REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.8247 OF 2001

Kerala State Cashew Development  Corporation ..Appellant

Versus

Shahal Hassan Mussaliar & Anr.  ..Respondents

WITH

Civil Appeal No.8249/2001, Civil Appeal No.8248/2001 Civil Appeal No.8250/2001 Civil Appeal No.8251/2001 Civil Appeal No.8252/2001

J U D G M E N T

Dr. ARIJIT PASAYAT, J.

1. In all these appeals challenge is to the judgment of a Division Bench

of the Kerala High Court in several writ appeals and original petitions.   

2. The  High  Court  referred  to  the  factual  position  in  Writ  Appeal

No.1835/97  which  was  directed  against  the  judgment  of  learned  Single

Judge,  dated 4th September,  1997 in O.P. No.16424/94.   The High Court

noted that the factual basis in all the cases is similar except the dates and the

areas involved and the location of the factories.

3. Since  the  grounds  of  challenge  raised  by  the  appellant  and  the

responses of the respondents are common, they are taken up together.  The

background facts are to be noted in brief:

4. The first respondent is the owner of a factory situated in an extent of

2.29 acres of land in Kotttarakkara Taluk of Kollam District. The factory

comprises several buildings like godown, office, shelling and peeling sheds,

grading  shed  etc.  with  necessary  machineries  and  equipments  installed

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therein for facilitating the work of the factory. This factory was being run by

the first respondent, up to the year 1969. Sometime in the year 1969, first

respondent  who was managing the factory himself,  desired to go abroad.

So, he leased out his factory to the second respondent-Kerala State Cashew

Development Corporation (hereinafter referred to as the ‘Corporation’),  a

statutory corporation set up in the State of Kerala, for development of the

cashew industry.  Ext. P1 is the copy of the lease deed dated 17th July, 1970

by which the cashew factory of the first respondent was leased out to the

second respondent  on  a monthly lease  rent  of  Rs.1,500/-.  The lease  was

initially for a period of three years and, on the expiry of the said terms, a

fresh lease deed was executed, which too expired on 16th July, 1976.  It is

the case of the first respondent that, while he was running the factory, he

used to provide employment to the workers for about 300 days in a year.

After  the  expiry  of  the  lease  deed  on  16th July,  1976,  the  first

respondent, being unwilling to further lease out the factory, called upon the

second respondent Corporation to release and hand over the factory and its

assets to him. The Corporation, however, did not release the factory and, in

the  meanwhile,  the  State  of  Kerala  passed  the  Kerala  Cashew Factories

(Requisitioning) Act, 1979 (hereinafter referred to as the ‘Act’). This act

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was passed for the following purpose, as indicted in the preamble which

reads as follows:

“Whereas certain cashew factories had been leased out  by the owners  thereof  to  the  Kerala  State  Cashew Development Corporation Limited, which is a company owned by the Government of Kerala;

And  whereas  such  cashew  factories  were  at  the time of the lease either closed down or run by persons other than the owners thereof;

And whereas the term of lease in respect of some of such cashew factories has expired and the owners of some of such factories are not willing to extend the terms of the lease;

And whereas suits have been filed in the courts by the owners of some of such cashew factories for delivery of possession thereof;

And whereas in the interests of the workers of the cashew factories it is considered necessary to enable the said  Corporation  to  continue  in  possession  and management of such of those cashew factories which if given  back  to  the  owners  thereof  could  not  be  run properly and in accordance with law and would either be sold or leased out to private individuals.”

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The object of the Act appears to be that, there were large number of

such cashew factories which have been leased out to the second respondent

Corporation under leases which had expired and it was intended to legalise

the continuing possession of the lessee Corporation. The preamble to the

Act  suggests  that  the  Act  was  intended  to  protect  the  interests  of  the

workers,  for  which  purpose  it  was  necessary  to  enable  the  second

respondent Corporation to continue in possession and management of those

cashew factories  and further that,  if the factories  were given back to the

owners they would not  be run properly and in accordance with law, and

would either be sold or leased out to private individuals. Section 3 of the

Act gives power to the Government to requisition a cashew factory in the

possession of Corporation under a lease, even if the lease is current or time

expires. Section 3 of the Act, which is the focus of attention, reads as under:

“3. Power to requisition cashew factories:   

(1) When the Government IS satisfied that if the  owner  of  a  cashew  factory  which  is  in  the possession  of  the  Corporation  under  a  lease, whether  current  or  time-expires,  is  put  in possession thereof, such owner could not run that factory properly and in accordance with law and would either sell  it  or lease it  out to any private individual  and  there  would  be  large  scale

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unemployment  of  the  workers  of  that  factory or their  conditions  of  service  would  be  adversely affected,  the  Government  may,  notwithstanding any  judgment,  decree  or  order  of  any  court,  by order  published  in  the  Gazette,  requisition  that cashew factory for such period not exceeding five years  as  may be  specified  in  the  order  and  may make such further orders as appear to them to be necessary  or  expedient  in  connection  with  the requisition;

Provided that before making an order under this sub-section in respect of a cashew factory, the Government shall  give the owner of that  factory and every person interested in that factory a notice of  their  intention  to  take  action  under  this  sub- section and the grounds therefor and consider the objection  that  may be  preferred  in  pursuance  of such notice.

(2) Where  a  cashew  factory  is requisitioned under sub-section (1),  such cashew factory  together  with  all  machinery,  other accessories and other movable properties as were immediately  before  the  date  of  publication  of order  under  sub-section  (1)  in  the  possession  of the corporation and all books of account, registers and other documents relating thereto shall vest in the Government with effect from the said date.

(3) The  Government  may,  by  order  in writing direct that a cashew factory vested in them under sub-section (2) shall, instead of continuing to vest in them, vest in the Corporation with effect from such date, not being a date earlier than the

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date of publication of the order under sub-section (1), as may be specified in the order.

(4) Where  an  order  vesting  a  cashew factory  in  the  Corporation  is  made  under  sub- section (3), all rights, liabilities and obligations of the Government in relation to such factory shall, on and from the date of such vesting, be deemed to have  become  the  rights  and  liabilities  and obligations respectively of the Corporation.

One salient factor of Section 3 which immediately strikes the eye is that the power of the State Government to  requisition  the  factory  was  for  such  period  “not exceeding  five  years”.   In  other  words,  there  was  a maximum period  of  five  years  upto  which  the  cashew factory could be requisitioned in pursuit of the objective with which the legislation was enacted.  Section 4 of the Act  provides  that  the  Government  may  at  any  time release from requisition any cashew factory requisitioned under  Section  3  and  upon  this  happening  the Government  shall  restore  the  factory  in  as  good  a condition as it was when possession thereof was taken by virtue of the lease executed by it with the owner of the cashew factory,  subject  to  the  provisions  contained  in such lease and to changes caused by reasonable wear and tear  and irresistible  force.   Section  4 also requires  the Government to restore the cashew factory and its assets on the factory being released from requisition.  Section 5 empowers  the  Government  to  determine  the  rent  for requisitioning  the  factory,  in  accordance  with  the principles laid down therein.  Section 11 of the Act bars the  jurisdiction  of  the  Civil  Court  in  regard  to  any dispute in respect of any matter which the Government or the second respondent-Corporation is  empowered to determine  under  the  Act  and  protects  action  taken  in

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good faith  in  pursuance  of  any power  conferred  by or under the Act.”

5. The  Kerala  Cashew  Factories  (Requisitioning)  Act,  1979  was

amended by Act 26 of 1985 (hereinafter referred to as ‘Amending Act’).

Section 2 of Amending Act amends Section 3 of the Act, the effect of which

is  to  remove the  outer  limit  or  five  years  on  requisition,  imposed  under

Section 3 of Act.  As a result of amendment carried out by Amending Act,

the Government may by order published in the Gazette:-

(a) requisition that cashew factory for such period not exceeding

five years as may be specified in the order;

(b) extend the period of requisition by five years at a time;

(c) make such further orders as appear to them to be necessary or

expedient in connection with the requisition.

6. The objection of the factory owner apart from substantive challenge

to the power of requisition raised to the challenge stating that there was no

material in existence which is requisitioned for subjective satisfaction of the

Government about different factors as noted in each of the requisitioning

orders.  To put differently, the substantive challenge was that the Amending

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Act enables the State Government to requisition the cashew factory for an

indefinite period of time; virtually thereby enabling the State Government to

acquire  the  factory  without  following  the  provisions  of  any  law  and

therefore,  was  contrary  to  Articles  145,  19(1)(g)  and  300A  of  the

Constitution  of  India,  1950  (in  short  the  ‘Constitution’).  Coming  to  the

factual aspect as noted that while private cashew factories was giving 250

days of work in year, the Corporation on account of financial situation was

unable to give, on an average, more than 60 days of work in a year for the

earlier  ten  years.  With  reference  to  the  factual  scenario  of  1993  it  was

pointed out that while the factory was run by the Corporation and it gave

work to the workers for 12 days and during the subsequent year 1994 only

for  13  days.  It  was  pointed  out  that  the  factory was  returned,  there  was

scope for greater number of days work for the workers. The objections were

rejected  and  subsequent  requisitioning  orders  were  passed  by  merely

reproducing  the  conditions  precedent  in  the  Amending  Act.  It  was,

therefore,  submitted  that  the  action  of  the  Corporation  and  the  State

Government is illegal and unconstitutional.                     

7. Before  learned  Single  Judge  stand  was  that  where  any  statute

empowers  the  State  to  continue  to  extend  a  requisition  order  for  an

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indefinite period, it is nothing but an order for acquisition and, therefore, it

is a colourable exercise of power which is not available to the State under

the Act. The conceptual difference between the requisition and acquisition

of property was highlighted. The stand was opposed by the State and the

Corporation.  The High Court  after  noticing the factual scenario  came to

hold that power of requisition granted to the Government under Section 3 of

the  Parent  Act  was  limited  to  a  maximum period  of  five  years.  By  the

Amending Act, 1985 this limitation was removed and the Government was

empowered to extend the lease indefinitely by instalments of five years at a

time.  The  learned  Single  Judge  held  that  his  power  is  bad  for  reasons

enunciated in H.D. Vora’s case.  By this case, it virtually amount to a power

of acquisition.

8. The stand of the State and the Corporation was that in view of what

has been stated by this Court in  Kesavananda Bharati v.  State of Kerala

(1973 (4) SCC 225) and Sonia Bhatia v. State of U.P. (AIR 1981 SC 1274)

when a law was enacted to further the directive principles of State policy

enumerated  in  Part  IV  of  the  Constitution  then,  irrespective  of  other

considerations, it must be upheld.  The High Court did not accept the stand.

It  was  noted  that  the  principle  of  law  highlighted  in  the  decisions  in

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Keshvananda Bharati’s and Sonia Bhatia’s cases (supra) were not applicable

to the facts of the present case.       

9. The High Court referred to salient features of Section 3 which relates

to  the power of  the State Government to requisition the  factory for such

period “not exceeding five years”. In other words, there was a maximum

period of five years up to which the cashew factory in question could be

requisitioned  in  line  with  the  objective  with  which  the  legislation  was

enacted.  Section 4 of the Act provides that the Government may at any time

release from requisition any cashew factory requisitioned under Section 3

and upon this happening the Government shall restore the factory in as good

a condition as it was when the possession thereof was taken by virtue of the

lease executed by it  with the owner of the cashew factory, subject to the

provisions  contained  in  such lease  and  to  changes  caused by reasonable

wear  and  tear  and  irrespective  force.  Under  the  said  provision  the

Government is required to restore the cashew factory and its assets on the

factory  being  released  from  requisition.  Section  4  empowers  the

Government  to  determine  the  rent  for  requisitioning  the  factory.  While

doing so, the principles laid down therein have to be kept in view. Section

11 of the Act bars the jurisdiction of the Civil Court in regard to any dispute

in  respect  of  any  matter  which  the  Government  or  the  Corporation  is

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empowered to determine under the Act and protects action taken in good

faith in pursuance of any power conferred by or under the Act.            

10. The grievance of the factory owner was that the authority declined to

extend the lease and refused to renew the lease in favour of the Corporation.

A request  was  made to  return  the concerned cashew factory with  all  its

assets.  That prayer was also not complied with.  There were pleas of set up

of  certain  amounts/dues.  Having  failed  in  his  attempt  to  persuade  the

authorities  to  return  its  factory  and  its  assets,  the  Original  Petition

No.16424/1994 was filed for a direction to the authorities to hand back the

possession of the concerned cashew factory with all its assets.  During the

pendency of the original petition, notice was served under Section 3(1) of

the Act, notifying the intention to requisition the concerned cashew factory

under the Act for a further period of five years on the ground that if the

owner is put in possession of the cashew factory, he may not run the factory

properly, in accordance with law and may either sell  it  or lease it  out  to

private  individuals  resulting  larger  scale  unemployment  of  workers  and

adversely affecting their part of service. A statement of objection was filed,

inter alia, taking the stand that the Government has no right to extend the

lease for an indefinite period. It was stated that no such fact existed which

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could have enabled the State Government to arrive at a decision that upon

return of the factory, they would not run it or close it down or lease it out to

the private individuals resulting in large scale unemployment of workers or

thereby adversely affecting the conditions of workers.  By another notice,

the Government extended the period of requisition for a period of five years.

Objection was also filed.   

11. Section 3 of the Amending Act validated the continued possession of

the cashew factories requisitioned under Section 3(1) of the Act which had

vested in the second respondent Corporation under sub-section (3) of that

Section notwithstanding the expiry of the lease period and notwithstanding

anything contained in  any law, or  any decree or  order  of  any court,  and

notwithstanding  anything  to  the  contrary  in  the  terms of  the  contract  or

agreement.  The result of Amending Act was that it validated the action of

the appellant and the second respondent even if contrary to the terms of the

lease, even if time had expired, and even if there was a decree for eviction

made by a competent court of law.

12. The High Court referred to a decision of this Court in Minerva Mills

v.  Union  of  India (AIR  1980  SC  1789)  to  hold  that  a  fundamental

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distinction  was  drawn  by  this  Court  between  the  constitutional  law  and

ordinary law as in the criterion of validity.  Learned Single Judge accepted

the challenges in the writ petitions. The writ appeals were also dismissed.

The  Division  Bench also  took note  of  the observation  of  learned Single

Judge  about  the  period  of  employment  offered  by  the  factory  under

requisition. It also noted that the financial condition of the Corporation was

far from satisfactory and, therefore, there was no material  to show that it

was  in  a  better  position  to  manage  and  run  the  factory  than  the  owner

himself.  Appellants  and  respondent-writ  petitioner  reiterated  the  stands

before the High Court.   

13. While in the case of Constitutional law its validity is inherent, in the

case of  ordinary law its  validity is  to be tested on the touchstone of the

Constitution.

14. It was noted that in Sonia Bhatia’s case (supra) this Court upheld the

validity of the U.P. Imposition of Ceiling on Land Holdings Act, 1961 on

the ground that it was a valuable piece of social legislation with the object

of ensuring equitable distribution of land by taking away land from large

tenure holders and distributing the amount among the landless tenants or

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using the same for public utility schemes which was in the larger interest of

the community. The High Court noted that the question to be answered was,

however,  justifying  the  initial  requisitioning  of  the  cashew  factory  was,

since requisition by definition must be of temporary character and it cannot

be tuned into a permanent deprivation of proprietary rights so as to amount

to acquisition at back door.  This is precisely what this Court has described

as a fraud on the power in  H.D. Vohra’s case.  It was submitted that the

High Court should not have treated an action of the State Government and

of the Corporation to be actually an opinion or acquisition under the colour

of  requisition.   Learned  counsel  for  the  respondent  on  the  other  hand

submitted that both the learned Single Judge and the Division Bench have

analysed  factual  scenario  in  great  detail  keeping  in  view  the  statutory

provisions.   The  conclusion  as  submitted  would  not  warrant  any

interference.  

15. The  first  contention  which  weighed  with  the  learned  Single  Judge

was  that  any statute  which  empowers  the  State  to  continue  to  extend  a

requisition  order  for  an  indefinite  period  was  nothing  but  an  order  for

acquisition, it was a colourable exercise of power, which the State did not

possess under the Act. The distinction between requisition and acquisition

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of property has been the subject matter of several decisions of the Supreme

Court and the line of demarcation between the two is well defined in the

celebrated judgment in  H.D. Vora v.  State of Maharashtra (AIR 1984 SC

866).   In  this  case  this  Court  had  occasion  to  consider  the  validity  of

repeated continued requisitions of private premises initially acquired under

the emergency powers during war years.  This Court  pointed out that the

two concepts,  one  of  requisition  and  the  other  of  acquisition,  are  totally

distinct and independent.  Acquisition means the acquiring of the entire title

of the expropriated owner, whatever the nature and extent of that title may

be.   The entire  bundle  of  rights  which was  vested in  the  original  holder

passes on acquisition  to the acquirer,  leaving nothing to  the former. The

concept of acquisition has an air of permanence and finality in that there is

transference of the title of the original holder to the acquiring authority.  In

contradistinction,  the  concept  of  requisition  involves  merely  taking  of

domain or control over property without acquiring rights of ownership and

must by its very nature be of temporary duration. This Court summed up by

pointing out that, the State cannot under the guise of requisition continue

dominion over some one’s property for an indefinite period of time, because

that  would be a fraud on the power  conferred on the government.  If  the

Government wants to take over the property for an indefinite period of time,

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the Government must acquire the property, but it cannot use the power of

requisition  which  is  exercisable  by  the  Government  only  for  a  public

purpose which is of a transitory character. If the public purpose for which

the premises are required is of a perennial or permanent character from the

very inception, no order can be passed requisitioning the premises and, in

such a case, the order of requisition, if passed, would be a fraud upon the

statute,  for  the  Government  would  be  requisitioning  the  premises,  when

really speaking they want the premises for acquisition, the object of taking

the  premises  being  not  transitory but  permanent  in  character.  Where  the

purpose for which the premises are required is of such a character that from

the very inception it can never be served by requisitioning the premises, but

it  can be achieved only by acquiring the property, which would the case

where the purpose is  of a permanent character  or likely to subsist  for an

indefinite period of time, the Government may acquire the premises, but it

certainly  cannot  requisition  the  premises  and  continue  the  requisitioning

indefinitely.

16. In  Grahak Sanstha Manch v.  State of Maharashtra  (1994 (4) SCC

192), a Constitution Bench of this Court approved of the decision in  H.D.

Vora’s case  (supra)  and  held  that  the  said  decision  did  not  require

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reconsideration.  However,  the  Constitution  Bench  did  not  approve  the

reasoning in  H.D. Vora’s case (supra) that the requisition order cannot be

made for a permanent purpose leaving the question open and holding that

the order of requisition can continue for a reasonable period of time though

in H.D. Vora’s case (supra) it was considered to be unreasonable in the facts

of the case.  In Rajendra Kumar Gupta v. State of U.P. (1997 (4) SCC 511),

the same principle has been reiterated by this Court.

17. In  Union  of  India v.  Elphinstone  Spinning  and  Weaving  Co.  Ltd.

(AIR  2001  SC 724),  this  Court  was  concerned  with  a  challenge  to  the

Textile Undertakings Act, under which the Government was empowered to

take over the management of certain textile mills whose financial condition

had deteriorated “pending natioalisation”.  The question was whether this

power  was  liable  to  be  challenged  on  the  ground  that  it  amounted  to

acquisition in reality. Repelling the challenge, it was held by this Court that

power was not even liable to challenge as abridging Article 31-A (1) of the

Constitution introduced by the Constitution First Amendment Act of 1951,

clause (1)(b) of which provides that, notwithstanding anything contained in

Article 13, no law providing for the taking over of the management of any

property by the State for a limited period either in the public interest or in

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order to secure the proper management of the property shall be deemed to

be void on the ground that it is inconsistent with, or takes away or abridges

any of the rights conferred by Article 14 and Article 19. This Court was of

the view that parliament had in enacting the Textile  Industries Act, 1983

clearly indicated that the taking over was for a temporary period “pending

nationalization  of  Textile  Mills”.   Merely  because  nationalization  would

take long time, it cannot be urged that the power was to be exercised for

indefinitely long time since the exercise of the power was delimited by the

happening of a contingency.  Thus, the power of requisitioning is liable to

be upheld, if it is to be exercised for a temporary duration, which is limited

either in terms of time or by reason of a contingency.

18. In  Charanjit v.  Union  of  India (AIR  1951  SC  41)  the  difference

between the temporary and transitory nature of requisition and permanent

nature of acquisition was highlighted by this Court.  It was inter alia held

that upon acquisition the entire bundle of rights which were vested in the

former original holder would pass on to the acquirer leaving nothing in the

former,  while  requisition  would  keep  merely  possession  in  the  person

requisitioning while leaving the title of the owner in tact. In other words, if

the possession of property by exercise of dominion thereupon is continued

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indefinitely,  it  would  amount  to  colourable  exercise  of  or  fraud  on  the

power  and  nothing  but  a  back  door  expropriation  of  property.  As  was

observed in Raghubir Singh v. Court of Wards, Ajmer (AIR 1953 SC 373)

and Corporation of Calcutta v. Cal. Tramways Co. Ltd. (AIR 1964 SC 1279)

that though it  is open to the State to impose reasonable restrictions upon

fundamental  rights  guaranteed  under  the  Constitution,  the  nature  of  the

restrictions  should not  be such that  right  guaranteed becomes illusory. If

that happens then the restrictions should cease to be reasonable.  We find

there is no merit in all these appeals which are to be dismissed.  We direct

accordingly. It is, however, brought to our notice by learned counsel for the

appellant that the State Government intends to limit  the period by another

ten years.  This is a matter about which we express no opinion.  The appeals

fail and are dismissed with no orders as to costs.                

………………………………….J. (Dr. ARIJIT PASAYAT)

………………………………….J. (P. SATHASIVAM)

New Delhi, March 16, 2009

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