# • • ·:I 'T•J,~. ~~ SWADESHI COTTON MILLS v. UNION OF INDIA

- **Citation:** [1981] 2 S.C.R. 533
- **Court:** Supreme Court of India
- **Decided:** 1981-01-13
- **Bench:** R. S. Sarkaria, D. A. Desai, 0. Chinnappa Reddy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/i-t-j-swadeshi-cotton-mills-v-union-of-india-8132
- **Pages:** 67

## Headnote

Industries (Development and Regulation) Act, 1951, (65 of 1951) Ss.
IBA (I)(b), IBAA(I)(a)-Taking over a/ an industrial undertaking-Opportunity of being heard-Whether and when to be given-Denial of opporttuzity-Whethcr vitiates order--Opinion of take-over by Government-Whether
liable to judicial scrutiny.
Arl111inistrati\'C Law-Do(·trine of iYatural Justice-JVJ:at
i~-Whe11 applicnble-PrP-decisional and post-d'ecistianal hearing-When 1uises.
The Industries (Development and Regulation) Act, 1951 empowers the Unio!l
of India in the public interest to take under its control the industries specified
in the First Schedule to the Act.
Item 23 of the First Schedule relates to
textiles of various categories .
Section 15 authorises the Central Government to make or cause to be made
a tull and complete investigation into the circumstances of the case if the
Central Government is. of the opinion that (a) in respect of any
scheduled
industry or industrial undertaking or undertakings (i) there has been, or is likely
A
B
c
D
to be, a substantial fall in the volume of production for which, having regard
E
to the economic conditions prevailing, there is no justification; or (ii) there has
been, or is likeJy to be, a marked deterioration in the quality of any article ...
which could have been or can be avoided; or (iii) there has been or is likely
to be a rise in the price of any article ..... for which there is no justification; or
(iv) it is necessary to take any such action for the purpose of conserving any
resources of national importance; or (b) any industrial undertaking is being
managed in a manner highly detrimental to the scheduled industry concerned
F
or to public interest. After the investigation is made under section 15, section
16(1) empowers the Central Government if action is desirable, to issue appro~
priate directions, and section 16(2) provides for the issue of interim directions
by the Central Government pending investigation under section 15.
Chapter III-A consisting of Sections IBA, IB-AA, 18-B, IB-C, 18-D, 18-E
and 18~F deal with "direct management or control of Industrial Undertakings
by Central Government in certain cases".
Sec. 18-A empowers
the Central
Government by notified order, to authorise any person or body of persons to
take over the management of the whole or any part of an 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, if the
Central
Government is of opinion that :
(a) an industrial undertaking to which directions have been issued in pursuance of section 16 has failed to comply with such directions, or (b) an industrial undertaking in respect of which an investigation has been made under
G
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534
SUPREME COURT REPORTS
(1981] 2 S.C.R.
section 15 is being managed in a manner highly detrimental to the scheduled
industry concerned or to public interest.
Section 18AA(5) stipulates that the provisions of Sections 18-B to 18·E
shall be applicable to the industrial undertaking in respect of which an order
has been made under section 18-AA even as they apply to an industrial under··
taking taken over under Section 18-A.
Section 18-F empowers the
Central
B
Government to cancel the order made under section 18-A if it appear& that the
purpose of the order has been fulfilled or it is not necessary that the orde(
should remain in force.
The appellant M/s. Swadeshi Cotton Mills was taken ove.r by the Government of India by a notification dated April 13, 1978 in exercise of the powers
conferred on it under clause (a) of sub-section (1) of section !SAA of the
C
Indu;tries (Development and Regulation) Act, 1951 on the ground that the
company had by creation of encumbrances on the assets of its industrial under ..
takings, brought about a situation which had affected and is likely to further
affect the production of articles manufactured or produced by it and that immediate action i~ ne·;~s~ary to· prevent such a situati

## Text

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• ·:I
'T•J,~.
~~
SWADESHI COTTON MILLS
v.
UNION OF INDIA
January 13, 1981
(R. S. SARKARIA, D. A. DESAI AND 0. CHINNAPPA REDDY, JJ.]
Industries (Development and Regulation) Act, 1951, (65 of 1951) Ss.
IBA (I)(b), IBAA(I)(a)-Taking over a/ an industrial undertaking-Opportunity of being heard-Whether and when to be given-Denial of opporttuzity-Whethcr vitiates order--Opinion of take-over by Government-Whether
liable to judicial scrutiny.
Arl111inistrati\'C Law-Do(·trine of iYatural Justice-JVJ:at
i~-Whe11 applicnble-PrP-decisional and post-d'ecistianal hearing-When 1uises.
The Industries (Development and Regulation) Act, 1951 empowers the Unio!l
of India in the public interest to take under its control the industries specified
in the First Schedule to the Act.
Item 23 of the First Schedule relates to
textiles of various categories .
Section 15 authorises the Central Government to make or cause to be made
a tull and complete investigation into the circumstances of the case if the
Central Government is. of the opinion that (a) in respect of any
scheduled
industry or industrial undertaking or undertakings (i) there has been, or is likely
A
B
c
D
to be, a substantial fall in the volume of production for which, having regard
E
to the economic conditions prevailing, there is no justification; or (ii) there has
been, or is likeJy to be, a marked deterioration in the quality of any article ...
which could have been or can be avoided; or (iii) there has been or is likely
to be a rise in the price of any article ..... for which there is no justification; or
(iv) it is necessary to take any such action for the purpose of conserving any
resources of national importance; or (b) any industrial undertaking is being
managed in a manner highly detrimental to the scheduled industry concerned
F
or to public interest. After the investigation is made under section 15, section
16(1) empowers the Central Government if action is desirable, to issue appro~
priate directions, and section 16(2) provides for the issue of interim directions
by the Central Government pending investigation under section 15.
Chapter III-A consisting of Sections IBA, IB-AA, 18-B, IB-C, 18-D, 18-E
and 18~F deal with "direct management or control of Industrial Undertakings
by Central Government in certain cases".
Sec. 18-A empowers
the Central
Government by notified order, to authorise any person or body of persons to
take over the management of the whole or any part of an 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, if the
Central
Government is of opinion that :
(a) an industrial undertaking to which directions have been issued in pursuance of section 16 has failed to comply with such directions, or (b) an industrial undertaking in respect of which an investigation has been made under
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534
SUPREME COURT REPORTS
(1981] 2 S.C.R.
section 15 is being managed in a manner highly detrimental to the scheduled
industry concerned or to public interest.
Section 18AA(5) stipulates that the provisions of Sections 18-B to 18·E
shall be applicable to the industrial undertaking in respect of which an order
has been made under section 18-AA even as they apply to an industrial under··
taking taken over under Section 18-A.
Section 18-F empowers the
Central
B
Government to cancel the order made under section 18-A if it appear& that the
purpose of the order has been fulfilled or it is not necessary that the orde(
should remain in force.
The appellant M/s. Swadeshi Cotton Mills was taken ove.r by the Government of India by a notification dated April 13, 1978 in exercise of the powers
conferred on it under clause (a) of sub-section (1) of section !SAA of the
C
Indu;tries (Development and Regulation) Act, 1951 on the ground that the
company had by creation of encumbrances on the assets of its industrial under ..
takings, brought about a situation which had affected and is likely to further
affect the production of articles manufactured or produced by it and that immediate action i~ ne·;~s~ary to· prevent such a situation,
D
The Government authorised the Natiollal Textile Corporation Limited to take
over the management, subject to the conditions that the authorised person shalt
comply \Vitb all the directions issued from time to time by the Central Government and that the authorised person shall hold office for a period of five years.
The appellant Mills challenged the aforesaid order in a writ petition in the
1-Iigh Court. The case was heard by a Full Bench of five Judges to consider the
question whether in construing section 1 SAA of the Industries Development and
E
Regulation Act, 1951, compliance with the principle of audi alteram partem is
to be implied and whether hearing is to be given to the· parties who would be
affected by the order to be passed prior to the passing of the order or whether
hearing can be given after the order is passed and whether the order passed under
the said Section i~ vitiated by not giving of such hearing and whether such vice
can be cured.
If'
The Bench by a majority answered the three questions as follows :-
G
H
(a) Section lSAA(l)(a) (b) excludes the giving of prior hearing to the pa<ty
who would be affected by order thereunder.
(b) Section 18-F expressly provides for a post-decisional hearing to lhe
owner of the industrial undertaking, the management of which is taken over
under section 18AA to have the order made under section 18AA. cancelled on
any relevant ground.
(c) As the taking over of management under section 18A is not vitiated
by the failure to grant prior hearing the question of any suCh vice being cured by
a grant of a subsequent hearing does not arise.
The minority, however, held that in compliance with the principles of natural
justice, a prior hearing to the owner of the undertaking was required to be
given before the passing of an order under section 18AA, that the second question
did not arise as the denial of a prior hearing would not cure the vice by the
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SWADESHI COTTON MILLS V. UNION
535
grant of subsequent hearing, but it would be open to the Court to moderat~
the relief in such a way that the order is kept alive to the extent necessary U:Dtil
the making of the fresh order to subserve public interest and to mak·e appropnate
directions.
After the decision on the reference the case was reheard on merits by a
A
Full Bench of three Judges and the writ petition was allowed in part. The
B
challenge to the validity of the order being rejected but insofar as the impugned
order seekin.l. to take over the corporate entity of the company, the corporate
entity of tbe subsidiary and its assets, the petition was allo\Ved and the respon~
dents, the Union of India and the authorised person were directed to release
from its control and custody and/or deliver possession of any assets or property
of the company which were not referable to the industrial undertakings.
Appeals to this Court were filed on behalf of the Company as well as by
the Union of India and the National Textile Corporation.
·
Two propositions were propounded on behalf of the company that :
(a)
\Vhctber it was necessary to observe the rules· of natural justice before issuing
a notified order under section 18AA(l) (a) and further whether section 18-F
impliedly excludes rtJles of natural justice· relating to prior bearing; and it was
contended (1) the mere use of the word 'immediate' in sub-clause (a) of
section 18AA does not show a legislative intent to exclude the application of
audi ulterarn purtern rule altogether.
(2) The word 'immediate' in clause (a-)
has been used in contra distinction to 'investigate'. It only means that under
section 18AA action can be taken without prior investigation under section 15.:
The use of the word 'immediate' in section 18AA(l) (a) only dispenses with
jnvestigation under section 15 and not with the principle of audi alteram pm·te1n
altogether and this is indicated by the marginal note of section 18A _and para 3
of the Statement of Objects and Reasons of the Amendment Bill which inserted
section 18AA in 1971.
(3) The word 'immediate' occurs only in clause (a) and
not in clause (b) of section 18AA(l). It would be odd if intention to exclude
this principle of natural justice is spelt out in one clause of the sub--section when
the other clause does not exclude it. (4) Section 18-F does not exclude a
pre-decisional hearing. The so-called post-decisional hearing contemplated by
section 18-F cannot be and is not intended to be a substitute for a pre-decisional
hearing.
(5) Section 18F incorporates only a facet, albeit qualified, cf section 21
of the General Clauses Act. The language of the Section implicity prohibits
an enquiry into circumstances that led to the passing. of the order of take-over
rind under it the aggrieved person is not entitled to show that on merits tbe
order v...·as void ab initio. i_, (6) 'Immediacy' does not exclude a duty to act fairly
because even an emergent situation can co-exist
with the canons of natural
justice. The only effect of urgency on the application of the principle of fair
hearing would be that the width, form and duration of the hearing would be
lailored to the situation and reduced to the reasonable minimu1n so that it does
not delay and defeat the purpose of the contemplated action.
(7) Where the
civil ronsequenct'lll of the administrative action are grave and its effect is highly
prejudicial to the rights and interests of the person affected and there is nothing
in the language and scheme of the statute which unequivocally excludes a fair
pre-decisional hearing and the post-decisional hearing provided therein is uot a
real remedial hearing equitable to a full right of appeal the Court should be
loath to infer a legislative intent to exclude even a minimal fair hearing at the
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SUPJ!EME COURT REPORTS
(1981] 2 S.C.R.
pre-decisional stage merely on ground of urgency.
(8) The Central Government aJppointed four Gove·mment Officials including one from the office of th~
Textile c·ommissioner to study the affairs of the Company and to make recon1mendation. This Official Group submitted its report on February 16, 1978. The
evidence on the basis of which the impugned order was passed was not disclosed
to the appellant company till May 1978, only after it had filed the writ petition
in the High Court.
If there was anything adverse to the appellants in the
survey report there was time enough about six weeks between the submission
of the Survey Report and the passing of the impugned order for giving a short,
reasonable opportunity to the appellants to explain the adverse findings against
them.
If there was immediacy situational modifications could be n1ade to meet
the requirement of fairness, by reducing the period of notice; that even the
manner and form of such notice could be simplified to eliminate delay, that
telephonic notice or short opportunity for furnishing their ex.planation
to
the
Company might have satisfied the requirements of natural justice.
Such an
opportunity of hearing could ha-ve been given after the passing of a conditional
tantativi.: order and before its enforcement under section 18AA. For the interregnum suitable interim action such as freezing the assets of the Company or
restraining the Company from creating further encumbrances, could b~ taken
under section 16.
On behalf of the Union of India and the Authorised Officer it
was
contended that ( 1) the presumption in favour of audi alterani partenz rule '>tands
impliedly displaced by the language scheme, setting and t_he purpose of the
provision in section 18AA.
(2) Section 18AA on its plain tenn.i;; deals with
situations where immediate preventive action is required. The paramount concern is to avoid serious problen1s which may be caused by· fa1l in production.
The purpose of an order under section 18AA is not to condemn the owner but
te> p~otcct the scheduled industry.
The issue under section 18AA is not solely
between the Government and the management of the industrial undertaking.
The object of taking action under this Section is to protect other outside interests
of the community at large and the workers.
(3) The rule of natural justkc
to give. a hearing has been incorporated in section 18-F which gives an opportunity of a post-decisional hearing to the owner of the undertaking who if he
feels aggrieved can on his application be heard, to show that even the original
order under section 18AA was passed on invalid grounds and should be cancelled
or rescinded.
(4) On a true construction of section 18AA read with section
18-F the requirements of natural justice and fair play can be read into the statute
only insofar as conforn1ance to such canons can reasonably and realistically
be required 0f it by the provision for a remedial hearing at a subsequent stage.
(5) l.Jnder section 18-F the Central Government exercises curial functions and
that Section confers on the- aggrieved owner a right to apply to the Government
to cancel the order of take-over. This section casts an obligation on the Central
Government to deal with and dispose of an application filed thereunder with
reasonable expedition.
Allo\ving the appeal by the Company,
HELD : (Sarkaria & Desai, JI. per Chinnappa Reddy, J. dissenting.)
In the facts and
compliance with the
circumstances of the instant case, there has been a nonimplied requirement of the audi alteram parten1 rule of
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SWADESHI COTTON MILLS V. UNION
537
natural justice at the pre-decisional stage. The impugned order could be struck
A
down as invalid on that score alone. But in view
of the commitment/
concession that a hearing would be afforded to the Company, the case is remitted
to the Central Government to give a full, fair and effective hearing.
[587G·H, 588Cj
1. 1he phrase 'natural justice' is not capable of a static and precise definition.
It cannot be imprisoned in the straight-jacket of a cast-iron formula.
Rules of
natural justice are not embodied rules.
Hence not possible to make an exhaustive
catalogue of such rules.
Two fundamental maxims of natural justice have, now
become deeply and indelibly ingrained in the conlillon consciousness of mankind
as pre-eminently nece:;sary to ensure that the law is applied impartially objectively
and fairly.
These twin principles are (i) audi alteram partem and (ii) nemo
judex in re sua.
Audi alteram partem is a highly effective rule devised by the
Courts to ensure that a statutory authority arrives at a just decision and it is
i..:alcu!atcd to act as a healthy check on the abuse or misuse of power. Its reach
l'hould not be nanowc<l and its applicability circumscribed.
[554C'-G}
2. The rules of natural justice can operate only in areas not covered by any
law validly made.
If a statutory provision either specifically or by inevitable
implication excludes the application of the rules of natural justice then the
Court cannot ignore the manJ.ate of the Legislature. Whether or not the appliB
c
cation of the principles of natural justice in a given case has been excluded in
D
the exercise of statutory power depends upon the language and basic scheme
of the provision conferring the power, the nature· of the power the purpose for
\\hich it is conferred and the effect of tha·t power.
[556A-BJ
3. The maxim audi alterani parte1n has many facets.
Two of them are (a)
notice of the case to be met, and (b) opportunity to explain. The rule cannot
be sacrificed at the altar of administrative convenience or celerity; for, convenience and justice are often not on speaking terms.
Difficulties, however, arise
when lhe statute conferring the power does not expressly exclude this rule but its
exclusion is sought by implication due to the presence of certain facters such
as urgency where· the obligation to give notice and opportunity to be heard would
obtitruct the taking of prompt action of a preventive or remedial nature. Audi
altcra111 parte1n rule may be disregarded in an emergent situatiOn where imn1ediate action brooks no delay to prevent some imminent danger or injury or hazarJ
to paramount public interests. Section 133 of the Code of Criminal Procedure
empowers the' magistrates specified therein to make an exparte conditional order
in emergent cases for removal of dangerous public nuisances. Action undet
section J 7 Land Acquisition Act furnishes another
such
instance.
Similar!)'
action on grounds of public safety public health may justify disregard of the
rule of prior hearing.
[556C-H]
4. Cases where ov.-ing t'o the compulsion of
the
f11ct
situation. or
the
necessity of taking speedy action no pre-decisional hearing is given but the
action, is fo11owed soon by a full post-decisional hearing to the person affected
do not in reality constitute an exception to the a11di alteram parteni rule.
To
call such cases as exception is a misnomer because they do not exclude fair
play in action but adapt it to the urgency of the situation by balancing the
co111peting claims of hurry <lnd hearing:.
I560H-561A l
5. The general principle as distinguished from an absolute rule of uniform
:1pplication seems to be that where a statute does not in terms exclude lhis rule
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SUPREME COURT REPORTS
[1981] 2 S.C.R.
f\
of prior hearing but contemplates a post-decisional bearing amounting to a full
review of the original order on merits then such a statute would be construed
as excluding the audi alteram partem rule at the pre-decisional stage. [56!G]
6. If the statute conferring the power is silent with regard to the giving of
a pre-decisional hearing to the person affected and the administrative decision
taken by the authority involves civil consequences of a grave nature and no
B
full review or appeal on merits against that decision is provided courts will be
extremely reluctant to construe such a statute as eXcluding the duty Of affording
even a minimal hearing shorn of all its formal trappings and dilatory features
at the pre-decisional stage, unless viewed pragmatically it would paralyse the
administrative pruces8 or fru8trate the need for utmost promptitude. [561H)
c
D
E
F
G
7(i). A comparison of the provisions of Section 18A(l)(b) and Section
18AA(l) (c), bring out two main points of distinction:
First, action under
Section 18A(l) (b) L<i.D be taken only after an investigation bad been
made
under Section 15; while under Section ! SAA (1 )(a) or (b) action can be taken
without such investigation. The language, scheme and setting of Section 18AA
1ead in the light of the Objects and Reasons for enacting this provision make
this position clear beyond doubt. Second, before taking action under Section
18A ( 1 )(b), the Central Government has to form an opinion on the basis of
the investigation conducted under section 15, in regard to the existence Of the
objective fac~ namely : that the industrial undertaking is being managed in a
manner highly detrimental to the scheduled industry concerned or to public
interest; while under section !SA(!) (a) the Government has to satisfy itself that
the persons incharge of the undertaking have brought about a situation likely
to cause fall in production, by committing any of the three kinds of acts specified
in that provision. This shows that the preliminary objective fact attributable
to the persons in charge of the management or affairs of the undertaking, on the
basis of which action may be !&ken under section lS(A)(lJ(b), is of far wider
amplitude than the circumstance, the existence of which is a &ine qua non for
taking action under section 18AA(l). The phrase "highly detrimental to the
scheduled industry or public interest" in section 18-A is capable of being construed to cc\'er a large variety of acts or things which may be considered wrong
with the m_a.nner of running the industry by the management. In contrast with it,
action under section 18AA(l)(a) can be taken only if the Central Government
is satisfied with regard to the existence of the nvin conditions specifically mentioned therein, on the basis of evidence in its possession.
[5690-HJ
7(ii). An analysis of section 18AA(l)(a), indicates that as a necessary preliminary to the exercise of the power thereunder, the Central Government must
be satisfied "from documentary or other evidence in its possession'" in regard
to the co-existence of two circumstances : (i) that the persons in charge of the
industrial undertaking have by committing any of these acts, namely, reckless
investments, or creation of incumbrances on the assets of industrial undertaking,
or by diversion of funds, brought about a situation which is likely to affect the
production of the article manufactured or produced in the indnstrial undertaking.
and (ii) that immediate action is necessary to prevent such a situation.
[570B-D]
II
8. It cannot be laid down as a general proposition that whenever a statute
confers a power on an administartive authority and makes the exercise of that
ro\ver conditional on the formation of an opinion by that authority in regard
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SWADESHI COTTON MILLS V. UNION
539
to the existence of an immediacy. its opinion in regard to that preliminary fact
is not open to judicial scrutiny at all. While it may be conceded that an element
of subjectivity is always involved in the formation of such an opinion, the
existence of the circumstances from which the inference constituting the opinion.
as the sine qua non for action, are to be drawn, must be demonstrable, and the
existerice of such "circumstances", if questioned,
must be proved at least
prima facie.
[571 £.G]
9. From a plain reading of section 18AA, it is clear that it does not expressly
in unmistakable and unequivocal terms exclude the application of the audi alteram
partem rule at the pre-decisional stage.
[574B]
In the instant case, so far as Kanpur Unit is concerned, it was lying closed
for more than three months before the passing of the impugned order. There
A
B
was no 'immediacy' in relation to that unit, which could absolve the Government
C
from the obligation of complying fully with audi alteram partem rule at the
pre-decisiona-1 or pre-takeover stage. [583A]
Keshav Mills Co. Ltd. v. Union of India, 11973]
3 S.C.R. 22;
Kam/a
Prasad Khetan v. Unian of India, [1957] S.C.R. 1052; Maneka Gandhi v. Union
of India, [1978] 2 S.C.R. 621; Sukhdev Singh & Ors. v. Bhagatram Sardar Singh,
[1975] 3 S.C.R. 619; A. K. Kraipak v. Union of India, [1970] I S.C.R. 457;
D
Ridge v. Baldwin, [1964] A.C. 40; 196; Heatley v. Tasmanian Racing & Gaming
Conzn1ission, 14 Australian Law Reports 519; Nawabkhan Abbaskhan v. State of
Gujarat, [1974] 3 S.C.R. 427; State of Orissa v. Dr. Bina Pam Dei, [1962] 2
S.C.R. 625; Ambalal M. Shah v. Hathi Singh Manufacturing Co. Ltd. [1962] 3
S.C.R. 171; and S. L. Kapaor v. lagmohan &
Ors.,
[19$1]
I
S.C.R. 746,
referred to.
(Per Cbinnappa Reddy, I. dissenting)
The principles of natural justice are not attra-cted to the situations contemplated by section !SAA of Industries (Development and Regulation) Act.
I. Natural justice like Ultra Vires and Public Policy is a branch of the public
E
law and is a formidable weapon which can be wielded to secure justice to the
F
citizen. While it may be used to protect certain fundamental liberties, civil and
political rights, it may be used as indeed it is used more often than not, to
protect vested interests and to obstruct the path of progressive change. The
time has come to make an appropriate distinction between natural justice in its
application to fundamental liberties, civil and political rights and natural justice
in its application to vested interests. [590A-BJ
'
2. Our constitution as befits the Constitution of a Socialist Secular Democratic Republic, recognises the paramountcy of the public weal over the private
interest. Natural justice, ultra vires, public policy, or any other rule of interpretation must, therefore, conform, grow and be tailored to serve the public
interei)t and respond to the demands of an evolving society.
[590C]
G
3(i). The principles of natural justice have taken deep root in the judicial
H
conscience of our people. They are now considered so fundamental as to be
implicit in every decision making function, judicial, quasi-judicial or administra~
A
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SUPREME COURT REPORTS
[1981] 2 s.c.R.
tive.
Where authority functions under a statute and the statute provides for
the observance of the principles of natural justice in a particular manner, natural
justice will have to be observed in that manner and in no other. Where the
statute is silent about the observance of the principles of natural justice, such
statutory silence is taken to imply compliance with the principles of natural
justice. Where the conflict is between the public interest and the private interest
the presumption must necessarily be weak and may, therefore, be readily dis·
placed. The presumption is also weak, where what are involved
arc
mere
property rights.
In cases of urgency, particularly where the public interest ii
involved, pre-emptive action may be a strategic necessity. Even in cases of
pre-emptive action, if the statute so provides or if the Courts so deem fit in
appropriate cases, a postponed hearing may be substituted for natural justice.
[590A-C; 59lF-G)
3(ii). Where natural justice is implied, the extent of the implication and the
nature of the hearing must vary with the statute, the subject and the situation.
[592B]
4. The absence of the expression 'immediate action' in section 18AA(1) (b)
Joes not make any difference.
Section 18AA(l) (a) refers to a situation where
immediate preventive action may avert a
disaster,
whereas
section
18AA
contemplates a situation where the disastet has occurred and action is necessary
10 restore normalcy. Restoration of production where production has stopp:d
in a key industry or industrial undertaking is as important and urgent in the
public interest as prevention of a situation where production may be affected.
Jmrnediate action ts, therefore, as necessary in the situation contemplated by
section J8AA(l)(b) as in the situation contemplated by section ISAA(l)(a).
[596 F-G)
5. The marginal note refers to the power to take over without investigation
but there is no sufficient reason to suppose that the word immediate is used only
to contra-distinguish it from the investigation contemplated by section 15 of the
Act, though of course a consequence of immediate action under section 1 SAA
may be to dispense with the enquiry under section 15. In fact, facts which
con1e to light during the course of an investigation under section 15 n1ay fornt
the hasi~ of action under section 18AA( 1) (a). ~'here in the course of an invcs~
ligation under section 15 it is discovered that the management have, by reckless
investments or creation of encumbrances on the assets of the industrial undertaking or by diversion of funds brought about a situation which is likely to
affect the production of the a·rticles 1nanufactured or produced in the industrial
undertaking, if the Government is satisfied that immediate -action is necessary to
prevent such a situation, there is no reason why the Central Government n1ay
not straightaway take action under section 18AA(1) (a) without waiting for
cornpletion of investigation under section 15.
[597 A-B1
6. Where there is a provision in the statute itself for revocation of the order
by the very authority making the decision, it appears to be unnecessary to insh.t
upon a pre-decisional observance of natural justice.
[598AJ
7. The likelihood of production being jeopardized or the stoppage of production in a key industrial undertaking is a matter of grave concern affecting the
public interest. Parliament has taken so serious a view of the matter that it
has authorised the Central Govemment to take over the management of the
industrial undertaking if immediate action n1ay prevent jeopardy to production
or restore production where it has already stopped. 1"he necessity for in1mediate
•
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oWADESHI COTTON MILLS v. UNION (Sarkaria, J.)
541
action by the Central Government contemplated by Parliament
is
definitely
A
indicative of the exclusion of natural justice. It is not as if the owner of the
industrial undertaking is left with no remedy. He may move the central
Government under section 18-F to cancel the order made under section 18AA .
[598C-D]
8. Neither section 18·F of the Industries (Development and
Regulation)
Act nor section 21 of the General Clauses Act by itself excludes natural justice.
B
The exclusion of natural justice where such exclusion is not express has to be
implied. by reference to the subject, the statute and the statutory situation. Where
an express !tlovision in the statute itself provides for a post decisional hearing
the other provisions of the Statute will have to be read in the light of such
provision and the provision for post-decisional hearing may then clinch the issue
where pre-decisional natural justice appears to be excluded on the other terms
of the statute. That a post-decisional hearing may also be had by the terms
C
of section 21 of the General Clauses Act may not necessarily help in the
interpretation of the provisions of the statute concerned. [599 A-C]
Ridge v. Baldwin, 1964 A.C. p. 40; Annie G. Phillip v. Commissioner of
Internal Revenue, 75 L.Ed. 1289; John H. Fahey v. Paul Mallonee, 91 L.Ed.
2030; Margarita Fuentes v. Robert L. Shevin, Attorney General of Florida, 32
L.Ed. 2d 556 and Lawrence Mitchell v. W. T. Grant Co .. 40 L.Ed. 2d 406,
referred t0.
OVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1629,
1857
D
.._
& 2087 of 1979.
•
From the Judgment and Order dated 1"5-1979 of the Delhi High
Court in Civil Writ No. 408 of 1978.
E
F. S. Nariman, S. D. Parekh, A. D. Mehta, Lalit Bhasin, Vinay
Bhasin and Vineet Kumar for the Appellants in C.A. No. 1629 and
for R. 1 in C.A. No. 2087 /79.
V. N. Tarkunde, S. Ganesh, K. Vasdev and T.V.S.N. Chari for the
Appellants in CA 1857 /79.
F
Soli J. Sorabjee, Solicitor General and Girish Chandra for Appell( !ants in CA 2087 and for Respondent (UOI) in CA 1629 /79.
Soli J. Sorabjee, Solicitor General, S. Ganesh Vasdev and T. V. S. N.
Chari for Respondent No. 2 in CA 1629.
T. V. S. N. Chari for Respondent No. 4 in CA 2087 Suresh Parik
G
and S. Swarup for Respondent No. 3 in CA 2087.
F. S. Nariman, B. P. Maheshwari and Suresh Sethi for Respondent-Swadeshi Cotton Mills Co. Ltd. in CA No. 1857 and 2087 /79.
C. M. Chopra for Intervenor.
The Judgment of R. S. Sarkaria and D. A. Desai, JJ. was delivered
H
bySarkaria, J. 0. Chinnappa Reddy, J. gave a dissenting Opinion.
2-152 SCl/81
SUPREME COURT REPORTS
[1981] 2 S.C.R.
SARKARIA. J. These appeals arise out of a judgment, dated May 1,
1979. of the High Court of Delhi, in the following circumstances :
Appellant No. l in Civil Appeal 1629 of 1979 is Swadeshi Cotton
Miib Co. Ltd. (hereinafter referred to as the Company). Jt was inB
corporated as a private company with an authorised capital of Rs. 30
1akl1> in 1921 by the Horseman family by converting their partnership
business into a Private Joint Stock Company. Its capital was raised in
1923 to Rs. 32 lakhs and thereafter in 1945 to Rs. 52.50 lakhs by
issue of bonus shares. In 1946, the Jaipuria family acquired substantiol holding in the Company. Jaipuria family is the present manageC
mcnt. By issue of further bonus shares in 1946, the capital of the
Company was increased to Rs. 122.50 lakhs. In 1948, the paid-up
capital of the Company was raised to Rs. 210 lakhs by the issue of
forther bonus shares.
The subscribed and issued capital consisting
mainly of the bonus shares has since remained constant at Rs. 210
lakhs.
D
In the year 1946, the Company had only one undertaking, a Textile Unit at Kanpur, known as "The Swadeshi Cotton Mills, Kanpur".
Between 1956 and 1973, the Company set up and/or acquired five
further Textile Units
Jn Pondicherry, Naini, Udaipur, Maunath
Bhanjan and Rae Bareilly. Each of these six Units or undertakings
of the Company was separately registered in accordance with the provisions of Section 10 of the Industries (Development and Regulation)
Act, 1951 (hereinafter called the IDR Act).
In addition to these six industrial undertakings, the Company (it
is claimed) had other distinct businesses and assets.
It holds inter
alia 97 per cent shares in the subsidiary, Swadeshi Mining and ManuF
facturing Company Ltd., which owns two sugar Mills.
The Company
claims, it has substantial income from other businesses and activities
including investments in its subsidiary and in other shares and securities which include substantial holding of 10,00,000 Equity Shares
~
of Rs. 10/" each in Swadeshi Polytex Ltd., representing 30 per cent
G
of the total equity capital value of Swadeshi Polytex Ltd., the intrinsic
va1ue whereof exceeds Rs. 5 crores.
The Company made considerable progress during the years 1957
to 1973.
The reserves and surplus of the Company increased from
Rs. 2.3 crores in 1957 to Rs. 4.3 crores in 1973-74, but declined to
Rs. 2.8 crores in 1976-77.
The fixed assets of the Company inH
creased from 5.8 crores in 1957 to 19 crores in 1973-74, but declined
to Rs. 18 crores, registering a marginal decrease of Rs.
1 crore in
1976-77.
•
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SWADESHI COTTON MILLS v. UNION (Sarkaria, l.)
543
The Company maintained separate books of acconnts for each of
its six industrial undertakings.
From and after April 1973, the Compauy maintained separate sets of books of accounts of the businesses
and assets other than of the said six industrial undertakings. Annual
accounts of the six industrial undertakings were first prepared separately in seven sets which were separately audited.
The
consolidated annual a_ccounts of the Company were then prepared from such
aunual accounts at the registered office of the Company at Kanpur,
and after audit, were placed before the shareholders of the Company.
The Company made over-all profits up to the year 19_69
and even
thereafter up to 1975.
The Balance Sheet showed that the Company
suffered a loss of Rs_ 86.23 lakhs after providing depreciation
of
Rs. 93.93 lakhs and gratuity of Rs. 48.79 lakhs, though the trading
results showed a gross profit of Rs_ 56.49 lakhs.
During the year
ending March 31, 1976, the Company again suffered a loss of
Rs. 294.82 lakhs after providing for depreciation.
The last Balance
Sheet and Profit & Loss Account adopted by the shareholders and
published by the Company relates to the year ending March 31, 1977.
It shows that the Company suffered a loss of Rs. 200.34 Lakhs after
taking into account depreciation of Rs. 73.27 lakhs which was not
provided in accounts.
Between 1975 and 1978, the Company created the undernoted
encumbrances on the fixed assets :
Unit
As on
As on
As on
As on
Remar:"s
31-3-75 31-3-76
31-3-77 31-3-78
(in lakhs)
(in lakhs)
I
2
3
4
5
6
(i) Pondicherry
2·40
Nil
Nil
Nil On
fixed
assets
of
Pondicherry
Unit
(ii) Maunath Bhanjan
11 ·40
5·71
Nil
Nil On
fixed
assets
of Maunath Bhan·
jan Unit.
(Iii) Udaipur
2·76
Nil
Nil
Nil On
fixed
assets
of Udaipur Unit.
(iv) Kanpur (ICICI)
13·44
9·75
5·95
2·00 On
fixed
asset
of Kanpur Unit
(v) Kanpur
Nil 150·00• 150·00 150 ·00 On
fixed
assets
of Kanpur, Maunath
Bhanjan
&
Pondicherry
Units
for wages and Bank
dues
*New encumbrance
A
B
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F
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A
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544
I
(vi) Company
(vil) Udaipur
(viii) Naini
(ix) Kanpur, Rae
Bareilly & Naini
SUPREME COURT REPORTS
[1981] 2 S.C.R.
2
3
4
5
6
67 ·53
68 ·45
59 ·44
59 ·44 On diesel generating sets
of Kanpur, Naini, Pondicherry,
Mannath
Bhanjan and RaeBareilly Units.
Nil
25 ·00• 25 ·00
25 ·00 On
fixed
assets
of Udaipur Unit
for gratuity fund.
Nil
Nil
70 ·oo•• 70 ·00 On
fixed
assets
of
Naini
for
gratuity.
106 ·20
75 ·31
50 ·67
15 ·97 On new machinery
of
Kanpur,
Rae
Bareilly &
Naini
Units
under-deferred
payment
credit.
203·73 334·22 361 ·06 322·41
'.I'he borrowings of the Kanpur,
Pondicherry,
Naini,
Udaipur,
Mannath Bhanjan and Rae Bareilly Units of the Company as Oil
March 31, 1978 against current assets were Rs.
256.78,
183.92,
271.05, 70.72, 47.98 and 55.82 lakhs
respectively.
All
the encnmbrances on fixed assets (except the encumbrances of Rs. 70 lakhs
on the fixed assets of Naini Unit for gratuity funding to get the benefit
of Section 44A of the Income-tax Act) were created prior to March
31. 1976.
F
In the accounting year 1976-77, only one new encumbrance was
G
H
created by the Company on its fixed
assets. The following
are
statistics of production in each of the six units of the Company during
the years 1975-76, 1976-77 and 1977-78 :
':'
Name of the Unit
Naini
Udaipur
Mannatb Bhanjan
Rae Bareilly
Pondicberry
Kanpur
•New encumbrance.
1975-76
1976-77
(figures in lakhs)
1977-78
66 ·13 kgs.
18 ·51 kg!,
15 ·59 kg!.
12·09 kgs.
170 ·52 Mtrs.
318 ·75 Mtrs.
65 ·76 kgs,
18 ·50 kgs.
16 ·63 kgs.
13 ·58 kgs.
72 ·35 kgs.
18 ·60 kgs.
18 ·49 kgs.
14 ·00 kgs.
178 ·77 Mtrs.
176 ·54 Mtrs.
472 ·12 Mtrs.
238 ·22 Mtrs.
••No new encumbrance ..
,
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SWADESHI COTTON MILLS v. UNION (Sarkaria, 1.)
545
On April 13, 1978, the Government of India in exerCise of its
A
power under clause (a) of sub-section (1) of Section 18AA of the
IDR Act, passed an order (hereinafter referred to as the impugned
order) which reads as follows :
"SO
265(E)/l 8AA/IDRA/78-Whereas the Central
Government is satisfied from the documentary and other
evidence in its possession, that the persons in charge of the
industrial undertakings namely,
B
(i) M/s. £wadeshi Cotton Mills, Kanpur,
(ii) M/s. Swadeshi Cotton Mills, Pondicherry,
(iii) M/s. Swadeshi Cotton Mills, Naini,
C
(iv) M/s. Swadeshi Cotton Mills, Maunath Bhanjan,
(v) M/s. Udaipur Cotton Mills, Udaipur, and
(vi) Rae Bareilly Textile Mills, Rae Bareilly of M/s.
Swadeshi Cotton Mills
Company
Ltd.,
Kanpur
(hereinafter referred to as the said industrial underD
takings), have, by creation of encumbrances on the
assets of the said industrial undertakings, brougbt
about a situation which has affected and is likely to
further affect the production of articles manufactured
or produced in the said industrial undertakings and
that immediate action is necessary to prevent §uch a
E
. situation;
Now, therefore, in exercise of power conferred
by
clause (a) of sub-section (1) of Section !SAA of the Industries (Development and Regulation)
Act,
19 51
( 65
of
1951), the Central Government hereby authorises
the
National Textile Corporation Limited (hereinafter referred
to as the Authorised person) to take over the management
of the whole of the said industrial undertakings, subject to
the following terms and conditions, namely :-
(i) The authorised person shall comply with all the
directions issued from time to time by the Central
Government;
(ii) the authorised person shall hold office for a period of
five years from the date of publication of this order in
the Official Gazette;
G
(iii) the Central Government may terminate the appointH
ment of the authorised person earlier if it CO!JSiders
necessary to do so.
A
B
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F
G
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546
SUPREME COURT REPORTS
[1981] 2 S.C.R.
This order shall have effect for a period of five years commencing from the date of its publication in
the Official
Gazette.
Sd/- R. Ramakrishna
Joint Secretary to the Govt.