Full Judgment Text
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PETITIONER:
SHRI AMBALAL M. SHAH AND ANOTHER
Vs.
RESPONDENT:
HATHISINGH MANUFACTURING CO., LTD.
DATE OF JUDGMENT:
21/08/1961
BENCH:
GUPTA, K.C. DAS
BENCH:
GUPTA, K.C. DAS
WANCHOO, K.N.
SHAH, J.C.
DAYAL, RAGHUBAR
CITATION:
1962 AIR 588 1962 SCR Supl. (3) 171
CITATOR INFO :
RF 1973 SC 389 (12)
C 1981 SC 818 (67,68,69,72,73)
ACT:
Industrial Undertaking-Investigation into its affairs by
Central Government-Taking over of management by officer
appointed by Government on the basis of report-Legality-
Industries (Development and Regulation) Act. 1951 (65 of
1951), ss. 15, 18 A(1)(b).
HEADNOTE:
Being of the opinion that there had been a substantial fall
in the volume of production in respect of cotton textiles
manufactured in the respondent company, an industrial under-
taking, for which having regard to the economic conditions
prevailing there was no justification, the Central
Government made an order under s.15 of the Industries
(Development and Regulation) Act,, 1951, appointing a
committee of three persons for the purpose of making a full
and complete investigation into the circumstances of the
case. After the committee made its report,the Central
Government being of the opinion thereupon that the company
was being managed in a manner highly detrimental to public
interest, made an order under s. 18 A of the Act authorising
the first appellant to take over the management of the whole
of the said undertaking. The respondents challenged the
legality of the order on the ground, inter alia, that on the
proper construction of s.18.A the Central Government had
the right to make the order under that section on the
ground
172
that the company was being managed in a manner highly
detrimental to public interest only where the investigation
made under s.15 was initiated on the basis of the opinion,as
mentioned in s. 15(b), whereas in the present case, the
investigation ordered by the Central Government was
initiated on the formation of an opinion as mentioned in cl.
(a) (1) of S. 15.
Held, that the order passed by the Central Government under
s. 18 A was valid and that the words. used by the
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legislature in s. 18A (1)(b) "in respect of which an
investigation has been made under s. 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."
Section 18A (1)(b) empowers the Central Government to
authorise a person to take over the management of an
industrial undertaking if the one condition of an
investigation made under s. 15 had been fulfilled
irrespective of on what opinion that investigation was
initiated, and the further condition is fulfilled that ’the
Central Government was of opinion that such undertaking was
being managed in a manner highly detrimental to the
scheduled industry concerned or to public interest.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No.’285 of 1961.
Appeal from the judgment and- order dated December 6 1960,
of the Gujrat High Court in Special Civil Application No.
434 of 1960.
H.N. Sanyal, Additional Solicitor-General of India, B. H.
Dhebari, and T. M. Sen, for the appellants.
I.M. Nanavati, S. N. Andley, Rameshwar Nath and P. L. Vohra,
for the respondents.
1961. August 21. The Judgment of the Court was delivered
by
DAS GUPTA, J.-This appeal by special leave raises a question
of the correct interpretation of some words in s.18A(1)(b)
of the Industries (Development and Regulation) Act, 1951.
The Central Government made an order under s. 15 of that Act
appointing a committee of three persons for the purpose of
making full and complete investi-
173
gation into the circumstances of the case as it was of
opinion that there had been.or was. likely to be a,
substantial fall in the volume of production in respect of
cotton textiles manufactured in the industrial undertaking
known as Hathisingh Manufacturing Company Ltd., Ahmedabad,
for which having regard to the economic conditions
prevailing there was no justification. After the committee
made its report the Central Government being of opinion
thereupon that-this industrial undertaking was being managed
in a manner highly detrimental to public interest made an
order under s.18A of the Act authorising Ambalal Shah (the
first appellant before us) to take over the management of
the whole of the said undertaking.
Against this order the industrial undertaking and its
proprietor-who are the two respondents before us-filed a
petition in the Gujarat High Court under Art. 226 of the
Constitution praying for issue of writs directing the
authorised controller and the Union of India not to take
over the management on the basis of the order under s.18A.
The main ground on which the application was based was that
on a proper construction of s.18A(1)(b) the Central
Government has the right to make an order thereunder only
where the investigation made under s. 15 was initiated on
the basis of the opinion as mentioned in s.15(b)-that the
industrial undertaking is being managed in a manner highly
detrimental to the scheduled industry concerned or to public
interest. It was also urged that in fact the committee
appointed to investigate had not directed its investigation
into the question whether the industrial undertaking was
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being managed in the manner mentioned above. The other
grounds mentioned in the petition which were however’
abandoned at the time of the hearing included one that. the
alleged opinion formed by the Government as mentioned in the
order under s.18A was in the absence of any material for the
same in the report
174
of the investigating committee and therefore’ was arbitrary,
capricious and malafide.
On bahalf of the Government and the authorised controller it
was urged that the question which one of the five opinions
mentioned ins. 15 formed the basis of the investigation
under that section was wholly immaterial. The allegation
that the investigating committee had not directed its
investigation into the question whether the undertaking was
being managed in a manner. highly detrimental to the
scheduled industry concerned or to public interest was also
denied.
The High Court however came to the conclusion that on a
correct construction of s. 18A (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 s.15(b) of the Act. It also accepted
the petitioners’ 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. Accordingly it made an order "setting aside the
order of the Central Government dated 28th July, 1960, and
directing the respondents not to interfere with or take over
the management of the undertaking of the first petitioner,
namely "Hathisingh Mills" by virtue of or in pursuance of
the said order". It is against this decision that the
present appeal is directed.
The principal question in appeal is whether the High Court
is right in its view as regards the construction of section
18A. The relevant portion of s.18A(1) runs thus
"If the Central Government is of opinion that-
(a) x x x x
(b) an industrial undertaking in respect of
which an investigation has been made under s.
15 (whether or not any directions
175
have been issued to the undertaking in
pursuance of section 16), is being managed in
a manner highly detrimental to the scheduled
industry concerned or to public interest, 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 the undertaking or to exercise in
respect of the whole or any part of the under-
taking such functions of control as may be
specified in the order............."
The dispute is over the construction of the words "an
]investigation has been made under section 15". Section 15
is in these words
"Where the Central Government is of the opinion that-
(a)in respect of any scheduled industry or
industrial undertaking or undertakings-
(i)there has been, or is likely to be a
substantial fall in the, volume of production
in respect of any article or class of articles
relatable to that industry, or manufactured,
or produced in the industrial undertaking or
undertakings, as the case may be, for which
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having regard to the economic conditions
prevailing, there is no justification ; or
(ii)there has been or is likely to be a marked
deterioration in the quality of any article or
class of articles relatable to that industry
or manufactured or produced in the industrial
undertaking or undertakings, as the case may
be, which could have been or can be avoided;
or
(iii)there has been or is likely to be,, a
rise in the price of an article or class of
articles recitable to that industry or
manufactured or produced ’in the industrial
undertaking or undertakings. As the
176
case may be for which there is on
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."
It may be mentioned here that s.15(b) as it originally stood
was amended in 1955 and it was after the amendment that the
words as mentioned above appear. Reference may also be made
in passing to s16 under which once an investigation under
s.15 has been commenced or completed the central Government
if it considers desirable, may issue directions to the
industrial undertaking or undertakings concerned in several
matters. Section 17 of the original Act was repealed in
1953 by Act 26 of 1953. The same amending Act introduced
into this Act two new chapters Chapter IIIA and Chapter IIIB
of which s.18A in Chapter IIIA makes provisions as set out
above for an order, by the Central Government authorising
any person or body of persons to take over the management of
the whole or any part of the under- taking.
These provisions of s. 18A it may be mentioned take -the,
place of :the. provisions that previously appeared in
s.17(1). That section, now repealed, had empowered the
Central Government to authorise any person, or development
council or any other
177
body of person,% to take,over the management of an
undertaking or to exercise with respect thereto such
functions of. control- as might be provided by the order, in
one class of cases only-viz., where after a direction had
been issued in, pursuance of s. 16 the Central Government
was of opinion that the directions had not been complied
with and that the industrial undertaking in respect of which
directions had been issued was being managed in a manner
highly detrimental to the scheduled industry concerned or to
public interest. The present s.ISA empowers the Government
to authorise any person or persons to take over the
management or to excercise such functions of control as may
be specified, in two classes of cases. the first of these
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classes is mentioned in el. (a) of s.18A(1), viz., where the
Central Government, is of opinion that directions issued in
pursuance of s.16 have not been complied with by an
industrial undertaking. The second class with which we are
here directly concerned is mentioned in el. (b)-viz., where
the Central Government is of the opinion that an industrial
undertaking in respect of which an investigation has been
made under s.15 is being managed in a manner highly
detrimental to the scheduled industry concerned or to public
interest irrespective of whether any directions had been
issued in pursuance of s.16 or not. What is noticeable in
the wording of this clause is that while an investigation
under s.15 may be initiated in respect of an industrial
undertaking where the Central Government is of any of the
five opinions mentioned in s.15(a)(i), 15(a)(ii),
15(a)(iii), 15(a)(iv) and s.15(b), s.18A(1)(b) does not
refer to any of these opinions( Indeed, it does not refer at
all to the question of the initiation of the investigation
and mentions only the making of the investigation under
s.15. Read without the addition of anything more, the
language of s.18 A (1) (b) empowers the Central
Government.to authorise a person or persons to take over the
management of an industrial undertaking
178
or to exercise specified functions of control in respect of
that undertaking,if the one condition of an investigation
made under s.15 has been fulfilled irrespective of on what
opinion that investigation was initiated and the further
condition is fufillled that the Central Government is of
opinion that such undertaking is being managed in a manner
highly detrimental to the scheduled industry concerned or to
public interest.
The contention made on behalf of the respondents before us
which found favour with the High Court is that when the
legislature used the words "an investigation has been made
under s.15" it meant "an investigation has been made under
s.15 based on an opinion of the Central Government that the
industrial undertaking is being managed in a manner highly
detrimental to the scheduled industry concerned or to public
interest." We should have thought that if the legislature
wanted to express such an intention it would not have
hesitated to use the additional words mentioned above,. It
was urged, however, on behalf of the respondents that these
further words, viz., "’based on an opinion of the Central
Government that the industrial undertaking is being managed
in a manner highly detrimental to the scheduled industry
concerned or to public interest" are implicit in cl.(b) of
s.18A. In his lengthy address to convince us of the
correctness of this contention the learned counsel advanced
in substance only two arguments. The first is that it is
only where the investigation under s.15 is initiated on an
opinion mentioned in s.15(b)-that the industrial undertaking
is being managed in a manner highly detrimental to the
scheduled industry concerned or to public interestthat the
report of the investigation can furnish the government with
materials on which any opinion can be formed that an
industrial undertaking is being managed in a manner highly
detrimental to the scheduled industry concerned or to public inter
est. For this argument we can find no basis.
It appears to
170
us that where the investigation has been initiated, in
respect of an industrial undertaking, on an opinion that
there has been or is likely to be a fall in the volume of
production for which having regard to the economic
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conditions there is no justification s.15(a)(i) or an
opinion that there has been or is likely to be a marlied
deterioration in the quality of any article which could have
been or can be avoided s.15(a)(ii); or an opinion that there
has been or is likely to be a rise in the price of any
article for which there is no justification s.15(a)(iii); or
an opinion that it is necessary to take action for the
purpose of conserving any resources of national importance
s.15 (a)(iv), the investigation in order to be complete must
also consider the quality of the management of the
undertaking just as it would so consider the quality of
management where the investigation is initiated on an
opinion that the industrial undertaking is being managed in
a manner highly detrimental to the scheduled industry
concerned or to public interest. For, even when the
investigation has been initiated on the Government’s forming
any of the opinions mentioned in the four sub-clauses of el.
(a) of s.15, the investigator has necessarily to examine
three matters : (1) whether the opinion formed by the
Government is correct; secondly, what are the causes of this
state of things, viz., the unjustifiable fall in the volume
of production or the deterioration in the quality of the
article or the rise in the price of the articles or the
necessity of an action for the purpose of conserving the
resources ; and thirdly how this state of things, if it
exists can be remedied. In considering the second of these
matters, viz., the cause of this state of things the
investigator must examine how far and in what manner the
quality of management is responsible for it. He may come to
the conclusion that the management is in no way responsible
and that some other cause lies at the root of the
difficulty. He may hold on the other hand, that the
180
management is solely responsible or he may hold that while
other causes. also play their part the defect in the quality
of management is.., also in part responsible.. Indeed, we
find it difficult to understand how an investigator having
embarked on an investigation. ordered by the Government in
respect of an industrial undertaking on the basis of one or
more of the opinions mentioned in s. 15 (a) can avoid an
inquiry into the quality of the management of the industrial
undertaking. It is said that the use of the words "for
which having regard to the economic conditions prevailing
there is no justification" in cl. (a)(i) indicate and
circumscribe the scope of the enquiry and that the
investigator would only try to ascertain whether or not the
economic conditions are such that do or do not justify the
fall in the volume of production and then to see, where
necessary, how these economic conditions can be altered. To
say so is however to miss the entire scheme of the
legislation providing for the investigation and for action
following the same. Clearly, the purpose of this
legislation is to,enable the Central Government to take
suitable action to remedy the undesirable state of things
mentioned in the different clauses of s.15. In order that
Government may have proper materials to know what action is
necessary the legislature empowered the Government to make
or cause to be made "a full and complete investigation". In
s. 18, it empowered the person or body of persons appointed
to make investigation to choose one or more persons
possessing special knowledge to assist in the investigation
and further vested the investigating committee with all the
powers of. the Civil, Court under the Code of Civil
Procedure, for the purpose of taking evidence,.. on oath
and for, enforcing the attendance of witnesses and
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compelling the production of documents and,
material..objects. The whole purpopse of the legislation
would be frustrated unless the investigation could be "full
and complete." No
181
investigation which has not ’examined the quality of
management of the industrial undertaking could be said to be
full or complete.
It was next contended that the use of the words
"circumstances of the case" shows that the investigation had
to be made only into the matter in respect of which the
government has formed an opinion and not into anything else.
Assuming that it is so and--that the investigator has
primarily to conduct his investigation where the
investigation has been initiated on the basis of an opinion
as regards fall in production, into questions as regards
such fall ; and similarly, where the investigation has been
initiated on an opinion as regards the deterioration in
quality, into the question of such deterioration, that does
not other the fact that the investigator would have to try
to ascertain the causes of the fall in production or: the
deterioration in quality and this part, of the investigation
would necessarily include an investigation into the quality
of the management.
Learned Counsel contended that if an investigation made on
the basis of one or more of the opinions mentioned in el.
(a) of s.15 was sufficient to furnish the materials on which
the Government could form an opinion whether or not an
industrial undertaking was being managed in a manner highly
detrimental to the scheduled industry concerned or to public
interest, el. (b) would by wholly unnecessary. With this we
are unable to agree. There may be many cases where there
may be information justifying the formation of opinion that
the industrial undertaking was being managed in a manner
highly detrimental to the scheduled industry concerned or to
public interest, even though,.there are no materials for an
opinion that there has been or is likely to be an
unjustifiable fall in production or an avoidable
deterioration in quality or an unjustifiable rise in prices
or the necessity of taking action for the purpose of
conserving resources as
182
mentioned in the four sub-clauses of cl. (a) of s.15.
It was also urged that it would be unfair to expect the
management, where the investigation has been initiated on
the formation of an opinion as mentioned in cl. 15(a), to
lead any evidence as regards the quality of its management
and so there is risk of the investigator being misled. We
can see no reason however for any management to have any
doubt on the question that investigation would be directed
among other things to the question of quality of management.
We believe that one of the first things that any management
would do when an investigation is initiated on the basis of
any such opinion would be to try to show how efficient it
was and how in spite of the high quality of,its management
the misdeeds of labour or the unsympathetic attitude of
Government or the difficulties of transport or some other
cause beyond their control was responsible for the
undesirable state of things into which the investigation was
being held.
The argument that except where the investigation has been
initiated on the basis of an opinion mentioned in s. 15(b)
there would be no material for the Government to form an
opinion that the industrial undertaking was being managed in
a manner highly detrimental to the scheduled industry
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concerned or to public interest, therefore fails.
Equally untenable is the second argument advanced by the
learned counsel that absurd results would follow if the
words "investigation has been made under section 16" are
held to include investigations based on any of the opinions
mentioned in s.15(a). Asked to mention what the absurd
results would be the learned counsel could only say that an
order under s. 18A(1)(b) would be unfair in such cases, as
the owner of an industrial undertaking would have no notice
that the quality of management was being investigated. That
will be says
183
the learned counsel, condemning a person unheard. This
argument is really based on the assumption that when the
investigation has been initiated on the basis of any of the
opinions mentioned in cl. (a), the quality of the management
will not be investigated As we have stated earlier, there is
no basis for this assumption.
We have therefore come to the conclusion that the plain
words used by the legislature "in respect of which an
investigation has been made under section 15" cannot be cut
down by the restricting phrase "based oil an opinion that
the industrial undertaking is being managed in a manner
highly detrimental to the scheduled industry concerned or to
public interest." We must therefore hold that,the
construction placed by the High Court on these words in
s.18A(1)(b) is not correct.
This brings us to the consideration of the other question raised, viz.
, whether in fact the investigation had been
held into. the question whether. the industrial undertaking
was being managed in a manner highly detrimental to the
scheduled industry concerned or to public interest. On this
question the High Court came to a conclusion adverse to the
appellants. It is not clear how the respondents though
abandoning the ground that Government had nonmaterial before
it for forming the opinion that the undertaking was being
managed in a manner highly detrimental to the scheduled
industry concerned or to public interest, could still urge
that no investigation had been actually held into the
question whether the industrial undertaking was being
managed in a manner highly detrimental to the scheduled
industry concerned or to public interest. The question
whether investigation had in fact been held or not into the
question whether the industrial undertaking was being
managed in a Manner highly detrimental to the scheduled
industry concerned or to public interest, would be relevant
only to show that the Government
184
acted without any material before it or acted mala facie.
If the allegation of’ mala fide or the allegation that there
was no material before the Government for forming its
opinion is abandoned, the question whether an investigation
had in fact been held into the question whether the
industrial undertaking was being managed in a manner highly
detrimental to the scheduled industry concerned or to public
interest, becomes irrelevant.
We are satisfied however that the High Court was wrong in
its view that it was not established that investigation had
in fact been held into this question. We find that the
assertion in the petition under Art. 226 that the
investigation had not been directed "towards any alleged
mismanagement of the mills" was denied in the affidavit
sworn on behalf ’of the Union of India. When thereafter on
October 10, 1960, affidavits in rejoinder filed on behalf of
the petitioners affirmed ’that "no question was put which
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would suggest that the committee was investigating into any
mismanagement of the mills," an affidavit of Mr. Thomas de
Sa, who was a member of the investigating committee was,
filed on behalf of the Union of India. This affidavit made
the categorical assertion that the "committee" investigated
not only into the question relating to the fall in the
volume of production in respect of cotton textiles
manufactured in the said industrial undertaking but also
made a full and complete investigation into the
circumstances of the working of the said industrial
undertaking including the management thereof and as to
whether the said undertaking was being managed in a manner
detrimental to the industry concerned or to public
interest." The High Court has thought it fit to reject this
testimony of Mr. De Sa for reasons which appear to us to be
wholly insufficient. It appears that during the hearing the
Advocate-General asked for time to file an affidavit
preferably of Mr. P. H. Bhuta who was. the lion-official
member of t he Committee of investigation but ultimately
filed the
185
affidavit of Mr. De Sa and not the affidavit of’ Mr. Bhuta.
The High Court seems to think that as. Mr. Bhuta was an
independent member of the investigation committee while Mr.
De Sa was in the service of the Government Mr. De Sa’s,
statement is open to suspicion. In our view such suspicion
of, high- public officials is not ordinarily .,justified.,
Mr. De Sa was as much a member of the investigating
committee as Mr. Bhuta and so no less, competent--than Mr.
Bhuta to testify as regards the matter in issue. We do not
think it right to suspect his honesty merely because he is
an officer of the Union of India. The learned judges of
the High, Court, appear also to have lost sight of, the fact
that the questionnaire which annexed as annexure X to. the,
affidavit of the second respondent Rajendra Prasad Manek Lal
itself includes a number of questions which show
unmistakably that the quality of management was being
enquired into.
A circumstance which appears to have weighed with the High
Court is that the report of the committee which as the
learned judges rightly say would be the best evidence to
show "that there was in fact an investigation into the
question of the management of the said undertaking" was not
produced by the Union of India when called upon to do so by
I. &. Nanavati on behalf of the petitioners. It is proper
to mention that it does not appear that the learned judges
themselves directed or desired the Advocate-General to
produce the report for their inspection. It further appears
that no written application for the production of the docu-
ment was made on behalf of the petitioners. It does not
seem to us to be fair to draw an inference against the Union
of India merely because an informal request by the
petitioners’ advocate was not acceded to. In view of what
happened in the court below we asked the appellants’ counsel
whether he was prepared to produce the report before us.
The learned counsel readily produced the report and after
examining the relevant portion
186
where the report deals with the question of management, we
read it out in Court so that the respondents’ counsel could
know the exact situation. This portion of the report says
:-,,that the management is in the hands of a young and
inexperienced person ; and the committee of the opinion that
the present manager is incapable of handling the affairs of
the mills ; the present managing agents are incapable of
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investing any further The fact that the report does contain
such an opinion is sufficient to show that an investigation
was actually held into the question of the quality of the
management as affirmed by Mr. De Sa. The High Court’s view
therefore that. no investigation was hold into the question
of the management of the undertaking wag wrong.
We have therefore come to the conclusion that the
respondents were not entitled to any writ directing these
appellants not to give effect to the, Government’s order
under s-18A(1)(b). We therefore allow the appeal, set aside
the order of the High Court directing the issue of the writ
and order that-the application under Art. 226 of the
Constitution be dismissed. The appellants will get their
costs both here and below.
Apnpeal allowed.
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