TaxTMI 
TaxTMI 
1981 (1) TMI 250
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....1945 to Rs. 52.50 lakhs by issue of bonus shares. In 1946, the Jaipuria family acquired substantial holding in the Company. Jaipuria family is the present management. By issue of further bonus shares in 1946, the capital of the Company was increased to Rs. 122.50 lakhs. In 1948, the paid-up capital of the Company was raised to Rs. 210 lakhs by the issue of further bonus shares. The subscribed and issued capital consisting mainly of the bonus shares has since remained constant at Rs. 210 lakhs. In the year 1946, the Company had only one undertaking, a Textile Unit at Kanpur, known as "The Swadeshi Cotton Mills, Kanpur". Between 1956 and 1973, the Company set up and/or acquired five further Textile Units in Pondicherry, Naini, Udaipur, Maunath Bhanjan and Rae Bareilly. Each of these six Units or undertakings of the Company was separately registered in accordance with the provisions of Section 10 of the Industries (Development and Regulation) Act, 1951 (hereinafter called the IDR Act). In addition to these six industrial undertakings, the Company (it is claimed) had other distinct businesses and assets. It holds inter alia 97 per cent shares in the subsidiary, Swadeshi Mining an....
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.... 31-3-78 Remarks 1 2 3 4 5 6 (i) Pondichery 2.40 Nil Nil Nil On fixed assets of Pondicherry Unit (ii) Maunath Bhanjan 11.40 5.71 Nil Nil On fixed assets of Unit. (iii) Udaipur 2.76 Nil Nil Nil On fixed assets of Udaipur Unit. (iv) Kanpur(ICICI) 13.44 9.75 5.95 2.00 On fixed asset of Kanpur Unit. (v) Kanpur Nil 150.00 150.00 150.00 On fixed assets of Kanpur, Maunath Bhanjan & Pondicherry Units for wages and Bank Dues (vi) Company 67.53 68.45 59.44 59.44 On diesel generating sets of Kanpur, Naini, Pondicherry, Maunath Bhanjan and Rae Bareilly Units. (vii) Udaipur Nil 25.00 25.00 25.00 On fixed assets of Udaipur Unit for gratuity fund. (viii) Naini Nil Nil 70.00 70.00 On fixed assets of Naini for gratuity. (ix) Kanpur, Rae Bareilly & Naini 106.20 75.31 50.67 15.97 On new machinery of ....
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....ct the production of articles manufactured or produced in the said industrial undertakings and that immediate action is necessary to prevent such a situation; Now, therefore, in exercise of power conferred by clause (a) of sub-section (1) of Section 18AA of the Industries (Development and Regulation) Act, 1951 (65 of 1951), the Central Government hereby authorises the National Textile Corporation Limited (hereinafter referred to as the Authorised person) to take over the management of the whole of the said industrial undertakings, subject to the following terms and conditions, namely:- (i) The authorised person shall comply with all the directions issued from time to time by the Central Government; (ii) the authorised person shall hold office for a period of five years from the date of publication of this order in the Official Gazette; (iii)the Central Government may terminate the appointment of the authorised person earlier if it considers necessary to do so. This order shall have effect for a period of five years commencing from the date of its publication in the Official Gazette. Sd/- R. Ramakrishna Joint Secretary to the Govt. of India (Seal)." On Apr....
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....aking, the management of which is taken over under Section 18AA to have the order made under Section 18AA cancelled on any relevant ground. (3) As the taking over of management under Section 18AA is not vitiated by the failure to grant prior hearing, the question of any such vice being cured by a grant of a subsequent hearing does not arise." H. L. Anand and N. N. Goswamy, JJ, however dissented. In the opinion of the minority, in compliance with the principles of natural justice, a prior hearing to the owner of the undertaking was required to be given before passing an order under Section 18AA, that the second question did not arise as the denial of a prior hearing would not cure the vice by the grant of subsequent hearing, but it would be open to the Court to moderate the relief in such a way that the order is kept alive to the extent necessary until the making of the fresh order to subserve public interest, and to make appropriate directions to ensure that the subsequent hearing would be a full and complete review of the circumstances of the take-over and for the preservation and maintenance of the property during the interregnum. After the decision of the reference, the....
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.... reasons mentioned in the final part of this judgment, we do not think it necessary, for the disposal of these appeals to deal with the same. Thus, the first point for consideration is whether, as a matter of law, it is necessary, in accordance with the rules of natural justice, to give a hearing to the owner of an undertaking before issuing a notified order, or enforcing a decision of its take-over under Section 18AA. Shri Nariman contends that there is nothing in the language, scheme or object of the provisions in Section 18AA and/or Section 18F which expressly or by inevitable implication, excludes the application of the principles of natural justice or the giving a pre-decisional hearing, adapted to the situation, to the owner of the undertaking. It is submitted that mere use of the word "immediate" in sub-clause (a) of Section 18AA (1) does not show a legislative intent to exclude the application of audi alterm partem rule, altogether. It is maintained that according to the decision of this Court in Keshav Mills Company Ltd. v. Union of India, even after a full investigation has been made under Section of the I.D.R. Act, the Government has to observe the rules of natural....
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....ly, and does not cover a reason relatable to pre-takeover circumstances. An order of cancellation under Section 18F is intended to be prospective. This is clear from the plain meaning of the expressions "remain in force", "necessary" etc. used in the Section. Section 18 incorporates only a facet, albeit qualified, of Section 21 of the General Clauses Act, (Kamla Prasad Khetan v. Union of India, referred to.) Therefore, the illusory right given by Section 18F to the aggrieved owner of the undertaking, to make an application for cancellation of the order, is not a full right of appeal on merits. The language of the Section impliedly prohibits an enquiry into circumstances that led to the passing of the order of "take-over", and under it, the aggrieved person is not entitled to show that on merits, the order was void ab initio. As held by a Bench (consisting of Bhagwati and Vakil JJ.) of the Gujarat High Court, in Dosabhai Ratanshah Keravale v. State of Gujarat, a power to rescind or cancel an order, analogous to that under Section 21, General Clauses Act, has to be construed as a power of prospective cancellation, and not of retroactive obliteration. It is only the existence of....
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....ted four Government Officials, including one from the office of the Textile Commissioner, to study the affairs of the Company and to make recommendation. This Official Group submitted its report on February 16, 1978. It is submitted that this evidence on the basis of which the impugned order was passed, was not disclosed to the appellant Company till May 1978, only after it had filed the writ petition in the High Court to challenge the impugned order. It is emphasised that if the Survey Report was assumed to contain something adverse to the appellants, there was time enough-about six weeks between the submission of the Survey Report and the passing of the impugned order for giving a short, reasonable opportunity to the appellants to explain the adverse findings against them. It is urged that even if there was immediacy, situational modifications could be made to meet the requirement of fairness, by reducing the period of notice; that even the manner and form of such notice could be simplified to eliminate delay, that telephonic notice or short opportunity for furnishing their explanation to the Company might have satisfied the requirements of natural justice. Such an opportunity of....
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....nds and should be cancelled or rescinded. Thus, Shri Sorabji does not go to the length of contending that the principles of natural justice have been fully displaced or completely excluded by Section 18AA. On the contrary, his stand is that on a true construction of Section 18AA read with Section 18F, the requirements of natural justice and fair-play can be read into the statute only "in so far as conformance to such canons can reasonably and realistically be required of it", by the provision for a remedial hearing at a subsequent stage. Shri Sorabji further submits that since Section 18F does not specify any period of time within which the aggrieved party can seek the relief thereunder, the opportunity of full, effective and post-decisional hearing has to be given within a reasonable time. It is stressed that under Section 18F, the Central Government exercises curial functions, and that Section confers on the aggrieved owner a right to apply to the Government to cancel the order of take-over. On a true construction this Section casts an obligation on the Central Government to deal with and dispose of an application filed thereunder with reasonable expedition. Shri Sorabji furth....
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....ss of man kind, as pre-eminently necessary to ensure that the law is applied impartially, objectively and fairly. Described in the form of Latin tags these twin principles are :(i) audi alteram partem and (ii) nemo judex in re sua. For the purpose of the question posed above, we are primarily concerned with the first. This principle was well-recognised even in the ancient world. Seneca, the philosopher, is said to have referred in Medea that it is unjust to reach a decision without a full hearing. In Maneka Gandhi's case, Bhagwati, J. emphasised that audi alteram partem is a highly effective rule devised by the Courts to ensure that a statutory authority arrives at a just decision and it is calculated to act as a healthy check on the abuse or misuse of power. Hence its reach should not be narrowed and its applicability circumscribed. During the last two decades, the concept of natural justice has made great strides in the realm of administrative law. Before the epoch-making decision of the House of Lords in Ridge v. Baldwin, it was generally thought that the rules of natural justice apply only to judicial or quasi-judicial proceedings; and for that purpose, whenever a breach of ....
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....othing less." The rules of natural justice can operate only in areas not covered by any law validly made. They can supplement the law but cannot supplant it (Per Hegde, J. in A. K. Kraipak, ibid). If a statutory provision either specifically or by inevitable implication excludes the application of the rules of natural justice, then the Court cannot ignore the mandate of the Legislature. Whether or not the application of the principles of natural justice in a given case has been excluded, wholly or in part, in the exercise of statutory power, depends upon the language and basic scheme of the provision conferring the power, the nature of the power, the purpose for which it is conferred and the effect of the exercise of that power. (See Union of India v. Col. J. N. Sinha, ibid.) The maxim audi alteram partem has many facets. Two of them are: (a) notice of the case to be met; and (b) opportunity to explain. This rule is universally respected and duty to afford a fair hearing in Lord Loreburn's oft- quoted language, is "a duty lying upon every one who decides something", in the exercise of legal power. The rule cannot be sacrificed at the altar of administrative convenience or cel....
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.... that when at the last hour of counting it appeared that he had all but won the election, at the instance of respondent, violence broke out and the Returning Officer was forced to postpone declaration of result. The Returning Officer reported the happening to the Chief Election Commissioner. An officer of the Election Commission who was an observer at the counting, reported about the incidents to the Commission. The appellant met the Chief Election Commissioner and requested him to declare the result. Eventually, the Chief Election Commissioner issued a notification which stated that taking all circumstances into consideration the Commission was satisfied that the poll had been vitiated, and therefore in exercise of the powers under Article 324 of the Constitution, the poll already held was cancelled and a repoll was being ordered in the constituency. The appellant contended that before making the impugned order, the Election Commission had not given him a full and fair hearing and all that he had was a vacuous meeting where nothing was disclosed. The Election Commission contended that a prior hearing has, in fact, been given to the appellant. In addition, on the question of applic....
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....ondition or fair hearing, however minimal, even post-decisional, has relevance to administrative and judicial gentlemanliness." "We may not be taken to....say that situational modifications to notice and hearing are altogether impermissible......... the glory of the law is not that sweeping rules are laid down but that it tailors principles to practical needs. doctors remedies to suit the patient promotes not freezes Life's processes, if we may mix metaphors."............. The Court further emphasised the necessity of striking pragmatic balance between competing requirements of acting urgently and fairly, thus:- "Should the cardinal principle of "hearing' as condition for decision-making be martyred for the cause of administrative, immediacy? We think not. The full panoply may not be there but a manageable minimum may make-do." "In Wiseman v. Borneman there was a hint of the competitive claims of hurry and hearing. Lord Reid said: 'Even where the decision has to be reached by a body acting judicially, there must be a balance between the need for expedition and the need to give full opportunity to the defendant to see material against him (emphasis added). We agree that ....
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....ituation, requiring immediate action, it is not practicable to give prior notice or opportunity to be heard, the preliminary action should be soon followed by a full remedial hearing. The High Court of Australia in Commissioner of Police v. Tanos, ibid, held that some urgency, or necessity of prompt action does not necessarily exclude natural justice because a true emergency situation can be properly dealt with by short measures. In Heatley v. Tasmanian Racing & Gaming Commission, ibid, the same High Court held that without the use of unmistakable language in a statute, one would not attribute to Parliament an intention to authorize the Commission to order a person not to deal in shares or attend a stock exchange without observing natural justice. In circumstances of likely immediate detriment to the public, it may be appropriate for the Commission to issue a warning-off notice without notice or stated grounds but limited to a particular meeting, coupled with a notice that the Commission proposed to make a long-term order on stated grounds and to give an earliest practicable opportunity to the person affected to appear before the Commission and show why the proposed long term or....
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.... full review of the original order on merits, then such a statute would be construed as excluding the audi alteram partem rule at the pre-decisional stage. Conversely, if the statute conferring the power is silent with regard to the giving of a pre-decisional hearing to the person affected and the administrative decision taken by the authority involves civil consequences of a grave nature, and no full review or appeal on merits against that decision is provided, courts will be extremely reluctant to construe such a statute as excluding the duty of affording even a minimal hearing, shown of all its formal trappings and dilatory features at the pre-decisional stage, unless, viewed pragmatically, it would paralyse the administrative process or frustrate the need or utmost promptitude. In short, this rule of fairplay "must not be jettisoned save in very exceptional circumstances where compulsive necessity so demands". The court must make every effort to salvage this cardinal rule to the maximum extent possible, with situational modifications. But, to recall the words of Bhagvati, J., the core of it must, however, remain, namely, that the person affected must have reasonable opportunity....
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....s relatable to that industry or manufactured or produced in the industrial undertaking or undertakings, as the case may be, for which there is no justification; or (iv) it is necessary to take any such action as is provided in this Chapter for the purpose of conserving any resources of national importance which are utilized in the industry or the industrial undertaking or undertakings, as the case may be; or (b) any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest. the Central Government may make or cause to be made a full and complete investigation into the circumstances of the case by such person or body of persons as it may appoint for the purpose." Section 16 empowers the Central Government to issue appropriate directions to the industrial undertaking concerned on completion of investigation under Section 15. Such directions may be for all or any of the following purposes: "(a) regulating the production of any article or class of articles by the industrial undertaking or undertakings and fixing the standards of production; (b) requiring the industrial undertaking or undertakings to....
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....aking over of the management of an industrial undertaking- (a) all persons in charge of the management including, persons holding office as managers or directors of the industrial undertaking immediately before the issue of the notified order, shall be deemed to have vacated their offices as such; (b) any contract of management between the industrial undertaking and any managing agent, or any director thereof holding office as such immediately before the issue of the notified order shall be deemed to have been terminated; (c) the managing agent, if any, appointed under Section 18A shall be deemed to have been duly appointed as the managing agent in pursuance of the Indian Companies Act, 1913 (7 of 1913), and the memorandum and articles of association of the industrial undertaking, and the provisions of the said Act and of the memorandum and articles shall, subject to the other provisions contained in this Act, apply accordingly, but no such managing agent shall be removed from office except with the previous consent of the Central Government; (d) the person or body of persons authorized under Section 18A to take over the management shall take all such steps as may be ne....
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....e already to close down and the continuing economic operation of many others is beset with many difficulties. These difficulties have been aggravated in many cases by the heavy burden of past debts. The taking over the management of the mills for a limited time and then restoring them to original owners has not remedied the situation. Steps are therefore, necessary to bring about a degree of rationalisation of the financial and managerial structure of such units with a view to their rehabilitation, so that production and employment may not suffer." Textile Industry is also among the industries, included in the First Schedule to the I.D.R. Act. The Amendment Act 72 of 1971 inserted Section 18AA in the original I.D.R. Act. The material part of the Statement of Objects and Reasons for introducing this Bill of 1971 published in the Gazette of India Extraordinary, is as follows: "The industries included in the First Schedule .. not only substantially contribute to the Gross National produce of the country, but also afford gainful employment to millions of people. For diverse reasons a number of industrial undertakings engaged in these industries have had to close down and the c....
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.... that- (a) the persons incharge of such industrial undertaking have, by reckless investments or creation of encumbrances on the assets of the industrial undertaking, or by diversion of funds, brought about a situation which is likely to affect the production of articles manufactured or produced in the industrial undertaking, and that immediate action is necessary to prevent such a situation; or (b) it has been closed for a period of not less than three months (whether by reason of the voluntary winding up of the company owning the industrial undertaking or for any other reason) and such closure is prejudicial to the concerned scheduled industry and that the financial condition of the company owning the industrial undertaking and the condition of the plant and machinery of such undertaking are such that it is possible to re-start the undertaking and such re- starting is necessary in the interests of the general public, it may, by a notified order, authorise any person (hereinafter referred to as the 'authorised person') to take over the management of the whole or any part of the industrial undertaking or to exercise in respect of the whole or any part of the undertaking such f....
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....ion. This shows that the preliminary objective fact attributable to the persons in charge of the management or affairs of the undertaking, on the basis of which action may be taken under Section 18A(1) (b), is of far wider amplitude than the circumstances, the existence of which is a sine qua non for taking action under Section 18AA(1). The phrase "highly detrimental to the scheduled industry or public interest" in Section 18A is capable of being construed to over a large variety of acts or things which may be considered wrong with the manner of running the industry by the management. In contrast with it, action under Section 18AA(1) (a) can be taken only if the Central Government is satisfied with regard to the existence of the twin conditions specifically mentioned therein, on the basis of evidence in its possession. From an analysis of Section 18AA(1) (a), it will be clear that as a necessary preliminary to the exercise of the power thereunder, the Central Government must be satisfied "from documentary or other evidence in its possession" in regard to the co-existence of two circumstances: (i) that the persons in charge of the industrial undertaking have by committing a....
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....t the necessity for taking immediate action is writ large in Section 18AA(1) (a)-the provision being a legislative response to deal with an economically emergent situation fraught with national repercussions. The object of the exercise of this power is not to punish anyone but to take immediate preventive action in the public interest. On the other hand, Shri Nariman submits that the High Court was clearly in error in holding that the satisfaction of the Central Government with regard to the necessity of taking immediate action was not open to judicial review at all. It is emphasised that the very language of the provision shows that the necessity for taking immediate action is a question of fact, which should be apparent from the relevant evidence in the possession of the Government. We find merit in this contention. It cannot be laid down as a general proposition that whenever a statute confers a power on an administrative authority and makes the exercise of that power conditional on the formation of an opinion by that authority in regard to the existence of an immediacy, its opinion in regard to that preliminary fact is not open to judicial scrutiny at all. While it may be....
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....xistence of the urgency can be challenged are not unlimited, and the power conferred on the Government under Section 17(4) of that Act has been formulated in subjective term; nevertheless, in cases, where an issue is raised, that the Government's opinion as to urgency has been formed in a manifestly arbitrary or perverse fashion without regard to patent, actual and undeniable facts, or that such opinion has been arrived at on the basis of irrelevant considerations or no material at all, or on materials so tenuous, flimsy, slender or dubious that no reasonable man could reasonably reach that conclusion, the Court is entitled to examine the validity of the formation of that opinion by the Government in the context and to the extent of that issue. In Narayan Govind Gavate v. State of Maharashtra & Ors. this Court held that while exercising the power under Section 17(4) of the Land Acquisition Act, the mind of the officer or authority concerned has to be applied to the question whether there is an urgency of such a nature that even the summary proceedings under Section 5A of the Act should be eliminated. It is not just the existence of an urgency but the need to dispense with an inq....
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....tive, is not open to judicial review at all. From a plain reading of Section 18AA, it is clear that it does not expressly in unmistakable and unequivocal terms exclude the application of the audi alteram partem rule at the pre-decisional stage. The question, therefore, is narrowed down to the issue, whether the phrase "that immediate action is necessary" excludes absolutely, by inevitable implication, the application of this cardinal canon of fairplay in all cases where Section 18AA(1)(a) may be invoked. In our opinion, for reasons that follow, the, answer to this question must be in the negative. Firstly, as rightly pointed out by Shri Nariman, the expression "immediate action" in the said phrase, is to be construed in the light of the marginal heading of the Section, its context and the Objects and Reason for enacting this provision. Thus construed, the expression only means "without prior investigation" under Section 15. Dispensing with the requirement of such prior investigation does not necessarily indicate an intention to exclude the application of the fundamental principles of natural justice or the duty to act fairly by affording to the owner of the undertaking likely....
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....usiness. After the year 1964-65, the Company fell on evil days and the textile mill of the Company was one of the 12 sick textile mills in Gujarat, which had to be closed down during 1966 and 1968. On May 31, 1969, the Central Government passed an order appointing a Committee for investigation into the affairs of the Company under Section 15 of the I.D.R. Act. After completing the inquiry, the Investigating Committee submitted its report to the Government who thereafter on November 24, 1970, passed the impugned order under Section 18A authorising the Corporation to take over the management of the Company for a period of five years. The Company challenged the order of 'take-over' by a writ-petition in the High Court of Delhi. The High Court dismissed the petition. The main contention of the Company before the High Court was that the Government was not competent to proceed under Section 18A against the Company without supplying before hand, a copy of the report of the Investigating Committee to the Company. It was further contended that the Government should also have given a hearing to the Company before finally deciding upon take- over under Section 18A. This contention was pressed....
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....ch to act judicially as to act fairly. See, for instance, the observations of Lord Parker in In re H.K. (an infant). It only means that such measure of natural justice should be applied as was described by Lord Reid in Ridge v. Baldwin as insusceptible of exact definition but what a reasonable man would regard as a fair procedure in particular circumstances. However, even the application of the concept of fairplay requires real flexibility. Everything will depend on the actual facts and circumstances of a case." (3) (a) "For answering that question we shall keep in mind .... and examine the nature and scope of the inquiry that had been carried out by the Investigating Committee set up by the Government, the scope and purpose of the Act and rules under which the Investigating Committee was supposed to act, the matter that was being investigated by the Committee and finally the opportunity that was afforded to the appellants for presenting their case before the Investigating Committee." (After noticing the object, purpose and content of the relevant provisions, the judgment proceeded): "In fact, it appears from a letter addressed by appellant No. 2 Navinchandra Chandulal Par....
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....to make all possible representations before the Government against the proposed take-over of its mill under Section 18A. In this connection, it is significant that even after the writ petition had been filed before the Delhi High Court the Government of India had given the appellants at their own request one month's time to obtain the necessary funds to commence the working of the mill. Even then, they failed to do so ....." "There are at least five features of the case which make it impossible for us to give any weight to the appellants complaint that the rules of natural justice have not been observed. First on their own showing they were perfectly aware of the grounds on which Government had passed the order under Section 18A of the Act. Secondly, they are not in a position to deny (a) that the Company has sustained such heavy losses that its mill had to be closed down indefinitely, and (b) that there was not only loss of production of textiles but at least 1200 persons had been thrown out of employment. Thirdly, it is transparently clear from the affidavits that the Company was not in a position to raise the resources to recommence the working of the mill. Fourthly, the appe....
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....oposes to take on the basis of that report. Whether the report should be furnished or not must therefore, depend in every individual case on the merits of that case. We have no doubt that in the instant case, non-disclosure of the report of the Investigating Committee has not caused any prejudice whatsoever to the appellants. (emphasis added) It will be seen from what has been extracted above that in Keshav Mills case, this Court did not lay it down as an invariable rule that where a full investigation after 'notice to the owner of the industrial undertaking has been held under Section 15, the owner is never entitled on grounds of natural justice, to a copy of the investigation report and to an opportunity of making a representation about the action that the Government proposes to take on the basis of that report. On the contrary, it was clearly said that this rule of natural justice will apply at that stage in cases "where unless the report-is given the party concerned cannot make any effective representation about the action that Government takes or proposes to take on the basis of that report." It was held that the application or non-application of this rule depends on the fa....
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....Committee appointed to investigate had not directed its investigation into the question whether the industrial undertaking was being managed in the manner mentioned above. The High Court came to the conclusion that on a correct construction of Section 18 A(1) (b) it was necessary before any order could be made thereunder that the investigation should have been initiated on the basis of the opinion mentioned in Section 15(b) of the Act. It also accepted the petitioner's contention that no investigation had, in fact, been held into the question whether the undertaking was being managed in a manner highly detrimental to public interest. On appeal by special leave, this Court reversed the decision of the High Court, and held that the words used by the Legislature in Section 18A (1) (b) "in respect of which an investigation has been made under Section 15" could not be cut down by the restricting phrase "based on an opinion that the industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest"; that Section 18A (1) (b) empowers the Central Government to authorise a person to take over the management of an industrial u....
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.... consequent injury to public interest, brooks absolutely no delay, would be rare. In most cases, where the urgency is not so extreme, it is practicable to adjust and strike a balance between the competing claims of hurry and hearing. The audi alteram partem rule, as already pointed out, is a very flexible, malleable and adaptable concept of natural justice. To adjust and harmonise the need for speed and obligation to act fairly, it can be modified and the measure of its application cut short in reasonable proportion to the exigencies of the situation. Thus, in the ultimate analysis, the question, (as to what extent and in what measure) this rule of fair hearing will apply at the pre-decisional stage will depend upon the degree of urgency, if any, evident from the facts and circumstances of the particular case. In the instant case, so far as Kanpur Unit is concerned, it was lying closed for more than three months before the passing of the impugned order. There was no `immediacy' in relation to that unit, which could absolve the Government from the obligation of complying fully with the audi alteram partem rule at the pre-decisional or pre-takeover stage. As regards the other f....
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....any a full and fair hearing on merits, including an opportunity to show that the impugned order was not made on adequate or valid grounds. Shri Nariman on the other hand contends-and we think rightly-that the so-called right of a post-decisional hearing available to the aggrieved owner of the undertaking under Section 18F is illusory as in its operation and effect the power of review, if any, conferred thereunder, is prospective, and not retro-active, being strictly restricted to and dependent upon the post-takeover circumstances. By virtue of sub-section (2) of Section 18AA, the reference to Section 18A in Section 18F will be construed as a reference to Section 18AA, also. The power of cancellation under Section 18F can be exercised only on any of these grounds : (i) "that the purpose of the order made under Section 18A has been fulfilled", or (ii) "that for any other reason it is not necessary that the order should remain in force". These `grounds' and the language in which they are couched is clear enough to show that the cancellation contemplated thereunder cannot have the effect of annulling, rescinding or obliterating the order of take-over with retro-active force; it c....
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....ssential conditions in regard to which the Government must be satisfied before taking action under Section 18(1)(a). Secondly, what the rule of natural justice required in the circumstances of this case, was not only that the Company should have been given an opportunity to explain the evidence against it, but also an opportunity to be informed of the proposed action of take-over and to represent why it be not taken. In the renowned case, Ridge v. Baldwin & Ors. (ibid), it was contended before the House of Lords that since the appellant police officer had convicted himself out of his own mouth, a prior hearing to him by the Watch Committee could not have made any difference; that on the undeniable facts of that case, no reasonable body of men could have reinstated the appellant. This contention was rejected by the House of Lords for the reason that if the Watch Committee had given the police officer a prior hearing they would not have acted wrongly or unreasonably if they had in the exercise of their discretion decided to take a more lenient course than the one they had adopted. A similar argument was advanced in S. L. Kapoor v. Jagmohan & Ors to which decision two of us (Sar....
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.... if natural justice had been observed. The non-observance of natural justice is itself prejudice to any man and proof of prejudice independently of proof of denial of natural justice is unnecessary. It ill comes from a person who has denied justice that the person who has been denied justice is not prejudiced." We, therefore, over-rule this last contention. In sum, for all the reasons aforesaid, we are of the view that it is not reasonably possible to construe Section 18AA(1) as universally excluding, either expressly or by inevitable intendment, the application of the audi alteram partem rule of natural justice at the pre-takeover stage, regardless of the facts and circumstances of the particular case. In the circumstances of the instant case, in order to ensure fairplay in action it was imperative for the Government to comply substantially with this fundamental rule of prior hearing before passing the impugned order. We therefore, accept the two-fold proposition posed and propounded by Shri Nariman. The further question to be considered is : What is the effect of the non-observance of this fundamental principle of fairplay? Does the non-observance of the audi alteram par....
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....rned Solicitor-General, we refrain from quashing the impugned order, and allowing Civil Appeal 1629 of 1979 send the case back to the Central Government with the direction that it shall, within a reasonable time, preferably within three months from today, give a full, fair and effective hearing to the aggrieved owner of the undertaking, i.e., the Company, on all aspects of the matter, including those touching the validity and/or correctness of the impugned order and/or action of take-over and then after a review of all the relevant materials and circumstances including those obtaining on the date of the impugned order, shall take such fresh decision, and/or such remedial action as may be necessary, just, proper and in accordance with law. In view of the above decision, no separate order is necessary in Civil Appeals 1857 and 2087 of 1979. All the three appeals are disposed of accordingly with no order as to costs. Since the appeals have been disposed of on the first and foremost point canvassed before us, in the manner indicated above, it is not necessary to burden this judgment with a discussion of the other points argued by the counsel for the parties. CHINNAPPA REDDY, J....
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....n of natural justice was very weak where action was of a remedial or preventive nature or where such action concerned property rights only. In appropriate situations post-decisional hearing might displace pre-decisional natural justice. The statute itself might well provide for a post-decisional hearing as a substitute for pre-decisional natural justice in situations requiring immediate action. Sec. 18-F of the Industries Development and Regulation Act expressly provided for such a post- decisional hearing and the urgency of the situation contemplated by Sec. 18AA necessarily excluded pre-decisional natural justice. There was no reason to belittle the scope of Sec. 18F, so, to exclude a fair post-decisional hearing at the instance of the party affected and consequently, to imply pre-decisional natural justice. Both the learned counsel invited our attention to considerable case-law. I do not propose to discuss the case law as my brother Sarkaria has referred to all the cases in great detail. Before I consider the submissions of the learned counsel as to the applicability of the principles of natural justice, a few prefatory remarks, however, require to be made. Natural justice....
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....ights are involved. In cases where only property rights are involved postponement of enquiry has been held not to be a denial of due process, vide : Annie G. Phillips v. Commissioner of Internal Revenue, John H. Fahey v. Paul Mallonee, Margarita Fuentes v. Robert L. Shevin, Attorney General of Florida, and Lawrence Mitchell v. W. F. Grant Co. In the first case (75 L.Ed. 1289), Brandeis J observed: "Where only property rights are involved, mere postponement of the judicial inquiry is not a denial of due process, if the opportunity given for the ultimate judicial determination of the liability is adequate. Delay in the judicial determination of property rights is not uncommon where it is essential that Governmental needs be immediately satisfied. For the protection of public health, a state may order the summary destruction of property by administrative authorities without antecedent notice or hearing. Because of the public necessity the property of citizens may be summarily seized in war time. And at any time, the United States may acquire property by eminent domain, without paying, or determining the amount of the compensation before the taking." The principles of natural ....
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....951, was enacted pursuant to the power given to Parliament by Entry 52 of List I of the Seventh Schedule to the Constitution. As required by that Entry Section 2 of the Act declares that it is expedient in the public interest that the Union should take under its control the industries specified in the First Schedule to the Act. Item 23 of the First Schedule to the Act relates to Textiles of various categories, Sec. 3(d) defines "Industrial undertaking" to mean "any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including Government". The expression undertaking is not, however, defined Sec. 3(f) defines "Owner", "in relation to an industrial undertaking" as "the person who, or the authority which, has the ultimate control over the affairs of the undertaking, and, where the said affairs are entrusted to a manager, managing director or managing agents, such manager, managing director or managing agent shall be deemed to be the owner of the undertaking". Sec. 3(j) provides that words and expressions not defined in the Act but defined in the Companies Act shall have the meaning assigned to them in that Act. Sec. 10 obliges t....
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....acity or economic value; (d) controlling the prices, or regulating the distribution of any article. Sec. 16(2) also provides for the issue of interim directions by the Central Government pending investigation under Sec. 15. Such directions are to have effect until validly revoked by the Central Government. Chapter III-A consisting of Sections 18A, 18-AA. 18-B, 18-C, 18-D, 18-E and 18-F deals with "direct management or control of Industrial Undertakings by Central Government in certain cases". Sec. 18-A which is entitled "Power of Central Government to assume management or control of an industrial undertaking in certain cases" provides that the Central Government may, by notified order, authorise any person or body of persons to take over the management of the whole or any part of an industrial undertaking or to exercise in respect of the whole or any part of the undertaking such functions of control as may be specified in the order, if the Central Government is of opinion that : (a) an industrial undertaking to which directions have been issued in pursuance of Sec. 16 has failed to comply with such directions, or (b) an industrial undertaking in res....
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....e shall be no right to compensation for termination of office or contract as a result of the `take over'. Sec. 18-E deprives the shareholders and the Company of certain rights under the Indian Companies Act. if the industrial undertaking whose management is taken over is a Company. Sec. 18-F empowers the Central Government on the application of the owner of the industrial undertaking or otherwise to cancel the order made under Sec. 18-A if it appears to the Central Government that the purpose of the order has been fulfilled or that for any other reason it is not necessary that the order should remain in force. Sec. 18FD(3) enables the Central Government to exercise the powers under Sec. 18- F in relation to an undertaking taken over under Sec. 18-AA. The question for consideration is whether Sec. 18-AA excludes natural justice by necessary implication. The development and regulation of certain key industries was apparently considered so basic and vital to the economy of our country that Parliament, in its wisdom, thought fit to enact the Industries Development & Regulation Act, after making the declaration required by Entry 52 of List I of the Seventh Schedule to the Constitutio....
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....ound in Sec. 18-AA(1) (b). I do not think that the absence of the expression "immediate action in Sec. 18-AA(1)(b) makes any difference. Sec. 18-AA(1)(a) refers to a situation where immediate preventive action may avert a disaster, whereas Sec. 18-AA contemplates a situation where the disaster has occurred and action is necessary to restore normalcy. Restoration of production where production has stopped in a key industry or industrial undertaking is as important and urgent, in the public interest, as prevention of a situation where production may be affected. Immediate action is, therefore, as necessary in the situation contemplated by Sec. 18-AA(1)(b) as in the situation contemplated by Sec. 18-AA(1)(a). It is true that the marginal note refers to the power to take over without investigation but there is no sufficient reason to suppose that the word `immediate' is used only to contra-distinguish it from the investigation contemplated by Sec. 15 of the Act, though, of course a consequence of immediate action under Sec. 18-AA may be to dispense with the enquiry under Sec. 15. In fact, facts which come to light during the course of an investigation under Sec. 15 may form the basi....
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....ty to be given in each individual case and, as a corollary, a corresponding right in the aggrieved party to claim that the opportunity provided was not enough. Such a procedure may be possible, practicable and desirable in situations where there is no statutory provision enabling the decision making authority to review, or reconsider its decision. Where there is a provision in the statute itself for revocation of the order by the very authority making the decision, it appears to us to be unnecessary to insist upon a pre-decisional observance of natural justice. The question must be considered by regard to the terms of the statute and by an examination, on the terms of the statute, whether it is possible, practicable and desirable to observe pre-decisional natural justice and whether a post decisional review or reconsideration provided by the statute itself is not a sufficient substitute. The likelihood of production being jeopardized or the stoppage of production in a key industrial undertaking is a matter of grave concern affecting the public interest. Parliament has taken so serious a view of the matter that it has authorised the Central Government to take over the management ....