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TMI Blog1980 (4) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... view to transferring and vesting sugar undertakings set out in the Schedule to the ordinance in the U.P. State Sugar Corporation Ltd. ( Corporation for short), a Government Company within the meaning of s. 671 of the Companies Act, 1956. Subsequently, by U.P. Sugar Undertakings (Acquisition) Act, 1971, (U.P. Act 23 of 1971) ( Act for short), the ordinance was repealed and was replaced. Schedule to the Act enumerates 12 sugar undertakings (referred to as scheduled undertakings ) and by the operation of s. 3, these scheduled undertakings stood transferred to and vested in the Corporation from the appointed day, i.e. July 3, 1971, the date on which the ordinance was issued. On the promulgation of 7 the ordinance 11 writ petitions were filed in the Allahahad High Court under Article 226 of the Constitution challenging the constitutional validity of the ordinance and when the Act replaced the ordinance effective from August 27, 1971, the writ petitions were amended incorporating the challenge to the Act also. The ordinance and the Act were challenged in the High Court on the following grounds: (1) The State legislature had no legislative competence to enact it; (2) The Act viol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Act to acquire scheduled undertakings, meaning thereby the properties of the scheduled undertakings, the power of the State legislature to legislate in this behalf is referable to entry 42 and remains intact irrespective of the fact that sugar is a declared industry, control of which is taken over by the Union Government pursuant to the declaration made under s. 42 of the IDR Act. This necessitates an analytical examination of the relevant entries keeping in view legislative perspective and the historical background through which these entries have passed. Entry 7 in the Union List reads as under: 7. Industries declared by parliament by law to be necessary for the purpose of defence or for the prosecution of war. Entry 32 in the same List reads: 52. Industries, the control of which by the Union is declared by parliament by law to be expedient in the public interest Entry 24 in List II (State List) reads as under: 24. Industries subject to the provisions of entries 7 and 52 of List I. It may be noted here that entry 33 in List I, entry 36 in List II and entry 42 in List III were amended by s. 26 of the Constitution (Seventh Amendment Act by which entry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to assume control over any particular industry in public interest is a sine qua non to clothe Parliament with power under entry 52, List I to legislate in respect of that industry because otherwise industry as a general head of legislation is in the exclusive sphere of State legislative activity pursuant to entry 24, List II. Distribution of legislative powers as enacted in Part XI and Art. 246 clearly demarcate the field of legislative activity reserved for Parliament and for State legislatures and also the concurrent list in respect of which both can legislate subject to other provisions of part XI. Sub-art. (3) of Art. 246 provides that the State legislature has exclusive power to make laws with respect to any of the matters enumerated in List. II in the Seventh Schedule. A fortiori, industry being the matter enumerated in List II the State legislature has exclusive power to legislate in respect of it and keeping aside for the time being the words subject to the provisions of entries 7 and 52 of List I , the State legislature alone can legislate in respect of the legislative head industry. Ipso facto, parliament would not have power to legislate in respect of industry as a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in Baijnath Kedia v. State of Bihar Ors.J(1) in the following terms: Once this declaration is made and the extent laid down, the subject of legislation to the extent laid down becomes an exclusive subject for legislation by Parliament. Any legislation by the State after such declaration and trenching upon the field disclosed in the declaration must necessarily be unconstitutional because that field is abstracted from the legislative competence of the State Legislature . . The only dispute, therefore, can be to what extent the declaration by Parliament leaves any scope for legislation by the State legislature. If the impugned legislation falls within the ambit of such scope it will be valid, if outside it, then it must be declared invalid Sugar is a declared industry. Is it, however, correct to say that once a declaration is made as envisaged by entry 52 List I, that industry as a whole is taken out of entry 24, List II? In respect of an identical entry 54, List I in the passage extracted above it is said that to the extent declaration is made and extent of control laid, that much and that much alone is abstracted from the legislative competence of the State legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minerals the Union has assumed control to the extent provided in the Mines Minerals Act, in the case of declared industries the control is absolute, unlimited, unfettered or unabridged and, therefore, everything that would fall within the connotation of the word control would be within the competence of the Union and to the same extent and degree the State legislature would be denuded of its power to legislate in respect of that industry. It was said that in respect of declared industries total control is assumed by the Union and, therefore, entry 24, List II on its import must be read industry minus the declared industry because entry 24, List II is subject to entries 7 and 52, List I. Undoubtedly the Union is authorised to assume control in respect of any industry if parliament by law considers it expedient in the public interest. The declaration has to be made by the Parliament, but the declaration has to be by law not a declaration simpliciter. The words of limitation on the power to make declaration are by law . Declaration must be an integral part of law enacted pursuant to declaration. The declaration in this case is made in an Act enacted to provide for the development a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquires power to legislate only in respect of those industries in respect of which declaration is made and to the extent as manifested by legislation incorporating the declaration and no more. The Act prescribes the extent of control and specified it. As the declaration trenches upon the State legislative power it has to be construed strictly. Therefore, even though the Act enacted under entry 54 which is to some extent in pari materia with entry 52 and in a parallel and cognate statute while making the declaration the Parliament did use the further expression to the extent herein provided while assuming control, the absence of such words in the declaration in s. 2 would not lead to the conclusion that the control assumed was to be something in abstract, total and unfettered and not as per various provisions of the IDR Act. The lacuna, if any, is made good by hedging the power of making declaration to be made by law. Legislative intention has to be gathered from the Act as a whole and not by piecemeal examination of its provisions. It would, therefore, be reasonable to hold that to the extent Union acquired control by virtue of declaration in s. 2 of the IDR Act as amended from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, the Act would be beyond the legislative competence of the State legislature as it trenches upon the field occupied by IDR Act specifically enacted to empower Union Government to provide effective control over industrial undertakings in declared industry to prevent mismanagement, or to rectify the same by taking over management. When validity of a legislation is challenged on the ground of want of legislative competence and it becomes necessary to ascertain to which entry in the three lists the legislation is referable to, the Court has evolved the theory of pith and substance. If in pith and substance a legislation falls within one entry or the other but some portion of the subject-matter of the legislation incidentally trenches upon and might enter a field under another List, the Act as a whole would be valid not with standing such incidental trenching. This is well established by a catena of decisions [see Union of India v. H. S. Dhillon,(1) and Kerala State Electricity Board v. Indian Aluminium Co.(2)]. After referring to these decisions in State of Karnataka Anr. etc. v. Ranganatha Reddy Anr. etc.(3) Untwalia, J. speaking for the Constitution Bench has in terms sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer of ownership of the scheduled undertakings to the Corporation would in no way come in conflict with any of the provisions of the IDR Act or would not trench upon any control exercised by the Union under the various provisions of the IDR Act. In fact the IDR Act, generally speaking, does not deal with the ownership of industrial undertakings in declared industries. The Act is primarily concerned with development and regulation of the declared industries. The Central Government has power under ss. 18A and 18AA of the IDR Act to assume direct management or control of industrial undertakings in certain cases and even after acquisition of scheduled undertakings under the impugned legislation the power of the Central Government under ss. 18A and 18AA would remain intact. Even s. 18FA provides for taking over management or control of a company which is being wound up with the permission of the High Court and in such a situation the authorised person appointed by the Central Government would be deemed to be Official Liquidator under sub-s. (4) of s. 18FA. Provision contained in Chapter IIIAC of IDR Act enables Central Govt. to direct sale of the industrial undertaking under certain c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal to the power to legislate in respect of the various topics in various lists and, therefore, when by a declaration made by the parliament enacted in s. 2 of the IDR Act the control over declared industry is assumed by the Union, such control will also comprehend the power to acquire and hence the power of the State legislature to enact legislation for acquisition of property of scheduled undertakings would be denuded as that power as an internal element of control would vest in the Union Government. The focal point of controversy, therefore, is whether the power of acquisition and requisitioning of property under entry 42, List III is an independent power by itself or it is an integral and inseparable element of the power of control over industry. Constitution amending process bearing on the three relevant entries may be noticed. Before the Constitution (Seventh Amendment) Act, 1956, which came into force on November 1, 1956, Entry 33 in List I read: Acquisition or requisitioning of property for the purpose of the Union. Similarly, Entry 36 in List II read: Acquisition or requisitioning of property except for the purpose of the Union subject to the provisions of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ras legislature was not competent to enact the legislation because at the relevant time there was no entry in the Government of India Act, 1935, relating to compulsory acquisition of any commercial or industrial undertaking. This challenge failed in the High Court but on appeal the challenge was accepted by a Constitution Bench of this Court. Now, it must be remembered that the impugned legislation in that case was a pre-Constitution legislation then governed by the Government of India Act, 1935. The challenge was that the State legislature had no power to enact a legislation for acquisition of an electrical undertaking. On behalf of the State the Act was sought to be sustained on the ground that the Act was in pith and substance a law with respect to electricity under entry 31 of the Concurrent List and, therefore, the State legislature was competent to enact the same. After scrutinising the Act this Court came to the conclusion that in pith and substance the Act was one to provide for acquisition of electrical undertaking and, therefore the State legislature lacked competence to enact the same. Now, in that case the Advocate-General of Madras in his effort to save the impugned le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged that this proposition runs counter to the decision of a Constitution Bench of six judges in State of West Bengal v. Union of India. (1) In that case the State of West Bengal filed a suit against the Union of India challenging the constitutional validity of the Coal Bearing Areas (Acquisition and Development) Act, 1957, on the ground that the Act to the extent it applied to the lands vested in or owned by the State was beyond legislative competence of Parliament. Power to acquire coal bearing land owned or possessed by the State of West Bengal was amongst others claimed as an integral element of control acquired by the Union pursuant to a declaration made in s. 2 of the IDR Act and Mines and Minerals Act enacted in exercise of the legislative power under entries 52 and 54 respectively as coal was both a declared industry and a specified mineral. This contention was partly accepted to repel the contention that the Union has no power to acquire the property vested in the State since the State itself is also a sovereign authority. The contention that the property of State cannot be acquired by the Union under entry 42 of List III was repelled. In reaching this conclusion, anothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate law on matters in the Concurrent List if that law is repugnant to an existing or earlier law made by Parliament, only if such law has been reserved for the consideration of the President, and has received his assent. By the proviso authority is reserved to the Parliament to repeal a law having even this limited validity. Assent of the President to State legislation intended to nullify a law enacted by Parliament for acquisition of State property for the purposes of the Union lies outside the realm of practical possibility. Therefore, the contention that power of acquisition or requisitioning of property in entry 42, List III, if held to be an independent power wholly falling outside the control assumed by the Union pursuant to the declaration envisaged by entry 52, List II, would lead to a sort of a constitutional impasse, is more imaginary than real. Further, in the minority judgment, Subba Rao, J. has in this context said: A declaration under entry 52 of List I would no doubt enable Parliament to make a law in respect of an industry, that is to say Parliament may make a law in respect of an existing industry or an industry that may be started subsequently. So too, bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point, a later larger constitution Bench judgment in Cooper case would impliedly overrule the former to the extent of conflict. There is on the contrary a good volume of authority for the proposition that the control assumed by the Union pursuant to declaration to the extent indicated in the statute making the declaration does not comprehend the power of acquisition if it is not so specifically spelt out. In Kannan Devan Hills Produce Company Ltd. v. The State of Kerala Another,(1) constitutional validity of Kannan Devan Hills (Resumption of Lands) Act, 1971, was challenged on the ground of legislative competence of Kerala State legislature to enact the legislation. It was urged that in view of the declaration made in s. 2 of the Tea Act, 1853, Tea was a controlled industry and, therefore, the State legislature was denuded of any power to deal with the industry. It was further contended that tea plantation required extensive land and that resumption of land by the impugned legislation would directly and adversely affect the control taken over by the Union and, therefore, the State legislature was incompetent to enact the impugned legislation. This contention was repelled hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will have power to legislate in respect of declared industry without in any way trenching upon the occupied field. State legislature which is otherwise competent to deal with industry under entry 24, List II, can deal with that industry in exercise of other powers enabling it to legislate under different heads set out in Lists II and III and this power cannot be denied to the State. In this connection it would be advantageous to refer to Chanan Mal case (supra). In that case constitution validity of Haryana Minerals (Vesting of Rights) Act, 1973, and the two notifications issued thereunder was challenged on the ground that the Act and the notifications issued thereunder were repugnant to the Mines Minerals Act made by Parliament after making a declaration as contemplated by Entry 54, List I. The challenge was that the State legislature was incompetent to legislate on the topic of mines and minerals under entry 23, List II in view of the declaration made under entry 54, List I and the enactment of Act 67 of 1957 (Mines Minerals Act) by the Parliament. By the impugned Act and the notifications issued thereunder the State Government of Haryana purported to acquire rights to salt p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt to the extent where on assumption of control of an industry by a declaration as envisaged in entry 52, List I, a further power of acquisition is taken over by a specific legislation. As already pointed out, in pith and substance the impugned legislation is one for acquisition of scheduled undertakings and that field of acquisition is not occupied by the IDR Act which deals with control of management, regulation and development of a declared industry and there is no repugnancy between the impugned legislation and the IDR Act. Both can co-exist because the power acquired by the Union under the IDR Act can as well effectively be exercised after the acquisition of the scheduled undertakings as it could be exercised before the acquisition. Therefore, the contention that the State legislature lacked legislative competence to enact the impugned legislation must be negatived. A faint submission was made that nationalisation of industry as a national policy will have to be determined and enforced by the Union keeping in view its Industrial Policy Resolution and such piece-meal nationalisation would certainly encroach upon the control assumed by the Union. Impugned legislation does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Government or a local authority so to do. The inhibition of s. 20 is on exercise of executive power 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 s. 20 is not attracted at all. 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 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 s. 20. Therefore, the contention that the impugned legislation violates s. 20 has no merit. And now to the oft beaten track of legislation being void as being in contravention of Art. 31(2) as it stood at the relevant time. The impugned legislation was put on the statute book on August 27, 1971. Therefore, Art, 31(2) as it stood on the relevant date may be noticed. The Article as amended by Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... II of the Schedule to the Act-(i) that compensation was to be equal to the cost price in the case of unused machinery in good condition, and (ii) written down value as understood in the Income-tax law was to be the value of the used machinery were irrelevant to the fixation of the value of the machinery as on the date of acquisition. We are unable to agree with that part of the judgment. The Parliament had specified the principles for determining compensation of the undertaking of the company. The principles expressly related to the determination of compensation payable in respect of unused machinery in good condition and used machinery. The principles were set out avowedly for determination of compensation. The principles were not irrelevant to the determination of compensation and the compensation was not illusory. It thus appears well settled that if a legislation provides principles for determining compensation, to wit, written down value as understood in Income-tax law to be the value of the used machinery, that principle could neither be said to be irrelevant for determining the compensation nor the compensation so awarded could be styled as illusory. It was, however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is applied, the fact that by the application of another principle which is also appropriate, a different value is reached, the Court will not be justified in entertaining the contention that out of the two appropriate methods, one more generous to the owner should have been applied by the legislature. However, it was pointed out that Shelat, J. speaking for himself and Grover, J. in His Holiness Kesavananda Bharati Sripadagalavaru v. State of Kerala,(1) in terms observed as under: In State of Gujarat v. Shantilal Mangaldas Ors. the decision in Metal Corporation of India was overruled which itself was overruled by R. C. Cooper v. Union of India. The question is whether the statement of law in Shantilal Mangaldas (supra) that the principle of awarding compensation on the basis of written down value for used machinery is a valid principle for determining compensation and whether the compensation so awarded was illusory is not overruled by any observation in Cooper s case. Undoubtedly, in Kesavananda Bharati case (supra) it is reiterated by Hegde, J. speaking for himself and Mukherjea, J. that it will be for the aggrieved party to clearly satisfy the Court that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debate in legislature cannot conclude the point. Here the principle is discernible and that appears to be valid. It represents the collective will of the House. To reject it would tantamount to saying that the majority members voted without understanding and appreciating the principles. However, the principle is extracted in court room debate and it is a valid principle. A peep into the background leading to the acquisition of the scheduled undertakings would reveal that these scheduled undertakings had a heavy back-load of carried forward loss, that even though they were taking sugar cane from cane growers, i.e. the farmers, they failed to pay them the price of sugar cane. There was labour unrest as labour was not paid. Generally speaking, they can be styled as sick undertakings and become a drag on the economy of the area. There was no scope for ploughing back the profits to rejuvenate the machinery because there was no profit. The situation had not improved even when managements of some of the undertakings were taken over under the IDR Act and, therefore, this desperate situation called for a drastic remedy in public interest and while applying that drastic remedy of acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etor owning scheduled undertaking and neither the company nor the partnership nor the proprietory unit, if any, has been acquired under the impugned legislation. Therefore, in evaluating compensation of the scheduled undertakings there is no question of evaluating the good-will. Mr. R. A. Gupta appearing in SLP. 6252/79 raised an additional contention that the impugned Act is violative of Art. 14 in that selection of petitioners scheduled undertakings for acquisition is wholly arbitrary and there is no difference between those selected for acquisition and those left out through all such sugar, undertakings in the State of Uttar Pradesh were similarly situated and similarly circumstanced. Sustenance was largely sought to be drawn from the Report of Justice Bhargava styled as Sugar Industry Inquiry Commission, 1974, which inter alia, specified 17 sugar undertakings in Uttar Pradesh as prima facie sick sugar mills. After reading out a portion of the Report it was said that classifying the 12 sugar undertakings for acquisition is not based on any intelligible differentia between those included in the group for acquisition and those left out and that this differential treatment has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fail and are dismissed with costs in one set. PATHAK, J.-We have had the benefit of reading the judgment prepared by our brother Desai. While we broadly agree with the final conclusions reached by him on the several points debated before us, we would prefer to refrain from expressing any opinion on the question whether the declaration made by Parliament in S. 2 of the Industries (Development and Regulation) Act, 1951 in respect of the industries specified in the First Schedule to that Act can be regarded as limited to removing from the scope of Entry 24 of List II of the Seventh Schedule to the Constitution only so much of the legislative field as is covered by the subject matter and content of that Act or it can be regarded as effecting the removal from that Entry of the entire legislative field embracing all matters pertaining to the industries specified in the declaration. It seems to us that the observations made by this court in The Hingir-Rampur Coal Co., Ltd. and Others v. The State of Orissa and Others,(1) State of Orissa v. M. A. Tulloch and Co.,(2) Baijnath Kedia v. State of Bihar Ors.(3) and State of Haryana Anr. v. Chanan Mal, etc.(4) cannot be of assistance in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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