1994 (2) TMI 243 - SC - Companies Law

Court Upholds Validity of Ordinance, Affirms Legislative Competence

Dalmia Industries Ltd. Versus State of UP.

The court upheld the validity of the Ordinance, dismissing the appeal and affirming the High Court's decision. It found the Ordinance fell within the ... Whether the Ordinance was promulgated under entry 24, List II or entry 42, List III ? Held that:- Appeal dismissed. As agree with the conclusion reached by the High Court and reject the contention raised by learned counsel for the appellants to the effect that the State Legislature had no legislative competence to legislate on the subject-matter of the Ordinance and, as such, the Governor had no power to promulgate the same. We agree with the High Court that the legislative competence to promulgate the Ordinance could validly be traced to entry 42, List III. The acquisition of shares under the Ordinance did not, in any manner, have the effect of nullifying any of the orders of the court. We are, therefore, of the view that, in the facts of the present case, the argument that the promulgation of the Ordinance had encroached upon the power of the judicial review of the court is wholly misconceived. No force in any of the contentions raised by learned counsel for the appellants and, as such, dismiss the appeal. Issues Involved:1. Legislative competence of the State Government to promulgate the Ordinance.2. Whether the Ordinance was intended to take over the management and control of the corporation.3. The Ordinance as a colorable piece of legislation.4. Public interest justification for the Ordinance.5. Violation of Article 300A of the Constitution of India.6. Interference with judicial decisions by the Ordinance.Detailed Analysis:1. Legislative Competence of the State Government:The appellants contended that the State Legislature lacked the legislative competence to enact the Ordinance under Entry 24, List II, Seventh Schedule to the Constitution of India, as cement is an industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 ('the Act'). The court held that the Ordinance fell under Entry 42, List III, Seventh Schedule, which pertains to the acquisition and requisitioning of property. The Ordinance was promulgated for the acquisition of shares of the corporation, thus falling under Entry 42, List III, and not Entry 24, List II. The court referenced the Ishwari Khetan Sugar Mills case to support the view that the power to legislate in respect of acquisition of property is independent and separate under Entry 42, List III.2. Management and Control of the Corporation:The core question was whether the Ordinance was directed to take over the management or control of the corporation from the appellants. The High Court found that on the date of the Ordinance, the appellants were neither managing nor controlling the corporation. The court agreed with this finding, noting that interim orders from the High Court had maintained the control and management of the corporation with the State Government. The memorandum and financial agreement between the State Government and the appellants were subject to the High Court's decision in pending cases, and the transfer of 51% shares had not been completed due to the interim orders.3. Colorable Legislation:The appellants argued that the Ordinance was a colorable piece of legislation and in pith and substance fell under Entry 24, List II. The court rejected this contention, reiterating that the Ordinance was promulgated under Entry 42, List III, for the acquisition of shares, and not for the management or control of the corporation. The court referenced Section 20 of the Act, which prohibits State Governments from taking over the control and management of industrial undertakings, but clarified that the Ordinance was for acquisition and not for management or control.4. Public Interest Justification:The appellants contended that the Ordinance was not in public interest. The court disagreed, noting that the transfer of 49% shares to the appellants had led to a deterioration in the corporation's production, adversely affecting the market and causing significant unrest among workers. The Ordinance aimed to address these issues and was thus in public interest. The court highlighted the deteriorating condition of the corporation, the workers' agitation, and the adverse impact on the State's financial resources as justifications for the Ordinance.5. Violation of Article 300A:The appellants argued that the Ordinance violated Article 300A of the Constitution of India, which protects against deprivation of property without authority of law. The court found that the Ordinance provided for just compensation for the acquisition of shares, ensuring that the appellants would receive the same price at which they purchased the shares. The court concluded that the Ordinance was just, fair, and in public interest, thus not violating Article 300A.6. Interference with Judicial Decisions:The appellants argued that the Ordinance interfered with the judicial decisions of the High Court. The court found that the interim orders of the High Court were not final judgments and did not determine the rights of the parties. The Ordinance did not nullify any of the High Court's orders and did not encroach upon the court's power of judicial review. The court concluded that the argument was wholly misconceived.Conclusion:The court dismissed the appeal, upholding the validity of the Ordinance and agreeing with the High Court's findings. The court found no merit in the appellants' contentions and held that the Ordinance was within the legislative competence of the State Government, in public interest, and did not violate any constitutional provisions or judicial decisions. Each party was directed to bear their own costs.