Holding

The Act is constitutionally valid, has a real nexus to Article 39(b), and is protected by Article 31C, rendering challenges based on illusory compensation or violation of Articles 14, 19 and 31 untenable.

Summary

Assam Sillimanite Ltd., a public company that owned a refractory plant, challenged the Assam Sillimanite Ltd. (Acquisition & Transfer of Refractory Plant) Act, 1976 which vested the plant in the Central Government and fixed a payment of Rs 1,07,17,000. The company argued that the amount was illusory, arbitrary and violated Articles 14, 19(1)(f) and 31, and that the Act did not truly implement the policy of Article 39(b) and therefore could not claim protection under Article 31C. The Supreme Court held that the Act was enacted to augment refractory supplies for the iron‑and‑steel industry, a material resource of the community, and thus had a real and rational nexus to the State policy under Article 39(b). Consequently, the Act fell within the shield of Article 31C, and challenges based on illusory compensation or violation of fundamental rights were barred. The appeal was dismissed.

Issues considered

The amount fixed under the Act is illusory, arbitrary or not in accordance with Article 31(2) as amended by the Twenty‑fifth Amendment.
Whether the Act has a genuine nexus to the policy of the State under Article 39(b) and therefore enjoys protection under Article 31C.
Whether the declaration in Section 30 of the Act can be ignored if the law does not truly further the Directive Principle.
Whether the amendment of Article 31(2) removing the word ‘compensation’ limits judicial review of the amount fixed.

Legislation cited

Subjects

constitutional validityacquisition of propertyArticle 31CArticle 39(b)illusory compensationdirective principles of state policyjudicial reviewpublic purposefundamental rights

Judgment

ASSAM SILLIMANITE LIMITED AND ANR. A
v.
UNION OF INDIA AND ORS.

DECEMBER 10, 1991

[KULDIP SINGH AND M. FATHIMA BEEVI, JJ.) B

The Assam Si/limanite Ltd. (Acquisition & Transfer ofRefractory Plant)
Act, 1976--0bject,purpose and legislative intent of-Whether governed under
the Constitution of India after the Twenty fifth Amendment and prior to the
Fourty-Second and Fourtyfourth Amendments.
c
Constitution of India, 1950:

- ~
Articles 31, 31C, 39(b)(c), 14 and 19-The Assam Sillimanite Ltd. (Ac-
quisition & Transfer of Refractory Plant) Act, 1976-Enactment to implement
directions in Article 39 (b) and (c) of the Constitution-Constitutional validity
. . D
Constitution of India, 1950-Articles 31, 31C, 39 (b)(c), 14 and 19-
lnvalidating a law in Article 31(2)-Court' s power-Scope of when Article
31C attracts, Court's interference-Scope of

Constitution ofIndia, 1950-Articles 31, 31C, 39(b)(c}-Judicial review E
of Court-Scope and limit of-Nexus between an enactment and the policy of
State declared in Article 39(b)(c}-Test of.

Constitution of India, 1950-Article 39(b)(c}-The Assam Sillimanite
Ltd. (Acquisition & Transfer of Refractory Plant) Act, 1976-Enacted under- F
Plant and manufactured refractories whether constitute material resources of
communitrWhether there is nexus between the objective of the Act and the
policy of State contained in Article 39(b)(c).

Constitution of India, 1950-Article 31C-When auracted, effect of.
G
Constitution of India, 1950-Chapter IV~irective Principles-Pur-
pose of.

The appellant-company, a public .limited company-was carrying
on mining business and export of Natural Khasi Sillimanite. It established
a Refractory Plant for manufacturing sillimanite corrundum. and other H

273
274 SUPREME COURT REPORTS [1991) SUPP. 3 S. C. R.

A connected minerals, as per the lease deed 'dated 10.4.1963 by investing
initially Rs. 1.75 crores.

Though in 1964 the plant was started its operation it was closed
down in July 1972.

B With effect from 1.11.1972, under section l8A of the Industries (De-
velopment & Regulation) Act, the Central Government-Respondent took
over the plant for a .period or three years. Later it. was extended for
another period of one year.
~··-

Under the Assam Sillimanite Ltd. (Acquisition & Transfer of Re-
C fractory plant) Act, 1976, the Government acquired the Plant.
The appellant-company challenged the Constitutional validity of the
a
Act in Writ Petition before· the High Court.

A Division Bench of the High Court dismissed the writ petition,
D applying the ratio or the decision in Kesavananda Bharati' s case, (1973)
Suppl. SCR 1 and holding that the object of the Act had a nexus to the
policy underlying Article 39(b) or the Constitution and the Act was
protected by Article 31C of the Constitution.

In this appeal by special leave, the appellant-company challenged
E the High Court's judgment contending that the High Court did not apply
the ratio of the decision in Kesavananda Bharati' s. case; that if the amount
given in lieu or acquisition of property was illusory, arbitrary or could not
be reg•ded as compensation, ·that the amount fixed in the case was
illusory, as after paying the liabilities, the appellant would not only get
nothing but would continue to be under liabilities; that the determination
F
of the amount was based on no norms; that a manufacturing plant could
not be said to be a material resource; that the appellant's fundamental
rights guaranteed under Articles 14, 19 (l)(f) and 31 of the Constitution
were violated by the Act, as it made discr~~ination between persons
similarly situated and it deprived the appellant'Or the property without the
G authority of a valid law and the Act was passed without following the
provisions or Article 31; and that the protection of Article 31C was not
available to the Act as it did not further the directive Principles in Article
39(b) or (c).

Dismissing the appeal, this Court,
H
ASSAM SILLIMANTI'E v. U.OJ. . 275

HELD: 1.01. The Act provides for the acquisition and transfer or the A
right, title and interest of the Assam Sillimanite Limited in respect or its
Refractory Plant and for a matters connected therewith or incidental
thereto. (278 G-H]

1.02. Articles 19(1)(1) and 31 guaranteeing right to property had
been deleted from the Chapter of Fundamental Rights by the Constitution B
(Fourty-Fourth Amendment) Act, 1978 and a new provis,on, Article 300A
had been inserted. Since the deletion of Article 31(2) by the Fortyfourth
A.mendment Act is not retrospect~ve, the validity of any law made prior to
20.8.1979 shall be open to challenge on the ground of violation of Articles
19(1)(1) and 31(2). Clause (2) of Article 31 was substituted by the Consti-
tution (Twenty-fifth Amendment) Act, 1971 with effect from 20.4.1972. C
Article 31C was also inserted under the same amendment. The Act is
governed by the provisions of the Constitution as they stood after the
Twentyfifth Amendment and prior to the Forty second and Forty fourth
Amendment Acts. [284G-285B]

·2.01. The Act is declared to have been enacted for giving effect to the D
policy of the State towards securing principles specified in clause (b) of
Article 39. The Preamble o( the Act refers to the necessity to augment the
supply of refractories to meet the essential requirements or the iron and
steel industry. It further states that special type of refractories including
high alumina refractories needed by the iron and steel industry may be
manufactured at. the Refractory Plant and such manufacture will enable E
the country to progressively reduce the import or such special type of
refractories. The Ac~ purports to have been enacted for acquiring the
plant for the purpose of augmenting the supplies of refractories to meet
the essential requirements of the iron and steel industry. (290 D-FJ
2.02. The plant as well as the manufactured refractories constitute F
material resources of the community and the take over or the plant to
augment the supplies of refractories to meet the essential requirements of
the iron and steel industry in public interest ensures distribution as best
to subserve the common good. The Act which is intended to augment the
production and supply of refractories to meet the essential requirements
of the crucial iron and steel industry is a measure towards implementation G
or the policy contained in Clause (b) of' Article. 39. There is, therefore,
direct and rational nexus between the objective of the enactment and the
principles contained in that Article. The Act in this view is entitled to the
.
.protection under Article 31C. (290. F-HJ
.

J.01, Article J1(2) by virtue of the Comtitution (fwenty·fJfth) Amend· H
276 SUPREME COURT REPORTS· [1991] SUPP. 3 S. C.R.

A ment bas knocked down the word 'compensation' and bas substituted the
word 'am.ount' which gives ample discretion to the State to fix a reason·
able amount if the property of an individual is taken over for public
purpose. As a result of the amendment, it is now clear that the quantum
of compensation provided by the law of acquisition cannot be subjected to
judicial review on the ground that it is lower than the value of the property
B or that the potential value of the property bas not been included. It can no
longer be contended that the very word, 'compensation' as it existed in the
original clause obliged the State to pay full and fair equivalent of the
property taken. (287 B·C]

3.02. Though the Court has ilo power to invalidate a law described
C in Article 31(2) on the ground that the amount fixed or determined for
compulsory acquisition is not adequate, such a law can be questioned if
the amount f"axed is illusory or the principles stated for determining the
amount are wholly irrelevant for fixing or if the power of compulsory
acquisition is exercised for a collateral purpose or the law offends other
principles of Constitution or the law is in the nature of a fraud on the
D Constitution. (287 Fl

3.03. In a case, where Article 31C is attracted, the Court cannot
interfere even if no compensation has been provided or what has been
provided for, is illusory. When Article JlC is attracted, the challenge, on
the basis of the alleged illusory nature of the amount does not survive at
E all. The purpose of Article 31C is, amongst others, to exclude Article 31,
as it then stood. Article 31 C was inserted by the Constitution (Twentyfifth)
Amendment Act, 1971 with the object of getting over the difficulties placed
in the way of giving effect to the Directive Principles in Part IV by judicial
decisions. As it originally stood, it shielded from any challenge, law
F enacted for implementing the diredives in clauses (b) and (c) of Article 39
on the ground of violation of Articles 14, 19 and 31. [287G-288A]

4.01. Notwithstanding the declaration of the Legislature that any
particular Act has been made to implement the directives specified in
Article 39, it would be open to the Court to ignore such declaration and to
G examine the constitutionality of the same. The declaration cannot be relied
on as a cloak to protect the law bearing no relationship with the objectives
mentioned in Article 39. (288 BJ.

4.02 The declaration in Article 31C does not exclude the jurisdiction
of the Court to'determine whether the law is for giving effect to the poli~y
H of the State towards securing the principles specified in Article 39(b)(c). If
ASSAM SILLIMANITE v. U.0.1. 277

a law passed ostensibly to give effect to the policy of the State is, in pith and A
substance, one for accomplishing an unauthorised object, the Court would
be entitled to tear the veil created by the ~eclaration and decide according
to the real nature of the law. [288 D,E]

4.03. It is, therefore, necessary notwithstanding the declaration
contained in section 30 of the Act, to consider whether there is a nexus B
between the Act and the policy of the State declared in Article 39(b) or (c).
The test to determine whether the law is enacted for giving effect to a
directive is to determine whether there is real and rational connection
between the law and the Directive Principle. [288 G]

'5.01. The State under clause (b) of Article 39 is required to direct its c
policy towards securing that the ownership and the control of material re-
sources of the community are so distributed as best to subserve the
common good. The purpose sought to be achieved by the enactment is the
augmentation of the supplies of refractories to meet the essential require-
ments of the iron and .steel industry. Iron and steel industry is crucial in
the developmental process. With the expansion of iron and steel industries, D
the requirement of the necessary ingredients are bound to grow and the
plants for manufacture of such ingredients have necessarily to be har-
nessed to meet such requirements. [288H-289B]

5.02. All things which are capable of producing wealth for the com-
munity would be material resources. The conservation of the essential E
ingredients necessary for the crucial iron and steel industry by'natinalisa-
tion is only in implementation of the policy declared in clause (b) of Article
39. [290 BJ

6. When Article 31C is attracted, the argument in regard to the
F
alleged iJlusory nature of the amount does not survive at all for considera-
tion. If once the conditions mentioned in Article 31C are fulfilled by the
law, no question of compensation arises because the said Article expressly
excludes not only Articles 14 and 19 but also 31. When Article 31C comes
in, Article 31 goes out. [291 BJ
G
Kesavananda Bharati v. State of Kera/a, (1973] Supp. SCRl; State of
Kamataka v. Ranganatha Reddy, (1977) 4 SCC 471; Waman Rao v. Union of
India, AIR 1981 SC 271; Sanjeev Coke Manufacturing Company v. Bharat
Cooking Coil Ltd., [1983) 1SCC147; State of Tamil Nadu v.Abu Kavur Bai,
[1984] 1 SCl; 515; Tinsukia Electric Supply Company Ltd. v. State of Assam,
(1989] 3 SCC 709; Bhim Singhji v. Union of India, AIR 1981 SC .234, H
referred to.
278 SUPREME COURT REPORTS [1991] SUPP. 3 S. C.R.

A 7. The purpose of the Directive Principles is to fix certain social and
economic goals for immediate attainment by bringing about a non-violent
social revolution. Through such a social revolution the Constitution seeks
to fulfil the basic needs of the common man and to change the structure
of our society. It aims at making the Indian masses free in the positive
sense and to achieve the welfare State contemplated. (284 F-G]
B
CIVIl.. APPELLA1E JURISDICTION: Civil Appeal No. 408of1978.

From the Judgement and Order dated 29 .11.1976 of the Delhi High Court
in Civil Writ Petition No. 1283 to 1972.

C P.C. Jain, Ms. Indu Goswamy, Ranbir Chandran and P. Mitra for the
Appellants.

K. Lahiri, A.K. Ganguli, Mrs. Indra Sawhney, S.K.N. Terdal, C.V.S. ·
Rao, R.P. Singh, S. Ahuja, T.V.S.N. Chari, S.K. Mehta, Dhruv Mehta, Aman
Vachhar, V.N. Ganpule and M.P. Jha for the Respondents.
D
The Judgment of the Court was delivered by

FATHIMA BEEVI, J. Assam Sillimanite Limited is a public limited
company mainly carrying on the business of mining and export of Natural
E Khasi Sillimanite. The Company in pursuance to the condition in the lease deed
dated 10.4.1963 established a Refractory Plant for manufacturing sillimanite
corrundum and other associate minerals at Ramgarh in the State of Bihar. The
initial investment was Rs. 1.75 crores. The Refractory Plant went into opera-
tion in the year 1964 and was closed down in July 1972.

1 F The Undertaking was taken over by the Central Government under
Section 18A of the Industries (Development & Regulation) Act for a period of
three years which was extended for a further period of one year with effect
from 1.11.1972. Later, by the Assam Sillimanite Limited (Acquisition &
Transfer of Refractory Plant) Act, 1976 (in short 'the Act'), the plant was
acquireg ~Y the Government. The Act received assent of the President on
G February 11, 1976.

The Act provides for the acquisition and transfer of the right, title and
interest of the Assam Sillimanite Limited in respect of its Refractory Plant and
for matters ::onnected therewith or incidental thereto. The Preamble of the Act
reads:-
H
•

ASSAM SILLIMANITE v. U.0.1. [FATHIMA BEEVI, J.] 279

"WHEREAS it is urgently necessary to augment the supplies A
of refractories to meet the essential requirements of the iron and
steel industry;

········•·······························································································
AND WHEREAS special type of refractories, including high
alumina refractories, needed by the iron and steel industry may be
manufactured at the Refractory Plant of the Assam Sillimanite .
B
Limited and such manufacture will enable the country to progres-
sively reduce the import of such special type of refractories;

AND WHEREAS for the purpose of augmenting the sup-
plies of refractories to meet the essential requirements of the iron
c
and steel industry, it is necessary to acquire the right. title and
interest of the Assam Sillimanite Limited in respect of its Refrac-
tory Plant;
Be it enacted by Parliament in the Twenty-sixth year of the
Republic of India' as follows." ·
D

Sections 3, 9 and 10 relevant for the purpose of the present case are as
follows:-
"3. Refractory Plant to vest in the Central Government-On the
appointed day, the Refractory Plant shall, by virtue of this Act, E •
stand transferred to, and the right, title and interest of the company
in relation to its Refractory Plant shall vest absolutely in, the
Central Government."
"9. Amount to be paid for transfer and vesting of Refractory
Plant-(1) The Company shall be given by the Central Govern-
ment in cash and in the manner specified in Chapter VI, an amount F
of one~rore seven lakhs and seventeen thousand rupees for the
transfer to, and vesting in it, under section 3 of the Refractory
Plant.
(2) The amount payable under sub-section (1) shall carry simple
interest at the rate of four per cent per annum for the period G
commencing on the appointed day and ending on the date on which
payment of such amount is made by the Central Government to the
Commissioner.
(3) For the removal of doubts, it is hereby declared that the
liabilities of the Company in relation to the Refractory Plant, other H
280 SUPREME COURT REPORTS [1991] SUPP. 3 S. C.R.

A than those referred to in sub-~tion (2) of section 8, shall be met
from the amount.referred tO in sub-section (1), in accordance with
the rights and interests of the creditors of the Company."

"10. Payment of other amount.-(!) In addition to the amounts
specified in section 9, there shall also be given to the Company, in
B cash, by the Central Government an amount computed at the rate
of rupees two thousand· and five hundred per mensem for the
deprivation of the Company of the management of its Refractory
Plant during the period commencing on the 2nd day of Novem~r.
1972, and ending on the appointed day.

c (2) In addition to the amount referred to in sub-section (1), there
shall be given by the Central Government, in cash, to the company,
simple interest at the rate of four per cent per annum on the amount
computed at the rate specified in sub-section (1), for the :Period
commencing on the appointed day and ending on the date on which
payment of such amount is made by the Central Government to the
D Commissioner."

Section 30 contains the declaration as to the policy of the State thus:-

"30. Declaration as to the policy of the State-It is hereby declared
that this Act is for giving effect to the policy of the State towards
E securing the principles specified in clause (b) of Article 39 of the
Constitution."

The constitutional validity of the Act was challenged by the Assam
Sillimanite Coinp~y Limited for short ('the company') in a writ petition filed
before the Delhi High Court. By the impugned judgment dated 29.11.1976, a
F
Division Bench of the High Court dismissed the writ petition. This appeal by
special leave is directed against the aforesaid judgment (reported in A.I.R.
1977 Delhi 193).

. Before the High Court, the appellant challenged the validity of the Act
G mainly on there grounds :

(a) The Central Government could not pass an order under section
18A of the Act witho.ut furnishing of the materials collected
against the Company and affording them an opportunity to explain
the circumstances sought to be relied upon against the Company. ·
.H The action is mala fide inasmuch as for the same plant the
ASSAM SILLIMANITE v. U.0.1. [FATHIMA BEEVI, J.] 281

Government has been negotiating with the Company to purchase A
for the benefit of Bokoro Steels· Limited and Hindustan Steels ·
·Limited.

(b) The acquisition of plant under the Act is ma/a fide and is nothing
but colourable exercise of jurisdiction. The Act has been paised
, when the matter relating to taking over of the management was B
subjudice.

(c) The amount of price payable under the Act is only illusory._The
respondents have not· taken into consideration the assets and
liabilities of the plant while fixing the amount of compensation.
The company had ploughed all the resources in the Plant and will c
never be able to clear its liabilities incurred for the setting up of the
plant which was put as a condition attached to the mining lease for
sillimanite and the lease has also been prematurely and illegally
terminated.

(d) The fixation or the determination of the amou~t is based on no D
norm or principle relevant for the purpose of arriving at the amount
payable or in respect of the property acquired or requisitioned. The
amount so fixed has no reasonable relationship with the value of
the property. The amount has been fixed arbitrarily and, as stated,
_is illusory. The amount so fixed.is a fraud on the power, denying
the petitioner his fundamental right under Article 31(2) of the Con- E
stitution.

The appellant prayed for a writ in the nature of certiorari quashing the
Act and a writ in the nature of mandamus directing the respondents to reflex
> the amount of price payable taking into consideration the assests and liabilities, F
potentialities and the present market value.

The High Court formulated the following. two questions for considera-
tion: .J •
*
1. Whether the amount of Rs. 1,07,17,000 which is rrtade payable to G
the company by the Central Government under section 9 of the Act
and the other amounts payable under section 10 of the Act is
arbitrary, unreasonable and illusory and violating Article 31(2) of
the Constitution as it stands after the Constitution (Twentyfifth)
Amendment) Act, 1971? ·
H
282 SUPREME cOURT REPORTS [1991) SUPP. 3 S. C. R.

A 2. Whether its constitutionality is not immune from attack in view of
Article 31C because in reality it does not give effect to the policy
of the State towards securing the principles specified in clause (b)
of Article. 39 despite the declaration to that effect contained in
section 30 of the Act?
B Applying the ratio of the majority judgment in Kesavananda Bharati v.
State of Kera/a, [1973] Supp. SCR l, that a law can be challenged as being
contrary to Article 31(2) of the Constitution only if the amount payable under
it is illusory and that the amount should bear some relation to the value of the
property acquired though the relationship need not be reasonable, the High
Court embarked upon the issue whether the amount fixed in· the Act is not
C illusory but also has a reasonable relationship to the value of the property and
is not unreasonable. The High Court said:
"In our view, the amount can be said to be inadequate or small but
it cannot be said that it has no relationship to the value of the
property acquired. It cannot, therefore, be said to be illusory in the
sense in which the word 'illusion' is defined in the Concise Oxford
D Dictionary or in the sense in which the word 'amount' has been
used by Chandrachud, J. The attack on the Constitutionality of the
impugned law on the ground that it contravenes the concept of
'amount' in Article 31(2) of the Constitution, therefore, fails."
On the question whether the Act implemented the policy of Article 39(b)
E and is, therefore, protected by Article 31 C, the High Court held that the object
of the impugned legislation has a nexus to the policy underlying Article 39(b)
and the Act is protected by Article 31C from attack on the ground that it
violates Article 31(2).
In interpreting the key words of Article 39(b) "the material resources of
F the community ......distributed", the High Court said: ·•
"There is no reason why the material resources should include only
the minerals but not the capital equipment by which raw-materials
are turned into industrial products or even the industrial products
themselves particularly if they are capital goods.........
G The words 'material resources' in our view have the same meaning
as the word 'wealth' in this context They both denote the total
non-human resources or the wealth of the country. On this view,
the Refractory Plant would be included in the phrase· 'material
resources'
H
ASSAM SILLIMANITE v. U.0.1. [FATHIMA BEEVI, J.] 283

In our view, lll~ distribution here does not mean partitioning the A
property intQ various shares. What it means is that instead of being
held by a company or a few individuals it should be held by the
people as a whole so that the ownership and control is not held by
a few but is held by the community as a whole; The distribution of
the resources would then be more broadly based. In short, the
vesting of such resources in the community leads to more eco- B
nomic equality because the resources would then be controlled and
owned by the State or the community on behalf of the people as a
whole rather than by some individ~als."
With this perspective the Court concluded:
"There cannot be any doubt that according to Art. 39(b), common C
good would be better served when the resources are owned and/or
controlled by the community rather than when they are owned and
controlled by a few individuals. This is more so when the manage-
ment of these resources was regarded as bad by the Central
Government
D

Since the object of the impugned legislation has a nexus to the
policy underlying Art. 39(b), the impugned legislation is protected
by Article 31 C from attack on the ground that it violates Art. 31 (2).
The declaration made in S. 30 of the legislation, therefore, rings E
true."
The judgment of the High Court is challenged before us contending that
the ratio of the decision in Kesavananda Bharati' s case (supra) has not been
properly appreciated or applied by the High Court. According to the appellant,
if the amount given in lieu of acquisition of property is illusory, arbitrary or F
cannot be regarded as compensation and bears no relationship with the
property acquired, the court could still strike down the law. On the facts in the
present case, it is contended that the amount fixed is only illusory as after
paying the labilities the appellant will not only get nothing but would continue
to be under liabilities and the fixation or determination of the amount is based
on no norms or principles relevant. The appellant stated that a manufacturing G
plant cannot be said to be a material resource. The further contention is that the
provisions of the Act are violative of the appellant's fundamental right
guaranteed under Articles 14, 19(1)(f) and 31 of the Constitution, the Act
makes hostile discrimination between persons similarly situated, it deprives the
appellant of their property without the authority of a valid law ana has been
passed without following the provisions of Article 31 of the Constitution. They . H
284 SUPREME COURT REPORTS [1991] SUPP. 3 S. C.R.

A · stated that the Act is confiscatory in nature and formal compliance with the
conditions under Article 31(2) is not sufficient to negative the protection of the
guarantees contained in Articles 14 and 19(l)(f). The law spoken to in Article
31 (2) has to be a valid law which is within the competence of the legislature
and does not impair the guarantee of other fundamental rights contained in Part
III of the Constitution.
B
Shri P.C. Jain, learned counsel for the appellants~ elaborated his argu-
ments on the question whether the Act can claim protection under Article 31C
of the Constitution. The counsel highlighted. the submission that in the
circumstances of the case, the protection of Article 31 C is not available to the
impugned legislation as it does not actually further the Directive Principles in
C Article 39(b) or (e) but, on the other hand, pi"oduces results contrary to them.
Merely because Section 30 of the impugned Act contains a declaration that it
is for giving effect to the policy of the State towards securing the principles
specified in Article 39(b) of the Constitution, the Act would not be sheltered
under the umbrella of Article 31C, it is maintained.

D Article 39(b) in Part IV of the Constitution declares the policy to be
followed by the State thus:

"39. The State shall, in particular, direct its policy towards secur-
ing-
E (a) ............................ .

(b) that the ownership and control of the material resources of the
community are 8o ·distributed as best to subserve the common
good;"
F
The purpose of the ·Directive Principles is to fix certain social and
economic goals for immediate attainment by bringing about a non-violent
social revolution. Through such a social revolution the Constituuon seeks to
fulfil the basic needs of the common man and to change the "structure of our
society. It aims at making the Indian masses free in the positive sense and to
G achieve the Welfare State contemplated.

Articles 19(1)(f) and 31 guaranteeing right to property had been deleted
from the Chapter of Fundamental Rights by the Constitution (Fourty fourth
Amendment) Act, 1978 and a new provision Article 300A had been iriserted.
Since the deletion of Article 31(2) by the Fortyfourth Amendment Act is not
H retrospective, the validity of any law made prior to 20.8.1979 shall be open to
ASSAM SILLIMANITE v. U.0.1. [FATHIMA BEEVI, J.] 285

challenge on the ground of violation of Articles 19(1)(t) and 31(2). Clause (2) A
of Article 31 was substituted by the Constitution {Twenty-fifth) Amendment
Act. 1971 with effect from 20.4.1972. Article 31C was also inserted under the
same amendment. The impugned Act is, therefore, governed by the provisions
of the Constitution as they stood after the Twentyfifth Amendment and prior
; to Forty-second and Fortyfourth Amendment Acts.
B
Article 31(1) provided that no person shall be deprived of his property
save by authority of law. Amended clause (2) of Article 31 provided thus:

"31(2). No property shall be compulsorily acquired or requisi-
tioned save for a public purpose and save by authority of a law
which provides for acquisition or requisitioning of the property for C
an amount which may be fixed by such law or which may be
determined in accordance with such principles and given in such
manner as may be specified in such law; and no such law shall be
called in question in any court on the ground that the amount so
fixed or determined is not adequate or that the whole or any part
of such amount is to be given otherwise than in cash; D

Article 31C introduced by the Constitution (Twentyfifth) Amendment
Act reads:·
E
"31 C. Saving oflaws giving effect to certain directive principles.-
Notwithstanding anything contained in Article 13, no law giving
effect to the policy of the State towards securing the principles
specified in clause (b) or clause (c) of Article 39 shall be deemed
to be void on the ground that it is inconsistent with, or takes away
or abridges any of the rights conferred by Article 14, Article 19 of F
Article 31 and no law containing a declaration that it is for giving
effect to such policy shall be called in question in any court on the
ground that it does not give effect to such policy:
Provided that where such law is made by the Legislature of a State
the provisions of this Article shall not apply thereto unless such G
law, having been reserved for the consideration of me President,
has received his assent"
The question whether the substitution of the word 'amount' had with-
drawn from Article 31(2), the element of compensation for expropriation
altogether and the scope for judicial review relating thereto was considered in
H

\
286 SUPREME COURT REPORTS [1991) SUPP. 3 S. C.R.

A· Kesavanada Bharti (supra). The majority agreed that the word 'amount'
indicated that the law must provide for the payment of some amount in lieu of
the expropriation. The Court could still invalidate the law as unconstitutional
if it provided no amount or some amount which was illusory. The view of
Chandrachud, J. (as he then was) which prevailed as the majority opinion is
this:
B
''The substitution of the neutral expression "amount" for "compen-
sation" still binds the Legislature to give to the owner a sum of
money in cash or otherwise .......................... There is, however,
intrinsic evidence in Article 31(2) that it does not empower the
State to confiscate or expropriate property. The obligation to pay
c an "amount" does not cannote the power not to pay any amount at
all. .............•...........mean that the amount fixed or determined to be
paid cannot be illusory. The amount fixed for being paid to the
owner is wholly beyond that pale of challenge that it is inadequate .
.................... The Principles evolved for determining the amount
cannot be questioned on the ground that by application of those
D principles the amount determined to be paid is inadequate, in the
sense that it bears no reasonable relationship with the market value
of the property. Thus the question whether the amount or the
principles are within the permissible constitutional limits must be
detennined without regard to the consideration whether they bear
a reasonable relationship with the market value of the
E property........................................................................................... .
But to say that the amount does not bear reasonable relationship
with the market value is a different thing from saying that it bears
no relationship at all. None whatsoever. In the latter case, the
payment becomes illusory and may come within the ambit of
permissible challenge."
F
The amended clause (2) of Article 31 was thus upheld limiting the ambit
of judicial review to the illusory nature of-the amount fixed and the arbitrari-
ness of the principle laid down for determination of the amount
In State of Karnataka v. Ranganatha Reddy, (1977] 4 SCC 471, on a
G review of Kesavananda Bharti case, the majority of the Judges concluded that
the inadequacy of the amount cannot be a ground for challenge of the
constitutionality of the law under Article 31(2), but the Court could still strike
down a law of acquisition or regulation if it provided for something which was '-
arbitrary or illusory. The proposition that the compensation fixed by the law is
not justifiabie on the ground of its inadequacy has been affirmed in the
H subsequent decisions vide Waman Rao v. Union of India, AIR 1981 SC 271;
ASSAM SILLIMANITE v. U.0.1. [FATHIMA BEEVI, J.] 287

Sanjeev Coke Manufacturing Company v. Bharat Coking Coal Ltd., [1983] 1 A
SCC 147; State of Tamil Nadu v. Abu Kavur Bai, [1984] 1 SCC 515 and.
Tinsukhia Electric Supply Company Ltd., v. State ofAssam, [1989] 3 SCC 709.

Article 31(2) by virtue of the Constitution (Twentyfifth) Amendment has
knocked down the word 'compensation' and has substituted the word 'amount'
which gives ample discretion to the State to fix a reasonable amount if the B
property of an individual is taken over for public purpose. As a result of the
amendment, it is now clear that the quantum of compensation provided by the
law of acquisition cannot be subjected to judicial review on the ground that it
~ • is lower than the value of the property or that the potential value of the property
has not been included. It can no longer be contended that the very word
'compensation' as it existed in the original clause obliged the state to pay full C
and fair equivalent of the property taken.

As obs~rved by Krishna Iyer, J. in Bhim Singhji v. Union of India, AIR
1981 SC 234 at 239 various amendments to Article 31 culminating in the
present provision which provides for the payment of "amount" disclose a
determined approach by parliament in exercise of its constituent power to D
ensure that full compensation or even fair compensation cannot be claimed as
a fundamental right by the private owner and that short of paying 'farthing for
a fortune', the question of compensation is out of the bounds for the Court 'to
investigate. The amount fixed for being paid under the impugned law of
acquisition is wholly beyond the pale of challenge on the ground that it is
inadequate. E

As concluded by Chandrachud, J. in Kesavananda Bharti (supra), though
the Court has no power to invalidate a law described in Article 31(2) on the
ground that the amount fixed for determined for compulsory acquisition is not
adequate, such a law can be questioned if the amount fixed is illusory or the
F
principles stated for determining the amount are wholly irrelevant for fixing or
if the power of compulsory acquisition is exercised for a collateral purpose or
the law offends other principles of Constitution or the law is in the nature of
a fraud on the Constitution.

However, in a case where Article 31C is attracted, the Court cannot G
interfere even if no compensation has been provided or what has been provided
for is illusory. When Article 31 C is attracted, the challenge on the basis of the
alleged illusory nature of the amount does not survive at all. The purpose of
Article 31C is, amongst others, to exclude Article 31, as it then stood. Article
31C was inserted by the Constitution (Twentyfifth) Amendment Act, 1971
with the object of getting over the difficulties placed in the way of giving effect H
288 SUPREME COURT REPORTS [1991) SUPP. 3 S. C.R.

A to the Directive Principles in Part IV, by judicial decisions. As it originally
r
stood, it shielded from any challenge, law enacted for implementing the
'--
directives in clauses (b) and (c) of Article 39 on the ground of violation of
[
Articles 14, 19 and 31.

Notwithstanding the declaration of the Legislature that any particular Act
r
).

B has been made to implement the directives specified in Article 39, it would be 1
open to the Court to ignore such declaration and to examine the constitution- ~'
ality of the same. The declaration cannot be relied on as a cleak to protect the
law bearing no relationship with the objectives mentioned in Article 39.

The extent and scope of judicial review of Legislation where there is a r-
C declaration under Article 31C of the Constitution which enjoins that no law !
containing a declaration that it is for giving effect to such a policy shall be
called in question in any Court on the plea that it does not give effect to such ~
a policy has been considered in Kesavananda Bharti (supra). On an analysis of
the majority judgment therein Sabyasachi Mukharji, J. (as he then was)
observed in Tinsukhia Electric Supply Company case (supra) that the-declara-
l
D tion in Article 31 C does not exclude the jurisdiction of the Court to determine
whether the law is for giving effect to the policy of the State towards securing
the principles specified in Article 39(b) and (c).. Mathew, J. had observed in
Kesavananda Bharti (supra) that in order to decide whether a law gives effect
to the policy of the State towards securing the directive principles specified in
l
E
Article 39(b) or (c), a Court will have to examine the pith and substance, the
true nature and character of the law as also its design and the subject-matter f.
dealt with by it together with its object and scope. If a law passed ostensibly
to give effect to the policy of the State is, in truth and substance, one for
accomplishing an unauthorised object, the Court would be entitled to tear the
veil created by the declaration and decide according to the real nature of the
law.
F
It is, therefore, necessary notwithstanding $e declaration contained in
section 30 of the Act, to consider whether there is a nexus between the Act and
the policy of the State declared in Article 39(b) or (c). The test to determine
whether the law is enacted for giving effect to a directive is to determine
f
G whether there is real and rational connection between the law and Directive
Principle.
(
We shall therefore examine the provisions of the Act for the purpose of
satisfying whether the Act furthers the policy stated in clause (b) of Article 39
as declared in the Act The State under clause (b) ·of Article 39 is required to
H direct its policy towards securing that the ownership and the control of material t
t

r
ASSAM SILLIMANITE v. U.OJ. [FATHIMA BEEVI, J.] 289

resources of the community are so distributed as best to subserve the common A
good. The purpose sought to be achieved by the enactment is the augmentation
of the supplies of refractories to meet the essential requirements of the iron aQfl
steel industry. It cannot be disputed that iron and steel industry is crucial in the
development process. With the expansion of iron and steel industries;:_1be
requirement of the necessary ingredients are bound to grow and the plants "for
manufacture of such ingredients have necessarily to be harnessed to meet such B
requirements. The key words 'material resources of the community' and
distribution occurring in clause (2) of Article 39 have been interpreted in the .
earlier decisions of this Court.

In State of Karnataka v. Rangtmatha Reddy (supra), the Kamataka
Contract Carriages Acquisition Act, 1976 for nationalisation of contract car- C
riages fu the State was challenged on the ground that .there is no real and
substantial nexus between the purpose of the acquisition and securing the
principles specified in Article.39. The Court said at page 515 thus:

"And material resources of the community in the context of re-
ordering the national economy embraces all the national wealth. D
.not merely natural resources, all the private and public sources of
meeting material' needs, not merely public possessions. Every
thing of value or use in the material world is material resource and
.· the individual being a member of the community his resources are
part of those of the community ....................................... ,............. .
E
nationalisation of transport as a distributive process for the good of
the community."
In State of Tamil Nadu v.AbuKavur Bai (supra), it was held that material
resources as enshrined in Article 39(b) are wide enough to cover not only
natural or physical resources but also movable or immovable properties, such F
as the vehicles, tools, implem. . i1ts and the workshop etc. It was also held that
the nationalisation of the transport would undoubtedly be a distribution for the
common good of the people and would be clearly covered by clause (b) of
Article 39.
In Sanjeev Coke Manufacturing Company (supra), the constitutional
validity of Coking Coals Mines (Nationalisation) Act. 1972.and the Coal MineS G
(Taking Over of Management) Act, 1973 was under challenge. The 'court said
that when Article 39(b) refers to material resources of the community, it does
not refer only to resources owned by the community as a whole but it refers also
to resources owned by individual members of the community. The Court also
hel~ that the expression 'material resources of the community' is not confined H
290 SUPREME. COURT REPORTS (1991) SUPP. 3 S. C. R.

A to natural resources; it is not confined to resources owned by the public; it
means and includes all resources, natural and man-made, public and private-
owned.

Therefore, all things which are· capable of producing wealth ' for the
community would be material resources. The conservation of the essential
B ingredients necessary for the crucial iron and steel industry by nationalisation
is only in implementation of the policy declared in clause (b) of Article_ 39.

In the recent decision of this Court in Tinsukhia Electric Supply Com-
pany (supra), the Tinsukhia Electric Supply Undertaking (Acquisition) Act,
1973 was challenged as unconstitutional. The contention that the Act was ,·
C entitled to the protection under Article 31 C was hpheld pointing out that
electric energy generated by the supplier companies constitute material re-
sources of the community within the scope and meaning of Article 39(b) and
having regard to the true nature and purpose of the legislation the objects of the
legislation have a direct and reasonable nexus with the objective of distributing
the material resources so as to subserve the common good.
D
The Act is declared to have been enacted for giving effect to the policy
of the State towards securing principles specified in clause (b) of Article 39.
The Preamble of the Act refers to the necessity to augment the supply of
refractories to meet the essential requirements to the iron and steel industry. It
further states that special type of refractori~ including high alumina refrac-
E tories needed by the iron and steel industry may be manufactured at the
Refractory Plant of Assam Sillimanite Limited and such. manufacture will
enable the country to progressively reduce the import of such special type of
refractories. The Act purports to have been enacted for acquiring the plant for
the purpose of augmenting the supplies of refractories to meet the essential
requirements of the iron and steel industry.
F
We are, .therefore, of the view that the plant as well as the manufactured
refractories constitute material resources of the community and the take over
of the plant to augment the supplies of refractories to meet the essential require-
. ments of the iron and· steel industry in public interest ensures distribution as
G best to subserve the.common good. The impugned Act which is intended to
augment the production and supply of refractories to· meet the essential
requirements of the crucial iron and steel industry is a measure towards imple-
mentation of the policy contained in clause (b). of Article 39. There is,
therefore, direct and rational nexus between the objective of the enactment and
the principles contained in that"Article. The Act in this view is entitled to the
H protection under Article 31C.

........... ,,. _..--
....
•,
ASSAM SILLIMANITE v. U.0.1. [FATHIMA BEEVI, J.] 291

An argument has been advanced on behalf of the appellant-company that A
if the compensation is not only illusory but producing negative result, then the
protection of Article 31 C is not available to the impugned legislation. We find
no merit in this argument. When Article 3IC is attracted, the argument in
regard to the alleged illusory nature of the amount doeS not survive at all for
consideration. If once the conditions mentioned in Article 3IC are fulfil1ed by
the law, no question of compensation arises because the said article expressly B
excludes not only Articles 14 and 19 but also 31. When Article 31 C comes in,
Article 31 goes out

For the foregoing reasons, the appeal must fail. The appeal is dismissed
but with no order as. to costs.

V.P.R. Appeal dismissed.