# DWARKADAS SHRINIVAS OF BOMBAY v. THE SHOLAPUR SPINNING & WEAVING CO

- **Citation:** [1954] 1 S.C.R. 674
- **Court:** Supreme Court of India
- **Decided:** 1954
- **Case number:** CIVIL APPEAL No. 141 of 1952
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/dwarkadas-shrinivas-of-bombay-v-the-sholapur-spinning-weaving-co-330
- **Pages:** 65

## Headnote

1953
T!11 Sta11 of
W1Jt B1ngal
Y,
Subodh Gopal
BoJt a11d Otlitrr.
JazannU!11u/as J.
195~
Dec. 18.
674
SUPREME COURT REPORTS
[1954}
of Eminent Domain. It is on a par with article 21.
It seems to me to serve a distinct purpose over and
above that relating to the law of Eminent Domain,
viz., that it relates also to deprivation of property
other than that which may fall within the scope of
article 31 (2). It enjoins that such deprivation shall
not be brought about save by authority of law.
In view of what I have said above, it follows that
the
assumption
with which I have
started, vit:., that
this is a case falling under article 19 (1) (f) :md (5) is, in
my opinion, correct.
In the result I agree that the appeal should be
allowed with costs here and in the High Court.
Appeal allowed.
Agent for the appellant : P. K. Bose.
Agent for respondent No. 1 : R. R. Biswas.
DWARKADAS SHRINIVAS OF BOMBAY
v.
THE SHOLAPUR SPINNING & WEAVING CO.
LTD., AND OTHERS.
rPATANJALI
sAsTRI c.J., MEHR
CHAND
MAHAJAN,
S. R. DAs, VIVIAN BosE
and GHIJLAM HASAN JJ.]
Sholapur Spinning and Weaving Co1npany
(Emergency Prouisions)
Ordinance II of 1950, replaced by Act XXVl!l
of !950H1 hether ultra vircs art. 31 of the Constitution-Arts. 19 and 31Scope of-Whether different.
The Sholapur
Spinning and Weaving Co., Ltd., was incorpo
4
rated
under the Indian Companies Act, 1913, with an authorised
capilal of Rs. 48 lakhs
divided into 1590 fully
paid up ordinary
• shares of Rs. 1,000 each, 20 fully paid up ordinary shares of Rs. 500
each and 32,000 partly
paid up cumulative
prcferenc<":
shares of
Rs. 100 each, the paid up capital of the Company being- Rs. 32 lakhs
comprised
of Rs. 16
lakhs fully
paid up
ordinary shares and
Rs. 16 lakhs partly paid up preference shares, Rs. 50 being unpaid
on each of the 32,000 cumulative preference shares. The Company
did goo<l business and declared high dividends for son1c time ; but
in the year 1949
there \Vas accumulation of stocks
and financia1
difficulties. On the
27th July, 1949, the Directors gave notice Gf
•
S.C.R.
SUPREME COURT REPORTS
675
their decision to close the Mills to the workers, and pursuant
to
this notice the Mills were closed.
Thi• created a labour problem
and to solve it the Governn1cnt on he 5th October, 1949, appointed
a Controller
to supervise
the affairs of the· Mills
under the
Essential
Supplies Emergency
Powers
Act,
1946.
On the 9th
Novcrnher, 1949,
the Controller in order to resolve
the deadlock
decided to call in 1nore capital
and asked
the Directors of the
Company to n1ake a call of Rs. 50 per share, on the preference
shareholders,
the amount remaining unpaid on each of the prefer~
ence shares.
The
Directors
refused- to comply with this rcquisi~
tion, as in their judgment, this was not in the interests of the
Company.
'[hereupon the Govcrnor~Gcncral on the 9th
January,
1950, pro1nulgated the itnpugne<l Ordinance, under which the Mills
could be
1nanaged
an<l run
by
the Directors appointed by the
Central
Government.
On the
9th
January,
1950,
the Central
Govern1nent acting under s. 15 of the Ordinance delegated all iu
powers
to
the
c;overn1nent
of Bombay.
The Government
of
Bombay
then
appointed
certain
Directors
\Vho took over
the
assets
and inanagemcnt of the Mills.
On the 7th February, 1950,
they passed a resolution
1nakinp,: a call of Rs. 50 on each of the
preferc-nce shares
payable
at
the
titnc
stated in the resolution.
Pursuant
t~ this resolution a notice was addressed on the 22nd
February, 1950,
to the plaintiff
in the suit
\vho held preference
shares, to pay Rs. 1 ,62,000 the amount of the said call on or ~fore
the 3r<l April,
1910. Tht': plaintiff instead of meeting the demand,
filed the present suit on the 28th March, 1950, in a represt":ntativc
capacity on behalf of hi1nself
and other
preference
shareholders
against the Coinpany and the Directors
appointed by the Government of Ro111bay challenging the validity of the Ordinance and
qucstiof1ing the right of the
Directors
to make the call.
It was
alle

## Text

_Characters 0–39,837 of 148,182. This is a partial read: ask again with offset=39837 for what follows._

1953
T!11 Sta11 of
W1Jt B1ngal
Y,
Subodh Gopal
BoJt a11d Otlitrr.
JazannU!11u/as J.
195~
Dec. 18.
674
SUPREME COURT REPORTS
[1954}
of Eminent Domain. It is on a par with article 21.
It seems to me to serve a distinct purpose over and
above that relating to the law of Eminent Domain,
viz., that it relates also to deprivation of property
other than that which may fall within the scope of
article 31 (2). It enjoins that such deprivation shall
not be brought about save by authority of law.
In view of what I have said above, it follows that
the
assumption
with which I have
started, vit:., that
this is a case falling under article 19 (1) (f) :md (5) is, in
my opinion, correct.
In the result I agree that the appeal should be
allowed with costs here and in the High Court.
Appeal allowed.
Agent for the appellant : P. K. Bose.
Agent for respondent No. 1 : R. R. Biswas.
DWARKADAS SHRINIVAS OF BOMBAY
v.
THE SHOLAPUR SPINNING & WEAVING CO.
LTD., AND OTHERS.
rPATANJALI
sAsTRI c.J., MEHR
CHAND
MAHAJAN,
S. R. DAs, VIVIAN BosE
and GHIJLAM HASAN JJ.]
Sholapur Spinning and Weaving Co1npany
(Emergency Prouisions)
Ordinance II of 1950, replaced by Act XXVl!l
of !950H1 hether ultra vircs art. 31 of the Constitution-Arts. 19 and 31Scope of-Whether different.
The Sholapur
Spinning and Weaving Co., Ltd., was incorpo
4
rated
under the Indian Companies Act, 1913, with an authorised
capilal of Rs. 48 lakhs
divided into 1590 fully
paid up ordinary
• shares of Rs. 1,000 each, 20 fully paid up ordinary shares of Rs. 500
each and 32,000 partly
paid up cumulative
prcferenc<":
shares of
Rs. 100 each, the paid up capital of the Company being- Rs. 32 lakhs
comprised
of Rs. 16
lakhs fully
paid up
ordinary shares and
Rs. 16 lakhs partly paid up preference shares, Rs. 50 being unpaid
on each of the 32,000 cumulative preference shares. The Company
did goo<l business and declared high dividends for son1c time ; but
in the year 1949
there \Vas accumulation of stocks
and financia1
difficulties. On the
27th July, 1949, the Directors gave notice Gf
•
S.C.R.
SUPREME COURT REPORTS
675
their decision to close the Mills to the workers, and pursuant
to
this notice the Mills were closed.
Thi• created a labour problem
and to solve it the Governn1cnt on he 5th October, 1949, appointed
a Controller
to supervise
the affairs of the· Mills
under the
Essential
Supplies Emergency
Powers
Act,
1946.
On the 9th
Novcrnher, 1949,
the Controller in order to resolve
the deadlock
decided to call in 1nore capital
and asked
the Directors of the
Company to n1ake a call of Rs. 50 per share, on the preference
shareholders,
the amount remaining unpaid on each of the prefer~
ence shares.
The
Directors
refused- to comply with this rcquisi~
tion, as in their judgment, this was not in the interests of the
Company.
'[hereupon the Govcrnor~Gcncral on the 9th
January,
1950, pro1nulgated the itnpugne<l Ordinance, under which the Mills
could be
1nanaged
an<l run
by
the Directors appointed by the
Central
Government.
On the
9th
January,
1950,
the Central
Govern1nent acting under s. 15 of the Ordinance delegated all iu
powers
to
the
c;overn1nent
of Bombay.
The Government
of
Bombay
then
appointed
certain
Directors
\Vho took over
the
assets
and inanagemcnt of the Mills.
On the 7th February, 1950,
they passed a resolution
1nakinp,: a call of Rs. 50 on each of the
preferc-nce shares
payable
at
the
titnc
stated in the resolution.
Pursuant
t~ this resolution a notice was addressed on the 22nd
February, 1950,
to the plaintiff
in the suit
\vho held preference
shares, to pay Rs. 1 ,62,000 the amount of the said call on or ~fore
the 3r<l April,
1910. Tht': plaintiff instead of meeting the demand,
filed the present suit on the 28th March, 1950, in a represt":ntativc
capacity on behalf of hi1nself
and other
preference
shareholders
against the Coinpany and the Directors
appointed by the Government of Ro111bay challenging the validity of the Ordinance and
qucstiof1ing the right of the
Directors
to make the call.
It was
alleged in the suit that the Ordinance \Vas
illegal and ultra vire.r
and invalid as it contravened the provisions of Section 299(2) of the
(;overntnent of India Act, 1935,
and the provisions of Part III of
the Constitution
an<l that the resolution
of
the
Directors dated
7th February, 1950, inaking a call ,Vas illegal and ultra vires as
the law under \vhich they were appointed was itself invalid. The
suit \Vas <lismissed by the Trial Judge and his decision was affinned
on appeal by a Division
Bench of the Bombay High Court by the
Judgment dated 29th August, 1950. The plaintiff preferred the
present appeal to the Supre1nc Court. This appeal concerns the
validity
of the same Ordinance and the J\ct replacing
it
\Vhich
were considered by the Supreme Court in the case of Chiranjit Lal
Chowdhuri (1950 S.C.R. 869). There an ordinary shareholder of
the defendant Company holding one fully paid up share challenged
the Yalidity of the Sholapur Spinning and Weaving Co. (Emergency Provisions)
Ordinance II of 1950 and Act XXVIII of 1950,
«eking relief under Article 32 of the Constitution on the ground
that the said Ordinance and the
Act abridged his
fundamental
.rights conferred on him under Articles 14, 19 and 31 of the Constitution. The Supreme Court dismissed the petition by a majoriy of
DW1lr/i;tlt/11i
Sllrinivtu of
s.,,.,,.,
v.
Tiu Sh1l_,11
Spi!tttin1: mr4
Weaoiot Co. Ltil.f
4n.l Oth1r1.
1953
Dwarkadas
Shrir.ivtu of
BGmhay
v.
The Sholapur
Spinning and
Weaving Co. Ltd.1
and Othtrs.
676
SUPREME COURT REPORTS
[1954]
3 to 2 holding that the
presumption in regard to
the
Constitutionality of the Act had not been displaced by the petitioner and
that it had not been proved that the i1npugned statute was a hostile
or <liscrin1inatory piece of legislation as against him
or that the
State had taken possession of his share. The minority held that
i1npugnc<l statute \Vas \•oid as it abridged the
petitioner's fundan1ental rights under Article 14 of the Constitution. This de..::ision
was delivered on 4th Dece1nber, 1950.
The suit giving rise to the
present appeal \Vas decided by the Bo1nbay High Court durin~ the
pendency of Chiranjit Lal Chowdhuri's petition in
the
Supreme
Court :
Held,
(per
PATANJALI
SAsTRI
C. J.,
MAHAJAN, BosE,
an<l
(;HL'LAr.r HASAN JJ.) (i) that the
impugned Ordinance and th~ Act
replacing it authorise in effect a deprivation of the property of the
Con1pany ,vithin the n1eaning of Article 31 'vithout compensation
and are not covered by the exception in clause (S)(b) (ii) of that
Article. The Ordinance and the Act thus violate the fundamental
rights of the Company under Article 31(2) of the Constitution and
the appellant as a preference shareholder who is called upon to
pay the inoneys unpaid on his shares
is entitled to impugn their
constitutionality.
(ii) that the previous
decision
of
the
Supren1e
Court in
Charanjit Lal Chotudhuri v. The Union of India and Others{1)
is
distinguishable and has no application to the present case.
Per MAHAJAN J.
(i) Constitutional
prov1s1ons
for the
security of person and
property should be liberally
construed.
A close and literal
cons·
truction
deprives
then1
of half their efficacy and leads to gradual
depreciation of the right, as if it consisted 1nore in sound than in
substance.
It is the duty of
C'_,ourts to be
\Vatchful for the constitutional rights
of the citizen and against any stealthy encroachments thereon.
Boyd v. United States ( 1) referred to.
By
promulgating
the
Ordinance,
the
Government has not
merely taken oYcr the superintendence of the affairs of the Con1·
parry but has in effect
and substance taken over the undertaking
itself.
In the situation the contention
has no force that the effect
of
th<":
Ordinance is that the Central Government has taken over
the superintendence of the
affairs of the Con1pany
and that the
i1npugned legislation
is
n1erely
regulative
in character.
In the
present case practically all incidents
of ownership have been taken
over by the State and nothing has been left \Vith the Company but
the mere husk
of title and in the premises the impugned statute
has oYerstcppcd the limits
of legiti1nate
Social Control Legislation
and
has
infringed
the
funda1nental
right
of the
Company
guaranteed to it under Article 31(2) of the Constitution ~1nd is,
therefore, unconstitutional.
(I) (1950] S. C.R. 869.
(2) !iii L'. S. 616
•
'
S.C.R.
SUPREME COURT REPORTS
677
(ii) It is
significant that Article 31
deals with
private property of persons residing in the Union of India, while Article 19
only' deals
with citizens defined in Article 5 of the Constitution.
It is obvious that the scope of these two i\rticles cannot be the
sa1ne
as
they cover
different
fields.
The true approach to this
question is that these two 1\rticles really deal with two different
subjects and one has no direct relation with the other, nan1ely,
Article 31
deals with the field of e1ninent
domain and the \vhole
boundary of that field is demarcated by this Article.
From the
language entployed in the different sub-clal-lses
of
Articie
31 it
is
difficult to escape the conclusion that the words
"acquisition"
and "taking possession" used in Article 31(2) have
the same 1neaning as the word "deprivation" in Article 31(1).
(iii) Article 31
is
a
self-contained
provision
delimiting the
field
of eminent and clauses ( l) and (2) of Article 31 deal with the
s:unt: topic of compulsory acquisition of property.
Article 31 gives
complete protection to
private property
as
against executive
action,
no 1natter by what process a person is
deprived of possession of it.
It is a narrow view that "acquisition" necessarily means acquisition of title in whole or part of the property and cannot be
accep~ed. The
word
"acquisition"
has quite a
wide; concept,
n1ean1ng the procuring of property or the taking of it pern1anentiy
or
ternporarily.
It
does
not
necessarily
iI!lply
acquisition
of
legal title by the State in the property taken possession of.
Minister of State for the Army \'. Dalziel (68
C.L.R.
261)
referred to.
Per Das /.
(I) As the appellant as a preference shareholder is directly
affected
by
the impugned statute, \vhich
circumstance
distingui·
shes
this case
fron1 Chiranjit Lal'; case, it must be held that the
appellant is
entitled
to challenge the Ordinance which dismissed
the Directors elected by the shareholders,
authorised the
appoint~
ment of Direc:.tors by the State and n1a<le it possible for the Dire.:·
tors
so appointed to make the call and thereby impose a liability
on all preference shareholders including the appellant.
(II) The provisions of the Ordinance and the Act are drastic
in
the ·extreme. The Managing Agents and the elected Directors
have been dismissed and ne\v Directors have been appointed by the
Stat~. So far as the Company is concerned it has been complete·
ly denuded of the possession of its property.
All that has been left
to the Company is its bare legal title. It is impossible to uphold
this la\v as an instance of the exercise of the State's police power
as
an emergency measure.
It has
far
overstepped the limits of
police power and is,
in substance, nothing short of expropriation
by
way of the exercise of the power of eminent domain and as
the law has not provided for any compensation it must be held to
offend the provisions of Article 31(2).
1953
Dwark,a,tliu
Shrinivas of
Bombay
v.
The Sholapur
Spinning and
Weaving Co. Ltd.,
and Othtrs.
19~3
DuJ4,k<JdoJ
ShtinilllU ef
.Bombay
v.
The Sholapur
Spinning and
Weaiiing Co. Ltd.,
and Others,
678
SUPREME COURT REPORTS
[1954]
Per Bos• J.
The words "taken possession of" or "acquired"
in
.~rticle
31(2) have to be
read along with the word "deprived" in clause
(1). The possession and acquisition referred to in clause (2) mean
the sort of "possession" and "acquisition" that amount to "deprivation" within the meaning of clause (1). No hard and fast rule
can
be
laid
down.
Each
case
must depend
on
its
own
facts.
But if there is substantial
deprivation,
then clause (2) is
attracted.
Per GHULAM HASAN J.
The Act in substance robs the Company of every vestige of right,
except what has heen laconically
called the husk of the title. The
impugned Act oversteps
the constitutional limits of the power conferred upon the
State and offends against the provisions of Article 31 and must therefore be held to be void.
The intention underlying Article 31 being the protection of property against invasion by the State, both parts (1) and (2) of Article 31
should be
read together so as to harmonize that intention.
The two parts of the Article form
an integral whole and cannot
be dissociated from earh other.
Article 31 is wider than Article
19(1)(£) which confers upon a citizen only the right to acquire, hold
and dispose of property and is different in scope and content.
Chiranjit Lal Chowdhuri v. The
Union of India and Others
([1950] S.C.R. 869)
distinguished,
The State of West Bengal v.
Subodh
Copa/
Bose
and
Others
([1954] S.C.R.
587),
Boyd
v. United States (116 U.S. 616), Pennsylvania Coal Co. v. Mahon
(260
U.S.
322), A. K. Copa/an v. The State of Madras
([1950]
S.C.R. 88), State of Bihar v. Maharajah Kameswar Singh and Others
([1952] S.C.R. 889), Minister of State for the Army v. Dalzid
(68 C.L.R. 261), Tan Bug Tain v. Collector of Bombay (I.L.R. 1946
Born. 517),
and Jupiter
General Insurance
Co. v. Rajagopalan
(A.LR. 1952 Punjab 9), referred to.
CIVIL
APPELLATE
JURISDICTION :
CIVIL
APPEAL
No. 141 of 1952.
Appeal from the Judgment and Order dated the 29th
August
1950 of the
High Court of Judicature at
Bombay
(Chagla
C.J.
and Gajendragadkar J.) in
Appeal No. 48 of 1950 arising out of the Judgment
and Decree dated the 28th June, 1950, of the said High
Court (Bhagwati J.) in its Ordinary Original Civil
Jurisdiction in Suit No. 438 of 1950.
M. P. Amin (M. M. Desai and K. H. Bhabha, with
him) for the appellant.
S.C.R.
SUPREME COURT REPORTS
679
M. C. &talvad, Attorney-General for
India
and
C.
K. Daphtary,
Solicitor-General
fior
India ( G. N.
Joshi, with them)
for respondents Nos. 1 to 4 and 6
to 8.
M. C. Setalvad, Attorney-General for India ( G. N.
Joshi and Portts A. Mehta, with him) for respondent
No. 9.
1953.
December
18.
The following Judgments
were delivered.
PATANJALI SAsrnr C.J.-I have fully discussed and
explained the meaning and effect of articles 19 and 31
in my Judgment just delivered in Civil Appeal No. 107
of 1952-The State of West Bengal v. Subodh Gopal
Bose and Others '· On that view I agree with my learned brothers that the impugned Ordinance authorises,
in effect, a deprivation of the property of the Company
within the meaning of article 31 without compensation
and is not covered by the exception in clause (5) (b)
(ii) of that article. The Ordinance thus violates the
fundamental right of the Company under article 31(2),
and the appellant as a preference shareholder who is
now called upon to pay the moneys unpaid on his
shares is entitled to impugn the constitutionality of
the Ordinance. I also agree with my learned brother
Mahajan that the previous of this Court in Chiranjit
Lal Chowdhuri v. The Union of India and Others(') is
distinguishable and
has no application here for the
reasons mentioned by him.
MAHAJAN J.-This is an appeal from the judgment
and decree of the High Court of Judicature at Bombay
passed on the 29th day of August, 1950, in Appeal No.
48 of 1950.
The appeal concerns the validity of the same piece
of legislation that was considered by this court in the
case of Chiranjit Lal Chowdhuri ( 2). There, an ordinary
shareholder of the defendant company holding one
fully paid up share claimed relief under Art. 32 of
the Constitution
of
India on the ground that the
provisions
of
the
Sholapur
Spinning
& Weaving
Company
(Emergency Provisions)
Act, XXVIII of
(1) [1951] S. C. R 587.
(2) [1950] S. C.R. 869.
1953
DWarkadas
S!irinirlas of
Bom6ay
v.
Th• Sholapur
Spinning and
Wea1Jing Co. Ltd.,
and Otller.r
Patanjaii
Sa.Itri C. J.
1953
Dwarkada1
Sh:rinivas of
Bo~ay
v.
The Sholapr'f
Spinning and
Wro;;ing Co. Ltd.,
and OlhtrJ.
Mahajan].
680
SUPREME COURT REPORTS
[1954]
1950 abridged his fundamental rights conferred under
Articles 14,
19 and 31 of the Constitution. This Court
by a majority of 3 to 2 dismissed the petition holding
that the presumption in regard to the constitutionality
of the Act had not been displaced by the petitioner
and that it had not been proved that the impugned
statute was a hostile or a discriminatory piece of
legislation as against him, or that the State had taken
possession of his share. The minority held that the
impugned )fatute was void as it abridged the petitioner's
fundamental
rights
under
Art.
14 of
the
Constitution. This
decision
was
delivered on 4th
December, 1950.
The suit out of which this appeal arises was decided
by the High Court of Bombay during the pendency of
Chiranjit Lal Chowdhuri's petition in this court.
Most
of the facts furnishing the cause of action for the suit
have been detailed in the judgment of this court in
that case, but it seems necessary to briefly re-state
them from a proper appreciation of the contentions that
have been raised in the appeal.
The Sholapur Spinning and Weaving Company Ltd.,
was
incorporated under the
Indian Companies Act
with an authorized capital of Rs.
48 lakhs divided
into 1,590 fully paid up ordinary shares of Rs. 1,000
each, 20 fully paid up ordinary shares of 500 each, and
32,000 partly paid up cumulative preference shares of
Rs. 100 each, the paid up capital of the company being Rs. 32 lakhs comprised of Rs. 16 lakhs fully paid
up ordinary shares and Rs. 16 lakhs partly paid up
preference shares, Rs. 50 being unpaid on each of the
32,000 cumulative preference
shares.
The company
did good business and declared high dividends for
some time ; but in the year 1949, there was accumulation of stocks and financial difficulties. In order to
overcome this situation the directors decidecl to close
the Mills and on the 27th July,
1949, they gave notice
.of this decision
to
the workers. Pursuant to
this
notice the Mills were closed on the 27th August, 1949.
This created
a labour problem and to solve it the
Government
on the 5th October,
1949, appointed a
S.C.R.
SUPREME COURT REPORTS
681
Controller to ,supervise
the affairs
of the Mills under
the Essential Supplies Emergency Powers Act, 1946.
On the 9th November, 1949, the Controller in order to
resolve the deadlock decided to call in more capital
and he asked the directors of the company 'to make a
call of Rs. 50 per share on the preference shareholders,
the amount remaining unpaid on each of the preference
shares. The directors
refused
to
comply with
this requisition, as in their judgment that was not in
the interest of
the
company. Thereupon the Governor-General on
the 9th January,
1950, promulgated
the impugned Ordinance, under which the Mills could
be managed
and run by directors appointed by
the
Central Government. On the ·9th January, 1950, the
Central Government acting under section
15 of the
Ordinance delegated all its powers to the Government
of
Bombay.
The
Government
of
Bombay
then
appointed certain directors who took
over
the assets
and management of the Mills. On the 7th February,
1950, they passed a resolution making a call of Rs. 50
on each of the preference shares payable at the time
stated in the resolution. Pursuant to this resolution
a notice was addressed on the 22nd February, 1950,
to the plaintiff in the suit, who held preference shares,
to pay Rs. 1,62,000, the amount of the said call on or
before the 3rd April, 1950. The plaintiff instead of
meeting the demand, filed the present suit on the 28th
March, 1950, in a representative
capacity on behalf of
himself and other preference shareholders against the
company and the directors appointed by
the Government of Bombay challenging the validity
of the Ordinance and questioning the right of the directors to make
the call.
On the 19th April, 1950, a notice was given
to the
Attorney-General of India of the said suit
and
the Union of India was added as defendant No. 9
therein.
The principal allegations in the suit were that the
Ordinance was illegal, ultra vires and invalid as it
contravened the provisions of section 299 (2) of the
GOl·ernment of India Act, 1935, and all the provisions
contained in Part III
of
the Constitution, and
that
the resolution of the directors dated 7th Febrnary,
7-93 $. C. Tndia/59.
1953
Dwarkadas
Shrinivas of
Bombay
v.
The Sholapur
Spinning and
~Veaving Co. Ltd.,
and Others.
Mahqjan J,
1953
Dwcrkadas
Shri,~ivaJ of
BtJmbay
v.
The Sholapur
Spir.ning and
Weaving Co. Ltd.,
and Othm.
Ma.11ajan J.
682
SUPREME COURT REPORTS
[1954]
1950, making a call was illegal and ultra vires, as the
law under which they were appointed was itself invalid. The plaintiff claimed relief in the form of a
declaration regarding the invalidity of
the
Ordinance
and prayed for an injunction restraining the directors
from giving effect to the resolution. The defendants
denied the correctness of the contentions put forward
by the plaintiff.
Mr. Justice Bhagwati, who tried the sl!it, framed
the following issues therein :-
1. Whether by the Ordinance
holders of prefernce shares have
their interest in the 1st defendant
possession of or requisitioning or
as alleged in para. 6 of the plaint ;
the plaintiff and
been deprived of
company by taking
acquiring the same
2. Whether s. 4 ( d) of the Ordinance is illegal,
ultra vires, and void in law as alleged ; and
3. Whether the
resolution dated the 7th February, 1950, made by defendants 2 to 6 is illegal, ultra
vires, void and inoperative in law for the reasons
mentioned in para. 6 of the plaint or any of them.
By his
judgment dated
the 28th
June,
1950, the
learned Judges answered all the three issues in the
negative and dismissed the
suit,
and
this
decision
was affirmed on appeal. It was
held that by force
of the Ordinance the State had neither acquired the
property of the plaintiff, nor of the company, nor had
it taken possession of it, but that the title to the
property and its possession were with the
respective
owners, and the State was only supervising the affairs
of
the company through its
nominated directors. It
was further held that the Ordinance had not in anv
manner infringed
the
rights
of the
plaintiff
unde~
Art. 14 of the Constitution and there had been to
him no denial of equality before the law or equal protection of laws, as the Ordinance was based on a
classification which rested upon
a ground having a
fair and substantial relation
to
the object
of
the
legislation and that it had a reasonable basis for that
classification.
It was also held that the restrictions
•
S.C.R.
SUPREME COURT REPORTS
683
imposed on the right of the appellant and the company to hold his or its property were imposed in the
interests of the general public.
The principal questions for consideration
m this
appeal are :-
1. Whether the prov1S1ons of the Ordinance for
taking over the management and administration of
the company, contravene the provisions of article 31
. (2) of the Constitution ; and
2. Whether the Ordinance as a whole or any of
its provisions infringe articles 14 and 19 of the Constitution.
In order to decide these issues it is necessary to
examine with some strictness the substance of the
legislation for the purpose of determining what it is
that the legislature has really done; the court, when
.such
questions arise,
is not overpersuaded by
the
mere appearance of the legislation. In relation to
constitutional prohibitions binding a legislature it is
dear that the legislature cannot disobey the prohibitions
merely
by employing
indirect
method
of
achieving exactly
the same
result. Therefore, in all
such cases the court has to look behind the names,
forms and appearances to discover the _true character
and nature of the legislation.
The preamble of the Ordinance states :-
"On account of mismanagement and neglect a
· situation has arisen in the affairs of the Sholapur
Spinning & Weaving Company, Ltd., which has prejudicially
affected
the production of an essential
commodity
and
has
caused
serious
unemployment
amongst a certain section of the community".
Section 3 is the most material section and is in these
terms:-
"The Central Government may at any time by
notified order appoint as many persons as it thinks fit
to be directors of the company for the purpose of
taking over its management and administration and
may appoint one of such
directors to be the chairman."
.1953
Dwarkadas
S/Jrinivas.of
Bombay
v.
T 11' Sholap"'
Spinning and
Weaving Co. Lld.,
and Others.
Mahaja•],
1953
Dwarkadas
Shrit!fras of
Bombay
v.
The Sholapur
Spinning and
Weaving Co. Ltd.,
and Othtrs.
ManajanJ.
684
SUPREME COURT REPORTS
[1954}
The provisions of this section are supplemented by
what is subsequently provided for in section 12 which
provides
that notwithstanding anything
contained in
the Companies Act or in tl1e memorandum or articles
of association of the company, it shall not be lawful
for the shareholders of the company or any other
person to nominate or appoint any person to be a
director of the company, that no resolution passed at
any meeting of the shareholders of the company shall
be given effect to unless approved by the Central
Government, and that no proceeding for the winding
up of the company or for the appointment of a
receiver in respect
thereof shall lie in any
court
unless by or with the sanction of the Central Government, and subject to such exceptions, restrictions and
limitations as the Central Government may by notified
order specify,
the Companies Act shall continue to
apply to the company in the same manner as it applied
thereto before the issue of the notified order under
section 3. Section 4 states the effect of the order of
the
Central
Government
appointing
directors.
It
provides that all the directors of the company who
were holding office
as
such
immediately before
the
issue of the notified order shall be deemed to have
vacated
their offices.
In
other words,
the directors
elected and
appointed by
the
shareholders stand
automatically dismissed without more. Not only do
the directors stand automatically dismissed by legislative action, the managing agents also share their
fate and their contracts come to an end. Section 4
directs
the persons appointed under section 3 to
take
into custody
and under their control all the property,
effects and actionable claims to which the company
is or appears to he entitled and to exercise all the
powers of the directors of the
company, whether
those powers
are derived from the Companies Act
or from the memorandum or articles of association
or from any other source. By section 5 these nominated directors are given powers to raise funds in
such manner and offer such security
as
they
may
deem fit.
They are !fiven the overriding power
of
cancelling
and
varymg
contrar~s and
agreements
S.C.R.
SUPREME COURT REPORTS
685
entered into between
the company and
any
other
person at any time if they are satisfied that the contract or the agreement is detrimental to the interest<
of the company.
Section 10 denies to the managing
agents compensation for the premature termination of
the contract of management entered into by the company and it also says that no person shall be entitled
ro compensation in respect of a cancelled or varied
contract under this Ordinance, entered into with the
company. The Ordinance
thus
confers
powers on
the directors of overriding all contracts and deprives
persons who had entered into contracts with the company of their right under the ordinary law to recover
compensation. Sections 6, 7 and 8 of the Ordinance
lay down the method and manner how the existing
directors were to give charge of the companv's affairs
and properties
to
the directors
nominated by the
Central Government under section 3 and any default
in the matter of handing over charge is made punishable by imprisonment or other punitive action.
The result of these provisions
is that all the properties and effects of the company pass into the hands
of persons nominated by the Central Government who
are not members of the company or its
shareholders,
or in any way connected with it, and who are merely
the creatures of the Central
Government
or
its
dummies.
The combined effect of the provisions of
sections 3, 4 and 12 is that the Central Government
becomes
vested
with
the
possession,
control and
management of the property and effects
of the
company, and the normal function of the company under
its articles and the Indian Companies Act comes to
an end.
The shareholders'
most valuable right to
appoint directors to manage the affairs of the company and be in possession of
its property and
effect
is taken away.
Resolutions passed by them lose
all
vigour and become subject to the veto of the Central
Government. Their power of voluntarily winding up
the company formed by them or of winding it up
through court also becomes subject to the veto of the
Central Government. The
Central Government by
1953
Dwarkadas
Shrinfras of
Bombay
v.
The Sholapur
· Spinning and
lVeauing Co. Ltd.,
and Others.
Mahajan].
1953
Dwr.rkada1
Shririivas of
Bttmhay
v.
The Sholapur
Spinning and
Weaving Co. Ltd.,
and Olher1.
Mahajan].
686
SUPREME COURT REPORTS
[1954]
executive action can override, if it likes, all the provisions of the Indian Companies Act. In substance
therefore by the provisions of this Ordinance the company and its shareholders as well as its directors and
managing agents have been completely deprived of
possession of the property and effects of the company,
and its possession
has been taken by the
Central Government, i.e., by the Union of India. The
undertaking purports to have been taken over for a
public purpose, namely, to keep up the production of
an essential commodity, and to avoid serious unemployment amongst a certain section of the people.
The majority of the court in Chiranjitlal Chowdhuri's
case( 1), was inclined to take the view that that was the
true
effect
of
the
provisions
of
the
Ordinance.
Mukherjea J., with whose views Kania C. J., concurred, and to whose views to a certain extent Faz! Ali J.
subscribed on this part of the case said as follows :-
"Mr. Chari, on the other hand, has contended on
behalf of the petitioner that after the management is
taken over by the statutory directors, it cannot be said
that the company still retains
possession or control
over its property and assets.
Assuming that this
State
management was imposed in the interests of the shareholders themselves and that
the statutory directors
are acting as the agents of the company, the possession
of the statutory directors could not, it is argued, be
regarded in law as possession of the company so long
as they are bound to act in obedience to the dictates
of the Central Government and not of the company
itself in the administration of its a ff airs. Possession
of an agent, it is said, cannot juridically be the possession of the principal, if the agent is to act not according
to the commands or dictates of the principal, but
under the direction of an exterior authority.
There can be no doubt that there is force in this
contention."
Mr. Justice
Patanjali Sastri, as he then was held
that the effect of the Act was that all the properties
and effects of the company passed into the absolute
(1) (1950] S.C.R. 869.
S.C.R.
SUPREME COURT REPORTS
687
power and control of the Central Government and the
normal function of the company as a corporate body
came to an end. Mr. Justice Das on this part of' the
case said as follows :-
"It is, however,
urged by the
learned AttorneyGcneral that the mills and all other assets now in the
possession
and custody of the new directors who are
only servants or agents of the said company are, in the
eye of the law, in the possession and custody of the
company and have not really been taken possession of
by the State. This argument, however, overlooks the
fact that in order that the possession of the servant or
agent may be juridically regarded as the possession of
the master or principal, the servant or agent must k
obedient to, and amenable to the directions of, the
master or principal. If the master or principal has no
hand in the appointment of the servant or agent or
has no control over him or has no power to dismiss or
<lischarge him, as in this case, the possession of such
servant or agent can hardly, in law, be regarded as the
possession of the company. ·In this view of the matter
there is great force in Li1e argument that the property
of the company has been taken possession of by the
State through directors who have l?een appointed by
the State in exercise of the powers conferred by the
Ordinance and the Act and who are under the direction
and control of the State and this has been done without payment of any compensation, , , .................. .
Here, therefore, it ,may well be argued that the property of the company having been taken possession of
by the State in exercise of powers conferred by a' law
which does not provide for payment of any compensation, the fundamental right of the company has, in the
eye of the law, been infringed."
The learned Attorney-General combated this view
arnl strenuously argued that the Ordinance could not
be construed in the manner suggested above and on its
true construction its effect was that the Government
took under its superintendence the affairs of the company without in any way disturbing its title in the property and that the shareholders have still to a certain
extent an effective voice in its affairs.
Illustratively
1953
Dwarkadas
Shrinivas of
Bombay
v.
The Sholapur
Spinning and
Weariing Co. Ltcf.,
and Others.
Mahajan].
1953
Dwarkadas
Shrinivas of
Bombay
v.
The Sholapur
Spi1111ing and
Weaving Co, Ltd. 1
and Others.
Mahajan].
688
SUPREME COURT REPORTS
[1954]
he said that the company was in the same state
as a Jisqualified owner is under the provisions of the
Court of Wards Act and that the provisions of the
Ordinance should
be
construed
m
that
light.
To
emphasize the same point of view reference was also
made to the provisions of the Lunacy Act, the provisions of sections 52-A
and
52-B
introduced
in the
Insurance Act by Act 47 of 1950, the provisions of the
Railway
Companies
Emergency Powers Act
(51
of
1951 ), and also to the provisions of Act
65 of 1951
(Development of Industries Act), and it was contended
that the impugned Ordinance was a piece of social
control legislation as were the provisions contained in
the statutes referred to above.
In my
opm10n,
these contentions are not well
founded. Reference to illustrative pieces of legislation
designed on the same pattern is neither very happy
nor apposite ; on the other hand, it is apt to mislead
because except in the case of the Court of Wards Act,
all the laws to which reference was made were enacted
after the enactment of the Ordinance in question. The
different Court of Wards Acts being existing laws have
been excepted from the fundamental
right guaranteed
by article 31 (2). That being so, they can afford little
assistance in judging the validity of the impugned law.
In dealing with constitutional matters of this kind it
is always well to bear in mind what Bradley, J.,
speaking for the court said in Boyd v. United States( 1 ),
at page 635 :-
"Illegitimate
and
unconstitutional
practices get
their first footing in that way, namely, by
silent
approaches and slight deviations from legal modes of
procedure. This can only be obviated by adhering to
the rule that constitutional provisions for the security
of person arnl property
should be liberally
construed.
A close and literal construction deprives them of half
their efficacy and leads to gradual depreciation of the
right, as· if it consisted more in sound than in substance.
It is the dutv of conrts to he watchful for the constitutional
right~ of the citizen and against any stealthy
encroachments thereon."
(1) 1 •6 U.S. 616.
S.C.R.
SUPREME COURT REPORTS
689
These illustrative pieces of legislation to which the
learned
Attorney-General
made reference
may
well
have to be judged in the light of these observatiom
when occasion arises. Reference may also be made to
the
observations
of
Holmes
C. J. in Pennsylvania
Coal Co. v. Mahon( 1), wherein that learned Judge said
as follows :-
·
"As long recognized, some values were
enjoyed
under an implied limitation and must yield to police
power but obviously the implied limitation must have
its
limits or the contract and due process clauses are
_gone.
One fact for consideration in determining such
limits
is
the
extent of
the
diminution. When it
reaches a certain magnitude, in most, if. not in all
<eases,
there must be
an exercise of eminent domain
and compensation to sustain the act."
In my judgment, in the determination of all such
<eases no abstract standard or general rule can be laid
down and the question is really one of degree and
hence its determination depends on the facts of each
case.
In these circumstances, what is
to be determined here is whether the provisions of the Ordinance
have not overstepped
the limits
of
socia.1
legislation
and whether they do not come within the ambit of
article 31 (2).
The Ordinance in question is not a law of a general
<=haracter and
applicable
to
all companies that may
fall in a particular category or class. It deals only
with a single companv and it is difficult to say that
mismanagement is
a vice peculiar to this company
alone and good
management is a virtue possessed by
all other incorporated companies. That being so, can
it
be reasonably
held that
by
promulgating
this
Ordinance the Government has merely taken over the
· superintendence of the affairs of the company ? Or,
has it in effect and substance taken over the undertaking itself ? Obviously, the field of superintendence
has to be demarcated from the field of eminent domain.
It is one thing to superintend the affairs of a concern
and it is quite another thing to take over its affairs
(1) 260 U.S. 322
1953
Dwarkadas
Shrinivas of
Bombay
v.
The Sholapur
Spinning and
Weaving Co. Ltd.,
and Others.
Mahajan].
1953
DuiarkaOas
Shrinivas of
Bombay
v.
Thi Sholapur
Spi11ning and
Wtav:ing Co. Ltd ..
and Others.
Mahajan].
690
SUPREME COURT REPORTS
[1954]
and then proceed to carry on its trade through agents
appointed by
the State itself. It seems to me that
under the guise of superintendence the State is carrying on the business or trade for which the company
was incorporated with the capital of the company but
through its own agents who take orders from it and are
appointed by it and in the appointment and
dismissal
of whom the shareho)ders have absolutely no voice. The
purpose of taking over the company's undertaking is a
public purpose, namely, to keep the labour going and
contended and to maintain the supply of essential
commodity.
The company is
debarred from carrying
on its business in the manner and according to the
terms of its
charter.
Its old
complexion
stands
changed by the terms of the Ordinance. The Ordinance
overrides the
directors, deprives the shareholders
of
their legal rights and privileges and completely puts
an end to the contract of the managing agents. Without
there
being any vacancy in
the number of
directors new directors step in and old directors and
managing agents stand dismissed.
Exercise of any
power by them under the articles is subject to heavy
penalties. In this situation it is not possible to subscribe to
the
contention
of
the learned AttorneyGeneral that the effect of the Ordinance is that the
Central Government has taken over the superintendence of the affairs of the company and
that the
impugned legislation is merely regulative in character.
In the present case, practically all incidents of ownership have been taken over by the State and all
that
has been left with the company is mere paper ownership. This Ordinance, in my judgment, is an apposite
illustration of what Holmes C. J.