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TMI Blog1997 (10) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... Nikhil M. Sakhardande for the Appellant. K. Parasaran, P.K. Goswami, C.K. Sasi and Kailash Vasdev for the Respondent. JUDGMENT K. Venkataswami, J.--The appellant, formerly a shareholder and managing director of the Nagaland Forest Products Limited (hereinafter called the "company"), challenged the vires of the Nagaland Forest Products Ltd. (Acquisition of Shares) Ordinance, 1981, and the Nagaland Forest Products Ltd. (Acquisition of Shares) Act, 1982, which replaced the Ordinance (hereinafter called the "State Act"), contending, inter alia, that the said legislations were ultra vires the powers of the Nagaland State Legislature in view of section 20 of the Industries (Development and Regulation) Act, 1951 (hereinafter called the "Central Act"). Pursuant to a contract entered into between the late Shri Ram Gopal Saharia, father of the appellant, and the Government of Nagaland dated April 24, 1972, to establish a plywood factory in the territory of Nagaland on the terms and conditions stipulated therein, the company was incorporated. The authorised share capital of the company was Rs. 50,00,000 divided into (i) 20,000 (6 per cent, cumulative redeemable) preference shares of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking in a declared industry indisputably the bar of section 20 of the IDRA would inhibit exercise of such executive power. However, if pursuant to a valid legislation for acquisition of a scheduled undertaking the management stands transferred to the acquiring body it cannot be said that this would be in violation of section 20. Section 20 does not preclude or forbid a State Legislature exercising legislative power under an entry other than entry 24 of List II, and if on exercise of this legislative power, to wit, acquisition of shares of a company owning an industrial undertaking in a declared industry the consequential transfer of management for control over the industry or undertaking follows as an incident of acquisition, such taking over of management or control pursuant to an exercise of legislative power is not within the inhibition of section 20 . . . 52. From the principles of catena of decisions enunciated in the decided cases, it is found that merely because an industry is a declared industry under entry 52, that by itself will not put an embargo on the State Legislature to pass legislation within its competence. It has further been found in many of the cases th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the legislation impugned therein. He also brought to our notice that the ruling of the Constitution Bench in Ishwari Khetan's case, AIR 1980 SC 1955, had been followed/applied consistently right from the year 1980 till date and that shows there is no deficiency in the ruling of the Constitution Bench in Ishwari Khetan's case, AIR 1980 SC 1955. Before proceeding further to consider the submissions made by counsel on both sides, it is necessary and will be useful to extract the relevant provisions of the Central Act and the State Act. Central Act : Section 2, Schedule I, item 36(1) and section 20 are as follows : Section 2.--"It is hereby declared that it is expedient in the public interest that the Union should take under its control the industries specified in the First Schedule." Sch. I,, item 36(1 ).-"Any industry engaged in the manufacture or production of any of the articles mentioned under each of the following headings or sub-headings, namely :-- . . . . 36. Timber products '. (1) Plywood." Section 20.-- "After the commencement of this Act, it shall not be competent for any State Government or a local authority to take over the management or control of any industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empts/authorises the taking over of the management/control of the plywood industry or it only enables the State Government to acquire the assets (shares) of the company. Section 3 of the State Act stated that all the shares of the company other than those already held by the Government stood transferred to and vested in the State Government. In consequence of such vesting of the shares, the Government naturally exercises rights as share-. holder and incidentally acquires the control and management of the company. But that will not fall under the mischief of section 20 of the Central Act because section 20 prohibits the State Government from taking over management or control de hors the ownership of the under- taking. The Central Act is concerned with the control and management of the undertaking and not with its ownership. By acquiring ownership, incidentally, management and control of the company also vests with that, it will be incidental and such an exercise of legislative power is not prohibited under section 20 of the Central Act. Notwithstanding the taking over of the company by the State Government still if the Central Government finds scope to exercise their power under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but if as a sequel to an acquisition of an industrial undertaking, the management or control of the industrial undertaking stands transferred to the acquiring authority, section 20 is not attracted at all. Section 20 does not preclude or forbid a State Legislature from exercising legislative power under an entry other than entry 24 of List II, and if in exercise of that legislative power, to wit, acquisition of an industrial undertaking in a declared industry the consequential transfer of management or control over the industry or undertaking follows as an incident of acquisition, such taking over of management or control pursuant to an exercise of legislative power is not within the inhibition of section 20. Therefore, the contention that the impugned legislation violates section 20 has no merit." This judgment of the Constitution Bench has been followed and applied recently in Orissa Cement Ltd. v. State of Orissa [1991] Suppl. 1 SCC 430 ; Indian Aluminium Company Limited v. Karnataka Electricity Board [1992] 3 SCC 580 ; Dalmia Industries Ltd. v. State of U. P. [1994] 2 SCC 583 ; Ajay Kumar Singh v. State of Bihar [1994] 4 SCC 401 and Mahabir Sugar Mills Ltd. v. State of U. P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be pointed out that the judgment of the court in Izhar Ahmad Khan's case, AIR 1962 SC 1052, was followed by this court in the Government of Andhra Pradesh v. Syed Mohd. Khan, AIR 1962 SC 1778." In T. Govindaraja Mudaliar v. State of Tamil Nadu [1973] 3 SCR 222 ; AIR 1973 SC 974, 978, it was held as follows : "The argument of the appellants is that prior to the decision in Rustom Cavasjee Cooper's case, [1970] 40 Comp Cas 325 (SC) it was not possible to challenge Chapter IV-A of the Act as violative of article 19(1)(f) owing to the decision of this court that article 19(1)(f) could not be invoked when a case fell within article 31 and that was the reason why this court in all the previous decisions relating to the validity of Chapter IV-A proceeded on an examination of the argument whether there was infringement of article 19(1)(g), and clause ( f) of that article could not possibly be invoked. We are unable to hold that there is much substance in this argument. Banji Munji, AIR 1955 SC 41, and other decisions which followed it were based mainly on an examination of the inter-relationship between article 19(1)(f) and article 31(2). There is no question of any acquisition or requi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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