1997 (10) TMI 320 - SC - Companies Law

Supreme Court affirms legislative competence in Nagaland Forest Act, 1982, dismissing appeal and upholding precedent.

Mahesh Kumar Saharia Versus State of Nagaland

The Supreme Court upheld the constitutionality of the Nagaland Forest Products Ltd. (Acquisition of Shares) Act, 1982, affirming the legislative ... Whether the impugned legislation Nagaland Forest Products Ltd. (Acquisition of Shares) Ordinance, 1981, and the Nagaland Forest Products Ltd. (Acquisition of Shares) Act, 1982 attempts/authorises the taking over of the management/control of the plywood industry or it only enables the State Government to acquire the assets (shares) of the company? Held that:- Appeal dismissed. The impugned legislation was not enacted for taking over management or control of any industrial undertaking by the State Government. In pith and substance, it was enacted to acquire the scheduled undertakings. If an attempt was made to take over management or control of any industrial undertaking in a declared industry indisputably the bar of section 20 would inhibit exercise of such executive power. Issues Involved:1. Vires of the Nagaland Forest Products Ltd. (Acquisition of Shares) Ordinance, 1981, and the Nagaland Forest Products Ltd. (Acquisition of Shares) Act, 1982.2. Legislative competence of the Nagaland State Legislature in light of Section 20 of the Industries (Development and Regulation) Act, 1951 (Central Act).Detailed Analysis:1. Vires of the Nagaland Forest Products Ltd. (Acquisition of Shares) Ordinance, 1981, and the Nagaland Forest Products Ltd. (Acquisition of Shares) Act, 1982:The appellant, a former shareholder and managing director of the Nagaland Forest Products Limited (the 'company'), challenged the constitutionality of the Ordinance and the subsequent Act. The challenge was based on the argument that these legislations were ultra vires the powers of the Nagaland State Legislature due to Section 20 of the Central Act. The High Court had rejected this contention, stating that the Act was not enacted to take over the management or control of the company but to acquire 'S' class shares. The High Court emphasized that if the management control transferred incidentally due to the acquisition of shares, it would not violate Section 20 of the Central Act.2. Legislative Competence of the Nagaland State Legislature:The appellant's counsel confined the argument to the lack of legislative competence based on Section 20 of the Central Act, which prohibits State Governments from taking over the management or control of any industrial undertaking. The High Court found that the impugned Act was primarily for the acquisition of shares, which falls under Entry 42 of List III, and not for taking over management or control, thus not conflicting with entries 52 or 7 of List I.The Supreme Court reiterated the High Court's findings and referred to the Constitution Bench's ruling in Ishwari Khetan Sugar Mills (P.) Ltd. v. State of Uttar Pradesh, which established that taking over assets does not equate to taking over management or control. The appellant's counsel conceded that it was not open to argue the legislative competence due to the binding precedent of Ishwari Khetan's case but sought reconsideration by a larger Bench.The respondents' counsel argued that the Constitution Bench had thoroughly considered all aspects of the constitutionality of similar legislation and that the ruling had been consistently followed. The Supreme Court, agreeing with the respondents, found no merit in the appellant's contention for reconsideration.The Court extracted relevant provisions from the Central Act and the State Act to elucidate the legislative framework. Section 20 of the Central Act prohibits State Governments from taking over management or control of industrial undertakings, while Section 3 of the State Act provides for the transfer and vesting of shares in the State Government, which incidentally results in management control.The Court held that the impugned legislation was for the acquisition of shares and not for taking over management or control, thus falling outside the mischief of Section 20 of the Central Act. The Constitution Bench's ruling in Ishwari Khetan's case was cited extensively to support this view, emphasizing that the power to legislate for acquisition of property is independent and does not conflict with the Central Act's provisions on management control.The Supreme Court concluded that there was no merit in the appellant's argument for reconsideration and dismissed the appeal without costs, affirming the High Court's judgment.Conclusion:The Supreme Court upheld the constitutionality of the Nagaland Forest Products Ltd. (Acquisition of Shares) Act, 1982, affirming the legislative competence of the Nagaland State Legislature. The Court found that the Act was primarily for the acquisition of shares, not for taking over management or control, and thus did not violate Section 20 of the Central Act. The appeal was dismissed, and the precedent set by the Constitution Bench in Ishwari Khetan's case was reaffirmed.