PETITIONER:
MAHESH KUMAR SAHARIA
Vs.
RESPONDENT:
STATE OF NAGALAND & ORS
DATE OF JUDGMENT: 14/10/1997
BENCH:
A.S. ANAND, K. VENKATASWAMI
ACT
HEADNOTE
JUDGMENT
THE 14TH DAY OF OCTOBER, 1997 Present:
Hon’ble Dr. Justice A.S.Anand
Hon’ble Mr. Justice K. Venkataswami Sunil Gupta, Mrs.Anjali Verma, Nikhil M. Sakhardande, Advs. for M/s. JB Dadachanji & Co., Advs. for the appellant K.Parasaran, P.K.Goswami, Sr.Advs., C.K.Sasi, Kailash Vasdev, Advs. with them for the Respondents.
JUDGMENT
The following Judgment of the Court was delivered: K. Venkataswami, J.
The appellant, formerly a shareholder and Managing Director of the Nagaland Forest Products Limited thereinafter called the "Company"), challenged the vires of Nagaland forest Products Ltd. (Acquisition of Shares) Ordinance, 1981 and nagaland Forest Products Ltd. (Acquisition of Shares) Act, 1982, which replaced the Ordinance (hereinafter called the "State Act"), contending inter alia that he said legislations were ultra vires the powers of Nagaland State Legislature in view of Selection 20 of the Industries (Development & Regulation) Act, 1951 (hereinafter called the "Central Act").
Pursuant to a contract entered into between late Shri Ram Gopal Saharia, father of the appellant and the Government of Nagaland dated 24.4.1972 to establish a plywood factory in the territory of Nagaland on the terms and conditions stipulated therein, the Company was incorporated. The authorised share capital of the Company was Rs. 50,00,000/- ’G’ class equity shares of Rs. 100/- each (ii) 15,000/- ’G’ class equity shares of Rs. 100/- each and (iii) 15,000/- ’S’ class equity shares carried the same rights. It appears that the appellant’s group, on the one hand and the government of Nagaland on the other hand, subscribed 50% each of the equity shares. The Company after obtaining necessary certificate of commencement of business on 22.7.1972, as required under the Central Act, commenced its business thereafter. The father of the appellant was the first Managing Director of the Company. After the death of his father, the appellant became the Managing Director some time in 1975. A Cabinet ranking Minister of the Government of Nagaland was the Chairman of the Company since its inception except during Government’s Rule.
While so, on December 14, 1981, the Deputy Commissioner, Mon District, directed the manager, Nagaland Forest Product Limited to close down the plywood factory on 14.12.1981 till further orders. It was followed by Ordinance 1 of 1981 which enabled the State Government to take over the assets, books of accounts, registers etc. of the Company. The Ordinance came into force on 17.12.1981. As noticed earlier, the Ordinance was replaced by the Act. The appellant challenged the Ordinance initially and subsequently by amending the petition appropriately, the Act was also challenged.
Before the High Court, the Act was challenged on various grounds but before us the learned counsel appearing for the appellant, Mr. Sunil Gupta, confined his attack to the lack of legislative competence based on Section 20 of the Central Act. In other words, the contention was that taking over of the assets (Acquisition of Shares of the Company) amounts to taking over of management/control of the Company, which field is occupied by Parliament as contemplated by Section 20 of the Central Act.
The High Court in its considered and reasoned judgment rejected all the contentions and observed thus while rejecting the contention based on lack of legislative competence, which alone was pressed before us:-
"The Act was not enacted for taking
over management or control of the
company by the Nagaland State
Government. In pith and substance
it was enacted to acquire the S
class shares of the Company. If an
attempt was made to take over
management or control of any
industrial undertaking in a
declared of the IDRA would inhibit
exercise of such executive power.
However, if pursuant to a valid
legislation for acquisition of
scheduled undertaking the
management stands transferred
undertaking the management stands
transferred to the acquiring body
it cannot be said that this would
be in violation of Section 20.
Section 20 does not preclude or
forbid a State legislature
exercising legislative power under
an entry other than Entry 24 of
List II, and if an exercise of that
legislative powers, to wit,
acquisition or shares of a company
owning an industrial undertaking in
a declared industry the
consequential transfer of
management for control over the
industry or undertaking follows as
an incident of acquisition, such
taking over of management or
control pursuant to an exercise of
legislative power is not within the
inhibition of Section 20."
"52. From the principles of catena
of decisions enunciated in the
decided cases, it is found that
merely because an industry is a
declared industry under Entry 52,
that by itself will not put an
embargo on the State legislature to
pass legislation within its
competence. It has further been
found in many of the cases that
mere incidental trenching does not
warrant the striking down of an
impugned Act. As regards the
contention that the Parliament
having made the requisite
declaration in Section 2 of
Schedule 1 thereof the State
Legislature was denuded of its
competence to enact the impugned
provisions under Entry 42 of List
III cannot be accepted. On
examination of the various
provisions of the Act there arses
no doubt that it is for acquisition
of property in ’S’ class shares of
the company and in pith and
substance it falls under Entry 42
of List III, and is not in conflict
with Entries 52 or 7 List I."
Undoubtedly, Mr. Sunil Gupta, learned counsel for the appellant elaborately argued the matter and ultimately contended that the ruling of a Constitution Bench of this Court in Ishwari Khetan Sugar Mills (P) Ltd & Ors. vs. State of Uttar Pradesh & Ors (1980 (4) SCC 136) requires reconsideration as certain aspects were not brought to the notice and considered by the Constitution Bench while handing down the ruling in that judgment. He, however, fairly conceded in the face of the ruling of the Constitution Bench in Ishwari Khetan’s case it is not open to him to contend that the impugned legislation lacks legislative competence, as this Court has clearly held that taking over of the assets of the company will not amount to taking over of management or control of the company. Still, as stated earlier, his attempt was to persuade us to refer the matter to a larger bench for reconsideration of the ruling of this Court in Ishwari Khetan case.
Mr. K. Parasaran, learned Senior Counsel appearing for the respondents, after referring to Judgments of this Court in Smt. Somavanti & Others vs. The State of Punjab & Others (1963 (2) SCR 774) and T. Govindaraia Mudaliar Etc. Etc. vs. The State of Tamil Nadu & Others (1973 (3) SCR 222) submitted that the reason advanced by the learned counsel for the appellant, will not be a ground for requesting the Court to refer the question to a larger Bench. He also submitted that the Constitution Bench has considered every aspect concerning the constitutionality of an identical legislation impugned therein and there is no scope for putting forward an argument that certain provisions of the Constitution were not brought to the notice of the Constitution Bench which led the Court to uphold the constitutionality of the legislation impugned therein. He also brought to our notice that the ruling of the Constitution Bench in Ishwari Khetan’s case has been followed/applied consistently right from the year 1980 till date and that shows there is no deficiency in the ruling of the Constitution Bench in Ishwari Khetan’s case.
Before proceeding further to consider the submissions made by the counsel on both sides, it is necessary and will be useful to extract the relevant provisions of Central Act and the State Act.
Central Act Sections 2, Schedule 1 Item 36 (1) and Section 20 are as follows:-
Section 2
"It is hereby declared that it is
expedient in the public interest
that the Union should take under
its control the industries
specified in the First Schedule."
Sch. 1, Item 36 (1)
"Any industry engaged in the
manufacture or production of any of
the articles mentioned under each
of the following headings or sub-
headings, namely :-
36. Timber Products:
(1) Plywood."
Section 20
"20 After the commencement of this
Act, it shall not be competent for
any State Government or a local
authority to take over the
management or control of any
industrial undertaking under any
law for the time being in force
which authorises any such
Government or local authority so to
do."
Section 3 of State Act :-
"3. (1) On the appointed day, all
shares of the Company other than
the shares already held by the
Government or its nominees in the
Company shall, by virtue of this
Act stand transferred to, and
vested in the State Government.
(2) The State Government shall be
deemed on and from the appointed
day, to have been registered in the
Register of members of the company
as the holder of each share which
stands transferred to and vested in
it by virtue of the provisions of
sub-section (1).
(3) All the hares which have vested
in the State Government under sub-
section (1), shall by force of such
vesting, be freed and discharged of
all trusts, liabilities,
obligations, mortgages, charges,
liens and other encumbrances
affecting them, and any attachment
injunction or any decree or order
of the Court, tribunal or other
authority restricting the use of
such shares in any manner, shall be
deemed to have been withdrawn.
(4) For the removal of doubts, it
is hereby declared that the
provision of sub-section (1) and
(2) shall not be deemed to affect-
(a) any right of the Company
subsisting immediately before the
appointed day, against any
shareholder to recover from such
shareholder any sum of money on the
ground that the shareholder has not
paid or credited to the Company the
whole or any part of the value of
the shares held by him, or any
other ground whatsoever, or
(b) any right of the shareholder
subsisting, immediately before the
appointed day against this Company
to receive any dividend or other
payment due from the Company."
It is not in dispute that Section 20 (supra) of the Central Act provided that after the commencement of the said Act, it shall not be competent for any State to take over the management or control of any industrial undertaking under any law which authorises a State Government so to do. It is also an admitted position that inasmuch as by Section 2 (supra) read with Item 36 (i) of the First Schedule (supra) of the Central Act, it has been declared that in the public interest, the Union Government should take control of plywood industry, the State Legislature, therefore, cannot legislate with regard to the management or control of such industry.
The question is whether the impugned legislation attempts authorises mere taking over the management/control of the plywood industry or it only enables the State Government to acquire the assets (shares) of the Company. Section 3 of the State Act stated that all the shares of the Company other than those already held by the Government stood transferred to and vested in the State Government. In consequence of such vesting of the shares, the Government naturally exercises rights as shareholder and incidentally acquires the control and management of the Company. But that will not fall under the mischief of Section 20 of the Central Act because Section 20 prohibits the State Government from taking over management or control dehors ownership of the undertaking. The Central Act is concerned with the control and management of the undertaking and not with its ownership. By acquiring ownership, incidentally management and control of the Company also vests with that it will be incidental and such an exercise of legislature power is not prohibited under Section 20 of the Central Act. Notwithstanding the taking over of the Company by the State Government still if the Central Government finds scope to exercise their power under Section 20 of the Central Act, it is open to them to do so. This is exactly what has been held by the Constitution Bench of this Court in Ishwari Khetan’s case:
"25. There is thus a long line of
decisions which clearly establishes
the proposition that power to
legislate for acquisition of
property is an independent and
separate power and is exercisable
only under Entry 42, List III and
not as an incident of the power to
legislate in respect of a specific
head of legislation in any of the
three lists. This power of the
State legislature to legislate for
acquisition of property remains
intact and untrammeled except to
the extent where on assumption of
control of an industry by a
declaration as envisaged in Entry
52, List I, a further power of
acquisition is taken over by a
specific legislation.
26. As already pointed out, in pith
and substance the impugned
legislation is one for acquisition
of scheduled undertakings and that
field of acquisition is not
occupied by the IDR Act which deals
with control of management,
regulation and development of a
declared industry and there is no
repugnancy between the impugned
legislation and the IDR Act. Both
can coexist because the power
acquired by the Union under the IDR
Act can as well effectively be
exercised after the acquisition of
the scheduled undertakings as it
could be exercised before the
acquisition. Therefore, the
contention that the State
legislature lacked legislative
competence to enact the impugned
legislation must be negatived.
30. The impugned legislation was
not enacted for taking over
management or control of any
industrial undertaking by the State
Government. In pith and substance,
it was enacted to acquire the
scheduled undertakings. If an
attempt was made to take over
management or control of any
industrial undertaking in a
declared industry indisputably the
bar of Section 20 would inhibit
exercise of such executive power.
However, if pursuant to a valid
legislation for acquisition of
scheduled undertaking the
management stands transferred to
the acquiring body, it cannot be
said that this would be in
violation of Section 20. Section
20 forbids executive action of
taking over management or control
of any industrial undertaking under
any law in force which authorises
State Government or a local
authority so to do. The inhibition
of Section 20 is on exercise of
executive power but if as a sequel
to an acquisition of an industrial
undertaking, the management or
control of the industrial
undertaking stands transferred to
the acquiring authority, Section 20
is not attracted at all. Section
20 does not preclude or forbid a
State legislature from exercising
legislative power under an entry
other than Entry 24 of List II, and
if in exercise of that legislative
power, to wit, acquisition of an
industrial undertaking in a
declared industry the consequential
transfer of management or control
over the industry or undertaking
follows as incident of acquisition,
such taking over of management or
control pursuant to an exercise of
legislative power is not within the
inhibition of Section 20.
Therefore, the contention that the
impugned legislation violates
Section 20 has no merit."
This judgment of the Constitution Bench has been followed and applied recently in Orissa Cement Ltd. & Ors vs. State of Orissa & Ors. (1991 Supp. (1) SCC 430); Indian Aluminium Company Limited & Another vs. Karnataka Electricity Board & Others. (1992 (3) SCC 580); Dalmia Industries Ltd & Another vs. State of U.P. & Another (1994 (2) SCC 583); Ajay Kumar Singh & Others vs. State of Bihar & Others (1994 (4) SCC 401); and Mahabir Sugar Mills Ltd. & Another vs. State of U.P. & Others (1996 (10) SCC 259).
The High Court also after elaborately discussing the matter and placing strong reliance on Ishwari Khetan’s case, rejected similar contention advanced before it. In the circumstances, we do not think that there is any merit in the contention of the learned counsel for the appellant that the ruling of this Court is Ishwari Khetan’s case requires re-consideration. Further, as submitted by the learned Senior Counsel, Mr. K.Parasaran that the reason given by the learned counsel for the appellant that certain aspects were not considered and those required re-consideration by a larger Constitution Bench is not a ground for referring the matter to a larger Bench.
In Smt. Somavanti’s case (supra), a Constitution Bench of this Court observed as follows:-
"A binding effect of a decision
does not depend upon whether a
particular argument was considered
therein or not provided that the
point with reference to which an
argument was subsequently advanced
was actually decided."
Again another Constitution Bench in Mohd. Avub Khan vs. Commissioner of Police, Madras and Another ( 1965 (2) SOR 884) held thus :
"This Court has pronounced upon the
legislative competence of the
Parliament to enact Section 9 of
the Citizenship Act, 1995 in Izhar
Ahmad Khan vs. Union of India. In
the same case challenge to he
validity of Rule 3 of Sch. III to
the Rules framed under the
Citizenship Act, 1955 was also
negatived. Mr. Ram Reddy for the
appellant contended that as certain
important aspects of the plea of
invalidity were not presented
before the Court at the hearing of
Izhar Ahmad Khan’s case, we should
again proceed to consider the
challenge to the validity of Rule 3
of Sch. III and Section 9 of the
Citizenship Act limited to those
arguments. We are unable, however,
to countenance the submission.
This Court has held on the
arguments presented before the
Court in Izhar Ahmad Khan’s case
that Section 9 of the Act was
validly enacted by the Parliament,
and that Rule 3 of Sch. II was
competently made by the Central
Government in exercise the powers
conferred by Section 18 of the
Citizenship Act. Assuming that
certain aspects of the question
were not brought to the notice of
the Court, we see no grounds for
entering upon re-examination of the
question. It may be pointed out
that the judgment of the Court in
Izhar Ahmad Khan’s case was
followed by this Court in the
Government of Andhra Pradesh vs.
Syed Mohd. Khan."
In T. Govindaraia Mudaliar Etc. Etc. vs. The State of Tamil Nadu & Ors (1973 (3) SCR 222) it was held as follows:-
"The argument of the appellants is
that prior to the decision in
Rustom Cavasjee Cooper’s case it
was not possible to challenge
Chapter IV-A of the Act owing to
the decision of this Court that
Art. 19(1)(f) could not be invoked
when a case fell within Art. 31 and
that was the reason why this Court
in all the previous decisions
relating to the validity of Chapter
IV-A proceeded on an examination of
the argument whether there was
infringement of Article 19(1) (g),
and clause (f) of that Article
could not possibly be invoked. We
are unable to hold that there is
much substance in this argument.
Bani Munji and other decisions
which followed it were based mainly
on an examination of the inter-
relationship between Article 19(1)
(f) and Art. 31(2). There is no
question of any acquisition or
requisition in Chapter IV-A of the
Act. The relevant decision for the
purpose of these cases was only the
one given left that the authority
of law seeking to deprive a person
of his property otherwise than by
way of acquisition or requisition
was open to challenge on the ground
that it constituted infringement of
the fundamental rights guaranteed
by Article 19(1) (f). It was,
therefore, open to those affected
by the provisions of Chapter IV-A
to have agitated before this Court
the question which is being raised
now based on the guarantee embodied
in Art. 19(1) (f) which was never
done. It is apparently too late in
the day now to pursue this line of
argument. In this connection we may
refer to the observations of this
Court in Mohd. Ayub Khan vs.
Commissioner of Police, Madras &
Another, according to which even if
certain aspects of a question were
not brought to the notice of the
court it would decline to enter
upon re-examination of the question
since the decision had been
followed in other cases. In Smt.
Somavanti & Others vs. The State of
Punjab & Others a contention was
raised that in none of the
decisions the argument advanced in
that case that a law may be
protected from an attack under Art.
31(@) but it would be still open to
challenge under Art. 19(1) (f), had
been examined or considered.
Therefore, the decision of the
Court was invited in the light of
that argument. This contention,
however, was repelled by the
following observations at page
794:-
"The binding effect of a decision
does not depend upon whether a
particular argument was considered
therein or not, provided that the
point with reference to which an
argument was subsequently advanced
was actually decided."
It is common ground in the present
cases that the validity of Chapter
IV-A of the Act has been upheld on
all previous occasions. Merely
because the aspect now presented
based on the guarantee contained in
Art. 19(1)(f) was not expressly
considered for a decision given
thereon will not take away the
binding effect of those decisions
on us."
We have already noticed that decision of the Constitution Bench in Ishwari Khetan’s has been consistently followed/applied right upto this date. There is, therefore, no merit in the argument that Ishwari Khetan’s case requires reconsideration. No other point was urged. Accordingly the appeal is dismissed. However, there will be no order as to costs.