2009 (8) TMI 704 - HC - Companies Law

Karnataka Co-operative Textile Mills (Acquisition and Transfer Amendment) Act 2004 (Act No. 20 of 2005) challenged Held that - There is no initiative on the part of the State Government to demonstrate that the several orders passed by the company court from time to time ought to be recalled or that the same are to be varied to bring the same in consonance with the Act. In the absence of any reference to the effect of the events and proceedings up to the date of coming into force of the Amendment Act purported retrospectivity of the Act is fictitious and futile. It would not have any effect on the consequences that follow by virtue of orders of competent courts of law and by operation of law. A glaring circumstance that may be readily pointed out is that the effect of winding up order is that the company ceases to be the beneficial owner of its assets despite its continuance as legal owner. The 2004 Act does not efface the order of winding up by the company court. The endeavour to include the ownership of lands belonging to third parties with effect from the date of coming into force of the 1986 Act by enacting the 2004 Act is therefore an exercise in futility. Therefore it is patent that the impugned legislation is a nullity. Accordingly the writ petitions are allowed. The Karnataka Co-operative Textile Mills (Acquisition and Transfer Amendment) Act 2004 (Act No. 20 of 2005) is null and void as the same is inconsistent with the Constitution of India.

Summary

Issues Involved:
1. Validity of the Karnataka Co-operative Textile Mills (Acquisition and Transfer) (Amendment) Act, 2004.
2. Rights of the petitioners over the leased lands.
3. Compliance with constitutional provisions and public purpose requirement.

Detailed Analysis:

1. Validity of the Karnataka Co-operative Textile Mills (Acquisition and Transfer) (Amendment) Act, 2004:

The petitioners challenged the 2005 Act, which envisages the acquisition of lands held on lease for the purposes of the textile mills with retrospective effect from the date of the Parent Act. The petitioners argued that the 1986 Act, which aimed to revive the mills, had become obsolete as the mills were ultimately ordered to be wound up. They contended that the Amendment Act was an attempt to illegally acquire land that was no longer available for the benefit of the textile mills.

The court noted that the 1986 Act provided for the acquisition and transfer of the mills by the State Government in public interest, including the lease-hold rights but not the ownership of the land. This position was endorsed by the court in earlier writ proceedings. The court found that the Amendment Act was brought in only to acquire the lands of the petitioners to enable the sale of the same to ensure payment of dues to banks and creditors, which does not sub-serve any public purpose.

The court held that the Amendment Act was not protected by Article 31C of the Constitution as it did not give effect to any of the directive principles of State Policy. The court emphasized that any legislation must not be ultra vires the Constitution or the Parent Act and must comply with the procedure for deprivation of property. The court concluded that the impugned legislation was a nullity and declared the Karnataka Co-operative Textile Mills (Acquisition and Transfer) (Amendment) Act, 2004 as null and void.

2. Rights of the Petitioners Over the Leased Lands:

The petitioners were joint owners of the lands leased to the textile mills. The sequence of events included multiple transfers of lease-hold rights and the eventual closure and winding up of the mills. The court noted that the ownership of the land remained with the petitioners, and the lease-hold rights were vested in the Government under the 1986 Act. The court had previously held that the ownership rights of the land were not available for sale by the State Government under the Act.

The petitioners had approached the company court seeking recovery of possession of the leased land. The court had directed the official liquidator to put the petitioners in possession of the land and allowed them to purchase the debris and machinery on the land. The court found that the State Government had conceded the possession of the assets of the company to the official liquidator and had delivered possession of the lands to the petitioners.

The court observed that the State Government had not demonstrated any initiative to recall or vary the orders passed by the company court. The court held that the retrospective effect of the Amendment Act was fictitious and futile, as it did not affect the consequences that followed by virtue of orders of competent courts of law and by operation of law.

3. Compliance with Constitutional Provisions and Public Purpose Requirement:

The court emphasized that any legislation made by the State must conform to the Constitution and must not contravene fundamental rights. The court referred to the Supreme Court's observation that a Legislature cannot legislate today with reference to a situation that obtained 20 years ago and ignore the rights accrued during that period.

The court found that the Amendment Act was an arbitrary and unreasonable attempt to acquire the petitioners' lands without serving any public purpose. The court concluded that the impugned legislation was inconsistent with the Constitution of India and declared it null and void.

Conclusion:

The writ petitions were allowed, and the Karnataka Co-operative Textile Mills (Acquisition and Transfer) (Amendment) Act, 2004 was declared null and void. The court held that the Amendment Act was inconsistent with the Constitution of India and did not serve any public purpose. The court emphasized the importance of compliance with constitutional provisions and the protection of property rights.