Dwarkadas Shrinivas Of Bombay vs The Sholapur Spinning and Weaving Co. Ltd., and Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Not extracted

Decision Date: 18 December 1953

Coram: M. Patanjali Sastri, Mehr Chand Mahajan, Vivian Bose, Ghulam Hasan

In this case the Court recorded that the petition was filed by Dwarkadas Shrinivas of Bombay against The Sholapur Spinning and Weaving Co. Ltd. and other respondents. The judgment was delivered on 18 December 1953 by a Bench consisting of M. Patanjali Sastri, Mehr Chand Mahajan, Vivian Bose and Ghulam Hasan. The report of the decision appears in the 1954 volume of the All India Reporter at page 119, and in the Supreme Court Reports at page 674. The decision is also cited in a number of law reports, including R 1954 SC 92, R 1954 SC 728, R 1955 SC 41, E 1957 SC 676, R 1958 SC 328, F 1958 SC 578, R 1959 SC 308, D 1959 SC 648, R 1960 SC 554, R 1960 SC 1080, RF 1961 SC 1684, R 1962 SC 305, D 1962 SC 458, R 1963 SC 1811, RF 1967 SC 856, RF 1967 SC 1643, RF 1968 SC 394, R 1970 SC 564, RF 1970 SC 2182, R 1971 SC 1594, R 1973 SC 106, RF 1973 SC 1461, R 1978 SC 597, R 1978 SC 803, RF 1980 SC 1682, RF 1982 SC 149, E&R 1987 SC 180, RF 1988 SC 1136 and F 1989 SC 1629. The statutes discussed include the Sholapur Spinning and Weaving Company (Emergency Provisions) Ordinance II of 1950, which was later replaced by Act XXVIII of 1950, and the Court was asked to consider whether the provisions of that Ordinance were beyond legislative power under article 31 of the Constitution and how articles 19 and 31 should be interpreted. The headnote described the factual background of the company. The Sholapur Spinning and Weaving Co. Ltd. had been incorporated under the Indian Companies Act, 1913 with an authorised capital of forty-eight lakh rupees. This authorised capital was divided into one-thousand-rupee ordinary shares, five-hundred-rupee ordinary shares and one-hundred-rupee cumulative preference shares. Specifically, there were fifteen-hundred-ninety fully paid ordinary shares of one thousand rupees each, twenty fully paid ordinary shares of five hundred rupees each and thirty-two thousand partly paid cumulative preference shares of one hundred rupees each. The paid-up capital of the company amounted to thirty-two lakh rupees, consisting of sixteen lakh rupees of fully paid-up ordinary shares and sixteen lakh rupees of partly paid-up preference shares, each preference share having fifty rupees remaining unpaid. The Court noted that the company had performed well for a considerable period and had declared high dividends. However, in the year 1949 the business began to experience an accumulation of stock and serious financial difficulties. On 27 July 1949 the directors gave notice to the employees that they intended to close the mills, and consequently the mills were shut down. The closure created a labour dispute. To address this problem the Government, on 5 October 1949, appointed a Controller under the Essential Supplies Emergency Powers Act, 1946 to supervise the affairs of the mills. On 9 November 1949 the Controller, in order to break the deadlock, decided to call for additional capital and demanded that the directors require the preference shareholders to pay the remaining fifty rupees per share that was unpaid on each preference share. The directors declined to comply, arguing that the call was not in the interests of the company.

Each preference share carried an unpaid amount of Rs 50. The directors of the company refused to meet the Controller’s request for a fresh call of Rs 50 per share because they believed that making such a call was not in the interests of the company. On 9 January 1950 the Governor-General issued the ordinance that was later contested in this appeal. The ordinance provided that the mills could be placed under the management of directors who would be appointed by the Central Government. On the same day the Central Government, acting under section 15 of the ordinance, transferred all of its powers under the ordinance to the Government of Bombay. The Bombay Government then appointed a new board of directors who assumed control of the mill’s assets and its management. On 7 February 1950 the newly appointed directors passed a resolution ordering a call of Rs 50 on each preference share, specifying that the amount was payable on the date mentioned in the resolution. In accordance with that resolution, a notice dated 22 February 1950 was sent to the plaintiff, who held preference shares, requiring him to pay Rs 1,62,000 — the total sum of the call — on or before 3 April 1950. Instead of complying with the demand, the plaintiff instituted the present suit on 28 March 1950. He sued in a representative capacity on behalf of himself and other preference shareholders against the company and the directors appointed by the Bombay Government. The suit challenged the validity of the ordinance and questioned whether the directors had the authority to impose the call.

The plaintiff alleged that the ordinance was illegal, ultra vires, and void because it violated Section 299(2) of the Government of India Act 1935 and the provisions of Part III of the Constitution. He further contended that the directors’ resolution of 7 February 1950 was likewise illegal and ultra vires, since the law under which the directors had been appointed was itself invalid. The trial judge dismissed the suit, and the decision was affirmed on appeal by a division bench of the Bombay High Court in a judgment dated 29 August 1950. The plaintiff then appealed to the Supreme Court. The present appeal raises the same question of the ordinance’s validity as that considered by the Supreme Court in the case of Chiranjit Lal Chowdhuri (1950 S.C.R. 869). In that earlier case an ordinary shareholder of the defendant company, who owned a single fully paid-up share, had challenged the Sholapur Spinning and Weaving Co. (Emergency Provisions) Ordinance II of 1950 and Act XXVIII of 1950, seeking relief under Article 32 of the Constitution on the ground that the ordinance and the act infringed his fundamental rights under Articles 14, 19 and 31. The Supreme Court, by a majority of three to two, dismissed the petition, holding that the petitioner had not displaced the presumption of constitutionality of the act, had not shown that the impugned law was hostile or discriminatory toward him, and had not proved that the State had taken possession of his share.

The minority of the Supreme Court held that the statute challenged by the petitioner was void because it infringed the petitioner’s fundamental right guaranteed by Article 14 of the Constitution. That minority decision was pronounced on 4 December 1950. The suit that gave rise to the present appeal had been decided by the Bombay High Court while the petition of Chiranjit Lal Chowdhuri was still pending before the Supreme Court. The Bombay High Court, sitting as a bench of the Chief Justice Patanjali Sastri together with Justices Mahajan, Bose and Ghulam Hasan, made two principal findings. First, the Court observed that the Ordinance in force and the Act that replaced it effectively authorised a deprivation of the Company’s property within the meaning of Article 31, and that such deprivation was to be made without any compensation. The Court further held that the exemption contained in clause (5)(b)(ii) of Article 31 did not apply to the situation. Consequently, the Ordinance and the Act were found to be violative of the Company’s fundamental right under Article 31(2) of the Constitution, and the appellant – a preference shareholder who was required to pay the unpaid amounts on his shares – was entitled to challenge the constitutionality of those enactments. Second, the Court concluded that the earlier judgment of the Supreme Court in Charanjit Lal Chowdhuri v. The Union of India and Others, reported at (1) [1950] S.C.R. 869, was distinguishable and did not govern the present dispute. Justice Mahajan, speaking for himself, explained that constitutional provisions protecting person and property must be interpreted liberally. A strict literal approach, he warned, would diminish the effectiveness of those rights and allow them to erode gradually, as if the rights were merely formalities rather than substantive guarantees. He underscored the duty of courts to vigilantly protect citizens’ constitutional rights against subtle encroachments, referring to Boyd v. United States (2) 146 U.S. 616 677. Justice Mahajan observed that by promulgating the Ordinance, the Government had not merely assumed supervisory control over the Company’s affairs but, in substance, had taken over the undertaking itself. He rejected the argument that the Ordinance merely transferred superintendence and was merely regulatory. In the present case, he noted, almost all incidents of ownership had been transferred to the State, leaving the Company with nothing but a nominal title. Accordingly, the impugned statute had exceeded the permissible limits of social-control legislation and had infringed the Company’s right under Article 31(2), rendering the statute unconstitutional. The Court further pointed out that Article 31 concerns the private property of persons residing in the Union, whereas Article 19 applies only to citizens as defined in Article 5, and therefore the two articles address different fields and cannot be conflated.

From the language used in the various sub-clauses of Article 31, it is difficult to avoid the conclusion that the terms “acquisition” and “taking possession” that appear in Article 31(2) carry the same meaning as the word “deprivation” that appears in Article 31(1). The Court observed that Article 31 is a self-contained provision that delineates the field of eminent-domain power, and that clauses (1) and (2) of Article 31 address the same subject of compulsory acquisition of property. Accordingly, Article 31 furnishes complete protection to private property against executive action, irrespective of the process by which a person is deprived of possession of that property.

The Court rejected the narrow view that “acquisition” necessarily denotes the acquisition of legal title in whole or in part of the property. Instead, it held that the word “acquisition” has a broad connotation, meaning the procuring of property or the taking of it, whether permanently or temporarily. The term does not inevitably imply that the State acquires legal title to the property whose possession is taken. The Court referred to the decision in Minister of State for the Army v. Dalziel (68 C.L.R. 261) in support of this broader interpretation.

Per Justice Das, the appellant, being a preference shareholder, is directly affected by the impugned statute. This particular circumstance distinguishes the present case from the earlier Chiranjit Lal case. Consequently, the Court held that the appellant is entitled to challenge the Ordinance that dismissed the directors elected by the shareholders, authorised the appointment of directors by the State, and permitted the newly appointed directors to make the call and thereby impose a liability on all preference shareholders, including the appellant.

Justice Das further observed that the provisions of the Ordinance and the Act are drastic in the extreme. The managing agents and the elected directors have been dismissed, and new directors have been appointed by the State. In respect of the company, this has resulted in a complete denudation of its possession of property, leaving the company with only its bare legal title. The Court found it impossible to sustain the law as an exercise of the State’s police power in an emergency situation. The law, in the Court’s view, has far exceeded the limits of police power and is, in substance, nothing short of expropriation carried out by the exercise of eminent-domain power. Because the law provides no compensation, the Court held that it must be deemed to offend the provisions of Article 31(2). (Page 678)

Per Justice Bose, the words “taken possession of” or “acquired” in Article 31(2) must be read together with the word “deprived” in clause (1). The possession and acquisition referred to in clause (2) therefore denote a type of “possession” and “acquisition” that amount to “deprivation” within the meaning of clause (1). The Court stated that no rigid rule can be laid down; each case must be decided on its own facts. However, where there is substantial deprivation, clause (2) becomes applicable.

Per Justice Ghulam Hasan, the Act, in substance, robs the company of every vestige of right, leaving only what has been briefly described as the husk of the title. The impugned Act therefore...

The Court held that the Ordinance exceeded the constitutional limits of the power given to the State and therefore violated the provisions of Article 31. Because Article 31 was intended to protect property from State intrusion, the Court said that both clauses (1) and (2) of Article 31 must be read together in order to give effect to that purpose. The two clauses form an integrated whole and cannot be separated. The Court explained that Article 31 has a broader scope than Article 19(1)(f), which only gives a citizen the right to acquire, hold and dispose of property, and therefore the two provisions differ in both scope and content. The Court referred to a number of authorities for this principle, including Chiranjit Lal Chowdhuri v. The Union of India and Others ([1950] S.C.R. 869), The State of West Bengal v. Subodh Gopal Bose and Others ([1954] S.C.R. 587), Boyd v. United States (116 U.S. 616), Pennsylvania Coal Co. v. Mahon (260 U.S. 322), A.K. Gopalan v. The State of Madras ([1950] S.C.R. 88), State of Bihar v. Maharajah Kameswar Singh and Others ([1952] S.C.R. 889), Minister of State for the Army v. Dalziel (68 C.L.R. 261), Tan Bug Tain v. Collector of Bombay (I.L.R. 1946 Bom. 517) and Jupiter General Insurance Co. v. Rajagopal (A.I.R. 1952 Punjab 9). The Court therefore concluded that the Ordinance must be declared void.

The judgment was delivered in a civil appellate jurisdiction in Civil Appeal No. 141 of 1952. The appeal arose from the judgment and order dated 29 August 1950 of the High Court of Judicature at Bombay, rendered by Chief Justice Chagla and Justice Gajendragadkar in Appeal No. 48 of 1950. That appeal itself arose from the judgment and decree dated 28 June 1950 of the same High Court, handed down by Justice Bhagwati in the original civil jurisdiction in Suit No. 438 of 1950. Counsel for the appellant consisted of M.P. Amin, assisted by M.M. Desai and K.H. Bhabha. Counsel for respondents 1 to 4 and 6 to 8 were the Attorney-General for India, M.C. Setalvad, and the Solicitor-General for India, C.K. Daphtary, with G.N. Joshi assisting. Counsel for respondent 9 was also the Attorney-General, M.C. Setalvad, assisted by G.N. Joshi and P. Mehta. The judgment was handed down on 18 December 1953, with Chief Justice Patanjali Sastri delivering the opinion. Chief Justice Sastri recalled his earlier discussion of Articles 19 and 31 in Civil Appeal No. 107 of 1952 (State of West Bengal v. Subodh Gopal Bose and Others). He agreed with the other judges that the impugned Ordinance effectively deprived the Company of its property within the meaning of Article 31, without providing any compensation, and that the deprivation was not covered by the exception in clause 5(b) of that article. Consequently, the Ordinance violated the Company’s fundamental right under Article 31(2). The Court further held that the appellant, as a preference shareholder now required to pay the unpaid amounts on his shares, had the standing to challenge the constitutionality of the Ordinance. Chief Justice Sastri also concurred with Justice Mahajan that the earlier decision of this Court in Chiranjit Lal Chowdhuri v. The Union of India and Others was distinguishable and did not control the present case.

The appeal before the Court was filed by Mahajan J., challenging the judgment and decree issued by the High Court of Judicature at Bombay on the twenty-ninth day of August 1950 in Appeal No 48 of 1950. The matter concerned the constitutionality of the same legislative enactment that had earlier been examined by this Court in the case of Chiranjit Lad Chowdhuri. In that precedent, an ordinary shareholder of the defendant company who possessed a single fully paid-up share invoked Article 32 of the Constitution of India, contending that the provisions of the Sholapur Spinning & Weaving Company (Emergency Provisions) Act, cited as (1) [1954] S.C.R. 587, violated his fundamental rights under Articles 14, 19 and 31. By a narrow majority of three to two, the Court dismissed the petition, holding that the petitioner had failed to overcome the presumption of constitutional validity attached to the Act, and that he had not demonstrated that the impugned statute was hostile, discriminatory, or that the State had taken possession of his share. The minority opinion, however, declared the statute void on the ground that it curtailed the petitioner’s rights under Article 14. That decision dated 4 December 1950. The suit from which the present appeal arises had been resolved by the Bombay High Court while the Chiranjit Lad Chowdhuri petition was still pending before this Court. Although the majority of the factual background supporting the cause of action was previously outlined in the earlier judgment, it is necessary to restate those facts briefly to appreciate the contentions raised in the present appeal.

The Sholapur Spinning and Weaving Company Ltd. had been incorporated under the Indian Companies Act with an authorized capital of forty-eight lakh rupees, divided into 1,590 fully paid-up ordinary shares of one thousand rupees each, twenty fully paid-up ordinary shares of five hundred rupees each, and thirty-two thousand partly paid-up cumulative preference shares of one hundred rupees each. The paid-up capital of the company amounted to thirty-two lakh rupees, comprising sixteen lakh rupees of fully paid-up ordinary shares and sixteen lakh rupees of partly paid-up preference shares, with fifty rupees remaining unpaid on each of the thirty-two thousand preference shares. The company initially conducted a prosperous business and regularly declared substantial dividends. However, by the year 1949 it began to accumulate unsold stock and encountered serious financial distress. To address the crisis, the directors resolved to shut down the mills and, on 27 July 1949, gave formal notice of this decision to the workers. Following that notice, the mills were closed on 27 August 1949, giving rise to a labour dispute. In response, the Government, on 5 October 1949, appointed a Controller under the Essential Supplies Emergency Powers Act of 1946 to supervise the affairs of the mills. The Controller’s subsequent actions, aimed at resolving the operational deadlock, included a request on 9 November 1949 for the directors to call fifty rupees per share from the preference shareholders to meet the unpaid amount on each preference share. The directors declined, reasoning that such a call was not in the company’s interest. Consequently, the Governor-General enacted the impugned Ordinance on 9 January 1950, empowering the Central Government to manage the mills through directors it appointed. The Central Government, invoking section 15 of the Ordinance, delegated its authority to the Government of Bombay on the same day. The Bombay Government then appointed directors who assumed control of the mills’ assets and management. On 7 February 1950, those appointed directors passed a resolution ordering a call of fifty rupees on each preference share, payable as specified in the resolution, and a notice was subsequently issued pursuant to that resolution.

On 9 November 1949 the Controller, seeking to break the deadlock in the mill’s affairs, demanded that the company’s directors call a further payment of Rs 50 on each cumulative preference share, which represented the unpaid portion of those shares. The directors declined the request, holding that the call was not in the company’s interest. Consequently, on 9 January 1950 the Governor-General issued the Ordinance that is the subject of this suit, an instrument that authorised the mill to be administered and operated by directors appointed by the Central Government. Acting under section 15 of that Ordinance, the Central Government on the same day transferred all of its powers to the Government of Bombay, which in turn named a group of directors who assumed control of the mill’s assets and management. These appointed directors, on 7 February 1950, passed a resolution ordering a call of Rs 50 on each preference share, specifying the payment date in the resolution itself. Following that resolution, a notice dated 22 February 1950 was served on the plaintiff, who held preference shares, directing him to pay a total of Rs 1,62,000—the amount due on the call—no later than 3 April 1950. Rather than obey the notice, the plaintiff instituted the present suit on 28 March 1950, claiming to represent himself and other preference shareholders. The suit was filed against the company and the directors appointed by the Bombay Government, challenging both the validity of the Ordinance and the authority of the directors to make the call. On 19 April 1950 a notice of the suit was sent to the Attorney-General of India, and the Union of India was added as defendant No 9. The plaintiff’s primary allegations were that the Ordinance was illegal, ultra vires and void because it contravened section 299(2) of the Government of India Act 1935 and the provisions of Part III of the Constitution, and that the directors’ resolution of 7 February 1950 was likewise illegal and ultra vires since the law under which the directors were appointed was itself invalid. The relief sought comprised a declaration that the Ordinance was invalid and an injunction restraining the directors from giving effect to the resolution. The defendants denied all the plaintiff’s contentions. Justice Bhagwati, who tried the suit, framed three issues for determination: (1) whether, by virtue of the Ordinance, the plaintiff and other preference shareholders had been deprived of their interest in the first defendant company through possession, requisition or acquisition as alleged in paragraph 6 of the plaint; (2) whether section 4(d) of the Ordinance was illegal, ultra vires and void as claimed; and (3) whether the resolution dated 7 February 1950, made by the appointed directors, was illegal, ultra vires, void and inoperative in law for the reasons set out in paragraph 6 of the plaint.

In this appeal the Court observed that the resolution passed by defendants numbered two through six was illegal, ultra vires, void and inoperative for the reasons set out in paragraph six of the plaint. By a judgment dated 28 June 1950 the learned Judges had answered all three of the issues raised by the plaintiff in the negative, dismissed the suit and, on appeal, upheld that dismissal. The Court held that, notwithstanding the force of the Ordinance, the State had neither acquired the plaintiff’s property nor the property of the company, nor had it taken possession of it. Rather, the title to the property and its possession continued to belong to the respective owners, and the State’s role was limited to supervising the affairs of the company through directors that it had nominated. The Court further held that the Ordinance had not infringed the plaintiff’s rights under article fourteen of the Constitution; there was no denial of equality before the law nor of equal protection of the laws because the Ordinance was based on a classification that bore a fair and substantial relation to the object of the legislation and possessed a reasonable basis. Moreover, the Court found that the restrictions imposed on the appellant and on the company with respect to holding their property were justified by the interests of the general public. The principal questions for consideration in the present appeal were: first, whether the provisions of the Ordinance that allowed the taking over of the management and administration of the company contravened the provisions of article thirty-one clause two of the Constitution; and second, whether the Ordinance as a whole or any of its individual provisions infringed articles fourteen or nineteen of the Constitution. To determine these questions, the Court stressed the necessity of examining the substance of the legislation with strict scrutiny, for the true effect of a law cannot be judged merely by its outward appearance. The Court explained that a legislature cannot evade constitutional prohibitions by employing indirect methods that achieve the same result, and therefore the court must look behind the names, forms and appearances of the statute to discover its true character and nature. The preamble of the Ordinance declared that, because of mismanagement and neglect, a situation had arisen in the affairs of the Sholapur Spinning and Weaving Company Ltd. which had prejudicially affected the production of an essential commodity and had caused serious unemployment among a certain section of the community. The most material provision, section three, provided that the Central Government, by a notified order, could at any time appoint as many persons as it deemed fit as directors of the company for the purpose of taking over its management and administration, and could designate one of those directors to act as chairman.

Section 12 of the Ordinance augments the provisions of section 3. It declares that, irrespective of any provision in the Companies Act, the memorandum, or the articles of association, neither the shareholders nor any other person may lawfully nominate or appoint an individual to the board of directors. Furthermore, any resolution that a shareholders’ meeting may pass will have no legal effect unless it receives prior approval from the Central Government. The section also stipulates that no court may entertain any petition for winding up the company or for appointing a receiver unless such action is taken with the sanction of the Central Government. Subject to any exceptions, restrictions, or limitations that the Central Government may prescribe by a notified order, the Companies Act continues to apply to the company in the same manner as it did before the issuance of the order under section 3.

Section 4 deals with the consequences of the Central Government’s appointment of directors under section 3. It provides that all directors who were in office immediately before the government’s notification are deemed to have vacated their positions, meaning that the directors elected by the shareholders are automatically dismissed. In addition, the managing agents of the company lose their positions and their contracts are terminated. The persons appointed under section 3 are directed to take into custody and exercise control over all the property, effects, and actionable claims to which the company is or appears to be entitled, and to exercise all powers of the directors, whether those powers arise from the Companies Act, the memorandum, the articles of association, or any other source. Section 5 empowers these nominated directors to raise funds in any manner and to offer securities as they deem appropriate. They are also given the overriding authority to cancel or vary any contract or agreement entered into by the company with any other party if they are satisfied that such contract is detrimental to the company’s interests. Section 10 expressly denies any compensation to managing agents for the premature termination of their management contracts and also bars any person from claiming compensation for any contract that is cancelled or varied under the Ordinance. Finally, sections 6, 7, and 8 prescribe the procedure by which the existing directors must transfer charge of the company’s affairs and properties to the directors appointed by the Central Government.

The Court observed that the directors who are appointed by the Central Government under section 3 are subject to criminal punishment, including imprisonment or other penal consequences, if they default in taking over the charge of the company. Consequently, the effect of these provisions is that every asset, property and other effects belonging to the company are transferred into the hands of individuals selected by the Central Government. These individuals are not members of the company, are not shareholders, and have no other connection with the company; they are essentially agents or instruments of the Central Government. The combined operation of sections 3, 4 and 12 therefore results in the Central Government acquiring possession, control and management of the company’s property and effects, and the ordinary functioning of the company under its articles of association and the Indian Companies Act ceases to operate.

The Court noted that this arrangement strips the shareholders of their most important right, which is the power to appoint directors who manage the company’s affairs and hold its property. All resolutions that the shareholders may pass lose their effectiveness because they become subject to a veto by the Central Government. Likewise, the shareholders’ authority to voluntarily wind up the company they have created, or to seek a winding-up through the courts, is also placed under the Central Government’s veto. By exercising executive power, the Central Government can, at its discretion, override any provision of the Indian Companies Act. In substance, the Court held, the Ordinance deprives the company, its shareholders, its directors and its managing agents of any possession of the company’s property and effects, and transfers that possession to the Central Government, that is, to the Union of India.

The Court further explained that the takeover was justified by the purported public purpose of maintaining the production of an essential commodity and of preventing serious unemployment among a particular section of the population. The majority of the judges in the case of Chiranjitlal Chowdhuri (1950 SCR 869) were inclined to accept that this was the true effect of the Ordinance. The opinion of Justice Mukherjea, which was concurred in by Chief Justice Kania and to a certain extent supported by Justice Fazl Ali, was quoted on this point. The Court reproduced the following passage: “Mr Chaff, on the other hand, has contended on behalf of the petitioner that after the management is taken over by the statutory directors, it cannot be said that the company still retains possession or control over its property and assets. Assuming that this State management was imposed in the interests of the shareholders themselves and that the statutory directors are acting as the agents of the company, the possession of the statutory directors could not, it is argued, be regarded in law as possession of the company so long as they are bound to act in obedience to the dictates of the Central Government and not of the company itself in the administration of its affairs. Possession of an agent, it is said, cannot juridically be”

In the passage under consideration, the Court addressed the argument that an agent’s possession cannot be treated as the principal’s possession when the agent is instructed not by the principal but by an external authority. The Court observed that this contention possesses considerable strength. Justice Patanjali Sastri, speaking for the Court, held that the effect of the Act was to transfer all the property and assets of the company into the absolute power and control of the Central Government, thereby terminating the ordinary functions of the company as a corporate entity. Justice Das, speaking on the same point, referred to the submission made by the learned Attorney-General that the mills and other assets now held by the newly appointed directors—who were described as merely servants or agents of the company—were, in the eyes of the law, still in the possession and custody of the company and had not been taken over by the State. Justice Das explained that this argument overlooked a fundamental principle of agency law: for the possession of a servant or agent to be legally regarded as the possession of the master, the servant must be obedient to, and subject to the directions of, the master. When the master has no role in appointing the servant, exercises no control over him, and lacks the power to dismiss or discharge him, as was the case here, the servant’s possession cannot, in law, be said to belong to the company. Accordingly, the Court found strong force in the view that the State had taken possession of the company’s property through directors appointed under the powers conferred by the Ordinance and the Act, directors who were under the direction and control of the State, and that this acquisition had been effected without any payment of compensation. The Court consequently held that, because the property of the company had been taken into State possession pursuant to a law that did not provide for compensation, the company’s fundamental right had, in the eyes of the law, been infringed. The learned Attorney-General vigorously contested this view, arguing that the Ordinance could not be interpreted in the manner suggested. He maintained that, when correctly construed, the Ordinance merely placed the affairs of the company under Government superintendence without disturbing the company’s title to its property, and that the shareholders continued to retain, to some extent, an effective voice in the company’s affairs. To illustrate his point, he compared the situation to that of a disqualified owner under the provisions of the Court of Wards Act, insisting that the Ordinance should be read in that light.

In the arguments presented, reference was made to several statutes, including the Lunacy Act, sections 52-A and 52-B introduced in the Insurance Act by Act 47 of 1950, the Railway Companies Emergency Powers Act (51 of 1951), and Act 65 of 1951 (Development of Industries Act). It was contended that the ordinance under challenge was a piece of social-control legislation comparable to the provisions contained in those statutes. In the Court’s view, those contentions were not well founded. Comparing the ordinance with other legislation designed on a similar pattern was neither appropriate nor helpful, and it risked misleading the analysis because, with the exception of the Court of Wards Acts, all the statutes cited were enacted after the ordinance in question had been passed. The Court of Wards Acts are existing laws that have been expressly excluded from the fundamental right guaranteed by article 31(2); consequently they offer little assistance in assessing the validity of the impugned ordinance.

When dealing with constitutional questions of this nature, the Court considered it advisable to recall the observation of Justice Bradley, speaking for the United States Supreme Court in Boyd v United States, 116 U.S. 616 at page 635: “Illegitimate and unconstitutional practices get their first foothold in that way, namely, by silent approaches and slight deviations from legal modes of procedure. This can only be obviated by adhering to the rule that constitutional provisions for the security of person and property should be liberally construed. A close and literal construction deprives them of half their efficacy and leads to gradual depreciation of the right, as if it consisted more in sound than in substance. It is the duty of courts to be watchful for the constitutional rights of the citizen and against any stealthy encroachments thereon.” The Court noted that the statutes cited by the learned Attorney-General must be examined in the light of these principles when the occasion arises.

The Court also referred to the remarks of Chief Justice Holmes in Pennsylvania Cod Co. v. Mahon, 260 U.S. 322, where the Justice observed that “as long recognized, some values were enjoyed under an implied limitation and must yield to police power but obviously the implied limitation must have its limits or the contract and due process clauses are gone. One fact for consideration in determining such limits is the extent of the diminution. When it reaches a certain magnitude, in most, if not in all cases, there must be an exercise of eminent domain and compensation to sustain the act.” In the Court’s judgment, no abstract standard or general rule can be laid down for all such cases; the inquiry is essentially one of degree, and its determination depends on the facts of each individual case. Accordingly, the matter to be decided was whether the provisions of the ordinance had overstepped the limits of social legislation and whether they fell within the ambit of article 31(2).

In this matter the Court examined whether the provisions of the Ordinance had exceeded the permissible limits of social legislation and whether they fell within the scope of article 31(2) of the Constitution. The Court observed that the Ordinance was not a general statute applicable to every company belonging to a particular class; rather, it was directed at a single company. The Court noted that it would be difficult to argue that mismanagement was a defect unique to that company, while good management is a quality possessed by all other incorporated enterprises. Accordingly, the Court asked whether the Government, by issuing the Ordinance, had merely assumed supervisory control over the affairs of the company or, in substance, had taken over the undertaking itself. The Court emphasized that the arena of supervision must be distinguished from the arena of eminent domain. It is one thing to supervise the affairs of an enterprise; it is another thing to assume control of those affairs and then conduct the business through agents appointed by the State. The Court expressed the view that, under the pretense of supervision, the State was actually carrying on the trade for which the company was formed, using the company’s capital but employing its own agents who take orders from the State and are appointed by it, while the shareholders have no say in their appointment or removal. The purpose of this takeover, the Court said, was a public one: to keep labour employed and to maintain the supply of an essential commodity. By the terms of the Ordinance the company was barred from conducting its business in the manner provided by its charter, and its former character was altered by the Ordinance. The Ordinance, according to the Court, superseded the directors, stripped shareholders of their legal rights and privileges, and terminated the contracts of the managing agents. New directors could be appointed without any vacancy in the board, and the former directors and managing agents were dismissed, with any exercise of the powers conferred on them under the articles punishable by severe penalties. In this situation the Court found it impossible to accept the learned Attorney-General’s contention that the effect of the Ordinance was merely the Government taking over supervision of the company’s affairs and that the legislation was merely regulatory in nature. On the contrary, the Court observed that virtually all incidents of ownership had been transferred to the State, leaving the company with only a nominal, paper form of ownership. The Ordinance, the Court concluded, was a fitting illustration of the observation made by Holmes C.J. in the earlier case, namely: “Where the seemingly absolute protection in respect of private property given by the Constitution is found to be qualified by the police power, the natural tendency of.”

In this case, the Court observed that human nature tends to keep extending qualifications on property rights until private property eventually disappears. The Court warned that a strong public desire to improve conditions is not enough to bypass the constitutional process for effecting change, and that while regulation of property is permissible to some extent, regulation that goes too far will be regarded as a taking. Accordingly, the Court held that the statute being challenged had exceeded the permissible bounds of social control legislation, infringed the fundamental right of the company protected by article 31(2) of the Constitution, and was therefore unconstitutional. The Court then addressed the argument that the Ordinance could not fall within the scope of article 31(2) because the State had not acquired title to the company’s property and that any possession taken was only for managing the company’s property on its own behalf, not for a State purpose. It was contended that article 31(2) applied only to two forms of taking: acquisition of title by the State, or temporary commandeering for State purposes, and that any other mode of taking lay outside the protection afforded by article 31(2). Further, it was suggested that the protection of private property in our Constitution was not as extensive as that contained in the Fifth Amendment of the United States Constitution. The learned Attorney-General argued that the true content of the right guaranteed by article 31(1) was simply that a person could not be deprived of his property except by statutory authority, and that once a law depriving a person of property was enacted, article 31 offered no further safeguard. To support this view, reliance was placed on the reasoning in Gopalan’s case. In that decision, it was held that the freedoms guaranteed by article 19 presuppose the existence of a free citizen and cannot be enjoyed if the citizen is lawfully deprived of liberty through preventive or punitive detention. By analogy, the Attorney-General asserted that the freedom relating to property guaranteed by article 19 would likewise disappear the moment a person is deprived of his property under a law passed by the appropriate legislature. The Attorney-General further suggested that the two clauses of article 31 functioned as exceptions to the provisions of article 19(1)(f): the first being that a statute could defeat the guarantee of freedom in article 19(1)(f), and the second being that the State’s acquisition of title in property under its power of eminent domain, within the limited field prescribed by article 31(2), could also defeat that guarantee. He maintained that if a deprivation of property did not fall within the field of article 31(2) but only within article 31(1), no compensation would be payable. Regarding clause (5), which excluded certain laws from the ambit of article 31(2), the Attorney-General argued that the clause was inserted as a precautionary measure. The Court rejected all of these contentions, finding that the proposed construction of article 31 was not supported by the language of the article nor by the overall scheme of Part III of the Constitution.

In the argument before the Court, two alleged exceptions to the guarantee of freedom of trade, commerce and intercourse under article 19 (1)(f) were advanced. The first alleged exception contended that the freedom protected by article 19 (1)(f) could be entirely defeated simply by the enactment of a statute, that is, by legislative action alone. The second alleged exception claimed that the same freedom could also be defeated where the State acquired title to property by exercising its power of eminent domain, but only within the narrow field defined by article 31 (2). The argument continued to assert that where a deprivation of property fell outside the limited field prescribed by article 31 (2) yet remained within the scope of article 31 (1), such deprivation would not attract any liability to pay compensation.

The learned Attorney-General further addressed clause (5) of article 31, which excludes certain laws from the operation of article 31 (2). He argued that clause (5) had been inserted into the Constitution as a matter of abundant caution. The Court, however, rejected all of these contentions as lacking any legal validity. The Court observed that the construction sought by the Attorney-General regarding the language of article 31 was not supported either by the specific wording of the article itself or by the overall scheme of Part III of the Constitution.

According to the Court’s analysis, the Constitution, subject to a few expressly enumerated exceptions, affords the most comprehensive protection to private property. The Constitution not only provides that no person may be deprived of his property by the executive without the sanction of law, but it also stipulates that the legislature itself may not deprive a person of his property unless a public purpose is established and, even then, only on the condition that adequate compensation is paid. The text of article 31 is set out as follows: “(1) No person shall be deprived of his property save by authority of law. (2) No property, whether movable or immovable, including any interest in any company owning any commercial or industrial undertaking, shall be taken possession of or acquired for public purposes under any law authorising such taking or acquisition unless that law provides for compensation for the property taken or acquired and either fixes the amount of such compensation or specifies the principles and manner by which the compensation is to be determined and paid. (3) No law referred to in clause (2) made by a State Legislature shall have effect unless, having been reserved for the consideration of the President, it receives his assent. (4) If any Bill pending at the commencement of this Constitution in a State Legislature has, after being passed by that Legislature, been reserved for the President’s consideration and has received his assent, then, notwithstanding any other provision of the Constitution, the law so assented to shall not be called into question in any court on the ground that it contravenes clause (2). (5) Nothing in clause (2) shall affect—(a) the provisions of any existing law other than a law to which the provisions of clause (6) apply, or (b) the provisions of any law which the State may.”

The Constitution allows the State, after the commencement of this Charter, to enact legislation for three distinct purposes. First, it may make laws for the purpose of imposing or levying any tax or penalty. Second, it may make laws for the promotion of public health or for the prevention of danger to life or property. Third, it may make laws in pursuance of any agreement entered into between the Government of the Dominion of India or the Government of India and the Government of any other country, or otherwise, with respect to property that has been declared by law to be evacuee property. Section six of the same article further provides that any law of a State that was enacted not more than eighteen months before the commencement of this Constitution may, within three months after the commencement, be presented to the President for certification. If the President, by public notification, certifies such a law, that law shall thereafter be insulated from challenge in any court on the ground that it violates clause two of this article or the provisions of sub-section two of section 299 of the Government of India Act, 1935. This provision is headed “Right to Property.”

The heading is significant because the fundamental rights contained in Part III of the Constitution are organized into several groups, each group bearing its own descriptive heading. These headings serve to indicate briefly the nature and character of the rights that are collected under each group. The first group, comprising articles fourteen to eighteen, is titled “Right to Equality.” All articles in this group deal with the principle of equality before law, equality of opportunity, and the prohibition of discrimination on the basis of religion, race, caste, sex, place of birth, or any other ground. The next group, consisting of articles nineteen to twenty-two, carries the heading “Right to Freedom.” This group not only enumerates the protections against arbitrary deprivation of personal liberty but also specifies the circumstances in which personal freedom may be lawfully restricted. Similarly, other articles in Part III have been arranged under the headings “Right against Exploitation,” “Educational Rights,” and “Constitutional Remedies.”

Within this scheme, the fundamental right concerning property has been treated as a separate and self-contained subject. It is placed apart from the personal freedoms described in article nineteen and is dealt with as a distinct provision. When the Court examined article thirty-one, it noted that article thirty-one addresses the private property of persons who reside in the Union of India, whereas article nineteen concerns only the citizens as defined in article five of the Constitution. Consequently, the scope of the two articles cannot be identical because they cover different categories of persons and different fields of regulation. It would be untenable to argue that, for citizens, the Constitution grants property-related freedoms in both articles, while the protection of property for all other persons is confined solely to article thirty-one. If both articles were intended to cover the same ground, the duplication would be unnecessary. The correct interpretation, therefore, is that article thirty-one and article nineteen deal with two distinct subjects, with article thirty-one specifically governing the power of eminent domain and the acquisition of property by the State, a field that is narrowly confined by the language of article thirty-one itself.

In this case the Court observed that Article 31 of the Constitution delineates the entire field within which the State may exercise its power of eminent domain. The provision is divided into six separate clauses, and the Constitution has been amended by the insertion of Articles 31A and 31B, which exempt certain statutes from the operation of Article 31 or from the whole of Part III. The first clause, Article 31(1), sets the initial requirement for any exercise of eminent-domain power. It makes clear that a person cannot be deprived of his property by a mere executive order; instead, deprivation may occur only through legislation enacted by the State. In other words, Article 31(1) provides that private property may be taken only pursuant to law and not otherwise. The Court cited Cooley’s discussion in Constitutional Limitations (page 1119, 8th edition), which states that the right of the State to appropriate private property for public use remains dormant until the legislature defines the occasions, modes, conditions and agencies for such appropriation, and that private property can be taken only pursuant to law. The second clause, Article 31(2), defines the legislative power in the field of eminent domain. It mandates that the State may take private property under a law only if that law provides for compensation, and it is implicit that such taking must be for a public purpose. Clause 3 imposes an additional limitation on State statutes dealing with this subject, while clause 4 limits the justiciability of the quantum of compensation in certain situations. Clause 5 is the saving clause, which excludes from the operation of clause 2 certain statutes. Because clause 1 merely protects property from executive action and clause 2 is the sole restriction on legislative action, the saving clause concerns itself only with clause 2. The Court further referred to Willis on Constitutional Law (page 716), noting that police power, taxation power and eminent-domain power are all forms of social control that overlap in characteristics, making it sometimes difficult to draw precise boundaries between them. Accordingly, the saving clause in Article 31 was designed expressly to preserve to some extent laws enacted in the exercise of police power that may result in deprivation of property, as well as laws relating to taxation. Thus, the saving clause saves from the operation of clause 2 those statutes enacted for imposing taxes or penalties, for promoting public health, or for preventing danger to life or property, and also saves existing statutes that could be construed as depriving a person of property, including evacuation laws concerning properties of persons who migrated to Pakistan. In sum, the saving clause comprehensively brings within its ambit all State powers that may lead to deprivation of property without payment of compensation, thereby excluding such acts from the reach of the compensation requirement in clause 2.

Clause (5) of Article 31 separates the field of eminent domain from the exercises of police power and the power of taxation. It not only protects, against the operation of clause (2), those statutes that impose taxes or penalties and those enacted for the promotion of public health or for the prevention of danger to life or property, but it also shields from the mischief of clause (2) all existing statutes that could be interpreted as resulting in the deprivation of an individual’s property. This protection extends to evacuee-property statutes under which the State assumes possession of the property of persons who have migrated to Pakistan. Consequently, the saving clause embraces within its ambit every State power that may lead to the deprivation of property without the payment of compensation. In other words, every mode by which the State can deprive a person of property without compensation falls within the scope of the exception clause, while any deprivation that lies outside that exception necessarily falls within the mischief that clause (2) seeks to address. The language of the various sub-clauses of Article 31 makes it difficult to avoid the conclusion that the terms “acquisition” and “taking possession” in clause (2) carry the same meaning as the word “deprivation” in clause (1).

The learned Attorney-General argued that the provisions of clause (5) should be given little weight because they were introduced merely as a matter of abundant caution. The Court did not accept this view, observing that the Constitution, when defining and delimiting fundamental rights, would not incorporate matters of mere caution in articles dealing with those rights. It was essential, while delineating the scope of a right, to define both what the right includes and what it excludes. The article, read as a whole, therefore delineates the State’s power of eminent domain as distinct from all other State powers whose exercise may result in the taking of private property. The contention that the exceptions were inserted only as abundant caution is further rejected by the wording of sub-clause (5)(b)(ii), which saves only those laws enacted for the promotion of public health or for the prevention of danger to life or property from the operation of clause (2). Laws enacted in the exercise of the State’s power of social control that deprive a person of property—such as statutes dealing with morality—are not saved by clause (5) and consequently fall within the mischief of clause (2) of Article 31.

In this discussion, the Court observed that any deprivation of property that is effected by a law enacted for the purpose of promoting morality would not fall within the exception contemplated by clause (2) of Article 31. The Court therefore explained that only legislation which is aimed at promoting public health or preventing danger to life or property is protected from the operation of Article 31(2). By contrast, other statutes that are enacted in the exercise of the State’s power of social control and that deprive a person of his property are not insulated from the effect of clause (2) of Article 31. The learned Attorney-General argued that the substantive reach of Article 31(1) exceeds that of Article 31(2) and that, except where the taking of private property takes the form of acquisition of title or requisition for State purposes, the State may deprive a person of his property merely by enacting a law. To support this position, the Attorney-General relied on observations made by a fellow judge in the case of Chiranjit Lal Chowdhuri, wherein it was held that Article 31(1) expresses a negative fundamental right that forbids deprivation of property except by authority of law, thereby permitting deprivation when authorised by law. Article 31(2), on the other hand, was described as prohibiting acquisition or taking possession of property for a public purpose under any law unless the law provides compensation. The earlier judgment suggested that both clauses dealt with the same subject-matter, namely compulsory acquisition or taking possession of property, with clause (2) merely elaborating clause (1). The Court identified two objections to that view. First, if the view were correct, clause (1) would be wholly redundant because clause (2) alone would suffice. Second, such a construction would exclude deprivation of property that does not involve acquisition or taking possession. The Court noted that circumstances may arise in which the State must deprive a person of his property without acquiring it, for example, when an emergency requires demolition of a building to prevent the spread of fire. This type of deprivation differs from the eminent-domain concept found in American law and shows that the Constitution addresses more than merely the law of eminent domain; it also contemplates deprivation of property exercised under police power. The Court declined to adopt the narrow construction, stating that the language of clause (1) of Article 31 is broader than that of clause (2), because deprivation may occur without acquisition or possession. Accordingly, the Court affirmed that clause (1) enunciates the general principle that no person shall be deprived of his …

In the judgment, it was observed that the wording of clause (1) of article 31, when read in a positive form, means that a person may be deprived of his property only if such deprivation is sanctioned by law. Under this clause, the Constitution does not speak of any requirement to pay compensation. Clause (2), by contrast, was explained to apply only to those deprivations that occur through acquisition or taking possession of property, and it makes such deprivations impermissible unless the law that authorises them also provides for compensation. Consequently, if a deprivation of property occurs by a method other than acquisition or taking possession, the Constitution does not demand compensation, provided that the deprivation is carried out under lawful authority. Similar observations had been made by the learned judge in the Bihar Zamindari case (1). The Court recognised the importance of that earlier opinion, noting that, had it not been convinced that the earlier approach was overly restrictive, it might have been reluctant to depart from it. After a full consideration of the issue and after giving due weight to the reasoning of the earlier judgment, the Court stated that it could not agree with that view for the reasons previously outlined. The objections raised in Chiranjit Lal Chowdhuri’s case (2) to the proposition that clauses (1) and (2) of article 31 address the same subject of compulsory acquisition or taking of property were not found to be compelling or insurmountable. Assuming that both clauses dealt with the same topic, the Court questioned why clause (1) would become redundant in that context. It was emphasized that clause (1) is the sole provision in the article that shields private property from being taken under executive orders without legislative backing. The first requirement for exercising the power of eminent domain is that it be exercised only pursuant to law, and this requirement had to be expressly stated in the article. If clause (1) were interpreted to allow the State to dispossess private property merely by enacting a law, then no obligation to pay compensation would arise, irrespective of the form the taking assumed. Under that construction, acquisition of property or its requisition would be merely two methods of depriving a person of property, both falling within the scope of clause (1), and clause (2) would not serve as an exception to clause (1). Accordingly, the logical result of that construction would be to create a fundamental right for the State against the individual. The Court warned that such an interpretation should be avoided, because the purpose of the Part III provisions is to declare the fundamental rights enjoyed by citizens and other persons residing in the Union, not to delineate the rights of the State over them.

The Court explained that the purpose of article 31 is to set out the fundamental rights that belong to the citizens or other persons living in the Union, and not to articulate the rights of the State against them. The Court then observed that a colleague judge appeared to be persuaded by the view that if clause (1) were given a broad construction, then any deprivation of property by the State even in an emergency—such as taking action to stop a fire from spreading—would have to be compensated. In that discussion, the Court noted that the parties had not drawn attention to the comprehensive saving-clause that is contained in article 31, a clause that fully covers situations of that kind. The Constitution-makers were aware of such emergencies, and because all such cases, unless expressly excepted, would fall within the mischief of clause (2), they deliberately excluded them from the scope of clause (2). The Court referred to the majority decision in the case of Chiranjit Lal Chowdhury (1), which refrained from expressing any view on the reach of article 31 (1). The Court also mentioned that the learned judge Mukherjea raised the same question but also declined to express an opinion. Consequently, the Court found that there is no consensus in this Court on the scope of clause (1) of article 31 and that no definitive opinion has yet been pronounced. From the foregoing discussion, the Court concluded that, in its view, article 31 is a self-contained provision that defines the field of eminent domain, and that clauses (1) and (2) of article 31 address the same subject of compulsory acquisition of property. The Court observed that the contention of the learned Attorney-General, which relied on the analogy of the decision in Gopal (2) and argued that deprivation of private property by authority of law extinguishes all freedoms guaranteed under article 19, did not require detailed examination because the Court’s construction of article 31 (1) already clarified the issue. It was conceded by counsel that the decision in Gopal would have no application once it is held that clauses (1) and (2) of article 31 deal with the same topic of compulsory acquisition. The next argument presented by counsel was that the term “acquisition” in article 31 (2) signifies the acquisition of title by the State, and that unless the State obtains vested title there can be no acquisition, and that the phrase “taking possession” suggested a requisition. The Court rejected that contention, holding that both expressions in clause (2) convey the same meaning as the expression “deprivation” in clause (1). Accordingly, the Court read article 31 as giving complete protection to private property against executive action, regardless of the process by which a person is deprived of it. (1) [1950] S.C.R. 869. (2) [1950] S.C.R. 88.

The Court explained that the Constitution enjoined that no person could be deprived of possession of private property without the payment of compensation, that such deprivation had to be authorized by law, and that the law must pursue a public purpose. The Court observed that, for the person whose property was taken, it was irrelevant what the State intended to do with the property or what title the State might acquire in it. The constitutional protection was directed solely against the loss of the owner’s property; the provision did not extend any protection to the State, nor did it create a fundamental right for the State against an individual citizen. Accordingly, Article 31 limited the State’s power to take property, and those limitations were intended to serve the interests of the person who might be deprived of his property. The Court noted that the question of whether the concept of “acquisition” was broader than the expression “taking possession” was essentially academic, given the comprehensive wording employed in clause (2) of Article 31. Having heard extended arguments on the point, the Court said it would now state briefly its view. Regarding the proposition that “acquisition” implied the vesting of title in the State, reliance was placed on the opinion of Latham C.J. in Minister of State for the Army v. Dalziel(1). Under section 51 (xxxi) of the Australian Constitution, the Commonwealth Parliament was empowered to enact laws concerning “the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws.” The National Security Regulations, made under the National Security Act, 1939-1943, section 5, included Regulation 54, which dealt with the Commonwealth’s taking of possession of land, while other regulations provided for assessing and paying compensation for loss or damage caused by actions taken pursuant to the regulation. The Supreme Court of New South Wales held that taking possession of land under Regulation 54 constituted acquisition of property within the meaning of section 51 (xxxi). On appeal, Latham C.J. observed that the Commonwealth could not be said to have acquired land unless it became the owner of the land or of some interest therein; mere possession without ownership, even if the Commonwealth enjoyed certain rights over the land, did not amount to acquisition. Consequently, the Court opined that although the right to possession is a valuable attribute of ownership, possession is prima facie evidence of ownership and may develop into ownership, these facts did not justify identifying possession with ownership but rather highlighted the distinction between the two concepts. The fact that the Commonwealth

The Court observed that merely being in possession of land because of action taken under the Regulations does not demonstrate that the Commonwealth has become the owner of the land or any estate therein. The majority, however, disagreed with that narrow view and held that the taking undertaken under Regulation 54 of the National Security (General) Regulations, when it gave the Commonwealth exclusive possession of the property for an indefinite period, amounted to an acquisition of property within the meaning of section 51 (xxxi) of the Constitution. Representing the majority, Rich J. expressed his reasoning as follows: “It would, in my opinion, be wholly inconsistent with the language of the placitum to hold that, whilst preventing the legislature from authorising the acquisition of a citizen’s full title except upon just terms, it leaves it open to the legislature to seize possession and enjoy the full fruits of possession, indefinitely, on any terms it chooses, or upon no terms at all.” He further illustrated the point by stating that in the case before the Court, the Minister had seized and removed from Dalziel everything that made his weekly tenancy valuable, leaving him only with an empty husk of tenancy. Under those circumstances, Dalziel could justly say, “You take my house, when you do take the prop that doth sustain my house; you take my life, when you do take the means whereby I live.”

Rich J. concluded that in the present matter the company was left with nothing but the mere husk of title. He asserted that the true meaning of the word “acquisition” in the Constitution, as well as in the Government of India Act, is the meaning articulated by the majority in Dalziel’s case. He respectfully declined to accept the narrow interpretation that acquisition must involve the transfer of legal title in whole or in part. He warned that a strict literal construction of constitutional provisions intended to protect person and property would strip those provisions of much of their effectiveness and gradually erode the right, making it more sound than substantive. Accordingly, he argued that such provisions cannot be interpreted solely by consulting a dictionary. He explained that the term “acquisition” carries a broad sense, encompassing the procurement of property or its taking, whether permanently or temporarily, and does not necessarily require the State to obtain legal title over the possessed property. The learned Attorney General opposed this expansive view, contending that a wide definition of “acquisition” conflicted with Indian legislative practice, which he said aligned with the narrow view expressed by Latham C.J. in the earlier cited case. He further cited Indian case law, particularly a decision of Bhagwati in Tan Bug Taim v. Collector Bombay, which dealt with the State’s requisition of premises, to support the narrower construction of the term.

The property that gave rise to the dispute was a leading Chinese restaurant situated in Bombay. A petition was filed before the court under section 45 of the Specific Relief Act. Justice Bhagwati, in dealing with that petition, examined the matter in the light of the principles of British jurisprudence that had been incorporated in sections 299(1) and 299(2) of the Government of India Act, and he referred to the authorities (1) 68 C.W.L.R. 261 and (2) I.L.R. 1946 Born 51. Justice Bhagwati held that a requisition of land could not be said to fall within either item 9 or item 21 of List II of the Seventh Schedule of the Act. He explained that the term “acquisition” conveys the notion of ownership of the property or of rights in or over that property, whereas “requisition” conveys only a temporary deprivation of the owner’s use and possession and therefore signifies merely control of the property. He further observed that there was no authority in Indian legislative practice to support the proposition that “requisition” was to be read as included within “acquisition”. The learned judge chose to follow the opinion expressed by Latham C.J. and declined to adopt the majority judgment in Dalziel’s case(1).After a full consideration of the issues, however, the Court expressed a preference for the view of the majority of that earlier court. It was reasoned that the principle that possession is, in effect, nine-tenths of ownership supports the conclusion that when possession is taken away, virtually everything is taken away. Accordingly, when interpreting the Constitution, the Court held that the substance and the practical result of the State’s action should be examined rather than merely its legal label. The proper approach, therefore, was to determine what loss or injury in substance was suffered by the owner, and not to focus on the particular manner or method employed by the State in taking the property.The judgment further noted that the view expressed by Justice Bhagwati did not reflect the intention of Parliament in drafting entry 9 of List II of the Seventh Schedule, a point made clear by subsequent legislative developments. Shortly after that judgment, Parliament enacted an amendment to the Government of India Act that expressly nullified the effect of the judgment with respect to the requisition of property. The Indian (Proclamation of Emergency) Act, 1945 (9 & 10 Geo. VI, Chapter 23) was proclaimed on 14 February 1946, while Justice Bhagwati’s judgment had been delivered on 9 August 1945. Section 102 of the Government of India Act was amended so that, during a proclamation of emergency, the Central Legislature was empowered, as indicated in (1) 68 C.W.L.R. 261, to make laws for a province or part of a province on any matter not enumerated in any of the lists of the Seventh Schedule.Reference was also made to observations recorded by the author’s brother, Das, in Chiranjit Lal Chowdhuri’s case(2). In that case it was expressed that the word “acquisition” implicitly contains the idea that the property becomes vested in the State. For the reasons already set out, the Court concluded its analysis with due respect.

The Court was unable to subscribe to that view. The Court also noted a reference to a decision of the Punjab High Court in Jupiter General Insurance Co. v. Rajagopalan (2). That case dealt with sections 52 and 52(a) of the Insurance Amendment Act, 1950. The petitioners in that case argued that those provisions infringed the fundamental rights protected by article 31(2) of the Constitution. Relying on the earlier judgment of this Court in Chiranjit Lal Chowdhuri’s case (1), the Punjab High Court interpreted the word “acquisition” narrowly and concluded that because the insurer retained the beneficial interest in the property, the challenged sections did not amount to an appropriation of the insurer’s property but were merely an exercise of police power. The Punjab High Court further observed that the main purpose and substance of the impugned legislation was to regulate insurance companies and to provide for the winding up of such corporations when that course was most advantageous to the general interest of policy-holders. The Court indicated that it was unnecessary, for the present case, to pass judgment on the correctness of that decision. The Court then observed that, in view of these varying decisions, the Constitution used a broader wording in article 31 than the entries of the Seventh Schedule appended to the Government of India Act, 1935, which had been the subject of construction in the case decided by Bhagwati J. In the Constitution’s Seventh Schedule the term employed is “requisition,” whereas that specific term does not appear in clause (2) of article 31, apparently to avoid any controversy about the scope of the article by giving a limited meaning to the two words (1) [1950] S.C.R. 869. (2) A.I.R. 1952 Punjab 9. The Court noted that, on the finding that the State, under the Ordinance, had effectively taken possession of the company’s property and that the company was deprived of it, there was no escape from the conclusion that both the impugned Ordinance and the subsequent statute were void because they encroached upon the company’s fundamental right under article 31(2) of the Constitution. Subsequently, counsel argued that even if the Ordinance was void, the plaintiff in the suit could not claim the relief sought because only the company itself could complain of the infringement of its fundamental rights by the Ordinance. It was also contended that the plaintiff’s own fundamental right to property had not been violated because the State had not taken possession of his share. Finally, it was submitted that, on both of these points, the majority judgment of this Court in Chiranjit Lal Chowdhuri’s case (1) was conclusive. The Court stated that it was unable to uphold any of those contentions. While acknowledging that the majority decision in Chiranjit Lal Chowdhuri’s case (1) carried binding authority until it is reconsidered or overruled, the Court expressed the view that the decision had no appropriate application to the facts and circumstances of the present case.

In this matter the Court observed that the present case differed materially from the facts and circumstances considered in the earlier decision of Chiranjit Lal Chowdhuri’s case (1). The Court therefore explained the reasons for treating the two situations as distinct. Firstly, the decision in Chiranjit Lal Chowdhuri’s case (1) arose from a petition filed under the Court’s jurisdiction granted by article 32 of the Constitution. In that case the petitioner claimed that his fundamental right under article 31(2) of the Constitution had been violated because the State had taken possession of the company’s property, thereby destroying all the rights and privileges attached to his share. The majority of the Court held, however, that the petitioner remained in possession of his share, retained the power to dispose of it, could receive a dividend on that share and, although some ancillary privileges were lost, the State had not actually taken possession of the share or exercised the shareholder’s privileges. The Court stressed that the present plaintiff and the preference shareholders he represents occupy a completely different position. Chiranjit Lal was an ordinary holder of a fully paid-up share. By contrast, the plaintiff and the other preference shareholders each hold partly paid-up preference shares whose total liability amounts to Rs 16 lakhs, while the plaintiff alone bears a liability of Rs 1,62,000. If this liability is not satisfied when enforced, the shares become liable to forfeiture. Consequently, the plaintiff and the other preference shareholders face the imminent danger of losing the shares themselves or being compelled to part with substantial sums of money to meet the call. In practical terms the plaintiff faces the loss of valuable property that the State threatens to take possession of. Moreover, the shareholders would not only be deprived of their shares but would also be forced to pay large amounts of money, all of which would be accomplished through powers given to the directors appointed by the State under the Ordinance in question. The Court therefore concluded that no valid comparison could be drawn between the rights and liabilities of Chiranjit Lal and those of the present plaintiff and the other preference shareholders.

Secondly, the Court noted that the rights and privileges of preference shareholders, whether in the context of winding-up or dividend distribution, differ from those of ordinary fully paid-up shareholders. The judgment in Chiranjit Lal Chowdhuri’s case (1) did not address the situation of preference shareholders nor the impact of the Ordinance on their rights. The Court observed that the dispute arose because the directors refused to comply with the directive of the Controller, who had been appointed by the Central Government, to make a call on the preference shareholders. This refusal was a key factor that led to the enactment of the Ordinance. Consequently, the legal position of the preference shareholders in the present proceedings could not be equated with the position of an ordinary shareholder as examined in the earlier case.

In the earlier decision cited as (1) [1950] S.C.R. 869, the Court observed that the Government had appointed a Controller on 5 October 1949 to supervise the affairs of the company involved in the present dispute. The Controller, on 9 November 1949, issued a directive to the company’s directors requiring them to make a call upon the preference shareholders. The directors responded by passing a resolution that refused to obey the Controller’s directive. Shortly thereafter, on 9 January 1950, an Ordinance was promulgated; this promulgation occurred soon after the directors’ refusal. On the same day, the Central Government delegated powers under the Ordinance to the Bombay Government. The following day, 10 January 1950, the Bombay Government exercised those delegated powers by appointing its own nominees as directors of the company. On 7 February 1950, the newly appointed directors passed a resolution to call up the uncalled capital of the company, and on 22 February 1950 they effected the call. Consequently, the plaintiff was served with a demand to pay the sum of Rs. 1,62,000. In light of these events, the Court held that it was not unreasonable to infer that one of the purposes of the Ordinance was to raise additional finance for the company so that its business could commence. The effect of the Ordinance on the property rights of the preference shareholders was, therefore, plainly to impose this financial obligation. Accordingly, the Court concluded that the doctrine of stare decisis did not render the plaintiff’s claim barred by the earlier decision. The Court further analysed the decision in Chiranjit Lal Chowdhuri (1). In that case, the Court was significantly influenced by the fact that a single shareholder sought to enforce the company’s fundamental right under article 32, a right that could be invoked only if the shareholder’s own fundamental right under article 31 had been violated. The Court noted that the complainant could not succeed because another party suffered injury and that, as a basic principle of law, extraordinary relief could be granted only when the complainant’s need for it was evident and no adequate remedy at law existed. Justice Das emphasized that article 32 may be invoked solely for the enforcement of a fundamental right and does not permit an application merely to challenge the competence of the legislature in passing a particular enactment unless that enactment also infringes a fundamental right. The learned Judge concluded by observing that, in exceptional cases where a company’s property is injured by outsiders, English law allows a shareholder, after making all reasonable efforts to induce those in charge of the company to act, to sue on behalf of himself and other shareholders to redress the wrong. However, the Court held that this principle did not apply in the present matter because the present action was not a suit, and there was no evidence that the petitioner had attempted to induce the former directors to take appropriate steps.

It was observed that the present proceedings were not undertaken by the petitioner on behalf of himself and the other shareholders of the company. Consequently, the matter was framed as a suit rather than as an application for a writ under article 32. This distinction separates the case from the precedent set in Chiranjit Lal Chowdhuri’s case(1). The Court further noted that all the procedural steps suggested by the learned brother had indeed been carried out by the preference shareholders. A requisition to call a meeting of the shareholders was filed on 3 August 1950. The meeting actually took place on 28 September 1950, and on subsequent dates, notably on 5 November 1950, resolutions were passed refusing to make the call. Those resolutions, however, were overruled by the Government. All the preference shareholders were joined as parties to this suit, including some of the directors. The company itself was impleaded as a defendant, and the former directors of the company filed an application seeking permission to support the appeal. In view of these facts, the Court held that the present case was clearly distinguishable from the facts and reasoning in Chiranjit Lal Chowdhuri(2).

The Court continued that, even assuming that the binding decision in Chiranjit Lal Chowdhuri’s case(1) were to be applied and that the State had not taken possession of the shareholders’ property, the plaintiff and the other preference shareholders were nevertheless entitled to contest the validity of the Ordinance on the ground that it infringed the fundamental right of the company. The plaintiff possessed the right to challenge the authority of the directors to make the call and to question their locus standi before any liability could be attached to him. The directors sought their authority from the Ordinance; however, if the Ordinance were held void as against the company, the directors could not be regarded as the company’s directors and would consequently lack authority to make the call. The Court remarked that it would be a strange proposition to hold that a plaintiff in a suit could not question the authority and credentials of the person seeking to enforce a demand against him. Unless the person making the demand establishes his authority or credentials, he is not entitled to enforce the demand. In every case where a pecuniary or similar liability is sought to be enforced by a person, the challenger may raise the issue of the demand-maker’s locus standi and authority. If the person claims to act as an agent of another, and his appointment is not validly made, he possesses no authority. The Court further explained that, under the articles of association, the shareholders were under a contractual liability to meet calls made by the directors who were appointed by the company, and they were therefore entitled to question the authority of any person making such a call.

The shareholders never consented to satisfy a call that was made by persons appointed by an external authority, and consequently they were entitled to challenge the authority of the individual who issued the call. The directors who had been appointed by the Government could rely only on the authority conferred upon them by the Ordinance. If that Ordinance were held to be void insofar as it affected the company, those directors could not be recognised as directors of the company and therefore would lack any authority to make the call. In the Court’s view, it was clear that the plaintiff could succeed on the ground that the company’s fundamental right under article 31 (2) had been infringed, because that provision was the sole basis upon which the directors had been constituted and were exercising powers granted by the Ordinance. If the directors were not validly appointed agents of the company in relation to the company itself, they could not act as directors in relation to the shareholders.

The learned Attorney-General referred to a number of authorities to argue that, unless the fundamental right of the shareholders themselves was directly infringed, the shareholders could not rely on a breach of the company’s fundamental right. The Court was unable to accept that broad proposition. It held that the correct rule was explained in Willoughby (page 20), relying on the decision in Connecticut v. Mellon, which states: “We have no power per se to review and annul acts of Congress on the ground that they are unconstitutional. That question may be considered only when the justification for some direct injury suffered or threatened, presenting a justiciable issue, is made to rest upon such an act. Then the power exercised is that of ascertaining and declaring the law applicable to the controversy. It amounts to little more than the negative power to disregard an ‘unconstitutional enactment,’ which otherwise would stand in the way of the enforcement of a legal right. The party who invokes the power must be able to show, not only that the statute is invalid, but that he has sustained or is immediately in danger of sustaining some direct injury as the result of its enforcement, and not merely that he suffers in some indefinite way in common with people generally. If a case for preventive relief is to be prevented, the court enjoins, in effect, not the execution of the statute, but the acts of the official, the statute notwithstanding.”

The Court applied that rule to the present dispute. The plaintiff and the other preferential shareholders were in imminent danger of suffering a direct injury as a result of the enforcement of the Ordinance. The direct injury consisted of the amount of the call that they were required to pay and the consequent forfeiture of their shares. If they failed to meet the demand, they would not only lose their shares, as noted in the cited American case (262 U.S. 447), but also be compelled to pay the monetary call. Thus, the shareholders faced a concrete and immediate threat of loss, satisfying the requirement of a direct injury necessary to invoke the Court’s equitable jurisdiction.

In order to meet the call, the shareholders would not only be required to provide the demanded amount but also to actually pay the sum that the call imposed. The author’s brother, Das, examined this issue in great detail in the matter of Chiranjit Lal’s case(1). In that discussion Das referred to all the authorities that the Attorney-General had cited on the same subject, namely McCabe v. Atchison(2), Jeffrey Manufacturing Co. v. Blagg(3), Hendrick v. Maryland(4) and Newark Natural Gas & Fuel Co. v. The City of Newark(5). From those authorities a rule emerged: for a court to grant extraordinary relief the complainant must clearly demonstrate a personal need for the relief and the lack of any adequate ordinary legal remedy; the complainant cannot succeed merely because another person suffers injury. Das also cited the decisions Truax v. Raich(6) and Buchanan v. Warley(7). In both of those cases the court permitted the plea to be raised on the ground that the party invoking the relief was directly affected by the statute or ordinance in question. The first of the two cited cases concerned an Arizona statute of 1914 which required any employer with more than five workers to employ at least eighty per cent native-born citizens. An alien who worked as a cook in a restaurant challenged the statute. Although the statute punished only the employer for violating the employment ratio, the court held that the alien employee could still question the constitutionality of the statute because, if the statute were enforced, the employer would be compelled to discharge the employee, thereby directly affecting the employee’s livelihood. The second case involved a municipal ordinance that barred a coloured person from occupying a lot in a neighbourhood where most residences were occupied by white persons. A white seller had contracted to sell his property in that neighbourhood to a Negro, with the condition that the buyer could not be required to accept the deed unless he had a lawful right to occupy the land as a residence. The vendor sued for specific performance and cited the authorities (1) [1950] S.C.R. 869, (5) 242 U.S. 403, (2) 235 U.S. 151, (6) 939 U.S. 33, (3) 235 U.S. 571, (7) 245 U.S. 60, (4) 235 U.S. 610, contending that the ordinance was unconstitutional. Although the constitutional issue concerned only the rights of coloured persons, the court held that the white seller was directly affected because, under the ordinance, the lower courts refused to enforce his contract, thereby impairing his right to convey the property. Das also mentioned Darnell v. The State of Indiana(1). That decision is the only reported instance in which a shareholder was not permitted to complain in his own name when an ordinance infringed the company’s fundamental right, on the ground that his personal rights had not been directly infringed. In view of

In the earlier decision, Das held that Chiranjit Lal, who was only a shareholder and who had suffered no direct injury from the operation of the statute, lacked the capacity to bring a complaint. The Court recognised that such a view could plausibly apply where the shareholder is fully paid up, bears no further liability and is unlikely to be affected by any enforcement of the Ordinance. However, the present case involved a partially paid-up preference shareholder, a circumstance that distinguishes it from the situation considered by Das. In my judgment the appropriate principle to apply is the one set out in the authorities of Truax v Raich (2) and Buchanan v Waricy (3). Applying that rule leads to the conclusion that the plaintiff is entitled to challenge the constitutional validity of the Ordinance on the ground that it abridges the company’s fundamental right under article 31(2). Accordingly, the plaintiff has a right to succeed in the suit and the decree should be granted in the terms in which the relief was originally claimed.

The question of whether the plaintiff has locus standi to argue that the Ordinance is void insofar as it affects the company, and that the directors therefore lacked authority to act, is essentially academic because the company itself has been impleaded as a defendant. The former directors of the company have filed an application before this Court supporting the plaintiff’s case, contending that the Ordinance is void as it infringes the company’s fundamental right under article 31(2), relying on the United States decisions reported at 226 U.S. 388, 239 U.S. 33 and 245 U.S. 60. The Attorney-General, when questioned about this late filing, observed that because the application was not presented in the High Court and was made only at the final stage, it should not be entertained. In my view, when the dispute concerns constitutional rights, the matter cannot be reduced to a purely technical assessment. If the interests of substantive justice require that the former directors be permitted to express their views, procedural technicalities should not prevent that. If the Ordinance is void as to the company, there is no reason to exclude the former directors from stating that position, and a declaration of voidness as to the company cannot be sustained as to the shareholders. Moreover, several of the directors who are preference shareholders are also parties to the suit. In the earlier case concerning Chiranjit Lal, the Chief Justice left the question of his locus standi unresolved, stating: “The first question is 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 …”.

In the earlier case, Justice Patanjali Sastri, who was then the senior judge, refrained from giving a definitive ruling on the initial question. He also declined to express a conclusive view regarding the shareholder’s authority to challenge the alleged infringement of the company’s property rights under Article 31 of the Constitution. The judge observed that, irrespective of how persuasive the argument might appear concerning the petitioner’s claim that his property right under Article 31 had been violated, there was little doubt that the petitioner was entitled to relief on the basis of the alleged breach of Article 14. The judgment recorded this observation in the following terms: “Whatever validity the argument may have in relation to the petitioner’s claim based on the alleged invasion of his right of property under Article 31, there can be little doubt that, so far as his claim based on the contravention of Article 14 is concerned, the petitioner is entitled to relief in his own right.” The judgment, cited as (1) [1950] S.C.R. 869, made no further comment on any of the other issues that had been raised in the proceedings.

Subsequently, Justice Mukherjea addressed the matter on grounds that differed from those adopted by Justice Fazl Ali in his earlier decision. Justice Mukherjea explained that an examination of the fundamental rights of the company itself lay beyond the scope of the Court’s enquiry. He reiterated the settled principle that, when a wrong is committed against a company, the proper remedy is ordinarily a suit brought by the company itself. Nevertheless, he noted that this requirement did not render the present case impossible, because the law in question was alleged to be unconstitutional. Accordingly, he stated that the former directors, who had been removed from office due to the impugned enactment, could maintain that they remained directors in the eyes of the law. On that basis, the majority of shareholders could also claim the rights of the company. However, Justice Mukherjea observed that none of those individuals had initiated any proceeding on behalf of the company. He further emphasized that the present application, both in form and in substance, did not appear to be a suit filed by the company; the company was, in fact, one of the respondents and was opposing the petition. He added that, given these circumstances, the decision in the Chiranjit Lal case could not be considered binding, because the judges forming the majority in that case had not spoken with a unified voice.

On the basis of the foregoing reasoning, the Court concluded that the appeal should be allowed. It set aside the judgment of the High Court and decreed in favour of the plaintiff, awarding costs to the plaintiff. The Court further held that it was unnecessary to address the second issue—whether the law was void for infringing the fundamental rights guaranteed under Articles 14 and 19—since the principal relief had already been granted. Justice Das concurred with the result, expressing his agreement that the appeal ought to be permitted. He indicated his preference to base his decision on the detailed grounds and reasoning set out in his earlier judgment reported in (1) [1950] S.C.R. 869, which dealt with the same legal questions. The appeal, identified as Appeal No. 107 of 1952 in The State of West Bengal v. Subodh Gopal, was thus affirmed.

This appeal arose from a suit originally instituted in the Bombay High Court by the plaintiff on his own behalf and on behalf of other preference shareholders of the respondent company. The plaintiff sought a judicial declaration that the authority conferred upon respondents numbered two through eight, who had been appointed as directors under the Sholapur Spinning and Weaving Company (Emergency Provisions) Ordinance II of 1950 (hereinafter referred to as the Ordinance), to issue a call on shareholders was illegal, ultra-vires, void and inoperative. The plaintiff also challenged the resolution adopted by respondents two through six on 7 February 1950, which ordered a call of Rs 50 on each preference share, asserting that the resolution itself was illegal for the same reasons.

The plaintiff-appellant was the registered holder of 3,244 preference shares in the respondent company, each having a face value of Rs 100. Only half of the face value, that is Rs 50 per share, had been paid up at the time of the suit. Accordingly, if the call of Rs 50 per share were lawfully made, the plaintiff would be required to pay an additional Rs 1,62,200 on his holdings. The plaintiff resisted the call on several grounds, chiefly that the Ordinance was illegal, ultra-vires and invalid under the Government of India Act, 1935 and/or the Constitution of India. No oral evidence was led by either party; the dispute was framed entirely as questions of law governed by the Constitution. The plaintiff contended that the Ordinance was inconsistent with, or derogated from, the fundamental rights guaranteed by the Constitution.

The trial court dismissed the suit, and the appellate court affirmed that dismissal. The plaintiff subsequently obtained a certificate under article 132(1) of the Constitution from the High Court and appealed to this Court. The material facts leading to the filing of the suit, as well as the provisions of the impugned Ordinance, have been set out in detail in the judgments of this Court in Chiranjitlal Chowdhuri v. Union of India (2), where the same Ordinance and the later replacing Act were held unconstitutional (1) [1954] S.C.R. 587; (2) [1950] S.G.R. 863. The determination of the matters in issue depends upon a correct interpretation of article 19(1)(f) read with article 19(5), article 31 and article 14 of the Constitution. The Court’s view on the relationship between article 19(1)(f) together with article 19(5) and article 31, and on the true meaning and scope of clauses (1) and (2) of article 31, was set out in detail in the judgment of Chiranjitlal’s case (1) and was further explained in the judgment delivered in Appeal No. 107 of 1952, The State of West Bengal v. Subodh Gopal Bose and others (2). Consequently, a reiteration of those principles is unnecessary. In light of the conclusions and reasons articulated in those earlier judgments, the Court now proceeds to examine the appellant’s specific contentions.

Having set out the principles in the earlier judgments, the Court turned to the arguments presented by the appellant. The appellant challenged the validity of the Ordinance by contending that the Ordinance infringed the fundamental rights of several categories: the company itself, the shareholders, the managing agent, the directors who had been elected by the shareholders, and persons who held contracts with the company. The initial issue for the Court was to determine whether the appellant was entitled to raise a constitutional challenge to the Ordinance on the basis that it violated the fundamental rights of anyone other than himself. This question had previously arisen in the case known as Chiranjitlal’s case (1). In that earlier proceeding, Chiranjitlal Chowdhuri, who owned a single fully-paid ordinary share, had filed an application under article 32 of the Constitution seeking to strike down the same Ordinance that is now before this Court, as well as the subsequent Act that replaced it. One of the grounds relied upon by the petitioner was that the Ordinance had infringed the company’s fundamental rights under article 19(1)(f) and article 31 by dismissing the managing agents and directors, empowering the State to appoint new directors, and authorising those newly appointed directors to take possession of the company’s assets without paying any compensation. The Court then quoted the observations of Mukherjea J., who, at page 898 of the report of [1950] S.C.R. 869 and [1954] S.C.R. 587, explained that an incorporated company may approach the Court to enforce its own fundamental rights, and individual shareholders may likewise enforce their personal rights. However, an individual shareholder may not complain of an Act that affects the company’s fundamental rights unless that Act also infringes the shareholder’s own rights. Mukherjea J. emphasized that this principle follows from the rule of law that a corporation possesses a distinct legal personality, with rights, duties, capacities and obligations that are separate from those of its members. Because the rights of the corporation and the rights of the shareholders belong to distinct legal entities, one person cannot enforce the rights of another except where the law expressly permits such a step, an example being the procedure for a writ of habeas corpus. At page 899, Mukherjea J. further clarified that the rights enforceable under article 32 must ordinarily be the rights of the petitioner himself, who alleges an infringement of his own rights and seeks relief. Consequently, the proper enquiry for the Court was to ascertain whether any of the petitioner’s rights as a shareholder had been violated by the impugned legislation, and that a discussion of the company’s fundamental rights per se lay outside the scope of the present examination. The learned Judge then proceeded, at pages 904 to 909, to consider whether the Ordinance had infringed any fundamental right of the shareholders under article 31(2) or article 19(1)(f), and rendered his conclusions on that question.

The Court held that the petitioner's claim was not successful. The Chief Justice, Kania, accepted the reasoning and the conclusion that had been articulated by Justice Mukherjea on the same point. Justice Fazl Ali, referring to page 876, quoted a passage from the judgment of Justice Hughes in the case of McCabe v. Atchison (1) and expressly declared that only persons whose rights are directly affected by a law may question its constitutionality. He explained that the company and its shareholders are separate legal entities, and that if it is alleged that property belonging to the company has been taken without compensation or that the company’s right under article 19(1)(f) has been infringed, it is the company itself—not an individual shareholder—that must come forward to assert or protect those rights. Regarding whether the petitioner had demonstrated an infringement of his own rights as a shareholder under articles 31 and 19(1)(f), the Chief Justice agreed with the conclusions reached by Justice Mukherjea, although he did not adopt every line of reasoning employed by Mukherjea. The Chief Justice based his decision primarily on article 14, concluding that the petitioner, in his capacity as a shareholder, had been subjected to discrimination. After resolving the question under article 14, he considered it unnecessary to give any opinion on the issues raised under articles 19 and 31.

Subsequently, the Court examined, on pages 927-930, whether a shareholder could challenge the constitutionality of a law on the ground that the company's fundamental right had been violated. After reviewing several decisions of the United States Supreme Court, the Court reached the conclusion recorded on page 930 that, although a shareholder may be interested in preventing the company from losing its property, the shareholder cannot, as established in Darnell v. Indiana (1), complain in his own name about the infringement of the company's fundamental right to property, because the shareholder does not own the company's property and therefore his personal property right is not affected. In light of this reasoning, the Court observed that the majority of the Bench that had heard the earlier Chiranjitlal’s case (1) 226 U.S. 388 had held that the petitioner was not entitled to question the constitutionality of the Ordinance and the Act on the basis that the company’s fundamental rights under articles 19(1)(f) and 31 were infringed. Consequently, the petitioner was required to rely on a claim that his own fundamental rights were violated. The majority concluded that there was no infringement of the petitioner’s rights as a shareholder under article 19(1)(f) or article 31, and therefore the petitioner was compelled to rely on article 14 for his contention.

In this case, the Court observed that the petitioner had attempted to support his claim that the Ordinance and the Act were unconstitutional, but the majority of the Bench held that he had failed to discharge the burden placed upon him to demonstrate that any discrimination had actually occurred against him or other shareholders of the company. The learned Attorney-General argued that, insofar as the challenge to the law’s validity was premised on an alleged infringement of the company’s fundamental rights, the decision in Chiranjitlal’s case (1) was controlling. The Court agreed that the reasoning adopted by the majority in Chiranjitlal’s case applied equally to the present controversy and that the same conclusion should be reached: the present appellant, who is also a shareholder, could not be permitted to attack the Ordinance on the basis that it infringed the fundamental rights of the company, its managing agents, its directors, or any other persons who have contracts with the company. The appellant contended that the present matter was distinguishable from Chiranjitlal’s case (1) because the issue arose in a regular suit rather than in an application under article 32 for enforcement of fundamental rights. The Court found that this distinction was not substantial. It expressed that the mere form of the proceeding does not alter the underlying principle that only a person who is directly affected by a law may challenge its validity, and that a person whose own right or interest has not been violated or threatened cannot challenge the law on the ground that another’s right has been infringed. The same principle, the Court held, must apply regardless of whether the question of constitutionality is raised in a writ petition or in an ordinary suit.

The learned counsel for the appellant, however, urged that even if, by parity of reasoning, the fundamental rights of preference shareholders under article 19(1)(f) or article 31(2) were not infringed, the impugned law, if sustained, would nevertheless expose preference shareholders to the risk of being called upon to pay the unpaid capital on their shares. The Court noted that the directors appointed under the Ordinance had made a call for the payment of Rs 50 on each preference share, and that the appellant alone would be required to pay Rs 1,62,200 for his shareholdings. This liability did not arise in Chiranjitlal’s case (1), where the petitioner held only a single fully paid-up ordinary share and therefore faced no such call. Consequently, the Ordinance directly affected preference shareholders by imposing on them a present liability or at least the risk of such liability, thereby giving them a sufficient and direct interest to challenge the Ordinance’s validity. The Court also acknowledged the Attorney-General’s submission that the taking over of the company’s property, or that of its managing agents, directors, or other contractual parties, by the State through the directors appointed under the Ordinance, did not itself create a direct or indirect ground for the preference shareholders to complain about the infringement of the company’s or other persons’ rights.

In this case, the Court observed that the fact that contracts with the company had been taken into the State’s possession through directors appointed under the Ordinance does not relate to or affect the imposition of liability on the preference shareholders to pay the call. The Court explained that the directors were not compelled to make the call merely because they had taken possession of the company's property or of the property of other persons. Consequently, the Court held that the liability or risk imposed on the preference shareholders cannot be described as a direct or even indirect result of the State’s acquisition of possession through those directors. The Court noted that the petitioner argued that, on this basis, preference shareholders should not be permitted to complain about infringement of the rights of the company or of other persons, because such rights do not concern or affect them. The Court rejected that argument, observing that it ignored the purpose and scope of the suit filed by the appellant on behalf of himself and all other preference shareholders. The appellant contested his liability to pay the call that had been made by the directors appointed under the Ordinance, and therefore the Court said he was entitled to demonstrate that those directors were not competent to make the call. The Court further stated that the appellant may allege and prove, if he is able, that the individuals who purported to make the call were not the lawful directors of the company. To illustrate, the Court referred to a company not governed by this Ordinance, where a shareholder could resist a call by showing that the persons who made the call lacked the required qualifications or had not been duly elected as directors. By parity of reasoning, the appellant, as a preference shareholder in the respondent company, could likewise attempt to show that the persons who made the call were not the true directors. He could also argue that the Ordinance under which those persons were appointed exceeded the legislative competence of the authority that enacted it, or that the Ordinance had not been properly promulgated. If the appellant succeeded in destroying the locus standi of the call-making persons by raising the question of the Ordinance’s invalidity on those grounds, the Court saw no reason why, for the same purpose, he should be barred from challenging the Ordinance’s constitutionality on the ground that it violates the fundamental rights of the company or of other persons. The Court added that the appellant need not be concerned with the factual basis of the alleged unconstitutionality, such as the taking of possession of property, because his primary interest is to nullify the foundation of the status of the persons who made the call and thereby avoid his own liability.

In this matter the appellant, who holds preference shares, is seeking to avoid the legal obligation imposed on him by the statute that requires payment of a call on those shares. His aim is to invalidate the statutory provision that empowers certain persons, who were appointed as directors by the State rather than by the shareholders, to make such a call. The appellant’s motivation is therefore to destroy the legal foundation that gives those appointed directors the authority to act, so that the call can be repelled and his own liability avoided. In the earlier decision of Chiranjitlal’s case(1) the petitioner was found not to have suffered any infringement of his own fundamental right as a shareholder; consequently, when he raised the question of unconstitutionality on the ground that the ordinance violated the fundamental rights of the company or of other persons, he was essentially fighting a battle on behalf of the company and those persons, not a battle concerning his personal rights. The present situation differs because the statute expressly makes it possible to impose a liability on the appellant and other preference shareholders. The appellant is therefore directly affected by the law, and this direct impact gives him a sufficient interest to challenge the validity of the ordinance. If the law were held to be unconstitutional because it breaches the fundamental rights of the company, the persons who claim to be directors under the ordinance could not, in law, be considered directors of the company. Consequently, they would lack any legal authority to exercise the powers of directors, including the power to make a call on shareholders. Conversely, if the ordinance is upheld, those directors appointed under it would retain their authority to make the call, and the appellant’s liability to pay would remain enforceable. Thus, because the appellant, as a preference shareholder, is directly subjected to the consequences of the statute, his case is distinguishable from the precedent set in Chiranjitlal’s case(1). In the circumstances of the present dispute, the appellant is entitled to challenge the ordinance that removed the directors elected by the shareholders, authorised the State-appointed directors, and enabled those directors to issue the call that now creates liability for all preference shareholders, including the appellant.

The appellant’s challenge is premised on the contention that both the ordinance and the subsequent Act, which replaced the ordinance, infringe upon the fundamental right guaranteed by article 31(2) of the Constitution. However, he has yet to demonstrate that any actual infringement of that right has occurred. To resolve the issue, the Court must consider two distinct questions. First, it must determine whether the impugned law authorises the taking of possession of, or the acquisition of, any property. Second, it must decide whether whatever has been taken possession of or acquired qualifies as “property” within the meaning of article 31(2). The second question is addressed first, and there can be no doubt that the mills, machinery, stock, and other assets of the respondent company constitute “property” as defined by articles 19 and 31. Any contract or agreement that a person may have with the company, and which the directors may cancel in exercise of powers granted under the ordinance, also falls within the definition of “property” under those articles. While there may be some debate as to whether an office such as that of a managing agent or a director, despite carrying substantial remuneration, can be characterised as “property” capable of being acquired or possessed, the Court need not elaborate on that point. The machinery, equipment, and the benefits arising from contractual agreements with the company are unquestionably “property” within the scope of the constitutional provisions, and if such property has been taken or acquired, that fact alone satisfies the requirement for a potential infringement under article 31(2).

In addressing the second question, the Court observed that there can be no doubt that the mills, machinery, stock and other assets of the respondent company constitute “property” within the meaning of Articles 19 and 31. The Court also noted that any contract or agreement a person may have with the company, which the directors may cancel under the powers granted by the Ordinance, would likewise be regarded as “property” within the scope of those constitutional provisions. While it might be argued whether an office such as that of a managing agent or a director, each of which carries substantial remuneration, can be characterised as “property” that can be acquired, possessed or disposed of, the Court chose not to pursue that line of argument. The Court held that the machinery and other tangible assets of the company, together with the benefits arising from contracts that parties have with the company, are unquestionably “property” for the purposes of the two articles. Consequently, if such property has been taken into possession or acquired, the plaintiff-appellant would have sufficient basis to sustain a challenge to the constitutionality of the impugned law, regardless of whether the offices of the managing agents or directors are themselves regarded as “property” or have been possessed or acquired.

The Court then turned to the first question, namely whether the impugned law authorised the taking of possession of, or acquisition of, the property of the shareholders or of the company. The Court first stated that the challenged legislation does not authorise any acquisition of property in the sense of depriving shareholders or the company of ownership and vesting that ownership in the State or a nominee. In other words, there has been no transfer of title, whether voluntarily or by operation of law. Accordingly, the Court found it necessary to examine whether the Ordinance, or the subsequent Act that replaced it, authorised the taking of possession of any property belonging to shareholders or the company. Regarding shareholders’ property, the Court held that the situation mirrors that described in the earlier Chiranjitlal case. The shares continue to belong to the shareholders; they retain the right to hold or dispose of them, to receive any declared dividends, and to participate in any surplus that may remain after the settlement of all liabilities in a winding-up. Although it may be practically difficult for shareholders who wish to sell their shares to find a purchaser willing to buy shares in a company governed by such an Ordinance, the Court stressed that this difficulty does not amount to the State taking possession of the shares in the sense explained in Subodh Gopal Bose’s case. The Court reiterated that, as in Chiranjitlal, the State has not taken possession of the shareholders’ property under Article 31(2).

The Court observed that the shareholders had been deprived of certain essential rights, namely the right to vote, the right to elect directors and the right to petition for the winding up of the company. The Court first questioned whether any of these rights could be classified as “property” within the meaning of article 31(2). It noted that, standing alone and separate from the shares themselves, such rights cannot be bought, sold or otherwise transferred. The Court then turned to the question of possession. It held that the State had not taken possession of these rights, citing Mukherjea J.’s analysis in Chiranjitlal’s case (pages 904-906) and its own earlier observations (pages 923-924). Consequently, the Court concluded that there was no violation of the shareholders’ right to property under article 31(2). What had occurred, the Court said, was that these rights – which are merely incidents attached to share ownership – had been placed in suspension or held in abeyance. If this suspension were to be interpreted as a restriction on the exercise of ownership rights, the Court considered that such a restriction might be justified in an emergency situation. It could be seen as an exercise of the State’s police power under clause (5) of article 19, allowing the enactment of reasonable restrictions in the public interest to ensure the supply of an essential commodity and to prevent unemployment. The Court also referred to the earlier authorities, namely the 1950 and 1954 Supreme Court Reports, to support this view.

Regarding the property of the company itself, the Court found that no transfer of title – whether voluntary or involuntary – from the company to the State or to any nominee had taken place. Accordingly, there was no question of the company’s property having been “acquired” by the State. The Court then examined whether the State had “taken possession” of any company property within the meaning of article 31(2), as interpreted in Subodh Gopal Bose’s case. Referring to Mukherjea J.’s remarks in Chiranjitlal’s case (pages 903-904), the Court recounted that, assuming the State-imposed management was intended for the benefit of the shareholders and that the statutory directors acted as agents of the company, the possession of those directors could not be treated as the company’s possession as long as the directors were obligated to obey the directives of the Central Government rather than those of the company. The Court explained that, in law, possession by an agent does not become possession of the principal when the agent is compelled to follow an external authority. While acknowledging the force of this argument, the Court clarified that the present case was not concerned with the broader issue of whether the statutory management and control amounted to the State taking possession of the company’s assets. Nevertheless, the Court observed that the earlier judgment seemed to lean toward the view that the company’s properties had indeed been taken into State possession, even though that judgment had not stated this position in an explicit or categorical manner.

The Court examined the matter on pages 926 and 927, observing that when directors are not obedient to, nor accountable to, the company or its shareholders and cannot be removed or dismissed by the company, the law does not consider their possession as possession of the company itself. The Judge then cited two authorities, namely [1954] S.C.R. 587 and [1950] S.C.R. 869, and stated: “In this view of the matter there is great force in the argument that the property of the company has been taken possession of by the State through directors who have been appointed by the State in exercise of the powers conferred by the Ordinance and the Act and who are under the direction and control of the State and this has been done without payment of any compensation.” Afterwards, the Court quoted a passage from the judgment of Holmes in Pennsylvania Coal Company v. Mahon 260 U.S. 399, concluding: “Here, therefore, it may well be argued that the property of the company having been taken possession of by the State in exercise of powers conferred by a law which does not provide for payment of any compensation, the fundamental right of the company, has, in the eye of the law, been infringed.” The Court made clear that, although the expressions “there is great force in the argument” and “it may well be argued” were used, the inclination at that stage was that the company’s property had indeed been taken possession of in the sense contemplated by article 31(2). The observations were characterized as more definite than those of Mukherjea J. The Learned Attorney-General, however, contended that the taking of possession in the present case did not amount to an exercise of eminent domain under article 31(2) but rather constituted an exercise of police power under article 31(1). According to that view, the State had not appropriated the company’s property for its own purposes to achieve a public purpose envisioned by article 31(2); instead, the State had intervened to prevent the company from using its own property in a manner detrimental to public interests and to do for the company what the company itself ought to have done. To determine whether the taking fell within the ambit of eminent domain or police power, the Court noted that it was necessary to consider the circumstances surrounding the enactment of the Ordinance and the Act, to ascertain from their language their immediate purpose and ultimate aim, and to examine the effect of those statutes on the rights of the company. The Court recalled that the Ordinance of 1950 was promulgated on 9 January 1950, and that its preamble read: “Whereas on account of mismanagement and neglect a situation has arisen in the affairs of the Sholapur Spinning and Weaving Company, Limited, which has prejudicially affected the production of an essential commodity and has…”.

The preamble of the Ordinance recorded that the mismanagement had caused serious unemployment among a certain section of the community. Subsequently, on 10 April 1950, the Parliament enacted an Act. The Act contains no preamble. Although its short title mentions emergency provisions, its full title reads: “An Act to make special provision for the proper management and administration of the Sholapur Spinning and Weaving Company Limited.” Neither the long title nor any part of the Act, except for section 12, indicates that the legislation was intended solely as a temporary emergency measure. The Ordinance itself declared that its purpose was to provide employment to a large number of workmen and to maintain the production of an essential commodity. Section 12 of the Act states that the property of the company, together with the management and administration of its affairs, shall be restored to the company or to directors elected by the shareholders; however, that restoration is left entirely to the unfettered discretion of the Government. The provisions contained in both the Ordinance and the Act are extremely drastic. The managing agents and the directors who had been elected by the shareholders were dismissed, and new directors were appointed directly by the State. As a result, the company has been completely stripped of possession of its own property; the only thing that remains with the company is its bare legal title. Conducting a business requires many personal qualities, considerable business acumen, and is far more complex than merely collecting the rents of an estate owned by a disqualified proprietor. The impugned law has forced upon the company a board of directors whose business capacity the company and its shareholders may not trust, over whom the company has no control or authority, and who are not answerable to the shareholders at all. Although, in form, these directors are officers of the company and are bound to act under the articles of association so far as they are not contrary to or inconsistent with the Ordinance and the Act, in reality they are creations of the State, answerable only to the State. It is the State, through these appointed directors, that has taken possession of the undertaking and has been conducting an experiment in State management of the business at the risk and expense of the company and its shareholders. It has been reported that under this State management, which has been in place for nearly four years, the business has operated at a loss. No profit has been made or distributed as a dividend during this long period, a sad commentary on the efficacy of State management. Moreover, no one can predict how long this state of affairs will continue, because the Act does not prescribe any definite time limit for this hazardous experiment.

The Court observed that the scheme described as an “experiment” could not be sustained as a legitimate exercise of the State’s police power invoked as an emergency measure. It held that the scheme had gone far beyond the permissible limits of police authority and, in its substance, amounted to an expropriation of property undertaken through the power of eminent domain. Because the legislation provided no provision for compensation to the affected parties, the Court concluded that the scheme violated the provisions of Article 31(2) of the Constitution, which require that no person be deprived of property save by authority of law that includes adequate compensation.

The appellant’s final submission contended that the Ordinance was unconstitutional and void because it infringed the fundamental rights of shareholders secured under Article 14. The Court referred to the earlier decision in Chiranjitlal’s case (1) [1950] S.C.R. 869, noting that the then-Chief Justice and the author of the present judgment had expressed the view that the Ordinance and the Act lacked any rational basis for classification and had arbitrarily singled out the company and its shareholders for discriminatory treatment. That judgment had held that such denial of equality before the law breached the equal-protection clause of the Constitution. However, the majority of the bench in that case had taken a different approach, emphasizing the presumption in favour of the constitutionality of a law and placing the burden on the challenger to displace that presumption. Since the petitioner in the earlier case had failed to meet that burden, the majority concluded that no discrimination could be established. In the present matter, the Court found that the facts were essentially the same as those before the court in Chiranjitlal’s case. The issue of discrimination had not been raised before the trial court, and the appellate court had rejected it on the ground that the plaintiff had not demonstrated the existence of other companies that had engaged in similar conduct yet had not been treated in the same way. The learned Attorney-General argued that the Court was not bound by its prior decision and urged a departure from the majority view. While acknowledging that the Court is not strictly bound by its own precedents and may overturn an earlier ruling, especially on constitutional questions, the Court indicated that it would do so only if the earlier decision were manifestly erroneous. Having already reached a conclusion on the other grounds, the Court declined to pursue the discrimination argument further. Consequently, the Court allowed the appeal, decreed the plaintiff’s suit, and ordered the Union of India to pay the plaintiff’s costs throughout. Justice Bose, agreeing with Justice Mahajan that the impugned Ordinance and Act offend Article 31(2) and are therefore void, chose to base his decision on simpler foundations. He expressed strong disapproval of the use of ambiguous terms such as “police power,” “social control,” and “eminent domain,” noting that while these terms are not devoid of meaning, their varying interpretations across different jurisdictions render them doubtful.

The Court observed that terms such as “police power”, “social control” and “eminent domain” acquire different meanings in different jurisdictions because they originate from diverse legal traditions. It said that it is incorrect to presume that such powers are automatically inherent in the State of India and then to examine how the Constitution regulates or accommodates them. The proper method, according to the Court, is to interpret the express provisions of the Constitution. Determining whether the Constitution contains or permits those powers, and whether the Indian form of those powers resembles the various forms found elsewhere, is a task for jurists and law scholars rather than for the judiciary. The Court then turned to Article 19(1)(f), which guarantees every citizen of India the fundamental freedom to acquire, hold and dispose of property. Article 31(1) was described as a corollary to that guarantee, stating that once property has been acquired it may not be taken away except by a law. The Court noted that Article 31 is broader than Article 19 because it applies to all persons, not only to citizens. It explained that Article 19(1)(f) permits the legislature to enact a law that bars non-citizens from acquiring or holding property, but it does not allow any restriction on citizens. In the absence of such a law, non-citizens may also acquire property, and, once acquired, they enjoy the same protection against deprivation as citizens, subject only to the safeguards of the Constitution. The Court set aside for the moment the limitations contained in Article 19(5). It reminded that the rights under Article 19(1)(f) are not absolute; the State may impose restrictions provided they are reasonable and serve either the general public interest or the protection of any Scheduled Tribe.

The Court clarified that in the present dispute Article 19 was not at issue because neither the company nor the plaintiff had been prevented from acquiring or holding property; they had lawfully acquired and possessed the property and no authority had interfered with that possession. The grievance, the Court said, was that the parties were now being deprived of the property in a manner that the Constitution does not permit, which brings the matter within the scope of Article 31. Article 31(1) simply states that no person shall be deprived of property except by authority of law, meaning that deprivation cannot be arbitrary or the result of executive action; a legal sanction must exist for every taking of property. The Court observed that a legislative enactment constitutes such a legal sanction, so that, without the remaining provisions of Article 31, a person could be deprived of property by a statute even though executive action would be barred. This observation leads to Article 31(2), which imposes restrictions on the legislature itself. The Court noted that unless a statute provides for compensation and either fixes the amount of compensation or specifies the principles and manner for determining it, the statute cannot be validly enacted, except for the limited exceptions enumerated in clause (5). The central question, therefore, is whether the impugned Ordinance and Act transgress Article 31(2) read with clause (5), a question that the Court set out to resolve by examining the meaning of “property” and the scope of the compensation requirement.

The Court observed that the statute under review must specify the principles and the manner by which the matter is to be determined; otherwise the enactment cannot be regarded as valid. The only occasions on which the statute may be valid despite this deficiency are those expressly listed in clause (5) of Article 31. Accordingly, the Court framed the central issue as whether the impugned Ordinance and the Act contravene Article 31(2) read together with clause (5). To answer that question it was necessary to explore the relevant provisions step by step. The analysis began with the term “property”. The Court asked whether the plaintiff’s “interests” in the company fell within the meaning of “property” as used in the clause. It held that “property” embraces any interest in any commercial or industrial undertaking and also any interest in a company that itself holds an interest in such an undertaking. Interpreting the provision in that way, the Court found that the company certainly possessed an interest in a commercial-industrial enterprise and that the plaintiff undeniably possessed an interest in the company. Moreover, as a preference shareholder, the plaintiff held a direct interest in the undertaking conducted by the company and, upon liquidation, would be entitled to a share of the company’s assets. The Court then turned to the question of whether those interests had been “taken possession of” or “acquired”. It concluded that there was no doubt that they had. The Court stressed that constitutional provisions dealing with fundamental rights must be interpreted broadly and liberally in favour of the persons to whom the rights are granted. Nevertheless, the Court held that the words “taken possession of” and “acquired” must be read together with the word “deprived” in clause (1). In its view, the possession and acquisition described in clause (2) refer to the type of “possession” and “acquisition” that amount to a deprivation within the meaning of clause (1). The Court declined to lay down a rigid rule, noting that each case must be decided on its own facts. However, it held that where there is a substantial deprivation, clause (2) becomes applicable. “Substantial deprivation”, the Court explained, means a deprivation that effectively robs a person of the enjoyment attributes that normally accompany a right or interest in property. The Court emphasized that the form of the deprivation is unimportant; what matters is the substance of the loss.

Applying that principle to the present facts, the Court found that a substantial deprivation had indeed occurred. The plaintiff and the company were left with nothing more than a bare title, and every form of enjoyment that normally accompanies an interest in such property had been stripped away. Moreover, the plaintiff had been compelled to pay large sums of money, not because he had breached any contract, nor because he owed any duty or obligation, nor because the payment furthered his own interests, but simply because the alleged benefits of his interests affected “the production of an essential commodity” and had caused “serious unemployment amongst a certain section of the community”. The Court held that such compelled payments, imposed without any lawful engagement or duty, constituted a clear deprivation. Consequently, if this situation did not qualify as deprivation, the Court expressed doubt about what could be described as such. The Court therefore concluded that the impugned Ordinance and Act failed to meet the requirements of Article 31(2) and could not be sustained without the specific exceptions provided in clause (5).

The Court observed that a fundamental privilege in a democracy of free persons is the right to manage one’s own affairs, even poorly, provided the conduct remains within legal limits, and therefore if one individual can mismanage his concerns in a particular way, every other individual may do likewise. The production of essential commodities and the employment of labour were described as matters that belong to the State and its statutory agencies. The Court affirmed that the State, when authorised by law and when public interest so demands, may assume responsibility for such matters. However, the Court held that if by assuming such responsibility the State deprives private individuals or non-statutory bodies of their property interests as explained earlier, it must provide compensation. The State may not escape its own duties by shifting obligations onto parties who are not tasked with carrying out governmental functions. The Court noted that Justice Mahajan had already examined these principles at length, and therefore there was no need to repeat his analysis. The Court then turned to the applicability of clause (5) of article 31, observing that the exceptions to clauses (1) and (2) are found there. It was made clear that none of those listed exceptions applied to the present situation. The impugned Ordinance and the subsequent Act were not enacted for the purpose of promoting public health nor to prevent danger to life or property. In the Court’s view, the decision in Chiranjit Lal’s case was distinguishable and did not bar the relief sought. Justice Mahajan had also explained this distinction in detail, and agreeing with him, the Court found no further argument necessary. Consequently, in concordance with the learned brother, the Court allowed the appeal and decreed the plaintiff’s claim, awarding costs.

The judgment of Justice Ghulam Hasan affirmed that, after reviewing Justice Mahajan’s opinion, the appeal should be allowed and the plaintiff’s suit decreed with costs. He added a brief comment on the constitutional issue raised by the appeal, namely the validity of the Sholapur Spinning and Weaving Company (Emergency Provisions) Ordinance II of 1950, which was later replaced by Act XXVIII of 1950 and essentially reproduced the same provisions. The controversy originated from a petition filed under article 32 of the Constitution by Chiranjit Lal Chowdhuri, an ordinary shareholder, who contended that the Act infringed his fundamental rights under articles 14, 19 and 31. By a narrow majority of three to two, the Court held that the petitioner had not succeeded in overturning the presumption of the Act’s constitutionality nor demonstrated any infringement of his fundamental rights. A minority of the Court, however, declared the Act void on the ground that it violated article 14. The citation to the earlier decision was noted. Justice Mahajan distinguished that earlier decision and explained the ratio decidendi of the majority view, and the present judge expressed complete agreement. He concluded that the earlier decision does not, in his opinion, settle the matter at hand.

In the present matter there was no need to invoke the doctrine of stare decisis. The dispute before the Court arose from a demand made on the appellant, who was a preference-shareholder holding three thousand two hundred and forty-four preference shares with a face value of one hundred rupees each, of which fifty rupees per share had been paid up. The statutory directors, who had been appointed by the Government under the impugned Act, called upon the appellant to pay the balance of the call, amounting to one hundred sixty-two thousand rupees. The appellant responded by filing a suit in his own name and on behalf of the other preference shareholders, seeking to set aside the validity of the Act. The trial Judge dismissed the suit, and that decision was subsequently affirmed by a Division Bench of the Bombay High Court. The learned brother examined in detail the relevant provisions of the impugned Act, and I share his view without hesitation. I concur that, in substance, the Act deprives the company of every right it formerly possessed, leaving it only with the nominal “husk of title.” Accordingly, I hold that the Act exceeds the constitutional limits of the power granted to the State, contravenes the provisions of article 31, and must therefore be declared void. Article 31 occupies a place in Part III of the Constitution, which enumerates fundamental rights, and is headed “Right to Property.” By a plain and straightforward reading of its language and context, and without being influenced by the American Constitution, the article confers on every person—whether a citizen or not—a fundamental right to protection of property against executive encroachment without lawful authority and against legislative action unless the law satisfies the two essential conditions laid down in article 31(2). Those conditions require that any taking of private property must be for a public purpose and that the law must provide compensation, either by fixing the amount of compensation or by specifying the principles and manner by which compensation is to be determined and paid. The citation for these principles is found in (1950) S.C.R. 869.

Article 31(1) makes a categorical declaration of the right to property and, at the same time, categorically prohibits the State from depriving an owner of that property by an executive act or without the backing of law. The purpose of the article is to shield property from State invasion, and therefore the two clauses—(1) and (2)—must be read together so as to give effect to this protective intention. In my opinion article 31 is broader in scope than article 19(1)(f), which only grants a citizen the right to acquire, hold and dispose of property. Article 31 is self-contained; clause (1) speaks of deprivation of property in general, while clause (2) addresses acquisition or taking possession as distinct modes of deprivation. Together they encompass all forms of taking away property rights. Thus, having regard to the setting and the broad construction of “property” envisaged by the Constitution, the impugned Act, by substantially interfering with the shareholders’ enjoyment of their property rights without providing compensation, falls foul of article 31(2) and must be struck down.

In the context in which article 31 of the Constitution is situated, the term ‘property’ employed in that article must be interpreted in its broadest possible sense, meaning a bundle of rights that the owner may exercise with respect to the subject matter and that includes both tangible (corporeal) and intangible (incorporeal) rights. The Constitution does not provide a definition of ‘property’, and there is no satisfactory justification for limiting the meaning of the word. Consequently, whether the facts of a particular case amount to a deprivation of property within the meaning of article 31 depends on the specific circumstances of that case, and it is logically impossible to formulate a rigid, universally applicable test. The Court also noted that the concept of property embraces not only physical assets such as land and buildings but also intangible interests such as intellectual property, licences and contractual rights. If it can be demonstrated that a statutory provision substantially interferes with the enjoyment of property rights, the Court holds that such a provision will be struck down under article 31 (2) as void, unless the statute provides compensation. The Court is not prepared to accept the view that article 31 (1) operates independently of article 31 (2), nor can it be said that Parliament intended to deprive a person of his property merely by enacting a law. Both clauses of article 31 constitute an inseparable whole and must not be separated. The Court further rejected any argument that Parliament could legislate away the protection without providing compensation, emphasizing that the two clauses function together to safeguard owners. Accordingly, the Court concurred with the order proposed by the learned brother and allowed the appeal. The agents appearing were as follows: for the appellant, N. Shroff; for respondents numbered 1 to 4 and 6 to 8, Rajinder Narain; and for respondent number 9, G.H. Rajadhyaksha.