State acquisition of sugar undertakings upheld where law fell within acquisition power, had valid compensation principles, and satisfied equality review.

A State law acquiring scheduled sugar undertakings was held to be valid because, in pith and substance, it operated as an acquisition measure under Entry 42 of List III rather than a law regulating the sugar industry. The central declaration under the Industries (Development and Regulation) Act, 1951 displaced State power only within the field of regulation and control, not acquisition of ownership. The compensation scheme also survived scrutiny because it was based on relevant valuation principles and was not illusory, while the selection of undertakings was upheld under Article 14 as a rational classification based on severe financial distress and its impact on cane growers and labour.

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Issues: (i) whether the State Legislature had competence to enact the U.P. Sugar Undertakings (Acquisition) Act, 1971 in view of the declaration under the Industries (Development and Regulation) Act, 1951 and the scope of Entry 42 of List III; (ii) whether the compensation provided for acquisition of the scheduled undertakings violated Article 31(2) of the Constitution of India; (iii) whether the selection of the undertakings for acquisition offended Article 14 of the Constitution of India.

Issue (i): Whether the State Legislature had competence to enact the U.P. Sugar Undertakings (Acquisition) Act, 1971 in view of the declaration under the Industries (Development and Regulation) Act, 1951 and the scope of Entry 42 of List III.

Analysis: The impugned enactment was examined in pith and substance and was found to be a law for acquisition of the scheduled undertakings, not a law regulating the sugar industry as such. The power to acquire property was treated as an independent legislative power under Entry 42 of List III. The declaration under Section 2 of the Industries (Development and Regulation) Act, 1951 was held to denude State power under Entry 24 of List II only to the extent of the field occupied by that Act, which concerned development and regulation of declared industries and did not occupy the field of acquisition of ownership. Section 20 of that Act was also held inapplicable because the State law did not authorise a mere executive takeover of management or control; any transfer of management flowed only as a consequence of valid acquisition.

Conclusion: The State Legislature had legislative competence to enact the acquisition law, and the challenge on this ground failed.

Issue (ii): Whether the compensation provided for acquisition of the scheduled undertakings violated Article 31(2) of the Constitution of India.

Analysis: Article 31(2) as it stood at the relevant time required a public purpose and compensation determined by law on relevant principles. The Court held that a valid principle for valuation may include written down value for used machinery, and that the adequacy of compensation was not open to challenge if the principles adopted were relevant and not illusory. The compensation mechanism in the Act was found to be based on a discernible and valid principle, and the economic condition of the undertakings justified a drastic acquisition measure. The objections regarding agricultural land and goodwill were rejected as unsupported or legally untenable on the record.

Conclusion: The compensation scheme did not violate Article 31(2), and the challenge failed.

Issue (iii): Whether the selection of the undertakings for acquisition offended Article 14 of the Constitution of India.

Analysis: The undertakings selected for acquisition were found to belong to a class of sick and financially distressed units with persistent defaults in cane payments, labour dues, and other liabilities. The classification was held to rest on intelligible differentia, namely the exceptional economic distress of the selected undertakings, and to bear a rational nexus to the legislative object of relieving the area's economy and protecting cane growers and labour.

Conclusion: The classification was valid under Article 14, and the challenge failed.

Final Conclusion: The acquisition legislation was upheld as a valid exercise of legislative power, and all constitutional challenges were rejected.

Ratio Decidendi: A State law for acquisition of industrial undertakings in a declared industry is valid if, in pith and substance, it falls within the independent field of acquisition under Entry 42 of List III and does not trench upon the field occupied by the Central law on regulation and control; compensation is constitutional if determined on relevant principles, and a classification based on demonstrable economic distress satisfies Article 14.

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