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TMI Blog2003 (2) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... to mean an undertaking engaged in the manufacture or production of sugar by means of vacuum pans and with the aid of mechanical power in a factory specified in the schedule and compromises of several items as set out therein. 2. The undertakings mentioned in the Schedule are eight in number. Under Section 17 of the Act, the State Government was authorised to add other sugar undertakings to be included in the Schedule by notification. 3. On 29.10.1978, a notification was issued under Section 17 of the Act to include 16 more sugar undertakings including the three sugar mills of the petitioners in the Schedule to the Act. 4. Several writ petitions were filed in the Calcutta High Court challenging the notification issued under Section 17 of the Act which included the petitioners' sugar mills thereunder. Interim stay was granted restraining possession being taken over on 31.10.1978. On 12.7.1979, the writ petitions were heard together and were allowed and the Act as well as the notification under Section 17 of the Act were declared ultra vires and the take-overs were quashed. On 28.10.1979, the State Government preferred appeals to the Division Bench of the High Court. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of List II to the Seventh Schedule to the Constitution, which are subject the provision of Entry 57 of List I to the Seventh Schedule to the Constitution; 5. The Act has failed and, therefore, must be declared to be invalid. 7. Before we embark upon the consideration of the various contentions urged before us, it is necessary for us to refer to the decision of this Court in R.C. Cooper v. Union of India, [1970]3SCR530 . In that decision the scope of Entry 42 of List III to the Seventh Schedule to the Constitution has been considered in detail. After tracing the history of the different entries in Lists I and II in relation to acquisition of property, this is what this Court stated: Before the Constitution (Seventh Amendment) Act, Entry 33 List II invested the Parliament with power to enact laws with respect to acquisition or requisitioning for the purpose of the Union, and Entry 33 List II conferred upon the State Legislature the power to legislate with respect to acquisition or requisitioning for the remaining purposes. Those entries are now deleted, and a single Entry 42 List III invests the Parliament and the State Legislature with power to legislate with respect to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee lists. This power of the State legislature to legislate for acquisition of property remains intact and untrammelled except 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. [p.154] 12. though there are two judgments rendered, both the judgments are agreed that the matter could be disposed of on the ground that the legislation falls under Entry 42 of List III and cannot be related to Entry 7 or Entry 52 of List I. When the impugned enactment truly falls within Entry 42 of List III - acquisition and requisitioning of property - there is a reluctance on our part to enter upon an examination of the mutually competing claims of Entry 7 of Entry 52 of List I and Entry 24 of List II. Entries which deal with industries and acquisition are entirely different subject-matters. therefore, we do not think it is any longer open to the learned counsel for the petitioners to contend that impugned acquisition of sugar undertakings is beyond the competence of the State Legislature. 13. The argument advanced on behalf of the petitioners that the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribes not the ingredients but he completed work from which the earnings arise. Transfer of and vesting in the State Corporation of the entire undertaking of a going concern is contemplated in many Indian Statutes; e.g., Indian Electricity Act, 1910, Sections 6, 7 7A; Air Corporation Act, 1953, Sections 16 17, Imperial Bank of India Act 1920, Sections 3 4; State Bank of India Act, 1955, Section 6(2), (3) (4); State Bank of India (Subsidiary Banks) Act, 1959; Banking Regulation Act, 1949, Section 36AE; and Cotton Textile Companies Act, 1967, Sections 4(1) 5(1). Power to legislate for acquisition of property in Entry 42 List III therefore includes the power to legislate for acquisition of an undertaking. But, says Mr. Palkhivala, liabilities of the banks which are included in the connotation of the expression undertaking cannot be treated as property . It is however, the assets, rights and obligations of a going concern which constitute the undertaking; the obligations and liabilities of the business form an integral part of the undertaking, and for compulsory acquisition cannot be divorced from the assets, rights and privileges. The expression property in Entry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourers. 19. The Objects and Reasons of the Central Act are clearly to make provision for taking over the management of the defaulting sugar undertakings for a specified period. It is thus clear that the objects, purpose and provisions of the two enactments are entirely different. Further even when the State becomes the owner of the sugar undertaking, it is possible for the Central Government in exercise of its power under the 1978 Act or under the Industries [Development and Regulation] Act to take over the management. therefore, the two powers exercised are different and distinct. But a comparison of the provisions of the two enactments will make it clear that it is not merely to take over the management but to take over the entire undertaking that the impugned Act has been brought into effect. It is not merely the management that is vested but the entire undertaking that is vested in the Government. Further return of the undertaking after a certain period does not arise either. The contention, therefore, urged that the exercise of power under Entry 42 of List III to acquire the undertaking is not for the avowed purpose of taking over of the entire undertaking but the manageme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e court to show as to what other method could be adopted which would be more reasonable or as to how the book value taken does not reflect the true value of the undertakings. therefore, it is difficult to conclude one way or the other on the basis of this contention. Hence it is rejected. W.P.[C] No. 83 of 1986 23. This writ petition is filed by United Distilleries (P) Ltd., which is stated to have purchased a distillery with the bottling plant under an agreement dated September 20, 1982. It is contended on behalf of the petitioners that petitioner distillery is not covered by the Act for the following reasons: 1. The object of the Act is to acquire only such distilleries as have ben operating till as late as the recent past, that is, the crushing season 1984-85 as ancillary units or sister concerns or subsidiary mills of certain specified sugar mills; 2. The vesting under Section 3(1) of the Act is only of a sugar schedule undertaking if they were immediately before the appointed day in the ownership, possession, power or control of the undertaking; 3. Various other provisions, for instance, Sections 6, 7, 1st Schedule, 2nd Schedule etc. do not even mention the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of finding out whether the distillery has any connection with the sugar undertakings or not; that the application of Section 4(4)(ii)(e) retrospectively from 29.10.1978 to the transfer of property, namely, distillery without compensation renders the Act wholly arbitrary, unreasonable, confiscatory and violative of Articles 14, 19(1)(g) and also Articles 19(1)(f) read with Article 31 [as they stood before the Constitution Forty Fourth Amendment] or alternatively, Article 300A for the reason that at the time when the transfer in favour of the petitioners was made i.e. on 5.6.1983; that in the earlier Act, the distillery was not sought to be acquired nor was there any restriction on the transfer of distillery at any time; that it is at that distillery which had been transferred and the Government could not take action by bringing any retrospective provision to affect the interests of Petitioners. 25. Shri Rakesh Dwivedi, learned senior counsel appearing for the State of Bihar, drew our attention to the background in which this enactment has been brought into force. He pointed out the various circumstances set forth in the counter affidavit which let to the enactment and which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that on the date of the Act coming into force the distillery was no longer in the ownership, possession, power and control of the sugar undertaking on 16.12.1985 when the Act came into force and it is only assets of the scheduled undertaking which are part thereof that stood taken over or vested in the Government; that the Statement of Objects and Reasons and the Preamble indicate that the object of the Act was to acquire only such distilleries as had been operating till as late as the crushing season 1984-85 and ancillary units or sister concerns or subsidiary mills of certain specified sugar mills and various other provisions do not even advert to a person of the nature of the petitioner by not providing for any compensation and, therefore, the distillery in question falls completely outside the scope of the impugned Act. In this context, he placed strong reliance upon the decisions in Brett v. Brett, 1824 (34) All E.R. 776; Hawkins v. Gathercole, 1855 (43) ER 1125; Utkal Contractors v. State of Orissa,: [1987]3SCR317 ; Girdhari Lal v. Balbir Nath,: [1986]1SCR383 , and Reserve Bank of India v. Peerless, [1987]2SCR1 . He also submitted that Section 4 as a whole is a provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The opening clause removal of doubts does not fit in the non-obstante clause with which Section 4(4)(ii)(e) opens. Indeed, the object of Section 4(4)(ii)(e) is evident from the very language employed in that provision which indicates that irrespective of any provision in any other law transfer, disposition of properties moveable or Immovable either in part or in whole made after 29th October, 1978 of the scheduled undertaking shall be invalid and stand annulled and the Collector shall take possession of such properties with the properties of the undertaking. In correctly reading the enactment as a whole what we have to do is to treat this provision as an independent provision which provides for consequences to which we have adverted to, that is, nullification of all alienation effected after 29th October, 1978 of the properties and taking over the same. That is, because under the prior enactment a notification has been issued on 29.10.1978 to take over the sugar mills under Section 17 of the Act then in force. therefore, there is definitely a cloud in relation to properties belonging to the sugar undertaking which were sought to be taken over. Not only that day is relevant for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount will have to be given to all those persons who are interested in the property after meeting prior claims as indicated in the said provision. therefore, we do not think that we can proceed on the basis that no provision for compensation is made to attract the wrath of Article 31 of the Constitution. 31. The next contention put forth by the learned counsel for the petitioner is that the acquisition of the petitioner's properties by the State anterior to 29th September, 1984 is per se arbitrary because on that day the State had itself withdrawn the initial acquisition of the said sugar mills under the 1976 Act thereby accepting that all transfers prior to 29.4.1984 were unobjectionable and valid. This contention plainly has no force. Law can be made not only prospectively but also retrospectively. The State had enacted earlier Act 13 of 1977 which was declared to be invalid and thereafter in appeal the said decision had been challenged and subsequently the Notification dated 29.10.1978 under Section 17 of that Act had been issued which stood withdrawn subsequently and which was also the subject matter of challenge. In that background, it cannot be said that by reason of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the object of the legislation which is avoiding evasion of tax and therefore, was read down so as to make them inapplicable to bona fide encumbrances holders in possession. Further, this Court also noticed a distinction between acquisition of property by pre-emptive purchase and acquisition of property. Adverting to the decision in Rambhai Manja Nayak v. Union of India, [1983]142ITR211(Guj) , (affirmed by this Court in Rambhai Manjanath Nayak v. Union of India, [1993]201ITR422(SC) ) this Court in Gautam's case held that there was a similar provision that the property in question vest in the Central Government free from all encumbrances under provision of Section 269I(4) of the Income Tax Act. In the said decision, the Gujarat High Court held that it is only after all interests - proprietary as well as possessory - are extinguished by the acquisition of the property that the property vests absolutely in the Central Government. This view was distinguished by this Court by stating that in that case the Court was concerned with compulsory acquisition under Chapter XX-A of the Income Tax Act and such a situation cannot be compared with the case before the Court which is one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on as admissible under the rules in force at the time of retirement could be retrospectively reduced. This Court held the same as unreasonable and arbitrary and, therefore, violative of Articles 14 and 16. This Court explained the scope of Articles 19(1)(f) and 31 which were not in existence on the date of the notification but in existence when the notifications were made effectively retrospectively and so no challenge could be based on them. It is no doubt true that a challenge could be based on Articles 31 and 19(1)(f) in a matter of this nature when the enactment has retrospective operation from 29.10.1978, but there are several reasons why nothing follows from this situation. Firstly, the transfer itself has been in favour of the petitioner on 5.6.1983, that is, long after the constitutional provisions stood deleted. The context of a pensioner who has a prior vested right and was receiving such pension being deprived of such pension by giving him a lesser sum is altogether a different circumstance and, in the present case, it cannot be said that there is no provision for payment of compensation. 36. The decision of this Court in State of Gujarat and Anr. v. Raman Lal Keshav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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