Holding

Sections 3 and 4 of the Swadeshi Cotton Mills Ltd. (Acquisition and Transfer of Undertakings) Act, 1986 are constitutionally valid, the acquisition of the shares is for a public purpose, and compensation is satisfied by the lump‑sum payment provided under section 8.

Summary

The petitioners, shareholders of Swadeshi Cotton Mills Co. Ltd., challenged the constitutional validity of sections 3 and 4 of the Swadeshi Cotton Mills Ltd. (Acquisition and Transfer of Undertakings) Act, 1986, alleging that the forced vesting of shares in the Central Government amounted to confiscation without compensation and lacked a public purpose, thereby violating Articles 14, 19(1)(g), 31(2) and 300A of the Constitution. The Supreme Court held that the Act was enacted to give effect to Article 39(b) and (c) and that the acquisition of the shares was part of a public purpose, with compensation provided in a lump‑sum under section 8. The Court explained that the shares were held in relation to the textile undertakings and therefore fell within the scope of sections 3 and 4, and that the net wealth of the company was negative, justifying the vesting. Consequently, the petitioners' contentions were dismissed as already decided in Doypack Systems Pvt. Ltd. v. Union of India and contrary to the Constitution. The writ petition was dismissed.

Issues considered

The constitutional validity of sections 3 and 4 of the Swadeshi Cotton Mills Ltd. (Acquisition and Transfer of Undertakings) Act, 1986.
Whether the acquisition of shares under the Act serves a public purpose within the meaning of Article 39(b) and (c).
Whether compensation is required and, if so, whether it is provided under section 8 of the Act.
Whether the Act violates Articles 14, 19(1)(g), 31(2) and 300A of the Constitution.
Whether the legislature had competence to enact the provisions (Entry 42, List III).

Legislation cited

Industries (Development & Regulation) Act, 1951s. 18AA(l)(a)
Swadeshi Cotton Mills Ltd. (Acquisition and Transfer of Undertakings) Act, 1986s. 3, s. 4, s. 7, s. 8

Subjects

constitutional validityacquisition of sharespublic purposecompensationeminent domainArticle 39Article 14Article 19(1)(g)Article 31(2)Article 300Awrit petitionArticle 32

Judgment

1,.

~
ANIL KUMAR NEOTIA AND ORS.
A
v. ~

UNION OF INDIA & ORS.

APRIL 26, 1988

B [SABYASACHI MUKHARJI AND G.L. OZA, JJ.] -+
Swadeshi Cotton Mills Ltd. (Acquisition and Transfer of Under-
takings) Act, 1986-Challenging constitutional validity of. -
This writ petition challenged the constitutional validity of the ~-
c Swadeshi Cotton Mills Ltd. (Acquisition and Transfer of Undertakings)
Act, 1986. -t ....
The Central Government had passed an order for taking over the
management of six undertakings of the Swadeshi Cotton Mills, in
respect whereof there were proceedings in the High Court, and this
D Court hy its judgment dated the 12th February, 1988, in M/s.
Doyarpack Systems Pvt. Ltd. v. Union of India & Ors.-SLPs (Civil)
Nos. 4826 & 7405 of 1987-had disposed of the matter. The petitioners,
claiming to he shareholders of the respondent No. 4-Swadeshi Cotton
Mills Co. Ltd. and to have interest in its business, affairs and proper-
ties, filed this writ petition, contending that the effect of the decision of
·-1,
E this Court above said was to take away valuable assets of the respondent
No. 4, without paying any compensation therefor and to impose on •
respondent No. 4 liabilities without any corresponding assets available
to discharge the liabilities, and further, that the acquisition virtually
amounted to confiscation of the shares of respondent No. 5 and respon-
dent No. 6 held by respondent No. 4, and that the rights of the share- ~-
F holders of the respondent No. 4 were substantially damaged. The
petitioners challenged the vires and constitutional validity of sections 3
and 4 of the Swadeshi Cotton Mills Ltd. (Acquisition and Transfer of
Undertakings) Act 1986 ('The Act') in so far as those sought to divest
respondent No. 4 of the shares in respondent No. 5 and respondent
No. 6 and certain excluded assets, contending that the Act was violative
of Articles 14 and I9(l)(g) of the Constitution.
G
_..._
Dismissing the petition, the Court, -
HELD: The petitioners' contentions were not tenable because all
the contentions had been directly or indirectly dealt with in the judg-
H ment of this Court afore-said. It was not correct that no public
738
A.K. NEOTIA v. U.O·.I. 739

purpose was served by acquisition. U was held that section 8 provides
A
for payment of compensation in lumpsum and the transfer and vesting
of whatever is comprised in section 3. It was incorrect to state that there
was no compensation for taking over of the shares. It was found by the
said judgment that the net wealth of the company. was negative and,
therefore, sections 3 and 4 could be meaningfully read if all the assets
including the shares were considered to be taken over by the acquisi- B
tion. That was the only irresistible conclusion that followed from the

- construction of the documents and the history of the Act. The Act in
question was passed to ensure the principles enunciated in clauses (b)
and (c) of Article 39 of the Constitution. In that context, it was held that
to leave a company, the net wealth of which was negative at the time of
take-over of the management with the shares held by it as investment in
other company, was not only to defeat the principles of Article 39(b) c
and (c) of the Constitution but it would permit the company to reap the
fruits of its mismanagement. That would be as absurd situation. In this
context, the contentions now sought to be urged were no longer open to
the petitioners. It was held by the judgment of this Court afore-
mentioned that there was a public purpose which was analysed and D
spelled out from the different provisions of the A<t. There was <Ompen-
sation for the acquisition of the property. The contentions of the
petitioners had been dealt with and repelled by the said judgment of
this Court. The Court reiterated the reasoning of that judgment. [744B;
746B; 747F-H]
E
The acceptance of the petitioner's case wonld mean that the State
- would pump in Rs.-I5 crores of public money to release the shares from
its liabilities and then hand over the shares free from such liability back
to the company when the net worth of the company at the time of
take-over of management was negative, and in the teeth of the present
financial liabilities built up by the company the shares would inevitably F
have been sold in discharge of its liabilities and in any event the shares
stood charged with the very liabilities which related to the undertakings
of the company which were taken over by the Government. Therefore,
it was incorrect to say that there was no public purpose for taking over
these shares. It wonld be absurd to say that there was no compensation
paid for the acquisition. The law as declared by this Court in Doypack G
Systems·Pvt. Ltd. (supra) is binding on the petitioners and the question
was no longer res integra in view of Article 141 of the Constitution.
See the observations of this Court in M/s. Shenoy and Co. represented
by its partner Bele Srinivasa Rao Street, Bangalore, and others v. The
Commercial Tax Officer, Circle II, Bangalore and Ors., [1985] 3 SCR
659. l752C-E; 753B-C] H
740 SUPREME COURT REPORTS [1988] 3 S.C.R. -{-
In view of the preamble of the Act which states and proclaims that
A
the Act was passed to carry out the object of Article 39(b) and (c) of the
Constitution, and in view of the scheme of the Act as analysed before
the Court and as apparent from the judgment of this Court aforesaid, it
is clearly manifest that the Act was passed for a public purpose, and for
the acquisition of shares there was a public purpose. The acquisition
B subserved the object of the Act. Compensation for such acquisition has,
_.,.
been provided for. No separate compensation need be provided for in
the circumstances of the case for these shares. The factual basis for the
legal challenge made in this writ petition was incorrect in the facts of
this case. It was too late to contend that there was no compensation for ~
-
the shares or that the acquisition of the shares amounted to conf"ISCation
c or there was no public purpose in the Act. The petition was wholly
devoid of any merit. [754G-H; 755A-B] +
M/s. Doypack Systems Pvt. Ltd. v. Union of India & Ors., SLPs
(Civil) Nos. 4826 and 7045 of 1987 decided by Supreme Court on
12.2.88; The State of Bihar v. Maharajadhiraja Sir Kameshwar Singh of
D Darbhanga and Ors., [1952] SCR 839; State of West Bengal v. Union
of India, [1964] l SCR 371; Smt. Somvanti & Ors. v. The State of
Punjab and Ors., [1963] 2 SCR 774; M/s. Shenoy and Co. represented
by iti partner Bele Srinivasa Rao Street, Bangalore and Ors. v. The
Commercial Tax Officer, Circle If Bangalore and Ors., [1985] 3 SCR
659 and T. Govindraia Mudalier, etc. etc. v. The State of Tamil Nadu
E and Ors., il973] 3 SCR 222, referred to.

1988.
ORIGINAL JURISDICTION: Writ Petition (Civil) No. 305 of
-
(Under Article 32 of the Constitution of India).
F
Soli J. Sorabjee, Harish, N. Salve, Vasant Mehta, Atul Tewari
and Miss Bina Gupta for the Petitioners.

Satish Chandra, Anil B. Divan, Dr. Y.S. Chitale, P.V. Kapur,
Anil Kumar Sharma, P.P. Malhotra, Naresh Sharma, (Solicitor Gen-
G era!) T.V.S.N. Chari, Badri Nath, Ms. V. Grover, (Attorney Gen-
eral), A. Subba Rao, Miss A. Subhashini, K.J. John, S. Swarup and
Miss Naina Kapur for the Respondents.

The Judgment of the Court was delivered by

H SABYASACHI MUKHARJI, J. By the order passed by us on
A.K. NEOTIA v. U.0.1. [MUKHARJI, J.J 741

29th March, 1988, we had dismissed this petition under Article 32 of A
the Constitution. We had, further, obseried that we will indicate our
reasons by a separate judgment. We do so herein.

This petition under Article 32 of the Constitution challenges the
constitutional validity of the Swadeshi Cotton Mills Limited (Acquisi-
tion and Transfer of Undertakings) Act, 1986 (hereinafter called 'the B
Act'). It appears that there was an order made by the Central Govern-
ment under Section 18AA(l)(a) of the Industries (Development &
Regulation) Act, 1951 (hereinafter called 'the IDR Act') for taking
- over the management of the six undertakings of Swadeshi Cotton
Mills, namely, (i) Swadeshi Cotton Mills, Kanpur, (ii) Swadeshi
Cotton Mills, Pondicherry, (iii) Swadeshi Cotton Mills, Naini, (iv)
\ c
+ Swadeshi Cotton Mills, Maunath Bhanjan, (v) Udaipur Cotton Mills,
Udaipur and (vi) Rae Bareli Textile Mills, Rae Bareli for a period of
five years. There were several proceedings in the High Court of Delhi
and in other High Courts. It is not necessary in view of the judgment of
this Court in SLP (Civil) Nos. 4826 & 7045 of 1987, M/s. Doypack
Systems Pvt. Ltd. v. Union of India and others, dated 12th February, D
1988 to set out in extenso all these facts. By the aforesaid judgment it
was held that the 10,00,000 shares in Swadeshi Polytex Limited and
. 17, 18,344 shares in Swadeshi Mining and Manufacturing Company
Limited held by the Swadeshi Cotton Mills vested in the Central
Government and National Textile Corporation (hereinafter called
'NTC'), under sections 3 and 4 of the Act. It was further held that in E
view of the amplitude of the language used, the immovable properties,
namely, the Bungalow No. 1 and the Administrative Block, Civil

- Lines, Kanpur had also ¥ested in N.T.C. Directions were given by this
Court in the said judgment to enter the name of the NTC in its register
of members of the said Companies and to treat the NTC as their
shareholder instead of other erstwhile shareholders. F

This petition under Article 32 of the Constitution has been filed
by the petitioners who claim to be shareholders of respondent No. 4,
Swadeshi Cotton Mills Company Limited as they have an interest in
the business, affairs and properties of the Swadeshi Cotton Mills
Company Limited and Swadeshi Mining and Manufacturing Company G
Limited. It was contended that the effect of the aforesaid decision was ·
to take away valuable assets of respondent No. 4, namely, Swadeshi
Cotton Mills Limited without paying any compensation whatsoever
therefore and further it imposed upon respondent No. 4 liabilities
without any corresponding assets available to discharge the liabilities.
It was the contention in this writ petition that the said acquisition H
742 SUPREME COURT REPORTS [1988) 3 S.C.R.

A virtually amounted to confiscation of the shares of respondent No. 5
and respondent No. 6 held by respondent No. 4 and substantially
damaged the rights of the shareholders of respondent No. 4. In the
premises, it was submitted that they have the locus to challenge the
vires and constitutional validity of sections 3 and 4 of the said Act in so
far as these seek to divest respondent No. 4 of the shares in respondent
B No. 5 and respondent No. 6 and certain other excluded assets. It was
submitted that so far as the said Act provided for the vesting of shares
held by respondent No. 4 in respect of respondent Nos. 5 and 6 it
constituted a fraud on legislative power. It was submitted that there
was no public purpose in such acquisition. It is taxation and appr~pria
tion and not nationalisation. It was further urged that it was contrary
-
to the preamble to the Act because according to the preamble it was to
c ensure continuance of the manufacture, production and distribution of
different varieties of cloth and yam which were vital to the needs of
the country. The industrial undertaking of respondent No. 5 produces
sugar. The industrial undertaking of respondent No. 6 produces syn-
thetic fibre. Therefore, both these companies or undertakings are pro-
D ducing neither cloth nor yam. Therefore, it was submitted that in any
event, the stated public purpose has no nexus with the acquisition of
shares of respondent No. 5 and respondent No. 6 and as such, the
acquisition of the shares of respondent Nos. 5 and 6 is without there
being any public purpose. It was submitted that if the Act was so read
then it was violative of Article 14 and Article 19(1)(g) of the Constitu-
E tion. It was submitted that the acquisition must be for a public purpose
and there must be some compensation paid for that acquisition. It was
submitted that implicit in the concept of acquisition which is akin to
the power of eminent domain is the concept of payment of compensa-
tion. It was urged that after the legislative change made by the Con-
stitution (Seventh Amendment) Act, 1956, the power of the State as
-
F well as of the Union to enact any law governing acquisition of property
must necessarily be governed by the provisions of Entry 42 in List III
of the Seventh Schedule to the Constitution. After the amendment,
there was no specific Entry in List III which empowered the Union or
the States to enact law for payment of compensation, so it is now
implicit in the concept of acquisition and requisition of property. It
G was further urged that under Article 300 A of the Constitution, no
person could be deprived of his property save by the authority of law.
It was further submitted that the law contemplated by this Article was
obviously a law providing for acquisition of property and, therefore, it
was inter-linked with Entry 42 of List III of the Seventh Schedule to
the Constitution. All these contentions, in our opinion, are not tenable
H because all these contentions were directly or indirectly dealt with in
A.K. NEOTIA v. U.0.1. [MUKHARJI, J. [ 743

the aforesaid judgment. The preamble to the Act provides as follows:
A
"An Act to provide for the acquisition and transfer of cer-
tain textile undertakings of the Swadeshi Cotton Mills Co.
Ltd., with a view to securing the proper management of
such undertakings so as to sub-serve the interests of the
general public by ensuring the continued manufacture, pro- B
duction and distribution of different varieties of cloth and
yarn and thereby to give effect to the policy of the State
towards securing the principles specified in clauses (b) and
(c) of Article 39 of the Constitution and for matters con-
nected therewith or incidental thereto.

WHEREAS the Swadeshi Cotton Mills Co. Ltd. has, c
through its sis textile undertakings, been engaged in the
manufacture and production of different varieties of cloth
and yarn;

AND WHEREAS the management of the said textile D
undertakings was taken over by the Central Government
under section 18AA of the Industries (Development and
Regulation) Act, 1951;

-~·- AND WHEREAS large sums o_f money have been invested
with a view to making the said textile undertakings viable; E

AND WHEREAS further investment of very large sums of
- money is necessary for the purpose of securing the
optimum utilisation of the available facilities for the
manufacture, production and distribution of cloth and yarn
by the said textile undertakings of the Company; F

AND WHEREAS such investment is also necessary for
securing the continued employment of the workmen emp-
loyed in the said textile undertakings;

AND WHEREAS it is necessary in the public interest to G
acquire the said textile undertakings of the Swadeshi
Cotton Mills Company Ltd. to ensure that the interests of
the general public are served by the continuance by the said
undertakings of the Company of the manufacture, produc-
tion and distribution of different varieties of cloth and yarn
which are vital to the needs of the country; H
744 SUPREME COURT REPORTS [1988] 3 S.C.R.

AND WHEREAS such acquisition is for giving effect to
A
the policy of the State towards securing the principles
specified in clauses (b) and (c) of Article 39 of the
Constitution.

It is not correct that no public purpose was served by acquisition.
B The reason for the taking over had been canvassed and discussed in the
aforesaid judgment. It was observed in the aforesaid judgment as
follows:

"It appears to us that sections 3 and 4 of the Act evolve a
legislative policy and set out the parameters within which it
-
has to be implemented. We cannot find that there was any
c special intention to exclude the shares in this case as seen
from the existence of at least four other Acquisition Acts
which used identical phraseology in sections 3 and 4 and in
other sections as well. Reference was made to the Alumi-
nium Co'rporation of India Limited (Acquisition and
D Transfer of Aluminium Undertakings) Act, 1984, the
Amritsar Oil Works (Acquisition and Transfer of Under-
takings) Act, 1982, the Britannia Engineering Company
Limited (Mohameh Unit) and the Arthur Butler and
Company (Muzaffarpore) Limited (Acquisition and Trans-
fer of Undertakings) Act, 1978 and the Ganesh Flour Mills
E Company Limited (Acquisition and Transfer of Under-
takings) Act, 1984.

In the present case we are satisfied that the shares in
question were held and utilised for the benefit of the under-
-
takings for the reasons that (a) the shares in Swadeshi
F Polytex Limited were acquired from the income of the
Kanpur Unit. Reference may be made to page 23 of Com-
pilation D-111, (b) the shares held in Swadeshi Mining and
Manufacturing Company were acquired in 1955. Originally
there were four companies and their acquisition has been
explained fully in the Compilation D-III with index, (c) the
G shares held in SPL were pledged or attached for running
the Kanpur undertakings, for payment of ESI and Provi-
dent Fund dues for the workers of the Kanpur undertaking,
for wages and payment of electricity dues of the Kanpur
undertaking, (d) the shares held in SMMC were pledged
for raising monies and loans of Rs.150 lakhs from the Pun-
H jab National Bank for running the Kanpur undertaking.
A.K. NEOTIA v. U.0.1. [MUKHARJI, J.] 745

These loans fall in category II of Part I of the Schedule A
which liabilities have been taken over· by the Government,
(e) the shares held in SPL were offered for sale by SCM
from time to time and to utilise the sale proceeds thereof by
ploughing them back into the textile business for reviving
the textile undertakings acquired under the Act.
B
It appears to us that the expression "forming part of"
appearing in section 27 cannot be so read with section 4( 1)
- as would have the effect of restricting or cutting down the
scope and ambit of the vesting provisions in section 3(1).
The expression "pertaining to" does not mean "forming
part of'. Even assuming that the expression "pertaining C
to" appearing in the first limb of section 4(1) means "form-
ing part of', it would mean only such assets which have a
direct nexus with the textile mills as would fall under the
first limb of section 4(1). The shares in question would still
vest in the Central Government under the second limb of
section 4(1) of the Act since the shares were bought out of D
the income of the textile mills and were held by the com-
pany in relation to such mills. The shares would also fall in
the second limb of section 3(1) being right and title of the
company in relation to the textile mills.

On the construction of sections 3 and 4 we have come E
to the conclusion that the shares vest in the Central

- Government even if we read sections 3 and 4 in conjunction
with sections 7 and 8 of the Act on the well settled princi-
ples which we have reiterated before. The expression 'in
relation to' has been interpreted to be the words of widest
amplitude. See National Textile Corporation Ltd. and F
others v. Sitaram Mills Ltd. (supra). Section 4 appears to us
to be an expanding section. It introduces a deeming provi-
sion. Deeming provision is intended to enlarge the mean-
ing of a particular word or to include matters which
otherwise may or may not fall within the main provisions.
It is well settled that the word 'includes' is an inclusive G
definition and expands the meaning. See: The Corporation
of the City ofNagpurv. Its Employees, [1960] 2 S.C.R. 942
and · Vasudev Ramchandra She/at v. Pran/a/ Jayanand
Thakar and others, I1975] 1 S.C.R. 534. The words 'all
other rights and interests' are words of widest amplitude.
Section 4 also uses the words "ownership, possession, H
746 SUPREME COURT REPORTS [1988) 3 S.C.R.
i~:~
power or control of the Company in relation to the said
A
undertakings". The words 'pertaining to' are not restrictive
as mentioned hereinbefore."

It was further held that section 8 provides for payment of com-
pensation in lumpsum and the transfer and vesting of whatever is
B comprised in section 3. The compensation provided in section 8 is not
~
calculated as a total of the value of various individual assets. It is a
lumpsum compensation. It was· observed in the said judgment . as
follows:

"S1!ction 8 provides for payment of compensation is
lnmpsum and the transfer and vesting of whatever is com-
\ -
c prised in section 3. As section 4 expands the scope of -1-
section 3, the ·compensation mentioned in section 8 is for
the property mentioned in section 3 read with section 4.
The compensation provided in section 8 is not calculated as
a total of the value of various individual assets in the Act. It
D is a lumpsum compensation. See in the connection the
principles enunciated by this Court in Khajamian Wakf
Estates etc. v. State of Madras and another, (supra). There,
it was held that even if it was assumed that no compensa-
tion was provided for particular item, the acquisition of the
'inam' is valid. In: the instant case section 8 provides for -1. ·-
E compensation to be paid to the undertakings as a whole and ·
not separately for each of the interests of the company.
Therefore, it cannot be said that no compensation was prci-
vided for the acquisition of the undertaking as a whole." -
F
Therefore, it is incorrect to state that there was no compensation
for taking over of the shares and the reasons for providing no separate
r-
compensation have been explained in the aforesaid judgment as
follows:

"Section 7 of the Act, in our opinion; neither controls
sections 3 and 4 of the Act nor creates any ambiguity. It
G was highlighted before us and in our opinion rightly that
this sum of Rs.24.32 crores paid by way of compensation
comes out of the public exchequer. The paid-up shares in
its equity capital can necessarily have· a face value only of
the amounts so paid, irrespective of whatever may be con-
tended to be the value of the assets and irrespective of
H whether any asset or property in relation to the undertak-
A.K. NEOTIA v. U.0.1. [MUKHARJI, J.J 747

ings, was taken into account. After providing for compen-
A
sation of Rs.24.32 crores to be paid to the Commissioner
for payment to discharge Part I liabilities, Government has
to undertake an additional 15 crores at least for discharging
these liabilities. To leave a company, the net wealth of
which is negative at the time of take-over of the manage-
ment, with the shares held by it as investment in other B
company, in our opinion, is not only to defeat the princi-
. pies of Article 39(b) and (c) of the Constitution but it will
permit the company to reap the fruits of its mismanage-
ment. That would be an absurd situation. It has to be borne
--f .. in mind that the net' wealth of the company at the time of
I take-over, was negative, hence sections 3 and 4 can be
-~ meaningfully read if all the assets including the shares are
c
considered to be taken over by the acquisition. That is the
only irresistible conclusion that follows from the construc-
tion of the documents and the history of this Act. We have
to bear in mind the Preamble of the Act which expressly
recites that it was to ensure the principles enunciated in D
clauses (b) and (c) of Article 39 of the Constitution. The
Act must be so read that it further ensures such meaning
and secures the ownership and control of the material re-
sources to the community to subserve the common good to
see that the operation of the economic system does not
result in injustice. E

We therefore, reiterate that the shares vested in the
Central Government. Accordingly the shares in question
are vested in NTC and it has right over the said. 34 per cent
of the shareholdings."
F
It was found by the said judgment that the net wealth of the
company was negative and therefore, sections 3 and 4 could be mean-
ingfully read if all the assets including the shares were considered to be
taken over by the acquisition. That was the only irresistible conclusion
that followed from the construction of the documents and the history
of the Act. The Act in question was passed to ensure the principles G
I enunciated in clauses (b) and (c) of Article 39 of the Constitution. In
--\ that context, it was held that to leave a company, the net wealth of
' which was negative at the time of take-over of the management with
the shares hold by it as investment in other company, was not only to
defeat the principles of Article 39(b) and (c) of the Constitution but it
would permit the company to reap the fruits of its mismanagement. H
748 SUPREME COURT REPORTS [1988] 3 S.C.R.

A That would be an absurd situation, In this context, in our opinion, the
contentions now sought to be urged are no longer open to the
petitioners.

Shri Sorabjee drew our attention to the observations of this
Court in The State of Bihar v. Maharajadhiraja Sir Kameshwar Singh
B of Darbhanga and others, [1952] S.C.R. 889. He relied on the observa-
tions of Mahajan, J., as the learned Chief Justice then was at page 929
of the report. He said:

"Shorn of all its incidents, the simple definition of the
power to acquire compulsorily or of the term 'eminent
-
domain' is the power of the sovereign to take property for
c public use without the owner's consent. The meaning of the
power in its irreducible terms ls, (a) power to take, (b)
-+
without the owner's consent, (c) for the public use. The
concept of the public use has been inextricably related to
an appropriate exercise of the power and is considered
D essential in any statement of its meaning. Payment of
compensation, though not an essential ingredient of the
connotation of the term, is an essential elernent of the valid
exercise of such power. Courts have defined 'eminent
domain' so as to include this universal limitation as an
essential constituent of its meaning. Authority is universal
E in support of the amplified definition of 'eminent domain'
as the power of the sovereign to take property for public
use without the owner's consent upon making just
compensation.

It is clear, therefore, that the obligation for payment
F of just compensation is a necessary incident of the power of
compulsory acquisition of property, both under the
doctrine of the English Common Law as well as under the
continental doctrine of eminent domain, subsequently
adopted in America."

G He also drew our attention to the observations of Mahajan, J. at
pages 934 and 935 to the effect that the existence of a "public purpose"
is undoubtedly an implied condition of the exercise of compulsory }--
power of acquisition by the State, but the language of Article 31(2) of
the Constitution does not expressly make it a condition precedent to
acquisition. It assumes· that compulsory acquisition can be for a
H "public purpose" only, which is thus inherent in such acquisition. It
A.K. NEOTIA v. U.0.1. [MUKHARJI, J.I 749

was further observed at page 935 of the report that public purpose is an
A
essential ingredient in the very definition of the expression "eminent
domain" as given by Nichers and other constitutional writers, even
though obligation to pay compensation is not a content of the defini-
tion but has been added to it by judicial interpretation. The exercise of
the power to acquire compulsorily is conditional on the existence of a
public purpose and that being so, this condition is not an express B
provision of Article 31(2) but exists aliunde in the content of the power
itself and that in fact is the assumption upon which this clause of the
Article proceeds. ·

Our attention was drawn by Shri Sorabjee to the observations of
Chandrasekhara Aiyar, J. at pages 1008 and 1009 of the .aforesaid. C
report, where the learned Judge observed as follows:

"The payment of compensation is an essential element of
the valid exercise of the power to take. In the leading case
of Attorney-General v. De Keyser's Royal Hotel Ltd.,
I1920 I A. C. 508 Lord Dunedin spoke of the payment of D
compensation as a necessary concomitant to the taking of
property. Bowen L.J. said in London and North Western
Ry. Co. v. Evans, [1893] 1Ch.16 & 18:

The Legislature cannot fairly be supposed to intend, in the
absence of clear words showing such intention, that one E
man's property shall be confiscated for the benefit of
others, or of the public, without any compensation being
provi&d for him in respect of what is taken compulsorily
from him. Parliament in its Omnipotence can, of course,
override or disregard this ordinary principle ..... if it sees
fit to do so, but it is not likely that it will be found disre- F
garding it, without plain expressions of such a purpose."

The learned Judge further observed that this principle is em-
bodied in Article 31(2) of the Constitution. Our attention was also
drawn by Shri Sorabjee to the observations of Chandrasekhara Aiyar,
J. at pages 1018 and 1019 of the report. G

--(. Reliance was also placed on the observations of this Court in
State of West Bengal v. Union of India, [1964] l S.C.R. 371 where
Sinha, CJ at pages 433 and 434 of the report observed as follows:

"In Kavalappara Kottarathil Kochuni v. State of Madras, H
750 SUPREME COURT REPORTS I 1988] 3 S.C.R.

[1960] 3 S.C.R. 887 it was held that els. (1) and (2) of
A
Article 31 as amended grant a limited protection against
the exercise of different powers. By cl. (2) of Article 31
property is protected against compulsory acquisition or
requisition. The clause grants protection in terms of widest
amplitude against compulsory acquisition or requisition of
B property, and there is nothing in the Article which indi-
cates that the property protected is to be of individuals or
corporations. Even the expression 'person' which is used in
cl. (1) is not used in els. (2) and (2A), and the context does
not warrant the interpretation that the protection is not to
be available against acquisition of State property. Any
other construction would mean that properties of munici-
c palities or other local authorities-which would admittedly
fall within the definition of State in Part III either cannot
be acquired at all or if acquired may be taken without pay-
ment of compensation. Entry 42 in List III and cl. (2) of
Article 31, operate in the same field of legislation; the
D former enunciates the content of legislative power, and the
latter restraints upon the exercise of that power. For ascer-
taining whether an impugned piece of legislation in relation
to acquisition or requisition of property is within legislative
competence, the two provisions must be read together. The
two provisions being parts of a single legislative pattern
E relating to the exercise of the right which may for the sake
of convenience be called of eminent domain the expression
'property' in the two provisions must have the same import
in defining the extent of the power and delineating
restraints thereon. In other words Article 31(2) imposes
restrictions on the exercise of legislative power under Entry
F 42 of List III. Property vested in the State may not there-
fore be acquired under a statute enacted in exercise of
legislative power under Entry 42 unless the Statute comp-
lies with the requirements of the relevant clauses of Article
31." .

G As mentioned hereinbefore these contentions are not open to
the petitioners in the instant case. It was held by the judgment of this
Court in Mis. Doypack Systems Pvt. Ltd. (supra) that there was a .>--
public purpose. The public purpose was analysed and spelled out from
the different provisions of the Act. Secondly, there was compensation
for the acquisition of the property. Reference may be made to the
H observations of the said judgment to the following effect:
A.K. NEOTIA v. U.0.1. [MUKHARJI, J.I 751

"Shri Nariman referred us to the Statement of Objects and A
Reasons appended to the Bill and urged that it was not.
intended that the shares were included in the undertaking.
He submitted that the Statement of Objects and Rea,sons
showed that the acquisition of the undertaking had to be
resorted to since the order of taking over the management
of the company issued under section 18AA. of the IDR Act B
could not be continued any further.

The preamble to the A.ct, however, reiterated that
the Act provided for the acquisition and transfer of textile
undertakings and reiterated only the historical facts that
.the management of the textile undertakings had been taken
over by the Central Government under section 18AA of C
the IDR Act and further that large sums of money had
been invested with a . view to making the textile under-
takings viable and it was necessary to make further invest-
ments and also to acquire the said undertakings in order to
ensure that interests of general public are served by the D
continuance of the undertakings. The Act was passed to
give effect to the principles specified in clauses (b) and (c)
of Article 39 of the Constitution. In our opinion, this was
indicative of the fact that shares were intended to be taken
over.~'·
E
The contention of Shri Nariman that there was no public purpose
for acquiring these shares had been noted in the judgment at pages85
and 86 of the paper book. It read as fqllows:

''Shri Nariman further submitted that Swadeshi Polytex
Limited and Swadeshi Mining and Manufacturing F
Company .Limited were two separate undertakings distinct
from the six textile undertakings belonging to Swadeshi
Cotton Mills Company Limited. Acquisition of these
shares having controlling interests in the said two
companies was never intended and could never be said to
. b.e within the scope of the Act. The expression "i_n relation G
to the six textile undertakings" appearing in sections 3 and
4 of the Act, was an expression of limitation, according to
him, indicative of the intention of acquiring of only the
textile undertakings and no other. There existed no public
purpose, according to Shri Nariman, for acquiring these
shares. The public purposes mentioned in the Act with H
752 SUPREME COURT REPORTS I 1988] 3 S.C.R.

A reference to Article 39(b) and (c) related to the acquisition
of only the textile undertakings of Swadeshi Cotton Mills
and not acquisition of the synthetic fibre undertakings of
Swadeshi Polytex or sugar undertakings of Swadeshi Min-
ing and Manufacturing Company Limited."

B These contentions were dealt with and. repelled as mentioned in
t'ie passages set out hereinbefore. We reiterate the said reasons. It has
further to be borne in mind that the shares held in the Swadeshi
Polytex Limited themselves were the subject matter of both pledge
and attachment to secure loans from the U.P. State Government of
about Rs.66 lakhs for payment of wages to workers of the Kanpur
undertaking and Rs. 95 lakhs being electricity dues of the Kanpur
c I
undertaking owing to the U.P. State Electricity Board. From all these,
it would appear that the acceptance of the .petitioners' case, would
-t.
mean that the State would pump in Rs.15 crores of public money to
release the shares from its liabilities and thereafter hand over the
shares free from such liability back to the company when the net worth
D of the company at the time of take over of 111anagement was negative
and in the teeth of the present financial liabilities built up by the
company the shares would inevitably have been sold in discharge of its
liabilities and in any event the shares stood charged with the very
liabilities which related to the undertakings of the company which
were taken over by the Government. Therefore, it is incorrect to say
E that there was no public purpose for taking over these shares. It would
be absurd to say that there was no compensation paid for the said
acquisition. The relevant observations in the judgment dealing with
this contention have been set out hereinbefore.
-
Learned Attorney General drew our attention to tbe observa-
F tions of this Court in Smt. Somavanti and others v. The State of Punjab
and others, 11963] 2 S.C.R. 774 where at page 792 of the report, this
Court analysed tbe submissions based on the observations of this
Court in State of Bihar v. Maharajadhiraja Sir Kameswarsingh of
Darbhanga (supra) that the exercise of power to acquire compulsorily
is conditional on the existence of public purpose and that being so this
G condition is not an express provision of Article 31(2) but exists
aliunde in the content of the power itself. That, however, was not the
view of the other learned Judges who constituted the Bench. Accord-
in~ to Mukherjea, J. as the learned Chief Justice then was, the condi-
tion of the existenc of a public purpose is implied in Article 31(2). Se,
the observations in Maharajadhiraja Sir Kameswarsingh's case at
H pages 957 and 958. Das, J. as the learned Chief Justice then was, was
A.K. NEOTIA v. U.O.I. [MUKHARJI, J.[ 753

also of the same view. See the observations in the aforesaid decision at
A
pages 986 and 988. Similarly, Patanjali Sastri C.J. had also taken the
view that the existence of public purpose is an express condition of
clause (2) of Article 31. This Court reiterated in Somavanti' s case
(supra) at page 792 of the report that the Constitution permitted
acquisition by the State of private property only if it is required for a
public purpose. B

Furthermore, we are of the opinion that the law as declared by
this Court in Doypack Systems Pvt. Ltd. is binding on the petitioners

- and this question is no longer res integra in view of Article 141 of the·
Constitution. See the observations of this Court in M/s. Shenoy and
Co. represented by its partner Bele Srinivasa Rao Street, Bangalore end
others v. The Commercial Tax Officer, Circle II Bangalore and others,
c
11985] 3 S.C.R. 659 where this Court observed that the judgment of
this Court in Hansa Corporations' case reported in (19811 S.C.R. 823
is binding on all concerned whether they were parties to the.judgment
or.not. This Court further observed that to contend that the conclusion
therein applied only to the parties before this Court was to destroy the D
efficacy and integrity of the judgment and to make the mandate to
Article 141 illusory.

In that view of the matter this question is no longer open for
agitation by the petitioners. It is also no longer open to the petitioners
to contend that certain points had not been urged and the effect of the E
judgment cannot be collaterally challenged. See in this connection the
observations of this Court in T. Govindaraja Mudaliar etc. etc. v. The

- State of Tamil Nadu and others, 11973) 3 S.C.R. 222 where this Court
at pages 229 and 230 of the report observed as follows:

'Th.e argument of the appellants is .that prior to the decision F
in Rustom Cayasjee Cooper's case it was not possible to
challenge Chapter IV-A .of the Act owing to .the the deci-
sion of this Court that Art. 19(1)(f) could not be invoked
when a case fell within Art. 31 and that was the reason why
this Court in all the previous decisions relating to the vali-
dity of Chapter IV-A proceeded on an examination of the G
argument whether there was infringement of Art. 19(1)(g),
and clause (f) of that Article could not possibly be invoked.
We are unable to hold that there is much substance in this
argument. Bhanji, Munji and other decisions which
followed it were based mainly on an examination of the
inter-relationship between Article 19(1)(g) and Article H
I

754 SUPREME COURT REPORTS I19881 3 S.C.R.

3 i(2). There is no question of any acquisition or requisition
A
in Chapter IV-A of the Act. The relevant decision for the
purpose of these cases was only the one given in Kochuni's
case after which no doubt was left that the authority of law
seeking to deprive a person of his property otherwise than
by way of acquisition or requisition was open to challenge
B on the ground that it constituted infringement of the funda-
mental rights guaranteed by Art. 19(l)(f). It was, there- Ji..
fore, open to those affected by the provisions of Chapter
IV-A to have agitated before this Court the question which
is being raised now based on the guarantee embodied in
Art. !9(l)(f) which was never done. It is apparently too
late in the day now to pursue this line of argument, in this
~-
- "t
c connection we may refer to the observations of this Court ;
in Mohd. Ayub Khan v. Commissioner of Police Madras & ~
Another, I 1965] 2 S.C.R. 884 according to which even if
certain aspects of a question were not brought to the notice
of the court it would decline to enter upon re-examination
D of the question since the decision had been followed in
other cases. In Smt. Somavami & others v. The State of
Punjab and others, 11963] 2 S.C.R. 774 a contention was
raised that in none of the decisions the argument advanced
in that case that a law may be protected from an attack
under Article 31(2) but it would be still open to· challenge
E under Article J9(J)(f), had been examined or considered. -1, •.
Therefore, the decision of the Court was invited in the light
of that argument. This contention, however, was repelled
by the following observations at page 794:

'The binding effect of a decision does not depend upon
F whether a particular argument was considered therein or
not, provided that the point with reference to which an
argument was subsequently advanced was actually
decided."

In view of the preamble to the Act which states and proclaims
G that the Act was passed to carry out the object of Article 39(b) and (c)
of the Constitution and in view of the scheme of the Act as analysed
before us and as also apparent from the aforesaid judgment, it is
clearly manifest that the Act in question was passed for a public
purpose and for the acquisition of shares there was a public purpose.
The acquisition subserved the object of the Act. The compensation in
H the manner indicated above and in the manner indicated in the
A.K. NEOTIA v. U.0.l. [MUKHARJI, J.) 755

\..~:~-aforesaid judgment for such •acquisition have been provided .for. No A
separate compensation need be provided in the circumstances of the
case for these shares. The factual basis for the legal challenge made in
this writ petition was, therefore, incorrect in the facts of this case.It is
apparently too late in the day to contend that there was no compensa-
tion for the shares or that the acquisition of the shares ·amounted to
B
confiscation or there was no public purpose in the Act. The petition, in
). our opinion, is wholly devoid of any merit ..

- .-J._
For these reasons,· this writ petition . .fails and is accordingly
, dismissed. · · ·

J S.L. Petiticiri dismissed. c

·---{·