1953 (12) TMI 19 - SC - Companies Law

Whether the provisions of the Ordinance for taking over the management and administration of the company, contravene the provisions of article 31 (2) of the Constitution? Whether the Ordinance as a whole or any of its provisions infringe articles 14 and 19 of the Constitution? Held that - The plaintiff is entitled to challenge the constitutionality of the Ordinance on the basis that it abridges the company s fundamental right under article 31 (2). The plaintiff is thus entitled to succeed in this suit which should have been decreed in the terms in which it was laid.

Issues Involved:
1. Validity of the Ordinance under Articles 19 and 31 of the Constitution.
2. Deprivation of property without compensation under Article 31.
3. Whether the impugned legislation violates the fundamental rights of the shareholders under Article 14.
4. The locus standi of the plaintiff to challenge the Ordinance.

Issue-Wise Detailed Analysis:

1. Validity of the Ordinance under Articles 19 and 31 of the Constitution:
The impugned Ordinance was challenged on the grounds that it violated the fundamental rights conferred under Articles 19 and 31 of the Constitution. The Court found that the Ordinance authorized the deprivation of the property of the company without compensation, thus violating Article 31(2). It was held that the Ordinance did not fall under the exceptions provided in clause (5)(b)(ii) of Article 31, and thus, it was unconstitutional. The Court noted that the Ordinance led to the State taking possession of the company's property through directors appointed by the government, which amounted to a deprivation of property without compensation.

2. Deprivation of property without compensation under Article 31:
The Court examined whether the provisions of the Ordinance amounted to the taking over of the company's property without compensation. The Court held that the combined effect of sections 3, 4, and 12 of the Ordinance was that the Central Government became vested with the possession, control, and management of the company's property, effectively depriving the company and its shareholders of their property. The Court emphasized that the Ordinance overstepped the limits of social control legislation and amounted to an exercise of eminent domain without providing for compensation, thus violating Article 31(2).

3. Whether the impugned legislation violates the fundamental rights of the shareholders under Article 14:
The Court addressed the issue of whether the Ordinance discriminated against the shareholders, thus violating Article 14. The majority in Chiranjit Lal Chowdhuri's case had held that the petitioner had not discharged the onus of proving discrimination. However, in the present case, the Court found that the Ordinance imposed a liability on the preference shareholders to pay the unpaid amount on their shares, which directly affected their property rights. The Court concluded that the Ordinance was discriminatory and violated the equal protection clause of Article 14.

4. The locus standi of the plaintiff to challenge the Ordinance:
The plaintiff, a preference shareholder, challenged the validity of the Ordinance on behalf of himself and other preference shareholders. The Court held that the plaintiff had locus standi to challenge the Ordinance as it directly affected his property rights. The Court distinguished the present case from Chiranjit Lal Chowdhuri's case, noting that the plaintiff was under a liability to pay a significant amount due to the call made by the government-appointed directors. The Court emphasized that the plaintiff was entitled to challenge the authority of the directors and the validity of the Ordinance, as it directly impacted his property rights.

Conclusion:
The Supreme Court held that the impugned Ordinance violated Articles 19 and 31 of the Constitution by authorizing the deprivation of property without compensation. The Court also found that the Ordinance discriminated against the shareholders, thus violating Article 14. The plaintiff had the locus standi to challenge the Ordinance as it directly affected his property rights. Consequently, the appeal was allowed, and the plaintiff's suit was decreed.

← Previous Next →