Case: The Keshav Mills Company Ltd. &amp; Anr Vs. Union Of India And Ors

2. The Company is the owner of Cotton textile mill at Petlad known as Keshav Mills. The Company was established in 1934 and, as far as one can judge from the facts and figures cited in the petition, the Company made flourishing business between the years 1935 and 1965. Indeed, if the appellants figures are to be believed, - and there is no reason to disbelieve them, each holder of the 250 ordinary shares of the Company seems to have received Rupees 33,685/- in course of a period of 30 years between 1935 and 1964/65 as profit on an initial investment of Rupees 1,000/- only. On top of this the Companys capital block was increased from Rupees 10.62 lakhs in 1935 to Rupees 78,38,900/- at the end of the year 1964/65. All these profits, however, went to a close group of people, since 80 per cent of the share capital belongs to petitioner Parekh, his family members, relations and friends and only 20 per cent share-capital is in the hands of the members of the public. The Company, however, fell on evil days after the year 1964/65 and the textile mill of the Company was one of the 12 sick textile mills in Gujarat which had to be closed down during 1966 and 1968. We are not here directly concerned with the various causes which were responsible for this sudden reversal of the fortunes of this Company. Suffice it to say that on 31 May 1969 the Government of India passed an order appointing a committee for investigating into the affairs of the Company under the provisions of Section 15 of the Act. We shall hereafter refer to this Committee as the Investigating Committee. The material portion of the order dated 31 May 1969 is reproduced as hereunder:- Whereas the Central Government is of the opinion that there has been, or is likely to be substantial fall in the volume of production in respect of cotton textiles manufactured in the industrial undertaking known as the Petlad Keshav Mills Co. Ltd., Petlad (Gujarat) for which, having regard to the economic conditions prevailing there is no justification.Now, therefore in exercise of the powers conferred by Section 15 of the Industries (Development and Regulation) Act 1951 (65 of 1951), the Central Government hereby appoints, for the purpose of making full and complete investigation into the circumstances of the case, a body of persons consisting of :(1) Shri I .C. Shah (General Manager, Ambica Group of Mills, Ahmedabad) ...... Chairman (2) Shri M. C. Mirchandani Director (Technical) National Textile Corporation ...... Member (3) Shri J. P. Singh Director (Finance) National Textile Corporation ...... Member (4) Shri M. Sivagnanam, Industries Commissioner, Government of Gujarat, Ahmedabad ...... Member (5) Shri V. A Mahajan, Senior Accounts Officer, Office of the Regional Director, Company Law Board, Bombay ...... Member (6) Shri Y. L. N. Achar, Inspecting Officer, Office of the Textile Commissioner Bombay ...... Member" In this connection it may be relevant to set out some extracts from the communication that was sent out on 11 June 1969 by the Government of India to the various members of the aforesaid Committee. The communication which was in the nature of a supplemental order by the Government of India detailing the point of reference to the Investigating Committee was to the following effect :"Subject: Appointment of Investigation Committee for Petlad Keshav Mills Co. Ltd. Petlad (Gujarat) underthe Industries (Development and Regulation) Act, 1951._______Sir,I am directed to enclose a copy of order dated 31st May, 1969, issued under Section 15 ofthe Industries (Development and Regulation) Act, 1951, setting up a committee to enquire into the affairs of Petlad Keshav Mills Co. Ltd., Petlad, Gujarat for your information and necessary action. The investigation should also be directed to the following specific points:(a) Reasons for the present state of affairs.(b) Deficiencies, if any, in the existing machinery.(c) Immediate requirements, under separate heads of accounts, of working capital if any.(d) Requirement of long-term capital for modernisation/rehabilitation.(e) Financial result of :(i) Immediate working without further investment on capital account.(ii) Working after further investment on capital account.(f) Suggestion regarding source of funds required under (c) and (d) and security available for their repayment.I am further to request that 15 copies of the report may kindly be submitted to this Ministry at a very early date.Whereas the Central Government is of the opinion that the Keshav Mills Co. Ltd., Petlad, an industrial undertaking in respect of which an investigation has been made under Section 15 of the Industrial (Development and Regulation) Act, 1951 (65 of 1951) is being managed in a manner highly detrimental to public interest:Now, therefore, in exercise of the powers conferred by Section 18A of the said Act, the Central Government authorises the Gujarat State Textile Corporation (hereinafter referred to as Authorised Controller) to take over the management of the whole of the said undertaking namely, the Keshav Mills Co. Ltd., Petlad, subject to the following terms and conditions, namely :i) The Authorised Controller shall comply with all directions issued from time to time by the Central Government;ii) The Authorised Controller shall hold office for five years from the date of publication in the official gazette of this notified order;iii) The Central Government may terminate the appointment of the Authorised Controller earlier if it considers necessary to do so.This order will have effect for a period of five years commencing from the date of its publication in the official5 December 1970 one R. C. Bhatt, Assistant Secretary to the Authorised Controller went to the Companys office at Petlad and presented a letter from his principals authorising him to take over possession of the mill of the Company and requested the Company to hand over the keys of the office buildings, godowns and other departments as well as the office records, account books etc. to Bhatt. The Company handed over the keys of the Companys premises to R. C. Bhatt under protest. On 15 December 1970 the Company filed a writ petition before the High Court of Delhi under Articles 226 and 227 of the Constitution of India praying for "appellants reliefs".4. Though several grounds were taken in the writ petition, the main contention of the appellants before the Delhi High Court was that it was not competent for the Government of India to proceed under Sec. 18A against the Company without supplying before-hand a copy of the report of the Investigating Committee to the Company. The appellants complained that though the Investigating Committee had submitted a report to the Government of India in January, 1970 the Government did not furnish the management of the Company with the contents of the report. According to the appellants the Government should not only have supplied a copy of the report to the Company but should also have given a hearing to the Company before finally deciding upon taking over the Companys undertaking under Sec. 18A of the Act. This contention was pressed on behalf of the appellants in spite of the fact that an opportunity had been given by the Investigating Committee to the management and the employees of the Company for adducing evidence and making representations before the completion of the investigation. Reliance was placed on behalf of the appellants on a Bench decision of the Delhi High Court in Bharat Kumar Chinubhai v. Union of India, Civil Writ No. 560 of 1969, D/- 10-2-1970 (Delhi). The correctness of that decision was, however, seriously questioned on behalf of the respondent and the single Judge before whom the instant petition came up for hearing referred the matter to adjudication before a Full Bench of that High Court. The question of law that was referred for the decision of the Full Bench was framed by the learned Judge in the followingin view of Rule 5 of the Investigation of Industrial Undertaking (Procedure) Rules of 1967 providing for an opportunity of hearing before the Investigator and the absence of any specific provision either in the Act or in the Rules for supplying a copy of the Investigators report to the management, the taking over of the industrial undertaking, without supplying a copy of the Investigators report isThe Full Bench of the Delhi High Court after hearing the parties answered the above question of law in the negative and since this was the only question argued before them, dismissed the petition.6. The whole dispute between the parties is in substance a question regarding the exact requirement of the rules of natural justice in the facts and situation of the case. There can be no question that whenever an order is made under Sec. 18A against a company it has farreaching consequences on the rights of that company, its share-holders, its employees and all persons who have contractual dealings and transactions with that company. It is also not seriously questioned that before passing an order of "take-over" under Sec. 18A it is incumbent on the Government to give at some stage a reasonable opportunity to the undertaking concerned for making suitable representations against the proposed take-over. In fact under the rule-making power conferred by Sec. 30 of the Act the Government of India has already made a rule viz. Rule 5 which provides for such an opportunity. Rule 5 runs as followsOpportunity for hearing: The Investigator shall, before completion of his investigation, give the Management and the employees of the undertaking or undertakings in respect of which the investigation is ordered, reasonable opportunity of being heard including opportunity to adduce any evidence."

Court's reasoning:
11. In the instant case, the Government of India came to hold the opinion that there was a substantial fall in the volume of production in respect of the Companys production of cotton textiles for which Government apparently found no justification having regard to the prevailing economic conditions. The Government was perfectly within its rights to appoint, under the terms of Sec. 15, an investigating body for the purpose of making full and complete investigation into the circumstances of the case. This is what the Government did and the appellants do not, as indeed they cannot, find fault with this action of the Government. It is the admitted case that for three years prior to 1969 the Company had been running into continual difficulties as a result of which the Company suffered losses which amounted upto Rs. 56.76 lakhs. In fact the mill had to be closed by the end of 1968. It was only on 31 May 1969 that Government of India appointed the Investigating Committee to investigate into the affairs of the Companys mill. The appellants do not make any grievance against the Investigating Committee regarding the manner in which they carried out the investigation. It is admitted that the Committee gave to the Company a full opportunity of being heard and also an opportunity of adducing evidence. There can therefore, be no complaint that upto this stage there was any failure to observe the rules of natural justice.justice.15. We must however deal with the specific point raised by the appellants that they should have been given further hearing by the Government before they took the final decision of taking over their undertaking under Section 18-A of the Act and that, in any event, they should have been supplied with a copy of the report of the Investigating Committee.16. In our opinion, since the appellants have received a fair treatment and also all reasonable opportunities to make out their own case before Government they cannot be allowed to make any grievance of the fact that they were not given a formal notice calling upon them to show cause why their undertaking should not be taken over or that they had not been furnished with a copy of the report.They had made all the representations that they could possibly have made against the proposed take over. By no stretch of imagination can it be said that the order for take-over took them by surprise.In fact Government gave them ample opportunity to reopen and run the mill on their own if they wanted to avoid the take-over. The blunt fact is that the appellant just did not have the necessary resources to do so. Insistence on a formal hearing in such circumstances is nothing but insistence on an empty formality.The law relating to observance of the rules of the natural justice has, however, made considerable strides since the case of (1915) AC 120. In particular, since the decision in (1964) AC 40   a copious case-law on the subject of natural justice has produced what has been described by some authorities as a detailed law of "administrative due process". In India also the decisions of this Court have extended the horizons of the rules of natural justice and their application. See for instance the judgment of this Court in Kraipak v. Union of India, (1970) 1 SCR 457   = (AIR 1970 SC 150  ). The problem has also received considerable attention from various tribunals and committees set up in England to investigate the working of administrative tribunals and, in particular the working of such administrative procedures as the holding of an enquiry by or on behalf of a Minister. In fact a parliamentary committee known as the Franks Committee was set up in 1955 to examine this question. This Committee specifically dealt with the question of what is described as "Inspectors Reports". The Committee mentions that the evidence that the Committee received other than the evidence from Government departments was overwhelmingly in favour of "some degree of publication" of such reports. After summarising various arguments given in favour of as well as against the publication of the reports, the Committee recommended that "the right course is to publish the inspectors reports." The Committee also recommended that the parties concerned should have an opportunity if they so desired to propose corrections of facts stated in the reports. It may be mentioned however, that these recommendations of the Committee were not accepted by the British Government.21. In our opinion it is not possible to lay down any general principle on the question as to whether the report of an investigating body or of an inspector appointed by an administrative authority should be made available to the persons concerned in any given case before the authority takes a decision upon that report. The answer to this question also must always depend on the facts and circumstances of the case. It is not at all unlikely that there may be certain cases where unless the report is given the party concerned cannot make any effective representation about the action that Government takes or proposes to take on the basis of that report. Whether the report should be furnished or not must therefore depend in every individual case on the merits of that case. We have no doubt that in the instant case non-disclosure of the report of the Investigating Committee has not caused any prejudice whatsoever to the appellants.