Case: Assam Sillimanite Limited and Another Vs. Union of India and Others

Assam Sillimanite Limited is a public limited company mainly carrying on the business of mining and export of Natural Khasi Sillimanite. The Company in pursuance to the condition in the lease deed dated63 established a Refractory Plant for manufacturingm and other associate minerals at Ramgarh in the State of Bihar. The initial investment was Rs1.75 crores. The Refractory Plant went into operation in the year 1964 and was closed down in JulyThe Undertaking was taken over by the Central Government under Sectionof the Industries (DevelopmentRegulation) Act for a period of three years which was extended for a further period of one year with effect from2. Later, by the Assam Sillimanite Limited (AcquisitionTransfer of Refractory Plant) Act, 1976(in short the Act), the plant was acquired by theThe Act received assent of the President on February 11,The Act provides for the acquisition and transfer of the right, title and interest of the Assam Sillimanite Limited in respect of its Refractory Plant and for matters connected therewith or incidental thereto. The Preamble of the Actit is urgently necessary to augment the supplies of refractories to meet the essential requirements of the iron and steelal type of refractories, including highrefractories, needed by the iron andindustry may be manufactured at the Refractory Plant of the Assam Sillimanite Limited and such manufacture will enable the country to progressively reduce the import of such special type ofs for thepurpose of augmenting the supplies of refractories to meet the essential requirements of the iron and steel industry, it is necessary to acquire the right, title and interest of the Assam Sillimanite Limited in respect of its Refractoryit enacted by Parliament in theyear of the Republic of India as follows.Sections 3, 9 and 10 relevant for the purpose of the present case are asnt to vest in the CentralOn the appointed day, the Refractory Plant shall, by virtue of this Act, stand transferred to, and the right, title and interest of theCompany in relation toits Refractory Plant shall vest absolutely in, the Central Government.Amount to be paid for transfer and vesting of Refractory) The Company shall be given by the Central Government in cash and in the manner specified in Chapter VI, an amount of one crore seven lakhs and seventeen thousandfer to, and vestingit, under Section 3 of the RefractoryThe amount payable under(1) shall carry simple interest at the rate of four per cent per annum for the period commencing on the appointed day and ending on the date on which payment of such amount is made by the Central Government to theFor the removal of doubts, it is hereby declared that the liabilities of theCompany in relation tothe Refractory Plant, other than those referred to in(2) of Section 8, shall be met from the amount referred to in(1), in accordance with the rights and interests of the creditors of the. Payment of other amount.(1) In addition to the amounts specified in Section 9, there shall also be given to the Company, in cash, by the Central Government an amount computed at the rate of rupees two thousand and five hundred per mensem for the deprivation of the Company of the management of its Refractory Plant during the period commencing on theday of November, 1972, and ending on the appointedIn addition to the amount referred to in(1), there shall be given by the Central Government, in cash, to thesimple interest at the rate of four per cent per annum on the amount computed at the rate specified in(1), for the period commencing on the appointed day and ending on the date on which payment of such amount is made by the Central Government to the Commissioner.Section 30 contains the declaration as to the policy of the StateDeclaration as to the policy of theIt is hereby declared that this Act is for giving effect to the policy of the State towards securing the principles specified inle 39 of the Constitution."The constitutional validity of the Act was challenged by the Assam Sillimanite Company Limitedy) in a writ petition filed before the Delhi High Court. By the impugned judgment dated6, a Division Bench of the High Court dismissed the writ petition. This appeal by special leave is directed against the aforesaid judgment (reported inv. Union of India. Before the High Court, the appellant challenged the validity of the Act mainly on) The Central Government could not pass an order under Sectionof the Act without furnishing of the materials collected against the Company and affording them an opportunity to explain the circumstances sought to be relied upon against the Company. The action is mala fide inasmuchme plant thehas been negotiating with the Company to purchase for the benefit of Bokaro Steels Limited and Hindustan SteelsThe acquisition of plant under the Act is mala fide and is nothing but colourable exercise of jurisdiction. The Act has been passed when the matter relating to taking over of the management was subThe amount of price payable under the Act is only illusory. The respondents have not taken into consideration the assets and liabilities of the plant while fixing the amount of compensation. Thehad ploughed all the resources in theand will never be able to clear its liabilities incurred for the setting up of the plant which was put as a condition attached to the mining lease forand the lease has also been prematurely and illegallyThe fixation or the determination of the amount is based on no norm or principle relevant for the purpose of arriving at the amount payable or in respect of the property acquired or requisitioned. The amount so fixed has no reasonable relationship with the value of the property. The amount has been fixed arbitrarily and, as stated, is illusory. The amount so fixed is a fraud on the power, denying the petitioner his fundamental right under Article 31(2) of theThe appellant prayed for a writ in the nature of certiorari quashing the Act and a writ in the nature of mandamus directing the respondents tothe amount of price payable taking into consideration theand liabilities, potentialities and the present marketThe High Court formulated the following two questions forWhether the amount of Rs0 which is made payable to theby the Central Government under Section 9 of the Act and the other amounts payable under Section 10 of the Act is arbitrary, unreasonable and illusory and violating Article 31(2) of the Constitution as it stands after the Constitution (Twentyfifth)Whether its constitutionality is not immune from attack in view of Article 31C because in reality it does not give effect to the policy of the State towards securing the principles specified in(b) of Article 39 despite the declaration to that effect contained in Section 30 of the ActApplying the ratio of the majority judgment in Kesavananda Bharati v. State of KeralaBharati v. State ofSCC 225, that a law can be challenged as being contrary to Article 31(2) of the Constitution only if the amount payable under it is illusory and that the amount should bear some relation to the value of the property acquired though the relationship need not be reasonable, the High Court embarked upon the issue whether the amount fixed in the Act is not illusory but also has a reasonable relationship to the value of the property and is not unreasonable. The High Court saidn our view, the amount can be said to be inadequate or small but it cannot be said that it has no relationship to the value of the property acquired. It cannot, therefore, be said to be illusory in the sense in which the word illusion is defined in the Concise Oxford Dictionary or in the sense in which the word amount has been used by Chandrachud, J. The attack on theconstitutionality of theimpugned law on the ground that it contravenes the concept of amount inArticle 31(2) of the Constitution, therefore, fails."

Reasoning:
The extent and scope of judicial review ofwhere there is a declaration under Article 31C of the Constitution which enjoins that no law containing a declaration that it is for giving effect to such a policy shall be called in question in any Court on the plea that it does not give effect to such a policy has been considered in Kesavanandai v. State ofSCC 225. On an analysis of the majority judgment therein Sabyasachi Mukharji, J. (as he then was) observed in Tinsukhia Electric Supply Company casethat the declaration in Article 31C does not exclude the jurisdiction of the Court to determine whether the law is for giving effect to the policy of the State towards securing the principles specified in39(b) and (c). Mathew, J. had observed in Kesavanandai v. State ofSCC 225that in order to decide whether a law gives effect to the policy of the State towards securing the directive principles specified in Article 39(b) or (c), a Court will have to examine the pith and substance, the true nature and character of the law as also its design and the subjectmatter dealt with by it together with its object and scope. If a law passed ostensibly to give effect to the policy of the State is, in truth and substance, one for accomplishing an unauthorised object, the Court would be entitled to tear the veil created by the declaration and decide according to the real nature of theIt is, therefore, necessary notwithstanding the declaration contained in Section 30 of the Act, to consider whether there is a nexus between the Act and the policy of the State declared in Article 39(b) or (c). The test to determine whether the law is enacted for giving effect to a directive is to determine whether there is real and rational connection between the law andWe shall therefore examine the provisions of the Act for the purpose of satisfying whether the Act furthers the policy stated in(b) of Article 39 as declared in theThe State under(b) of Article 39 is required to direct its policy towards securing that the ownership and the control of material resources of the community are so distributed as best to subserve the common good. The purpose sought to be achieved by the enactment is the augmentation of the supplies of refractories to meet the essential requirements of the iron and steel industry. It cannot be disputed that iron and steel industry is crucial in theprocess. With the expansion of iron and steel industries, the requirement of the necessary ingredients are bound to grow and the plants for manufacture of such ingredients have necessarily to be harnessed to meet such requirements. The key words material resources of the community and distribution occurring in(2) of Article 39 have been interpreted in the earlier decisions of thisIn State of Karnataka v. Ranganatha Reddythe Karnataka Contract Carriages Acquisition Act, 1976 for nationalisation of contract carriages in the State was challenged on the ground that there is no real and substantial nexus between the purpose of the acquisition and securing the principles specified in Article 39. The Court said at page 515 thus1 andmaterial resources of the community in the context of reordering the national economy embraces all the national wealth, not merely natural resources, all the private and public sources of meeting materialneeds, not merely public possessions.of value or use in the material world is material resource and the individual being a member of the community his resources are part of those of the community....y innationalisation of transport as a distributiveood of the community."v. Abu Kavur Bai [it was held that material resources as enshrined in Article 39(b) are wide enough to cover not only natural or physical resources but also movable or immovable properties, such as the vehicles, tools, implements and theetc. It was also held that the nationalisation of the transport would undoubtedly be a distribution for the common good of the people and would be clearly covered by(b) of ArticleIn Sanjeev Coke Manufacturing Companythe constitutional validity of Coking Coals Mines (Nationalisation) Act, 1972 and the Coal Mines (Taking Over of Management) Act, 1973 was under challenge. The Court said that when Article 39(b) refers to material resources of the community, it does not refer only to resources owned by the community as a whole but it refers also to resources ownedl members of the community. The Court also held that the expression material resources of the community is not confined to natural resources; it is not confined to resources owned by the public; it means and includes all resources, natural andpublic and privateTherefore, all things which are capable of producing wealth for the community would be material resources. The conservation of the essential ingredients necessary for the crucial iron and steel industry by nationalisation ison of the policy declared in(b) of ArticleIn the recent decision of this Court in Tinsukhia Electric Supply Companythe Tinsukhia Electric Supply Undertaking (Acquisition) Act, 1973 was challenged as unconstitutional. The contention that the Act was entitled to the protection under Article 31C was upheld pointing out that electric energy generated by the supplier companies constitute material resources of the community within the scope and meaning of Article 39(b) and having regard to the true nature and purpose of the legislation the objects of the legislation have a direct and reasonable nexus with the objective of distributing the material resources so as to subserve the commonThe Act is declared to have been enacted for giving effect to the policy of the State towards securing principles specified in(b) of Article39. The Preamble of the Act refers to the necessity to augment the supply of refractories to meet the essential requirementsof the iron and steel industry. Itfurther states that special type of refractories including highrefractories needed by the iron and steel industry may be manufactured at the Refractory Plant of Assam Sillimanite Limited and such manufacture will enable the country to progressively reduce the import of such special type of refractories. The Act purports to have been enacted for acquiring the plant for the purpose of augmenting the supplies of refractories to meet the essential requirements of the iron. We are, therefore, of the view that the plant as well as the manufactured refractories constitute material resources of the community and theof the plant to augment the supplies of refractories to meet the essential requirements of the iron and steelic interest ensures distribution as best to subserve the common good. The impugned Act which is intended to augment the production and supply of refractories to meet the essential requirements of the crucial iron and steel industry is a measure towards implementation of the policy contained in(b) of Article39. There is, therefore, direct and rational nexus between the objective of the enactment and the principles contained in thatThe Act in this view is entitled to the protection under ArticleAn argument has been advanced on behalf of thethat if the compensation is not only illusory but producing negative result, then the protection of Article 31C is not availableto the impugnedlegislation. We find no merit in this argument. When Article 31C is attracted, the argument in regard to the alleged illusory nature of the amount does not survive at all for consideration. If once the conditions mentioned in Article 31C are fulfilled by the law, no question of compensation arises because the said article expressly excludes not only Articles 14 and 19 but also 31. When Article 31C comes in, Article 31 goes out