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 possession of and
control over the mills of the company which are its valuable assets and such
taking of possession of property is entirely beyond the powers of the Legislature.
'The provisions of the Act, it is said, amount to deprivation of property of
the shareholders as well as of the company within the meaning of article 31 of
the Constitution and the restrictions imposed on the rights of the shareholders
in respect to the shares held by them constitute an unjustifiable interference
with their rights to hold property and as such are void under article 19 (1)
(f). It is urged that there was no public purpose for which the Legislature
could authorise the taking possession or acquisition of 897 property and such
acquisition or taking of possession without payment of compensation is in
violation of the fundamental rights guaranteed by article 31 (2) of the
Constitution. It is said further that the enactment denies to the company and
its shareholders equality before the law. and equal protection of laws and thus
offends against the provisions of article 14 of the Constitution. The only
other material point raised is that the legislation is beyond the legislative
competency of the Parliament and is not covered by any of the items in the
legislative lists.
On these allegations, the petitioner prays,
in the first instance. that it may be declared that both the Act and the
Ordinance are ultra vires and void and an injunction may be issued restraining
the respondents from exercising any of the powers conferred upon them by the
enactments. The third and the material prayer is for issuing a writ of
mandamus, "restraining the respondents 1 to 9 from exercising or purporting
to exercise any powers under the said Ordinance or Act and from in any manner
interfering with the management or affairs of the company under colour of or
any purported exercise of any powers under the Ordinance or the Act," The
other prayers are not material for our purpose.
Before I address myself to the merits of this
application it will be necessary to clear up two preliminary matters in respect
to which arguments were advanced at some length from the Bar. The first point
relates to the scope of our enquiry in the present case and raises the question
as to what precisely are the matters that have to be investigated and
determined on this application of the petitioner. The second point relates to
the form of relief that can be prayed for and granted in a case of this
description.
Article 32 (1) of the Constitution guarantees
to everybody the right to move this court, by appropriate proceeding, for
enforcement of the fundamental rights which are enumerated in Part 1II of the
Constitution. Clause (2) of the article lays down that the 115 898 Supreme
Court shall have the power to issue directions or orders or writs including
writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and
certiorari whichever may be appropriate for the enforcement of any of the
rights conferred by this part.
Thus anybody who complains of infraction of
any of the fundamental rights guaranteed by the Constitution is at liberty to
move the Supreme Court for the enforcement of such rights and this court has
been given the power to make orders and issuue directions or writs similar in
nature to the prerogative writs of English law as might be considered
appropriate in particular cases. 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 this court for enforcement
of its fundamental rights and so may the individual shareholders to enforce
their own; but it would not be open to an individual shareholder to complain of
an Act which affects the fundamental rights of the company except to the extent
that it constitutes an infraction of his own rights as well. This follows
logically from the rule of law that a corporation has a distinct legal
personality of its own with rights and capacities, duties and obligations
separate from those of its individual members. As the rights are different and
inhere in different legal entities, it is not competent to one person to seek
to enforce the rights of another except where the law permits him to do so. A
well known illustration of such exception is furnished by the procedure that is
sanctioned in an application for a writ of habeas corpus.
Not only the man who is imprisoned or
detained in confinement but any person, provided he is not an absolute
stranger, can institute proceedings to obtain a writ of habeas corpus for the
purpose of liberating another from an illegal imprisonment.
899 The application before us under article
32 of the Constitution is on behalf of an individual shareholder of the
company. Article 32, as its provisions show,. is not directly concerned with
the determination of constitutional validity of particular legislative
enactments. What it aims at is the enforcing of fundamental rights guaranteed
by the Constitution, no matter whether the necessity for such enforcement
arises out of an action of the executive or of the legislature. To make out a
case under this article, it is incumbent upon the petitioner to establish not
merely that the law complained of is beyond the competence of the particular
legislature as not being covered by any of the items in the legislative lists,
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. The rights that could be enforced under article 32 must ordinarily be
the rights of the petitioner himself who complains I of infraction of such
rights and approaches the court for relief. This being the position, the proper
subject of our investigation would be what rights, if any, of the petitioner as
a shareholder of the company have been violated by the impugned legislation. A
discussion of the fundamental rights of the company as such would be outside
the purview of our enquiry. It is settled law that in order to redress a wrong
done to the company, the action should prima facie be brought by the company
itself. It cannot be said that this course is not possible in the circumstances
of the present case. As the law is alleged to be unconstitutional, it is open
to the old directors of the company who have been ousted from their position by
reason of the enactment to maintain that they are directors still in the eye of
law, and on that footing the majority of shareholders can also assert 'the
rights of the company as such. None of them, however, have come forward to
institute any proceeding on behalf of the company. Neither in form nor in
substance does the present application purport to be one made by the company
itself.
Indeed, the company 900 is one of the
respondents, and opposes the petition.
As regards the other point, it would appear
from the language of article 32 of the Constitution that. the sole object of
the article is the enforcement of fundamental rights guaranteed by the
Constitution. A proceeding under this article cannot really have any affinity
to what is known as a declaratory suit. The first prayer made in the petition,
n seeks relief in the shape of a declaration that the Act is invalid and is
apparently inappropriate to an application under article 32; while the second
purports to be framed for a relief by way of injunction consequent upon the
first. As regards the third prayer, it has been contended by Mr. Joshi, who
appears for one of the respondents, that having regard to the nature of the
case and the allegations made by the petitioner himself, the prayer for a writ
of mandamus, in the form in which it has been made, is not tenable. What is
argued is that a writ of mandamus can be prayed for, for enforcement of
statutory duties or to compel a person holding a public office to do or forbear
from doing something which is incumbent upon him to do or forbear from doing
under the provisions of any law.
Assuming that the respondents in the present
case are public servants, it is said that the statutory duties which it is
incumbent upon them to discharge are precisely the duties which are laid down
in the impugned Act itself. There is no legal obligation on their part to
abstain from exercising the powers conferred upon them by the impeached enactment
which the court can be called upon to enforce. These is really not much
substance in this argument, for according to the petitioner the impugned Act is
not valid at all and consequently the respondents cannot take their stand on
this very Act to defeat the application for a writ in the nature of a mandamus.
Any way, article 32 of the Constitution gives us very wide discretion in the
matter of framing our writs to suit the exigencies of particular cases, and the
application of the petitioner cannot be thrown out simply on the 901 ground that
'the proper writ or direction has not been prayed for.
Proceeding now to the merits of the case, the
first contention that has been pressed before us by the learned Counsel for the
petitioner is that the effect of the Sholapur Spinning and Weaving Company
Limited (Emergency Provisions) Act, has been to take away from the company and
its shareholders, possession of -property and other interests in commercial
undertaking and vest the same in certain persons who are appointed by the
State, and the exercise of whose powers cannot be directed or controlled in any
way by the shareholders. As the taking of possession is not for any public
purpose and no provision for compensation has been made by the law which
authorises it, such law, it is said, violates the fundamental rights guaranteed
under article 31 of the Constitution.
To appreciate the contention, it would be
convenient first of all to advert to the provisions of the first two clauses of
article 31 of the Constitution. The first clause of article 31 lays down that
"no person shall be deprived of his property save by authority of
law" The second clause provides: "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
possesion 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." It is a right inherent in every sovereign to
take and appropriate private property belonging to individual citizens
for-public use. 'this right, which is described as eminent domain in American
law, is like the power of taxation, an offspring of political necessity, and it
is supposed to be based upon an implied reservation by Government that private
property acquired by its 902 citizens under its protection may be taken or its
use controlled for public benefit irrespective of the wishes of the owner.
Article 31 (2) of the Constitution prescribes a twofold limit within which such
superior right of the State should be exercised. One limitation imposed upon
acquisition or taking possession of private property which is implied in the
clause is that such taking must be for public purpose.
The other condition is that no property can
be taken, unless the law which authorises such appropriation contains a
provision for payment of compensation in the manner laid down in the clause. So
far as article S1 (2) is concerned, the substantial question for our
consideration is whether the impugned legislation authorises any act amounting
to acquisition or taking possession of private property within the meaning of
the clause.
It cannot be disputed that acquisition means
and implies the acquiring of the entire title of the expropriated owner,
whatever the nature or extent of that title might be. The entire bundle of
rights which were vested in the original holder would pass on acquisition to
the acquirer leaving nothing in the former. In taking possession on the other
hand, the title to the property admittedly remains in the original holder, though
he is excluded from possession or enjoyment of the property. Article 31 (,?) of
the Constitution itself makes a clear distinction between acquisition of
property and taking possession of it for a public purpose, though it places
both of them on the same footing in the sense that a legislation authorising
either of these acts must make provision for payment of compensation to the
displaced or expropriated holder of the property. In the context in which the
word "acquisition" appears in article 31 (2), it can only mean and
refer to acquisition of the entire interest of the previous holder by transfer
of title and I have no hesitation in holding that there is no such acquisition
either as regards the property of the company or of the shareholders in the present
case. The question, therefore, narrows down to this as to whether the legislation
in 903 question has authorised the taking of possession of any property or
interest belonging to the petitioner.
It is argued by the learned Attorney-General
that the taking of possession as contemplated by article 31 (2) means the
taking of possession of the entire bundle of rights which the previous holder
had, by excluding him from every part or item thereof. If the original holder
is still left to exercise his possession with regard to some of the rights
which were within the folds of his title, it would not amount to taking
possession of the property for purposes of article 31 (2) of the Constitution.
Having laid down this proposition of law, the learned Attorney-General has
taken us through the various provisions of the impugned Act and the contention
advanced by him substantially is that neither the company nor the shareholders
have been dispossessed from their property by reason of the enactment. As
regards the properties of the company, the directors, who have been given the
custody of the property, effects and actionable claims of the company, are, it
is said, to exercise their powers not in their own right but as agents of the
company, whose beneficial interest in all its assets has not been touched or
taken away at all. No doubt the affairs of the company are to be managed by a
body of directors appointed by the State and not by the company, but this, it
is argued, would not amount to taking possession of any property or interest
within the meaning of article 31 (2). Mr. Chari 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 904 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, but as I have indicated at the outset, we are not concerned in
this case with the larger question as to how far the inter-position of this
statutory management and control amounts to taking possession of the property
and assets belonging to the company. The point for our consideration is a short
one and that is whether by virtue of the impugned legislation any property or
interest of the petitioner himself, as a shareholder of the company, has been
taken possession of by the State or an authority appointed under it, as
contemplated by article 31 (2) of the Constitution.
The petitioner as a shareholder has
undoubtedly an interest in the company. His interest is represented by the
share he holds and the share is movable property according to the Indian
Companies Act with all the incidence of such property attached to it.
Ordinarily, he is entitled to enjoy the income arising from the shares in the
shape of dividends; the share like any 'other marketable commodity can be sold
or transferred by way of mortgage or pledge. The holding of the share in his
name gives him the right to vote at the election of directors and thereby take
a part, though indirectly, in the management of the company's affairs. If the
majority of shareholders sides with him, he can have a resolution passed which
would be binding on the company, and lastly, he can institute proceedings for
winding up of the company which may result in a distribution of the net assets
among the shareholders.
It cannot be disputed that the petitioner has
not been dispossessed in any sense of the term of the shares he holds. Nobody
has taken the shares away from him. His legal and beneficial interest in
respect to the shares he holds is left intact. If the company declares
dividend, he would be entitled to the same. He can sell or otherwise dispose of
the shares at any 905 time at his option. The impugned Act has affected him in
this way that his right of voting at the election of directors has been kept in
abeyance so long as the management by the statutory director continues; and as
a result of that, his right to participate in the management of the company has
been abridged to that extent. His rights to pass resolutions or to institute
winding up proceedings have also been restricted though they are not wholly
gone; these rights can be exercised only with the consent or sanction of the
Central Government. In my opinion, from the facts stated above, it cannot be
held that the petitioner has been dispossessed from the property owned by him.
I may apply the test which Mr. Chari himself formulated. If somebody had taken
possession of the petitioner's shares and was clothed with the authority to
exercise all the powers which could be exercised by the holder of the shares
under law, then even if he purported to act as the petitioner's agent and exercise
these powers for his benefit, the possession of such person would not have been
the petitioner's possession if he was bound to act not under the directions of
the petitioner or in obedience to his commands but under the directions of some
other person or authority. There is no doubt whatsoever that is not the
position in the present case. The State has not usurped the shareholders' right
to vote or vested it in any other authority. The State appoints directors of
its own choice but that it does, not in exercise of the shareholders' right to
vote but in exercise of the powers vested in it by the impugned Act. Thus there
has been no dispossession of the shareholders from their right of voting at
all. The same reasoning applies to the other rights of the shareholders spoken
of above, namely, their right of passing resolutions and of presenting winding
up petition. These rights have been restricted undoubtedly and may not be
capable of being exercised to the fullest extent as long as the management by
the State continues. Whether the restrictions are such as would bring the case
within 116 906 the mischief of article 19 (1) (f) of the Constitution, 1 will
examine presently; but 1 have no hesitation in holding that they do not amount
to dispossession of the shareholders from these rights in the sense that the
rights have been usurped by other people who are exercising them in place of
the displaced shareholders.
In the view that I have taken it is not
necessary to discuss whether we can accept as sound the contention put forward
by the learned Attorney-General that the word "property" as used in
article 31 of the Constitution connotes the entire property, that is to say the
totality of the rights which the ownership of the object connotes.
According to Mr. Setalvad, if a shareholder
is not deprived of the entirety of his rights which he is entitled to exercise
by reason of his being the owner or holder of the share and some rights,
however insignificant they might be, still remain in him, there cannot be any
dispossession as contemplated by article 31(2). It is difficult, in my opinion,
to accept the contention formulated in such broad terms. The test would
certainly be as to whether the owner has been dispossessed substantially from
the rights held by him or the loss is only with regard to some minor
ingredients of the proprietory right. It is relevant to refer in this
connection to an observation made by Rich J. in a Full Bench decision of the
High Court of Australia,(1) where the question arose as to whether the taking
of exclusive possession of a property for an indefinite period of time by the
Commonwealth of Australia under Reg. 54 of the National Security Regulation
amounted to acquisition of property within the meaning of placitum 31, section
51, of the Commonwealth Constitution. The majority of the Full Bench answered
the question in the affirmative and the main reason upon which the majority
decision was based is thus expressed in the language of Rich J.-"Property,
in relation to land, is a bundle of rights exercisable with respect to the
land. The tenant of an unencumbered estate in fee simple in possession has the
largest possible bundle. But there is nothing in (1) See Minister of Stain for
the Army v. Dalziel, 68 C L.R. p. 261, 907 the placitum to suggest that the
legislature was intended to be at liberty to free itself from the restrictive
provisions of the placitum by taking care to seize something short of the whole
bundle owned by the person whom it was expropriating." It is not, however,
necessary for my purpose to pursue the matter any further, as in my opinion
there has been no dispossession of the rights of a shareholder in the present
case.
Mr. Chari in course of his opening relied
exclusively on clause (2) of article 31 of the Constitution. During his reply,
however, he laid some stress on clause (1) of the article as well, and his
contention seems to be that there was deprivation of property in the present
case in contravention of the terms of this clause. It is difficult to see what
exactly is the contention of the learned Counsel and in which way it assists
him for purposes of the present case.
It has been argued by the learned
Attorney-General that clause (1) of article 31 relates to a power different
from that dealt with under clause (2). According to him, what clause (1)
contemplates is confiscation or destruction of property in exercise of what are
known as 'police powers' in American law, for which no payment of compensation
is necessary. I do not think it proper for purposes of the present case to
enter into a discussion on this somewhat debatable point which has been raised
by the learned Attorney-General.
In interpreting the provisions of our
Constitution, we should go by the plain words used by the Constitution-makers
and the importing of expressions like 'police power ; which is a term of
variable and indefinite connotation in American law can only make the task of
interpretation more difficult.
It is also not necessary to express any
opinion as to whether clauses (1) and (2) of article 31 relate to exercise of
different kinds of powers or they are to be taken as cumulative provisions in
relation to the same subject matter, namely, compulsory acquisition of
property. If the word "deprived" as used in clause (1) connotes the
idea of destruction or confiscation of property, obviously no such thing has
happened in the present 908 case. Again if clauses (1) and (2) of article 31
have to be read together and "deprivation" in clause (1) is given the
same meaning as compulsory acquisition in clause (2), clause (1), which speaks
neither of compensation nor of public purpose, would not by itself, and apart
from clause (2), assist the petitioner in any way. If the two clauses are read
disjunctively, the only question that may arise in connection with clause (1)
is whether or not the deprivation of property is authorised by law. Mr. Chari
has raised a question relating to the validity of the legislation on the ground
of its not being covered by any of the items in the legislative list and to
this question I would advert later on; but apart from this, clause (1) of
article 31 of the Constitution seems to me to be altogether irrelevant for
purposes of the petitioner's case.
This leads me to the consideration of the
next point raised by Mr. Chari, namely, whether these restrictions offend
against the provision of article 19(1)(f) of the Constitution.
Article 19(1) of the Constitution enumerates
the different forms of individual liberty, the protection of which is
guaranteed by the Constitution. The remaining clauses of the article prescribe
the limits that may be placed upon these liberties by law, so that they may not
conflict with public welfare or general morality. Article 19(1)(f) guarantees
to all citizens ' the right to acquire, hold or dispose of property.' Any
infringement of this provision would amount to a violation of the fundamental
rights, unless it comes within the exceptions provided for in clause (5) of the
article. That clause permits the imposition of reasonable restrictions upon the
exercise of such righ tether in the interests of the general public or for the
protection of the interests of any Scheduled Tribe. Two questions, therefore,
arise in this connection: first, whether the restrictions that have been
imposed upon the rights of the petitioner as a shareholder in the company under
the Sholapur Act amount to infringement of his.right to acquire, hold or
dispose of property within the meaning of article 19(1)(f) of the Constitution
and 909 secondly, if they do interfere with such rights, whether they are
covered by the exceptions 1aid down in clause (5) of the article.
So far as the first point is concerned, it is
quite clear that there is no restriction whatsoever upon the petitioner's right
to acquire and dispose of any property.
The shares which he holds do remain his
property and his right to dispose of them is not lettered in any way. If to
'hold' a property means to possess it, there is no infringement of this right
either, for, as I have stated already, the acts complained of by the petitioner
do not amount to dispossession of him from any property in the eye of law. It
is argued that 'holding' includes enjoyment of all benefits that are ordinarily
attached to the ownership of a property.
The enjoyment of the fruits of a property is
undoubtedly an incident of ownership. The pecuniary benefit, which a share.
holder derives from the shares he holds, is the dividend and there is no limitation
on the petitioner's right in this respect. The petitioner undoubtedly has been
precluded from exercising his right of voting at the election of directors so
long as the statutory directors continue to manage the affairs of the company.
He cannot pass an effective resolution in concurrence with the majority of
shareholders without the consent or sanction of the Central Government and
without such sanction, there is also a disability on him to institute any
winding up proceedings in a court of law.
In my opinion, these are rights or privileges
which are appurtenant to or flow from the ownership of property, but by
themselves and taken independently, they cannot be reckoned as property capable
of being acquired, held or disposed of as is contemplated by article 19 (1) (f)
of the Constitution. I do not think that there has been any restriction on the
rights of a shareholder to hold, acquire or dispose of his share by reason of
the impugned enactment and consequently article 19 (1) (f) of the Constitution
is of no assistance to the petitioner. In this view, the other point does not
arise for consideration, but I may state here that even if it is conceded for
argument's sake that the 910 disabilities imposed by the impugned legislation
amount to restrictions on proprietory right, they may very well be supported as
reasonable restraints imposed in the interests of the general public, viz., to
secure the supply of a commodity essential to the community and to prevent a
serious unemployment amongst a section of the people. They are, therefore,
protected completely by clause (5)of article 19.
This disposes of the second point raised by
Mr. Chari.
The next point urged on behalf of the
petitioner raises an important question of constitutional law which turns upon
the construction of article 14 of the Constitution. It is urged by the learned
Counsel for the petitioner that the Sholapur Act is a piece of discriminatory
legislation which offends against the provision of article 14 of the Constitution.
Article 14 guarantees to all persons in the territory of India equality before
the law and equal protection of the laws and its entire object, it is said, is
to prevent any person or class of persons from being singled out as a special
subject of discriminatory legislation. It is pointed out that the law in this
case has selected one particular company and its shareholders and has taken
away from them the right to manage their own affairs, but the same treatment
has not been meted out to all other companies or shareholders situated in an
identical manner.
Article 14 of the Constitution, it may be
noted, corresponds to the equal protection clause in the Fourteenth Amendment
of the American Constitution which declares that "no State shall deny to
any person within its jurisdiction the equal protection of the laws." We
have been referred in course of the arguments on this point by the learned
Counsel on both sides to quite a number of cases decided by the American
Supreme Court, where questions turning upon the construction of the 'equal
protection' clause in the American Constitution came up for consideration. A
detailed examination of these reports is neither necessary nor profitable for
our present purpose but we think we can cull a few general principles from some
of the pronouncements of 911 the American Judges which might appear to us to be
consonant with reason and help us in determining the true meaning and scope of
article 14 of our Constitution.
I may state here that so far as the violation
of the equality clause in the Constitution is concerned, the petitioner, as a
shareholder of the company, has as much right to complain as the company
itself, for his complaint is that apart from the discrimination made against
the company, the impugned legislation has discriminated against him and the
other shareholders of the company as a group vis-a-vis the shareholders of all
other companies governed by the Indian Companies Act who have not been treated
in a similar way. As the discriminatory treatment has been in respect to the
shareholders of this company alone, any one of the shareholders, whose
interests are thus vitally affected, has a right to complain and it is immaterial
that there has been no discrimination inter se amongst the shareholders
themselves.
It must be admitted that 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. As has been said by the Supreme Court of America, "equal
protection of laws is a pledge of the protection of equal laws(')," and
this means "subjection to equal laws applying alike to all in the same
situation(")." In other words, there should be no discrimination
between one person and another if as regards the subject-matter of the
legislation their position is the same. I am unable to accept the argument of
Mr. Chari that a legislation relating to one individual or one family or one
body corporate would per se violate the guarantee of the equal protection rule.
There can certainly be a law applying to one person or to one group of persons
and it cannot be held to be (1) Yick Wo v. Hopkins, 118 U.S. at 369 (2)
Southern Raliway Company v. Greene, 216 U.S 400,412.
912 unconstitutional if it is not
discriminatory in its character (1). It would be bad law "if it
arbitrarily selects one individual or a class of individuals, one corporation
or a class of corporations and visits a penalty upon them, which is not imposed
upon others guilty of like delinquency(2)." The legislature undoubtedly
has a wide field of choice in determining and classifying the subject of its
laws, and if the law deals alike with all of a certain class, it is normally
not obnoxious to the charge of denial of equal protection; but the
classification should never be arbitrary. It must always rest upon some real
and substantial distinction bearing a reasonable and just relation to the
things in respect to which the classification is made; and classification made
without any' substantial basis should be regarded as invalid(3).
The question is whether judged by this test
the impugned Act can be said to have contravened the provision embodied in
article 14 of the Constitution. Obviously the Act purports to make provisions
which are of a drastic character and against the general law of the land as
laid down in the Indian Companies Act, in regard to the administration and
management of the affairs of one company in Indian territory. The Act itself
gives no reason for the legislation but the Ordinance, which was a precursor of
the Act expressly stated why the legislation was necessary. It said that owing
to mismanagement and neglect, a situation had arisen in the affairs of the
company which prejudicially affected the production of an essential commodity
and caused serious unemployment amongst a certain section of the community. Mr.
Chari's contention in substance is that there are various textile companies in
India situated in a similar manner as the Sholapur company, against which the
same charges could be brought and for the control and regulation of which all
the reasons that are mentioned in the preamble to the Ordinance (1) Willis
Constitutional Law, p. 580.
(2) Gulf C. & S. F.R. Co. v. Ellis. 163
U.S, 150, at 159.
(3) Southern Railway Co. v. Greene, 216 US.
400, at 412 913 could be applied. Yet, it is said, the legislation has been
passed with regard to this one company alone. The argument seems plausible at
first sight, but on a closer examination I do not think that I can accept it as
sound. It must be conceded that the Legislature has a wide discretion in
determining the subject matter of its laws. It is an accepted doctrine of the
American Courts and which seems to me to be well founded on principle, that the
presumption is favour of the constitutionality of an enactment and the burden
is upon him who attacks it to show that there has been a transgression of
constitutional principles. As was said by the Supreme Court of America in
Middleton v. Texas Power and Light Company(1), 'It must be presumed that a
Legislature understands and correctly appreciates the needs of its own people,
that its laws are directed to problems made manifest by experience and that its
discriminations are based upon adequate grounds." This being the position,
it is for the petitioner to establish facts which would prove that the
selection of this particular subject by the Legislature is unreasonable and
based upon arbitrary grounds. No allegations were made in the petition and no
materials were placed before us to show as to whether there are other companies
in India which come precisely under the same category as the Sholapur Spinning
and Weaving Company and the reasons for imposing control upon the latter as
mentioned in the preamble to the Ordinance are applicable to them as well. Mr.
Chari argues that these are matters of common knowledge of which we should take
judicial notice. I do not think that this is the correct line of approach. It
is quite true that the Legislature has, in this instance, proceeded against one
company only and its shareholders; but even one corporation or a group of
persons can be taken as a class by itself for the purpose of legislation,
provided it exhibits some exceptional features which are not possessed by
others. The courts should prima facie (1) 219 u.s. 152 at p. 157.
117 914 lean in favour of constitutionality
and should support the legislation if it is possible to do so on any reasonable
ground, and it is for the party who attacks the validity of the legislation to
place all materials before the court which would go to show that the selection
is arbitrary and unsupportable. Throwing out of vague hints that there may be
other instances of similar nature is not enough for this purpose. We have not
even before us any statement on oath by the petitioner that what has been
alleged against this particular company may be said against other companies as
well. If there was any such statement, the respondents could have placed before
us the whole string of events that led up to the passing of this legislation.
If we are to take judicial notice of the existence of similar other badly
managed companies, we must take notice also of the facts which appear in the
parliamentary proceedings in connection with this legislation which leave been
referred to by my learned brother, Fazl Ali J. in his judgment and which would
go to establish that the facts connected with this corporation are indeed
exceptional and the discrimination that has been made can be supported on just
and reasonable grounds. I purposely refrain from alluding to these facts or
basing my decision thereon as we had no opportunity of investigating them
properly during the course of the hearing. As matters stand, no proper
materials have been placed before us by either side and as I am unable to say
that the legislature cannot be supported on any reasonable ground, I think it
to be extremely risky to overthrow it on mere suspicion or vague conjectures.
If it is possible to imagine or think of cases of other companies where similar
or identical conditions might prevail, it is also not impossible to conceive of
something" peculiar" or "unusual" to this corporation which
led the legislature to intervene in its affairs. As has been laid down by the
Supreme Court of America, "The Legislature is free to recognise degrees of
harm and it may confine its restrictions to those cases where the need is
deemed to be the clearest"(1). We should (1) Radics, v. New York, 264 U.S.
915 bear in mind that a corporation, which is
engaged in production of a commodity vitally essential to the community, has a
social character of its own, and it must not be regarded as the concern
primarily or only of those who invest their money in it. If its possibilities
are large and it had a prosperous and useful career for a long period of time
and is about to collapse not for any economic reason but through sheer
perversity of the controlling authority, one cannot say that the legislature
has no authority to treat it as a class by itself and make special legislation
applicable to it alone in the interests of the community at large. The
combination of circumstances which are present here may be of such unique
character as could not be existing in any other institution. But all these, I
must say, are matters which require investigation on proper materials which we
have not got before us in the present case. In these circumstances I am
constrained to hold that the present application must fail on the simple ground
that the petitioner made no attempt to discharge the primafacie burden that lay
upon him and did not place before us the materials upon which a proper decision
on the point could be arrived at. In my opinion , therefore, the attack on the
legislation on the ground of the denial of equal protection of law cannot
succeed.
The only other thing that requires to be
considered is the argument of Mr. Chari that the law in question is invalid as
it is not covered by any of the items in the legislative list. In my opinion,
this argument has no substance.
What the law has attempted to do is to
regulate the affairs of this company by laying down certain special rules for
its management and administration. It is fully covered by item No. 43 of the
Union List which speaks inter alia of "incorporation, regulation and
winding up of trading corporations." The result is that the application
fails and is dismissed with costs.
DAS J.--As I have arrived at a conclusion
different from that reached by the majority of this Court, I 916 consider it
proper, out of my respect for the opinion of my learned colleagues, to state
the reasons for my conclusions in some detail.
On January 9, 1950, the Governor-General of
India, acting under section 42 of the Government of India Act, 1935,
promulgated an Ordinance, being Ordinance No. II of 1950, concenrning the
Sholapur Spinning and Weaving Company, Limited, (hereafter referred to as the
said company). The preambles and the provisions of the Ordinance have been
referred to in the judgment just delivered by Mukherjea J.
and need not be recapitulated by me in
detail. Suffice it to say that the net result of the Ordinance 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 nominate directors, the rights of the shareholders of this
company were curtailed in that it was made unlawful for them to nominate or
appoint any director, no resolution passed by them could be given effect to
without the sanction of the Government and no proceeding for winding up could
be taken by them without such sanction, and power was given to the Government
to further modify the provisions of the Indian Companies Act in its application
to the said company.
On the very day that the Ordinance was
promulgated the Central Government acting under section 15 delegated all its
powers to the Government of Bombay. On January 10, 1950, the Government of
Bombay appointed Respondents Nos. 3 to 7 as the new directors. On March 2,
1950, Respondent No.
5 having resigned, Respondent No. 8 was
appointed a director in his place and on the same day Respondent No. 9 was also
appointed as a director. In the meantime the new Constitution had come into
force on January 26, 1950. On February 7, 1950, the new directors passed a
resolution sanctioning a call for Rs. 50 on the preference shares. Thereupon a
suit being Suit No. 438 of 1950 was filed in the High Court of 917 Bombay by
one Dwarkadas Shrinivas against the new directors challenging the validity of
the Ordinance and the right of the new directors to make the call. Bhagwati J.
who tried the suit held that the Ordinance was valid and dismissed the suit. An
appeal (Appeal No. 48 of 1950) was taken from that decision which was dismissed
by a Division Bench (Chagla C.J. and Gajendragadkar J.) on August 29, 1950. In
the meantime, on April 7, 1950, the Ordinance was replaced by Act No. XXVIII of
1950. The Act substantially reproduced the provisions of the Ordinance except
that the preambles to the Ordinance were omitted. On May 29, 1950, the present
petition was filed by one Chiranjitlal Chowdhuri.
The petitioner claims to be a shareholder of
the said company holding 80 preference shares and 3 ordinary shares.
The preference shares, according to him,
stand in the name of the Bank of Baroda to whom they are said to have been
pledged. As those preference shares are not registered in the name of the
petitioner he cannot assert any right as holder of those shares. According to
the respondents, the petitioner appears on the register as holder of only one
fully paid up ordinary share. For the purposes of this application, then, the
petitioner's interest in the said company must be taken as limited to only one
fully paid up ordinary share. The respondents are the Union of India, the State
of Bombay and the new directors besides the company itself. The respondent No.
5 having resigned, he is no longer a director and has been wrongly impleaded as
respondent. The reliefs prayed for are that the Ordinance and the Act are ultra
vires and void, that the Central Government and the State Government and the
directors be restrained from exercising any powers under the Ordinance or the
Act, that a writ of mandamus be issued restraining the new directors from
exercising any powers under the Ordinance or the Act or from in any manner
interfering with the management of the affairs of the company under colour of
or in purported exercise of any powers under the said Ordinance or Act.
918 The validity of the Ordinance and the Act
has been challenged before us on the following grounds:--(i) that it was not
within the legislative competence--(a) of the Governor-General to promulgate
the Ordinance, or (b) of the Parliament to enact the Act, and (ii) that the
Ordinance and the Act infringe the fundamental rights of the shareholders as
well as those of the said company and are, therefore, void and inoperative
under article 13.
Re (i)-.-The present application has been
made by the petitioner under article 52 of the Constitution. Sub-section (1) of
that article guarantees the right to move this Court by appropriate proceedings
for the enforcement of the rights conferred by Part [1] of the Constitution. Sub-section
(2) empowers this Court to issue directions or orders or writs, including
certain specified writs, whichever may be appropriate, for the enforcement of
any of the rights conferred by that Part. It is clear, therefore, that article
32 can only be invoked for the purpose of the enforcement of the fundamental
rights. Article 32 does not permit an application merely for the purpose of
agitating the competence of the appropriate legislature in passing any
particular enactment unless the enactment also infringes any of the fundamental
rights. In this case the claim is that the fundamental rights have been
infringed and, therefore, the question of legislative competence may also be
incidentally raised on this application. It does not appear to me, however,
that there is any substance in this point for, in my opinion, entry 33 of List
I of the Seventh Schedule to the Government of India Act, 1935, and the
corresponding entry 43 of the Union List set out in the Seventh Schedule to the
Constitution clearly support these pieces of legislation as far as the question
of legislative competency is concerned. Sections 83A and 83-B of the Indian
Companies Act can only be supported as valid on the ground that they regulate
the management of companies and are, therefore, within the said entry.
Likewise, the provisions of the Ordinance and the Act relating to the
appointment of directors by the 919 Government and the curtailment of the
shareholders' rights as regards the election of directors, passing of resolutions
giving directions with respect to the management of the company and to present
a winding up petition are matters touching the management of the company and,
as such, within the legislative competence of the appropriate legislative
authority. In my judgment, the Ordinance and the Act cannot be held to be
invalid on the ground of legislative incompetency of the authority promulgating
or passing the same.
Re (ii)--The fundamental rights said to have
been infringed are the right to acquire, hold and dispose of property
guaranteed to every citizen by Article 19(1)(f) and the right to property
secured by article 31, In Gapalan's case (1) 1 pointed out that the rights
conferred by article 19 (1) (a) to (e) and (g) would be available to the
citizen until he was, under article 21, deprived of his life or personal
liberty according to procedure established by law and that the right to
property guaranteed by article 19 (1)(f) would likewise continue until the
owner was, under article 31, deprived of such property by authority of law.
Therefore, it will be necessary to consider
first whether the shareholder or the company has been deprived of his or its
property by authority of law under Article 31 for, if he or it has been so
deprived, then the question of his or its fundamental right under article 19
(1) (f) will not arise.
The relevant clauses of article 31 run as
follows "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 authorizing the taking of such possession or such
acquisition, unless the law provides for compensation for the property taken
possession of or acquired (1) [1950] S.C.R. 88 920 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." Article 31 protects
every person, whether such' person is a citizen or not. and it is wide enough
to cover a natural person as well as an artificial person. Whether or not,
having regard to the language used in article 5, a corporation can be called a
citizen and as such entitled to the rights guaranteed under article 19, it is
quite clear that the corporation is protected by article 31, for that article
protects every "person" which expression certainly includes an
artificial person.
The contention of the petitioner is that the
Ordinance and the Act have infringed his fundamental right to property as a
shareholder in the said company. Article 31, like article 19(1) (f), is
concerned with "property ". Both the articles are in the same chapter
and deal with fundamental rights. Therefore, it is reasonable to say that the
word "property" must be given the same meaning in construing those
two articles. What, then, is the meaning of the word "property"? It
may mean either the bundle of rights which the owner has over or in respect of
a thing, tangible or intangible, or it may mean the thing itself over or in
respect of which the owner may exercise these rights. It is quite clear that
the Ordinance or the Act has not deprived the shareholder of his share itself.
The share still belongs to the shareholder. He is still entitled to the
dividend that may be declared. He can deal with or dispose of the share as he
pleases. The learned Attorney-General contends that even if the other meaning
of the word "property" is adopted, the shareholder has not been
deprived of his" property" understood in that sense, that is to say
he has not been deprived of the entire bundle of rights which put together
constitute his "property ". According to him the" property"
of the shareholder, besides and apart from his right to elect directors, to
pass resolutions giving directions to the directors and to present a winding up
petition, consists in his right to participate 921 in the dividends declared on
the profits made by the working of the company and, in case of winding up, to
participate in the surplus that may be left after meeting the winding up
expenses and paying the creditors. Those last mentioned rights, he points out,
have not been touched at all and the shareholder can yet deal with or dispose
of his shares as he pleases and is still entitled to dividends if and when
declared. Therefore, concludes the learned Attorney-General, the shareholder
cannot complain that he has been deprived of his "property", for the
totality of his rights have not been taken away. The argument thus formulated
appears to me to be somewhat too wide, for it will then permit the legislature
to authorise the State to acquire or take possession, without any compensation,
of almost the entire rights of the owner leaving to him only a few subsidiary
rights. This result could not, in my opinion, have been intended by our
Constitution. As said by Rich J. in the Minister for State for the Army v.
Datziel (i) while dealing with section 31 (XXXI) of the Australian Constitution-"Property,
in relation to land, is a bundle of rights exercisable with respect to the
land. The tenant of an unencurnbered estate in fee simple in possession has the
largest possible bundle. But there is nothing in the placitum to suggest that
the legislature was intended to be at liberty to free itself from the
restrictive provisions of the placitum by taking care to seize something short
of the whole bundle owned by the person whom it is expropriating." The
learned Judge then concluded as follows at p. 286 :"It would in my
opinion, be wholly inconsistent with the language of the placitum to hold that
whilst preventing the legislature from authorising the acquisition of a citizen's
full title except upon just terms, it leaves it open to the legislature to
seize possession and enjoy the full fruits of possession indefinitely, on any
terms it chooses or upon no terms at all." (1) (1943-1944) 68 C,L.R. 261.
118 922 In my judgment the question whether
the Ordinance or the Act has deprived the shareholder of his
"property" must depend, for its answer, on whether it has taken away
the substantial bulk of the rights constituting his "property".
In other words, if the rights taken away by
the Ordinance or the Act are such as would render the rights left untouched
illusory and practically valueless, then there can be no question that in
effect and substance the "property" of the shareholder has been taken
away by the Ordinance or the Act. Judged by this test can it be said that the
right to dispose of the share and the right to receive dividend, if any, or to
participate in the surplus in the case of winding up that have been left to the
shareholder are illusory or practically valueless, because the right to control
the management by directors elected by him, the right to pass resolutions
giving directions to the directors and the right to present a winding up
petition have, for the time being, been suspended ? I think not. The right
still possessed by the shareholder are the most important of the rights
constituting his "property", although certain privileges incidental
to the ownership have been put in abeyance for the time being. It is, in my
opinion, impossible to say that the Ordinance or the Act has deprived the
shareholder of his "property" in the sense in which that word is used
in article 19 (1) (f) and article 31. The curtailment of the incidental
privileges, namely, the right to elect directors, to pass resolutions and to
apply for winding up may well be supported as a reasonable restraint on the
exercise and enjoyment of the shareholder's right of property imposed in the
interests of the general public under article 19 (5), namely, to secure the
supply of an essential commodity and to prevent unemployment.
Learned counsel for the petitioner, however,
urges that the Ordinance and the Act have infringed the shareholder's right to
property in that he has been deprived of his valuable right to elect directors,
to give directions by passing resolutions and, in case of apprehension of loss,
to present a petition for the winding 923 up of the company. These rights, it
is urged, are by themselves "property" and it is of this
"property" that the shareholder is said to have been deprived bythe
State under a law which does not provide for payment of compensation and which
is, as such, an infraction of the shareholder's fundamental right to property
under article 31 (2). Two questions arise on this argument. Are these rights
"property" within the meaning of the two articles I have mentioned ?
These rights, as already stated, are, no doubt, privileges incidental to the
ownership of the share which itself is property, but it cannot, in my opinion,
be said that these rights, by themselves, and apart from the share are
"property" within the meaning of those articles, for those articles
only regard that as "property" which can by itself be acquired,
disposed of or taken possession of. The right to vote for the election of
directors, the right to pass resolutions and the right to present a petition for
winding up are personal rights flowing from the ownership of the share and
cannot by themselves and apart from the share be acquired or disposed of or
taken possession of as contemplated by those articles. The second question is
assuming that these rights are by themselves "property ", what is the
effect of the Ordinance and the Act on such "property". It is
nobody's case that the Ordinance or the Act has authorised any acquisition by
the State of this "property" of the shareholder or that there has in
fact been any such acquisition. The only question then is whether this
"property" of the shareholder, meaning thereby only the rights
mentioned above, has been taken possession of by the State. It will be noticed
that by the Ordinance or the Act these particular rights of the shareholder
have not been entirely taken away, for he can still exercise these rights
subject 0 course, to the sanction of the Government. Assuming, however, that
the fetters placed on these rights are tantamount to the taking away of the
rights altogether, there is nothing to indicate that the Ordinance or the Act
has, after taking away the rights from the shareholder, 924 vested them in the
State or in any other person named by it so as to enable the State or any other
person to exercise those rights of the shareholder. The Government undoubtedly
appoints directors under the Act, but such appointment is made in exercise of
the the powers vested in the Government by the Ordinance or the Act and not in
exercise of the shareholder's right. As already indicated, entry 43 in the
Union List authorises Parliament to make laws with respect, amongst other
things, to the regulation of trading corporations. There was, therefore,
nothing to prevent Parliament from amending the Companies Act or from passing a
new law regulating the management of the company by providing that the
directors, instead of being elected by the shareholders, should be appointed by
the Government. The new law has undoubtedly cut down the existing rights of the
shareholder and thereby deprived the shareholder of his unfettered right to
appoint directors or to pass resolutions giving directions or to present a
winding up petition. Such deprivation, however, has not vested the rights in
the Government or its nominee. What has happened to the rights of the
shareholder is that such rights have been temporarily destroyed or kept in
abeyance. The result, therefore, has been that although the shareholder has
been for the time being deprived of his "property", assuming these
rights to be "property", such "property" has not been
acquired or taken possession of by the Government. If this be the result
brought about by the Ordinance and the Act, do they offend against the
fundamental rights guaranteed by article 31 ? 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)o[ article 31 deal with the same topic, namely, compulsory acquisition or
taking possession 925 of property, 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 deprivation of property otherwise than by acquisition or
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 supported in the United States of America as an
exercise of "police power ".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 police powers' '. 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 926 authority of law. In this case, as
already stated, although the shareholder has been deprived of certain rights,
such deprivation has been by authority of law passed by a competent legislative
authority. This deprivation having been brought about otherwise than by
acquisition or taking possession of such rights, no question of compensation
can arise and, therefore, there can be no question of the infraction of
fundamental rights under article 31 (2). It is clear, therefore, that so far as
the shareholder is concerned there has been no infringement of his fundamental
rights under article 19 (1) (f) or article 31, and the shareholder cannot
question the constitutionality of the Ordinance or the Act on this ground.
As regards the company it is contended that
the Ordinance and the Act by empowering the State to dismiss the managing
agent, to discharge the directors elected by the shareholders and to appoint
new directors have in effect authorised the State to take possession of the
undertaking and assets of the company through the new directors appointed by it
without paying any compensation and, therefore, such law is repugnant to
article 31 (2) of our Constitution.
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(1). In this view of the (1) See Elements of Law by Markby. 6th Edition.
Para 371. p.
192.
927 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.
The appropriate legislative authority was no doubt induced to enact this law,
because, as the preamble to the Ordinance stated, on account of mismanagement
and neglect, a situation had arisen in the affairs of the company which had
prejudicially-affected the production of an essential commodity and had caused
serious unemployment amongst a certain section of the community, but, as stated
by Holmes J. in Pennsylvania Coal Company v. Mahon(1), "A strong public
desire to improve the public condition is not enough to warrant achieving the
desire by a shorter cut than the constitutional. way of paying for the
change." 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.
If the fundamental right of the company has
been infringed, at all, who can complain about such infringement ? Primafacie
the company would be the proper person to come forward in vindication of its
own rights. It is said that the directors having been dismissed, the company
cannot act.
This, however, is a misapprehension, for if
the Act be void on account of its being unconstitutional, the directors
appointed by the shareholders have never in law been discharged and are still
in the eye of the law the directors of the company, and there was nothing to
prevent them from taking proceedings in the name of the company at their own
risk as to costs. Seeing that the directors have not come forward to make the
application on behalf of the company and in its name the question arises
whether (1) 260 U,S. 393.
928 an individual shareholder can complain.
It is well settled in the United States that no one but those whose rights are
directly affected by a law can raise the question of the constitutionality of
that law. Thus in McCabe v.
Atchison(1) which arose out of a suit filed
by five Negros against five Railway Companies to restrain them from making any
distinction in service on account of race pursuant to an Oklahoma Act known as
' 'The Separate Coach Law," in upholding the dismissal of the suit Hughes
J. observed :-"It is an elementary principle that in order to justify the
granting of this extraordinary relief, the complainants' need of it and the
absence of an adequate remedy at law must clearly appear. The complaint 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." In that case there was no
allegation that anyone of the plaintiffs had ever travelled on anyone of the
rail roans or had requested any accommodation in any of the sleeping cars or
that such request was refused. The same principle was laid down in Jeffrey
Manufacturing Company v. Blagg(2), Hendrick v. MaCyland(3) and Newark Natural
Gas and Fuel Company v. The City of Newark(1). In each of these cases the Court
declined to permit the person raising the question of constitutionality to do
so on the ground that his rights were not directly affected by the law or
Ordinance in question. On the other hand, in Truax v. Raich(5) and in Buchanan
v. Warley(5) the Court allowed the plea because in both the cases the person
raising it was directly affected.
In the first of the two last mentioned cases
an Arizona Act of 1914 requiring employers employing more than five workers to
employ not less than eighty per cent. native born citizens was (1) 235 u.s.
151. (4) 242 u.s. 403.
(2) 235 u.s. 571. (5) 239 u.s. 33.
(3) 235 U.S. 610 (6) 245 u.s. 60.
929 challenged by an alien who had been
employed as a cook in a restaurant. That statute made a violation of the Act by
an employer punishable. The fact that the employment was at will or that the
employer and not the employee was subject to prosecution did not prevent the
employee from raising the question of constitutionality because the statute, if
enforced, would compel the employer to discharge the employee and, therefore,
the employee was directly affected by the statute. In the second of the two
last mentioned cases a city Ordinance prevented the occupation of a plot by a
colored person in a block where a majority of the residences were occupied by
white persons. A white man sold his property in such a block to a Negro under a
contract which provided that the purchaser should not be required to accept a
deed unless he would have a right, under the laws of the city, to occupy the
same as a residence. The vendor sued for specific performance and contended
that the Ordinance was unconstitutional. Although the alleged denial of constitutional
rights involved only the rights of coloured persons and the vendor was a white
person yet it was held that the vendor was directly affected, because the
Courts below, in view of the Ordinance, declined to enforce his contract and
thereby directly affected his right to sell his property. It is, therefore,
clear that the constitutional validity of a law can be challenged only by a person
whose interest is directly affected by the law. The question then arises
whether the infringement of the company's rights so directly affects its
shareholders as to entitle any of its shareholders to question the
constitutional validity of the law infringing the company's rights. The
question has been answered in the negative by the Supreme Court of the United
States in Darnell v. The State of Indiana(1). In that case the owner of a share
in a Tennessee corporation was not allowed to complain that an Indiana law
discriminated against Tennessee corporations in that it did not make any
allowance, as it did in the case of Indiana corporations, where the corporation
(1) 226 U.S. 388.
119 930 had property taxed within the State.
This is in accord with the well established legal principle that a corporation
is a legal 'entity capable of holding pro perty and of suing or being sued and
the corporators are not, in contemplation of law, the owners of the assets of
the corporation. In all the cases referred to above the question of
constitutionality was raised in connection with the equal protection clause in
the Fourteenth Amendment of the American Federal Constitution. If such be the
requirements of law in connection with the equal protection clause which corresponds
to our article 14, it appears to me to follow that only a person who is the
owner of the property can raise the question of constitutionality under article
31 of a law by which he is so deprived of his property. If direct interest is
necessary to permit a person to raise the question of constitutionality under
article 14, a direct interest in the property will, I apprehend, be necessary
to entitle a person to challenge a law which is said to infringe the right to
that property under article 31. In my opinion, although a shareholder may, in a
sense be interested to see that the company of which he is a shareholder is not
deprived of its property he cannot, as held in Darnell v. Indiana(1), be heard
to complain, in his own name and on his own behalf, of the infringement of the
fundamental right to property of the company, for, in law, his own right to
property has not been infringed as he is not the owner of the company's
properties. An interest in the company owning an undertaking is not an interest
in the undertaking itself. The interest in the company which owns an
undertaking is the "property" of the shareholder under article 31
(2), but the undertaking is the property of the company and not that of the
shareholder and the latter cannot be said to have a direct interest in the
property of the company. This is the inevitable result of attributing a legal
personality to a corporation. The proceedings for a writ in the nature of a
writ of habeas corpus appear to be somewhat different for the (1) 226 u.S. 338
931 rules governing those proceedings permit, besides the person imprisoned,
any person, provided he is not an utter stranger, but is at least a friend or
relation of the imprisoned person, to apply for that particular writ. But that
special rule does not appear to be applicable to the other writs which require
a direct and tangible interest in the applicant to support his application.
This must also be the case where the applicant seeks to raise the question of
the constitutionality of a under articles 14, 19 and 31.
For the reasons set out above the present
petitioner cannot raise the question of constitutionality of the impugned law
under article 31. He cannot complain of any infringement of his own rights as a
shareholder, because his "property" has not been acquired or taken
possession of by the State although he has been deprived of his right to vote
and to present a winding up petition by authority of law. Nor can he complain
of an infringement of the company's right to property because he is not, in the
eye of law, the owner of the property in question and accordingly not directly
interested in it. In certain exceptional cases where the company's property is
injured by outsiders, a shareholder may, under the English law, alter making all
endeavours to induce the persons in charge of the affairs of the company to
take steps, file a suit on behalf of himself and other shareholders for
redressing the wrong done to the company, but that principle does not apply
here for this is not a suit, nor has it been shown that any attempt was made by
the petitioner to induce the old directors to take steps nor do these
proceedings purport to have been taken by the petitioner on behalf of himself
and the other shareholders of the company.
The only other ground on which the Ordinance
and the Act have been challenged is that they infringe the fundamental rights
guaranteed by article 14 of the Constitution.
"Equal protection of the laws", as
observed by Day 3. in Southern Railway Company v. Greene (1), "means
subjection to equal laws, applying (1) 216 U.S. 400 932 alike to all in the
same situation". The inhibition of the article that the State shall not
deny to any person equality before the law or the equal protection of the laws
was designed to protect all persons against legislative discrimination amongst
equals and to prevent any person or class of persons from being singled out as
a special subject for discriminating and hostile legislation. It does not,
however, mean that every law must have universal application, for all persons
are not, by nature, attainment or circumstances, in the same position. The
varying needs of different classes of persons often require separate treatment
and it is, therefore, established by judicial decisions that the equal
protection clause of the Fourteenth Amendment of the American Constitution does
not take away from the State the power to classify persons for legislative
purposes. This classification may be on different bases. It may be geographical
or according to objects or occupations or the like. If law deals equally with
all of a certain well-defined class it is not obnoxious and it is not open to
the charge of a denial of equal protection on the ground that it has no application
to other persons, for the class for whom the law has been made is different
from other persons and, therefore, there is no discrimination amongst equals.
It is plain that every classification is in some degree likely' to produce some
inequality, but mere production of inequality is not by itself enough. The
inequality produced, in order to encounter the challenge of the Constitution,
must be "actually and palpably unreasonable and arbitrary." Said Day
J. in Southern Railway Company v. Greene(1) :---" While reasonable classification
is permitted, without doing violence to the equal protection of the laws, such
classification must be based upon some real and substantial distinction,
bearing a reasonable and just relation to the things in respect to which such
classification is imposed; and the classification cannot be arbitrarily made
without any substantial basis. Arbitrary selection, it has been said, cannot be
justified by calling it classification". Quite conceivably there may be a
law 933 relating to a single individual if it is made apparent that, on account
of some special reasons applicable only to him and inapplicable to anyone else,
that single individual is a class by himself. In Middieton v. Texas Power and
Light Company(1) it was pointed out that there was a strong presumption that a
legislature understood and correctly appreciated the needs of its own people,
that its laws were directed to problems made manifest by experience and that
the discriminations were based upon adequate grounds. It was also pointed out
in that case that the burden was upon him who attacked a law for
unconstitutionality. In Lindsley v. Natural Carbonic Gas Company(2) It was also
said that one who assailed the classification made in a law must carry the
burden of showing that it did not rest upon any reasonable basis but was
essentially arbitrary. If there is a classification, the Court will not hold it
invalid merely because the law might have been extended to other persons who in
some respects might resemble the class for which the law was made, for the
legislature is the best judge of the needs of the particular classes and to
estimate the degree of evil so as to adjust its legislation according to the
exigency found to exist. If, however, there is, on the face of the statute, no
classification at all or none on the basis of any apparent difference specially
peculiar to any particular individual or class and not applicable to any other
person or class of persons and yet the law hits only the particular individual
or class it is nothing but an attempt to arbitrarily single out an individual
or class for discriminating and hostile legislation. The presumption in favour
of the legislature cannot in such a case be legitimately stretched so as to
throw the impossible onus on the complainant to prove affirmatively that there
are other individuals or class of individuals who also possess the precise
amount of the identical qualities which are attributed to him so as to form a
class with him. As pointed out by Brewer J. in the Gulf, Colorado and Santa
Fe'Railway v.W.H. Ellis (3), while good faith (1} 249 U.S. 152. (2) 220 U.S.
61. (3) 165 U.S..
934 and a knowledge of existing conditions on
the part of a legislature was to be presumed, yet to carry that presumption to
the extent of always holding that there must be some undisclosed and unknown
reason for subjecting certain individuals or corporations to hostile and
discriminating legislation was to make the protecting clause a mere rope of
sand, in no manner restraining State action.
The complaint of the petitioner on this head
is formulated in paragraph 8 (iii) of the petition as follows :---"The
Ordinance denied to the company and its shareholders equality before the law
and equal protection of the laws and was thus a violation of article 14 of the
Constitution.
The power to make regulations relating to
trading corporations or the control or production of industries was a power
which consistently with article 14 could be exercised only generally or with
reference to a class and not with reference to a single company or to
shareholders of a single company." The Act is also challenged on the same
ground in paragraph 9 of the petition. The learned Attorney-General contends
that the petitioner as an individual shareholder cannot complain of
discrimination against the company. It will be noticed that it is not a case of
a shareholder complaining only about discrimination against the company or
fighting the battle of the company but it is a case of a shareholder
complaining of discrimination against himself and other shareholders of this
company. It is true that there is no complaint of discrimination inter se the
shareholders of this company but the complaint is that the shareholders of this
company, taken as a unit, have been discriminated vis-a-vis the shareholders of
other companies.
Therefore, the question as to the right of
the shareholder to question the validity of a law infringing the right of the
company does not arise. Here the shareholder is complaining of the infringement
of his own rights and if such infringement can be established I see no reason
why the shareholder cannot come within article 32 to vindicate his own rights.
The fact that these proceedings have been taken by 935 one single shareholder
holding only one single fully paid up share does not appear to me to make any
the least difference in principle. If this petitioner has, by the Ordinance or
the Act, been discriminated against and denied equal protection of the law, his
fundamental right has been infringed and his right to approach this Court for
redress cannot be made dependent on the readiness or willingness of other
shareholders whose rights have also been infringed to join him in these
proceedings or of the company to take substantive proceedings. To take an
example, if any law discriminates against a class, say the Punjabis, any
Punjabi may question the constitutionality of the law, without joining the
whole Punjabi community or without acting on behalf of all the Punjabis. To
insist on his doing so will be to put a fetter on his fundamental right under
article 32 which the Constitution has not imposed on him. Similarly, if any law
deprives a particular shareholder or the shareholders of a particular company
of the ordinary rights of shareholders under the general law for reasons not
particularly and specially applicable to him or them but also applicable to
other shareholders of other companies, such law surely offends against article
14 and any one so denied the equal protection of law may legitimately complain
of the infringement of his fundamental right and is entitled as of right to
approach this Court under article 32 to enforce his own fundamental right under
article 14, irrespective of whether any other person joins him or not.
To the charge of denial of equal protection
of the laws the respondents in the affidavit of Sri Vithal N. Chandavarkar
filed in opposition to the petition make the following reply:--"With
reference to paragraph 6 of the petition, I deny the soundness of the
submissions that on or from the 26th January, 1950, when the Constitution of
India came into force the said Ordinance became void under article 13(1) of the
Constitution or that the provisions thereof were inconsistent with the
provisions of Part III of the said Constitution or for any of the other grounds
mentioned in paragraph 8 936 of the said petition." In the whole of the
affidavit in opposition there is no suggestion as to why the promulgation of
the Ordinance or the passing of the Act was considered necessary at all or on
what principle or basis either of them was founded. No attempt has been made in
the affidavit to show that the Ordinance or the Act was based upon any
principle of classification at all or even that the particular company and its
shareholders possess any special qualities which are not to be found in other
companies and their shareholders and which, therefore, render this particular
company and its shareholders a class by themselves. Neither the affidavit in
opposition nor the learned Attorney-General in course of his arguments referred
to the statement of the objects and reasons for introducing the bill which was
eventually enacted or the Parliamentary debates as showing the reason why and
under what circumstances this law was made and, therefore, apart from the
question of their admissibility in evidence, the petitioner has had no
opportunity to deal with or rebut them and the same cannot be used against him.
The learned Attorney-General takes his stand
on the presumption that the law was founded on a valid basis of classification,
that its discriminations were based upon adequate grounds and that the law was
passed for safeguarding the needs of the people and that, therefore, the onus
was upon the petitioner to allege and prove that the classification which he
challenged did not rest upon any reasonable basis but was essentially
arbitrary. I have already said that 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 937 it is
"actually and palpably unreasonable and arbitrary" and thereby
discharging the initial onus.
The Act is instituted an Act to make special
provision for the proper management and administration of the Sholapur Spinning
and Weaving Company, Limited." There is not even a single preamble
alleging that the company was being mismanaged at all or that any special
reason existed which made it expedient to enact this law. The Act, on its face,
does not purport to make any classification at all or to specify any special'
vice to which this particular company and its shareholders are subject and
which is not to be found in other companies and their shareholders so as to
justify any special treatment. Therefore., this Act, ex facie, is nothing but
an arbitrary selection of this particular company and its shareholders for
discriminating and hostile treatment and read by itself. is palpably an
infringement of Article 14 of the Constitution.
The learned Attorney-General promptly takes
us to the preambles to the Ordinance which has been replaced by the Act and
suggests that the Act is based on the same considerations on which the
Ordinance was promulgated. Assuming that it is right and permissible to refer
to and utilise the preambles, do they alter the situation ? The preambles were
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;-" The above preambles quite clearly indicate that the
justification of the Ordinance rested on mismanagement and neglect producing
certain results therein specified. It will be noticed that apart from these
preambles there is no material whatever before us establishing or even
suggesting that this company and its shareholders have in fact been guilty of
any 938 mismanagement or neglect. Be that as it may, the only reason put
forward for the promulgation of the Ordinance was mismanagement resulting in
falling off of production and in producing unemployment. I do not find it necessary
to say that mismanagement and neglect in conducting the affairs of companies
can never be a criterion or basis of classification for legislative purposes. I
shall assume that it is permissible to make a law whereby all delinquent
companies and 'their shareholders may be brought to book and all companies
mismanaging their affairs and the shareholders of such companies may, in the
interest of the general public, be deprived of their right to manage the
affairs of their companies. Such a classification made by a law would bear a
reasonable relation to the conduct of all delinquent companies and shareholders
and may, therefore, create no inequality, for the delinquent companies and
their shareholders from a separate class and cannot claim equality of treatment
with good companies and their shareholders who are their betters. But a
distinction cannot be made between the delinquent companies inter se or between
shareholders of equally delinquent companies and one set cannot be 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. To do so will be nothing but an arbitrary selection which can
never be justified as a permissible classification. I am not saying that this
particular company and its shareholders may not be guilty of mismanagement and
negligence which has brought about serious fall in production of an essential
commodity and also considerable unemployment. But if mismanagement affecting
production and resulting in unemployment is to be the basis of a classification
for making a law for preventing mismanagement and securing production and
employment, the law must embrace within its 939 ambit all companies which now
are or may hereafter become subject to the vice. This basis of classification,
by its very nature, cannot be exclusively applicable to any particular company
and its shareholders but is capable of wider application and, therefore, the
law founded on that basis must also be wide enough so as to be capable of being
applicable to whoever may happen at any time to fall within that
classification. Mismanagement affecting production can never be reserved as a
special attribute peculiar to a particular company or the shareholders of a
particular company. It it were permissible for the legislature to single out an
individual or class and to punish him or it for some delinquency which may
equally be found in other individuals or classes and to leave out the other
individuals or classes from the ambit of the law the prohibition of the denial
of equal protection of the laws would only be a meaningless and barren form of
words. The argument that the presumption being in favour of the legislature,
the onus is on the petitioner to show there are other individuals or companies
equally guilty of mismanagement prejudicially affecting the production of an
essential commodity and causing serious unemployment amongst a 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 it
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, in my
opinion, 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 940 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 preambles. In my opinion the legislation in question
infringes the fundamental rights of the petitioner and offends against article
14 of our Constitution.
The result, therefore, is that this petition
ought to succeed and the petitioner should have an order in terms of prayer (3)
of the petition with costs.
Petition dismissed.
Agent for the petitioner: M.S.K. Aiyengar.
Agent for opposite party Nos. 1 & 2:P.A.
Mehta.
Agent for opposite party Nos. 3 to 5 and 7 to
10:
Rajinder Narain.
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