Kumar Saharia Vs. State of Nagaland & Ors  INSC 770 (14 October 1997)
ANAND, K. VENKATASWAMI
14TH DAY OF OCTOBER, 1997 Present:
Hon'ble Dr. Justice A.S.Anand Hon'ble Mr. Justice K. Venkataswami
Sunil Gupta, Mrs.Anjali Verma,
Nikhil M. Sakhardande,
M/s. JB Dadachanji & Co., Advs. for the appellant
K.Parasaran, P.K.Goswami, Sr.Advs., C.K.Sasi, Kailash Vasdev, Advs. with them
for the Respondents.
following Judgment of the Court was delivered:
K. Venkataswami, J.
appellant, formerly a shareholder and Managing Director of the Nagaland Forest Products Limited thereinafter called the
"Company"), challenged the vires of Nagaland forest Products Ltd. (Acquisition of Shares)
Ordinance, 1981 and nagaland
Forest Products Ltd.
of Shares) Act, 1982, which replaced the Ordinance (hereinafter called the
"State Act"), contending inter alia that he
said legislations were ultra vires the powers of Nagaland State Legislature in view of Selection 20 of the
Industries (Development & Regulation) Act, 1951 (hereinafter called the
to a contract entered into between late Shri Ram Gopal Saharia, father of the
appellant and the Government of Nagaland dated
24.4.1972 to establish a plywood factory in the territory of Nagaland on the terms and conditions
stipulated therein, the Company was incorporated. The authorised
share capital of the Company was Rs. 50,00,000/- 'G'
class equity shares of Rs. 100/- each (ii) 15,000/-
'G' class equity shares of Rs. 100/- each and (iii)
15,000/- 'S' class equity shares carried the same rights. It appears that the
appellant's group, on the one hand and the government of Nagaland
on the other hand, subscribed 50% each of the equity shares. The Company after
obtaining necessary certificate of commencement of business on 22.7.1972, as
required under the Central Act, commenced its business thereafter. The father
of the appellant was the first Managing Director of the Company. After the
death of his father, the appellant became the Managing Director some time in
1975. A Cabinet ranking Minister of the Government of Nagaland
was the Chairman of the Company since its inception except during Government's
so, on December 14, 1981, the Deputy Commissioner, Mon District,
directed the manager, Nagaland Forest Product Limited
to close down the plywood factory on 14.12.1981 till further orders. It was
followed by Ordinance 1 of 1981 which enabled the State Government to take over
the assets, books of accounts, registers etc. of the Company. The Ordinance
came into force on 17.12.1981.
noticed earlier, the Ordinance was replaced by the Act.
appellant challenged the Ordinance initially and subsequently by amending the
petition appropriately, the Act was also challenged.
the High Court, the Act was challenged on various grounds but before us the
learned counsel appearing for the appellant, Mr. Sunil Gupta, confined his
attack to the lack of legislative competence based on Section 20 of the Central
Act. In other words, the contention was that taking over of the assets
(Acquisition of Shares of the Company) amounts to taking over of
management/control of the Company, which field is occupied by Parliament as
contemplated by Section 20 of the Central Act.
High Court in its considered and reasoned judgment rejected all the contentions
and observed thus while rejecting the contention based on lack of legislative
competence, which alone was pressed before us:- "The Act was not enacted
for taking over management or control of the company by the Nagaland
State Government. In pith and substance it was enacted to acquire the S class
shares of the Company. If an attempt was made to take over management or
control of any industrial undertaking in a declared of the IDRA would inhibit
exercise of such executive power.
if pursuant to a valid legislation for acquisition of scheduled undertaking the
management stands transferred undertaking the management stands transferred to
the acquiring body it cannot be said that this would be in violation of Section
20 does not preclude or forbid a State legislature exercising legislative power
under an entry other than Entry 24 of List II, and if an exercise of that
legislative powers, to wit, acquisition or shares of a company owning an
industrial undertaking in a declared industry the consequential transfer of
management for control over the industry or undertaking follows as an incident
of acquisition, such taking over of management or control pursuant to an exercise
of legislative power is not within the inhibition of Section 20."
"52. From the principles of catena of decisions enunciated in the decided
cases, it is found that merely because an industry is a declared industry under
Entry 52, that by itself will not put an embargo on
the State legislature to pass legislation within its competence. It has further
been found in many of the cases that mere incidental trenching does not warrant
the striking down of an impugned Act. As regards the contention that the Parliament
having made the requisite declaration in Section 2 of Schedule 1 thereof the
State Legislature was denuded of its competence to enact the impugned
provisions under Entry 42 of List III cannot be accepted. On examination of the
various provisions of the Act there arses no doubt
that it is for acquisition of property in 'S' class shares of the company and
in pith and substance it falls under Entry 42 of List III, and is not in
conflict with Entries 52 or 7 List I." Undoubtedly, Mr. Sunil Gupta,
learned counsel for the appellant elaborately argued the matter and ultimately
contended that the ruling of a Constitution Bench of this Court in Ishwari Khetan Sugar Mills (P)
Ltd & Ors. vs. State of Uttar Pradesh & Ors
(1980 (4) SCC 136) requires reconsideration as certain aspects were not brought
to the notice and considered by the Constitution Bench while handing down the
ruling in that judgment. He, however, fairly conceded in the face of the ruling
of the Constitution Bench in Ishwari Khetan's case it is not open to him to contend that the
impugned legislation lacks legislative competence, as this Court has clearly
held that taking over of the assets of the company will not amount to taking
over of management or control of the company. Still, as stated earlier, his
attempt was to persuade us to refer the matter to a larger bench for
reconsideration of the ruling of this Court in Ishwari
Parasaran, learned Senior Counsel appearing for the
respondents, after referring to Judgments of this Court in Smt.
Somavanti & Others vs. The State of Punjab &
Others (1963 (2) SCR 774) and T. Govindaraia Mudaliar Etc. Etc. vs. The State of Tamil Nadu & Others (1973 (3) SCR 222) submitted that the
reason advanced by the learned counsel for the appellant, will not be a ground
for requesting the Court to refer the question to a larger Bench. He also
submitted that the Constitution Bench has considered every aspect concerning
the constitutionality of an identical legislation impugned therein and there is
no scope for putting forward an argument that certain provisions of the
Constitution were not brought to the notice of the Constitution Bench which led
the Court to uphold the constitutionality of the legislation impugned therein.
He also brought to our notice that the ruling of the Constitution Bench in Ishwari Khetan's case has been
followed/applied consistently right from the year 1980 till date and that shows
there is no deficiency in the ruling of the Constitution Bench in Ishwari Khetan's case.
proceeding further to consider the submissions made by the counsel on both
sides, it is necessary and will be useful to extract the relevant provisions of
Central Act and the State Act.
Act Sections 2, Schedule 1 Item 36 (1) and Section 20 are as follows:- Section
2 "It is hereby declared that it is expedient in the public interest that
the Union should take under its control the industries specified in the First
Schedule." Sch. 1, Item 36 (1) "Any
industry engaged in the manufacture or production of any of the articles
mentioned under each of the following headings or sub- headings, namely :- 36. Timber Products:
(1) Plywood." Section 20 "20 After the commencement of this Act, it
shall not be competent for any State Government or a local authority to take over
the management or control of any industrial undertaking under any law for the
time being in force which authorises any such
Government or local authority so to do." Section 3 of State Act :- "3. (1) On the appointed day, all shares of the
Company other than the shares already held by the Government or its nominees in
the Company shall, by virtue of this Act stand transferred to, and vested in
the State Government.
The State Government shall be deemed on and from the appointed day, to have
been registered in the Register of members of the company as the holder of each
share which stands transferred to and vested in it by virtue of the provisions
of sub-section (1).
All the hares which have vested in the State Government under sub- section (1),
shall by force of such vesting, be freed and discharged of all trusts,
liabilities, obligations, mortgages, charges, liens and other encumbrances
affecting them, and any attachment injunction or any decree or order of the
Court, tribunal or other authority restricting the use of such shares in any
manner, shall be deemed to have been withdrawn.
For the removal of doubts, it is hereby declared that the provision of
sub-section (1) and (2) shall not be deemed to affect- (a) any right of the
Company subsisting immediately before the appointed day, against any
shareholder to recover from such shareholder any sum of money on the ground
that the shareholder has not paid or credited to the Company the whole or any
part of the value of the shares held by him, or any other ground whatsoever, or
(b) any right of the shareholder subsisting, immediately before the appointed
day against this Company to receive any dividend or other payment due from the
Company." It is not in dispute that Section 20 (supra) of the Central Act
provided that after the commencement of the said Act, it shall not be competent
for any State to take over the management or control of any industrial
undertaking under any law which authorises a State
Government so to do.
also an admitted position that inasmuch as by Section 2 (supra) read with Item
36 (i) of the First Schedule (supra) of the Central
Act, it has been declared that in the public interest, the Union Government
should take control of plywood industry, the State Legislature, therefore,
cannot legislate with regard to the management or control of such industry.
question is whether the impugned legislation attempts authorises
mere taking over the management/control of the plywood industry or it only
enables the State Government to acquire the assets (shares) of the Company.
3 of the State Act stated that all the shares of the Company other than those
already held by the Government stood transferred to and vested in the State
Government. In consequence of such vesting of the shares, the Government
naturally exercises rights as shareholder and incidentally acquires the control
and management of the Company. But that will not fall under the mischief of
Section 20 of the Central Act because Section 20 prohibits the State Government
from taking over management or control dehors
ownership of the undertaking. The Central Act is concerned with the control and
management of the undertaking and not with its ownership. By acquiring
ownership, incidentally management and control of the Company also vests with
that it will be incidental and such an exercise of legislature power is not
prohibited under Section 20 of the Central Act.
the taking over of the Company by the State Government still if the Central
Government finds scope to exercise their power under Section 20 of the Central
Act, it is open to them to do so. This is exactly what has been held by the
Constitution Bench of this Court in Ishwari Khetan's case:
There is thus a long line of decisions which clearly establishes the
proposition that power to legislate for acquisition of property is an
independent and separate power and is exercisable only under Entry 42, List III
and not as an incident of the power to legislate in respect of a specific head
of legislation in any of the three lists. This power of the State legislature
to legislate for acquisition of property remains intact and untrammeled except
to the extent where on assumption of control of an industry by a declaration as
envisaged in Entry 52, List I, a further power of acquisition is taken over by
a specific legislation.
already pointed out, in pith and substance the impugned legislation is one for
acquisition of scheduled undertakings and that field of acquisition is not
occupied by the IDR Act which deals with control of management, regulation and
development of a declared industry and there is no repugnancy between the
impugned legislation and the IDR Act. Both can coexist because the power
acquired by the Union
under the IDR Act can as well effectively be exercised after the acquisition of
the scheduled undertakings as it could be exercised before the acquisition.
Therefore, the contention that the State legislature lacked legislative
competence to enact the impugned legislation must be negatived.
The impugned legislation was not enacted for taking over management or control
of any industrial undertaking by the State Government. In pith and substance,
it was enacted to acquire the scheduled undertakings. If an attempt was made to
take over management or control of any industrial undertaking in a declared
industry indisputably the bar of Section 20 would inhibit exercise of such
if pursuant to a valid legislation for acquisition of scheduled undertaking the
management stands transferred to the acquiring body, it cannot be said that
this would be in violation of Section 20. Section 20 forbids executive action
of taking over management or control of any industrial undertaking under any
law in force which authorises State Government or a
local authority so to do. The inhibition of Section 20 is on exercise of
executive power but if as a sequel to an acquisition of an industrial
undertaking, the management or control of the industrial undertaking stands
transferred to the acquiring authority, Section 20 is not attracted at all.
Section 20 does not preclude or forbid a State legislature from exercising
legislative power under an entry other than Entry 24 of List II, and if in
exercise of that legislative power, to wit, acquisition of an industrial
undertaking in a declared industry the consequential transfer of management or
control over the industry or undertaking follows as incident of acquisition,
such taking over of management or control pursuant to an exercise of legislative
power is not within the inhibition of Section 20.
the contention that the impugned legislation violates Section 20 has no
merit." This judgment of the Constitution Bench has been followed and
applied recently in Orissa Cement Ltd. & Ors vs.
State of Orissa & Ors. (1991
Supp. (1) SCC 430); Indian Aluminium Company Limited
& Another vs. Karnataka Electricity Board & Others. (1992 (3) SCC 580); Dalmia Industries Ltd
& Another vs. State of U.P. & Another
(1994 (2) SCC 583); Ajay Kumar Singh & Others vs. State of Bihar & Others
(1994 (4) SCC 401); and Mahabir Sugar Mills Ltd.
& Another vs. State of U.P. & Others
(1996 (10) SCC 259).
High Court also after elaborately discussing the matter and placing strong
reliance on Ishwari Khetan's
case, rejected similar contention advanced before it. In the circumstances, we
do not think that there is any merit in the contention of the learned counsel
for the appellant that the ruling of this Court is Ishwari
Khetan's case requires re-consideration. Further, as
submitted by the learned Senior Counsel, Mr. K.Parasaran
that the reason given by the learned counsel for the appellant that certain
aspects were not considered and those required re-consideration by a larger
Constitution Bench is not a ground for referring the matter to a larger Bench.
In Smt. Somavanti's case (supra), a
Constitution Bench of this Court observed as follows:-
"A binding effect of a decision does not depend upon whether a particular
argument was considered therein or not provided that the point with reference
to which an argument was subsequently advanced was actually decided." Again another Constitution Bench in Mohd.
Avub Khan vs. Commissioner of Police, Madras and Another (
1965 (2) SOR 884) held thus :
Court has pronounced upon the legislative competence of the Parliament to enact
Section 9 of the Citizenship Act, 1995 in Izhar Ahmad
Khan vs. Union of India. In the same case challenge to he
validity of Rule 3 of Sch. III to the Rules framed
under the Citizenship Act, 1955 was also negatived.
Mr. Ram Reddy for the appellant contended that as certain important aspects of
the plea of invalidity were not presented before the Court at the hearing of Izhar Ahmad Khan's case, we should again proceed to
consider the challenge to the validity of Rule 3 of Sch.
III and Section 9 of the Citizenship Act limited to those arguments. We are
unable, however, to countenance the submission.
Court has held on the arguments presented before the Court in Izhar Ahmad Khan's case that Section 9 of the Act was
validly enacted by the Parliament, and that Rule 3 of Sch.
II was competently made by the Central Government in exercise the powers
conferred by Section 18 of the Citizenship Act. Assuming that certain aspects
of the question were not brought to the notice of the Court, we see no grounds
for entering upon re-examination of the question. It may be pointed out that
the judgment of the Court in Izhar Ahmad Khan's case
was followed by this Court in the Government of Andhra Pradesh vs. Syed Mohd. Khan."
In T. Govindaraia Mudaliar
Etc. Etc. vs. The State of Tamil Nadu & Ors (1973
(3) SCR 222) it was held as follows:- "The argument of the appellants is
that prior to the decision in Rustom Cavasjee Cooper's case it was not possible to challenge
Chapter IV-A of the Act owing to the decision of this Court that Art. 19(1)(f) could not be invoked when a case fell within Art. 31
and that was the reason why this Court in all the previous decisions relating
to the validity of Chapter IV-A proceeded on an examination of the argument
whether there was infringement of Article 19(1) (g), and clause (f) of that
Article could not possibly be invoked. We are unable to hold that there is much
substance in this argument.
Bani Munji and other decisions which followed it
were based mainly on an examination of the inter-
relationship between Article 19(1) (f) and Art. 31(2).
There is no question of any acquisition or requisition in Chapter IV-A of the
Act. The relevant decision for the purpose of these cases was only the one given
left that the authority of law seeking to deprive a person of his property
otherwise than by way of acquisition or requisition was open to challenge on
the ground that it constituted infringement of the fundamental rights
guaranteed by Article 19(1) (f). It was, therefore, open to those affected by
the provisions of Chapter IV-A to have agitated before this Court the question
which is being raised now based on the guarantee embodied in Art. 19(1) (f) which was never done. It is apparently too late in
the day now to pursue this line of argument. In this connection we may refer to
the observations of this Court in Mohd. Ayub Khan vs. Commissioner of Police, Madras & Another,
according to which even if certain aspects of a question were not brought to
the notice of the court it would decline to enter upon re-examination of the
question since the decision had been followed in other cases. In Smt.
Somavanti & Others vs. The State of Punjab & Others a
contention was raised that in none of the decisions the argument advanced in
that case that a law may be protected from an attack under Art.
but it would be still open to challenge under Art. 19(1) (f),
had been examined or considered.
the decision of the Court was invited in the light of that argument. This
contention, however, was repelled by the following observations at page 794:-
"The binding effect of a decision does not depend upon whether a
particular argument was considered therein or not, provided that the point with
reference to which an argument was subsequently advanced was actually
decided." It is common ground in the present cases that the validity of
Chapter IV-A of the Act has been upheld on all previous occasions. Merely because the aspect now presented based on the guarantee contained
in Art. 19(1)(f) was not expressly considered
for a decision given thereon will not take away the binding effect of those
decisions on us." We have already noticed that decision of the
Constitution Bench in Ishwari Khetan's
has been consistently followed/applied right upto
this date. There is, therefore, no merit in the argument that Ishwari Khetan's case requires
reconsideration. No other point was urged. Accordingly the appeal is dismissed.
However, there will be no order as to costs.