# UNION OF INDIA v. ELPlllNSTONE SPINNING /\ND WEAVING CO. LTD. & ORS. ETC

- **Citation:** [2001] 1 S.C.R. 221
- **Court:** Supreme Court of India
- **Decided:** 2001-01-10
- **Case number:** Civil Appeal Nos. 2995-97 of 1984
- **Bench:** G.B. Pattanaik, S. Ra.Iendra Babu, D.P. Mohap/\Tra. Doraiswamy Raju, Shivaraj V. Patil
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-v-elplllnstone-spinning-nd-weaving-co-ltd-ors-etc-17694
- **Pages:** 36

## Headnote

Conslitulion of India. Arlie/es 14 and 19 (/) (g)-Tex1ile Underlakings
(Taking m·er of Manageme/1/) Ordinance. 1983 and the Tex1ile Undertakings C
(Taking over of A1anagemenl) Act, 1983-Validity of-Takeover of
manageme/1/ of respondenl mills hy legislalion-Bomha)' High Courl slriking
down legisla1io11 as being violatii·e of Arlie/es 14 and 19 {/) (R)-Held, High
Courl was wholly in error in slriking down /he legislation on a supposed
violation of Arlie/es 14 and 19 {I) (g): Further held, microscopic examination D
of data by Court was impermissible and irould not override legislative i/1/e/1/
behind laking over of manage111e111 of the mills in 1he larger public inlere.1·1Whether i111pugned legislation violative of Article 19 (!) (g) since govern111enl
did no/ resor/ to remedies available under other legislalions-Held, if
Parlia111enl decided to enact a law for taking over management of textile
mills in public interest it was not open lo the court lo exa111ine the question
whether other re111edies could have been taken-Constitution of India, Article
226-Judicial Review-Scope of
E
Textile Undertakings (Taking over of Management) Ordinance, 1983
and !he Textile Undertakings (Taking over of Management) Act 1983, Ss. 3 F
(3), (4) (6), 6, 8 and 11 (/) rlw Consli/11/ion of India Arlicle 31 A ( /) (b)-
Whelher 1akeover il1lended was for a limiled period and therefore not wi1hin
the pun1iew of Article 31 A of the Constitution-Held, i111pugned legislalion
was law providing for laking over 111anagement for a limited period in public
interest and ca111e within the purview of Article 31 A (/) (b) of the Conslilution.
G
.._
lnlerprelalion of Sta/ules-Texlile Undertakings (Taking over of
Management) Ordinance, 1983 and the Textile Underlaking's (Taking over
of Managemenl) Act 1983- fa:pression 'mismanagement' used in preambleHigh Court holding that the expression must necessarily mean an ele111enl of
fraud or dishonesty-Held, lhe expression 'mismanagement' in preamble H
221
222
SUPREME COURT REPORTS
[2001] I S.C.R.
A would not control the purpose of the Act; Parliament intended not only to
take those mills whose financial condition was deplorable on account of
mismanagement but also those where the financial condition
might be
deplorable but not on account of mismanagementB
Words and Phrases : 'Mismanagement'-Meaning of
Textile mills in and around Bombay had gone on strike with effect from
January 18, 1982. On February 15, 1982 the Government oflndia declared
its policy for nationalization of all these textile industries. In October 1982,
the Reserve Bank of India had called a meeting to discuss the situation a~·lsing_
out of the strike. Depending upon the economic conditions of different mills
C the mills had been classified into three groups. The continued textile strike
had deteriorated the financial condition of all the textile mills and the mills
were looking forward to the financial institutions and nationalised banks for
financial aid to make the mills viable.
A Task Force constituted by the government submitted its report by the
D end of September 1983. On October 18, 1983, the management of thirteen
textile mills enumerated in the first schedule to the Textile Undertakings
(Taking over of Management) Ordinance, 19&3 ('Ordinance') were taken over
pending nationalisation. These included the three respondent mills. Later the
Ordinance was replaced by the Textile Undertakings (Taking over of
E Management) Act 1983 ('Act').
F
The Ordinance and the Act were challenged by the three respondent
mills through writ petitions before the Bombay High Court on the grounds
that they were violative of Articles 14 and 19 (I) (g). The High Court held
that since the takeover of the management of the mills was for an indefinite
period and pending nationalisation, the protection under Article 31 A (1) (b)
would not be available and that therefore the challenge to the legislations on
the anvil ofviolation of Articles 14 and 19 (I) (g) had to be examined. A

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UNION OF INDIA
A
v.
ELPlllNSTONE SPINNING /\ND WEAVING CO. LTD. & ORS. ETC.
JANUARY 10, 2001
B
[G.B. PATTANAIK, S. RA.IENDRA BABU, D.P. MOHAP/\TRA.
DORAISWAMY RAJU AND SHIVARAJ V. PATIL, JJ.]
Conslitulion of India. Arlie/es 14 and 19 (/) (g)-Tex1ile Underlakings
(Taking m·er of Manageme/1/) Ordinance. 1983 and the Tex1ile Undertakings C
(Taking over of A1anagemenl) Act, 1983-Validity of-Takeover of
manageme/1/ of respondenl mills hy legislalion-Bomha)' High Courl slriking
down legisla1io11 as being violatii·e of Arlie/es 14 and 19 {/) (R)-Held, High
Courl was wholly in error in slriking down /he legislation on a supposed
violation of Arlie/es 14 and 19 {I) (g): Further held, microscopic examination D
of data by Court was impermissible and irould not override legislative i/1/e/1/
behind laking over of manage111e111 of the mills in 1he larger public inlere.1·1Whether i111pugned legislation violative of Article 19 (!) (g) since govern111enl
did no/ resor/ to remedies available under other legislalions-Held, if
Parlia111enl decided to enact a law for taking over management of textile
mills in public interest it was not open lo the court lo exa111ine the question
whether other re111edies could have been taken-Constitution of India, Article
226-Judicial Review-Scope of
E
Textile Undertakings (Taking over of Management) Ordinance, 1983
and !he Textile Undertakings (Taking over of Management) Act 1983, Ss. 3 F
(3), (4) (6), 6, 8 and 11 (/) rlw Consli/11/ion of India Arlicle 31 A ( /) (b)-
Whelher 1akeover il1lended was for a limiled period and therefore not wi1hin
the pun1iew of Article 31 A of the Constitution-Held, i111pugned legislalion
was law providing for laking over 111anagement for a limited period in public
interest and ca111e within the purview of Article 31 A (/) (b) of the Conslilution.
G
.._
lnlerprelalion of Sta/ules-Texlile Undertakings (Taking over of
Management) Ordinance, 1983 and the Textile Underlaking's (Taking over
of Managemenl) Act 1983- fa:pression 'mismanagement' used in preambleHigh Court holding that the expression must necessarily mean an ele111enl of
fraud or dishonesty-Held, lhe expression 'mismanagement' in preamble H
221
222
SUPREME COURT REPORTS
[2001] I S.C.R.
A would not control the purpose of the Act; Parliament intended not only to
take those mills whose financial condition was deplorable on account of
mismanagement but also those where the financial condition
might be
deplorable but not on account of mismanagementB
Words and Phrases : 'Mismanagement'-Meaning of
Textile mills in and around Bombay had gone on strike with effect from
January 18, 1982. On February 15, 1982 the Government oflndia declared
its policy for nationalization of all these textile industries. In October 1982,
the Reserve Bank of India had called a meeting to discuss the situation a~·lsing_
out of the strike. Depending upon the economic conditions of different mills
C the mills had been classified into three groups. The continued textile strike
had deteriorated the financial condition of all the textile mills and the mills
were looking forward to the financial institutions and nationalised banks for
financial aid to make the mills viable.
A Task Force constituted by the government submitted its report by the
D end of September 1983. On October 18, 1983, the management of thirteen
textile mills enumerated in the first schedule to the Textile Undertakings
(Taking over of Management) Ordinance, 19&3 ('Ordinance') were taken over
pending nationalisation. These included the three respondent mills. Later the
Ordinance was replaced by the Textile Undertakings (Taking over of
E Management) Act 1983 ('Act').
F
The Ordinance and the Act were challenged by the three respondent
mills through writ petitions before the Bombay High Court on the grounds
that they were violative of Articles 14 and 19 (I) (g). The High Court held
that since the takeover of the management of the mills was for an indefinite
period and pending nationalisation, the protection under Article 31 A (1) (b)
would not be available and that therefore the challenge to the legislations on
the anvil ofviolation of Articles 14 and 19 (I) (g) had to be examined. After
examining data, the High Court concluded that there was no nexus between
the basis for classifying the respondent mills with other mismanaged mills
and the object and purpose of the Act. It concluded that the inclusion of the
G three respondent mills in the schedule to the Act was arbitrary and also that
the Act infringed their rights under Article 19 (I) (g). Accordingly the Act
~
and Ordinance were struck down vis-a-vis the three respondent mills. The
High Court however granted the Union oflndia certiflCllte of fitness to appeal
to this coo rt.
H
The appellant contended that High Court erred in overlooking the
U.0.1. v. ELPHINSTONE SPINNING AND WEA YING CO.LTD
223
__.,
cardinal principle that there is a str.ong presum'ption of constitutionality that A
)-
attaches to legislations warranting deference to legislative wisdom and that
'
laws relating to economic activities ought to be viewed with greater latitude
than those touching upon civil rights. The impugned legislation was enacted
in public interest keeping in view the prevailing situation and the High Court
erred in misunderstanding the basis of the classification and in assuming B
mismanagement as fraud. The respondent mills urged that the takeover was
for an indefinite period and therefore the immunity to challenge on the grounds
r
of Articles 14 and 19 as provided under Article 31 A (1) (b) was not available.
It was indeed an acquisition and therefore the legislation was a pretence
warranting examination of its validity notwithstanding the declaration made
"oy~egislature that it was in public interest. The mills had placed materials c
to sho that the legislative facts were incorrect and therefore the High Court
was justified in arriving at its conclusions on the basis of such materials.
~
Allowing the appeals, this Court
HELD: 1.1. The High Court was wholly in error in striking down the D
taking over of the three petitioners mills before it on a supposed violation of
Article 14 of the Constitution. The Parliamentary action in legislating the
law and taking over of the management of all the 13 mills included in the
-.;...
First Schedule to the Act could not be held to be discriminatory.
~
[252-E; 253-AI
1.2. The impugned Act read as a whole unequivocally indicated that the E
Parliament was satisfied that the management of the textile undertakings
specified in the First Schedule should be taken over pending nationalisation
of such undertakings, and therefore, passed the impugned Act in public
~
interest. [251-AI
F
1.3. When Parliament intended the taking over of the management of
the 13 Textile Mills pending their nationalisation to be in the public interest,
microscopic examination as to the data by the Court for arriving at a conclusion
as to the alleged violation of Article 14 of the Constitution was not permissible
and would not override legislative intent. [250-C-F-Gl
Shell Company of Australia v. Federal Commissioner of Taxation, (1931) G
AC 275; Sanjeev Coke Manufacturing v. Mis. Bharat Coking Coal Limited,
[198311SCC147; In Re The Special Courts Bill, 1978 (1979) 1 SCC 380;
Doypack System Pvt. Ltd v. Union of India, (1988) 2 SCC 299; R.KGarg v.
Union of India, [1981) 4 SCC 675; Ram Krishna Da/mia v. Shri Justice S.R.
Tendolkar, (1959) SCR 279; The Superintendent and Rememberancer of Legal H
A ;
224
SUPREME COURT REPORTS
[200 I] I S.C.R.
A Affairs, West Bengal v. Girish Kumar Navalakha, [1975) 4 SCC 754; Indira
..J
Sawhney v. Union of India, [2000[ 1 SCC 168; Dwarkadas Shrinivas of
-{
Bombay v. The Sholapur Spinning & Weaving Co. Ltd, [1954) SCR 674; Dr.
K.R. Lakshmanan v. State of Tamil Nadu, (1996) 2 SCC 226; Shashikant
Laxman Kale v. Union of India, (1990) 4 SCC 366; Maneka Gandhi v. Union
B of India, (1978) 2 SCC 248; Chiranjit Lal Chowdhuri v. Union of India,
[1950) SCR 869 and National Textile Corporation Ltd. v. Sitaram Mills Ltd,
[1986) Supp. SCC 117, referred to
+-
2.1. The mere fact that Government did not proceed with the remedies
~vailable under other Act and proceeded to enact a legislation for taking over
c of the management of the Mills would not constitute an infraction of Article
19 (l)(g) of the Constitution. [255-D-E)
2.2. If Parliament decided to enact a law for taking over the management
of the textile mills, pending completion of the process of nationalization, on
a genuine apprehension that there might be a large scale Oittering away of
D assets if the management is not taken over and that would be grossly
detrimental to the public interest it would not be open for the Court to examine
the question whether other remedies could have been taken and not being
taken there has been an infraction of Article 19(1)(g). [255-F-G)
Mohd Faruk v. State of Madhya Pradesh, [1970) l SCR 156, referred
k"
E to.
3. Having regard to the conditions of these mills at the time of taking
over of the management and having regard to the decision of the Union Cabinet
on the basis of data and materials to nationalise the mills falling under category
"
Ill and the ultimate policy decision of the Government to achieve the process
...,...
F of nationalisation in two stages, first by taking over the management of the
textile undertakings and thereafter, enact suitable legislation for taking over
the management of the mill~ passed by the Parliament, the impugned Act was
a law, providing for taking over of the management for a limited period in
public interest and as such the said law came within the purview of Article
G 31A(l)(b) of the constitution. [245-B-q
Raman Lal v. State of Gujarat, [1969) I SCR 42, distinguished.
-4:
The Indore Ma/wa United Mills Ltd. v. Union of India, ILR (Del) 1974
(1) 311, overruled
H
The Governing Body of the Rangaraya Medical College, Kakinada v.
U.0.1. v. ELPHINSTONE SPINNING AND WEAVING CO. LTD.
225
The Govt. of Aiidhra Pradesh, AIR (1977) AP 420 (FB), referred to
4.1. Use of the expression 'mis-management' of the affairs in the
preamble would not control the purpose of the Act, namely, the public interest
The High Court erred in concluding that mismanagement must necessarily
mean an element of fraud or dishonesty. (247-A-F-G(
4.2. The Parliament having decided to take over the management of the
Textile Mills which were in serious financial crisis, in the public interest it
was not open for the Court to come to a conclusion by taking recourse to the
A
B
use of the word 'mis-management' in the preamble to hold that Parliament
intended only to take those Mills wrose financial condition was deplorable on
account of mismanagement and not in case of those mills wh_ere the financial C
condition may be deplorable but not on account of mis-management.
(248-E-F-G]
4.3. A cardinal principle of construction of statute was that the true
or legal meaning of an enactment was derived by considering the meaning of
the words used in the enactment in the light of any discernible purpose or D
object which comprehended the mischief and its remedy to which the enactment
was directed. (246-G-H; 247-A)
-fBurakar Coal Co. Ltd v. Union of India, AIR (1961) SC 954; State
Haryana v. Sampuram Singh, (1975) 2 SCC 810; Corocraft Ltd. v. Pan
American Airways Inc. (1968) 3 WLR 714 and Duport Steels Ltd. v. Sirs E
(1980) I All ER 529, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2995-97
of 1984.
From the Judgment and Order dated 13.6.84 of the Bombay High Court F
in W.P. Nos. 2401, 2441, 2448of1983.
C.A. Nos. 3301-03of1984.
C.A. Nos. 3018-20of1984.
With
Harish N. Salve, Solicitor General, Mukul Rohtagi, Additional Solicitor
General, R.F. Nariman, Anil B. Divan, F.S. Nariman, S.W. A. Qadri, S.K. Dewedi,
Ms. Indira Jaisingh, Pritesh Kapoor, A.S. Rawat, D.S. Mehra, B. Sunita Rao,
G
Ms. Niti Dixit, S.N. Terdol, Kailash Vasdev, Rauf Rahim, S. Ganesh, Ms. Bina
Madhawan, Ms. Indoo P. Venna, Zulfikar Kumar, P.H. Parekh, A.S. Bhasme, H
\
226
SUPREME COURT REPORTS
[200 I] I S.C.R.
A Ms. Kamini Jaiswal, Milind Sathe, Atul Dayal, Subhash Sharma ·and Ludo
Venna for the appearing parties.
Intervenor-in-person (N.P.)
The Judgment of the Court was delivered by
B
PATTANAIK, J. These appeals by the Union of India are directed
against the judgment of the Bombay High Court. Certificates under Articles
132(1) and 133 of the Constitution for leave to appeal to the Supreme Court
having been granted by the High Court itself. By the impugned judgment, the
Bombay High Court came to the conclusion that the action of the Union
Government in taking over the managements of the three Cotton Mills, namely,
C The Elphinstone Spinning and Weaving Mills Company Ltd., Jam
Manufacturing Mills and New City Mills of Bombay under the provisions of
Textile Undertakings (Taking over of Management) Ordinance, 1983, (hereinafter
referred to as 'The Ordinance') and the Textile Undertakings (Taking over of
Management) Act, 1983 (hereinafter referred to as 'The Act'), infringed the
D fundamental right under Article 14 of the Constitution and, therefore, qua
them it was invalid. The High Court also further came to hold that the Act
infringed the petitioner's fundamental rights under Article 19(1Xg) and on
that count qua the petitioner was equally invalid. In coming to the aforesaid
conclusion the High Court after thorough discussion of the materials on
~
record found that the Union Government failed to establish either directly or
E inferentially any mis-management on the part of the three companies and
failed to establish from the material on record that there was any nexus
between the main object or purpose of the Act, viz., to take over management
of only those mills whose financial condition before strike was wholly
unsatisfactory by reason of mis-management.
F
The short facts leading to the promulgation of the Ordinance and
replacement of the same by the Act are that the Textile Mills in and around
Bombay had gone on strike with effect from 18.1.1982. On 15.2.1982 the
Government of India declared its policy for nationalisation of all these Textile
Industries. In October 1982, the Reserve Bank of India had called a meeting
G to discuss the situation arising out of the strike. Depending upon the economic
conditions of different mills the mills had been classified into three groups.
The continued Textile strike had deteriorated the financial condition of all the -4
Textile Mills and the Mills were looking forward to the Financial Institutions
and Nationalised Banks for financial aid to make the Mills viable. On 28th
March, 1983, the Government of India wrote letters to the Nationalised Banks
H and IDBI to conduct a viability study of these Mills. The three Mills, with
U.OJ. v. ELPHINSTONE SPINNING AND WEAVING CO.LTD. [PATTANAIK, J.] 227
which we are concerned, in these appeals had been included in category Ill. A
On 20th September, 1983, the Government of India in the Ministry of Commerce
had issued a Memorandum constituting a Task Force to collect data and
submit a note for being placed before Economic Affairs Committee of the
Union Cabinet to enable it to take a decision as to which of the Mills in
category IIT would be Nationalised. The said Task Force submitted its report B
by the end of September 1983. On 18th October, 1983, the Ordinance was
promulgated and the management of 13 Textile Mills enumerated in the First
-..,._
Schedule to the Ordinance was taken over pending Nationalisation of the
Undertakings. The Ordinance indicates that for re-organising and re-habilitating
the Textile Mills to protect the interest of the workmen employed therein, and
to augment the product and distribution at fair price of different varieties C
of cloth and yam so as to subserve the interest of the general public,.
investment of very large sums of money was necessary and for such
investment, the Central Government felt that the acquisition of the Mills
would be necessary, but since acquisition would take some time and it was
felt that it would be expedient in the public interest to take over the management D
of the Undertakings, pending acquisition, and that Parliament was not in
Session, the President, on being satisfied that circumstances exists for taking
immediate action, promulgated the Ordinance in exercise of powers conferred
under Article 123(1) of the Constitution. The said Ordinance was replaced
by the Act and the Act provided that the same shall be deemed to have come
into force on 18th day of October, 1983. Immediately after the promulgation E
of the Ordinance the Management of the Mills, enumerated in the First
Schedule thereof, having been taken over by the Government, the three Mills
referred to earlier filed three Writ Petitions in Bombay High Court challenging
the applicability of the Ordinance so far as those Mills are concerned. After
replacement of the Ordinance by the Act the Writ Petitions were amended
and thus the validity of the Act was challenged qua the three Writ Petitioners. F
Though the challenge was on three counts, namely, violation of Article 14,
violation of Article 19( I )(g) and violation of Article 300A, but at the time of
hearing the challenge in relation to violation of Article 300A was not pressed
and, therefore, the High Court considered the challenge, so far as it relates
to violation of Articles 14 and 19(1)(g) of the Constitution. The High Court G
in the impugned judgment made elaborate discussion of the materials on
record as well as interpreted the different provisions of the Constitution and
came to hold that the act with its object of only taking over the management
cannot be considered to be law for taking over the ownership and control
of the property, as required under Article 39(b), but would squarely fall under
Article 31 A (I )(b) and, therefore, Article 3 I ( c) will have no application. The H
228
SUPREME COURT REPORTS
[200 I] I S.C.R.
·A High Court also came to the conclusion that to protect a legislation under
Article 31 ( c ), there must be a declaration in the legislation itself that the Act
was enacted to give effect to the Directive Principles under Article 39(b) and
(c), and in the case in hand, there being no such declaration either in the
Ordinance and in the Act, Article 31 ( c) will have no application and, squarely
B the challenge on the ground of violation of Article 14 or 19 has to be
examined. On examining Article 3 lA(l)(b) the High Court was of the opinion
that two conditions must be satisfied for attracting Clause l(b) of Article 3 IA,
namely, that the taking over of the management of the property by the State
would be for a limited period, and such taking over must be either in public
interest or in order to secure the proper management of the property, since
C the taking over of management was not for any limited period and in fact such
management had been taken over pending nationalisation, the provisions of
Clause l(b) of Article 3 IA would not get attracted. According to the High
Court the expression "Pending Nationalisation" cannot be held to be for a
limited period and the protection of Article 31 A (I )(b) would be available only
when there is a definite limit in the law for the period of management and,
D consequently the challenge on the anvil of violation of Articles 14 and
19(1 )(g) has to be examined. The High Court then examined the factual aspect
for considering the question as to whether there were any materials to put
the three Mills in a class of Mills for which the taking over of the management
was meant notwithstanding a declaration or recital in the Preamble itself, the
E same being "Mills whose financial condition had become wholly unsatisfactory
by reason of mis-management". The High Court then examined the different
datas collected by the Government of India as well as several reports
including the Task Force Report and ultimately came to the conclusion that
even though the financial condition
had become unsatisfactory but the
F
Union Government has failed to establish that such unsatisfactory financial
condition is by reason of mis-management and, therefore, there was no nexus
between the basis of the classification of the petitioner Mills with other
mismanaged Mills and the said object and the purpose of the Act. In other
words, the High Court came to the conclusion that inclusion of the three Mills
in the Schedule appended to the Ordinance and the Act was arbitrary and,
G on the other hand, th~ figures given by the Union of India itself show that
the financial position of the three Mills were far better than even the Mills
which were in category II. Consequently, the High Court was of the opinion
that the Government could not have, for taking over of the management of
the petitioners' Mills, classified those Mills as Mills whose financial condition
was bad due to mis-management. The High Court, therefore, ultimately came
H to the conclusion that there has been a gross violation of Article 14 in
·-
-(
-~·
+
U.0.1. v. ELPHINSTONE SPINNING AND WEAVING CO.LTD. [PATTANAIK, J] 229
clubbing the three Mills with oiher Mills in category three, enumerated in the A
Schedule appended to the Act and such inclusion violates the fundamental
right guaranteed under Article 14 of the Constitution. The High Court also
came to the conclusion that the impugned Act infringed the petitioners' right
under Article 19( I )(g) and on that count qua petitioners was equally invalid.
Having come to the aforesaid conclusion the Writ Petitions were allowed and B
the order of taking over of the management of three Mills was set aside. But
the operation of the order had been stayed for 8 weeks and certain restrictions
had been imposed and the High Court also granted Certificate under Articles
132(1) and 133 of the Constitution for Leave to Appeal to the Supreme Court.
When the matter was listed before this Court the aforesaid interim order
staying the operation of the judgment was continued and later on certain C
Misc. Applications being filed by different Mills certain orders have been
passed by the Court with regard to the possession of certain assets, like,
car, telephone connections etc. When the appeals were taken up for hearing
in January 1985, the same had been heard before a Three Judge Bench but
after hearing for some time the Three Judge Bench felt that in view of the
questions which arise for consideration, and in view of Clause 3 of Article D
145 of the Constitution the cases should be heard by a Bench of not less
than Five Hon'ble Judges and that is why these appeals were heard by us.
Mr. Salve, the learned Solicitor General, appearing for the appellant
Union Government contended that the basic approach of the High Court in E
examining the constitutional validity of the Act is grossly erroneous and such
approach has vitiated the ultimate conclusion. According to
the learned
Solicitor General, the financial condition of these mills had become so bad that
unless large sum of money from the public exchequer was pumped into it, the
mills were not in a position to run and that in turn would have made
thousands of labourers idle. To overcome the aforesaid crisis and since large F
scale government money was going to be pumped into the Mills for making
it viable, the Parliament itself thought it appropriate to take step for acquiring
the Mills and pending finalisation of acquisition the Parliament thought it fit
to take over the management which was absolutely necessary in the public
interest. According to Mr. Salve this is apparent from the Bill introduced by G
the concerned Minister as well as the Act itself and in such a case the Court
would not be justified in examining the datas which persuaded the Parliament
to take the aforesaid decision to come to a conclusion that the said decision
of the Parliament could not have been taken on the available materials.
According to Mr. Salve the fact that the management of the Mills had been
taken over until the Mills are acquired by enacting an Acquisition Act, for H
230
SUPREME COURT REPORTS
[2001] I S.C.R.
A all practical purposes the taking over was for a limited period thereby attracting
Clause l(b) of Article 31A and the High Court was in error in concluding that
the taking over was not for a limited period and, as such, Clause l(b) of
Article 3 IA will not get attracted. According to learned Solicitor General the
Act in question was for a limited period and had been enacted in the public
B interest coming within the purview of Clause (l)(b) of Article 31A and,
therefore, provisions of Article 14 or Article 19 cannot at all be attracted for
assailing the validity of the action taken under the Act. The learned Solicitor
General also further urged that the materials which were there before the
Government before promulgation of the Ordinance and before the Parli;iment
before enactment of the Act were sufficient for classifying the Mills into three
C categories and in fact by inclusion of the three Mills with which we are
concerned in the present appeals with the group of 13, the Management of
which was being taken over by the Act, by no stretch of imagination can be
held to be discriminatory nor the conclusion of the High Court that there has
been an infringement of Article 19(l)(g) of the Constitution is at all sustainable.
The learned Solicitor General also placed reliance on the averments made by
D the Union of India in its Counter Affidavit filed before the High Court to
indicate how it was absolutely necessary to promulgate the Ordinance and
how the Government took the decision after considering the reports submitted
by the IDBI and other financial institutions as well as the report of the so
called Task Force. He also placed reliance on the Affidavit of Mr. Pra~hat
E Kumar, the then Secretary Commerce explaining the Task Force Report and
contended that the High Court was in error in basing its conclusion on the
earlier Affidavit of one Mr. Singh. According to learned Solicitor General that
while considering the constitutional validity of a statute, more particularly a
statute on economic matter, certain well established principles evolved by the
Courts as rules of guidance in discharge of its constitutional function of
F judicial review have to be borne in mind, and in the case in hand the impugned
judgment of the High Court, on the face of it, indicates that those guiding
principles have not been borne in mind. According to the learned Solicitor
General one cardinal principle well accepted and recognized by Courts is that
the legislature understands and correctly appreciates the needs of its own
G people and its laws are directed to problems made manifest by experience and
its discrimination are based on adequate grounds and the presumption of
constitutionality is indeed so strong that in order to sustain it the Court may
take into consideration matters of common knowledge, matters of common
report, the history of the times and may assume every state of facts which
can be conceived existing at the time of legislation. He further emphasised
H that the law relating to economic activities should be viewed with greater
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-(
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U.0.1. v. ELPHINSTONE SPINNING AND WEAVING CO. LTD. [PATTANAIK, l] 231
latitude than· laws touching civil rights such as freedom of speech, religion A
etc. and the High Court totally over-looked the aforesaid approach and
guidelines in basing its conclusion. According to the learned Solicitor General
the preamble of the Act unequivocally indicates the Act to be a piece of
legislation for 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. It no doubt, further stipulates-that· by
reason of mis-management of the affairs of the Textile Undertakings specified
in the First Schedule their financial condition became wholly' unsatisfactory
B
but the financial condition of these Mills had become so precarious and
unsatisfactory as was found from the reports of different financial institutions
including
IDBI that mis-management is ·the natural
inference and the C
preamble read as a whole would indicate that the Parliament thought it
appropriate to take over the management of Textile Undertakings in the public
interest pending nationalisation of such undertaking and in this view of the
matter the High Court was hyper-technical in recording a finding That- even
though the financial condition become wholly unsatisfactory but the
Government failed to establish the mis-management of the undertaking which D
had brought the financial condition to such unsatisfactory stage and, therefore,
by including the three mills in question in the group of 13 there has been
violation of Article 14. The learned Solicitor General also seriously commented
upon the conclusion of the High Court and submitted that the High Court
committed error in assuming mis-management as fraud and such fraud has not E
been established by the Union Government . According to learned Solicitor
General the High Court mis-understood the basis of the classification itself
and taking an over all view of the financial position of these three Mills the
conclusion is irresistible that these three Mills were rightly clubbed together
with the group of 13 whose financial position was wholly unsatisfactory and
government money was required to be pumped into it for making the mills F
viable and for effective running of the Mills so that the large number of
workers will not face the misery of closure of the Mills. The learned Solicitor
General also urged that in view of the prevailing situation in the 13 Mills
including the three with which we are concerned, in these appeals, the
Parliament thought that only way to put the management on the wheels was G
to take over the management of the Mills which is permissible in the larger
public interest, as containe.d in Article 3 1 A (I )(b) of the Constitution, and
such Parliamentary wisdom cannot be scrutinised by the Court in a scale on
the basis that certain reports might not have been placed before the Parliament
or on the ground that factually the Mills were not mis-managed and yet had
sustained heavy financial loss and thereby putting them alongwith the group H
232
SUPREME COURT REPORTS
[200 I] I S.C.R.
A of 13 consiitutes an infraction of Article 14 of the Constitution. According
to the learned Solicitor General the burden being on a person who attacks the
constitutionality on the grounds of discrimination the said burden cannot be
held to have been discharged by the Mills and the High Court committed
serious error in annulling the taking over of the management of the three Mills
B under the Act on the ground that Government failed to establish the relevant
material before the Court. The learned Solicitor General also argued that
Article 31 ( c) does apply to the legislation in question, and therefore, infraction
of Article 14 or 19 should not have been gone into by the Court.
Mr. F.S. Nariman, learned senior counsel appearing for the Elphinstone
C Spinning and Weaving Mills Company Ltd., emphatically urged that Article
31 A (I )(b) was introduced by the Constitution IV th Am,endment Act of 1955
which enables to make law for taking over of the management of any
property by the State for a limited period either in the public interest or in
order to secure proper management of the same. The law made by the Parliament
is the Textiles Undertakings (Taking over of Management) Act, 1983. The
D said law permits take over only when the financial condition became
unsatisfactory by reason of mis-management of the affairs of the Textile
Undertakings. And, this being the position, if there is no material to establish
that financial losses is on account of mis-management then the taking over
of the management of the mill by taking recourse to the impugned Act must
E be held to be invalid and the High Court in fact has held it to be invalid.
According to Mr. Nariman mere losses will not entitle to take over of the
management of mill, inasmuch as, all the mills have suffered loss and, therefore,
there must be some other factors on account of which it will be possible
for the Government to take over the management of only 13 mills as included
in the First Schedule to the Act. He also further urged that in view of th~
F language of Article 31 A (I )(b) the law for taking over of the management
must be for a limited period and the expression 'pending nationalisation' in
the impugned Act cannot be construed to be a definite limited period and,
therefore, the Act in question is not referable to Article 3 IA (I )(b ). It is in
this connection he cited the decision of Raman Lal as well as the decision
G of the Delhi High Court in ILR 74 (I) Delhi 311 and also a decision of Andhra
Pradesh High Court in AIR 1977 A.P. 420. Mr. Nariman also argued that in the
impugned Act there is intrinsic evidence to indicate that the taking over of
management was not for a limited period as it would be apparent from Sections
33, 34, 36 and Sections 6, 8 and 11 (I), and essentially it constitutes acquisition
and not take over of management for a limited period. Mr. Nariman, also urged
H that the legislative declaration of facts are not beyond judicial scrutiny in the
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U.0.1. v. ELPHINSTONE SPINNING AND WEA YING CO. LTD. [PA TTANAIK, J] 233
constitutional context of Articles 14 and 16 and the Court can always tear the A
veil to decide the real nature of the statute if the facts and circumstances
warrant such a course. A mere declaration in the legislation would not be
permissible so as to defeat the fundamental right. If the legislation in question
was merely a pretence and the object was discrimination the validity of the
statute could be examined by the Court notwithstanding the declaration made
by the legislature and, therefore, the High Court was fully justified in examining B
the facts and coming to the conclusion that in grouping the three mills
alongwith other 13 mills for the purpose of taking over the management
constitutes an infraction of Article 14 of the Constitution. In support of this
contention he places reliance on the decision of this Court in Indira Sawhney
v. Union of India and others, (2000] I Supreme Court Cases 168. Mr. R.F. C
Nariman, learned senior counsel pursued the arguments advanced by Mr. F.S.
Nariman and contended that the classification itself may be valid but while
choosing the mills to be included in such classification and clubbing the
Elphinstone Mill within the group of 13 is discriminatory in as much as a well
managed mill is being clubbed with a mis-managed mill. According to Mr. R.F.
Nariman categorisation of the Elphistone mill as a mis-managed mill is contrary D
to the facts available on record, and as such, it violates Article 14. Mr. R.F.
Nariman also further urged that a machinery available under IDR Act for an
inquiry not having been resorted to it contravenes Article 19( I )(g). According
to learned counsel the Parliament chose to adopt a procedure without any
urgency being there and without any machinery to look into the facts on the E
basis of which categorisation could be made, the classification is bad in law.
Mr. Nariman also contended that in view of Article 300A the law must be
reasonable and fair and in view of the judgment of this Court in Dwarkadas
Shrinivas of Bombay v. The Sholapur Spinning & Weaving Co. ltd and
others, (1954] Supreme Court Reports 674, the impugned action is bad in law.
Mr. RF Nariman also contended that it was open for the Writ Petitioners to F
place and establish that the legislative facts are incorrect and in fact the
petitioners have discharged that burden by placing materials on record and
the High Court, therefore, was fully justified in arriving at its decision on the
materials produced. He placed reliance on the decision of this Court in Dr.
K.R. lakshmanan v. State of TN. and another, [1996] 2 Supreme Court Cases G
226 in support of aforesaid contention. According to Mr. Nariman the following
facts establishes that the Elphinstone Mill was not a mis-managed mill and
Parliament erroneously clubbed the same with other mis-managed mills. Those
facts are :-
(a)
IDBI viability study report
H
234
SUPREME COURT REPORTS
[200 I] I S.C.R.
A
(b) Task Force Report
(c)
Approval of the Central Government itself to appoint a Managing
~
Director
(d) Sanction of loan by JRCI AND IDBI in September 1993
B
(e)
No investigation done under Section 15 and I 5(a) of !DR Act,
and
(t)
No action of any kind under the provisions of Companies Act,
-vand on this score the conclusion of the High Court is unassailable.
Mr. Ganesh, learned counsel appearing for the
New City Mills
C contended, that the High Court itself has given a positive finding on the basis
of the materials those have been produced that the performance of the mill;
was good. Even the Counter Affidavit of the Union Government before the
High Court does not indicate that the performance of the New City Mill was
in any way made out a case of mis-management. The analysis of Mr. Bilmoria,
D the letter of RBI dated 23rd March, 1983 and the very Task Force Report
clearly demonstrates that the New City Mill was not at all a mis-managed mill
and these materials could be looked into by the Court when the Mill itself had
alleged discrimination under Article 14. In support of this contention he
places reliance on the decision of this Court in Shashikant laxman Kale and
Another v. Union of India and Another, [I 990] 4 Supreme Court Cases 366
E and Mrs. Maneka Gandhi v. Union of India and Another, [1978] Supreme
Court Cases 248. Mr. Ganesh also placed reliance on the decision of this
Court in Chiranjit Lal Chowdhuri v. The Union of India and Others, [1950]
Supreme Court Reports 869 and submitted that in that case the Court did go
into the materials and came to the conclusion about the mis-management and,
p therefore, in the case in hand the High Court was fully justified in interfering
with the order of taking over qua New City Mill.
Ms. Indira Jaisingh, learned senior counsel appearing for the workers
of the Mills supported the stand taken by the learned Solicitor General and
placed before us different materials on record to establish the mis-management
G of the mills concerned.
In view of the rival submissions the following questions arise for our
consideration:-
I.
Can the impugned Act be held to be a law providing for the
H
taking over of the management of the Mills for a limited period?
I
jo-.
U.0.1. v. ELPHINSTONE SPINNING AND WEAVING co: LTD. [PATTANAIK.