PETITIONER:
DWARKADAS SHRINIVAS OF BOMBAY
Vs.
RESPONDENT:
THE SHOLAPUR SPINNING & WEAVING CO.LTD., AND OTHERS.
DATE OF JUDGMENT:
18/12/1953
BENCH:
SASTRI, M. PATANJALI (CJ)
BENCH:
SASTRI, M. PATANJALI (CJ)
MAHAJAN, MEHR CHAND
DAS, SUDHI RANJAN
BOSE, VIVIAN
HASAN, GHULAM
CITATION:
1954 AIR 119 1954 SCR 674
CITATOR INFO :
R 1954 SC 92 (26)
R 1954 SC 728 (25)
R 1955 SC 41 (6,7)
E 1957 SC 676 (6)
R 1958 SC 328 (9,10,34)
F 1958 SC 578 (158)
R 1959 SC 308 (6)
D 1959 SC 648 (38)
R 1960 SC 554 (7,28)
R 1960 SC1080 (23)
RF 1961 SC1684 (28,29)
R 1962 SC 305 (29)
D 1962 SC 458 (24)
R 1963 SC1811 (14)
RF 1967 SC 856 (9)
RF 1967 SC1643 (179,227)
RF 1968 SC 394 (10,13)
R 1970 SC 564 (16,55,75)
RF 1970 SC2182 (7)
R 1971 SC1594 (9)
R 1973 SC 106 (42)
RF 1973 SC1461 (1057)
R 1978 SC 597 (67,157)
R 1978 SC 803 (35)
RF 1980 SC1682 (66)
RF 1982 SC 149 (604)
E&R 1987 SC 180 (10)
RF 1988 SC1136 (27,29)
F 1989 SC1629 (15)
ACT:
Sholapur. Spinning and Weaving Company (Emergency
Provisions) Ordinance II of 1950, replaced by Act XXVIII
of 1950–Whether ultra vires art. 31 of the
Constitution–Arts. 19 and 31– Scope of–Whether different.
HEADNOTE:
The Sholapur Spinning and Weaving Co., Ltd., was
incorporated under the Indian Companies Act, 1913, with
an authorised capital of Rs. 48 lakhs divided into 1590
fully paid up ordinary shares of Rs. 1,000 each, 20 fully
paid up ordinary shares of Rs. 500 each and 32,000 partly
paid up cumulative preference shares of Rs. 100 each, the
paid up capital of the Company being Rs. 32 lakhs comprised
of Rs. 16 lakhs fully’ paid up ordinary shares and Rs. 16
lakhs partly paid up preference shares, Rs. 50 being
unpaid on each of the 32,000 cumulative preference shares.
The Company did good business and declared high dividends
for some time ;’but in the year 1949 there was accumulation
of stocks and financial difficulties. On the 27th July,
1949, the Directors gave notice of
675
their decision to close the Mills to the workers, and
pursuant to this notice the Mills were closed. This
created a labour problem and to solve it the Government on
he 5th October, 1949, appointed a Controller to
supervise the affairs of the Mills under the Essential
Supplies Emergency Powers Act, 1946. On the 9th
November, 1949, the Controller in order to resolve the
deadlock decided to call in more capital and asked the
Directors of the Company to make a call of Rs. 50 per
share, on the preference shareholders, the amount remaining
unpaid on each of the preference shares. The Directors
refused to comply with this requisition, as in their
judgment, this was not in the interests of the Company.
Thereupon the Governor-General on the 9th January, 1950,
promulgated the impugned Ordinance, under which the Mills
could be managed and run by the Directors appointed by
the Central Government. On the 9th January, 1950, the
Central Government acting under s. 15 of the Ordinance
delegated all its powers to the Government of Bombay.
The Government of Bombay then appointed certain
Directors who took over the assets and management of the
Mills. On the 7th February, 1950, they passed a resolution
making a call of Rs. 50 on each of the preference shares
payable at the time stated in the resolution. Pursuant
to this resolution a notice was addressed on the 22nd
February, 1950, to the plaintiff in the suit who held
preference shares, to pay Rs. 1,62,000 the amount of the
said call on or before the 3rd April, 1950. The plaintiff
instead of meeting the demand, filed the present suit on
the 28th March, 1950, in a representative capacity on
behalf of himself and other preference shareholders
against the Company and the Directors appointed by the
Government of Bombay challenging the validity of the
Ordinance and questioning the right of the Directors to
make the call. It was alleged in the suit that the
Ordinance was illegal and ultra vires and invalid as it
contravened the provisions of Section 299(2) of the
Government of India Act, 1935, and the provisions of Part
III of the Constitution and that the resolution of the
Directors dated 7th February, 1950, making a call was
illegal and ultra vires as the law under which they were
appointed was itself invalid. The suit was dismissed by the
Trial Judge and his decision was affirmed on appeal by a
Division Bench of the Bombay High Court by the Judgment
dated 29th August, 1950. The plaintiff preferred the
present appeal to the Supreme Court. This appeal
concerns the validity of the same Ordinance and the Act
replacing it which were considered by the Supreme Court in
the case of Chiranjit Lal Chowdhuri (1950 S.C.R. 869).
There an ordinary shareholder of the defendant Company
holding one fully paid up share challenged the validity
of the Sholapur Spinning and Weaving Co. (Emergency
Provisions) Ordinance II of 1950 and Act XXVIII of 1950,
seeking relief under Article 32 of the Constitution on the
ground that the said. Ordinance and the Act abridged his
fundamental rights conferred on him under Articles 14, 19
and 31 of the Constitution. The Supreme Court dismissed
the petition by a majority of
676
3 to 2 holding that the presumption in regard to the
Constitutionality of the Act had not been displaced by
the petitioner and that it had not been proved that the
impugned statute was a hostile or discriminatory piece of
legislation as against him or that the State had taken
possession of his share. The minority held that impugned
statute was void as it abridged the petitioner’s
fundamental rights under Article 14 of the Constitution.
This decision was delivered on 4th December, 1950. The
suit giving rise to the present appeal was decided by the
Bombay High Court during the pendency of Chiranjit Lal
Chowdhuri’s petition in the Supreme Court:
Held, (pet’ PATANJALI SASTRI C.J., MAHAJAN, BOSE,
and GHULAM HASAN JJ.) (i) that the impugned Ordinance and
the Act replacing it authorise in effect a deprivation of
the property of the Company within the meaning of
Article 31 without compensation and are not covered by the
exception in clause (5)(b)(ii)of that Article. The
Ordinance and the Act thus violate the fundamental rights
of the Company under Article 31(2) of the Constitution and
the appellant as a preference shareholder who is called
upon to pay the moneys unpaid on his shares is entitled to
impugn their constitutionality.
(ii) that the previous decision of the Supreme
Court in Charanjit Lal Chowdhuri v. The Union of India and
Others(1) is distinguishable and has no application to the
present case.
Per MAHAJAN J.
(i) Constitutional provisions for the security of
person and property should be liberally construed. A close
and literal construction deprives them of half their
efficacy and leads to gradual depreciation of the right, as
if it consisted more in sound than in substance. It is the
duty of Courts to be watchful for the constitutional
rights of the citizen and against any stealthy
encroachments thereon.
Boyd v. United States (2) referred to.
By promulgating the Ordinance, the Government has
not merely taken over the superintendence of the affairs of
the Company but has in effect and substance taken over the
undertaking itself. In the situation’ the contention has
no force that the effect of the Ordinance is that the
Central Government has taken over the superintendence of the
affairs of the Company and that the impugned legislation is
merely regulative in character. In the present case
‘practically all incidents of ownership have been taken
over by the Sate and nothing’ has been left with the
Company but the mere husk of title and in the premises the
impugned statute has overstepped the limits of legitimate
Social Control Legislation and has infringed the
fundamental right of the Company guaranteed to it
under: Article 31(2) of the Constitution and is, therefore
unconstitutional.
(1) [1950] S.C.R. 869. (2) 146 U.S. 616
677
(ii) It is significant that Article 31 deals with private
property of persons residing in the Union of India, while
Article 19 only deals with citizens defined in Article 5
of the Constitution. It is obvious that the scope of
these two Articles cannot be the same as they cover
different fields. The true approach to this question is
that these two Articles really deal with two different
subjects and one has no direct relation with the other
amely. Article 31 deals with the field of eminent domain
and the whole boundary of that field is demarcated by this
Article.
From the language employed in the different sub-clauses
of Article 31 it is difficult to escape the conclusion
that the words “acquisition” and “taking possession” used
in Article 31(2) have the same meaning as the word
“deprivation” in Article 31(1).
(iii) Article 31 is a self-contained provision
delimiting the field of eminent and clauses (1) and (2) of
Article 31 deal with the same topic of compulsory
acquisition of property.
Article 31 gives complete protection to private
property as against executive action, no matter by what
process a person is deprived of possession of it.
It is a narrow view that ”acquisition” necessarily
means acquisition of title in whole or part of the
property and cannot be accepted. The word “acquisition”
has quite a wide concept, meaning the procuring of
property or the taking of it permanently or temporarily.
It does not necessarily imply acquisition of legal
title by the State in the property taken possession of.
Minister of State for the Army v. Dalziel (68 C.L.R. 261)
referred to.
Per Das J.
(I) As the appellant as a preference shareholder is
directly affected by the impugned statute, which
circumstance distinguishes this case from Chiranjit Lal’s
case, it must be held that the appellant is entitled to
challenge the Ordinance which dismissed the Directors
elected by the shareholders, authorised the appointment of
Directors by the State and made it possible for the
Directors so appointed to make the call and thereby impose
a liability on all preference shareholders including the
appellant.
(II) The provisions of the Ordinance and the Act are
drastic in the extreme. The Managing Agents and the
elected Directors have been dismissed and new Directors
have been appointed by the State. So far as the Company
is concerned it has been completely denuded of the
possession of its property. All that has been left to the
Company is its bare legal title. It is impossible to
uphold this law as an instance of the exercise of the
State’s police power as an emergency measure. It has far
overstepped the limits of police power and is, in
substance, nothing short of expropriation by way of the
exercise of the power of eminent domain and as the law has
not provided for any compensation it must be held to
offend the provisions of Article 31(2).
678
Per Bose J.
The words ”taken possession of” or “acquired” in
Article 31(2) have to be read along with the word
“deprived” in clause (1). The possession and acquisition
referred to in clause (2) mean the sort of ”possession”
and “acquisition” that amount to “deprivation” within the
meaning of clause (1). No hard and fast rule can be
laid down. Each case must depend on its own
facts. But if there is substantial deprivation, then
clause (2) is attracted.
Per GHULAM HASAN J.
The Act in substance robs the Company of every vestige
of right, except what has been laconically called the husk
of the title. The impugned Act oversteps the
constitutional limits of the power conferred upon’ the
State and offends against the provisions of Article 31 and
must therefore be held to be void.
The intention underlying Article 31 being the
protection of property against invasion by the State, both
parts (1) and (2) of Article 31 should be read together so
as to harmonize that intention. The two parts of the Article
form an integral whole and cannot be dissociated from each
other. Article 31 is wider than Article 19(1)(f) which
confers upon a citizen only the right to acquire, hold and
dispose of property and is different in scope and content.
Chiranjit Lal Chowdhuri v. The Union of India and
Others ([1950] S.C.R. 869) distinguished, The State of
West Bengal v. Subodh Gopal Bose and Others ([1954]
S.C.R. 587), Boyd v. United States (116 U.S. 616),
Pennsylvania Coal Co. v. Mahon (260 U.S. 322), A.K.
Gopalan v. The State of Madras ([1950] S.C.R. 88), State of
Bihar v. Maharajah Kameswar Singh and Others ([1952] S.C.R.
889), Minister of State for the Army v. Dalziel (68
C.L.R. 261), Tan Bug Tain v. Collector of Bombay (I.L.R.
1946 Bom. 517), and Jupiter General Insurance Co. v.
Rajagopalan (A.I.R. 1952 Punjab 9), referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: CIVIL APPEAL No. 141
of 1952.
Appeal from the Judgment and Order dated the 29th August
1950 of the High Court of Judicature at Bombay
(Chagla C.J. and Gajendragadkar J.) in Appeal No. 48
of 1950 arising out of the Judgment and Decree dated the
28th June, 1950, of the said High Court (Bhagwati J.) in
its Ordinary Original Civil Jurisdiction in Suit No. 438
of 1950.
M.P. Amin (M. M. Desai and K.H. Bhabha, with him) for
the appellant.
679
M.C. Setalvad, Attorney-General for India and C..
K. Daphtary, Solicitor-General for India (G. N. Joshi,
with them) for respondents Nos. 1 to 4 and 6 tO 8.
M.C. Setalvad, Attorney-General for India (G. N.
Joshi and Porus A. Mehta, with him) for respondent No. 9.
1953. December 18. The following Judgments were
delivered.
PATANJALI SASTRI C.J.–I have fully discussed and
explained the meaning and effect of articles 19 and 31 in
my Judgment just delivered in Civil Appeal No. 107 of
1952–The State of West Bengal v. Subodh Gopal Bose and
Others. On that view I agree with my learned brothers that
the impugned Ordinance authorises, in effect, a deprivation
of the property of the Company within the meaning of
article 31 without compensation and is not covered by
the exception in clause (5)(b). (ii) of that article. The
Ordinance thus violates the fundamental right of
the. Company under article31(2), and the appellant as a
preference shareholder who is now called upon to pay
the moneys unpaid on his shares is entitled to impugn
the constitutionality of the Ordinance. I also agree with
my learned brother Mahajan that the previous of this
Court in Chiranjit Lal Chowdhuri v. The Union of India and
Others(2) is distinguishable and has no application here
for the reasons mentioned by him.
MAHAJAN J.–This is an appeal from the judgment and
decree of the High Court of Judicature at Bombay ‘passed on
the 29th day of August, 1950, in Appeal No. 48 of 1950.
The appeal concerns the validity of the same piece of
legislation that was considered by this court in the case of
Chiranjit Lad Chowdhuri (2). There, an ordinary shareholder
of the defendant company holding one fully paid up share
claimed relief under Art. 32 of the Constitution of India
on the ground that the provisions of the Sholapur
Spinning & Weaving Company (Emergency Provisions) Act,
XXVIII of
(1) [1954] S. C. R 587. (2) [1950] S. C. R. 869.
680
1950 abridged his fundamental rights conferred under
Articles 14, 19 and 31 of the Constitution. This Court by
a majority of 3 to 2 dismissed the petition holding that
the presumption in regard to the constitutionality of the
Act had not been displaced by the petitioner and that it had
not been proved that the impugned statute was a hostile
or a discriminatory piece of legislation as against him,
or that the State had taken possession of his share.
The minority held that the impugned statute was, void
as it abridged the petitioner’s fundamental
rights under Art. 14 of the Constitution.
This decision was delivered on 4th
December, 1950.
The suit out of which this appeal arises was decided by
the High Court of Bombay during the pendency of Chiranjit
Lal Chowdhuri’s petition in this court. Most of the facts
furnishing the cause of action for the suit have been
detailed in the judgment of this court in that case,
but it seems necessary to briefly re-state them from a
proper appreciation of the contentions that have been raised
in the appeal.
The Sholapur Spinning and Weaving Company Ltd., was
incorporated under the Indian Companies Act with an
authorized capital of Rs. 48 lakhs divided into 1,590
fully paid up ordinary shares of Rs. 1,000 each, 20 fully
paid up ordinary shares of 500 each, and 32,000 partly
paid up cumulative preference shares of Rs. 100 each,
the paid up capital of the company being Rs. 32 lakhs
comprised of Rs. 16 lakhs fully paid up ordinary shares
and Rs. 16 lakhs partly paid up preference shares, Rs. 50
being unpaid on each of the 32,000 cumulative preference
shares. The company did good business and declared
high dividends for some time; but in the year 1949, there
was accumulation of stocks and financial difficulties.
In order to overcome this situation the directors
decided to close the Mills and on the 27th July, 1949,
they gave notice of this decision to the workers.
Pursuant to this notice the Mills were closed on the
27th August, 1949. This created a labour problem and to
solve it the Government on the 5th October, 1949,
appointed, a
681
Controller to supervise the affairs of the Mills under the
Essential Supplies Emergency Powers Act, 1946. On the 9th
November, 1949, the Controller in order to resolve the
deadlock decided to call in more capital and he asked the
directors of the company to make a call of Rs. 50 per
share on the preference shareholders, the amount remaining
unpaid on each of the preference shares. The directors
refused to comply with this requisition, as in their
judgment that was not in the interest of the company.
Thereupon the Governor-General on the 9th January,
1950, promulgated the impugned Ordinance, under which the
Mills could be managed and run by directors appointed by
the Central Government. On the 9th January, 1950, the
Central Government acting under section 15 of the
Ordinance delegated all its powers to the Government of
Bombay. The Government of Bombay then appointed
certain directors who took over the assets and management
of the Mills. On the 7th February, 1950, they passed a
resolution making a call of Rs. 50 on each of the
preference shares payable at the time stated in the
resolution. Pursuant to this resolution a notice was
addressed on the 22nd February, 1950, to the plaintiff in
the suit, who held preference shares, to pay Rs. 1,62,000,
the amount of the said call on or before the 3rd April,
1950. The plaintiff instead of meeting the demand, filed the
present suit on the 28th March, 1950, in a representative
capacity on behalf of himself and other preference
shareholders against the company and the directors
appointed by the Government of Bombay challenging the
validity of the Ordinance and questioning the right of
the directors to make the call. On the 19th April, 1950,
a notice was given to the Attorney-General of India of
the said suit and the Union of India was added as
defendant No. 9 therein.
The principal allegations in the suit were that the
Ordinance was illegal, ultra vires and invalid as it
contravened the provisions of section 299 (2)of the
Government of India Act, 1935, and all the provisions
contained in Part III of the Constitution, and that the
resolution of the directors dated 7th February,
7–95 S.C. India/59.
682
1950, making a call was illegal and ultra vires, as the
law under which they were appointed was itself invalid. The
plaintiff claimed relief in the form of a declaration
regarding the invalidity of the Ordinance and prayed for
an injunction restraining the directors from giving
effect to the resolution. The defendants denied the
correctness of the contentions put forward by the
plaintiff.
Mr. Justice Bhagwati, who tried the suit, framed
the following issues therein :–
1. Whether by the Ordinance the plaintiff and holders
of preference shares have been deprived of their
interest in the Ist defendant company by taking possession
of or requisitioning or acquiring the same as alleged in
para 6 of the plaint;
2. Whether s. 4 (d) or’ the Ordinance is illegal, ultra
vires, and void in law as alleged; and
3. Whether the resolution dated the 7th February,
1950, made by defendants 2 to 6 is illegal, ultra vires,
void and inoperative in law for the reasons mentioned
in para 6 of the plaint or any of them.
By his judgment dated the 28th June, 1950, the learned
Judges answered all the three issues in the negative and
dismissed the suit,and this decision was affirmed on
appeal. It was held that by force of the Ordinance the
State had neither acquired the property of the plaintiff,
nor of the company, nor had it taken possession of it, but
that the title to the property and its possession were
with the respective owners, and the State was only
supervising the affairs of the company through its
nominated directors. It was further held that the
Ordinance had not in any manner infringed the rights of
the plaintiff under Art. 14 of the Constitution and
there had been to him no denial of equality before the law
or equal protection of laws, as the Ordinance was based
on a classification which rested upon a ground having
a fair and substantial relation to the object of the
legislation and that it had a reasonable basis for that
classification. It was also held that the restrictions
683
imposed on the right of the appellant and the company to
hold his or its property were imposed in the interests of
the general public.
The principal questions for consideration in this appeal
are :–
1. Whether the provisions of the Ordinance for taking
over the management and administration of the company,
contravene the provisions of article 31 (2) of the
Constitution; and
2. Whether the Ordinance as a whole or any of its
provisions infringe articles 14 and 19 of the Constitution.
In order to decide these issues it is necessary
to examine with some strictness the substance of the
legislation for the purpose of determining what it is that
the legislature has really done; the court, when such
questions arise, is not overpersuaded by the mere
appearance of the legislation. In relation to
constitutional prohibitions binding a legislature it is
clear that the legislature cannot disobey the prohibitions
merely by employing indirect method of achieving
exactly the same result. Therefore, in all such cases
the court has to look behind the names, forms and
appearances to discover the true character and nature of
the legislation.
The preamble of the’ Ordinance states :–
“On account of mismanagement and neglect a situation
has arisen in the affairs of the Sholapur Spinning & Weaving
Company, Ltd., which has prejudicially affected the’
production of an essential commodity and has caused
serious unemployment amongst a certain section of the
community”.
Section 3 is the most material section and is in these
terms :–
“The Central Government may at any time by notified
order appoint as many persons as it thinks fit to be
directors of the company for the purpose of taking over its
management and administration and may appoint one of such
directors to be the chairman.”
684
The provisions of this section are supplemented by what
is subsequently provided for in section 12 which provides
that notwithstanding anything contained in the Companies
Act or in the memorandum or articles of association of the
company, it shall not ,be lawful for the shareholders of
the company or any other person to nominate or appoint
any person to be a director of the company, that no
resolution passed at any meeting of the shareholders of
the company shall be given effect to unless approved by
the Central Government, and that no proceeding for the
winding up of the company or for the appointment of a
receiver in respect thereof shall lie in any court
unless by or with the sanction of the Central Government,
and subject to such exceptions, restrictions and limitations
as the Central Government may by .notified order specify,
the Companies Act shall continue to apply to the company
in the same manner as it applied thereto before the issue
of the notified order under section 3. Section .4 states
the effect of the order of the Central Government
appointing directors. It provides that all the
directors of the company who were holding office as
such immediately before the issue of the notified order
shall be deemed to have vacated their offices. In
other words, the directors elected and appointed by the
shareholders stand automatically dismissed without more.
Not only do the directors stand automatically dismissed
by legislative action the managing agents also share
their fate and their contracts come to an end. Section
4 directs the persons appointed under section 3 to take
into custody and under their control all the property,
effects and actionable claims to which the company is or
appears to be entitled and to exercise all the powers of
the directors of the company, whether those powers are
derived from the Companies Act or from the memorandum or
articles of association or from any other source. By section
5 these nominated directors are given powers to raise
funds in such manner and offer Such security as they
may deem fit. They are given the overriding power of
cancelling and varying contracts and agreements
685
entered into between the company and’ any other person at
any time if they are satisfied that the contract or the
agreement is detrimental to the interests the company.
Section 10 denies to the managing agents compensation for
the’ premature termination of the contract of management
entered into by the company and it also says that no person
shall be entitled to compensation in respect of a cancelled
or varied contract under this. Ordinance, entered into with
the company. The Ordinance thus confers powers on the
directors of overriding all contracts and deprives persons
who had entered into contracts with the company of their
right under the ordinary law to, recover compensation,
Sections 6, 7 and 8 of the Ordinance lay down, the method
and’ manner how the existing directors were to give charge
of the company’s affairs and properties. to the
directors nominated by the Central Government under
section 3 and any default in the matter of handing over
charge is made punishable by imprisonment or other punitive
action.
The result of these provisions is that all the
properties and effects of the company pass into the hands of
persons nominated by the Central Government who are not
members of the company or its shareholders, or in any way
connected with it, and who are merely the creatures of
the Central Government or its dummies. The combined
effect of the provisions of sections 3, 4 and 12 is that
the Central Government becomes vested with the
possession, control and management of the property and
effects of the company, and the normal function of the
company under its articles and the Indian Companies Act
comes to an end. The shareholders’ most valuable right
to appoint directors to manage the affairs of the company
and be in possession of its property and effect is taken
away. Resolutions passed by them lose all vigour and
become subject to the veto of the Central Government. Their
power of voluntarily winding up the company formed by them
or of winding it up through court also becomes subject to
the veto of the Central Government. The Central
Government by
686
executive action can override, if it likes, all the
provisions of the Indian Companies Act. In substance
therefore by the provisions of this Ordinance the company
and its shareholders as well as ‘its directors and managing
agents have been completely deprived of possession of
the property and effects of the company, and its
possession has been taken by the Central Government,
i.e., by the Union of India. The undertaking purports to
have been taken over for a public purpose, namely, to keep
up the production of an essential commodity, and to avoid
serious unemployment amongst a certain section of the
people.
The majority of the court in Chiranjitlal Chowdhuri’s
case(1), was inclined to take the view that that was the
true effect of the provisions of the Ordinance.
Mukherjea 1. with whose views Kania C.J., concurred, and
to whose views to a certain extent Fazl Ali 1. subscribed.
on this part of the case said as follows :-
“Mr. Chaff, on the other hand, has contended on behalf
of the petitioner that after the management is taken over by
the statutory directors, it cannot be said that the
company still retains possession or control over its
property and assets. Assuming that this State management
was imposed in the interests of the shareholders themselves
and that the statutory directors are acting as the
agents of the company, the possession of the statutory
directors could not, it is argued, be regarded in law as
possession of the company so long as they are bound to act
in obedience to the dictates of the Central Government
and not of the company itself in the administration of
its affairs. Possession of an agent, it is said, cannot
juridically be the possession of the principal, if the agent
is to act not according to the commands or dictates of the
principal, but under the direction of an exterior authority.
There can be no doubt that there is force in this
contention.”
Mr. Justice Patanjali Sastri, as he then was held
that the effect of the Act was that all the properties and
effects of the company passed into the absolute
(1) [1950] S.C.R. 869.
687
power and control of the Central Government and the normal
function of the company as a corporate body came to an
end. Mr. Justice Das on this part of the case said as
follows :-
“It is, however, urged by the learned
Attorney-General that the mills and all other assets now
in the possession and custody of the new directors who
are only servants or agents of the said company are, in the
eye of the law, in the possession and custody of the
company and have not really been taken possession of by the
State. This argument, however, overlooks the fact that in
order that the possession of the servant or agent may be
juridically regarded as the possession of the master or
principal, the servant or agent must be obedient to, and
amenable to the directions of, the master or principal.
If the master or principal has no hand in the appointment
of the servant or agent or has no control over him or has no
power to dismiss or discharge him, as in this case, the
possession of such servant or agent can hardly, in law, be
regarded as the possession of the company. In this view
of the matter there is great force in the argument that the
property of the company has been taken possession of by the
State through directors who have been appointed by the
State in exercise of the powers conferred by the
Ordinance and the Act and who are under the direction and
control of the State and this has been done without
payment of any compensation ………………….Here,
therefore, it may well be argued that the property of the
company having been taken possession of by the State in
exercise of powers conferred by a law which does not
provide for payment of any compensation, the fundamental
right of the company has, in the eye of the law, been
infringed.”
The learned Attorney-General combated this view and
strenuously argued that the Ordinance could not be construed
in the manner suggested above and on its true construction
its effect was that the Government took under its
superintendence the affairs of the company without in any
way disturbing its title in the property and that the
shareholders have still to a certain extent an effective
voice in its affairs. Illustratively
688
he said that’ the company was in the same state as a
disqualified owner is under the provisions of the Court of
Wards Act and that the provisions of the Ordinance should
be construed in that light. To emphasize the same
point of view reference was also made to the provisions of
the Lunacy Act, the provisions of sections 52-A and
52-B introduced in the Insurance Act by Act 47 of 1950,
the provisions of the Railway Companies Emergency Powers
Act (51 of 1951), and also to the provisions of Act 65
of 1951 (Development of Industries Act), and it was
contended that the impugned Ordinance was a piece of
social control. legislation as were the provisions contained
in the statutes referred to above.
In my opinion, these contentions. are not well
founded. Reference to illustrative pieces of legislation
designed on the same pattern is neither very happy nor
apposite; on the other hand, it is apt to mislead because
except in the case of the Court of Wards Act, all the laws
to which reference was made were enacted after the enactment
of the Ordinance in question. The different Court of Wards
Acts being existing laws have been excepted from the
fundamental right guaranteed by article31 (2). That being
so, they can afford little assistance in judging the
validity of the impugned law. In dealing with
constitutional matters of this kind it is always well to
bear in mind what Bradley, J., speaking for the court
said in Boyd v United States(1) at page 635 :–
“Illegitimate and unconstitutional practices get
their first footing in that way, namely, by silent
approaches and slight deviations from legal modes of
procedure. This can only be obviated by adhering to the
rule that constitutional provisions for the security of
person and property should be liberally construed. A
close and literal construction deprives them of half their
efficacy and leads to gradual depreciation of the right, as
if it consisted more in sound than in substance. It is the
duty of courts to be watchful for the constitutional rights
of the citizen and against any stealthy encroachments
thereon,”
(1) 116 U.S. 616.
689
These illustrative pieces of’ legislation to which the
learned Attorney-General made reference may well have
to be judged in the light of these observations when
occasion arises. Reference may also be made to the
observations of Holmes C.J. in Pennsylvania Cod Co. v.
Mahon(1), wherein that learned Judge said as follows :-
“As long recognized, some values were enjoyed under
an implied limitation and must yield to police power but
obviously the implied limitation must have its limits or
the contract and due process clauses are gone. One fact
for consideration in determining such limits is the
extent of the diminution. When it reaches a certain
magnitude, in most, if not in all cases, there must be
an exercise of eminent domain and compensation to sustain
the act.”
In my judgment, in the determination of all such cases
no abstract standard or general rule can be laid down and
the question is really one of degree and hence its
determination depends on the facts-of each case. In these
circumstances, what is to be determined here is:whether
the provisions of the Ordinance have not overstepped the
limits of social legislation and whether they do not come
within the ambit of article 31 (2).
The Ordinance in question is not a law of a general
character and’ applicable to all companies that may fall
in a particular category or class. It deals only with a
single company and it is difficult to say that
mismanagement is a vice peculiar to this company alone
and good management ‘is a virtue possessed by all other
incorporated companies. That being so, can it be reasonably
held that by promulgating this Ordinance the Government
has merely taken over the superintendence of the affairs
of the company ? Or, has it in effect and substance taken
over the under taking itself ? Obviously, the field of
superintendence has to be’ demarcated from the field of
eminent domain. It is one thing to superintend the affairs
of a concern and it is quite’ another thing to take over
its affairs
(1) 260 U.S. 322
690
and then proceed to carry on ,its trade through agents
appointed by the State itself. It seems to me that
under the guise of superintendence the State is carrying on
the business or trade for which. the company was
incorporated with the capital of the company but through its
own agents who take orders from it and are appointed by it
and in the appointment and dismissal of whom the
shareholders have absolutely no voice. The purpose of
taking over the company’s undertaking is a public purpose,
namely, to keep the labour going and contended and to
maintain the supply of essential commodity. The company
is debarred from carrying on its business in the manner
and according to the terms of its charter. Its old
complexion stands changed by the terms of the Ordinance.
The Ordinance overrides the directors, deprives the
shareholders of their legal rights and privileges and
completely puts an end to the contract of the managing
agents. Without there being any vacancy in the
number of directors new directors step in and old directors
and managing agents stand dismissed. Exercise of any
power by them under the articles is subject to heavy
penalties. In this situation it is not possible to
subscribe to the contention of the learned
AttorneyGeneral that the effect of the Ordinance is that the
Central Government has taken over the superintendence of
the affairs of the company and that the impugned
legislation is merely regulative in character. In the
present case, practically all incidents of ownership have
been taken over by the State and all that has been left
with the company is mere paper ownership. This Ordinance,
in my judgment, is an apposite illustration of what Holmes
C. J. had in mind when he made the following observations
in the case already referred to :-
“Where the seemingly absolute protection in
respect of private property given by the Constitution is
found to be qualified by the police power, the natural
tendency of human nature is to extend the qualification
more and more until at last private property
disappears. We are in danger of forgetting that a strong
public desire to improve the public
691
condition is not enough to warrant achieving the desire
by a shorter cut than the constitutional way of paying
for the change and that the general rule is that while
property may be regulated to a certain extent but if the
regulation goes too far it will be recognized as a taking.”
For the reasons given above I am of the opinion that
the impugned statute has overstepped the limits of
legitimate social control legislation and has infringed the
fundamental right of the company guaranteed to it under
article 31(2) of the Constitution and is therefore
unconstitutional.
Next it was contended that the Ordinance in
question in any event could not fall within the mischief
of article 31 (2) because the State had not acquired
title in the property of the company under its
provisions and that whatever possession had been taken
had been taken for the purpose of managing the company’s
property on the company’s behalf and that it had not been
requisitioned for any State purpose. It was said
that unless the property of the company by the
provisions of the Ordinance was vested in the State or
was commandeered by the State for State purposes,
article 31 (2) could not be invoked to judge the
constitutionality of the Ordinance, that article 31 (2)
covered within its ambit only two forms of taking of
property by the State, namely, where the State acquired
title in the property or where the State temporarily
commandeered it, and that all other forms of taking the
property were outside the fundamental right guaranteed
by article 31 (2). It was suggested that the scope of
the protection given to private property by our
Constitution was not as large as it was contained in the
Fifth Amendment of the Constitution of the United States
of America. According to the learned Attorney-General, the
true content of the fundamental right guaranteed by
article 31 (1) was that a person could not be deprived of
his property except by statutory authority, but once a
law was made depriving a person of his property then
the article afforded no further protection. Support for
this
692
contention was sought to be derived from the reasoning
employed in Gopalan’s case (1). There it was held that the
freedoms relating to the person of a citizen guaranteed by
article 19 assume the-existence of a free citizen and can
no longer be enjoyed if a citizen is deprived of his
liberty by the law of preventive or punitive detention. In
like manner it was argued that the freedom relating to
property guaranteed by article 19 also vanished as
soon as a person was deprived of his property under a
law enacted by an appropriate legislature. The learned
Attorney-General suggested that the two clauses of article
31 were in the nature of two exceptions to the provisions
of article 19 (1) (f). The first exception was that the
guarantee of freedom given by article 19 (1)(f) could be
defeated simply by enacting a statute and the second
exception was that it could also be defeated by the State
acquiring title’ in the property in exercise of its power of
eminent; domain’ within the limited field prescribed by
article 31 (2) but that if a certain deprivation of
property did not fail within the prescribed’ field of
article 31 (2) and fell within article 31 (1), then for
such deprivation no compensation was payable. As
regards clause (5) which excepted certain laws from the
ambit of article 31 (2), it was argued that this clause
had been inserted in the article by way of abundant
caution.
In my judgment, none of these’ contentions have any
validity. The construction sought to be placed by the
learned Attorney-General on the language of article 31 is
neither borne out by the phraseology employed in that
article nor by the scheme of Part III of the
Constitution. It seems to me that our Constitution subject
to certain exceptions has guaranteed the fullest
protection to private property. It has not only provided
that no person can be deprived of property by the
executive without legislative sanction but it has
further provided that even the legislature cannot deprive
a person of his property unless there is a public purpose
and’ then only on payment of compensation. This article
provides as follows :–
(1) [1950] S.C.R. 88.
693
“31. (1) No person shall be deprived of his
property save by authority of law.
(2) No property, movable or immovable, including any
interest, in, or in any company owning, any commercial or
industrial undertaking, shall be taken possession of or
acquired for public purposes under any law authorising
the taking of such possession or such acquisition, unless
the law provides for compensation for the ,property taken
possession of or acquired and either fixes the amount of
the compensation, or specifies the principles on which,
and the manner in which, the ‘compensation is to be
determined and given.
(3) No such law as is referred to in clause (2) made by
the Legislature of a State shall have effect unless such
law, having been reserved for the consideration of the
President, has received his assent.
(4) If any Bill pending at the commencement of this
Constitution in the legislature of a State has, after it
has been passed by such Legislature, been reserved for
the consideration of the President and has received his
assent, then, notwithstanding anything in this Constitution,
the law so assented to shall not be called in question in
any court on the ground that it contravenes the provisions
of clause (2).
(5) Nothing in clause (2) shall affect–
(a) the provisions of any existing law other than a law
to which the provisions of clause (6) apply, or
(b) the provisions of any law which the State may
hereafter make-
(i)for the purpose of imposing or levying any tax or
penalty, or
(ii) :for the promotion of public health or the
prevention of danger to life or property, or
(iii) in pursuance of any agreement entered into
between the Government of the Dominion of India or the
GoVernment of India and the Government of any other
country, or otherwise, with respect to property, declared by
law to be evacuee property.
694
(6) Any law of the State enacted not more than eighteen
months before the commencement of this Constitution
may within three months from such commencement be
submitted to the President for his certification; and
thereupon, if the President by public notification so
certifies, it shall not be called in question in any court
on the ground that it contravenes the provisions of clause
(2) of this article or has contravened the provisions of
sub-section (2) of section 299 of the Government of India
Act, 1935.”
It bears the heading “Right to Property”. It is
significant that the different articles in Part III have
been put in several groups, each bearing a heading of its
own. These headings briefly indicate the nature and
character of the fundamental rights thus grouped. The first
group of articles 14 to 18, bears the heading “Right to
Equality”. The fundamental right of equality in
matters of law, religion, social status etc. is
mentioned in the different articles grouped under this
heading. Articles 19 to 22 have been grouped under the
heading “Right to Freedom”. Not only are the protections
given against deprecation of personal freedom mentioned in
this group but it also mentions cases where personal
freedom can be deprived by certain laws. Similarly,
other articles in this part have been grouped under the
headings “Right against exploitation”, ”Educational
rights” and “Constitutional remedies”. Under this scheme
the fundamental right regarding property apart from
personal and property freedoms has been dealt with in
this part separately as a self-contained provision and as a
distinct subject from the various freedoms declared by
article 19. In considering article 31 it is significant
to note that it deals with private property of persons
residing in the Union of India, while article 19 only deals
with citizens defined in article 5 of the Constitution. It
is thus obvious that the scope of these two articles cannot
be the same as they cover different fields. It cannot
be seriously argued that so far as citizens are concerned,
freedoms regarding enjoyment of property have been granted
in two articles of the Constitution, while the protection to
property qua all
695
other persons has been dealt with in article 31 alone. If
both articles covered the same ground, it was unnecessary
to have two articles on the same subject. The true
approach to this question is that these two articles really
deal with two different subjects-and one has no direct
relation with the other, namely, article 31 deals with the
field of eminent domain and the whole boundary of that field
is demarcated by this article. In other words, the State’s
power to take the property of a person is comprehensively
delimited by this article. The article has been split up
in six clauses. Moreover, by the amendment of the
Constitution certain kinds of laws have been exempted from
the operation of the article or from the whole of Part III
of the Constitution by the addition of articles 31A and
31B. Article 31(1) declares the first requisite for the
exercise of the power of eminent domain. It guarantees
that a person cannot be deprived of property by an executive
fiat and that it is only by the exercise of its legislative
powers that the State can deprive a person of his property.
In other words, all that article 31(1)says is that
private property can only be taken pursuant to law and
not otherwise. A reference to Cooley’s Constitutional
Limitations fully bears out what the true content of
article 31(1) is. This is what he has said at page 1119 (8th
edn.) :-
“Legislative authority requisite: The right to
appropriate private property to public uses lies dormant
in the State, until legislative action is had,
pointing out the occasions, the modes, conditions and
agencies for its appropriations. Private property can
only be taken pursuant to law.”
Article 31 (2) defines the powers of the legislature in
the field of eminent domain. It declares that private
property shall not be taken by the State under a law unless
the law provides for compensation for the property, taken.
It is also implicit in the language of the article that such
taking can only be for public purposes. Clause (3) of the
article places an additional limitation on State laws
enacted on this subject while clause (4) limits the
justiciability of the quantum of compensation in certain
cases. Clause (5) is the saving clause. It saves
696
from the operation of clause (2) laws made on certain
subjects. The scope of the first clause being merely to
save private property from being taken purely by
executive action and the only clause which limits
‘legislative action in the field of eminent domain being
clause (2), the saving clause therefore concerns itself with
clause (2) only.
As pointed out in Willis on Constitutional Law, at’ page
716, police power, power of taxation and eminent domain are
all forms of social control and probably include all the
forms of social control known to the law: but each differs
from the others; though it is possible to distinguish each
from the others, yet each has characteristics which
resemble the characteristics of others and there are
times when it is very difficult to draw a line between the
one and the others. The saving clause (5) in article 31
has been designed with the express purpose of saving to a
certain extent laws made in exercise of the police power of
the State which may lead to deprivation property. It has
also saved laws relating to tax. It has thus delimited from
the field of eminent domain the field of exercise of police
power and the exercise of the power of taxation. Not only
has it saved from the mischief of clause (2) of article 31
provisions of laws made for the purpose of imposing or
levying any tax or penalty and the laws made for promotion
of public health or the prevention of danger to life or
property, but it has also saved from the mischief of the
clause the provisions of all existing laws which may be
construed as amounting to deprivation of property of a
person as well as evacuee property laws under which the
State takes possession of properties of persons who have
left India for Pakistan. In the result the saving
clause comprehensively includes within the ambit all
the powers of the State in exercise of which it could
deprive a person of property without payment of
compensation. In other words, all forms of deprivation of
property by the State without payment of compensation
have ‘been included within the ambit of the exception
clause, while other forms of deprivation of property which
are outside the ambit of the exception
697
clause are inevitably within the mischief of clause (2) of
the article. From the language employed in the different
sub-clauses of article 31 it is difficult to escape the
conclusion that the words ”acquisition” and “taking
possession” used in article 31 (2) have the same meaning
as the word “deprivation” in article 31(1). The learned
Attorney-General suggested that much weight could not be
attached in construing article 31 to the provisions of
clause (5) inasmuch as the saving clause had been
introduced by the article merely by way of abundant
caution. I am unable to accede to this contention as it
seems to me that the Constitution while defining and
delimiting fundamental rights would not introduce in the
articles dealing with those rights some matter merely by
way of abundant caution. To my mind, it was essential
while delimiting and defining fundamental rights to fully
define the field of the right and to say what was not
included within that right. As already said, the article
read as a whole comprehensively defines the State’s
power of eminent domain as distinguished from all its
other powers the exercise of which may amount to the
taking of private property. The argument that these
exceptions were incorporated in article 31 by way of
abundant caution further stands negatived by the contents
of sub-clause (5) (b) (ii) of the article. Only laws made
for the promotion of public health or for prevention of
danger to life or property have been excluded from the
mischief of clause (2) of the article, while other laws
made in exercise of power of social control which deprive
a person of property have not been saved from the operation
of clause (2). Illustratively, laws made by the State
dealing with morality and which may lead to deprivation
of property are outside the ambit of the exception
clause. A fortiori, any deprivation of property under a
law made for promotion of morality would fail within the
mischief of clause (2) of article 31. It is thus clear
that only that form of legislation which promotes public
health or prevention of danger to life or property is
saved from the provisions of article 31(2), while other
laws made in exercise of the power of social control, if
they deprive a person of
8-95 S.C.I./59
698
property, are not saved from the operation of clause (2) of
article 31.
In support of his contention that the content of article
31(1) was larger than that of article 31(2) and that
except in cases where the form of taking private property
took the shape of acquisition of title or requisition
for State uses, in all other cases the State could deprive
a person of his property by simply making a law,
the learned Attorney-General placed reliance on the
following observations of my brother Das in Chiranjit Lal
Chowdhuri’s case(1) :–
“Article 31 (1) formulates the fundamental right in a
negative form prohibiting the deprivation of property except
by authority of law. It implies that a person may be
deprived of his property by authority of law. Article
31(2) prohibits the acquisition or taking possession of
property for a public purpose under any law, unless such
law provides for payment of compensation. It is suggested
that clauses (1)and (2) of article 31 deal with the
same topic, namely, compulsory acquisition or taking
possession of propetty, clause (2) being only an
elaboration of clause (1) There appear to me to be two
objections to this suggestion. If that were the correct
view, then clause (1) must be held to be wholly redundant
and clause (2), by itself, would have been sufficient.
In the next place, such a view would
excludedeprivation of property otherwise than by
acquisitionor taking of possession. One can conceive of
circumstances where the State may have to deprive a person
of his property without acquiring or taking possession
of the same. For example, in any emergency, in order
to prevent a fire spreading, the authorities may have to
demolish an intervening building. This
deprivation of property is different from acquisition
or taking of possession of property which goes by
the name of ‘eminent domain’ in the American law. The
construction suggested implies that our Constitution has
dealt with only the law of ‘eminent domain’, but has not
provided for deprivation of property in exercise of
(1) [1950] S.C.R. 869.
699
‘police power’. I am not prepared to adopt such
construction, for I do not feel pressed to do so by the
language used in article 31. On the contrary, the
language of clause (1) of article 31 is wider than that
of clause (2), for deprivation of property may well be
brought about otherwise than by acquiring or taking
possession of it. I think clause (1) enunciates the
general principle that no person shall be deprived of his
property except by authority of law, which, put in a
positive form, implies that a person may be deprived of
his property, provided he is so deprived by authority of
law. No question of compensation arises under clause
(1). The effect of clause (2) is that only certain kinds
of deprivation of property, namely, those brought about by
acquisition or taking possession of it, will not be
permissible under any law, unless such law provides for
payment of compensation. If ‘the deprivation of property
is brought about by means other than acquisition or
taking possession of it, no compensation is required,
provided that such deprivation is by authority of law.”
Similar observations were made by my brother in the
Bihar Zamindari case(1). Undoubtedly great weight must be
given to the opinion expressed on this question by my
learned brother and had I not felt’ convinced that
his approach to this question was illiberal and
restricted, I would have hesitated to differ from his
views. After a full consideration of the problem and after
giving due weight to the reasoning of my learned brother,
I am unable, for reasons above stated,’ to agree with him.
The objections envisaged by my brother in Chiranjit Lal
Chowdhuri’s case (2) against the suggestion that clauses
(1) and (2) of article 31 deal with the same topic of
compulsory acquisition or taking of property-do not at all
oppress me and do not seem to me to be insurmountable or
cogent.
On the assumption that clauses (1) and (2) of
article 31 deal with the same topic, it is not clear to me
why in that context article 31(1) somehow becomes
(1) [1952] S.C.R. 889.
(2) [1950] S.C.R. 869.
700
redundant. This is the only clause in the article which
gives protection to private property from being taken Under
executive orders without legislative sanction behind
them. The first requisite for the exercise of the power of
eminent domain is that it can only be exercised pursuant
to law. It was necessary while delimiting the field of
eminent domain to state that in the article. If the State
had been entitled by clause (1) to take away private
property merely by making a law, then no question of paying
compensation would arise, whether the taking assumed one
form or another. Acquisition of property or its
requisition, on that construction of the article, are
merely two modes of depriving a person of property and must
be held to be included within the ambit of clause (1)of
article 31, and clause (2) has not been drafted in the
nature of an exception to the provisions of clause (1) of
article 31. On this construction of clause (1) of
article 31 the logical conclusion is that what has been done
by this clause’is that it has declared a fundamental right
in the State as against an individual. Such a
construction of the article in Part III, in my opinion, has
to be avoided, as the purpose of those articles is to
declare the fundamental rights possessed by the citizens
or other persons residing within the Union, rather than to
declare the rights of the State against them.
Secondly, my learned brother was oppressed with the idea
that if a wide construction was not placed on the
phraseology employed in clause (1), deprivation of property
by the State in cases Of emergency, for instance, in
order to prevent a fire from spreading, would also have to
be paid for. It seems that in that case pointed attention
was not drawn during arguments to the comprehensive
provisions of the saving clause of the article which seems
fully to cover cases of that kind. The ConstitUtion makers
were fully alive to cases of that character and
considering that all such cases, unless excepted, would
fall within the mischief of clause (2), they purposely
excepted them from the ambit of the clause.
701
The majority of the court in Chiranjit Lal
Chowdhuris case(1) refrained from expressing any
opinion on the scope of article 31 (1). My brother
Mukherjea made a reference to this question but
declined to express any opinion on it. There is thus no
consensus of opinion on the scope of the provisions ,of
clause (1) of article 31 in this court and no final opinion
has been pronounced upon it so far.
The result of the above discussion is that, in my
opinion, article 31 is a self-contained provision
delimiting the field of eminent domain and article 31
clauses (1) and (2) deal with the same topic of
compulsory acquisition of property.
The contention of the learned Attorney-General that
on the analogy of the decision of this court in
Gopalans case(2) it should be held that when a person is
deprived of private property by authority of law that
deprivation puts an end to all the freedoms regarding
property guaranteed under article 19, does not require any
detailed examination in the light of the construction placed
by me on the language of article 31(1). It was conceded by
the learned counsel that that decision would have had
no application once it was held that clauses (1) and (2)
of article 31 dealt with the same topic of compulsory
acquisition of property.
The next contention of the learned counsel that the word
“acquisition” in article 31 (2) means the acquisition
of title by the State and that unless the State becomes
vested with the property there can be no acquisition within
the meaning of the clause and that the expression
“taking possession” connoted the idea of requisition
cannot be sustained and does not, to my mind, affect the
decision of the case. As above pointed, both these
expressions used in clause (2) convey the same meaning that
is conveyed in clause (1) ‘by the expression “deprivation”.
As I read article 31, it gives complete protection to
private property as against executive action, no
matter by what process a
(1) [1950] S.C.R. 869.
(2) [1950] S.C.R 88.
702
person is deprived of possession of it. In other words,
the Constitution declares that no person shall be
deprived of possession of private property without
payment of compensation and that too under the
authority of law, provided there was a public purpose’
behind that law. It is immaterial to the person who is
deprived of property as to what use the State makes of his
property or what title it acquires in it. The protection
is against loss of property to the owner and there is no
protection given to the State by the article. It has
no fundamental right as against the individual citizen.
Article 31 states the limitations on the power of the State
in the field of taking property and those limitations are
in the interests of the person sought to be deprived of his
property. The question whether acquisition has a larger
concept than is conveyed by the expression “taking
possession” is really of academic interest in view of the
comprehensive phraseology employed by clause (2)of
article 3L As the matter was argued at some length, I
propose to briefly indicate my opinion on that point.
For the proposition that the expression “acquisition”
has the concept of vesting of title in the State reliance
was placed on the opinion of Latham C.J. in Minister of
State for the Army v. Dalziel(1 ). By virtue of the
provisions of section 51, placitum (xxxi) of the
Constitution of Australia, the Commonwealth Parliament
is empowered to make laws with respect to “the acquisition
of property on just terms from any state or person for any
purpose in respect of which the Parliament has power to make
laws.”, General regulations styled as the National Security
Regulations were made under the national Security
Act, 1939-1943, section 5- Regulation 54 relates to
the taking of possession of land by the Commonwealth
and other regulations provide for the ascertainment and
payment of compensation for toss or damage suffered by
reason of things done in pursuance of the regulation. The
Supreme Court of New South Wales’ held that taking
possession of land in pursuance of Reg. 54 amounted
to acquisition
(1) 68 C.W.L.R. 261.
703
of property within the meaning of section 51 (xxxi)of the
Constitution, On appeal Latham C.J. made the following
observations :-
“The Commonwealth cannot be held to have acquired
land unless it has become the owner of land or of some
interest in land. If the Commonwealth becomes only a
possessor but does not become an owner of land, then,
though the Commonwealth may have rights in respect to
land, which land may be called property, the Commonwealth
has not in such a case acquired property ……..
Accordingly, m my opinion, the facts that the right
to possession n is the most valuable attribute of
ownership,that possession is prima facie evidence of
ownership,and that possession may develop into
ownership,do not justify any identification of possession
with ownership, but, on the contrary, emphasize the
distinction between the two ideas. The fact that the
Commonwealth is in possession of land as a result of action
under the Regulations does not show that the
Commonwealth has become the owner of the land or of any
estate in the land”.
The majority of the court held otherwise and expressed
the opinion that the taking under Regulation 54 of the
National Security (General) Regulations by the
Commonwealth for an indefinite period of the exclusive
possession of property constituted an acquisition of
property within the meaning of section 51 (xxxi) of
the Constitution. This is what Rich J. said,
representing the majority opinion :-
“It would, in my opinion, be wholly inconsistent with
the language of the placitum to hold that, whilst
preventing the legislature from authorizing the
acquisition of n 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. In the case now before us, the Minister has seized
and taken away from Dalziel everything that made his
weekly tenancy worth having, and has left him with the
empty husk of tenancy. In such circumstances, he may
well say :–
704
‘You take my house, when you do take the prop
That doth sustain my house; you take my life,
When you do take the means whereby I live.’”
In the present case nothing has been left with the
company but the mere husk of title.
In my judgment, the true concept of the expression
“acquisition” in our Constitution as well as in the
Government of India Act is the one enunciated by Rich J.
and the majority of the court in Dalzie’s case(1). With
great respect I am unable to accept the narrow view that
“acquisition” necessarily means acquisition of title
in whole or part of the property. It has been tightly said
that a close and literal construction of constitutional
provisions made for the security of person and property
deprives them of half their efficacy and ends in a
gradual depreciation of the right as if the right
consisted more in sound than in substance. In other
words, such provisions cannot be construed merely by
taking a dictionary in hand. The word “acquisition” has
quite a wide concept, meaning. the procuring of property
or the taking of it ‘permanently or temporarily. It does
not necessarily imply the acquisition of legal title by
the State in the property taken possession of. The
learned Attorney General combated this view and contended
that such a wide concept of the meaning of the word
“acquisition” was contrary to legislative practice in
India which practice was in accord with the view
enunciated by Latham C.J. in the case above cited. It was
said that the decided cases in India supported that con
struction of the word. Reference was made to a
decision of Bhagwati 1. in Tan Bug Taim v. Collector
Bombay(2). That case concerned the requisition by the State
of the premises of a leading Bombay Chinese restaurant. On
a petition presented to court under section 45 of the
Specific Relief Act, Bhagwati 1. held that having regard
to the principles applicable to British jurisprudence
which had been enacted in section 299 (1) and (2) of the
Government of India Act,
(1) 68 C.W.L.R 261.
(2) I.L.R. 1946 Born. 51.
705
requisition of land could not be considered as being
included either in item 9 or item 21 of List II of the 7th
Schedule of the Act, that the word “acquisition” implied
ownership in the property or rights in or over such
property, while “requisition” implied deprivation of the
owner of the property for the time being of the use and
possession thereof and meant control of the property,
and -that there was no warrant for holding that so far as
legislative practice in India was concerned,
“requisition”was included in “acquisition”. The learned
Judge preferred to follow the view of Latham C.J. and
refused to follow the majority judgment in Dalziel’s
case(1). Having considered the matter in full, and with
respect to the learned Judge, I prefer to follow the view
of the majority of the court, because it seems to me that
it is more in consonance with juridical principle that
possession after all is nine-tenths of ownership, and once
possession is taken away, practically everything is
taken away, and that in construing the Constitution it
is the substance and the practical result of the act of
the State that should be considered rather than its purely
legal aspect. As already said, the correct approach in such
cases should be this: what in substance is the loss or
injury caused to the owner and not what manner and method
has been adopted by the State in taking the property.
That the view expressed by Bhagwati J. did not truly
represent the intent of Parliament in drafting entry 9 of
List II of the 7th Schedule becomes clear from what
happened subsequent to this pronouncement. After this
judgment was delivered, an Act was passed by Parliament
,amending the Government of India Act nullifying the effect
of the judgment as regards requisition of property. The
Indian (Proclamation of Emergency) Act, 1945, (9 & 10
Geo. 6, Ch. 23) was promulgated on February 14, 1946,
the judgment of Bhagwati J. having been delivered on
August 9, 1945, section 102 of the Government of India Act
was amended and by it the Central Legislature, when a
proclamation of emergency was in force,
(1) 68 C.W.L.R. 261.
706
was empowered to make laws for a province or a part
thereof, in respect of any matters not enumerated in any
of the lists of the 7th Schedule. Reference was also
made to certain observations of my brother Das in
Chiranjit Lal Chowdhuri’s case(2) ‘in which the opinion
was expressed that the ‘word “acquisition” had
implicit in it the idea of vesting of property
in property in the State. For the reasons already given,
with great respect, I am unable to subscribe to that view.
Reference was also made to a decision of the Punjab High
Court in Jupiter General Insurance Co. v. Rajagopalan
(2). This case concerned the provisions of sections 52 and
52(a) of the Insurance Amendment Act, 1950. It was
contended there that those provisions abridged the
fundamental rights guaranteed by article 31(2) of the
Constitution. In view of the decision of this Court in
Chiranjit Lal Chowdhuri’s case(1), the Punjab High Court
construed the word “acquisition” in the narrower sense
and held that as the beneficial interest in the property
remained in the insurer the provisions of the impugned
section did not amount to appropriation of the
insurer’s property and merely amounted to exercise of
police power. It was further held that the pith and sub
stance of the impugned legislation was the regulation of
insurance companies and winding up such corporations, if
that was most advantageous to the general interest of
policy holders. It is unnecessary for the purpose of this
case to say anything about the correctness of that
decision.
In the light of these different decisions the
Constitution employed more comprehensive phraseology in
article 31 than had been employed in the entries of the
7th Schedule appended to the Government of India Act,
1935, and which became the subject matter of
construction in the case decided by Bhagwati J. In
the entries of the 7th Schedule appended to the
Constitution the word used is “requisition” but the
same phraseology has not been employed purposely in clause
(2)of article 31, in all
(1) [1950] S.C.R. 869.
(2) A.I.R. 1952 Punjab 9,
707
probability to avoid any controversy on the scope of the
article by giving a limited meaning to these two words.
On the finding that the company’s property was in
effect taken possession of under the provisions of the
Ordinance by the State and that the company was
deprived of it, there is no escape from the conclusion that
the impugned Ordinance and the statute following it are
void as both of them encroach on the fundamental right of
the company under article 31(2) of the Constitution.
It was then argued that even so the plaintiff in the
suit was not entitled to the relief claimed by him as it
was the company alone that could complain about the
abridgement of its fundamental rights by the Ordinance in
question. It was also contended that the plaintiff’s
fundamental right to property had not been infringed in any
manner as his property in the share had not been taken
possession of by the State. Finally it was said that on
both these questions the majority decision of this court
in ChiranJit Lal Chowdhuri’s case(1) was conclusive. I am
unable to sustain any one of these contentions.
Undoubtedly the majority decision in Chiranjit Lal
Chowdhuri’s case (1) has binding force till it is
reconsidered or overruled by this court. But this decision,
in my opinion, has no apposite application to the
facts and circumstances of this case and is clearly
distinguishable. My reasons for saying so are these :–
1. The decision in Chiranjit Lal Chowdhuri’s case(1)
was given on a petition presented to this court in exercise
of its jurisdiction under article 32 of the Constitution.
Inter alia, Chowdhuri’s grievance was that his
fundamental right under article 31(2)of the Constitution had
been infringed by the impugned law, inasmuch as the
State had taken possession of the company’s property
and that all the rights and privileges annexed to his
share had thereby been lost. The majority of the court
took the view that the petitioner was still in possession
of his share and that he had power to dispose of that
share, that he could
(1) [1950] S.C.R. 869.
92
708
receive a dividend on that share, and that though he had
lost some of the privileges annexed to his share, it could
not be said that the State had taken possession of his
share or was exercising the privileges which he enjoyed as
a shareholder. The situation however of the present
plaintiff and of all the preference shareholders whom he
represents is quite different. Chiranjit Lal was an
ordinary shareholder of a fully paid up share. The
plaintiff and the other preference shareholders are in a
different situation from Chiranjit Lal. All of them hold
partly paid up preference shares on which their liability
amounts to a sum of Rs. 16 lakhs, the plaintiff alone
being under a liability of Rs. 1,62,000. In case this
liability is not met when it is sought to be enforced, the
shares are liable to forfeiture. The plaintiff and the
other preference shareholders therefore are in imminent
danger of losing the shares themselves or losing
valuable property in the nature of money which they will
have to pay out in order to meet the call. For all
practical purposes the plaintiff is in danger of losing
valuable property which the State is threatening to take
possession of. Not only will these shareholders lose their
shares and be deprived of them but they will also be
forced to pay large sums of money and all this will be in
exercise of the powers conferred on the directors
appointed by the State by the Ordinance in question.
There can thus be no comparison between the rights and
liabilities of Chiranjit Lal with the rights and
liabilities of the present plaintiff and the other
preference shareholders.
2. The rights and privileges of preference
shareholders even in winding up and in earning dividends are
somewhat different from the rights and privileges of the
ordinary fully paid up shareholders. The court in
Chiranjit Lal Chowdhuri’s case(1) did not at all advert
to the case of preference shareholders and the effect the
Ordinance had on their rights. It is evident that it was
the refusal of the directors to obey the mandate of the
Controller appointed by the Central Government to make
a call on the preference
(1) [1950] S.C.R. 869.
709
shareholders that to a certain extent resulted in the
making of the Ordinance. On the 5th October, 1949, the
Government appointed a Controller to supervise the
affairs of this ,company. On the 9th November, 1949, the
Controller asked the directors of the company to make a
call on the preference shareholders. Soon after the
directors passed a resolution refusing to comply with
the command. On the 9th January, 1950, the Ordinance
was promulgated, i.e., soon after the refusal, and on the
same day powers were delegated by the Central Government to
the Bombay Government under the Ordinance. Next day on
the 10th January, 1950, the Bombay Government appointed
its nominees as directors of the company. On the 7th
February, 1950, these directors passed a resolution to
call up the uncalled capital and actually on the 22nd
February, 1950, call was made and the plaintiff was called
Upon to pay a sum of Rs. 1,62,000. In these circumstances,
it cannot be held to be an unreasonable inference that one
of the purposes of the Ordinance was to raise further
finance for the business of the company so that it may start
working. In any case, that was clearly the effect of the
Ordinance on the property of the preference shareholders.
In these circumstances, it cannot be said that on the
rule of stare decisis the plaintiff is out of court in view
of that decision.
3. In the case of Chiranjit Lal Chowdhuri(1) the court was
influenced considerably by. the fact that a solitary
shareholder was trying to enforce the company’s
fundamental right in the exercise of its jurisdiction under
article 32 and that he could not do so unless his own
fundamental right under article 31 (2) had been infringed.
It was said that the complainant could not succeed because
somebody else was hurt and that it was an elementary
principle of law that in order to justify the grant of
extraordinary relief the complainant’s need of it and the
absence of an adequate remedy at law must clearly
appear. Das J. also pointed out that article 32 can only
be invoked for the purpose of enforcement of the fundamental
right and that that article does not permit an application
merely
(1) [1950] S.C.R. 869.
710
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. The learned Judge concluded by
saying–
“In exceptional cases where the company’s property
is injured by outsiders, a shareholder may under the
English law, after 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.” Here it is quite clear that
the present contention has been raised in a suit and not
in an application for a writ under article 32. That
itself distinguishes Chiranjit Lal Chowdhuri’s case(1)
from the present. It is further clear that all the
necessary steps visualised by my learned brother have
been taken by the preference shareholders. A requisition’
for calling a meeting of the shareholders of, the company
was made on 3rd August, 1950, a meeting was actually held
on 28th September, 1950, and on subsequent days and on
5th November, 1950, resolutions were passed that the call
should not be made. The resolutions were, however, vetoed
by the Government. All the preference shareholders are
represented in this suit including some of the directors,
the company has been impleaded as a defendant and the
old directors of the company have made an application that
they should be allowed tO support the appeal. On these facts
the present case is clearly distinguishable from that of
Chiranjit Lal Chowdhuri(2).
4. In any case, even if it is held that in view of the
binding character of this court’s decision in Chiranjit
Lal Chowdhuri’s case(1) the point is concluded, that the
State has not taken possession of the shareholders
property, I am of the opinion that the plaintiff
(1) [1950] S.C.R. 869.
711
and the other preference shareholders are entitled in
this suit to attack the validity of the Ordinance on the
basis of the infringement of the fundamental right of the
company. The plaintiff has every right to challenge the
authority of the directors to make the call and to question
their locus standi before they can fix a liability on him.
The directors seek to derive authority from the Ordinance.
If, however, the Ordinance is void as against the company
obviously they are not to be regarded as the directors of
the company and would thus have no authority to make the
call. It would indeed ‘be a strange thing to hold that the
plaintiff in a suit cannot question the authority and the
credentials of the person who is seeking to enforce a demand
against him. Unless the person making the demand makes out
his authority or his credentials to do so, he is not
entitled to enforce the demand. In all cases where a
pecuniary or other similar liability is sought to be
enforced by a person, it is always open to the person
challenging the liability to raise the question of the locus
standi and authority of the person making the demand. ‘If
that person claims in the status of an agent of some other
person, unless his appointment is validly made, he would
have no authority. In this case the shareholders under the
articles of association were under a contractual liability
to meet calls made by the directors of the company
appointed by’ them. They never agreed to meet a call made
by persons appointed by an external authority and in
these circumstances they are entitled to question the
authority of the person making the call. The
directors appointed by the Government can only invoke in
aid the authority given to them by the Ordinance and if the
Ordinance is void as against the company,, they cannot be
held to be directors of the company and would therefore have
no authority to make the call. In my judgment, therefore,
it is plain that the plaintiff is entitled to succeed on
the basis of the infringement of the company’s fundamental
right under article 31 (2), because that is the only
authority under which the directors have been
brought into existence and are exercising powers by
virtue of the provisions of the Ordinance. If they are
712
not the validly appointed agents of the company qua the
company, they cannot function as directors qua the
shareholders.
5. The learned Attorney-General drew our attention to a
number of cases for the proposition that unless there was a
direct infringement of the fundamental right of the
shareholders it was not open to them to take advantage of
the breach of a fundamental right of the company. In these
wide terms I am unable to accede’ to this proposition. In
my opinion, the correct rule on this point has been stated
in Willoughby, at page 20, on the authority of the
decision in chusetts v. Mellon(1), and is in these terms:
“We have no power per se to review and annul acts of
Congress on the ground that they are unconstitutional. That
question may be considered only when the justification for
some direct injury suffered or threatened, presenting a
justiciable issue is made to rest upon such an act. Then
the power exercised is that of ascertaining and declaring
the law applicable to the controversy. It amounts to
little more than the negative power to disregard an
‘unconstitutional enactment, which otherwise, would stand in
the way of the enforcement of a legal right. The party who
invokes the power must be able to show, not only that the
statute is invalid, but that he has sustained or is
immediately in danger of sustaining some direct injury as
the result of its enforcement, and not merely that he
suffers in some indefinite way in common with people
generally. If a case for preventive relief be
prevented, the court enjoins, in effect, not the execution
of the statute, but the acts of the official, the statute
notwithstanding”.
The rule stated above has apposite application to this
case. The plaintiff and the other preference shareholders
are in imminent danger of sustaining direct injury as a
result of the ‘enforcement of this Ordinance, the direct
injury being the amount of the call that they are called
upon to pay and the consequent forfeiture of their
shares. Not only would, they lose
(1) 262 U.S. 447.
713
their shares, if they do not meet the demand, but they would
also have to pay the amount of the call. My brother Das
elaborately dealt with this question in Chiranjit Lal’s
case(1), and made reference to all the cases that were
cited by the Attorney-General on this subject, viz., McCabe
v. Atchison(2); Jeffrey Manufacturing Co. v. Blagg(3);
Hendrick v. Maryland(4); -Newark Natural Gas & Fuel Co. v.
The City of Newark (5); and in which the rule laid down
was that in order to justify the granting of extraordinary
relief the complainant’s need of it and the absence of an
adequate remedy at law must clearly appear and that the
complainant cannot succeed because some one else was hurt.
He also made reference to the cases of Truax v. Raich (6),
and Buchanan v. Warley (7). There the court allowed the plea
to be raised because in both. these 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 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 case a city Ordinance
prevented the occupation of a plot by a coloured 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
(1) [1950] S.C.R. 869. (5) 242 U.S. 403.
(2) 235 U.S. 151. (6) 939 U.S. 33.
(3) 235 U.S. 571. (7) 245 ‘U.S. 60.
(4) 235 U.S. 610.
9–95 S.C.I./59
714
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. Reference was also made
to the case of Darnell v. The State of Indiana (1). That
is the only case in which a shareholder was not heard
to complaining Iris own name when the Ordinance infringed
the fundamental right of the company, his own rights had not
been infringed. In view of this decision my brother Das took
the view that Chiranjit Lal who was merely a shareholder and
did not suffer any direct injury by the result of the law
was not entitled to complain. That may very well have been
the correct view in the case of a fully paid up shareholder
who had no further liability or who was not likely to suffer
in any manner by the enforcement of the Ordinance but the
situation of a partly paid up preference shareholder as in
this case is quite different and distinguishable and in my
judgment the apposite rule to apply to the present case is
the one laid down in the cases of Truax v. Raich (2) and
Buchanan v. WarIcy(3 ). The result is that the plaintiff is
entitled to challenge the constitutionality of the
Ordinance on the basis that it abridges the company’s
fundamental right under article 31 (2). The plaintiff is
thus entitled to succeed in this suit which should have been
decreed in the terms in which it was laid.
I am further of the opinion that the question of the
locus standi of the plaintiff to raise the pica that the
Ordinance being void against the company the directors had
no authority to make the call, is really of academic
interest in this case because here the company has been
impleaded as a defendant. Its old directors have made an
application to this court supporting the case of the
plaintiff on the ground that the Ordinance
(1) 226 U.S. 388.
(2) 239 U.S. 33.
(3) 245 u.s. 60.
715
is void as it infringes the company’s fundamental right
under article 31 (2). The learned Attorney-General when
asked about this application said that it not having
been made in the High Court and having only been made at the
last stage of the case should not be entertained. In my
view, when the question in issue is one concerning
constitutional rights, the matter cannot be viewed purely
from a technical angle and if in the interests of doing
substantial justice it is necessary to grant permission to
the old directors to have their say, technical
considerations should not stand in the way of doing so.
If the Ordinance qua the company is void, I do not see why
the old directors should be debarred from saying so and
if it is void qua the company, it can certainly not
be sustained qua the shareholders. Some of the directors
who are preference shareholders are also represented in
the suit as well. In Chiranjit Lals case(1) the question
of his locus standi was left open by the Chief Justice.
This is what the learned Chief Justice said :–
“The first question 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 ………. do not think . it
is necessary to pronounce a definite opinion on the first
point.”
In that case Patanjali Sastri J., as he then was, :also
did not pronounce any definite opinion on the question
so far as the shareholder’s right to question the invasion
of the right to property of the company under article
31 was concerned. This is what the learned Judge said
:–
“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, were
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.”
(1) [1950] S.C.R. 869.
716
The learned Judge did not offer any opinion on the other
questions. Mukherjea J. decided the question on grounds
somewhat different from that taken by Fazl Ali 1. This what
the learned Judge said :–
“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 is one of the respondents, and opposes the
petition.”
Even on the basis of this reasoning the situation of
the present plaintiff, as already explained, is quite
different and so is that of the company. In these
circumstances it cannot be said that the decision
given in Chiranjit Lal’s case(1) is binding on this point,
as even the judgments of the Judges forming the
majority did not speak with the same voice.
For the reasons given above I would allow this appeal,
set aside the judgment’ of the High Court and decree the
plaintiff’s suit with costs. It is not necessary to
give any decision on issue 2 in view of the decision reached
above, viz., whether the law is void because it
infringes the fundamental rights under articles 14 and
19.
DAS J.-I agree that this appeal should be allowed but
I prefer tO rest my decision’ on the grounds and reasonings
set forth in detail in my judgment in
(1) [1950] S.C.R. 869.
717
Appeal No. 107 of 1952 [The State of West Bengal v.
Subodh Gopal Bose(1)].
This is an appeal by the plaintiff in a suit filed in
the Bombay High Court on behalf of himself and other
preference shareholders of the respondent company praying
for a declaration that the power given to the defendants
respondents 2 to 8 who had been appointed directors
under the Sholapur Spinning and Weaving Company
(Emergency Provisions) Ordinance II of 1950 (hereinafter
referred to as the said Ordinance) to make a call and the
resolution passed by the defendants’ respondents 2 to 6 on
the 7th February, 1950, for making a call of Rs. 50 per
each preference share are illegal, ultra vires, void
and inoperative in law. The plaintiff-appellant is the
registered holder of 3,244 preference shares of the
respondent company of the face value of Rs. 100 per share
out of which only Rs. 50 had been paid up and consequently
if the call has been duly made, he will have to pay
Rs. 1,62,200 in respect of his holding. The plaintiff
appellant. resists the payment of the call on the
ground, inter alia, that the said Ordinance is illegal,
ultra vires and invalid under the provisions of the
Government of India Act, 1935, and/or the Constitution
of India. No oral evidence was adduced on either side.
The matters in issue were argued with questions of law
governed by the Constitution. The contention was that
the Ordinance was inconsistent with or in derogation
of the fundamental rights guaranteed by the
Constitution. The suit was dismissed by the trial
court and that dismissal was affirmed by the appeal
court. The plaintiff has now come up on appeal before us
after having obtained a certificate under article 132
(1)of the Constitution’ from the High Court.
The material facts leading up to the institution of the
suit and the terms of the impugned Ordinance have been set
out in detail in the judgments delivered by this court
in the case of Chiranjitlal Chowdhuri v. The Union. of
India(2) where this very Ordinance and the Act which
replaced it were challenged
(1) [1954] S.C.R. 587.
(2) [1950] S.G.R. 863.
718
as unconstitutional and also in the judgment just
delivered and it is not necessary for me to recapitulate the
same. The determination of the’ matters in issue
depends on the correct interpretation of article 19
(1) (f)read with article 19 (5), article 31 and article
14 of the Constitution.
My view about the correlation between article 19
(1) (f) read with article 19 (5) and article 31 and the true
meaning and the respective scope and effect of clauses
(1)and (2) of article 31 have been set forth in detail
in my judgment in Chiranjitlal’s case (1) and have been
more fully explained in my’ judgment in Appeal No. 107
of 1952 [The State of West Bengal v. Subodh Gopal Bose and
others(2)] and no reiteration of them is called for. In the
light of the conclusions reached and the reasons in
support thereof given by me in those judgments I proceed
to examine the contentions advanced by the appellant.
The appellant seeks to question the validity of the
Ordinance on the ground that it infringes the fundamental
rights of (a) the company, (b) the shareholders, (c) the
managing agent% (d) the directors elected by the
shareholders and (e) persons having contracts with the
company. The first thing to consider is whether he
can raise the question of constitutionality of the
Ordinance rounded on the breach of the fundamental rights
of anybody other than himself.
The above matter was agitated in Chiranjitlal’s
case (1). There Chiranjitlal Chowdhuri, who was the
holder of one fully paid up ordinary share, applied to this
,court under article 32 challenging the validity of
this very Ordinance which is now questioned before’ us
and the Act which eventually replaced it. One of the
grounds of attack was that the Ordinance had infringed
the fundamental rights of the company under article 19
(1) (f) and article 31 in that it dismissed the managing
agents and the directors and authorised the State to
appoint new directors and authorised the directors so
appointed under the Ordinance to take possession of the
company’s assets without payment of any compensation. On
the point
(1) [1950] S.C.R, 869.
(2) [1954] S.C.R. 587.
719
now under consideration Mukherjea J. expressed
himself thus, at page 898:
“An incorporated company, therefore, can come up
to this court for enforcement of its fundamental rights and
so may be 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 indifferent 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.”
And again at page 899 :–
“The rights that could be enforced under
article 32 must ordinarily be the rights of the
petitioner himself who complains of infraction of such
rights and approaches the court for relief. This being
the position, 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.”
At pages 904-909 the learned Judge discussed the
question whether the impugned law had infringed any
fundamental right of the shareholders under article 31 (2)
or article 19(1) (f) and answered it in the negative. Kania
C.J. agreed with the line of reasoning and the conclusion
reached by Mukherjea J. on this point. Fazl Ali J. at
page 876 referred to a passage in the judgment of Hughes J.
in McCabe v. Atchison(1)and expressly held that no one
except those whose rights
720
were directly affected by a law could raise the
question of the constitutionality of the law. His
Lordship said:
“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.”
As to the question whether the petitioner had
succeeded in showing that there had been an infringement
of his own rights as a shareholder under articles 31
and 19 (1) (f) his Lordship agreed with and adopted the
conclusions arrived at by Mukherjea J. without committing
himself to the acceptance of all the reasonings of Mukherjea
J. My Lord the present Chief Justice rested his decision
on article 14 and came to the conclusion that the
petitioner as a shareholder had been discriminated
against. Having thus decided the question arising under
article 14, he did not think it necessary to express any
opinion on the questions raised under articles 19 and
31. .At pages 927-930 I dealt with the question whether
the shareholder could impugn the constitutionality of the
law on the ground that the fundamental right of the
company had been infringed. After referring to several
decisions of the Supreme Court of America I came to the
following conclusion at page 930:
“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.”
In the premises, I think it is quite clear that the
majority of the members of the Bench which heard
(1) 226 U.S. 388.
721
Chiranjitlal’s case(1) held that the petitioner was not
entitled to question the constitutionality of the
Ordinance and the Act on the ground that the fundamental
rights of the company under articles 19 (1) (f) and 31 had
been infringed. He had, therefore, to rely on the plea of
infringement of his own fundamental rights. The majority
of the court held that there had been no infringement of
his rights as a shareholder under article 19(1)(f) or
article 31 and that the petitioner consequently had to fail
back on article 14 in order to support his plea of the
unconstitutionality of the Ordinance and the Act. Even
here the majority of the Bench took the view that the
petitioner had not discharged the onus that was on him of
showing that in fact there had been any discrimination
against him and other shareholders of the company.
Learned Attorney-General submits that in so far as the
challenge to the validity of the law is, inthe present
case, rounded on theinfringement of the company’s
fundamental rights,it is concludedby the decision in
Chiranjitlal’s case(1) for the reasons adopted by the
majority in that case apply equally to the case now
before us and the same conclusion must be drawn,
namely, that the present appellant, who is also. a
shareholder, cannot be permitted to impugn the said
Ordinance on the ground that it infringes the
fundamental rights of the company, or the managing
agents or the directors or other persons having contracts
with the company. It is, on the other hand, contended on
behalf of the appellant that the present case is
distinguishable from Chiranjitlal’s case(1) in that the
question here arises in a regular suit and not on an
application under article 32 for the enforcement of
fundamental rights. I do not think that this, by itself,
is a substantial ground of distinction at all. I cannot
see how the mere form of the proceeding can affect the
question. The true principle being that only a person who is
directly affected by a law can challenge the validity of
that law and that a person whose own right or
interest has not been violated or threatened cannot
impugn the law on the ground that somebody else’s right has
been infringed,
(1) [1950] S.C.R. 869.
722
the same principle must prevail irrespective of the form of
the proceeding in which the question of constitutionality
is raised.
Learned counsel for the appellant, however, urges that
although on a parity of reasoning there has been no
infringement of the fundamental right of the preference
shareholders under article 19(1) (f) or article 31 (2), the
impugned law, if it stands, certainly subjects the
preference shareholders to the’ risk of being called upon
to pay the amount of capital remaining unpaid on their
respective shareholding. Indeed, the directors appointed
under the said Ordinance have made a call for the payment
of Rs. 50 on each preference share and the plaintiff
appellant alone will have to pay Rs. 1,62,200 on his
shares. There was no such liability on the petitioner in
Chiranjitlal’s case(1) for the was the holder of only one
fully paid up ordinary share. The impugned Ordinance,
therefore, directly affects the preference shareholders
by imposing on them this liability, or the risk of it,
and gives them a sufficient interest to challenge the
validity of the Ordinance. It is quite true, as
submitted by the learned Attorney-General, that the fact
of the property of the company or the managing agents,
or the directors or the other persons having contracts
with the company having been taken possession of by
the State through the directors appointed by the State
under the Ordinance has no relation to or bearing on the
imposition ‘on the preference shareholders of the
liability to pay the call, for the directors were not
obliged to make the call because they had taken
possession of the property of the company or the other
persons and that this imposition of liabilityor risk
cannot, therefore, be said to be the direct or even
indirect result of the State having through the directors
appointed under the Ordinance taken possession of the
property of the company or the other persons. It is then
urged by him that, that being so, the preference
shareholders cannot be allowed to complain of the
infringment of the rights of the company or of the other
persons which does not concern or affect them. This
argurncnt, however, overlooks the purpose
(1) [1950] S.C.R. 869.
723
and scope of the suit filed by the appellant for himself and
all other preference shareholders. The appellant is
disputing his liability to pay the call made by the
directors appointed under the Ordinance. He is, therefore,
entitled to show that the directors who have made the call
are not competent to do so. It is open to him to allege
and prove, if he can, that the gentlemen who have
purported to make the call are not competent to do so
because they are not the directors of the company. Take the
case of a company which is not governed by this Ordinance.
If a call is made on the shareholders of such ‘a company,
it is certainly open to a shareholder to resist the payment
of the call by proving, if he can, that the persons
who have purported to make the call are not the directors of
the company. This he may do by showing that those
persons have not the requisite qualifications or have not
been duly elected. Likewise, on a parity of reasoning,
the appellant as a preference shareholder in the respondent
company is entitled to show, if he can, that the
persons who have made the call are really not’ the
directors of the company. Certainly he can show that
the Ordinance under which these persons have been
appointed was beyond the legislative competency of
the authority which made it or that the Ordinance had
not been duly promulgated. If he can, with a view to
destroy the locus standi of the persons who have made the
call, raise the question of the invalidity of the
Ordinance on the grounds I have just mentioned, I can see
no valid reason why for the self same purpose, he should
not be permitted to challenge the validity of the
Ordinance on the ground of its unconstitutionality for
the breach of the fundamental rights of the company or of
other persons. He may not be interested in or concerned
with the facts which constitute the unconstitutionality,
e.g., the taking of possession of the property of the
company or of the other persons but he is certainly
interested in getting out of the law so as to destroy the
very foundation of the status of the persons who have made
the call and thereby repel the attack on him and avoid
his own liability. In Chiranjitlal’s case(1) the
(1) [1950] S.C.R. 869
724
petitioner was held to have suffered no loss of his own
fundamental right as a shareholder and, therefore, by
raising the question of unconstitutionality of the
Ordinance on the ground of the breach of the fundamental
rights of the company, or of the other persons he was really
fighting the battle of the company and the other persons
and not of his own. Here the position is different. Here
the law has made the imposition of a liability on him
and other preference shareholders possible and he is
seeking to resist that liability and as in the premises
he is directly affected by the statute he has sufficient
interest to challenge its validity. If as between the
company or the other persons and these persons who,
purporting to act as directors, have made the call the
law is unconstitutional for breach of the former’s
fundamental rights then it follows that these persons are
not, in the eve of the law, the directors of
the company at all and if they are not in law
the directors of the company, surely they
cannot arrogate to themselves the right to exercise
any of the powers of the directors of the company and
to make any call. If the said Ordinance stands, the
directors appointed thereunder will have authority to make
the call which they have done and the appellant’s
liability to pay it will stand good. Therefore, the
appellant as a preference shareholder is directly
affected by the statute and this circumstance, in my
opinion, distinguishes this case from Chiranjitlal’s case(1
) and it must be held that, in the circumstances of this
case, the appellant, who is a preference shareholder and as
such liable to pay the call, is entitled to challenge the
Ordinance which dismissed the directors elected by the
shareholders, authorised the appointment of directors by
the State and made it possible for the directors so
appointed to make the call and thereby impose a liability on
all preference shareholders including the appellant.
On the hypothesis that, with a view to resist his own
liability to pay the call, it is open to the appellant to
impugn the Ordinance and the Act which has replaced it and
for that purpose to call in aid the infringement of the
fundamental right under article 31 (2) of the
(1) [1950] S.C.R. 869
725
company or of the other persons mentioned above, it has yet
to be shown that there has in fact been such infringement.
Two questions will have to be considered and decided,
namely, (1) whether the impugned law has authorised the
taking of possession or acquisition of any property and
(2) whether what has been taken possession of or acquired
is “property” within the meaning of article 31(2). Taking
the second question first, there cannot be any doubt
that the mills, machineries, stocks etc., of the
respondent company are ”property” within the meaning
of articles 19 and 31. A contract or agreement which
a person may have with the company and which may be
cancelled by the directors in exercise of powers
under the Ordinance will undoubtedly be “property” within
the meaning of the two articles. There may be some argument
as to whether the office of managing agents or of the
directors, though each of such offices carries substantial
remuneration, can be said to be “property” which, by
itself, can be acquired or taken possession of or
disposed of. I need not dilate on this further, for the
machinery etc., of the company and the benefits of
agreements of persons having contracts with the company
are certainly “property” within those articles and if
those have been taken possession of or acquired that will
be quite sufficient for the plaintiff appellant to sustain
his challenge to the constitutionality of the impugned
law, whether or no the office of the managing agents or
of the directors is “property” or has been taken
possession of or acquired.
The next question is whether the impugned law has
authorised the taking of possession or acquisition of the
property of the shareholders, or of the company. It may be
mentioned at the outset that the impugned law has not
authorised any acquisition of any property in the sense
of divesting the shareholders or the company of any
property and vesting that property in the State or its
nominee. In other words, there has been no transfer of
title, voluntarily or by operation of law. It is,
therefore, necessary to enquire and as certain whether
the Ordinance or the Act which replaced it
726
has authorised the taking of possession of any property of
the shareholders or of the company.
As regards the property of the shareholders the position
is the same as in Chiranjitlal’s case(1). The shares
still belong to them. They can hold them or dispose. of
them. If any dividend is declared they will get them. If
there is any winding up and if after payment of all
liabilities there remains any surplus then they will
participate in that surplus. It is true that from a
practical point of view it-may be difficult for the
shareholders, if they desire to sell the shares, to find
a purchaser who will be willing to buy shares in a company
which is governed by an Ordinance of this kind but,
nevertheless, it cannot be said that the State has taken
possession of the shares in the sense in which that
expression used in article 31(2) has been explained by
me in Subodh Gopal Bose’s case(2). It is said, as
was done in Chiranjitlal’s case(1 ), that certain
valuable rights of the shareholders, e.g., the right of
voting, the right to elect directors and the right to apply
for the winding up of the company have been taken away. In
the first place, it is doubtful if any of these right can
be called “property” within the meaning of article 31(2)
for, by itself and apart from the shares, none of them can
be acquired or disposed In the next place, the State has
not taken possession of these rights as explained by
Mukherjea J. in Chiranjitlal’s case (1 ) at pages 904-906
and by me at pages 923-924. Therefore, there has been
no infringement of the shareholders right to
property under article 31(2). What has happened is
that these rights which are only incidents of the ownership
of the shares have been suspended or kept in abeyance and
if this may be regarded as amounting to imposing
restrictions on the exercise of the rights of ownership of
the shares it may possibly be justified as an exercise in
any emergency of the State’s police power under clause (5)
of article 19 by imposing by law reasonable
restrictions in the interests of the general public so as to
secure the supply of an essential commodity and to prevent
unempolyment.
(1 [1950] S.C.R. 869. (2) [1954] S.C.R. 587.
727
As regards the property of the company also there has
been no transfer of title to any such property, voluntary or
involuntary, from the company to the State or its nominee
and, therefore, no question arises of any property of the
company having been “acquired”. The question remains
whether any property of the company has been “taken
possession of” by the State within the meaning of article
31 (2) as explained by me in Subodh Gopal Bose’s case(1).
In Chranjitlal’s case(2) Mukherjea J. at pages 903-904
said:
“Assuming that tiffs State management was imposed in
the interests of the shareholders themselves and that the
statutory directors are acting as the agents of the
company, the possession of the statutory directors could
not, it is argued, be regarded in law as possession of
the company so long as they are bound to act in obedience
to the dictates of the Central Government and not of the
company itself in the administration of its affairs.
Possession of an agent, it is said, cannot judicially 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.
It is fairly clear that his Lordship was inclined to the
view that the company’s properties had been taken
possession of although he did not categorically an
explicitly say so. I dealt with the matter at pages 926-
927. After pointing out that the possession of directors who
Were not obedient to or amenable to the company or its
shareholders and are not liable to be dismissed or
discharged by the company cannot, in the eye of the law, be
regarded as the possession of the company I said:
(1)[1954] S.C.R. 587. (2) [1950] S.C.R. 869.
728
“In this view of the matter there is great force in the
argument that the property of the company has been taken
possession of by the State through directors who have been
appointed by the State in exercise of the powers conferred
by the Ordinance and the Act and who are under the
direction and control of the State and this has been
done without payment of any compensation .”
Then after quoting a passage from the judgment of Holmes 1.
in Pennsylvania Coal Company v. Mahon(1) concluded:
“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.”
It is quite clear that although I used the words
“there is great force in the argument” and “it may well be
argued”, the then inclination of my mind was definitely
that the property of the company had been taken possession
of as contemplated by article 31 (2). My observations
were much more definite than those of Mukherjea J.
Learned Attorney-General contends that the taking of
possession of the property of the company that has taken
place in this case is clearly not an exercise of the power
of eminent domain within article 31 (2) but
constitutes an exercise of police power under article
31 (1). Here, according to him, the State has not taken
possession of the company’s property on its own account
to implement a public purpose such as is contemplated by
article 31 (2) but the State has taken possession of the
company’s property to prevent the company from using its
own property to the detriment of the interests of the public
and to do for the company what the company should itself
have done. In order to determine to which category this
taking of possession falls, it is necessary to keep in mind
the circumstances in which the Ordinance and the, Act were
passed and to ascertain from their language their
immediate
(1) 260 U.S. 399.
729
purpose and ultimate aim and to consider their effect on
the rights of the company. It should be remembered that the
Ordinance of 1950 was promulgated on the 9th January, 1950.
The preamble to the Ordinance recited 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.”
Then came the Act on the 10th April, 1950. There is no
preamble to the Act. Although the short title of the Act
contains a reference to emergency provisions the full
title of the Act is as follows:
An Act to make special provision for the proper
management and administration of the Sholapur
Spinning and Weaving Company Limited.
There is no suggestion either in this long title or in
the body of the Act except in section 12 that the Act is
intended only to be a temporary emergency measure. The
object of the Ordinance was stated to be to provide
employment to a large number of workmen and to keep up
the production of an essential commodity. There is no doubt
that section 12 of the Act provides that the property of
the company and the management and administration of its
affairs would be restored to the company or its directors
elected by the shareholders but that is left entirely
to the unfettered discretion of the Government. The
provisions of the Ordinance and the Act are drastic in
the extreme. The managing agents and the elected directors
have been dismissed and new directors have been
appointed by the State. So far as the company is concerned
it has been completely denuded of the possession of
its property. All that is left to the company is its bare
legal title. The carrying on of a business demands many
personal qualities and considerable business acumen and
is much more complicated than collecting
10–95 S.C. India/59
730
the rents of the estate of a disqualified proprietor. The
impugned law has thrust upon the company a board of
directors in whose business capacity the Company and its
shareholders may have no confidence and over whom the
company has certainly no vestige of control or authority
and who are not answerable to them at all. Although in
outward form the directors are the officers of the company
and are bound to act under the articles of association in so
far as they are not contrary to or inconsistent with the
Ordinance and the Act, nevertheless, in effect and in
substance, they are the creatures of the State and are
answerable to the State and it is the State that has
through these directors of its choice taken possession of
the undertaking of the company and has been carrying
on an experiment in State management of business at the risk
and expense of the company and the shareholders. Indeed we
are told that under such State management which is going
on for pretty nearly four years the business has been
running at a loss. At any rate no profit has been made
or distributed as and by way of dividend during this long
period–a sad commentary on the efficacy of State
management And nobody knows how long this state of affairs
will continue, for the Act does not prescribe any definite
time limit to this hazardous experiment. It is, in
the premises, impossible to uphold this law as an
instance of the exercise of the State’s police power as an
emergency measure. It has far overstepped the limits of
police power and is, in substance, nothing short of
expropriation by way of the exercise of the power of
eminent domain and as the law has not provided for
any compensation it must be held to offend the provisions of
article 31 (2).
The last contention of the appellant is that the
Ordinance is unconstitutional and void in that it
infringes the fundamental rights of the
shareholders under article 14. In Chiranjitlal’s case(1]
my Lord the present Chief Justice and I were of the’
opinion that the Ordinance and the Act did not proceed on
any rational basis of classification and that this
company and its shareholders had been arbitrarily
(1) [1950] S.C.R. 869.
731
singled out for discriminatory treatment and that as
equality before the law was denied to this company and
its shareholders the Ordinance and the Act offended
the equal protection clause of our Constitution. The
majority of the Bench, however, took the view that, there
being a presumption in favour of the constitutionality of
the law and that the onus of displacing that presumption
being on him who impugns the law, the petitioner in that
case had not discharged that onus and that,
therefore, he could not complain of discrimination. In the
present case there is nothing more than what there
was before the court in Chiranjitlal’s case(1 ). Indeed,
the question of discrimination does not appear to have
been argued before the trial court and the appeal court
has rejected it by saying that the plaintiff had not shown
that there were other companies which were guilty of the
same conduct but had not been similarly dealt with. Learned
Attorney-General has submitted that this court is not’
bound by its previous decision and has pressed us to go
behind the majority decision. Accepting that this court
is not bound by its own decisions and may reverse a
previous decision especially on constitutional questions
the court will surely be slow to do so unless such
previous decision appears to be obviously erroneous. But
in view of the conclusion I have already arrived at on the
other point I do not feel called upon to pursue this point
of discrimination any further. In my judgment, therefore,
this appeal should be allowed and the plaintiff’s suit
should be decreed. The Union of India must pay the
plaintiff his costs throughout.
BOSE J.–1 agree with my brother Mahajan that the
impugned Ordinance and Act offend article 31 (2)of the
Constitution and so are void. But I prefer to rest my
decision on simpler foundations. With the utmost respect
I deprecate, as I have done in previous cases, the use
of doubtful words like “police power” “social
control”, “eminent domain” and the like. I say
doubtful, not because they are devoid of meaning but
because they have different shades of meaning in
different countries and because they represent powers
(1) [1950] S.C.R. 869.
732
which spring from widely differing sources. In my opinion,
it is wrong to assume that these powers are inherent
in the State in India and then to see how far the
Constitution regulates and fits in with them. We have
to interpret the plain provisions of’ the Constitution
and it is for jurists and students of law, not for
judges, to see whether our Constitution also provides
for these powers and it is for them to determine whether the
shape which they take in India resemble any of the varying
forms which they assume in other countries.
Article 19 (1) (f) confers a certain fundamental
certain freedom on all citizens of India, namely, the
freedom to acquire, bold and dispose of property. Article
31(1) is a sort of corollary, namely that after the
property has been acquired it cannot be taken away save
by authority of law. Article 31 is wider than article 19
because it applies to everyone and is not restricted to
citizens. But what article 19 (1)(f) means is that
whereas a law can be passed to prevent persons who are
not citizens of India from acquiring-and holding property
in this country no such restrictions can be placed on
citizens. But in the absence of such a law non-citizens
can also acquire property in India and if they do then they
cannot be deprived of it any more than citizens, save by
authority of law.
I have put the matter broadly and ignored for the: moment
the restrictions imposed by article 19 (5). The rights
conferred by article 19 (1)(f)’are not unfettered and
the State can impose restrictions: provided they are
(I) reasonable and (2) are in the’ interests of either the
general public or for the protection of the interests of any
Scheduled Tribe. But we are not concerned with article 19
in this. case because no one has prevented either the
company or the plaintiff from acquiring and holding
property. They actually did acquire property and they
held it and nobody stopped them. The complaint is that
they are now being deprived, in a manner not allowed by the
Constitution, of the property which they were lawfully
permitted to acquire and hold. That concerns article 31.
732
Now article 31(1) says that no one shall be deprived of
property save by authority of law. That to my mind is
straight forward and simple. It means that no one’s
property can be taken away arbitrarily or by executive
action. There must be legal sanction for every act of
deprivation.
Now an Act of the legislature is legal sanction,
therefore it the rest of the article was not there a man
could be deprived of his property by legislative
enactment though not by executive action. But that brings
in article 31(2). Restrictions are there placed even on
the legislature. Unless the Act provides for
compensation and either fixes the amount or specifies
the principles on which, and the manner in which, it is to
‘be determined it cannot be validly enacted. The only
exceptions are ,those set out in clause (5). Therefore,
‘to my ,mind, the simple question in this case is, do the
impugned Ordinance and Act fail foul of article 31 (2) read
with clause (5) ? All we have to do is to examine these
provisions.
We start with the word “property”. Are the
plaintiff’s “interests” in this company “property”
within the meaning of this clause ? Property
includes any interest” in “any commercial or
industrial undertaking.” It also includes any interest in
“any ‘company owning” any interest in any commercial or
industrial undertaking. That is how I read this clumsily
drafted clause. The company here certainly has an
interest in a commercial and industrial undertaking
and the plaintiff has an undoubted interest in the
company. He also has a direct interest in the undertaking
that the company runs because, as a preference
shareholder, he is a member of the company and would, on
liquidation, be entitled to share in the distribution of
its assets.
Next, have these interests been “taken possession
of” or “acquired”? Here again I have no doubt. In my
judgment, the provisions in the Constitution touching
fundamental fights must be construed broadly and
liberally in favour of those on whom the rights have been
conferred. But in any case, in this instance,
734
these words have to be read along with the word
“deprived” in clause (1). In my opinion, the possession
and acquisition referred to in clause (2)mean the sort of
“possession” and “acquisition” that amounts to
“deprivation” within the meaning of clause (1). No hard
and fast rule can be laid down. Each case must depend on
its own facts. But if there is substantial deprivation,
then clause (2) is, in my judgment attracted. By
substantial deprivation I mean the sort of deprivation
that substancially robs a man of those attributes of
enjoyment which normally accompany rights to, or an
interest in, property. The form is unessential. It is the
substance that we must seek.
Has that happened here ? Of course, it has. The
plaintiff and the company have been left with the mere
husk of title and not only has every form of enjoyment
which normally accompanies an interest in this kind of
property been taken away from them but to add insult to
injury the plaintiff has also been called upon to pay
substantial sums of money; and for what ?–not in compliance
with any engagement into which he has entered, not in
fulfilment of any duty or obligation which he has incurred,
not in furtherance of his interests of which he is the best
judge, but blankly and unashamedly because the
furtherance of his interests affects ”the production of
an essential commodity” and, has caused “serious
unemployment amongst a certain section of the community.”
If that is not “deprivation” it is difficult to know what
is. One of the privileges of a democracy of free men is
the right to mismanage one’s own affairs within the
confines of the law, and if A can mismanage his concerns in
a particular way, so can B, C and D. The production of
essential commodities and the employment of labour are
matters for the State and statutory bodies to handle.
They have the right, when the law so permits it, to take
over this responsibility when the public interests so demand
but if by doing so they deprive private individuals and
non-statutory bodies their interests in property in
the sense explained above they ‘must pay
compensation. They cannot evade their own duties by
lathering their obligations
735
on others’ who are not responsible for carrying on the
affairs of the State. My brother Mahajan has dealt with
this at length and there is no need for me to add to what he
has said.
The only other point I need consider is the
applicability of clause (5)of article 31. The exceptions
to clauses (1)and (2)lie there. I am clear that none of the
exceptions set out there apply. The impugned Ordinance
and Act have not been made for the promotion of public
health nor to prevent danger to life’ and property.
In my opinion, Chiranjit Lal’s case(1) is
distinguishable. I do not think it is a bar here. My
brother Mahajan has explained this at length and as I agree
with him I need say no more. I would therefore also,
in agreement with my learned brother, allow the
appeal and decree the plaintiff’s claim with costs.
GHULAM HASAN J.–I have had the advantage of
perusing the judgment of my learned brother Mr. Justice
Mahajan and I agree with his conclusion that the appeal
should be allowed and the plaintiff’s suit decreed with
costs. I would like to add a few words.
This appeal raises the question of the constitutional
validity of the Sholapur Spinning and Weaving
Company (Emergency Provisions) Ordinance II of 1950,
subsequently replaced by Act XXVIII of 1950, which
reproduced substantially the same provisions. This
question arose originally upon a petition under article 32
of the Constitution filed by one Chiranjit Lal Chowdhuri
an ordinary shareholder of the company, challenging the
Act as being in violation of his fundamental rights under
articles 14, 19 and 31 of the Constitution. By a majority
of 3:2 it was held that the petitioner had failed to
displace the presumption of the constitutionality of the Act
or that there had been any abridgement of his fundamental
rights. The minority declared the impugned Act as void
as it violated the fundamental rights of the
petitioner under article 14 of the Constitution.
(1) [1950] S.C.R. 869.
736
My learned brother has distinguished, and if I may say
so respect successfully, the decision in
Chiranjit Lal’s case(1)and has explained the ratio
decidendi of the majority view in that case and I
entirely agree with him. That decision does not, in my
opinion, conclude the matter so far as the present
case is concerned and no question of invoking the principle
of stare decisis arises.
The question which we are now invited to consider was
raised by the appellant, a preference shareholder holding
3,244 preference shares of the face value of Rs. 100 out of
which he had paid up Rs. 50 per share. He was called upon
by the statutory directors nominated by the Government under
the impugned Act to pay Rs. 1,62,000 as the balance of the
amount of the call. Thereupon he filed the suit in a
representative capacity on behalf of himself and other
preference shareholders challenging the validity of the Act.
The suit was dismissed by the trial Judge whose decision was
affirmed on appeal by the Division Bench of the Bombay
High Court.
My learned brother has analysed in detail the relevant
provisions of the impugned Act and I have no hesitation in
agreeing with him that the Act in substance robs the
company of every vestige of right except what has been
laconically called the husk of title. I agree, therefore,
that the impugned Act oversteps the constitutional
limits of the power conferred upon the State and offends
against the provisions of article 31 and must, therefore,
be held void.
Article 31 finds a place in Part III of the Constitution
which deals with fundamental rights. It is headed
“Right to Property”. Upon a simple and straightforward
construction of its language and the context in which it
stands and unhampered by the provisions of the American
Constitution the article confers upon every person,
whether a citizen or not, a fundamental right of
protection of property against encroachment by the
executive without the authority of law and against
the legislature unless the law passed by it satisfies
the two essential conditions
[1950] S.C.R. 869.
737
laid down in (2) that there must be public purpose for
taking away private property and that the law must
provide for compensation and either fix the amount of such
compensation or specify the principles on which and
the manner in which the compensation shall be
determined and given Article 31 (1) embodies a
categorical declaration proclaiming the right of
property and equally categorically prohibits the State
from depriving the owner of that property by an executive
act or without being backed by the authority of law.
The intention underlying the article being the
protection of property against invasion by the State,
both parts (1)and (2)of article 31 should be read together
so as to harmonize with that intention. Article 31, in
my opinion, is wider than article 19(1) (f) which confers
upon a citizen only the right to acquire, hold and dispose
of property and is different in scope and content. Article
31 is self contained and (1) refers to deprivation of
property general. Acquisition or taking possession in
(2) are different modes of deprivation and are
comprehensive enough to include all forms of taking away
rights of property. Having regard to the setting in
which article 31 is placed, the word ‘property’ used in the
article must ‘be construed in the widest sense as con:noting
a bundle of rights exercisable ,by the owner in respect
thereof and embracing within its purview both corporeal
and incorporeal rights. The word ‘property’ is not
defined in the Constitution and there is no good reason
to restrict its meaning. Whether the ,facts in a given
case: amount to deprivation of property within the
meaning of article 31 will depend ‘upon the circumstances
of each case and it is not possible, in the nature of
things, to lay down any inflexible test which may be
universally applicable. When it can be shown that the
statute substantially interferes with the right of
enjoyment of property, it will, in my opinion, be hit by
article 31 (2) and declared void, unless compensation is
provided.
I am not prepared to subscribe to the proposition that
article 31 (1) stands by itself and should be read
separately from (2) and I cannot attribute an intention
738
to our Parliament to deprive a person of his property
merely by passing an Act. The two parts of the article form
an integral whole and cannot be disassociated from
each other.
The result is that I agree with the order proposed by
my learned brother.
Appeal allowed.
Agent for the appellant: 1. N. Shroff.
Agent for respondents Nos. 1 to 4 and 6 to 8:
Rajinder Narain.
Agent for respondent No. 9: G.H. Rajadhyaksha.