Case: Union of India Vs. Elphinstone Spinning &amp; Weaving Co. Ltd

The short facts leaving to the promulgation of the Ordinance and replacement of the same by the Act are that the Textile Mills in and around Bombay had gone on strike with effect from 18.1.1982. On 15.2.1982 the Government of India declared its policy for nationalisation of all these Textile Industries. In October 1982, the Reserve Bank of India had called a meeting to discuss the situation arising out of the strike. Depending upon the economic conditions of different mills the mills had been classified into three groups. The continued Textile strike had deteriorated the financial condition of all the Textile Mills and the Mills were looking forward to the Financial Institutions and Nationalised Banks for financial aid to make the Mills viable. On 28th March, 1983, the Government of India wrote letters to the Nationalised Banks and IDBI to conduct a viability study of these Mills. The three Mills, with which we are concerned, in these appeals had been included in category III. On 20th September, 1983, the Government of India in the Ministry of Commerce had issued a Memorandum constituting a Task Force to collect data and submit a note for being placed before Economic Affairs Committee of the Union Cabinet to enable it to take a decision as to which of the Mills in category III would be Nationalised. The said Task Force submitted its report by the end of September 1983. On 18th October, 1983, the Ordinance was promulgated and the management of 13 Textile Mills enumerated in the First Schedule to the Ordinance was taken over pending Nationalisation of the Undertakings. The Ordinance indicates that for re-organising and re-habilitating the Textile Mills to protect the interest of the workmen employed therein, and to augment the product and distribution at fair price of different varieties of cloth and yarn so as to subserve the interest of the general public, investment of very large sums of money was necessary and for such investment, the Central Government felt that the acquisition of the Mills would be necessary, but since acquisition would take some time and it was felt that it would be expedient in the public interest to take over the management of the Undertakings, pending acquisition, and that Parliament was not in Session, the President, on being satisfied that circumstances exists for taking immediate action, promulgated the Ordinance in exercise of powers conferred under Article 123(1) of the Constitution. The said Ordinance was replaced by the Act and the Act provided that the same shall be deemed to have come into force on 18th day of October, 1983. Immediately after the promulgation of the Ordinance the Management of the Mills, enumerated in the First Schedule thereof, having been taken over by the Government, the three Mills referred to earlier filed three Writ Petitions in Bombay High Court challenging the applicability of the Ordinance so far as those Mills are concerned. After replacement of the Ordinance by the Act the Writ Petitions were amended and thus the validity of the Act was challenged qua the three Writ Petitioners. Though the challenge was on three counts, namely, violation of Article 14, violation of Article 19(1)(g) and violation of Article 300-A, but at the time of hearing the challenge in relation to violation of Article 300-A was not pressed and, therefore, the High Court considered the challenge, so far as it relates to violation of Articles 14 and 19(1)(g) of the Constitution. The High Court in the impugned judgment made elaborate discussion of the materials on record as well as interpreted the different provisions of the Constitution and came to hold that the act with its object of only taking over the management cannot be considered to be law for taking over the ownership and control of the property, as required under Article 39(b), but would squarely fall under Article 31-A(1)(b) and, therefore, Article 31(c) will have no application. The High Court also came to the conclusion that to protect a legislation under Article 31(c), there must be a declaration in the legislation itself that the Act was enacted to give effect to the Directive Principles under Article 39(b) and (c), and in the case in hand, there being no such declaration either in the Ordinance and in the Act, Article 31(c) will have no application and, squarely the challenge on the ground of violation of Article 14 or 19 has to be examined. On examining Article 31-A(1)(b) the High Court was of the opinion that two conditions must be satisfied for attracting Clause 1(b) of Article 31-A, namely, that the taking over of the management of the property by the State would be for a limited period, and such taking over must be either in public interest or in order to secure the proper management of the property, since the taking over of management was not for any limited period and in fact such management had been taken over pending nationalisation, the provisions of Clause 1(b) of Article 31-A would not get attracted. According to the High Court the expression "Pending Nationalisation" cannot be held to be for a limited period and the protection of Article 31-A(1)(b) would be available only when there is a definite limit in the law for the period of management and, consequently the challenge on the anvil of violation of Articles 14 and 19(1)(g) has to be examined. The High Court then examined the factual aspect for considering the question as to whether there were any materials to put the three Mills in a class of Mills for which the taking over of the management was meant notwithstanding a declaration or recital in the Preamble itself, the same being "Mills whose financial condition had become wholly unsatisfactory by reason of mis-management." The High Court then examined the different datas collected by the Government of India as well as several reports including the Task Force Report and ultimately came to the conclusion that even though the financial condition had become unsatisfactory but the Union Government has failed to establish that such unsatisfactory financial condition is by reason of mis-management and, therefore, there was no nexus between the basis of the classification of the petitioner Mills with other mismanaged Mills and the said object and the purpose of the Act. In other words, the High Court came to the conclusion the inclusion of the three Mills in the Schedule appended to the Ordinance and the Act was arbitrary and, on the other hand, the figures given by the Union of India itself show that the financial position of the three Mills were far better than even the Mills which were in category II. Consequently, the High Court was of the opinion that the Government could not have, for taking over of the management of the petitioners Mills, classified those Mills as Mills whose financial condition was bad due to mis-management. The High Court, therefore, ultimately came to the conclusion that there has been a gross violation of Article 14 in clubbing the three Mills with other Mills in category three, enumerated in the Schedule appended to the Act and such inclusion violates the fundamental right guaranteed under Article 14 of the Constitution. The High Court also came to the conclusion that the impugned Act infringed the petitioners right under Article 19(1)(g) and on that count qua petitioners was equally invalid. Having come to the aforesaid conclusion the Writ Petitions were allowed and the order of taking over of the management of three Mills was set aside. But the operation of the order had been stayed for 8 weeks and certain restrictions had been imposed and the High Court also granted Certificate under Article 132(1) and 133 of the Constitution for Leave to Appeal to the Supreme Court. When the matter was listed before this Court the aforesaid interim order staying the operation of the judgment was continued and later on certain Misc. Applications being filed by different Mills certain orders have been passed by the Court with regard to the possession of certain assets, like, car, telephone connections etc. When the appeals were taken up for hearing in January 1985, the same had been heard before a Three Judge Bench but after hearing for some time the Three Judge Bench felt that in view of the questions which arise for consideration, and in view of Clause 3 of Article 145 of the Constitution the cases should be heard by a Bench of not less than Five Honble Judges and that is why these appeals were heard by us.

Court's reasoning:
During the pendency of these appeals this Court had passed some interim orders with regard to possession of certain land and other assets as well as with regard to cars and telephone connections. In view of our decision setting aside the impugned judgment of Bombay High Court and in view of Section 3(2) of the Act all interim orders would stand vacated. But the Elphinstone Spinning and Weaving Mills in its Writ Petition No. 2401 of 1983 having made a specific case that notwithstanding the Act being valid and the management of the mills can be taken over and its properties and assets vest with the Central Government under Section 3(2) of the Act, but their are certain other assets which cannot be held to form a part of the assets of Elphinstone Spinning and Weaving Mill and, therefore, cannot be taken over, the High Court has not considered this question as the Act itself was struck down but it would be meet and properthe High Courte, bearing in mind the law laid down by this Court in Sitaram Mills case interpreting the provisions of Section 3(2) of the Act on the materials to the produced by the parties. Be it stated that until a decision is given bythe High Courton this score, by virtue of operation of law all the assets would stand vested and such vesting would be subject to a final decision ofthe High Courtin respect of any of these so-called assets which the petitioner establishes not to be an asset of Elphinstone Mill notwithstanding the wider meaning given to Section 3(2) in Sitaram Mills case.