Indore Textiles Limited, Ujjain Vs Union of India and others

@JUDGMENTTAG-ORDER

G.P. Singh, C.J.@mdashBy this petition under Article 226 of the Constitution, the petitioners challenge an order dated 12th August 1977 passed by the Central Government u/s 18AA of the Industries (Development and Regulation) Act, 1951 authorising the Madhya Pradesh State Textile Corporation Ltd. to take over the management of a textile mill at Ujjain.

2. The Textile Mill with which we are concerned here was originally known as Deepchand Mills and was an industrial undertaking owned by the Vinod Mills Ltd. The Textile Mill was purchased by the Phoenix Mills Ltd, sometime in September 1973, after which it was named as Phoenix Mills Unit No. 2. This unit enjoyed credit facility of Rs. 80 lacs from the Bank of India. The Textile Mill was purchased on 10th February 1977 by the Indore Textiles Ltd., petitioner No. 1 in this petition, from the Phoenix Mills Ltd. The Bank of India then withdrew the credit facility and transferred it to Phoenix Mills Unit No. 1. There was a partial lay-off on 29th March 1977 and from 13th April 1977 the Mill was closed. On 24th May 1977 the Deputy Secretary to the Government of Madhya Pradesh, Commerce and Industries Department, wrote to the Deputy Secretary to the Government of India, Ministry of Commerce, suggesting action u/s 18AA of the Industries (Development and Regulation) Act. It was stated in this letter that Kasliwals who owned the controlling shares in the Indore Textiles Ltd., petitioner No. 1, had no experience of running a textile mill, that the bank had refused to extend credit facility to this company and that in the absence of any financial assistance the Kasliwals were not in a position to start and run the mill. It was also stated that the closure of the mill resulted in the loss of production of an essential commodity and also created a very serious law and order problem as 2700 workers were thrown out of employment. It was further stated that a Sangharsha Samiti had been formed which was resorting to the various modes of agitation such as processions, public meetings and Dharnas, fast unto death etc. and that the situation was explosive and was getting aggravated with the ensuing Assembly elections. It was then stated that the State Government undertook the responsibility for financial and administrative management if action u/s 18AA was taken and management entrusted to the Madhya Pradesh Textile Corporation Ltd., which is a State Government undertaking. There was a press statement by Shri Naronha, the Advisor to the Governor on 1st June 1977 indicating that the State Government wanted to take over the management of the Textile Mill provided the Central Government agreed to it. This press statement appeared in the Daily Nav Bharat of 1st June 1977. Similarly, in the Daily Nai Dunia of 5th June 1977 a news item was published stating that Shri Hukumchand Kachhwah, M.P., gave the information that the Central Government had taken a decision for taking over of the Textile Mill. The petitioner company then sent a telegram on 5th June 1977 to the Government of India stating that it was willing to run the mill if normal and usual banking facilities were made available. It was also stated that it will welcome the participation of the labour, Government and bank in the management. In the alternative, it was suggested that it was willing to sell the mill for a fair consideration. The telegram further stated that the petitioner company strongly objected to the take over of the management or appointment of Madhya Pradesh State Textile Corporation Ltd. or Shri Dinker Kedarnath, Deputy Secretary to the State Government in Commerce and Industries Department, to deal with the mill in any capacity. On 14th June 1977 the Central Government appointed a committee for investigation of the affairs of the mill u/s 15. Thereafter, the Central Government passed the impugned order on 12th August 1977. By this order the Central Government authorised the Madhya Pradesh State Textile Corporation Ltd. to take over the management of the whole of the mill for a period of five years. The order also records satisfaction of the Central Government for taking action u/s 18-AA.

3. Section 15 of the Industries (Development and Regulation) Act authorises the Central Government to make or cause to be made an investigation in respect of any industry of industrial undertaking. On completion of investigation u/s 15, the Central Government can issue directions u/s 16 of the Act for regulating the production, requiring the industrial undertaking to take such steps as may be necessary for stimulating the development of the industry, prohibiting the industrial undertaking from resorting to any act or practice which might reduce its production capacity or economic value and controlling the prices or regulating the distribution. Section 15-A(1) confers power on the Central Government to assume management or control of an industrial undertaking if the undertaking has failed to comply with the directions given in section 16, or if the industrial undertaking in respect of which an investigation has been made u/s 15, is being managed in a manner highly detrimental to the industry concerned or to public interest. A perusal of section 18-A goes to show that action under this section can be taken only after an investigation u/s 15. Then follows section 18AA which in so far as relevant reads as follows:

18 AA. Power to take over industrial undertaking without investigation under certain circumstances.--(1) Without prejudice to any other provision of this Act, if, from the documentary or other evidence in its possession, the Central Government is satisfied, in relation to an industrial undertaking, that

(a) the persons incharge of such industrial undertaking have, by reckless investments or creation of encumberances on the assets of the industrial undertaking, or by diversion of funds, brought about a situation which is likely to affect the production of articles manufactured or produced in the industrial undertaking, and that immediate action is necessary to prevent such a situation; or

(b) it has been closed for a period of not less than three months (whether by reason of the voluntary winding up of the company owning the industrial undertaking or for any other reason) and such closure is prejudicial to the concerned scheduled industry and that the financial condition of the company owning the industrial undertaking and the condition of the plant and machinery of such undertaking are such that it is possible to restart the undertaking and such restarting is necessary in the interests of the general public,

It may, by a notified order authorise any person or body of persons (hereafter referred to as the "authorised person") to take over the management of the whole or any part of the industrial 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 order.

An order u/s 18AA can be made for a period not exceeding five years. The order can also be extended from time to time not exceeding two years at a time; but the total period of continuance of the order cannot exceed twelve years.

4. The heading of section 18AA(1)--"Power to take over industrial undertaking without investigation under certain circumstances"--makes it clear that the section provides for the situation where the power of taking over can be exercised by the Central Government without first ordering investigation u/s 15 which is necessary for exercise of the power of taking over management u/s 18A. The words "without prejudice to any other provision of this Act" with which the section opens also indicate that the power conferred u/s 18AA(1) is an additional power. Before taking action under this section, the Central Government is to be satisfied of the matters mentioned in clause (a) or clause (b) and this satisfaction must be reached from the documentary or other evidence in its possession. We are not here concerned with clause (a) as the impugned action has been taken under clause (b). Clause (b) requires that the satisfaction should relate to the following matters:

(i) the undertaking has been closed for a period of not less than 3 months;

(ii) such closure is prejudicial to the concerned scheduled industry;

(iii) the financial condition of the company owning the industrial undertaking and the condition of the plant and machinery of such undertaking are such that it is possible to re-start the undertaking; and

(iv) such re-starting is necessary in the interest of the general public.

5. Learned counsel for the petitioners first submitted that the power of taking-over management u/s 18AA(1) is a art-judicial power requiring the observance of the principles of natural justice and as the impugned order was passed without affording the petitioners an opportunity of being heard, it is invalid and void.

6. Section 18AA(1) does not specifically provide that before taking any action under it, the owner of the industrial undertaking should be heard. All that it in terms requires is that the necessary satisfaction of the Central Government should be reached "from the documentary or other evidence in its possession." But the omission to provide for any opportunity of being heard is not decisive on the question whether the person concerned should be heard or not before an order affecting him is passed in exercise of a statutory power. In other words, a "superadded" duty to act judicially need not be visible before an obligation to observe natural justice could arise in the exercise of a statutory function affecting the rights of an individual. [De Smith, Judicial Review of Administrative Action, 4th edition, p. 175.] The decision of the House of Lords in Ridge v. Baldwin (1963) 2 All ER 66 (HL) . re-established the rule that qwasi-judicial character of a power can be inferred from the nature of the power itself bringing in the requirement of natural justice and it is not necessary that the statutory provision in question must in terms require a duty to act judicially. The case of Ridge v. Baldwin was approved and followed by the Supreme Court in Associated Cement Companies Ltd. Vs. P.N. Sharma and Another, and Shri Bhagwan and Another Vs. Ram Chand and Another, Reference in this context may also be made to a Division Bench decision of this Court in Sukhlal Sen Vs. Collector, Dist. Satna and Others, in which the aforesaid authorities were referred to and applied. It is also well settled that the rule of audi alterem partem is not excluded merely because the statutory provision opens with the words such as "where it appears to" or "if it appears to the satisfaction of" or "if the--considers it expedient" or "if the--is satisfied". As observed by the Privy Council in Duryappah v. Fernando (1967) 2 AC 337, these various formulae are introductory of the matters to be considered and are given little guidance upon the question of audi alterem partem. The Privy Council further pointed out that "there are three matters which must always be borne in mind when considering whether the principle (audi alterem partem) should be applied or not. These matters are first, what is the nature of the property, the office held, status enjoyed or services to be performed by the complainant of injustice. Secondly, in what circumstances or upon what occasions is the person claiming to be entitled to exercise the measures of control entitled to intervene. Thirdly, when a right to intervene is proved, what sanctions in fact is the latter entitled to impose upon the other. It is only upon a consideration of all these matters that the question of the application of the principle can properly be determined." [see further, Suresh Seth v. State of M.P. 1969 MPLJ 327 334]. The growth of the administrative law has further led to the principle that even in purely administrative proceedings which lead to civil consequences, there is a duty to act "fairly" which requires the observance of natural justice. This principle was recognised in the cases of in Re K. (H) (an infant) (1967) 1 All ER 226, p. 231 and R.L. Gaming Board (1970) 2 All ER 528, see De Smith (supra) p. 238. This principle was accepted in India in A.K. Kraipak and Others Vs. Union of India (UOI) and Others, which has been followed in later decisions: see Chandra Bhavan Boarding and Lodging, Bangalore Vs. The State of Mysore and Another, , Assistant Collector of Customs Vs. Charan Das Malhotra, , The D.F.O., South Kheri and Others Vs. Ram Sanehi Singh, and The Government of Mysore and Others Vs. J.V. Bhat and Others, . The recent decision of the Supreme Court in Mrs. Maneka Gandhi Vs. Union of India (UOI) and Another, has referred to and applied both these principles in the context of cancellation of a passport. Tested in the light of the above principles, it is clear to us that the power u/s 18AA(1) conferred on the Central Government to take over the management is a quasi-judicial power and has to be exercised with due regard to the principles of natural justice. The right of a person to manage an industrial undertaking owned by him is a valuable right. The power of the Central Government to take over the management on satisfaction of the existence of the fact situations mentioned in clauses (a) and (b) is a drastic power. The exercise of the power has serious consequence as the owner can be deprived of the right to manage for a period which may extend to twelve years. In our opinion, the nature of the power itself implies the duty to act judicially and to follow the principles of natural justice. Even taking it to be a purely administrative power, the requirement of natural justice is brought in impliedly because exercise of the power leads to civil consequences in deprivation of the owner of the right to manage his industrial undertaking.

7. It is not disputed that no notice was given to the petitioner company before passing the impugned order on 12th August 1977 taking over the management of the Textile Mill. It may also be mentioned here that the order, as disclosed in the return of the Central Government, was not based on any investigation which was ordered on 14th June 1977. Although it is not very clear it appears probable on the material on record that the investigation ordered had not even started before the impugned order was passed. The question then is whether the order should be struck down being violative of natural justice. The object behind section 18AA is to empower the Central Government to take over the management of an industrial undertaking without prior investigation u/s 15. The fact situations mentioned in clauses (a) and (b) in respect of which the Central Government is to be satisfied before passing an order, may very often call for an immediate action. As specifically mentioned in clause (a), an order on the grounds mentioned in that clause can only be passed when immediate action is necessary. The urgency of action required u/s 18AA may not, in a particular case, make it administratively possible for the Central Government to issue notice to the owner of the undertaking and to hear his objections before taking action. In such a situation, a hearing ex post facto may meet the requirement of natural justice. Although the principle of ex post facto hearing should not be adopted as a general rule, it can be acceptable where there is a paramount need for prompt action or where it is impracticable to afford antecedent hearing. In this connection it has to be borne in mind that many decisions by Courts are taken on the basis of ex parte applications, subject to subsequent reconsideration if and when the matter is fully argued : see De Smith (supra) p. 193. Indeed, this course was adopted by the Supreme Court in Maneka Gandhi''s case. The Central Government may, where an immediate action is called for, pass the order taking over the management u/s 18AA without giving any prior opportunity to the owner of the undertaking of being heard; but that opportunity should be afforded to him as soon as possible after passing of the order and if the owner is able to satisfy that no action was called for, the order passed should be withdrawn or cancelled. As on a proper construction of section 18AA it is implicit that the Central Government can give the opportunity of being heard even after the passing of the order when no such opportunity has been given prior to its passing, we are of opinion that the impugned order cannot be invalidated on the ground that no opportunity was given to the petitioner company before passing of the order. All that we can, in the circumstances, do is to direct the Central Government to give that opportunity to the petitioner company now.

8. It was next contended by the learned counsel for the petitioners that the Central Government issued the impugned order on a misconstruction of section 18AA. Reference in this connection was made to paragraph 12 of the return of the Central Government. It is mentioned therein that the Mill was closed on 13th April 1977 and remained closed for more than three months. The closure was prejudicial to the scheduled industry because there was loss of production and restarting of the Mill was in the interest of the general public. The condition of the plant and machinery as reported by the State Government was such that it lent itself to re-starting of the Mill. It is further stated therein that apparently reference to financial condition in section 18AA implies satisfaction that financial arrangement exists or will become available for reopening and sustaining the working of the Mill and this condition was satisfied as the State Government undertook the financial responsibility of running the Mill. The argument of the learned counsel for the petitioners is that clause (b) of section 18AA(i) refers to the financial condition of the company owning the industrial undertaking being such that it is possible to re-start the undertaking and that this condition was misconstrued by the Central Government in importing the consideration of financial arrangements which may enable re-starting of the undertaking. In our opinion, there is no misconstruction of the relevant requirements in clause (b) of section 18-AA. The expression "financial condition" as used in clause (b) has not to be narrowly construed by limiting it to the assets held by the company and on a proper construction the expression, in our opinion, includes the capacity of the company to raise finances by the methods normally employed by companies for that purpose. The language used in clause (b) does not mean that the re-starting of the undertaking must be possible solely with the help of the company''s own finances without entering into any financial arrangement or without obtaining assistance from any other person. Even if the financial condition of the company is such that the undertaking can be re-started with the help of financial assistance which it may be able to obtain from other sources, the requirement of the clause would be satisfied. It is indeed this which is stated in the return of the Central Government. The State Government was prepared to render financial assistance in case the management was handed over to the Madhya Pradesh State Textile Corporation. The assurance of financial assistance by the State Government itself showed that the financial condition of the company was not that bad that it could not be re-started.

9. It was then contended by the learned counsel that there was no documentary or other evidence with the Central Government for reaching the necessary satisfaction on matters mentioned in clause (b) of section 18AA(1). As we are directing the Central Government to hear the petitioner company to show that no action was called for u/s 18AA, we will only examine prima facie the question whether the Central Government had documentary or other evidence for reaching the satisfaction required u/s 18AA(1). Any finding given by us will not prevent the Central Government in reaching the conclusion after hearing the petitioner company that no action was needed u/s 18AA(1). We have already referred to the letter of the Deputy Secretary and to the telegram sent by the petitioner company. These two documents constituted the material on which the satisfaction of Central Government was reached. It is not disputed before us that the Textile Mill was closed for more than three months on the date of making of the impugned order. It cannot also be disputed that the closure of the Mill affected the production of textiles which is a scheduled industry and also an essential commodity. The lowering of production of textiles prima facie prejudicially affected the scheduled industry. The petitioner''s telegram and the letter of the Deputy Secretary showed that the financial condition was such that the textile Mill could be re-started by obtaining credit facility which the State Government was prepared to extend. The petitioner''s telegram also made it clear that there was no difficulty so far as the condition of the plant and machinery was concerned. The letter of the Deputy Secretary further disclosed that the closure of the Mill had thrown out of work 2700 workers and it affected the law and order situation in the area. Re-starting the Mill was thus prima facie necessary in the interest of the general public. The circumstances appearing from the Deputy Secretary''s letter and the petitioner''s telegram were thus such that the Central Government could be reasonably satisfied about the existence of the conditions mentioned in clause (b) of section 18AA(1). The argument that there was no evidence documentary or otherwise before the Central Government for its satisfaction thus must be rejected.

10. It was lastly contended that the Constitution (39th Amendment) Act, 1975, by which the Industries (Development and Regulation) Act was included at Item 88 in the 9th Schedule of the Constitution is ultra vires and void as it affects the basic structure of the Constitution. Apart from just mentioning the point, no argument was advanced in support of this point. Clause (b) of Article 31A(1) which was substituted by the Constitution (Fourth Amendment) Act, 1955, provides that "notwithstanding anything contained in Article 13, no law providing for the taking over of the management of any property by the State for a limited period either in the public interest or in order to secure the proper management of the property, shall be deemed to be void on the ground that it is inconsistent with, or takes away or abridges any of the rights conferred by Article 14, Article 19 or Article 31." No challenge has been laid before us to the Constitution (Fourth Amendment) Act. Section 18AA under which action is taken by the State Government is a law providing for taking over of the management of a property for a limited period in the public interest and in order to secure the proper management of the property. The section is thus saved by Article 31A itself. The insertion of the Act in the 9th Schedule in this respect only gives effect to the policy underlying Article 31A which is a part of the Constitution. In our opinion, therefore, the Constitution (39th Amendment) Act, 1975, in so far as it included section 18AA of the Act in the 9th Schedule, cannot be challenged on the ground that it is violative of the basic structure of the Constitution.

11. The petition is allowed to this extent that the Central Government will within two months give an opportunity to the petitioners to show cause against the impugned order u/s 18AA, and if the petitioners are able to satisfy that the conditions requisite for making of the order did not exist, the Government shall cancel the order. There will be no order as to costs of this petition. The security amount be refunded to the petitioners.