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

As a sequel to the serious problems created by the owners of certain sugar mills in the State of Uttar Pradesh for cane growers and labour employed in sugar mills, having an adverse impact on general economy of the areas where these sugar mills were situated And with a view to ameliorating the situation posing a threat to the economy, the Governor of Uttar Pradesh promulgated an ordinance on July 3, to 1971, styled as U.P. Sugar Undertaking (Acquisition) ordinance. 1971 (13 of 1971) (ordinance for short), with a view to transferring and vesting sugar undertakings set out in the Schedule to the ordinance in the U.P. State Sugar Corporation Ltd. (Corporation for short), a Government Company within the meaning of s. 671 of the Companies Act, 1956. Subsequently, by U.P. Sugar Undertakings (Acquisition) Act, 1971, (U.P. Act 23 of 1971) (Act for short), the ordinance was repealed and was replaced. Schedule to the Ac t enumerates 12 sugar undertakings (referred to as scheduled undertakings) and by the operation of s. 3, these scheduled undertakings stood transferred to and vested in the Corporation from the appointed day, i.e. July 3, 1971, the date on which the ordinance was issued. On the promulgation of 7 the ordinance 11 writ petitions were filed in the Allahahad High Court under Article 226 of the Constitution challenging the constitutional validity of the ordinance and when the A ct replaced the ordinance effective from August 27, 1971, the writ petitions were amended incorporating the challenge to the Act also. The ordinance and the Act were challenged in the High Court on the following grounds:(1) The State legislature had no legislative competence to enact it;(2) The Act violated Art. 31 of the Constitution because the acquisition was not for a public purpose and the compensation proposed in the Act was illusory;(3) The Act was in breach of Art. 19(1)(f) and (g) of the Constitution;(4) The Act infringed the guarantee of equality enshrined in Art. 14 of the Constitution.

Reasoning:
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.