Kamla Prasad Khetan vs The Union of India

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

Court: supreme-court

Case Number: Petition No. 54 of 1955

Decision Date: 1 May, 1957

Coram: S. R. Das, Syed Jaffer Imam, S. K. Das, P. Govinda Menon, A. K. Sarkar

In this case the petitioner, Kamla Prasad Khetan, challenged actions taken by the Union of India and related petitions. The Supreme Court rendered its judgment on 1 May 1957. The bench comprised S.K. Das, Syed Jaffer Imam, P. Govinda Menon and A.K. Sarkar, and the decision is reported in 1957 AIR 676 and 1957 SCR 1052. The dispute concerned the application of the Industries (Development and Regulation) Act of 1951, as amended by the Amending Act 26 of 1953, particularly sections 18A, 15 and 16, together with section 21 of the General Clauses Act of 1879. By a notified order dated 5 November 1955 the Government of India, invoking section 18A(i)(b) of the 1951 Act, took over the management of certain sugar mills for a period of one year and vested that management in a Controller. This takeover followed an investigation conducted under section 15 of the same Act, and the Central Government held that the existing management was being conducted in a manner highly detrimental to the undertaking and to the public interest. Subsequently, on 7 November 1956, the Government issued an amendment to the original order, extending the Controller’s management for an additional two‑year period. The petitioners argued that the amendment was invalid because the conditions prescribed in section 18A(i)(b) – namely the investigation and the finding of mismanagement – had not been satisfied at the time the amendment was made. They further contended that appointing the same individual as the authorised Controller was not made in good faith. The Court, delivering the opinion of Chief Justice S.R. Das, Justice Imam, Justice S.K. Das and Justice Govinda Menon, held that when section 18A is read together with sections 15 and 16, it is clear that the two conditions mentioned in clause (b) of sub‑section (i) – the investigation and the evidence of mismanagement – must relate to a period when the undertaking’s management was legally vested in its owner. Once those conditions are established, they continue to exist by their very nature until management reverts to the owner. Consequently, the amendment order also satisfied the same conditions that underpinned the original order. The Court further explained that when a notified order under section 18A is sought to be amended under section 21 of the General Clauses Act, the “like conditions” referred to in that provision are the very investigation and mismanagement criteria set out in section 18A(i)(b). The Court observed that the precedent set in Strawboard Manufacturing Co. v. Gutta Mill Workers’ Union (1953) SCR 439 did not apply to the present matter. Thus, the Court concluded that the appointment of a suitable Controller rested with the Central Government and, absent any evidence of an ulterior motive contrary to the statute, the appointment could not be questioned on the ground of lack of bona fides. Accordingly, both the original notification of 5 November 1955 and its subsequent amendment of 7 November 1956 were held to be valid in law.

In this matter, the Court observed that the power to appoint a person as the Controller rested solely with the Central Government, and that, unless evidence showed that such an appointment was made for an ulterior purpose contrary to the intention of the statute, the integrity of the appointment could not be questioned. Accordingly, the Court held that both the original notification dated 8 November 1955 and its subsequent amendment dated 7 November 1956 were validly made and stood on a sound legal foundation.

The Court then turned to the interpretation of the phrase “like conditions” found in section 21 of the General Clauses Act when it is applied to section 18A of the Industries (Development and Regulation) Act. Citing Justice Sarkar, the Court explained that “like conditions” cannot be understood to refer to the two conditions enumerated in clause (b) of sub‑section (1) of section 18A, which merely trigger the Central Government’s authority to issue a notification. Instead, “like conditions” must refer to the condition set out in sub‑section (2) of the same section, which limits the duration of any notified order to a period not exceeding five years. Because the amendment satisfied this five‑year limitation, the Court concluded that the amendment was legally valid.

The judgment concerned Petition No. 54 of 1955, filed under Article 32 of the Constitution for the enforcement of fundamental rights. The petitioners were represented by counsel, while the Union of India, as the sole respondent, was represented by the Solicitor‑General and other counsel. An intervenor’s counsel also appeared. The judgment was delivered on 1 May 1957 by Chief Justice S. R. Das, together with Justices Jafer Imam, S. K. Das and Govinda Menon, with Justice S. K. Das authoring the main judgment and Justice Sarkar delivering a separate opinion.

According to the factual background, on 8 November 1955 the Ministry of Commerce and Industry issued a notified order under the authority provided by section 18A of the 1951 Act. This order authorized Shri Kedar Nath Khetan of Padrauna, referred to as the authorised Controller, to assume management of the Ishwari Khetan Sugar Mills Ltd., Lakshmiganj, Deoria, subject to specified conditions. The order was initially limited to a period of one year, commencing from its publication in the official Gazette. On 7 November 1956, the order was amended by notification No. 338‑A of the same date, which replaced the phrase “one year” with “two years.”

The petitioner identified as Kamlaprasad Khetan claimed to be a director and shareholder of Ishwari Khetan Sugar Mills Ltd., the second petitioner. The Union of India was the only respondent. By order dated 1 October 1956, this Court allowed the authorised Controller to intervene in the proceedings, resulting in both the Union of India and the authorised Controller appearing in opposition to the petition.

In this matter the petitioners contend that the order issued on 8 November 1955 and the amendment dated 7 November 1956 are legally invalid and void, and that the Central Government lacks authority to encroach upon the petitioners’ fundamental right to hold and manage their property on the basis of those orders; consequently they seek appropriate writs or directions to set aside the impugned orders. Although the petitioners’ claim appears straightforward at first glance, the Court finds it necessary to recount certain antecedent facts in order to fully appreciate the issues that now arise between the parties. The Ishwari Khetan Sugar Mills Ltd. is a public limited company in which four branches of the Khetan family collectively hold a substantial proportion of the share capital, while roughly one‑fourth of the shares are owned by persons outside the family. Management of the company is entrusted to a firm of Managing Agents, which operates under the supervision of the Board of Directors. Four members of the Khetan family formed the Managing Agency firm; among them were Kedar Nath Khetan, who was later appointed the authorised Controller, and Onkarmal Khetan, now deceased, who was the father of petitioner Kamlaprasad Khetan. The Managing Agents were responsible for running two sugar mills – the Ishwari Khetan Sugar Mills Ltd. located at Lakshmiganj and the Maheshwari Khetan Sugar Mills Ltd. situated at Ramkola in Deoria district – but the present dispute concerns only the Ishwari Khetan Sugar Mills Ltd. In addition to these responsibilities, the Managing Agents also held partnership interests in the managing agencies of other enterprises, namely Morarji Gokul Das Spinning and Weaving Mills of Bombay and Laxmidevi Sugar Mills Ltd. of Deoria. An affidavit filed in opposition on behalf of the authorised Controller states that the Khetan family originally operated as a modest trading family; however, owing to the initiative, business acumen and imagination of Rai Bahadur Kedar Nath Khetan, a number of manufacturing undertakings, including several sugar factories, were established. Under his direction, other family members, including Onkarmal Khetan, were appointed to supervise the day‑to‑day administration of the various businesses. The Managing Agency agreement expressly provided that every member of the firm of Managing Agents was authorised to exercise all powers vested in the Managing Agents. According to the authorised Controller, discord erupted among members of the different family branches of the Managing Agents around 1950‑51 when it emerged that Onkarmal Khetan had surreptitiously withdrawn large sums of money from the accounts of the various businesses in which the Khetan family held interests as Managing Agents, a revelation that prompted the filing of suits against Onkarmal Khetan.

In this case, the petitioners alleged that the authorized Controller had, together with other directors, taken steps designed to obstruct the normal operation of one of the mills by convening a general meeting and initiating further proceedings that were intended to create a deadlock in the mill’s affairs. The petitioners further contended that when the balance sheet of Ishwari Khetan Sugar Mills Ltd. for the financial year 1950‑51 was made public in June 1952, it became evident that several directors, including the authorized Controller, had misappropriated company funds for personal benefit and had violated provisions of the Indian Companies Act.

As a result of these allegations, the petitioners instituted Suit No. 4 of 1952 against the directors named above, seeking a permanent injunction that would prevent those directors from exercising any powers as directors of petitioner No. 2, and also demanding a declaration that the notice calling the twenty‑fourth ordinary general meeting of the company, scheduled for 9 July 1952, was illegal and invalid. The suit initially produced an ex‑parte injunction order dated 8 July 1952 against the directors concerned. That ex‑parte order was later set aside on the ground that the court lacked jurisdiction, and a fresh injunction order was issued on 3 June 1953.

According to an affidavit filed on behalf of the authorized Controller, the defendants obtained legal advice that the July 8, 1952 ex‑parte injunction was beyond the court’s authority. Acting on that advice, the twenty‑fourth ordinary general meeting was held on 9 July 1952, at which shareholders unanimously resolved to approve and adopt the directors’ report and the audited balance sheet as of 9 October 1951. The temporary injunction granted by the Civil Judge of Deoria on 3 June 1953 was subsequently confirmed by the Allahabad High Court in an order dated 14 September 1953.

Believing that the injunction would severely disrupt the company’s business, the shareholders convened an extraordinary general meeting on 9 November 1953. At that meeting, the authorized Controller and certain other individuals were re‑elected as directors, subject to the condition that the resolution would become ineffective if the court later determined in Suit No. 4 of 1952 that those directors had not ceased to hold office. Numerous proceedings related to Suit No. 4 of 1952 were pending before the Allahabad High Court. In one of those proceedings, the court was urged to expedite the hearing, and the High Court issued an order directing a speedy trial.

Despite that direction, the suit remained untried for reasons not detailed in the record, and on 31 July 1956 petitioner No. 1 obtained an ex‑parte order from the Allahabad High Court that adjourned the hearing of the suit. The authorized Controller contended that petitioner No. 1, having realized that he lacked the support of the majority of shareholders and therefore could not lawfully represent the company, was deliberately postponing the hearing of Suit No. 4 of 1952.

In the course of the proceedings, it was observed that the authorized Controller, lacking the support of the majority of shareholders, could not lawfully act as the company’s representative and therefore was postponing the hearing of Suit No 4 of 1952 for various reasons. While this dispute, with numerous allegations and counter‑allegations, continued before the courts, other significant events occurred that required reference. The petitioners contended that the authorized Controller, recognizing that most 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 gentleman connected with him, seeking orders under sections 15 and 17 of the Act.

On 8 November 1952 the Ministry of Food and Agriculture, Government of India, sent a communication stating that the Government considered that if the parties failed to resolve their differences and could not take timely and appropriate steps to ensure normal operation of the mills, the mills might be unable to commence work during the 1952‑53 season or might be unable to work at all. The Ministry warned that such a failure would cause a substantial, unjustified decline in sugar production, which in turn would likely harm the interests of a large body of consumers as well as cane growers and mill workers. The communication concluded that, under those circumstances, the Government would be compelled to order an investigation into the matter and, if necessary, to assume management of the mills.

The Ministry clarified that the communication concerned both Ishwari Khetan Sugar Mills Ltd. and Maheshwari Khetan Sugar Mills Ltd. Subsequently, on 18 December 1952, the Central Government issued an order under sub‑section (4) of section 3 of the Essential Supplies (Temporary Powers) Act, 1946, empowering the authorized Controller to exercise specific control functions over Ishwari Khetan Sugar Mills Ltd. The precise functions were enumerated in notification No S.R.O. 2073 dated the same day.

On 23 December 1952, a writ petition was filed before this Court by Onkarmal challenging the aforesaid order and requesting an interim direction to suspend its operation. This Court expedited the hearing of that petition and also ordered that the accounts of the petitioner’s company be audited periodically, either by a government auditor or by a private auditor appointed at Onkarmal’s request. Because the writ petition could not be heard promptly, it was eventually dismissed on 14 May 1954 as having become moot.

Finally, on 30 July 1953, the Central Government issued an order under section 15 of the Act covering several mills, including Ishwari Khetan Sugar Mills Ltd.

In the order issued under section 15 of the Essential Supplies (Temporary Powers) Act, the Central Government named three independent individuals and directed them to carry out a full and complete investigation of the facts surrounding each of the industrial enterprises that had been mentioned in that order. Subsequently, on 14 November 1953, the Central Government issued another order, this time under section 18A of the Act, and by that order appointed the authorised Controller to assume the management of Ishwari Khetan Sugar Mills Ltd. It is necessary to note that the Act had been amended in 1953 by Act 26 of 1953; the amendment removed section 17 and introduced a new chapter called Chapter IIIA, and within that new chapter the newly created section 18A provided the basis for the November 14, 1953 order. The order expressly provided that it would remain in force for a period of one year. In December 1953 the Court delivered its judgment in Dwarkadas Shrinivas of Bombay v. The Sholapur Spinning & Weaving Co. Ltd., a judgment that declared Article 31(2) of the Constitution to be applicable to the question of the validity of the Sholapur Spinning and Weaving Company (Emergency Provisions) Ordinance 11 of 1950 and Act XXVIII of 1950. As a probable consequence of that decision, on 21 May 1954 the Central Government cancelled all appointments of authorised Controllers that had been made under the provisions of the Act, and upon that cancellation the management of the affected industrial undertaking reverted to its private owner. The petitioners contend, however, that despite the cancellation the authorised Controller continued to retain possession of the undertaking in dispute. On 16 July 1954 the Central Government again issued an order, this time under subsection (4) of section 3 of the Essential Supplies (Temporary Powers) Act, 1946, thereby re‑granting the authorised Controller certain powers of control over Ishwari Ketan Sugar Mills Ltd. A further investigation was undertaken on 19 September 1954 under section 15 of the Act by a panel of officers, and that panel is said to have recommended that the Central Government should take over the management of the mills for a period of three years. On 31 January 1955 the present petitioners filed a writ petition in this Court challenging the order dated 16 July 1954. That writ petition, after being amended to reflect later developments, is presently before this Court; the amendments were necessary because the Central Government subsequently issued further notifications. The first of those notifications, dated 8 November 1955, cancelled the earlier order of 16 July 1954 and replaced it with a fresh order made under section 18A of the Act. The second notification, an amending order dated 7 November 1956, also related to the same matter and was referred to in the opening paragraph of this judgment. Because of those later notifications, the order of 16 July 1954 no longer exists, and the original writ petition, which had been directed against that order, now requires amendment. The petitioners have prayed for

The petitioners sought to amend their original writ petition and also asked for permission to raise new grounds to challenge the validity of two notified orders, 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 petition for amendment and the request to introduce additional grounds be heard together with the main petition filed under Article 32 of the Constitution. However, before that date, on 5 November 1956, when the petitioners’ application for a stay was considered, the Court gave the following direction: “The hearing of the main petition under Article 32 shall be expedited … it will be open to the petitioners to challenge that the appointment of R. B. Kedar Nath Khetan, if again made, is also bad.” In light of the foregoing direction, the Court treated the main petition under Article 32 as a petition challenging the most recent orders issued by the Central Government, which appointed the authorised Controller to take over the management of the undertaking. The Court also allowed the petitioners to raise fresh grounds in support of their petition.

Having set out the necessary background in the preceding paragraphs, the Court then proceeded to examine the grounds on which the petitioners contested the validity of the orders dated 8 November 1955 and 7 November 1956. It was important to make clear at the outset that counsel for the petitioners did not challenge the validity of section 18A of the Act under which the impugned orders were made. The Court reiterated that Chapter IIIA of the Act had been inserted by the Amending Act 26 of 1953. Article 31B of the Constitution, enacted by the Constitution (First Amendment) Act 1951, provides, inter alia, that none of the Acts or Regulations listed in the Ninth Schedule, nor any of their provisions, shall be deemed void or become void on the ground that such Act, Regulation or provision is inconsistent with, or impairs, any of the rights conferred by any provision of Part III of the Constitution. The Ninth Schedule was later expanded by the Constitution (Fourth Amendment) Act 1955, and Item 19 of that Schedule now corresponds to Chapter IIIA of the Act as inserted by the Industries (Development and Regulation) Amendment Act 1953. Counsel for the petitioners openly conceded that, because of these amending provisions, he was no longer in a position to challenge the validity of section 18A itself. Consequently, the principal issue for the Court’s consideration became the validity of the two orders made under that section. Counsel for the petitioners attacked the orders on three principal grounds, the first of which was that the order of 8 November 1955 was not a lawful order because it failed to satisfy one of the essential requirements of section 18A.

The petitioners challenged the two orders on three separate grounds. First, they argued that the order dated 8 November 1955 was not a lawful order because it failed to satisfy one of the essential requirements prescribed in section 18A of the Act under which the order purportedly was made. Second, even assuming that the order had been lawfully made at the time, the petitioners contended that section 18A does not empower the Central Government to extend the period for which the order remains in force in the manner in which the extension was effected on 7 November 1956, and that such an extension did not meet one of the essential requirements of section 21 of the General Clauses Act, No X of 1897. Third, the petitioners asserted that the order could not be considered a bona fide order because the Central Government had appointed the very individual who was allegedly mis‑managing the undertaking, a person who was also a party to a pending dispute and against whom a competent court had already granted an injunction. The Court indicated that these three grounds would be examined sequentially in the order in which they were raised.

To address the first ground, the Court first read the relevant portion of section 18A of the Act. The provision reads: “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 (whether or not any directions have been issued to the undertaking in pursuance of section 16), is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest, the Central Government may, by notified order, authorise any person or body of persons to take over the management of the whole or any part of the undertaking or to exercise in respect of the whole or any part of the undertaking such functions of control as may be specified in the order.” The provision further provides: “Any notified order issued under sub‑section (1) shall have effect for such period not exceeding five years as may be specified in the order. Provided that the Central Government, if it is of opinion that it is expedient in public interest so to do, may direct that any such notified order shall continue to have effect after the expiry of the period of five years aforesaid for such further period as may be specified in the direction and where any such direction is issued, a copy thereof shall be laid, as soon as may be, before both Houses of Parliament.” The petitioners argued that, for the operation of clause (b) of sub‑section (1), two essential requirements must be satisfied: (i) an investigation under section 15 of the Act, and (ii) the opinion of the Central Government that the industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest. The petitioners conceded that an investigation under section 15 had indeed been conducted before the order of 8 November 1955 was made, thereby satisfying the first requirement. However, they strongly maintained that the second requirement – the Central Government’s opinion that the undertaking was being managed detrimentally – had not been fulfilled in the present case.

In the present case the second requirement of clause (b) of sub‑section (1) of section 18A was not satisfied, the Court observed, because the authorised Controller remained in charge of the industrial undertaking from 18 December 1952 until the impugned order was issued on 8 November 1955. The only interruption in his control lasted for less than two months, specifically between 21 May 1954, when all appointments under the Act were cancelled, and 16 July 1954, when a fresh order was issued under the Essential Supplies (Temporary Powers) Act, 1946. Even during that brief interval the petitioners claimed that the authorised Controller continued to retain possession of the undertaking. Relying on these facts, counsel for the petitioners argued that it was logically impossible for the Central Government to have held the view that the undertaking was being managed in a manner highly detrimental to the public interest before the impugned order was made. The Court rejected this contention. It noted that a legal dispute over the management of the undertaking was already in progress. In a letter dated 8 November 1952, the Central Government had correctly warned that the existing differences between the parties could lead to a shutdown of the mill, a reduction in sugar production, and consequently harm the interests of the industry, the large body of consumers, cane growers and mill workers. Because litigation between the parties was pending, the danger foreseen by the Government in 1952 would have persisted as long as the management of the undertaking was not wholly taken over by the authorised Controller. The order issued in December 1952 under the Essential Supplies (Temporary Powers) Act, 1946 merely conferred certain control functions on the authorised Controller; it did not transfer full management authority to him. The Court emphasized that a clear distinction exists between exercising selected control functions under sub‑section (4) of section 3 of the Essential Supplies (Temporary Powers) Act and the complete takeover of management authorized by an order under section 18A of the Act. Sub‑section (4) of section 3 of the 1946 Act permits the Controller to exercise, with respect to the whole or any part of the undertaking, such functions of control as may be specified in the order. In contrast, section 18A, in broader terms, empowers the Central Government to authorize any person or body to take over the management of the whole or any part of the undertaking or, alternatively, to prescribe particular control functions in respect of the whole or any part of the undertaking. Section 18B of the Act then defines the effect of such authorized orders.

In a notified order made under section 18A, sub‑section (1) clauses (a) to (e) specify the effect of taking over the management of an undertaking, whereas sub‑section (3) specifies the effect of merely assigning functions of control; the provision therefore draws a clear distinction between these two alternatives. It is not difficult to envisage a situation in which merely assigning some functions of control would be insufficient to meet the circumstances that have arisen in a particular industrial undertaking, and the Central Government might therefore need to issue an order that takes over the whole management of the undertaking. In the case before the Court, certain functions of control were vested in the authorised Controller in December 1952, but the management of the whole undertaking was not taken over at that time. This arrangement continued 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 take over the management of the entire industrial undertaking. That order was later cancelled on 21 May 1954, and under section 18F the effect of the cancellation was to vest the management of the undertaking again in its owner. The expression “owner”, as defined in section 3(f) of the Act, refers to the person or authority that has ultimate control over the affairs of the undertaking, including a manager, managing director or managing agent where such persons are entrusted with the affairs. Consequently, the legal effect of the cancellation on 21 May 1954 was to vest the management of Ishwari Khetan Sugar Mills Ltd. in the Directors and Managing Agents, who were then quarrelling among themselves. The petitioners pointed out that Kedar Nath Khetan, the former authorised Controller, continued to remain in possession despite the cancellation order. An affidavit filed on behalf of the Central Government stated that after the cancellation Kedar Nath Khetan informed the Government of India that he was continuing in management in a capacity other than that of authorised Controller. By contrast, an affidavit filed on behalf of the authorised Controller asserted that between the time the Central Government directed him to hand over possession to the Directors and the time he was again appointed on 16 July 1954, the management of the company remained in the hands of the Directors who were then in possession of the undertaking. The Court found it unnecessary to adjudicate these disputed facts. It was abundantly clear from the affidavits that harmony among the Directors or within the family of the Managing Agents had not been restored by the time the cancellation order was made on 21 May 1954. Suit No. 4 of 1952 was still pending, and the dispute between the parties continued. This was the situation when another order was made under the Essential Supplies (Temporary Powers) Act on 16 July 1954.

The Essential Supplies (Temporary Powers) Act of 1946 was invoked on July 16, 1954, to vest certain supervisory functions over the industrial undertaking. Subsequently, a second investigation was conducted under section 15 of the same Act in September 1954 to examine the affairs of the undertaking more thoroughly. Despite these actions, Petitioner No I continued to pursue what he considered his legal remedy by filing a writ application concerning the July 16, 1954 order in this Court. In addition, the petitioner raised related matters in other proceedings that originated from Suit No 4 of 1952 before the High Court of Allahabad. In view of these developments, the Central Government formally issued the order that is now challenged, dated November 8, 1955. Considering the factual backdrop, the Court found it unreasonable to assert that the Government lacked any material evidence. The Court held that the government possessed sufficient information to form the opinion that the undertaking was being managed in a manner seriously detrimental to public interest. The Government could plausibly have concluded that the limited control granted on July 16, 1954 was insufficient to address the prevailing circumstances and that a more decisive measure was required. The affidavit submitted on behalf of the Central Government recorded that the September 1954 investigation under section 15 recommended that the Government assume management of the undertaking for a period of three years. Acting on that recommendation, the Central Government promulgated the impugned order on November 8, 1955, thereby effecting a takeover of managerial functions. The Court could not accept the petitioners’ counsel’s contention that clause (b) of sub‑section (1) of section 18A of the Industries (Development and Regulation) Act, 1951 had not been satisfied before the November 8, 1955 order. Counsel for the petitioners highlighted portions of the Government’s affidavit that spoke of an improvement in management after the authorised Controller assumed control. The affidavit stated that, by virtue of the order issued under section 3(4) of the Essential Supplies (Temporary Powers) Act, 1946, the Government had taken only supervisory control. It further observed that Kedar Nath Khetan possessed merely the authority to issue directions to the existing management. It further observed that the old management remained in place and that neither the Government nor the authorised Controller exercised effective operational control because the Controller was unable to manage the enterprise. The affidavit further argued that, owing to the ongoing litigation detailed in an intervenor’s affidavit dated 25 October 1956, the mill continued to be managed in a manner highly detrimental to the interests of the undertaking. That circumstance, the affidavit said, necessitated the issuance of an order under section 18A of the Industries (Development and Regulation) Act, 1951. The document concluded by stating that after the management was assumed by Shri Kedar Nath Khetan, the situation had improved, preventing further deterioration.

In the affidavit, it was asserted that the Government had reason to believe that the management of the mill had improved and that further deterioration had been avoided. The same affidavit also recorded that the mill had earned a profit during the financial year 1953‑54 and that it was expected to generate a net profit of Rs. 84,321 in the year 1954‑55. The Court observed that nothing in these statements indicated that the Central Government’s opinion expressed in the order dated 8 November 1955 – namely, that the industrial undertaking was being managed in a manner highly detrimental to public interest – contained any palpably false claim. The Court identified the real cause of the difficulty as the internal dispute among the Directors and the Managing Agents, which had led to protracted and harassing litigation, some of which remained pending. The Court consequently concluded that the Central Government possessed sufficient material to form the view that the undertaking was being managed to the detriment of public interest.

Turning to the subsequent amendment dated 7 November 1956, the Court noted that the amending order stated: “In the said order in sub‑clause (ii) of clause I and clause 2, for the words ‘one year’, the words ‘two years’ shall be substituted.” The Court then referred to Section 21 of the General Clauses Act, which provides: “Where, by any Central Act or Regulation, a power to issue notifications, orders, rules, or bye‑laws is conferred, then that power includes a power, exercisable in the like manner and subject to the like sanction and conditions (if any), to add to, amend, vary or rescind any notifications, orders, rules or bye‑laws so issued.”

The petitioners’ counsel argued that neither Section 18A of the Industries (Development and Regulation) Act nor Section 21 of the General Clauses Act authorised the amending order of 7 November 1956. The counsel further contended that the proviso to sub‑section (2) of Section 18A, which had been quoted earlier in the judgment, applied only to an order that was initially made for a period of five years or that expired after five years. According to the counsel, that proviso empowered the Central Government to extend such an order beyond the five‑year term for a further period specified in a direction, with the only safeguard being the requirement to lay a copy of the direction before both Houses of Parliament. The counsel maintained that the proviso was inapplicable in the present case because the original order was for a period of one year and the amendment merely extended it for an additional year. The Court then considered its view of the substantive provisions of sub‑section (1) of Section 18A.

In this case the Court considered the provisions of the Act together with section 21 of the General Clauses Act and concluded that it was unnecessary to make any further pronouncement on the precise scope and effect of the proviso in question. The Court held that the amendment order issued by the Government was validly made under section 21 of the General Clauses Act read in conjunction with sub‑section (1) of section 18A of the Act. Section 21 of the General Clauses Act provides, inter alia, that the authority to issue an order under any Central Act includes the authority to amend that order, but that power is subject to an important qualification expressed in the words “exercisable in the like manner and subject to the like sanction and conditions (if any)”. The Court observed that there was no dispute that the amendment order had been made in the same manner as the original order, namely by means of a notified order. Because an order under section 18A does not require any sanction, the only issue for determination was whether the amendment order satisfied the same conditions that governed the making of the original order. The Court reiterated the two essential requirements for an order under clause (b) of sub‑section (1) of section 18A that had been described earlier. The petitioners argued that those two essential conditions must be fulfilled again before any amendment could be effected, and they contended that this interpretation gave the true meaning to the phrase “subject to the like conditions (if any)” in section 21 of the General Clauses Act. The Court agreed with that submission, stating that the power to amend, which is embedded in the power to make the original order, is indeed exercisable in the like manner and subject to the like sanction and conditions, as the statutory language itself indicates. However, the Court noted that it was necessary to clarify the exact nature of the conditions that must be satisfied before an order under clause (b) of sub‑section (1) of section 18A can be made. Once the true character of those conditions is understood, the application of section 21 of the General Clauses Act becomes straightforward.

The Court then examined the first condition contained in clause (b) of sub‑section (1) of section 18A. That condition requires that the industrial undertaking to which the order relates must be one for which an investigation has been carried out under section 15 of the Act. Section 15 provides that when the Central Government is of the opinion that, in respect of any scheduled industry or industrial undertaking, there has been or is likely to be a substantial fall in production, a marked deterioration in quality, an unjustified rise in price, or a need to conserve resources of national importance, or when any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry or to public interest, the Government may make or cause to be made a full investigation. The Court emphasized that this investigative requirement is the first essential condition that must be satisfied before an order under clause (b) of section 18A can be issued, and consequently before any amendment of such an order can be validly effected.

The provision enumerates several conditions that may justify government action. Firstly, it covers a situation where there is no justification for a substantial fall in production. Secondly, it concerns a circumstance in which there has been, or is likely to be, a marked deterioration in the quality of any article or class of articles related to the industry or produced by the industrial undertaking, a deterioration that could have been avoided. Thirdly, it includes a scenario where there has been, or is likely to be, a rise in the price of any article or class of articles connected with the industry or manufactured by the undertaking, for which there is no justification. Fourthly, it contemplates the necessity of taking any action provided in the Chapter to conserve resources of national importance that are utilized in the industry or the undertaking. Additionally, clause (b) states that if any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to the public interest, the Central Government may order, or cause to be ordered, a full and complete investigation into the circumstances of the case by any person or body that it appoints for that purpose.

The order for investigation in the present case was made under clause (b) of section 15. That clause also uses the expression “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 of the Act. Section 16 of the Act provides, inter alia, that if, after a investigation under section 15, the Central Government is satisfied that action under the section is desirable, it may issue directions specified in that section. However, it may happen in a particular case that the management of the undertaking is so detrimental to the industry or to public interest that issuing directions under section 16 is insufficient. In such an event, the Central Government may assume control of the management by passing an order under clause (b) of sub‑section (1) of section 18A.

There are circumstances where, despite the issuance of directions, the improvement is inadequate and an order under sub‑section (1) of section 18A becomes necessary. For this reason, clause (b) of sub‑section (1) includes the phrase “whether or not any directions have been issued to the undertaking in pursuance of section 16.” The repetition of the expression “industrial undertaking 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 is intentional. An investigation is ordered when the conditions listed 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 concerned.

When an investigation is carried out under section 15, the Central Government may issue directions under section 16; those directions might improve the situation or they might not. If the directions fail to bring about improvement, or if merely issuing directions under section 16 is deemed insufficient to address the problem, the Central Government is empowered to make an order under section 18A. However, one of the essential conditions for such an order is that the Central Government must be of the opinion that the industrial undertaking continues to be managed in a manner highly detrimental to the scheduled industry concerned or to the public interest. When sections 15, 16 and 18A are read together, as they must be, it becomes evident that the condition relating to management in a manner highly detrimental to the scheduled industry or public interest applies only while the undertaking is still in the hands of its owner, that is, before any part or the whole of the undertaking is taken over. In the same way, the condition concerning the exercise of functions of control, which is also contemplated by section 18A, refers to a period prior to the transfer of those control functions. It would be illogical and contrary to the terms of sections 15, 16 and 18A to hold that the condition of mismanagement—used here for brevity in place of the longer expression “management in a manner highly detrimental to the scheduled industry concerned or to public interest”—could apply after the management has been taken over and while the authorised Controller is managing the undertaking. Counsel for the petitioners argued that whenever an amendment is made, the test of mismanagement must be satisfied again. To understand the consequences of that argument, consider a situation where, after the management has been taken over, the authorised Controller becomes seriously ill or dies a few days before the period of the order expires. The Central Government might then need to appoint a new authorised Controller and would have to make an amendment for that purpose. If the petitioners’ argument were accepted, no such amendment could be made unless the mismanagement test were satisfied again; yet it is impossible to satisfy that test when the management had been in the hands of the authorised Controller up to his death, since the authorised Controller essentially acts as an agent of the Central Government. Pushing the petitioners’ contention to its logical extreme leads to an absurd result in which no amendment could ever be made. In contrast, counsel for the authorised Controller submitted that the two conditions laid down in clause (b) of sub‑section (1) of section 18A are not static and, once fulfilled, continue to operate irrespective of subsequent events.

Section 18A of the Act was held not to be a fixed rule that ceased to operate once circumstances changed. The Court explained that once the two prescribed conditions were satisfied, those conditions continued to have effect irrespective of any interim events. The petitioners had argued that if an investigation under section 15 of the Act had once been carried out and at an earlier stage the industrial undertaking had been found to be mismanaged, the two conditions would remain operative even if the undertaking later returned to the ownership of its proprietor. According to that view, an amendment could be made at any later time and a fresh order could be issued without the need for a new investigation or a fresh finding of mismanagement. The Court found both of those propositions to be extreme. By construing sections 15, 16 and 18A together, the Court affirmed its earlier position that the two conditions – one concerning the existence of an investigation under section 15 and the other concerning a finding of mismanagement – pertained only to the period when the legal management of the industrial undertaking was vested in its owner. Accordingly, section 18A must be read, with reference to the conditions listed in clause (b) of sub‑section (1), as if the words “while the undertaking is vested in its owner” were inserted into the provision. The Court further observed that where management was initially taken over by an order made under section 18A but that order was subsequently set aside and management again returned to the owner, the two conditions had to be satisfied afresh before another order could be issued under clause (b) of sub‑section (1) of section 18A.

Applying that principle to the facts of the present case, the Court noted that management of the undertaking had been taken over on 14 November 1953, but the takeover order was cancelled on 21 May 1954, after which management reverted to the owner. Consequently, a new investigation under section 15 was conducted in September 1954, and the Central Government, being satisfied that mismanagement persisted despite the order made under the Essential Supplies (Temporary Powers) Act on 16 July 1954, issued the impugned order on 8 November 1955. Regarding the amendment dated 7 November 1956, the Court observed that the same conditions – an investigation under section 15 and a finding of mismanagement – continued to exist because management had not, since 8 November 1955, again been vested in the owner. By their nature, those conditions therefore remained in force until the management again passed to the owner. The Court concluded that, in view of the true character of the conditions imposed by section 18A, the amendment made on 7 November 1956 did not contravene section 21 of the General Clauses Act. Moreover, the Court held that the requirements of section 21 had been substantially complied with, since the power to amend, which was embedded in the original power to make the order, was exercised subject to the same conditions contemplated by section 21, namely an investigation and the existence of management that was highly detrimental to the public interest while the undertaking was legally vested in its owner.

It was observed that the investigation conducted under section 15 of the Act and the manner in which the industrial undertaking was managed had been highly detrimental to the public interest, and that both of these circumstances were directly linked to the period during which the legal ownership of the undertaking was vested in its owner. The Court noted that these conditions had been satisfied at the time the amendment was effected and that they continued to be satisfied thereafter. The Court further emphasized that section 21 of the General Clauses Act embodies a rule of construction which must be interpreted in light of the context and the subject‑matter of the specific statute to which it is applied. For instance, while section 18A of the Act does not set out any conditions for the cancellation of an order made under that provision, section 18F does prescribe such conditions, and consequently the power of cancellation referred to in section 21 of the General Clauses Act must be read with reference to section 18F. In a similar vein, an order of amendment, once made, 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 therefore held that the implied power of amendment contained in section 21 must be understood in accordance with the particular provisions of the principal Act that are relevant to the amendment.

The Court then referred to the decision rendered in Strawboard Manufacturing Co. v. Gutta Mill Workers’ Union. In that case the State Government of Uttar Pradesh had referred an industrial dispute to the Labour Commissioner on 18 February 1950 and had directed that the award be submitted no later than 5 April 1950. The award was actually made on 13 April, and on 26 April the Governor issued a notification extending the time for the award up to 30 April 1950. The Court held that the State Government possessed no authority to extend the time, that the adjudicator became functus officio when the original deadline expired, and that consequently the award was made without jurisdiction and was a nullity. The Court also held that section 14 of the Uttar Pradesh General Clauses Act did not, by its terms or by necessary implication, confer any power of extension on the State Government. The State Government had argued that the extension order of 26 April could be supported by reference to section 21 of the Uttar Pradesh General Clauses Act; however, the Court rejected this argument, stating that the power of amendment and modification granted by section 21 could not be exercised with retrospective effect. The Court clarified that the principle articulated in the Strawboard case did not apply to the present matter. Nonetheless, the Court reiterated that section 21 contains a rule of construction, and that the implied power of amendment must be ascertained by referring to the context and subject‑matter of the principal statute. In the present case, that rule of construction was to be applied with reference to the context and subject‑matter of sections 15, 16 and 18A of the Act.

In this case the Court turned to the third and final issue that had been raised before it. Counsel for the petitioners argued that the orders that were being challenged were not genuine orders. He asserted that the authorised Controller had himself been one of the parties to the dispute that had resulted in lengthy litigation and, consequently, the orders could not be regarded as impartial. The petitioners relied on a reported decision, referenced as [1953] S.C.R. 439, to support their contention. They further pointed out that an injunction had been issued against the authorised Controller and highlighted other circumstances connected with the authorised Controller’s activities, including demands for income‑tax that had been made against him. Additionally, the petitioners claimed that the authorised Controller had ceased to be a Director because he had violated certain provisions of the Indian Companies Act. These allegations were vigorously denied in an affidavit filed on behalf of the authorised Controller. After reviewing the record, the Court found that it was neither possible nor appropriate to adjudicate on those contested factual matters, as it lacked the necessary material to do so. The Court noted that the power to select a suitable individual to serve as the authorised Controller lies exclusively with the Central Government and that it may be presumed that the Government is best placed to understand the requirements of the specific industry and to assess the suitability of any candidate for the post. Considering the facts and circumstances already discussed, the Court concluded that there was no basis to hold that the appointment of Kedar Nath Khetan as the authorised Controller was made for any ulterior motive, that is, for any purpose other than the objective for which the impugned order had been issued. The primary aim of the Central Government, according to the Court, was to ensure that the mills were managed in a way that would not be detrimental to the public interest. In view of Khetan’s experience in the relevant industry, the Government was entitled to deem him the most appropriate person for the role, even though he had been a party to the dispute. The Court explained that when the Government’s good faith is questioned, the appropriate test is not whether a more independent or better qualified person could have been appointed, nor is it the Court’s duty to subject the Government’s selection to an independent assessment of propriety and suitability, because the Court does not possess the necessary material for such a test. Rather, the correct test is whether the appointment was made for an ulterior purpose, i.e., for a purpose other than that for which the enabling legislation was enacted. The Court found that the petitioners had entirely failed to satisfy this test in the present matter. Accordingly, for the reasons set out above, the Court held that the order dated 8 November 1955 and the amending order dated 7 November 1956 were both

The Court held that the order dated 8 November 1955 and the subsequent amendment dated 7 November 1956 were valid in law, and it found that the petitioners had not established any infringement of their fundamental rights.

In addition, the Court noted that a preliminary objection had been raised on behalf of the authorised Controller, contending that petitioner No 1 lacked legal capacity to represent petitioner No 2. Because the Court had already decided the merits of the case, it considered any further discussion of that preliminary objection unnecessary. It was observed that the same preliminary objection had also been raised in Suit No 4 of 1952, which remained pending. Consequently, the Court chose not to express any opinion on that objection. As a result, the petition was found to have no merit and was dismissed, with costs awarded to the respondent, the Union of India. The authorised Controller, who had intervened at his own risk, was ordered to bear his own costs.

Justice Sarkar, after reading the judgment delivered by his brother Justice S. K. Das, expressed that he differed on one particular question arising in the matter. He stated that he would address only that question in his judgment, while affirming his complete agreement with the remainder of Justice Das’s judgment. He also indicated that he would not repeat the factual exposition already provided by Justice Das.

The factual background was that the Central Government, by an order published in the Official Gazette on 8 November 1955 and made under the authority of section 18A of the Industries (Development and Regulation) Act, 1951 (Act LXV of 1951), authorised Kedar Nath Khetan—who had been permitted to intervene in these proceedings—to assume management of Ishwari Khetan Sugar Mills Limited, an industrial undertaking that at that time was being managed by its directors. The order stipulated that the authorization would remain in effect for a period of one year commencing from the date of its publication in the Official Gazette.

Subsequently, a second order dated 7 November 1956 was issued by the Central Government. That order directed that the words “one year” in the 8 November 1955 order be replaced with the words “two years”. By virtue of this amendment, Kedar Nath Khetan’s management of the mills was extended until 7 November 1957. The question before the Court was whether the order of 7 November 1956 was a valid exercise of governmental power.

The Court observed that the 7 November 1956 order was merely an amendment of the earlier order. It examined whether the Central Government possessed the authority to make such an amendment. Section 18A, while conferring the power to authorise a person to take over management of an undertaking, does not expressly provide for the amendment of an order once it has been made. However, section 21 of the General Clauses Act provides that a power of amendment may exist in certain circumstances. Consequently, the sole issue to be determined was whether the provisions of section 21 of the General Clauses Act justified the amendment effected in this case. Section 21 reads as follows: “Where, by any (Central Act) or Regulation, a power to (issue notifications), orders, rules or bye‑laws is conferred then that power includes a power, exercisable in the like manner and subject to the like sanction and conditions (if any), to add to, amend, vary or rescind any (notifications) orders, rules or bye‑laws so (issued).”

Section 21 of the General Clauses Act provides that when a power to issue notifications, orders, rules or bye‑laws is conferred by a Central Act or Regulation, that same power also includes the authority to add to, amend, vary or rescind any such notification, order, rule or bye‑law, provided the amendment is made “in the like manner and subject to the like sanction and conditions (if any).” Accordingly, once a notification or order has been issued, it may be amended only if the amendment follows the same procedure, enjoys the same sanction and satisfies the same conditions that applied to the original exercise of power under the principal Act. The question therefore arose whether the order dated 7 November 1956 satisfied these requirements with respect to an order made under section 18A of the principal Act. Section 18A authorises the Central Government, by a notified order published in the Official Gazette, to grant any person the authority to take over the management of an industrial undertaking. The amendment issued on 7 November 1956 was also a notified order published in the Official Gazette, and thus it was made in the same manner prescribed by section 18A. Because section 18A does not impose any pre‑condition of obtaining a sanction before exercising its power, the amending order required no additional sanction, and consequently no question of compliance with a sanction arose. The remaining issue concerned the phrase “subject to like conditions” in section 21. Section 18A, for the purposes of this case, states that the Central Government may, by a notified order, authorise a person to take over management of an undertaking when (a) an industrial undertaking has been investigated under section 15, and (b) the Government is of the opinion that the undertaking is being managed in a manner highly detrimental to the scheduled industry or to the public interest. Counsel for the petitioner argued that the power under section 18A can be exercised only if both conditions are fulfilled, and contended that at the time the amendment of the earlier order was made, the second condition—namely the Government’s opinion of detrimental management—did not exist, rendering the amendment invalid. The Court concurred with this submission, holding that the second condition was indeed absent when the amending order was issued, and therefore the amendment could not be sustained.

The provision dealing with the management of an undertaking authorises a person who is appointed by the Government to take over that management. Consequently, the legislation envisions a situation in which the management is not already vested in such a person. In other words, the provision contemplates that the undertaking is being managed in a manner that is highly detrimental to the industry or to the public interest by an individual who is not the Government‑appointed manager. In the present case, at the time the amendment was issued, the management of the undertaking was already in the hands of the person who had been appointed by the Government pursuant to its earlier order dated 7 November 1955. Because the management was already exercised by the Government’s appointee, the Government could not, on the date of the amending order, hold the view that the management was being carried out by some other person in a manner that was highly detrimental to the industry or to the public interest. The Court, however, observed that when section 21 of the General Clauses Act provides that the power to amend is exercisable subject to “like conditions” as those in the principal Act, it does not refer to the conditions that give rise to the original power to issue the order under the principal Act. If it were so, the amendment power under section 21 would be entirely redundant, because the same conditions would already have to be satisfied before the original power could be exercised. Moreover, if those conditions were required for the amendment, the Government could simply have rescinded the earlier order and issued a fresh order under section 14 of the General Clauses Act, rather than amending the existing one. Accordingly, the Court concluded that the phrase “subject to like conditions” in section 21 of the General Clauses Act is intended to refer to the conditions that must attach to the order issued under the principal Act, not to the conditions that create the original authority to make the order. In this case, sub‑section 2 of section 18A provides that any notified order issued under sub‑section (1) shall have effect for a period not exceeding five years, or such shorter period as may be specified in the order. This sub‑section therefore imposes a limitation that the order cannot remain in force for more than five years. Consequently, when an order made under section 18A is to be amended using the power conferred by section 21 of the General Clauses Act, the amendment must comply with the five‑year limitation laid down in sub‑section 2 of section 18A. The amendment, therefore, remains subject to the conditions embedded in the principal Act and cannot extend the duration of the order beyond the five‑year ceiling. In the facts before the Court, the amendment issued on 7 November 1956 respected this five‑year limitation and, accordingly, was validly made in accordance with the requirements of section 21 of the General Clauses Act. For this reason,

The Court observed that the contention advanced by counsel for the petitioner, which maintained that the order issued to amend the earlier direction was invalid, could not be sustained. After carefully reviewing the material placed before it, the Court concluded that the petitioner had not demonstrated any legal deficiency or procedural flaw that would render the amending order void. The Court therefore found that the argument relied upon by the petitioner was unavailing. Having reached this conclusion, the Court accepted the recommendation put forward by Justice S. K. Das. In accordance with that recommendation, the Court entered an order that the petition be dismissed. Consequently, the petition was dismissed and no further relief was granted to the petitioner.