Holding

The Indore Textiles Limited (Upkaram Ka Arjan Aur Antaran) Act, 1986 is valid; Section 20 of the IDR Act does not prohibit the State’s legislative power to acquire the undertaking and the consequent transfer of management, and the brief overlap of management does not affect the Act’s validity.

Summary

Indore Textiles Ltd., a closed public limited company, had its management taken over by the Central Government under Section 18AA of the Industries (Development and Regulation) Act, 1951. Shortly before the expiry of that takeover, the Madhya Pradesh Governor promulgated an ordinance, later replaced by the Indore Textiles Limited (Upkaram Ka Arjan Aur Antaran) Act, 1986, which acquired the undertaking and vested its management with the State Government. The petitioners challenged the Act on the grounds that the State legislature lacked competence, that Section 20 of the IDR Act barred any State takeover of management after a Central takeover, and that the brief overlap of management invalidated the acquisition. The Supreme Court held that the preamble and substance of the Act demonstrated a broader public‑interest purpose beyond mere management, and that Section 20 does not preclude a State legislature from acquiring an undertaking even if management consequently passes to the State. Consequently, the Act was upheld and the overlapping days were deemed immaterial. The Court dismissed both the writ petition and the civil appeal.

Issues considered

The State legislature’s competence to enact the Indore Textiles Limited (Upkaram Ka Arjan Aur Antaran) Act, 1986.
Whether Section 20 of the Industries (Development and Regulation) Act, 1951 bars a State from acquiring an undertaking that results in the transfer of management after a Central takeover.
Whether the brief overlap of management between the Central and State Governments invalidates the acquisition.
Whether the Act serves a public‑interest purpose beyond merely securing proper management.

Legislation cited

Constitution of Indias. Article 32
Industries (Development and Regulation) Act, 1951s. 18AA, s. 20, s. 24

Subjects

Acquisition of undertakingState legislative competenceSection 20 of IDR ActManagement takeoverPublic interestIndustrial regulationWrit petitionConstitutional challenge

Judgment

INDORE TEXTILES LTD. AND ANR. A
v.
UNION OF INDIA AND ANR.

MARCH 2, 1998

[M.M. PUNCHHI, CJ!., K.T. THOMAS AND.B.N. KJRPAL, JJ.] B

Indore Textiles Ltd (Upkram ka.Arjan Aur Antaran) Adhiniyam, 1986:
.Acquisitio~ .of Undertaking by Act-Preamble indicating that acquisition of
undertaking by State Government. was ·to secure proper managemnt of
Company-Management already taken over by Central Government by Order C
passed under IDR Act-Validity of Act challenged-Held-Preamble, and Act
indicate that Act not only to. secure proper Management of Undertaking but
also to ensure that production of cloth, which is in ihe interest of the country,
should continue-Validity of the Act upheld

Industries (pevelopment & Regulation) Act, 1951 : Sections 18 Mand
D
· 20 : Government's power to take over the Management of an Undertaking-
After commencement of !DR ACT, State Government cannot take over
management of any undertaking under any law in force-Acquisition under
Adhiniyam of 1986 results in take over of management of company-Held-
Section 20 does not preclude State Jegislature from exercising legislative E .
power-The impugned Adhiniyam was enacted in exercise of that legislative
power-Takeover of management only incidental to acquisition of undertaking
under Adhiniyam-Not prohibited by Section 20.

·Appellant was a public limited company. The Central Government vide
Order dated 17.8.77 passed under Section 18 AA(l)(b) of the IDR Act, took F
·- -~
°''.er the management of the Mill after it had been closed for sometime. The
said Order was chai'lenged as being unjustified, by way of a writ petition in
the High Court which dismissed the petition. Hence this .appeal;

The initial Order under Section 18AA was subsequently.extended till G
ll~h February 1986.

One day before the extended period was lo 'come to an end, the Governor
promulgated an Ordinance ~hich was subsequently replaced by the Impugned
Act, by which the company was acquired by the State Government and its
management vested with the State Government H
1
2 SUPREME COURT REPORTS [1998] 2 S.C.R.

A Hence, during the pendency of the Appeal, the petitioner also filed a
writ petition before this Court challenging the validity of the Act. It was
contended, inter a/ia, that the object of the Act, as reflected in the Preamble --<
was to secure the proper management of the company. Since the management
of the Company had already been taken over by the Central Government
under the IDR Act, the impugned Act could not have been passed by the State
B Gov~rnment It was also contended that the Union alone and not the State was
competent to legislate the Act; that since the IDR Act gives power to Central
Government to take over the management of an und\!rtaking and Section 20
of IDR Act provides that after its commencement no State Government shall
have the power to take over management of an undertaking under any law
C in force, the Impugned Act for acquisition by which the management is taken
over by the State Government is barred by Section 20 of IDR Act, and that
since the management of the Central and State governments overlapped, the
Act was invalid.

Dismissing the writ petition and the Appeal, this Court
D
HELD: 1.1. The validity of the Adhiniyam is upheld. The preamble of
the Act does not show that it was passed only to secure proper management
of the company. The reading of the preamble and of the Act as a whole makes
it clear that the legislation was undertaken with a view to secure the proper
management of the same and, to ensure that the Mill which had been closed
E at the time the Notification under Section 18 AA of the IDR Act was issued
should continue its activity of production of cloth which was in the interest
of the country. As a result of the acquisition the Management of the
Undertaking would obviously vest with the State Government. [6-C-D]
1.2. Though in the Writ Petition the principal challenge to the Act ·
F was that the State legislature was not competent to promulgate the Act
inasmuch as the appropriate entry was 52 of List 1 of the Seventh Schedule, ,._ - ·
this contention was not raised at the time of arguments presumably because
such contention in similar enactments had been rejected by this Court.
[5-D]

G lshwari Khetan Sugar Mills (P.) Ltd. & Ors. v. St. of U.P. & Ors., (1980]
4 SCC 136 and Mahesh Kumar Saharia v. St. of Nagaland & Ors., (1997]
8 sec 176, referred to.

1.3. The question that when the IDR Act contains the power to take
over the management ofan Undertaking there can be no acquisition by the
H Impugned Act which would have the same effect of taking over the
INDORE TEXTILES LTD. v. U.0.1. [KIRPAL, J.] 3
management, is no longer res-integra. Section 20 of IDR Act does not A
preclude the State Legislature from exercising legislative powers under an
entry other than entry 24 of List II and if in the exercise of that legislative
power the consequential transfer of management follows as a result of such
acquisition, then such taking over of the management pursuant to exercise
of legislative power is not within the inhibition of Section 20 : [6-H; 7-A) B
Ishwari Khetan Sugar Mills (P.) Ltd & Ors. v. S(. of U.P. & Ors., [1980]
4 sec 136, relied on.

Mahesh Kumar Saharia v. St. of Naga/and & Ors., [1997] 8 SCC 176,
referred to.
c
1.4. The so called overlapping of the management for one or two days
i.e. 10/11 th February 1986, would not and cannot affect the validity of the
Act. The extended period of management with the Central Government was
coming to an end on 10th February 1986 and the Impugned Ordinance was
issued a day before that date so that there should be no break and the D
management should continue with the Government. [7-D-E]

2. In as much as the validity of the Adhiniyam is upheld, the civil
appeal in which the challenge was to the take over of the management by the
Central Government under the IDR Act has become infructous. [8-C]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6815 of E
1983 Etc.

From the Judgment and Order dated 17 .12.82 of the Madhya Pradesh
High Court in M.P. No. 825of1981.

G.L. Sanghi, V.C. Mahajan, K.N. Shukla, Sr. S.K. Gambhir, Vivek Gambhir, F
Ms. Charu Bhardwaj, Satish K. Agnihotri, Mrs. Yogmaya, (Y.P. Mahajan} for
and C.V. Subba Rao, (Sakesh Kumar} and Uma Nath Singh for the appearing
parties.

The Judgment of the Court was delivered by
G
KIRPAL, J. The acquisition of the undertaking of the Indore Textiles
Ltd. by The Indore Textiles Limited (Upkaram Ka Arjan Aur Antaran) Adhiniyam,
1986, is under challenge in the writ petition and the appeal.

Mis Indore Textiles Ltd. was a public limited company whose shares
were purchased by one Ajit Kumar Singh Kasliwal (Petitioner No.2 in the writ H
4 SUPREME COURT REPORTS [1998] 2 S.C.R,.

A petition) on I 0th February, 1977. It appears that he undertaking of the company
had been closed for some time and the Central Government had appointed a
committee to investigate into its affairs. After the receipt of the report the
Central Government, by an order dated 12th August, 1977, took over the
management of the textile inill. This order was passed by the Central
Government in exercise of its powers under Section I SAA (I) (b) of the
B Industries (Development and Regulation) Act, 1951 (hereinafter referred to as
'the !DR Act'). The said order was challenged with the filing of a writ petition
in the Madhya Pradesh High Court and by judgment dat_ed 8th September , ~-
1980 the writ petition was partly allowed and the Central Government was
directed to give an· opportunity to the petitioners to show cause why the
C . order of taking over of the management should:not be passed and to cancel
the order if the petitioners were able to show that the conditions to pass the
order did not exist.

The petitioners were heard by the Joint Secretary, Government of India
on l ~th November, 1980 bui when no order was passed a fresh writ petition
D No. 825 of 1981 was filed in the Madhya Pradesh High Court. During .the ·
pendency of this petition an interim order was passed by the High Court.
directing the Central Government to pass an order pursuant to the liearing.
which had been given to the petitioners on 15th November, 1980, Thereafter
the petitioners were informed that an order dated 2nd January, 1982 had been
E passed by the Central Government to the effect that the conditions for the
taking over of the management of the mill did exist and that the take over was
justified in the facts and circumstance's of the case. On amendment being
allowed this communication dated 2nd January, 1982 was challenged before
the High Court in the writ petition which was pending. During the pendency
of the writ petition an order dated 22nd May, 1982 signed by. the Joint
F · Secretary, Ministry of Commerce, Department of Textiles, stating the reasons
for taking over· of the mills' management was communicated to the petitioner.
By an amendment in the pending writ petition this order of 22nd May, 1982
was also allowed to be challenged. Ultimately the High Court by its judgment
dated 17th December, 1982 dismissed the writ petit_ion. Civil Appeal No. 6815 ·
G of 1983, which is also qeing disposed of by this judgment, arises by way of
special leave having been granted against the judgment dated 17th December, ·
1982. . .....
The original order under Section l 8AA of the IDR Act was to have ·
effect for a period of five years from the date of its publication in the official
H gazette. This period was subsequently extended from time to time. In the
INDORE TEXTILES LTD. v. U.OJ. [KIRPAL, J.] 5
present case the extended period of the last extension was upto and including A
II th February, 1986. It may here be noticed that under Section I SA (2)
proviso, the maximum period for which the extension. could be granted is
twelve years.

One day before the extended period was to come to an end the Governor
of Madhya Pradesh promulgated an ordinance called the Indore Textiles B
Limited (Upkaram Ka Arjan Aur Antaran) Adhyadesh, I 986. This has
subsequently been replaced by the Indore Textiles Limited (Upkaram Ka Arjan
. Aur Antaran) Act, 1986, which received the assent of the President on 5th
April, 1986. The Act provides for acquisition and transfer of the industrial
undertaking of the company and contains other incidental provisions including C
the management of the company vesting with the government. After the
promulgation of the Act the petitioners filed the present petition under Article
32 of the Constitution challenging the validity of the said Act.

Even though in the writ petition the principal challenge to the Act was
on the ground that neither the State Legislature nor the Governor of the State D
had legislative competence to promulgate the Act and the Ordinance inasmuch
as the appropriate entry for the enactment of such an ordinance of Act was
Entry 52 of List 1 of the 7th Schedule, but this contention, at the time of
arguments, was not raised by Shri G.L.Singhi, learned senior counsel for the
petitioners presumably because in cases of similar enactments such a contentien
had been rejected by this Court in the case of lshwari Khetan Sugar Mills E
(P.) Ltd and Ors, v. State of Uttar Pradesh and Ors.,- [1980] 4 SCC 136, and
Mahesh Kumar Saharia V. State ofNagai and and Ors., [ 1997] 8 sec 176, to
mention only two, It was, however, submitted by Shri Sanghi that there was
no existing public purpose for which the acquisition could have been made.
It was contended that the object of the Act is clearly reflected in the preamble p
which shows .that the undertaking was being. acquired with a view to secure
its proper management. Inasmuch as the management of the undertaking had
already been taken over by the Central Government, under the order passed
under Section l 8AA of the !DR Act, Shri Sanghi submitted that the reason
for securing proper management did not exist and, therefore, the Act could
not have been passed. G
The preamble of the Act reads as follows :

"An Act to provide in public interest for the acquisition and transfer
of the industrial undertaking known as the Indore Textiles Limited,
Ujjain, with a view to securing the proper management of such H
6 SUPREME COURT REPORTS [1998) 2 S.C.R.

A industrial undertaking so as to subserve the interest of the general
public by ensuring the continuity of production of cloth which is vital
to the needs of the country and for matters connected therewith or
incidental· thereof'

It is true that on the date when the ordinance was issued, i.e., 10th
B February, 1986, the management of the undertaking was still with the Central
Government. The preamble of the Act does not show that the same was
passed with a view only to secure the proper management of the industrial
undertaking. The reading of the preamble and of the Act as a whole makes
it clear that the said legislation was undertaken with a view to secure the
C proper management of the same "so as to subserve the interest of the general
public by ensuring the continuity of production of cloth which is vital to
the needs of the country and for matters connected therewith or incidental
thereto" (Emphasis added). The anxiety in promulgating the ordinance and
replacing it with the act clearly was to see that the mill, which had been closed
for more than three months at the time when the notification under Section
D I SAA of the IDR Act had been issued, should continue its activity of
production of cloth which was in the interest of the country. As a result of
the acquisition of the undertaking it is but obvious that its management
would henceforth vest with the State Government and it is for this reason that
provisions with regard thereto are contained in Chapter IV of the said Adhiniyan.

E It was faintly suggested that when the IDR Act contains the power to
take over the management of an unde_rtaking there can be no acquisition by
the said Act which would have the same effect, i.e., taking over of the
management of the undertaking. This question is no longer res integra. Ther~
was a similar provision like the one contained in Chapter IV of the Adhiniyam
F which existed in the U.P. Sugar Undertaking Acquisition Act, 1971, which
enabled the management of the acquired undertaking> being taken over by 'i-- - ·
the State Government. A contention was raised in Ishwari Khetan's case
(supra) that the UP Act was violative of Section 20 of the IDR Act which
provided that after the commencement of the IDR Act it was not competent
for any State Government or a local authority to take over the management
G or control of any industrial undertaking under any law for the time being in
force which authorises any such Government or local authority so to do. It
was observed that the said Section 20 of the IDR Act does not preclude or
forbid a State Legislature from exercising legislative powers under an Entry
other than Entry 24 of List II and if in exercise of that legislative power the
H consequential transfer of management or control over the industry or under
INDORE TEXTILES LTD. v. U.0.1. [KIRPAL, J.) 7
taking follows as a result of an acquisition of such an undertaking as an A
»- incident of acquisition then such taking over of the management or control
pursuant to an exercise of legislative power is not within the inhibition of
Section 20 of the !DR Act. To the same effect is a recent judgment of this
Court in Mahesh Kumar Saharia's case (supra) where a similar challenge to
the Nagaland Forest Products Limited (Acquisition of Shares) Act, 1982, was B
repelled.

'°" Shri Sanghi, however, vehemently contended that neither in Jshwari
Khetan's nor in Mahesh Kumar Saharia's cases had the management been
taken over by the Central Government under the !RD Act before the respective
acquisition acts had been passed: He submitted that present case is clearly C
distinguishable because as on the date of the issuance of the ordinance the
management was with the Central Government.

In our opinion this distinction, if at all, makes no difference to the merits
of the case because as held in Jshwari Khetan' s and Mahesh Kumar Saharia' s
cases the provision for taking over of the undertaking is merely incidental to D
the acquisition of the undertaking and is not in conflict with Section 20 of
the IDR Act. Furthermore the extended period of management with the Central
Government was coming to end on I Ith February, 1986 and the impugned
ordinance was issued one day before that, i.e., on I 0th February, 1986. This
was obviously done with a view that there should be no break and the E
management of the undertaking should continue with the Government even
after I Ith February, 1986. The so called overlapping of the management for
one or two days, i.e. 10/l lth February, 1986, would not and cannot affect the
validity of the Adhiniyam.

It was lastly submitted by Shri Sanghi that the undertaking was under F
the control and management of the Government from 12th August, 1977 till
its acquisition. According to Section 5 of the Adhiniyam every liability in
respect of the period prior to the appointed date shall be the liability of the
company and shall be enforceable against the owners and not against the
State Government. It was contended that during this period of management
after 12th August, 1977, the liabilities had been incurred by the Government G
when it was managing the undertaking and it will be unfair and arbitrary if
the liabilities incurred during this period, when the management of the
undertaking was not with the petitioner, should be fastened upon the petitioners
and they be asked to discharge the same. We do not find in the writ petition
any challenge to the Act or Section 5 in particular on the ground that the H
8 SUPREME COURT REPORTS [1998] 2 S.C.R.

A liability for the period after 12th August, 1977 is sought to be fastened on
the petitioners. It is admitted that so far no demand under Section 5 has been _,_
raised. Even though Shri K.N. Shukla, learned s:nior counsel appearing for
the State, stated that the liabilities between 12th August, 1977 and 10th
February, 1986 will be borne by the State, we do not think it is necessary or
B appropriate, in the absence of necessary pleadings, to adjudicate on this
aspect. We, however, do hope and expect that the Government will not act
unfairly and whenever necessary it will pass appropriate orders, which power
it has under Section 32 of the Act, to remove any difficulty in this regard.

Inasmuch as the validity of the Adhiniyam is being upheld, the civil
C appeal No. 6815 of 1983 in which the challenge was to the taking over of the
management under the IRD Act had become infructuous. We, therefore,
dismiss both the writ petition as well as the civil appeal but leave the parties
to bear their own costs.

S.K. Appeals and Petition dismissed.

'>-