Case: Dwarkadas Shrinivas Of Bombay Vs. The Sholapur Spinning &amp; Weaving Co.Ltd., And Others

3. The appeal concerns the validity of the same piece of legislation that was considered by this Court1951 SC 41 (B). there an ordinary shareholder of the defendant company holding one fully paid up share claimed relief under Art. 32 of the Constitution of India on the ground that the provisions of the Sholapur Spinning and Weaving Company (Emergency Provisions) Act, XXVIII of 1950 abridged his fundamental rights conferred under Articles 14, 19 and 31 of the Constitution.This Court by a majority of 3 to 2 dismissed the petition holding that the presumption in regard to the constitutionality of the Act had not been displaced by the petitioner and that it had not been proved that the impugned statute was a hostile or a discriminatory piece of legislation as against him, or that the State had taken possession of his share. The minority held that the impugned statute was void as it abridged the petitioners fundamental rights under Art. 14 of the Constitution. This decision was delivered on 4th December 1950.4. The suit out of which this appeal arises was decided by the High Court of Bombay during the pendency of Chiranjit Lal Chowdhuris petition in this court. Most of the facts furnishing the cause of action for the suit have been detailed in the judgment of this Court in that case, but it seems necessary to brieflythem for a proper appreciation of the contentions that have been raised in the appeal.5. The Sholapur Spinning and Weaving Co. Ltd., was incorporated under the Indian Companies Act with an authorised capital of Rs. 48 lakhs divided into 1,590 fully paid up ordinary shares of Rs. 1,000 each, 20 fully paid up ordinary shares of 500 each and 32,000 partly paid up cumulative preference shares of Rs. 100 each, the paid up capital of the company being Rs. 32 lakhs comprised of Rs. 16 lakhs fully paid up ordinary shares and Rs. 16 lakhs partly paid up preference shares, Rs. 50 being unpaid on each of the 32,000 cumulative preference shares. The company did good business and declared high dividends for some time but in the year 1949, there was accumulation of stocks and financial difficulties.In order to overcome this situation the directors decided to close the Mills and on the 27th July 1949 they gave notice of this decision to the workers. Pursuant to this notice the Mills were closed on the 27th August 1949. This created a labour problem and to solve it the Government on the 5th October 1949 appointed a Controller to supervise the affairs of the Mills under the Essential Supplies Emergency Powers Act, 1946. On the 9th November 1949, the Controller in order to resolve thedecided to call in more capital and he asked the directors of the company to make a call of Rs. 50 per share on the preferencethe amount remaining unpaid on each of the preference shares. The directors refused to comply with his requisition, as in their judgment that was not in the interests of the company.Thereupon theon the 9th January 1950, promulgated the impugned Ordinance, under which the Mills could be managed and run by directors appointed by the Central Government. On 9th January 1950 the Central Government acting under Section 15 of the Ordinance delegated all its powers to the Government of Bombay. The Government of Bombay then appointed certain directors who took over the assets and management of the Mills. On the 7th February 1950 they passed a resolution making a call of Rs. 50 on each of the preference shares payable at the time stated in the resolution. Pursuant to this resolution a notice was addressed on the 22nd February 1950 to the plaintiff in the suit, who held preference shares, to pay Rs. 1,62,00/the amount of the said call on or before the 3rd April 1950.The plaintiff instead of meeting the demand filed the present suit on the 28th March 1950 in a representative capacity on behalf of himself and other preferenceagainst the company and the directors appointed by the Government of Bombay challenging the validity of the Ordinance and questioning the right of the directors to make the call. On the 19th April 1950, a notice was given to theof India of the said suit and the Union of India was added as defendant No. 9 therein.6. The principal allegations in the suit were that the Ordinance was illegal, ultra vires and invalid as it contravened the provisions of Section 299 (2) of the Government of India Act, 1935, and all the provisions contained in Part III of the Constitution, and that the resolution of the directors dated 7th February 1950 making a call was illegal and ultra vires, as the law under which they were appointed was itself invalid. The plaintiff claimed relief in the form of a declaration regarding the invalidity of the Ordinance and prayed for an injunction restraining the directors from giving effect to the resolution. The defendants denied the correctness of the contentions put forward by the plaintiff.7. Mr. Justice Bhagwati who tried the suit, framed the following issues thereinWhether by the Ordinance the plaintiff and holders of preference shares have been deprived of their interest in the 1st deft. company by taking possession of or requisitioning or acquiring the same as alleged in para 6 of the plaint;2. Whether S. 4 (d) of the Ordinance is illegal ultra vires., and void in law as alleged; and3. Whether the resolution dated the 7th February 1950 made by defendants 2 to 6 is illegal, ultra vires, avoid and inoperative in law for the reasons mentioned in para 6 of the plaint or any ofhis judgment dated the 28th June 1950 the learned Judge answered all the three issues in the negative and dismissed the suit, and this decision was affirmed on appeal. It was held that by force of the Ordinance the State had neither acquired the property of the plaintiff, nor of the company, nor had it taken possession of it, but that the title to the property and its possession of it, but that the title to the property and its possession were with the respective owners, and the State was only supervising the affairs of the company through its nominated directors.It was further held that the Ordinance had not in any manner infringed the rights of the plaintiff under Art. 14 of the Constitution and there had been to him no denial of equality before the law or equal protection of laws, as the Ordinance was based on a classification which rested upon a ground having a fair and substantial relation to the object of the legislation and that it had a reasonable basis for that classification. It was also held that the restrictions imposed on the right of the appellant and the company to hold his or its property were imposed in the interests of the general public

Court's reasoning:
13. In my opinion, these contentions are not well founded Reference to illustrative pieces of legislation designed on the same pattern is neither very happy nor apposite; on the other hand, it is apt to mislead because except in the case of the Court of Wards Act, all the laws to which reference was made were enacted after the enactment of the Ordinance in question. The different Court of Wards Acts being existing laws have been excepted from the fundamental right guaranteed by Article 31 (2). That being so, they can afford little assistance in judging the validity of the impugnedcompany is debarred from carrying on its business in the manner and according to the terms of its charter. Its old complexion stands changed by the terms of the Ordinance. The Ordinance overrides the directors, deprives theof their legal rights and privileges and completely puts an end to be contract of the managing agents. Without there being any vacancy in the number of directors new directors step in and old directors and managing agents stand dismissed. Exercise of any power by them under the articles is subject to heavy penalties. In this situation it is not possible to subscribe to the contention of the learned AttorneyGeneral that the effect of the Ordinance is that the Central Government has taken over the superintendence of the affairs of the company and that the impugned legislation is merely regulative in character.In the present case, practically all incidents of ownership have been taken over by the State and all that has been left with the company is mere paper ownership. This Ordinance in my judgment is an apposite illustration of what Holmes, C. J., had in mind when he made the following observations in the case already referred tothe semingly absolute protection in respect of private property given by the Constitution is found to be qualified by the police power, the natural tendency of human nature is to extend the qualification more and more until at last private property disappears. We are in danger of forgetting that a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut then the constitutional way of paying for the change and that the general rule is that while property may be regulated to a certain extent but if the regulation goes too far it will be recognized as athe reasons given above I am of the opinion that the impugned statute has overstepped the limits of legitimate social control legislation and has infringed the fundamental right of the company guaranteed to it under Art. 31 (2) of the Constitution and is therefore unconstitutional.In my judgment none of these contentions have any validity. The construction sought to be placed by the learnedon the language of Art. 31 is neither borne out by the phraseology employed in that article nor by the scheme of Part III of the Constitution. It seems to me that our Constitution subject to certain exceptions has guaranteed the fullest protection to private property. It has not only provided that no person can be deprived of property by the executive without legislative sanction but it has further provided that even the legislature cannot deprive a person of his property unless there is a public purpose and then only on payment ofalready said, the Article read as a whole comprehensively defines the States power of eminent domain as distinguished from all its other powers the exercise of which may amount to the taking of private property. The argument that these exceptions were incorporated in Art. 31 by way of abundant caution further stands negatived by the contents of(5) (b) (ii) of the article. Only laws made for the promotion of public health or for prevention of danger to life or property have been excluded from the mischief of clause (2) of the article, while other laws made in exercise of power of social control which deprives a person of property have not been saved from the operation of clause (2). Illustratively, laws made by the State dealing with morality and which may lead to deprivation of property are outside the ambit of the exception clause. A fortiori, any deprivation of property under a law made for promotion of morality would fall within the mischief of clause (2) of Art. 31. It is thus clear that only that form of legislation which promotes public health or prevention of danger of life or property is saved from the provisions of Art. 31 (2), while other laws, made in exercise of the power of social control, if they deprive a person of property, are not saved from the operation of clause (2) of Articlev. Warley,; (1917) 245 US 60 (P). There the court allowed the plea to be raised because in both these cases the person raising it was directly, affected. In the first of the two last mentioned cases an Arizona Act of 1914 requiring employers employing more than five workers to employ not less than eightly per cent native born citizens was challenged by an alien who had been employed as a cook in a restaurant. That statute made a violation of the Act by an employer punishable. The fact that the employment was at will or that the employer and not the employee was subject to prosecution did not prevent the employee from raising the question of constitutionality because the statute, if enforced, would compel the employer to discharge the employee and therefore, the employee was directly affected by the statute.In the second case a city Ordinance prevented the occupation of a plot by a coloured person in a block where a majority of the residences were occupied by white persons. A white man sold his property in such a block to a Negro under a contract which provided that the purchaser should not be required to accept a deed unless he would bave a right, under the laws of the city to occupy the same as a residence. The vendor sued for specific performance and contended that the Ordinance was unconstitutional. Although the alleged denial of constitutional rights involved only the rights of coloured persons and the vendor was a while person, yet it was held that the vendor was directly affected, because the courts below, in view of the Ordinance, declined to enforce his contract and thereby directly affected his right to sell his property.Reference was also made to the case of Dar nell v. The state of Indiana, (1912) 226 US 390 (Q0. That is the only case is which a shareholder was not heard to complain in his own name when the Ordinance infringed the fundamental right of the company, his own rights had not been infringed. In view of this decision my brother Das took the view that Chiranjit Lal who was merely a shareholder and did not suffer any direct injury by the result of the law was not entitled to complain. That may very well have been the correct view in the case of a fully paid up shareholder who had no further liability or who was not likely to suffer in any manner by the enforcement of the Ordinance but the situation of a partly paid up preference shareholder as in this case is quite different and distinguishable and in my judgment the apposite rule to apply to the present case is the one laid down in (1915) 239 US 33 (O), and (1917) 245 US 60 (P).The result is that the plaintiff is entitled to challenge the constitutionality of the Ordinance on the basis that it abridges the companys fundamental right under Art 31 (2). The plaintiff is thus entitled to succeed in this suit which should have been decreed in the terms in which it was laid.38. I am further of the opinion that the question of the locus standi of the plaintiff to raise the plea that the Ordinance being void against the company the directors had no authority to make the call, is really of academic interest in this case because here the company has been impleaded as a defendant. Its old directors have made an application to this court supporting the case of the plaintiff on the ground that the Ordinance is void as it infringes the companys fundamental right under Art. 31 (2). The learnedwhen asked about this application said that it not having only been made at the last stage of the case should not be entertained.I am further of the opinion that the question of the locus standi of the plaintiff to raise the plea that the Ordinance being void against the company the directors had no authority to make the call, is really of academic interest in this case because here the company has been impleaded as a defendant. Its old directors have made an application to this court supporting the case of the plaintiff on the ground that the Ordinance is void as it infringes the companys fundamental right under Art. 31 (2). The learnedn asked about this application said that it not having only been made at the last stage of the case should not bemy view, when the question in issue is one concerning constitutional rights, the matter cannot be viewed purely from a technical angle and if in the interests of doing substantial justice it is necessary to grant permission to the old directors to have their say, technical considerations should not stand in the way of doing so. If the Ordinance qua the company is void, I do not see why the old directors should be debarred from saying so and if it is void qua the company, it can certainly not be sustained qua the shareholders. Some of the directors who are preference shareholders are also represented in the suit as well.1951 SC 41 (B), the question of his locus standi was left open by the Chief Justice. This is what the learned Chief Justicefirst question, 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 ... I do not think it is necessary to pronounce a definite opinion on the firstthat case Patanjali J., as he then was, also did not pronounce any definite opinion on the question so far as the shareholders right to question the invasion of the right to property of the company under Art. 31 was concerned. This is what the learned Judge saidvalidity the argument may have in relation to the petitioners claim based on the alleged invasion of his right of property under Art. 31, there be little doubt that, so far as his claim based on the contravention of Art. 14 is concerned, the petitioner is entitled to relief in his ownlearned Judge did not offer any opinion on the other questions. Mukherjea J. decided the question on grounds somewhat different from that taken by Fazi, Ali J. This is what the learned Judge saiddiscussion of the fundamental rights of the company as such would be outside the purview of our enquiry. It is settled law that in order to redress a wrong done to the company, the action should prima facie be brought by the company itself. It cannot be said that this course is not possible in the circumstances of the present case. As the law is alleged to be unconstitutional, it is open to the old directors of the company who have been ousted from their position by reason of the enactment of maintain that they are directors still in the eye of law, and on that footing the majority of shareholders can also assert the rights of the company as such. None of them however, have come forward to institute any proceeding on behalf of the company. Neither in form not in substance does the present application purport to be one made by the company itself. Indeed, the company is one of the respondents, and opposes theon the basis of this reasoning the situation of the present plaintiff, as already explained is quite different and so is that of the company. In these circumstances it cannot be said that the decision given in AIR 1951 SC 41    (B) is binding on this point, as even the judgments of the Judges forming the majority did not speak with the same voice.