PETITIONER:
CHIRANJIT LAL CHOWDHURI
Vs.
RESPONDENT:
THE UNION OF INDIA AND OTHERS.
DATE OF JUDGMENT:
04/12/1950
BENCH:
KANIA, HIRALAL J. (CJ)
BENCH:
KANIA, HIRALAL J. (CJ)
FAZAL ALI, SAIYID
SASTRI, M. PATANJALI
MUKHERJEA, B.K.
DAS, SUDHI RANJAN
CITATION:
1951 AIR 41 1950 SCR 869
CITATOR INFO :
F 1951 SC 318 (19)
RF 1952 SC 59 (5)
F 1952 SC 75 (8,21,43,54,70)
RF 1952 SC 123 (45)
RF 1952 SC 252 (101,106)
E 1953 SC 215 (6)
F 1953 SC 404 (7)
R 1954 SC 92 (5)
D 1954 SC 119 (1)
E 1954 SC 314 (4)
F 1955 SC 74 (7)
R 1955 SC 191 (5)
R 1956 SC 20 (13)
F 1956 SC 246 (50,65)
E 1956 SC 479 (5)
F 1957 SC 503 (15,16)
R 1957 SC 877 (16)
D 1957 SC 927 (9)
E 1958 SC 538 (11,12,17)
RF 1958 SC 578 (211)
R 1958 SC 731 (15)
RF 1958 SC 956 (15)
R 1959 SC 648 (26)
RF 1959 SC 725 (11,12)
F 1960 SC 356 (8)
R 1960 SC 457 (9)
R 1960 SC 554 (9)
D 1960 SC1080 (28)
R 1962 SC 458 (21)
F 1962 SC1044 (5)
R 1963 SC 222 (22)
R 1963 SC 864 (27)
F 1963 SC1241 (84)
HO 1963 SC1811 (13,28,84,104,105,112)
RF 1965 SC 190 (4)
F 1970 SC 564 (16,54,78)
E 1970 SC2182 (7)
F 1971 SC1594 (7,8,9)
R 1971 SC1737 (45)
RF 1973 SC 106 (11)
RF 1973 SC1461 (227,265,2130)
RF 1973 SC2720 (9)
R 1974 SC 849 (10)
RF 1974 SC1389 (251)
R 1975 SC 583 (39)
R 1978 SC 327 (6)
F 1978 SC 597 (189)
F 1978 SC 771 (44)
R 1980 SC 161 (10)
RF 1983 SC 1 (168)
F 1983 SC 75 (5)
F 1984 SC 866 (4)
R 1984 SC1707 (17)
RF 1986 SC1370 (77,78)
R 1988 SC1487 (31)
RF 1991 SC 672 (33)
RF 1992 SC 1 (132,133)
R 1992 SC1277 (22,85,87,96)
ACT:
Sholapur Spinning and Weaving Company (Emergency Provi-
sions) Act (XXVIII of 1950)--Act dismissing managing agents
of a company, removing its directors, authorising Govern-
ment to appoint new directors, and curtailing rights of
shareholders in the matter of voting, etc.--Validity--Wheth-
er infringes fundamental rights--Right not to be deprived of
property save by authority of law--Right to acquire, hold
and dispose of property--Right to equal protection of
law--Constitution of India, Arts. 14, 19 (1) (f), 19(5), 1,
32--" Deprivation of property ", "Property., ,, acquisi-
tion", "taking possession., "equal protection ", meanings
of--Right to apply under Art. 32--Corporation's right to
apply--Shareholders' right.
HEADNOTE:
The Governor-General of India, finding that on account of
mismanagement and neglect a situation had arisen in the
affairs of the Sholapur Spinning and Weaving Company Ltd.
which had prejudicially affected the production of an essen-
tial commodity and had caused serious unemployment amongst a
certain section of the community, and that an emergency had
thereby arisen which rendered it necessary to make special
provision for the proper management and administration of
the said company, promulgated an Ordinance, which was subse-
quently reenacted in the form of an Act of the Legislature
called the sholpur Spinning and Weaving Company (Emergency
Provisions)Act, 1950, the net result of which was that the
Managing Agents of the said company were dismissed, the
directors holding office at the time automatically vacated
their office, the Government was authorised to appoint new
directors, the rights of the shareholders of the company
were curtailed in the matters of voting, appointment of
directors, passing of resolutions and applying for winding
up, and power was also given to the Government to further
modify the Indian Companies Act in its application to the
company; and in accordance with the provisions of the Ordi-
nance new directors were appointed by the Government. A
shareholder of the company made an application under Art. 32
of the Constitution for a declaration that the Act was void
and for enforcement of his fundamental rights by a writ of
mandamus against the Central Government, the Government of
Bombay and the directors, restraining them from exercising
any powers under the Act and from interfering with the
management of the company, on the ground that the Act was
not within the Legislative competence
870
of the Parliament and infringed his fundamental rights
guaranteed by Arts. 19 (1) (f), 31 and 14 of the Constitu-
tion and was consequently void under Art. 13. The
company was made a respondent and opposed the petition.
Held per KANIA C.J., FAZL ALI, MUKHERJEA and DAS JJ.-
(i) that the impugned Act did not infringe any fundamental
right of the petitioner under Art. 31 (1), as if did not
deprive the company or the petitioner of any property save
under authority of law;
(ii) that the impugned Act did not infringe any fundamen-
tal right guaranteed by Art. 31 (2.) inasmuch as it did not
authorise the "acquisition" of any property of the company
or of the shareholders or "the taking possession" of the
property of the petitioner, namely, the shares which he held
in the company, though he was disabled from exercising some
of the rights which an ordinary shareholder in a company
could exercise in respect of his shares, such as the right
to vote, to appoint directors, and to apply for winding up;
and, if the Act had authorised the "taking possession" of
the property of the company, the petitioner was not entitled
to any relief on that score under Art. 32;
(iii) that, as the Act did not impose any restrictions
on the petitioner's right "to acquire, hold and dispose of"
his shares, there was no infringement of Art. 19 (1) (f);
and assuming that the restrictions imposed on the right of
voting etc. were restrictions on the right to acquire, hold
or dispose of property within Art. 19 (1) (f), such restric-
tions were reasonable restrictions imposed in the interests
of the public, namely, to secure the supply of a commodity
essential to the community and to prevent serious unemploy-
ment amongst a section of the people, and were therefore
completely protected by cl. (5) of Art. 19.
Held also per KANIA C.J., FAZL ALI, and MUKHERJEA JJ.
(PATANJALI SASTRI AND DAS JJ. dissenting).--that though the
Legislature had proceeded against one company only and its
shareholders, inasmuch as even one corporation or a group of
persons can be taken to be class by itself for the purposes
of legislation, provided there is sufficient basis or reason
for it and there is a strong presumption in favour of the
constitutionality/of an enactment, the burden was on the
petitioner to prove that there were also other companies
similarly situated and this company alone had been discrimi-
nated against, and as he had failed to discharge this burden
the impugned Act cannot be held to have denied to the peti-
tioner the right to equal protection of the laws referred to
in Art. He and the petitioner was not therefore entitled to
any relief under Art. 32.
Per PATANJALI SASTRI J.--As the impugned Act plainly
denied to the shareholders of this particular company the
protections of the law relating to incorporated Joint Stock
Companies as embodied in the Indian Companies Act. it was
Prima facie within
871
the inhibition of Art. 14; and, even though when a law is
made applicable to a class of persons or things and the
classification is based on differentia having a rational
relation to the object sought to be attained, it can be no
objection to its constitutional validity that its applica-
tion is found to affect only one person or thing. since the
impugned Act selected a particular company and imposed upon
it and its shareholders burdens and disabilities on the
ground of mismanagement and neglect of duty on the part of
those charged with the conduct of its undertaking no ques-
tion of reasonable classification arose and the Act was
plainly discriminatory in character and within the constitu-
tional inhibition of Art. 14. Whilst all reasonable pre-
sumptions must undoubtedly be made in favour of the consti-
tutional validity of a law made competent legislature, no
such presumption could be raised in this case as on the face
of it the Act was discriminatory and the petitioner could
not be called upon to prove that similar mismanagement
existed in other companies. The issue was not whether the
impugned Act was ill-advised or not justified by the facts
on which it was based but whether it transgressed the ex-
plicit constitutional restriction on legislative power
imposed by Art. 14.
Per DAs J.--The impugned Act, ex facie, is nothing but
an arbitrary selection of a particular company and its
shareholders for discriminating and hostile treatment, and,
read by itself, is palpably an infringement of Art. 14 of
the Constitution. Assuming that mismanagement and neglect
in conducting the affairs of a company can be a basis of
classification and that such a classification would bear a
reasonable relation to the conduct of all delinquent compa-
nies and shareholders and may therefore create no inequali-
ty, a distinction cannot be made between the delinquent
companies inter se or between shareholders of equally delin-
quent companies, and one set cannot he punished for its
delinquency while another set is permitted to. continue, or
become, in like manner, delinquent without any punishment
unless there be some other apparent difference in their
respective obligations and unless there be some cogent
reason why prevention of mismanagement is more imperative in
one instance than in the other. The argument that the pre-
sumption being in favour of the Legislature, the onus is on
the petitioner to show that there are other individuals or
companies equally guilty of mismanagement prejudicially
affecting the production of an essential commodity and
causing serious unemployment amongst, certain section of the
community does not, in such circumstances, arise, for the
simple reason that here there has been no classification at
all and, in any case, the basis of classification by its
very nature is much wider and cannot, in its application, be
limited only to this company and its shareholders; and that
being so, there is no reason to throw on the petitioner the
almost impossible burden of proving that there are other
companies which are in fact precisely and in all particulars
similarly situated. In any event the petitioner,
872
may well claim to have discharged the onus of showing that
this company and its shareholders have been singled out for
discriminating treatment by showing that the Act, on the
face of it, has adopted a basis of classification which, by
its very nature, cannot be exclusively applicable to this
company and its shareholders but which may be equally ap-
plicable to other companies and their shareholders and has
penalised this particular company and its shareholders,
leaving out other companies and their shareholders who may
be equally guilty of the alleged vice of mismanagement and
neglect of the type referred to in the preamble in the
Ordinance.
Per PATANJALI SASTRI, MUKHERJEA and DAS JJ. (KANIA,
C.J,, dubitante).--In so far as the petitioner's rights as a
shareholder were curtailed he was entitled to apply for
relief under Art. 30, in his own right on the ground that
the Act denied to him the equal protection of the laws and
therefore contravened Art. 14 even though the other share-
holders did not join him in the application.
Per MUKHERJEA J.--The fundamental rights guaranteed by
the Constitution are available not merely to individual
citizens but to corporate bodies as well except where the
language of the provision or the nature of the right, com-
pels the inference that they are applicable only to natural
persons. An incorporated company, therefore, can come up to
the Supreme Court for enforcement of its fundamental rights
and so may the individual shareholders to enforce their own;
but as the company and its shareholders are in law separate
entities, it would not be open to an individual shareholder
to complain of a law which affects the fundamental right of
the company except to the extent that it constitutes an
infraction of his own rights as well. In order to redress a
wrong to the company the action should prima facie be
brought by the company itself.
Article 32 of the Constitution is not directly concerned
with the determination of the constitutional validity of
particular enactments, what it aims at is the enforcement of
fundamental rights guaranteed by the Constitution and to
make out a case under the Article it is incumbent on the
petitioner to establish not merely that the law complained
of is beyond the competence of the Legislature but that it
affects or invades his fundamental rights guaranteed by the
Constitution, of which he could seek enforcement by an
appropriate writ or order.
Under Art. 32 the Supreme Court has a very wide discre-
tion in the matter of framing writs to suit the exigencies
of particular cases and an application under the article
cannot be thrown out simply on the ground that the proper
writ or direction has not been prayed for.
In the context in which the word "acquisition" is used
in Art. 31 i2) it means and implies the acquiring of the
entire title of the expropriated owner whatever the nature
or extent of that right might be,
873
The guarantee against the denial of equal protection of
the laws does not mean that identically the same rules of
law should be made applicable to all persons within the
territory of India in spite of differences of circumstances
and conditions. It means only that there should be no
discrimination between one person and another if as regards
the subject-matter of the legislation their position is the
same.
Quaere : Whether the word "property" in Art. 31
means the totality of the rights which the ownership of the
property connotes, and whether clause (1) of Art. 31 contem-
plates only confiscation or destruction of property in
exercise of what are known as police powers in American law
for which no compensation is necessary.
DAS J.--The question whether an Act has deprived a
person of his "property" must depend on whether it has taken
away the substantial bulk of the rights constituting his
property. Where the most important rights possessed by the
shareholders of a company are still preserved by an Act even
though certain privileges incidental to the ownership of the
shares have been put in abeyance, the shareholders cannot be
said to have been deprived of their "property" in the sense
in which that word is used in Art. 19(1) (f) and Art. 31.
If on the face of the law there is no classification at
all, or at any rate none on the basis of any apparent dif-
ference specially peculiar to the individual or class af-
fected by the law, it is only an instance of an arbitrary
selection of an individual or class for discriminating and
hostile legislation and, therefore, no presumption can, in
such circumstances, arise at all- Assuming, however, that
even in such a case the onus is thrown on the complainant,
there can be nothing to prevent him from proving, if he can,
from the text of the law itself, that it is actually and
palpably unreasonable and arbitrary and thereby discharging
the initial onus.
The right to vote, to elect directors, to pass resolu-
tions and to present an application for winding up, are
privileges incidental to the ownership of a share, but they
are not by themselves apart from the share, "property"
within the meaning of Art. 19 (1) (f) and Art. 31; and even
assuming that they are "property" such rights cannot be said
to have been acquired or taken possession of by the Govern-
ment in this case within Art. 31 (2). The language of
clause (1) of Art. 31 is wider than that of clause (2), for
deprivation of property may well be brought about otherwise
than by acquiring or taking possession of it and in such a
case no question payment of compensation arises.
FAZAL ALI MUKHERJEA and DAS JJ.--Except in the matter
writs in the nature of habsas corpus no one but those whose
rights are directly affected by a law can raise the question
of the constitutionality of a law and claim relief under
Art. 39. A corporation being a different entity from the
shareholders, a
112
874
share-holder cannot complain on the ground that the rights
of the company under Arts. 19 (1) (f) or 31 are infringed.
FAZL ALl J.--A classification which is arbitrary and
which is made without any basis is no classification and a
proper classification must always rest upon some difference
and must hear a reasonable and lust relation to the things
in respect of which it is proposed. But the presumption is
always in favour of the constitutionality of an enactment
and the burden is upon him who attacks it to show that there
has been a clear transgression of constitutional principles.
Though Art. 14 lays down an important fundamental 'right,
which should be closely and vigilantly guarded, a doctri-
naire approach which might choke all beneficial legislation
should not be adopted, in construing it. i
A.K. Gapalan v. The State ([1950] S.C.R. 87), Minister
of State for the Army v. Dalziel (68 C.L.R 261), Yick Wo v.
Hopkins (118 U.S. 356), Southern Railway Co. v. Greene (216
U.S. 400), Gulf C. & S.F. Co. Ellis (165 U.S. 150), Middle-
ton v. Texas Power and Light & Co. (249 U.S. 152), Badice v.
New York (264 U.S. Pennsylvania Coal Co. v. Mahon (960 U.S.
3931, McCabe v. Archison (235 U.S. 151), Jeffrey Manufactur-
ing Co. v. Blang (935 U.S. 571), Newark Natural Gas and Fuel
Co. v. City of Nework U.S-403), Truax v. Raich (939 U.S.
33), Buchanan v. W'arley (245 U.S. 60) Darnell v. The State
of Indiana (226 U.S. 388), Lindely v. Natural Carbonic Gas
Co. (220 U.S. 618), and Barbier v. Connolly (113 U.S. 27)
referred to.
JUDGMENT:
ORIGINAL JURISDICTION: Petition No. 72 of 1950.
Petition under article 32 of the Constitution of India for a
writ of mandamus.
V.K.T. Chari, J.S. Dawdo, Alladi Kuppuswami, and C.R.
Pattabhi Raman, for the petitioner.
M.C. Setalvad, Attorney-General for India (G. N. Joshi
with him) for opposite party Nos. 1 and 2.
G.N. Joshi, for opposite party Nos. 3 to 5 and 7 to 10.
1950. December 4. The Court delivered Judgment as
follows.
KANIA C.J.–This is an application by the holder of one
ordinary share of the Sholapur Spinning and Weaving Company
Ltd. for a writ of mandamus and certain other reliefs under
article 32 of the Constitution of India. The authorized
capital of the company is Rs. 48 lakhs and the paid-up
capital is Rs. 32 lakhs, half of which is made up of fully
paid ordinary shares of Rs. 1,000 each.
875
I have read the judgment prepared by Mr. Justice Mukher-
jea. In respect of the arguments advanced to challenge the
validity of the impugned Act under articles 31 and 19 of the
Constitution of India, I agree with his line of reasoning
and conclusion and have nothing more to add.
On the question whether the impugned Act infringes
article 14, two points have to be considered. The first is
whether one individual shareholder can, under the circum-
stances of the case and particularly when one of the re-
spondents is the company which opposes the petition, chal-
lenge the validity of the Act on the ground that it is a
piece of discriminatory legislation, creates inequality
before the law and violates the principle of equal protec-
tion of the laws under article 14 of the Constitution of
India. The second is whether in fact the petitioner has
shown that the Act runs contrary to article 14 of the Con-
stitution. In this case having regard to my conclusion on
the second point, I do not think it is necessary to pro-
nounce a definite opinion on the first point. I agree with
the line of reasoning and the conclusion of Mr. Justice
Mukherjea as regards the second point relating to the inva-
lidity of the Act on the ground that it infringes article 14
of the Constitution and have nothing more to add.
In my opinion therefore this petition fails and is
dismissed with costs.
FAZL- ALI J.–I am strongly of the opinion that this peti-
tion should be dismissed with costs.
The facts urged in the petition and the points raised on
behalf of the petitioner before us are fully set forth in
the judgments of my brethren, Sastri, Mukherjea and Das JJ.,
and I do not wish to repeat them here. It is sufficient to
say that the main grounds on which the Sholapur Spinning
and Weaving Company (Emergency Provisions) Act, 1950 (Act
No. XXVIII of 1950), which will hereinafter be referred to
as “the Act”, has been assailed, is that it infringes three
fundamental rights, these being:–
876
(1) the right to property secured by article 31 of the
Constitution;
(2) the right to acquire, hold and dispose of property,
guaranteed to every citizen by article 19 (1) (f); and
(3) the right to equal protection of the laws, guaran-
teed by article 14.
It has been held in a number of cases in the United
States of America that no one except those whose rights are
directly affected by a law can raise the question of the
constitutionality of that law. This principle has been very
clearly stated by Hughes J. in McCabe v. Atchison(1), in
these words :—“It is an elementary principle that in
order to justify the granting of this extraordinary relief,
the complainant’s need of it and the absence of an adequate
remedy at law must clearly appear. The complainant cannot
succeed because someone else may be hurt. Nor does it make
any difference that other persons who may be injured are
persons of the same race or occupation. It is the fact,
clearly established, of injury to the complainant — not to
others–which justifies judicial interference.” On this
statement of the law, with which I entirely agree, the scope
of the discussion on this petition is greatly restricted at
least in regard to the first two fundamental rights. The
company and the shareholders are in law separate entities,
and if the allegation is made that any property belonging to
the company has been taken possession of without compensa-
tion or the right enjoyed by the company under article 19
(1) (f) has been infringed, it would be for the company to
come forward to assert or vindicate its own rights and not
for any individual shareholder to do so. In this view, the
only question which has to be answered is whether the peti-
tioner has succeeded in showing that there has been an
infringement of his rights as a shareholder under articles
31 and 19 (1) (f) of the Constitution. This question has
been so elaborately dealt with by Mukherjea J., that I do
not wish to add anything to what he has said in his judg-
ment, and all that is necessary for me to say is that I
adopt his conclusions,
(1) 235 u.s. 151.
877
without committing myself to the acceptance of all his
reasonings.
The only serious point, which in my opinion, arises in
the case is whether article 14 of the Constitution is in any
way infringed by the impugned Act. This article corresponds
to the equal protection clause of the Fourteenth Amendment
of the Constitution of the United States of America, which
declares that “no State shall deny to any person within its
jurisdiction the equal protection of the laws”. Professor
Willis dealing with this clause sums up the law as prevail-
ing in the United States in regard to it in these words:–
“Meaning and effect of the guaranty–The guaranty of the
equal protection of the laws means the protection of equal
laws. It forbids class legislation, but does not forbid
classification which rests upon reasonable grounds of
distinction. It does not prohibit legislation, which is
limited either in the objects to which it is directed or by
the territory within which it is to operate. ‘It merely
requires that all persons subjected to such legislation
shall be treated alike under like circumstances and condi-
tions both in the privileges conferred and in the liabili-
ties imposed.’ ‘The inhibition of the amendment …. was
designed to prevent any person or class of persons from
being singled out as a special subject for discriminating
and hostile legislation’. It does not take from the states
the power to classify either in the adoption of police laws,
or tax laws, or eminent domain laws, but permits to them the
exercise of a wide scope of discretion, and nullifies what
they do only when it is without any reasonable basis.
Mathematical nicety and perfect equality are not required.
Similarity, not identity of treatment, is enough. If any
state of facts can reasonably be conceived to sustain a
classification, the existence of that state of facts must be
assumed. One who assails a classification must carry the
burden of showing that it does not rest upon any reasonable
basis.”(‘)
Having summed up the law in this way, the same learned
author adds :–“Many different classifications
(1) Constitutional Law by Prof. Willis, (1st Edition).
p.579.
878
of persons have been upheld as constitutional. A law apply-
ing to one person or one class of persons is constitutional
if there is sufficient basis or reason for it.” There can
be no doubt that article 14 provides one of the most
valuable and important guarantees in the Constitution which
should not be allowed to be whittled down, and, while ac-
cepting the statement of Professor Willis as a correct
exposition of the principles underlying this guarantee, 1
wish to lay particular emphasis on the principle enunciated
by him that any classification which is arbitrary and which
is made without any basis is no classification and a proper
classification must always rest upon some difference and
must bear a reasonable and just relation to the things in
respect of which it is proposed.
The petitioner’s case is that the shareholders of the
Sholapur company have been subjected to discrimination visa
vis the shareholders of other companies, inasmuch as section
13 of the Act subjects them to the following disabilities
which the shareholders of other companies governed by the
Indian Companies Act are not subject to:-:
“(a) It shall not be lawful for the shareholders of the
company or any other person to nominate or appoint any
person to be a director of the company.
(b) No resolution passed at any meeting of the share-
holders of the company shall be given effect to unless
approved by the Central Government.
(c) No proceeding for the winding up of the company or
for the appointment of a receiver in respect thereof shall
lie in any court unless by or with the sanction of the
Central Government.”
Primafacie, the argument appears to be a plausible one,
but it requires a careful examination, and, while examining
it, two principles have to be borne in mind :–(1) that a
law may be constitutional even though it relates to a single
individual, in those cases where on account of some special
circumstances or reasons applicable to him and not applica-
ble to others,
879
that single individual may be treated as a class by himself;
(2) that it is the accepted doctrine of the American courts,
which I consider to be well-founded on principle, that the
presumption is always in favour of the constitutionality of
an enactment, and the burden is upon him who attacks it to
show that there has been a clear transgression of the
constitutional principles. A clear enunciation of this
latter doctrine is to be found in Middleton v. Texas Power
and Light Company(1), in which the relevant passage runs as
follows :–
“It must be presumed that a legislature understands and
correctly appreciates the need of its own people, that its
laws are directed to problems made manifest by experience
and that its discriminations are based upon adequate
grounds.”
The onus is therefore on the petitioner to show that the
legislation which is impugned is arbitrary and unreasonable
and there are other companies in the country which should
have been subjected to the same disabilities, because the
reasons which led the Legislature to impose State control
upon the Sholapur company are equally applicable to them.
So far as article 14 is concerned, the case of the share-
holders is dependent upon the case of the company and if it
could be held that the company has been legitimately sub-
jected to such control as the Act provides without violation
of the article, that would be a complete answer to the
petitioner’s complaint.
Now, the petitioner has made no attempt to discharge the
burden of proof to which I have referred, and we are merely
asked to presume that there must necessarily be other compa-
nies also which would be open to the charge of mismanagement
and negligence. The question cannot in my opinion be treated
so lightly. On the other hand, how important the doctrine of
burden of proof is and how much harm can be caused by ignor-
ing it or tinkering with it, will be fully illustrated, by
referring to the proceedings in the Parliament in connec-
tion with the enactment of the
(1) 248 U.S. 1152,157.
880
Act, where the circumstances which necessitated it are
clearly set out. I am aware that legislative proceedings
cannot be referred to for the purpose of construing an Act
or any of its provisions, but I believe that they are
relevant for the proper understanding of the circumstances
under which it was passed and the reasons which necessitat-
ed it.
A reference to the Parliamentary proceedings shows that
some time ago, a representation was made on behalf of a
section of the shareholders of the Sholapur company to the
Registrar of Joint Stock Companies in Bombay, against the
conduct of the managing agents, and the Government of Bombay
was moved to order a special inquiry into the affairs of
the company. For the purpose of this inquiry, two special
inspectors were appointed by the Bombay Government and their
report revealed “certain astounding facts” and showed that
the mill had been grossly mismanaged by the Board of Direc-
tors and the managing agents. It also revealed that the
persons who were responsible for the mismanagement were
guilty of certain acts and omissions which brought them
under the purview of the law. The Bombay Government accept-
ed the report of the inspectors and instructed the Advocate
General of Bombay to take legal proceedings against certain
persons connected with the management of the company.
Thereafter, the Government of India was approached by the
Provincial Government and requiested to take special action
in order to secure the early opening of the mill. The
Government of India found that they had no power to take
over the management of a particular mill, unless its working
could be ensured through the existing management acting
under the direction of a Controller appointed under the
Essential Supplies Act, but they also found that a peculiar
situation had been created in this case by the managing
agents themselves being unable or unwilling to conduct the
affairs of the company in a satisfactory and efficient
manner. The Government of India, as a matter of precaution
and lest it should be said that they were going to interfere
unnecessarily in the affairs
881
of the company and were not allowing the existing provisions
of the law to take their own course, consulted other inter-
ests and placed the matter before the Standing Committee of
the Industrial Advisory Council where a large number of
leading industrialists of the country were present, and
ultimately it was realized that this was a case where the
Government could rightly and properly intervene and there
would be no occasion for any criticism coming from any
quarter. It appears from the discussion on the floor of the
House that the total number of weaving and spinning mills
which were closed down for one reason or other was about 35
in number. Some of them are said to have closed for want of
cotton, some due to overstocks, some for want o[ capital and
some on account of mismanagement. The Minister for Indus-
try, who sponsored the Bill, in explaining what distin-
guished the case of the Sholapur mill from the other mills
against whom there might be charges of mismanagement, made
it clear in the course of the debate that “certain condi-
tions had to be fulfilled before the Government can and
should intervene”, and he set out these conditions as fol-
lows :–
“(1) The undertaking must relate to an industry which is
of national importance. Not each and every undertaking
which may have to close down can be taken charge of tempo-
rarily by Government.
(2) The undertaking must be an economic unit. If it
appears that it is completely uneconomic and cannot be
managed at all, there is no sense in Government taking
charge of it. If anything, it will mean the Government will
have to waste money which belongs to the taxpayer on an
uneconomic unit.
(3) There must be a technical report as regards the
condition of the plants, machinery, etc. which either as
they stand, or after necessary repairs and reconditioning
can be properly utilised.
(4) Lastly,–and this is of considerable importance-
there must be a proper enquiry held before Government take
any action. The enquiry should show that
113
882
managing agents have so misbehaved that they are no longer
fit and proper persons to remain in charge of such an impor-
tant undertaking.”(1)
It appears from the same proceedings that the Sholapur
mill is one of the largest mills in Asia and employs 13,000
workers. Per shift, it is capable of producing 25 to 30
thousand pounds of yarn, and also one lakh yards of cloth.
It was working two shifts when it was closed down on the
29th August, 1949. The closure of the mill meant a loss of
25 lakhs yards of cloth and one and a half lakhs pounds of
yarn per month. Prior to 1947, the highest dividend paid
by the company was Rs. 525 per share and the lowest Rs. 100,
and, in 1948, when the management was taken over by the
managing agents who have been removed by the impugned Act,
the accounts showed a loss of Rs. 30 lakhs, while other
textile companies had been able to show very substantial
profits during the same period.
Another fact which is brought out in the proceedings is
that the. managing agents had acquired control over the
majority of the shares of the company and a large number of
shareholders who were dissatisfied with the management had
been rendered powerless and they could not make their voice
heard. By reason of the preponderance of their strength,
the managing agents made it impossible for a controller
under the Essential Supplies Act to function and they also
made it difficult for the company to run smoothly under the
normal law.
It was against this background that the Act was passed,
and it is evident that the facts which were placed before
the Legislature with regard to the Sholaput mill were of an
extraordinary character. and fully justified the company
being treated as a class by itself. There were undoubtedly
other mills which were open to the charge of mismanagement,
but the criteria adopted by the Government which, in my
opinion, cannot be said to be arbitrary or unreasonable, is
not applicable
(1) parliamentary Debates, Volume III, No. 14; 31st March
1950, pp.2394 5
883
to any of them. As we have seen, one of the criteria was
that a mere allegation of mismanagement should not be enough
and no drastic step such as is envisaged in the Act should
be taken without there being a complete enquiry. In the
case of the Sholapur mill, a complete enquiry had been made
and the revelations which were made as a result of such
enquiry were startling.
We are familiar with the expression “police power” which
is in vogue in the United States of America. This expression
simply denotes that in special cases the State can step in
where its intervention seems necessary and impose special
burdens for general benefit. As one of the judges has
pointed out, “the regulations may press with more or less
weight upon one than upon another, but they are designed not
to impose unequal or unnecessary restrictions upon anyone,
but to promote, with as little individual inconvenience as
possible, the general good.”(1) It need not be emphasized
that the principles underlying what is known as police power
in the United States of America are not peculiar to that
country, but are recognized in every modern civilized State.
Professor Willis dealing with the question of classification
in exercise of police power makes the following observa-
tions:
“There is no rule for determining when classification
for the police power is reasonable. It is a matter for
judicial determination, but in determining the question of
reasonableness the Courts must find some economic, political
or other social interest to be secured, and some relation of
the classification to the objects sought to be accomplished.
In doing this the Courts may consider matters of common
knowledge, matters o[ common report, tile history of the
times, and to sustain it they will assume every state of
facts which can be conceived of as existing at the time Of
legislation. The fact that only one person or one object or
one business or one locality is affected is not proof of
denial of the equal protection of the laws. For such
(1) Per Field J. in Barbier v. Connally. 113 U S. 27.
884
proof it must be shown that there is no reasonable basis for
the classification.”
In this particular case, the Government initially took
control of the Sholapur Company by means of an Ordinance
(Ordinance No. II of 1950), of which the preamble runs as
follows :-
“Whereas on account of mismanagement and neglect a
situation has arisen in the affairs of the Sholapur Spinning
and Weaving Company, Limited, which has prejudicially af-
fected the production of an essential commodity and has
caused serious unemployment amongst a certain section of the
community;
And whereas an emergency has arisen which renders it
necessary to make special provision for the proper manage-
ment and administration of the aforesaid Company;
Now, therefore,…………………… ”
In the course of the Parliamentary debate, reference was
made to the fact that the country was facing an acute cloth
shortage, and one of the reasons which apparently influenced
the promulgation of the Ordinance and the passing of the
Act was that the mismanagement of the company had gravely
affected the production of an essential commodity. The
facts relating to the mismanagement of this mill were care-
fully collected and the mischief caused by the sudden clos-
ing of the mill to the shareholders as well as to the gener-
al public were fully taken into consideration. Therefore, it
seems to me that to say that one particular mill has been
arbitrarily and unreasonably selected and subjected to
discriminatory treatment, would be an entirely wrong propo-
sition.
Article 14 of the Constitution, as already stated, lays
down an important fundamental right, which should be closely
and vigilantly guarded, but, in construing it, we should not
adopt a doctrinaire approach which might choke all benefi-
cial legislation.
The facts to which I have referred are to be found in a
public document, and, though some of them may
(1) Constitutional Law by Prof. Willis (1st Edition) p. 580.
885
require further investigation forming as they do part of a
one-sided version, yet they furnish good prima, facie
grounds for the exercise of the utmost caution in deciding
this case and for not departing from the ordinary rule as to
the burden of proof. In the last resort, this petition can
be disposed of on the simple ground that the petitioner has
not discharged the onus which lies upon him, and I am quite
prepared to rest my judgment on this ground alone.
I think that the petitioner has failed to make out any
case for granting the writs or directions asked for, and the
petition should therefore be dismissed with costs.
PATANJALI SASTRI J.–This is an application under article 32
of the Constitution seeking relief against alleged infringe-
ment of certain fundamental rights of the petitioner.
The petitioner is a shareholder of the Sholapur Spinning
and Weaving Company, Limited, Sholapur, in tim State of
Bombay, (hereinafter referred to as “the Company “). The
authorised share capital of the Company consisted of 1590
fully paid up ordinary shares of Rs. 1,000 each, 20 fully
paid up ordinary shares of Rs. 500 each and :32,000 partly
paid up redeemable cumulative preference shares of Rs. 100
each, of which Rs. 50 only was paid up. Of these, the
petitioner held one ordinary share in his own name and 80
preference shares which, however, having been pledged with
the Bank of Baroda Ltd., now stand registered in the Bank’s
name.
The company was doing flourishing business till disputes
arose recently between the management and the employees, and
in or about August, 1949, the mills were temporarily closed
and the company, which was one of the largest producers of
cotton textiles, ceased production. Thereupon, the Gover-
nor-General intervened by promulgating on the 9th January,
1950, an Ordinance called the Sholapur Spinning and Weaving
Company (Emergency Provisions) Ordinance (No. II’ of 1950),
which empowered tim Government of India to
886
take over the control and management of the company and its
properties and effects by appointing their own Directors and
to delegate all or any of their powers to the Provincial
Government. In exercise of the powers thus delegated, the
Government of Bombay appointed respondents 3 to 9 as Direc-
tors to take charge of the management and administration of
the properties and affairs of the company. Subsequently, on
10th April, ‘1950, the Ordinance was repealed and was re-
placed by an Act of Parliament containing similar provisons,
namely the Sholapur Spinning and Weaving Company (Emergency
Provisions) Act (No. XXVIII of 1950) (hereinafter referred
to as the “impugned Act”).
The petitioner complains that the impugned Act and the
action of the Government of Bombay pursuant thereto have
infringed the fundamental rights conferred on him by arti-
cles 11, 19 and 31 of the Constitution with the result that
the enactment is unconstitutional and void, and the inter-
ference by the Government in the affairs of the company is
unauthorised and illegal. He accordingly seeks relief by way
of injunction and mandamus against the Union of India and
the State of Bombay impfended as respondents 1 and 2 respec-
tively in these proceedings and against respondents a to 9
who are now in management as already stated. The company is
irapleaded proforma as the 10th respondent.
Before discussing the issues involved, it is necessary
to examine the relevant provisions of the impugned Act in
order to see in what manner and to what extent the petition-
er’s rights have been affected thereby. The preamble to
the repealed Ordinance stated that “on account of mis-
management and neglect a situation has arisen in the affairs
of the Sholapur Spinning and Weaving Company, Limited,
which has prejudicially affected the production of an essen-
tial commodity and has caused serious unemployment amongst
a certain section of the community and that an emergency
has arisen which renders it necessary to make special provi-
sion for the proper management and administration of the
aforesaid
887
Company.” This preamble was not reproduced in the impugned
Act. Section a empowers the Central Government to appoint
as many persons as it thinks fit to be directors of the
company “for the purpose of taking over its management and
administration.” Section 4 states the effect of the order
appointing directors to be that (1) the old directors shall
be deemed to have vacated their office, (2) the contract
with the managing agents shall be deemed to have been termi-
nated, (3) that the properties and effects of the company
shall be deemed to be in the custody of the new directors
who are to be “for all purposes” the directors of the compa-
ny and “shall alone be entitled to exercise all the powers
of the directors of the company whether such powers are
derived from the Companies Act or from the memorandum or
articles of association or otherwise.” Section 5 defines the
powers of the new directors. They are to manage the busi-
ness of the company “subject to the control of the Central
Government” and shall have the power to raise funds offering
such security as they think fit, to carry out necessary
repairs to the machinery or other property in their custody
and to employ the necessary persons and define the necessary
conditions of their service. Section 12 provides for the
restoration of the management to directors nominated by the
shareholders when the purpose of the Government’s interven-
tion has been fulfilled. Section 13 is important and reads
thus: “13. Application of the Companies Act.–(1) Notwith-
standing anything contained in the Companies Act or in the
memorandum or articles of association of the company (a) it
shall not be lawful for the shareholders of the company or
any other person to nominate or appoint any person to be a
director of the company; (b) no resolution passed at any
meeting of the shareholders of the company shall ‘be given
effect to unless approved by the Central Government; (c) no
proceeding for the winding up of the company or for the
appointment of a receiver in respect, thereof shall lie in
any Court unless by or with the sanction of the Central
Government. (2) Subject.
888
to the provisions contained in sub-section (1) and to the
other provisions of this Act. and subject to such excep-
tions, restrictions and limitations as the Central Govern-
ment may, by notified order, specify, the Companies Act
shall continue to apply to the company in the same manner as
it applied thereto before the issue of the notified order
under section 3.” By section 14 the provisions of the Act
are to have effect “notwithstanding anything inconsistent
therewith contained in any other law or in any instrument
having effect by virtue of any law other than this Act.”
Section 16 provides for delegation of powers to the Govern-
ment of Bombay to be exercised subject to the directions of
the Central Government, and section 17 bars suits or other
proceedings against the Central Government or the Government
of Bombay or any director “for any damage caused or likely
to be caused by anything which is in good faith done or
intended to be done in pursuance of this Act.”
As a result of these provisions all the properties and
effects of the company passed into the absolute power and
control of the Central Government or its delegate the Gov-
ernment of Bombay, and the normal functioning of the company
as a corporate body came to an end. The shareholders have
been reduced to the position of interested, if helpless,
onlookers while the business is carried on against their
will and, may be, to their disadvantage by the Government’s
nominees. The declared purpose of this arrangement was,
according to the Preamble of the repeated Ordinance to keep
up the production of an essential commodity and to avert
serious unemployment amongst a certain section of the commu-
nity.
The question accordingly arises whether the impugned
Act. which thus affects the petitioner and his co-sharehold-
ers, while leaving untouched the shareholders of all other
companies, including those engaged in the production of
essential commodities, denies to the petitioner the equal
protection of the laws under article 14 of the Constitution.
The correct approach to
889
this question is first to see what rights have been con-
ferred or protection extended to persons similarly situated.
The relevant protection is to be found in the provisions of
the Indian Companies Act which regulates the rights and
obligations of the shareholders of incorporated companies in
India. Section 21 of the Act assures to the shareholders
the protection of the stipulations contained in the memoran-
dum and articles of association by constituting. them a
binding contract, so that neither the company nor the share-
holders have the power of doing anything inconsistent there-
with. The basic right of the shareholders to have their
undertaking managed and conducted by the directors of their
own choice is ensured by section 83B. Their right to exer-
cise control and supervision over the management by the
directors by passing resolutions at their general meeting is
regulated by various provisions of the Act. The important
safeguard of winding up the company in certain unfavourable
circumstances either through court or by the shareholders
thems elves voluntarily is provided for in sections 162 and
203. All these rights and safeguards, on the faith of which
the shareholders embark their money in their undertaking,
are abrogated by the impugned Act in the case of the share-
holders of this company alone. In fact, the Central Govern-
ment is empowered to exclude, restrict or limit the opera-
tion of any of the provisions of the Companies Act in rela-
tion to this company. It is thus plain that the impugned Act
denies to the shareholders of this particular company the
protection of the law relating to incorporated joint stock
companies in this country is embodied in the Companies Act
and is primafacie within the inhibition of article 14.
It is argued, however, that article 14 does not make it
incumbent on the Legislature always to make laws applicable
to all persons generally, and that it is open to the Legis-
lature ‘to classify persons and things and subject them to
the operation of a particular law according to the aims and
objects which that law is designed to secure. In the
present case, Parliament,
114
890
it was said, came to the conclusion, on the materials placed
before them, that the affairs of the company were being
grossly mismanaged so as to result in the cessation of
production of an essential commodity and serious unemploy-
ment amongst a section of the community. In view if the
detriment thus caused to public economy, it was competent
for Parliament to enact a measure applicable to this company
and its shareholders alone, and Parliament must be the judge
as to whether the evil which the impugned Act was designed
to remedy prevailed to such an extent in this company as to
call for special legislation. Reliance was placed in support
of this argument on certain American decisions dealing with
the equal protection clause of the Fourteenth Amendment of
the Federal Constitution. It is, however, unnecessary to
discuss those decisions here, for it is undeniable that
equal protection of the laws cannot mean that all laws must
be quite general in their character and application.’ A
legislature empowered to make laws on a wide range of sub-
jects must of necessity have the power of making special
laws to attain particular objects and must, for that pur-
pose, possess large powers of distinguishing and classifying
the persons or things to be brought under the operation of
such laws, provided the basis of such classification has a
just and reasonable relation to the object which the legis-
lature has in view. While, for instance, a classification in
a law regulating labour in mines or factories may be based
on age or sex, it may not b`e based on the colour of one’s
skin. It is also true that the class of persons to whom a
law is made applicable may be large or small, and the degree
of harm which has prompted the enactment of a particular law
is a matter within the discretion of the law-makers. It is
not the province of the court to canvass the legislative
judgment in such matters. But the issue here is not whether
the impugned Act was ill-advised or not justified by the
facts on which it was based, but whether it transgresses the
explicit constitutional restriction on legislative power
imposed by article 14.
891
It is obvious that the legislation is directed solely
against a particular company and shareholders and not
against any class or category of companies and no question,
therefore, of reasonable legislative classification arises.
If a law is made applicable to a class of persons or things
and the classification is based upon differentia having a
rational relation to the object sought to be attained, it
can be no objection to its constitutional validity that its
application is found to affect only one person or thing.
For instance, a law may be passed imposing certain restric-
tions and burdens on joint stock companies with a share
capital of, say, Rs. 10 crores and upwards, and it may be
found that there is only one such company for the time being
to which the law could be applied. If other such companies
are brought into existence in future the law would apply to
them also, and no discrimination would thus be involved.
But the impugned Act, which selects this particular company
and imposes upon it and its shareholders burdens and disa-
bilities on the ground of mismanagement and neglect of duty
on the part of those charged with the conduct of its under-
taking, is plainly discriminatory in character and is, in my
judgment, within the constitutional inhibition of article
14. Legislation based upon mismanagement or other miscon-
duct as the differentia and made applicable to a specified
individual or corporate body is not far removed from the
notorious parliamentary procedure formerly employed in
Britain of punishing individual delinquents by passing
bills of attainder, and should not, I think, receive judi-
cial encouragement.
It was next urged that the burden of proving that the
impugned Act is unconstitutional lay on the petitioner, and
that, inasmuch as he has failed to adduce any evidence to
show that the selection of this company and its shareholders
for special treatment under the impugned Act was arbitrary,
the application must fail. Whilst all reasonable pre-
sumption must undoubtedly be made in support of the consti-
tutional validity of a law made by a competent legislature,
the circumstances of the present case would seem, to my
892
mind to exclude such presumption. Hostile discrimination is
writ large over the face of the impugned Act and it dis-
closes no grounds for such legislative intcrvcntion. For all
that appears no compelling public intercsts were involved.
Even the preamble to the original Ordinance was omitted.
Nor did respondents 1 and 2 file any counter-statement in
this proceeding explaining the circumstances which led to
the enactment of such an extraordinary measure. There is
thus nothing in the record even by way of allegation which
the petitioner need take steps to rebut. Supposing, howev-
er, that the impugned Act was passed on the same grounds as
were mentioned in the preamble to the repealed Ordinance,
namely, mismanagement and neglect prejudicially affecting
the production of an essential commodity and -causing seri-
ous unemployment amongst a section of the community, the
petitioner could hardly be expected to assume the burden of
showing, not that the company’s affairs were properly man-
aged, for that is not his case, but that there were also
other companies similarly mismanaged, for that is what,
according to the respondents, he should prove in order to
rebut the presumption of constitutionality. In other words,
he should be called upon to establish that this company and
its shareholders were arbitrarily singled out for the impo-
sition of the statutory disabilities. How could the peti-
tioner discharge such a burden ? Was he to ask for an inves-
tigation by the Court of the affairs of other industrial
concerns in India where also there were strikes and lock
outs resulting in unemployment and cessation of production
of essential commodities? Would these companies be willing
to submit to such an investigation ? And even so, how is it
possible to prove that the mismanagement and neglect which
is said to have prompted the legislation in regard to this
company was prevalent in the same degree in other companies
? In such circumstances, to cast upon the petitioner a
burden of proof which it is as needless for him to assume as
it is impracticable to discharge is to lose sight of the
realities of the case.
893
Lastly, it was argued that the constitutionality of a
statute could not be impugned under article 32 except by a
person whose rights were infringed by the enactment. and
that, inasmuch as there was no infringement of the individ-
ual right of a shareholder, even assuming that there was an
injury to the company as a corporate body, the petitioner
was not entitled to apply for relief under that article.
Whatever validity the argument may have in relation to the
petitioner’s claim based on the alleged invasion of his
right of property under article 31, there can be little
doubt that, so far as his claim based on the contravention
of article 14 is concerned, the petitioner is entitled to
relief in his own right As has been pointed out already,
the impugned Act deprives the shareholders of the company of
important rights and safeguards which are enjoyed by the
shareholders of other joint stock companies in Indian under
the Indian Companies Act. The petitioner is thus denied the
equal protection of the laws in his capacity as a sharehold-
er, and none the less so because the other shareholders of
the company are also similarly affected. The petitioner is
thereled to seek relief under article 32 of the Constitu-
tion.
In this view it becomes unnecessary to consider the
questions raised under articles 19 and 31 of the Constitu-
tion.
In the result]t, I would allow the application.
MUKHERJEA J.–This is an application presented by one
Chiranjitlal Chowdhuri, a shareholder of the Sholapur
Spinning and Weaving Company Limited (hereinafter referred
to as the company), praying for a writ of mandamus and
certain other reliefs under article 32 of the Constitution.
The company, which has its registered office within the
State of Bombay and is governed by the provisions of the
Indian Companies Act, was incorporated with an authorised
capital of Rs. 48 lakhs divided into 1590, fully paid up
ordinary shares of Rs. 100 each, 20 fully paid up ordinary
shares of Rs. 500 each and 32,000 partly paid up cumulative
preference shares of Rs. 100 each. The
894
present paid up capital of the company is Rs. 32 lakhs half
of which is represented by the fully paid up ordinary shares
and the other half by the partly paid up cumulative prefer-
ence shares. The petitioner states in his petition that he
holds in his own right three ordinary shares and eighty
prefercnce shares in the company, though according to his
own admission the ,preference shares do not stand in his
name but have been registered in the name of the Baroda Bank
Limited with which the shares are pledged. According to the
respondents, the petitioner is the registered holder of
one single ordinary share in the company.
It appears that on July 27, 1949, the directors of the
company gave a notice to the workers that the mills would be
closed, and pursuant to that notice, the mills were in fact
closed on the 27th of August following. On January 9, 1950,
the Governor-General of India promulgated an Ordinance which
purported to make special provisions for the proper man-
agement and administration of the company. It was stated in
the preamble to the Ordinance that “on account of mis-
management and neglect, a situation has arisen in the af-
fairs of the Sholapur Spinning and Weaving Company Limited
which has prejudicially affected the production of an essen-
tial commodity and has caused serious unemployment amongst a
certain section of the community “, and it was on account of
the emergency arising from this situation that the promulga-
tion of the Ordinance was necessary. The provisions of
the Ordinance, so far as they are material for our present
purpose, may be summarised as follows:
Under section 3 of the Ordinance, the Central Government
may, at any time, by notified order, appoint as many persons
as it thinks fit, to be directors of the company for the
purpose of taking over its management and administration and
may appoint one of such directors to be the Chairman.
Section 4 provides that on the issue of a notified order
under section 3 all the directors of the company holding
office as such immediately before the issue of the order
shall be deemed to have vacated their offices. and any
existing
895
contract of management between the company and any managing
agent thereof shall be deemed to have terminated. The
directors thus appointed shall be for all purposes the
directors of the company duly constituted under the Compa-
nies Act and shall alone be entitled to exercise all the
powers of the directors of the company. The powers and the
duties of the directors are specified in section 5 and this
section inter alia empowers the directors to vary or cancel,
with the previous sanction of the Central Government, any
contract or agreement entered into between the company and
any other person if they are satisfied that such contract or
agreement is detrimental to the interests of the company.
Section 10 lays down that no compensation for premature
termination of any contract could be claimed by the managing
agent or any other contracting party. It is provided by
section 12 that so long as the management by the statutory
directors continues, the shareholders would be precluded
from nominating or appointing any person to be a director of
the company and any resolution passed by them will not be
effective unless it is approved by the Central Government.
This section lays down further that during this period no
proceeding for winding up of the company, or for appointment
of a receiver in respect thereof could be instituted in any
court, unless it is sanctioned by the Central Government,
and the Central Government would be competent to impose any
restrictions or limitations as regards application of the
provisions of the Indian Companies Act to, be affairs of
the company. The only other material provision is that
contained in section 15, under which the Central Government
may, by notified order, direct that all or any of the powers
exercisable by it under this Ordinance may be exercised
by the Government of Bombay.
In accordance with the provisions of section 15 men-
tioned above, the Central Government, by notification issued
on the same day that the Ordinance was promulgated, delegat-
ed all its powers exercisable under the Ordinance to the
Government of Bombay,
896
On the next day, the Government of Bombay appointed respond-
ents 3 to 7 as directors of the company in terms of section
3 of the Ordinance. On the 2nd of March, 1950, the re-
spondent No. 9 was appointed a director and respondent No.
5 having resigned his office in the meantime, the re-
spondent No. 8 was appointed in his place. On the 7th of
April, 1950, the Ordinance was repealed and an Act was
passed by the Parliament of India, known as the Sholapur
Spinning and Weaving Company (Emergency Provisions)Act which
re-enacted almost in identical terms all the provisions of
the Ordinance and provided further that all actions taken
and orders made under the Ordinance shall be deemed to have
been taken or made under the corresponding provisions of the
Act. The preamble to the Ordinance was not however repro-
duced in the Act.
The petitioner in his petition has challenged the con-
stitutional validity of both the Ordinance and the Act. As
the Ordinance is no longer in force and all its provisions
have been incorporated in the Act, it will not be necessary
to deal with or refer to the enactments separately. Both
the Ordinance and the Act have been attacked on identical
grounds and it is only necessary to enumerate briefly
what these grounds are.
The main ground put forward by the petitioner is that
the pith and substance of the enactments is to take posses-
sion of and control over the mills of the company which are
its valuable assets and such taking of possession of proper-
ty is entirely beyond the powers of the Legislature. ‘The
provisions of the Act, it is said, amount to deprivation of
property of the shareholders as well as of the company
within the meaning of article 31 of the Constitution and the
restrictions imposed on the rights of the shareholders in
respect to the shares held by them constitute an unjustifia-
ble interference with their rights to hold property and as
such are void under article 19 (1) (f). It is urged that
there was no public purpose for which the Legislature could
authorise the taking possession or acquisition of
897
property and such acquisition or taking of possession with-
out payment of compensation is in violation of the funda-
mental rights guaranteed by article 31 (2) of the Constitu-
tion. It is said further that the enactment denies to the
company and its shareholders equality before the law. and
equal protection of laws and thus offends against the provi-
sions of article 14 of the Constitution. The only other
material point raised is that the legislation is beyond the
legislative competency of the Parliament and is not covered
by any of the items in the legislative lists.
On these allegations, the petitioner prays, in the first
instance. that it may be declared that both the Act and the
Ordinance are ultra vires and void and an injunction may be
issued restraining the respondents from exercising any of
the powers conferred upon them by the enactments. The third
and the material prayer is for issuing a writ of mandamus,
“restraining the respondents 1 to 9 from exercising or
purporting to exercise any powers under the said Ordinance
or Act and from in any manner interfering with the manage-
ment or affairs of the company under colour of or any pur-
ported exercise of any powers under the Ordinance or the
Act,” The other prayers are not material for our purpose.
Before I address myself to the merits of this applica-
tion it will be necessary to clear up two preliminary
matters in respect to which arguments were advanced at some
length from the Bar. The first point relates to the scope
of our enquiry in the present case and raises the question
as to what precisely are the matters that have to be inves-
tigated and determined on this application of the petition-
er. The second point relates to the form of relief that can
be prayed for and granted in a case of this description.
Article 32 (1) of the Constitution guarantees to every-
body the right to move this court, by appropriate proceed-
ing, for enforcement of the fundamental rights which are
enumerated in Part 1II of the Constitution. Clause (2) of
the article lays down that the
115
898
Supreme Court shall have the power to issue directions or
orders or writs including writs in the nature of habeas
corpus, mandamus, prohibition, quo warranto and certiorari
whichever may be appropriate for the enforcement of any of
the rights conferred by this part.
Thus anybody who complains of infraction of any of the
fundamental rights guaranteed by the Constitution is at
liberty to move the Supreme Court for the enforcement of
such rights and this court has been given the power to make
orders and issuue directions or writs similar in nature to
the prerogative writs of English law as might be considered
appropriate in particular cases. The fundamental rights
guaranteed by the Constitution are available not merely
to individual citizens but to corporate bodies as well
except where the language of the provision or the nature of
the right compels the inference that they are applicable
only to natural persons. An incorporated company, there-
fore, can come up to this court for enforcement of its
fundamental rights and so may the individual shareholders to
enforce their own; but it would not be open to an individual
shareholder to complain of an Act which affects the funda-
mental rights of the company except to the extent that it
constitutes an infraction of his own rights as well. This
follows logically from the rule of law that a corporation
has a distinct legal personality of its own with rights and
capacities, duties and obligations separate from those of
its individual members. As the rights are different and
inhere in different legal entities, it is not competent to
one person to seek to enforce the rights of another except
where the law permits him to do so. A well known illustra-
tion of such exception is furnished by the procedure that is
sanctioned in an application for a writ of habeas corpus.
Not only the man who is imprisoned or detained in confine-
ment but any person, provided he is not an absolute
stranger, can institute proceedings to obtain a writ of
habeas corpus for the purpose of liberating another from an
illegal imprisonment.
899
The application before us under article 32 of the Con-
stitution is on behalf of an individual shareholder of the
company. Article 32, as its provisions show,. is not di-
rectly concerned with the determination of constitutional
validity of particular legislative enactments. What it aims
at is the enforcing of fundamental rights guaranteed by the
Constitution, no matter whether the necessity for such
enforcement arises out of an action of the executive or of
the legislature. To make out a case under this article, it
is incumbent upon the petitioner to establish not merely
that the law complained of is beyond the competence of the
particular legislature as not being covered by any of the
items in the legislative lists, but that it affects or
invades his fundamental rights guaranteed by the Constitu-
tion, of which he could seek enforcement by an appropriate
writ or order. The rights that could be enforced under
article 32 must ordinarily be the rights of the petitioner
himself who complains I of infraction of such rights and
approaches the court for relief. This being the position,
the proper subject of our investigation would be what
rights, if any, of the petitioner as a shareholder of the
company have been violated by the impugned legislation. A
discussion of the fundamental rights of the company as such
would be outside the purview of our enquiry. It is settled
law that in order to redress a wrong done to the company,
the action should prima facie be brought by the company
itself. It cannot be said that this course is not possible
in the circumstances of the present case. As the law is
alleged to be unconstitutional, it is open to the old
directors of the company who have been ousted from their
position by reason of the enactment to maintain that they
are directors still in the eye of law, and on that footing
the majority of shareholders can also assert ‘the rights of
the company as such. None of them, however, have come
forward to institute any proceeding on behalf of the compa-
ny. Neither in form nor in substance does the present
application purport to be one made by the company itself.
Indeed, the company
900
is one of the respondents, and opposes the petition.
As regards the other point, it would appear from the
language of article 32 of the Constitution that. the sole
object of the article is the enforcement of fundamental
rights guaranteed by the Constitution. A proceeding
under this article cannot really have any affinity to
what is known as a declaratory suit. The first prayer
made in the petition, n seeks relief in the shape of a
declaration that the Act is invalid and is apparently
inappropriate to an application under article 32; while the
second purports to be framed for a relief by way of injunc-
tion consequent upon the first. As regards the third pray-
er, it has been contended by Mr. Joshi, who appears for one
of the respondents, that having regard to the nature of the
case and the allegations made by the petitioner himself, the
prayer for a writ of mandamus, in the form in which it has
been made, is not tenable. What is argued is that a writ of
mandamus can be prayed for, for enforcement of statutory
duties or to compel a person holding a public office to do
or forbear from doing something which is incumbent upon him
to do or forbear from doing under the provisions of any law.
Assuming that the respondents in the present case are public
servants, it is said that the statutory duties which it is
incumbent upon them to discharge are precisely the duties
which are laid down in the impugned Act itself. There is
no legal obligation on their part to abstain from exercising
the powers conferred upon them by the impeached enact-
ment which the court can be called upon to enforce. These
is really not much substance in this argument, for according
to the petitioner the impugned Act is not valid at all and
consequently the respondents cannot take their stand on this
very Act to defeat the application for a writ in the nature
of a mandamus. Any way, article 32 of the Constitution
gives us very wide discretion in the matter of framing our
writs to suit the exigencies of particular cases, and the
application of the petitioner cannot be thrown out simply on
the
901
ground that ‘the proper writ or direction has not been
prayed for.
Proceeding now to the merits of the case, the first
contention that has been pressed before us by the learned
Counsel for the petitioner is that the effect of the Shola-
pur Spinning and Weaving Company Limited (Emergency Provi-
sions) Act, has been to take away from the company and its
shareholders, possession of -property and other interests in
commercial undertaking and vest the same in certain persons
who are appointed by the State, and the exercise of whose
powers cannot be directed or controlled in any way by the
shareholders. As the taking of possession is not for any
public purpose and no provision for compensation has been
made by the law which authorises it, such law, it is said,
violates the fundamental rights guaranteed under article
31 of the Constitution.
To appreciate the contention, it would be convenient
first of all to advert to the provisions of the first two
clauses of article 31 of the Constitution. The first clause
of article 31 lays down that “no person shall be deprived of
his property save by authority of law” The second clause
provides: “No property, movable or immovable, including any
interest in, or in any company owning, any commercial or
industrial undertaking, shall be taken possession of or
acquired for public purposes under any law authorising the
taking of such possession or such acquisition, unless the
law provides for compensation for the property taken posse-
sion of or acquired and either fixes the amount of the
compensation, or specifies the principles on which, and the
manner in which, the compensation is to be determined and
given.”
It is a right inherent in every sovereign to take and
appropriate private property belonging to individual citi-
zens for-public use. ‘this right, which is described as
eminent domain in American law, is like the power of
taxation, an offspring of political necessity, and it is
supposed to be based upon an implied reservation by Govern-
ment that private property acquired by its
902
citizens under its protection may be taken or its use con-
trolled for public benefit irrespective of the wishes of the
owner. Article 31 (2) of the Constitution prescribes a two-
fold limit within which such superior right of the State
should be exercised. One limitation imposed upon acquisition
or taking possession of private property which is implied in
the clause is that such taking must be for public purpose.
The other condition is that no property can be taken, unless
the law which authorises such appropriation contains a
provision for payment of compensation in the manner laid
down in the clause. So far as article S1 (2) is concerned,
the substantial question for our consideration is whether
the impugned legislation authorises any act amounting to
acquisition or taking possession of private property within
the meaning of the clause.
It cannot be disputed that acquisition means and implies
the acquiring of the entire title of the expropriated owner,
whatever the nature or extent of that title might be. The
entire bundle of rights which were vested in the original
holder would pass on acquisition to the acquirer leaving
nothing in the former. In taking possession on the other
hand, the title to the property admittedly remains in the
original holder, though he is excluded from possession or
enjoyment of the property. Article 31 (,?) of the Constitu-
tion itself makes a clear distinction between acquisition of
property and taking possession of it for a public purpose,
though it places both of them on the same footing in the
sense that a legislation authorising either of these acts
must make provision for payment of compensation to the
displaced or expropriated holder of the property. In the
context in which the word “acquisition” appears in article
31 (2), it can only mean and refer to acquisition of the
entire interest of the previous holder by transfer of title
and I have no hesitation in holding that there is no such
acquisition either as regards the property of the company or
of the shareholders in the present case. The question,
therefore, narrows down to this as to whether the legisla-
tion in
903
question has authorised the taking of possession of any
property or interest belonging to the petitioner.
It is argued by the learned Attorney-General that the
taking of possession as contemplated by article 31 (2) means
the taking of possession of the entire bundle of rights
which the previous holder had, by excluding him from every
part or item thereof. If the original holder is still left
to exercise his possession with regard to some of the rights
which were within the folds of his title, it would not
amount to taking possession of the property for purposes of
article 31 (2) of the Constitution. Having laid down this
proposition of law, the learned Attorney-General has taken
us through the various provisions of the impugned Act and
the contention advanced by him substantially is that nei-
ther the company nor the shareholders have been dispossessed
from their property by reason of the enactment. As regards
the properties of the company, the directors, who have been
given the custody of the property, effects and actionable
claims of the company, are, it is said, to exercise their
powers not in their own right but as agents of the company,
whose beneficial interest in all its assets has not been
touched or taken away at all. No doubt the affairs of the
company are to be managed by a body of directors appointed
by the State and not by the company, but this, it is argued,
would not amount to taking possession of any property or
interest within the meaning of article 31 (2). Mr. Chari on
the other hand, has contended on behalf of the petitioner
that after the management is taken over by the statutory
directors, it cannot be said that the company still retains
possession or control over its property and assets. Assuming
that this State management was imposed in the interests of
the shareholders themselves and that the statutory directors
are acting as the agents of the company, the possession of
the statutory directors could not, it is argued, be regarded
in law as possession of the company so long as they are
bound to act in obedience to the dictates of the Central
Government and not of the company itself in the administra-
tion of its affairs. Possession of an
904
agent, it is said, cannot juridically be the possession of
the principal, if the agent is to act not according to the
commands or dictates of the principal, but under the direc-
tion of an exterior authority.
There can be no doubt that there is force in this con-
tention, but as I have indicated at the outset, we are not
concerned in this case with the larger question as to how
far the inter-position of this statutory management and
control amounts to taking possession of the property and
assets belonging to the company. The point for our consider-
ation is a short one and that is whether by virtue of the
impugned legislation any property or interest of the peti-
tioner himself, as a shareholder of the company, has been
taken possession of by the State or an authority appointed
under it, as contemplated by article 31 (2) of the Constitu-
tion.
The petitioner as a shareholder has undoubtedly an
interest in the company. His interest is represented by the
share he holds and the share is movable property according
to the Indian Companies Act with all the incidence of such
property attached to it. Ordinarily, he is entitled to enjoy
the income arising from the shares in the shape of divi-
dends; the share like any ‘other marketable commodity can be
sold or transferred by way of mortgage or pledge. The hold-
ing of the share in his name gives him the right to vote at
the election of directors and thereby take a part, though
indirectly, in the management of the company’s affairs. If
the majority of shareholders sides with him, he can have a
resolution passed which would be binding on the company, and
lastly, he can institute proceedings for winding up of the
company which may result in a distribution of the net assets
among the shareholders.
It cannot be disputed that the petitioner has not been
dispossessed in any sense of the term of the shares he
holds. Nobody has taken the shares away from him. His
legal and beneficial interest in respect to the shares he
holds is left intact. If the company declares dividend, he
would be entitled to the same. He can sell or otherwise
dispose of the shares at any
905
time at his option. The impugned Act has affected him in
this way that his right of voting at the election of direc-
tors has been kept in abeyance so long as the management by
the statutory director continues; and as a result of
that, his right to participate in the management of the
company has been abridged to that extent. His rights to
pass resolutions or to institute winding up proceedings have
also been restricted though they are not wholly gone; these
rights can be exercised only with the consent or sanction of
the Central Government. In my opinion, from the facts
stated above, it cannot be held that the petitioner has been
dispossessed from the property owned by him. I may apply the
test which Mr. Chari himself formulated. If somebody had
taken possession of the petitioner’s shares and was clothed
with the authority to exercise all the powers which could be
exercised by the holder of the shares under law, then even
if he purported to act as the petitioner’s agent and exer-
cise these powers for his benefit, the possession of such
person would not have been the petitioner’s possession if he
was bound to act not under the directions of the petitioner
or in obedience to his commands but under the directions of
some other person or authority. There is no doubt whatsoever
that is not the position in the present case. The State
has not usurped the shareholders’ right to vote or vested it
in any other authority. The State appoints directors of its
own choice but that it does, not in exercise of the share-
holders’ right to vote but in exercise of the powers vested
in it by the impugned Act. Thus there has been no dispos-
session of the shareholders from their right of voting at
all. The same reasoning applies to the other rights of the
shareholders spoken of above, namely, their right of passing
resolutions and of presenting winding up petition. These
rights have been restricted undoubtedly and may not be
capable of being exercised to the fullest extent as long as
the management by the State continues. Whether the restric-
tions are such as would bring the case within
116
906
the mischief of article 19 (1) (f) of the Constitution, 1
will examine presently; but 1 have no hesitation in holding
that they do not amount to dispossession of the shareholders
from these rights in the sense that the rights have been
usurped by other people who are exercising them in place of
the displaced shareholders.
In the view that I have taken it is not necessary to
discuss whether we can accept as sound the contention put
forward by the learned Attorney-General that the word
“property” as used in article 31 of the Constitution con-
notes the entire property, that is to say the totality of
the rights which the ownership of the object connotes.
According to Mr. Setalvad, if a shareholder is not deprived
of the entirety of his rights which he is entitled to exer-
cise by reason of his being the owner or holder of the share
and some rights, however insignificant they might be, still
remain in him, there cannot be any dispossession as contem-
plated by article 31(2). It is difficult, in my opinion, to
accept the contention formulated in such broad terms. The
test would certainly be as to whether the owner has been
dispossessed substantially from the rights held by him or
the loss is only with regard to some minor ingredients of
the proprietory right. It is relevant to refer in this
connection to an observation made by Rich J. in a Full Bench
decision of the High Court of Australia,(1) where the ques-
tion arose as to whether the taking of exclusive possession
of a property for an indefinite period of time by the Com-
monwealth of Australia under Reg. 54 of the National Securi-
ty Regulation amounted to acquisition of property within the
meaning of placitum 31, section 51, of the Commonwealth
Constitution. The majority of the Full Bench answered the
question in the affirmative and the main reason upon which
the majority decision was based is thus expressed in the
language of Rich J.–
“Property, in relation to land, is a bundle of rights
exercisable with respect to the land. The tenant of an
unencumbered estate in fee simple in possession has the
largest possible bundle. But there is nothing in
(1) See Minister of Stain for the Army v. Dalziel, 68 C L.R.
p. 261,
907
the placitum to suggest that the legislature was intended to
be at liberty to free itself from the restrictive provisions
of the placitum by taking care to seize something short of
the whole bundle owned by the person whom it was expropriat-
ing.”
It is not, however, necessary for my purpose to pursue
the matter any further, as in my opinion there has been no
dispossession of the rights of a shareholder in the present
case.
Mr. Chari in course of his opening relied exclusively on
clause (2) of article 31 of the Constitution. During his
reply, however, he laid some stress on clause (1) of the
article as well, and his contention seems to be that there
was deprivation of property in the present case in contra-
vention of the terms of this clause. It is difficult to see
what exactly is the contention of the learned Counsel and in
which way it assists him for purposes of the present case.
It has been argued by the learned Attorney-General that
clause (1) of article 31 relates to a power different from
that dealt with under clause (2). According to him, what
clause (1) contemplates is confiscation or destruction of
property in exercise of what are known as ‘police powers’ in
American law, for which no payment of compensation is neces-
sary. I do not think it proper for purposes of the present
case to enter into a discussion on this somewhat debatable
point which has been raised by the learned Attorney-General.
In interpreting the provisions of our Constitution, we
should go by the plain words used by the Constitution-makers
and the importing of expressions like ‘police power ; which
is a term of variable and indefinite connotation in American
law can only make the task of interpretation more difficult.
It is also not necessary to express any opinion as to wheth-
er clauses (1) and (2) of article 31 relate to exercise of
different kinds of powers or they are to be taken as cumula-
tive provisions in relation to the same subjectmatter,
namely, compulsory acquisition of property. If the word
“deprived” as used in clause (1) connotes the idea of de-
struction or confiscation of property, obviously no such
thing has happened in the present
908
case. Again if clauses (1) and (2) of article 31 have to be
read together and “deprivation” in clause (1) is given the
same meaning as compulsory acquisition in clause (2), clause
(1), which speaks neither of compensation nor of public
purpose, would not by itself, and apart from clause (2),
assist the petitioner in any way. If the two clauses are
read disjunctively, the only question that may arise in
connection with clause (1) is whether or not the depriva-
tion of property is authorised by law. Mr. Chari has raised
a question relating to the validity of the legislation on
the ground of its not being covered by any of the items in
the legislative list and to this question I would advert
later on; but apart from this, clause (1) of article 31 of
the Constitution seems to me to be altogether irrelevant
for purposes of the petitioner’s case.
This leads me to the consideration of the next point
raised by Mr. Chari, namely, whether these restrictions
offend against the provision of article 19(1)(f) of the
Constitution.
Article 19(1) of the Constitution enumerates the dif-
ferent forms of individual liberty, the protection of which
is guaranteed by the Constitution. The remaining clauses of
the article prescribe the limits that may be placed upon
these liberties by law, so that they may not conflict with
public welfare or general morality. Article 19(1)(f)
guarantees to all citizens ‘ the right to acquire, hold or
dispose of property.’ Any infringement of this provision
would amount to a violation of the fundamental rights,
unless it comes within the exceptions provided for in clause
(5) of the article. That clause permits the imposition of
reasonable restrictions upon the exercise of such righ
teither in the interests of the general public or for the
protection of the interests of any Scheduled Tribe. Two
questions, therefore, arise in this connection: first,
whether the restrictions that have been imposed upon the
rights of the petitioner as a shareholder in the company
under the Sholapur Act amount to infringement of his.right
to acquire, hold or dispose of property within the meaning
of article 19(1)(f) of the Constitution and
909
secondly, if they do interefere with such rights, whether
they are covered by the exceptions 1aid down in clause (5)
of the article.
So far as the first point is concerned, it is quite
clear that there is no restriction whatsoever upon the
petitioner’s right to acquire and dispose of any property.
The shares which he holds do remain his property and his
right to dispose of them is not lettered in any way. If to
‘hold’ a property means to possess it, there is no infringe-
ment of this right either, for, as I have stated already,
the acts complained of by the petitioner do not amount to
dispossession of him from any property in the eye of law. It
is argued that ‘holding’ includes enjoyment of all benefits
that are ordinarily attached to the ownership of a property.
The enjoyment of the fruits of a property is undoubtedly an
incident of ownership. The pecuniary benefit, which a
share. holder derives from the shares he holds, is the
dividend and there is no limitation on the petitioner’s
right in this respect. The petitioner undoubtedly has been
precluded from exercising his right of voting at the elec-
tion of directors so long as the statutory directors contin-
ue to manage the affairs of the company. He cannot pass an
effective resolution in concurrence with the majority of
shareholders without the consent or sanction of the Central
Government and without such sanction, there is also a disa-
bility on him to institute any winding up proceedings in a
court of law.
In my opinion, these are rights or privileges which are
appurtenant to or flow from the ownership of property, but
by themselves and taken independently, they cannot be reck-
oned as property capable of being acquired, held or disposed
of as is contemplated by article 19 (1) (f) of the Constitu-
tion. I do not think that there has been any restriction on
the rights of a shareholder to hold, acquire or dispose of
his share by reason of the impugned enactment and conse-
quently article 19 (1) (f) of the Constitution is of no
assistance to the petitioner. In this view, the other point
does not arise for consideration, but I may state here that
even if it is conceded for argument’s sake that the
910
disabilities imposed by the impugned legislation amount
to restrictions on proprietory right, they may very well be
supported as reasonable restraints imposed in the interests
of the general public, viz., to secure the supply of a
commodity essential to the community and to prevent a seri-
ous unemployment amongst a section of the people. They are,
therefore, protected completely by clause (5)of article 19.
This disposes of the second point raised by Mr. Chari.
The next point urged on behalf of the petitioner raises
an important question of constitutional law which turns upon
the construction of article 14 of the Constitution. It is
urged by the learned Counsel for the petitioner that the
Sholapur Act is a piece of discriminatory legislation which
offends against the provision of article 14 of the Constitu-
tion. Article 14 guarantees to all persons in the territo-
ry of India equality before the law and equal protection of
the laws and its entire object, it is said, is to prevent
any person or class of persons from being singled out as a
special subject of discriminatory legislation. It is
pointed out that the law in this case has selected one
particular company and its shareholders and has taken away
from them the right to manage their own affairs, but the
same treatment has not been meted out to all other companies
or shareholders situated in an identical manner.
Article 14 of the Constitution, it may be noted, corre-
sponds to the equal protection clause in the Fourteenth
Amendment of the American Constitution which declares that
“no State shall deny to any person within its jurisdiction
the equal protection of the laws.” We have been referred in
course of the arguments on this point by the learned Counsel
on both sides to quite a number of cases decided by the
American Supreme Court, where questions turning upon the
construction of the ‘equal protection’ clause in the Ameri-
can Constitution came up for consideration. A detailed
examination of these reports is neither necessary nor prof-
itable for our present purpose but we think we can cull a
few general principles from some of the pronouncements of
911
the American Judges which might appear to us to be consonant
with reason and help us in determining the true meaning and
scope of article 14 of our Constitution.
I may state here that so far as the violation of the
equality clause in the Constitution is concerned, the peti-
tioner, as a shareholder of the company, has as much right
to complain as the company itself, for his complaint is
that apart from the discrimination made against the
company, the impugned legislation has discriminated
against him and the other shareholders of the company
as a group vis-a-vis the shareholders of all other
companies governed by the Indian Companies Act who have not
been treated in a similar way. As the discriminatory treat-
ment has been in respect to the shareholders of this company
alone, any one of the shareholders, whose interests are thus
vitally affected, has a right to complain and it is immate-
rial that there has been nodiscrimination inter se amongst
the shareholders themselves.
It must be admitted that the guarantee against the
denial of equal protection of the laws does not mean that
identically the same rules of law should be made applicable
to all persons within the territory of India in spite of
differences of circumstances and conditions. As has been
said by the Supreme Court of America, “equal protection of
laws is a pledge of the protection of equal laws(‘),” and
this means “subjection to equal laws applying alike to all
in the same situation(“).” In other words, there should be
no discrimination between one person and another if as
regards the subject-matter of the legislation their position
is the same. I am unable to accept the argument of Mr. Chari
that a legislation relating to one individual or one family
or one body corporate would per se violate the guarantee of
the equal protection rule. There can certainly be a law
applying to one person or to one group of persons and it
cannot be held to be
(1) Yick Wo v. Hopkins, 118 U.S. at 369
(2) Southern Raliway Company v. Greene, 216 U.S 400,412.
912
unconstitutional if it is not discriminatory in its charac-
ter (1). It would be bad law “if it arbitrarily selects one
individual or a class of individuals, one corporation or a
class of corporations and visits a penalty upon them,
which is not imposed upon others guilty of like
delinquency(2).” The legislature undoubtedly has a wide
field of choice in determining and classifying the subject
of its laws, and if the law deals alike with all of a cer-
tain class, it is normally not obnoxious to the charge of
denial of equal protection; but the classification should
never be arbitrary. It must always rest upon some real and
substantial distinction bearing a reasonable and just rela-
tion to the things in respect to which the classification is
made; and classification made without any’ substantial basis
should be regarded as invalid(3).
The question is whether judged by this test the im-
pugned Act can be said to have contravened the provision
embodiedin article 14 of the Constitution. Obviously the
Act purports to make provisions which are of a drastic
character and against the general law of the land as laid
down in the Indian Companies Act, in regard to the admin-
istration and management of the affairs of one company in
indian territory. The Act itself gives no reason for the
legislation but the Ordinance, which was a precursor of the
Act expressly stated why the legislation was necessary. It
said that owing to mismanagement and neglect, a situation
had arisen in the affairs of the company which prejudicially
affected the production of an essential commodity and
caused serious unemployment amongst a certain section of the
community. Mr. Chari’s contention in substance is that there
are various textile companies in India situated in a simi-
lar manner as the Sholapur company, against which the same
charges could be brought and for the control and regulation
of which all the reasons that are mentioned in the preamble
to the Ordinance
(1) Willis Constitutional Law, p. 580.
(2) Gulf C. & S. F.R. Co. v. Ellis. 163 U.S, 150, at 159.
(3) Southern Railway Co. v. Greene, 216 US. 400, at 412
913
could be applied. Yet, it is said, the legislation has been
passed with regard to this one company alone. The argument
seems plausible at first sight, but on a closer examination
I do not think that I can accept it as sound. It must be
conceded that the Legislature has a wide discretion in
determining the subject matter of its laws. It is an
accepted doctrine of the American Courts and which seems to
me to be well founded on principle, that the presumption
is favour of the constitutionality of an enactment and the
burden is upon him who attacks it to show that there has
been a transgression of constitutional principles. As was
said by the Supreme Court of America in Middleton v. Texas
Power and Light Company(1), ‘It must be presumed that a
Legislature understands and correctly appreciates the
needs of its own people, that its laws are directed to
problems made manifest by experience and that its
discriminations are based upon adequate grounds.”
This being the position, it is for the petitioner to
establish facts which would prove that the selection
of this particular subject by the Legislature is unreasona-
ble and based upon arbitrary grounds. No allegations were
made in the petition and no materials were placed before us
to show as to whether there are other companies in India
which come precisely under the same category as the Sholapur
Spinning and Weaving Company and the reasons for imposing
control upon the latter as mentioned in the preamble to the
Ordinance are applicable to them as well. Mr. Chari argues
that these are matters of common knowledge of which we
should take judicial notice. I do not think that this is
the correct line of approach. It is quite true that the
Legislature has, in this instance, proceeded against one
company only and its shareholders; but even one corporation
or a group of persons can be taken as a class by itself for
the purpose of legislation, provided it exhibits some excep-
tional features which are not possessed by others. The
courts should prima facie
(1) 219 u.s. 152 at p. 157.
117
914
lean in favour of constitutionality and should support the
legislation if it is possible to do so on any reasonable
ground, and it is for the party who attacks the validity of
the legislation to place all materials before the court
which would go to show that the selection is arbitrary and
unsupportable. Throwing out of vague hints that there may
be other instances of similar nature is not enough for this
purpose. We have not even before us any statement on oath
by the petitioner that what has been alleged against this
particular company may be said against other companies as
well. If there was any such statement, the respondents could
have placed before us the whole string of events that led up
to the passing of this legislation. If we are to take judi-
cial notice of the existence of similar other badly managed
companies, we must take notice also of the facts which
appear in the parliamentary proceedings in connection with
this legislation which leave been referred to by my learned
brother, Fazl Ali J. in his judgment and which would go to
establish that the facts connected with this corporation are
indeed exceptional and the discrimination that has been made
can be supported on just and reasonable grounds. I purpose-
ly refrain from alluding to these facts or basing my deci-
sion thereon as we had no opportunity of investigating them
properly during the course of the hearing. As matters
stand, no proper materials have been placed before us by
either side and as I am unable to say that the legislature
cannot be supported on any reasonable ground, I think it to
be extremely risky to overthrow it on mere suspicion or
vague conjectures. If it is possible to imagine or think of
cases of other companies where similar or identical condi-
tions might prevail, it is also not impossible to conceive
of something” peculiar” or “unusual” to this corporation
which led the legislature to intervene in its affairs. As
has been laid down by the Supreme Court of America, “The
Legislature is free to recognise degrees of harm and it may
confine its restrictions to those cases where the need is
deemed to be the clearest”(1). We should
(1) Radics, v. New York, 264 U.S.
915
bear in mind that a corporation, which is engaged in produc-
tion of a commodity vitally essential to the community, has
a social character of its own, and it must not be regarded
as the concern primarily or only of those who invest their
money in it. If its possibilities are large and it had a
prosperous and useful career for a long period of time and
is about to collapse not for any economic reason but through
sheer perversity of the controlling authority, one cannot
say that the legislature has no authority to treat it as a
class by itself and make special legislation applicable to
it alone in the interests of the community at large. The
combination of circumstances which are present here may be
of such unique character as could not be existing in any
other institution. But all these, I must say, are matters
which require investigation on proper materials which we
have not got before us in the present case. In these circum-
stances I am constrained to hold that the present applica-
tion must fail on the simple ground that the petitioner made
no attempt to discharge the primafacie burden that lay upon
him and did not place before us the materials upon which a
proper decision on the point could be arrived at. In my
opinion , therefore, the attack on the legislation on the
ground of the denial of equal protection of law cannot
succeed.
The only other thing that requires to be considered is
the argument of Mr. Chari that the law in question is in-
valid as it is not covered by any of the items in the legis-
lative list. In my opinion, this argument has no substance.
What the law has attempted to do is to regulate the affairs
of this company by laying down certain special rules for its
management and administration. It is fully covered by item
No. 43 of the Union List which speaks inter alia of “incor-
poration, regulation and winding up of trading
corporations.”
The result is that the application fails and is dis-
missed with costs.
DAS J.–As I have arrived at a conclusion different from
that reached by the majority of this Court, I
916
consider it proper, out of my respect for the opinion of my
learned colleagues, to state the reasons for my conclusions
in some detail.
On January 9, 1950, the Governor-General of India,
acting under section 42 of the Government of India Act,
1935, promulgated an Ordinance, being Ordinance No. II of
1950, concenrning the Sholapur Spinning and Weaving Company,
Limited, (hereafter referred to as the said company). The
preambles and the provisions of the Ordinance have been
referred to in the judgment just delivered by Mukherjea J.
and need not be recapitulated by me in detail. Suffice it
to say that the net result of the Ordinance was that the
managing agents of the said company were dismissed, the
directors holding office at the time automatically vacated
their office, the Government was authorised to nominate
directors, the rights of the shareholders of this company
were curtailed in that it was made unlawful for them to
nominate or appoint any director, no resolution passed by
them could be given effect to without the sanction of the
Government and no proceeding for winding up could be taken
by them without such sanction, and power was given to the
Government to further modify the provisions of the Indian
Companies Act in its application to the said company.
On the very day that the Ordinance was promulgated the
Central Government acting under section 15 delegated all
its powers to the Government of Bombay. On January 10,
1950, the Government of Bombay appointed Respondents Nos. 3
to 7 as the new directors. On March 2, 1950, Respondent No.
5 having resigned, Respondent No. 8 was appointed a director
in his place and on the same day Respondent No. 9 was also
appointed as a director. In the meantime the new Constitu-
tion had come into force on January 26, 1950. On February
7, 1950, the new directors passed a resolution sanctioning a
call for Rs. 50 on the preference shares. Thereupon a suit
being Suit No. 438 of 1950 was filed in the High Court of
917
Bombay by one Dwarkadas Shrinivas against the new directors
challenging the validity of the Ordinance and the right of
the new directors to make the call. Bhagwati J. who tried
the suit held that the Ordinance was valid and dismissed the
suit. An appeal (Appeal No. 48 of 1950) was taken from that
decision which was dismissed by a Division Bench (Chagla
C.J. and Gajendragadkar J.) on August 29, 1950. In the
meantime, on April 7, 1950, the Ordinance was replaced by
Act No. XXVIII of 1950. The Act substantially reproduced
the provisions of the Ordinance except that the preambles to
the Ordinance were omitted. On May 29, 1950, the present
petition was filed by one Chiranjitlal Chowdhuri.
The petitioner claims to be a shareholder of the said
company holding 80 preference shares and 3 ordinary shares.
The preference shares, according to him, stand in the name
of the Bank of Baroda to whom they are said to have been
pledged. As those preference shares are not registered in
the name of the petitioner he cannot assert any right as
holder of those shares. According to the respondents, the
petitioner appears on the register as holder of only one
fully paid up ordinary share. For the purposes of this
application, then, the petitioner’s interest in the said
company must be taken as limited to only one fully paid up
ordinary share. The respondents are the Union of India, the
State of Bombay and the new directors besides the company
itself. The respondent No. 5 having resigned, he is no
longer a director and has been wrongly impleaded as respond-
ent. The reliefs prayed for are that the Ordinance and the
Act are ultra vires and void, that the Central Government
and the State Government and the directors be restrained
from exercising any powers under the Ordinance or the Act,
that a writ of mandamus be issued restraining the new direc-
tors from exercising any powers under the Ordinance or the
Act or from in any manner interfering with the management of
the affairs of the company under colour of or in purported
exercise of any powers under the said Ordinance or Act.
918
The validity of the Ordinance and the Act has been
challenged before us on the following grounds:–(i) that it
was not within the legislative competence–(a) of the Gover-
nor-General to promulgate the Ordinance, or (b) of the
Parliament to enact the Act, and (ii) that the Ordinance and
the Act infringe the fundamental rights of the shareholders
as well as those of the said company and are, therefore,
void and inoperative under article 13.
Re (i)-.-The present application has been made by the
petitioner under article 52 of the Constitution. Sub-section
(1) of that article guarantees the right to move this Court
by appropriate proceedings for the enforcement of the rights
conferred by Part [1] of the Constitution. Sub-section (2)
empowers this Court to issue directions or orders or writs,
including certain specified writs, whichever may be appro-
priate, for the enforcement of any of the rights conferred
by that Part. It is clear, therefore, that article 32 can
only be invoked for the purpose of the enforcement of the
fundamental rights. Article 32 does not permit an applica-
tion merely for the purpose of agitating the competence of
the appropriate legislature in passing any particular enact-
ment unless the enactment also infringes any of the funda-
mental rights. In this case the claim is that the fundamen-
tal rights have been infringed and, therefore, the question
of legislative competence may also be incidentally raised on
this application. It does not appear to me, however, that
there is any substance in this point for, in my opinion,
entry 33 of List I of the Seventh Schedule to the Government
of India Act, 1935, and the corresponding entry 43 of the
Union List set out in the Seventh Schedule to the Constitu-
tion clearly support these pieces of legislation as far as
the question of legislative competency is concerned. Sec-
tions 83A and 83-B of the Indian Companies Act can only be
supported as valid on the ground that they regulate the
management of companies and are, therefore, within the said
entry. Likewise, the provisions of the Ordinance and the
Act relating to the appointment of directors by the
919
Government and the curtailment of the shareholders’ rights
as regards the election of directors, passing of resolutions
giving directions with respect to the management of the
company and to present a winding up petition are matters
touching the management of the company and, as such, within
the legislative competence of the appropriate legislative
authority. In my judgment, the Ordinance and the Act cannot
be held to be invalid on the ground of legislative incompe-
tency of the authority promulgating or passing the same.
Re (ii)–The fundamental rights said to have been in-
fringed are the right to acquire, hold and dispose of
property guaranteed to every citizen by Article 19(1)(f) and
the right to property secured by article 31, In Gapalan’s
case (1) 1 pointed out that the rights conferred by article
19 (1) (a) to (e) and (g) would be available to the citizen
until he was, under article 21, deprived of his life or
personal liberty according to procedure established by law
and that the right to property guaranteed by article 19
(1)(f) would likewise continue until the owner was, under
article 31, deprived of such property by authority of law.
Therefore, it will be necessary to consider first whether
the shareholder or the company has been deprived of his or
its property by authority of law under Article 31 for, if he
or it has been so deprived, then the question of his or its
fundamental right under article 19 (1) (f) will not arise.
The relevant clauses of article 31 run as follows
“31. (1) No person shall be deprived of his property
save by authority of law.
(2) No property, movable or immovable, including any
interest in, or in any company owning, any commercial or
industrial undertaking, shall be taken possession of or
acquired for public purposes under any law authorisingthe
taking of such possession or such acquisition, unless the
law provides for compensation for the property taken posses-
sion of or acquired
(1) [1950] S.C.R. 88
920
and either fixes the amount of the compensation, or speci-
fies the principles on which, and the manner in which, the
compensation is to be determined and given.”
Article 31 protects every person, whether such’ person
is a citizen or not. and it is wide enough to cover a natu-
ral person as well as an artificial person. Whether or not,
having regard to the language used in article 5, a corpora-
tion can be called a citizen and as such entitled to the
rights guaranteed under article 19, it is quite clear that
the corporation is protected by article 31, for that article
protects every “person” which expression certainly includes
an artificial person.
The contention of the peitioner is that the Ordinance
and the Act have infringed his fundamental right to property
as a shareholder in the said company. Article 31, like
article 19(1) (f), is concerned with “property “. Both the
articles are in the same chapter and deal with fundamental
rights. Therefore, it is reasonable to say that the word
“property” must be given the same meaning in construing
those two articles. What, then, is the meaning of the word
“property”? It may mean either the bundle of rights which
the owner has over or in respect of a thing, tangible or
intangible, or it may mean the thing itself over or in
respect of which the owner may exercise these rights. It is
quite clear that the Ordinance or the Act has not deprived
the shareholder of his share itself. The share still be-
longs to the shareholder. He is still entitled to the
dividend that may be declared. He can deal with or dispose
of the share as he pleases. The learned Attorney-General
contends that even if the other meaning of the word “proper-
ty” is adopted, the shareholder has not been deprived of
his” property” understood in that sense, that is to say he
has not been deprived of the entire bundle of rights which
put together constitute his “property “. According to him
the” property” of the shareholder, besides and apart from
his right to elect directors, to pass resolutions giving
directions to the directors and to present a winding up
petition, consists in his right to participate
921
in the dividends declared on the profits made by the working
of the company and, in case of winding up, to participate in
the surplus that may be left after meeting the winding up
expenses and paying the creditors. Those last mentioned
rights, he points out, have not been touched at all and the
shareholder can yet deal with or dispose of his shares as he
pleases and is still entitled to dividends if and when
declared. Therefore, concludes the learned Attorney-General,
the shareholder cannot complain that he has been deprived of
his “property”, for the totality of his rights have not been
taken away. The argument thus formulated appears to me to
be somewhat too wide, for it will then permit the legisla-
ture to authorise the State to acquire or take possession,
without any compensation, of almost the entire rights of the
owner leaving to him only a few subsidiary rights. This
result could not, in my opinion, have been intended by our
Constitution. As said by Rich J. in the Minister for State
for the Army v. Datziel (i) while dealing with section 31
(XXXI) of the Australian Constitution–
“Property, in relation to land, is a bundle of rights
exercisable with respect to the land. The tenant of an
unencurnbered estate in fee simple in possession has the
largest possible bundle. But there is nothing in the placi-
tum to suggest that the legislature was intended to be at
liberty to free itself from the restrictive provisions of
the placitum by taking care to seize something short of the
whole bundle owned by the person whom it is expropriating.”
The learned Judge then concluded as follows at p. 286
:-
“It would in my opinion, be wholly inconsistent with the
language of the placitum to hold that whilst preventing the
legislature from authorising the acquisition of a citi-
zen’s full title except upon just terms, it leaves it open
to the legislature to seize possession and enjoy the full
fruits of possession indefinitely, on any terms it chooses
or upon no terms at all.”
(1) (1943-1944) 68 C,L.R. 261.
118
922
In my judgment the question whether the Ordinance or the
Act has deprived the shareholder of his “property” must
depend, for its answer, on whether it has taken away the
substantial bulk of the rights constituting his “property”.
In other words, if the rights taken away by the Ordinance
or the Act are such as would render the rights left un-
touched illusory and practically valueless, then there can
be no question that in effect and substance the “property”
of the shareholder has been taken away by the Ordinance or
the Act. Judged by this test can it be said that the right
to dispose of the share and the right to receive dividend,
if any, or to participate in the surplus in the case of
winding up that have been left to the shareholder are illu-
sory or practically valueless, because the right to control
the management by directors elected by him, the right to
pass resolutions giving directions to the directors and the
right to present a winding up petition have, for the time
being, been suspended ? I think not. The right still pos-
sessed by the shareholder are the most important of the
rights constituting his “property”, although certain privi-
leges incidental to the ownership have been put in abeyance
for the time being. It is, in my opinion, impossible to say
that the Ordinance or the Act has deprived the shareholder
of his “property” in the sense in which that word is used in
article 19 (1) (f) and article 31. The curtailment of the
incidental privileges, namely, the right to elect directors,
to pass resolutions and to apply for winding up may well be
supported as a reasonable restraint on the exercise and
enjoyment of the shareholder’s right of property imposed in
the interests of the general public under article 19 (5),
namely, to secure the supply of an essential commodity and
to prevent unemployment.
Learned counsel for the petitioner, however, urges
that the Ordinance and the Act have infringed the sharehold-
er’s right to property in that he has been deprived of his
valuable right to elect directors, to give directions by
passing resolutions and, in case of apprehension of loss, to
present a petition for the winding
923
up of the company. These rights, it is urged, are by them-
selves “property” and it is of this “property” that the
shareholder is said to have been deprived bythe State under
a law which does not provide for payment of compensation and
which is, as such, an infraction of the shareholder’s funda-
mental right to property under article 31 (2). Two ques-
tions arise on this argument. Are these rights “property”
within the meaning of the two articles I have mentioned ?
These rights, as already stated, are, no doubt, privileges
incidental to the ownership of the share which itself is
property, but it cannot, in my opinion, be said that these
rights, by themselves, and apart from the share are “proper-
ty” within the meaning of those articles, for those articles
only regard that as “property” which can by itself be ac-
quired, disposed of or taken possession of. The right to
vote for the election of directors, the right to pass reso-
lutions and the right to present a petition for winding up
are personal rights flowing from the ownership of the share
and cannot by themselves and apart from the share be ac-
quired or disposed of or taken possession of as contemplated
by those articles. The second question is assuming that
these rights are by themselves “property “, what is the
effect of the Ordinance and the Act on such “property”. It
is nobody’s case that the Ordinance or the Act has autho-
rised any acquisition by the State of this “property” of the
shareholder or that there has in fact been any such acquisi-
tion. The only question then is whether this “property” of
the shareholder, meaning thereby only the rights mentioned
above, has been taken possession of by the State. It will
be noticed that by the Ordinance or the Act these particular
rights of the shareholder have not been entirely taken away,
for he can still exercise these rights subject 0 course, to
the sanction of the Government. Assuming, however, that
the fetters placed on these rights are tantamount to the
taking away of the rights altogether, there is nothing to
indicate that the Ordinance or the Act has, after taking
away the rights from the shareholder,
924
vested them in the State or in any other person named by it
so as to enable the State or any other person to exercise
those rights of the shareholder. The Government undoubtedly
appoints directors under the Act, but such appointment is
made in exercise of the the powers vested in the Government
by the Ordinance or the Act and not in exercise of the
shareholder’s right. As already indicated, entry 43 in the
Union List authorises Parliament to make laws with respect,
amongst other things, to the regulation of trading corpora-
tions. There was, therefore, nothing to prevent Parliament
from amending the Companies Act or from passing a new law
regulating the management of the company by providing that
the directors, instead of being elected by the shareholders,
should be appointed by the Government. The new law has
undoubtedly cut down the existing rights of the shareholder
and thereby deprived the shareholder of his unfettered right
to appoint directors or to pass resolutions giving direc-
tions or to present a winding up petition. Such depriva-
tion, however, has not vested the rights in the Government
or its nominee. What has happened to the rights of the
shareholder is that such rights have been temporarily de-
stroyed or kept in abeyance. The result, therefore, has been
that although the shareholder has been for the time being
deprived of his “property”, assuming these rights to be
“property”, such “property” has not been acquired or taken
possession of by the Government. If this be the result
brought about by the Ordinance and the Act, do they offend
against the fundamental rights guaranteed by article 31 ?
Article 31 (1) formulates the fundamental right in a nega-
tive form prohibiting the deprivation of property except by
authority of law. It implies that a person may be deprived
of his property by authority of law. Article 31 (2) prohib-
its the acquisition or taking possession of property for a
public purpose under any law, unless such law provides for
payment of compensation. It is suggested that clauses (1)
and (2)o[ article 31 deal with the same topic, namely,
compulsory acquisition or taking possession
925
of property, clause (2) being only an elaboration of clause
(1). There appear to me to be two objections to this sug-
gestion. If that were the correct view, then clause
(1).must be held to be wholly redundant and clause (2), by
itself, would have been sufficient. In the next place, such
a view would exclude deprivation of property otherwise than
by acquisition or taking of possession. One can conceive of
circumstances where the State may have to deprive a person
of his property without acquiring or taking possession of
the same. For example, in any emergency, in order to prevent
a fire spreading, the authorities may have to demolish an
intervening building. This deprivation of property is sup-
ported in the United States of America as an exercise of
“police power “.This deprivation of property is different
from acquisition or taking of possession of property which
goes by the name of “eminent domain” in the American Law.
The construction suggested implies that our Constitution has
dealt with only the law of “eminent domain “, but has not
provided for deprivation of property in exercise of police
powers’ ‘. I am not prepared to adopt such construction,
for I do not feel pressed to do so by the language used in
article 31. On the contrary, the language of clause (1) of
article 31 is wider than that of clause (2), for deprivation
of property may well be brought about otherwise than by
acquiring or taking possession of it. I think clause (1)
enunciates the general principle that no person shall be
deprived of his property except by authority of law, which,
put in a positive form, implies that a person may be de-
prived of his property, provided he is so deprived by au-
thority of law. No question of compensation arises under
clause (1). The effect of clause (2) is that only certain
kinds of deprivation of property, namely those brought
about by acquisition or taking possession of it, will not be
permissible under any law, unless such law provides for
payment of compensation. If the deprivation of property is
brought about by means other than acquisition or taking
possession of it, no compensation is required, provided
that such deprivation is by
926
authority of law. In this case, as already stated, although
the shareholder has been deprived of certain rights, such
deprivation has been by authority of law passed by a compe-
tent legislative authority. This deprivation having been
brought about otherwise than by acquisition or taking pos-
session of such rights, no question of compensation can
arise and, therefore, there can be no question of the
infraction of fundamental rights under article 31 (2). It
is clear, therefore, that so far as the shareholder is
concerned there has been no infringement of his fundamental
rights under article 19 (1) (f) or article 31, and the
shareholder cannot question the constitutionality of the
Ordinance or the Act on this ground.
As regards the company it is contended that the Ordi-
nance and the Act by empowering the State to dismiss the
managing agent, to discharge the directors elected by the
shareholders and to appoint new directors have in effect
authorised the State to take possession of the undertaking
and assets of the company through the new directors appoint-
ed by it without paying any compensation and, therefore,
such law is repugnant to article 31 (2) of our Constitution.
It is, however, urged by the learned Attorney-General that
the mills and all other assets now in the possession and
custody of the new directors who are only servants or agents
of the said company are, in the eye of the law, in the
possession and custody of the company and have not really
been taken possession of by the State. This argument,
however, overlooks the fact that in order that the posses-
sion of the servant or agent may be juridically regarded as
the possession of the master or principal, the servant or
agent must be obedient to, and amenable to the directions
of, the master or principal. If the master or principal has
no hand in the appointment of the servant or agent or has no
control over him or has no power to dismiss or discharge
him, as in this case, the possession of such servant or
agent can hardly, in law, be regarded as the possession of
the company(1). In this view of the
(1) See Elements of Law by Markby. 6th Edition. Para 371. p.
192.
927
matter there is great force in the argument that the proper-
ty of the company has been taken possession of by the State
through directors who have been appointed by the State in
exercise of the powers conferred by the Ordinance and the
Act and who are under the direction and control of the
State and this has been done without payment of any compen-
sation. The appropriate legislative authority was no doubt
induced to enact this law, because, as the preamble to the
Ordinance stated, on account of mismanagement and neglect, a
situation had arisen in the affairs of the company which had
prejudicially-affected the production of an essential com-
modity and had caused serious unemployment amongst a certain
section of the community, but, as stated by Holmes J. in
Pennsylvania Coal Company v. Mahon(1), “A strong public
desire to improve the public condition is not enough to
warrant achieving the desire by a shorter cut than the
constitutional. way of paying for the change.” Here, there-
fore, it may well be argued that the property of the company
having been taken possession of by the State in exercise of
powers conferred by a law which does not provide for payment
of any compensation, the fundamental right of the company
has, in the eye of the law, been infringed.
If the fundamental right of the company has been in-
fringed, at all, who can complain about such infringement ?
Primafacie the company would be the proper person to come
forward in vindication of its own rights. It is said that
the directors having been dismissed, the company cannot act.
This, however, is a misapprehension, for if the Act be void
on account of its being unconstitutional, the directors
appointed by the shareholders have never in law been dis-
charged and are still in the eye of the law the directors of
the company, and there was nothing to prevent them from
taking proceedings in the name of the company at their own
risk as to costs. Seeing that the directors have not come
forward to make the application on behalf of the company and
in its name the question arises whether
(1) 260 U,S. 393.
928
an individual shareholder can complain. It is well settled
in the United States that no one but those whose rights are
directly affected by a law can raise the question of the
constitutionality of that law. Thus in McCabe v.
Atchison(1) which arose out of a suit filed by five Negros
against five Railway Companies to restrain them from making
any distinction in service on account of race pursuant to an
Oklahoma Act known as ‘ ‘The Separate Coach Law,” in uphold-
ing the dismissal of the suit Hughes J. observed :–
“It is an elementary principle that in order to justify
the granting of this extraordinary relief, the complainants’
need of it and the absence of an adequate remedy at law must
clearly appear. The complaint cannot succeed because some-
one else may be hurt. Nor does it make any difference that
other persons who may be injured are persons of the same
race or occupation. It is the fact, clearly established,
of injury to the complainant–not to others -which justi-
fies judicial interference.”
In that case there was no allegation that anyone of the
plaintiffs had ever travelled on anyone of the rail roans or
had requested any accommodation in any of the sleeping cars
or that such request was refused. The same principle was
laid down in Jeffrey Manufacturing Company v. Blagg(2),
Hendrick v. MaCyland(3) and Newark Natural Gas and Fuel
Company v. The City of Newark(1). In each of these cases
the Court declined to permit the person raising the question
of constitutionality to do so on the ground that his rights
were not directly affected by the law or Ordinance in ques-
tion. On the other hand, in Truax v. Raich(5) and in Bu-
chanan v. Warley(5) the Court allowed the plea because in
both the cases the person raising it was directly affected.
In the first of the two last mentioned cases an Arizona Act
of 1914 requiring employers employing more than five workers
to employ not less than eighty per cent. native born citi-
zens was
(1) 235 u.s. 151. (4) 242 u.s. 403.
(2) 235 u.s. 571. (5) 239 u.s. 33.
(3) 235 U.S. 610 (6) 245 u.s. 60.
929
challenged by an alien who had been employed as a cook in a
restaurant. That statute made a violation of the Act by an
employer punishable. The fact that the employment was at
will or that the employer and not the employee was subject
to prosecution did not prevent the employee from raising the
question of constitutionality because the statute, if en-
forced, would compel the employer to discharge the employee
and, therefore, the employee was directly affected by the
statute. In the second of the two last mentioned cases a
city Ordinance prevented the occupation of a plot by a
colored person in a block where a majority of the residences
were occupied by white persons. A white man sold his
property in such a block to a Negro under a contract which
provided that the purchaser should not be required to accept
a deed unless he would have a right, under the laws of the
city, to occupy the same as a residence. The vendor sued
for specific performance and contended that the Ordinance
was unconstitutional. Although the alleged denial of con-
stitutional rights involved only the rights of coloured
persons and the vendor was a white person yet it was held
that the vendor was directly affected, because the Courts
below, in view of the Ordinance, declined to enforce his
contract and thereby directly affected his right to sell his
property. It is, therefore, clear that the constitutional
validity of a law can be challenged only by a person whose
interest is directly affected by the law. The question
then arises whether the infringement of the company’s
rights so directly affects its shareholders as to entitle
any of its shareholders to question the constitutional
validity of the law infringing the company’s rights. The
question has been answered in the negative by the Supreme
Court of the United States in Darnell v. The State of Indi-
ana(1). In that case the owner of a share in a Tennessee
corporation was not allowed to complain that an Indiana
law discriminated against Tennessee corporations in that it
did not make any allowance, as it did in the case of Indiana
corporations, where the corporation
(1) 226 U.S. 388.
119
930
had property taxed within the State. This is in accord
with the well established legal principle that a corporation
is a legal ‘entity capable of holding pro perty and of
suing or being sued and the corporators are not, in con-
templation of law, the owners of the assets of the corpora-
tion. In all the cases referred to above the question of
constitutionality was raised in connection with the equal
protection clause in the Fourteenth Amendment of the
American Federal Constitution. If such be the require-
ments of law in connection with the equal protection
clause which corresponds to our article 14, it appears
to me to follow that only a person who is the owner of
the property can raise the question of constitutionality
under article 31 of a law by which he is so deprived
of his property. If direct interest is necessary to permit
a person to raise the question of constitutionality under
article 14, a direct interest in the property will, I
apprehend, be necessary to entitle a person to challenge a
law which is said to infringe the right to that property
under article 31. In my opinion, although a shareholder
may, in a sense be interested to see that the company of
which he is a shareholder is not deprived of its property
he cannot, as held in Darnell v. Indiana(1), be heard to
complain, in his own name and on his own behalf, of the
infringement of the fundamental right to property of the
company, for, in law, his own right to property has not
been infringed as he is not the owner of the company’s
properties. An interest in the company owning an undertak-
ing is not an interest in the undertaking itself. The
interest in the company which owns an undertaking is the
“property” of the shareholder under article 31 (2), but the
undertaking is the property of the company and not that of
the shareholder and the latter cannot be said to have a
direct interest in the property of the company. This is the
inevitable result of attributing a legal personality to a
corporation. The proceedings for a writ in the nature of a
writ of habeas corpus appear to be somewhat different for
the
(1) 226 u.S. 338
931
rules governing those proceedings permit, besides the person
imprisoned, any person, provided he is not an utter strang-
er, but is at least a friend or relation of the imprisoned
person, to apply for that particular writ. But that special
rule does not appear to be applicable to the other writs
which require a direct and tangible interest in the appli-
cant to support his application. This must also be the case
where the applicant seeks to raise the question of the
constitutionality of a under articles 14, 19 and 31.
For the reasons set out above the present petitioner
cannot raise the question of constitutionality of the
impugned law under article 31. He cannot complain of any
infringement of his own rights as a shareholder, because
his “property” has not been acquired or taken possession
of by the State although he has been deprived of his right
to vote and to present a winding up petition by authority of
law. Nor can he complain of an infringement of the compa-
ny’s right to property because he is not, in the eye of law,
the owner of the property in question and accordingly not
directly interested in it. In certain exceptional cases
where the company’s property is injured by outsiders, a
shareholder may, under the English law, alter making all
endeavours to induce the persons in charge of the affairs of
the company to take steps, file a suit on behalf of himself
and other shareholders for redressing the wrong done to the
company, but that principle does not apply here for this is
not a suit, nor has it been shown that any attempt was made
by the petitioner to induce the old directors to take steps
nor do these proceedings purport to have been taken by the
petitioner on behalf of himself and the other shareholders
of the.company.
The only other ground on which the Ordinance and the Act
have been challenged is that they infringe the the fundamen-
tal rights guaranteed by article 14 of the Constitution.
“Equal protection of the laws”, as observed by Day 3. in
Southern Railway Company v. Greene (1), “means subjection to
equal laws, applying
(1) 216 U.S. 400
932
alike to all in the same situation”. The inhibition of the
article that the State shall not deny to any person equality
before the law or the equal protection of the laws was
designed to protect all persons against legislative discrim-
ination amongst equals and to prevent any person or class of
persons from being singled out as a special subject for
discriminating and hostile legislation. It does not, howev-
er, mean that every law must have universal application, for
all persons are not, by nature, attainment or circumstances,
in the same position. The varying needs of different class-
es of persons often require separate treatment and it is,
therefore, established by judicial decisions that the equal
protection clause of the Fourteenth Amendment of the Ameri-
can Constitution does not take away from the State the power
to classify persons for legislative purposes. This classi-
fication may be on different bases. It may be geographical
or according to objects or occupations or the like. If law
deals equally with all of a certain well-defined class it is
not obnoxious and it is not open to the charge of a denial
of equal protection on the ground that it has no applica-
tion to other persons, for the class for whom the law
has been made is different from other persons and, there-
fore, there is no discrimination amongst equals. It is
plain that every classification is in some degree likely’ to
produce some inequality, but mere production of inequality
is not by itself enough. The inequality produced, in order
to encounter the challenge of the Constitution, must be
“actually and palpably unreasonable and arbitrary.” Said
Day J. in Southern Railway Company v. Greene(1) :—” While
reasonable classification is permitted, without doing vio-
lence to the equal protection of the laws, such classifica-
tion must be based upon some real and substantial distinc-
tion, bearing a reasonable and just relation to the things
in respect to which such classification is imposed; and the
classification cannot be arbitrarily made without any
substantial basis. Arbitrary selection, it has been said,
cannot be justified by calling it classification”. Quite
conceivably there may be a law
933
relating to a single individual if it is made apparent that,
on account of some special reasons applicable only to him
and inapplicable to anyone else, that single individual is a
class by himself. In Middieton v. Texas Power and Light
Company(1) it was pointed out that there was a strong
presumption that a legislature understood and correctly
appreciated the needs of its own people, that its laws were
directed to problems made manifest by experience and that
the discriminations were based upon adequate grounds. It
was also pointed out in that case that the burden was upon
him who attacked a law for unconstitutionality. In Lindsley
v. Natural Carbonic Gas Company(2) It was also said that one
who assailed the classification made in a law must carry the
burden of showing that it did not rest upon any reasonable
basis but was essentially arbitrary. If there is a classi-
fication, the Court will not hold it invalid merely because
the law might have been extended to other persons who in
some respects might resemble the class for which the law was
made, for the legislature is the best judge of the needs of
the particular classes and to estimate the degree of evil so
as to adjust its legislation according to the exigency found
to exist. If, however, there is, on the face of the stat-
ute, no classification at all or none on the basis of any
apparent difference specially peculiar to any particular
individual or class and not applicable to any other person
or class of persons and yet the law hits only the particular
individual or class it is nothing but an attempt to arbi-
trarily single out an individual or class for discriminating
and hostile legislation. The presumption in favour of the
legislature cannot in such a case be legitimately stretched
so as to throw the impossible onus on the complainant to
prove affirmatively that there are other individuals or
class of individuals who also possess the precise amount of
the identical qualities which are attributed to him so as to
form a class with him. As pointed out by Brewer J. in the
Gulf, Colorado and Santa Fe’Railway v.W.H. Ellis (3), while
good faith
(1} 249 U.S. 152. (2) 220 U.S. 61. (3) 165 U.S..
150.
934
and a knowledge of existing conditions on the part of a
legislature was to be presumed, yet to carry that presump-
tion to the extent of always holding that there must be some
undisclosed and unknown reason for subjecting certain indi-
viduals or corporations to hostile and discriminating legis-
lation was to make the protecting clause a mere rope of
sand, in no manner restraining State action.
The complaint of the petitioner on this head is formu-
lated in paragraph 8 (iii) of the petition as follows
:—“The Ordinance denied to the company and its sharehold-
ers equality before the law and equal protection of the laws
and was thus a violation of article 14 of the Constitution.
The power to make regulations relating to trading corpo-
rations or the control or production of industries was a
power which consistently with article 14 could be exercised
only generally or with reference to a class and not with
reference to a single company or to shareholders of a single
company.” The Act is also challenged on the same ground in
paragraph 9 of the petition. The learned Attorney-General
contends that the petitioner as an individual shareholder
cannot complain of discrimination against the company. It
will be noticed that it is not a case of a shareholder
complaining only about discrimination against the company or
fighting the battle of the company but it is a case of a
shareholder complaining of discrimination against himself
and other shareholders of this company. It is true that
there is no complaint of discrimination inter se the share-
holders of this company but the complaint is that the share-
holders of this company, taken as a unit, have been discrim-
inated vis-a-vis the shareholders of other companies.
Therefore, the question as to the right of the shareholder
to question the validity of a law infringing the right of
the company does not arise. Here the shareholder is com-
plaining of the infringement of his own rights and if such
infringement can be established I see no reason why the
shareholder cannot come within article 32 to vindicate his
own rights. The fact that these proceedings have been taken
by
935
one single shareholder holding only one single fully paid up
share does not appear to me to make any the least difference
in principle. If this petitioner has, by the Ordinance or
the Act, been discriminated against and denied equal protec-
tion of the law, his fundamental right has been infringed
and his right to approach this Court for redress cannot be
made dependent on the readiness or willingness of other
shareholders whose rights have also been infringed to join
him in these proceedings or of the company to take substan-
tive proceedings. To take an example, if any law discrimi-
nates against a class, say the Punjabis, any Punjabi may
question the constitutionality of the law, without joining
the whole Punjabi community or without acting on behalf of
all the Punjabis. To insist on his doing so will be to put
a fetter on his fundamental right under article 32 which the
Constitution has not imposed on him. Similarly, if any law
deprives a particular shareholder or the shareholders of a
particular company of the ordinary rights of sharehold-
ers under the general law for reasons not particularly and
specially applicable to him or them but also applicable to
other shareholders of other companies, such law surely
offends against article 14 and any one so denied the equal
protection of law may legitimately complain of the infringe-
ment of his fundamental right and is entitled as of right to
approach this Court under article 32 to enforce his own
fundamental right under article 14, irrespective of whether
any other person joins him or not.
To the charge of denial of equal protection of the laws
the respondents in the affidavit of Sri Vithal N. Chandavar-
kar filed in opposition to the petition make the following
reply:–“With reference to paragraph 6 of the petition, I
deny the soundness of the submissions that on or from the
26th January, 1950, when the Constitution of India came into
force the said Ordinance became void under article 13(1) of
the Constitution or that the provisions thereof were
inconsistent with the provisions of Part III of the said
Constitution or for any of the other grounds mentioned in
paragraph 8
936
of the said petition.” In the whole of the affidavit in
opposition there is no suggestion as to why the promulgation
of the Ordinance or the passing of the Act was considered
necessary at all or on what principle or basis either of
them was founded. No attempt has been made in the affidavit
to show that the Ordinance or the Act was based upon any
principle of classification at all or even that the particu-
lar company and its shareholders possess any special quali-
ties which are not to be found in other companies and their
shareholders and which, therefore, render this particular
company and its shareholders a class by themselves. Neither
the affidavit in opposition nor the learned Attorney-General
in course of his arguments referred to the statement of the
objects and reasons for introducing the bill which was
eventually enacted or the Parliamentary debates as showing
the reason why and under what circumstances this law was
made and, therefore, apart from the question of their admis-
sibility in evidence, the petitioner has had no opportunity
to deal with or rebut them and the same cannot be used
against him.
The learned Attorney-General takes his stand on the
presumption that the law was founded on a valid basis of
classification, that its discriminations were based upon
adequate grounds and that the law was passed for safeguard-
ing the needs of the people and that, therefore, the onus
was upon the petitioner to allege and prove that the classi-
fication which he challenged did not rest upon any reasona-
ble basis but was essentially arbitrary. I have already said
that if on the face of the law there is no classification at
all or, at any rate, none on the basis of any apparent
difference specially peculiar to the individual or class
affected by the law, it is only an instance of an arbitrary
selection of an individual or class for discriminating and
hostile legislation and, therefore, no presumption can, in
such circumstances, arise at all. Assuming, however, that
even in such a case the onus is thrown on the complainant,
there can be nothing to prevent him from proving, if he can,
from the text of. the law itself, that
937
it is “actually and palpably unreasonable and arbitrary” and
thereby discharging the initial onus.
The Act is intituled an Act to make special provision
for the proper management and administration of the Sholapur
Spinning and Weaving Company, Limited.” There is not even a
single preamble alleging that the company was being misman-
aged at all or that any special reason existed which made it
expedient to enact this law. The Act, on its face, does not
purport to make any classification at all or to specify any
special’ vice to which this particular company and its
shareholders are subject and which is not to be found in
other companies and their shareholders so as to justify any
special treatment. Therefore., this Act, ex facie, is
nothing but an arbitrary selection of this particular compa-
ny and its shareholders for discriminating and hostile
treatment and read by itself.is palpably an infringement of
Article 14 of the Constitution.
The learned Attorney-General promptly takes us to the
preambles to the Ordinance which has been replaced by the
Act and suggests that the Act is based on the same consider-
ations on which the Ordinance was promulgated. Assuming
that it is right and permissible to refer to and utilise the
preambles, do they alter the situation ? The preambles were
as follows :-“Whereas on account of mismanagement and ne-
glect a situation has arisen in the affairs of the Sholapur
Spinning and Weaving Company, Limited, which has prejudi-
cially affected the production of an essential commodity and
has caused serious unemployment amongst a certain section
of the community;And whereas an emergency has arisen which
renders it necessary to make special provision for the
proper management and administration of the aforesaid compa-
ny;-” The above preambles quite clearly indicate that the
justification of the Ordinance rested on mismanagement
and neglect producing certain results therein specified. It
will be noticed that apart from these preambles there is no
material whatever before us establishing or even suggesting
that this company and its shareholders have in fact been
guilty of any
938
mismanagement or neglect. Be that as it may, the only
reason put forward for the promulgation of the Ordinance was
mismanagement resulting in falling off of production and in
producing unemployment. I do not find it necessary to say
that mismanagement and neglect in conducting the affairs of
companies can never be a criterion or basis of classifica-
tion for legislative purposes. I shall assume that it is
permissible to make a law whereby all delinquent companies
and ‘their shareholders may be brought to book and all
companies mismanaging their affairs and the shareholders of
such companies may, in the interest of the general public,
be deprived of their right to manage the affairs of their
companies. Such a classification made by a law would bear a
reasonable relation to the conduct of all delinquent compa-
nies and shareholders and may, therefore, create no inequal-
ity, for the delinquent companies and their shareholders
from a separate class and cannot claim equality of treatment
with good companies and their shareholders who are their
betters. But a distinction cannot be made between the
delinquent companies inter se or between shareholders of
equally delinquent companies and one set cannot be punished
for its delinquency while another set is permitted to
continue, or become, in like manner, delinquent without any
punishment unless there be some other apparent difference in
their respective obligations and unless there be some cogent
reason why prevention of mismanagement is more imperative in
one instance than in the other. To do so will be nothing
but an arbitrary selection which can never be justified as a
permissible classiffication. I am not saying that this
particular company and its shareholders may not be guilty of
mismanagement and negligence which has brought about seri-
ous fall in production of an essential commodity and also
considerable unemployment. But if mismanagement affect-
ing production and resulting in unemployment is to be the
basis of a classification for making a law for preventing
mismanagement and securing production and employment, the
law must embrace within its
939
ambit all companies which now are or may hereafter become
subject to the vice. This basis of classification, by its
very nature, cannot be exclusively applicable to any partic-
ular company and its shareholders but is capable of wider
application and, therefore, the law founded on that basis
must also be wide enough so as to be capable of being ap-
plicable to whoever may happen at any time to fall within
that classification. Mismanagement affecting production can
never be reserved as a special attribute peculiar to a
particular company or the shareholders of a particular
company. It it were permissible for the legislature to
single out an individual or class and to punish him or it
for some delinquency which may equally be found in other
individuals or classes and to leave out the other individu-
als or classes from the ambit of the law the prohibition of
the denial of equal protection of the laws would only be a
meaningless and barren form of words. The argument that the
presumption being in favour of the legislature, the onus is
on the petitioner to show there are other individuals or
companies equally guilty of mismanagement prejudicially
affecting the production of an essential commodity and
causing serious unemployment amongst a certain section of
the community does not, in such. circumstances, arise, for
the simple reason that here there has been no classification
at all and, in any case, the basis of classification by its
very nature is much wider and cannot, in it application, be
limited only to this company and its shareholders and, that
being so, there is no reason to throw on the petitioner the
almost impossible burden of proving that there are other
companies which are in fact precisely and in all particu-
lars similarly situated In any event, the petitioner, in my
opinion, may well claim to have discharged the onus of
showing that this company and its shareholders have been
singled out for discriminating treatment by showing that the
Act, on the face of it, has adopted a basis of classifica-
tion which, by its very nature, cannot be exclusively ap-
plicable to this company and its shareholders but Which may
be equally appplicable to other companies
940
and their shareholders and has penalised this particular
company and its shareholders, leaving out other companms and
their shareholders who may be equally guilty of the alleged
vice of mismanagement and neglect of the type referred to in
the preambles. In my opinion the legislation in question
infringes the fundamental rights of the petitioner and
offends against article 14 of our Constitution.
The result, therefore, is that this petition ought to
succeed and the petitioner should have an order in terms of
prayer (3) of the petition with costs.
Petition dismissed.
Agent for the petitioner: M.S.K. Aiyengar.
Agent for opposite party Nos. 1 & 2:P.A. Mehta.
Agent for opposite party Nos. 3 to 5 and 7 to 10:
Rajinder Narain.