SWADESHI COTTON MILLS v. UNION OF INDIA

Citation: [1981] 2 S.C.R. 533

Court: Supreme Court of India

Bench: R.S. SARKARIA, D.A. DESAI, O. CHINNAPPA REDDY

Case summary

Judgment text

SWADESHI COTTON MILLS v. UNION OF INDIA January 13, 1981 (R. S. SARKARIA, D. A. DESAI AND 0. CHINNAPPA REDDY, JJ. ] Industries (Development and Regulation) Act, 1951, (65 of 1951) Ss. IBA (I)(b), IBAA(I)(a)-Taking over a/ an industrial undertaking-Opportunity of being heard-Whether and when to be given-Denial of opporttuzity-Whethcr vitiates order--Opinion of take-over by Government-Whether liable to judicial scrutiny. Arl111inistrati\'C Law-Do(·trine of iYatural Justice-JVJ:at i~-Whe11 applicnble-PrP-decisional and post-d'ecistianal hearing-When 1uises. The Industries (Development and Regulation) Act, 1951 empowers the Unio! l of India in the public interest to take under its control the industries specified in the First Schedule to the Act. Item 23 of the First Schedule relates to • textiles of various categories.

Section 15 authorises the Central Government to make or cause to be made a tull and complete investigation into the circumstances of the case if the • ·:I Central Government is. of the opinion that (a) in respect of any scheduled industry or industrial undertaking or undertakings (i) there has been, or is likely to be, a substantial fall in the volume of production for which, having regard to the economic conditions prevailing, there is no justification; or (ii) there has been, or is likeJy to be, a marked deterioration in the quality of any article... which could have been or can be avoided; or (iii) there has been or is likely to be a rise in the price of any article..... for which there is no justification; or (iv) it is necessary to take any such action for the purpose of conserving any resources of national importance; or (b) any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest.

After the investigation is made under section 15, section 16(1) empowers the Central Government if action is desirable, to issue appro~ priate directions, and section 16(2) provides for the issue of interim directions by the Central Government pending investigation under section 15. Chapter III-A consisting of Sections IBA, IB-AA, 18-B, IB-C, 18-D, 18-E and 18~F deal with "direct management or control of Industrial Undertakings by Central Government in certain cases". Sec.

18-A empowers the Central Government by notified order, to authorise any person or body of persons to take over the management of the whole or any part of an industrial undertaking or to exercise in respect of the whole, or any part of the· undertaking such functions of control as may be specified in the order, if the Central Government is of opinion that : (a) an industrial undertaking to which directions have been issued in pursuance of section 16 has failed to comply with such directions, or (b) an industrial undertaking in respect of which an investigation has been made under 'T•J,~. section 15 is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest. Section 18AA(5) stipulates that the provisions of Sections 18-B to 18·E shall be applicable to the industrial undertaking in respect of which an order has been made under section 18-AA even as they apply to an industrial under·· taking taken over under Section 18-A.

Section 18-F empowers the Central Government to cancel the order made under section 18-A if it appear& that the purpose of the order has been fulfilled or it is not necessary that the orde( should remain in force. The appellant M/s. Swadeshi Cotton Mills was taken ove. r by the Government of India by a notification dated April 13, 1978 in exercise of the powers 1 conferred on it under clause (a) of sub-section (1) of section ! SAA of the Indu;tries (Development and Regulation) Act, 1951 on the ground that the company had by creation of encumbrances on the assets of its industrial under..

takings, brought about a situation which had affected and is likely to further affect the production of articles manufactured or produced by it and that immediate action i~ ne·;~s~ary to· prevent such a situation, The Government authorised the Natiollal Textile Corporation Limited to take over the management, subject to the conditions that the authorised person shalt comply \Vitb all the directions issued from time to time by the Central Government and that the authorised person shall hold office for a period of five years. The appellant Mills challenged the aforesaid order in a writ petition in the 1-Iigh Court.

The case was heard by a Full Bench of five Judges to consider the question whether in construing section 1SAA of the Industries Development and Regulation Act, 1951, compliance with the principle of audi alteram partem is to be implied and whether hearing is to be given to the· parties who would be affected by the order to be passed prior to the passing of the order or whether hearing can be given after the order is passed and whether the order passed under \ the said Section i~ vitiated by not giving of such hearing and whether such vice can be cured. If' The Bench by a majority answered the three questions as follows :- J. (a) Section lSAA(l)(a) (b) excludes the giving of prior hearing to the pa tands lt impliedly displaced by the language scheme, setting and t_he purpose of the •• provision in section 18AA. (2) Section 18AA on its plain tenn. i;; deals with .... situations where immediate preventive action is required.

The paramount con- V' cern is to avoid serious problen1s which may be caused by· fa1l in production. '·j( The purpose of an order under section 18AA is not to condemn the owner but te> p~otcct the scheduled industry. The issue under section 18AA is not solely between the Government and the management of the industrial undertaking. The object of taking action under this Section is to protect other outside interests i' of the community at large and the workers. (3) The rule of natural justkc to give. a hearing has been incorporated in section 18-F which gives an oppor- H tunity of a post-decisional hearing to the owner of the undertaking who if he feels aggrieved can on his application be heard, to show that even the original order under section 18AA was passed on invalid grounds and should be cancelled or rescinded.

(4) On a true construction of section 18AA read with section 18-F the requirements of natural justice and fair play can be read into the statute • only insofar as conforn1ance to such canons can reasonably and realistically • be required 0f it by the provision for a remedial hearing at a subsequent stage. (5) l. Jnder section 18-F the Central Government exercises curial functions and that Section confers on the- aggrieved owner a right to apply to the Government to cancel the order of take-over. This section casts an obligation on the Central Government to deal with and dispose of an application filed thereunder with reasonable expedition. Allo\ving the appeal by the Company, HELD : (Sarkaria & Desai, JI. per Chinnappa Reddy, J. dissenting. ) In the facts and circumstances of the instant case, there has been a noncompliance with the implied requirement of the audi alteram parten1 rule of i.. SWADESHI COTTON MILLS V. UNION 537 natural justice at the pre-decisional stage.

The impugned order could be struck down as invalid on that score alone. But in view of the commitment/ concession that a hearing would be afforded to the Company, the case is remitted to the Central Government to give a full, fair and effective hearing. • [587G·H, 588Cj 1. 1he phrase 'natural justice' is not capable of a static and precise definition. It cannot be imprisoned in the straight-jacket of a cast-iron formula. Rules of natural justice are not embodied rules. Hence not possible to make an exhaustive catalogue of such rules. Two fundamental maxims of natural justice have, now become deeply and indelibly ingrained in the conlillon consciousness of mankind as pre-eminently nece:;sary to ensure that the law is applied impartially objectively and fairly. These twin principles are (i) audi alteram partem and (ii) nemo judex in re sua.

Audi alteram partem is a highly effective rule devised by the f-, Courts to ensure that a statutory authority arrives at a just decision and it is i.. :alcu! atcd to act as a healthy check on the abuse or misuse of power. Its reach l'hould not be nanowc in 1921 by the Horseman family by converting their partnership business into a Private Joint Stock Company. Its capital was raised in 1923 to Rs. 32 lakhs and thereafter in 1945 to Rs. 52. 50 lakhs by issue of bonus shares. In 1946, the Jaipuria family acquired substantiol holding in the Company. Jaipuria family is the present managemcnt. By issue of further bonus shares in 1946, the capital of the Company was increased to Rs. 122. 50 lakhs. In 1948, the paid-up capital of the Company was raised to Rs. 210 lakhs by the issue of forther bonus shares. The subscribed and issued capital consisting mainly of the bonus shares has since remained constant at Rs. 210 lakhs.

In the year 1946, the Company had only one undertaking, a Textile Unit at Kanpur, known as "The Swadeshi Cotton Mills, Kanpur". Between 1956 and 1973, the Company set up and/or acquired five further Textile Units Jn Pondicherry, Naini, Udaipur, Maunath J Bhanjan and Rae Bareilly. Each of these six Units or undertakings of the Company was separately registered in accordance with the provisions of Section 10 of the Industries (Development and Regulation) Act, 1951 (hereinafter called the IDR Act). In addition to these six industrial undertakings, the Company (it is claimed) had other distinct businesses and assets. It holds inter alia 97 per cent shares in the subsidiary, Swadeshi Mining and Manufacturing Company Ltd. , which owns two sugar Mills. The Company claims, it has substantial income from other businesses and activities including investments in its subsidiary and in other shares and securities which include substantial holding of 10,00,000 Equity Shares ~ of Rs.

10/" each in Swadeshi Polytex Ltd. , representing 30 per cent of the total equity capital value of Swadeshi Polytex Ltd. , the intrinsic va1ue whereof exceeds Rs. 5 crores. The Company made considerable progress during the years 1957 • to 1973. The reserves and surplus of the Company increased from Rs. 2. 3 crores in 1957 to Rs. 4. 3 crores in 1973-74, but declined to Rs. 2. 8 crores in 1976-77. The fixed assets of the Company increased from 5. 8 crores in 1957 to 19 crores in 1973-74, but declined to Rs. 18 crores, registering a marginal decrease of Rs. 1 crore in 1976-77. SWADESHI COTTON MILLS v. UNION (Sarkaria, l. ) 543 • The Company maintained separate books of acconnts for each of its six industrial undertakings. From and after April 1973, the Compauy maintained separate sets of books of accounts of the businesses and assets other than of the said six industrial undertakings.

Annual accounts of the six industrial undertakings were first prepared separately in seven sets which were separately audited. The consolidated annual a_ccounts of the Company were then prepared from such aunual accounts at the registered office of the Company at Kanpur, and after audit, were placed before the shareholders of the Company. The Company made over-all profits up to the year 19_69 and even .. thereafter up to 1975. The Balance Sheet showed that the Company suffered a loss of Rs_ 86. 23 lakhs after providing depreciation of Rs. 93. 93 lakhs and gratuity of Rs. 48. 79 lakhs, though the trading results showed a gross profit of Rs_ 56. 49 lakhs. During the year ending March 31, 1976, the Company again suffered a loss of Rs. 294. 82 lakhs after providing for depreciation. The last Balance Sheet and Profit & Loss Account adopted by the shareholders and published by the Company relates to the year ending March 31, 1977. It shows that the Company suffered a loss of Rs. 200.

34 Lakhs after taking into account depreciation of Rs. 73. 27 lakhs which was not provided in accounts. Between 1975 and 1978, the Company created the undernoted encumbrances on the fixed assets : Unit As on As on As on As on Remar:"s 31-3-75 31-3-76 31-3-77 31-3-78 (in lakhs) (in lakhs) I 2 3 4 5 6 (i) Pondicherry 2·40 Nil Nil Nil On fixed assets of Pondicherry Unit (ii) Maunath Bhanjan 11 ·40 5·71 Nil Nil On fixed assets of Maunath Bhan· ': jan Unit. (Iii) Udaipur 2·76 Nil Nil Nil On fixed assets f' of Udaipur Unit. (iv) Kanpur (ICICI) 13·44 9·75 5·95 2·00 On fixed asset of Kanpur Unit (v) Kanpur • Nil 150·00• 150·00 150 ·00 On fixed assets of Kanpur, Mau- ~ nath Bhanjan & I Pondicherry Units for wages and Bank dues . *New encumbrance I 2 3 4 5 6 (vi) Company 67 ·53 68 ·45 59 ·44 59 ·44 On diesel generating sets of Kan- , pur, Naini, Pondicherry, Mannath Bhanjan and Rae- Bareilly Units. (vil) Udaipur Nil 25 ·00• 25 ·00 25 ·00 On fixed assets of Udaipur Unit for gratuity fund.

(viii) Naini Nil Nil 70 ·oo•• 70 ·00 On fixed assets of Naini for gratuity. (ix) Kanpur, Rae 106 ·20 75 ·31 50 ·67 15 ·97 On new machinery Bareilly & Naini of Kanpur, Rae Bareilly & Naini Units under-deferred payment credit. 203·73 334·22 361 ·06 322·41 '. I'he borrowings of the Kanpur, Pondicherry, Naini, Udaipur, Mannath Bhanjan and Rae Bareilly Units of the Company as Oil March 31, 1978 against current assets were Rs. 256. 78, 183. 92, 271. 05, 70. 72, 47. 98 and 55. 82 lakhs respectively. All the encnmbrances on fixed assets (except the encumbrances of Rs. 70 lakhs on the fixed assets of Naini Unit for gratuity funding to get the benefit of Section 44A of the Income-tax Act) were created prior to March 31. 1976. In the accounting year 1976-77, only one new encumbrance was created by the Company on its fixed assets.

The following are statistics of production in each of the six units of the Company during the years 1975-76, 1976-77 and 1977-78 : ':' Name of the Unit 1975-76 1976-77 1977-78 (figures in lakhs) Naini 66 ·13 kgs. 65 ·76 kgs, 72 ·35 kgs. Udaipur 18 ·51 kg! , 18 ·50 kgs. 18 ·60 kgs. • Mannatb Bhanjan 15 ·59 kg!. 16 ·63 kgs. 18 ·49 kgs. Rae Bareilly 12·09 kgs. 13 ·58 kgs. 14 ·00 kgs. Pondicberry 170 ·52 Mtrs. 178 ·77 Mtrs. 176 ·54 Mtrs. Kanpur 318 ·75 Mtrs. 472 ·12 Mtrs. 238 ·22 Mtrs. •New encumbrance. ••No new encumbrance.. SWADESHI COTTON MILLS v. UNION (Sarkaria, 1.

) 545 • On April 13, 1978, the Government of India in exerCise of its power under clause (a) of sub-section (1) of Section 18AA of the IDR Act, passed an order (hereinafter referred to as the impugned order) which reads as follows : "SO 265(E)/l 8AA/IDRA/78-Whereas the Central Government is satisfied from the documentary and other evidence in its possession, that the persons in charge of the industrial undertakings namely, (i) M/s. £wadeshi Cotton Mills, Kanpur, (ii) M/s. Swadeshi Cotton Mills, Pondicherry, (iii) M/s. Swadeshi Cotton Mills, Naini, (iv) M/s. Swadeshi Cotton Mills, Maunath Bhanjan, (v) M/s. Udaipur Cotton Mills, Udaipur, and (vi) Rae Bareilly Textile Mills, Rae Bareilly of M/s. Swadeshi Cotton Mills Company Ltd.

, Kanpur (hereinafter referred to as the said industrial undertakings), have, by creation of encumbrances on the assets of the said industrial undertakings, brougbt about a situation which has affected and is likely to further affect the production of articles manufactured or produced in the said industrial undertakings and that immediate action is necessary to prevent §uch a . situation; Now, therefore, in exercise of power conferred by clause (a) of sub-section (1) of Section !

SAA of the Industries (Development and Regulation) Act, 1951 (65 of 1951), the Central Government hereby authorises the National Textile Corporation Limited (hereinafter referred to as the Authorised person) to take over the management of the whole of the said industrial undertakings, subject to the following terms and conditions, namely :- - (i) The authorised person shall comply with all the directions issued from time to time by the Central Government; (ii) the authorised person shall hold office for a period of five years from the date of publication of this order in the Official Gazette; (iii) the Central Government may terminate the appointment of the authorised person earlier if it CO! JSiders necessary to do so. This order shall have effect for a period of five years commencing from the date of its publication in the Official Gazette. Sd/- R. Ramakrishna Joint Secretary to the Govt. of India (Seal).

" _ On April 19, 1978, three petitioners, namely, the Company through its Joint Secretary, Shri Bhim Singh Gupta, its Managing Director, Dr. Rajaram Jaipuria, and its subsidiary company, named; Swadeshi Mining and Manufacturing Company, through its Directors and Shareholdern filed a writ petition under Article 226 of the Constitution in the Delhi High Cami against the Union of India and the National Textile Corporation to challenge the validity of the aforesaid Government Order dated April 13, 1978. The writ petitiO! l was . further supplemented by subsequent affidavits and rejoinders. The Union of India and the National Textile Corporation Ltd. , who has been authorised to assume management of the undertakings concerned were impleaded, as respondents. The writ petition first came up for bearing before a Divison Bench who by its order dated August 11, 1978, requested the Chief Justice to refer it to a larger Bench.

The case vras then heard by a three Judge Bench who by their order dated October 12, 1978, requested the Hon'ble the Chief Justice to constitute a still larger Bench to consider the question whether a prior hearing is necessary to be' given to the persons affected before the order under Section 18AA is passed. Ultimately, the reference came up for consideration before a Full Bench of five Judges to consider the question, which was reframed by the Bench as under : "Whether in construing Section 18AA of the Industries (Development and Regulation) Act. 1951, as a pure question of law compliance with the principle of audi alteram partem is to be implied.

If so, (a) whether such hearing is to be given to the parties who would be affected by the order to be passed under the said Section prior to the passing of the order; or (b) whether such hearing is to be given after the passing of the order; and (c) if prior hearing is to be normally given and the order passed under the said Section is vitiated by not giving of such ' SWADESHI COTTON MILLS v. UNION (Sarkaria, J. ) 547 • hearing. whe:hcr such vice can be cured by the grant u: a subsequent hearing. " The Bench. by a majority (consisting or Deshpande, CJ. , R. Sacher and M. L. Jain, JJ. ) answered this three fold ques1io11 . ,. , follows · "(I) Section 18AA(J)(a)(b) excludes the giving of prior hearing Lo the party who would be aHectcd by order thereunder. (2) Section 18F expressly provides for a post-decisional hearing to the owner of the industrial undertaking, the ..

management of which is taken over under Section 1SAA to have the order made under Section l 8AA cancelled on any relevant ground. ( 3) As the taking over of management under Scetton J8AA is not vitiated by the failure to grant prior hearing, the question of any such vice being: cured by a grant of a subsequent hearing does not arise. " H. L. Anand and N. N. Goswamy, JJ, however dissented. In the opinion of the minority, in compliance with the principles of natural justice, a prior hearing to the owner of the undertaking was required to be given before passing an order under Section I SAA.

that the second question did not arise as the denial of a prior hearing would not cure the vice by the grant of subsequent hearing, but it would be open to the Court to moderate the relief in such a way that the order is kept alive to the extent necessary until the making of the fresh order to subscn·c public interest, and to make appropriate directions to ensure that the subsequent hearing would be a full and complete review of the circumstances of the take-over and for the preservatLon &nd maintenance of the property during the interregnum. After the decision of the reference. the case was reheard on merits by a Bench of three learned Judges (consisting of Deshpande, C. J. , Anand and M. L. Jain, JJ. ) who by their judgment dated May l, 1979, disposed of the writ-petition. The operative part of the judgment reads as under : - "In the result, the writ-petition succeeds in part, the challenge to the validity of the impugned order fails and to that extent the petition is dismissed.

The petition succeeds in so far as it seeks to protect from the impugned order the corporate entity of the company, the corporate entity of the subsidiary and its assets, the holding of the company in Polytex and the assets and property of the company which arc not referable to any of the industrial undertakings. The respondents are hereby restrained from in any manner interfering with the corporate entity, the assets and property which are • outside the impugned order. The respondents would release from its control and custody and/or deliver possession of any assets or property of the company, which arc not refer· , able to the industrial undertakings in terms of the observations made in paras 46 and 47 of the judgment, within a 8 period of three months from today (May 1, 19791. In the peculiar circumstances the parties would bear their respective costs. " On the application of the Company, the Delhi High Court certified ..

under Article l33 of the Constitution that the case was lit for appeal to this Court. Subsequently, on July 12, 1979, a similar certificate was granted by the High Court to the Union of India and the National Textile Corporation Ltd. Consequently, the Company, the TJnion of India and the National Textile Corporation have filed Civil Appeals 1629, 2087 and 1857 of 1979, respectively, in this Court. All the three appeals will be disposed of by this judgment. The primary, two-fold proposition posed and propounded by Shri F. S. Nariman, learned coumel for the appellant-Company in Civil Appeal 1629 of 1979, is as follows : (a) \Vhether it is necessary to observe the rules of natural justice before iS>uing a notified order under Section ! SAA, or enforcing a decision ur:der Section 18AA, or (b) \\bother the provisions of Section 18AA and/or Section lSF impliedly exclude rules of natural justice relating to prior hearing.

There were other contentions also which were canvassed by the learned counsel for the parties at considerable length. But for reasons mentioned in the final part of this judgn1ent, we do not think it neces- ' sary, for the disposal of these appeals to deal with the same. Thus. the first point for consideration is whether, as a matter of law, it is necessary, in accordance with the rules of natural justice, to give a hearing to the owner of an undertaking before issuing a notified order, or enforcing a decision of its take-over under Section 18AA. Shri Nariman contends that there is nothing in the language, scheme or object of the provisions in Section 1SAA and/or Section ! SF which expressly or by· inevitable implication, excludes the application of the principles of natural justice or the giving a pre-decisional hearing, adapted to the situation, to the owner of the undertaking.

It is submitted that mere use of the word "immediate" in sub-clause (a) of Section JSAA ( 1) does not show a legislative intent to exclude the SWADESHI COTTON Mii. LS v. UNION (Sarkaria, J. ) 549 ' application of audi a/term partem rule, altogether. It is maintained that according to the decision of this Court in Keshav Mills Company Ltd. v. Union of India('), even after a full investigation has been made under Section of the LD. R. Act, the Government has tc observe the rules of natural justice and fairplay, which in the facts of a particular case, may include the giving of an opportunity to the affected owner to explain the adverse findings against him in the investigation report In support of his contention, that the use of the word "immediate" in Section 18AA(l)(a) does not exclude natural justice, learned counsel has advanced these reasons : (i) The word "immediate" in clause (a) has been used in contradistinction to 'investigation'.

It rn1ly means that under Section ISAA action can be taken without prior investigation under Section 15, if there is evidence in the possession of the Government, that the assets of the Company owning the undertaking arc being frittered away by doing any of the three things mentioned in clause (al; or, the undertaking has remained closed for a period of not less than three months and the condition of plant and machinery is such that it is possible to restart the undertaking. This construction.

that the use of the word "immediate" in Section 18AA(1) (a) only dispenses with investigatio111 under Section 15 and not with the principle of audi alterm partem altogether, is indicated hy the marginal heading of Section: 18AA and para 3 of the Statement of Objects and Reasons of the Amendment Bill which inserted Se atural justice are a misnomer or rather are but a shorthand form of expressing the idea that in those exclllSionary 0 cases nothing unfair can he inferred by not affording an opportunity to present or meet a case. " After referring to several decisions, including the observations of Lord Upjohn in Durayappah v. Fernando, the COllrt explained that mere invocation or existence of urgency does not exclude the duty of giving a fair hearing to the pero;on affected : "It is untenable heresy, in our view, to lock jaw the victim or act behind his back by tempting invocation of urgency, unless the clearest case of public injury flowing from the least delay is self-evident.

Even in such cases a remedial hearing as soon as urgent action has been taken is the next best. Our objection is not to circumscription dictated by circumstances, but to annihilation as an easy escape from benignant, albeit inconvenient obligation. The procedural pre-condition or fair hearing, however minimal, even postdecisio'nal, has rekvance to administrative and judicial gentlemanliness. " • "We may not be taken to .... say that situational modifications to notice and hearing are altogether impermissible. . . . . ... the glory of the law is not that sweeping rules are laid down but that it tailors principles to practical needs, doctors remedies to suit the patient promotes not freezes Life's processes, if we may mix metaphors. '' ......... . SWADESHI COTTON MILLS v. UNION (Sarkaria, J.

) 559 The Court further emphasised the necessity of striking pragmatic bala'nce between competing requirem2nts of acting urgently and fairly, thus: ' "Should the cardinal principle of "hearing' as condition for decision-making be martyred for the cause of administrative, immediacy? We think not. The full panoply may not be there but a manageable minimum may make-do. " " In Wiseman v. Borneman there was a hint of the competitive c:aims of hurry ahd hearing. Lord Reid said: 'Ev•cn where the decision has to be reached by a body acting judicially, there must be a balance between the need for expedition and the need to give full opportunity to the defendant to see material against him (emphasis added). We agree that the elaborate and sophisticated methodology of a formalised hearing may be injurious to promptitude so essential in an election under way. Even so, natural justice is pragmatically flexible and is amenable to capsulation under the compulsive pressure of circumstances.

To burke it altogether may not be a stroke of fairness except in very exceptional circumstances. " The Court further pointed out that the competing claims of hurry and heari'ng can be reconciled by making situationa; modifications in the audi alferam partem rule: "Lord Denning M. R. , in Manward v. Borneman, summarised the obs·~rvations of the Law Lords in this form. No doctrirwire approach is desirable but the Court must be anxious to salvage the cardinal rule to the extent permissible in a given case. After all, it is not obligatory that counsel should be allowed to appear hor is it compulsory that oral evidence • should be adduced. Indeed, it is not even imperative that written statements should be called for disclosure of the prominent circumstances and asking for an immediate explanation orally or otherwise may, in many cases be suflicient compliance.

It is eveu cohceivable that an urgent meeting with the concerned parties summoned at an hour's notice, or _in a crisis, even a telephone call, may suffice. If all that is not possible as in the case of a fleeing person whose passport has to be impounded lest he should evade the course of justice or a dangerous nuisance needs immediate abate- ment, the action may be taken followed immediately by a ' hearing for the purpose of sustaining or setting aside the action to the extent feasib}e. It is quite o'n the cards that the Election Commission, if pressed by circumstances may give a short hearing. In any view, it is not easy to appreciate whether before further steps got under way he could have afiorded an opportunity of hearing the paiiies, and revoke the earlier directions ...... All that we need cmpha· size is that the content of natural justice is a dependent variable, not an easy casualty.

" "Civil consequence' undoubtedly cover infraction of not merely property or personal rights but of civil liberties, material deprivations and non-pecuniary damages. In its comprehensive connotation, everything that affects a citizen in his civil life inflicts a civil consequence. " (emphasis added) In 'Muneka Gandhi, it was laid down that where in an emergent 0 situation, requiring immediate action, it is not practicabic to give prior notice or opp01iunity to be heard, the prelimi'nary action should be soon followed by a full remedial hearing. The High Court of Australia in Commissioner of Polzce v. Twws, ibid, held that some urgency, or necessity of prompt action docs not necessarily exclude natural justice because a true emergency situation can be properly dealt with by short measures. In Heatley v. Tasmanian Racing & Gaming Commission, ibid, the same High Court held that without the use of unmistakable language in a statute.

one would not attribute to Parliament an intention to authorise the Commission to order a person not to deal in shares or attend a stock exchange without observing 'natural justice. In circumstances o[ likely immediate detriment to the public, it may be appropriate for the Commission to issue a warning-off notice without notice or stated grounds but limited to' a particular meeting, coupled with a notice that the • Commission proposed to make a long-term order on stated grounds and to give an earliest practicable opportunity to the person affected to appear before the Commission and show why the proposed long term order be not made. As pointed out in Mohinder Singh Gill v. Chief Election Com· missioner and in Maneka Gandhi v.

Union of India, ibid, such cases where owing to the compulsion of the fact situation or the necessity of taking speedy action, no pre-decisional hearing is given but the action is followed soon by a full post decisional hearing to the SWADESHI COTTON MILLS v, UNION (Sarkaria, !. ) 561 , person affected, do not, in reality, constitute a'n 'exception' to the audi alterani partem rule. To call such cases an 'exception' is a misnomer because they do not exclude 'fair-play in action', but adapt it to the urgency of the situation by balancing the competing claims of hurry and ' hearing. '"The necessity for speed'', writes Paul Jackson, "may justify immediate action, it will, however, normally allow for a hearing at later stage. The possibility of such a hearing-and the adequacy of any later remedy should the initial action prove to have been nnjnstified--are considerations to be borne in mind when deciding whether the need for urgent action excludes a right to rely on natural justice.

Moreover, however the need to act swiftly may modify or limit what natural justice requires. it must not be thought 'that because rough, swift or imperfect justice only is available that there ought to be no justice' Prati v. Wanganui Education Board. (1)" Prof. it is to be observed in a case where there has been no investigation at all. We will first notice the case of Kdhav Mills because that is a later decision in which Ambala('s case was referred to. In that case, the validity of an order passed by the Central Government under Section 18A was challenged. By that impugned order the Gujarat State Textile Corporation Ltd. (hereinafter referred to as the Corporation) was appointed as authorised controller of the Company for a period of five years. The Company was the owner of a cotton textile mill. Till 1965, the Company made flourishing business.

After the year 1964-65, the Company fell on evil days and the textile mill of the Company was one of the 12 sick textile mills in Gujarat, which had to be closed down during 1966 and 1968. On May 31, 1969, the Central Government passed ·an order appointing a Committee for investigation into the affairs of the Company under Section 15 of the l. D. R. Act- After completing the inquiry, the Investigating Committee submitted its report to the Goverrunent who thereafter on November 24, 1970, passed the impugned order under Section 18A authorising the Corporation to take over the management of the Company for a period of five years. The Company challenged the order of 'take-over' by a writ-petition in the High Court of Delhi. The High Court dismissed the petit. i,oo.

The main contention of the rcompany before the High Court was that the Government was not competent to proceed under Section 18A against the Company without supplying before hand, a copy of the report of the Tuvestigating Committee to the Company. It was further contended that the Government should also have given a hearing to the Company before finally deciding UQOU take-over under Section 1SA. This contention was pres5ed oh behalf of the Company in spite of the fact that an opportunity had been given by the Investigating Committee to the management and the employees of the Company for adducing evidence and for making representation before the completion of the investigation. On the contentions raised by the Company and resisted by the respondent, in that case, the Court formulated the ' following questions : (1) Is it necessary to observe the rules of natural justice before f enforcing a decision under Section 18A of the Act? (2) What are the rules of natural justice in such a case?

(3)(a) In the present case, have the rules to be observed once during the investigation under Section 15 and then again, after the investigation is completed and action m the report of the Investigating Committee taken under Section 18A ? - (b) Was it necessary to furnish a copy of the Investigating Com- Amittee's Report before passing an order of take-over? Mukherjea, J. speaking for the Court, answered these questions, thus: (1) "The first of these questions does not present any difficulty. It is true that the order of the Government of India that has been challenged by the appellants was a purely executive order embodying on administration decision. Even so, the quei;tion of natural justice does arise in this case. It is too late now to contend that the principles of natural justice need not apply to administrative order or proceedings; i'n the language of Lord Denning M. R. in Regina v. Gaming Board, exparte Beniam(') "that heresy was scotched in Ridge v.

Baldwin" (2) "The second question, however, as to what are the principles of natural justice that should regulate an administrative act or order is a much more difficult one to answer. We do not think it either feasible or even d•csirable to lay down a'ny fixed or rigorous yard-stick in this manner. Th~ concept of natural justice cannot be put into a straight. jacket. It is futile, therefore, to look for definitions or standards of natural justice from various decisions and then try to apply them to the facts of any given case. The only essential point that has to be kept in mind in all cases is that the person concerned should have a reasonable opportunity of presenting his case and that the administrative • authority concerned should act fairly, impartially and reasonably. Where administrative officers are concerned, the duty is not so much to act judicially as to act fairly. See, for instance, the observations of Lord Parker in In re (! ) [1970] 2 W. L. R. 1009.

~WADESHI COTTON MILLS v. UNIQN . (Sarkaria, J. ) 577 ' H. K. (an infa11J). It only means that such measure of natural justice should be applied as was described by Lord Reid in Ridge v. Baldwin as insusceptible of exact defi- ' nition but what a reasonable man would regard as a fair procedure in particular circumstances. However, even the application of the concept of fairplay requires real flexibility. Everything will depend on the actual facts and . circumstances of a case. " (3) (a) "For answering that question we shall keep in mind . . . . . . and examine the nature and scope of the ·~ .. inquiry that had been carried out by the Investigating Committee set up by the Government, the scope and purpose of the Act and rules under which the Investigating Committee was supposed to act, the matter that was being investigated by the Committee and finally the opportunity that was afforded to the appellants for presenting their case before the Investigating Committee.

" (After noticing the object, purpose and content oi the relevant provisions, the judgment proceeded) : ~ "In fact, it appears from n ietter addressed by appellant No. 2 Navinchandra Chandulal Parikh on behalf of the Company to Shri H. K Bansal, Deputy Secretary, Ministry of Foreign Trade and· Supply on 12th September, 1970 that the appellants had come to know that the Government of India was in fact considering ti>' question of appointing an authorised controller under Section 18A of the Act in respect of the appellants undertaking. In that letter a detailed account of the facts and circllimstances under which the mill had to be closed down was given. There is also an account of the efforts made by the Company's Directors to restore the mill. There is no ;tttempt to minimise the finan~ial difficulties of the Company in that letter .... The letter specifically mentions the company's application to the Gujarat State Textile Corporation Ltd. , for financial help . . .

the Corporation ultimately failed to come to the succour of the Company. Parikh requested Government not to appoint an authorised controller and further prayed that the Government of India should ask the State Government and the Gujarat Sta~ Textile pijrporation Ltd. , . to give a financiaf guarantee to the Company ... " "Only a few day6 before this letter had been addressed, Parikh, it appears, had an interview with ·the Minister of · ' Foreign Trade on 26th August, 1970, when the Minister gave him, as a special case, four weeks' time with effect from 26th August, 1970 to obtain the necessary financial guarantee from the State or the Gujarat State Textile Corporation without which the Company had expressed its inability to reopen and run the mill. In a letter of 22 September, 1970, Bansal informed Parikh in clear language that if the Company failed to obtain the necessary guarantee by 26 September 1970, Government was pro· ceeding to take action under the Act.

It is obrious, therefore, that the appellants were . aware all long that as a result of the report of the Investigating Committee the Company's undertaking was going to be taken up by Government, Parikh had not only made writte11 representations • but had also seen the Minister of Foreign Trade and Supply. He had requested the Minister not to take over the undertaking and, on the contrary, to knd his good offices so that the Company could get financial support from the Gujarat State Textile Corporation or from the Gujarat State Government. " •• (emphasis added) "All these circumstano;! s leave in no manner of doubt that the Company had full opportunities to make all possible representations before the Government against the proposed take-over of its mill under Section 18A.

In this connection, it is significant that even after the writ petition had been filed before the Delhi High Court the Government of India had given the appellants at their own request one month's time to obtain the necessary funds to commence the working of the mill. Even then, they failed to do so .... " "There are at least five features of the case which make it impossible for us to give any weight to the appellants complaint that the rules of natural justice have not been observed. First on their own showing they were perfectly aware of the grounds on which Government had passed • the order under Section 18A of the Act. Secondly, they are llot in a position to deny (a) that the Company has sustained such heavy losses that its mill had to be closed down indefinitely, and (b) that there was not only loss of production of textiles but at least 1200 persons had been thrown out of employment.

Thirdly, it is trallsparently clear from the affidavits that the Company was not in a position 1 SWADESHI COTTON MILLS v. UNION (Sarkaria, /. ) 579 to raise the resources to recommence the working of the mill. Fourthly, the appellants were given a full hearing at ' the time of the investigation held by the Investigating Committe and were also given opportunities to adduce evidence. Fihally. even after the Investigating Committee had submit· led its report, the appellants were in constant communion with the Government and were in fact negotiating with Government for such help as might enable them to reopen the mill and to avoid a take-over of their undertaking by the Government. Having regard to these features it is impossible for us to accept the contention that the appellants did not get any reasonable opportunity to make out a case against the take-over of their undertaking or that the Government ha~ not treated the appellants fairly.

There is not the slightest jruitification in this case for the complaint that there has been any denial of natural justice. " "In onr opinion, since the appellants have received a l[) fair treatment and also all reasonable opportunities to make out their own case before Government they ca1uwt be allowed to make any grievance of the fact that they were not given a formal notice calling upon them to show cause why their undertaking should not be taken over or that they had not been furnished with a copy of the report. They had made all the representations that they could possibly have made against the proposed take-over. By ho stretch of imagination, can it be said that the order for take-over took them by surprise. In fact, Government gave them ample opportunity to reopen and run the mill on their own if they wanted to avoid the take-over. The blunt fact is that the a! 'Jiellants just did not have the irecessary resources to do so. Insi.

Soli Sorabji, learned Solicitor General, while conceding that statutory silence on the question of natural justice should ordinarily lead to an implication by presumption that natural justice was to be observed, urged that the presumption might be displaced by necessary implication, as for instance where compliance with natural justice might be inconsistent with the demands of promptitude, and delayed action might lead to disaster. The presumption of implication of natural justice was very weak where action was of a remedial or preventive nature or where such action concerned property rights only. In appropriate situations post-decisional hearing might displace pre-decisional natural justice. The statute itself might well P,rovide for a post-decisional hearing as a substitute for pre-decisional natural justice in situations requiring immediate action. Sec.

18-F of the Industries Development and Regulation Act expressly provided for such a postdecisional hearing and the urgency of the situation contemplated by Sec. 18AA necessarily excluded pre-decisional natural justice. There was no reason to belittle the scope of Sec. 18F, so, to exclude a fair post-decisional hearing at the instance of the party affected and consequently, to imply pre-decisional natural justice. Both the learned counsel invited our attention to considerable case-law. I do not propose to discuss the case law as my brother Sakraria has referred to all the cases in great detail. Before I consider the submissions of the learned counsel as to the applicability of • the principles of natural justice, a few prefatory remarks, however, require to be made. 5-152SCI/81 Natural justice, like Ultra Vires and Public Policy, is a branch of the Public Law and is a formidable weapon which can be wielded to secure justice to the citizeu.

It is productive of great good as well as much mischief. While it may be used to protect certain fundamental liberties, civil and political rights, it may be used, as indeed it is used more often than not, to protect vested interests and to obstruct the path of progressive change. In the context of modern welfare legislation, the time ·has perhaps come to make an appropriate distinction between natural justice in its application to fundamental liberties, civil and political rights and natural justice in its application to vested interests. Our Constitution, as befits the Constitution of a Socialist Secular Democratic Republic, recognises the paramountcy of the public weal over the private interest. Natural justice, Ultra Vires, Public Policy, or any other rule of interpretation must therefore, conform, grow and be tailored to serve the public interest and respond to the demands of an evolving society. In Ridge v.

Baldwin('), it was thought by Lord Reid that natural justice had no easy application where questions of public interest and policy were more important than the rights of individual citizens. He observed : "If a Minister is considering whether to make a scheme for, say, an important new road, his primary concern will not be with the damage which its construction will do to the rights of individual owners of land. He will have to consider all manner of questions of public interest and, it may be, a number of alternate schemes. He cannot be prevented from attaching more importance to the fulfilment of his policy than to the fate of individual objectors, and it would be quite wrong for the Courts to say that the Minister should or could act in the same kind of way as a board of works deciding whether a house should be pulled down. " And, as pointed out by a contributor in 1972 Cambridge Law Journal at page 14 : ". . . . . .

the safeguarding of existing rights can after all in some circumstances amount to little more than the fij! hting of a rear-guard action by the reactionary element in society seeking only to preserve its own vested position. " The United States Supreme Court has recognised the distinction between cases where only property rights are involved and cases where • other civil and political rights are involved. In cases where only (I) [1964) AC 40, SWADESHI COTTON MILLS v. UNION (Chinnappa Reddy, !. ) 591 ' property rights are involved postponement of enquiry has been held not to be a denial of due process, vide : Annie G. Phillips v. Commis- 2 sioner of Internal Revenue('), John H. Fahey v. Paul Mallonee( ), • Margarita Fuentes v. Robert L. Shevin, Attorney General of Florida('), and Lawrence Mitchell v. W. F. Grant Co. ( Vermnent could then, without giving further effect to the order under Sec. 18-AA, give a notice to the person incharge to show cau~e why the order under Sec.

18-AA should not be given effect. In another given case, according to Shri Nariman, notice of, say two. weeks, might be given before making an order, if the making of an order was not so very urgent. He suggested that the opportunity to be given might vary from situation to situation but opportunity there must be, either before the decision was arrived at or so shortly after the decision was arrived at and before any great mischief might result from the order. The argument of Shri Nariman would vest in the Government a power to decide from case to case the extent of opportunity to be given in each individual case and, as a corollary, a corresponding right in the aggrieved , party to claim that the opportunity provided was not enough. Such a procedure may be possible, practicable and desirable in situations where there is no statutory provision enabling the decision making authority to review, or reconsider its decision. Where there is (1981] 2 S. C. R.

• provision in the statute itself for revocation of the order by the very authority making the decision, it 31Ppears to us to be unnecessary to insist upon a pre-decisional observance of natural justice. The question must be considered by regard to the terms of the statute and by an examination, on the terms of the statute, whether it is possible, practicable and desirable to observe pre-decisional natural justice and whether a post decisional review or reconsideration provided by the statute itself is not a sufficient substitute. The likelihood of production being jeopardized or the stoppage of production in a key industrial undertaking is a matter of grave concern affecting the public interest. Parliament has taken so serious a view of the matter that it has authorised the Central Government to take over the mana_gement of the industrial undertaking if immediate action may prevent jeopardy to production or restore production where it has already stopped.

The necessity for immediate action by the Central Government, contemplated by Parliament, is definitely indicative of the exclusion of natural justice. It is not as if the owner of the industrial undertaking is left with no remedy. He may move the Central Government under Sec. 18-F to C'ancel the order made under Sec. 18-AA. True some mischief affecting the management and top executives may have already been done. On the other hand, greater mischief affecting the public economy and the lives of many a thousand worker may have been averted. While on the one hand mere property rights are involved, on the other vital public interest is affected. This ...... again, in the ligjit of the need for immediate action contemplated by Parliament, is a clear pointer to the exclusion of natural justice.. lLwas submitted by the learned counsel that Sec.

18-F did not provide any remedy but merely prnvided for cancellation of an order of take over on the fulfilment of the purpose of the order of take over or (I for any other reason which rendered further continuance in force of the order unnecessary because of the happening of subsequent events. According to the learned counsel the basic assumption of Sec. 18-F was the validity of the order nnder Sec. 18-A or Sec. 18-AA. All that Sec. 18-F did was to prescribe conditions for the exercise of the general power which every authority had under Sec. 21 of the General Clauses Act to cancel its own earlier order. It was said that if Sec. 18-F could be said to impliedly exclude natural justice there is then no reason not to hold that Sec. 21 of the General Clauses Act similarly excluded natural justice in every case. I am unable to agree with these submissions of the learned counsel. Neither Sec. 18-F of the Industries , (Development and Regulation) Act nor Sec.

21 of the General Clauses Act, by itself, excludes natural justice. The exclusion of natural justice, where such exclusion is not express, has to be implied by reference SWADESHI COTTON MILLS v. UNION (Chinnappa Reddy, J. ) 599 ' to the subject, the statute and the statutory situation. Where an express provision in the statute itself provides for a post decisional hearing the other provisions of the statute will have to be read in the light of such provision and the provision for post decisional hearing may then clinch the issue where pre-decisional natural justice appears to be excluded on the other terms of the statute. That a post-decisional. hearing may also be had by the terms of Sec. 21 of the General Clauses Act may not necessarily help in the interpretation of the provisions of the statute concerned. On the other hand even the general provision contained in Sec.

21 of the General Clauses Act may be sufficient to so interpret the terms of a given statute as to exclude natural justice. As I said it depends on the subject, statute and the statutory situation. I am, therefore, satisfied that the principles of natural justice are not attracted to the situations contemplated by Sec. 18-AA of the Industries (Development and Regulation) Act. In view of the orde~ proposed by my learned brothers Sarkaria and Desai JJ. I do not propose to consider the other questions. ORDER As per majority decision, the appeals are allowed. N. K. A. Appeals allowed. \ ,>'.