PETITIONER: INDIAN NUT PRODUCTS Vs. RESPONDENT: UNION OF INDIA DATE OF JUDGMENT12/05/1994 BENCH: SINGH N.P. (J) BENCH: SINGH N.P. (J) KULDIP SINGH (J) SAWANT, P.B. CITATION: 1994 SCC (4) 269 JT 1994 (4) 66 1994 SCALE (2)905 ACT: HEADNOTE: JUDGMENT:
The Judgment of the Court was delivered by
N.P. SINGH, J.-
Writ Petition (C) No. 415 of 1988
1. This writ petition has been filed on behalf of the
petitioners, who are owners and occupiers of cashew
factories. They have questioned the validity of an order
dated 6-7-1988, issued by the Government of Kerala, in
exercise
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of the powers conferred on it by Section 3(1)(c) of the
Kerala Cashew Factories (Acquisition) Act, 1974 (hereinafter
referred to as “the Act”) declaring that the cashew
factories of the petitioners mentioned in the schedule of
the said order shall stand transferred to, and vest in, the
government.
2. The object of the Act aforesaid is to acquire cashew
factories in the public interest, in order to prevent large
scale unemployment of workers in the cashew industry and to
provide employment to such workers who have been rendered
unemployed. Cashew factory has been defined under Section
2(b) to mean a factory as defined in the Factories Act,
wherein processing of cashew nuts is being carried on and
includes the factory building, the site thereof, and the
buildings, and lands appurtenant thereto used or necessary
for, or in connection with the working of the factory.
Section 3 provides :
“Order of acquisition.- (1) The Government
may, if they are satisfied-
(a) that the occupier of a cashew factory
does not conform to the provisions of law
relating to safety, conditions of service or
fixation and payment of wages to the workers
of the factory; or
(b) that raw cashew nuts allotted to a
cashew factory by the Cashew Corporation of
India are not being processed in the factory
to which allotment has been made or that such
nuts are being transferred to any other cashew
factory; or
(c) that there has been large scale
unemployment, other than by way of lay off or
retrenchment, of the workers of a cashew
factory,
by order published in the Gazette, declare that cashew
factory shall stand transferred to, and vest in, the
Government:
Provided that before making a declaration under this sub-
section in respect of a cashew factory, the Government shall
give the occupier of the factory and the owner of the
factory, where he is not the occupier, a notice of their
intention to take action under this sub-section and the
grounds therefore and consider the objections that may be
preferred in pursuance of such notice.
Explanation.- For the purposes of this sub-section, the
expressions ‘lay off’ and ‘retrenchment’ shall have the
meanings respectively assigned to them, in the Industrial
Disputes Act, 1947 (Central Act 14 of 1947).
(2) The notice referred to in the proviso to sub-section
(1) shall also be published in two newspapers published in
the State of Kerala and such publication shall be deemed to
be sufficient notice to the occupier, to the owner where he
is not the occupier and to all other persons interested in
the cashew factory.
(3) On the making of a declaration under sub-section (1),
the cashew factory to which the declaration relates,
together with all machinery, other accessories and other
movable properties as were immediately before the appointed
day in the ownership, possession, power or control
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of the occupier in relation to the factory and all books of
accounts, registers and other documents relating thereto
shall stand transferred to, and vest in, the Government.”
The other sections relate to the vesting, inventory of
properties, power of the Government to direct vesting of
such cashew nut factories in the Corporation, payment of
compensation to the occupier of the cashew factory and the
continuance of employment of the employees after vesting.
3. It appears that in view of the proviso to sub-section
(1) of Section 3 of the Act, the Government gave notice to
the petitioners in respect of their intention to take action
under the aforesaid sub-section, directing the petitioners
to file objections, pursuant to the said notice. The
relevant part of the said notice dated 20-6-1988 is as
follows:
“NOTICE
Notice under Rule 3 of the Kerala Cashew
Factories
(Acquisition) Rules, 1974.
WHEREAS it has been brought to the notice of
the Government that in respect of cashew
factories detailed below, there exist grounds
as detailed below, warranting action under
Section 3(1) of the Kerala Cashew Factories
(Acquisition) Act, 1974, notice is hereby
given to all concerned of the intention of the
Government to take action under the above said
section of the Act. Interested persons are
hereby directed to file their objections, if
any, before the Government of Kerala against
the proposed action within seven days of the
receipt of this notice or the publication of
this notice in the newspapers, whichever is
earlier or if they so desire, appear before
the Special Officer for Cashew Industry,
Quilon at Quilon at 11 a.m. on 4-7-1988 and
state their objections. If no objections are
received within the said period or no person
appears on the said date it will be presumed
that there are no objections against the
proposed action and further steps will be
taken……”
In the said notice the names of 36 cashew factories
including that of tile petitioners have been mentioned and
thereafter the grounds on which the factories were being
acquired have been stated as follows
“GROUNDS
It has been reported by the authorised officer
that your factory is lying closed and that
there is no possibility of it to start
functioning within a period of ten days or in
the immediate future. Government are,
therefore, of opinion that the said situation
will lead to a large scale unemployment, other
than by way of lay off or retrenchment, of the
workers of the cashew factory.”
4. On behalf of the petitioners, objections were filed to
the said notice, pointing out, that the first allotment of
raw cashew nut under the scheme of monopoly procurement, was
made to them by allotment orders dated 15-4-1988 and as much at the e
arliest, the factory could have started around
1-5-1988. It was also pointed out that cashew nut industry
was essentially a seasonal industry. With the available raw
nuts in Kerala State and the
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scheme of monopoly procurement of raw nuts in force, if all
the cashew factories were to take allotment of raw nuts,
such factories would work only for 45 to 60 days in the year
1988. It was also pointed out that in the year 1987, they
worked for 192 days. It was asserted that there had been no
unemployment in their factories and as such there was no
justification to issue notice in exercise of the power under
Section 3(1)(c) aforesaid.
5. On 4-7-1988 which had been fixed as the date of hearing
of the objections to the notices aforesaid, before the
Special Officer for Cashew Industry, Quilon, a detailed
written submission was also filed on behalf of the
petitioners, pointing out that the notice had been issued,
not in terms of the requirement of Section 3(1)(c). Hence,
on the basis of such notice, the power of the State
Government to declare that the factories mentioned therein
shall stand transferred to the State Government, cannot be
exercised. It was asserted that the issuance of notice was
nothing but a colourable exercise of statutory powers with
oblique motives and the processors felt that the acquisition
of factories and driving the owners out of the industry was
a foregone conclusion.
6. The impugned order was issued on 6-7-
1988 saying:
“Whereas it has been brought to the notice of
the Government that there has been large scale
unemployment, other than by way of lay off or
retrenchment of the workers of the cashew
factories mentioned in the Schedule below.
AND WHEREAS Government have given notice to
the owners/occupiers of the said factories of
the intention of the Government to take action
under Section 3 of the Kerala Cashew Factories
(Acquisition) Act, 1974 (29 of 1974) and
considered the objections that were preferred
in pursuance of the said notices.
AND WHEREAS Government are satisfied that
there has been large scale unemployment, other
thin by way of lay off or retrenchment, of the
workers of the cashew factories mentioned in
the Schedule below:
Now therefore, in exercise of the powers
conferred by clause (c) of sub-section (1) of
Section 3 of the Kerala Cashew Factories
(Acquisition) Act, 1974 (29 of 1974), the
Government of Kerala hereby declare that the
factories mentioned in the Schedule below
shall stand transferred to and vest in the
Government with effect from 6-7-1988.”
Section 3 vests power in the Government, to declare that the
cashew factory in question shall stand transferred to and
vest in the Government, if the Government is satisfied that
any of the three conditions mentioned in the said sub-
section (1) of Section 3 exists. That power has not been
questioned in the present writ application. But it was
pointed out that the proviso to sub-section (1) of Section 3
enjoins upon Government, before issuing a declaration, to
follow a procedure which is imperative and mandatory in
nature i.e. ‘the Government shall give the occupier of the
factory and tile owner of the factory, where he is not the
occupier, a notice of their intention
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to take action under this sub-section and the grounds
therefor and consider the objections that may be preferred
in pursuance of such notice’.
(emphasis supplied)
7. It cannot be disputed that in view of the proviso to
sub-section ( 1), it is incumbent on the part of the
Government to disclose the ground or the grounds
specifically, in the notice on the basis of which, the
Government is satisfied that one of the three situations
mentioned in sub-section (1) of Section 3 exists
necessitating an action under that sub-section. The person
to whom such notice along with the ground or grounds is
served, is entitled to file objections and to demonstrate
and satisfy that in fact no such ground exists for issuance
of an order for the transfer of the factory in question.
8. It appears that in the notice, there is only reference
to Section 3(1) of the Act, without disclosing whether the
Government was satisfied in respect of the existence of any
of the situations under clause (a), (b) or (c) thereof. No
details have been mentioned in the said notice. Towards the
end of the said notice, under the heading “Grounds” it has
been stated that the factory was lying closed and that there
was no possibility of it to start functioning within a
period of ten days or in the immediate future and therefore
the Government was of the opinion that the said situation
“will lead to a large scale unemployment…… It need not
be impressed that an order under Section 3(1) on the ground
specified in clause (c) of sub-section (1) can be issued by
the State Government only when the State Government is
satisfied that “there has been large scale unemployment,
other than by way of lay off or retrenchment, of the workers
of a cashew fat factory”. The grounds do not even state
that there has been any unemployment much less large scale
unemployment. The grounds simply state that the factory was
lying closed and there was no possibility of its starting
functioning within a period of ten days or in the immediate
future, which will lead to large scale unemployment. No
details have been mentioned in the said notice as to from
what date each of the factories was lying closed. We are
not able to appreciate as to how by a common notice all the
36 cashew factories could be summoned to show cause without
giving particulars of conditions existing in different
factories. The learned counsel, who appeared on behalf of
the State, could not point out, as to how different
occupiers or the owners of the factories could have filed
objections to such common notice which did not refer to any
conditions pertaining to their factories.
9. There is no dispute that the cashew nut factories do
not work throughout the year but work for varying periods
depending upon the supply of raw nuts etc. As such the
particulars of the alleged closure of each of the factories
were required to be furnished to the individual owner to
meet the case against him. The object of the Act is to
safeguard the interests of the workers in the cashew
factories and it is to safeguard their interests that the
power has been vested in the State Government to issue
orders for the transfer of the factories. The transfer or
vesting of the factories has to be in accordance with the
procedure prescribed in the Act. As already pointed out
above, the proviso to sub-section (1) not only requires a
notice to be given to
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the occupier or the owner of the factory in respect of the
intention of the Government to take action under the said
sub-section, but also requires to furnish the grounds on
which such action is considered necessary. In the present
case, according to us, the notice does not comply with and
conform to the requirement of the proviso to sub-section (1)
of Section 3.
10. It is well-settled that if a statute requires an
authority to exercise power, when such authority is
satisfied that conditions exist for exercise of that power,
the satisfaction has to be based on the existence of grounds
mentioned in the statute. The grounds must be made out on
the basis of the relevant material. If the existence of the
conditions required for the exercise of the power is
challenged, the courts are entitled to examine whether those
conditions existed when the order was made. A person
aggrieved by such action can question the satisfaction by
showing that it was wholly based on irrelevant grounds and
hence amounted to no satisfaction at all. In other words,
the existence of the circumstances in question is open to
judicial review.
11. It cannot be disputed that serious consequences follow
on the basis of the order passed by the Government on rounds mentio
ned in clauses (a), (b) and (c). Hence it is
all the more necessary that the Government furnishes the
full particulars on the basis of which the Government claims
to be satisfied that there is a case for taking over the
factory. As already pointed out above, there is not even an
assertion in the notice that there has been any unemployment
much less large scale unemployment. The ground simply says
that the Government was of the opinion that the closure of
the factory ” will lead to a large scale unemployment”. We
are of the view, that in the facts and circumstances of the
present case, the notice issued to the petitioners with the
so-called grounds was not in accordance with the requirement
of the provisions of sub-section (1) of Section 3 of the
Act. The notices issued to different petitioners are,
therefore, declared to be null and void. Consequent
thereto, the order dated 6-7-1988 is also quashed.
12. However, it is made clear that it shall be open to the
Government to exercise the power conferred on it by sub-
section (1) of Section 3, whenever it is satisfied on the
basis of the relevant material, that any of the three
conditions mentioned therein exists in individual factories,
by following the procedure prescribed therein.
13. In order to work out the equities and the rights and
liabilities which have arisen between the date of the
transfer of the factories and passing of this order, we
direct:
(i) The possession of the factories shall be
handed over to the respective owners within
two weeks from the date of this order. As and
when possession is given, an inventory of all
the materials shall be made.
(ii) The daily workers other than the members
of the staff engaged by the Kerala State
Cashew Development Corporation Ltd., or the
State Government, as the case may be, shall be
retained by the
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factory owners and shall not be retrenched
except in accordance with law. So far as the
members of the staff are concerned, it shall
not be the obligation of the factory owners to
retain them, in view of the interim order
passed by this Court on 19-7-1988.
(iii) The petitioners shall pay the same
salary and emoluments which were being paid by
the State Government while the factories were
with the State Government.
(iv) Any claim for compensation in respect of
any damage or loss caused to the machinery,
equipments, building etc. during the period of
occupation by the Kerala State Cashew
Development Corporation Ltd., shall be
assessed by the District Judge, Quilon.
Similarly, any claim in respect of any amount
for an additional construction made or
additional machinery installed by the Kerala
State Cashew Development Corporation Ltd.,
shall be determined by the District Judge,
Quilon, on proper application being filed
before it.
(v) The Kerala State Cashew Development
Corporation Ltd., shall be entitled to remove
any machinery or materials installed by it
within one week of preparation of the
inventory; and
(vi) Any disciplinary enquiry pending against
any of the workmen may be continued by the
owner of the factory concerned, if he chooses
to do so.
Subject to the directions given above, the writ petition is
allowed. But in the facts and circumstances of the case,
there shall be no order as to costs. WP (C) Nos. 445 and 490
of 1989, 3950-61 of 1982, 429-33 of 1979
The above mentioned writ petitions are disposed of, in terms
of the judgment of this Court, in Writ Petition (C) No. 415
of 1988, delivered today.
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