Kamla Prasad Khetan vs The Union Of India

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 1 May, 1957

Coram: A.K. Sarkar, S.K. Das

In the matter titled Kamla Prasad Khetan versus The Union of India, the Supreme Court of India issued its judgment on 1 May 1957. The judgment was authored by Justice S.K. Das and the bench comprised Justices A.K. Sarkar and S.K. Das. The factual backdrop began on 8 November 1955 when the Ministry of Commerce and Industry, acting under the authority granted by section 18A of the Industries (Development and Regulation) Act, 1951, issued a notification authorising Shri Kedar Nath Khetan of Padrauna, thereafter referred to as the authorised Controller, to assume the management of Ishwari Khetan Sugar Mills Ltd., located at Lakshmiganj in the district of Deoria. This initial order was conditioned to remain in force for a period of one year, commencing from the date of its publication in the Official Gazette. Subsequently, on 7 November 1956, the Government amended the earlier notification through Notification No. 338‑A dated the same day. The amendment expressly replaced the phrase “one year” with the phrase “two years,” thereby extending the duration of the authorised Controller’s management powers.

The petitioner identified as number 1 before the Court was Kamla Prasad Khetan, who represented himself as a director and shareholder of the second petitioner, namely Ishwari Khetan Sugar Mills Ltd. The Union of India was the sole respondent in the proceedings. By an order dated 1 October 1956, the Court permitted the authorised Controller to intervene in the suit, resulting in both the Union of India and the authorised Controller being heard in opposition to the petition. The principal contention advanced by the petitioners was that both the original order dated 8 November 1955 and its amendment dated 7 November 1956 were void as a matter of law and were infirm on additional grounds that were to be set out later. The petitioners argued that the Central Government could not lawfully interfere with their fundamental right to hold and manage their property on the basis of those invalid orders. Consequently, they sought the issuance of appropriate writs of certiorari or mandamus to set aside the impugned orders.

Although the petitioners’ case appeared straightforward at first glance, the Court deemed it necessary to outline the antecedent facts to appreciate fully the issues involved. Ishwari Khetan Sugar Mills Ltd. was a public limited company in which four branches of the Khetan family possessed a substantial majority of the share capital, while approximately one‑quarter of the shares were held by persons outside the family. The company’s day‑to‑day operations were conducted by a firm of managing agents, who acted under the supervision of the Board of Directors. The managing‑agents firm was composed of four members of the Khetan family. Among them were Kedar Nath Khetan, who later assumed the role of the authorised Controller, and Onkarmal Khetan, now deceased, who was the father of petitioner Kamla Prasad Khetan. These managing agents were responsible for the administration of two sugar mills: Ishwari Khetan Sugar Mills Ltd. at Lakshmiganj and Maheshwari Khetan Sugar Mills Ltd. at Ramkola, both situated in the Deoria district.

The case concerned two sugar mills, namely the Ishwari Khetan Sugar Mills Ltd., Lakshmiganj, and the Maheshwari Khetan Sugar Mills Ltd., Ramkola, District Deoria. The present dispute involved only the Ishwari Khetan Sugar Mills Ltd. The firm of Managing Agents that ran the mill also acted as partners in the managing‑agent firms of other enterprises, specifically Morarji Gokul Das Spinning and Weaving Mills, Bombay, and Laxmidevi Sugar Mills Ltd., Deoria. In an affidavit filed in opposition on behalf of the authorised Controller, it was asserted that the Khetan family began as a simple trading family but, through the initiative, business sense and imagination of Rai Bahadur Kedar Nath Khetan, they expanded into several manufacturing concerns, including a number of sugar factories. According to that affidavit, Kedar Nath Khetan directed other family members, among them Onkarmal Khetan, to handle the day‑to‑day administration of each business. The agreement governing the Managing Agency contained a clause that empowered every member of the Managing Agents’ firm to exercise all the powers of the Managing Agents.

The authorised Controller claimed that difficulties arose among the Managing Agents, who represented different branches of the Khetan family, during 1950‑51. It was alleged that Onkarmal Khetan had secretly withdrawn large sums of money from the accounts of various businesses in which the family members acted as Managing Agents. This alleged misconduct prompted the institution of several suits against Onkarmal Khetan. In response, Onkarmal Khetan filed suits seeking the appointment of a Receiver, trying to restrain the convening of a general meeting of one of the mills, and initiating other proceedings described as obstructive and intended to create a deadlock in the operation of the mills.

Conversely, the petitioners maintained that when the balance sheet of the Ishwari Khetan Sugar Mills Ltd. for the financial year 1950‑51 was published in June 1952, it became apparent that certain Directors, including the authorised Controller, had appropriated company funds for personal use and had violated provisions of the Companies Act. On that basis, the petitioners filed Suit No. 4 of 1952 against several Directors, including the authorised Controller, seeking a permanent injunction that would prevent those Directors from exercising any powers as Directors of petitioner No. 2, and also requesting a declaration that a notice calling the twenty‑fourth ordinary general meeting of the Company to be held on 9 July 1952 was illegal and invalid. An ex parte injunction order against the concerned Directors was issued on 8 July 1952, but that order was later set aside on the ground that it lacked jurisdiction, and a fresh injunction was granted on 3 June 1953.

In the affidavit submitted on behalf of the authorised Controller, it was stated that the defendants in the suit had obtained legal advice concerning the ex parte injunction dated 8 July 1952, which was found to be without jurisdiction. This legal advice formed the basis for the subsequent procedural steps taken by the parties.

In view of the finding that the ex parte injunction dated 8 July 1952 was issued without jurisdiction, the Company held its twenty‑fourth ordinary general meeting on 9 July 1952. At that meeting the shareholders unanimously resolved to approve and adopt both the directors’ report and the audited balance sheet of the Company as at 9 October 1951. Subsequently, a fresh temporary injunction was granted by the Civil Judge of Deoria on 3 June 1953; this injunction was later affirmed by the Allahabad High Court in an order dated 14 September 1953. Concerned that the stay order would seriously disrupt the Company’s affairs, the shareholders themselves convened an extraordinary general meeting on 9 November 1953. During that meeting the authorised Controller and certain other individuals were re‑elected as directors, but the election was made subject to the condition that, should the Court, in suit No 4 of 1952, determine that those directors had not lawfully ceased to be directors, the resolution would be ineffective to that extent. Several proceedings related to suit No 4 of 1952 were ongoing before the Allahabad High Court. In one of those proceedings the Court was urged to expedite the hearing, and the High Court issued a direction to that effect. Nevertheless, for reasons not detailed here, the suit remained pending, and on 31 July 1956 petitioner No 1 obtained an ex parte order from the High Court adjourning the suit’s hearing. The authorised Controller argued that petitioner No 1, having realized that he lacked the support of the majority of shareholders and therefore could not legally represent the Company, was seeking to delay the hearing of suit No 4 of 1952 by any means available. While this legal contest, with its assorted allegations and counter‑allegations, continued in the courts, other events unfolded. The petitioners contended that the authorised Controller, perceiving that the majority of shareholders and directors opposed his management of Ishwari Khetan Sugar Mills Ltd., approached the Ministry of Food through his grandson Durga Prasad Khetan and another relative to obtain orders under sections 15 and 17 of the relevant Act. On 8 November 1952 a communication was received from the Ministry of Food and Agriculture, Government of India, stating: “The Government of India considers that if, because the parties concerned fail to settle their differences and are unable to take timely and proper steps to ensure normal operation of the mills, the mills are unable to commence work in time during the 1952‑53 season, or are unable to work at all, this will result in a substantial fall in sugar production without adequate justification. Such a result will lead.”

In the communication, the Government expressed the view that the manner in which the mills were being managed threatened to harm the interests of a large number of consumers, as well as of cane growers and mill workers. The communication further concluded that, given the circumstances described, the Government of India would be compelled to order an investigation into the affairs of the mills and, if required, to assume management of the mills themselves. It was noted that this communication concerned both Ishwari Khetan Sugar Mills Ltd. and Maheshwari Khetan Sugar Mills Ltd. On 18 December 1952, the Central Government issued an order under subsection (4) of section 3 of the Essential Supplies (Temporary Powers) Act, 1946, which authorised the Controller to exercise specified control functions over Ishwari Khetan Sugar Mills Ltd.; the precise functions to be exercised were enumerated in notification number S.R.O. 2073 dated the same day. Subsequently, on 23 December 1952, a party identified as Onkarmal filed a writ petition in this Court challenging the Government’s order and seeking an interim injunction to stay its operation. The Court responded by directing an expedited hearing of the petition and by ordering that the accounts of the petitioner’s company be audited at regular intervals by either a government or a private auditor, as requested by Onkarmal. The petition, however, could not be heard before the deadline and was eventually dismissed on 14 May 1954 on the ground that it had become infructuous. Later, on 30 July 1953, the Central Government issued another order under section 15 of the Act covering several mills, including Ishwari Khetan Sugar Mills Ltd.; under that order three independent persons were appointed to conduct a thorough investigation into the conditions of each industrial undertaking mentioned. Subsequently, on 14 November 1953, the Central Government made an order under section 18A of the Act appointing the authorised Controller to take over the management of Ishwari Khetan Sugar Mills Ltd. It is relevant to state that the Act had been amended in 1953 by Act 26 of 1953, which omitted section 17 and inserted a new Chapter IIIA containing section 18A, the provision on the basis of which the November 14, 1953 order was made. The November order specified that it would remain in force for a period of one year. In December 1953, this Court delivered the judgment in Dwarkadas Shrinivas of Bombay v. The Sholapur Spinning & Weaving Co. Ltd., reported in 1954 S.C.R. 674, wherein the Court examined article 31(2) of the Constitution in relation to the validity of the Sholapur Spinning and Weaving Company (Emergency Provisions) Ordinance II of 1950 and Act XXVIII of 1950. As a probable consequence of that judgment, on 21 May 1954 the Central Government cancelled all appointments of authorised Controllers made under the Act, and upon that cancellation the management of the industrial undertaking was deemed to revert to its owner.

The Court noted that when the earlier appointment of the authorised Controller was cancelled, the ownership and control of the undertaking returned to the proprietor of the undertaking. The petitioners contended that, notwithstanding that cancellation, the authorised Controller continued to occupy and exercise control over the Ishwari Khetan Sugar Mills Ltd. The Central Government, on 16 July 1954, issued another order under sub‑section (4) of section 3 of the Essential Supplies (Temporary Powers) Act, 1946, thereby restoring to the authorised Controller certain powers of control over the same mill. Subsequently, on 19 September 1954, a panel of officers conducted an additional investigation under section 15 of the Act and reported that the Central Government should assume management of the mill for a period of three years. In response to the order dated 16 July 1954, the petitioners filed a writ petition on 31 January 1955 before this Court, challenging the validity of that order. The petition, after undergoing necessary amendments, remained before the Court because the Central Government later issued further notifications. The first notification, dated 8 November 1955, revoked the July 1954 order and substituted a fresh order made under section 18A of the Act. The second notification, an amending order dated 7 November 1956, further altered the legal position, as referenced in the opening paragraph of this judgment. Consequently, the order of 16 July 1954 ceased to exist, and the original writ petition, which had been directed against that order, required amendment to reflect the changed circumstances.

The petitioners consequently prayed for permission to amend their original writ petition and to raise new grounds challenging the validity of the two later notifications, the one dated 8 November 1955 and the other dated 7 November 1956. By an order of the Judge‑in‑Chambers dated 18 February 1957, the Court directed that the request for amendment and the addition of fresh grounds be heard together with the principal petition filed under Article 32 of the Constitution. Earlier, on 5 November 1956, while hearing the petitioners’ application for a stay, the Court issued a specific direction stating that the hearing of the main petition under Article 32 should be expedited and that the petitioners would be entitled to challenge any re‑appointment of R. B. Kedar Nath Khetan as being likewise invalid. In accordance with those directions, the Court treated the principal petition under Article 32 as a challenge to the most recent orders issued by the Central Government that appointed the authorised Controller to take over management of the undertaking, and it also authorised the petitioners to advance additional grounds in support of their case. Having set out the factual and procedural background necessary for understanding the dispute, the Court then proceeded to consider the specific grounds upon which the petitioners contested the validity of the notifications dated 8 November 1955 and 7 November 1956.

The petitioners contested the legality of two orders issued by the Central Government, one dated 8 November 1955 and the other dated 7 November 1956. At the outset, it was necessary to record that the petitioners’ counsel did not dispute the constitutionality of section 18A of the Industries (Development and Regulation) Act, the provision under which the challenged orders had been made. The Court had previously explained that Chapter IIIA of the Act had been inserted by the Amending Act 26 of 1953, and that Article 31B of the Constitution, introduced by the Constitution (First Amendment) Act 1951, protected any law placed in the Ninth Schedule from being declared void on the ground of inconsistency with the rights guaranteed in Part III of the Constitution. The Ninth Schedule itself had been enlarged by the Constitution (Fourth Amendment) Act 1955, and item 19 of that schedule now corresponded to Chapter IIIA of the Act as inserted by the 1953 amendment. The petitioners’ counsel openly acknowledged that, because of these amending provisions, he could no longer question the validity of section 18A itself. Consequently, the principal issue for the Court’s consideration became the validity of the two orders that had been issued under that section. The petitioners’ counsel attacked the orders on three specific grounds. First, he argued that the order dated 8 November 1955 was not lawful because it failed to satisfy one of the essential requirements prescribed by section 18A. Second, he contended that even if the 1955 order had been valid at the time of its issuance, section 18A did not empower the Central Government to extend the period of effect of the order in the manner it did on 7 November 1956, and that such an extension violated an essential requirement of section 21 of the General Clauses Act, No X of 1897. Third, he maintained that the order could not be considered a bona‑fide exercise of power because the Central Government had appointed the very individual who had been mismanaging the undertaking, a person who was a party to an ongoing dispute and against whom a court of competent jurisdiction had already passed an injunction. The Court indicated that it would examine these three grounds in the sequence in which they had been presented. The first step required a reading of section 18A of the Act, limited to those parts that were relevant to the present questions, and the Court proceeded to set out the relevant portions of that provision for analysis.

The Court explained that section 18A of the Act provided that if, in the course of an investigation under section 16, the Central Government formed the opinion that an industrial undertaking was being managed in a way that was highly detrimental to the scheduled industry concerned or to public interest, it could, by a notified order, authorize any person or body of persons to take over the management of the whole or any part of that undertaking. The order could also direct that the authorized persons exercise such functions of control over the whole or any part of the undertaking as were specified in the order. The Court further noted that any such notified order issued under sub‑section (1) was limited in duration to a period not exceeding five years, as may be stipulated in the order. However, the provision allowed the Central Government, if it considered it expedient in the public interest, to direct that the notified order continue to have effect beyond the five‑year period for an additional period specified in the direction. When such an extension was made, a copy of the direction had to be laid before both Houses of Parliament as soon as practicable.

In the matter before the Court, the argument was that the application of clause (b) of sub‑section (1) of section 18A required two essential conditions: first, an investigation under section 15 of the Act, and second, the Central Government’s opinion that the industrial undertaking was being managed in a manner highly detrimental to the scheduled industry or to public interest. Counsel for the petitioners acknowledged that an investigation under section 15 had indeed been conducted before the order dated 8 November 1955 was made, thereby satisfying the first condition. Nevertheless, counsel strongly contended that the second condition had not been met, because the authorised Controller had remained in charge of the undertaking from 18 December 1952 until the impugned order on 8 November 1955, with only a brief interruption of less than two months between 21 May 1954—when all appointments under the Act were cancelled—and 16 July 1954—when a fresh order under the Essential Supplies (Temporary Powers) Act, 1946, was issued. Even during this short interval, counsel asserted that the Controller continued to possess the undertaking. Relying on these facts, counsel argued that it was logically impossible for the Central Government to have held the opinion that the undertaking was being managed in a manner highly detrimental to public interest prior to the impugned order. The Court was unable to accept this contention. It recalled the ongoing legal dispute concerning the management of the undertaking and referred to the Government’s letter dated 8 November 1952, which warned that the differences between the parties were likely to result in a stoppage of the mill and a decline in sugar production, thereby harming the interests of the industry, consumers, cane growers and mill workers.

In the Court’s view, the situation described by the Central Government in 1952 could have led to a complete stoppage of the sugar mill and a consequent decline in sugar production. Such a decline would have harmed not only the industry itself but also a large body of consumers, cane growers and mill workers. Because litigation between the parties was still pending, the danger warned of by the Government in 1952 would have continued to exist as long as the authorised Controller had not assumed full and complete control over the management of the undertaking. The order issued in December 1952 under the Essential Supplies (Temporary Powers) Act, 1946 merely assigned certain functions of control to the authorised Controller; it did not transfer the management of the entire undertaking to him. The Court stressed that a clear distinction must be drawn between the exercise of some functions of control, however extensive those functions might be, under sub‑section (4) of section 3 of the Essential Supplies (Temporary Powers) Act, and the complete takeover of the management of an undertaking under section 18A of the same Act. Sub‑section (4) of section 3 authorises the Controller, with respect to the whole or any part of an undertaking, to exercise such functions of control as may be specified in the order. By contrast, section 18A provides a broader power, enabling the Central Government to authorise any person or body to either take over the management of the whole or any part of an undertaking or to exercise, in respect of the whole or any part, such functions of control as may be stipulated. Section 18B further clarifies the effect of a notified order made under section 18A: sub‑section (1), clauses (a) to (e) set out the consequences of a full management takeover, whereas sub‑section (3) outlines the effect of merely assigning functions of control. This statutory distinction is expressly drawn in the provisions and must be considered when evaluating the arguments presented before the Court.

The Court noted that it is conceivable that, in a particular industrial undertaking, merely delegating certain functions of control may be insufficient to address the problems that have arisen, and that the Central Government may need to issue an order taking over the entire management of the undertaking. In the present case, the order of December 1952 vested only limited functions of control in the authorised Controller and did not transfer the complete management of the undertaking to him. This situation persisted until an investigation was ordered under section 15 of the Act on 30 July 1953. Subsequently, on 14 November 1953, the authorised Controller was directed to assume full management of the industrial undertaking. However, this directive was later revoked on 21 May 1954. Under section 18F of the Act, the cancellation of the earlier order had the effect of restoring the management of the undertaking to its owners, as defined by section 3(f) of the Act. The Court therefore concluded that the legal effect of the May 1954 cancellation was to once again vest the management of the Ishwari Khetan Sugar Mills Ltd. in the directors and managing agents who were then in dispute among themselves.

The Court explained that, under section 3(f) of the Act, the term “owner” denoted the person or authority who possessed ultimate control over the affairs of an undertaking, and that where the affairs were entrusted to a manager, managing director or managing agent, that individual was also deemed the owner. Consequently, the cancellation order dated 21 May 1954 legally transferred the management of Ishwari Khetan Sugar Mills Ltd. to the company’s Directors and Managing Agents, who were then engaged in internal disputes. The petitioners highlighted that Kedar Nath Khetan, who had previously acted as the authorised Controller, continued to occupy the premises despite the cancellation. An affidavit filed on behalf of the Central Government reported that, after the cancellation order, Kedar Nath Khetan informed the Government of India that he remained involved in management, albeit not as the authorised Controller. By contrast, an affidavit submitted by the authorised Controller asserted that, from the time the Central Government directed him to surrender possession to the Directors until his re‑appointment on 16 July 1954, the Directors retained actual control of the company’s affairs. The Court held that it was unnecessary to resolve these contested factual assertions. The affidavits, however, made it clear that harmony among the Directors or within the Managing Agents’ family had not been restored by the time of the May 1954 cancellation, and that Suit No. 4 of 1952 remained pending with the dispute still ongoing. This situation persisted when a further order issued under the Essential Supplies (Temporary Powers) Act, 1946, came into force on 16 July 1954, followed by a second investigation under section 15 of the Act in September 1954. petitioner No. 1 continued to seek a legal remedy by filing a writ application challenging the July 1954 order in this Court, as well as by pursuing related proceedings arising from Suit No. 4 of 1952 before the Allahabad High Court. In view of these circumstances, the Central Government issued the impugned order on 8 November 1955. The Court observed that it would be unreasonable to argue that the Government lacked material to conclude that the industrial undertaking was being managed in a manner seriously detrimental to the public interest. The Government could reasonably have perceived that the July 1954 order, which conferred only limited functions of control, was inadequate and that a more decisive step was required. The Court also noted that the Government’s affidavit stated that a second investigation under section 15 of the Act had been conducted in September 1954.

In September 1954 the Central Government ordered a second investigation of the industrial undertaking under section 15 of the Act. The officers who conducted that investigation submitted a report recommending that the Government should assume management of the undertaking for a period of three years. Relying on that recommendation, the Central Government issued the order that is the subject of this appeal on 8 November 1955. The petitioners argued, through their counsel, that the Government had failed to satisfy one of the essential conditions prescribed in clause (b) of sub‑section (1) of section 18A of the Act before issuing the November 1955 order. The Court was unable to accept that contention. The petitioners’ counsel also referred to several statements contained in an affidavit filed on behalf of the Government which dealt with the improvement in management after the undertaking was placed under the control of the authorised Controller. The affidavit includes the following passage: “I say that by virtue of the order issued by the Government of India under section 3(4) of the Essential Supplies (Temporary Powers) Act, 1946, the Government of India had taken over only the supervisory control and the said Kedar Nath Khetan had only powers to issue directions to the management. The management was with the old management and the Government of India or the authorised Controller had no effective functioning in the management as the authorised Controller could not manage the undertaking. I say that in view of the continued litigation referred to in detail in the affidavit of the intervener dated 25th October, 1956, it was apparent that the mill was being managed in a manner highly detrimental to the interests of the undertaking and that it was necessary to pass the order under section 18A of the Industries (Development and Regulation) Act, 1951. I say that after the management was taken over by Shri Kedar Nath Khetan, the Government has reason to believe that the management has improved and has saved further deterioration.”

In another portion of the same affidavit it is stated that the mill earned a profit during the financial year 1953‑54 and was likely to make a net profit of Rs 84,321 in the year 1954‑55. From those statements the Court found no indication that the Government’s opinion expressed in the 8 November 1955 order—that the industrial undertaking was being managed in a manner highly detrimental to public interest—contained any palpably false claim. The Court observed that the fundamental problem lay in the internal dispute among the Directors and the Managing Agents, which had resulted in prolonged and harassing litigation, some of which remained pending. That dispute, rather than any deficiency in management, was identified as the real cause of the difficulty. Accordingly, the Court concluded that the Government possessed sufficient material to form the opinion that the undertaking was being managed in a manner highly detrimental to public interest. The discussion then turned to the amendment made on 7 November 1956. The amending order reads: “In the said order in sub‑clause (ii) of clause 1 and clause 2 for the words ‘one year’, the words ‘two years’ shall be substituted.”

Section 21 of the General Clauses Act provided that when a Central Act or Regulation gave a power to issue notifications, orders, rules or bye‑laws, that power also included the authority to add to, amend, vary or rescind any such instrument, provided the amendment was exercised in the same manner and subject to the same sanction and conditions, if any, that applied to the original instrument. The petitioners argued that neither subsection 18A of the principal Act nor section 21 of the General Clauses Act saved the amending order dated 7 November 1956. They pointed to the proviso to subsection (2) of section 18A, which they had reproduced earlier in the judgment. According to the petitioners, that proviso concerned only orders originally made for a period of five years or orders that terminated after five years. They maintained that the proviso authorised the Central Government to extend such an order for a further period specified by a direction, and that the only safeguard was the requirement to lay a copy of the direction before both Houses of Parliament. The petitioners further contended that the proviso could not apply in the present case because the original order was for one year and the amendment merely extended it for an additional year. The Court, however, expressed the view that it was unnecessary to decide the precise scope and effect of the proviso. In the Court’s opinion, the amendment was validly made under section 21 of the General Clauses Act read together with subsection (1) of section 18A of the Act, and therefore the amendment was protected by the statutory framework.

Section 21 of the General Clauses Act also stated, among other things, that the power to issue an order under any Central Act included the power to amend that order, but that power was qualified by the phrase “exercisable in the like manner and subject to the like sanction and conditions (if any).” No party contested that the amendment of 7 November 1956 had been issued in the same manner as the original order, namely by a notified order. Because no sanction was required for an order made under subsection 18A, the only issue that remained was whether the amendment complied with the same conditions that had applied to the original order. The Court recalled that it had already identified two essential requirements for an order made under clause (b) of subsection (1) of section 18A. Those requirements, having been set out earlier, formed the benchmark against which the validity of the amendment was to be assessed.

In this matter, the petitioners’ counsel contended that the two essential conditions previously identified must be satisfied again before any amendment of the order could be effected. He argued that this requirement reflected the true scope and effect of the phrase “subject to the like conditions (if any)” found in section 21 of the General Clauses Act. The Court concurred with the petitioners’ counsel that the power to amend, being part of the power to make the original order, must be exercised in the same manner and be subject to the same sanction and conditions, if any, that governed the making of the original order, as the statutory provision itself expressly provides. Nevertheless, the Court observed that it was necessary to clarify precisely what conditions must be fulfilled before an order under clause (b) of sub‑section (1) of section 18A of the Act could be issued. Once the true nature of those conditions was understood, the Court held that little difficulty remained in applying section 21 of the General Clauses Act. The Court first explained that the initial condition in clause (b) of sub‑section (1) of section 18A requires that the industrial undertaking be one for which an investigation has been conducted under section 15 of the Act. Section 15 reads as follows: “Where the Central Government is of the opinion that – (a) in respect of any scheduled industry or industrial undertaking or undertakings – (i) there has been, or is likely to be, a substantial fall in the volume of production in respect of any article or class of articles relating to that industry or manufactured or produced in the industrial undertaking or undertakings, as the case may be, for which, having regard to the economic conditions prevailing, there is no justification; or (ii) there has been, or is likely to be, a marked deterioration in the quality of any article or class of articles relating to that industry or manufactured or produced in the industrial undertaking or undertakings, as the case may be, which could have been or can be avoided; or (iii) there has been or is likely to be a rise in the price of any article or class of articles relating to that industry or manufactured or produced in the industrial undertaking or undertakings, as the case may be, for which there is no justification; or (iv) it is necessary to take any such action as is provided in this Chapter for the purpose of conserving any resources of national importance which are utilised in the industry or the industrial undertaking or undertakings, as the case may be; or (b) any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest; the Central Government may make or cause to be made a full and complete investigation into the circumstances of the case by such person or body of persons as it may appoint for the purpose.”

The Court then noted that the investigation order in the present case had been made under clause (b) of section 15, which again employed the expression that the “industrial undertaking is being managed in a manner highly detrimental to the industry concerned or to public interest.” The Court pointed out that this same expression also appears in clause (b) of sub‑section (1) of section 18A. Consequently, the Court affirmed that the condition requiring an investigation under section 15 had been satisfied, thereby meeting the first essential requirement for the issuance of an order under clause (b) of sub‑section (1) of section 18A. Having clarified the nature of the condition, the Court concluded that the amendment of the original order could proceed only if it adhered to the same procedural and substantive criteria that applied to the original order, as mandated by section 21 of the General Clauses Act.

In this case, the Court observed that the order directing an investigation had been issued under clause (b) of section 15 of the Act. That particular clause repeats the phrase “the industrial undertaking is being managed in a manner highly detrimental to the industry concerned or to public interest,” which is the same wording that appears in clause (b) of sub‑section (1) of section 18A. The Court noted that section 16 of the Act provides that, after an investigation is made or caused to be made under section 15, the Central Government may, if satisfied that further action is required, issue directions specified in that section.

The Court explained that there may be circumstances in which the management of an industrial undertaking is so harmful to the scheduled industry or to the public interest that merely issuing directions under section 16 would not be sufficient to remedy the situation. In such a scenario, the Central Government is empowered to assume control of the undertaking by issuing an order under clause (b) of sub‑section (1) of section 18A. The Court further pointed out that there could be instances where, despite the issuance of directions, the desired improvement does not occur, making an order under sub‑section (1) of section 18A necessary. This reasoning explains why clause (b) of sub‑section (1) contains the words “whether or not any directions have been issued to the undertaking in pursuance of section 16.”

The Court clarified that the duplication of the expression “is being managed in a manner highly detrimental …” in both clause (b) of section 15 and clause (b) of sub‑section (1) of section 18A serves a specific purpose. An investigation is ordered when the conditions set out in section 15 are satisfied, one of those conditions being that the industrial undertaking is being managed in a manner highly detrimental to the scheduled industry or to public interest. Once an investigation is conducted, the Central Government may issue directions under section 16; those directions may or may not lead to an improvement. If they fail to bring about improvement, or if issuing directions alone is deemed insufficient, the Central Government may then make an order under section 18A. However, a prerequisite for invoking section 18A is that the Central Government must still hold the opinion that the industrial undertaking continues to be managed in a manner highly detrimental to the scheduled industry or to public interest.

Reading sections 15, 16 and 18A together, as the Court stressed they must be read, makes it clear that the condition concerning management in a manner highly detrimental relates, in its true scope and effect, to the period when the management of the industrial undertaking remains in the hands of its owner—that is, to the time before any part of the undertaking is taken over. The Court therefore concluded that the condition of mismanagement, expressed in the statute, applies only prior to the takeover of management and not after the authorized Controller assumes control.

Section 18A of the Act also contemplates the exercise of functions of control, and the condition attached to that provision again pertains to the period before such control is assumed. The Court considered it illogical and contrary to the terms of sections 15, 16 and 18A to allow the mismanagement condition to operate after management has been transferred to the authorised Controller. For brevity the Court uses the term ‘mismanagement’, but the precise expression prescribed by the statute is ‘management in a manner highly detrimental to the scheduled industry concerned or to public interest’. Counsel for the petitioners argued that each time an amendment is made, the test of mismanagement must be satisfied anew. To examine the consequences of that argument, the Court imagined a situation where, after the management is taken over, the authorised Controller becomes seriously ill or dies shortly before the order expires. In such a case the Central Government would need to appoint a replacement and would have to issue an amendment to the original order. If the petitioners’ position were accepted, the amendment could be made only if the mismanagement test were again satisfied. That requirement cannot be met because the management at that time was already exercised by the authorised Controller, who functioned essentially as an agent of the Central Government. Pushed to its logical extreme, the petitioners’ argument would render any amendment impossible, creating an absurd result.

Counsel for the authorised Controller presented the opposite view, contending that the two conditions specified in clause (b) of sub‑section (1) of section 18A are not static and, once fulfilled, continue to operate irrespective of subsequent events. According to that submission, if an investigation under section 15 had previously established that the industrial undertaking was mismanaged, the conditions would remain in force even if the undertaking temporarily reverted to the owner’s control. Therefore, an amendment or even a fresh order could be issued at any later time without the necessity of conducting a new investigation or demonstrating a fresh instance of mismanagement. The Court regarded both the petitioners’ and the authorised Controller’s positions as extreme and unsound interpretations of the statutory scheme. On a proper construction of sections 15, 16 and 18A, the Court concluded that the correct approach is the one previously stated. That approach requires that the two conditions—one concerning an investigation under section 15 and the other concerning mismanagement—must relate to the period when legal management of the industrial undertaking is vested in its owner. Consequently, section 18A must be read, with reference to the two conditions in clause (b) of sub‑section (1), as if the words ‘while the undertaking is vested in its owner’ were expressly included.

In interpreting the provision, the Court treated the language as if it explicitly contained the words “while the undertaking is vested in its owner.” Consequently, when management was taken over by an order under section 18A and that order was later set aside, causing the management to revert to the owner, the two statutory conditions had to be satisfied anew before another order could be issued under clause (b) of sub‑section (1) of section 18A. This exact sequence occurred in the present matter. The management was initially taken over on 14 November 1953, but the takeover order was cancelled on 21 May 1954, thereby restoring management to the owner. Following this restoration, a fresh investigation under section 15 of the Act was conducted in September 1954. The Central Government, satisfied that the industrial undertaking continued to be mismanaged despite an order made under the Essential Supplies (Temporary Powers) Act on 16 July 1954, issued the impugned order on 8 November 1955. Regarding the amendment order dated 7 November 1956, the same conditions persisted, eliminating any need for a new investigation because management had not again vested in the owner after 8 November 1955. By their very nature, the conditions remained in force until ownership of management changed once more. Considering the true character of the conditions prescribed in section 18A, the Court found that the amendment made on 7 November 1956 did not breach section 21 of the General Clauses Act and that the statutory requirements of that section were substantially complied with.

The power to amend, which is incorporated in the power to make the original order, was exercised subject to conditions that fall within the meaning of section 21 of the General Clauses Act. Those conditions were a valid investigation under section 15 of the Act and management that was highly detrimental to the public interest, both of which necessarily related to the period when the owner legally held the management of the industrial undertaking; both conditions had been satisfied and continued to be satisfied at the time of the amendment. It is important to remember that section 21 of the General Clauses Act embodies a rule of construction that must be read in the context and subject‑matter of the specific statute to which it applies. For instance, section 18A itself does not set any conditions for the cancellation of an order made under that section, but section 18F does, and therefore the power of cancellation referred to in section 21 must be linked to section 18F. Likewise, an amendment order becomes an order under section 18A and is therefore subject to all the conditions laid down in that section, including the condition specified in sub‑section (2). The Court also referred to its earlier decision in Strawboard Manufacturing Co. v. Gutta Mill Workers’ for additional guidance.

In the decision reported in Union [1953] S.C.R. 439, the Court examined a situation in which the State Government of Uttar Pradesh had referred an industrial dispute to the Labour Commissioner on 18 February 1950 and directed that the award should be submitted not later than 5 April 1950. The award, however, was rendered on 13 April, and on 26 April the Governor issued a notification extending the time for making the award up to 30 April 1950. The Court held that the State Government possessed no authority to extend that time limit and that, on the expiry of the period fixed in the original order of reference, the adjudicator ceased to have any further authority, i.e., became functus officio. Accordingly, the award made after the original deadline was without jurisdiction and was a nullity. The Court further observed that section 14 of the Uttar Pradesh General Clauses Act did not, either expressly or by necessary implication, give the State Government any power to extend the time. The State Government had argued that the Governor’s order of 26 April 1950 could be supported by reference to section 21 of the Uttar Pradesh General Clauses Act. The Court rejected that argument, holding that the power of amendment and modification conferred by section 21 could not operate retrospectively. While noting that the principle laid down in that decision does not apply to the present case, the Court reiterated that section 21 of the General Clauses Act embodies a rule of construction, and any implied power of amendment it contains must be interpreted with reference to the context and subject‑matter of the principal statute to which it is applied.

The Court then turned to the third and final question raised before it. Counsel for the petitioners contended that the orders under challenge were not bona fide. They submitted that the authorised Controller was one of the parties to the dispute, which had resulted in protracted litigation, and that an injunction had been issued against him. Further, they pointed to other circumstances arising out of the authorised Controller’s activities, including pending income‑tax demands, and asserted that he had ceased to be a Director because of breaches of certain provisions of the Companies Act. These submissions were vigorously contested in an affidavit filed on behalf of the authorised Controller. The Court observed that, on the materials before it, it was neither possible nor desirable to make any pronouncement on these disputed questions of fact. It was sufficient to state that the power to select a suitable person to be the authorised Controller rests with the Central Government and it may

In this case, the Court observed that the Central Government is presumed to possess the best understanding of the needs of the particular industry, of its own subjects, and of the suitability of the individual who should be appointed as authorised Controller. After considering the facts and circumstances previously discussed, the Court concluded that it could not be said that the appointment of Kedar Nath Khetan as authorised Controller in the present matter was motivated by any ulterior purpose, that is, a purpose different from achieving the objects for which the impugned order was issued. The Court noted that the primary concern of the Central Government was to ensure that the mills were managed in a way that would not be detrimental to the public interest. In light of Kedar Nath Khetan’s experience in the relevant industry, the Court held that it was within the Central Government’s discretion to select him as the most suitable person to serve as authorised Controller, even though he was a party to the dispute. The Court explained that the test to be applied in cases where a lack of good faith on the part of the Central Government is alleged does not involve examining whether a better or more independent person was or might have been available. Nor is it the Court’s duty to subject the Central Government’s selection to a separate, independent test of propriety and suitability, because the Court does not possess the necessary material for such a test. Instead, the proper test is whether the appointment was made for an ulterior purpose, that is, for a purpose other than the object for which the law, under which the impugned order was made, was enacted. The Court found that the petitioners had completely failed to satisfy this test in the present case. Consequently, for the reasons outlined above, the Court held that the order dated 8 November 1955 and the amending order dated 7 November 1956 are both valid in law, and that the petitioners have not established any violation of their fundamental rights. In conclusion, the Court mentioned that, on behalf of the authorised Controller, a preliminary objection was raised that petitioner No 1 was not legally competent to represent petitioner No 2. Given the Court’s decision on the merits, it was unnecessary to elaborate further on this preliminary objection. It was pointed out that the same preliminary objection had also been raised in Suit No 4 of 1952, which remains pending; therefore, the Court deemed it appropriate to refrain from expressing any opinion on that objection. The result, therefore, is that the petition lacks merit and is dismissed with costs awarded to the respondent, the Union of India. The authorised Controller, who intervened at his own risk, was ordered to bear his own costs. Justice Sarkar noted that he had read the judgment delivered by his brother, Justice S K Das, and expressed regret that on one of the questions arising in the matter he arrived at a different view.

The writer expresses a differing view on a single issue that arose in the case, but confines the discussion to that particular point only. With respect to the remaining portions of the judgment delivered by Justice S. K. Das, the writer states full agreement. The earlier judgment, according to the writer, has already examined the factual matrix in great detail, and therefore the writer does not repeat the factual narration. The writer’s sole purpose is to address the one question on which his opinion diverges, while endorsing the rest of the reasoning and conclusions of Justice Das.

The factual backdrop involves an order issued by the Central Government and published in the Official Gazette on 8 November 1955, wherein the Government, exercising the authority granted by section 18A of the Industries (Development & Regulation) Act, 1951 (Act LXV of 1951), authorised Kedar Nath Khetan—who had been permitted to intervene in the proceedings—to assume management of Ishwari Khetan Sugar Mills Limited, an industrial undertaking then managed by its directors. The 1955 order stipulated that the authorization would remain in force for a period of one year starting from the date of its publication. Subsequently, a second order dated 7 November 1956 was issued, directing that the words “one year” in the earlier order be replaced by “two years”. By virtue of the amendment, Kedar Nath Khetan’s management authority was extended to 7 November 1957. The central issue before the Court was whether the 7 November 1956 amendment constituted a valid exercise of power. The question turned on whether the Central Government possessed any power to amend an order made under section 18A. Section 18A itself does not expressly grant a power to amend a previously issued order. However, section 21 of the General Clauses Act provides that where a Central Act or regulation confers a power to issue notifications, orders, rules or bye‑laws, that same power includes the authority to add to, amend, vary or rescind any such instrument, provided the amendment is effected in the same manner and subject to the same sanction and conditions, if any, as the original power. Accordingly, the Court examined whether the 7 November 1956 amendment was made in the same manner and under the same sanctions and conditions applicable to an order issued under section 18A. Under section 18A, the power to authorise a takeover of management is exercised only by a notified order—i.e., an order that is published in the Official Gazette. The amendment order was also published in the Official Gazette, thereby satisfying the “same manner” requirement. Section 18A does not prescribe any prior sanction before the exercise of the power, so no sanction was required for the amendment. Consequently, the remaining query was whether any conditions attached to the original power applied to the amendment; the Court proceeded to analyse the textual provisions of section 18A to determine the answer.

The Court observed that the amendment was published in the Official Gazette, which is the prescribed manner for exercising the power under the statute. Accordingly, the amending Order was made in the same manner as required, satisfying the requirement of section 21 of the General Clauses Act. Section 18A does not mandate that any sanction be obtained before the power it confers is exercised; therefore, the amendment required no sanction and no issue of compliance with a sanction arose. The Court noted that the remaining difficulty concerned the last element of section 21, namely the phrase “subject to like conditions.” For the present purpose, the relevant portion of section 18A reads as follows: “If the Central Government is of opinion that … (a) … (b) an industrial undertaking in respect of which an investigation has been made under section 15 is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest, the Central Government may, by a notified order, authorise any person … to take over the management of … the undertaking ….”

Paragraph 33 recorded that counsel for the petitioner argued that the authority to act under section 18A arises only when two conditions are satisfied: first, that an industrial undertaking has been investigated under section 15; and second, that the Central Government is of the opinion that the undertaking is being managed in a manner highly detrimental to the industry or to public interest. The counsel claimed that, at the time the amendment was made, the second condition did not exist and consequently the amendment was invalid. The Court agreed that the second condition was indeed absent when the amending order was issued. It explained that section 18A envisages the takeover of management by a person authorised by the Government, which implies that the management is not already in such a person’s hands. Consequently, the provision presupposes management that is harmful to the industry or public interest because it is being carried out by someone other than the authorised person. At the date of the amendment, the management was already in the hands of the person appointed by the Government through the earlier order of 7 November 1955; therefore, the Government could not, on that date, have been of the opinion that the management was in the hands of an unauthorised person and that such management was detrimental. In paragraph 34, the Court expressed the view that when section 21 of the General Clauses Act makes the power to amend exercisable “subject to like conditions,” it does not refer to the conditions that give rise to the original power under the main Act. Instead, the “like conditions” relate to the conditions that must accompany the order issued under the main Act itself.

The Court examined whether the amendment power granted by section 21 of the General Clauses Act would become pointless if it were subject to the same conditions that create the right under the principal Act. If those conditions already existed, the Court reasoned, the Government could simply issue a new order under section 14 of the General Clauses Act and, if needed, rescind the earlier order, rather than amend it. Consequently, the Court concluded that the phrase in section 21 stating that the amendment power shall be exercisable subject to like conditions does not refer to the conditions that give rise to the original authority. Rather, the Court held that the conditions mentioned in section 21 are the conditions which the order made under the principal Act must satisfy. In the present matter, subsection two of section 18A provides that any notified order issued under subsection one shall have effect for a period not exceeding five years, as may be specified in that order. The effect of this provision is to impose a condition that an order issued under section 18A cannot remain in force for more than five years. Therefore, when an order originally made under section 18A is later sought to be amended using the authority of section 21, the amendment must respect the five‑year limitation contained in subsection two of section 18A. Such an amendment remains subject to the conditions laid down in the principal Act and cannot extend the duration of the original order beyond the maximum period prescribed. In the facts before the Court, the amendment dated 7 November 1956 complied with the five‑year limitation and therefore satisfied the requirements of section 21. Accordingly, the Court held that the petitioner’s counsel could not successfully argue that the amending order was invalid. The Court then concurred with the order proposed by Justice S. K. Das and dismissed the petition.