Case: Kamla Prasad Khetan Vs. The Union Of India(And Connected Petitions)

1. On 8.11.1955, the Ministry of Commerce and Industry, Government of India published a notified order, in exercise of the powers conferred on that Government by section 18A ofthe Industries (Development and Regulation) Act,1951,hereinafter referred to as the Act, authorising one Shri Kedar Nath Khetan of Padrauna, called the authorised Controller, to take over the management of Ishwari Khetan Sugar Mills Ltd., Lakshmiganj, Dedoria, subject to certain conditionsThe order as originally passed and published was to have effect for a period of one year only, commencing on the date of its publication in the official gazette. On 7-11-1956, there was an amendment of that order. The amendment was published in notification No. 338-A of even date and stated in effect that in stead and place of the words one year occurring in the order, the word two years shall be substituted2. Petitioner No. 1 before us is one Kamalaprasad Khetan, who states that he is Director and shareholder of the second petitioner, which is the Ishwari khetan Sugar Mills Ltd. The Union of India was and is the only respondent. By an order dated 1-10- 1956, this Court permitted the said authorised Controller to intervene, with the result that both the Union of India and the authorised Controller have been heard in opposition to the petition. The substantial case of the petitioners is that the order referred to above dated 8-11-1955, and the amending order dated 7-11-1956, are invalid in law and bad on certain other grounds to be stated presently, and it is not open to the Central Government to interfere with the fundamental right of the petitioners to hold and manage their property on the strength of the said invalid orders; the petitioners therefore pray for the issue of appropriate writs or directions to quash those orders3. Short and simple as the case of the petitioners appears to be at first sight, it is necessary to refer to a background of certain antecedent facts for a proper understanding and appreciation of the issues involved in the present dispute between the parties. The Ishwari Khetan Sugar Mills Ltd., is a public limited Company, in which four branches of a family known as the Khetan family held a large number of shares and only about one-fourth of the shares were held by outsidersThe Company was managed by a firm of Managing Agents, subject to supervision by the Directors. Four members of the Khetan family constituted the Managing Agency firm, of which Kedar Nath (later appointed as the authorised Controller) was one and Onkarmal Khetan (now deceased), father of petitioner Kamla Prasad Khetan, another. The Managing Agents managed two Mills, known as the Ishwari Khetan Sugar Mills Ltd., Lakshmiganj, and the Maheshwari Khetan Sugar Mills Ltd., Ramkola, District Deoria. We are concerned in the present case with the Ishwari Khetan Sugar Mills Ltd. The Managing Agents were also partners in the firm of managing agents of certain other companies, namely, Morarji Gokul Das Spinning and Weaving Mills, Bombay, and Laxmidevi Sugar Mills Ltd., Deoria. In the affidavit in opposition filed on behalf of the authorised Controller, it is stated that the Khetan family was in the beginning a mere trading family, but "due to the initiative, business acumen and imagination of Rai Bahadur Kedar Nath Khetan, various manufacturing concerns including several sugar factories grew up"; and it was under his direction that the other members of the family, including Onkarmal Khetan, were put in charge of the day-to- day routine administration of one business or the otherThere was a Provision in the Managing Agency agreement under which every member of the firm of Managing Agents was authorised to exercise all the powers of the Managing Agents. According to the case of the authorised Controller, trouble arose between the members of the different branches of the family of Managing Agents sometime in 1950-51 when it came to light that Onkarmal Khetan had surreptitiously withdrawn large sums of money from the accounts of the various businesses in which the members of the Khetan family were interested as Managing Agents, and this led to certain suits being instituted against Onkarmal KhetanThe latter, in his turn, retaliated by bringing suits, for the appointment of a Receiver, or for restraining the holding of a general meeting of one of the mills, and instituting certain other proceedings stated to be of an obstructive nature and calculated to create an impasse in the working of the mills4. The petitioners on the contrary alleged that when the balance sheet of the Ishwari Khetan Sugar Mills Ltd., for the financial year 1950-51 was published in June 1952, it was discovered that some of the Directors including the authorised Controller had utilised the funds of the Company for their personal gain and had committed breaches of certain provisions of the Indian Companies Act. This led to Suit No.4 of 1952 brought by the petitioners against some of the Directors, including the authorised Controller, for an order of permanent injunction restraining the said Directors from exercising any power as Directors of petitioner No. 2 and also for a declaration that a notice calling the twenty fourth ordinary general meeting of the Company to be held on 9-7-1952, was illegal and invalidIn that suit, an ex parte order of injunction was made against the Directors concerned on 8-7-1952. That order was, however, subsequently vacated as being without jurisdiction and a fresh order was made on 3-6-1953. In the affidavit filed on behalf of the authorised Controller, it has been stated that on legal advice obtained by the defendants of that suit to the effect that the ex parte order of injunction dated 8-7-1952, was without jurisdiction, the twenty-fourth ordinary general meeting of the Company was held on 9th July 1952, and the shareholders unanimously passed a resolution in that meeting approving and adopting the Directors report and the audited balance sheet of the Company as on 9th October 1951The fresh temporary order of injunction which, was passed by the Civil Judge, Deoria, on 3rd June 1953, was confirmed by the High Court of Allahabad by its order dated 14th September 1953. Feeling that the order of stay would completely dislocate the affairs of the Company, the share-holders themselves called an extraordinary general meeting which was held on 9th November 1953, and at that meeting the authorised Controller and certain other persons were re-elected as Directors of the Company, subject to the condition that if the Court decided in Suit No. 4 of 1952 that the said Directors had not ceased to be Directors, the resolution would be ineffectual to that extentThere were several proceedings in the High Court of Allahabad in connection with Suit No. 4 of 1952, and in one of them the High Court was moved for an expeditious hearing of the suit, and such a direction was made by the High Court. Unfortunately, however, for reasons which need not be stated here, suit No. 4 of 1952, is still awaiting trial and on 31st July 1956, petitioner No. 1 obtained an ex parte order from the said High Court adjourning the hearing of the suitThe case of the authorised Controller is that petitioner No. 1 having realised that he is not supported by the majority of share holders and cannot therefore legally represent the Company, is delaying the hearing of suit No. 4 of 1952 on one ground or another5. While all this legal tussle, with allegations and counter allegations made by the parties, was going on in the arena of the Courts of law, certain other events happened to which a reference must now be made. The petitioners allege that the authorised Controller, finding that the majority of the share-holders and Directors were not in favour of his managing the Ishwari Khetan Sugar Mills Ltd. moved the Ministry of Food, through his grandson Durga Prasad Khetan and another gentleman related to him, for passing orders under Ss. 15 and 17 of the Act. On 8th November 1952, a communication was received from the Ministry of Food and Agriculture, Government of India, wherein was stated;"The Government of India consider that if on account of the failure of the parties concerned to compose their differences and inability to take timely and proper steps to arrange for normal working of the mills, the mills are not able to start work in time during the 1952-53 season, or are unable to work at all, it will result in substantial fall in the production of sugar without due justification. Such a result will lead to the conclusion that the mills are being managed in a manner likely to damage the interests of a substantial body of consumers besides cane growers and mill workers."The communication concluded with the statement that, in the circumstances stated above, the Government of India would be constrained to order an investigation into the matter and, it necessary, to undertake the management of the said mills. It may be stated here that the communication was in respect of both the Ishwari Khetan Sugar Mills Ltd. and the Maheshwari Khetan Sugar Mills Ltd6. On 18th December 1952, the Central Government did actually pass an order under sub-s. (4) of S. 3 of the Essential Supplies (Temporary Powers) Act, 1946, under which the authorised Controller was empowered to exercise certain functions of control in respect of the Ishwari Khetan Sugar Mills Ltd., the functions of control being stated in detail in notification No. S. R. O. 2073 of even dateOn 23rd December 1952, Onkarmal filed a writ petition to this Court against the aforesaid order of the Central Government and asked for an interim direction staying the operation of the order. This Court gave a direction expediting the hearing of the petition, and further directed that the accounts of the petitioner Company be audited periodically by a Government or private auditor at the instance of OnkarmalThe writ petition itself could not, however, be heard in time and was later dismissed on 14th May 1954, as having become infructuous in the meantime. On 30th July 1953, the Central Government passed an order under S. 15 of the Act in respect of several mills, including the Ishwari Khetan Sugar Mills Ltd. Under that order the Central Government appointed three independent persons for making a full and complete investigation into the circumstances of each of the industrial undertakings referred to thereinThen, on 14th November 1953, the Central Government made an order under S. 18A of the Act, by which the authorised Controller was appointed to take over the management of the Ishwari Khetan Sugar Mills Ltd. It may be stated here that the Act was amended in 1953 by Act 26 of 1953. By that amendment, S. 17 was omitted and a new chapter, viz., chap. IIIA, was inserted. This new chapter contained S. 18A under which the Central Government passed its order dated 14th November 1953The order stated that it shall have effect for a period of one year. In December 1953 came the decision of this Court in Dwarkadas Shrinivas of Bombay v. Sholapur Spinning and. Weaving Co. Ltd., 1954 S C R 674; (AIR 1954 S C 119) (A). The decision pronounced on Art. 31 (2) of the Constitution with reference to the validity of the Sholapur Spinning and Weaving Company (Emergency Provisions) Ordinance II of 1950 and Act XXVIII of 1950As a result, presumably, of that decision, on 21st May 1954, the Central Government cancelled all appointments of authorised Controllers under the provisions of the Act, and on such cancellation the management of the industrial undertaking vested again in the owner of the undertaking. The case of the petitioners is that in spite of the cancellation the authorised Controller continued to remain in possession of the undertaking in questionOn 16th July 1954, the Central Government again passed an order under sub-s. (4) of S. 3 of the Essential Supplies (Temporary Powers) Act, 1940, thereby again giving the authorised Controller certain functions of control in respect of the Ishwari Khetan Sugar Mills Ltd. On 19th September 1954, there was another investigation under S. 15 of the Act by a panel of officers and it is stated that they recommended that the Central Government should take over the management of the Mills for a period of three yearsOn 31st January 1955, the present petitioners filed a writ petition in this Court in respect of the order passed by the Central Government on 16th July 1954. This is the writ petition which, after necessary amendments, is now under consideration before us, the amendments having been necessitated by reason of certain subsequent notifications made by the Central Government.These subsequent notifications are:(1) The notification made on 8th November 1955, by which the earlier order made on 16th July 1954, was cancelled and a fresh order made under S. 18A of the Act; and, (2) the amending order dated 7th November 1956 - to both of which a reference has been made in the first paragraph of this judgment. By reason of these subsequent notifications, the order dated 16th July 1954, on longer exists, and the writ petition which was originally directed against that order stands in need of amendment7. The petitioners have prayed for an amendment of the original writ petition and also for permission to urge fresh grounds to challenge the validity of the two notified orders, one dated 8th November 1955, and the other dated 7th November 1956. By an order of the Judge-in-Chambers dated 18th February 1957, the petition for amendment and for urging additional grounds was directed to be heard along with the main petition under Art. 32. But before that date, i.e., on 5th November 1956, when the stay application of the petitioners was heard, the following direction was given by this Court:"The hearing of the main petition under Art.32 to be expeditedIt will be open to the petitioners to challenge that the appointment of R. D. Kedar Nath Khetan, if again made, is also badIn view of the aforesaid directions, we have treated the main petition under Art. 32 as a petition against the latest orders passed by the Central Government appointing the authorised Controller to take over the management of the undertaking, and we have also permitted the petitioners to urge fresh grounds in support of their petition8. Having indicated in the preceding paragraphs the necessary background against which the dispute between the parties has to be considered, we proceed now to a consideration of the grounds on which the petitioners challenge the validity of the orders dated 8th November 1955, and 7th November 1956. It is necessary to clear the ground by stating at the very outset that learned counsel for the petitioners has not challenged the validity of S. 18 A of the Act under which the impugned orders were madeWe have already stated that chap. IIIA of the Act was inserted by the amending Act 26 of 1953Article 31B of the Constitution was enacted by the Constitution (First Amendment) Act,1951,which states, inter alia, that none of the Acts and Regulations, specified in the Ninth Schedule nor any of the provisions thereof shall be deemed to be void, or ever to have become void, on the ground that such Act, Regulation or provision is inconsistent with, or takes away or abridges an of the rights conferred by any provisions of this Part (meaning Part III) of the ConstitutionThe Ninth Schedule was added to by the Constitution (Fourth Amendment) Act, 1955. Item No. 19 of the Ninth Schedule is now chap. IIIA of the Act as inserted by the Industries (Development and Regulation) Amendment Act, 1953. Learned counsel for the petitioners has frankly conceded that in view of these amending provisions, he is not now in a position to challenge the validity of S. 18A of the Act

Court's reasoning:
The Central Government very rightly pointed out in their letter dated 8th November 1952, that the result of the differences between the parties was likely to be a stoppage of the mill and a fall in the production of sugar with consequential detriment to the interests of the industry concerned and the interests of a substantial body of consumers, cane growers and mill workersIn view of the litigation which was pending between the parties, the likelihood of the dangers at which the Central Government hinted in 1952 must have continued to exist, as long as the management was not fully and completely taken over by the authorised Controller. In December 1952, the order passed under the Essential Supplies (Temporary Powers) Act, 1946 marely gave some functions of control to the authorised Controller; it did not vest the management in himSub-section (4) of S. 3 of the Essential Supplies (Temporary Powers) Act, 1946 authorises the Controller to exercise, with respect to the whole or any part of the undertaking such functions of control as may be provided by the order; S. 18A of the Act is in wider terms and empowers the Central Government to authorise any person or body of persons to take over the management of the whole or any part of the undertaking or to exercise in respect of the whole or any part of the undertaking such functions of control as may be specified in the order16. We agree with learned counsel for the petitioners that the power to amend, which is included in the power to make the order, is exercisable in the like manner and subject to the like sanction and conditions (if any) as govern the making of the original order; this is stated by the section itself.It becomes necessary, however, to understand clearly the true nature of the conditions which have to be fulfilled before an order under cl. (b) of sub- s. (1) of S. 18 A of the Act can be madeIf these sections 15, 16 and 18A, are read together, as they must be read, then it becomes at once clear that the conditions as to the management of the industrial undertaking in a manner highly detrimental to the scheduled industry concerned or to public interest relates in its true scope and effect to a period when the management of the industrial undertaking is in the hands of its owner, that is, to a period before the management of the whole or any part of the undertaking is taken overSimilarly, with regard to the exercise of functions of control, which also is contemplated by S. 18A of the Act, the condition again relates to a period before the functions of control are taken over. It would, in our opinion, be, illogical and against the terms of Ss. 15, 16 and 18A of the Act to hold that the condition as to mismanagement (using the word mismanagement for the purpose of breivity and convenience, for the correct expression, namely, management in a manner highly detrimental to the scheduled industry concerned or to public interest) can apply after the management has been taken over and during the period of its management by the authorised ControllerIf the argument of learned counsel for the petitioners is correct, then no amendment can be made unless the test of mismanagement is again fulfilled;but how can such a test be fulfilled when the mismanagement was in the hands of the authorised Controller till he died, the authorised Controller being more or less in the position of an agent of the Central Government?The argument of learned counsel for the petitioners, pushed to its logical extreme, will thus result in an absurdity and no amendment will ever be possible. We consider that both these are extreme views. On a proper construction of Ss. 15, 16 and 18A of the Act, the correct view appears to be what we have stated earlier, namely the two conditions, one as to an investigation under S. 15 and the other as to mismanagement relate to a period when the management of the industrial undertaking is legally vested in its owner, and S. 18A must be read, with reference to the two conditions stated in cl. (b) of sub-s. (1), as though the words while the undertaking is vested in its owner are present in the clauseIf, as in this case, the management is once taken over by an order under S. 18A but the order is later cancelled and the management again vests in the owner, the two conditions must be fulfilled again before an order under cl. (b) of sub-s. (1) of S. 18 A of the Act can bemade.That is what happened in the present case. The management was taken over on 14th November 1953, but the order was cancelled on 21st May 1954, and the management vested in the ownerAn investigation under S. 15 of the Act was again made in September 1954 and the Central Government, being satisfied that the industrial undertaking was being mismanaged in spite of the order under the Essential Supplies (Temporary Powers) Act made on 16-7-1954, passed the impugned order on 8-11-1955. So far as the amending order of 7-11- 1956, was concerned, the like conditions still continued to exist and there was no necessity for a fresh investigation etc., because the management had not since 8-11-1955, vested in the owner, and by their very nature the conditions continued to exist till the management went into the hands of the owner againIt is to be remembered that S. 21 of the General Clauses Act embodies a rule of construction, and that rule must have reference to the context and subject-matter of the particular statute to which it is being applied; for example, S. 18A of the Act does not prescribe any conditions for the cancellation of an order made under that section, but S. 18F does and the power of cancellation referred to in S. 21 of the General Clauses Act must have reference to S. 18F. Similarly, an order of amendment made becomes an order under S.18A and is subject to all the conditions mentioned therein, including the condition mentioned in sub-s. (2)It is sufficient to state that the selection of a suitable person to be the authorised Controller rests with the Central Government and it may be presumed that the Central Government knows best the needs of the particular industry and of its own subjects and the suitability of the person to be appointed as authorised Controller.Having regard to the facts and circumstances to which we have already made a reference, it cannot be said that the appointment of Kedar Nath Khetan as the authorised Controller in this particular case was made for some ulterior purport, that is, a purpose other than the purpose of achieving the objects for which the impugned order was passedThe primary concern of the Central Government was to see that the mills were managed in a manner which was not detrimental to public interest, and having regard to the experience of Kedar Nath Khetan in the industry in question, it was open to the Central Government to select him as the most suitable person to be appointed as the authorised Controller, notwithstanding that he was a party to the disputeThe test to be applied in cases of this nature, where lack of good faith in the Central Government is pleaded, is not whether better or more independent man was or might be available; nor is it the duty of the Court to subject the selection made by the Central Government to another and independent test of propriety and suitability, for the Court has really no materials for such a testThe test to be applied is whether the appointment was made for some ulterior purpose, some purpose other than the object for which the law, under which the impugned order is made, was enacted. In our view, the petitioners have completely failed to satisfy that test in the present case23. In conclusion, it may be stated that on behalf of the authorised Controller a preliminary objection was also taken that petitioner No. 1 was not legally competent to represent petitioner No. 2. Having regard to our decision on merits, it is unnecessary to say anything more about this preliminary objection. It was stated at the Bar that this preliminary objection has also been taken in Suit No. 4 of 1952. As that suit is till pending, we have thought if fit to refrain from expressing any opinion on the preliminary objection.