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PETITIONER: MAHESH KUMAR SAHARIA

       Vs.

RESPONDENT: STATE OF NAGALAND & ORS

DATE OF JUDGMENT:       14/10/1997

BENCH: A.S. ANAND, K. VENKATASWAMI

ACT:

HEADNOTE:

JUDGMENT:                THE 14TH DAY OF OCTOBER, 1997 Present:                Hon’ble Dr. Justice A.S.Anand                Hon’ble Mr. Justice K. Venkataswami Sunil Gupta,  Mrs.Anjali Verma, Nikhil M. Sakhardande, Advs. for M/s. JB Dadachanji & Co., Advs. for the appellant K.Parasaran,  P.K.Goswami,   Sr.Advs.,   C.K.Sasi,   Kailash Vasdev, Advs. with them for the Respondents.                       J U D G M E N T      The following Judgment of the Court was delivered: K. Venkataswami, J.      The appellant,  formerly  a  shareholder  and  Managing Director   of   the   Nagaland   Forest   Products   Limited thereinafter called  the "Company"), challenged the vires of Nagaland  forest   Products  Ltd.  (Acquisition  of  Shares) Ordinance,  1981   and   nagaland   Forest   Products   Ltd. (Acquisition  of  Shares)  Act,  1982,  which  replaced  the Ordinance (hereinafter  called the  "State Act"), contending inter alia  that he  said legislations  were ultra vires the powers of Nagaland State Legislature in view of Selection 20 of the  Industries  (Development  &  Regulation)  Act,  1951 (hereinafter called the "Central Act").      Pursuant to  a contract  entered into between late Shri Ram  Gopal   Saharia,  father   of  the  appellant  and  the Government  of  Nagaland  dated  24.4.1972  to  establish  a plywood factory  in the  territory of  Nagaland on the terms and  conditions   stipulated  therein,   the   Company   was incorporated.   The authorised  share capital of the Company was Rs.  50,00,000/- ’G’  class equity  shares of  Rs. 100/- each (ii) 15,000/- ’G’ class equity shares of Rs. 100/- each and (iii)  15,000/- ’S’ class equity shares carried the same rights.   It appears  that the appellant’s group, on the one hand and  the government  of Nagaland  on  the  other  hand, subscribed 50% each of the equity shares.  The Company after obtaining necessary  certificate of commencement of business on 22.7.1972,  as required  under the Central Act, commenced its business  thereafter.   The father  of the appellant was the first Managing Director of the Company.  After the death of his  father, the  appellant became  the Managing Director some time  in 1975.   A  Cabinet  ranking  Minister  of  the

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Government of Nagaland was the Chairman of the Company since its inception except during Government’s Rule.      While  so,   on   December   14,   1981,   the   Deputy Commissioner, Mon  District, directed  the manager, Nagaland Forest Product  Limited to close down the plywood factory on 14.12.1981  till   further  orders.    It  was  followed  by Ordinance 1  of 1981  which enabled  the State Government to take over  the assets,  books of accounts, registers etc. of the Company.   The  Ordinance came into force on 17.12.1981. As noticed  earlier, the  Ordinance was replaced by the Act. The  appellant   challenged  the   Ordinance  initially  and subsequently by amending the petition appropriately, the Act was also challenged.      Before the  High  Court,  the  Act  was  challenged  on various grounds  but before us the learned counsel appearing for the  appellant, Mr.  Sunil Gupta, confined his attack to the lack  of legislative  competence based  on Section 20 of the Central  Act.   In other  words, the contention was that taking over  of the  assets (Acquisition  of Shares  of  the Company) amounts to taking over of management/control of the Company,  which   field  is   occupied  by   Parliament   as contemplated by Section 20 of the Central Act.      The High  Court in its considered and reasoned judgment rejected  all   the  contentions  and  observed  thus  while rejecting  the  contention  based  on  lack  of  legislative competence, which alone was pressed before us:-      "The Act was not enacted for taking      over management  or control  of the      company  by   the  Nagaland   State      Government.   In pith and substance      it was  enacted to  acquire  the  S      class shares of the Company.  If an      attempt  was   made  to  take  over      management  or   control   of   any      industrial   undertaking    in    a      declared of  the IDRA would inhibit      exercise of  such executive  power.      However, if  pursuant  to  a  valid      legislation  for   acquisition   of      scheduled      undertaking      the      management    stands    transferred      undertaking the  management  stands      transferred to  the acquiring  body      it cannot  be said  that this would      be  in  violation  of  Section  20.      Section 20  does  not  preclude  or      forbid    a    State    legislature      exercising legislative  power under      an entry  other than  Entry  24  of      List II, and if an exercise of that      legislative   powers,    to    wit,      acquisition or  shares of a company      owning an industrial undertaking in      a     declared     industry     the      consequential      transfer      of      management  for  control  over  the      industry or  undertaking follows as      an incident  of  acquisition,  such      taking  over   of   management   or      control pursuant  to an exercise of      legislative power is not within the      inhibition of Section 20."      "52. From  the principles of catena      of  decisions   enunciated  in  the      decided cases,  it  is  found  that

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    merely because  an  industry  is  a      declared industry  under Entry  52,      that by  itself  will  not  put  an      embargo on the State legislature to      pass   legislation    within    its      competence.   It has  further  been      found in  many of  the  cases  that      mere incidental  trenching does not      warrant the  striking  down  of  an      impugned  Act.     As  regards  the      contention  that   the   Parliament      having    made     the    requisite      declaration   in   Section   2   of      Schedule  1   thereof   the   State      Legislature  was   denuded  of  its      competence to  enact  the  impugned      provisions under  Entry 42  of List      III  cannot   be  accepted.      On      examination    of    the    various      provisions of  the Act  there arses      no doubt that it is for acquisition      of property  in ’S’ class shares of      the  company   and  in   pith   and      substance it  falls under  Entry 42      of List III, and is not in conflict      with Entries 52 or 7 List I."      Undoubtedly, Mr.  Sunil Gupta,  learned counsel for the appellant  elaborately  argued  the  matter  and  ultimately contended that  the ruling  of a  Constitution Bench of this Court in Ishwari Khetan Sugar Mills (P) Ltd & Ors. vs. State of  Uttar   Pradesh  &  Ors  (1980  (4)  SCC  136)  requires reconsideration as  certain aspects  were not brought to the notice  and  considered  by  the  Constitution  Bench  while handing down  the ruling  in that  judgment.   He,  however, fairly  conceded   in  the   face  of   the  ruling  of  the Constitution Bench  in Ishwari  Khetan’s case it is not open to him  to  contend  that  the  impugned  legislation  lacks legislative competence,  as this Court has clearly held that taking over  of the assets of the company will not amount to taking over of management or control of the company.  Still, as stated  earlier, his  attempt was to persuade us to refer the matter  to a  larger bench  for reconsideration  of  the ruling of this Court in Ishwari Khetan case.      Mr. K.  Parasaran, learned Senior Counsel appearing for the respondents,  after referring to Judgments of this Court in Smt.  Somavanti & Others vs. The State of Punjab & Others (1963 (2) SCR 774) and T. Govindaraia Mudaliar Etc. Etc. vs. The State  of  Tamil  Nadu  &  Others  (1973  (3)  SCR  222) submitted that  the reason  advanced by  the learned counsel for the  appellant, will  not be a ground for requesting the Court to  refer the  question to  a larger  Bench.   He also submitted that  the Constitution  Bench has considered every aspect concerning  the  constitutionality  of  an  identical legislation impugned  therein and  there  is  no  scope  for putting forward  an argument  that certain provisions of the Constitution  were   not  brought   to  the  notice  of  the Constitution  Bench  which  led  the  Court  to  uphold  the constitutionality of  the legislation  impugned therein.  He also  brought   to  our   notice  that  the  ruling  of  the Constitution  Bench   in  Ishwari  Khetan’s  case  has  been followed/applied consistently  right from the year 1980 till date and  that shows there is no deficiency in the ruling of the Constitution Bench in Ishwari Khetan’s case.      Before proceeding  further to  consider the submissions made by  the counsel on both sides, it is necessary and will

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be useful  to extract the relevant provisions of Central Act and the State Act.      Central Act  Sections 2,  Schedule 1  Item 36  (1)  and Section 20 are as follows:-      Section 2      "It is  hereby declared  that it is      expedient in  the  public  interest      that the  Union should  take  under      its    control    the    industries      specified in the First Schedule."      Sch. 1, Item 36 (1)      "Any  industry   engaged   in   the      manufacture or production of any of      the articles  mentioned under  each      of the  following headings  or sub-      headings, namely :-      36. Timber Products:      (1) Plywood."      Section 20      "20 After  the commencement of this      Act, it  shall not be competent for      any State  Government  or  a  local      authority   to    take   over   the      management  or   control   of   any      industrial  undertaking  under  any      law for  the time  being  in  force      which    authorises     any    such      Government or local authority so to      do."      Section 3 of State Act :-      "3. (1)  On the  appointed day, all      shares of  the Company  other  than      the  shares  already  held  by  the      Government or  its nominees  in the      Company shall,  by virtue  of  this      Act  stand   transferred  to,   and      vested in the State Government.      (2) The  State Government  shall be      deemed on  and from  the  appointed      day, to have been registered in the      Register of  members of the company      as the  holder of  each share which      stands transferred to and vested in      it by  virtue of  the provisions of      sub-section (1).      (3) All the hares which have vested      in the  State Government under sub-      section (1), shall by force of such      vesting, be freed and discharged of      all      trusts,       liabilities,      obligations,  mortgages,   charges,      liens   and    other   encumbrances      affecting them,  and any attachment      injunction or  any decree  or order      of the  Court,  tribunal  or  other      authority restricting  the  use  of      such shares in any manner, shall be      deemed to have been withdrawn.      (4) For  the removal  of doubts, it      is   hereby   declared   that   the      provision of  sub-section  (1)  and      (2) shall not be deemed to affect-      (a)  any   right  of   the  Company      subsisting immediately  before  the      appointed    day,    against    any

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    shareholder to  recover  from  such      shareholder any sum of money on the      ground that the shareholder has not      paid or credited to the Company the      whole or  any part  of the value of      the shares  held  by  him,  or  any      other ground whatsoever, or      (b) any  right of  the  shareholder      subsisting, immediately  before the      appointed day  against this Company      to receive  any dividend  or  other      payment due from the Company."      It is  not in  dispute that  Section 20  (supra) of the Central Act provided that after the commencement of the said Act, it  shall not  be competent  for any State to take over the management  or control  of  any  industrial  undertaking under any  law which authorises a State Government so to do. It is  also an admitted position that inasmuch as by Section 2 (supra)  read with  Item 36  (i)  of  the  First  Schedule (supra) of the Central Act, it has been declared that in the public interest, the Union Government should take control of plywood industry,  the State  Legislature, therefore, cannot legislate with  regard to  the management or control of such industry.      The  question   is  whether  the  impugned  legislation attempts authorises  mere taking over the management/control of the  plywood  industry  or  it  only  enables  the  State Government to  acquire the  assets (shares)  of the Company. Section 3 of the State Act stated that all the shares of the Company other  than those  already held  by  the  Government stood transferred to and vested in the State Government.  In consequence of  such vesting  of the  shares, the Government naturally exercises  rights as  shareholder and incidentally acquires the  control and  management of  the Company.   But that will  not fall  under the mischief of Section 20 of the Central  Act   because  Section   20  prohibits   the  State Government from  taking over  management or  control  dehors ownership of  the undertaking.  The Central Act is concerned with the  control and  management of the undertaking and not with its  ownership.   By acquiring  ownership, incidentally management and  control of  the Company also vests with that it will  be incidental  and such  an exercise of legislature power is not prohibited under Section 20 of the Central Act. Notwithstanding the  taking over of the Company by the State Government still  if the  Central Government  finds scope to exercise their power under Section 20 of the Central Act, it is open  to them  to do  so.   This is exactly what has been held by  the Constitution  Bench of  this Court  in  Ishwari Khetan’s case:      "25. There  is thus  a long line of      decisions which clearly establishes      the  proposition   that  power   to      legislate   for    acquisition   of      property  is   an  independent  and      separate power  and is  exercisable      only under  Entry 42,  List III and      not as  an incident of the power to      legislate in  respect of a specific      head of  legislation in  any of the      three lists.   This  power  of  the      State legislature  to legislate for      acquisition  of   property  remains      intact and  untrammeled  except  to      the extent  where on  assumption of      control  of   an  industry   by   a

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    declaration as  envisaged in  Entry      52, List  I,  a  further  power  of      acquisition  is  taken  over  by  a      specific legislation.      26. As already pointed out, in pith      and    substance    the    impugned      legislation is  one for acquisition      of scheduled  undertakings and that      field   of   acquisition   is   not      occupied by the IDR Act which deals      with   control    of    management,      regulation  and  development  of  a      declared industry  and there  is no      repugnancy  between   the  impugned      legislation and  the IDR Act.  Both      can  coexist   because  the   power      acquired by the Union under the IDR      Act  can  as  well  effectively  be      exercised after  the acquisition of      the scheduled  undertakings  as  it      could  be   exercised  before   the      acquisition.       Therefore,   the      contention    that     the    State      legislature   lacked    legislative      competence to  enact  the  impugned      legislation must be negatived.      30. The  impugned  legislation  was      not   enacted   for   taking   over      management  or   control   of   any      industrial undertaking by the State      Government.  In pith and substance,      it  was   enacted  to  acquire  the      scheduled  undertakings.     If  an      attempt  was   made  to  take  over      management  or   control   of   any      industrial   undertaking    in    a      declared industry  indisputably the      bar of  Section  20  would  inhibit      exercise of  such executive  power.      However, if  pursuant  to  a  valid      legislation  for   acquisition   of      scheduled      undertaking      the      management  stands  transferred  to      the acquiring  body, it  cannot  be      said  that   this   would   be   in      violation of  Section 20.   Section      20  forbids   executive  action  of      taking over  management or  control      of any industrial undertaking under      any law  in force  which authorises      State   Government   or   a   local      authority so to do.  The inhibition      of Section  20 is  on  exercise  of      executive power  but if as a sequel      to an  acquisition of an industrial      undertaking,  the   management   or      control    of     the    industrial      undertaking stands  transferred  to      the acquiring authority, Section 20      is not  attracted at  all.  Section      20 does  not preclude  or forbid  a      State legislature  from  exercising      legislative power  under  an  entry      other than Entry 24 of List II, and      if in  exercise of that legislative

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    power, to  wit, acquisition  of  an      industrial   undertaking    in    a      declared industry the consequential      transfer of  management or  control      over the  industry  or  undertaking      follows as incident of acquisition,      such taking  over of  management or      control pursuant  to an exercise of      legislative power is not within the      inhibition    of     Section    20.      Therefore, the  contention that the      impugned    legislation    violates      Section 20 has no merit."      This  judgment  of  the  Constitution  Bench  has  been followed and  applied recently  in Orissa  Cement Ltd. & Ors vs. State  of Orissa & Ors. (1991 Supp. (1) SCC 430); Indian Aluminium  Company   Limited   &   Another   vs.   Karnataka Electricity Board  & Others.   (1992  (3) SCC  580);  Dalmia Industries Ltd  & Another  vs. State of U.P. & Another (1994 (2) SCC 583); Ajay Kumar Singh & Others vs. State of Bihar & Others (1994  (4) SCC  401); and  Mahabir Sugar Mills Ltd. & Another vs. State of U.P. & Others (1996 (10) SCC 259).      The High  Court also  after elaborately  discussing the matter and placing strong reliance on Ishwari Khetan’s case, rejected similar  contention advanced  before it.    In  the circumstances, we  do not  think that  there is any merit in the contention of the learned counsel for the appellant that the ruling  of this  Court is Ishwari Khetan’s case requires re-consideration.   Further, as  submitted  by  the  learned Senior Counsel, Mr. K.Parasaran that the reason given by the learned counsel  for the appellant that certain aspects were not considered  and those  required  re-consideration  by  a larger Constitution  Bench is not a ground for referring the matter to a larger Bench.      In Smt.  Somavanti’s case (supra), a Constitution Bench of this Court observed as follows:-      "A binding  effect  of  a  decision      does  not  depend  upon  whether  a      particular argument  was considered      therein or  not provided  that  the      point with  reference to  which  an      argument was  subsequently advanced      was actually decided."      Again another Constitution Bench in Mohd. Avub Khan vs. Commissioner of  Police, Madras  and Another  ( 1965 (2) SOR 884) held thus :      "This Court has pronounced upon the      legislative   competence   of   the      Parliament to  enact Section  9  of      the Citizenship  Act, 1995 in Izhar      Ahmad Khan  vs. Union  of India. In      the  same   case  challenge  to  he      validity of  Rule 3  of Sch. III to      the   Rules    framed   under   the      Citizenship  Act,   1955  was  also      negatived.   Mr. Ram  Reddy for the      appellant contended that as certain      important aspects  of the  plea  of      invalidity   were   not   presented      before the  Court at the hearing of      Izhar Ahmad  Khan’s case, we should      again  proceed   to  consider   the      challenge to the validity of Rule 3      of Sch.  III and  Section 9  of the      Citizenship Act  limited  to  those

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    arguments.  We are unable, however,      to  countenance   the   submission.      This  Court   has   held   on   the      arguments  presented   before   the      Court in  Izhar Ahmad  Khan’s  case      that  Section  9  of  the  Act  was      validly enacted  by the Parliament,      and that  Rule 3  of  Sch.  II  was      competently  made  by  the  Central      Government in  exercise  the powers      conferred  by  Section  18  of  the      Citizenship  Act.    Assuming  that      certain  aspects  of  the  question      were not  brought to  the notice of      the Court,  we see  no grounds  for      entering upon re-examination of the      question.   It may  be pointed  out      that the  judgment of  the Court in      Izhar   Ahmad   Khan’s   case   was      followed  by   this  Court  in  the      Government of  Andhra  Pradesh  vs.      Syed Mohd. Khan."      In T.  Govindaraia Mudaliar  Etc. Etc. vs. The State of Tamil Nadu & Ors (1973 (3) SCR 222) it was held as follows:-      "The argument  of the appellants is      that  prior   to  the  decision  in      Rustom Cavasjee  Cooper’s  case  it      was  not   possible  to   challenge      Chapter IV-A  of the  Act owing  to      the decision  of  this  Court  that      Art. 19(1)(f)  could not be invoked      when a case fell within Art. 31 and      that was  the reason why this Court      in  all   the  previous   decisions      relating to the validity of Chapter      IV-A proceeded on an examination of      the  argument   whether  there  was      infringement of  Article 19(1) (g),      and  clause  (f)  of  that  Article      could not  possibly be invoked.  We      are unable  to hold  that there  is      much substance  in  this  argument.      Bani  Munji   and  other  decisions      which followed it were based mainly      on an  examination  of  the  inter-      relationship between  Article 19(1)      (f) and  Art. 31(2).   There  is no      question  of   any  acquisition  or      requisition in  Chapter IV-A of the      Act. The  relevant decision for the      purpose of these cases was only the      one given  left that  the authority      of law  seeking to deprive a person      of his  property otherwise  than by      way of  acquisition or  requisition      was open to challenge on the ground      that it constituted infringement of      the fundamental  rights  guaranteed      by Article  19(1)  (f).    It  was,      therefore, open  to those  affected      by the  provisions of  Chapter IV-A      to have  agitated before this Court      the question  which is being raised      now based on the guarantee embodied      in Art.  19(1) (f)  which was never

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    done.  It is apparently too late in      the day  now to pursue this line of      argument. In this connection we may      refer to  the observations  of this      Court  in   Mohd.  Ayub   Khan  vs.      Commissioner of  Police,  Madras  &      Another, according to which even if      certain aspects  of a question were      not brought  to the  notice of  the      court it  would  decline  to  enter      upon re-examination of the question      since   the   decision   had   been      followed in  other cases.   In Smt.      Somavanti & Others vs. The State of      Punjab &  Others a  contention  was      raised  that   in   none   of   the      decisions the  argument advanced in      that  case   that  a   law  may  be      protected from an attack under Art.      31(@) but it would be still open to      challenge under Art. 19(1) (f), had      been   examined    or   considered.      Therefore,  the   decision  of  the      Court was  invited in  the light of      that argument.    This  contention,      however,  was   repelled   by   the      following  observations   at   page      794:-      "The binding  effect of  a decision      does  not  depend  upon  whether  a      particular argument  was considered      therein or  not, provided  that the      point with  reference to  which  an      argument was  subsequently advanced      was actually decided."      It is  common ground in the present      cases that  the validity of Chapter      IV-A of  the Act has been upheld on      all  previous   occasions.   Merely      because the  aspect  now  presented      based on the guarantee contained in      Art.  19(1)(f)  was  not  expressly      considered  for  a  decision  given      thereon  will  not  take  away  the      binding effect  of those  decisions      on us."      We  have   already  noticed   that  decision   of   the Constitution Bench in Ishwari Khetan’s has been consistently followed/applied right upto this date.  There is, therefore, no merit in the argument that Ishwari Khetan’s case requires reconsideration.  No other point was urged.  Accordingly the appeal is  dismissed.  However, there will be no order as to costs.