DWARKADAS SHRINIVAS OF BOMBAY v. THE SHOLAPUR SPINNING & WEAVING CO. LTD., AND OTHERS.
Citation: [1954] 1 S.C.R. 674; 1953 INSC 92
Court: Supreme Court of India
Bench: M. PATANJALI SASTRI , MEHR CHAND MAHAJAN, SUDHI RANJAN DAS, VIVIAN BOSE, GHULAM HASAN
Judgment date:
Case summary
1953 INSC 92. Supreme Court of India judgment dated 1953-12-18. DWARKADAS SHRINIVAS OF BOMBAY v. THE SHOLAPUR SPINNING & WEAVING CO. LTD., AND OTHERS. Read...
Judgment text
1953 T! 11 Sta11 of W1Jt B1ngal Y, Subodh Gopal BoJt a11d Otlitrr. JazannU! 11u/as J. 195~ Dec. 18. 674 SUPREME COURT REPORTS [1954} of Eminent Domain. It is on a par with article 21. It seems to me to serve a distinct purpose over and above that relating to the law of Eminent Domain, viz. , that it relates also to deprivation of property other than that which may fall within the scope of article 31 (2). It enjoins that such deprivation shall not be brought about save by authority of law. In view of what I have said above, it follows that the assumption with which I have started, vit:. , that this is a case falling under article 19 (1) (f) :md (5) is, in my opinion, correct. In the result I agree that the appeal should be allowed with costs here and in the High Court. Appeal allowed. Agent for the appellant : P. K. Bose. Agent for respondent No. 1 : R. R. Biswas. DWARKADAS SHRINIVAS OF BOMBAY v. THE SHOLAPUR SPINNING & WEAVING CO. LTD. , AND OTHERS. rPATANJALI sAsTRI c. J.
, MEHR CHAND MAHAJAN, S. R. DAs, VIVIAN BosE and GHIJLAM HASAN JJ. ] Sholapur Spinning and Weaving Co1npany (Emergency Proui- sions) Ordinance II of 1950, replaced by Act XXVl! l of ! 950- H1 hether ultra vircs art. 31 of the Constitution-Arts. 19 and 31- Scope of-Whether different. The Sholapur Spinning and Weaving Co. , Ltd. , was incorpo 4 rated under the Indian Companies Act, 1913, with an authorised capilal 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 prcferenc - perty 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 com- pany 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 pur- port 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 prefer- ence shareholders.
A requisition for calling a meet- ing of the shareholders of the company was made on 3rd August, 1950, a meeting was actually held on 23th 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 share- holders 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 sup- port the appeal. On these facts the present case is clearly distinguishable from that of ChiranFt 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(') the point is concluded, that the State has hot taken possession of the shareholders property, I am of the opinion that the plaintiff (I) [19. 10] S. C. R. 869. ' • , S. C. R.
SUPREME COURT REPORTS 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 chal- lenge the authority of the directors to make the call and to question their locus standi before they call fix a liability on him. The directors seek to derive autho- rity 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 credentials of the person who is seeking to enforce a demand against him. Unless the person making the demand makes out his authoritv or his credentials to do so, he is not entitled to enfo;ce 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 unr\er the articles of association were under a con- tractual 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 funda- mental 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 1953 Dwarkadas Shrinivas of BEm~ay v. The Sholapur Spinning and Weaving Co. Ltd. , and Others. Mahajan]. 1953 Dwarkadas Shrinivas of Bombay v. Th• Sholapur Spinning and it'eaving Co. Ltd. , and Others. Mahqjan J. 712 SUPREME COURT REPORTS Ll954 J 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 ad vantage 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 Massa- 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 unconsti- tutional. 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 controversv.
It amounts to little more than the negative poV,:er 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 execu- tion of the statute, hut the acts of the official, the statute notwithstanding". The rule stated above has apposite application LO this case. The plaintiff and the other preference share- holders are in imminent danger of susta111111g direct injury as a result of the enforcement of this Ordinance, the clireet injury being the amount of the call that they are called upon to pay and the consequent forfeiture of their shares.
Not only would they lose (1:1 262 U. S. 447. S. C. R. SUPREME COURT REPORTS 713 their shares, if they do not meet the demand, but they would also have to pay the amoum of the call. My brother Das elaborately dealt with this question in Chiranjit Lat's case( 1 ), and made reference to all the cases that were cited by the Attorney-General on this subject, viz. , McCabe v. Atchison ( '); /effrey Manu- facturing Co. v. Blagg( 3 ) ; Hendrick v. Maryland( •) ; . Newark Natural Gas & Fuel Co. v. The City of . Newark(') ; 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 mpst 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 (' ), and Buchanan v. Warley ( '). 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 workqs 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 persorn.
A white 111an sold his property in such a block to a Negro under a contract which provided that the pur- chaser 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. (2) 235 u. s. 151, (3) 235 u. s. 571, (4) 235 u. s. 610. ! r-95 S. C. l. /59 (5) 242 U. S. 403. (6) 239 U. S. 33. (7) 245 U. S. 60. 1953 Dwarkadas Shrinivas of Bombll)I v. The Sholapur Spinning and WeavingCo. lJd. , and Others. Mahajan J . 1953 &- Dwarkadas S hrinivas of Bombay v. T Ml/ilwlapur JSpi,nning and '1-Veaving Co. Ltd. , and Others. Mahajan J. 714 SUPREME COURT REPORTS [1954 \ 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 tlle case of Darnell v. The State of Indiana ( 1 ). That is tlle only case in which a share- holder was not heard to complain in his own name when the Ordinance infri>l. gcd 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 enforce- ment of the Ordinance but the situation of a partly paid up preference shareholder as in this case is quite different and distinguishable and in my judgment the apposite rule to apply to tlle present case is the one laid down in the cases of Truax v. Raich ( 2 ) and Buchanan v. Warley(' ). 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 plea that the Ordinance being void against the company the direc- tors 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 (! ) 226 U. S. 388. (2) 23g U. S. 33. (3) 245 U. S. 60. . :S. C. R. SUPREME COURT REPORTS 715 is void as it infringes the company's fundamental right under article 31 (Z). 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 can- not 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 Chiraniit Lal's case(') 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 .......... I 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, there wDkildas Shrinivas of Bombay v. Th4 S/wlapur Spinning and ) J1le. :uring Co. Ltd. and Others. Das]. 1953 Dwarkad-. s Shriniva1 of BOmb'IJ v. The S! wlapur Spinning and We. ,ving Co· Ltd. , and Others Dos]. 722 SUPREME COURT REPORTS [1954] 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 pre- ference 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 ~ave made a call for the payment of Rs. 50 on each preference share and the plaintiff appellant alone will have to pay Rs. 1,62,200 on rus· 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 pro- perty 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 caJI, 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 liability or risk cannot, therefore, be said to be the direct or even indirect result of the State having through the direc- tors 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 pre- ference 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 argument, however, overlooks the purpose (>) [1950] S. C. R. 869. S. C. R. SUPREME COURT REPORTS 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, there- fore, 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 gentle- men 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 tl1e payment of the call by proving, if he can, that the persons who have purported to make the call are not the dire,ctors 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 reason- ing, 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 wa·s beyond the legislative competency of the authority which made it or that the Ordinonce 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 tlie property of the company or of the other persons but he is certainly interested in getting out of the law so as to destroy the very founda- tion of the status of the persons who have made the call and thereby repel the attack on him and avoid his own liability. In C! iiranjitlal's case(1) the (I) [rJ50] S. C. R. 869. 1953 Dwarkadas Shrinivas of Bombay . v. The Sholapur Spinning and Weaving Co. Ltd-~ and Others. Das].
1953 DwarlcadM Shrini~as of Bombay v. The ShoZ. pur Spinning llJ1d iW taving Co· Ltd·, and Others. Das]. 724 SUPREME COURT REPORTS [1954] 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 funda- mental 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 posi- tion is different. Here the law has made the im- position 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 unconstitu- tional for breach of the fonner's fundamental rights then it follows that these persons are not, in the eye 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 cail. If the said Ordinance stands, the directors appointed thereunder will have authority to make the call which they have done and the appellant's liabilitv 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, distin- guishes this case from Chiranjitlal' s case( 1 ) and it must he held that, in the circumstances of this case, the appel- lant, 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 sharehold- ers, authorised the appointment of directors by the State and made it possible for the directors so appoint- ed 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 l•) [r950) S. C. R. 869. S. C. R.
SUPREME COURT REPORTS 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 consider- ed 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 as to whether the office of manag- ing 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 con- tracts 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 direc- tors 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 com- pany 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 1953 Dwarktldas Shrinivas of BrJm6oy •• Tile S! wlapur Spinning and J-VeavingCo. Ltd. ,, and OthtrJ. Das]. 1953 Dwarkadas Shrinivas of Bombay v. The Sholapw Spinning and Weaving Co· Ltd·, and Other~. Das]. 726 SUPREME COURT REPORTS [19541 has authorised the taking of possession of any properly of the shareholders or of the company. As regards the property of the shareholders the posi- tion is the same as in Chiranj;tlal's case('). 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 pay- ment 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 Go pal Bose's case('). It is said, as was done in Chiranjitlal's case(' ), 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 donbtful 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 dispmed of. In the next place, the State has not taken posses- sion 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 infringe- ment 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 restnctmn< 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 restric- tions in the interests of the general public so as co secure the supply of an essential commodity and to prevent unempolyment. (1) [1950] S. C. R. 869. (2) [1954] S. C. R. 587. S. C. R. SUPREME COURT REPORTS 727 As regards the property of the company also there has been no transfer of title to any such property, volun- tary or involuntary, from the company to the State or its nominee and, therefore, no question arises of any pro- perty 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 Chiranjitla/'s case( 2 ) Mukher- jea J. at pages 903-904 said : "Assuming that this State management was impos- ed in the interests of tl1e shareholders tl1emselves and tl1at the statutory directors are acting as the agents of the company, the possession of the statutory direc- tors could not, it is argued, be regarded in law as possession of the company so long as tliey are bound to act in obedience to the dictates of the Central Gov- ernment ·and not of the company itself in the adminis- tration of its affairs. Possession of an agent, it is said, cannot judicially be the possession of tlie 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 tl1ere 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 <lid not categorically an ex- plicitly 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 tlie company I said : i953 DwaT! cadas Shrinivas ef Bombay v. The Slwlapur Spinning and JVeaving Co· Ltd. , and OtherJ. Das]. 1953 Dwarkada. s Shrinivas of Bombay v, Tm ShDlal'M Spinning and Weaving Co. IJd.
, and Othtrs. Das]. 728 SUPREME COURT REPORTS [1954] "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 direc- tors 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 J. in Pennsylvania Coal Company v. Mahon(') I 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 compen- sation, 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 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 posses- sion falls, it is necessary to keep in mind the circum- stances in which the Ordinance and the Act were passed and to ascertain from their language their immediate (1) 260 U. S. 399· ,, S. C. R. SUPREME COURT REPORTS 729 purpose and ultimate aim and to consider their effect on the rights of the company. It should be remem- bered 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 prejudicialiy 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 provi- sions the full title of the Act is as follows : 1 An Act to make special provision for the proper management and administration of the Shola pur 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 provide, 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 share- holders but that is left entirely . to the unfettered discretion of the Government. The prvisions 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 ta-~J 5. G.
Indiaf39 • 1953 Dwarkadas Shn'nivas of Bombay VJ The Sholapur' Spinning and . Weaving Ca. Lt<h, avd Others. i- DasJ. 1953 DwarJ:adas Shrinivas of Bombay v. T ha Sholapur Spinning and Weaving Co. LJ4. , and Others. Da. s:J 730 SUPREME COURT REPORTS [1954] 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 O" 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 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 under- taking 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 expropria- tion 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 appell&nt is that the Ordinance is unconstitutional and void in that it infringes the fundamental rights of the share- holders under article 14. In Chiranjitlal's case(') 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. :S~C.
R . SUPREME COURT REPORTS 731 . singled out for di&criminatory treatment and · that as equality before the law was denied to this company and 1ts shareholders the Ordinance and the Act -offended the equal protection clause of our C. onstitution. The majority of the Bench, however, took the view that, there being a presumption in favour of the consti- tutionality 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 -0nus 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 (;hiranjitlal' s case( 1 ) • Indeed, the question of dis- crimination 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 obvious! y 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. -I agree with my brother Mahajan that the 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 case5, 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 (t) [1950] S. C. R. 869. 1953 DwarWas SkrinivtU of Bombqy v. Th< Sho/ajJU1 Spinning and Weaving Co. Ltd. , and Others. DasJ. 1953 Dwarkadas · Shrinivas of Bombay v. The Sholapur Spirmin$ and Weaving Co. Ltd. , and Others. Bose J, 732 SUPREME COURT REPORTS [1954J 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) ( £) confers a certain fundamental freedom on all citizens of India, namely, the freedom to acquire, hold 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 (1) reasonable and (2) are in the interests of either the general public or for the protec- tion 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 law- fully permitted to acquire and hold. That concerns article 31. S. C. R.
SUPREME COURT REPORTS 733 Now article 31(1) says that no one shall be deprived of property save by authority of law. That to my mind is straightforward 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 if the rest of the article was not there a man could be deprived of his property by legislative enact- ment 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 compen- sation and either fixes the amount or specifies the principles on which, and the manner. in which, it is to 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 fall 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 clum- ~ily drafted clause. The company here certainly has an interest in a commercial and industrial under- taking 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 rights must be construed broad- ly and liberally in favour of those on whom the rights have been conferred. But in any case, in this instance, 1953 Dwarkadas Shrinivas of · Bombay. v. Th• Siwlapur Spinning and Weaving Co. Ltd. , and Others. Bose]. ) 1953 Dwarkadas Shrinivas of BombaJ v. The Slwlap"' Spinning and Weaving Co. Ud. , and Others. Bose]. 734 SUPREME COURT REPORTS [1954} these words have to be read along with the word "deprived" in clause (1). In my opinion, the posses- sion 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 substan- tial 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 un- essential. 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 interst 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 employ- ment 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 non-statutory bodies of their interests in property in the sense explained above they must pay compensation. They cannot evade their own duties by fathering their obligations S. C. R. SUPREME COURT REPORTS 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 appli- . cability 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 Ordinapce and Act have not been made for the pro- motion of. public health nor to prevent danger to life and property. In my opinion, Chiraniit Lal's case(') is distinguish- able. 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 com- pany, 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. (') [1s50] S. C. R. 863. 1953 Dwarkadar Shrinivas of Bombay v. - The Slwlapu-r Spinning and Weavin~ Co. Ut!. , and Others. Bose J• 1953 Dwarkadas Shrinfras of Bombay •• The Sholapur Spinning and , Weaving Co. Ltd. , and OtherJ. Ghul•m Hasan J.
736 SUPREME COURT REPORTS [1954] My learned brother has distinguished, and if I may say so with respect successfully, the decision in Chiranjit Lal's case(') 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 sbareho Ider 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 nomi- nated 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 relev- ant provisions of tbe in1puzncJ P ... ct a:vl I have no hesitation in agreeing with him that the Act in sub- stance robs the company of every vestige of right except what has been laconically called the husk of title. I agree, therefore, that tbe impugned Act over- steps 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 ~ place in Part ! II Gf the Comt::,,_ tion which deals with fundamrntal •ights. It " 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 (I) [I950] s. c. R. 869. • S. C. R. SUPREME COURT REPORTS 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) em- bodies 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 inva- sion 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) whLch confers upon a citizen only the right to acquire, hold and aispose of property and is different in scope and content. Article 31 is self- contained and ( 1) refers to deprivation of property in 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 interfores with the right of enjoyment of property, it wrn, 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 ! 953 Dwarkadas Shrinivas of Bombay v. The _Sholapur Spinning and Weaving Co. Ltd. , and Others. Ghulam Hasan J. 1953 Dwarkadas Shrinivas of Bombay v. The Sholapur spinning and Weaziing Co. Ltd. , and Others. 1954 Jan. 22. 738 SUPREME COURT REPORTS [1954)' to our Parliament to deprive a person of his property merely by passing an Act. The two parts of the article form an integral whole and cannot be dis- associated from each other. The result is that I agree with the order proposed by my learned brother. Appeal allowed. Agent for the appellant : /. N. Shroff. Agent for respondents Nos. 1 to 4 and 6 to 8 ~ Rajinder Narain.
Agent for respondent No. 9 : G. H. Rajadhyaksha. K. S. RASHID AND SON ti. THE INCOME-TAX INVESTIGATION COMMISSION, ETC. (With connected appeals) [MEHR CHAND MAHAJAN C. J. , MuKHERJEA, S. R. DAs, VIVIAN BosE and GHULAM HASAN JJ. ] Constitution of India, art. 226-/urisdiction of Punjab High Court to issue writs to Income-tax Investigation Commission located in Delhi-Remedy under art. 226-Discretionary-Taxation on Income (Investigation Commission) (Act XXX of 1947), ss. 5 and 8(5). The Punjab High Court has jurisdiction to issue a writ under art. 226 of the Constitution to the Income-tax Investigation Commission located in Delhi and investigating the case of the petitioner under 5 of the Taxation on Income (Investigation Com- mission) Act, ·1947, although the petitioners were assessees within the U. P. State an<l their original assessments were made by the Income-tax authorities of that State.
Article 226 of the Constitution confers on all the High Courts new and very wide powers in the matter of issuing writs which they never possessed before. There are only two limitations placed upon the exercise of such powers by a High Court ; one is that the power is to be exercised "throughout the territories in relation to which it exercises jurisdiction", that is to say, the writs issued by the court cannot run beyond the territories subject to its jurisdiction. The other is that the person or authority to whom
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