Holding

When an undertaking is specified in the First Schedule as a sick textile undertaking, the legislature’s classification does not require a hearing, does not violate the basic structure, and the Nationalisation Act and its compensation are constitutionally valid.

Summary

Panipat Woollen & General Mills Co. Ltd. had two textile mills that were placed under liquidation and closed in May 1972. The mills were listed as "sick textile undertakings" in the First Schedule of the Sick Textile Undertakings (Taking Over of Management) Act, 1972, causing their management to vest in the Central Government under s.4(1). The company challenged the takeover, arguing that it should have been given a hearing, that the legislative determination violated the basic structure doctrine, and that the compensation awarded under the Sick Textile Undertakings (Nationalisation) Act, 1974 was inadequate. The Supreme Court held that when an undertaking is specifically listed in the First Schedule, no hearing is required, the legislative classification is not judicial or quasi‑judicial and does not breach separation of powers, and the Nationalisation Act is valid under Art.31C. The Court also found the compensation awarded to be reasonable. Consequently, the writ petition was dismissed.

Issues considered

The need for a hearing before the management of a textile undertaking listed as a sick textile undertaking in the First Schedule is taken over by the Government.
Whether the legislative determination of sick textile undertakings infringes the basic structure doctrine, particularly the separation of powers.
The constitutional validity of the Sick Textile Undertakings (Nationalisation) Act, 1974 under Articles 31, 31C and 39(b) of the Constitution.
The adequacy of compensation awarded under the Nationalisation Act in violation of Article 31.

Legislation cited

Constitution (Forty‑second Amendment) Act, 1976
Constitution of Indias. 31, s. 31C, s. 39(b)
Industries (Development and Regulation) Act, 1951s. 15, s. 15A, s. 18A
Sick Textile Undertakings (Nationalisation) Act, 1974
Sick Textile Undertakings (Taking Over of Management) Act, 1972s. 2(a), s. 2(d), s. 4(1)

Subjects

sick textile undertakingtakeover actnationalisation actconstitutional validityseparation of powersnatural justicecompensationArticle 31Article 31CArticle 39(b)Ninth Schedulewrit petitionliquidationprovisional liquidator

Judgment

A

PANIPAT WOOLLEN & GENERAL MILLS CO. LTD.
& ANOTHER
v.
. UNION OF INDIA & OTHERS B

SEPTEMBER 26, 1986

)I: [0. CHINNAPPA REDDY AND MURARI MOHON DUTT, JJ.J

Sick Textile Undertakings (Taking Over of Management) Act,
........--1972, ss .. 2(a), 2(d) and 4(1)-Management of undertaking taken over by c
9W Central Government-Undertaking specified in First Schedule as a 'sick
· . textile undertaking-Whether opportunity of hearing should be given to
the owner before such 'taking over',

'f Sick Textile Undertakings (Nationalisation) Ac~ 1974-Consti- D
tutional validity of-Art. 31, 31C & 39 (b) of Constitution of India.

A provisional liquidator was appointed in respect of two textile
nndertakings of the petitioner-company since they had gone into huge
loss and had to lie closed sometime in May 1972. As the textile under-
takings of the petitioner-company were 'sick· textile undertakings' E
within the meaning of sub-clause (i) of s. 2(d) of·the Sick Textiles Under-
takings (Taking-over of Management) Act 1972 (for short, Take over
Act) 11nd have also been specified in the First Schedule to the Take-over
Act, they vested in the Central Government as 'sick textile undertak-
ings' by virtue of s. 4( 1) of the Take-over Act.
F
The petitioner-company challenged before the Supreme Court the
taking over of the management of the aforesaid two textile mills under
the Take-over Ac(and also the constitutional validity of the Take-over
Act and the Sick Textile Undertakings (Nationalisation) Act 1974 on
the grounds (a) that the Company should have been given an opportu-
nity of being heard before the management of its undertakings was taken G
over as 'sick textiles undertakings' and if such an opportunity had been
given, the company could have shown that its undertakings were not
sick undertakings; (b) that the legislature, having itself decided the
qnestion whether an undertaking is sick textile undertaking or notwith-
out giving any. opportunity to the owner of snch undertaking to make a
representation, has damaged the basic structure of the Constitution H

937
938 SUPREME COURT REPORTS [1986] 3 S.C.R.

A namely separation of iiower between the legislature, the executive and -1.
the jndicially; and (c) that the Nationalisation Act is consititutionally
invalid on the ground ofinadeqnacy of compensation.

Dismissing the petition,
B
HELD 1.1 In the First Schedule to the Take-over Act, the under-
takings of the company have been specified as sick textile undertakings. ~
In other words, the Legislature has itself decided the undertakings of
the Company to be sick textile undertakings. Indeed, in the First
Schedule all the sick textile undertakings have been specified. Thus, it is
apparent that the Legislature has not left it to the Executive to decide
·111
c whether a particular textile undertaking is a sick textile undertaking or · ·
not. H under the Take-over Act the question whether a textile undertak-
ing is a sick textile undertaking o~ not had been directed to be decided
by the executive anthorities, the owner of such undertaking could claim r •
an opportunity of being heard. But when an undertaking has been ·
specified in the First Schedule to the Take-over Act as a sick textile
D
undertaking, the question of giving au opportunity to the owner of the
undertaking does not at all arise. [942C-F]

1.2 In including the sick textile undertakings iu the First
Schedule, the Legislature. has not acted arbitrarily, for it has also laid
down the criteria or tests for such inclnsioo. If any undertaking which
E
has been so specified in the First Schedule does not satisfy the tests

-
under s. 2(d) of the Take-over Ad, the owner of it is entitled to
a
challenge such inclusion or take-over in court of law' although such
challenge has to be founded on a strong ground. Thus, there is no
finality or conclusiveness in the legislative determination of an under-
taking as a sick textile undertaking. Such determination is neither judi- (
F
cial nor quasi-judicial. Therefore, the question of damaging or altering
the basic structure of the Constitution namely, separation of powers
among the Legislature, the Executive and the Judiciary, does not at all
arise. So also the question of the validity of the constitutional amend-
ments by which the Take-over Act and the Nationalisation Act have
been included in the Ninth Schedule on the ground that by such amend-
G
ments the basic structure of the Constitution is damaged, as contended
on behalf of the petitioners, does uot arise. [943F-H; 944A-B]

2. The Nationalisation Act gives effect to the policy of the State
towards securing the ownership and control of the material resources of
H
the community which are so distributed as best to subserve the common
PANJPATWOOLLEN v. U.0.1. (DUIT, J.J 939

good, as contained in Art. 39(b) of the Constitution. It falls within the A
provision of Art. ·31 C of the Constitution before it was amended by the
Constitution (Forty-Second Amendment) Act, 1976. Even assuming
that the Nationalisation Act violates the provision of Art. 3i, no
challenge to its validity can be made on that ground. l944E-G]
B
Minerva Mills Ltd. & Ors. v.•Union of India & Ors., Writ Petitinn
Nos. 356-361of1977, deci~ed on September9, 1986, relied upon.

In the instant case, the compensation that bas been awarded to the
Company is neither inadequate nor illusory. It is not in dispute that the
paid-up share capital of the Company was Rs.60 lakbs antl it paid
dividend from 1965 to 1970. It will not be unreasonable to presume that c
in specifying the compensation, the Legislature bas taken these facts
into consideration. There is, therefore, no substance in the contention
of the petitioners that the·compensation specified in First Schedule to
the Nationalisation Act in respect of the undertakings of the Company is
illusory. [9~G-H; 94SA]
D
ORIGINAL JURISDICTION: Writ Petition (Civil) No. 1129 of
1977

-:.{
-
Under Article 32 of the Constitution of India.
E
M.R. Sharma and Dalveer Bhandari for the Petitioner.

B. Datta Additional Solicitor General, Ms. A. Subhashini, A.K.
Goel, T.V.S,N. Chari, R.K. Jain, Dr. N.M. Ghatate, D.N. Mishra
and H.S. Parihar for the Respondents.
F
The Judgment of the Court was delivered by

DUTT, J. In this writ petition the petitioner, Panipat Woollen
& General Mills Co. Ltd., hereinafter referred to as 'the Company',
has challenged the taking over of the management of its two textile
mills under the Sick Textile Undertakings (Taking Over of Manage-
G
ment) Act, 1972 (for short 'Take-over Act') and also the constitutional
validity of the Take-over Act and the Sick Textile Undertakings
(Nationaliisation) Act, 1974 (for short 'the ~ationalisation Act').

It appears. that the Company had failed on evil days resulting in
initiation bf liquidation proceedings against the Company and the H
940 SUPREME COURT REPORTS [1986] 3 S.C.R.

appointment of a provisional liquidator. The mills of the Company
A
were closed sometime in May, 1972. On the application by the Indus-
trial Finance Corporation of India, the Punjab & Haryana High Court
directed the· Board of Directors of the Company to hand over posses-
sion of the two mills to the Corporation to which the Company was
indebted for a huge sum of money. The Corporation was also directed
by the Higb Court to lease out the mills, and it appears that
Padmashree Textile Industries Ltd. was granted the lease of the miils,
that is to say, the textile undertakings of the Comp_any.
x
At this stage, it may be mentioned that the lessee, the said
Padmashee Textile Industries Ltd., also filed a writ petition before this
Court, inter alia, challenging the Take-over Act and the Nationalisa-
c tion Act. That writ petition has since been disposed of by this Court
upon settlement between the parties.

Section 4(1) of the Take-over Act provides that on or before the
appointed day, the management of the sick textile undertakings speci-
D fied in the First Schedule shall vest in the Central Government. Under
Section 2(a) "appointed day" means 31st day of October, 1972. Sec-
tion 2( d) defines "sick textile undertaking" as follows:

"S. 2(d). "sick textile undertaking" means the textile
undertaking which falls within one or more of the following.
E categories, namely:-

(i) which is owned by a textile company which is
being wound up, whether voluntarily or by or under the
supervision of any Court, or in respect of which a provi- '.
sional liquidator has been appointed by a Court, "I'
F
(ii) which had remained closed for a period of not
less than three months inunediately before the appointed
day and the closure of which is prejuidicial to the textile
industry, and the condition of the undertaking is such that
it may, with reasonable inputs, be re-started in the interests
G of the general public,

(iii) which has been leased to Government or any
other person or the management of which has been taken y
over by Government or any other person under any leave
or licence granted by any Receiver' or Liquidator by or
H under the orders of, or with the approval of, any Court,
PAN.IP AT WOOLLEN v. U.0.1. [DUTT, J.J 941

(iv) the management of which was authorised by the A
Central Government, by a notified order made under sec-
tion 18A, or in pursuance of an order made by the High
Court under section 18FA, of the Industries (Development
and Regulation) Act, 1951, to be taken over by a person or
body of persons, but such management could not be taken B
over by such person or body of persons, before the
appointed day,

(v) the management of which ought to be [according

r-· .'
to the report made after investigation by any person or
body of persons appointed after the 1st day of January,
19'70, under section 15 or section 15A of the Industries
(Development and Regulation) Act, 1951] taken over
c
under section 18A of that Act, but in relation to which no
_,.
notified order authorising any person or body of persons to
' take over the management of such undertaking was made
before the appointed day, D
(vi) in respect of which an investigation was caused
to be made, before the appointed day, by the Central
Government under section 15 or section 15A of the
Industries (Development and Regulation) Act, ~951, and
·the report of such investigation was not received by the E
Central Government before the appointed day;

and includes any textile undertaking which is deemed,
under sub-section (2) of section 4, to be a sick· textile
undertaking;'.'
F
·In view of .sub-clause (i) of section 2{d}, as a provisional
liquidator was appointed in respect of the textile undertakings of the
Company, they were sick textile undertakings. Moreover, the sick
textile undertakings of the Company have been specified in the First
Schedule to the Take-over Act and by virtue of section 4(1) of the
Take-over Act, the undertakings of the Company have vested in the
G
Central Govermnent as sick textile undertakings.

It is vehemently urged by Mr. Sharma, learned Counsel appear-
ing on behalf of the petitioners, that before actually taking possession
of the undertakings of the Company, the Company should have been
given an opportunity of being heard. It is submitted that if such an H
942 SUPREME COURT REPORTS [1986) 3 S.C.R.

A opportunity had been given, the Company could have shown that its .4
undertakings were not sick undertakings. Counsel submits that the
intention of the Legislature to give such an opportunity of being heard
is apparent from the provisions of clauses (iv), (v) and (vi) of section
2(d) of the Take-over Act which relate to the taking over of manage-
B men! of an undertaking under the Industries (Development and Regu-
lation) Act, 1951. In support of this contention, the learned Counsel
has placed reliance upon three decisions of this Court inA.K.. Kraipak x
& Ors. v. Union of India & Ors., [1970) 1SCR457, Maneka Gandhi v.
Union of India, [1978) 2 SCR 621, and Smt. Indira Nehru Gandhi v.
Shri Raj Narain, [1976) 2 SCR 347.

c In our opinion, none of the above decisions is applicable to the
facts and circumstances of the instant case. In the First Schedule to the
~
Take-over Act, the undertakings of the Company have been specified
as sick textile undertakings. In other words, the Legislature has itself
decided the undertakings of the Company to be sick textile undertak-
r
D ings. Indeed, in the First Schedule all the sick textile undertakings
have been specified. Thus, it is apparent that the Legislature has not
left it to the Executive to decide whether a particular textile undertak-
ing is a sick textile undertaking or not. If under the Take-over Act the
question whether a textile undertaking is a sick textile undertaking or
not had been directed to be decided by the executive authorities, the )c
owner of such undertaking could claim an opportunity of being heard.
E
But when an undertaking has been specified in the First Schedule to
the Take-over Act as a sick textile undertaking, the question of giving
an opportunity to the 9wner of the undertaking does not at all arise.
We are unable to accept the contention of the petitioners that sub-
clauses (iv), (v) and (vi) of section 2(d) indicate that principles of '
natural justice should be complied with. The provisions of these sub- ~
F
clauses are some of the categories under any one of which the undertaking
may fall and, in that case, it will be a sick textile undertaking. There is, >-·
therefore, ·no substance in the contention made on behalf of the
petitioners that the Company should have been given an opportunity
of being heard before the management of its undertakings was taken
over as sick textile undertakings.
G
It is next urged by the learned Counsel for the petitioners that
the Legislature having itself decided the question whether an under-
taking is a sick textile undertaking or not without giving any opportu- '!
nity to the owner of such undertaking to make a representation, has
H damaged the basic structure of the Constitution of India, namely,
PANIPATWOOLLEN v. U.0.1. IDUTT,J.I 943

,i_ separation of power between the Legislature, the Executive and the A
Judiciary. Our attention has been drawn to the observations made by
Sikri, CJ, in Kesavananda· Bharati v. State of Kera/a, [1973] 2 Supp.
SCR 1, and that of Mathew, J, in Smt. Indira Nehru Gandhi v. Shri Raj
Narain, [1976] 2 SCR 347 at page 503 to the effect, inter a/ia, that
separation of powers among the Legislature, the Executive and the
B
Judiciary, is one of the basic structures of the Constitution. It is,
x accordingly, submitted on behalf of the petitioners that the doctrine of
separation of powers implies that the Legislature should define civil or •
criminal wrong or a default and create an independent machinery,

r judicial or quasi-judicial, to determine the liability of the status of an
individual. Further, the Legislature itself cannot give a judgment and,
in any case, if such a judgment is given by the Legislature, it must act c
in accordance with the principles of natural justice.

1 The above submissions of the petitioners, in our opinion, are
misconceived. There can be no doubt that in respect of each sick
textile undertaking, a Take-over Act and a Nationalisation Act could
D
be passed and, in that case, a large number of enactments would come
into existence to the inconvenience of all concerned. In o~der to avoid
such cumbersome course.and for the sake of convenience, the Legisla-
ture has mentioned in the First Schedule in both the Take·<iver Act
;( and the Nationalisation Act the names of all sick textile undertakings
in the country. By including certain textile undertakings as sick textile
E
undertakings in the First ·schedule to the Take-over Act, the Legisla-
ture has not made any judicial or quasi-judicial determination, nor has
the Legislature given any judgment, as contended on behalf of the
petitioners, although such inclusion is sometimes loosely expressed as
_, 'legislative judgment'. In section 2(d), the Legislature has laid down
the criteria for a sick undertaking. The sick textile undertakings have
been specified in the First Schedule on the basis of the tests laid Clown F

-\ in section 2(d). In including the sick textile undertakings in the First
Schedule, the Legislature has not acted arbitrarily, for, it has also.laid
down the critelia or tests for such inclusion. If any undertaking which
has been so specified in the First Schedule does not satisfy the tests
under section 2(d) of the Take-over Act; the owner of it is entitled to·
challenge such inclusion or take-over in a court of law, although such G
challenge has to be founded on a strong ground. Thus, there is no
finality or conclusiveness in the legislative determination of an under-
y taking as a sick textile undertaking. Such determination is neither
judicial nor quasi-judicial. Therefore, the question of damaging or
altering the basic structure of t!J.e Constitution, namely, separation of
H
944 SUPREME COURT REPORTS [1986] 3 S.C.R.

A powers among the Legislature, the Executive and the Judiciary, does
not at all arise. So also the question of the validity of the constitutional
amendments by which the Take-over Act and the Nationalisation Act
have been included in the Ninth Schedule on the ground that by such
amendments the basic structure of the Constitution is damaged, as
B contended oit behalf of the petitioners, does not arise. The contentions
are misconceived and are rejected .

• As a last resort, the petitioners have challenged the validity of
the Nationalisation Act on the ground of inadequacy of compensation.
The Company had two undertakings, namely, Panipat Woollen Mills
and Kharar Textile Mills. In the third column of the First Schedule to
c the Nationalisation Act, a sum of Rs.6,40,000 has been specified for
the Panipat Woollen Mills and a sum of Rs.12,89,000 has been
specified for the .Kharar Textile Mills by way of compensation for the
acquisition of these two undertakings. It is the contention of the
petitioners that the amounts of compensation, which have been
specified for the acquisition of these two undertakings, are inade-
D
quate. We are afraid, as on the date the Nationalisation Act had come
into force, Article 31 of the Constitrition was not repealed, the validity
of the Nationalisation Act cannot be challenged on the ground of
inadequacy of compensation. In Minerva Mills Ltd. & Ors. v. Union of
India & Ors., Writ Petition Nos. 356-361 of 1977, decided on
September 9, 1986, it has been already held by us that the N ationalisa-
E
tion Act gives effect to the policy of the State towards securing the
ownership and control of the material resources of the community.
which are so distributed as best to subserve the common good, as
contained in Article 39(b) of the Constitution. In the circumstances,
the Nationalisation Act falls within the provision of Article 31C of the
Constitution before it was amended by the Constitution (Forty-Second
F
Amendment) Act, 1976. Even assuming that the Nationalisation Act
violates the provision of Article 31, no challenge to its validity can be
made on that ground. Apart from that, we are of the view that the·
compensation that has been awarded to the Company is neither inade-
quate nor illusory as contended on behalf of the petitioners. lt is not in
dispute that the paid-up share capital of the Company was Rs.60 !akhs
G
and it paid dividend up to 1965. Thereafter, the Company did not pay
any dividend from 1965 to 1970. It will not be unreasonable to presume
that in specifying the compensation, the Legislature has taken these
facts into consideration. There is, therefore, no substance in the con-
tention of the petitioners that the compensation specified in First
Schedule to the Nationalisation Act in respect of the undertakings of
H
PANJPATWOOLLENv. U.0.1. (DUTT,J.] 945

the Company is illusory. The contention _is rejected. No other point A
has been urged on behalf of the petitioners.

For the reasons aforesaid', the writ petition is ffismissed and the
rule nisi is discharged. There will, however, be no order as to costs.
B
· M.L.A. Petition dismissed.

r c

•