1988 (4) TMI 433 - SC - Indian Laws

Summary

Issues Involved:
1. Constitutional validity of the Swadeshi Cotton Mills Limited (Acquisition and Transfer of Undertakings) Act, 1986.
2. Compensation for the acquisition of shares.
3. Public purpose of the acquisition.
4. Petitioners' locus standi to challenge the Act.

Summary:

1. Constitutional Validity of the Act:
The petition challenged the constitutional validity of the Swadeshi Cotton Mills Limited (Acquisition and Transfer of Undertakings) Act, 1986, under Article 32 of the Constitution. The petitioners contended that the Act amounted to the confiscation of shares without compensation and imposed liabilities without corresponding assets. The Court referred to its previous judgment in M/s Doypack Systems Pvt. Ltd. v. Union of India, which upheld the vesting of shares and immovable properties in the Central Government and National Textile Corporation (NTC) u/s 3 and 4 of the Act.

2. Compensation for the Acquisition of Shares:
The petitioners argued that the acquisition took away valuable assets without paying any compensation, violating Articles 14 and 19(1)(g) of the Constitution. The Court reiterated that compensation was provided in lump sum u/s 8 of the Act, and it was not calculated as the total value of individual assets but as a whole for the undertakings. The Court cited its previous judgment, noting that the net wealth of the company was negative at the time of takeover, justifying the lump sum compensation.

3. Public Purpose of the Acquisition:
The petitioners claimed that the acquisition lacked a public purpose, as the undertakings produced neither cloth nor yarn, contrary to the preamble of the Act. The Court held that the public purpose was served by ensuring the continued manufacture, production, and distribution of cloth and yarn, which were vital to the country. The Court emphasized that the acquisition aimed to subserve the interests of the general public and secure the principles specified in clauses (b) and (c) of Article 39 of the Constitution.

4. Petitioners' Locus Standi:
The petitioners, as shareholders of Swadeshi Cotton Mills, claimed an interest in the business and properties of the company. They argued that the acquisition damaged their rights as shareholders. The Court, however, found that the petitioners' contentions were not tenable, as the issues had been addressed in the previous judgment. The Court emphasized that the law declared in M/s Doypack Systems Pvt. Ltd. was binding on the petitioners u/s 141 of the Constitution.

Conclusion:
The Supreme Court dismissed the petition, holding that the Act was constitutionally valid, provided for compensation, served a public purpose, and that the petitioners' contentions were no longer open for agitation. The Court reiterated that the acquisition was necessary to ensure the principles of Article 39(b) and (c) and to prevent the company from reaping the fruits of its mismanagement.