegated all its powers to the Government of Bombay.
The Government of Bombay then appointed certain Directors who took over the assets and management of the Mills. On the 7th February, 1950, they passed a resolution making a call of Rs. 50 on each of the preference shares payable at the time stated in the resolution. Pursuant to this resolution a notice was addressed on the 22nd February, 1950, to the plaintiff in the suit who held preference shares, to pay Rs. 1,62,000 the amount of the said call on or before the 3rd April, 1950. The plaintiff instead of meeting the demand, filed the present suit on the 28th March, 1950, in a representative capacity on behalf of himself and other preference shareholders against the Company and the Directors appointed by the Government of Bombay challenging the validity of the Ordinance and questioning the right of the Directors to make the call. It was alleged in the suit that the Ordinance was illegal and ultra vires and invalid as it contravened the provisions of Section 299(2) of the Government of India Act, 1935, and the provisions of Part III of the Constitution and that the resolution of the Directors dated 7th February, 1950, making a call was illegal and ultra vires as the law under which they were appointed was itself invalid. The suit was dismissed by the Trial Judge and his decision was affirmed on appeal by a Division Bench of the Bombay High Court by the Judgment dated 29th August, 1950. The plaintiff preferred the present appeal to the Supreme Court. This appeal concerns the validity of the same Ordinance and the Act replacing it which were considered by the Supreme Court in the case of Chiranjit Lal Chowdhuri (1950 S.C.R. 869).
There an ordinary shareholder of the defendant Company holding one fully paid up share challenged the validity of the Sholapur Spinning and Weaving Co. (Emergency Provisions) Ordinance II of 1950 and Act XXVIII of 1950, seeking relief under Article 32 of the Constitution on the ground that the said. Ordinance and the Act abridged his fundamental rights conferred on him under Articles 14, 19 and 31 of the Constitution. The Supreme Court dismissed the petition by a majority of 676 3 to 2 holding that the presumption in regard to the Constitutionality of the Act had not been displaced by the petitioner and that it had not been proved that the impugned statute was a hostile or discriminatory piece of legislation as against him or that the State had taken possession of his share. The minority held that impugned statute was void as it abridged the petitioner's fundamental rights under Article 14 of the Constitution.
This decision was delivered on 4th December, 1950. The suit giving rise to the present appeal was decided by the Bombay High Court during the pendency of Chiranjit Lal Chowdhuri's petition in the Supreme Court:
Held, (pet' PATANJALI SASTRI C.J., MAHAJAN, BOSE, and GHULAM HASAN JJ.) (i) that the impugned Ordinance and the Act replacing it authorise in effect a deprivation of the property of the Company within the meaning of Article 31 without compensation and are not covered by the exception in clause (5)(b)(ii)of that Article. The Ordinance and the Act thus violate the fundamental rights of the Company under Article 31(2) of the Constitution and the appellant as a preference shareholder who is called upon to pay the moneys unpaid on his shares is entitled to impugn their constitutionality.
(ii) that the previous decision of the Supreme Court in Charanjit Lal Chowdhuri v. The Union of India and Others(1) is distinguishable and has no application to the present case.
Per MAHAJAN J.
(i) Constitutional provisions for the security of person and property should be liberally construed. A close and literal construction deprives them of half their efficacy and leads to gradual depreciation of the right, as if it consisted more in sound than in substance. It is the duty of Courts to be watchful for the constitutional rights of the citizen and against any stealthy encroachments thereon.
Boyd v. United States (2) referred to.
By promulgating the Ordinance, the Government has not merely taken over the superintendence of the affairs of the Company but has in effect and substance taken over the undertaking itself. In the situation' the contention has no force that the effect of the Ordinance is that the Central Government has taken over the superintendence of the affairs of the Company and that the impugned legislation is merely regulative in character. In the present case 'practically all incidents of ownership have been taken over by the Sate and nothing' has been left with the Company but the mere husk of title and in the premises the impugned statute has overstepped the limits of legitimate Social Control Legislation and has infringed the fundamental right of the Company guaranteed to it under: Article 31(2) of the Constitution and is, therefore unconstitutional.
(1) [1950] S.C.R. 869. (2) 146 U.S. 616 677 (ii) It is significant that Article 31 deals with private property of persons residing in the Union of India, while Article 19 only deals with citizens defined in Article 5 of the Constitution. It is obvious that the scope of these two Articles cannot be the same as they cover different fields. The true approach to this question is that these two Articles really deal with two different subjects and one has no direct relation with the other amely. Article 31 deals with the field of eminent domain and the whole boundary of that field is demarcated by this Article.
From the language employed in the different sub-clauses of Article 31 it is difficult to escape the conclusion that the words "acquisition" and "taking possession" used in Article 31(2) have the same meaning as the word "deprivation" in Article 31(1).
(iii) Article 31 is a self-contained provision delimiting the field of eminent and clauses (1) and (2) of Article 31 deal with the same topic of compulsory acquisition of property.
Article 31 gives complete protection to private property as against executive action, no matter by what process a person is deprived of possession of it.
It is a narrow view that "acquisition" necessarily means acquisition of title in whole or part of the property and cannot be accepted. The word "acquisition" has quite a wide concept, meaning the procuring of property or the taking of it permanently or temporarily.
It does not necessarily imply acquisition of legal title by the State in the property taken possession of.
Minister of State for the Army v. Dalziel (68 C.L.R. 261) referred to.
Per Das J.
(I) As the appellant as a preference shareholder is directly affected by the impugned statute, which circumstance distinguishes this case from Chiranjit Lal's case, it must be held that the appellant is entitled to challenge the Ordinance which dismissed the Directors elected by the shareholders, authorised the appointment of Directors by the State and made it possible for the Directors so appointed to make the call and thereby impose a liability on all preference shareholders including the appellant.
(II) The provisions of the Ordinance and the Act are drastic in the extreme. The Managing Agents and the elected Directors have been dismissed and new Directors have been appointed by the State. So far as the Company is concerned it has been completely denuded of the possession of its property. All that has been left to the Company is its bare legal title. It is impossible to uphold this law as an instance of the exercise of the State's police power as an emergency measure. It has far overstepped the limits of police power and is, in substance, nothing short of expropriation by way of the exercise of the power of eminent domain and as the law has not provided for any compensation it must be held to offend the provisions of Article 31(2).
678 Per Bose J.
The words "taken possession of" or "acquired" in Article 31(2) have to be read along with the word "deprived" in clause (1). The possession and acquisition referred to in clause (2) mean the sort of "possession" and "acquisition" that amount to "deprivation" within the meaning of clause (1). No hard and fast rule can be laid down. Each case must depend on its own facts. But if there is substantial deprivation, then clause (2) is attracted.
Per GHULAM HASAN J.
The Act in substance robs the Company of every vestige of right, except what has been laconically called the husk of the title. The impugned Act oversteps the constitutional limits of the power conferred upon' the State and offends against the provisions of Article 31 and must therefore be held to be void.
The intention underlying Article 31 being the protection of property against invasion by the State, both parts (1) and (2) of Article 31 should be read together so as to harmonize that intention. The two parts of the Article form an integral whole and cannot be dissociated from each other. Article 31 is wider than Article 19(1)(f) which confers upon a citizen only the right to acquire, hold and dispose of property and is different in scope and content.
Chiranjit Lal Chowdhuri v. The Union of India and Others ([1950] S.C.R. 869) distinguished, The State of West Bengal v. Subodh Gopal Bose and Others ([1954] S.C.R. 587), Boyd v. United States (116 U.S. 616), Pennsylvania Coal Co. v. Mahon (260 U.S. 322), A.K.
Gopalan v. The State of Madras ([1950] S.C.R. 88), State of Bihar v. Maharajah Kameswar Singh and Others ([1952] S.C.R.
889), Minister of State for the Army v. Dalziel (68 C.L.R. 261), Tan Bug Tain v. Collector of Bombay (I.L.R. 1946 Bom. 517), and Jupiter General Insurance Co. v. Rajagopalan (A.I.R. 1952 Punjab 9), referred to.
CIVIL APPELLATE JURISDICTION: CIVIL APPEAL No. 141 of 1952.
Appeal from the Judgment and Order dated the 29th August 1950 of the High Court of Judicature at Bombay (Chagla C.J. and Gajendragadkar J.) in Appeal No. 48 of 1950 arising out of the Judgment and Decree dated the 28th June, 1950, of the said High Court (Bhagwati J.) in its Ordinary Original Civil Jurisdiction in Suit No. 438 of 1950.
M.P. Amin (M. M. Desai and K.H. Bhabha, with him) for the appellant.
679 M.C. Setalvad, Attorney-General for India and C.. K. Daphtary, Solicitor-General for India (G. N. Joshi, with them) for respondents Nos. 1 to 4 and 6 to 8. M.C. Setalvad, Attorney-General for India (G. N. Joshi and Porus A. Mehta, with him) for respondent No. 9.
1953. December 18. The following Judgments were delivered.
PATANJALI SASTRI C.J.--I have fully discussed and explained the meaning and effect of articles 19 and 31 in my Judgment just delivered in Civil Appeal No. 107 of 1952--The State of West Bengal v. Subodh Gopal Bose and Others. On that view I agree with my learned brothers that the impugned Ordinance authorises, in effect, a deprivation of the property of the Company within the meaning of article 31 without compensation and is not covered by the exception in clause (5)(b). (ii) of that article. The Ordinance thus violates the fundamental right of the. Company under article31(2), and the appellant as a preference shareholder who is now called upon to pay the moneys unpaid on his shares is entitled to impugn the constitutionality of the Ordinance. I also agree with my learned brother Mahajan that the previous of this Court in Chiranjit Lal Chowdhuri v. The Union of India and Others(2) is distinguishable and has no application here for the reasons mentioned by him.
MAHAJAN J.--This is an appeal from the judgment and decree of the High Court of Judicature at Bombay 'passed on the 29th day of August, 1950, in Appeal No. 48 of 1950.
The appeal concerns the validity of the same piece of legislation that was considered by this court in the case of Chiranjit Lad Chowdhuri (2). There, an ordinary shareholder of the defendant company holding one fully paid up share claimed relief under Art. 32 of the Constitution of India on the ground that the provisions of the Sholapur Spinning & Weaving Company (Emergency Provisions) Act, XXVIII of (1) [1954] S. C. R 587. (2) [1950] S. C. R. 869.
680 1950 abridged his fundamental rights conferred under Articles 14, 19 and 31 of the Constitution. This Court by a majority of 3 to 2 dismissed the petition holding that the presumption in regard to the constitutionality of the Act had not been displaced by the petitioner and that it had not been proved that the impugned statute was a hostile or a discriminatory piece of legislation as against him, or that the State had taken possession of his share.
The minority held that the impugned statute was, void as it abridged the petitioner's fundamental rights under Art. 14 of the Constitution.
This decision was delivered on 4th December, 1950.
The suit out of which this appeal arises was decided by the High Court of Bombay during the pendency of Chiranjit Lal Chowdhuri's petition in this court. Most of the facts furnishing the cause of action for the suit have been detailed in the judgment of this court in that case, but it seems necessary to briefly re-state them from a proper appreciation of the contentions that have been raised in the appeal.
The Sholapur Spinning and Weaving Company Ltd., was incorporated under the Indian Companies Act with an authorized capital of Rs. 48 lakhs divided into 1,590 fully paid up ordinary shares of Rs. 1,000 each, 20 fully paid up ordinary shares of 500 each, and 32,000 partly paid up cumulative preference shares of Rs. 100 each, the paid up capital of the company being Rs. 32 lakhs comprised of Rs. 16 lakhs fully paid up ordinary shares and Rs. 16 lakhs partly paid up preference shares, Rs. 50 being unpaid on each of the 32,000 cumulative preference shares. The company did good business and declared high dividends for some time; but in the year 1949, there was accumulation of stocks and financial difficulties.
In order to overcome this situation the directors decided to close the Mills and on the 27th July, 1949, they gave notice of this decision to the workers.
Pursuant to this notice the Mills were closed on the 27th August, 1949. This created a labour problem and to solve it the Government on the 5th October, 1949, appointed, a 681 Controller to supervise the affairs of the Mills under the Essential Supplies Emergency Powers Act, 1946. On the 9th November, 1949, the Controller in order to resolve the deadlock decided to call in more capital and he asked the directors of the company to make a call of Rs. 50 per share on the preference shareholders, the amount remaining unpaid on each of the preference shares. The directors refused to comply with this requisition, as in their judgment that was not in the interest of the company.
Thereupon the Governor-General on the 9th January, 1950, promulgated the impugned Ordinance, under which the Mills could be managed and run by directors appointed by the Central Government. On the 9th January, 1950, the Central Government acting under section 15 of the Ordinance delegated all its powers to the Government of Bombay. The Government of Bombay then appointed certain directors who took over the assets and management of the Mills. On the 7th February, 1950, they passed a resolution making a call of Rs. 50 on each of the preference shares payable at the time stated in the resolution. Pursuant to this resolution a notice was addressed on the 22nd February, 1950, to the plaintiff in the suit, who held preference shares, to pay Rs. 1,62,000, the amount of the said call on or before the 3rd April, 1950. The plaintiff instead of meeting the demand, filed the present suit on the 28th March, 1950, in a representative capacity on behalf of himself and other preference shareholders against the company and the directors appointed by the Government of Bombay challenging the validity of the Ordinance and questioning the right of the directors to make the call. On the 19th April, 1950, a notice was given to the Attorney-General of India of the said suit and the Union of India was added as defendant No. 9 therein.
The principal allegations in the suit were that the Ordinance was illegal, ultra vires and invalid as it contravened the provisions of section 299 (2)of the Government of India Act, 1935, and all the provisions contained in Part III of the Constitution, and that the resolution of the directors dated 7th February, 7--95 S.C. India/59.
682 1950, making a call was illegal and ultra vires, as the law under which they were appointed was itself invalid. The plaintiff claimed relief in the form of a declaration regarding the invalidity of the Ordinance and prayed for an injunction restraining the directors from giving effect to the resolution. The defendants denied the correctness of the contentions put forward by the plaintiff.
Mr. Justice Bhagwati, who tried the suit, framed the following issues therein :--
1. Whether by the Ordinance the plaintiff and holders of preference shares have been deprived of their interest in the Ist defendant company by taking possession of or requisitioning or acquiring the same as alleged in para 6 of the plaint;
2. Whether s. 4 (d) or' the Ordinance is illegal, ultra vires, and void in law as alleged; and
3. Whether the resolution dated the 7th February, 1950, made by defendants 2 to 6 is illegal, ultra vires, void and inoperative in law for the reasons mentioned in para 6 of the plaint or any of them.
By his judgment dated the 28th June, 1950, the learned Judges answered all the three issues in the negative and dismissed the suit,and this decision was affirmed on appeal. It was held that by force of the Ordinance the State had neither acquired the property of the plaintiff, nor of the company, nor had it taken possession of it, but that the title to the property and its possession were with the respective owners, and the State was only supervising the affairs of the company through its nominated directors. It was further held that the Ordinance had not in any manner infringed the rights of the plaintiff under Art. 14 of the Constitution and there had been to him no denial of equality before the law or equal protection of laws, as the Ordinance was based on a classification which rested upon a ground having a fair and substantial relation to the object of the legislation and that it had a reasonable basis for that classification. It was also held that the restrictions 683 imposed on the right of the appellant and the company to hold his or its property were imposed in the interests of the general public.
The principal questions for consideration in this appeal are :--
1. Whether the provisions of the Ordinance for taking over the management and administration of the company, contravene the provisions of article 31 (2) of the Constitution; and
2. Whether the Ordinance as a whole or any of its provisions infringe articles 14 and 19 of the Constitution.
In order to decide these issues it is necessary to examine with some strictness the substance of the legislation for the purpose of determining what it is that the legislature has really done; the court, when such questions arise, is not over persuaded by the mere appearance of the legislation. In relation to constitutional prohibitions binding a legislature it is clear that the legislature cannot disobey the prohibitions merely by employing indirect method of achieving exactly the same result. Therefore, in all such cases the court has to look behind the names, forms and appearances to discover the true character and nature of the legislation.
The preamble of the' Ordinance states :-- "On account of mismanagement and neglect a situation has arisen in the affairs of the Sholapur Spinning & Weaving Company, Ltd., which has prejudicially affected the' production of an essential commodity and has caused serious unemployment amongst a certain section of the community".
Section 3 is the most material section and is in these terms :-- "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." 684 The provisions of this section are supplemented by what is subsequently provided for in section 12 which provides that notwithstanding anything contained in the Companies Act or in the memorandum or articles of association of the company, 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, that no resolution passed at any meeting of the shareholders of the company shall be given effect to unless approved by the Central Government, and that 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, 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. Section .4 states the effect of the order of the Central Government appointing directors. It provides that all the directors of the company who were holding office as such immediately before the issue of the notified order shall be deemed to have vacated their offices. In other words, the directors elected and appointed by the shareholders stand automatically dismissed without more.
Not only do the directors stand automatically dismissed by legislative action the managing agents also share their fate and their contracts come to an end. Section 4 directs the persons appointed under section 3 to take into custody and under their control all the property, effects and actionable claims to which the company is or appears to be entitled and to exercise all the powers of the directors of the company, whether those powers are derived from the Companies Act or from the memorandum or articles of association or from any other source. By section 5 these nominated directors are given powers to raise funds in such manner and offer Such security as they may deem fit. They are given the overriding power of cancelling and varying contracts and agreements 685 entered into between the company and' any other person at any time if they are satisfied that the contract or the agreement is detrimental to the interests the company.
Section 10 denies to the managing agents compensation for the' premature termination of the contract of management entered into by the company and it also says that no person shall be entitled to compensation in respect of a cancelled or varied contract under this. Ordinance, entered into with the company. The Ordinance thus confers powers on the directors of overriding all contracts and deprives persons who had entered into contracts with the company of their right under the ordinary law to, recover compensation, Sections 6, 7 and 8 of the Ordinance lay down, the method and' manner how the existing directors were to give charge of the company's affairs and properties. to the directors nominated by the Central Government under section 3 and any default in the matter of handing over charge is made punishable by imprisonment or other punitive action.
The result of these provisions is that all the properties and effects of the company pass into the hands of persons nominated by the Central Government who are not members of the company or its shareholders, or in any way connected with it, and who are merely the creatures of the Central Government or its dummies. The combined effect of the provisions of sections 3, 4 and 12 is that the Central Government becomes vested with the possession, control and management of the property and effects of the company, and the normal function of the company under its articles and the Indian Companies Act comes to an end. The shareholders' most valuable right to appoint directors to manage the affairs of the company and be in possession of its property and effect is taken away. Resolutions passed by them lose all vigour and become subject to the veto of the Central Government. Their power of voluntarily winding up the company formed by them or of winding it up through court also becomes subject to the veto of the Central Government. The Central Government by 686 executive action can override, if it likes, all the provisions of the Indian Companies Act. In substance therefore by the provisions of this Ordinance the company and its shareholders as well as 'its directors and managing agents have been completely deprived of possession of the property and effects of the company, and its possession has been taken by the Central Government, i.e., by the Union of India. The undertaking purports to have been taken over for a public purpose, namely, to keep up the production of an essential commodity, and to avoid serious unemployment amongst a certain section of the people.
The majority of the court in Chiranjitlal Chowdhuri's case(1), was inclined to take the view that that was the true effect of the provisions of the Ordinance.
Mukherjea 1. with whose views Kania C.J., concurred, and to whose views to a certain extent Fazl Ali 1. subscribed.
on this part of the case said as follows :- "Mr. Chaff, on the other hand, has contended on behalf of the petitioner that after the management is taken over by the statutory directors, it cannot be said that the company still retains possession or control over its property and assets. Assuming that this State management was imposed in the interests of the shareholders themselves and that the statutory directors are acting as the agents of the company, the possession of the statutory directors could not, it is argued, be regarded in law as possession of the company so long as they are bound to act in obedience to the dictates of the Central Government and not of the company itself in the administration of its affairs. Possession of an agent, it is said, cannot juridically be the possession of the principal, if the agent is to act not according to the commands or dictates of the principal, but under the direction of an exterior authority.
There can be no doubt that there is force in this contention." Mr. Justice Patanjali Sastri, as he then was held that the effect of the Act was that all the properties and effects of the company passed into the absolute (1) [1950] S.C.R. 869.
687 power and control of the Central Government and the normal function of the company as a corporate body came to an end. Mr. Justice Das on this part of the case said as follows :- "It is, however, urged by the learned Attorney-General that the mills and all other assets now in the possession and custody of the new directors who are only servants or agents of the said company are, in the eye of the law, in the possession and custody of the company and have not really been taken possession of by the State. This argument, however, overlooks the fact that in order that the possession of the servant or agent may be juridically regarded as the possession of the master or principal, the servant or agent must be obedient to, and amenable to the directions of, the master or principal.
If the master or principal has no hand in the appointment of the servant or agent or has no control over him or has no power to dismiss or discharge him, as in this case, the possession of such servant or agent can hardly, in law, be regarded as the possession of the company. In this view of the matter there is great force in the argument that the property of the company has been taken possession of by the State through directors who have been appointed by the State in exercise of the powers conferred by the Ordinance and the Act and who are under the direction and control of the State and this has been done without payment of any compensation ......................Here, therefore, it may well be argued that the property of the company having been taken possession of by the State in exercise of powers conferred by a law which does not provide for payment of any compensation, the fundamental right of the company has, in the eye of the law, been infringed." The learned Attorney-General combated this view and strenuously argued that the Ordinance could not be construed in the manner suggested above and on its true construction its effect was that the Government took under its superintendence the affairs of the company without in any way disturbing its title in the property and that the shareholders have still to a certain extent an effective voice in its affairs. Illustratively 688 he said that' the company was in the same state as a disqualified owner is under the provisions of the Court of Wards Act and that the provisions of the Ordinance should be construed in that light. To emphasize the same point of view reference was also made to the provisions of the Lunacy Act, the provisions of sections 52-A and 52-B introduced in the Insurance Act by Act 47 of 1950, the provisions of the Railway Companies Emergency Powers Act (51 of 1951), and also to the provisions of Act 65 of 1951 (Development of Industries Act), and it was contended that the impugned Ordinance was a piece of social control. legislation as were the provisions contained in the statutes referred to above.
In my opinion, these contentions. are not well founded. Reference to illustrative pieces of legislation designed on the same pattern is neither very happy nor apposite; on the other hand, it is apt to mislead because except in the case of the Court of Wards Act, all the laws to which reference was made were enacted after the enactment of the Ordinance in question. The different Court of Wards Acts being existing laws have been excepted from the fundamental right guaranteed by article31 (2). That being so, they can afford little assistance in judging the validity of the impugned law. In dealing with constitutional matters of this kind it is always well to bear in mind what Bradley, J., speaking for the court said in Boyd v United States(1) at page 635 :-- "Illegitimate and unconstitutional practices get their first footing in that way, namely, by silent approaches and slight deviations from legal modes of procedure. This can only be obviated by adhering to the rule that constitutional provisions for the security of person and property should be liberally construed. A close and literal construction deprives them of half their efficacy and leads to gradual depreciation of the right, as if it consisted more in sound than in substance. It is the duty of courts to be watchful for the constitutional rights of the citizen and against any stealthy encroachments thereon," (1) 116 U.S. 616.
689 These illustrative pieces of' legislation to which the learned Attorney-General made reference may well have to be judged in the light of these observations when occasion arises. Reference may also be made to the observations of Holmes C.J. in Pennsylvania Cod Co. v. Mahon(1), wherein that learned Judge said as follows :- "As long recognized, some values were enjoyed under an implied limitation and must yield to police power but obviously the implied limitation must have its limits or the contract and due process clauses are gone. One fact for consideration in determining such limits is the extent of the diminution. When it reaches a certain magnitude, in most, if not in all cases, there must be an exercise of eminent domain and compensation to sustain the act." In my judgment, in the determination of all such cases no abstract standard or general rule can be laid down and the question is really one of degree and hence its determination depends on the facts-of each case. In these circumstances, what is to be determined here is whether the provisions of the Ordinance have not overstepped the limits of social legislation and whether they do not come within the ambit of article 31 (2).
The Ordinance in question is not a law of a general character and' applicable to all companies that may fall in a particular category or class. It deals only with a single company and it is difficult to say that mismanagement is a vice peculiar to this company alone and good management 'is a virtue possessed by all other incorporated companies. That being so, can it be reasonably held that by promulgating this Ordinance the Government has merely taken over the superintendence of the affairs of the company ? Or, has it in effect and substance taken over the under taking itself ? Obviously, the field of superintendence has to be' demarcated from the field of eminent domain. It is one thing to superintend the affairs of a concern and it is quite' another thing to take over its affairs (1) 260 U.S. 322 690 and then proceed to carry on ,its trade through agents appointed by the State itself. It seems to me that under the guise of superintendence the State is carrying on the business or trade for which. the company was incorporated with the capital of the company but through its own agents who take orders from it and are appointed by it and in the appointment and dismissal of whom the shareholders have absolutely no voice. The purpose of taking over the company's undertaking is a public purpose, namely, to keep the labour going and contended and to maintain the supply of essential commodity. The company is debarred from carrying on its business in the manner and according to the terms of its charter. Its old complexion stands changed by the terms of the Ordinance.
The Ordinance overrides the directors, deprives the shareholders of their legal rights and privileges and completely puts an end to the contract of the managing agents. Without there being any vacancy in the number of directors new directors step in and old directors and managing agents stand dismissed. Exercise of any power by them under the articles is subject to heavy penalties. In this situation it is not possible to subscribe to the contention of the learned AttorneyGeneral that the effect of the Ordinance is that the Central Government has taken over the superintendence of the affairs of the company and that the impugned legislation is merely regulative in character. In the present case, practically all incidents of ownership have been taken over by the State and all that has been left with the company is mere paper ownership. This Ordinance, in my judgment, is an apposite illustration of what Holmes C. J. had in mind when he made the following observations in the case already referred to :- "Where the seemingly absolute protection in respect of private property given by the Constitution is found to be qualified by the police power, the natural tendency of human nature is to extend the qualification more and more until at last private property disappears. We are in danger of forgetting that a strong public desire to improve the public 691 condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change and that the general rule is that while property may be regulated to a certain extent but if the regulation goes too far it will be recognized as a taking." For the reasons given above I am of the opinion that the impugned statute has overstepped the limits of legitimate social control legislation and has infringed the fundamental right of the company guaranteed to it under article 31(2) of the Constitution and is therefore unconstitutional.
Next it was contended that the Ordinance in question in any event could not fall within the mischief of article 31 (2) because the State had not acquired title in the property of the company under its provisions and that whatever possession had been taken had been taken for the purpose of managing the company's property on the company's behalf and that it had not been requisitioned for any State purpose. It was said that unless the property of the company by the provisions of the Ordinance was vested in the State or was commandeered by the State for State purposes, article 31 (2) could not be invoked to judge the constitutionality of the Ordinance, that article 31 (2) covered within its ambit only two forms of taking of property by the State, namely, where the State acquired title in the property or where the State temporarily commandeered it, and that all other forms of taking the property were outside the fundamental right guaranteed by article 31 (2). It was suggested that the scope of the protection given to private property by our Constitution was not as large as it was contained in the Fifth Amendment of the Constitution of the United States of America. According to the learned Attorney-General, the true content of the fundamental right guaranteed by article 31 (1) was that a person could not be deprived of his property except by statutory authority, but once a law was made depriving a person of his property then the article afforded no further protection. Support for this 692 contention was sought to be derived from the reasoning employed in Gopalan's case (1). There it was held that the freedoms relating to the person of a citizen guaranteed by article 19 assume the-existence of a free citizen and can no longer be enjoyed if a citizen is deprived of his liberty by the law of preventive or punitive detention. In like manner it was argued that the freedom relating to property guaranteed by article 19 also vanished as soon as a person was deprived of his property under a law enacted by an appropriate legislature. The learned Attorney-General suggested that the two clauses of article 31 were in the nature of two exceptions to the provisions of article 19 (1) (f). The first exception was that the guarantee of freedom given by article 19 (1)(f) could be defeated simply by enacting a statute and the second exception was that it could also be defeated by the State acquiring title' in the property in exercise of its power of eminent; domain' within the limited field prescribed by article 31 (2) but that if a certain deprivation of property did not fail within the prescribed' field of article 31 (2) and fell within article 31 (1), then for such deprivation no compensation was payable. As regards clause (5) which excepted certain laws from the ambit of article 31 (2), it was argued that this clause had been inserted in the article by way of abundant caution.
In my judgment, none of these' contentions have any validity. The construction sought to be placed by the learned Attorney-General on the language of article 31 is neither borne out by the phraseology employed in that article nor by the scheme of Part III of the Constitution. It seems to me that our Constitution subject to certain exceptions has guaranteed the fullest protection to private property. It has not only provided that no person can be deprived of property by the executive without legislative sanction but it has further provided that even the legislature cannot deprive a person of his property unless there is a public purpose and' then only on payment of compensation. This article provides as follows :-- (1) [1950] S.C.R. 88.
693 "31. (1) No person shall be deprived of his property save by authority of law.
(2) No property, movable or immovable, including any interest, in, or in any company owning, any commercial or industrial undertaking, shall be taken possession of or acquired for public purposes under any law authorising the taking of such possession or such acquisition, unless the law provides for compensation for the ,property taken possession of or acquired and either fixes the amount of the compensation, or specifies the principles on which, and the manner in which, the 'compensation is to be determined and given.
(3) No such law as is referred to in clause (2) made by the Legislature of a State shall have effect unless such law, having been reserved for the consideration of the President, has received his assent.
(4) If any Bill pending at the commencement of this Constitution in the legislature of a State has, after it has been passed by such Legislature, been reserved for the consideration of the President and has received his assent, then, notwithstanding anything in this Constitution, the law so assented to shall not be called in question in any court on the ground that it contravenes the provisions of clause (2).
(5) Nothing in clause (2) shall affect-- (a) the provisions of any existing law other than a law to which the provisions of clause (6) apply, or (b) the provisions of any law which the State may hereafter make- (i)for the purpose of imposing or levying any tax or penalty, or (ii) :for the promotion of public health or the prevention of danger to life or property, or (iii) in pursuance of any agreement entered into between the Government of the Dominion of India or the Government of India and the Government of any other country, or otherwise, with respect to property, declared by law to be evacuee property.
694 (6) Any law of the State enacted not more than eighteen months before the commencement of this Constitution may within three months from such commencement be submitted to the President for his certification; and thereupon, if the President by public notification so certifies, it shall not be called in question in any court on the ground that it contravenes the provisions of clause (2) of this article or has contravened the provisions of sub-section (2) of section 299 of the Government of India Act, 1935." It bears the heading "Right to Property". It is significant that the different articles in Part III have been put in several groups, each bearing a heading of its own. These headings briefly indicate the nature and character of the fundamental rights thus grouped. The first group of articles 14 to 18, bears the heading "Right to Equality". The fundamental right of equality in matters of law, religion, social status etc. is mentioned in the different articles grouped under this heading. Articles 19 to 22 have been grouped under the heading "Right to Freedom". Not only are the protections given against deprecation of personal freedom mentioned in this group but it also mentions cases where personal freedom can be deprived by certain laws. Similarly, other articles in this part have been grouped under the headings "Right against exploitation", "Educational rights" and "Constitutional remedies". Under this scheme the fundamental right regarding property apart from personal and property freedoms has been dealt with in this part separately as a self-contained provision and as a distinct subject from the various freedoms declared by article 19. In considering article 31 it is significant to note that it deals with private property of persons residing in the Union of India, while article 19 only deals with citizens defined in article 5 of the Constitution. It is thus obvious that the scope of these two articles cannot be the same as they cover different fields. It cannot be seriously argued that so far as citizens are concerned, freedoms regarding enjoyment of property have been granted in two articles of the Constitution, while the protection to property qua all 695 other persons has been dealt with in article 31 alone. If both articles covered the same ground, it was unnecessary to have two articles on the same subject. The true approach to this question is that these two articles really deal with two different subjects-and one has no direct relation with the other, namely, article 31 deals with the field of eminent domain and the whole boundary of that field is demarcated by this article. In other words, the State's power to take the property of a person is comprehensively delimited by this article. The article has been split up in six clauses. Moreover, by the amendment of the Constitution certain kinds of laws have been exempted from the operation of the article or from the whole of Part III of the Constitution by the addition of articles 31A and 31B. Article 31(1) declares the first requisite for the exercise of the power of eminent domain. It guarantees that a person cannot be deprived of property by an executive fiat and that it is only by the exercise of its legislative powers that the State can deprive a person of his property.
In other words, all that article 31(1)says is that private property can only be taken pursuant to law and not otherwise. A reference to Cooley's Constitutional Limitations fully bears out what the true content of article 31(1) is. This is what he has said at page 1119 (8th edn.) :- "Legislative authority requisite: The right to appropriate private property to public uses lies dormant in the State, until legislative action is had, pointing out the occasions, the modes, conditions and agencies for its appropriations. Private property can only be taken pursuant to law." Article 31 (2) defines the powers of the legislature in the field of eminent domain. It declares that private property shall not be taken by the State under a law unless the law provides for compensation for the property, taken.
It is also implicit in the language of the article that such taking can only be for public purposes. Clause (3) of the article places an additional limitation on State laws enacted on this subject while clause (4) limits the justiciability of the quantum of compensation in certain cases. Clause (5) is the saving clause. It saves 696 from the operation of clause (2) laws made on certain subjects. The scope of the first clause being merely to save private property from being taken purely by executive action and the only clause which limits 'legislative action in the field of eminent domain being clause (2), the saving clause therefore concerns itself with clause (2) only.
As pointed out in Willis on Constitutional Law, at' page 716, police power, power of taxation and eminent domain are all forms of social control and probably include all the forms of social control known to the law: but each differs from the others; though it is possible to distinguish each from the others, yet each has characteristics which resemble the characteristics of others and there are times when it is very difficult to draw a line between the one and the others. The saving clause (5) in article 31 has been designed with the express purpose of saving to a certain extent laws made in exercise of the police power of the State which may lead to deprivation property. It has also saved laws relating to tax. It has thus delimited from the field of eminent domain the field of exercise of police power and the exercise of the power of taxation. Not only has it saved from the mischief of clause (2) of article 31 provisions of laws made for the purpose of imposing or levying any tax or penalty and the laws made for promotion of public health or the prevention of danger to life or property, but it has also saved from the mischief of the clause the provisions of all existing laws which may be construed as amounting to deprivation of property of a person as well as evacuee property laws under which the State takes possession of properties of persons who have left India for Pakistan. In the result the saving clause comprehensively includes within the ambit all the powers of the State in exercise of which it could deprive a person of property without payment of compensation. In other words, all forms of deprivation of property by the State without payment of compensation have 'been included within the ambit of the exception clause, while other forms of deprivation of property which are outside the ambit of the exception 697 clause are inevitably within the mischief of clause (2) of the article. From the language employed in the different sub-clauses of article 31 it is difficult to escape the conclusion that the words "acquisition" and "taking possession" used in article 31 (2) have the same meaning as the word "deprivation" in article 31(1). The learned Attorney-General suggested that much weight could not be attached in construing article 31 to the provisions of clause (5) inasmuch as the saving clause had been introduced by the article merely by way of abundant caution. I am unable to accede to this contention as it seems to me that the Constitution while defining and delimiting fundamental rights would not introduce in the articles dealing with those rights some matter merely by way of abundant caution. To my mind, it was essential while delimiting and defining fundamental rights to fully define the field of the right and to say what was not included within that right. As already said, the article read as a whole comprehensively defines the State's power of eminent domain as distinguished from all its other powers the exercise of which may amount to the taking of private property. The argument that these exceptions were incorporated in article 31 by way of abundant caution further stands negatived by the contents of sub-clause (5) (b) (ii) of the article. Only laws made for the promotion of public health or for prevention of danger to life or property have been excluded from the mischief of clause (2) of the article, while other laws made in exercise of power of social control which deprive a person of property have not been saved from the operation of clause (2). Illustratively, laws made by the State dealing with morality and which may lead to deprivation of property are outside the ambit of the exception clause. A fortiori, any deprivation of property under a law made for promotion of morality would fail within the mischief of clause (2) of article 31. It is thus clear that only that form of legislation which promotes public health or prevention of danger to life or property is saved from the provisions of article 31(2), while other laws made in exercise of the power of social control, if they deprive a person of 8-95 S.C.I./59 698 property, are not saved from the operation of clause (2) of article 31.
In support of his contention that the content of article 31(1) was larger than that of article 31(2) and that except in cases where the form of taking private property took the shape of acquisition of title or requisition for State uses, in all other cases the State could deprive a person of his property by simply making a law, the learned Attorney-General placed reliance on the following observations of my brother Das in Chiranjit Lal Chowdhuri's case(1) :-- "Article 31 (1) formulates the fundamental right in a negative form prohibiting the deprivation of property except by authority of law. It implies that a person may be deprived of his property by authority of law. Article 31(2) prohibits the acquisition or taking possession of property for a public purpose under any law, unless such law provides for payment of compensation. It is suggested that clauses (1)and (2) of article 31 deal with the same topic, namely, compulsory acquisition or taking possession of propetty, clause (2) being only an elaboration of clause (1) There appear to me to be two objections to this suggestion. If that were the correct view, then clause (1) must be held to be wholly redundant and clause (2), by itself, would have been sufficient.
In the next place, such a view would exclude privation of property otherwise than by acquisitionor taking of possession. One can conceive of circumstances where the State may have to deprive a person of his property without acquiring or taking possession of the same. For example, in any emergency, in order to prevent a fire spreading, the authorities may have to demolish an intervening building. This deprivation of property is different from acquisition or taking of possession of property which goes by the name of 'eminent domain' in the American law. The construction suggested implies that our Constitution has dealt with only the law of 'eminent domain', but has not provided for deprivation of property in exercise of (1) [1950] S.C.R. 869.
699 'police power'. I am not prepared to adopt such construction, for I do not feel pressed to do so by the language used in article 31. On the contrary, the language of clause (1) of article 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. I think clause (1) enunciates the general principle that no person shall be deprived of his property except by authority of law, which, put in a positive form, implies that a person may be deprived of his property, provided he is so deprived by authority of law. No question of compensation arises under clause (1). The effect of clause (2) is that only certain kinds of deprivation of property, namely, those brought about by acquisition or taking possession of it, will not be permissible under any law, unless such law provides for payment of compensation. If 'the deprivation of property is brought about by means other than acquisition or taking possession of it, no compensation is required, provided that such deprivation is by authority of law." Similar observations were made by my brother in the Bihar Zamindari case(1). Undoubtedly great weight must be given to the opinion expressed on this question by my learned brother and had I not felt' convinced that his approach to this question was illiberal and restricted, I would have hesitated to differ from his views. After a full consideration of the problem and after giving due weight to the reasoning of my learned brother, I am unable, for reasons above stated,' to agree with him.
The objections envisaged by my brother in Chiranjit Lal Chowdhuri's case (2) against the suggestion that clauses (1) and (2) of article 31 deal with the same topic of compulsory acquisition or taking of property-do not at all oppress me and do not seem to me to be insurmountable or cogent.
On the assumption that clauses (1) and (2) of article 31 deal with the same topic, it is not clear to me why in that context article 31(1) somehow becomes (1) [1952] S.C.R. 889.
(2) [1950] S.C.R. 869.
700 redundant. This is the only clause in the article which gives protection to private property from being taken Under executive orders without legislative sanction behind them. The first requisite for the exercise of the power of eminent domain is that it can only be exercised pursuant to law. It was necessary while delimiting the field of eminent domain to state that in the article. If the State had been entitled by clause (1) to take away private property merely by making a law, then no question of paying compensation would arise, whether the taking assumed one form or another. Acquisition of property or its requisition, on that construction of the article, are merely two modes of depriving a person of property and must be held to be included within the ambit of clause (1)of article 31, and clause (2) has not been drafted in the nature of an exception to the provisions of clause (1) of article 31. On this construction of clause (1) of article 31 the logical conclusion is that what has been done by this clause 'is that it has declared a fundamental right in the State as against an individual. Such a construction of the article in Part III, in my opinion, has to be avoided, as the purpose of those articles is to declare the fundamental rights possessed by the citizens or other persons residing within the Union, rather than to declare the rights of the State against them.
Secondly, my learned brother was oppressed with the idea that if a wide construction was not placed on the phraseology employed in clause (1), deprivation of property by the State in cases Of emergency, for instance, in order to prevent a fire from spreading, would also have to be paid for. It seems that in that case pointed attention was not drawn during arguments to the comprehensive provisions of the saving clause of the article which seems fully to cover cases of that kind. The Constitution makers were fully alive to cases of that character and considering that all such cases, unless excepted, would fall within the mischief of clause (2), they purposely excepted them from the ambit of the clause.
701 The majority of the court in Chiranjit Lal Chowdhuris case(1) refrained from expressing any opinion on the scope of article 31 (1). My brother Mukherjea made a reference to this question but declined to express any opinion on it. There is thus no consensus of opinion on the scope of the provisions ,of clause (1) of article 31 in this court and no final opinion has been pronounced upon it so far.
The result of the above discussion is that, in my opinion, article 31 is a self-contained provision delimiting the field of eminent domain and article 31 clauses (1) and (2) deal with the same topic of compulsory acquisition of property.
The contention of the learned Attorney-General that on the analogy of the decision of this court in Gopalans case(2) it should be held that when a person is deprived of private property by authority of law that deprivation puts an end to all the freedoms regarding property guaranteed under article 19, does not require any detailed examination in the light of the construction placed by me on the language of article 31(1). It was conceded by the learned counsel that that decision would have had no application once it was held that clauses (1) and (2) of article 31 dealt with the same topic of compulsory acquisition of property.
The next contention of the learned counsel that the word "acquisition" in article 31 (2) means the acquisition of title by the State and that unless the State becomes vested with the property there can be no acquisition within the meaning of the clause and that the expression "taking possession" connoted the idea of requisition cannot be sustained and does not, to my mind, affect the decision of the case. As above pointed, both these expressions used in clause (2) convey the same meaning that is conveyed in clause (1) 'by the expression "deprivation".
As I read article 31, it gives complete protection to private property as against executive action, no matter by what process a (1) [1950] S.C.R. 869.
(2) [1950] S.C.R 88.
702 person is deprived of possession of it. In other words, the Constitution declares that no person shall be deprived of possession of private property without payment of compensation and that too under the authority of law, provided there was a public purpose' behind that law. It is immaterial to the person who is deprived of property as to what use the State makes of his property or what title it acquires in it. The protection is against loss of property to the owner and there is no protection given to the State by the article. It has no fundamental right as against the individual citizen.
Article 31 states the limitations on the power of the State in the field of taking property and those limitations are in the interests of the person sought to be deprived of his property. The question whether acquisition has a larger concept than is conveyed by the expression "taking possession" is really of academic interest in view of the comprehensive phraseology employed by clause (2)of article 3L As the matter was argued at some length, I propose to briefly indicate my opinion on that point.
For the proposition that the expression "acquisition" has the concept of vesting of title in the State reliance was placed on the opinion of Latham C.J. in Minister of State for the Army v. Dalziel(1 ). By virtue of the provisions of section 51, placitum (xxxi) of the Constitution of Australia, the Commonwealth Parliament is empowered to make laws with respect to "the acquisition of property on just terms from any state or person for any purpose in respect of which the Parliament has power to make laws.", General regulations styled as the National Security Regulations were made under the national Security Act, 1939-1943, section 5- Regulation 54 relates to the taking of possession of land by the Commonwealth and other regulations provide for the ascertainment and payment of compensation for toss or damage suffered by reason of things done in pursuance of the regulation. The
