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PETITIONER:

DWARKADAS SHRINIVAS OF BOMBAY

Vs.

RESPONDENT:

THE SHOLAPUR SPINNING & WEAVING CO.LTD., AND OTHERS.

DATE OF JUDGMENT:

18/12/1953

BENCH:

SASTRI, M. PATANJALI (CJ)

BENCH:

SASTRI, M. PATANJALI (CJ)

MAHAJAN, MEHR CHAND

DAS, SUDHI RANJAN

BOSE, VIVIAN

HASAN, GHULAM

CITATION:

1954 AIR 119 1954 SCR 674

CITATOR INFO :

R 1954 SC 92 (26)

R 1954 SC 728 (25)

R 1955 SC 41 (6,7)

E 1957 SC 676 (6)

R 1958 SC 328 (9,10,34)

F 1958 SC 578 (158)

R 1959 SC 308 (6)

D 1959 SC 648 (38)

R 1960 SC 554 (7,28)

R 1960 SC1080 (23)

RF 1961 SC1684 (28,29)

R 1962 SC 305 (29)

D 1962 SC 458 (24)

R 1963 SC1811 (14)

RF 1967 SC 856 (9)

RF 1967 SC1643 (179,227)

RF 1968 SC 394 (10,13)

R 1970 SC 564 (16,55,75)

RF 1970 SC2182 (7)

R 1971 SC1594 (9)

R 1973 SC 106 (42)

RF 1973 SC1461 (1057)

R 1978 SC 597 (67,157)

R 1978 SC 803 (35)

RF 1980 SC1682 (66)

RF 1982 SC 149 (604)

E&R 1987 SC 180 (10)

RF 1988 SC1136 (27,29)

F 1989 SC1629 (15)

ACT:

Sholapur. Spinning and Weaving Company (Emergency

Provisions) Ordinance II of 1950, replaced by Act XXVIII

of 1950--Whether ultra vires art. 31 of the

Constitution--Arts. 19 and 31-- Scope of--Whether different.

HEADNOTE:

The Sholapur Spinning and Weaving Co., Ltd., was

incorporated under the Indian Companies Act, 1913, with

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an authorised capital of Rs. 48 lakhs divided into 1590

fully paid up ordinary shares of Rs. 1,000 each, 20 fully

paid up ordinary shares of Rs. 500 each and 32,000 partly

paid up cumulative preference shares of Rs. 100 each, the

paid up capital of the Company being Rs. 32 lakhs comprised

of Rs. 16 lakhs fully' paid up ordinary shares and Rs. 16

lakhs partly paid up preference shares, Rs. 50 being

unpaid on each of the 32,000 cumulative preference shares.

The Company did good business and declared high dividends

for some time ;'but in the year 1949 there was accumulation

of stocks and financial difficulties. On the 27th July,

1949, the Directors gave notice of

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their decision to close the Mills to the workers, and

pursuant to this notice the Mills were closed. This

created a labour problem and to solve it the Government on

he 5th October, 1949, appointed a Controller to

supervise the affairs of the Mills under the Essential

Supplies Emergency Powers Act, 1946. On the 9th

November, 1949, the Controller in order to resolve the

deadlock decided to call in more capital and asked the

Directors of the Company to make a call of Rs. 50 per

share, on the preference shareholders, the amount remaining

unpaid on each of the preference shares. The Directors

refused to comply with this requisition, as in their

judgment, this was not in the interests of the Company.

Thereupon the Governor-General on the 9th January, 1950,

promulgated the impugned Ordinance, under which the Mills

could be managed and run by the Directors appointed by

the Central Government. On the 9th January, 1950, the

Central Government acting under s. 15 of the Ordinance

delegated all its powers to the Government of Bombay.

The Government of Bombay then appointed certain

Directors who took over the assets and management of the

Mills. On the 7th February, 1950, they passed a resolution

making a call of Rs. 50 on each of the preference shares

payable at the time stated in the resolution. Pursuant

to this resolution a notice was addressed on the 22nd

February, 1950, to the plaintiff in the suit who held

preference shares, to pay Rs. 1,62,000 the amount of the

said call on or before the 3rd April, 1950. The plaintiff

instead of meeting the demand, filed the present suit on

the 28th March, 1950, in a representative capacity on

behalf of himself and other preference shareholders

against the Company and the Directors appointed by the

Government of Bombay challenging the validity of the

Ordinance and questioning the right of the Directors to

make the call. It was alleged in the suit that the

Ordinance was illegal and ultra vires and invalid as it

contravened the provisions of Section 299(2) of the

Government of India Act, 1935, and the provisions of Part

III of the Constitution and that the resolution of the

Directors dated 7th February, 1950, making a call was

illegal and ultra vires as the law under which they were

appointed was itself invalid. The suit was dismissed by the

Trial Judge and his decision was affirmed on appeal by a

Division Bench of the Bombay High Court by the Judgment

dated 29th August, 1950. The plaintiff preferred the

present appeal to the Supreme Court. This appeal

concerns the validity of the same Ordinance and the Act

replacing it which were considered by the Supreme Court in

the case of Chiranjit Lal Chowdhuri (1950 S.C.R. 869).

There an ordinary shareholder of the defendant Company

holding one fully paid up share challenged the validity

of the Sholapur Spinning and Weaving Co. (Emergency

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Provisions) Ordinance II of 1950 and Act XXVIII of 1950,

seeking relief under Article 32 of the Constitution on the

ground that the said. Ordinance and the Act abridged his

fundamental rights conferred on him under Articles 14, 19

and 31 of the Constitution. The Supreme Court dismissed

the petition by a majority of

676

3 to 2 holding that the presumption in regard to the

Constitutionality of the Act had not been displaced by

the petitioner and that it had not been proved that the

impugned statute was a hostile or discriminatory piece of

legislation as against him or that the State had taken

possession of his share. The minority held that impugned

statute was void as it abridged the petitioner's

fundamental rights under Article 14 of the Constitution.

This decision was delivered on 4th December, 1950. The

suit giving rise to the present appeal was decided by the

Bombay High Court during the pendency of Chiranjit Lal

Chowdhuri's petition in the Supreme Court:

Held, (pet' PATANJALI SASTRI C.J., MAHAJAN, BOSE,

and GHULAM HASAN JJ.) (i) that the impugned Ordinance and

the Act replacing it authorise in effect a deprivation of

the property of the Company within the meaning of

Article 31 without compensation and are not covered by the

exception in clause (5)(b)(ii)of that Article. The

Ordinance and the Act thus violate the fundamental rights

of the Company under Article 31(2) of the Constitution and

the appellant as a preference shareholder who is called

upon to pay the moneys unpaid on his shares is entitled to

impugn their constitutionality.

(ii) that the previous decision of the Supreme

Court in Charanjit Lal Chowdhuri v. The Union of India and

Others(1) is distinguishable and has no application to the

present case.

Per MAHAJAN J.

(i) Constitutional provisions for the security of

person and property should be liberally construed. A close

and literal construction deprives them of half their

efficacy and leads to gradual depreciation of the right, as

if it consisted more in sound than in substance. It is the

duty of Courts to be watchful for the constitutional

rights of the citizen and against any stealthy

encroachments thereon.

Boyd v. United States (2) referred to.

By promulgating the Ordinance, the Government has

not merely taken over the superintendence of the affairs of

the Company but has in effect and substance taken over the

undertaking itself. In the situation' the contention has

no force that the effect of the Ordinance is that the

Central Government has taken over the superintendence of the

affairs of the Company and that the impugned legislation is

merely regulative in character. In the present case

'practically all incidents of ownership have been taken

over by the Sate and nothing' has been left with the

Company but the mere husk of title and in the premises the

impugned statute has overstepped the limits of legitimate

Social Control Legislation and has infringed the

fundamental right of the Company guaranteed to it

under: Article 31(2) of the Constitution and is, therefore

unconstitutional.

(1) [1950] S.C.R. 869. (2) 146 U.S. 616

677

(ii) It is significant that Article 31 deals with private

property of persons residing in the Union of India, while

Article 19 only deals with citizens defined in Article 5

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of the Constitution. It is obvious that the scope of

these two Articles cannot be the same as they cover

different fields. The true approach to this question is

that these two Articles really deal with two different

subjects and one has no direct relation with the other

amely. Article 31 deals with the field of eminent domain

and the whole boundary of that field is demarcated by this

Article.

From the language employed in the different sub-clauses

of Article 31 it is difficult to escape the conclusion

that the words "acquisition" and "taking possession" used

in Article 31(2) have the same meaning as the word

"deprivation" in Article 31(1).

(iii) Article 31 is a self-contained provision

delimiting the field of eminent and clauses (1) and (2) of

Article 31 deal with the same topic of compulsory

acquisition of property.

Article 31 gives complete protection to private

property as against executive action, no matter by what

process a person is deprived of possession of it.

It is a narrow view that "acquisition" necessarily

means acquisition of title in whole or part of the

property and cannot be accepted. The word "acquisition"

has quite a wide concept, meaning the procuring of

property or the taking of it permanently or temporarily.

It does not necessarily imply acquisition of legal

title by the State in the property taken possession of.

Minister of State for the Army v. Dalziel (68 C.L.R. 261)

referred to.

Per Das J.

(I) As the appellant as a preference shareholder is

directly affected by the impugned statute, which

circumstance distinguishes this case from Chiranjit Lal's

case, it must be held that the appellant is entitled to

challenge the Ordinance which dismissed the Directors

elected by the shareholders, authorised the appointment of

Directors by the State and made it possible for the

Directors so appointed to make the call and thereby impose

a liability on all preference shareholders including the

appellant.

(II) The provisions of the Ordinance and the Act are

drastic in the extreme. The Managing Agents and the

elected Directors have been dismissed and new Directors

have been appointed by the State. So far as the Company

is concerned it has been completely denuded of the

possession of its property. All that has been left to the

Company is its bare legal title. It is impossible to

uphold this law as an instance of the exercise of the

State's police power as an emergency measure. It has far

overstepped the limits of police power and is, in

substance, nothing short of expropriation by way of the

exercise of the power of eminent domain and as the law has

not provided for any compensation it must be held to

offend the provisions of Article 31(2).

678

Per Bose J.

The words "taken possession of" or "acquired" in

Article 31(2) have to be read along with the word

"deprived" in clause (1). The possession and acquisition

referred to in clause (2) mean the sort of "possession"

and "acquisition" that amount to "deprivation" within the

meaning of clause (1). No hard and fast rule can be

laid down. Each case must depend on its own

facts. But if there is substantial deprivation, then

clause (2) is attracted.

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Per GHULAM HASAN J.

The Act in substance robs the Company of every vestige

of right, except what has been laconically called the husk

of the title. The impugned Act oversteps the

constitutional limits of the power conferred upon' the

State and offends against the provisions of Article 31 and

must therefore be held to be void.

The intention underlying Article 31 being the

protection of property against invasion by the State, both

parts (1) and (2) of Article 31 should be read together so

as to harmonize that intention. The two parts of the Article

form an integral whole and cannot be dissociated from each

other. Article 31 is wider than Article 19(1)(f) which

confers upon a citizen only the right to acquire, hold and

dispose of property and is different in scope and content.

Chiranjit Lal Chowdhuri v. The Union of India and

Others ([1950] S.C.R. 869) distinguished, The State of

West Bengal v. Subodh Gopal Bose and Others ([1954]

S.C.R. 587), Boyd v. United States (116 U.S. 616),

Pennsylvania Coal Co. v. Mahon (260 U.S. 322), A.K.

Gopalan v. The State of Madras ([1950] S.C.R. 88), State of

Bihar v. Maharajah Kameswar Singh and Others ([1952] S.C.R.

889), Minister of State for the Army v. Dalziel (68

C.L.R. 261), Tan Bug Tain v. Collector of Bombay (I.L.R.

1946 Bom. 517), and Jupiter General Insurance Co. v.

Rajagopalan (A.I.R. 1952 Punjab 9), referred to.

JUDGMENT:

CIVIL APPELLATE JURISDICTION: CIVIL APPEAL No. 141

of 1952.

Appeal from the Judgment and Order dated the 29th August

1950 of the High Court of Judicature at Bombay

(Chagla C.J. and Gajendragadkar J.) in Appeal No. 48

of 1950 arising out of the Judgment and Decree dated the

28th June, 1950, of the said High Court (Bhagwati J.) in

its Ordinary Original Civil Jurisdiction in Suit No. 438

of 1950.

M.P. Amin (M. M. Desai and K.H. Bhabha, with him) for

the appellant.

679

M.C. Setalvad, Attorney-General for India and C..

K. Daphtary, Solicitor-General for India (G. N. Joshi,

with them) for respondents Nos. 1 to 4 and 6 tO 8.

M.C. Setalvad, Attorney-General for India (G. N.

Joshi and Porus A. Mehta, with him) for respondent No. 9.

1953. December 18. The following Judgments were

delivered.

PATANJALI SASTRI C.J.--I have fully discussed and

explained the meaning and effect of articles 19 and 31 in

my Judgment just delivered in Civil Appeal No. 107 of

1952--The State of West Bengal v. Subodh Gopal Bose and

Others. On that view I agree with my learned brothers that

the impugned Ordinance authorises, in effect, a deprivation

of the property of the Company within the meaning of

article 31 without compensation and is not covered by

the exception in clause (5)(b). (ii) of that article. The

Ordinance thus violates the fundamental right of

the. Company under article31(2), and the appellant as a

preference shareholder who is now called upon to pay

the moneys unpaid on his shares is entitled to impugn

the constitutionality of the Ordinance. I also agree with

my learned brother Mahajan that the previous of this

Court in Chiranjit Lal Chowdhuri v. The Union of India and

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Others(2) is distinguishable and has no application here

for the reasons mentioned by him.

MAHAJAN J.--This is an appeal from the judgment and

decree of the High Court of Judicature at Bombay 'passed on

the 29th day of August, 1950, in Appeal No. 48 of 1950.

The appeal concerns the validity of the same piece of

legislation that was considered by this court in the case of

Chiranjit Lad Chowdhuri (2). There, an ordinary shareholder

of the defendant company holding one fully paid up share

claimed relief under Art. 32 of the Constitution of India

on the ground that the provisions of the Sholapur

Spinning & Weaving Company (Emergency Provisions) Act,

XXVIII of

(1) [1954] S. C. R 587. (2) [1950] S. C. R. 869.

680

1950 abridged his fundamental rights conferred under

Articles 14, 19 and 31 of the Constitution. This Court by

a majority of 3 to 2 dismissed the petition holding that

the presumption in regard to the constitutionality of the

Act had not been displaced by the petitioner and that it had

not been proved that the impugned statute was a hostile

or a discriminatory piece of legislation as against him,

or that the State had taken possession of his share.

The minority held that the impugned statute was, void

as it abridged the petitioner's fundamental

rights under Art. 14 of the Constitution.

This decision was delivered on 4th

December, 1950.

The suit out of which this appeal arises was decided by

the High Court of Bombay during the pendency of Chiranjit

Lal Chowdhuri's petition in this court. Most of the facts

furnishing the cause of action for the suit have been

detailed in the judgment of this court in that case,

but it seems necessary to briefly re-state them from a

proper appreciation of the contentions that have been raised

in the appeal.

The Sholapur Spinning and Weaving Company Ltd., was

incorporated under the Indian Companies Act with an

authorized capital of Rs. 48 lakhs divided into 1,590

fully paid up ordinary shares of Rs. 1,000 each, 20 fully

paid up ordinary shares of 500 each, and 32,000 partly

paid up cumulative preference shares of Rs. 100 each,

the paid up capital of the company being Rs. 32 lakhs

comprised of Rs. 16 lakhs fully paid up ordinary shares

and Rs. 16 lakhs partly paid up preference shares, Rs. 50

being unpaid on each of the 32,000 cumulative preference

shares. The company did good business and declared

high dividends for some time; but in the year 1949, there

was accumulation of stocks and financial difficulties.

In order to overcome this situation the directors

decided to close the Mills and on the 27th July, 1949,

they gave notice of this decision to the workers.

Pursuant to this notice the Mills were closed on the

27th August, 1949. This created a labour problem and to

solve it the Government on the 5th October, 1949,

appointed, a

681

Controller to supervise the affairs of the Mills under the

Essential Supplies Emergency Powers Act, 1946. On the 9th

November, 1949, the Controller in order to resolve the

deadlock decided to call in more capital and he asked the

directors of the company to make a call of Rs. 50 per

share on the preference shareholders, the amount remaining

unpaid on each of the preference shares. The directors

refused to comply with this requisition, as in their

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judgment that was not in the interest of the company.

Thereupon the Governor-General on the 9th January,

1950, promulgated the impugned Ordinance, under which the

Mills could be managed and run by directors appointed by

the Central Government. On the 9th January, 1950, the

Central Government acting under section 15 of the

Ordinance delegated all its powers to the Government of

Bombay. The Government of Bombay then appointed

certain directors who took over the assets and management

of the Mills. On the 7th February, 1950, they passed a

resolution making a call of Rs. 50 on each of the

preference shares payable at the time stated in the

resolution. Pursuant to this resolution a notice was

addressed on the 22nd February, 1950, to the plaintiff in

the suit, who held preference shares, to pay Rs. 1,62,000,

the amount of the said call on or before the 3rd April,

1950. The plaintiff instead of meeting the demand, filed the

present suit on the 28th March, 1950, in a representative

capacity on behalf of himself and other preference

shareholders against the company and the directors

appointed by the Government of Bombay challenging the

validity of the Ordinance and questioning the right of

the directors to make the call. On the 19th April, 1950,

a notice was given to the Attorney-General of India of

the said suit and the Union of India was added as

defendant No. 9 therein.

The principal allegations in the suit were that the

Ordinance was illegal, ultra vires and invalid as it

contravened the provisions of section 299 (2)of the

Government of India Act, 1935, and all the provisions

contained in Part III of the Constitution, and that the

resolution of the directors dated 7th February,

7--95 S.C. India/59.

682

1950, making a call was illegal and ultra vires, as the

law under which they were appointed was itself invalid. The

plaintiff claimed relief in the form of a declaration

regarding the invalidity of the Ordinance and prayed for

an injunction restraining the directors from giving

effect to the resolution. The defendants denied the

correctness of the contentions put forward by the

plaintiff.

Mr. Justice Bhagwati, who tried the suit, framed

the following issues therein :--

1. Whether by the Ordinance the plaintiff and holders

of preference shares have been deprived of their

interest in the Ist defendant company by taking possession

of or requisitioning or acquiring the same as alleged in

para 6 of the plaint;

2. Whether s. 4 (d) or' the Ordinance is illegal, ultra

vires, and void in law as alleged; and

3. Whether the resolution dated the 7th February,

1950, made by defendants 2 to 6 is illegal, ultra vires,

void and inoperative in law for the reasons mentioned

in para 6 of the plaint or any of them.

By his judgment dated the 28th June, 1950, the learned

Judges answered all the three issues in the negative and

dismissed the suit,and this decision was affirmed on

appeal. It was held that by force of the Ordinance the

State had neither acquired the property of the plaintiff,

nor of the company, nor had it taken possession of it, but

that the title to the property and its possession were

with the respective owners, and the State was only

supervising the affairs of the company through its

nominated directors. It was further held that the

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Ordinance had not in any manner infringed the rights of

the plaintiff under Art. 14 of the Constitution and

there had been to him no denial of equality before the law

or equal protection of laws, as the Ordinance was based

on a classification which rested upon a ground having

a fair and substantial relation to the object of the

legislation and that it had a reasonable basis for that

classification. It was also held that the restrictions

683

imposed on the right of the appellant and the company to

hold his or its property were imposed in the interests of

the general public.

The principal questions for consideration in this appeal

are :--

1. Whether the provisions of the Ordinance for taking

over the management and administration of the company,

contravene the provisions of article 31 (2) of the

Constitution; and

2. Whether the Ordinance as a whole or any of its

provisions infringe articles 14 and 19 of the Constitution.

In order to decide these issues it is necessary

to examine with some strictness the substance of the

legislation for the purpose of determining what it is that

the legislature has really done; the court, when such

questions arise, is not overpersuaded by the mere

appearance of the legislation. In relation to

constitutional prohibitions binding a legislature it is

clear that the legislature cannot disobey the prohibitions

merely by employing indirect method of achieving

exactly the same result. Therefore, in all such cases

the court has to look behind the names, forms and

appearances to discover the true character and nature of

the legislation.

The preamble of the' Ordinance states :--

"On account of mismanagement and neglect a situation

has arisen in the affairs of the Sholapur Spinning & Weaving

Company, Ltd., which has prejudicially affected the'

production of an essential commodity and has caused

serious unemployment amongst a certain section of the

community".

Section 3 is the most material section and is in these

terms :--

"The Central Government may at any time by notified

order appoint as many persons as it thinks fit to be

directors of the company for the purpose of taking over its

management and administration and may appoint one of such

directors to be the chairman."

684

The provisions of this section are supplemented by what

is subsequently provided for in section 12 which provides

that notwithstanding anything contained in the Companies

Act or in the memorandum or articles of association of the

company, it shall not ,be lawful for the shareholders of

the company or any other person to nominate or appoint

any person to be a director of the company, that no

resolution passed at any meeting of the shareholders of

the company shall be given effect to unless approved by

the Central Government, and that no proceeding for the

winding up of the company or for the appointment of a

receiver in respect thereof shall lie in any court

unless by or with the sanction of the Central Government,

and subject to such exceptions, restrictions and limitations

as the Central Government may by .notified order specify,

the Companies Act shall continue to apply to the company

in the same manner as it applied thereto before the issue

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of the notified order under section 3. Section .4 states

the effect of the order of the Central Government

appointing directors. It provides that all the

directors of the company who were holding office as

such immediately before the issue of the notified order

shall be deemed to have vacated their offices. In

other words, the directors elected and appointed by the

shareholders stand automatically dismissed without more.

Not only do the directors stand automatically dismissed

by legislative action the managing agents also share

their fate and their contracts come to an end. Section

4 directs the persons appointed under section 3 to take

into custody and under their control all the property,

effects and actionable claims to which the company is or

appears to be entitled and to exercise all the powers of

the directors of the company, whether those powers are

derived from the Companies Act or from the memorandum or

articles of association or from any other source. By section

5 these nominated directors are given powers to raise

funds in such manner and offer Such security as they

may deem fit. They are given the overriding power of

cancelling and varying contracts and agreements

685

entered into between the company and' any other person at

any time if they are satisfied that the contract or the

agreement is detrimental to the interests the company.

Section 10 denies to the managing agents compensation for

the' premature termination of the contract of management

entered into by the company and it also says that no person

shall be entitled to compensation in respect of a cancelled

or varied contract under this. Ordinance, entered into with

the company. The Ordinance thus confers powers on the

directors of overriding all contracts and deprives persons

who had entered into contracts with the company of their

right under the ordinary law to, recover compensation,

Sections 6, 7 and 8 of the Ordinance lay down, the method

and' manner how the existing directors were to give charge

of the company's affairs and properties. to the

directors nominated by the Central Government under

section 3 and any default in the matter of handing over

charge is made punishable by imprisonment or other punitive

action.

The result of these provisions is that all the

properties and effects of the company pass into the hands of

persons nominated by the Central Government who are not

members of the company or its shareholders, or in any way

connected with it, and who are merely the creatures of

the Central Government or its dummies. The combined

effect of the provisions of sections 3, 4 and 12 is that

the Central Government becomes vested with the

possession, control and management of the property and

effects of the company, and the normal function of the

company under its articles and the Indian Companies Act

comes to an end. The shareholders' most valuable right

to appoint directors to manage the affairs of the company

and be in possession of its property and effect is taken

away. Resolutions passed by them lose all vigour and

become subject to the veto of the Central Government. Their

power of voluntarily winding up the company formed by them

or of winding it up through court also becomes subject to

the veto of the Central Government. The Central

Government by

686

executive action can override, if it likes, all the

provisions of the Indian Companies Act. In substance

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therefore by the provisions of this Ordinance the company

and its shareholders as well as 'its directors and managing

agents have been completely deprived of possession of

the property and effects of the company, and its

possession has been taken by the Central Government,

i.e., by the Union of India. The undertaking purports to

have been taken over for a public purpose, namely, to keep

up the production of an essential commodity, and to avoid

serious unemployment amongst a certain section of the

people.

The majority of the court in Chiranjitlal Chowdhuri's

case(1), was inclined to take the view that that was the

true effect of the provisions of the Ordinance.

Mukherjea 1. with whose views Kania C.J., concurred, and

to whose views to a certain extent Fazl Ali 1. subscribed.

on this part of the case said as follows :-

"Mr. Chaff, on the other hand, has contended on behalf

of the petitioner that after the management is taken over by

the statutory directors, it cannot be said that the

company still retains possession or control over its

property and assets. Assuming that this State management

was imposed in the interests of the shareholders themselves

and that the statutory directors are acting as the

agents of the company, the possession of the statutory

directors could not, it is argued, be regarded in law as

possession of the company so long as they are bound to act

in obedience to the dictates of the Central Government

and not of the company itself in the administration of

its affairs. Possession of an agent, it is said, cannot

juridically be the possession of the principal, if the agent

is to act not according to the commands or dictates of the

principal, but under the direction of an exterior authority.

There can be no doubt that there is force in this

contention."

Mr. Justice Patanjali Sastri, as he then was held

that the effect of the Act was that all the properties and

effects of the company passed into the absolute

(1) [1950] S.C.R. 869.

687

power and control of the Central Government and the normal

function of the company as a corporate body came to an

end. Mr. Justice Das on this part of the case said as

follows :-

"It is, however, urged by the learned

Attorney-General that the mills and all other assets now

in the possession and custody of the new directors who

are only servants or agents of the said company are, in the

eye of the law, in the possession and custody of the

company and have not really been taken possession of by the

State. This argument, however, overlooks the fact that in

order that the possession of the servant or agent may be

juridically regarded as the possession of the master or

principal, the servant or agent must be obedient to, and

amenable to the directions of, the master or principal.

If the master or principal has no hand in the appointment

of the servant or agent or has no control over him or has no

power to dismiss or discharge him, as in this case, the

possession of such servant or agent can hardly, in law, be

regarded as the possession of the company. In this view

of the matter there is great force in the argument that the

property of the company has been taken possession of by the

State through directors who have been appointed by the

State in exercise of the powers conferred by the

Ordinance and the Act and who are under the direction and

control of the State and this has been done without

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payment of any compensation ......................Here,

therefore, it may well be argued that the property of the

company having been taken possession of by the State in

exercise of powers conferred by a law which does not

provide for payment of any compensation, the fundamental

right of the company has, in the eye of the law, been

infringed."

The learned Attorney-General combated this view and

strenuously argued that the Ordinance could not be construed

in the manner suggested above and on its true construction

its effect was that the Government took under its

superintendence the affairs of the company without in any

way disturbing its title in the property and that the

shareholders have still to a certain extent an effective

voice in its affairs. Illustratively

688

he said that' the company was in the same state as a

disqualified owner is under the provisions of the Court of

Wards Act and that the provisions of the Ordinance should

be construed in that light. To emphasize the same

point of view reference was also made to the provisions of

the Lunacy Act, the provisions of sections 52-A and

52-B introduced in the Insurance Act by Act 47 of 1950,

the provisions of the Railway Companies Emergency Powers

Act (51 of 1951), and also to the provisions of Act 65

of 1951 (Development of Industries Act), and it was

contended that the impugned Ordinance was a piece of

social control. legislation as were the provisions contained

in the statutes referred to above.

In my opinion, these contentions. are not well

founded. Reference to illustrative pieces of legislation

designed on the same pattern is neither very happy nor

apposite; on the other hand, it is apt to mislead because

except in the case of the Court of Wards Act, all the laws

to which reference was made were enacted after the enactment

of the Ordinance in question. The different Court of Wards

Acts being existing laws have been excepted from the

fundamental right guaranteed by article31 (2). That being

so, they can afford little assistance in judging the

validity of the impugned law. In dealing with

constitutional matters of this kind it is always well to

bear in mind what Bradley, J., speaking for the court

said in Boyd v United States(1) at page 635 :--

"Illegitimate and unconstitutional practices get

their first footing in that way, namely, by silent

approaches and slight deviations from legal modes of

procedure. This can only be obviated by adhering to the

rule that constitutional provisions for the security of

person and property should be liberally construed. A

close and literal construction deprives them of half their

efficacy and leads to gradual depreciation of the right, as

if it consisted more in sound than in substance. It is the

duty of courts to be watchful for the constitutional rights

of the citizen and against any stealthy encroachments

thereon,"

(1) 116 U.S. 616.

689

These illustrative pieces of' legislation to which the

learned Attorney-General made reference may well have

to be judged in the light of these observations when

occasion arises. Reference may also be made to the

observations of Holmes C.J. in Pennsylvania Cod Co. v.

Mahon(1), wherein that learned Judge said as follows :-

"As long recognized, some values were enjoyed under

an implied limitation and must yield to police power but

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obviously the implied limitation must have its limits or

the contract and due process clauses are gone. One fact

for consideration in determining such limits is the

extent of the diminution. When it reaches a certain

magnitude, in most, if not in all cases, there must be

an exercise of eminent domain and compensation to sustain

the act."

In my judgment, in the determination of all such cases

no abstract standard or general rule can be laid down and

the question is really one of degree and hence its

determination depends on the facts-of each case. In these

circumstances, what is to be determined here is:whether

the provisions of the Ordinance have not overstepped the

limits of social legislation and whether they do not come

within the ambit of article 31 (2).

The Ordinance in question is not a law of a general

character and' applicable to all companies that may fall

in a particular category or class. It deals only with a

single company and it is difficult to say that

mismanagement is a vice peculiar to this company alone

and good management 'is a virtue possessed by all other

incorporated companies. That being so, can it be reasonably

held that by promulgating this Ordinance the Government

has merely taken over the superintendence of the affairs

of the company ? Or, has it in effect and substance taken

over the under taking itself ? Obviously, the field of

superintendence has to be' demarcated from the field of

eminent domain. It is one thing to superintend the affairs

of a concern and it is quite' another thing to take over

its affairs

(1) 260 U.S. 322

690

and then proceed to carry on ,its trade through agents

appointed by the State itself. It seems to me that

under the guise of superintendence the State is carrying on

the business or trade for which. the company was

incorporated with the capital of the company but through its

own agents who take orders from it and are appointed by it

and in the appointment and dismissal of whom the

shareholders have absolutely no voice. The purpose of

taking over the company's undertaking is a public purpose,

namely, to keep the labour going and contended and to

maintain the supply of essential commodity. The company

is debarred from carrying on its business in the manner

and according to the terms of its charter. Its old

complexion stands changed by the terms of the Ordinance.

The Ordinance overrides the directors, deprives the

shareholders of their legal rights and privileges and

completely puts an end to the contract of the managing

agents. Without there being any vacancy in the

number of directors new directors step in and old directors

and managing agents stand dismissed. Exercise of any

power by them under the articles is subject to heavy

penalties. In this situation it is not possible to

subscribe to the contention of the learned

AttorneyGeneral that the effect of the Ordinance is that the

Central Government has taken over the superintendence of

the affairs of the company and that the impugned

legislation is merely regulative in character. In the

present case, practically all incidents of ownership have

been taken over by the State and all that has been left

with the company is mere paper ownership. This Ordinance,

in my judgment, is an apposite illustration of what Holmes

C. J. had in mind when he made the following observations

in the case already referred to :-

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"Where the seemingly absolute protection in

respect of private property given by the Constitution is

found to be qualified by the police power, the natural

tendency of human nature is to extend the qualification

more and more until at last private property

disappears. We are in danger of forgetting that a strong

public desire to improve the public

691

condition is not enough to warrant achieving the desire

by a shorter cut than the constitutional way of paying

for the change and that the general rule is that while

property may be regulated to a certain extent but if the

regulation goes too far it will be recognized as a taking."

For the reasons given above I am of the opinion that

the impugned statute has overstepped the limits of

legitimate social control legislation and has infringed the

fundamental right of the company guaranteed to it under

article 31(2) of the Constitution and is therefore

unconstitutional.

Next it was contended that the Ordinance in

question in any event could not fall within the mischief

of article 31 (2) because the State had not acquired

title in the property of the company under its

provisions and that whatever possession had been taken

had been taken for the purpose of managing the company's

property on the company's behalf and that it had not been

requisitioned for any State purpose. It was said

that unless the property of the company by the

provisions of the Ordinance was vested in the State or

was commandeered by the State for State purposes,

article 31 (2) could not be invoked to judge the

constitutionality of the Ordinance, that article 31 (2)

covered within its ambit only two forms of taking of

property by the State, namely, where the State acquired

title in the property or where the State temporarily

commandeered it, and that all other forms of taking the

property were outside the fundamental right guaranteed

by article 31 (2). It was suggested that the scope of

the protection given to private property by our

Constitution was not as large as it was contained in the

Fifth Amendment of the Constitution of the United States

of America. According to the learned Attorney-General, the

true content of the fundamental right guaranteed by

article 31 (1) was that a person could not be deprived of

his property except by statutory authority, but once a

law was made depriving a person of his property then

the article afforded no further protection. Support for

this

692

contention was sought to be derived from the reasoning

employed in Gopalan's case (1). There it was held that the

freedoms relating to the person of a citizen guaranteed by

article 19 assume the-existence of a free citizen and can

no longer be enjoyed if a citizen is deprived of his

liberty by the law of preventive or punitive detention. In

like manner it was argued that the freedom relating to

property guaranteed by article 19 also vanished as

soon as a person was deprived of his property under a

law enacted by an appropriate legislature. The learned

Attorney-General suggested that the two clauses of article

31 were in the nature of two exceptions to the provisions

of article 19 (1) (f). The first exception was that the

guarantee of freedom given by article 19 (1)(f) could be

defeated simply by enacting a statute and the second

exception was that it could also be defeated by the State

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acquiring title' in the property in exercise of its power of

eminent; domain' within the limited field prescribed by

article 31 (2) but that if a certain deprivation of

property did not fail within the prescribed' field of

article 31 (2) and fell within article 31 (1), then for

such deprivation no compensation was payable. As

regards clause (5) which excepted certain laws from the

ambit of article 31 (2), it was argued that this clause

had been inserted in the article by way of abundant

caution.

In my judgment, none of these' contentions have any

validity. The construction sought to be placed by the

learned Attorney-General on the language of article 31 is

neither borne out by the phraseology employed in that

article nor by the scheme of Part III of the

Constitution. It seems to me that our Constitution subject

to certain exceptions has guaranteed the fullest

protection to private property. It has not only provided

that no person can be deprived of property by the

executive without legislative sanction but it has

further provided that even the legislature cannot deprive

a person of his property unless there is a public purpose

and' then only on payment of compensation. This article

provides as follows :--

(1) [1950] S.C.R. 88.

693

"31. (1) No person shall be deprived of his

property save by authority of law.

(2) No property, movable or immovable, including any

interest, in, or in any company owning, any commercial or

industrial undertaking, shall be taken possession of or

acquired for public purposes under any law authorising

the taking of such possession or such acquisition, unless

the law provides for compensation for the ,property taken

possession of or acquired and either fixes the amount of

the compensation, or specifies the principles on which,

and the manner in which, the 'compensation is to be

determined and given.

(3) No such law as is referred to in clause (2) made by

the Legislature of a State shall have effect unless such

law, having been reserved for the consideration of the

President, has received his assent.

(4) If any Bill pending at the commencement of this

Constitution in the legislature of a State has, after it

has been passed by such Legislature, been reserved for

the consideration of the President and has received his

assent, then, notwithstanding anything in this Constitution,

the law so assented to shall not be called in question in

any court on the ground that it contravenes the provisions

of clause (2).

(5) Nothing in clause (2) shall affect--

(a) the provisions of any existing law other than a law

to which the provisions of clause (6) apply, or

(b) the provisions of any law which the State may

hereafter make-

(i)for the purpose of imposing or levying any tax or

penalty, or

(ii) :for the promotion of public health or the

prevention of danger to life or property, or

(iii) in pursuance of any agreement entered into

between the Government of the Dominion of India or the

GoVernment of India and the Government of any other

country, or otherwise, with respect to property, declared by

law to be evacuee property.

694

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(6) Any law of the State enacted not more than eighteen

months before the commencement of this Constitution

may within three months from such commencement be

submitted to the President for his certification; and

thereupon, if the President by public notification so

certifies, it shall not be called in question in any court

on the ground that it contravenes the provisions of clause

(2) of this article or has contravened the provisions of

sub-section (2) of section 299 of the Government of India

Act, 1935."

It bears the heading "Right to Property". It is

significant that the different articles in Part III have

been put in several groups, each bearing a heading of its

own. These headings briefly indicate the nature and

character of the fundamental rights thus grouped. The first

group of articles 14 to 18, bears the heading "Right to

Equality". The fundamental right of equality in

matters of law, religion, social status etc. is

mentioned in the different articles grouped under this

heading. Articles 19 to 22 have been grouped under the

heading "Right to Freedom". Not only are the protections

given against deprecation of personal freedom mentioned in

this group but it also mentions cases where personal

freedom can be deprived by certain laws. Similarly,

other articles in this part have been grouped under the

headings "Right against exploitation", "Educational

rights" and "Constitutional remedies". Under this scheme

the fundamental right regarding property apart from

personal and property freedoms has been dealt with in

this part separately as a self-contained provision and as a

distinct subject from the various freedoms declared by

article 19. In considering article 31 it is significant

to note that it deals with private property of persons

residing in the Union of India, while article 19 only deals

with citizens defined in article 5 of the Constitution. It

is thus obvious that the scope of these two articles cannot

be the same as they cover different fields. It cannot

be seriously argued that so far as citizens are concerned,

freedoms regarding enjoyment of property have been granted

in two articles of the Constitution, while the protection to

property qua all

695

other persons has been dealt with in article 31 alone. If

both articles covered the same ground, it was unnecessary

to have two articles on the same subject. The true

approach to this question is that these two articles really

deal with two different subjects-and one has no direct

relation with the other, namely, article 31 deals with the

field of eminent domain and the whole boundary of that field

is demarcated by this article. In other words, the State's

power to take the property of a person is comprehensively

delimited by this article. The article has been split up

in six clauses. Moreover, by the amendment of the

Constitution certain kinds of laws have been exempted from

the operation of the article or from the whole of Part III

of the Constitution by the addition of articles 31A and

31B. Article 31(1) declares the first requisite for the

exercise of the power of eminent domain. It guarantees

that a person cannot be deprived of property by an executive

fiat and that it is only by the exercise of its legislative

powers that the State can deprive a person of his property.

In other words, all that article 31(1)says is that

private property can only be taken pursuant to law and

not otherwise. A reference to Cooley's Constitutional

Limitations fully bears out what the true content of

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article 31(1) is. This is what he has said at page 1119 (8th

edn.) :-

"Legislative authority requisite: The right to

appropriate private property to public uses lies dormant

in the State, until legislative action is had,

pointing out the occasions, the modes, conditions and

agencies for its appropriations. Private property can

only be taken pursuant to law."

Article 31 (2) defines the powers of the legislature in

the field of eminent domain. It declares that private

property shall not be taken by the State under a law unless

the law provides for compensation for the property, taken.

It is also implicit in the language of the article that such

taking can only be for public purposes. Clause (3) of the

article places an additional limitation on State laws

enacted on this subject while clause (4) limits the

justiciability of the quantum of compensation in certain

cases. Clause (5) is the saving clause. It saves

696

from the operation of clause (2) laws made on certain

subjects. The scope of the first clause being merely to

save private property from being taken purely by

executive action and the only clause which limits

'legislative action in the field of eminent domain being

clause (2), the saving clause therefore concerns itself with

clause (2) only.

As pointed out in Willis on Constitutional Law, at' page

716, police power, power of taxation and eminent domain are

all forms of social control and probably include all the

forms of social control known to the law: but each differs

from the others; though it is possible to distinguish each

from the others, yet each has characteristics which

resemble the characteristics of others and there are

times when it is very difficult to draw a line between the

one and the others. The saving clause (5) in article 31

has been designed with the express purpose of saving to a

certain extent laws made in exercise of the police power of

the State which may lead to deprivation property. It has

also saved laws relating to tax. It has thus delimited from

the field of eminent domain the field of exercise of police

power and the exercise of the power of taxation. Not only

has it saved from the mischief of clause (2) of article 31

provisions of laws made for the purpose of imposing or

levying any tax or penalty and the laws made for promotion

of public health or the prevention of danger to life or

property, but it has also saved from the mischief of the

clause the provisions of all existing laws which may be

construed as amounting to deprivation of property of a

person as well as evacuee property laws under which the

State takes possession of properties of persons who have

left India for Pakistan. In the result the saving

clause comprehensively includes within the ambit all

the powers of the State in exercise of which it could

deprive a person of property without payment of

compensation. In other words, all forms of deprivation of

property by the State without payment of compensation

have 'been included within the ambit of the exception

clause, while other forms of deprivation of property which

are outside the ambit of the exception

697

clause are inevitably within the mischief of clause (2) of

the article. From the language employed in the different

sub-clauses of article 31 it is difficult to escape the

conclusion that the words "acquisition" and "taking

possession" used in article 31 (2) have the same meaning

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as the word "deprivation" in article 31(1). The learned

Attorney-General suggested that much weight could not be

attached in construing article 31 to the provisions of

clause (5) inasmuch as the saving clause had been

introduced by the article merely by way of abundant

caution. I am unable to accede to this contention as it

seems to me that the Constitution while defining and

delimiting fundamental rights would not introduce in the

articles dealing with those rights some matter merely by

way of abundant caution. To my mind, it was essential

while delimiting and defining fundamental rights to fully

define the field of the right and to say what was not

included within that right. As already said, the article

read as a whole comprehensively defines the State's

power of eminent domain as distinguished from all its

other powers the exercise of which may amount to the

taking of private property. The argument that these

exceptions were incorporated in article 31 by way of

abundant caution further stands negatived by the contents

of sub-clause (5) (b) (ii) of the article. Only laws made

for the promotion of public health or for prevention of

danger to life or property have been excluded from the

mischief of clause (2) of the article, while other laws

made in exercise of power of social control which deprive

a person of property have not been saved from the operation

of clause (2). Illustratively, laws made by the State

dealing with morality and which may lead to deprivation

of property are outside the ambit of the exception

clause. A fortiori, any deprivation of property under a

law made for promotion of morality would fail within the

mischief of clause (2) of article 31. It is thus clear

that only that form of legislation which promotes public

health or prevention of danger to life or property is

saved from the provisions of article 31(2), while other

laws made in exercise of the power of social control, if

they deprive a person of

8-95 S.C.I./59

698

property, are not saved from the operation of clause (2) of

article 31.

In support of his contention that the content of article

31(1) was larger than that of article 31(2) and that

except in cases where the form of taking private property

took the shape of acquisition of title or requisition

for State uses, in all other cases the State could deprive

a person of his property by simply making a law,

the learned Attorney-General placed reliance on the

following observations of my brother Das in Chiranjit Lal

Chowdhuri's case(1) :--

"Article 31 (1) formulates the fundamental right in a

negative form prohibiting the deprivation of property except

by authority of law. It implies that a person may be

deprived of his property by authority of law. Article

31(2) prohibits the acquisition or taking possession of

property for a public purpose under any law, unless such

law provides for payment of compensation. It is suggested

that clauses (1)and (2) of article 31 deal with the

same topic, namely, compulsory acquisition or taking

possession of propetty, clause (2) being only an

elaboration of clause (1) There appear to me to be two

objections to this suggestion. If that were the correct

view, then clause (1) must be held to be wholly redundant

and clause (2), by itself, would have been sufficient.

In the next place, such a view would

excludedeprivation of property otherwise than by

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acquisitionor taking of possession. One can conceive of

circumstances where the State may have to deprive a person

of his property without acquiring or taking possession

of the same. For example, in any emergency, in order

to prevent a fire spreading, the authorities may have to

demolish an intervening building. This

deprivation of property is different from acquisition

or taking of possession of property which goes by

the name of 'eminent domain' in the American law. The

construction suggested implies that our Constitution has

dealt with only the law of 'eminent domain', but has not

provided for deprivation of property in exercise of

(1) [1950] S.C.R. 869.

699

'police power'. I am not prepared to adopt such

construction, for I do not feel pressed to do so by the

language used in article 31. On the contrary, the

language of clause (1) of article 31 is wider than that

of clause (2), for deprivation of property may well be

brought about otherwise than by acquiring or taking

possession of it. I think clause (1) enunciates the

general principle that no person shall be deprived of his

property except by authority of law, which, put in a

positive form, implies that a person may be deprived of

his property, provided he is so deprived by authority of

law. No question of compensation arises under clause

(1). The effect of clause (2) is that only certain kinds

of deprivation of property, namely, those brought about by

acquisition or taking possession of it, will not be

permissible under any law, unless such law provides for

payment of compensation. If 'the deprivation of property

is brought about by means other than acquisition or

taking possession of it, no compensation is required,

provided that such deprivation is by authority of law."

Similar observations were made by my brother in the

Bihar Zamindari case(1). Undoubtedly great weight must be

given to the opinion expressed on this question by my

learned brother and had I not felt' convinced that

his approach to this question was illiberal and

restricted, I would have hesitated to differ from his

views. After a full consideration of the problem and after

giving due weight to the reasoning of my learned brother,

I am unable, for reasons above stated,' to agree with him.

The objections envisaged by my brother in Chiranjit Lal

Chowdhuri's case (2) against the suggestion that clauses

(1) and (2) of article 31 deal with the same topic of

compulsory acquisition or taking of property-do not at all

oppress me and do not seem to me to be insurmountable or

cogent.

On the assumption that clauses (1) and (2) of

article 31 deal with the same topic, it is not clear to me

why in that context article 31(1) somehow becomes

(1) [1952] S.C.R. 889.

(2) [1950] S.C.R. 869.

700

redundant. This is the only clause in the article which

gives protection to private property from being taken Under

executive orders without legislative sanction behind

them. The first requisite for the exercise of the power of

eminent domain is that it can only be exercised pursuant

to law. It was necessary while delimiting the field of

eminent domain to state that in the article. If the State

had been entitled by clause (1) to take away private

property merely by making a law, then no question of paying

compensation would arise, whether the taking assumed one

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form or another. Acquisition of property or its

requisition, on that construction of the article, are

merely two modes of depriving a person of property and must

be held to be included within the ambit of clause (1)of

article 31, and clause (2) has not been drafted in the

nature of an exception to the provisions of clause (1) of

article 31. On this construction of clause (1) of

article 31 the logical conclusion is that what has been done

by this clause'is that it has declared a fundamental right

in the State as against an individual. Such a

construction of the article in Part III, in my opinion, has

to be avoided, as the purpose of those articles is to

declare the fundamental rights possessed by the citizens

or other persons residing within the Union, rather than to

declare the rights of the State against them.

Secondly, my learned brother was oppressed with the idea

that if a wide construction was not placed on the

phraseology employed in clause (1), deprivation of property

by the State in cases Of emergency, for instance, in

order to prevent a fire from spreading, would also have to

be paid for. It seems that in that case pointed attention

was not drawn during arguments to the comprehensive

provisions of the saving clause of the article which seems

fully to cover cases of that kind. The ConstitUtion makers

were fully alive to cases of that character and

considering that all such cases, unless excepted, would

fall within the mischief of clause (2), they purposely

excepted them from the ambit of the clause.

701

The majority of the court in Chiranjit Lal

Chowdhuris case(1) refrained from expressing any

opinion on the scope of article 31 (1). My brother

Mukherjea made a reference to this question but

declined to express any opinion on it. There is thus no

consensus of opinion on the scope of the provisions ,of

clause (1) of article 31 in this court and no final opinion

has been pronounced upon it so far.

The result of the above discussion is that, in my

opinion, article 31 is a self-contained provision

delimiting the field of eminent domain and article 31

clauses (1) and (2) deal with the same topic of

compulsory acquisition of property.

The contention of the learned Attorney-General that

on the analogy of the decision of this court in

Gopalans case(2) it should be held that when a person is

deprived of private property by authority of law that

deprivation puts an end to all the freedoms regarding

property guaranteed under article 19, does not require any

detailed examination in the light of the construction placed

by me on the language of article 31(1). It was conceded by

the learned counsel that that decision would have had

no application once it was held that clauses (1) and (2)

of article 31 dealt with the same topic of compulsory

acquisition of property.

The next contention of the learned counsel that the word

"acquisition" in article 31 (2) means the acquisition

of title by the State and that unless the State becomes

vested with the property there can be no acquisition within

the meaning of the clause and that the expression

"taking possession" connoted the idea of requisition

cannot be sustained and does not, to my mind, affect the

decision of the case. As above pointed, both these

expressions used in clause (2) convey the same meaning that

is conveyed in clause (1) 'by the expression "deprivation".

As I read article 31, it gives complete protection to

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private property as against executive action, no

matter by what process a

(1) [1950] S.C.R. 869.

(2) [1950] S.C.R 88.

702

person is deprived of possession of it. In other words,

the Constitution declares that no person shall be

deprived of possession of private property without

payment of compensation and that too under the

authority of law, provided there was a public purpose'

behind that law. It is immaterial to the person who is

deprived of property as to what use the State makes of his

property or what title it acquires in it. The protection

is against loss of property to the owner and there is no

protection given to the State by the article. It has

no fundamental right as against the individual citizen.

Article 31 states the limitations on the power of the State

in the field of taking property and those limitations are

in the interests of the person sought to be deprived of his

property. The question whether acquisition has a larger

concept than is conveyed by the expression "taking

possession" is really of academic interest in view of the

comprehensive phraseology employed by clause (2)of

article 3L As the matter was argued at some length, I

propose to briefly indicate my opinion on that point.

For the proposition that the expression "acquisition"

has the concept of vesting of title in the State reliance

was placed on the opinion of Latham C.J. in Minister of

State for the Army v. Dalziel(1 ). By virtue of the

provisions of section 51, placitum (xxxi) of the

Constitution of Australia, the Commonwealth Parliament

is empowered to make laws with respect to "the acquisition

of property on just terms from any state or person for any

purpose in respect of which the Parliament has power to make

laws.", General regulations styled as the National Security

Regulations were made under the national Security

Act, 1939-1943, section 5- Regulation 54 relates to

the taking of possession of land by the Commonwealth

and other regulations provide for the ascertainment and

payment of compensation for toss or damage suffered by

reason of things done in pursuance of the regulation. The

Supreme Court of New South Wales' held that taking

possession of land in pursuance of Reg. 54 amounted

to acquisition

(1) 68 C.W.L.R. 261.

703

of property within the meaning of section 51 (xxxi)of the

Constitution, On appeal Latham C.J. made the following

observations :-

"The Commonwealth cannot be held to have acquired

land unless it has become the owner of land or of some

interest in land. If the Commonwealth becomes only a

possessor but does not become an owner of land, then,

though the Commonwealth may have rights in respect to

land, which land may be called property, the Commonwealth

has not in such a case acquired property ........

Accordingly, m my opinion, the facts that the right

to possession n is the most valuable attribute of

ownership,that possession is prima facie evidence of

ownership,and that possession may develop into

ownership,do not justify any identification of possession

with ownership, but, on the contrary, emphasize the

distinction between the two ideas. The fact that the

Commonwealth is in possession of land as a result of action

under the Regulations does not show that the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 43

Commonwealth has become the owner of the land or of any

estate in the land".

The majority of the court held otherwise and expressed

the opinion that the taking under Regulation 54 of the

National Security (General) Regulations by the

Commonwealth for an indefinite period of the exclusive

possession of property constituted an acquisition of

property within the meaning of section 51 (xxxi) of

the Constitution. This is what Rich J. said,

representing the majority opinion :-

"It would, in my opinion, be wholly inconsistent with

the language of the placitum to hold that, whilst

preventing the legislature from authorizing the

acquisition of n citizen's full title except upon just

terms, it leaves it open to the legislature to seize

possession and enjoy the full fruits of possession,

indefinitely, on any terms it chooses, or upon no terms at

all. In the case now before us, the Minister has seized

and taken away from Dalziel everything that made his

weekly tenancy worth having, and has left him with the

empty husk of tenancy. In such circumstances, he may

well say :--

704

'You take my house, when you do take the prop

That doth sustain my house; you take my life,

When you do take the means whereby I live.'"

In the present case nothing has been left with the

company but the mere husk of title.

In my judgment, the true concept of the expression

"acquisition" in our Constitution as well as in the

Government of India Act is the one enunciated by Rich J.

and the majority of the court in Dalzie's case(1). With

great respect I am unable to accept the narrow view that

"acquisition" necessarily means acquisition of title

in whole or part of the property. It has been tightly said

that a close and literal construction of constitutional

provisions made for the security of person and property

deprives them of half their efficacy and ends in a

gradual depreciation of the right as if the right

consisted more in sound than in substance. In other

words, such provisions cannot be construed merely by

taking a dictionary in hand. The word "acquisition" has

quite a wide concept, meaning. the procuring of property

or the taking of it 'permanently or temporarily. It does

not necessarily imply the acquisition of legal title by

the State in the property taken possession of. The

learned Attorney General combated this view and contended

that such a wide concept of the meaning of the word

"acquisition" was contrary to legislative practice in

India which practice was in accord with the view

enunciated by Latham C.J. in the case above cited. It was

said that the decided cases in India supported that con

struction of the word. Reference was made to a

decision of Bhagwati 1. in Tan Bug Taim v. Collector

Bombay(2). That case concerned the requisition by the State

of the premises of a leading Bombay Chinese restaurant. On

a petition presented to court under section 45 of the

Specific Relief Act, Bhagwati 1. held that having regard

to the principles applicable to British jurisprudence

which had been enacted in section 299 (1) and (2) of the

Government of India Act,

(1) 68 C.W.L.R 261.

(2) I.L.R. 1946 Born. 51.

705

requisition of land could not be considered as being

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included either in item 9 or item 21 of List II of the 7th

Schedule of the Act, that the word "acquisition" implied

ownership in the property or rights in or over such

property, while "requisition" implied deprivation of the

owner of the property for the time being of the use and

possession thereof and meant control of the property,

and -that there was no warrant for holding that so far as

legislative practice in India was concerned,

"requisition"was included in "acquisition". The learned

Judge preferred to follow the view of Latham C.J. and

refused to follow the majority judgment in Dalziel's

case(1). Having considered the matter in full, and with

respect to the learned Judge, I prefer to follow the view

of the majority of the court, because it seems to me that

it is more in consonance with juridical principle that

possession after all is nine-tenths of ownership, and once

possession is taken away, practically everything is

taken away, and that in construing the Constitution it

is the substance and the practical result of the act of

the State that should be considered rather than its purely

legal aspect. As already said, the correct approach in such

cases should be this: what in substance is the loss or

injury caused to the owner and not what manner and method

has been adopted by the State in taking the property.

That the view expressed by Bhagwati J. did not truly

represent the intent of Parliament in drafting entry 9 of

List II of the 7th Schedule becomes clear from what

happened subsequent to this pronouncement. After this

judgment was delivered, an Act was passed by Parliament

,amending the Government of India Act nullifying the effect

of the judgment as regards requisition of property. The

Indian (Proclamation of Emergency) Act, 1945, (9 & 10

Geo. 6, Ch. 23) was promulgated on February 14, 1946,

the judgment of Bhagwati J. having been delivered on

August 9, 1945, section 102 of the Government of India Act

was amended and by it the Central Legislature, when a

proclamation of emergency was in force,

(1) 68 C.W.L.R. 261.

706

was empowered to make laws for a province or a part

thereof, in respect of any matters not enumerated in any

of the lists of the 7th Schedule. Reference was also

made to certain observations of my brother Das in

Chiranjit Lal Chowdhuri's case(2) 'in which the opinion

was expressed that the 'word "acquisition" had

implicit in it the idea of vesting of property

in property in the State. For the reasons already given,

with great respect, I am unable to subscribe to that view.

Reference was also made to a decision of the Punjab High

Court in Jupiter General Insurance Co. v. Rajagopalan

(2). This case concerned the provisions of sections 52 and

52(a) of the Insurance Amendment Act, 1950. It was

contended there that those provisions abridged the

fundamental rights guaranteed by article 31(2) of the

Constitution. In view of the decision of this Court in

Chiranjit Lal Chowdhuri's case(1), the Punjab High Court

construed the word "acquisition" in the narrower sense

and held that as the beneficial interest in the property

remained in the insurer the provisions of the impugned

section did not amount to appropriation of the

insurer's property and merely amounted to exercise of

police power. It was further held that the pith and sub

stance of the impugned legislation was the regulation of

insurance companies and winding up such corporations, if

that was most advantageous to the general interest of

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policy holders. It is unnecessary for the purpose of this

case to say anything about the correctness of that

decision.

In the light of these different decisions the

Constitution employed more comprehensive phraseology in

article 31 than had been employed in the entries of the

7th Schedule appended to the Government of India Act,

1935, and which became the subject matter of

construction in the case decided by Bhagwati J. In

the entries of the 7th Schedule appended to the

Constitution the word used is "requisition" but the

same phraseology has not been employed purposely in clause

(2)of article 31, in all

(1) [1950] S.C.R. 869.

(2) A.I.R. 1952 Punjab 9,

707

probability to avoid any controversy on the scope of the

article by giving a limited meaning to these two words.

On the finding that the company's property was in

effect taken possession of under the provisions of the

Ordinance by the State and that the company was

deprived of it, there is no escape from the conclusion that

the impugned Ordinance and the statute following it are

void as both of them encroach on the fundamental right of

the company under article 31(2) of the Constitution.

It was then argued that even so the plaintiff in the

suit was not entitled to the relief claimed by him as it

was the company alone that could complain about the

abridgement of its fundamental rights by the Ordinance in

question. It was also contended that the plaintiff's

fundamental right to property had not been infringed in any

manner as his property in the share had not been taken

possession of by the State. Finally it was said that on

both these questions the majority decision of this court

in ChiranJit Lal Chowdhuri's case(1) was conclusive. I am

unable to sustain any one of these contentions.

Undoubtedly the majority decision in Chiranjit Lal

Chowdhuri's case (1) has binding force till it is

reconsidered or overruled by this court. But this decision,

in my opinion, has no apposite application to the

facts and circumstances of this case and is clearly

distinguishable. My reasons for saying so are these :--

1. The decision in Chiranjit Lal Chowdhuri's case(1)

was given on a petition presented to this court in exercise

of its jurisdiction under article 32 of the Constitution.

Inter alia, Chowdhuri's grievance was that his

fundamental right under article 31(2)of the Constitution had

been infringed by the impugned law, inasmuch as the

State had taken possession of the company's property

and that all the rights and privileges annexed to his

share had thereby been lost. The majority of the court

took the view that the petitioner was still in possession

of his share and that he had power to dispose of that

share, that he could

(1) [1950] S.C.R. 869.

92

708

receive a dividend on that share, and that though he had

lost some of the privileges annexed to his share, it could

not be said that the State had taken possession of his

share or was exercising the privileges which he enjoyed as

a shareholder. The situation however of the present

plaintiff and of all the preference shareholders whom he

represents is quite different. Chiranjit Lal was an

ordinary shareholder of a fully paid up share. The

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 24 of 43

plaintiff and the other preference shareholders are in a

different situation from Chiranjit Lal. All of them hold

partly paid up preference shares on which their liability

amounts to a sum of Rs. 16 lakhs, the plaintiff alone

being under a liability of Rs. 1,62,000. In case this

liability is not met when it is sought to be enforced, the

shares are liable to forfeiture. The plaintiff and the

other preference shareholders therefore are in imminent

danger of losing the shares themselves or losing

valuable property in the nature of money which they will

have to pay out in order to meet the call. For all

practical purposes the plaintiff is in danger of losing

valuable property which the State is threatening to take

possession of. Not only will these shareholders lose their

shares and be deprived of them but they will also be

forced to pay large sums of money and all this will be in

exercise of the powers conferred on the directors

appointed by the State by the Ordinance in question.

There can thus be no comparison between the rights and

liabilities of Chiranjit Lal with the rights and

liabilities of the present plaintiff and the other

preference shareholders.

2. The rights and privileges of preference

shareholders even in winding up and in earning dividends are

somewhat different from the rights and privileges of the

ordinary fully paid up shareholders. The court in

Chiranjit Lal Chowdhuri's case(1) did not at all advert

to the case of preference shareholders and the effect the

Ordinance had on their rights. It is evident that it was

the refusal of the directors to obey the mandate of the

Controller appointed by the Central Government to make

a call on the preference

(1) [1950] S.C.R. 869.

709

shareholders that to a certain extent resulted in the

making of the Ordinance. On the 5th October, 1949, the

Government appointed a Controller to supervise the

affairs of this ,company. On the 9th November, 1949, the

Controller asked the directors of the company to make a

call on the preference shareholders. Soon after the

directors passed a resolution refusing to comply with

the command. On the 9th January, 1950, the Ordinance

was promulgated, i.e., soon after the refusal, and on the

same day powers were delegated by the Central Government to

the Bombay Government under the Ordinance. Next day on

the 10th January, 1950, the Bombay Government appointed

its nominees as directors of the company. On the 7th

February, 1950, these directors passed a resolution to

call up the uncalled capital and actually on the 22nd

February, 1950, call was made and the plaintiff was called

Upon to pay a sum of Rs. 1,62,000. In these circumstances,

it cannot be held to be an unreasonable inference that one

of the purposes of the Ordinance was to raise further

finance for the business of the company so that it may start

working. In any case, that was clearly the effect of the

Ordinance on the property of the preference shareholders.

In these circumstances, it cannot be said that on the

rule of stare decisis the plaintiff is out of court in view

of that decision.

3. In the case of Chiranjit Lal Chowdhuri(1) the court was

influenced considerably by. the fact that a solitary

shareholder was trying to enforce the company's

fundamental right in the exercise of its jurisdiction under

article 32 and that he could not do so unless his own

fundamental right under article 31 (2) had been infringed.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 25 of 43

It was said that the complainant could not succeed because

somebody else was hurt and that it was an elementary

principle of law that in order to justify the grant of

extraordinary relief the complainant's need of it and the

absence of an adequate remedy at law must clearly

appear. Das J. also pointed out that article 32 can only

be invoked for the purpose of enforcement of the fundamental

right and that that article does not permit an application

merely

(1) [1950] S.C.R. 869.

710

for the purpose of agitating the competence of the

appropriate legislature in passing any particular

enactment unless the enactment also infringes any of the

fundamental rights. The learned Judge concluded by

saying--

"In exceptional cases where the company's property

is injured by outsiders, a shareholder may under the

English law, after making all endeavours to induce the

persons in charge of the affairs of the company to take

steps, file a suit on behalf of himself and other

shareholders for redressing the wrong done to the company,

but that principle does not apply here for this is not a

suit, nor has it been shown that any attempt was made by

the petitioner to induce the old directors to take steps

nor do these proceedings purport to have been taken by

the petitioner on behalf of himself and the other

shareholders of the company." Here it is quite clear that

the present contention has been raised in a suit and not

in an application for a writ under article 32. That

itself distinguishes Chiranjit Lal Chowdhuri's case(1)

from the present. It is further clear that all the

necessary steps visualised by my learned brother have

been taken by the preference shareholders. A requisition'

for calling a meeting of the shareholders of, the company

was made on 3rd August, 1950, a meeting was actually held

on 28th September, 1950, and on subsequent days and on

5th November, 1950, resolutions were passed that the call

should not be made. The resolutions were, however, vetoed

by the Government. All the preference shareholders are

represented in this suit including some of the directors,

the company has been impleaded as a defendant and the

old directors of the company have made an application that

they should be allowed tO support the appeal. On these facts

the present case is clearly distinguishable from that of

Chiranjit Lal Chowdhuri(2).

4. In any case, even if it is held that in view of the

binding character of this court's decision in Chiranjit

Lal Chowdhuri's case(1) the point is concluded, that the

State has not taken possession of the shareholders

property, I am of the opinion that the plaintiff

(1) [1950] S.C.R. 869.

711

and the other preference shareholders are entitled in

this suit to attack the validity of the Ordinance on the

basis of the infringement of the fundamental right of the

company. The plaintiff has every right to challenge the

authority of the directors to make the call and to question

their locus standi before they can fix a liability on him.

The directors seek to derive authority from the Ordinance.

If, however, the Ordinance is void as against the company

obviously they are not to be regarded as the directors of

the company and would thus have no authority to make the

call. It would indeed 'be a strange thing to hold that the

plaintiff in a suit cannot question the authority and the

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credentials of the person who is seeking to enforce a demand

against him. Unless the person making the demand makes out

his authority or his credentials to do so, he is not

entitled to enforce the demand. In all cases where a

pecuniary or other similar liability is sought to be

enforced by a person, it is always open to the person

challenging the liability to raise the question of the locus

standi and authority of the person making the demand. 'If

that person claims in the status of an agent of some other

person, unless his appointment is validly made, he would

have no authority. In this case the shareholders under the

articles of association were under a contractual liability

to meet calls made by the directors of the company

appointed by' them. They never agreed to meet a call made

by persons appointed by an external authority and in

these circumstances they are entitled to question the

authority of the person making the call. The

directors appointed by the Government can only invoke in

aid the authority given to them by the Ordinance and if the

Ordinance is void as against the company,, they cannot be

held to be directors of the company and would therefore have

no authority to make the call. In my judgment, therefore,

it is plain that the plaintiff is entitled to succeed on

the basis of the infringement of the company's fundamental

right under article 31 (2), because that is the only

authority under which the directors have been

brought into existence and are exercising powers by

virtue of the provisions of the Ordinance. If they are

712

not the validly appointed agents of the company qua the

company, they cannot function as directors qua the

shareholders.

5. The learned Attorney-General drew our attention to a

number of cases for the proposition that unless there was a

direct infringement of the fundamental right of the

shareholders it was not open to them to take advantage of

the breach of a fundamental right of the company. In these

wide terms I am unable to accede' to this proposition. In

my opinion, the correct rule on this point has been stated

in Willoughby, at page 20, on the authority of the

decision in chusetts v. Mellon(1), and is in these terms:

"We have no power per se to review and annul acts of

Congress on the ground that they are unconstitutional. That

question may be considered only when the justification for

some direct injury suffered or threatened, presenting a

justiciable issue is made to rest upon such an act. Then

the power exercised is that of ascertaining and declaring

the law applicable to the controversy. It amounts to

little more than the negative power to disregard an

'unconstitutional enactment, which otherwise, would stand in

the way of the enforcement of a legal right. The party who

invokes the power must be able to show, not only that the

statute is invalid, but that he has sustained or is

immediately in danger of sustaining some direct injury as

the result of its enforcement, and not merely that he

suffers in some indefinite way in common with people

generally. If a case for preventive relief be

prevented, the court enjoins, in effect, not the execution

of the statute, but the acts of the official, the statute

notwithstanding".

The rule stated above has apposite application to this

case. The plaintiff and the other preference shareholders

are in imminent danger of sustaining direct injury as a

result of the 'enforcement of this Ordinance, the direct

injury being the amount of the call that they are called

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upon to pay and the consequent forfeiture of their

shares. Not only would, they lose

(1) 262 U.S. 447.

713

their shares, if they do not meet the demand, but they would

also have to pay the amount of the call. My brother Das

elaborately dealt with this question in Chiranjit Lal's

case(1), and made reference to all the cases that were

cited by the Attorney-General on this subject, viz., McCabe

v. Atchison(2); Jeffrey Manufacturing Co. v. Blagg(3);

Hendrick v. Maryland(4); -Newark Natural Gas & Fuel Co. v.

The City of Newark (5); and in which the rule laid down

was that in order to justify the granting of extraordinary

relief the complainant's need of it and the absence of an

adequate remedy at law must clearly appear and that the

complainant cannot succeed because some one else was hurt.

He also made reference to the cases of Truax v. Raich (6),

and Buchanan v. Warley (7). There the court allowed the plea

to be raised because in both. these cases the person raising

it was directly affected. In the first of the two last

mentioned cases an Arizona Act of 1914 requiring employers

employing more than five workers to employ not less than

eighty per cent. native born citizens was challenged by an

alien who had been employed as a cook in a restaurant. That

statute made a violation of the Act by an employer

punishable. The fact that the employment was at will or

that the employer and not the employee was subject to

prosecution did not prevent the employee from raising the

question of constitutionality because the statute, if

enforced, would compel the employer to discharge the

employee and, therefore, the employee was directly affected

by the statute. In the second case a city Ordinance

prevented the occupation of a plot by a coloured person in a

block where a majority of the residences were occupied by

white persons. A white man sold his property in such a

block to a Negro under a contract which provided that the

purchaser should not be required to accept a deed unless he

would have a right, under the laws of the city, to occupy.

the same as 'a residence. The vendor sued for

(1) [1950] S.C.R. 869. (5) 242 U.S. 403.

(2) 235 U.S. 151. (6) 939 U.S. 33.

(3) 235 U.S. 571. (7) 245 'U.S. 60.

(4) 235 U.S. 610.

9--95 S.C.I./59

714

specific performance and contended that the Ordinance was

unconstitutional. Although the alleged denial of

constitutional rights involved only the rights of

coloured persons and the vendor was a white person, yet it

was held that the vendor was directly affected, because the

courts below, in view of the Ordinance, declined to

enforce his contract and thereby directly affected his

right to sell his property. Reference was also made

to the case of Darnell v. The State of Indiana (1). That

is the only case in which a shareholder was not heard

to complaining Iris own name when the Ordinance infringed

the fundamental right of the company, his own rights had not

been infringed. In view of this decision my brother Das took

the view that Chiranjit Lal who was merely a shareholder and

did not suffer any direct injury by the result of the law

was not entitled to complain. That may very well have been

the correct view in the case of a fully paid up shareholder

who had no further liability or who was not likely to suffer

in any manner by the enforcement of the Ordinance but the

situation of a partly paid up preference shareholder as in

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this case is quite different and distinguishable and in my

judgment the apposite rule to apply to the present case is

the one laid down in the cases of Truax v. Raich (2) and

Buchanan v. WarIcy(3 ). The result is that the plaintiff is

entitled to challenge the constitutionality of the

Ordinance on the basis that it abridges the company's

fundamental right under article 31 (2). The plaintiff is

thus entitled to succeed in this suit which should have been

decreed in the terms in which it was laid.

I am further of the opinion that the question of the

locus standi of the plaintiff to raise the pica that the

Ordinance being void against the company the directors had

no authority to make the call, is really of academic

interest in this case because here the company has been

impleaded as a defendant. Its old directors have made an

application to this court supporting the case of the

plaintiff on the ground that the Ordinance

(1) 226 U.S. 388.

(2) 239 U.S. 33.

(3) 245 u.s. 60.

715

is void as it infringes the company's fundamental right

under article 31 (2). The learned Attorney-General when

asked about this application said that it not having

been made in the High Court and having only been made at the

last stage of the case should not be entertained. In my

view, when the question in issue is one concerning

constitutional rights, the matter cannot be viewed purely

from a technical angle and if in the interests of doing

substantial justice it is necessary to grant permission to

the old directors to have their say, technical

considerations should not stand in the way of doing so.

If the Ordinance qua the company is void, I do not see why

the old directors should be debarred from saying so and

if it is void qua the company, it can certainly not

be sustained qua the shareholders. Some of the directors

who are preference shareholders are also represented in

the suit as well. In Chiranjit Lals case(1) the question

of his locus standi was left open by the Chief Justice.

This is what the learned Chief Justice said :--

"The first question is whether one individual

shareholder can, under the circumstances of the case and

particularly when one of the respondents is the company

which opposes the petition, challenge the validity of

the Act on the ground that it is a piece of

discriminatory legislation .......... do not think . it

is necessary to pronounce a definite opinion on the first

point."

In that case Patanjali Sastri J., as he then was, :also

did not pronounce any definite opinion on the question

so far as the shareholder's right to question the invasion

of the right to property of the company under article

31 was concerned. This is what the learned Judge said

:--

"Whatever validity the argument may have in

relation to the petitioner's claim based on the alleged

invasion of his right of property under article 31, were

can be little doubt that, so far as his claim based on

the contravention of article 14 is concerned, the

petitioner is entitled to relief in his own right."

(1) [1950] S.C.R. 869.

716

The learned Judge did not offer any opinion on the other

questions. Mukherjea J. decided the question on grounds

somewhat different from that taken by Fazl Ali 1. This what

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the learned Judge said :--

"A discussion of the fundamental rights of the company

as such would be outside the purview of our enquiry. It is

settled law that in order to redress a wrong done to the

company, the action should prima facie be brought by

the company itself. It cannot be said that this course is

not possible in the circumstances of the present case.

As the law is alleged to be unconstitutional, it is

open to the old directors of the company who have been

ousted from their position by reason of the enactment to

maintain that they are directors still in the eye of law,

and on that footing the majority of shareholders can

also assert the rights of the company as such. None of

them, however, have come forward to institute any

proceeding on behalf of the company. Neither in form

nor in substance does the present application purport

to be one made by the company itself. Indeed, the

company is one of the respondents, and opposes the

petition."

Even on the basis of this reasoning the situation of

the present plaintiff, as already explained, is quite

different and so is that of the company. In these

circumstances it cannot be said that the decision

given in Chiranjit Lal's case(1) is binding on this point,

as even the judgments of the Judges forming the

majority did not speak with the same voice.

For the reasons given above I would allow this appeal,

set aside the judgment' of the High Court and decree the

plaintiff's suit with costs. It is not necessary to

give any decision on issue 2 in view of the decision reached

above, viz., whether the law is void because it

infringes the fundamental rights under articles 14 and

19.

DAS J.-I agree that this appeal should be allowed but

I prefer tO rest my decision' on the grounds and reasonings

set forth in detail in my judgment in

(1) [1950] S.C.R. 869.

717

Appeal No. 107 of 1952 [The State of West Bengal v.

Subodh Gopal Bose(1)].

This is an appeal by the plaintiff in a suit filed in

the Bombay High Court on behalf of himself and other

preference shareholders of the respondent company praying

for a declaration that the power given to the defendants

respondents 2 to 8 who had been appointed directors

under the Sholapur Spinning and Weaving Company

(Emergency Provisions) Ordinance II of 1950 (hereinafter

referred to as the said Ordinance) to make a call and the

resolution passed by the defendants' respondents 2 to 6 on

the 7th February, 1950, for making a call of Rs. 50 per

each preference share are illegal, ultra vires, void

and inoperative in law. The plaintiff-appellant is the

registered holder of 3,244 preference shares of the

respondent company of the face value of Rs. 100 per share

out of which only Rs. 50 had been paid up and consequently

if the call has been duly made, he will have to pay

Rs. 1,62,200 in respect of his holding. The plaintiff

appellant. resists the payment of the call on the

ground, inter alia, that the said Ordinance is illegal,

ultra vires and invalid under the provisions of the

Government of India Act, 1935, and/or the Constitution

of India. No oral evidence was adduced on either side.

The matters in issue were argued with questions of law

governed by the Constitution. The contention was that

the Ordinance was inconsistent with or in derogation

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 30 of 43

of the fundamental rights guaranteed by the

Constitution. The suit was dismissed by the trial

court and that dismissal was affirmed by the appeal

court. The plaintiff has now come up on appeal before us

after having obtained a certificate under article 132

(1)of the Constitution' from the High Court.

The material facts leading up to the institution of the

suit and the terms of the impugned Ordinance have been set

out in detail in the judgments delivered by this court

in the case of Chiranjitlal Chowdhuri v. The Union. of

India(2) where this very Ordinance and the Act which

replaced it were challenged

(1) [1954] S.C.R. 587.

(2) [1950] S.G.R. 863.

718

as unconstitutional and also in the judgment just

delivered and it is not necessary for me to recapitulate the

same. The determination of the' matters in issue

depends on the correct interpretation of article 19

(1) (f)read with article 19 (5), article 31 and article

14 of the Constitution.

My view about the correlation between article 19

(1) (f) read with article 19 (5) and article 31 and the true

meaning and the respective scope and effect of clauses

(1)and (2) of article 31 have been set forth in detail

in my judgment in Chiranjitlal's case (1) and have been

more fully explained in my' judgment in Appeal No. 107

of 1952 [The State of West Bengal v. Subodh Gopal Bose and

others(2)] and no reiteration of them is called for. In the

light of the conclusions reached and the reasons in

support thereof given by me in those judgments I proceed

to examine the contentions advanced by the appellant.

The appellant seeks to question the validity of the

Ordinance on the ground that it infringes the fundamental

rights of (a) the company, (b) the shareholders, (c) the

managing agent% (d) the directors elected by the

shareholders and (e) persons having contracts with the

company. The first thing to consider is whether he

can raise the question of constitutionality of the

Ordinance rounded on the breach of the fundamental rights

of anybody other than himself.

The above matter was agitated in Chiranjitlal's

case (1). There Chiranjitlal Chowdhuri, who was the

holder of one fully paid up ordinary share, applied to this

,court under article 32 challenging the validity of

this very Ordinance which is now questioned before' us

and the Act which eventually replaced it. One of the

grounds of attack was that the Ordinance had infringed

the fundamental rights of the company under article 19

(1) (f) and article 31 in that it dismissed the managing

agents and the directors and authorised the State to

appoint new directors and authorised the directors so

appointed under the Ordinance to take possession of the

company's assets without payment of any compensation. On

the point

(1) [1950] S.C.R, 869.

(2) [1954] S.C.R. 587.

719

now under consideration Mukherjea J. expressed

himself thus, at page 898:

"An incorporated company, therefore, can come up

to this court for enforcement of its fundamental rights and

so may be individual shareholders to enforce their

own; but it would not be open to an individual shareholder

to complain of an Act which affects the fundamental

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 31 of 43

rights of the company except to the extent that it

constitutes an infraction of his own rights as well.

This follows logically from the rule of law that a

corporation has a distinct legal personality of its own

with rights and capacities; duties and obligations

separate from those of its individual members. As the

rights are different and inhere indifferent legal entities,

it is not competent to one person to seek to enforce the

rights of another except where the law permits him to do

so. A well known illustration of such exception is

furnished by the procedure that is sanctioned in an

application for a writ of habeas corpus."

And again at page 899 :--

"The rights that could be enforced under

article 32 must ordinarily be the rights of the

petitioner himself who complains of infraction of such

rights and approaches the court for relief. This being

the position, proper subject of our investigation would be

what rights, if any, of the petitioner as a shareholder

of the company have been violated by the impugned

legislation. A discussion of the fundamental rights of the

company as such would be outside the purview of our

enquiry."

At pages 904-909 the learned Judge discussed the

question whether the impugned law had infringed any

fundamental right of the shareholders under article 31 (2)

or article 19(1) (f) and answered it in the negative. Kania

C.J. agreed with the line of reasoning and the conclusion

reached by Mukherjea J. on this point. Fazl Ali J. at

page 876 referred to a passage in the judgment of Hughes J.

in McCabe v. Atchison(1)and expressly held that no one

except those whose rights

720

were directly affected by a law could raise the

question of the constitutionality of the law. His

Lordship said:

"The company and the shareholders are in law

separate entities, and if the allegation is made that any

property belonging to the company has been taken

possession of without compensation or the right enjoyed

by the company under article 19 (1) (f) has been

infringed, it would be for the company to come forward to

assert or vindicate its own rights and not for any

individual shareholder to do so."

As to the question whether the petitioner had

succeeded in showing that there had been an infringement

of his own rights as a shareholder under articles 31

and 19 (1) (f) his Lordship agreed with and adopted the

conclusions arrived at by Mukherjea J. without committing

himself to the acceptance of all the reasonings of Mukherjea

J. My Lord the present Chief Justice rested his decision

on article 14 and came to the conclusion that the

petitioner as a shareholder had been discriminated

against. Having thus decided the question arising under

article 14, he did not think it necessary to express any

opinion on the questions raised under articles 19 and

31. .At pages 927-930 I dealt with the question whether

the shareholder could impugn the constitutionality of the

law on the ground that the fundamental right of the

company had been infringed. After referring to several

decisions of the Supreme Court of America I came to the

following conclusion at page 930:

"In my opinion, although a shareholder may, in a sense,

be interested to see that the company of which he is

a shareholder is not deprived of its property he cannot,

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as held in Darnell v. Indiana(1) be heard to complain in

his own name and on his own behalf, of the infringement of

the fundamental right to property of the company, for, in

law, his own right to property has not been infringed as

he is not the owner of the company's properties."

In the premises, I think it is quite clear that the

majority of the members of the Bench which heard

(1) 226 U.S. 388.

721

Chiranjitlal's case(1) held that the petitioner was not

entitled to question the constitutionality of the

Ordinance and the Act on the ground that the fundamental

rights of the company under articles 19 (1) (f) and 31 had

been infringed. He had, therefore, to rely on the plea of

infringement of his own fundamental rights. The majority

of the court held that there had been no infringement of

his rights as a shareholder under article 19(1)(f) or

article 31 and that the petitioner consequently had to fail

back on article 14 in order to support his plea of the

unconstitutionality of the Ordinance and the Act. Even

here the majority of the Bench took the view that the

petitioner had not discharged the onus that was on him of

showing that in fact there had been any discrimination

against him and other shareholders of the company.

Learned Attorney-General submits that in so far as the

challenge to the validity of the law is, inthe present

case, rounded on theinfringement of the company's

fundamental rights,it is concludedby the decision in

Chiranjitlal's case(1) for the reasons adopted by the

majority in that case apply equally to the case now

before us and the same conclusion must be drawn,

namely, that the present appellant, who is also. a

shareholder, cannot be permitted to impugn the said

Ordinance on the ground that it infringes the

fundamental rights of the company, or the managing

agents or the directors or other persons having contracts

with the company. It is, on the other hand, contended on

behalf of the appellant that the present case is

distinguishable from Chiranjitlal's case(1) in that the

question here arises in a regular suit and not on an

application under article 32 for the enforcement of

fundamental rights. I do not think that this, by itself,

is a substantial ground of distinction at all. I cannot

see how the mere form of the proceeding can affect the

question. The true principle being that only a person who is

directly affected by a law can challenge the validity of

that law and that a person whose own right or

interest has not been violated or threatened cannot

impugn the law on the ground that somebody else's right has

been infringed,

(1) [1950] S.C.R. 869.

722

the same principle must prevail irrespective of the form of

the proceeding in which the question of constitutionality

is raised.

Learned counsel for the appellant, however, urges that

although on a parity of reasoning there has been no

infringement of the fundamental right of the preference

shareholders under article 19(1) (f) or article 31 (2), the

impugned law, if it stands, certainly subjects the

preference shareholders to the' risk of being called upon

to pay the amount of capital remaining unpaid on their

respective shareholding. Indeed, the directors appointed

under the said Ordinance have made a call for the payment

of Rs. 50 on each preference share and the plaintiff

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appellant alone will have to pay Rs. 1,62,200 on his

shares. There was no such liability on the petitioner in

Chiranjitlal's case(1) for the was the holder of only one

fully paid up ordinary share. The impugned Ordinance,

therefore, directly affects the preference shareholders

by imposing on them this liability, or the risk of it,

and gives them a sufficient interest to challenge the

validity of the Ordinance. It is quite true, as

submitted by the learned Attorney-General, that the fact

of the property of the company or the managing agents,

or the directors or the other persons having contracts

with the company having been taken possession of by

the State through the directors appointed by the State

under the Ordinance has no relation to or bearing on the

imposition 'on the preference shareholders of the

liability to pay the call, for the directors were not

obliged to make the call because they had taken

possession of the property of the company or the other

persons and that this imposition of liabilityor risk

cannot, therefore, be said to be the direct or even

indirect result of the State having through the directors

appointed under the Ordinance taken possession of the

property of the company or the other persons. It is then

urged by him that, that being so, the preference

shareholders cannot be allowed to complain of the

infringment of the rights of the company or of the other

persons which does not concern or affect them. This

argurncnt, however, overlooks the purpose

(1) [1950] S.C.R. 869.

723

and scope of the suit filed by the appellant for himself and

all other preference shareholders. The appellant is

disputing his liability to pay the call made by the

directors appointed under the Ordinance. He is, therefore,

entitled to show that the directors who have made the call

are not competent to do so. It is open to him to allege

and prove, if he can, that the gentlemen who have

purported to make the call are not competent to do so

because they are not the directors of the company. Take the

case of a company which is not governed by this Ordinance.

If a call is made on the shareholders of such 'a company,

it is certainly open to a shareholder to resist the payment

of the call by proving, if he can, that the persons

who have purported to make the call are not the directors of

the company. This he may do by showing that those

persons have not the requisite qualifications or have not

been duly elected. Likewise, on a parity of reasoning,

the appellant as a preference shareholder in the respondent

company is entitled to show, if he can, that the

persons who have made the call are really not' the

directors of the company. Certainly he can show that

the Ordinance under which these persons have been

appointed was beyond the legislative competency of

the authority which made it or that the Ordinance had

not been duly promulgated. If he can, with a view to

destroy the locus standi of the persons who have made the

call, raise the question of the invalidity of the

Ordinance on the grounds I have just mentioned, I can see

no valid reason why for the self same purpose, he should

not be permitted to challenge the validity of the

Ordinance on the ground of its unconstitutionality for

the breach of the fundamental rights of the company or of

other persons. He may not be interested in or concerned

with the facts which constitute the unconstitutionality,

e.g., the taking of possession of the property of the

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company or of the other persons but he is certainly

interested in getting out of the law so as to destroy the

very foundation of the status of the persons who have made

the call and thereby repel the attack on him and avoid

his own liability. In Chiranjitlal's case(1) the

(1) [1950] S.C.R. 869

724

petitioner was held to have suffered no loss of his own

fundamental right as a shareholder and, therefore, by

raising the question of unconstitutionality of the

Ordinance on the ground of the breach of the fundamental

rights of the company, or of the other persons he was really

fighting the battle of the company and the other persons

and not of his own. Here the position is different. Here

the law has made the imposition of a liability on him

and other preference shareholders possible and he is

seeking to resist that liability and as in the premises

he is directly affected by the statute he has sufficient

interest to challenge its validity. If as between the

company or the other persons and these persons who,

purporting to act as directors, have made the call the

law is unconstitutional for breach of the former's

fundamental rights then it follows that these persons are

not, in the eve of the law, the directors of

the company at all and if they are not in law

the directors of the company, surely they

cannot arrogate to themselves the right to exercise

any of the powers of the directors of the company and

to make any call. If the said Ordinance stands, the

directors appointed thereunder will have authority to make

the call which they have done and the appellant's

liability to pay it will stand good. Therefore, the

appellant as a preference shareholder is directly

affected by the statute and this circumstance, in my

opinion, distinguishes this case from Chiranjitlal's case(1

) and it must be held that, in the circumstances of this

case, the appellant, who is a preference shareholder and as

such liable to pay the call, is entitled to challenge the

Ordinance which dismissed the directors elected by the

shareholders, authorised the appointment of directors by

the State and made it possible for the directors so

appointed to make the call and thereby impose a liability on

all preference shareholders including the appellant.

On the hypothesis that, with a view to resist his own

liability to pay the call, it is open to the appellant to

impugn the Ordinance and the Act which has replaced it and

for that purpose to call in aid the infringement of the

fundamental right under article 31 (2) of the

(1) [1950] S.C.R. 869

725

company or of the other persons mentioned above, it has yet

to be shown that there has in fact been such infringement.

Two questions will have to be considered and decided,

namely, (1) whether the impugned law has authorised the

taking of possession or acquisition of any property and

(2) whether what has been taken possession of or acquired

is "property" within the meaning of article 31(2). Taking

the second question first, there cannot be any doubt

that the mills, machineries, stocks etc., of the

respondent company are "property" within the meaning

of articles 19 and 31. A contract or agreement which

a person may have with the company and which may be

cancelled by the directors in exercise of powers

under the Ordinance will undoubtedly be "property" within

the meaning of the two articles. There may be some argument

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as to whether the office of managing agents or of the

directors, though each of such offices carries substantial

remuneration, can be said to be "property" which, by

itself, can be acquired or taken possession of or

disposed of. I need not dilate on this further, for the

machinery etc., of the company and the benefits of

agreements of persons having contracts with the company

are certainly "property" within those articles and if

those have been taken possession of or acquired that will

be quite sufficient for the plaintiff appellant to sustain

his challenge to the constitutionality of the impugned

law, whether or no the office of the managing agents or

of the directors is "property" or has been taken

possession of or acquired.

The next question is whether the impugned law has

authorised the taking of possession or acquisition of the

property of the shareholders, or of the company. It may be

mentioned at the outset that the impugned law has not

authorised any acquisition of any property in the sense

of divesting the shareholders or the company of any

property and vesting that property in the State or its

nominee. In other words, there has been no transfer of

title, voluntarily or by operation of law. It is,

therefore, necessary to enquire and as certain whether

the Ordinance or the Act which replaced it

726

has authorised the taking of possession of any property of

the shareholders or of the company.

As regards the property of the shareholders the position

is the same as in Chiranjitlal's case(1). The shares

still belong to them. They can hold them or dispose. of

them. If any dividend is declared they will get them. If

there is any winding up and if after payment of all

liabilities there remains any surplus then they will

participate in that surplus. It is true that from a

practical point of view it-may be difficult for the

shareholders, if they desire to sell the shares, to find

a purchaser who will be willing to buy shares in a company

which is governed by an Ordinance of this kind but,

nevertheless, it cannot be said that the State has taken

possession of the shares in the sense in which that

expression used in article 31(2) has been explained by

me in Subodh Gopal Bose's case(2). It is said, as

was done in Chiranjitlal's case(1 ), that certain

valuable rights of the shareholders, e.g., the right of

voting, the right to elect directors and the right to apply

for the winding up of the company have been taken away. In

the first place, it is doubtful if any of these right can

be called "property" within the meaning of article 31(2)

for, by itself and apart from the shares, none of them can

be acquired or disposed In the next place, the State has

not taken possession of these rights as explained by

Mukherjea J. in Chiranjitlal's case (1 ) at pages 904-906

and by me at pages 923-924. Therefore, there has been

no infringement of the shareholders right to

property under article 31(2). What has happened is

that these rights which are only incidents of the ownership

of the shares have been suspended or kept in abeyance and

if this may be regarded as amounting to imposing

restrictions on the exercise of the rights of ownership of

the shares it may possibly be justified as an exercise in

any emergency of the State's police power under clause (5)

of article 19 by imposing by law reasonable

restrictions in the interests of the general public so as to

secure the supply of an essential commodity and to prevent

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unempolyment.

(1 [1950] S.C.R. 869. (2) [1954] S.C.R. 587.

727

As regards the property of the company also there has

been no transfer of title to any such property, voluntary or

involuntary, from the company to the State or its nominee

and, therefore, no question arises of any property of the

company having been "acquired". The question remains

whether any property of the company has been "taken

possession of" by the State within the meaning of article

31 (2) as explained by me in Subodh Gopal Bose's case(1).

In Chranjitlal's case(2) Mukherjea J. at pages 903-904

said:

"Assuming that tiffs State management was imposed in

the interests of the shareholders themselves and that the

statutory directors are acting as the agents of the

company, the possession of the statutory directors could

not, it is argued, be regarded in law as possession of

the company so long as they are bound to act in obedience

to the dictates of the Central Government and not of the

company itself in the administration of its affairs.

Possession of an agent, it is said, cannot judicially be

the possession of the principal, if the agent is to act not

according to the commands or dictates of the principal, but

under the direction of an exterior authority.

There can be no doubt that there is force in this

contention, but as I have indicated at the outset, we

are not concerned in' this case with the larger question

as to how far the inter-position of this statutory

management and control amounts to taking

possession of the property and assets belonging to the

company.

It is fairly clear that his Lordship was inclined to the

view that the company's properties had been taken

possession of although he did not categorically an

explicitly say so. I dealt with the matter at pages 926-

927. After pointing out that the possession of directors who

Were not obedient to or amenable to the company or its

shareholders and are not liable to be dismissed or

discharged by the company cannot, in the eye of the law, be

regarded as the possession of the company I said:

(1)[1954] S.C.R. 587. (2) [1950] S.C.R. 869.

728

"In this view of the matter there is great force in the

argument that the property of the company has been taken

possession of by the State through directors who have been

appointed by the State in exercise of the powers conferred

by the Ordinance and the Act and who are under the

direction and control of the State and this has been

done without payment of any compensation ."

Then after quoting a passage from the judgment of Holmes 1.

in Pennsylvania Coal Company v. Mahon(1) concluded:

"Here, therefore, it may well be argued that the property

of the company having been taken possession of by the State

in exercise of powers conferred by a law which does not

provide for payment of any compensation, the fundamental

right of the company, has, in the eye of the law, been

infringed."

It is quite clear that although I used the words

"there is great force in the argument" and "it may well be

argued", the then inclination of my mind was definitely

that the property of the company had been taken possession

of as contemplated by article 31 (2). My observations

were much more definite than those of Mukherjea J.

Learned Attorney-General contends that the taking of

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possession of the property of the company that has taken

place in this case is clearly not an exercise of the power

of eminent domain within article 31 (2) but

constitutes an exercise of police power under article

31 (1). Here, according to him, the State has not taken

possession of the company's property on its own account

to implement a public purpose such as is contemplated by

article 31 (2) but the State has taken possession of the

company's property to prevent the company from using its

own property to the detriment of the interests of the public

and to do for the company what the company should itself

have done. In order to determine to which category this

taking of possession falls, it is necessary to keep in mind

the circumstances in which the Ordinance and the, Act were

passed and to ascertain from their language their

immediate

(1) 260 U.S. 399.

729

purpose and ultimate aim and to consider their effect on

the rights of the company. It should be remembered that the

Ordinance of 1950 was promulgated on the 9th January, 1950.

The preamble to the Ordinance recited as follows:

"Whereas on account of mismanagement and neglect

a situation has arisen in the affairs of the Sholapur

Spinning and Weaving Company, Limited, which has

prejudicially affected the production of an

essential commodity and has caused serious unemployment

amongst a certain section of the community."

Then came the Act on the 10th April, 1950. There is no

preamble to the Act. Although the short title of the Act

contains a reference to emergency provisions the full

title of the Act is as follows:

An Act to make special provision for the proper

management and administration of the Sholapur

Spinning and Weaving Company Limited.

There is no suggestion either in this long title or in

the body of the Act except in section 12 that the Act is

intended only to be a temporary emergency measure. The

object of the Ordinance was stated to be to provide

employment to a large number of workmen and to keep up

the production of an essential commodity. There is no doubt

that section 12 of the Act provides that the property of

the company and the management and administration of its

affairs would be restored to the company or its directors

elected by the shareholders but that is left entirely

to the unfettered discretion of the Government. The

provisions of the Ordinance and the Act are drastic in

the extreme. The managing agents and the elected directors

have been dismissed and new directors have been

appointed by the State. So far as the company is concerned

it has been completely denuded of the possession of

its property. All that is left to the company is its bare

legal title. The carrying on of a business demands many

personal qualities and considerable business acumen and

is much more complicated than collecting

10--95 S.C. India/59

730

the rents of the estate of a disqualified proprietor. The

impugned law has thrust upon the company a board of

directors in whose business capacity the Company and its

shareholders may have no confidence and over whom the

company has certainly no vestige of control or authority

and who are not answerable to them at all. Although in

outward form the directors are the officers of the company

and are bound to act under the articles of association in so

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far as they are not contrary to or inconsistent with the

Ordinance and the Act, nevertheless, in effect and in

substance, they are the creatures of the State and are

answerable to the State and it is the State that has

through these directors of its choice taken possession of

the undertaking of the company and has been carrying

on an experiment in State management of business at the risk

and expense of the company and the shareholders. Indeed we

are told that under such State management which is going

on for pretty nearly four years the business has been

running at a loss. At any rate no profit has been made

or distributed as and by way of dividend during this long

period--a sad commentary on the efficacy of State

management And nobody knows how long this state of affairs

will continue, for the Act does not prescribe any definite

time limit to this hazardous experiment. It is, in

the premises, impossible to uphold this law as an

instance of the exercise of the State's police power as an

emergency measure. It has far overstepped the limits of

police power and is, in substance, nothing short of

expropriation by way of the exercise of the power of

eminent domain and as the law has not provided for

any compensation it must be held to offend the provisions of

article 31 (2).

The last contention of the appellant is that the

Ordinance is unconstitutional and void in that it

infringes the fundamental rights of the

shareholders under article 14. In Chiranjitlal's case(1]

my Lord the present Chief Justice and I were of the'

opinion that the Ordinance and the Act did not proceed on

any rational basis of classification and that this

company and its shareholders had been arbitrarily

(1) [1950] S.C.R. 869.

731

singled out for discriminatory treatment and that as

equality before the law was denied to this company and

its shareholders the Ordinance and the Act offended

the equal protection clause of our Constitution. The

majority of the Bench, however, took the view that, there

being a presumption in favour of the constitutionality of

the law and that the onus of displacing that presumption

being on him who impugns the law, the petitioner in that

case had not discharged that onus and that,

therefore, he could not complain of discrimination. In the

present case there is nothing more than what there

was before the court in Chiranjitlal's case(1 ). Indeed,

the question of discrimination does not appear to have

been argued before the trial court and the appeal court

has rejected it by saying that the plaintiff had not shown

that there were other companies which were guilty of the

same conduct but had not been similarly dealt with. Learned

Attorney-General has submitted that this court is not'

bound by its previous decision and has pressed us to go

behind the majority decision. Accepting that this court

is not bound by its own decisions and may reverse a

previous decision especially on constitutional questions

the court will surely be slow to do so unless such

previous decision appears to be obviously erroneous. But

in view of the conclusion I have already arrived at on the

other point I do not feel called upon to pursue this point

of discrimination any further. In my judgment, therefore,

this appeal should be allowed and the plaintiff's suit

should be decreed. The Union of India must pay the

plaintiff his costs throughout.

BOSE J.--1 agree with my brother Mahajan that the

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impugned Ordinance and Act offend article 31 (2)of the

Constitution and so are void. But I prefer to rest my

decision on simpler foundations. With the utmost respect

I deprecate, as I have done in previous cases, the use

of doubtful words like "police power" "social

control", "eminent domain" and the like. I say

doubtful, not because they are devoid of meaning but

because they have different shades of meaning in

different countries and because they represent powers

(1) [1950] S.C.R. 869.

732

which spring from widely differing sources. In my opinion,

it is wrong to assume that these powers are inherent

in the State in India and then to see how far the

Constitution regulates and fits in with them. We have

to interpret the plain provisions of' the Constitution

and it is for jurists and students of law, not for

judges, to see whether our Constitution also provides

for these powers and it is for them to determine whether the

shape which they take in India resemble any of the varying

forms which they assume in other countries.

Article 19 (1) (f) confers a certain fundamental

certain freedom on all citizens of India, namely, the

freedom to acquire, bold and dispose of property. Article

31(1) is a sort of corollary, namely that after the

property has been acquired it cannot be taken away save

by authority of law. Article 31 is wider than article 19

because it applies to everyone and is not restricted to

citizens. But what article 19 (1)(f) means is that

whereas a law can be passed to prevent persons who are

not citizens of India from acquiring-and holding property

in this country no such restrictions can be placed on

citizens. But in the absence of such a law non-citizens

can also acquire property in India and if they do then they

cannot be deprived of it any more than citizens, save by

authority of law.

I have put the matter broadly and ignored for the: moment

the restrictions imposed by article 19 (5). The rights

conferred by article 19 (1)(f)'are not unfettered and

the State can impose restrictions: provided they are

(I) reasonable and (2) are in the' interests of either the

general public or for the protection of the interests of any

Scheduled Tribe. But we are not concerned with article 19

in this. case because no one has prevented either the

company or the plaintiff from acquiring and holding

property. They actually did acquire property and they

held it and nobody stopped them. The complaint is that

they are now being deprived, in a manner not allowed by the

Constitution, of the property which they were lawfully

permitted to acquire and hold. That concerns article 31.

732

Now article 31(1) says that no one shall be deprived of

property save by authority of law. That to my mind is

straight forward and simple. It means that no one's

property can be taken away arbitrarily or by executive

action. There must be legal sanction for every act of

deprivation.

Now an Act of the legislature is legal sanction,

therefore it the rest of the article was not there a man

could be deprived of his property by legislative

enactment though not by executive action. But that brings

in article 31(2). Restrictions are there placed even on

the legislature. Unless the Act provides for

compensation and either fixes the amount or specifies

the principles on which, and the manner in which, it is to

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'be determined it cannot be validly enacted. The only

exceptions are ,those set out in clause (5). Therefore,

'to my ,mind, the simple question in this case is, do the

impugned Ordinance and Act fail foul of article 31 (2) read

with clause (5) ? All we have to do is to examine these

provisions.

We start with the word "property". Are the

plaintiff's "interests" in this company "property"

within the meaning of this clause ? Property

includes any interest" in "any commercial or

industrial undertaking." It also includes any interest in

"any 'company owning" any interest in any commercial or

industrial undertaking. That is how I read this clumsily

drafted clause. The company here certainly has an

interest in a commercial and industrial undertaking

and the plaintiff has an undoubted interest in the

company. He also has a direct interest in the undertaking

that the company runs because, as a preference

shareholder, he is a member of the company and would, on

liquidation, be entitled to share in the distribution of

its assets.

Next, have these interests been "taken possession

of" or "acquired"? Here again I have no doubt. In my

judgment, the provisions in the Constitution touching

fundamental fights must be construed broadly and

liberally in favour of those on whom the rights have been

conferred. But in any case, in this instance,

734

these words have to be read along with the word

"deprived" in clause (1). In my opinion, the possession

and acquisition referred to in clause (2)mean the sort of

"possession" and "acquisition" that amounts to

"deprivation" within the meaning of clause (1). No hard

and fast rule can be laid down. Each case must depend on

its own facts. But if there is substantial deprivation,

then clause (2) is, in my judgment attracted. By

substantial deprivation I mean the sort of deprivation

that substancially robs a man of those attributes of

enjoyment which normally accompany rights to, or an

interest in, property. The form is unessential. It is the

substance that we must seek.

Has that happened here ? Of course, it has. The

plaintiff and the company have been left with the mere

husk of title and not only has every form of enjoyment

which normally accompanies an interest in this kind of

property been taken away from them but to add insult to

injury the plaintiff has also been called upon to pay

substantial sums of money; and for what ?--not in compliance

with any engagement into which he has entered, not in

fulfilment of any duty or obligation which he has incurred,

not in furtherance of his interests of which he is the best

judge, but blankly and unashamedly because the

furtherance of his interests affects "the production of

an essential commodity" and, has caused "serious

unemployment amongst a certain section of the community."

If that is not "deprivation" it is difficult to know what

is. One of the privileges of a democracy of free men is

the right to mismanage one's own affairs within the

confines of the law, and if A can mismanage his concerns in

a particular way, so can B, C and D. The production of

essential commodities and the employment of labour are

matters for the State and statutory bodies to handle.

They have the right, when the law so permits it, to take

over this responsibility when the public interests so demand

but if by doing so they deprive private individuals and

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non-statutory bodies their interests in property in

the sense explained above they 'must pay

compensation. They cannot evade their own duties by

lathering their obligations

735

on others' who are not responsible for carrying on the

affairs of the State. My brother Mahajan has dealt with

this at length and there is no need for me to add to what he

has said.

The only other point I need consider is the

applicability of clause (5)of article 31. The exceptions

to clauses (1)and (2)lie there. I am clear that none of the

exceptions set out there apply. The impugned Ordinance

and Act have not been made for the promotion of public

health nor to prevent danger to life' and property.

In my opinion, Chiranjit Lal's case(1) is

distinguishable. I do not think it is a bar here. My

brother Mahajan has explained this at length and as I agree

with him I need say no more. I would therefore also,

in agreement with my learned brother, allow the

appeal and decree the plaintiff's claim with costs.

GHULAM HASAN J.--I have had the advantage of

perusing the judgment of my learned brother Mr. Justice

Mahajan and I agree with his conclusion that the appeal

should be allowed and the plaintiff's suit decreed with

costs. I would like to add a few words.

This appeal raises the question of the constitutional

validity of the Sholapur Spinning and Weaving

Company (Emergency Provisions) Ordinance II of 1950,

subsequently replaced by Act XXVIII of 1950, which

reproduced substantially the same provisions. This

question arose originally upon a petition under article 32

of the Constitution filed by one Chiranjit Lal Chowdhuri

an ordinary shareholder of the company, challenging the

Act as being in violation of his fundamental rights under

articles 14, 19 and 31 of the Constitution. By a majority

of 3:2 it was held that the petitioner had failed to

displace the presumption of the constitutionality of the Act

or that there had been any abridgement of his fundamental

rights. The minority declared the impugned Act as void

as it violated the fundamental rights of the

petitioner under article 14 of the Constitution.

(1) [1950] S.C.R. 869.

736

My learned brother has distinguished, and if I may say

so respect successfully, the decision in

Chiranjit Lal's case(1)and has explained the ratio

decidendi of the majority view in that case and I

entirely agree with him. That decision does not, in my

opinion, conclude the matter so far as the present

case is concerned and no question of invoking the principle

of stare decisis arises.

The question which we are now invited to consider was

raised by the appellant, a preference shareholder holding

3,244 preference shares of the face value of Rs. 100 out of

which he had paid up Rs. 50 per share. He was called upon

by the statutory directors nominated by the Government under

the impugned Act to pay Rs. 1,62,000 as the balance of the

amount of the call. Thereupon he filed the suit in a

representative capacity on behalf of himself and other

preference shareholders challenging the validity of the Act.

The suit was dismissed by the trial Judge whose decision was

affirmed on appeal by the Division Bench of the Bombay

High Court.

My learned brother has analysed in detail the relevant

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provisions of the impugned Act and I have no hesitation in

agreeing with him that the Act in substance robs the

company of every vestige of right except what has been

laconically called the husk of title. I agree, therefore,

that the impugned Act oversteps the constitutional

limits of the power conferred upon the State and offends

against the provisions of article 31 and must, therefore,

be held void.

Article 31 finds a place in Part III of the Constitution

which deals with fundamental rights. It is headed

"Right to Property". Upon a simple and straightforward

construction of its language and the context in which it

stands and unhampered by the provisions of the American

Constitution the article confers upon every person,

whether a citizen or not, a fundamental right of

protection of property against encroachment by the

executive without the authority of law and against

the legislature unless the law passed by it satisfies

the two essential conditions

[1950] S.C.R. 869.

737

laid down in (2) that there must be public purpose for

taking away private property and that the law must

provide for compensation and either fix the amount of such

compensation or specify the principles on which and

the manner in which the compensation shall be

determined and given Article 31 (1) embodies a

categorical declaration proclaiming the right of

property and equally categorically prohibits the State

from depriving the owner of that property by an executive

act or without being backed by the authority of law.

The intention underlying the article being the

protection of property against invasion by the State,

both parts (1)and (2)of article 31 should be read together

so as to harmonize with that intention. Article 31, in

my opinion, is wider than article 19(1) (f) which confers

upon a citizen only the right to acquire, hold and dispose

of property and is different in scope and content. Article

31 is self contained and (1) refers to deprivation of

property general. Acquisition or taking possession in

(2) are different modes of deprivation and are

comprehensive enough to include all forms of taking away

rights of property. Having regard to the setting in

which article 31 is placed, the word 'property' used in the

article must 'be construed in the widest sense as con:noting

a bundle of rights exercisable ,by the owner in respect

thereof and embracing within its purview both corporeal

and incorporeal rights. The word 'property' is not

defined in the Constitution and there is no good reason

to restrict its meaning. Whether the ,facts in a given

case: amount to deprivation of property within the

meaning of article 31 will depend 'upon the circumstances

of each case and it is not possible, in the nature of

things, to lay down any inflexible test which may be

universally applicable. When it can be shown that the

statute substantially interferes with the right of

enjoyment of property, it will, in my opinion, be hit by

article 31 (2) and declared void, unless compensation is

provided.

I am not prepared to subscribe to the proposition that

article 31 (1) stands by itself and should be read

separately from (2) and I cannot attribute an intention

738

to our Parliament to deprive a person of his property

merely by passing an Act. The two parts of the article form

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an integral whole and cannot be disassociated from

each other.

The result is that I agree with the order proposed by

my learned brother.

Appeal allowed.

Agent for the appellant: 1. N. Shroff.

Agent for respondents Nos. 1 to 4 and 6 to 8:

Rajinder Narain.

Agent for respondent No. 9: G.H. Rajadhyaksha.