1950 (12) TMI 17 - SC - Companies Law

Supreme Court validates Sholapur Spinning & Weaving Co. Act, 1950. Legislative competence upheld. Classification reasonable.

CHARANJIT LAL CHOWDHURY Versus UNION OF INDIA

The Supreme Court upheld the validity of the Sholapur Spinning and Weaving Company (Emergency Provisions) Act, 1950, stating it did not violate ... Whether one individual shareholder can, under the circumstances of the case and particularly when one of the respondents is the company which opposes the petition, challenge 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 protection of the laws under article 14 of the Constitution of India? Whether in fact the petitioner has shown that the Act runs contrary to article 14 of the Constitution? Held that:- Agreeing with the line of reasoning and the conclusion of Mr. Justice Mukherjea as regards the second point relating to the invalidity of the Act on the ground that it infringes article 14 of the Constitution and have nothing more to add. The attack on the legislation on the ground of the denial of equal protection of law cannot succeed.Appeal dismissed. Issues Involved:1. Validity of the Sholapur Spinning and Weaving Company (Emergency Provisions) Act, 1950 under Articles 31 and 19 of the Constitution of India.2. Infringement of Article 14 of the Constitution.3. Legislative competence to enact the impugned Act.4. Right of an individual shareholder to challenge the constitutionality of the Act.Issue-Wise Detailed Analysis:1. Validity of the Act under Articles 31 and 19 of the Constitution of India:The primary contention was that the Sholapur Spinning and Weaving Company (Emergency Provisions) Act, 1950, infringed upon the right to property under Article 31 and the right to acquire, hold, and dispose of property under Article 19(1)(f). The argument was that the Act amounted to deprivation of property without compensation and imposed unjustifiable restrictions on the rights of shareholders.The judgment clarified that the Act did not result in the acquisition or taking possession of the shareholders' property as per Article 31(2). The shareholders retained their shares, and their legal and beneficial interests were intact. The restrictions imposed by the Act, such as the suspension of voting rights and the requirement of government approval for resolutions, did not amount to dispossession of property. The Court held that these restrictions did not violate Article 19(1)(f) as they were reasonable and in the interest of the general public to secure the supply of an essential commodity and prevent unemployment.2. Infringement of Article 14 of the Constitution:The petitioner argued that the Act was discriminatory as it targeted one specific company and its shareholders, thereby violating the principle of equal protection under Article 14. The Court examined whether the classification made by the Act was reasonable and based on substantial distinctions.The judgment emphasized that the presumption is in favor of the constitutionality of an enactment, and the burden is on the petitioner to prove that the classification is arbitrary and lacks a reasonable basis. The Court noted that the Act aimed to address the mismanagement and neglect of the Sholapur Company, which had prejudicially affected the production of an essential commodity and caused serious unemployment. The Court held that the classification was justified based on the unique circumstances of the Sholapur Company and did not violate Article 14.3. Legislative competence to enact the impugned Act:The petitioner challenged the legislative competence of the Parliament to enact the Sholapur Spinning and Weaving Company (Emergency Provisions) Act, 1950. The Court examined whether the Act fell within the legislative powers conferred by the Constitution.The judgment concluded that the Act was within the legislative competence of the Parliament. It was held that the Act aimed to regulate the management and administration of a company, which fell within the scope of Entry 43 of the Union List, relating to the incorporation, regulation, and winding up of trading corporations. Therefore, the Act was validly enacted by the Parliament.4. Right of an individual shareholder to challenge the constitutionality of the Act:The Court addressed whether an individual shareholder had the standing to challenge the constitutionality of the Act. The petitioner argued that the Act infringed upon the fundamental rights of shareholders and the company.The judgment clarified that an individual shareholder could not challenge the constitutionality of a law on behalf of the company unless the shareholder's own rights were directly affected. The Court held that the petitioner, as a shareholder, had the standing to challenge the Act to the extent that it infringed upon his own fundamental rights under Articles 14, 19, and 31. However, the Court emphasized that the challenge must be based on the direct infringement of the shareholder's rights and not merely on the rights of the company.Conclusion:The Supreme Court dismissed the petition, holding that the Sholapur Spinning and Weaving Company (Emergency Provisions) Act, 1950, did not violate Articles 14, 19, and 31 of the Constitution. The Act was found to be within the legislative competence of the Parliament and did not result in the deprivation of property without compensation. The classification made by the Act was deemed reasonable and justified based on the unique circumstances of the Sholapur Company. The Court also clarified the standing of an individual shareholder to challenge the constitutionality of a law. The petition was dismissed with costs.