Case: Ishwari Khetan Sugar Mills Private Limited and Another Etc Vs. State of Uttar Pradesh and Others Etc

they can be styled as sick undertakings and become a drag on the economy of the area. There was no s cope for ploughing back the profits to rejuvenate the machinery because there was no profit. The situation had not improved even when managements of some of the undertakings were taken over under the IDR Act and, therefore, this desperate situation called for a drastic remedy in public interest and while applying that drastic remedy of acquisition principles which are valid for determining the value of machinery were adopted. The adequacy or otherwise of compensation on the calculus made by applying the principle is beyond the judicial review. It would be a day time hallucination to call such principle irrelevant or compensation illusory. The challenge to the validity of the impugned legislation on the ground of violation of Art. 31 (2) must accordingly fail.There remain two minor and incidental points mentioned in passing. The submissions themselves lacked emphasis. They are, that: (1) no compensation is provided for the agricultural land taken over by the State; (2) good-will of the scheduled undertakings was not evaluated as a component of compensation. 39. With reference to Ishwari Khetan Sugar Mills (P) Ltd., it was said that 36 acres of agricultural land belonging to the company owning the scheduled undertaking was taken over without compensation. It was countered by saying that agricultural land is not taken over. It is not clear from the pleadings and record whether agricultural land outside the structures of scheduled undertakings has been acquired and has at all been taken over by the Corporation. It may be that between various structures of scheduled undertakings there might be some open land but that is part and parcel of scheduled undertakings because any other construction would show that a passage or road between two constructions could not be acquired. Unless, therefore, it is specifically shown that while acquiring scheduled undertakings agricultural land belonging to the company or the owner owning scheduled undertaking was either acquired or taken over as part of the acquisition it is not possible to accept the submission that there was acquisition of agricultural land without providing compensation for the same. 40. And as for the good-will, less said the better. The scheduled undertakings were sick units and the sickness was chronic. A manufacturing unit with heavy carried forward loss and defaulting in payments, possibly facing appointment of Receivers for realising tax arrears, asks compensation for the good-will generated by it. This good-will appears to be more imaginary than real or an argument to support an untenable submission. But the better answer is that there cannot be a good-will of a manufacturing undertaking but it can be of a company, a partnership, or a proprietor owning scheduled undertaking and neither the company nor the partnership nor the proprietory unit, if any, has been acquired under the impugned legislation. Therefore, in evaluating compensation of the scheduled undertakings there is no question of evaluating the good-will.Mr. R. A. Gupta appearing in SLP. 6252/79 raised an additional contention that the impugned Act is violative of Art. 14 in that selection of petitioners scheduled undertakings for acquisition is wholly arbitrary and there is no difference between those selected for acquisition and those left out through all such sugar, undertakings in the State of Uttar Pradesh were similarly situated and similarly circumstanced. Sustenance was largely sought to be drawn from the Report of Justice Bhargava styled as Sugar Industry Inquiry Commission, 1974, which inter alia, specified 17 sugar undertakings in Uttar Pradesh as prima facie sick sugar mills. After reading out a portion of the Report it was said that classifying the 12 sugar undertakings for acquisition is not based on any intelligible differentia between those included in the group for acquisition and those left out and that this differential treatment has no rational relationship to the object sought to be achieved by the impugned legislation. On behalf of respondents learned Advocate-General for the State of Uttar Pradesh countered this contention by pointing out that before acquiring the scheduled undertakings the Government had a close review of the condition of the sugar undertakings done for certain specific period set out in the affidavit and ascertained whether the situation had become desperate on account of the persistent default in payment of cane price, purchase tax, labour dues, etc. The situation in Uttar Pradesh appears to be peculiar in that cane growers go on selling their cane to sugar undertakings probably having little or no option in this behalf because it is a perishable commodity and must be disposed of as early as possible and they have to await payment at the sweet will, whim and caprice of the sugar barons. Its unhealthy effect on marginal farmers would be intolerable because the cash crop would not fetch any cash and destitution may be the inevitable outcome. And this phenomenon was repeated year after year. It was pointed out that a close scrutiny was applied to this persistent default and where the situation in respect of sugar undertakings was desparate they were classified together and they were sought to be acquired. Can it be said that this classification is not based on any intelligible differentia. Economic situation of an industrial undertaking may be very good, good, average, bad, intolerable and uneconomic in larger national perspective.It would have been difficult for the Government to group all sugar undertakings with such as were living on coramine doses. There does appear to be the intelligible differentia by which this classification of those in an intolerable condition has been grouped together. Acquisition was for an avowed object of rejuvenating these undertakings and thereby improving the economy of the area by providing priority in payment to cane growers, labour, in respect of whom there is no cushion for sufferance. Thus, this differentia undoubtedly has a rational relationship to the object sought to be achieved by the Act. The challenge of Art. 14 was an argument of despair and must be repelled. 41.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The scope and content of entry 52, List I and entry 24, List II has to be demarcated with precision to avoid a possible confusion likely to emanate from an interdependence and interaction of the two entries. Industry as a head of legislation is to be found in entry 24, List II with this limitation that it is subject to the provisions of entries 7 and 52, List I. The difference in the language in which entries 7 and 52 are couched has a bearing on the interruption of entry 52. I n the former case if a declaration is made by the Parliament that the particular industry is necessary for the purpose of defence or for prosecution of the war, parliament would be exclusively entitled to legislate in respect of that industry to the exclusion of State legislatures because the requisite declaration will have the effect of taking out that industry from entry 24, List II. A declaration by the parliament by law to assume control over any particular industry in public interest is a sine qua non to clothe Parliament with power under entry 52, List I to legislate in respect of that industry because otherwise industry as a general head of legislation is in the exclusive sphere of State legislative activity pursuant to entry 24, List II. Distribution of legislative powers as enacted in Part XI and Art. 246 clearly demarcate the field of legislative activity reserved for Parliament and for State legislatures and also the concurrent list in respect of which both can legislate subject to other provisions of part XI.. (3) of Art. 246 provides that the State legislature has exclusive power to make laws with respect to any of the matters enumerated in List. II in the Seventh Schedule. A fortiori, industry being the matter enumerated in List II the State legislature has exclusive power to legislate in respect of it and keeping aside for the time being the words subject to the provisions of entries 7 and 5 2 of List I, the State legislature alone can legislate in respect of the legislative head industry. Ipso facto, parliament would not have power to legislate in respect of industry as a legislative head. Now, entry 52, List I on its own language does not provide a field of legislative activity for the Union Parliament unless and until a declaration is made by parliament by law to assume control over specified industries. The embargo on the power of Parliament to legislate in respect of industry which is in List II would be lifted once a declaration is made by Parliament by law as envisaged by entry 52, List I. In the absence of a declaration as envisaged by entry 52, List I, it is incontrovertible that Parliament has no power to legislate on the topic of industry. Entry 52, List I on its own language does not contemplate a bald declaration for assuming control over specified industries, but the declaration has to be by law to assume control of specified industries in public interest. The legislation enacted pursuant to the power to legislate acquired by declaration must be for assuming control over the industry and the declaration has to be made by law enacted, of which declaration would be an integral part. Legislation for assuming control containing the declaration will spell out the limit of control so assumed by the declaration. Therefore, the degree and extent of control that would be acquired by Parliament pursuant to the declaration would necessarily depend upon the legislation enacted spelling out the degree of control assumed. A mere declaration unaccompanied by law is incompatible with entry 52, List I. A declaration for assuming control of specific industries coupled with law assuming control is ae for taking legislative action under entry 52, List I. The declaration and the legislation pursuant to declaration to that extent denude the power of State legislature to legislate under entry 24, List II. Therefore, the erosion of the power of the State legislature to legislate in respect of declared industry would not occur merely by declaration but by the enactment consequent on the declaration prescribing the extent and scope of control. When a declaration is made as contemplated by entry 52 List T in respect of any particular industry, it is contended that, that industry as a topic of legislation would be removed from the legislative sphere of the stateIf in pith and substance a legislation falls within one entry or the other but some portion of ther of the legislation incidentally trenches upon and might enter a field under another List, the Act as a whole would be valid not with standing such incidental trenching. This is well established by a catena of decisions [see Union of India v. H. S. Dhillon, (1) and Kerala State Electricity Board v. Indian Aluminium Co.(2)]. After referring to these decisions in State of Karnataka &Anr. etc. v. Ranganatha Reddy &Anr. etc.(3) Untwalia, J. speaking for the Constitution Bench has in terms stated that the pith and substance of the Act has to be looked into and an incidental trespass would not invalidate the law. The challenge in that case was to the Nationalisation of contract carriages by the Karnataka State, inter alia, on the ground that the statute was invalid as it was a legislation on the subject of interstate trade and commerce. Repelling this contention the Court unanimously held that in pith and substance the impugned legislation was for acquisition of contract carriages and not an Act which deals withe trade and commerce.To start with, it is necessary first to ascertain in pith and substance to what entry in a particular list the impugned legislation is referable. If it is referable to entry other than 24, List II, such as entry 42, List III, it would be necessary to precisely ascertain whether it in any way trenches upon the field occupied by the declaration made by Parliament to assume control over sugar industry as manifested by the various provisions of the IDR ActPower to acquire coal bearing land owned or possessed by the State of West Bengal was amongst others claimed as an integral element of control acquired by the Union pursuant to a declaration ma de in s. 2 of the IDR Act and Mines and Minerals Act enacted in exercise of the legislative power under entries 52 and 54 respectively as coal was both a declared industry and a specified mineral. This contention was partly accepted to repel the contention that the Union has no power to acquire the property vested in the State since the State itself is also a sovereign authorityThe contention that the property of State cannot be acquired by the Union under entry 42 of List III was repelled. In reaching this conclusion, another contention was rejected which was also advanced before us. viz., that if power of acquisition is treated as an independent power both of the Union and the State and could be exercised by the Unio n and the State with respect to the same property it would lead to such a confusion that there would be no end to it. A picture of fearful constitutional impasse was drawn urging that the State may acquire property of an Industrial undertaking of a declared industry in exercise of the power under entry 42, List III, and the Union may exercise the same power after control is acquired pursuant to declaration made as envisaged in entry 52 in respect of an industry and thisd needs to be averted by harmonious construction and reconciliation of power between the Union and the States. Such a situation is beyond the realm of practical possibility. His wild apprehension stands so effectively answered by West Bengal case (supra) that we cannot improve upon it. Pertinent observation may be extracted:ower to acquire or requisition property may since the amendment, be exercised concurrently by the Union and the States. But on that account conflicting exercise of the power cannot be envisagedBut in the next breath it has been observed that the amount fixed for being paid to the owner is wholly beyond the pale of challenge that it is inadequate. The concept of adequacy is directlyd to the market value of the property and therefore, such value cannot constitute an element of that challenge. But this was the situation after amendment of Art. 31(2) by the ConstitutionAct. Even as the article stood at the relevant time it was open to the legislature to fix principle for determining compensation and unless it is shown that t he principles are irrelevant to the determination of the value of the property or by working out the compensation according to the principles so specified the compensation becomes illusory, the principles themselves are beyond the pale of challenge before a court of law on the ground that they do not provide adequate compensation. Now, here the compensation is worked out and specified in the schedule to the impugned Act. The compensation is determined in round figure. This Court h as in terms accepted that payment of compensation on the basis of written down value calculated according to thex law for used machinery is not irrelevant as a principle for determining compensation. That principle appears to have been adopted for valuing used machinery though the legislation fixes compensation payable to each undertaking in round sum. And that was the only part challenged.It was, however, said that no principle is discernible because not only none was state d on the floor of the House but to a specific question the reply was that principle is not to be disclosed. Debate in legislature cannot conclude the point. Here the principle is discernible and that appears to be valid. It represents the collective will of the House. To reject it would tantamount to saying that the majority members voted without understanding and appreciating the principles. However, the principle is extracted in court room debate and it is a valid principleA peep into the background leading to the acquisition of the scheduled undertakings would reveal that these scheduled undertakings had a heavyd of carried forward loss, that even though they were taking sugar cane from cane growers, i.e. the farmers, they failed to pay them the price of sugar cane. There was labour unrest as labour was not paid. Generally speaking, they can be styled as sick undertakings and become a drag on the economy of the area. There was no s cope for ploughing back the profits to rejuvenate the machinery because there was no profit. The situation had not improved even when managements of some of the undertakings were taken over under the IDR Act and, therefore, this desperate situation called for a drastic remedy in public interest and while applying that drastic remedy of acquisition principles which are valid for determining the value of machinery were adopted. The adequacy or otherwise of compensation on the calculus made by applying the principle is beyond the judicial review. It would be a day time hallucination to call such principle irrelevant or compensation illusory. The challenge to the validity of the impugned legislation on the ground of violation of Art. 31 (2) must accordingly fail.There remain two minor and incidental points mentioned in passing. The submissions themselves lacked emphasis. They are, that:(1) no compensation is provided for the agricultural land taken over by the State;l of the scheduled undertakings was not evaluated as a component of compensationI n each of those cases, the declaration made by Parliament in the concerned enactment limited the control of the regulation of the mines and the development of minerals to the extent provided in the enactment. Whether the terms in which t he declaration has been framed in s. 2 of the Industries (Development and Regulation)a declaration not expressly limiting control of the specific industries to the extent provided by then be construed as being so limited is a matte r which, we think, we should deal with in some more appropriate case. The range of considerations encompassed within the field of enquiry to which the point is amenable has not, to our mind, been sufficiently covered before us. And f or good reason. The provocation was limited. For the controversy in the present cases concerning the legislative competence of the State Legislature to enact the U.P. Sugar Undertakings (Acquisition) Act, 1971 can be adequately disposed of on the ground that the legislation falls within Entry 42 of List III and cannot be related to Entry 52 of List I or Entry 24 of List II. When the impugned enactment truly falls within Entry 42 of Liste is a reluctance to enter upon an examination of the mutually competing claims of Entry 52 of List I and Entry 24 of Lists which deal with industries, an entirely different subjecth this reservation, we have no hesitation in agreeing with the ultimate conclusions reached by our learned brother on the remaining points of controversy and in concurring with the order proposed by him disposing of these appeals and special leave petitions.