THE ISHWARI KHETAN SUGAR MILLS (P.) LTD. & ANOTHER ETC v. THE STATE OF UTTAR PRADESH & ORS. ETC

Citation: [1980] 3 S.C.R. 331

Court: Supreme Court of India

Bench: V.R. KRISHNA IYER, S. MURTAZA FAZAL ALI, D.A. DESAI, R.S. PATHAK, A.D. KOSHAL

Case summary

The Ordinance and the Act were challenged in the High Court on the following grounds : Tho appellants' writ petitions before ther High Court impugning the constitutional validity of the Act were dismissed.

Judgment text

,, 331 THE ISHWARI KHETAN SUGAR MILLS (P. ) LTD. f & ANOTHER ETC. v. THE STATE OF UTTAR PRADESH & ORS. ETC. • April 2, 1980 [V. R. KRISHNA IYER, S, MURTAZA FAZAL ALI, D. A. DESAI, 8 R. S. PA ntrol of tho Central Government because the Corporation wonld be amenable co the authority and jurisdiction of the Central Government. Therefore, the. :a i• no conJlict between the impugned legislation and the control exercised hy the Central Government under the provisions of the Central Act. [340 H-341 A;. 344 C-G, 345 DJ There is no force in the argument that thlj power of acquisition under Entry 42, List ill is incidental to tho power to legilJlate in respect of various topic; in the lists and, therefore, when the Union assumed control over the· declared industry such control comprehends the power to acquire and henco the power of tho State Legislature to enact legislation for acquisition of property of scheduled undertakings would be denuded.

By the Constitution (Seventh· Amemmeni) Act, Entzy 33 in List I and Entry 36 in List II were deleted and a single comprehensive Entry 42 in List IIll (acquisition and requisitioninir of property) was added. The power to acquire property can now be exercised· concurrently by tho Union aud the States. After the substitution of Entzy 42 in List III it cannot be said that the power of acquisition and requisitioning of prOperty is incidental to the other power. It is an independent power provided foc in a specific entry. Therefore, both the Union and the State would have power of acquisition and requisition of property. [345 E-F; 346 B-EJ Thero is a long line of decisions whicll clearly establishes the proposition that power to legislate for acquisition of property is an independent and separa. t legislate for acquisition of property remains intact and untramelled except to the extent where on assumption of control of an industzy by a decla1Jttion ..

envisaged in Entry 52, list I a further power of aajuisition is taken over by a specific legislation. [353 H- 354 A] . Ru. rtom Cavasjee Cooper v. Union of India [1970] 3 SCR 530 at 567, Rajamundry Electric Supply Corporation Ltd. v. State of Andlira Pradesh [1954] SCR "• 779. State of Bihar v. Maharajadhiraja Sir Kameshlvar Singh [1952) S. C. R. 88? , State of West Bengal v. Union of ! 11dia [1964] I S. C. R. 371, refe17ed to. The argument that the State legislature tack~d con1petence to enact the impugned legislation is without force. Legislative power of tho State under Entcy 24, List II is eroded only to the extent control -is assumed by the UniOn pursuant to a declaration made by the Parliament in respect of a declared. I ISHWARI KHETAN SUGAR MILLS V. U-P. STATE 333 industry as spelt out by the legislative . ,. ,actment and the field occupied by •uch A. enactment is the measure of erosion.

Subject to such erosion, on the remainder t tre Slate legislature will have power, to legislate in respect of " declared industry wi1hout in any way trenching upon the occupied field. State legislature, which is ·otherwi! ie competent to deal with industry under Entry 24, List II, can • du{ with that industry in exarcise of other powers enabling it to legislate under . till'«ent heads set out in Llsts II and Ill a ld a State legislature rocercising legislative power under an entry other than Enl1l' 24 of List II and if in exercise of that legislative power the consequential :transfer of management or conttol over the industry or undertaking follows M: an incident of acquisition such taking over of management or control pursuant to an exercise of legislative power is not within the inhibition of section 20. [355 F, A·El The challenge to the validity of the impugned legislation on the . gronnd of viQlation of Article 31(2) must fail.

At the time of acquisition the scheduled nnderiakings had a1 heavy backlog of carry forward losses, they failed I<> pay the J& growers the price of cane purchased, the labour was not paid as a result of which there was labour unrest. The situation did not improve etven when some of ! he undertakings were taken over under the Central Act acd a drastic remedy was called for in public interest and while applying that drastic remedy of acquisition tho principles which are valid foc determining the value of machinery wero adopted. The adequacy or otherwise of compensation on thei calculus made by applying the principles is beyond iudicial review. [360 C, 359 H· p 360 Bl Rustom Cavasjee, Cooper v. Union of India [1970] 3 SCR 530 at 567, Vajra, velll Mudafiar v. Special Deputy Collector of Land Acquisition West Madras [19651 1 SCll 614, Union of India v. Metal Corpoi·aticn of India Ltd. & Anr. [1967] • 1 sat 256, State of Guiarat v. Shanti/at Manga/das & Ors.

[1969] 3 SCR 341 and His Holiness Kesavananda Bharati 'Sripadagaivaru v.. State of Kerala [1973] Suppl. SCR 1 referred to. rathak & Koshal II (concurring in the result) 1 It is not necessMy in' this case to express any opinion on the question whether the declaration made by Parliament in section 2 of the Industries (Development arui Regulation) Act, 1951 in respect of the indust~ies specified in the Firsq iclteduie to that Act can be regarded as limited to removing from the scope of Enli:v 24 of List II of tho Seventh Schedule to the Constitution only so much of tire legislative field as is covered. by the subject matter and content of thlit Act or it can be reg&rded as effecting the removal from that entry of the entire legislature field embracing all matters pertaining to the industries specified in the declaration.. The controversy in the prese1n. t case can be adeqUately disposed of on the ground that .

the legislation falls within Entry 42 of rm m and cannot be related to Entj 52 of List I or Entry 24 of List n. [362 E-F, 363 BJ · • The Hingir Rar. zpur Coal Co. Ltd. and Others v. The State of Oris. ra and Other. [1961] 2 SCR 537, State of Orissa v. M. A. Tulloch and'Co. [1964] -4 SCR 461, Baijnath Kedia v. State of Bihar & Ors. and Stale of Haryana &: Anr~ v. Chanan Mal, etc. [1976] 3 SCR 688 held inapplicable. Civrr. APPELLATE JURISDICTION: Civil Appeal Nos. 1614, 1652 and 1637 of 1979. Appeals by Special Leave from the Judgment and Order dated 3-5-1979 of the Allahabad High Court in Civil Misc.. Writ Nos. 4170/71, ~130171 and 4193/71. AND PETITIONS FOR SPECIAL LEAVE TO APPEAL (CIVIL) Nos. 6246, 6252, 6373 & 8050/79. From the Judgment and Order dated 3-5-1979 of the Allahabad High Court in Civil Misc. Writ Nos. 4150, 4173, 4793 and 4422/71. · F. S. Nariman, Bhaskar Gupta, Rajesh Khaitan, Rohington Nariman and P. R. Seethrama for the Appellants in CA 1614/79. A. K.

Sen, Manoj Swarup, Miss I,alita Kohli and S. K. Srivastava for the Appellants in CA No. 1652/79 and SLPS. 6146 and 6373/79. . "" R. A. Gupta for the Petitioner in SLP No. 6252/79. N. N. Sharma and N. N. Kacker for the Petitioner in SLP No. · 8050/79. Lal Narain Sinha Att. GenL in C. A. 1614. Rishi Ram Adv. General, U. P. in C. A. 1652. Raju. Ramchandran and 0. P. Rana for the RespondentS in All the Appeals. Th~ Judgment of V. R. KriShna Iyer, S. Murtaza Fazal Ali and D. A. Desai, JJ. was delivered by Desai, J. , R. S. Pathak, J. gave a separate Opinion on behalf of A. D. Koshal, J. and himsel[ • DESAI, J. -Acquisition of industrial undertakings involved in. manufacturing sugar, a commodity satisfying the basic necessity, in larger public interest and the attempt of the owners of the undertakin~ to thwart the same, paints the famili_ar landscape in this group of appeals. As a sequel to the serious problems created by the owners of certain sugar mills in the State of Uttar.

Pradesh for cane growers and labour employed in sugar mills, having an adverse impact on the general economy of tbe areas where these sugar mills were-situated and with a view to ameliorating the situation posing a threat to tlie economy, ISHWARI Kl! ETAN SUGAR MILLS v. U. P. STATE (Desai, J. ) 335 the Governor of Uttar Pradesh promulgated an Ordinance on July 3, 1971, styled as U. P. Sugar Undertaking (Acquisition) Ordinance, 1971 f (13 of 1971) ('Ordinance' ~ot short), with a view to transferring and vesting sugar undertakings set out in the Schedule to the Ordinance in the U. P. State Sugar Corporation Ltd. ('Corporation' for short), Government Company within the meaning of s. 671 of the Companies • Act, 1956. Subsequently, by U. P. Sugar Undertakings (Acquisition) Act, 1971, (U. P. Act 23 of 1971) ('Act' for short), the Ordinance was repealed and was replaced. Schedule to the Act enumerates 12 sugar undertakings (referred to as 'scheduled undertakings') and by the operation of s.

3, these scheduled undertakings stood transferred to and vested in the Corporation from the appointed day, i. e. July 3, 1971, the date on which the Ordinance was issued. On . the promulgation of the Ordinance 11 writ petitions were filed in the Allahabad High Court under Article 226 of the Constitution challenging the constitutional validity of the Ordinance and when the Act replaced the Ordinance f ' effective from August 27, 1971, the writ petitions were amended incorporating the challeng(\ to the Act also. The Ordinance and the Act were challenged in the High Court on the following grounds : (1) The State legislature had no legislative competence to enact it; (2) The Act violated Art. 31 of the Constitution because the acquisition was not for a public purpose and the j compensation proposed in the Act was illusory; (3) The Act was in breach of Art. 19(l)(f) and (g) of the Constitution; (4) The Act infringed the gurantee of equality enshrined in Art. 14 of the Constitution.

A Division Bench of the High Court by a common judgment dated May 3, 1979, repelled the contentions on behalf of the petitioners and upheld the constitutional validity of the Act. Hence these appeals by the original petitioners, the owners ,of the scheduled undertakings. • Mr. F. S. Nariman, learned counsel who led on behalf of the appellants, confined his attack to two grounds : (a) U. P. State legislature lacked legislative competence to enact the impugned Act; and (b) compensation awarded f. or acquisition in violative of Art. 31 (2) as it stood prior to its amendment by the Constitution (Twentyfifth Amendment) Act, 1971, which came in. to force on April 20, 1972. Mr. R. A. Gupta who appeared in SLP. 6252/79, canvassed an additional contention that the impugned Act is viplative of Art. 14 inasmnch as those similarly situated and similarly circum9tanced sugar undertakings have 336 SUPRE)'dE COURT. REPO)lTS 11980] 3 S. C. R.

not been acquired and the petitioners' scheduled undertakings hav• ~=~ single~. d out for a drastic treatment of take-over by way of acqtlfsi- The m ·n thrust of the attack was that the U. P. Legislature Jack,ed legislative . ompetence to enact the impugned Act. There were two • distinct limbs of this submission which would be examined separately. The first limb of the submission was that in exercise of legislative power flowing frr: Entry 52 Llst I the Parliament made the requisite declara~ • tion ins. of the Industries (Development and Regulation) Act, 1951 ' ('IDR Ac for short), and in view of placitum 25 of the first schedule to the ID . Act sugar being a declared industry, that industry goes out pf Entry 24 List II, and hence U. P.

State legislature was denuded of all legislative power to legislate in respect of sugar industry and as the impugned legislation is in respect of industrial undertaking in sugar industry, thel impugned legislation is void on account of legislative incompetence. 'Ij:e learned Attorney General countered it by saying that the power to acquire property derived from entry 42 in List III is an independent wwer and the impugned Act being in pith and substance an Act to acquire scheduled undertakings, meaning thereby the properties of the scheduled undertakings, the power of the State legislature to legislate in~·s behalf is referable to entry 42 and remains intact irrespective of the act that sugar is a declared industry, control of which is taken over by th, Union Government pursuant to the declaration made under s. 42 of the IDR Act.

This necessitates an analytical examination of the relevant entries keeping in view legislative perspective and the historical background through which these entries have passed. I Entry i in the Union List reads as under : "7. 1 Industries declared by parliament by law to be necessary for the purpose of defence or for the prosecution • of war. " Entry f2 in the same List reads : " 2. Indusries, the control of which by the Union is decla d by parliament by law to be expedient in the public • 1 interest. " Entry 24 in List II (State List) reads as under : "24. Industries subject to the provisions of entries 7 and - 52 o~ List I. " It may be noted here that entry 33 in List I, entry 36 in Llst II and entry 42 · Llst III were amended bys. 26 of the Constitution (Seventh Amendment) Act by which entry 33 of List I and entry 36 of List II ISHWARI KHETAN SUGAR MILLS V. U. P. STATE (Desai,/. ) 337 were deleted and entry 42 in List Ill was. amended to read as set out liereinabove.

Entry 33 in List I and entry 36 in List II conferred legislative power on the Union and the States respectively for acquisition or I requisitioning of property for its own purpose. Constitution (Seventh Amendment) Act. 1956, which made the aforementioned amendment -was designed to clear the ambiguity about the power of acquisition and • requisitioning of property being not a power incidental to any of the • logislative powers but an independent power by itself. The object be- ·hind the amendment has been thus explained. "The existence of three entries in the legislative lists (33 of List I, 36 of List II and 42 of List III) relating to the essentially single subject of acquisition and requisitioning of property by the Government gives rise to unnecessary technical difficulties in legislation.

In order to avoid these difficulties and simplify the constitutional position, it is propo'sed to omit the entries in the Union and State Lists and replace the entry in the concurrent list by a comprehensive entry covering the whole subject" (see Statement of Objects and Reasons in respect of Constitution (Seventh Amendment) Act, 1956). Having set out the historical background, attention may now be turned t_o the scope and content of legislative power of Union and the -States flowing from entry 52 in List I and entry 24 in List II in respect -0f the topic of 'industry. ' The scope and content of entry 52, List I and entry 24, Llst II has to be demarcated with precision to avoid a possible confusion likely to emanate from an inter-dependence and interaction of the two entries. 'Industry' as a head of legislation is to be found in entry 24, List II with this limitation that it is subject to the provisions of entries 7 and 52, List I.

The difference in the language in which entries 7 and 52 are couched has a bearing on the interruption of entry 52. In the former -case if a declaration is made by the Parliament that the particular industry is necessary for the purpose of defence or for prosecution of the war, parliament would be exclusively entitled to legislate in respect of that industry to the exclusion of State legislatures because the requisite • . declaration will have the effect of taldng out that industry from entry 24, List 11 A declaration by the parliament by Jaw to assume control over any particular industry in public interest is a sine qua 1Wn to clothe Parliament with power under entry 52, List I to legisiate in respect of that industry because otherwise industry as a general head of ·Jegislation is in the exclusive sphere of State legislative activity pursuant to entry 24, List II. Distribution of legislative powers as enacted in . Part XI and Art.

246 clearly demarcate the field of legislative activity J'eserved for parliament and for State legislatures and also the concur- 338 SUPREME COURT REPO'. RTS {1980] 3 S. C. R•. rent list in respect of which both can legislate subject to other provisions. of part XI. Sub-art. (3) of Art. 246 provides that the State legislature has exclusive power to make laws with respect to any of the matters enumerated in List II in the Seventh Schedule. A fortiori, industry being the matter enumerated in List II the State legislature has exolni;ive power to legislate in respect of it and keeping aside for the time • being the words 'subject Ip the provisions of entries 7 and 52 of List I', the State legislature alone can legislate in respect of the legislative head 'industry. ' Ipso fqcto, parliament would not have power to legislate in respect of industry as a legislative head.

Now, entry 52 , List I on its own language do·es not provide field of legislative activity for the Union Parliament J_ unless and until a declaration is made by parliament by law to assume I control over specified industries. The embargo on the power of Parliament to legislate in respect of industry which is in List II would be lifted once a declaration is made by Parliam the character of the Haryana Act by the ·substance and effect of its provisions and not merely by the purpose given in the statement of reasons and objects behind it. Such statements of reasons are rele- J vant when the object or purpose of an enaC:ment is in dispute or uncertain. They can never override the effect which follows logically from the explicit and unmistakable language of its substantive provisions. Such effect is the . best evidence of intention.

A statement of objects and reasons is not a part of the statute, and, therefore, not even relevant in a case in which the language of the operative parts of the Act leaves no room whatsoever as it does not in the Haryana Act, to donbt what was meant by the legislators : It is not disputed here that the object and effect of the Haryana Act was to acquire proprietary right to mineral deposits • in 'land"'. There is thus a long line of decisions which clearly establishes the proposition that power to legislate for acqnisition of property is an independent and separate power and is exercisable only under entry 42, List III and not as a'n incident of th·~ power to legislate in respect of a specific head of legislation in any of the three lists.

This power of the State legislature to legislate for acquisition of property remains intact and untramdled except to the extent where on assumptiou of control of an industry by a declaration as envisaged in entry 52, List I, a further power of acquisition is taken over by a specific legislation. As already pointed ou', in pith and substance the impugned legislation is one for acquisition of scheduled undertakrngs and that field of acquisition is not occupied by the IDR Act which deals with coutrol of management, regulation and development of a declared industry and there is no repugnancy between the impugned legislation and . > the IDR Act. Both can co-exist because the power acquired by the Union under the IDR Act can as well effectively be exercised after the acquisition of the scheduled undertakings as it could be exercised before the acquisition. Therefore. the contention that the State legislature lacked legislative competence to enact the impugned legislation must be negatived.

A faint submission was made that nationalisation of industry as a national policy will have to be determined and enforced by the Union keeping in view i'. s Indmtrial Policy Resolntioh and such piece-meal nationalisation would certainly encroach upon the control assumed by the Union. Impugned legislation does not purport . to nationalise sugar industry in Uttar Pradesh. And th::re is no bar to a Government owned company or Corporation to set up sugar rnanufacturing undertaking under an appropriate licence. Therefore, the \ impugned legislatio'n on this account does not encroach upon the occupied field.

The second limb of the submission was that in any event the impugned legislation was designed and enacted to prevent mismanagement and to take over management of the scheduled undertakings '· as a seqnel to acquisition and it trenches into the field occupied by the IDR Act, a Central legislation, and to the extent acquisition enables the Corporation by vesting of the scheduled undertakings in it to take over control and manag::ment of the scheduled u'ndertakingl', the impugned legislation is void and umnforceable. Scc'. ion 20 of the IDR Act was pressed into service to substantiate the submission. Section 20 of the IDR Act reads as under :- "20. After the commencement of this Act, it shall not be competent for. any State Government or a local anthority to take over the management or control of any industrial undertaking under any law for the time being in force which authorises any such Gov~rnment or local authority so te> do".

Section 20 forbids a State Government or local authority from taki'ng over the ·management or control of any industrial undertaking in declared industry. On a correct interpretation, s. 20 precludes any State Government or local authority from taking over the control or management of any industrial undertaking under any law for the time beiilg in farce which authorises any such Government or • local authority so to do. J The impugned legislation was not enacted for taking over management or control of any industrial undertaking by the State Govern- eaten track of Jegislatjon Qeiiig ;~id as being -"' in contravention of Art. 31 (2) as it stood at the relevant time. The impugned legislation was put on the statute book on August 27, 1971. ' Therefore, Art. 31 (2) as it stood on. the relevant date may be noticed. ~ The Article as amended by Constitution (Twentyfifth Amendment) "·'f ~ Act, 1971, will, therefore, not be attracted. Art.

31 (2) as it stood at the relevant time reads as under . : "31 (2) . No property shall be compulsorily acquired H ' or requisitioned save for a public purpooe and save by authority of a law which provides for compensation for the 3. :. ,. 289SCl/80 property so acquired or requisitioned and either fixes Im amount of the compensation or specifies the principles on which, and the manner in which, the compensation is to be detem1ined and given; and no such law shall be called in question in any court, on the ground that the compensatio)l provided by that law is n_(lt adequate. " Emphasis was placed on the word 'compensation' retained in Art. 31 (2) after_ its amendment by the Constitution (Fourth Amendment) Act, 1955, and a reference, was made to Vajravelu Mudaliar v. Special Deputy Collector of Land Acquisition, West Madras,(')wherein it was held by this Court that even after the amendment of Art.

31 (2) by the Constitution (Fourth Ame'ndment) Act, 1955, it still retains the expression 'compensation' after its judicial interpretation by this Court in several decisions, viz. , to mean just equivalent to the expropriated owner. Reference was then made to Union of India v. 2 Metal Corporation of India Ltd. & Anr. ,( ) in which this Court affirmed the interpretation of the word 'compensation' to mean just equivalent. Approaching the matter from this angle the Court struck down the Metal Corporation of India (Acquisition) Act, 1965, holding that as the Act has laid down different principles for ascertaining the value of different parts of the undertaking and as all the principles so laid down do not provide for the just equivalent of all parts of the undertaking mentioned therein, the sum total also cannot obviously be a just equivalent of the undertaking.

In reaching this \ conclusion exception was taken to assessing the value of the used machinery on the basis of written down value arrived at as per the ' provisions of the Income Tax Act. This observation cannot be said to be any more good law in view of the decision of a Constitution Bench of this Court in State of Gujarat v. Shanti/al Mangaldas & Ors. , (S) wherein Shall, J. , speaking for the Court specifically overruled the Metal Corporation case (supra) observing as under: "The Court then proceeded to hold that the two principles laid down in cl. (b) of Paragraph II of the Schedule to the Act-(i) that compensation was to be equal to the cost price in the case of unused machinery in good condi. - ' tion, and (ii) written down value as understood in the Income-tax law was to be the value of the used machinery were irrelevant to the fixation of the value of the machinery as on the date of acquisition. " (I) [19651 1 S. C. R. 614. (2) [19671 1 S. c. R. 256 (3) [19691 3 S. C. R. 341.

ISHWARI KHETAN SUC! AR MILLS v. U. P. STATE (Desai,!. ) 3 5 7 "We are unable to agree with that part of the judgment. The P. arliament had specified the principles for determining compensation of the undertaking of the company. The principles expressly related to the determination of compensation payable in respxt of unused machinery in good condition and used machinery. The principles were set out • avowedly for determination of compensation. The principles were not irrelevant to the determination of compensation and the compensation was not illusory. '" It thus appears well settled that if a legislation provides principles for determining compensation, to wit, written down value as understood in Income-tax law to be the value of the used machinery, that principle could neither be said to be irrelevant for determining the compensation nor the compensation so awarded could be styled as illusory..

It was, however, said that this decision in Shanti/al Manga/das is overruled in Cooper's case and, therefore, the wheel has moved the full circle and the expression 'compensation' and principle for determining the compensation as interpreted in Vajravelu Mudaliar's case (supra) is restored. This is not borne out by the pertinent observation i'n Cooper's case (supra) which may be extracted : "Both the lines of thought which converge in the ultimate result, support the view that the principle specified by the law for determination of compensation is beyond the pale of I challenge, if it is relevant to the determination of compensation and is a recognized principle applicable in the determination of compensation for property compulsorily acquired and the principle is appropriate in determining the value of the class of property sought to be acquired. On the application of the view expressed in P.

Vajravelu Mudaliar's case or in Shanti/al Mangaldas's case the Act, in our judgment, is liab:e to be struck down as it fails to provide to the expropriated banks compensation determined according to relevant principles. Section 4 of the Act transfers the undertaking of ev~ named bank to and vests it in the corresponding new bank. Section 6 (1) provides for payment of compensation for acquisition of the undertaking and the compensation is to be determined, in accordance with the principles specified in the Second Schedule. Section 6(2) then provides that though separa! e valuations are made in respect of the several matter specified in Sch. II of the Act, the amount of compensation shall be deemed to be a single compensation. Compensation being the equivalent in terms of money of the property compulsorily acquired, the principle for determination of compensation is intended to award to the expropriated owner the value of the property acquired.

The science of valuation of property recognizes several principles or methods for determining the value to be paid as compensation to the owner for loss of his prope1ty : there are different methods applicable to different classes of property in the d~terminatio'n of the value to be paid as recompense for loss of his property. A method appropriate to the determination of value of one class of property may be wholly inappropriate in determining the value of another class of property. If an appropriate method or principle for determination of compensation is ··~ applied, the fact that by the application of another pri'nciple which is also appropriate, a different value is reached, the Court will not be justified in entertaining the contention that ont of the two appropriate methods, one more generons to the owner should have been applied by the legislature. " However, it was pointed ont that Shela! , J. speaking for hintself and Grover, J.

in His Holiness Kesavananda Bharati Sripadagalavaru v. State of Kerala,(') in terms observed as under : "in State of Gujarat v. Shanti/al Mangaldas & Ors. the decision in Metal Corporation of India was overruled which itself was overruled by R. C. Cooper v. Union of India. " The question is whether the statement of law in ShantilaJ Mangaldas (supra) that the principle of awarding compensation on the basis of written down value for used machinery is a valid principle for determining compensation and whether the compensation so awarded was illusory is not overruled by any observation in Cooper's case. Undoubtedly, in Kesavananda Bharati case (supra) it is reiterated by Hegde, J. speaking for hintself and Mukherjeao, J.

that it will be for the aggrieved party to clearly satisfy the Court that the basis adopted by the legislature has no reasonable relationship to the value of the property acquired or that the amount to be paid has been arbi- ' trarily fixed or that the same is illusory return for the property taken. Chandrachud, J. (as he then was), while interpreting the expression 'amount' in the amended Art. 31 (2) observed as under : "The specific obligation to pay an "amount" and i'n the alternative the use of the word "principles" for determi- I nation Qf that amount must mean that the amount fixed or (1) [1973] Suppl: S. CR. 1 determined to be paid cannot be illusory. If the right to f property still finds a place in the Constitution, you cannot mock at the man and ridicule hi~ right. You cannot tell him 'I will take your fortune for a farthing'. " • But in the next breath it has been observed that "the amount fixed for being paid to the owner is wholly beyond the paie of cha!

· lenge that it is i'nadecjuate. The concept of adequacy is directly co-related to the market value of the property and therefore, such value cannot constitute an element of that challenge. " But this was the situation after amendment of Art. 31 (2) by the Constitution (Tvrentyfifth Amendment) Act. Even as the article stood at the relevant time it was open to the legislature to fix pri'nciple for determining compensation and unless it is shown that the principles are irrelevant to the determination of the value of the property or by working out the compensation according to the principles so specified the compensation becomes illusory, the principles themselves are beyond the pale of challenge before a court of law on the ground that they do not provide adequate compensation. Now, here the compensation is worked out and specified in the schedule to the impugned Act. The compensation is determined in rou'nd figure.

This Court has in terms accepted that payment of compensation on the basis of j written down value calculated according to the Income·tax law for used machinery is not irrelevant as a principle for determining compensation. That principle appears to haw been adopted for valuing used machinery though the Jegis! atfon fixes compensation payable to each undertaking in round sum. And that was the only part challenged. It was, however, said that no principle is discernible because not only none was stated on the floor 'Of the House but to a specific question the reply was that principle is not to be disclosed. Debate , in legislature cannot conclude the point. Here the principle is discernible and that appears to be valid. It represents the collective will of the House. To reject it would tantamount to saying that the majority members voted without understanding and appreciating the principles. However, the principle is extracted in court room debate and it i§ a valid principle.

A peep into the background leading to the acquisition of the sche- ~uled undertakings would reveal that these scheduled undertakings had a heavy back-load of carried forward loss, that even though they were taking sugar cane from cane growers, i. e. the farmers, they B' failed to pay them the price of sugar cane. There was labour unrest as labour was not paid. Generally speaking, they can be styled as sick undertakings and become a drag on the economy of the area. There was no scope for ploughing back the profits to rejuvenate the machill! ~ry because there was no profit. The situation had not improV'oo even when managements of some of the undertakings were • taken over under the IDR Act and, therefore, this desparate situation called for a drastic remedy in public interest and while applying that drastic remedy of acquisition principles which are valid for determining the value of machinery were adopted.

The adequacy or otherwise of compensation on the calculus made by applying the principle is beyond the judicial review. It would be a day time hallucination to call such principle irrelevant or compensation illusory. The challenge to the validity of the impugned legislation on the ground of violation of Art. 31 (2) niust accordingly fail. There remain two minor and incidental points mentioned ill passing. The submissions themselves lacked emphasis. They are, that (1) no compensation is provided for the agricultural land taken over by the State; (2) good-will of the scheduled undertakings was not evaluated as a component of compensation. With reference to Ishwari Khetan Sugar Mills (P) Ltd. , it was said that 36 acres of agricultural land belonging to the company owning too scheduled undertaking was taken over without compensation. It was countered by saying that agricultural land is not \ taken over.

It is not clear from the pleadings and record whether agricultural land outside the structures of scheduled undertaking has been acquired and has at all be~n taken over by the Corporation. It may be that between various structures of scheduled undertakings there might be some open land but that is part and parcel of scheduled uncfortakings because any other co'nstruction would show that a passage or road between two constructions could not be acquired. Unless, therefore, it is specifically shown that while acquiring scheduled undertakings agricultural land belonging to the company or the owner owning scheduled undertaking was either acquired or taken over as part of the acquisition it is not possible to accept the sub- ' mission that there was acquisition of agricultural land without providing compensation for the same. And as for the good-will, less said the better. The scheduled undertakings were sick units and the sickness was chronic.

A manufacturing unit with heavy carried forward loss and defaulting in payments, possibly facing appointment of Receivers for realising tax arrears, asks compensation for the good-will generated by it. This good-will appears to be more imaginary than real or an argument to support an untenable submission. But the better answer is that there JSHWARI KHETAN SUGAR MILLS v. U. P. STATE (Desai, l. ) 361 cannot be a good-will of a manufacturing undertaking but it can be f of a company, a partnership, or a proprietor owning scheduled under· taking and neither the company nor the partnership nor the proprietory unit, if any, has been acquired under the impugned legislation. • Therefore, i'n evaluating compensation of the scheduled undertakings there is no question of evaluating the good-will. Mr. R. A. Gupta appearing in SLP. 6252/79 raised an additional contention that the impugned Act is violative of Art. 14 in.

that selection of petitioners' scheduled undertakings for acquisition is wholly arbitrary and there is no difference between those selected for acquisition and those left out through all such sugar, undertakings in the State of Uttar Pradesh were similarly situated and similarly circumstanced. Sustenance was largely sought to be drawn from the Report of Justice Bhargava styled as Sugar Industry Inquiry Commission, 1974, which inter alia, specified 17 sugar undertakings in Uttar Pradesh as prima facie sick sugar mills. After reading out a portion of the Report it was said that classifying the 12 sugar undertakings for acquisition is not based on any intelligible differentia between those included in the group for acquisitiou aud those left out and that this differential treatment has no rational relationship to the object sought to be achieved by the impugned legislation.

On behalf of respondents J learned Advocate-General for the State of Uttar Pradesh countered this contention by pointing out that, before acquiring the scheduled undertakings the Government had a close review of the condition of the sugar undertakings done for certain specific period set out in the affidavit and ascertained whether the situation had become desperate on acconnt of the persistent default in paymen_t of cane price, purchase tax, labour dues, etc. The situation in Uttar Pradesh appears to be peculiar in that cane growers go on selling their cane to sugar undertakings probably having little or no option in this behalf because it is a perishable commodity and must be disposed of as early as possible and they have to await payment at the sweet will, whim and caprice of the sugar barons. Its unhealthy effect on marginal farmers wo'uld be intolerable because the cash crop would not fetch any cash and destitution may be the inevitable outcome.

And this phenomenon was repeated y~ar after year. It was pointed out that a close scrutiny was applied to' this persistent default and where the situation in respect · of sugar undertakings was desj:l\lrate they were classified together and they were sought to be acquired. Can it be said , that this classification is not based on any intelligible differentia. Economic situation of an industrial undertaking may be very good, good, average, bad, intolerable and uneconomic in larger national perspective. It would. have bee·n difficult for the Gove=ent to group all sugar undertakings with such as were living on coramine doses. There does app~ar to be the intelligible differentia by which this c! assificatioa of those in an intolerable condition has been grouped together.

Acquisition was for an avowed object of rejuvenating these undertakings and thereby improving the economy of the area by providing priority in payment to cane growers, labour, in respect of whom there is no ct1Shio11 for sufferance. Thus, this differentia undoubtedly has a rational relationship to the obj-xt sought to be achieved by the Act. The challenge of Art. 14 was an argument of despair and must be repelled. -c These were all the contentions in these appeals and SlJ".. Cial leave petitions and as there is no merit in any of them, the appeals and the special leave petitions fail and are dismissed with costs in o"nO set. PATHAK, J. -We have had the benefit of reading the judgment prepared by our brother Desai. While we broadly agree with the final conclusions reached by him on the several points debated before us, we would prefer to refrain from expressing any opinion on the question whether the declaration made by Parliament in S.

2 of the Industries (Development and Regulation) Act, 1951 in respect of the industries specified in the First Schedule to that Act caa be regarded \ . E as limited to removing from the scope of Entry 24 of List ll of the Seventh Schedule to the Constitution only so much of the legislative field as is covered by the subject matter and content of that Act or it can be regarded as effecting the removal from that Entry of the entire legislative field embracing all matters pertaining to the industries specified in the declaration. It seems to ns that the observations made II by this court in The Hingir-Rampur Coal Co. , Ltd. and Others v. The St'ate of Orissa and Others,(') State of Orissa v. M. A. Tulloch and 2 Co. ,( ) Baijnath Kedia v. State of Bihar & Ors. (') and State of 4 Haryana & Anr. v. Chanan Mal, etc. ( ) cannot be of assistance in this behalf.

In each of those cases, the declaration made by Parlia- ' ment in the concerned enactment limited the control of the regulation of tlie mines and the development of minerals to the extent provided in the enactment. Whether the terms in which the declaration has been framed in s. 2 of the Industries (Development and Regulation) Act-a tlu:laration not expressly limiting control of the specific indus- (1) [1961] 2 s. c. R. 537. (2) [1964) 4 s. c. R. 461. (3) [1970] 2 S. C. R. 100. (4) [1976] 3 S. C. R. 688. ISHWARI KHETAN SUGAR MILLS v. U. P. STATE (Pathak, !. ) 363 tries to the extent provided by the Act--- posing of these appeals and special leave petitions. I P. B. R. Appealo< dismissed.