Case: Chiranjit Lal Chowdhuri Vs. The Union Of India And Others

The facts urged in the petition and the points raised on behalf of the petitioner before us are fully set forth in the judgments of my brethern, Sastri, Mukherjea and Das JJ., and I do not wish to repeat them here. It is sufficient to say that the main grounds on which the Sholapur Spinning and Weaving Company (Emergency Provisions) Act, 1950 (Act No. XXVIII of 1950), which will hereinafter be referred to as "the Act", has been assailed, is that it infringes three fundamental rights, these beingthe right to property secured by article 31 of the Constitution;(2) the right to acquire, hold and dispose of property, guaranteed to every citizen by article 19(1)(f); and (3) the right to equal protection of the laws, guaranteed by articleis an application presented by one Chiranjitlal Chowdhuri, a shareholder of the Sholapur Spinning and Weaving Company Limited (hereinafter referred to as the company), praying for a writ of mandamus and certain other reliefs under article 32 of the Constitution. The company, which has its registered office within the State of Bombay and is governed by the provisions of the Indian Companies Act, was incorporated with an authorised capital of Rs. 48 lakhs divided into 1590, fully paid up ordinary shares of Rs. 100 each, 20 fully paid up ordinary shares of Rs. 500 each and 32, 000 partly paid up cumulative preference shares of Rs. 100 each. The present paid up capital of the company is Rs. 32 lakhs half of which is represented by the fully paid up ordinary shares and the other half by the partly paid up cumulative preference shares. The petitioner states in his petition that he holds in his own right three ordinary shares and eighty preference shares in the company, though according to his own admission the preference shares do not stand in his name but have been registered in the name of the Baroda Bank Limited with which the shares are pledged. According to the respondents, the petitioner is the registered holder of one single ordinary share in the company.

Reasoning:
I have read the judgment prepared by Mr. Justice Mukherjea. In respect of the arguments advanced to challenge the validity of the impugned Act under articles 31 and 19 of the Constitution of India, I agree with his line of reasoning and conclusion and have nothing more to add. On the question whether the impugned Act infringes article 14, two points have to be considered. The first is whether one individual shareholder can, under the circumstances of the case and particularly when one of the respondents is the company which opposes the petition, challenge the validity of the Act on the ground that it is a piece of discriminatory legislation, creates inequality before the law and violates the principle of equal protection of the laws under article 14 of the Constitution of India. The second is whether in fact the petitioner has shown that the Act runs contrary to article 14 of the Constitution. In this case heaving regard to my conclusion on the second point, I do not think it is necessary to pronounce a definite opinion on the first point. I agree with the line of reasoning and the conclusion of Mr. Justice Mukherjea as regards the second point relating to the invalidity of the Act on the ground that it infringes article 14 of the Constitution and have nothing more toarticle corresponds to the equal protection clause of the Fourteenth Amendment of the Constitution of the United States of America, which declares that "no State shall deny to any person within its jurisdiction the equal protection of the laws". Professor Willis dealing with this clause sums up the law as prevainling in the United States in regard to it in these words :"Meaning and effect of the guarantyThe guaranty of the equal protection of the laws means the protection of equal laws. It forbids class legislation, but does not forbid classification which rests upon reasonable grounds of distinction. It does not prohibit legislation, which is limited either in the objects to which it is directed or by the territory within which it is to operate. It merely requires that all persons subjected to such legislation shall be treated alike under like circumstances and conditions both in the privileges conferred and in the liabilities imposed." The inhibition of the amendment.... was designed to prevent any person or class of persons from being singled out as a special subject for discriminating and hostile legislation. It does not take from the states the power to classify either in the adoption of police laws, or tax laws, or eminent domain laws, but permits to them the exercise of a wide scope of discretion, and nullifies what they do only when it is without any reasonable basis. Mathematical nicety and perfect equality are not required. Similarity, not identity of treatment, is enough. If any state of facts can reasonably be conceived to sustain a classification, the existence of that state of facts must be assumed. One who assails a classification must carry the burden of showing that it does not rest upon any reasonable basis." [Constitutional Law by Prof. Willis, (1st Edition), P. 579. 5 S.C. Indiasummed up the law in this way, the same learned author adds :"Many different classifications of persons have been upheld as constitutional. A law applying to one person or one class of persons is constitutional if there is sufficient basis or reason for it."There can be no doubt that article 14 provides one of the most valuable and important guarantees in the Constitution which should not be allowed to be whittled down, and, while accepting the statement of Professor Willis as a correct exposition of the principles underlying this guarantee, I wish to lay particular emphasis on the principle enunciated by him that any classification which is arbitrary and which is made without any basis is no classification and a proper classification must always rest upon some difference and must bear a reasonable and just relation to the things in respect of which it iscorrect approach to this question is first to see what rights have been conferred or protection extended to persons similarly situated. The relevant protection is to be found in the provisions of the Indian Companies Act which regulates the rights and obligations of the shareholders of incorporated companies in India. Section 21 of the Act assures to the shareholders the protection of the stipulations contained in the memorandum and articles of association by constituting them a binding contract, so that neither the company nor the shareholders have the power of doing anything inconsistent therewith. The basic right of the shareholders to have their undertaking managed and conducted by the directors of their own choice is ensured by section 83B. Their right to exercise control and supervision over the management by the directors by passing resolutions at their general meeting is regulated by various provisions of the Act. The important safeguard of winding up the company in certain unfavourable circumstances either through court or by the shareholders themselves voluntarily is provided for in section 162 andmy opinion, these are rights or privileges which are appurtenant to or flow from the ownership of property, but by themselves and taken independently, they cannot be reckoned as property capable of being acquired, held or disposed of as is contemplated by article 19(1)(f) of the Constitution. I do not think that there has been any restriction on the rights of a shareholder to hold, acquire or dispose of his share by reason of the impugned enactment and consequently article 19(1)(f) of the Constitution is of no assistance to the petitioner. In this view, the other point does not arise for consideration, but I may state here that even if it is conceded for arguments sake that the disabilities imposed by the impugned legislation amount to restrictions on proprietary right, they may very well be supported as reasonable restraints imposed in the interests of the general public, viz., to secure the supply of a commodity essential to the community and to prevent a serious unemployment amongst a section of the people. They are, therefore, protected completely by clause (5) ofmy opinion, this argument has no substance. What the law has attempted to do is to regulate the affairs of this company by laying down certain special rules for its management and administration. It is fully covered by items No. 43 of the Union List which speaks inter alia of "incorporation, regulation and winding up of trading corporations." The result is that the application fails and is dismissed withAs I have arrived at a conclusion different from that reached by the majority of this Court, I consider it proper, out of my respect for the opinion of my learned colleagues, to state the reasons for my conclusions in some detail. On January 9, 1950, theof India, acting under section 42 of the Government of India Act, 1935, promulgated an Ordinance, being Ordinance No. II of 1950, concerning the Sholapur Spinning and Weaving Company, Limited, (hereafter referred to as the said company). The preambles and the provisions of the Ordinance have been referred to in the judgment just delivered by Mukherjea J. and need not be recapitulated by me in detail. Suffice it to say that the net result of the Ordinance was that the managing agents of the said company were dismissed, the directors holding office at the time automatically vacated their office, the Government was authorised to nominate directors, the rights of the shareholders of this company were curtailed in that it was made unlawful for them to nominate or appoint any director, no resolution passed by them could be given effect to without the sanction of the Government and no proceeding for winding up could be taken by them without such sanction, and power was given to the Government to further modify the provisions of the India Companies Act in its application to the saidany event, the petitioner, in my opinion, may well claim to have discharged the onus of showing that this company and its shareholders have been singled out for discriminating treatment by showing that the Act, on the face of it, has adopted a basis of classification which, by its very nature, cannot be exclusively applicable to this company and its shareholders but which may be equally applicable to other companies and their shareholders and has penalised this particular company and its shareholders, leaving out other companies and their shareholders who may be equally guilty of the alleged vice of mismanagement and neglect of the type referred to in the preambles. In my opinion the legislation in question infringes the fundamental rights of the petitioner and offends against article 14 of our Constitution.