Holding

All assets of the company held in relation to the textile undertaking, including the surplus lands, vest in the Central Government under sub‑section (2) of section 3 of the Textile Undertakings (Taking Over of Management) Act, 1983.

Summary

The Supreme Court examined whether the surplus lands owned by Shree Sitaram Mills formed part of the "assets in relation to the textile undertaking" under sub‑section (2) of section 3 of the Textile Undertakings (Taking Over of Management) Act, 1983. The mill, a sick textile undertaking, had been disposing of surplus lands to raise finance, which it claimed constituted a separate Real Estate Division. The Bombay High Court held the lands were not assets of the textile undertaking and ordered their restoration to the company. The Supreme Court rejected this view, interpreting the statutory phrase broadly and holding that all assets, including surplus lands, held for the benefit of the textile undertaking vest in the Central Government. Consequently, the appeal was allowed, the High Court judgment reversed, and the petition dismissed.

Issues considered

Whether the surplus lands appurtenant to Shree Sitaram Mills constitute "assets in relation to the textile undertaking" under sub‑section (2) of section 3 of the Textile Undertakings (Taking Over of Management) Act, 1983.
Whether the Real Estate Division of the company is a separate and distinct business from the textile undertaking for the purpose of the Act.

Legislation cited

Companies Act, 1956s. 149(2A)
Income Tax Act, 1922
Income Tax Act, 1961
Industries (Development and Regulation) Act, 1951s. 15(a)(i)
Textile Undertakings (Taking over of Management) Act, 1983s. 2(d), s. 2(e), s. 3(1), s. 3(2)
Urban Land Ceiling Act, 1976

Subjects

Textile Undertakings (Taking Over of Management) Actassets in relation to textile undertakingsurplus landsreal estate divisionnationalisationstatutory interpretationpublic interestsick textile millsbalance sheet analysisconstitutional challengeArticle 14Article 19(1)(g)Article 300A

Judgment

187

A
NATIONAL TEXTILE CORPORATION LTD. & ORS.
V•
SITARAM MILLS LTD. & ORS. ETC.

APRIL 4, 1986
B
[R.S. PATHAK, A.P. SEN AND D.P. MADON, JJ.]

J.. Textile Undertakings (Taking over of Management) Act,
1983, sub-section 2 of section 3 - Meaning of the words
"assets in relation to the textile undertaking" - Whether the
surplus lands appurtenant to the mill are separable as
belonging to the "Real Estate Business" carried on by the sick c
11 and, therefore, do not fall within section 3(2).

The only question involved in the appeal was whether the
so-called Real Estate Division of the Company's textile
undertaking Shree Sitaram Mills was a separate and distinct
business and therefore the surplus lands did form part of the D
"assets in relation to the textile undertaking" within the
meaning of sub-section (2) of section 3 of the Textile
Undertakings (Taking Over of Management) Act, 1983. In dealing
with the question, the Court referred to the history of the
y matter. The mill was established in 1875 undeor the management
of Messrs Shapurji Broacha Mills Limited on a very large tract E
of land. The only real estate that it required in the later
19th century cgmprised of 1 , 05, 008 square yards which
undoubtedly was an asset of the textile undertaking although
the actual mill precincts were spread over 50, 749 square

l
yards. Early in the 20th Century, it changed hands a few times
and ultimately it was taken over by the Tantias in 1955 as a F
grey unit. As revealed from the Company's balance-sheets,
~ince more than 7 years before the taking over the networth of
the Company had been in the negative. In the early 70s, the
Tantias due to spiral rise in land values in the Metropolitan
City of Greater Bombay devised a plan to dispose of vacant
lands appurtenant to the textile mill. Till the date of taking G
over, the Board of Directors were engaged in disposing of the
Company's surplus lands for purposes of raising finance for
---,. the textile business. In the early 1978-79, the networth of
the Company was minus Rs. 2.80 crores, in 1979-80 minus 3.54
crores, in 1980-81 minus Rs. 3.91 crores, in 1981-82 minus
6.56 crores and in 1982-83 ~ 8.67 crores. Further, asa H
result of the general strike called on January 18, 1982 the
183 SUPREME COURT REPORTS [1986] 2 S.C.R.

A
company further suffered financially along with other textile~
mills in Bombay. The mill not only had the deficit for so cany
years in the negative but the losses had been increasing at an
·alarming rate. The liabilities which stood at Rs. 3.08 c~ores
by the end of March 31, 1980 rose to Rs. 4. 70 crores at the
end of March, 1981 and to Rs. 8.67 crores by the end of March,
B 1933. All this showed that the mill stood in need of increas-~.
ing ·-.financial assistance from commercial banks and·
governmental and public financial institutions on concessional
rates for its resuscitation.

After the textile strike had been called off, it be~
im;ierative to consider the overall economic situation of all
the textile mills in Greater Bombay and also to consider as to-t-"
what was. the future outlook of such mills, particularly of
those which were not in a position to recommence work due to
financial' constraints. On December 3, 1981, the Central
Goverrui.ant appointed an Investigation Committee under section
D 15(a)(i) of the Industries (Development and Regulation) Act,
1951 to find out the caus.e for the fall in production of the
Company's textile undertaking. The Investigation Committee
submitted its report in February 11,. 1983. In the meanwhile,
the State Government of Maharashtra by an order dated March
· 25, 1982 declared the company's textile undertaking tb be a
'E relief undertkaing. At a meeting called by the Reserve Bank on
·October 29, 1982, the textile mills affected by the strike/
were'classified into three categories on a general consensus,-
na:nely, Category I: Units which were viable before the strike
and continued to be as such; Category II: Units which were
"· '· viable before the strike but-whose viability might have been
,
marginally affected by it; and Category III: Units which were
bad/sick and whose position had further deteriorated becauset"'
of the ·strike. In November 1982, the respondents' textile
,,
Ulldertaking was. placed in Category III.

_The Government of India accepted this categorisation. It
G was realised that none of the 13 mills falling under Category
III could be expected to survive on a sound basis without
financial assistance from the Government, . Government
controlled institutions and nationalised banks. The amunt for
rehabilitation of the aforesaid 13 mills was estimated to
aggregate to Rs. .194. 48 crores. It was expected that the
H disposal of surplus lands appurtenant to some of these mills

'
N.T.C. v. SITARAM MILLS 189

A
· ..1--such as the respondents' textile undertaking Shree Sitaram
Mills would -largely help in raising the necessary working
capital. The Industrial Development Bank of India expected
that with this realisable asset it would be possible to make
the respondents' textile undertaking viable over a period of 7
years subject to the condition that the Tantias disassociated B
themselves from the management. It was therefore clearly
-).. understood that the respondents' textile undertaking could be
made viable only with the sale of surplus lands and the

.f
financial assistance from the Government.

~ On September 20, 1983, the Government of India Ministry
Commerce, Department of Textiles constituted a Task Force c
' to look into the affairs of the Category III strike-affected
~mills, including the respondents' textile undertaking Shree
Sitaram Mills. The Task Force submitted its report on October
13, 1983 i.e. just on the eve of the promlgation of the
Textile Undertakings (Taking Over of Management) Ordinance,
1983. The Task Force classified the mills falling in Category D
Ill into four groups. The respondents' textile undertaking was
placed in Group II, namely, mills which were likely to be made
viable with the sale of surplus lands with a rider added that
. . a change in the management should also be brought about.

The Government of India decided, as a matter of policy, E
that it was desirable to achieve the process of
nationalisation in two stages - by first taking over the
management of the textile undertakings and thereafter enact
suitable legislation to nationalise the same. As the taking
over the management was with a view to imPlement the decision
to nationalise the said textile mills, there was no question F
I!! holding an inquiry either under the Industries (Development
and Regulation) Act, 1951 or under the Sick Textile
Undertakings (Taking Over of Management) Act, 1972.

On October 18, 1983, the President of India promlgated
the Textile Undertaking (Taking over of Management) Ordinance, G
1983 whereby the management of 13 textile undertakings
~- specified in the First Schedule vested in the Central
Government under sub-section (l) of section 3. The Textile
undertaking of the respondents Shree Sitaram Mills being one
of the aforesaid 13 undertakings, also vested in the Central
Government together with the surplus lands appurtenant H
,190 SUPREME COURT REPORTS (1986] 2 S.C.R.

A '
I
thereto. 'nle ordinance was later replaced by an Act of
Parliaioont being Textile Undertekings (Ta!d.ng cJver of
Manageioont) Act, 1983 which by 'sub-section (2) of ·section I
,was brought into force with retrospective effect from October
18, 1983, the date of promlgation of· the Ordinance. 'nle
object and purpose of the legislation, as - reflected in the
B long title, was to provide for the taking over, in the public _.._
interest, of the management of the textile undertakings of the
Companies specified in the First Schedule, pending
nationalisation of such undertakings and for matters connected
therewith or incidental thereto.-

-C The respondents' textile con:pany Shree Sitaram Mills
owing the textile mill filed a petition under Art.. 226 of the -+-
Constitution challenging the constitutional validity of
sub-section ( 1) of section 3 of the Act as violative of
Articles,, 14,. 19(l)(g) and 300A. By-the judgment under appeal,
a Division . Bench of the Bombay High Court upheld the
D constituional validity of.the Act in-so far as the taking over
of the respondents' textile undertaking by the Central
Government under sub-section (1) of section 3 of the Act was
concerned, but held that the surplus lands which the
respondents called the Real Estate Division was not an "asset
in relation to the textile undertaking" within the meaning of
E sub-section (2) of section 3 of the Act -and accordingly
directed the restoration of the lands to the respondents.

In appeal, the appellant contended that the surplus
lands appurtenant to the textile undertaking which the
respondents called as the Real Estate Division of the Company
F was not a separate or distinct business arid . therefore the - '/'-"
lands did.form part of the assets "in relation to the textile
undertaking" within the meaning-of sub-section (2) of section
3 of the Act. I'

Allowing the appeals by certificate, the Court,
G
--- llZLD : 1. 1 The words "assets in relation to the textile
undertaking" used in sub-section (2) of section 3 of the Act
have a very wide connotation. Function of sub-section (2) of
section 3 of the Act is to amplify and define as to what is
taken within the sweep of the term "textile undertaking" as
H defined in 'section 2(d), which says that the expression
N.r.c. v. SITARAM MILLS 191
A
-f. "textile undertaking" shall be deemed to include all assets,
rights, leaseholds, powers, authorities and privileges of the
textile company in relation to the said textile undertaking.
It does not stop at that. but goes on to say that this would
also include lands, buildings, workshops, projects, stores,
spares,. instruments, machinery, equipment, automobiles and B
other vehicles, goods under production and in transit, cash
+ balances, reserve funds, investments and booklets and all
other rights and interests in and arising out of such property
as were before the appointed day, in the ownership,
possession, power or control of the textile company whether
ithin or outside India. It further includes all books of
!.
- . accounts, registers and all other documents of whatever nature c
\ relating thereto. The conclusion is therefore inescapable that
·J all the assets of the company held in relation to the textile
undertaking including the surplus lands appurtenant thereto,
vest in the Central Government by reason of sub-section (2) of
section 3 of the Act. (227 G-H; 228 A-D]
D
1. 2 It is a well known rule of con.st ruction that in
dealing with a beneficent piece of legislation, the Courts
ought to adopt a construction which would subserve and carry
1 out the purpose and object of the Act rather than defeat it.
In interpreting such a piece of legislation, the Courts cannot
adopt a doctrinaire or pedantic approach. In the instance E
case, the legislation was clearly in furtherance of the
Directive principles of State policy in Article 39(b) and (c)
-1' of the Constitution. (223 A-<:]

1.3 The Legislature intended to take over all the assets
\ belonging to the company held in relation to the textile F
undertaking. The Note attached to the report of the Task Force
includes the total lands belonging to the respondent company
for the purpose of determining the value of the assets of the
company and does not exclude the Real Estate Division. Even
for determining the total compensation to be paid on
nationalisation, the Task Force takes into account the total G
surplus lands of the company and does not exclude any land
"< belonging to the socalled Real Estate Division. The viability
study of the IDBI also heavily relied on the surplus lands
held by the respondents' company. Surplus lands of the textile
mills taken over under sub-section (I) of section 3 of the Act
are but a vital physical resource capable of generating and H
192 SUPREME COURT REPORTS [1986] 2 S.C.R.

A sustaining economic growth of the textile mills. There can be
no doubt that the legislative intent and object of the ~
impugned Act was to secure the socialisation of such surplus
lands with a view to sustain the sick textile undertakings so
that they could be properly utilised by the company for social
good i.e. in resuscitating the dying textile undertakings.
Hence a paradoxical situation should have been avoided by
B adding a narrow and pedantic construction of a provision
like sub-section ( 2) of section 3 of the Act which provides .+-
for the consequences that ensue upon the taking over in public,
interest of the management of a textile undertaking under
sub-section (1) thereof as a step towards nationalisation of
such undertakings, which was clearly against the national ,
interest. [224 B-G] ~
c
Mew Satgraa l!ug:f.neering Works & Anr. v. Union of India & ,\,
Ors., [1981] 1 s.c.R. 406; and Union of India v. United
Collieries Ltd. & Ors., [1985! 1 s.c.c. 305, relied on.

D 2.1 From the official record it is clear: (i) that there
was in reality no such separate business as Real Estate
Business carried on by the company. The company was borrowing
money all the time and the proceeds of the sale of surplus
lands and industrial galas were utilised to iiq>rove the -y
liquidity to pay off the creditors; (ii) All the assets
E including the surplus lands appurtenant to the mill were
assets of the coiq>any held for the benefit of the textile
undertaking; (iii) at no point of time was there a segregation
of the assets of the company for form the Real Estate
Division, nor were there any bifurcation of the surplus lands }-
arid transfer of title to the lands; (iv) the so called Real
F Estate Division had no capital assets of its own; (v) the J
company was indebted to the tune of 6.80 crores and the
liabilities were being met by the sale and development of
lands, construction of industrial galas and the diversion of
plot No. 5 from the industrial zone to the residential zone.
The proceeds were all ploughed back into the textile business
G
to pay off the debts; and (vi) there was no separate account
of the Real Estate Division and the respondents have not laid
any real foundations on pleadings that the Real Estate busi- v-
ness was separate and distinct from the textile business. It
was in reality a scheme for conversion of capital. The acti-
vity of selling the surplus lands or the industrial galas
H constructed thereon had a direct nexus with, or clearly
related to the carrying on of the textile business. [214 A-D;
?~R lj.-Cl
N.T.C. v. SITARAM MILLS [SEN, J.] 193

A
2.2 The balance-sheets and the Profit and Loss Accounts
instead of substantiating the respondents' claim that the
business in real estate was separate and distinct from the
textile business, are rather destructive of it. [222 A-Bl

CIVIL APPELIATE JURISDICTION : Civil Appeal Nos. 3067, B
3017 and 3568 of 1984.
+ From the Judgment and Order dated 13th June, 1984 of the
Bombay High Court in Writ Petition No. 2714 of 1983.

K. Parasaran, Attorney General, M.K. Banerjee,
_)Additional Solicitor General, F.S. Nariman, T.v.s.N. Chari, C
, T.R. Desai, S. Menon, Naunit Lal, Kailash Vasdev, Mrs. Vinod
,/Arya, Ms. Indira Jaisingh, Ms. Kamini Jaiswal, P.H. Parekh,
Jitendra Sharma, Ms. Mihir Desai and Kirti Singh for the
appearing parties.

The Judgment of the Court was delivered by D

SEN, J. These appeals on certificate directed against
the judgment and order of the Bombay High Court dated June 13,
y- 1983 raise a question of far-reaching public importance. By
the judgment under appeal, a Division Bench of the High Court
on a petition under Art. 226 of the Constitution filed by E
Messrs Shree Sitaram Mills Limited, Bombay (for short 'the
petitioners') while upholding the constitutional validity of
the Textile Undertakings (Taking Over of Management) Act, 1983
-¥insofar as it provides by s. 3(1) of the Act for the taking
over by the Central Government of the management in the public
'\interest of Messrs Shree Sitaram Mills a textile undertaking F
ewned by it and specified in the First Schedule to the Act,
held that the surplus land appurtenant to the Mill was not an
'asset in relation to the textile undertaking' within the
' meaning of sub-s.(2) of s.3 of the Act, on the ground that the
business of real estate carried on by the Company was separate
and distinct from the textile business, and accordingly G
directed the Central Government to restore possession of the
""<said land to the Company. The issue involved !Dlst necessarily
tum on the meaning of the words 'assets in relation to the
textile undertaking' appearing in sub-s.(2) of s.3 of the Act.

In order to appreciate the nature of the controversy, it H
194 SUPREME COURT REPORTS [1986] 2 s.c.R.

A
is necessary to state a few facts. Tiie mill now known as Shree +
Sitaram Mills was established in 1875 under the management of
Messrs Shapurji Broacha Mills Limited on a very large tract of
land located in the heart of the metropolitan city of Greater
Bombay. Tiie only real estate that it acquired in the late 19th
Century comprised of 1,05,008 square yards which undoubtedly
B was an asset of the textile undertaking, although the actual
mill precincts were spread over SO, 749 square yards. Early in +
the 20th Century it changed hands a few ti.mes and ultimately
it was taken over by Tantias of Calcutta in 1955 as a grey
unit. Tiie Company's share capital comprised of equity shares
of the value of Rs. 45 lakhs and cumulative redeemable
c preference shares worth Rs. 15 lakhs and these shares were~
closely held among the members of the Tantia family. After the
take over in 1955, the Tantias apparently had undertaken a k
scheme of modernisation resulting in the development of the
mill into a highly export-oriented unit including the addition
of an updated process house involving a total outlay of Rs.2
D crores which was financed through loans taken from the
National Industrial Development Corporation• During the 60s,
the Company's performance had only been average, incurring
losses for five years and making profits for the remaining
five years with the result that in the overall balance the -y
Company managed to survive without substantially adding to its
E reserves. During the next period between 1971 to 1980, the
investment on plant and machinery was mini.mal at about Rs. 42
lakhs and the only major scheme of modernisation that the
Company planned was under the Soft Loan Scheme when in 1977 it .,_
made an application to the Industrial Development Bank of
India (IDBI) since a substantial portion of its machinery was 1
F not in a state of good repairs. Tiie Company had not declared )
any dividend on its shares for several years. In the early 70s
i.e. during the years 1971-72, 1972-73 and 1973-74 which were
profitable years for the textile industry as a whole, the
,
Company made profits which were attributable to its textile
undertaking.
G
Due to unprecedented floods in 1974 and various other
factors, the financial condition of the Company became
precarious, As is reflected from its balance-sheets, the
Company had been making continuous losses at an increasing
rate from the year 1974-75 onwards. Even though the years
H 1978-79 and 1979-80 were comparatively good for the textile
N.T.C. v~ SITARAM MILLS [SEN, J.] 195

~ A
industry, the Company continued making losses largely due to
shortage of working capital and strained liquidity position.
It had leased out its process house to Messrs Bhartiya
Electric Steel Company Limited, a sister concern of the
Tantias, from 1977 to provide 'financial support to the mill
but it was not fruitful. The strained liquidity position had a B
-4. vicious effect affecting the quality of raw material and
stores purchases resulting in distress sales mainly because
the company was not able to attract , competent talent for
managing its affairs.' As a cullJ.llative effect of all these
factors, the Company continued to slide down steeply and the
capacity utilisation became the first victim leading to a fall
in the volume of production. As, mentioned in the IDBI report: c
--+ ''Even if large funds were pumped at a concessional
rate, the Company would take,. 20 years to wipe out
its liabilities."

As is revealed from Company's balance-sheets, since last D
core than seven years before the taking over, the net-worth of
the Company had been in the negative. In the yea·r 1978-79 the
networth was minus Rs. 2.80 crores, in 1979-80 minus Rs. 3.54
crores, in 1980-81 minus Rs. 3.91 crores, in 1981-82 minus Rs.
6. 56 crores and in 1982-83 minus Rs. 8. 67 crores. It would
~ therefore appear that the networth had not only been negative E
but the negative factor had been increasing at a rapid rate
I over the years. There was also loss in the Profit & Loss
Account. The mill not only had the deficit in the past for so
many years in the negative but the losses had been increasing
at an alarming rate. Even during 1978-79 when there was a
--; textile boom in the country, the Company's losses we:e to the F
tune of Rs. 2.80 crores. The balance in the Profit & Loss
Account is reflected as follows :
r'
Balance in the Profit &Loss Account

(Year ended 30th of June (In Rs.) G
1975 15,72,746
1976 35,72,256
1977 1,77,71,023
1978 2,72,68,303
1979 3,43,59,540
1980 4,18,24,930 H
1981 4,55,00,000
1982 7,19,00,000
I96 SUPREME COURT REPORTS [I986J 2 s.c.R.

A
As a result of this, the Company resorted to borrowings far in ~
excess of its limits, the amount drawn on June 30, I983 being
Rs. 4. 75 crores as against the drawing power of Rs. I.97
crores. The petitioners also purported to enter into
transactions of the pledged goods which were already
hypothecated to the Company's bankers without disclosing the
fact either to the bankers or the purported pledgees. The mill
stood in need of increasing financial assistance from ~
commercial banks and governmental and public financial
institutions on concessional rates for its resuscitation.
There were accumulated losses of the order of over Rs. I. IO
crores in the year ended March 3I, I980 and accumulated losses
c to the tune of Rs. 91 lakhs as on March 3I, I98I. The secured_~
loans outstanding to the Company's bankers as on March 3I,
I980 were of the order of Rs. 2.80 crores which increased to _.,
Rs. 3.64 crores by March 3I, I98I. The current liabilities
which stood at Rs. 3.08 crores by the end of March 31, I980
rose to Rs. 4.70 crores at the end of March 3I, I981.
D
All this clearly shows that the financial condition of
the Company even before this general strike was grave. The
fact that the Company's affairs were being mismanaged was
evidenced by the mounting arrears of workers dues to the y
staggering figure of Rs.77 lakhs as on October I8, 1983 when
E the Ordinance was promulgated, in spite of the financial
assistance by the banks and other financial institutions, and
debentures in an increasing manner. During the year I981 the
Company received fresh financial assistance from IDBI,
Maharashtra State Financial Corporation and other financial Y-
institutions aggregating to over Rs. 47 lakhs. As already
F stated, the annual statements of accounts for the year ended )
March 3I, 1980 and March 3I, 198I were wholly unsatisfactory
on account of mismanagement of its affairs with hugel
outstandings due to the workers, and the reserves of the
Company had been wiped out by the accumulated losses. The mill
could not be revamped into production and rehabilitation to
G subserve the interest of the general public to achieve
national growth and particularly to prevent unemployment of
thousands of workers without investment of large sums of money
by public financial institutions for such reorganisation and
rehabilitation.

H It is needless to stress that the textile industry in
----~---~-

N.T.C. v. SITARAM MILLS [ SEN, J.] 197

A
India has played an important role in the growth of national
economy and at one time the Indian Textiles were in great
demand in the world market. It occupies an important position
in the indu.1to:ial field in India both because it produces_ an
essential commodity the production of which makes the country
self-sufficient and also the export of which helps in building B
-4 up its foreign exchange reserves. It . is also of importance
because it gives employment to a large number of persons. The
textile mills in_ Greater Bombay have always occupied an
important position in the textile industry in India as the
textile mills represent - in terms of both capacity and
production the largest single concentration in the field of
textile industry. In these circumstances, such textile mills c
4
I
located in . Greater Bombay have always been of special
importance in the economy and the Government of India has
always been conscious of necessity of preserving such mills
! and of assisting them by granting wherever necessary assis-
tance to the.industry including loans through public· financial
institutions on concessional terms to prevent their having to D
close down. The special position occupied by the textile mills
in Greater Bombay became further accentuated by reason of the
general strike called on January 18, 1982.

As a result of the said prolonged textile strike which
affected all the textile mills · in Bombay, ·all the mills E
suffered financially. Even prior to the commencement of the
· said textile strike, the financial position of the various
textile mills in Bombay was not uniformly good. Whereas there
were several mills which were in sound or excellent financial
condition, there were other textile mills whose financial
condition even prior to the strike -was not satisfactory. The F
main reason why certain mills were not in a sa;isfactory
financial condition was lack of proper management. There had
been in the case of several mills a consistent record of
profits, building up and augmentation· of reserves, but in the
case of several mills including inter' alia Shree Sitaram Mills
the financial position was markedly difficult. These mills G
were not in a sound financial condition as the others. As the
overall economic factors applicable to all textile mills in
Greater Bombay were broadly and generally comparable, the
weaker position of the mills in question was attributable to •
mismanagement.
H
198 SUPREME COURT REPORTS (1986] 2 s.c.a.

A
After the textile .stirke had been called off it became)'
imperative to consider the overall economic situation of all
the textile.mills in Greater Bombay and also to.consider as to
what was the future outlook of such mills, particularly of
those which were not in a position to recommence work due to
financial constraints. Faced with the problem of rendering
B. financial assistance and rehabilitation to the textile
industry the Reserve Bank of India carried out a survey of the·~
sick textile mills which had a disasterous effect on the
financial viability which could only be attributed to
mismanagement.and a situation further worsened by the general
strike. The question before the Government of India was to
c evolve a scheme to put the textile industry on its feet.

On December 3, 1981 the CentraL Government appointed an Jr
Investigation Committee under s.15{a)(i) of the Industries
(Development & Regulation) Act, 1951 to find out the causes . ·
for theI fall in the volume. of production of the Company's
D textile undertaking. The Investigation Committee submitted its
report dated February 11, 1983 a copy of which was also
forwarded to the respondents. It recommended that the IDBI and
the nationalized banks should finance and put through expedi-
tiously the rehabilitation programme proposed by the Company
by keeping full control over the management. In the meantime
E the State Government ·of Maharashtra by its order dated May 25,
1982 declared the Company's textile undertaking to be a relief
undertaking entitled to protection under the Bombay Relief
Undertakings Act, 1958.

, At a meeting called by the Reserve Bank on October 29,
F •. · , 1982 at which were present the Deputy Governor, Reserve Bank ·
, of·.lndia, Joint Secretary, Ministry of Fi~nce (Banking), ~
Chief ··.Secretary, Government of Maharashtra, Industries
Secretary, Government of Maharashtra; Executive Director and
Senior Representatives
.
of IDBI ( and Senior Representatives of
~-

concerned Banks, textile . mills affected by the . strike were
G ·classified into three categories on a general consensus :

Category, I Units which were viable before the
strike and continued to be as such. --+-
. Cat;;gory II Units which were viable before the
H strike but whose viability might have
been marginally affected by it.
N.T.C. v. SITARAM MILLS [SEN, J,] 199

A
Category III Units which were bad/sick and whose
position had further deteriorated
because of the strike.

However, subsequently in November 1982, the respondent,
textile undertaking was placed in Category III viz., units B
which were bad/sick and whose position had further
deteriorated.

The Government of India accepted this categorisation. It
was realized that none of the 13 mills falling under Category
- III could be expected to survive on a sound basis without
1 financial assistance from the Government, Government c
_)'-controlled institutions and nationalised banks. None of the
said mills were in a position to restore their financial
-)., condition on a coumercial basis without such special
' assistance. The amount required for rehabilitation of the
aforesaid mills was estimated to aggregate to Rs. 194.48
crores to be contributed by public financial institutions such D
as the IDBI, the nationalized banks and 10% promoters share
etc. It was also expected that the disposal of surplus lands
appurtenant to some of these mills such as the respondents
textile undertaking Shree Sitaram Mills would largely
'Y-help in raising the necessary working capital.
E
As decided at the aforesaid meeting called by the Reserve
Bank, the IDBI was to take a detailed viability report in
respect of mills falling under Category Ill which it did and
submitted its report sometime in March 1983 in respect of each
~ -'l'mill in that category. So far as the respondents were concern-
_.___, ed, as regards its management the IDBI adversely coamented on F
- - 'the management of the mill by the Tantias as a result of
which the bankers of the Company had lost confidence in them'
and 'indicated that no loans could be advanced unless
Tantias were agreeable to dissociating themselves from the
mismanagement. It also referred to the Inquiry Committee
appointed by the Government of India to look into the affairs G
of the Company which had attributed the continuous losses
incurred by the Company to gross mismanagement. After setting
out a long term scheme of financing of the textile mill by
• public financial institutions,, the report observed :

''Even assuming that the Company will be able to H
200 SUPREME COURT REPORTS [1986) 2 S.C.R. :

A '
utilize 75% of its cash accruals to liquidate its>:-
term liabilities, it will take over 20 years for it ·
. to repay its term commitments (including the funded
loan) aggregating to Rs. 7.59 lakhs".

It accordingly observed that the mill could not be considered
B viable, but'added :
~
"However, the Company has surplus lands admeasuring
6625 square metres within the factory area which is
proposed to be disposed off and for which it had
already obtained the approval of Government of
c Maharashtra under Urban Land Ceiling Act. The
Company expects to realize about Rs. 2. 05 crores
from the ·sale of the land. The Company also has
plans to ·construct residential buildings thereon
'for sale to financial institutions/banks etc. in
( which case, it expects net realization from such
D sales at · Rs. 3.05 crores towards the end of
1984-85".

With this realisable asset,. the IDBI expected that it would be
possible to make the respondents textile undertaking viable
over a period of seven years. It was therefore clearly
E understood that the respondents textile undertaking could be
·made viable only on the sale of surplus lands.

On September 20, 1983 the Government of India, Ministry
of Commerce 0 Department of Textiles constituted a Task Force
, to look into the affairs of the Category III strike affected
F mills. The Task Force under the terms of reference had to
collect ·the necessary data ·and place its report before ther
Economic Affairs Committee of the Union Cabinet to enable the
Government to take a decision as to which of the mills falling
under · Category III should be/ nationalised. The Task Force
submitted its report on October 13, 1983 i.e. a few.days prior
G to the prom.1lgation of the Ordinance by· which it classified
the mills falling in· Category III into four groups. The
respondents' textile undertaking was placed in Group II viz.
mills which were likely to be made viable with the sale 'o
surplus lands, with a rider added that ·a change in the
management should also be brought about. It estimated that the
H total liabilities of the mills falling in Category III were of
the order of Rs. 194.48 crores.
N.T.C. v. SITARAM MILLS [ SEN, J, ] 201

A
It became therefore necessary to consider whether such
-f mills should be rehabilitated by injecting public funds
on non-commercial and concessional terms. The Government of
India was of the opinion that the management of such mills had
been defective as, had there been no mismanagement, the mills
would not have found themselves in the condition in which they B
Jere even before the general strike. In the circumstances the
Government of India had to consider whether it would be in the
-i. public interest that such public finances shoul,d be made
available to such mills particularly when there were serio~s
allegations of mismangement, frittering away of assets of the
textile undertakings, diversion of funds, etc. It had also to
, consider whether in the public interest it was desirable to C
J give financial assistance on concessional terms to provide
undertakings the self-sufficiency rather than to take over
-.), ~uch undertakings and manage them itself as a step towards
nationalisation. The Government of India decided as a matter
of policy that it was desirable to achieve the process of
nationalisation in two ·stages - by first taking over the D
management of the textile undertakings and thereafter enact
suitable legislation to nationalize the same. As the taking
over of the management was with a view to implement the
decision to nationalize the said textile mills, there was no
y question of holding an inquiry either under the Industries
(Development and Regulation) Act, 1951 or under the Sick E
Textile Undertakings (Taking Over of Management) Act, 1972,
.. Prior to November 1982, there were several viability
surveys made by different authorities, namely, (1) Ahmedabad
-1' Textile Industries Research Association (2) Textile
Commissioner's Office (3) S.R. Batlibhoy & Company and an F
\ independent survey by the IDBI itself. In 1976-77, at the
.instance of the IDBI the Ahmedabad Textile Industries Research
Association carried on a technoeconomic viability survey and
made its report in 1978 which at the request of the United
Conmercial Bank was again updated in March 1979. In its
reports, the said Research Association stated that considering G
all financial aspects and the favourable enviornment of the
Company'~ textile undertaking, it was a techno--economically
viable unit and that finance should be provided by way of
working capital .to the tune of Rs. 2.40 crores forthwith by
the Bank. In or about 1979, the Textile Conmissioner's Office,
Ministry of Finance, Government of India also carried out a H
202 SUPREME COURT REPORTS [1986] 2 s.c.R.

A
full scale survey of the textile undertaking. Its report dated
September 25, 1979 recommended the Banks to review the
situation favourably and that an additional wcrking capital
estimated at around Rs. 50 lakhs should be provic'·?d. After the
aforesaid survey report of the Research Association and the
Textil" Commissioner's Office the IDBI asked the Company to
B obtain a further · techno-economic viability survey from the
reputed chartered accountants Messrs S.R. Batlibhoy & Company. ~
The· firm of chartered accountants accordingly undertook a
survey and while indicating that the management should be
s trenghthened in certain areas, recommended that necessary
finance ·should be provided to the Company as its textile
c undertaking was a techno-economically viable unit. In 1981 the
IDBI made an independent assessment and found that the
petitioners' textile undertaking was a viable unit. It was a
·predominantly export-oriented unit and the modernisation
sche:i>:! put f oward by the Company could ensure gainful employ-
ment to 3,000 workers. At that point of time the Company had
D outstanding export orders to the tune of Rs. 4. 5 crores but
I •
was not able to execute the same as per schedule on account of
lack of working capital. It. found that the Company's export
performance was to the extent of 75% of its total sales and
there was possibility of stepping up exports after completion
of the scheme of modernisation.
E
All these surveys were directed in ascertaining whether
the Company's textile undertaking was a techno-economically
viable·unit or not and whether it was desirable to provide the
Company with working capital.

F On October 18, 1983 the. President of India prorulgated
the •• Textile Undertakings (Taking Over of Management) '--
Ordinance,. 1983 whereby the management of 13 textile under- T
takings specified in the First Schedule to the Ordinance
vested in the Central Government. The textile undertakings of
the respondents being one of the aforesaid-13 undertaking also
G vests in the Central Government. The Ordinance was replaced by
an Act of Parliament being Textile Undertakings (Taking over
·of Management) Act, 1983 which by sub-s. (2) of s. l was
brought into force.with retrospective effect from October 18,
1983, the date of prorulgation of the Ordinance. The purpose
and object of the Act, as reflected in the long title, was to
H provide for the taking over in the public interest of the
N.T.C. v; SITARAM MILLS [SEN, J.] 203

A
--4-management of the textile undertakings of the Companies speci-
fied in the First Schedule pending nationalisation of such
undertakings and for matters connected therewith or incidental
thereto. The preamble to the Act brings out the necessity for
such legislation :
B
"WHEREAS by reason of mismanageinent of the affairs
of the textile undertakings specified in the First
Schedule, their financial condition became wholly
unsatisfactory even before the commencement in
January 1982 of the textile strike in Bombay and
their financial condition has thereafter further
deteriorated; c
AND WHEREAS certain public financial institutions
have advanced large sums of money to the companies
owning the said undertakings with a view to making
the said undertakings viable;
D
AND WHEREAS acquisition by the Central Government
of the said undertakings is necessary to enable it
to invest such large sums of money; ·

AND WHEREAS pending the acquisition of the said
undertakings, it is expedient in the public E
interest to take over the management of the said
undertakings;

BE it enacted by Parliament in the Thirtyfourth
Year of the Republic of India."
F
The legislation was clearly in furtherance of the
Directive Principles of State Policy under Art.39(b) and (c).
As the preamble reads the financial condition of the textile
undertakings specified in the First Schedule had become
wholly unsatisfactory even before the commencement of the
textile strike in January 1982 in Bombay, by reason of G
mismanagement of the affairs of such undertakings and their
financial condition thereafter further deteriorated. Many
""\ public financial institutions had advanced large sums of money
to the textile companies owning the said undertakings with a
view to making the said undertakings viable. Further
investment of very large sums of money was necessary for H
204 SUPREME COURT REPORTS (1986] 2 s.c.R.

A reorganising and rehabilitating .the said undertakings and~
thereby to protect the interests of the workmen employed
therein and to au~nt the production and distribution at fair
prices of different varieties of cloth and yarn so as to
subserve the interests of the general public. Parliament was
satisfied that acquisition by the Central Government of the
said undertakings was, therefore, necessary to enable it to
B invest large sums of money, and that pending acquisition of
the said undertakings, it was expedient in the public interest ,.,,
to take over the said management of the undertakings.

The Statement of Objects and Reasons accompanying the
Bill reads as follows :
c y
"The Textile Undertakings (Taking Over of
Management) Ordinance, 1983 was proD11lgated by the)(
President on 18th October, 1983 to vest in the
Central Government the management of thirteen
textile undertakings, pending their
D nationalisation. By reason of mismanagement of the
affairs of these undertakings, their financial
condition which became wholly unsatisfactory even
before the commencement in January, 1982 of the
text~le strike in Bombay further deteriorated Y
thereafter. Certain public financial institutions
E had with a view to making the said undertakings
viable, advanced large sums of money to the
companies owning these undertakings. Further
investment of very large sums of money found to be
necessary for reorganising and rehabilitating the
said undertakings and thereby to protect the
F interests of the workmen employed therein and to
augment the production and distribution at fair·
prices of different varieties of cloth and yarn so
as to subserve the interests of the general public.
Goverll!n'>nt considered the nationalisation of the
said undertakings to be necessary to enable it to
G invest such large sums of money and safeguard other
interests. Once the basic decision of nationali-
sation was taken, a genuine apprehension arose in ,>--1
the Government's mind that unless the management of
the concerned undertakings was taken over on
immediate basis there might be large scale
H
N.T.C. v. SITARAM MILLS [SEN, J.] 205

A
frittering away of assets which would be
detrimental to the public interest,, It thus became
urgently necessary for Government to take over
Management of the undertakings in the public
interest. As Parliall>'!nt was not in Session at that
time and every day's delay could have had serious B
repercussions the aforementioned Ordinance was
prolllllgated."

On November 11, 1983 the respondents filed a petition
- under Art. 226 of the Constitution challenging the
aonstitutional validity of sub-s.(1) of s.3 of the Act as
-A\riolative of Arts. 14, 19(l)(g) and 300A. The respondents c
ontended that. apart from the Company's textile undertaking

Jc nd the business of manufacture of yarn and textiles, the
Company as from 1970 also carried on the business of real
:"'~' estate. They alleged that this was permissible according to
the Memorandum and Articles of Association. It is averred that
there are several relevant facts which conclusively show that D
the Real Estate Division was a separate and independent
business being carried on by the Company.

't' Facts alleged to show that the activity of real estate
was wholly unconnected with the textile undertaking were
these. Since the Company's textile undertaking was established E

.. way back in 1875, it was not scientifically established on the
basis of principles of good and economic management. Various
.departments of the Company's textile undertaking such as
,spinning, weaving and storage godowns were constructed and
$laid out at great distances from each other. This resulted in
'1requiring a vast area of land and putting up the various F
departments at different points. This had its great
disadvantages, since the transportation cost increased, there
I was lot of wastage and handling, supervision and control of
manufacturing activities became inconvenient, time-consuming
and cumbersome. The original establishment was brought about
in the late 18th and early 19th century when wages were low G
Iii and the textile industry was not modernized. There was total
~lack of scientific or proper planning. After the present
management had taken over in 1955 the Tantias implemented a
modernization scheme by bringing the departments together
which promoted convenience in handling and reducing
• transportation costs, wastage and pilferage. As a result of H
206 SUPREME COURT REPORTS [19861 2 s.c.R.

A
the.se measures a large area of land and built up space became
available to the Company f 0r the purpose of utilizing the same
in its real estate business. Consequently in the year 1970 the
Company applied to the Bombay Municipal Corporation for
sub-division of its lands in order to enable it to utilize the
same for the purpose of its real estate business. By its
B letter . dated April 16, 1971 the Municipal Corporatio~
sanctioned sub-division on certain terms and conditions
principal all>'.lngst them being (1) The Company should hand over
plot No. 1-admeasuring about 5,000 square yards to the Bombay
Municipal Corporation for construction of school and play-
ground against nominal advance, the balance value to be fixed
C by the Special Land Acquisition Officer. (2) Plots Nos. 2 and
6 admeasuring about 4,000 square yards were to be reserved for~
recreational amenities and open space, free of cost. (3) Plot
No. 3, a. triangular plot at the top admeasuring 103 square
yards .was to be set apart by the Company for construction of
B.E. sfT. sub-station. ( 4) The Company had to construct and
D hand over an approach road 1500 to 1600 feet long and 45 feet
wide admeasuring about 7,600 square yards free of cost as per
.the requirement of the development plan finalized by the
Bombay Municipal Corporation. In consideration of the afore-
said, the Bombay Municipal Corporation agreed to grant Floor
Space Index i.e, Floor Area Ratio, otherwise known as FAR, and
E . building rights on the appurtenant plots.

As a result of the aforesaid sub-division, the following
plots became available to the Company for development :

1. Plot No. 5 admeasuring 8740 square yards.
F 2; Plot No. 7 admeasuring 7122 sqlll!re yards. (beingy-
Industrial Estate already constructed and sold}
3. Plot No. 8 ad~asuring 3000 square yards.
4. Plot No. 12 admeasuring 3443 square yards (being
'
Industrial Estate constructed and sold in the year
1980-Bi)
G
Apart from the said plots being available for development th:.i....
Company had in its possession various old buildings a~
godowns which were already constructed but which were not
useful in the textile industry on account of the fact that it
had ioodernised its textile undertaking. All these buildings
H were tenanted and the rent recovered from the same was duly
N.T.C. v. SITARAM MILLS [ SEN, J.) 207

A
credited to the Company's balance-sheet. These also becane
available to the Company for disposal. All these plots were
shown demarcated in the. plan 'Exh.K' and annexed to the Writ
Petition as order of the Municipal Commissioner granting
permission for sub-division along with a plan delineating·the
different plots. In 1981, plot No. 6 admeasuring 2761 square B
yards which was kept reserved as recreation ground was
released by the Minicipal Corporation in exchange for plot No •.
8 admeasuring 2960 square yards.

The respondents further aver that they applied to the
Industries Commissioner for 'No Objection Certificate' for
constructing industrial estates on plots Nos. 7 and 12. The c
Industries Commissioner by letter dated January 20, 1972
issued the requisite N.O.C. for construction of industrial
estates or galas as industrial units for small scale
industries on plot No. 7, admeasuring 7122 square yards
subject to n11nicipal sanction on condition that 25% space
should be reserved for small scale industrial units which were D
to be transferred from non-conforming zones on the terns fixed
by the Municipal Commissioner · for Greater Bombay• The
respondents also by their letter dated July 19, 1973 applied
to the State Government for permis.sion to construct such galas
on plots Nos. 5 and 8. On the sane day, the Directorate of
Industries granted the N.O.C. permitting the respondents to E
construct an industrial estate on plot No. 12 admeasuring 3443
square yards comprising of 110 sheds on similar coOdition. The
Municipal Corporation sanctioned the building plans on March
16, 1973 and the Industries Commissioner by his letter dated
July 19, 1973 granted a N.o.c. for construction of industrial
h
I .
estate on plot No. 12. On even date, the ··respondents
a_rchitects also made an application to · the Director of
F

Industries for grant of N.O.C. for the proposed industrial
estate on plot No.5. /

On January 19, 1974 a special resolution was passed at
an extraordinary general meeting of the Company in terns of s. G
149(2A) of the Companies Act, 1956 to the effect :
+ "Resolved that pursuant to s. 149(2A) of the
Companies Act, consent be and is hereby accorded to

H
208 SUPREME COURT REPORTS [19861 2 s.c.R.

A
and authority conferred upon the Board of Directors
of the Company to carry out the provisfrc-is of cl.12
of the Memorandum of Association."

The resolution then reproduced sub-cl. (12) of cl. 3 of the
Memorandum of Association.

To resume the narrative, the construction of an
industrial estate on plot No. 7 admeasuring 7122 square yards
consisting of 166. galas was . commenced by the respondents
soim?time in the year.1974 and the same was completed in later
years. Incidentally, they constructed 90 galas in Building A
-c and 12 galas in Building B and secured the help of the
developers for the rest. All the galas were sold by the ;.....
respondents on ownership basis to various small scale
industries. Similarly, the respondents commenced construction
of an il)dustrial estate on plot No; 12 admeasuring 3443 square
yards fo . the year· 1973 but due to the imposing of certain
D restrictions placed by the State Government on construction of
industrial estates in Greater Bombay,· the activity of
construction of industrial estates on the said plot came to a ·
standstill pending relaxation for restarting of such
construction. In 1979-80, the Government" allowed such
construction. Thereafter the respondents restarted construc-
E tion of the industrial estate o;i plot No. 12 admeasuring 3443
square yards during the year 1980 and the industrial units
built thereon were _all completed and sold by 1981. The
respondents alleged that the funds required for the above
activities were 'self-generated' by the Real Estate Division
· · · from advance. sale of industrial units. They. further alleged
F that a road admeasuring about 1500/1690 feet· long and 45 feet '!..-
wide had been constructed in 1981 by the Real Estate Division..
as per the term imposed. The respondents also alleged that .
through 'continuous and persistent efforts' the Real Estate
Division could obtain permission(from the State Government for
conversion of plot No.5 from industrial to residential use by
G modifying the G Ward development plan i.e. from General
Industrial Zone to residential zone on September 19, 1981.
Later, exemption under the Urban Land Ceiling Act, 1976 was
obtained from the competent authority on October 15, 1982 and
formal permission was granted under. s.22 of the Act for
development of plot No. 5 for residential purposes. In October
H
{ N.T.C. v; SITARAM MILLS [ SEN, J.) 209
A
~
· 1982 the respondents architects submitted building plans to
the Municipal Corporation for construction of residential
buildings and thereafter they started negotiations for sale of
re"idential buildings to various banks and public sector
un.'crtakings in anticipation of the sanction.
B
.....\ Upon these facts the respondents filed a petition under
art. 226 of the Constitution in the High Court challenging the
constitutional_ validity of sub-s.(l) of s.3 of the Textile
Undertakings- (Taking Over of Manageirent) . Act, 1983 as
violative of Arts. 14; 19(l)(g) and 300A of the Constitution.
They also contended in the alternative that the Real Estate
Division cannot be said to be forming part of the textile c
undertaking and therefore the taking over of the Real Estate
Division was illegal, null and void. By the judgment under
appeal, the High. Court upheld the constitutional validity of
the Act insofar as the taking over of the management of the
respondents textile undertaking by the .Central Governirent
under sub-s.(l) of s.3 of. the Act. was concerned but h_eld that D
the Real Estate DiVision was not an "asset in relation to the
textile undertaking"-' within the ireaning of sub-s. (2) of s. 3 of
the Act.

The crucial question that falls for determination is
whether the surplus land appurtenant to the mill was not an E
'asset in relation to the textile undertaking'_ within the
ireaning of sub-s.(2) of s.3 of the ·Textile Undertakings
(Taking over of Manageirent) Act, 1983. That depends on
whether the so-called business of real estate carried on ·by
the Company was separate and distinct from the textile
business. The High Court has held that along with the vesting F
of the manageirent of the mill in the Central Government under
sub-s.(l) of s.3 of the Act, all" the assets and properties
etc. of the Company only relating to the mill vested in them
'
and that the Company having by a resolution passed at the
Extraordinary General Meeting of shareholders on January 19,
1974 authorized the Directors to carry .·on business of G
de·1eloping Company's surplus lands and the Company's balance-
. sheets from 1974 onwards having shown the said Industrial
Estate as current assets of the Company and from February 1976
as stock-in-trade of the Company, the said lands were being
treated as distincts assets of the Company. It observed that
the existence of the Company's 'Real Estate Division' was also H
210 SUPREME COURT REPORTS (19861 2 s.c.R.

A
recognised by the letters of the Investigation Committee,\
appointed by the Central Government under s.15(a)(i) of the
Industries (Development and Regulation) Act, 1951, informing
the petitioners' Company of the appointment of such a
Committee by asking the Company to furnish particulars as
regards the 'Real Estate Division'. Further, the report of the
B said Investigation Committee made in February 1982 also dealt
with the said 'Real Estate Division' separately. It has')
referred to the fact that in 1981, the Central Excise ·
Authorities had approved for licensing the demarcation of the
Mill's area being Plot No. 9 (part) as shown in the plan
(Annexure K) and that the notification dated September 19,
c 1981 by the Government of Maharashtra authorized the change of\-
user of Plot No.5 from Industrial zone to Residential zone. ·
The High Court further observed that it was not disputed that \
the petitioners' company under its Memorandum of Association
was entitled to carry on, amongst others, the business of land
development, builders, dealings in reaI estate etc. From the
D above facts stated, the High Court has come to the conclusion
that the respondents Company in its own right since 1973-74
had established a 'Real Estate Division' for doing business in
construction and sale of buildings on its land other than the
land occupied by the mill which was distinctly demarcated. 'f
Therefore, the business carried on by the respondents Col!l'any
E under the 'Real Estate Division' was distinct from and
unrelated to the Company's business of running the textile

J
mill. It repelled the contention of the Central Government
that merely because the respondents Company, as a condition
of getting loans from financial institutions to rehabilitate
the mill and by making of viable financially, it would not
F make the said Real Estate Di vision an asset of the Company so .
as to vest the same in the Central Government under sub-s.(2).·
of s.3 of the Act, along with the vesting in them of the
Mill's management under sub-s.(l) thereof. The issue involved
must necessarily turn on the meaning of the words "assets in
relation to the textile undertaking" appearing in sub-s.(2) of
G s.3 of the Act.

Sub-ss.(l) and (2) of s.3 of the Act which have a
material bearing on these appeals provide as follows :

"(1) : On and from the appointed day the management
H of all the textile undertakings shall vest in the
Central Government.
N.r.c. v. SITARAM MILLS [ SEN, J.] 211

A
(2) The textile undertaking shall be deemed to
include all assets, rights, leaseholds, powers,
authorities and privileges of the textile company
in relation to the said textile undertaking and all
property, movable and illDOOvable, including lands,
buildings, workshops, projects, stores, spares, B
instruments, machinery, equipment automobiles and
other vehicles, and goods under production or in
transit, cash balances, reserve fund, investments

- and booklets and all other rights and interests in
or arising out of such property as were, immediate-
ly before the appointed day, in the ownership,
possession, power of control of the textile company
whether within or outside India and all books of
c
account, registers and all other documents of what-
ever nature relating thereof."

In the Act, "textUe undertaking" as defined in s.2(d) reads :
D
"2(d): "textile undertaking" or "the textile
undertaking" means an undertaking specified in the
second column of the First Schedule."

The term "textile company" is also defined in s. 2(e) as :
E
"2(e) : "textile company" means a company (being a
~ompany as defined in the Companies Act, 1956)
specified in the third column of the First
Schedule, as owning the undertaking specified in
the corresponding entry in the second column of
\ that Schedule." F

Various contentions have been raised in these appeals but
on the view that we take it is not necessary for us to deal
with them all. We were also referred to a large number of
decisions on the contentions so advanced. But we do not think
that they are of any real assistance since these appeals DI.1st G
turn on the construction of the words 'assets in relation to
the textile undertaking' appearing in sub-s. (2) of s.3 of the
Act which 111.1st take their colour from the context in which
they are used.

In support of these appeals, Shri Milon Banerjee, learned
Additional Solicitor-General appearing on behalf of the Union H
212 SUPREME COURT REPORTS [1986] 2 s.c.R.

A
of India and the National Textile Corporation, was followed by ;.,-
Ms. Indira Jaising, learned counsel appearing on behalf of the
Maharashtra Girni Kamgar Union representing the workers of
the textile mill. The principal contention advanced by the
learned counsel was that the words "assets in relation to the
textile undertaking" used in sub-s.(2) of s.3 of the Act have
B a wide legal connotation and they rust be construed to mean
"forming part of" and not as "belonging to" the textile under- 1
taking. In essence, the contention is that the surplus lands
were integrally connected with the textile business which
could not be carried on and made viable except by the sale of
the surplus lands. The submission is that the High Court was
c in error in holding that the Company was engaged in the ~
business of property development. The argument is that the
activity of development and disposal of surplus lands or of Jc, \
construction and sale of industrial galas was for purposes of
raising finance for the textile business and therefore was
ancillary or incidental to the main object with which the
D Coropany was formed, namely, of carrying on textile business.
Reliance was placed on the application of the "main objects"
rule of construction, namely that where a Memorandum of
Association expresses the objects of the Coropany in a series
of paragraphs and one paragraph, or the first two or three 'f
paragraphs, embody the main object of the Coropany, all other
E paragraphs are treated as merely ancillary to the "main
object" and as limited or controlled thereby. We were referred

F
to the various survey reports of the IDBI, Ahmedabad Textile
Industries Research Association, Investigation Committee,
Textile Commissioner's Office and Task Force with a view to
iropress upon us that the viability of the Coropany depended
largely on the proper utilization of the surplus lands. It was
J
contended that the Legislature in enacting the law clearly. -
had the intention of taking over the surplus lands of the
Coropany and the High Court should have interpreted sub-s. (2)
of s. 3 of the Act in consonance with the legislative intent.

G The contention to the contrary put forth by Shri Nariman,
appearing for the respondents' Coropany is that the words
"assets in relation to the textile undertaking" in sub-s. (2)
of s.3 of the Act rust be read in conjuction with sub-s. (1)
thereof and the other provisions of the Act and therefore UllSt
be interpreted to irean "forming part of" i.e. as "belonging
-I to" the textile undertaking. It is submitted that what vests
N.T,C. v. SITARAM MILLS [SEN, J.] 213

A
-) in the Central Government under sub-s. (1) of s. 3 of the Act
is the management of the textile undertaking. Function of
sub-s. (2) thereof is only clarificatory. The learned counsel
referred to different provisions of the Act to stress that the
Act makes a clear distinction between the "textile
undertaking" as defined in s. 2(d) and the "textile company"
B
as defined in s. 2(e). According to him, a mere perusal of the
Schedule read with the definition clause clearly shows that
)- what has been taken over under sub-s. (1) of s. 3 of the Act
is only the management of the textile undertaking and
everything relating thereto and nothing else. The learned
11111!' counsel laid particular stress on the special resolution
,J>assed at the Extraordinary General Meeting of the
--,/shareholders on January 19, 1974 whereby the Company accorded
c
its approval and conferred authority upon the Board of
;!Directors of the Company to carry out the provisions of
sub-cl. (12) of cl. 3 of the Meioorandum of Association. Where
was the necessity, he asks, of the special resolution as
contemplated by s. 149(2A) of the Companies Act unless the
D
shareholders intended and gave consent to the starting of a
new business by the Company in real estate ? Therefore he
contends that the passing of a special resolution and filing
of the same with the Registrar were necessary concomitants
:Yinas1ID.1ch as the business in real estate which the Company
intended to carry on was a new business and it was not
E

- germane i.e. was unrelated to the existing business. lie then
contends that sub-cl. (12) of cl. 3 read with sub-cl. (37) on
its true construction, excluded the 'main objects' rule of
~onstruction so that each of the objects in the clause was to
I be read in isolation and not as ancillary or limited or
'controlled by first few paragraphs and that, on that
F
\\:Onstruction, sub-cl. (12) was wide enough to include the Real
Estate Division, i.e. the project the Company had undertaken
from 1974 onwards of development and sale of surplus lands by
construction of industrial galas. lie tried to draw sustenance
from the IDBI' s study of viability, report of the Task Force
and that of the Investigation Colllllittee and contends that each
G
of them was constituted by a body of experts charged with the
A.. ~uty of making an investigation into the affairs of the
'""\Company. lie submits that all these high-powered bodies
accepted the existence of a separate Real Estate Division of
the Company. In substance, the submission is that the business
of development of property and the sale of plots with
H
214 SUPREME COURT REPORTS [1986] 2 s.c.R.
A
industrial galas was an adventure in the nature of trade which \-
was wholly independent of the textile business and merely
because the Company was raising finance by selling industrial
galas constructed on the lands, did not necessarily imply that
the lands formed part of the textile undertaking.
B We find it difficult to sustain the judgment of the High
Court that the so-called Real Estate Division of the Company
was a separate or distinct business or that the surplus lands f
did not form part of the assets 'in relation to the textile
undertaking' within the meaning of sub-s. (2) of s. 3 of the
Act. There was in reality no such business nuch less any real ...,
c estate business. The respondents Company was borrowing money
all the time and the proceeds of the sale of surplus lands and).,-.
industrial galas were utilised to i~rove the liquidity to pay
off the creditors. When the mill was established way back in}v
1875 it was located over an area of about 21 acres admeasuring '
1,05,008 square yards, most of which was free-hold and of this
D
the manufacturing and storage areas pertaining to textile
activities occupied SO, 749 square yards i.e. nearly half of
the total area. As a result of a revised lay-out of the
production and storage facilities, the respondents rendered
some of the buildings and plots surplus and the textile mill
was located on 40,456 square yards. i
E

-
The fundamental question is : Whether the land is an
asset in relation to the textile undertaking which nust
necessarily turn on the interpretation of sub-s. (2) of s. 3
of the Act. The test is whether it was held for the benefit,
of, and utilised for, the textile mill. It is quite clear that}
F there was as such no such separate business carried on by the
Company in real estate. All the assets including the surplus
lands appurtenant to the mill were assets of the Company hekl
for the benefit of the textile undertaking. At no point of
time was there a segregation of the assets of the Company to
form the Real Estate Division. The surplus land which was an
G asset be longing to the Company's telltile mill was never
bifurcated to form a Real Estate Division. There was no
transfer of title to the lands and the so-called Real Estate, ;..
Division had no capital assets of its own. The Company was;>'"-'
indebted to the tune of Rs. 6.80 crores and the liabilities
were being met by sale and development of lands, construction
H
of industrial galas and the diversion of plot No. 5 from the
N.T.C. v. SITARAM MILLS [SEN, J.] 215

A
Industrial zone to the Residential zone. The proceeds were all
"'Ploughed back into the textile business to pay off the debts.
There was no separate account of the Real Estate Division and
there is really nothing on record to show that any separate
business in real estate was ever started. The respondents have
laid no real foundation on the pleadings to sustain the B
finding reached by the High Court that the business of real
estate was separate and distinct from the textile business.
-;There is no clarity in the pleadings aS to the precise point
of time when such a business was ever started. The question is

-
: when did the Real Estate Division come into existence ? The
petitioners aver in para 2 that w.e.f. 'the year 1973-74 the
Company also established what is described as a Real Estate c
__pi vision'. It is averred
I
"In the said Division, the 1st Petitioner carried
--f on and carries on the business of developing
various plots, putting up buildings thereon and
selling the same or portions thereof. The said D
activity is totally segregated from the textile
undertaking and is a separate and independent
business of Petitioner No. I and it has nothing to
do with the Textile Undertaking."

, ~ile in paragraph 27 it is averred : E
....;.,.

"Apart from the 1st Petitioner's textile under-
taking and the business of manufacturing yarn and
textile, the !st Petitioner from 1970 also carried
y on the business of real estate".
_J F
~ The balance-sheets of the Company throughout furnish data
fdr_the textile undertaking as a whole and the fact shows that
the so called real estate business was not separate from the
textile undertaking. Even the schedule of fixed assets does
not indicate that the alleged Real Estate Division comprising
of the SUrPlus lands apart from 40,456 square yards which now G
form part of the mill precincts had been separa.ted. There is
nothing to show that the said lands were not appurtenant to
~ ~ textile undertaking or their integrality was broken. The
bJlance--sheets do not disclose that the Company had shown Real
Estate Di vision or the industrial galas separately in the
schedule of fixed assets. This falsifies the respondents H
216 SUPREME COURT REPORTS [1986] 2 S.C.R.

A
plea that the real estate business was separate and distinct.l.c
from the textile undertaking. It is quite clear that the
business of the company under the real Estate Division was a
business belonging or related to the textile undertaking. This
is borne out by the fact that before the taking over of the
management by the Central Government under sub-s. (1) of s. 3
B of the Act, the respondents Company as a condition of getting
loans from financial institutions to rehabilitate the textile
mill mortgaged the lands and also for making it financiallY)'
viable brought in additional funds by sale of the excess
lands. Sales of the surplus lands or of industrial galas

c
constructed thereon did not constitute an adventure in the
nature of trade but were in substance and essence utilisation
..
of the capital assets of the Compa11y for the purpose o'ir-
running the textile undertaking.
~
Ms. Indira Jaising appearing for the Maharashtra Girni
Kamgar Union has filed before us a detailed and tabular chart
D which is rather instructive, which clearly demonstrates that
the Real Estate Division was part and parcel of the textile
undertaking. It gives particulars showing utilisation of the
lands belonging to the Company for purposes of running the
textile business, demarcating the plots as shown in the plan
(Annexure K) to the Writ Petition. Prior to the year 197l;f
E there was no sub-di vision of the lands and as such all the
assets of the Company were held in relation to the textile
business. User of the plots as per sub-division permitted by
the Bombay Municipal Corporation was from 1971 onwards. There
...
were four reserved plots, namely, plot no. 1 admea~uring 4764
square yards, reserved by the Bombay Municipal Corporation fof
F construction of a school. Plot No. 2 admeasuring 1870 square
yards, reserved by the Corporation as a recreation ground i. e)
to be kept green~ Plot no. 3, a small triangular plot
admeasuring 105 square yards, reserved by the Corporation for
the B.E.S.T. Sub-Station, and plot no.6 admeasuring 2761
square yards, reserved by the Corporation to be kept open for
G recreation .till 1981. In 1981 it was released in exchange for
plot no. 8 admeasuring 2960 square yards. Of the remaining
plots, on plot no.4 admeasuring· 9765 square yards there were
certain old godowns of the textile mill and they were sold ~
the respondents to a charitable trust of the Tantias in'·,·
1974-75 for setting off loans taken from the trust for the
H textile business. Plot no. 5 admeasuring 8740 square
yards lying vacant : There was no development of this
l \
N.T.C. v; SITARAM MILLS [ SEN, J.) 217

---· plot. T1it.. !'>tospandents-Company created an equitable mortgage in
favour ot the United Comrr<!rcial Bank to raise finance for the
A

textile-business. Plot no. 6 adllX!asuring 2761 square yards was
released by the Corporation and transferred from· the
Industrial - Zone to the· Residential Zone with permission to
construct. lllllti-st'oreyed buildings containing . residential B
-~flats. Plot·no. 7 admeasuring 7122 square yards : in 1974 the
Company built sollX! industrial galas on a portion and.sold them
on ownership basis. _In . .1980, building rights were sold to
builders as· ttie ~Co~any _did not have finances _to' build on its
own. Sale proceeds thereof were used for impro11ing financial
liquidity of the . Company and· to reduce the liabilities
relating to the textile business. We have already referred to c
plot no. 8 which was lying vacant till 1981 when the Municipal·
'.Corporation reserved it in exchange for plot no.6. Equitable
-; mo~tgage ·was also created by the Company in f~vour of the
Vnited Con:mercial Bank with respect to this plot. lhen comes
_plot no.9 adnkasuring 50, 749 square yards. lhe textifo mill
.i.hd its buildings are riow located over a portion thereof D
·adllX!asuring 40,456 s'quare yards.: On. the remaining part, old
buildings existed which were sold/ in 1974-75 to a sister
: concern of the Tantias. Sale proceeds were· used ·for setting
off loans taken from the Tantias Trust and other financial
institutions for\ running the textile bl)siness; Of the
__.remaining plots, two of them, nallX!ly ,- plot no. 10 admeasuring E
1745 square-·yards and plot no. 11 admeasuring 1590 square
_yards were. sold by the Company without raising any
construction to a Tantia· concern. Proceeds of these sales were
utilized for iillproving the financial· liquidity of the Company
·and· t~-'reduce' the. liabilities relating. to_ the textile
-;:business. Plot no. 12 _adllX!asuring 3443 square yards : in 1980 F
'a:· basement was built for industrial galas. lhereafter, the
due
Company .
to . paucity. of funds sold building ·rights to a
~
builder. Sale proceeds were used for (1) paying outstanding
bonus to· the workmen of the• textile undertaking, and (2) -
repayment of bank loans, buying of cotton under the directions
of the· Banks. - Lastly, plot no •. 13 admeasuring 1873 square G
J
yards: . In 1968-69 'this plot had already been sold by the .
~company without any construction. Sale proceeds were used for •
_improving the. financial liquidity of the Company and reducing
· the liabilities in relation to the textile undertaking. lhe
tabular chart gives a graphic picture of the transactions
H
218 SUPREME COURT REPORTS [1986] 2 s.c.a.

A
effected ·by the Company in respect of the surplus lands byJ..
building industrial galas thereon or otherwise. They bring out
the existence of inter-connection, inter-lacing, inter-depend-
ence and unity between the transactions of ·the respondents-
Company relating to the surplus lands and the structures built
thereon as well as the textile business carried on by it.
B Sales of sllrplus lands in such circumstances, we are inclined
to think, ·are· no mare than a realisation of capital or
conversion of one form of it into another.·It was in reality a'f
scheme for conversion of capital. ,The activity of selling the
surplus lands or the industrial galas constructed thereon had
a direct nexus with, or clearly related to, the carrying on of
c the textile business. .'y
Falsity of the respondents claim that the business ofl,
the Real Estate Division was separate and distinct from thet-
textile business and therefore the .surplus lands which
constituted the Real Estate Division, were not an asset in
D relation to the textile· undertaking within the meaning of
sub--s. (2) of s.3 of the Act is clearly borne out from the
balance-sheets of the company. Before dealing with the balance

E
sheets we think it proper to set out the relevant portion of
the Note on Real Estate Division submitted by the petitioners, .
which i:-eads :

·
. ,...

. "The teJCtile unit was one of the businesses of
l
· Petitioner No.l, Real Estate being another
business. In order to strangthen the business of
Textile Unit, it was necessary to obtain loans fro
financial institutions and Banks. The Petitioner
F No. l created security on Plot Nos. 5, 8 ·and 12
(assets of the Company not. related to the work.in
of the textile unit) in favour of the Company's
bankers. Merely because the· Petitioner No. l
created or agreed.to create security on so""' of its
assets. not pertaining to Textile Undertaking for
G sfi:engthening the textile Utldertaking, it does not
follov that these assets are the assets of the
. ~ in . relation to the text:ile undertaking of1,.
vbich charge can be taken by the Central Gaverrmentr
or the Custodian. Shri M.L. Tantia and his family
members had pledged their shares to the extent of
H 13,000 shares in favour of· the Company's bankers,
N. r.c. v. SITARAM MILLS [ SEN, .J.] 219
A
as a collateral security. It ,very often happens
that the Company carries on several businesses and
the same are known as separate divisions like Rayon
Division, Paper Division, Cement Division, Land
Development Di vision etc. Merely because the
Petitioner No. 1 utilised or offers to utilise the B
assets of another Division as security for loans
etc. for strengthening the Textile Unit, the
identity of the Real Estate Division or its
separate assets is not destroyed. Factual material
in respet of the Equitable mortgage created in this
context is set out in paragraph 17(b) of the
affidavit in Rejoinder (page 299-300). c

L All the Plots pertaining to the Real Estate
Di vision were never mortgaged. Even plot No. 12
which was mortgaged, along with plot Nos. 5 and 8
in 1978 for obtaining a temporary loan of Rs. 12
lakhs for payment of Bonus, was released by the D
Banks in favour of Petitioner No.! for development
and construction and sale of Industrial Estate duly
constructed.

When the construction of Industrial Estate on plot
No. 12 was completed, a sum of Rs. 87 lakhs E
pertaining thereto was deposited by Petitioner No.!
in a special account with the United Commercial
Bank and utilised for various purposes.

Sale of plots or of galas used to be with the
sanction of the Banks, and the sale proceeds from F
the sale of galas etc. were deposited with the
Banks and fairly dealt with."

"It is respectfully submitted that the
Supplementary Survey Report (Annexure II(b)) as
well as Paragraph 5 of the Investigation Committee G
Report supports the case of the Petitioner No. 1 to
the effect that Real Estate Division has functioned
for more than a decade."

"Merely because funds generated from the sale of
galas were utilised for strengthening the textile H
220 SUPREME COURT REPORTS [1986] 2 S.C.R.
.A
unit, which also belong to the same Colllf'"'f, it· '
cannot be inferred that the Real Es~z.t". Divtsion
did not function as a separate ur.it after
segregation of different plots and particularly the
Mill itself (factory area). u
B ·'
(Emphasis supplied)

In this note the assertion that the textile unit was one ·
of· the -businesses •·of the Company, a business in real estai:;i.~:
being another, proceeds on the hypothesis that a Company may.
carry un several businesses. Upon this basis, the respondents
c seek .to assert that merely because the respondents Company
secured loans by way of equitable mortgage in respect of some-·
of the plots for financing the textile business, it does not
follow that the surplus lands were the assets of the Company
in relation to the textile undertaking. We have already dealt
with different transactions entered into by the Company with
D
respect to the surplus· 1ands in the preceding paragraph and it
is clear enough they are not separable from but were
integrally connected with the running of the textile under-
taking. It is undisputed that the predominant object with
which the Company was formed was to carry on business in
textiles alone and the surplus ·lands were undoubtedly an asset
. of the Company held in relation to the textile business.
Furthermore, the respondents case that the textile business of
Real Estate Division was separate and distinct from the
textile business stands belied by the balance-sheets of the
·,. Company. The respondents case is that the Real Estate Division
F · ',_was started during the year 1973-74 when monies were received
from various buyers of industrial galas against advance sales
of such galas built on plot No. 7. In the reievant accounting
year the Company made profits of Rs. 39.25 lakhs which were
solely attributable to. the t.extile undertaking; The Pri ·
mortgage ·in favour. of the National Industrial Developaien
Corporation was redeemed and the outstanding balance ·of .. RS ·
G
23.75 lakhs paid off during the year. In the Directors' Repot~.
·'------·in that year it is stated that.a sum of Rs. 3,53,423 had be~~-
. received from the various buyers against the. sale of th"·
lllllti-storeyed galas in the Industrial Estate that the Company
was bringing up· and that this would improve the Company's
financial. liquidity and also help to reduce its liabilities.
H In. t.he schedule of fixed assets attached to and· forming part
N.T.C. v. SITARAM MILLS [ SEN, J,] 221
A
~ of the balance-sheet for the year under the heading "Current
Assets" the following entry appears

"(a) Current Assets :
B
(i) .•....••....................
(ii) •••••••••••••••••••••••••••
(iii) ......................... .
(iv) Industrial galas under construction
(at cost) Rs. 8,69,776."

In the Notes of Account, a sum of Rs. 8,62,675 is shown
as a receipt towards advance sale of galas under construction
c
in the industrial estate being constructed by the Company
within the mill precincts. Similar are entries in the
.
Balance-sheets for the relevant years being the financial
years 1974-75 to 1979-80. In the balance-sheets for all these
years, the Company appears to have opened a separate account
under the heading "Industrial Galas under Construction D
Account" and shown them under the heading "Current Assets". In
the Notes of Account, it is stated that the profit on the sale
of galas would be accounted for after completion of the
+ industrial estate and handing over all the galas to the
proposed society. No useful purpose would be served in
E
referring to the entries appearing in the several years in
question except to touch upon one or two entries. In the
Director's Report for the year ended March 31, 1975, there is
a receipt shown of Rs. 49 lakhs on capital account towards
·y sale of surplus lands together with the structures built
thereon i.e. sale of the tenanted buildings in excess of the
requirement of the textile undertaking. In the balance-sheet F
" for the year 1975-76 the amount of Rs. 30,76,849 spent on
construction of the industrial galas had been debited to
"Industrial Galas under Construction Account" and shown as
stock-in-trade of the Company. In the accounting year, the
Company created an equitable mortgage in favour of the United
Commercial Bank of Plot No. 9 admeasuring 40,456 square yards G
on which the textile mill is situate by deposit of title-deeds
by way of collateral security and this fact was intimated to
the Registrar of Companies along with a plan demarcating the
boundaries of the textile undertaking. Similar entries appear
in the subsequent years. It goes on like this from year to
year. H
222 SUPREME COURT REPORTS [1986] 2 S.C.R.
A
Nothing really turns on the aforesaid entries in the
balance-sheets. Such entries in the books of account of a )...
business concern following the mercantile system are usually
made for accounting purposes. The balance-sheets and the
Profit and Loss Accounts instead of substantiating the
respondents claim that the business in real estate was
B separate and distinct from the textile business, are rather
destructive of it. The opening of a separate account under the
heading "Industrial Galas under Construction Account" is of Y"
little significance. None of the balance~;heets of the Company
nor the Profit and Loss Accounts make any mention of the
so-called Real Estate Division. Even the schedules relating to
c the fixed assets in the balance-sheets of the Company make no
distinction between land belonging to the textile undertaking
and land belonging to the Real Estate Division. They clearly
demonstrate that the Company had at no time purchased any land
for dealing in real estate. It was merely disposing of its
surplus lands belonging to the textile undertaking with the
D avowed object of ploughing back money into the textile
undertaking. The balance-sheets for the years 1973-74 onwards
do not show that at any point of time there was any
segregatioil or bifurcation of the assets of the Company or of
the textile undertaking with a view to form the Real Estate
Division, nor was there any transference of title to the '!-
E lands. The so-called Real Estate Division had no capital
assets of its own at all. The Company in its balance-sheets
and Profit and Loss Accounts gave data for the textile
undertaking as a whole and, as already stated, even the
Schedule of Fixed Assets does not indicate the alleged Real
Estate Division. The proceeds of sale of surplus lands or )
F industrial galas constructed thereon or of loans incurred by
mortgaging the plots were utilized for improving the financial ·
liquidity of the Company and reducing the liabilities relating
to the textile business. From the balance-sheets and Profit
and Loss Accounts, the conclusion is irresistible that the
surplus lands belonging to the Company were held "in relation
G to the textile undertaking" within the meaning of sub-s. (2)
of s.3 of the Act.

We find it difficult to sustain the conclusion or '>-"
reasoning of the lllgh Court. The Hi.gh Court failed to
appreciate that it was dealing with an Act of Parliament
H providing for taking over in public interest of management of
N.T.C. v. SITARAM MILLS [ SEN, ·J.] 223

A
~the tex.~le mills specified in the Second Column of the First
Schedule, pend~ng nationalisation of such textile undertakings
and for ....ltLers connected therewith and incidental thereto.
The legislation was clearly in furtherance of the Directive
Principles of State Policy in Art. 39(b) and (c) of the
Constitution. In interpreting such a piece of legislation the B
-"" Courts cannot adopt a doctrinaire or pedantic approach. It is
1
a well-known rule of construction that in dealing with such a
beneficent piece of legislation, the Courts ought to adopt a
construction which would sul-~erve and carry out the purpose
and object of the ACt rather than defeat it. The High Court
completely ignored the fact that all the assets of the Company
were held in relation to the textile business. The Company c
I acquired all its real estate in the 19th century when it was
i---1 fomed for carrying on textile business and admittedly no new
I assets had been acquired by it thereafter. This is borne out
! by the fact that the disposal of surplus lands was with the
sole and avowed intention of ploughing back the money to
improve the financial liquidity of the Company and to reduce D
the liabilities relating to the textile business. In the
absence of the surplus lands no loans could have been raised
for the purpose of-running the textile undertaking and as such
they were and are an·integral part of the textile undertaking.
We regret to find that the High Court in coming to the
... conclusion that it did, . has also overlooked the reports of the E
,...- several high-powered connnittees constituted by the Central
I Govern...nt from time to time which stressed that the potential
I viability of the textile undertaking depended to a large
extent on the proper utilization of the lands belonging to the
textile undertaking, and also the fact that the Company had in

h
I
the past been misutilising its real estate. In particular, the
Investigation Connnittee's report highlighted that the.disposal
~ of the surplus lands had been misused bY the Company and that
it was to the detriment of the cOmpany's textile undertaking
F

implying thereby that the proper utilisation of the assets
would make the textile undertaking viable. The viability
study of the IDBI clearly brings out that the textile G
undertaking could only be made viable by the disposal of the
1 l surplus lands. Further, the report of the Task Force submitted
iT'- to the Economic Affairs Connnittee of the Union Cabinet ·•
' classified the Company's textile undertaking under Group II
i.e. mills which will be viable with the sale of sruplus
lands. The Legislature in enacting the law .for the taking H
224 SUPREME COURT.REPORTS [19861 2 s.c.R.

A
over of the management of the textile undertakings therefore
clearly had the intention of taking over the surplus lands of
the Company. In our opinion, the High Court OUJht ta have
interpreted sub-s.(2) of s.3 of the Act in file c.ontc.xL- of
sub-s. ( l) thereof and the other provisions of the Act in
consonance with the intention of the Legislature. It was the
B intention of· the Legislature to take over all the assets ~
belonging to the Company held in rela_tion to the textile
undertaking. The Note attached to the report of the Task Force
includes the total lands belonging to the· respondents Company
for the purpose of determining the value of the assets of the
Company and does not exclude the Real Estate Di vision. Even
C for determining the total compensation to be paid on
nationalisation, the Task Force takes into account the total
· surplus lands of the Company and does not exclude ai}.y land
belonging to the so-called Real Estate Division. The viability
study of the IDBI also heavily relied on the surplus lands
held by the respondents eomf>any.
D
In the premises, the High Court has planifestly erred in
holding that the said Real Estate Di vision was separate and
distinct from the textile undertaking. Surplus lands of the
textile mills taken over under sub-s.(1) of s.3 of the Act are
but a vital physical resource capable of generating and
E sustaining economic growth of the textile mills. There can be
no doubt that the legislative intent and object of the
impugned Act was to secure the socialisation of such surplus
lands with a view to· sustain the sick textile undertakings so
that they could be properly utilised by the Government for
s~ial good i.e. ·in resuscitating the dying textile under-
F takings. Hence, .a paradoxical situation should have been\--
avoided by adding a narrow and pedantic construction of a f
provision like. sub-s.(2) of s.3 of the Act which provides for
.

the consequences that ensue upon the taking over in public
interest of the mnagement of a textile undertaking under
sub-s. (l) thereof as. a step towards nationalisation of such
G undertakings, which was clearly against the national interest.
In dealing with similar legislation, this Court has always
adopted a broad and liberal appraoch. In New Satgram
17,ng:lnoorlng 'W'ods & Anr. v. Union of India & Ors., [1981] 1
-+-
s.c.R. 406 in repelling the contention that the Engineering
Unit together with the Shethia Bhawan and all its assets built
H on a plot adjacent to the.New Satgram Coal Mines in 1964, the

===-=--- -
N.T.C. v. SITARAM MILLS [ SEN, J.] 225

~ Techincal Director's Bungalow built on a plot outside the A
mining area somewhere in 1957-58 and another building on the
same plot of land, namely, the Guest House used for the
residence of the officers and staff of the mines were not
assets falling within the definition of "mine" defined in
s.2(h)(vi), (vii) and (xi) of the Coal Mines (Nationalisation)
B
Act, 1973, the Court had occasion to observe :

"It will be seen that there is a difference in the
language used in s.2(h)(vii) and (xi). Sub-clause
(vii) uses the words "in, or adjacent to, a mine"
and "used substantially" for the purposes of the
---~ ' mine or a number of mine• under the same
management, in relation to workshops. The use of c
the word 'and' makes both the conditions
conjunctive. Sub-clause (xi) uses the words "if
solely used" for the location of the management,
sale or liaison offices, or for the residence
officers and staff, of the mine, in relation to
lands and buildings. The differences in language D
between the two expressions "used substantially"
and "solely used" is obvious. It is, therefore,
possible to contend that lands and buildings
appurtenant to a coal mine, if not exclusively used
for purposes of the colliery business, would not
come within the definition of mine in s.2(h), i.e., E
it would depend upon the nature of user, and that
the crucial date is the date of vesting. We are
inclined to think that the distinction though
apparent may not be real in the facts and
circumstances of a particular case. A lllOEkshop or a
luilding constructed initially for the purpose of a F
coal alne cannot by its beiog diverted to other
purposes cease to belong to the alne. What ia of
the essence ia llhether the 1110mhop or the luil.di.og
originally formed a part and parcel of the coal
al.De. 'Die subsequent user my not, in our opinion,
be wry •terial. To illustrate, a wmhop which G
bas come into existence for and because of the alne
but which also COES to be used for purposes other
than of the alne does not on that acer.mt alone
cease to be a wmbop used substantially for the
purposes of the alne. Again, a building which is
H
226.
\ SUPREME COURT REPORTS [1986) 2 S.C.R.

A
used to accommodate some other conc~rn because of
the availability of space does not on that account
alone cease to be solely used for locating the
lnanagement offices of the mine."
(Emphasis supplied)

B It was then observed

"By reason of sub-s.(l) of s.3 of the Act the
right, title and interest of the owners in relation
to the coal mines specified in the Schedule stand
transferred to, and vest absolutely in the Central
c Government free from all encumbrances. Parliament
instead of providing that the word 'aine' shall ~
have the meaning assigned to it in the Hines Act, r
. 1952, bas given an enlarged definition of 'aine' in
s. 2(h) so that not 12rely the colliery bit
I everything connected with the 111.ning :lnduatry
I
D should vest in the Central Goverment9 i.e., not
only that part of .the industry which consisted of
raising, winning, and getting coal but also that
part of it which consisted in the sale of coal and
its supply to customers both of which are a part of
an integrated activity. This is manifested by
E sub-clauses (i) to (xii) of clause .(h) of s.2,
i.e., all the assets belonging to a mine vest in
the Central Government."
(Emphasis supplied)

Again, in thillll of India v. thited Colllories Led. & Ors.,
F [1985) l s.c.c. 305 a similar question arose •. The question was
whether or not a staff car belonging to the United Colliery
Ltd., the owners in relation to a mine and being the staff car
r
of the Technical Advisor of the North Chirimiri Collieries,
r
was an asset belonging to the mine within the meaning of
s.2(h)(xii) of the Nationalisation Act. The High Court held
G
that the question as to whether the staff car should be
treated as belonging to the owners of a mine as part of the
· · ·mine itself raised disputed questions of fact relating to its
user which would have to be determined on the basis of.
evidence. purporting to rely upon the aforesaid decision of
this Court in Nev Satgraa l!ngfneerlng 'Ilona' case and
H
N.T.C. v. SITARAM MILLS [SEN, J.] 227

~herefore relegated the parties to have the matter settled by A
a civil suit. Allowing the appeal, this Court held that the
decision in "New Satgraa Engineering Works" case was clearly
distinguishable. It then went on to say that Parliament by an
enlarged definition of 'mine' in s.2(h) of the Act had
indicated the nature of the properties that vest and the
question whether a particular asset is taken within the sweep B
of s.2(h) depends on whether it answers the description given
-'-,therein and added :

"The staff car in question was undoubtedly a fixed
asset of the North Chirimiri Collieries and it
belonged to respondent l the United Collieries
Ltd., the owners in relation to the said mine. c
Being the staff car of the Technical Advisor, it
was a 'fixed asset' belonging to the mine. It is
rightly not suggested that the staff car was not a
fixed asset. 'Fixed assets' in general comprise
those assets which are held for the purpose of
conducting a business in contradistinction to those D
assets which the proprietor holds for the purpose
of converting into cash, and they include real
estate, building, machinery etc. Words and
Phraseg, Permanent Edition Vol. 17, p. 161, Black's
Law Dictionary, 5th F.dition, p. 573; Stroud' s

- Judicial Dictionary 4th Edn., Vol. l, P• 201. The E
staff car therefore fell within the definition of
'mine' as contained in Section 2(h)(xii) and vested
in the Central Government under sub-section (1) of
Section 3 of the Coal Mines (Nationalisation) Act,
1973. Merely because the Technical Advisor was
putting the staff car to his personal use or for F
1111ltif arious activities of the Thaper Group of
Industries would not alter the true legal position
since the subsequent user for a different purpose
was not really germane."

That precisely is the question here. We have no doubt in our G
mind that the words "assets in relation to the textile
""-\indertaking" used in sub-s.(2) of s.3 of the Act have a very
wide connotation. Function of sub-s.(2) of s.3 of the Act is
to anplify and define as to what is taken within the sweep of
the term 'textile undertaking' as defined in s.2(d), which
H
228 SUPREME COURT REPORTS [19861 2 s.c.R.

A
says that the expression 'textile undertaking' .shall ~e deemed
to include all assets, rights, leaseholds, powero·, ,-, rc.orities
and privileges of the textile company in relation to the said
textile undertaking. It does not stop at that but goes on to
'say that this would also include lands, bUildings, workshops,
projects, stores, spares, instruments, machinery, equipment,
automobiles ~nd other vehicles, goods under production and in
B transit:- cash balances, reserve funds, investments and book-
lets and all other rights arid interests in and arising out of
such property as were before the appointed day, in the owner-
. ship, possession, power or, control of the textile company
whether within or outside India. It further includes all books
of accounts, registers and . all other documents of whatever
c nature relating thereto. The conclusion is therefore inescap-
able that.· all the· assets of·· the . company held in relation to )--
the .. textile undertaking including the surplus lands
appurtenant thereto, vest in the Central Government by reason
of sub-f.(2) of s.3 of the Act.
D
Upon that view it is not necessary for us to deal with
the.other contentions, namely, the applicability of the 'main
objects' rule of construction or as to the purport and effect
of the special resolution passed by the Company as contemplat-
ed. bys. 149(2A) of the Companies Act, 1956 or the tests laid
down under'the Income Tax Acts of 1922 and 1961 for determin-
E ing whether a certain receipt realized by an assessee was
merely a realization or change of capital assets or was prof it,
realized from an adventure in the nature . of , trade and was
,, therefore 'business' as defined in s.2(4) of the Income Tax
·',Act, 1922 and s.2(13) of the Income Tax Act, 1961, or whether
two. lines of business constitute the ·'same business' under
F s.24(2) of the Income Tax Act, 1922 or were 'separate
biisfoess' • We do not think that any. useful purpose would be
served· in referring to the larg;; number of decisions turning
r
upon these questions nor to decisions arising uI14er the
·Industrial Disputes Act, 1947 .on whether the several under-
takings carried on by the same company are separate . or not
G ._ which necessarily turns ·on. the question whether they are
··distinct or inter-dependent. Here we are concerned with the
meaning of the words 'assets in relation to the textile under-
taking' appearing in sub-s.(2) of s.3 of the Act which llllSt be
construed in a generic sense looking to the context in which
they are used. The Court has to interpret these words keeping
H
N. T.C. v. SITAAAM MILLS [ SEN, J,] 229

A
·"'in view that they occur in a legislation which provides for
the taking over of management of a textile undertaking under
sub-s.(l) thereof pending nationalisation of such textile
undertaking and matters incidental or connected therewith. On
the view that we take, the other contentions do not really
arise.
B
·y In the result, the appeals rust succeed and are allowed
with costs. The judgment and order of the High Court dated
June 13, 1983 are reversed and the Writ Petition filed by the
respondents is dismissed.

c
Appeals allowed.

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'Y