Holding

The notice did not comply with the proviso to Section 3(1); therefore the acquisition order is void and is quashed.

Summary

The Kerala Government, invoking the Kerala Cashew Factories (Acquisition) Act, 1974, issued a common notice to 36 cashew factories stating they were closed and would cause large‑scale unemployment, and subsequently declared the factories transferred to the State. The owners, who were also occupiers, challenged the notice and the acquisition order under Article 32, arguing that the notice failed to disclose the specific grounds and particulars required by the proviso to Section 3(1) of the Act. The Supreme Court held that the notice merely repeated statutory language without providing the mandated details, and that the government’s satisfaction under clause (c) could not be based on a generic assertion of potential unemployment. Consequently, the Court declared the notice void, quashed the acquisition order, and directed the return of possession to the owners with ancillary directions. The judgment affirmed that the existence of statutory conditions for exercising power is open to judicial review.

Issues considered

The notice issued under the proviso to Section 3(1) of the Kerala Cashew Factories (Acquisition) Act, 1974, complied with the statutory requirement of specifying grounds and particulars for each factory.
Whether the Government’s satisfaction that large‑scale unemployment existed can be based on a generic statement without specific evidence.
Whether the acquisition order dated 6‑July‑1988 is valid in view of the defective notice.
The extent of judicial review over the Government’s satisfaction of statutory conditions.

Legislation cited

Constitution of Indias. Article 32
Factories Act
Industrial Disputes Act, 1947
Kerala Cashew Factories (Acquisition) Act, 1974s. 2(b), s. 3(1), s. 3(1) proviso, s. 3(2), s. 3(3)

Subjects

administrative lawstatutory noticeacquisition of propertyjudicial reviewprocedural fairnesslarge scale unemploymentKerala Cashew Factories ActArticle 32

Judgment

INDIAN NUT PRODUCTS AND OTHERS A
v.
UNION OF INDIA

MAY 12, 1994

B
[KULDIP SINGH, P.B. SAWANT AND N.P. SINGH, JJ.]

Kera/a Cashew Fact01ies (Acquisition) Act, 1974-Section 3(1) proviso
-Notice for acquisition merely repeating statutory language without giving
particulars quashed.
c
Administrative Law-Grounds for exercise of statutory power, held,
must be made out on the basis of relevant materials-Existence of circumstan-
ces, required for exercise of such powers, held, open for judicial review.

The Kerala Government, in order to prevent large scale unemploy. D
ment of workers in the cashew industry and to provide employment to such
workers, passed the Kerala Cashew Factories (Acquisition) Act, 1974.
Section 3 of the Act vests power in the Government, to declare that the
cashew factory in question shall stand transferred to and vest in the
Government, if the Government is satisfied that any of the three conditions
mentioned in sub-section (1) of Section 3 exists. The proviso to sub-section E
(1) of Section 3 requires the giving of a notice issuing a declaration to
follow a procedure which is imperative and mandatory in nature.

In a common notice to 36 cashew factories, the Kerala Government
stated that since the factory was lying closed, the Government was of the F
opinion that the said situation would lead to large scale unemployment of
the workers of the cashew factory. Subsequently, after objections were filed
to the said notice by the petitioners, the Kerala Government by its order
dated 6-7- 1988, declared that the 36 factories stood transferred to and
vested in the Government with effect from 6-7-1988.
G
The petitioners who are owners and occupiers of cashew factories

-- challenged by way of a writ petition under Article 32 of the Constitution
the validity of the order dated 6-7-1988, contending that the notice of
closure contained no particulars for the alleged closure of each of the
factories, so that individual owners could meet the case against them. H
1023
1024 SUPREME COURT REPORTS fl994]3 S.C.R.

A Allowing the writ petition, this Court

HELD : 1. In the notice there is only reference to Section 3(1) of the
Ker;ila Cashew Factories (Acquisition) Act, 1974 without disclosing
whether the Government was satisfied in respect of the existence of any of
the situations under clauses (a), (b) or (c) thereof. No details have been
B mentioned. It need not be impressed that an order under Section 3(1) on the
ground specified in clause (c) of sub-section (1) can be issued by the State
Government only when the State Government is satisfied that there has
been large scale unemployment, other than by way of lay off or retrench-
ment, of the workers of a cashew factory. The grounds do not even state
c there has been any unemployment, much less large scale unemployment.
The grounds simply state that the factory was lying closed and there was no
possibility of its starting functioning within a period of ten days or in the
immediate future, which will lead to large scale unemployment. No details
have been mentioned in the said notice as to from what date each of the
D factories was lying closed. It cannot be appreciated as to how by a common
notice all the 36 cashew factories could be summoned to show cause without
giving particulars of conditions existing in different factories. (1030-A-E)

2. It is not disputed that the cashew-nut factories do not work
throughout the year but work for periods depending upon the supply of
E raw nuts etc. As such the particulars of the alleged closure of each of the
factories were required to be furnished to the individual owner to meet
the case against him. The transfer or vesting of the factories has to be in
accordance with the procedure prescribed in the Act. In view of the
proviso to sub section (1) it is incumbent on the part of the Government
to disclose the ground or the grounds specifically, in .the notice .on the
F basis of which, the Government is satisfied that one of the three situations
mentioned in sub-section (1) of Section 3 exists necessitating an action
under that sub-section. The person to whom such notice along with the
ground or grounds is served, is entitled to file objections and to
demonstrate and satisfy that in fact no such ground exists for issuance of
G an order for the transfer of the factory in question. In the present case,
the notice does not comply with and conform to the requirement of the
proviso to sub-section (1) of Section 3. (1029-F-H; 1030-F-H; 1031-A)

3. If a statute requires an authority to exercise power and when such
authority is satisfied that conditions exist for· exercise of that power, the
H satisfaction has to be based on the existence of grounds mentioned in the
INDIAN NUT PRODUCTS v. U.O.I. [N.P. SINGH, J.] 1025

statute. The grounds must be made out on the basis of the relevant A
material. If the existence of the conditions required for the exercise of the
power is challenged, the courts are entitled to examine whether those
conditions existed when the order was made. A person aggrieved by such
action can 11uestion the satisfaction by showing that it was wholly based
on irrelevant grounds and hence amounted to no satisfaction at all. In
other words, the existence of the circumstances on question is open to
B
judicial review. [1031-B-D]

(The Court also gave certain directions in order to work out the
equities and the rights and liabilities which had arisen between the date
of the transfer of the factories and the date of the Court's Judgment). C
[p.1032-B-H]
ORIGINAL JURISDICTION : Writ Petition (C) No. 415 of 1988.

(Under Article 32 of the Constitution of India.)

K.K. Venugopal, Joseph Vellapally, K.V. Viswanathan, K.V. D
Venkataraman, S.R. Setia, K.J. John, D.N. Mishra, for M/s. J.B.D. & Co.
N. Sudhakaran, M.A. Firo7" K.R. Nambiar, P.K. Pillai, K.M.K. Nair, S.K.
Jain and M.K.D. Namboodri for the appearing parties.

The Judgment of the Court was delivered by
E
N.P. SINGH, J. This writ petition has been filed on behalf of the
petitioners, who are owners and occupiers of cashew-factories. They have
questioned the validity of an order dated 6.7.1988, issued by the Govern-
ment of Kerala, in exercise of the powers conferred on them by Section
3(1)( c) of The Ker ala Cashew Factories (Acquisition). Act, 1974
(hereinafter referred to as "the Act") declaring that the cashew factories of F
the petitioners mentioned in the schedule of the said order shall stand
transferred to, and vest in, the Government.

The object of the Acl aforesaid is to acquire cashew factories in the
public interest, in order to prevent large scale unernployn1ent of workers G
in the cashew industry and to provide employment to such workers who
have been rendered unemployed. Cashew factory has been defined under
Section 2(b) to mean a factory as defined in the Factories Act, wherein
processing of cashew nuts is being carried on and includes the factory
building, the site thereof, and the buildings, and lands appurtenant thereto
used or necessary for, or in connection with the working of the factory. H
1026 SUPREME COURT REPORTS [1994) 3 S.C.R.

A Section 3 provides :

"Order of acquisition-(1) The Government may, if they are
satisfied-

(a) that the occupier of a cashew factory does not conform to
B the provisions of law relating to safety, conditions of service of
fixation and payment of wages to the workers of the factory; or

(b) that raw cashewnuts allotted to a cashew factory by the
Cashew Corporation of India are not being processed in the factory
to which allotment has been made or that such nuts are being
c transferred to any other cashew fact-0ry; or

( c) that there has been large scale unemployment, other than
by way of lay off or retrenchmen~ of the workers of a cashew
factory, by order published in the Gazette, declare that the cashew
factory shall stand transferred to, and vest in, the Government:
D
Provided that before making a declaration under this sub-sec-
tion in respect of a cashew factory, the Government shall give the
occupier of the factory and the owner of the factory, where he is
not the occupier, a ~otice of their intention to take action under
E this sub-section and the grounds therefor and consider the objec-
tions that may be preferred in pursuance of such notice.

Explanation- For the purposes of this sub-section, the expres-
11 1
sions lay off' and 'retrenchment'' shall have the meanings respec-
tively assigned to them, in the Industrial Disputes Act, 1947
F (Central Act 14 of 1947)

. (2) The notice referred to in the proviso to sub-section (1) shall
also be published in two newspapers published in the the State of
Kerala and such publication shall be deemed to be sufficient notice
to the occupier, to the owner where he is not the occupier and to
G
all other persons interested in the cashew factory.

(3) On the making of a declaration under sub-section (1), the
cashew factory to which the declaration relates, together with all
machinery, other accessories and other movable properties as were
H immediately before the appointed day in the ownership, posses-
INDIAN NUT PRODUCTS v. U.0.1. [N.F. SINGH.J.J 1027

sion, power or control of the occupier in relation t9 the factory A
and all books of accounts, registers and other documents relating
thereto shall stand transferred to, and vest in, the Government."

The other Sections relate to the vesting, inventory of properties, power of
the Government to direct vesting of such cashew nut factories in the
Corporation, payment of compensation to the occupier of the cashew B
factory and the continuance of employment of the employees after vesting.

It appears that in view of the proviso to sub-section (1) of Section 3
of the Act, the Government gave notice to the petitioners in respect of their
intention to take action under the aforesaid sub-section, directing the C
petitioners to file objections, pursuant to the said notice. The relevant part
of the said notice dated 20.6.1988 is as follows:-

"NOTICE

Notice under Rule 3 of the Kerala Cashew Factories D
(Acquisition) Rules, 1974.

WHEREAS it has been brought to the notice of the Govern-
ment that in respect of Cashew factories detailed below, there exist
grounds as detailed below, warranting action under section 3(1) of E
the Kerala Cashew factories (Acquisition) Act, 1974, notice is
hereby given to all concerned of the intention of the Government
to take action under the above said section of the Act. Interested
persons are hereby directed to file their objections, if any, before
the Government of Kerala against the proposed action within seven F
days of the receipt of this notice or the publication of this notice
in the newspapers, whichever is earlier or if they so desire, appear
before the special Officer for Cashew Industry, Quilon at Quilon
at 11 A.M. on 4.7.1988 and state their objections. If no objections
are received within the said period or no person appears on the
said date it will be presumed that there are no objections against G
the proposed action and further steps will be taken ................ "

In the said notice the names of 36 cashew factories including that of the
petitioners have been mentioned and thereafter the grounds on which the
factories were being acquired have been stated as follows : - H
1028 Slil'REME COURT REPORTS [1994J 3 S.C.R.

A "GROUNDS

lL has been reported by the authorised officer that your factory
is lying closed and that there is no possibility of it to start function-
ing within a period of ten days or in the immediate future. Govern-
menl are, therefore, of opinion that Lhe said situation will lead to
B a large scale unemployment, other that by way of lay off or
retrenchment, of the workers of the Ca~hew factory."

On behalf of the petitioners, objections were filed to the said notice,
pointing out, that the first allotment of raw cashew nut under the scheme
C of monopoly procurement, was made to them by allotment orders dated
15.4.1988 and as such at the earliest, the factory could have started around
1.5.1988. It was also pointed out that cashew nut industry was essentially a
seasonal industry. With the available raw nuts in Kerala State and the
scheme of monopoly procurement of raw nuts in force, if all the cashew
factories were to take allotment of raw nuts, such factories would work only
D for 45 to 60 days in the year 1988. It was also pointed out that in the year
1987, they worked for 192 days. It was asserted that there had been no
unemployment in their factories and as such there was no justification to
issue notice in exercise of the power under Section 3(1)(c) aforesaid.

On 4.7.1988 which had been fixed as the date of hearing of the
E
objections to the notices aforesaid, before the Special Officer for Cashew
,
Industry Quilon, a detailed written submission was also filed on behalf of
.t\le petitioners, pointing out that the notice had been issued, not in terms
of the requirement of Section 3(1)(C). Hence, on the basis of such notice,
the power of the State Government to declare that the factories mentioned
therein shall stand transferred to the State Government, cannot be exer-
cised. It was asserted that the issuance of notice was nothing but a
colourable exercise of statutory powers with oblique motives and the
processors felt that th~ acquisition of factories and driving the owners out .
of the industry was a foregone conclusion.
G The impugned order was issued on 6.7.1988 saying:

"Whereas it has been brought to the notice of the Government that
there has been large scale unemployment, other than by way of lay
off or retrenchment of the workers of the cashew factories men-
H tioned in the Scheduled below :
INDIAN NUT PRODUCTS v. U.0.1. [N.P. SINGH . .I./ 1029

AND WHEREAS Government have given notice to the A
owners/occupiers of the said factories of the intention of the
Government to take action under section 3 of the Kera.Ia Cashc\v
factories (Acquisition) Act, 1974 (29 of 1974) and considered the
objections that were preferred in pursuance of the said notices.

AND WHEREAS Government are satisfied that there has B
been large scale unemployment, other than by way of lay off or
retrenchment, of the workers of the cashew factories mentioned
in the scheduled below :

Now therefore, in exercise of the powers conferred by Clause C
(C) of Sub-Section (1) of Section 3 of the Kerala Cashew factories
(Acquisition) Act, 1974 (29 of 1974), the Government of Kerala
hereby declare that the Factories mentioned in the schedule below
shall stand transferred to and vest iii the Government with effect
from 6.7.1988."
D
Section 3 vests power in the Government, to declare that the cashew
factory in question shall stand transferred to and vest in the Government,
if the Government is satisfied that any of the three conditions mentioned
in the said sub-section (1) of Section 3 exists. That power has not been
questioned in the present writ application. But it was pointed out that the E
proviso to sub-section (J) of Section 3 enjoins upon Government, before
issuing a declaration, to foJlow a procedure which is imperative ·and man-
datory in nature i.e. 'the Government shall give the occupier of the factory
and the owner of the factory, where he is not the occupier, a notice of their
intention to take action under this sub-section and the grounds therefor and
consider the objections that may be preferred in pursuance of such notice.' F

(emphasis supplied)

It cannot be disputed that in view of the proviso to sub-section (1), it is
incumbent on the part of the Government to disclose the ground or the
grounds specifically, in the notice on the basis of which, the Government G
is satisfied that one of the three situations mentioned in sub-section (1) of
Section 3 exists necessitating an action under that sub-section. The person
to whom such riotice along with the ground or grounds is served, is entitled
. to file objections and to demonstrate and satisfy that in fact no such ground
·exists for issuance of an order for the transfer of the factory in question. H
)..__

1030 SUPREME COURT REPORTS [1994] 3 S.C.R.

A It appears that in the notice, there is only referenc,e to Section 3(1)
of the Act, without disclosing whether the Government was satisfied in
respect of the existence of any of the situations under clause (a), (b) or (c}
thereof. No details have been mentioned in the said notice. Towards the
end of the said notice, under the heading "Grounds" it has been stated that
the factory was lying closed and that there was no possibility of it to start
B
functioning within a period of ten days or in the. immediate future and,
therefore the Government was of the opinion that the said situation "will
lead to a large scale unemployment.. ..... " It need not be impressed that an r
order under Section 3(1} on the ground specified in. clause (c) of Sub-sec: , f-
lion (1) can be issued by the State Government only when the State
c Government is satisfied that "there has been large scale unemployment, other
than by way of lay off or retrenchment, of the workers of a cashew nut factory."
The grounds do not even state that there has been any unemployment much
less large scale unemployment. The grounds simply state that the factory
was lying closed and there was no possibility of its starting functioning
D within a period of ten days or in the immediate future, which will lead to
a large scale unemployment. No details have been mentioned in the said
notice from what date each of the factories was lying closed. We are not ....
able to appreciate as to how by a common notice all the 36 cashew factories
could he summoned to show cause without giving particulars of conditions •
E existing in different factories. The learned counsel, who appeared on behalf
of the State, could not point out, as to how different occupiers w the
owners of the factories could have filed objections to such common notice
..
which did not refer to any conditions pertaining to their factories.
r
j.

F There is no dispute that the cashew nut factories do not work
throughout the year but work for varying periods depending upon the
supply of raw nuts etc. As such the particulars of the alleged closure of
each of the factories were required to he furnished to the individual owner
to meet the case against him. The object of the Act is to safeguard the
G interests of the workers in the cashew factories and it is to safeguard their
interests that the power has been vested in the State Government to issue
orders for the transfer of the factories. The transfer or vesting of the
factories has to be in accordance with the procedure prescribed in the ,Act.
As already pointed out above, the proviso to Sub-Section (1) not only
H requires a noiice to be given to the occupier or the owner of the factory
._ --
INDIAN NUT PRODUCTS v. U.O.l. [N.P. SINGH, J.] 1031

in respect of the intention of the Government to take action under the said A
sub-sectioni but also requires to furnish the grcunds on which such action
is considered necessary. In the present case, according to us, the notice
does not con1ply with and conform to the requirement of the proviso to
sub-section (1) of Section 3.
B
It is \VC11-settled that if a statute requires an authority to exercise
power, when such authority is satisfied that conditions exist for exercise of
that power, the satisfaction has to be based on the existence of &'Tounds
mentioned in the statute. The grounds must be made out on the basis of
the relevant material. If the existence of the conditions required for the
exercise of the power is challenged, th(: courts are entitled to examine c
whether those conditions existed when the order was made. A person
aggrieved by such action can question the satisfaction by showing that it
was wholly based on irrelevant grounds and hence amounted to no satis-
faction at all. In other words, the existence of the circumstances in question
is open to judicial review. D

It cannot be disputed that serious consequences follow on the basis
of the order passed by the Government on grounds n1entioned in clauses
(a), (b) and (c). Hence it is all the more necessary that the Government
furnishes the full particulars on the basis of which the Government claims E
to be satisfied that there is a case for taking over the factory. As already
pointed out above, there is not even an assertion in the notice that there
has been any unemployment much less large scale unemployment. The
ground simply says that the Government \Vas of the opinion that the closure
of the factory "will lead to a large scale unemployment". We are of the view,
F'
that in the facts and circumstances of the present case, the notice issue'.d
• to the petitioners with the so-called grounds \Vas not in accor-dauce with
the requirement of the provisions of sub-section (1) of Section 3 of the Ac)•.
' The notices issued to different petitioners are, therefore, declared lo ill!
null and void. Consequent thereto, the order dated 6.7.1988 is also
quashed.
'G '

However, it is made clear that it shall be open to the Government to
exercise the power conferred on it by sub-section (1) of Section 3, when-
... ever it is satisfied on the basis of the relevant material, that any of the three
conditions mentioned therein exists in individual factories, by folknving the H
1032 SUPREME COURT REPORTS [1994] 3 S.C.R.

A procedure prescribed I herein.

In order lo workout the equities and the rights and liabilities which
have arisen between the date of the transfer of the factories and passing
of this or<ler, we direct :

B (i) the possession of the factories shall be handed over to the
respective owners within two weeks from the date of this Order.
As and when possession is given, an inventory of all materials
shall be made.

C (ii) the daily workers other than the members of the staff engaged
by the Kerala State Cashew Development Corporation Ltd., or
the Slate Government, as the case may be, shall be retained by
the factory owners and shall not be retrenched except in accord-
ance with law. So far as the members of the staff are concerned 1

it shall not he the obligation of the factory owners to retain them.
D in view of the interim order passed by this Court on 19.7.1988.

(iii) the petitioners shall pay the same salary and emoluments which
were being paid by the State Government while the factories were
with the State Government;
E
(iv) any claim for compensation in respect of any damage or loss
caused to the machinery, equipments, building etc., during the
period of occupation by the· Kerala State Cashew Development
Corporation Ltd., shall be assessed by the District Judge, Quilon.

F
Similarly any claim in respect of any amount for an additional
construction made or additional machinery installed by the
.
Kerala State Cashew Development Corporation Ltd., shall be
determined by the District Judge, Quilon, on proper application
being filed before it;

(v) the Kerala Stale Cashew Development Corporation Ltd., shall
G
be entitled to remove any machinery or materials installed by it
within one week of preparation of the inventory; and

(vi) any disciplinary enquiry pending against any of the workmen may
be continued by the owner of the factory concerned, if he chooses
H to do so.
INDIAN NUT PRODUCTS v. U.O.L [N.P. SINGH, I;J 1033

Subject to the directions given above, the writ petition is allowed. But A
in the facts and circumstances of the case, there sha11 be no order as to
costs.

WP. (CJ Nos. 445189, 3950-61182, 429-433/79 and 490 of 1989.

The above mentioned writ petitions are disposed of, in terms of the B
judgment of this Court, in Writ Petition (C) No. 415 of 1988, delivered

- today.

R.R. W.P. No. 415of1988 allowed.
W.P. No. 445/89, 3950-61/82, 429-433/79 &
490/89 are disposed of.

)

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I
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