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PETITIONER: NATIONAL TEXTILE CORPORATION LTD. & ORS.

       Vs.

RESPONDENT: SITARAM MILLS LTD. & ORS. ETC.

DATE OF JUDGMENT04/04/1986

BENCH: SEN, A.P. (J) BENCH: SEN, A.P. (J) PATHAK, R.S. MADON, D.P.

CITATION:  1986 AIR 1234            1986 SCR  (2) 187  1986 SCC  Supl.  117     1986 SCALE  (1)657  CITATOR INFO :  D          1986 SC2030  (25,26)  RF         1988 SC 782  (26,39,43,55,65)  RF         1988 SC1353  (4)

ACT:      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 mill and, therefore, do not fall within section 3(2).

HEADNOTE:      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 "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  matter. The  mill was  established in 1875 under the management of  Messrs Shapurji  Broacha Mills  Limited on  a very large  tract of  land. The  only real  estate  that  it required in  the later  19th century  comprised 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 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 grey unit. As revealed from the Company’s balance-sheets, since 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 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

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and in  1982-83 minus  8.67 crores.  Further, as a result of the general strike called on January 18, 1982 the 188 company  further   suffered  financially  along  with  other textile mills  in Bombay.  The mill not only had the deficit for so  many years  in the  negative but the losses had been increasing at  an alarming rate. The liabilities which stood at Rs.  3.08 crores 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, 1983.  All this  showed that the mill stood  in  need  of  increasing  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 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. On  December 3, 1981, the Central Government  appointed   an  Investigation   Committee  under section  15(a)(i)   of  the   Industries  (Development   and Regulation) Act,  1951 to find out the cause 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 to be a relief undertaking. 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, namely, 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 because of the strike. In November 1982,  the  respondents’  textile  undertaking  was placed in Category III.      The Government  of India  accepted this categorisation. It 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 amount for rehabilitation  of the  aforesaid 13 mills was estimated to aggregate  to Rs. 194.48 crores. It was expected that the disposal of surplus lands appurtenant to some of these mills 189 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  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   financial  assistance  from  the Government.      On September 20, 1983, the Government of India Ministry of Commerce, Department of Textiles constituted a Task Force 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 promulgation of the  Textile   Undertakings  (Taking   Over  of  Management) Ordinance, 1983. The Task Force classified the mills falling

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in Category  III 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, 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 of  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 promulgated the  Textile   Undertaking  (Taking   over  of   Management) Ordinance,  1983   whereby  the  management  of  13  textile undertakings specified  in the  First Schedule vested in the Central Government  under sub-section  (1) 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 190 thereto. The  Ordinance was  later replaced  by  an  Act  of Parliament  being   Textile  Undertakings  (Taking  Over  of Management) Act,  1983 which by sub-section (2) of section I was  brought  into  force  with  retrospective  effect  from October 18, 1983, the date of promulgation of the Ordinance. The object  and purpose  of the legislation, as reflected in the 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.      The respondents’  textile company  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(1)(g)  and  300A.  By  the  judgment  under appeal, a Division Bench of the Bombay High Court upheld the 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  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  was   not  a  separate  or  distinct  business  and 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.      Allowing the appeals by certificate, the Court, ^      HELD : 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

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defined in section 2(d), which says that the expression 191 "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  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 within or outside India. It further includes all books  of accounts, registers and all other documents of whatever  nature   relating  thereto.   The  conclusion   is therefore inescapable  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-section (2) of section 3 of the Act. [227 G-H; 228 A-D]      1.2 It  is a  well known  rule of  construction that in dealing with  a beneficent  piece of legislation, the Courts ought to adopt a construction which would subserve and carry 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 case, the legislation was clearly in furtherance of the Directive  principles of  State policy  in Article 39(b) and (c) of the Constitution. [223 A-C]      1.3 The  Legislature intended  to  take  over  all  the assets belonging  to the  company held  in relation  to  the textile 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 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 192 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  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]      New Satgram  Engineering Works & Anr. v. Union of India JUDGMENT: Collieries Ltd. & Ors., [1985] 1 S.C.C. 305, relied on.      2.1 From  the official  record it  is clear:  (i)  that there was  in reality  no such  separate  business  as  Real

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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 improve the liquidity  to pay off the creditors; (ii) All the assets including the  surplus lands  appurtenant to  the mill  were assets of  the company  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  and transfer  of title to the lands; (iv) the so called  Real Estate Division had no capital assets of its own; (v) the 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 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 business was separate and distinct from the textile  business.  It  was  in  reality  a  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 the textile business. [214 A-D; 218 B-C] 193      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-B]

&      CIVIL APPELLATE  JURISDICTION : Civil Appeal Nos. 3067, 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, 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      SEN, J.  These appeals  on certificate directed against the judgment  and order  of the Bombay High Court dated June 13, 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 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 owned 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  directed  the  Central Government to  restore possession  of the  said land  to the Company. The  issue involved  must necessarily  turn on  the

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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 194 is necessary  to state  a few  facts. The  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. The  only real estate that it  acquired in  the late  19th  Century  comprised  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  yards. Early in the 20th Century it changed  hands a  few times  and ultimately  it was taken over by  Tantias of  Calcutta in  1955 as  a grey  unit. The Company’s share  capital comprised  of equity  shares of the value of  Rs. 45  lakhs and cumulative redeemable 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 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 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 Company managed  to survive  without substantially adding to its reserves.  During the  next period between 1971 to 1980, the investment  on plant  and machinery was minimal 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  not in  a state  of good repairs. The 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.      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 1978-79 and 1979-80 were comparatively good for the textile 195 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 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 cumulative  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 :           "Even if large funds were pumped at a concessional           rate, the  Company would take 20 years to wipe out

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         its liabilities."      As is  revealed from  Company’s  balance-sheets,  since last more  than seven years before the taking over, the net- worth of  the Company  had been in the negative. In the year 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  but  the  negative  factor  had  been increasing at  a rapid  rate 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 were  to the  tune of Rs. 2.80 crores. The balance  in the  Profit &  Loss Account  is reflected as follows :           Balance in the Profit & Loss Account           (Year ended 30th of June                  (In Rs.)           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           1981                                   4,55,00,000           1000                                   7,10,00,000 196 As a  result of this, the Company resorted to borrowings far in excess  of its  limits, the amount drawn on June 30, 1983 being Rs.  4.75 crores  as against  the drawing power of Rs. 1.97 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. 1.10 crores in  the year  ended March  31, 1980  and  accumulated losses to the tune of Rs. 91 lakhs as on March 31, 1981. The secured loans  outstanding to  the Company’s  bankers as  on March 31,  1980 were  of the  order of Rs. 2.80 crores which increased to  Rs. 3.64 crores by March 31, 1981. The current liabilities which  stood at  Rs. 3.08  crores by  the end of March 31,  1980 rose  to Rs. 4.70 crores at the end of March 31, 1981.      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 staggering figure of Rs.77 lakhs as on October 18, 1983 when 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 1981 the Company  received fresh  financial assistance from IDBI, Maharashtra State  Financial Corporation and other financial institutions aggregating  to over  Rs. 47  lakhs. As already stated, the annual statements of accounts for the year ended March 31, 1980 and March 31, 1981 were wholly unsatisfactory on  account  of  mismanagement  of  its  affairs  with  huge 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  subserve  the  interest  of  the  general

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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.      It is needless to stress that the textile industry in 197 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 industrial  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 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 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  assistance  to  the  industry including loans  through public  financial  institutions  on concessional terms  to prevent  their having  to 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 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  main reason why certain mills were not in a  satisfactory  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  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. 198      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 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 evolve a scheme to put the textile industry on its feet.      On December 3, 1981 the Central Government appointed an Investigation Committee  under s.15(a)(i)  of the Industries

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(Development &  Regulation) Act, 1951 to find out the causes for the  fall in  the volume  of production of the Company’s 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 expeditiously the  rehabilitation programme  proposed by the Company by  keeping full control over the management. In the meantime 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, 1982 at which were present the Deputy Governor, Reserve Bank of India,  Joint Secretary,  Ministry of  Finance (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 classified into three categories on a general consensus :      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. 199      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 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 financial assistance from the Government, Government controlled institutions  and nationalised banks. None of the said mills  were in  a position  to restore  their financial condition  on   a  commercial  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 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 help in raising the necessary working capital.      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 III which it did  and submitted  its report  sometime in March 1983 in respect of  each mill  in  that  category.  So  far  as  the respondents were  concerned, as  regards its  management the IDBI adversely  commented on  ’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 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 :

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         "Even assuming that the Company will be able to 200           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 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 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 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 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, Department of Textiles constituted a Task Force to look into the affairs of the Category III strike affected mills. The  Task Force  under the  terms of reference had to collect the  necessary data  and place its report before the 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  to the promulgation 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  of surplus lands, with a rider added that a change in the management should also be brought about. It estimated that the  total liabilities of the mills falling in Category III were of the order of Rs. 194.48 crores. 201      It became  therefore necessary to consider whether such 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  were even  before the  general  strike.  In  the circumstances  the  Government  of  India  had  to  consider whether it  would be in the public interest that such public finances should be made available to such mills particularly when  there   were  serious   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  give  financial assistance on concessional terms to provide undertakings the self-sufficiency rather  than to take over such 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 management of the textile   undertakings   and   thereafter   enact   suitable legislation to  nationalize the  same. As the taking over of

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the management  was with a view to implement the decision to nationalize the said textile mills, there was no question of holding an  inquiry either under the Industries (Development and  Regulation)   Act,  1951  or  under  the  Sick  Textile Undertakings (Taking Over of Management) Act, 1972.      Prior to  November 1982,  there were  several viability surveys made by different authorities, namely, (1) Ahmedabad Textile  Industries   Research   Association   (2)   Textile Commissioner’s Office  (3) S.R.  Batlibhoy &  Company and an 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  Commercial Bank was again updated in March 1979. In its  reports, the  said Research  Association stated that considering  all   financial  aspects   and  the  favourable enviornment of  the Company’s  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 Commissioner’s Office,  Ministry of  Finance, Government  of India also carried out a 202 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 working capital estimated at  around Rs.  50 lakhs should be provided. After the aforesaid  survey report of the Research Association and the Textile Commissioner’s Office the IDBI asked the Company to 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  strenghthened in  certain areas, recommended that necessary finance  should be  provided to the Company as its textile 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 scheme  put foward by the Company could ensure gainful employment  to 3,000  workers. At that point of time the Company had outstanding export orders to the tune of Rs. 4.5 crores  but 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.      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.      On October  18, 1983 the President of India promulgated the  Textile   Undertakings  (Taking   Over  of  Management) Ordinance,  1983   whereby  the  management  of  13  textile undertakings  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 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.1 was brought into force with retrospective effect from  October 18,  1983, the  date of promulgation of the Ordinance.  The  purpose  and  object  of  the  Act,  as reflected in  the long  title, was to provide for the taking over in the public interest of the

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203 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.  The preamble  to the Act brings out the necessity for such legislation :           "WHEREAS by reason of mismanagement 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;           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;           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           interest to  take over  the management of the said           undertakings;           BE it  enacted by  Parliament in  the Thirtyfourth           Year of the Republic of India."      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 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 204 reorganising and  rehabilitating the  said undertakings  and thereby to  protect the  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. Parliament was satisfied  that acquisition by the Central Government of the said undertakings was, therefore, necessary to enable it to 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 :           "The  Textile   Undertakings   (Taking   Over   of           Management) Ordinance, 1983 was promulgated by the           President on  18th October,  1983 to  vest in  the           Central  Government  the  management  of  thirteen           textile      undertakings,      pending      their           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           textile  strike  in  Bombay  further  deteriorated           thereafter. Certain  public financial institutions           had with  a view  to making  the said undertakings           viable,  advanced  large  sums  of  money  to  the

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         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           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. Government  considered the nationalisation           of the said undertakings to be necessary to enable           it  to   invest  such  large  sums  of  money  and           safeguard other interests. Once the basic decision           of   nationalisation    was   taken,   a   genuine           apprehension arose  in the  Government’s mind that           unless   the    management   of    the   concerned           undertakings was  taken over  on  immediate  basis           there might be large scale 205           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 Parliament was not in Session at that           time and  every day’s delay could have had serious           repercussions  the  aforementioned  Ordinance  was           promulgated."      On November  11, 1983  the respondents filed a petition under  Art.   226  of   the  Constitution   challenging  the constitutional validity  of sub-s.(1)  of s.3  of the Act as violative of  Arts. 14,  19(1)(g) and  300A. The respondents contended that  apart from the Company’s textile undertaking and 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  the Real  Estate  Division  was  a  separate  and independent business being carried on by the Company.      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 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  requiring a  vast area of land and putting up the various departments at different points. This had its  great disadvantages,  since the transportation cost increased,  there   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  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 206 these measures  a large  area of  land and  built  up  space became available to the Company for the purpose of utilizing the same  in its  real estate  business. Consequently in the year 1970  the  Company  applied  to  the  Bombay  Municipal

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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 letter  dated April 16, 1971 the Municipal Corporation sanctioned  sub-division on  certain  terms  and conditions principal  amongst 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  playground  against  nominal  advance,  the balance value  to be  fixed 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.S.T.  sub- station. (4)  The Company  had to construct and 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  aforesaid, the Bombay Municipal Corporation agreed to grant Floor Space Index i.e.  Floor Area  Ratio, otherwise  known as  FAR, and 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.           2. Plot  No.  7  admeasuring  7122  square  yards.           (being Industrial  Estate already  constructed and           sold)           3. Plot No. 8 admeasuring 3000 square yards.           4. Plot  No.  12  admeasuring  3443  square  yards           (being Industrial  Estate constructed  and sold in           the year (1980-81) Apart from  the said  plots being  available for development the Company  had in its possession various old buildings and godowns which  were already  constructed but  which were not useful in  the textile  industry on account of the fact that it  had   modernised  its  textile  undertaking.  All  these buildings were tenanted and the rent recovered from the same was duly 207 credited to  the Company’s  balance-sheet. These also became 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 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 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  municipal sanction  on condition  that 25% space should be  reserved for  small scale  industrial units which were to  be transferred  from non-conforming  zones  on  the terms  fixed  by  the  Municipal  Commissioner  for  Greater Bombay. The  respondents also by their letter dated July 19, 1973 applied  to the  State  Government  for  permission  to construct such galas on plots Nos. 5 and 8. On the same day, the Directorate  of Industries granted the N.O.C. permitting

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the respondents  to construct  an industrial  estate on plot No. 12 admeasuring 3443 square yards comprising of 110 sheds on similar  condition. 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 estate on plot No. 12. On even  date,  the  respondents  architects  also  made  an application to  the Director  of  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 terms of s. 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 208           and  authority   conferred  upon   the  Board   of           Directors  of   the  Company   to  carry  out  the           provisions  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 sometime  in the  year 1974  and  the  same  was completed in  later years. Incidentally, they constructed 90 galas in  Building A  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  industrial  estate  on  plot  No.  12 admeasuring 3443  square yards  in the  year 1973 but due to the imposing  of certain  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 construction  of the industrial estate on 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  that a  road admeasuring about 1500/1600 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 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 209 1982 the  respondents architects submitted building plans to the Municipal  Corporation for  construction of  residential buildings and  thereafter they started negotiations for sale of residential  buildings to various banks and public sector undertakings in anticipation of the sanction.      Upon these facts the respondents filed a petition under

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art. 226  of the  Constitution in the High Court challenging the constitutional  validity of  sub-s.(1)  of  s.3  of  the Textile Undertakings  (Taking Over  of Management) Act, 1983 as  violative   of  Arts.  14,  19(1)(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 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 Government under sub-s.(1) of s.3 of the  Act was  concerned but  held that  the  Real  Estate Division was  not an  "asset  in  relation  to  the  textile undertaking" within  the meaning  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 ’asset in  relation to  the textile  undertaking’ within the meaning of  sub-s.(2) of  s.3 of  the  Textile  Undertakings (Taking over  of Management)  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 of  the  management  of  the  mill  in  the  Central Government under sub-s.(1) 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  developing  Company’s  surplus  lands  and  the Company’s balancesheets  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 210 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 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, 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  real estate etc.  From the 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.  Therefore,  the business carried  on by  the respondents  Company under  the ’Real Estate  Division’ was  distinct from  and unrelated to the Company’s  business of  running  the  textile  mill.  It

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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 make the  said Real  Estate Division 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.(1) thereof.  The  issue involved must  necessarily trun  on the meaning of the words "assets in relation to the textile undertaking" appearing in sub-s.(2) of s.3 of the Act.      Sub-ss.(1) 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 of  all the  textile undertakings shall           vest in the Central Government. 211           (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  immovable,  including           lands,  buildings,  workshops,  projects,  stores,           spares,    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, immediately before the appointed           day,  in   the  ownership,  possession,  power  of           control of  the textile  company whether within or           outside India  and all books of account, registers           and  all  other  documents  of  what  ever  nature           relating thereof." In the Act, "textile undertaking" as defined in s.2(d) reads :           "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 :           "2(e) : "textile company" means a company (being a           company 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."      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 must  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 must 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 212 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

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s.3 of  the Act  have a wide legal connotation and they must be construed to mean "forming part of" and not as "belonging to" the  textile under 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 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 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 Company 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  Company  in  a  series  of paragraphs and  one paragraph,  or the  first two  or  three paragraphs, embody the main object of the Company, all other paragraphs are  treated as  merely ancillary  to  the  "main object" and  as  limited  or  controlled  thereby.  We  were referred  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 impress upon us that the viability of the Company depended largely on the proper utilization of the surplus  lands. It was contended that the Legislature in enacting the  law clearly  had the  intention of taking over the surplus  lands of  the Company and the High Court should have interpreted sub-s. (2) of s. 3 of the Act in consonance with the legislative intent.      The contention  to  the  contrary  put  forth  by  Shri Nariman, appearing  for the respondents’ Company is that the words "assets  in relation  to the  textile undertaking"  in sub-s. (2) of s.3 of the Act must be read in conjuction with sub-s. (1)  thereof and  the other provisions of the Act and therefore must be interpreted to mean "forming part of" i.e. as "belonging  to" the  textile undertaking. It is submitted that what vests 213 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" 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 counsel  laid particular  stress  on  the special  resolution  passed  at  the  Extraordinary  General Meeting of  the shareholders on January 19, 1974 whereby the Company accorded  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 Memorandum of Association. Where  was  the  necessity,  he  asks,  of  the special resolution  as contemplated  by s.  149(2A)  of  the Companies Act  unless the  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 inasmuch as the business in real estate which  the Company  intended to  carry on  was a  new

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business and  it was  not germane  i.e. was unrelated to the existing business. He then contends that sub-cl. (12) of cl. 3 read  with sub-cl. (37) on its true construction, excluded the ’main  objects’ rule of construction so that each of the objects in the clause was to be read in isolation and not as ancillary or  limited or  controlled by first few paragraphs and that, on that construction, 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. He tried  to  draw  sustenance  from  the  IDBI’s  study  of viability,  report  of  the  Task  Force  and  that  of  the Investigation Committee  and contends  that each of them was constituted by  a body  of experts  charged with the duty of making an  investigation into the affairs of the Company. He 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 214 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.      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  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 much less  any real 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 improve the  liquidity to  pay off  the creditors.  When the mill was established way back in 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 the manufacturing and storage  areas pertaining to textile activities occupied 50,749 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.      The fundamental  question is  : Whether  the land is an asset in  relation to  the textile  undertaking  which  must 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 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 held  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  asset belonging to the Company’s textile 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 of industrial galas and the diversion of Plot No.5 from the 215

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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  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 Division’. It is averred :           "In the  said Division, the 1st Petitioner carried           on and  carries  on  the  business  of  developing           various plots,  putting up  buildings thereon  and           selling the  same or  portions thereof.  The  said           activity is  totally segregated  from the  textile           undertaking and  is  a  separate  and  independent           business of  Petitioner No.l and it has nothing to           do with the Textile Undertaking." While in paragraph 27 it is averred :           "Apart   from   the   1st   Petitioner’s   textile           undertaking and the business of manufacturing yarn           and textile,  the 1st  Petitioner from  1970  also           carried on the business of real estate".      The balance-sheets  of the  Company throughout  furnish data for  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  form part of the mill precincts had been separated. There is nothing to show that the said lands were not  appurtenant to  the textile  undertaking or  their integrality was  broken. me  balance-sheets do  not disclose that the  Company had  shown Real  Estate  Division  or  the industrial galas separately in the schedule of fixed assets. This falsifies the respondents 216 plea that the real estate business was separate and distinct 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  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  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 Company for the purpose of running the textile undertaking.      Ms. Indira  Jaising appearing for the Maharashtra Girni Kamgar Union  has filed  before us  a detailed  and  tabular chart   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 1971, there was no sub-division

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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.l  admeasuring  4764  square  yards, reserved   by   the   Bombay   Municipal   Corporation   for 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 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  by the  respondents to  a charitable trust of the Tantias in  1974-75 for  setting off  loans taken  from  the trust for  the textile business. Plot no. 5 admeasuring 8740 square yards lying vacant : There was no development of this 217 plot. The  respondents-Company created an equitable mortgage in favour of the United Commercial Bank to raise finance for the textile  business. Plot  no. 6  admeasuring 2761  square yards was  released by  the Corporation and transferred from the Industrial  Zone to the Residential Zone with permission to construct multi-storeyed buildings containing residential flats. Plot  no. 7  admeasuring 7122  square yards : in 1974 the Company  built some  industrial galas  on a  portion and sold them  on ownership basis. In 1980, building rights were sold to  builders as  the Company  did not  have finances to build on  its own.  Sale  proceeds  thereof  were  used  for improving financial  liquidity of  the Company and to reduce the liabilities  relating to  the textile  business. We have already referred  to plot  no. 8 which was lying vacant till 1981 when  the Municipal Corporation reserved it in exchange for plot no.6. Equitable Corporation was also created by the Company in favour of the united Commercial Bank with respect to this plot. Then comes plot no.9 admeasuring 50,749 square yards. The  textile mill  and its  buildings are now located over a  portion thereof  admeasuring 40,456 square 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 business. Of  the remaining plots, two of them, namely, plot no. 10  admeasuring  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  improving  the financial  liquidity  of  the  Company  and  to  reduce  the liabilities relating  to the  textile business.  Plot no. 12 admeasuring 3443 square yards : in 1980 a basement was built for industrial galas. Thereafter, the Company due 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 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.  The tabular chart gives a graphic picture of the transactions 218

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effected by  the Company  in respect of the surplus lands by building industrial  galas thereon  or otherwise. They bring out the  existence of inter-connection, inter-lacing, inter- dependence  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.   Sales  of   surplus  lands  in  such circumstances, we  are inclined to think, are no more than a realisation of  capital or conversion of one form of it into another. It  was in  reality  a  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 the textile business.      Falsity of  the respondents  claim that the business of the Real  Estate Division was separate and distinct from the textile business  and  therefore  the  surplus  lands  which constituted the  Real Estate  Division, were not an asset in 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 sheets  we think  it proper  to set out the relevant portion of the Note on Real Estate Division submitted by the petitioners, which reads :           "The textile  unit was  one of  the businesses  of           Petitioner  No.1,   Real  Estate   being   another           business. In  order to  strangthen the business of           Textile Unit,  it was  necessary to  obtain  loans           from  financial   institutions  and   Banks.   The           Petitioner No.1 created security on Plot Nos. 5, 8           and 12  (assets of  the Company not related to the           working of  the textile  unit) in  favour  of  the           Company’s bankers.  Merely because  the Petitioner           No. 1 created or agreed to create security on some           of  its   assets   not   pertaining   to   Textile           Undertaking   for    strengthening   the   textile           undertaking, it  does not follow that these assets           are the  assets of  the Company in relation to the           textile undertaking  of which  charge can be taken           by the  Central Government  or the Custodian. Shri           M.L. Tantia  and his  family members  had  pledged           their shares  to the  extent of  13,000 shares  in           favour of the Company’s bankers, 219           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  Division etc. Merely because the           Petitioner No. 1 utilised or offers to utilise the           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).           All  the  Plots  pertaining  to  the  Real  Estate           Division 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           Banks  in   favour  of   Petitioner  No.   1   for           development   and   construction   and   sale   of           Industrial Estate duly constructed.

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         When the construct{on of Industrial Estate on plot           No. 12  was completed,  a  sum  of  Rs.  87  lakhs           pertaining thereto was deposited by Petitioner No.           1 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           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           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 220           unit, which  also belong  to the  same Company, it           cannot be  inferred that  the Real Estate Division           did  not   function  as   a  separate  unit  after           segregation of  different plots  and  particularly           the Mill itself (factory area). "                                         (Emphasis supplied)      In this  note the  assertion that the  textile unit was one of  the businesses  of the  Company, a  business in real estate being  another, proceeds  on the  hypothesis  that  a Company may  carry on  several businesses.  Upon this basis, the respondents  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 respect to the surplus lands  in the  preceding paragraph  and it  is clear enough they  are not  separable  from  but  were  integrally connected with the running of the textile undertaking. 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. Furthermor e, 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 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  relevant accounting year  the Company made profits of Rs. 39.25 lakhs which were  solely attributable  to the textile undertaking. The prior  mortgage in  favour of  the  National  Industrial Development Corporation  was redeemed  and  the  outstanding balance of Rs. 23,75 lakhs  paid off during the year. In the Directors’ Report  in that  year it  is stated that a sum of Rs. 3,53,423  had been  received  from  the  various  buyers against  the   sale  of  the  multi-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.  In the  schedule  of fixed assets attached to and forming part 221 of the balance-sheet for the year under the heading "Current sets" the following entry appears :           "(a) Current Assets :

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         (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 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 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  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 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  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 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. 222      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 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 little  significance. None  of the  balance-sheets of the Company nor the Profit and Loss Accounts make any mention of the so-called  Real  Estate  Division.  Even  the  schedules relating to  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 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 segregation 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  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

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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  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 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 High  Court.  The  High  Court  failed  to appreciate that  it was  dealing with  an Act  of Parliament providing for  taking over  in public interest of management of 223 the textile  mills specified  in the  Second Column  of  the First Schedule,  pending  nationalisation  of  such  textile undertakings  and   for  matters   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 Courts cannot adopt a doctrinaire or  pedantic   approach.  It   is  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 subserve  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 acquired all its real  estate in  the 19th century when it was formed for carrying on  textile business  and admittedly  no new 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 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  several  high-powered  committees  constituted  by  the Central Government from time to time which stressed that the potential 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  the past  been  misutilising  its  real estate. In  particular, the Investigation Committee’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 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 undertaking could only be made viable by  the disposal  of the  surplus lands. Further, the report of  the Task  Force submitted to the Economic Affairs Committee 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 224 over of the management of the textile undertakings therefore

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clearly had  the intention  of taking over the surplus lands of the Company. In our opinion, the High Court ought to have interpreted sub-s.(2)  of s.3  of the  Act in the context of sub-s.(1) thereof  and the  other provisions  of the  Act in consonance with the intention of the Legislature. It was the intention of  the Legislature  to take  over all  the assets belonging to  the Company  held in  relation to  the textile undertaking. me  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 Division. Even  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 any 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 Company.      In the premises, the High Court has manifestly erred in holding that  the said Real Estate Division was separate and distinct from  the textile undertaking. Surplus lands of the textile mills  taken over  under sub-s.(l) of s.3 of the Act are but  a vital physical resource capable of generating and 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 social  good i.e.  in resuscitating  the  dying  textile under takings.  Hence, a  paradoxical situation  should have been avoided by adding a narrow and pedantic construction of a 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  management of a textile undertaking under sub-s.(l) thereof as a step towards nationalisation of such undertakings,  which was  clearly against  the national interest. In dealing  with similar  legislation, this  Court has always  adopted a  broad and  liberal approach.  In  New Satgram Engineering  Works &  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 on a plot adjacent to the New Satgram Coal Mines in 1964, the 225 technical 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) 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  mines  under  the  same           management, in  relation to  workshops. The use of           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           between the  two expressions  "used substantially"           and "solely  used" is  obvious. It  is, therefore,

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         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., 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 Workshop or           a building  constructed initially  for the purpose           of a  coal mine  cannot by  its being  diverted to           other purposes  cease to  belong to the mine. What           is of  the essence  is whether the workshop or the           building originally  formed a  part and  parcel of           the coal mine. The subsequent user may not, in our           opinion,  be   very  material.  To  illustrate,  a           workshop which  has come  into existence  for  and           because of  the mine  but which  also cones  to be           used for  purposes other than of the mine does not           on that  account alone cease to be a workshop used           substantially for the purposes of the mine. Again,           a building which is 226           used to  accommodate some other concern because of           the availability of space does not on that account           alone cease  to be  solely used  for locating  the           management offices of the mine."                                         (Emphasis supplied) It was then observed :           "By reason  of sub-s.(1)  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   Government   free   from   all           encumbrances. Parliament instead of providing that           the word ’mine’ shall have the meaning assigned to           it in  the Mines  Act, 1952, has given an enlarged           definition of  ’mine’ in s.2(h) so that not merely           the colliery  but everything  connected  with  the           mining  industry   should  vest   in  the  Central           Government,  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.  mis is  manifested  by  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  Union of  India v. United Colliories Ltd. & Ors., [1985] 1  S.C.C. 305  a similar  question arose. me 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  of  the  Technical  Advisor  of  the  North Chirimiri Collieries,  was an  asset belonging  to the  mine within the  meaning of  s.2(h)(xii) of  the  Nationalisation Act. me  High Court held 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 New satgram Engineering Works’ case and 227 therefore relegated  the parties  to have the matter settled

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by A a civil suit. Allowing the appeal, this Court held that the decision  in "New  Satgram 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  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 1  the  United  Collieries           Ltd., the  owners in  relation to  the said  mine.           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 assets  which the  proprietor holds  for the           purpose of  converting into cash, and they include           real estate,  building, machinery etc. : words and           Phrases,  Permanent   Edition  Vol.  17,  p.  161,           Black’s  Law  Dictionary,  5th  Edition,  p.  573;           Stroud’s  Judicial  Dictionary  4th  Edn.,  Vol.l,           p.20l. The  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 multifarious 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 mind that  the words  "assets in  relation  to  the  textile undertaking" 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 amplify  and define  as to what is taken within the sweep of the  term ’textile  undertaking’ as  defined  in  s.2(d), which 228 says that  the expression  ’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  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 within or  outside India.  It further  includes all books of accounts, registers  and all  other  documents  of  whatever nature  relating   thereto.  The   conclusion  is  therefore inescapable 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-s.(2) of s.3 of the Act.      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

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contemplated by s. 149(2A) of the Companies Act, 1956 or the tests laid  down under  the Income Tax Acts of 1922 and 1961 for determining  whether a  certain receipt  realized by  an assessee was  merely a  realization  or  change  of  capital assets or  was profit  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  s.24(2) of  the Income  Tax Act, 1922 or  were ’separate  business’. We do not think that any useful purpose  would be  served in  referring to  the large number of  decisions turning  upon these  questions  nor  to decisions arising under the Industrial Disputes Act, 1947 on whether the  several under  takings carried  on by  the same company are  separate or  not 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 must be construed in a generic sense looking to the context in which they are used. The Court has to interpret these words keeping 229 in view  that they occur in a legislation which provides for A 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      In the result, the appeals must succeed and are allowed with costs.  me judgment  and order  of the High Court dated June 13,  1983 are  reversed and  the Writ Petition filed by the respondents is dismissed. S.R.                                       Appeals allowed. 230