R.S. Seth Shanti Sarup vs Union Of India and Ors

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

Court: Supreme Court of India

Case Number: Writ Petition (civil) 363 of 1954

Decision Date: 26 November, 1954

Coram: M.C. Mahajan (CJ), B.K. Mukherjea, S.R. Das, V. Bose, N.H. Bhagwati, B. Jagannadhadas, T.L.V. Aiyy ar

The case was titled R.S. Seth Shanti Sarup versus Union of India and others, and the judgment was delivered on the twenty‑sixth day of November, 1954. The petition was filed before the Supreme Court of India. The author of the judgment was Justice B. K. Mukherjea, who sat on a bench that also included Justices V. Bose and N. H. Bhagwati. The matter was recorded as Writ Petition (civil) number 363 of 1954. The petitioner was identified as R. S. Seth Shanti Sarup, who acted in his capacity as a partner of the firm Lallamal Hardeodas Cotton Spinning Mills Company. The respondents were the Union of India together with other parties. The judgment appears in the All India Reporter 1955, Supreme Court reference 624. The bench that finally pronounced the decision consisted of Chief Justice M. C. Mahajan, Justice B. K. Mukherjea, Justice S. R. Das, Justice V. Bose, Justice N. H. Bhagwati, Justice B. Jagannadhadas and Justice T. L. V. Aiyyar, each of whom contributed to the deliberations and the final order.

The petition was lodged under Article 32 of the Constitution, which empowers a person to move this Court for the enforcement of fundamental rights. The petitioner, a partner of the Lallamal Hardeodas Cotton Spinning Mills Company, sought to obtain writs that would set aside and nullify two specific orders that had been passed against the partnership. The first order, dated the twenty‑first of October, 1952, had been issued by the first respondent, the Government of India, under Section 3(4) of the Essential Supplies (Temporary Powers) Act of 1946. The second order, dated the twenty‑first of July, 1949, had been issued by the second respondent, the Government of Uttar Pradesh, under Section 3(f) of the Uttar Pradesh Industrial Disputes Act, 1947. In addition to the relief of quashing these orders, the petitioner also asked for consequential remedies, namely the restoration of possession of the premises from which he and his co‑partners claimed to have been dispossessed as a result of the impugned orders, and the recovery of damages for the loss suffered because of that dispossession.

To understand the arguments presented before the Court, it was necessary to set out the material facts in their chronological sequence. The partnership firm known as Lallamal Hardeodas Cotton Spinning Mills Company had been established in the year 1921 at Hathras, a town situated in the state of Uttar Pradesh. From its inception, the firm engaged in the production and supply of cotton yarn. The partnership comprised sixteen members, all of whom belonged to the same extended family, and the total capital contributed by the partners amounted to approximately twenty‑four lakh rupees. The business proved to be fairly profitable during the early years and continued to generate surplus earnings for the partners. However, in 1944 internal differences arose among the partners, leading one of them, identified as Raghunath Pershad, to institute a suit for dissolution of the partnership. This suit was filed as suit number 67 of 1944 in the Court of the Civil Judge, Agra. The trial Court dismissed the suit on the preliminary ground that it could not be entertained because the partnership agreement contained an arbitration clause, which required any dispute to be referred to arbitration rather than a court of law. The dismissal was appealed to the Allahabad High Court, and the appeal, recorded as appeal number 121 of 1952, remained pending at the time the present petition was filed. During the pendency of the original suit and the subsequent appeal, the trial Judge appointed a receiver to take charge of the business, and later the High Court also appointed a receiver. The receivers operated the spinning mills under the direction of the courts and managed to keep the enterprise profitable, generating modest profits up to the year 1948. In February 1949, the receiver submitted a report stating that the mills could from that point onward operate only at a loss, and consequently the court ordered the closure of the mills on the nineteenth day of March, 1949.

On 19‑3‑1949 the Court observed that the mills were operating at a loss and consequently ordered their closure. Shortly thereafter, on 23‑4‑1949 the Deputy Secretary of the Labour Department of the Uttar Pradesh Government sent a letter to the Court expressing the Government’s desire to take over the mills and manage them under the Industrial Disputes Act, 1947. The Court recorded this communication in its order dated 2‑6‑1949. In that order the learned judge remarked that although the Government possessed the legal right to assume control of the mills if it chose to do so, the Court should take into account the objections raised by the parties before arriving at any final decision.

Following the Court’s observation, the Government of Uttar Pradesh, identified as respondent 2 in the petition, issued an order on 21‑7‑1949 purporting to be made under Section 3(f) of the Uttar Pradesh Industrial Disputes Act, 1947. By this order one of the firm’s partners, designated as respondent 3, was appointed as “authorised controller” of the undertaking in accordance with the provisions of the mentioned sub‑section. The order directed respondent 3 to take possession of the mills to the exclusion of the other partners, the Receiver and the managers, and to operate the business under the general supervision of the District Magistrate of Aligarh. A monthly salary of Rs 1,000 and a commission of twelve annas per cent on the sale of goods produced were authorized for the controller, together with full authority to dispose of both movable and immovable assets and the funds of the enterprise. The appointment received the assent of nine of the remaining fifteen partners, who collectively owned more than fifty per cent of the share capital. Acting on the basis of this order, respondent 3 assumed possession of the mills and continued the operation for about a year, during which the business incurred further losses. In July 1950 the petitioner filed a suit before the Subordinate Judge at Aligarh seeking a declaration that the Uttar Pradesh Government’s order was illegal, ultra vires and not supported by the provisions of the Uttar Pradesh Industrial Disputes Act, 1947, and also prayed for injunction and damages against the Government and respondent 3.

Subsequent to the filing of the suit, the Uttar Pradesh Legislature enacted an amendment, Act No. 23 of 1950, which altered Section 3(c) of the Industrial Disputes Act, 1947 by inserting clause (cc) and by adding Sections 3‑A and 3‑B. Section 3‑A provides that where the trade or business of a public‑utility service or any subsidiary undertaking has been closed or is likely to be closed, the State Government may, upon application of more than half of the total number of partners who together own more than fifty per cent of the share capital, publish an order in the Gazette authorising any person to carry on the trade or business for a specified period, in the manner and to the extent detailed in that order. Under this provision the appointed person may be granted very wide powers; although described as an agent of the service, the person is effectively exempted from the ordinary obligations and responsibilities that normally attach to an agent. Section 3‑B further stipulates that where, on the date immediately preceding the amendment, any person was, by virtue of an order made under Section 3(f), exercising control over such an undertaking, that person shall, notwithstanding any other clause or Section 3‑A, be deemed from the commencement of the amended Act to have been a person duly authorised under Section 3‑A. The petitioner contended, with justification, that the amendment was enacted solely to regularise the appointment of respondent 3 as authorised controller, giving it retrospective effect.

The Court observed that Section 3‑A of the amended Act authorised the State Government, by a Gazette notification, to designate any person to conduct the trade or business of a public utility service or its subsidiary undertaking for a specified period, in the manner and to the extent prescribed in the order. The provision granted extremely wide powers to the appointed individual; although the person was to act as an agent of the service or undertaking, the provision effectively released him from the ordinary duties and liabilities that normally attach to an agent. Section 3‑B further stated that if, on the date immediately preceding the commencement of the amended Act, any person was, pursuant to an order made under Section 3(f), exercising control over such an undertaking, that person would, notwithstanding any other provision in the clause or Section 3‑A, be deemed from the commencement of the Act to have been a person duly authorised under Section 3‑A. The petitioner argued, with merit, that the amendment had been enacted solely to regularise the appointment of respondent 3 as the authorised controller of the undertaking, giving it retrospective effect from the date of the original appointment order.

The petitioner subsequently filed in the Allahabad High Court, in 1951, a petition under Article 226 of the Constitution seeking appropriate writs to set aside the order of the Uttar Pradesh Government. While that petition was pending, the Union of India, through the Ministry of Commerce and Industry, issued an order purporting to be made under Section 3(4) of the Essential Supplies (Temporary Powers) Act, 1946. By that order the Central Government appointed the same individual, respondent 3, as an authorised controller under the said section and directed him to operate the undertaking on the same remuneration previously enjoyed, thereby excluding all other partners, managers, agents and receivers. Respondent 3 was further empowered to dispose of the undertaking’s funds and to transfer both movable and immovable property as he deemed appropriate. The petitioner contended that under respondent 3’s exclusive control the undertaking had failed to generate any profit, that all liquid assets of the firm had been completely dissipated, and that substantial debts had been incurred, prompting the Hathras Court to issue an order for attachment and sale of the mills. After the attachment order, the Central Government was impleaded as a respondent in the writ petition before the Allahabad High Court, and an additional prayer was made to set aside the Central Government’s order. The Uttar Pradesh Government, it was noted, had undertaken that if the Central Government’s order were quashed, it would not lay claim to possession of the mills. By an order dated 19‑July‑1953, the High Court dismissed the writ petition, holding that, given the circumstances, the discretionary powers under Article 226 should not be exercised in favour of the petitioner, who ought to pursue the remedy available in the civil suit already pending before the Aligarh Court.

The Court observed that the discretionary authority conferred by Article 226 of the Constitution was not to be exercised in favor of the petitioner, because the petitioner already possessed a civil remedy through the suit he had instituted in the Aligarh Court, which remained pending. Consequently, the petitioner resorted to filing a writ under Article 32 of the Constitution, seeking the annulment of the earlier orders, the restoration of his property, and an award of damages. In support of this petition, he asserted that the proceeding before the Aligarh Court would not provide him with a remedy that was adequate, effective, or speedy.

Representing the petitioner, counsel argued that both of the orders which were being challenged were illegal and could not operate because they lacked any foundation in the statutory provisions under which they were purportedly issued. He further maintained that the orders were void for conflicting with the petitioner’s fundamental rights under Article 31 of the Constitution, since, in substance, they resulted in the deprivation of his property without adhering to the procedural safeguards required by that article.

The Court then turned to the statutory basis of the first order, which was said to be issued under Section 3(f) of the Uttar Pradesh Industrial Disputes Act. The language of that subsection was reproduced: “Power to prevent strikes, lock‑outs, etc.: If in the opinion of the State Government, it is necessary or expedient so to do for securing public safety or convenience, or the maintenance of public order or supplies and services essential to the life of the community, or for maintaining employment, it may, by general or special order, make provision … (f) for exercising control over any public utility service, or any subsidiary undertaking by authorising any person (hereinafter referred to as an authorised controller) to exercise, with respect to such service or undertaking, such functions of control as may be specified in the order; and, on the making of such order, the service undertaking or part thereof shall, for as long as the order continues, be carried on in accordance with any directions given by the authorised controller, and every person having any functions of management of such service, undertaking or part thereof shall comply with such direction.”

Counsel for the petitioner pointed out that the powers granted by this subsection were limited, as indicated by the long title, preamble, and marginal note of the Act, to the prevention of strikes and lock‑outs and to the settlement of industrial disputes and related incidental matters. He emphasized that the mills involved had already been closed prior to the issuance of the order, meaning that no industrial dispute, actual or anticipated, existed, and therefore there was no question of averting any strike or lock‑out. Moreover, counsel argued that the provision could be invoked only in relation to a public utility service or a subsidiary undertaking, and the mills in question could not be classified as a public utility service within the meaning of Section 2 of the Act, nor was there any government notification to that effect.

The Court observed that the contention advanced by counsel relied on an interpretation of section 2 of the Act, noting that no notification to that effect had been issued by the Government. The third and most substantial objection, according to counsel, was that the control powers granted under the sub‑section could not lawfully extend to depriving the owners of their undertaking and transferring it to the authorised controller with unrestricted authority to dispose of and convey the assets. Counsel further argued that if it were established that section 3(f) of the Industrial Disputes Act, 1947 did not envisage an order of the kind sought, then the amendment introduced by section 3B in the 1950 Act could not improve the situation or provide any assistance to the respondents. The Court then turned to the language of section 3(4) of the Essential Supplies Act, under which the Central Government’s order was issued. The provision states that the Central Government, when it deems it necessary for the maintenance or increase of production and supply of an essential commodity, may by order authorise any person—referred to as an authorised controller—to exercise, with respect to the whole or any part of any undertaking engaged in the production and supply of the commodity specified in the order, such functions of control as may be provided by the order, for so long as an order made under the sub‑section remains in force with respect to the undertaking or part thereof. The provision further requires that (a) the authorised controller shall carry out his functions in accordance with any instruction given by the Central Government, and that he shall not have power to issue any direction that is inconsistent with the provisions of any Act or other instrument determining the functions of the undertaking, except insofar as the order expressly provides; and (b) the undertaking or part thereof shall be operated in conformity with any directions issued by the authorised controller under the order, and any person having management functions in relation to the undertaking or part shall comply with those directions. The Court emphasized that the authority conferred on the Central Government is limited to authorising a person to exercise control functions that are necessary to maintain or increase the production and supply of an essential commodity. Such control, the Court explained, merely involves issuing directions to management about what actions to take or refrain from taking; it does not, under any circumstance, permit the removal of ownership or the taking over of the property from the owners. Moreover, because the mills in question were already closed and not operational, there was, strictly speaking, no question of exercising control to maintain or increase the supply of any essential commodity. The Court noted that these arguments presented by counsel appeared to be well founded on their face.

The Court found the arguments presented by the Attorney General for the Central Government to be prima facie well founded, and accordingly it was not required to examine those points in detail. The Attorney General, however, acknowledged that the orders under challenge did not fall within the scope of, nor were they authorized by, the provisions of the statutes under which they were purported to have been issued. Consequently, he made no attempt to justify either the orders themselves or the acts of possession carried out by the Government or its agents pursuant to those orders. The sole point he raised was of a technical nature, contending that even if the orders were invalid, the petitioner could not invoke Article 32 of the Constitution because no fundamental right existed at the time the first order of the Uttar Pradesh Government was issued in July 1949 and because no subsequent act of dispossession occurred after the Constitution came into force. The Court rejected this contention. It observed that the principal order against which the petition was filed is the Central Government order dated October 1952, and irrespective of whether the earlier Uttar Pradesh order had been formally withdrawn, the later order is the basis on which Respondent 3 claimed the right to retain possession of the properties. Accordingly, the October 1952 order must be regarded as having deprived the petitioner of his property within the meaning of Article 31 as interpreted by this Court. The Court further noted that the Uttar Pradesh Government, during the hearing of the writ petition before the Allahabad High Court, had expressly stated that it was not asserting any rights under the Industrial Disputes Act, 1947 once the Central Government assumed control of the undertaking under the Essential Supplies Act. Even assuming that the deprivation occurred before the Constitution took effect, the Court held that the continuing effect of the order would have conflicted with the petitioner’s fundamental rights once the Constitution came into force and would have become void from that date under Article 13(1). Therefore, the Court affirmed that the petitioner was entitled to invoke Article 32 of the Constitution.

The Court concluded that both the Central Government order of 31‑October‑1952 and the earlier Uttar Pradesh Government order of 21‑July‑1949 should be set aside and quashed. Accordingly, the respondents are bound to restore the properties they had taken possession of under those orders to the petitioner and his co‑partners. However, the Court identified a difficulty: the present petition is not filed on behalf of all the partners, nor is there a joint request from all of them for the delivery of possession. In view of this limitation, the Court directed that the respondents shall deliver possession of the properties to such person or persons as the Allahabad High Court, before which Appeal No. 121 of 1952 is pending, may direct. The High Court may appoint any one or more of the partners, or a neutral individual, to take possession and to hold the properties according to terms it specifies. The Court noted that the petitioner has complained of significant dissipation of assets and the creation of liabilities by the Controller appointed under the illegal orders. The petitioner is therefore free to pursue appropriate legal remedies in a civil court to recover damages or compensation for the loss of those properties or assets. The petition was allowed on the terms set out above.

Because there was no joint prayer submitted by all the partners requesting that possession be delivered, the Court determined that the appropriate order was to direct the respondents to surrender possession of the properties to whichever person or persons the High Court of Allahabad might specify, noting that appeal number 121 of 1952 was pending before that court. The Court further explained that the High Court would have the authority to appoint one or more of the partners, or alternatively a neutral individual, to take charge of the properties and to hold them in accordance with such manner and terms as the High Court might prescribe. The petitioner complained that a substantial portion of the assets had already been wasted and that liabilities had been incurred by the Controller, who had been appointed by the Governments, acting under the unlawful orders that were now being set aside. Accordingly, the petitioner was granted the freedom to pursue any legal actions that might be advised in order to obtain damages in the form of compensation for the loss of those properties or assets, and such actions could be taken in a suitable civil court. By these reasons, the petition was allowed on the conditions that had been set out, and the Court ordered that the costs of the hearing be awarded against all of the respondents.