Nut Products Vs. Union of India  INSC 320 (12 May 1994)
N.P. (J) Singh N.P. (J) Kuldip Singh (J) Sawant, P.B.
1994 SCC (4) 269 JT 1994 (4) 66 1994 SCALE (2)905
Judgment of the Court was delivered by N.P. SINGH, J.- Writ Petition (C) No.
415 of 1988
This writ petition has been filed on behalf of the petitioners, who are owners
and occupiers of cashew factories. They have questioned the validity of an
order dated 6-7-1988, issued by the Government of Kerala, in exercise 271 of
the powers conferred on it by Section 3(1)(c) of the Kerala Cashew Factories
(Acquisition) Act, 1974 (hereinafter referred to as "the Act")
declaring that the cashew factories of the petitioners mentioned in the
schedule of the said order shall stand transferred to, and vest in, the
object of the Act aforesaid is to acquire cashew factories in the public
interest, in order to prevent large scale unemployment of workers in the cashew
industry and to provide employment to such workers who have been rendered
unemployed. Cashew factory has been defined under Section 2(b) to mean a
factory as defined in the Factories Act, wherein processing of cashew nuts is
being carried on and includes the factory building, the site thereof, and the
buildings, and lands appurtenant thereto used or necessary for, or in
connection with the working of the factory.
3 provides :
of acquisition.- (1) The Government may, if they are satisfied- (a) that the
occupier of a cashew factory does not conform to the provisions of law relating
to safety, conditions of service or fixation and payment of wages to the
workers of the factory; or (b) that raw cashew nuts allotted to a cashew
factory by the Cashew Corporation of India are not being processed in the
factory to which allotment has been made or that such nuts are being
transferred to any other cashew factory; or (c) that there has been large scale
unemployment, other than by way of lay off or retrenchment, of the workers of a
cashew factory, by order published in the Gazette, declare that cashew factory
shall stand transferred to, and vest in, the Government:
that before making a declaration under this sub- section in respect of a cashew
factory, the Government shall give the occupier of the factory and the owner of
the factory, where he is not the occupier, a notice of their intention to take
action under this sub-section and the grounds therefore and consider the
objections that may be preferred in pursuance of such notice.
For the purposes of this sub-section, the expressions 'lay off' and
'retrenchment' shall have the meanings respectively assigned to them, in the
Industrial Disputes Act, 1947 (Central Act 14 of 1947).
The notice referred to in the proviso to sub-section (1) shall also be
published in two newspapers published in the State of Kerala and such publication shall be
deemed to be sufficient notice to the occupier, to the owner where he is not
the occupier and to all other persons interested in the cashew factory.
the making of a declaration under sub-section (1), the cashew factory to which
the declaration relates, together with all machinery, other accessories and
other movable properties as were immediately before the appointed day in the
ownership, possession, power or control 272 of the occupier in relation to the
factory and all books of accounts, registers and other documents relating
thereto shall stand transferred to, and vest in, the Government." The
other sections relate to the vesting, inventory of properties, power of the
Government to direct vesting of such cashew nut factories in the Corporation,
payment of compensation to the occupier of the cashew factory and the
continuance of employment of the employees after vesting.
appears that in view of the proviso to sub-section (1) of Section 3 of the Act,
the Government gave notice to the petitioners in respect of their intention to
take action under the aforesaid sub-section, directing the petitioners to file
objections, pursuant to the said notice. The relevant part of the said notice
dated 20-6-1988 is as follows:
under Rule 3 of the Kerala Cashew Factories (Acquisition) Rules, 1974.
it has been brought to the notice of the Government that in respect of cashew
factories detailed below, there exist grounds as detailed below, warranting
action under Section 3(1) of the Kerala Cashew Factories (Acquisition) Act,
1974, notice is hereby given to all concerned of the intention of the
Government to take action under the above said section of the Act. Interested
persons are hereby directed to file their objections, if any, before the
Government of Kerala against the proposed action within seven days of the
receipt of this notice or the publication of this notice in the newspapers,
whichever is earlier or if they so desire, appear before the Special Officer
for Cashew Industry, Quilon at Quilon at 11 a.m. on 4-7-1988 and state their
objections. If no objections are received within the said period or no person
appears on the said date it will be presumed that there are no objections
against the proposed action and further steps will be taken......" In the
said notice the names of 36 cashew factories including that of tile petitioners
have been mentioned and thereafter the grounds on which the factories were
being acquired have been stated as follows "GROUNDS It has been reported
by the authorised officer that your factory is lying closed and that there is
no possibility of it to start functioning within a period of ten days or in the
immediate future. Government are, therefore, of opinion that the said situation
will lead to a large scale unemployment, other than by way of lay off or
retrenchment, of the workers of the cashew factory."
behalf of the petitioners, objections were filed to the said notice, pointing
out, that the first allotment of raw cashew nut under the scheme of monopoly
procurement, was made to them by allotment orders dated 15-4-1988 and as much
at the e arliest, the factory could have started around 1-5-1988. It was also
pointed out that cashew nut industry was essentially a seasonal industry. With
the available raw nuts in Kerala State and the 273 scheme of monopoly
procurement of raw nuts in force, if all the cashew factories were to take
allotment of raw nuts, such factories would work only for 45 to 60 days in the
year 1988. It was also pointed out that in the year 1987, they worked for 192
days. It was asserted that there had been no unemployment in their factories
and as such there was no justification to issue notice in exercise of the power
under Section 3(1)(c) aforesaid.
5. On 4-7-1988 which had been fixed as the date of hearing of the
objections to the notices aforesaid, before the Special Officer for Cashew
Industry, Quilon, a detailed written submission was also filed on behalf of the
petitioners, pointing out that the notice had been issued, not in terms of the
requirement of Section 3(1)(c). Hence, on the basis of such notice, the power
of the State Government to declare that the factories mentioned therein shall
stand transferred to the State Government, cannot be exercised. It was asserted
that the issuance of notice was nothing but a colourable exercise of statutory
powers with oblique motives and the processors felt that the acquisition of
factories and driving the owners out of the industry was a foregone conclusion.
impugned order was issued on 6-7- 1988 saying:
it has been brought to the notice of the Government that there has been large
scale unemployment, other than by way of lay off or retrenchment of the workers
of the cashew factories mentioned in the Schedule below.
WHEREAS Government have given notice to the owners/occupiers of the said
factories of the intention of the Government to take action under Section 3 of
the Kerala Cashew Factories (Acquisition) Act, 1974 (29 of 1974) and considered
the objections that were preferred in pursuance of the said notices.
WHEREAS Government are satisfied that there has been large scale unemployment,
other thin by way of lay off or retrenchment, of the workers of the cashew
factories mentioned in the Schedule below:
therefore, in exercise of the powers conferred by clause (c) of sub-section (1)
of Section 3 of the Kerala Cashew Factories (Acquisition) Act, 1974 (29 of
1974), the Government of Kerala hereby declare that the factories mentioned in
the Schedule below shall stand transferred to and vest in the Government with
effect from 6-7-1988."
3 vests power in the Government, to declare that the cashew factory in question
shall stand transferred to and vest in the Government, if the Government is
satisfied that any of the three conditions mentioned in the said sub- section
(1) of Section 3 exists. That power has not been questioned in the present writ
application. But it was pointed out that the proviso to sub-section (1) of
Section 3 enjoins upon Government, before issuing a declaration, to follow a
procedure which is imperative and mandatory in nature i.e. 'the Government
shall give the occupier of the factory and tile owner of the factory, where he
is not the occupier, a notice of their intention 274 to take action under this
sub-section and the grounds therefor and consider the objections that may be
preferred in pursuance of such notice'.
cannot be disputed that in view of the proviso to sub-section ( 1), it is
incumbent on the part of the Government to disclose the ground or the grounds
specifically, in the notice on the basis of which, the Government is satisfied
that one of the three situations mentioned in sub-section (1) of Section 3
exists necessitating an action under that sub-section. The person to whom such
notice along with the ground or grounds is served, is entitled to file
objections and to demonstrate and satisfy that in fact no such ground exists
for issuance of an order for the transfer of the factory in question.
appears that in the notice, there is only reference to Section 3(1) of the Act,
without disclosing whether the Government was satisfied in respect of the
existence of any of the situations under clause (a), (b) or (c) thereof. No
details have been mentioned in the said notice. Towards the end of the said
notice, under the heading "Grounds" it has been stated that the factory
was lying closed and that there was no possibility of it to start functioning
within a period of ten days or in the immediate future and therefore the
Government was of the opinion that the said situation "will lead to a
large scale unemployment...... It need not be impressed that an order under
Section 3(1) on the ground specified in clause (c) of sub-section (1) can be
issued by the State Government only when the State Government is satisfied that
"there has been large scale unemployment, other than by way of lay off or
retrenchment, of the workers of a cashew fat factory". The grounds do not
even state that there has been any unemployment much less large scale
unemployment. The grounds simply state that the factory was lying closed and
there was no possibility of its starting functioning within a period of ten
days or in the immediate future, which will lead to large scale unemployment.
No details have been mentioned in the said notice as to from what date each of
the factories was lying closed. We are not able to appreciate as to how by a
common notice all the 36 cashew factories could be summoned to show cause
without giving particulars of conditions existing in different factories. The
learned counsel, who appeared on behalf of the State, could not point out, as
to how different occupiers or the owners of the factories could have filed
objections to such common notice which did not refer to any conditions
pertaining to their factories.
There is no dispute that the cashew nut factories do not work throughout the
year but work for varying periods depending upon the supply of raw nuts etc. As
such the particulars of the alleged closure of each of the factories were
required to be furnished to the individual owner to meet the case against him.
The object of the Act is to safeguard the interests of the workers in the
cashew factories and it is to safeguard their interests that the power has been
vested in the State Government to issue orders for the transfer of the
factories. The transfer or vesting of the factories has to be in accordance
with the procedure prescribed in the Act. As already pointed out above, the
proviso to sub-section (1) not only requires a notice to be given to 275 the
occupier or the owner of the factory in respect of the intention of the
Government to take action under the said sub-section, but also requires to
furnish the grounds on which such action is considered necessary. In the
present case, according to us, the notice does not comply with and conform to
the requirement of the proviso to sub-section (1) of Section 3.
is well-settled that if a statute requires an authority to exercise power, when
such authority is satisfied that conditions exist for exercise of that power,
the satisfaction has to be based on the existence of grounds mentioned in the
statute. The grounds must be made out on the basis of the relevant material. If
the existence of the conditions required for the exercise of the power is
challenged, the courts are entitled to examine whether those conditions existed
when the order was made. A person aggrieved by such action can question the
satisfaction by showing that it was wholly based on irrelevant grounds and
hence amounted to no satisfaction at all. In other words, the existence of the
circumstances in question is open to judicial review.
cannot be disputed that serious consequences follow on the basis of the order
passed by the Government on rounds mentio ned in clauses (a), (b) and (c).
Hence it is all the more necessary that the Government furnishes the full
particulars on the basis of which the Government claims to be satisfied that
there is a case for taking over the factory. As already pointed out above,
there is not even an assertion in the notice that there has been any
unemployment much less large scale unemployment. The ground simply says that
the Government was of the opinion that the closure of the factory " will
lead to a large scale unemployment". We are of the view, that in the facts
and circumstances of the present case, the notice issued to the petitioners
with the so-called grounds was not in accordance with the requirement of the
provisions of sub-section (1) of Section 3 of the Act. The notices issued to
different petitioners are, therefore, declared to be null and void. Consequent
thereto, the order dated 6-7-1988 is also quashed.
However, it is made clear that it shall be open to the Government to exercise
the power conferred on it by sub- section (1) of Section 3, whenever it is
satisfied on the basis of the relevant material, that any of the three
conditions mentioned therein exists in individual factories, by following the
procedure prescribed therein.
order to work out the equities and the rights and liabilities which have arisen
between the date of the transfer of the factories and passing of this order, we
The possession of the factories shall be handed over to the respective owners
within two weeks from the date of this order. As and when possession is given,
an inventory of all the materials shall be made.
The daily workers other than the members of the staff engaged by the Kerala
State Cashew Development Corporation Ltd., or the State Government, as the case
may be, shall be retained by the 276 factory owners and shall not be retrenched
except in accordance with law. So far as the members of the staff are
concerned, it shall not be the obligation of the factory owners to retain them,
in view of the interim order passed by this Court on 19-7-1988.
The petitioners shall pay the same salary and emoluments which were being paid
by the State Government while the factories were with the State Government.
Any claim for compensation in respect of any damage or loss caused to the
machinery, equipments, building etc. during the period of occupation by the Kerala
State Cashew Development Corporation Ltd., shall be assessed by the District
any claim in respect of any amount for an additional construction made or
additional machinery installed by the Kerala State Cashew Development
Corporation Ltd., shall be determined by the District Judge, Quilon, on proper
application being filed before it.
The Kerala State Cashew Development Corporation Ltd., shall be entitled to
remove any machinery or materials installed by it within one week of
preparation of the inventory; and (vi) Any disciplinary enquiry pending against
any of the workmen may be continued by the owner of the factory concerned, if
he chooses to do so.
to the directions given above, the writ petition is allowed. But in the facts
and circumstances of the case, there shall be no order as to costs. WP (C) Nos.
445 and 490 of 1989, 3950-61 of 1982, 429-33 of 1979 The above mentioned writ
petitions are disposed of, in terms of the judgment of this Court, in Writ
Petition (C) No. 415 of 1988, delivered today.