# [1986] 2 S.C.R. 187

- **Citation:** [1986] 2 S.C.R. 187
- **Court:** Supreme Court of India
- **Decided:** 1986-04-04
- **Bench:** R.S. Pathak, A.P. Sen, D.P. Madon
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1986-2-s-c-r-187-9387
- **Pages:** 43

## Headnote

Textile Undertakings (Taking over of Management) Act,
1983, sub-section 2 of section 3 -
Meaning of the words
"assets in relation to the textile undertaking" - Whether the
surplus lands appurtenant to the mill are separable as
belonging to the "Real Estate Business" carried on by the sick
11 and, therefore, do not fall within section 3(2).
The only question involved in the appeal was whether the
so-called Real Estate Division of the Company's textile
undertaking Shree Sitaram Mills was a separate and distinct
business and therefore the surplus lands did form part of the
"assets in relation to the textile undertaking" within the
meaning of sub-section (2) of section 3 of the Textile
Undertakings (Taking Over of Management) Act, 1983. In dealing
with the question, the Court referred to the history of the
y matter. The mill was established in 1875 undeor the management
of Messrs Shapurji Broacha Mills Limited on a very large tract
of land. The only real estate that it required in the later
19th
century
cgmprised
of
1 , 05, 008
square yards
which
undoubtedly was an asset of the textile undertaking although
l
the actual mill precincts were spread over 50, 749 square
yards. Early in the 20th Century, it changed hands a few times
and ultimately it was taken over by the Tantias in 1955 as a
grey unit. As revealed from the Company's balance-sheets,
~ince more than 7 years before the taking over the networth of
the Company had been in the negative. In the early 70s, the
Tantias due to spiral rise in land values in the Metropolitan
City of Greater Bombay devised a plan to dispose of vacant
lands appurtenant to the textile mill. Till the date of taking
over, the Board of Directors were engaged in disposing of the
Company's surplus lands for purposes of raising finance for
---,. the textile business. In the early 1978-79, the networth of
the Company was minus Rs. 2.80 crores, in 1979-80 minus 3.54
crores, in 1980-81 minus Rs. 3.91 crores, in 1981-82 minus
6.56 crores and in 1982-83 ~
8.67 crores. Further, asa
result of the general strike called on January 18, 1982 the
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[1986] 2 S.C.R.
company further suffered financially along with other textile~
mills in Bombay. The mill not only had the deficit for so cany
years in the negative but the losses had been increasing at an
·alarming rate. The liabilities which stood at Rs. 3.08 c~ores
by the end of March 31, 1980 rose to Rs. 4. 70 crores at the
end of March, 1981 and to Rs. 8.67 crores by the end of March,
1933. All this showed that the mill stood in need of increas-~.
ing ·-.financial
assistance
from
commercial
banks
and·
governmental and public financial institutions on concessional
rates for its resuscitation.
After the textile strike had been called off, it be~
im;ierative to consider the overall economic situation of all
the textile mills in Greater Bombay and also to consider as to-t-"
what was. the future outlook of such mills, particularly of
those which were not in a position to recommence work due to
financial' constraints.
On December 3, 1981, the Central
Goverrui.ant appointed an Investigation Committee under section
15(a)(i) of the Industries (Development and Regulation) Act,
1951 to find out the caus.e for the fall in production of the
Company's textile undertaking. The Investigation Committee
submitted its report in February 11,. 1983. In the meanwhile,
the State Government of Maharashtra by an order dated March
· 25, 1982 declared the company's textile undertaking tb be a
relief undertkaing. At a meeting called by the Reserve Bank on
·October 29, 1982, the textile mills affected by the strike/
were'classified into three categories on a general consensus,-
na:nely, Category I: Units which were viable before the strike
and continued to be as such; Category II: Units which were
"· ,
viable before the strike but-whose viability might have been
'· marginally affected by it; and Category III: Units which were
bad/sick and whos

## Text

_Characters 0–38,410 of 99,910. This is a partial read: ask again with offset=38410 for what follows._

J..
187
NATIONAL TEXTILE CORPORATION LTD. & ORS.
V•
SITARAM MILLS LTD. & ORS. ETC.
APRIL 4, 1986
[R.S. PATHAK, A.P. SEN AND D.P. MADON, JJ.]
Textile Undertakings (Taking over of Management) Act,
1983, sub-section 2 of section 3 -
Meaning of the words
"assets in relation to the textile undertaking" - Whether the
surplus lands appurtenant to the mill are separable as
belonging to the "Real Estate Business" carried on by the sick
11 and, therefore, do not fall within section 3(2).
The only question involved in the appeal was whether the
so-called Real Estate Division of the Company's textile
undertaking Shree Sitaram Mills was a separate and distinct
business and therefore the surplus lands did form part of the
"assets in relation to the textile undertaking" within the
meaning of sub-section (2) of section 3 of the Textile
Undertakings (Taking Over of Management) Act, 1983. In dealing
with the question, the Court referred to the history of the
y matter. The mill was established in 1875 undeor the management
of Messrs Shapurji Broacha Mills Limited on a very large tract
of land. The only real estate that it required in the later
19th
century
cgmprised
of
1 , 05, 008
square yards
which
undoubtedly was an asset of the textile undertaking although
l
the actual mill precincts were spread over 50, 749 square
yards. Early in the 20th Century, it changed hands a few times
and ultimately it was taken over by the Tantias in 1955 as a
grey unit. As revealed from the Company's balance-sheets,
~ince more than 7 years before the taking over the networth of
the Company had been in the negative. In the early 70s, the
Tantias due to spiral rise in land values in the Metropolitan
City of Greater Bombay devised a plan to dispose of vacant
lands appurtenant to the textile mill. Till the date of taking
over, the Board of Directors were engaged in disposing of the
Company's surplus lands for purposes of raising finance for
---,. the textile business. In the early 1978-79, the networth of
the Company was minus Rs. 2.80 crores, in 1979-80 minus 3.54
crores, in 1980-81 minus Rs. 3.91 crores, in 1981-82 minus
6.56 crores and in 1982-83 ~
8.67 crores. Further, asa
result of the general strike called on January 18, 1982 the
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[1986] 2 S.C.R.
company further suffered financially along with other textile~
mills in Bombay. The mill not only had the deficit for so cany
years in the negative but the losses had been increasing at an
·alarming rate. The liabilities which stood at Rs. 3.08 c~ores
by the end of March 31, 1980 rose to Rs. 4. 70 crores at the
end of March, 1981 and to Rs. 8.67 crores by the end of March,
1933. All this showed that the mill stood in need of increas-~.
ing ·-.financial
assistance
from
commercial
banks
and·
governmental and public financial institutions on concessional
rates for its resuscitation.
After the textile strike had been called off, it be~
im;ierative to consider the overall economic situation of all
the textile mills in Greater Bombay and also to consider as to-t-"
what was. the future outlook of such mills, particularly of
those which were not in a position to recommence work due to
financial' constraints.
On December 3, 1981, the Central
Goverrui.ant appointed an Investigation Committee under section
15(a)(i) of the Industries (Development and Regulation) Act,
1951 to find out the caus.e for the fall in production of the
Company's textile undertaking. The Investigation Committee
submitted its report in February 11,. 1983. In the meanwhile,
the State Government of Maharashtra by an order dated March
· 25, 1982 declared the company's textile undertaking tb be a
relief undertkaing. At a meeting called by the Reserve Bank on
·October 29, 1982, the textile mills affected by the strike/
were'classified into three categories on a general consensus,-
na:nely, Category I: Units which were viable before the strike
and continued to be as such; Category II: Units which were
"· ,
viable before the strike but-whose viability might have been
'· marginally affected by it; and Category III: Units which were
bad/sick and whose position had further deteriorated becauset"'
of the ·strike. In November 1982, the respondents' textile
Ulldertaking was placed in Category III.
.
,,
_The Government of India accepted this categorisation. It
was realised that none of the 13 mills falling under Category
III could be expected to survive on a sound basis without
financial
assistance
from
the
Government, . Government
controlled institutions and nationalised banks. The amunt for
rehabilitation of the aforesaid 13 mills was estimated to
aggregate to Rs. .194. 48 crores. It was expected that the
disposal of surplus lands appurtenant to some of these mills
----------------------------------------------~
N.T.C. v. SITARAM MILLS
189
· ..1--such as the respondents' textile undertaking Shree Sitaram
Mills would -largely help in raising the necessary working
capital. The Industrial Development Bank of India expected
that with this realisable asset it would be possible to make
the respondents' textile undertaking viable over a period of 7
years subject to the condition that the Tantias disassociated
themselves from the management. It was therefore clearly
-).. understood that the respondents' textile undertaking could be
made viable only with the sale of surplus lands and the
financial assistance from the Government.
~ On September 20, 1983, the Government of India Ministry
.f
Commerce, Department of Textiles constituted a Task Force
' to look into the affairs of the Category III strike-affected
~mills, including the respondents' textile undertaking Shree
Sitaram Mills. The Task Force submitted its report on October
13, 1983 i.e. just on the eve of the promlgation of the
Textile Undertakings (Taking Over of Management) Ordinance,
1983. The Task Force classified the mills falling in Category
Ill into four groups. The respondents' textile undertaking was
placed in Group II, namely, mills which were likely to be made
viable with the sale of surplus lands with a rider added that
.. a change in the management should also be brought about.
The Government of India decided, as a matter of policy,
that
it
was
desirable
to
achieve
the
process
of
nationalisation in two stages -
by first taking over the
management of the textile undertakings and thereafter enact
suitable legislation to nationalise the same. As the taking
over the management was with a view to imPlement the decision
to nationalise the said textile mills, there was no question
I!! holding an inquiry either under the Industries (Development
and
Regulation)
Act,
1951
or under
the
Sick Textile
Undertakings (Taking Over of Management) Act, 1972.
On October 18, 1983, the President of India promlgated
the Textile Undertaking (Taking over of Management) Ordinance,
1983 whereby
the management
of
13 textile undertakings
~- specified in the First Schedule vested in the Central
Government under sub-section (l) of section 3. The Textile
undertaking of the respondents Shree Sitaram Mills being one
of the aforesaid 13 undertakings, also vested in the Central
Government
together with
the
surplus
lands
appurtenant
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(1986] 2 S.C.R.
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thereto. 'nle ordinance was later replaced by an Act of
Parliaioont
being
Textile
Undertekings
(Ta!d.ng
cJver
of
Manageioont) Act, 1983 which by 'sub-section (2) of ·section I
,was brought into force with retrospective effect from October
18, 1983, the date of promlgation of· the Ordinance. 'nle
object and purpose of the legislation, as - reflected in the
B
long title, was to provide for the taking over, in the public _.._
interest, of the management of the textile undertakings of the
Companies
specified
in
the
First
Schedule,
pending
nationalisation of such undertakings and for matters connected
therewith or incidental thereto.-
- C
The respondents' textile con:pany Shree Sitaram Mills
owing the textile mill filed a petition under Art.. 226 of the -+-
Constitution
challenging
the constitutional validity
of
sub-section ( 1) of section 3 of the Act as violative of
Articles,, 14,. 19(l)(g) and 300A. By-the judgment under appeal,
a
Division . Bench of the
Bombay High Court upheld the
D
constituional validity of.the Act in-so far as the taking over
of the respondents' textile undertaking by
the Central
Government under sub-section (1) of section 3 of the Act was
concerned,
but held that the surplus
lands which
the
respondents called the Real Estate Division was not an "asset
in relation to the textile undertaking" within the meaning of
E
sub-section (2) of section 3 of the Act -and accordingly
directed the restoration of the lands to the respondents.
In appeal, the appellant contended that the surplus
lands appurtenant to the textile undertaking which the
respondents called as the Real Estate Division of the Company
F
was not a separate or distinct business arid . therefore the -'/'-"
lands did.form part of the assets "in relation to the textile
undertaking" within the meaning-of sub-section (2) of section
G
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3 of the Act.
I'
Allowing the appeals by certificate, the Court,
---
llZLD : 1. 1 The words "assets in relation to the textile
undertaking" used in sub-section (2) of section 3 of the Act
have a very wide connotation. Function of sub-section (2) of
section 3 of the Act is to amplify and define as to what is
taken within the sweep of the term "textile undertaking" as
defined in 'section 2(d), which says that the expression
N.r.c. v. SITARAM MILLS
191
-f. "textile undertaking" shall be deemed to include all assets,
rights, leaseholds, powers, authorities and privileges of the
textile company in relation to the said textile undertaking.
It does not stop at that. but goes on to say that this would
also include lands, buildings, workshops, projects, stores,
spares,. instruments,
machinery, equipment, automobiles and
other vehicles, goods under production and in transit, cash
+ balances, reserve funds, investments and booklets and all
other rights and interests in and arising out of such property
as
were
before
the
appointed
day,
in the
ownership,
possession, power or control of the textile company whether
!.
ithin or outside India. It further includes all books of
- . accounts, registers and all other documents of whatever nature
\ relating thereto. The conclusion is therefore inescapable that
·J all the assets of the company held in relation to the textile
undertaking including the surplus lands appurtenant thereto,
vest in the Central Government by reason of sub-section (2) of
section 3 of the Act. (227 G-H; 228 A-D]
1. 2 It is a well known rule of con.st ruction that in
dealing with a beneficent piece of legislation, the Courts
ought to adopt a construction which would subserve and carry
1 out the purpose and object of the Act rather than defeat it.
In interpreting such a piece of legislation, the Courts cannot
adopt a doctrinaire
or pedantic approach. In the instance
case, the legislation was clearly in furtherance of the
Directive principles of State policy in Article 39(b) and (c)
-1' of the Constitution. (223 A-<:]
1.3 The Legislature intended to take over all the assets
\ belonging to the company held in relation to the textile
undertaking. The Note attached to the report of the Task Force
includes the total lands belonging to the respondent company
for the purpose of determining the value of the assets of the
company and does not exclude the Real Estate Division. Even
for
determining
the total compensation to be
paid on
nationalisation, the Task Force takes into account the total
surplus lands of the company and does not exclude any land
"< belonging to the socalled Real Estate Division. The viability
study of the IDBI also heavily relied on the surplus lands
held by the respondents' company. Surplus lands of the textile
mills taken over under sub-section (I) of section 3 of the Act
are but a vital physical resource capable of generating and
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[1986] 2 S.C.R.
sustaining economic growth of the textile mills. There can be
no doubt that the legislative intent and object of the ~
impugned Act was to secure the socialisation of such surplus
lands with a view to sustain the sick textile undertakings so
that they could be properly utilised by the company for social
good i.e. in resuscitating the dying textile undertakings.
Hence a paradoxical situation should have been avoided by
adding a narrow
and
pedantic construction of a provision
like sub-section ( 2) of section 3 of the Act which provides .+-
for the consequences that ensue upon the taking over in public,
interest of the management of a textile undertaking under
sub-section (1) thereof as a step towards nationalisation of
such undertakings, which was clearly against the national ,
interest. [224 B-G]
~
Mew Satgraa l!ug:f.neering Works & Anr. v. Union of India & ,\,
Ors., [1981]
1 s.c.R. 406; and Union of India v. United
Collieries Ltd. & Ors., [1985! 1 s.c.c. 305, relied on.
2.1 From the official record it is clear: (i) that there
was in reality no such separate business as Real Estate
Business carried on by the company. The company was borrowing
money all the time and the proceeds of the sale of surplus
lands
and
industrial
galas were utilised to iiq>rove the -y
liquidity to pay off the creditors;
(ii) All the assets
including the surplus lands appurtenant to the mill were
assets of the coiq>any held for the benefit of the textile
undertaking; (iii) at no point of time was there a segregation
of the assets of the company for form
the
Real Estate
Division, nor were there any bifurcation of the surplus lands }-
arid transfer of title to the lands; (iv) the so called Real
Estate Division had no capital assets of its own; (v) the J
company was indebted to the tune of 6.80 crores and the
liabilities were being met by the sale and development of
lands, construction of industrial galas and the diversion of
plot No. 5 from the industrial zone to the residential zone.
The proceeds were all ploughed back into the textile business
to pay off the debts; and (vi) there was no separate account
of the Real Estate Division and the respondents have not laid
any real foundations on pleadings that the Real Estate busi- vness was separate and distinct from the textile business. It
was in reality a scheme for conversion of capital. The activity of selling the surplus lands or the industrial galas
constructed thereon had a direct nexus with, or clearly
related to the carrying on of the textile business. [214 A-D;
?~R lj.-Cl
'
N.T.C. v. SITARAM MILLS
[SEN, J.]
193
2.2 The balance-sheets and the Profit and Loss Accounts
instead of substantiating the respondents' claim that the
business in real estate was separate and distinct from the
textile business, are rather destructive of it. [222 A-Bl
A
CIVIL APPELIATE JURISDICTION : Civil Appeal Nos. 3067,
B
+
3017 and 3568 of 1984.
From the Judgment and Order dated 13th June, 1984 of the
Bombay High Court in Writ Petition No. 2714 of 1983.
K.
Parasaran,
Attorney
General,
M.K.
Banerjee,
_)Additional Solicitor General, F.S. Nariman, T.v.s.N. Chari,
C
, T.R. Desai, S. Menon, Naunit Lal, Kailash Vasdev, Mrs. Vinod
,/Arya, Ms. Indira Jaisingh, Ms. Kamini Jaiswal, P.H. Parekh,
Jitendra Sharma, Ms. Mihir Desai and Kirti Singh for the
appearing parties.
The Judgment of the Court was delivered by
D
SEN, J. These appeals on certificate directed against
the judgment and order of the Bombay High Court dated June 13,
y- 1983 raise a question of far-reaching public importance. By
the judgment under appeal, a Division Bench of the High Court
on a petition under Art. 226 of the Constitution filed by
Messrs Shree Sitaram Mills Limited, Bombay (for short 'the
petitioners') while upholding the constitutional validity of
the Textile Undertakings (Taking Over of Management) Act, 1983
-¥insofar as it provides by s. 3(1) of the Act for the taking
over by the Central Government of the management in the public
'\interest of Messrs Shree Sitaram Mills a textile undertaking
ewned by it and specified in the First Schedule to the Act,
held that the surplus land appurtenant to the Mill was not an
'asset in relation to the textile undertaking' within the
meaning of sub-s.(2) of s.3 of the Act, on the ground that the
business of real estate carried on by the Company was separate
and distinct from the textile business,
and accordingly
directed the Central Government to restore possession of the
""<said land to the Company. The issue involved !Dlst necessarily
tum on the meaning of the words 'assets in relation to the
textile undertaking' appearing in sub-s.(2) of s.3 of the Act.
E
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In order to appreciate the nature of the controversy, it
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SUPREME COURT REPORTS
[1986] 2 s.c.R.
+
is necessary to state a few facts. Tiie mill now known as Shree
Sitaram Mills was established in 1875 under the management of
Messrs Shapurji Broacha Mills Limited on a very large tract of
land located in the heart of the metropolitan city of Greater
Bombay. Tiie only real estate that it acquired in the late 19th
Century comprised of 1,05,008 square yards which undoubtedly
was an asset of the textile undertaking, although the actual
mill precincts were spread over SO, 749 square yards. Early in +
the 20th Century it changed hands a few ti.mes and ultimately
it was taken over by Tantias of Calcutta in 1955 as a grey
unit. Tiie Company's share capital comprised of equity shares
of the value of Rs.
45 lakhs and
cumulative redeemable
preference shares worth Rs. 15 lakhs and these shares were~
closely held among the members of the Tantia family. After the
take over in 1955, the Tantias apparently had undertaken a k
scheme of modernisation resulting in the development of the
mill into a highly export-oriented unit including the addition
of an updated process house involving a total outlay of Rs.2
crores which was
financed through loans taken from the
National Industrial Development Corporation• During the 60s,
the Company's performance had only been average, incurring
losses for five years and making profits for the remaining
five years with the result that in the overall balance the -y
Company managed to survive without substantially adding to its
reserves. During the next period between 1971 to 1980, the
investment on plant and machinery was mini.mal at about Rs. 42
lakhs and the only major scheme of modernisation that the
Company planned was under the Soft Loan Scheme when in 1977 it .,_
made an application to the Industrial Development Bank of
India (IDBI) since a substantial portion of its machinery was
1
not in a state of good repairs.
Tiie Company had not declared )
any dividend on its shares for several years. In the early 70s
i.e. during the years 1971-72, 1972-73 and 1973-74 which were
profitable years for the textile industry as a whole, the
Company made profits which were attributable to its textile
undertaking.
Due to unprecedented floods in 1974 and various other
factors,
the
financial condition of
the
Company
became
precarious, As is reflected from its
balance-sheets, the
Company had been making continuous losses at an increasing
rate from the year 1974-75 onwards. Even though the years
1978-79 and 1979-80 were comparatively good
for the textile
,
N.T.C. v~ SITARAM MILLS
[SEN, J.]
195
~
industry, the Company continued making losses largely due to
shortage of working capital and strained liquidity position.
It had leased out its process house to Messrs Bhartiya
Electric Steel Company Limited, a sister concern of the
Tantias, from 1977 to provide 'financial support to the mill
but it was not fruitful. The strained liquidity position had a
-4. vicious effect affecting the quality of raw material and
stores purchases resulting in distress sales mainly because
the company was not able to attract , competent talent for
managing its affairs.' As a cullJ.llative effect of all these
factors, the Company continued to slide down steeply and the
capacity utilisation became the first victim leading to a fall
in the volume of production. As, mentioned in the IDBI report:
--+
''Even if large funds were pumped at a concessional
rate, the Company would take,. 20 years to wipe out
its liabilities."
As is revealed from Company's balance-sheets, since last
core than seven years before the taking over, the net-worth of
the Company had been in the negative. In the yea·r 1978-79 the
networth was minus Rs. 2.80 crores, in 1979-80 minus Rs. 3.54
crores, in 1980-81 minus Rs. 3.91 crores, in 1981-82 minus Rs.
6. 56 crores and in 1982-83 minus Rs. 8. 67 crores. It would
~ therefore appear that the networth had not only been negative
I
but the negative factor had been increasing at a rapid rate
over the years. There was also loss in the Profit & Loss
Account. The mill not only had the deficit in the past for so
many years in the negative but the losses had been increasing
at an alarming rate. Even during 1978-79 when there was a
--; textile boom in the country, the Company's losses we:e to the
tune of Rs. 2.80 crores. The balance in the Profit & Loss
Account is reflected as follows :
r'
Balance in the Profit & Loss Account
(Year ended 30th of June
1975
1976
1977
1978
1979
1980
1981
1982
(In Rs.)
15,72,746
35,72,256
1,77,71,023
2,72,68,303
3,43,59,540
4,18,24,930
4,55,00,000
7,19,00,000
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[I986J 2 s.c.R.
As a result of this, the Company resorted to borrowings far in ~
excess of its limits, the amount drawn on June 30, I983 being
Rs.
4. 75 crores as against the drawing power of Rs. I.97
crores.
The
petitioners
also
purported
to
enter
into
transactions
of
the
pledged
goods
which
were
already
hypothecated to the Company's bankers without disclosing the
fact either to the bankers or the purported pledgees. The mill
stood
in
need
of
increasing financial
assistance
from ~
commercial
banks
and
governmental
and
public
financial
institutions on concessional rates for its resuscitation.
There were accumulated losses of the order of over Rs. I. IO
crores in the year ended March 3I, I980 and accumulated losses
to the tune of Rs. 91 lakhs as on March 3I, I98I. The
secured_~
loans outstanding to the Company's bankers as on March 3I,
I980 were of the order of Rs. 2.80 crores which increased to _.,
Rs. 3.64 crores by March 3I, I98I. The current liabilities
which stood at Rs. 3.08 crores by the end of March 31, I980
rose to Rs. 4.70 crores at the end of March 3I, I981.
All this clearly shows that the financial condition of
the Company even before this general strike was grave. The
fact that the Company's affairs were being mismanaged was
evidenced by the mounting arrears of workers dues to the y
staggering figure of Rs.77 lakhs as on October I8, 1983 when
the Ordinance was
promulgated,
in spite of the financial
assistance by the banks and other financial institutions, and
debentures in an increasing manner. During the year I981 the
Company
received
fresh
financial
assistance
from
IDBI,
Maharashtra State Financial Corporation and other financial Yinstitutions aggregating to over Rs. 47 lakhs. As already
stated, the annual statements of accounts for the year ended )
March 3I, 1980 and March 3I, 198I were wholly unsatisfactory
on
account
of
mismanagement
of its affairs with hugel
outstandings due to the workers, and the reserves of the
Company had been wiped out by the accumulated losses. The mill
could not be revamped into production and rehabilitation to
subserve the interest of the general public to achieve
national growth and particularly to prevent unemployment of
thousands of workers without investment of large sums of money
by public financial institutions for such reorganisation and
rehabilitation.
It is needless to stress that the textile industry in
----~---~-
N.T.C. v. SITARAM MILLS
[ SEN, J.]
197
India has played an important role in the growth of national
economy and at one time the Indian Textiles were in great
demand in the world market. It occupies an important position
in the indu.1to:ial field in India both because it produces_ an
essential commodity the production of which makes the country
self-sufficient and also the export of which helps in building
-4 up its foreign exchange reserves. It . is also of importance
because it gives employment to a large number of persons. The
textile mills in_ Greater Bombay have always occupied an
important position in the textile industry in India as the
textile mills represent - in terms of both capacity and
production the largest single concentration in the field of
4
I
textile industry. In these circumstances, such textile mills
located in . Greater Bombay have always been of special
importance in the economy and the Government of India has
always been conscious of necessity of preserving such mills
and of assisting them
by granting wherever necessary assistance to the.industry including loans through public· financial
institutions on concessional terms to prevent their having to
close down. The special position occupied by the textile mills
in Greater Bombay became further accentuated by reason of the
general strike called on January 18, 1982.
!
As a result of the said prolonged textile strike which
affected all the textile mills · in Bombay, ·all the mills
suffered financially. Even prior to the commencement of the
· said textile strike, the financial position of the various
textile mills in Bombay was not uniformly good. Whereas there
were several mills which were in sound or excellent financial
condition, there were other textile mills whose financial
condition even prior to the strike -was not satisfactory. The
main reason why certain mills were not in a sa;isfactory
financial condition was lack of proper management. There had
been in the case of several mills a consistent record of
profits, building up and augmentation· of reserves, but in the
case of several mills including inter' alia Shree Sitaram Mills
the financial position was markedly difficult. These mills
were not in a sound financial condition as the others. As the
overall economic factors applicable to all textile mills in
Greater Bombay were broadly and generally comparable, the
weaker position of the mills in question was attributable to
mismanagement.
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198
SUPREME COURT REPORTS
(1986] 2 s.c.a.
After the textile .stirke had been called off it became)'
imperative to consider the overall economic situation of all
the textile.mills in Greater Bombay and also to.consider as to
what was the future outlook of such mills, particularly of
those which were not in a position to recommence work due to
financial constraints. Faced with the problem of rendering
B .
financial
assistance
and
rehabilitation
to
the
textile
industry the Reserve Bank of India carried out a survey of the·~
sick textile mills which had a disasterous effect on the
financial viability which
could
only
be
attributed to
mismanagement.and a situation further worsened by the general
strike. The question before the Government of India was to
c
evolve a scheme to put the textile industry on its feet.
On December 3, 1981 the CentraL Government appointed an Jr
Investigation Committee under s.15{a)(i) of the Industries
(Development & Regulation) Act, 1951 to find out the causes . ·
for the fall in the volume of production of the Company's
I
.
D
textile undertaking. The Investigation Committee submitted its
report dated February 11, 1983 a copy of which was also
forwarded to the respondents. It recommended that the IDBI and
the nationalized banks should finance and put through expeditiously the rehabilitation programme proposed by the Company
by keeping full control over the management. In the meantime
E
the State Government ·of Maharashtra by its order dated May 25,
1982 declared the Company's textile undertaking to be a relief
undertaking entitled to protection under the Bombay Relief
Undertakings Act, 1958.
,
At a meeting called by the Reserve Bank on October 29,
F •. ·, 1982 at which were present the Deputy Governor, Reserve Bank ·
,
of·.lndia, Joint Secretary, Ministry of Fi~nce (Banking), ~
Chief ··.Secretary,
Government
of
Maharashtra,
Industries
Secretary, Government of Maharashtra; Executive Director and
Senior Representatives of IDBI and Senior Representatives of
.
(
~-
concerned Banks, textile . mills affected by the . strike were
G
·classified into three categories on a general consensus :
Category, I
. Cat;;gory II
H
Units which were viable before the
strike and continued to be as such.
--+-
Units which were viable before the
strike but whose viability might have
been marginally affected by it.
N.T.C. v. SITARAM MILLS
[SEN, J,]
199
Category III
Units which were bad/sick and whose
position
had
further
deteriorated
because of the strike.
However,
subsequently in November
1982,
the respondent,
textile undertaking was placed in Category III viz., units
which
were
bad/sick
and
whose
position
had
further
deteriorated.
The Government of India accepted this categorisation. It
was realized that none of the 13 mills falling under Category
-
III could be expected to survive on a sound basis without
'
1financial
assistance
from
the
Government,
Government
_)'-controlled institutions and nationalised banks. None of the
said mills were in a position to restore their financial
-)., condition
on
a
coumercial
basis
without
such
special
assistance. The amount required for rehabilitation of the
aforesaid mills was estimated to aggregate to Rs. 194.48
crores to be contributed by public financial institutions such
as the IDBI, the nationalized banks and 10% promoters share
etc. It was also expected that the disposal of surplus lands
appurtenant to some of these mills such as the respondents
textile
undertaking
Shree
Sitaram
Mills
would largely
'Y-help in raising the necessary working capital.
As decided at the aforesaid meeting called by the Reserve
Bank, the IDBI was to take a detailed viability report in
respect of mills falling under Category Ill which it did and
submitted its report sometime in March 1983 in respect of each
~ -'l'mill in that category. So far as the respondents were concern_.___, ed, as regards its management the IDBI adversely coamented on
-- 'the management of the mill by the Tantias as a result of
which the bankers of the Company had lost confidence in them'
and
'indicated
that no
loans could be advanced unless
Tantias were agreeable to dissociating themselves from the
mismanagement. It also referred to the Inquiry Committee
appointed by the Government of India to look into the affairs
of the Company which had attributed the continuous losses
incurred by the Company to gross mismanagement. After setting
•
out a long term scheme of financing of the textile mill by
public financial institutions,, the report observed :
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''Even assuming that the Company will be able to
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SUPREME COURT REPORTS
[1986) 2 S.C.R. :
'
utilize 75% of its cash accruals to liquidate its>:-
term liabilities, it will take over 20 years for it ·
. to repay its term commitments (including the funded
loan) aggregating to Rs. 7.59 lakhs".
It accordingly observed that the mill could not be considered
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viable, but'added :
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"However, the Company has surplus lands admeasuring
6625 square metres within the factory area which is
proposed to be disposed off and for which it had
already obtained the approval of Government of
Maharashtra under Urban Land Ceiling Act.
The
Company expects to realize about Rs. 2. 05 crores
from the ·sale of the land. The Company also has
plans to ·construct residential buildings thereon
'for sale to financial institutions/banks etc. in
which case, it expects net realization from such
sales at · Rs.
3.05 crores towards the end of
1984-85".
With this realisable asset,. the IDBI expected that it would be
possible to make the respondents textile undertaking viable
over a
period of seven years. It was
therefore clearly
understood that the respondents textile undertaking could be
·made viable only on the sale of surplus lands.
On September 20, 1983 the Government of India, Ministry
of Commerce 0 Department of Textiles constituted a Task Force
, to look into the affairs of the Category III strike affected
mills. The Task Force under the terms of reference had to
collect ·the necessary data ·and place its report before ther
Economic Affairs Committee of the Union Cabinet to enable the
Government to take a decision as to which of the mills falling
under · Category III should be/ nationalised. The Task Force
submitted its report on October 13, 1983 i.e. a few.days prior
G
to the prom.1lgation of the Ordinance by· which it classified
the mills falling in· Category III into four groups. The
respondents' textile undertaking was placed in Group II viz.
mills which were likely to be made viable with the sale 'o
surplus lands, with a rider added that ·a change in the
management should also be brought about. It estimated that the
H
total liabilities of the mills falling in Category III were of
the order of Rs. 194.48 crores.
..
N.T.C. v. SITARAM MILLS
[ SEN, J, ]
201
A
It became therefore necessary to consider whether such
-f mills
should
be
rehabilitated
by
injecting public funds
on non-commercial and concessional terms. The Government of
India was of the opinion that the management of such mills had
been defective as, had there been no mismanagement, the mills
would not have found themselves in the condition in which they
B
Jere even before the general strike. In the circumstances the
Government of India had to consider whether it would be in the
-i. public interest that such public finances
shoul,d
be
made
available to such mills particularly when
there were serio~s
allegations of mismangement, frittering away of assets of the
textile undertakings, diversion of funds, etc. It had also to
, consider whether in the public interest it was desirable to
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give financial assistance on concessional terms to provide
undertakings the self-sufficiency rather than to take over
-.),
~uch undertakings and manage them itself as a step towards
nationalisation. The Government of India decided as a matter
of policy that it was desirable to achieve the process of
nationalisation in two ·stages -
by first taking over the
D
management of the textile undertakings and thereafter enact
suitable legislation to nationalize the same.
As
the taking
over of the management was with a view to implement the
decision to nationalize the said textile mills, there was no
y
question of holding an inquiry either under the Industries
(Development and Regulation) Act,
1951 or under the Sick
E
Textile Undertakings (Taking Over of Management) Act, 1972,
Prior to November 1982, there were several viability
surveys made by different authorities, namely, (1) Ahmedabad
-1'
Textile
Industries
Research
Association
(2)
Textile
Commissioner's Office (3) S.R.
Batlibhoy & Company
and an
\
independent survey by the IDBI itself. In 1976-77, at the
.instance of the IDBI the Ahmedabad Textile Industries Research
Association carried on a technoeconomic viability survey and
made its report in 1978 which at the request of the United
Conmercial Bank was
again updated in March
1979.
In its
reports, the said Research Association stated that considering
all financial aspects and the favourable enviornment of the
Company'~ textile undertaking, it was a techno--economically
viable unit and that finance should be provided by way of
working capital .to the tune of Rs. 2.40 crores forthwith by
the Bank. In or about 1979, the Textile Conmissioner's Office,
Ministry of Finance, Government of India also carried out a
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SUPREME COURT REPORTS
[1986] 2 s.c.R.
full scale survey of the textile undertaking. Its report dated
September 25,
1979 recommended
the Banks
to review the
situation favourably and that an additional wcrking capital
estimated at around Rs. 50 lakhs should be provic'·?d. After the
aforesaid survey report of the Research Association and the
Textil" Commissioner's Office the IDBI asked the Company to
obtain a further · techno-economic viability survey from the
reputed chartered accountants Messrs S.R. Batlibhoy & Company.
~
The· firm of chartered accountants accordingly undertook a
survey and while indicating that the management should be
s trenghthened in certain areas, recommended that necessary
finance ·should be provided to the Company as its textile
undertaking was a techno-economically viable unit. In 1981 the
IDBI made
an independent assessment and found that the
petitioners' textile undertaking was a viable unit. It was a
·predominantly export-oriented unit and
the modernisation
sche:i>:! put f oward by the Company could ensure gainful employment to 3,000 workers. At that point of time the Company had
outstanding export orders to the tune of Rs. 4. 5 crores but
I
•
was not able to execute the same as per schedule on account of
lack of working capital. It. found that the Company's export
performance was to the extent of 75% of its total sales and
there was possibility of stepping up exports after completion
of the scheme of modernisation.
All these surveys were directed in ascertaining whether
the Company's textile undertaking was
a
techno-economically
viable·unit or not and whether it was desirable to provide the
Company with working capital.
F
On October 18, 1983 the. President of India prorulgated
the •• Textile
Undertakings
(Taking
Over
of
Management) '--
Ordinance,. 1983 whereby the management of 13 textile underT
takings specified in the First Schedule to the Ordinance
vested in the Central Government. The textile undertakings of
the respondents being one of the aforesaid-13 undertaking also
G
vests in the Central Government. The Ordinance was replaced by
an Act of Parliament being Textile Undertakings (Taking over
·of Management) Act, 1983 which by sub-s. (2) of s. l was
brought into force.with retrospective effect from October 18,
1983, the date of prorulgation of the Ordinance. The purpose
and object of the Act, as reflected in the long title, was to
H
provide for the taking over in the public interest of the
N.T.C. v; SITARAM MILLS
[SEN, J.]
203
--4-management of the textile undertakings of the Companies specified in the First Schedule pending nationalisation of such
undertakings and for matters connected therewith or incidental
thereto.