RASHTRIYA MILL MAZDOOR SANGHversusTHE STATE OF MAHARASHTRA AND ORS.

A                     RASHTRIYA MILL lv1AZDOOR SANGH
                                          v.
                   THE STATE OF MAHARASHTRA AND ORS.

                                SEPTEMBER 3, 1996

B                       [J.S. VERMA AND B.N. KIRPAL, JJ.)

          Constitution of India, 1950 : A1ticles 14, 19 and 21--<:onstitutional
  validity of Sectio11s 9(2), 10(2), 12 (1) and 26 of the Central India Spinni11g,
  Weaving and Manufactwing Compa11y Limited, the Empress Mills, Nagpur
C (Acquisitio11 and transfer of U11de1taking) Act, 1986-Natio11alisatio11-Ac-
  quisitio11 of Undenaking for giving effect to the policy of the State towards
  secwi11g the directive p1i11ciple~Acquisition of Unde1taki11g to subse1ve the
  interest of general public-Retention of more than fifty per cent of employees
  i11 se1vice-Violation of A1ticles 14, 19, 21 a11d retrenchn;ent alleged-Held,
D the requisite nexus of the Act with A1ticle 39 (b) clearly established and the
  Act immu11e to challenge on any ground based 011 A1ticle 14 or 19 by viltue
  ofA1ticle 31C-Acquisition of the Unde1taking is not a case of retrenchme11t
  and not violative of A1ticle 21.

              Administrative La~Judicial revie~Held, Judicial review 11ot ex-
E eluded to exami11e the ne.\1ts betwee11 the impug11ed Act a11d Directive Pri11-
    ciples.

          The Empress Mills; Nagpur, a Textile Undertakings has Been
    nationalised by the Central India Spinning, Weaving and Manufacturing
    Company Limited, the Empress Mills, Nagpur (Acquisition and Transfer
F   of Undertaking) Act, 1986. The Constitutional validity of Sections 9(2),
    10(2), 12(1) and 26 of the Act was questioned in a writ petition filed by the
    appellant claiming to be a representative Union of the workmen employed
    in the Empress Mills on the ground that these provisions violate Articles
    14, 19 (1) (c) and 21 of the Constitution. The High Court has rejected the
G   said writ petition. Hence, this appeal.

              Dismissing the appeal, this Court

           HELD : 1. Judicial review is not excluded to examine the nexus
     between the impugned law and Article 39. The permissible judicial scrutiny
H    to this exient reveals that the enactment undoubtedly is for effecting the
                                          458
     RASHIRIYAMILLMAZDOORSANGHv. STATE(J.S. VERMA,J.)                      459

directive principle in clause (b) of Article 39 towards securing that owner-      A
ship and control of the undertaking are so utilised as best to sub-serve the
common good. [463-C-D]

      Tinsukia Electric Supply Co. Ltd. v. State of Assam & Ors., [1989) 3
sec 709, relied on.
                                                                                  B
      2. There can not be any doubt that the requisite nexus of the Act with
Article 39(b) is clear and duly established. This being so, the Act is immune
to challenge on any ground based on Article 14 or Article 19, by virtue of
Article 31C. [463-F]

      3. The alternative to nationalisation of this industry in the manner it     C
is done by this Act is liquidation and unemployment of all the employees of
the undertaking. The Act ensures continuance of the undertaking as a
productive unit and continuation in employment of as many as possible.
                                                                     [463-E]
      4. It is not a case, in effect, of retrenchment. Such an argument is,       D
therefore, based on a misappreciation of the effect of the enactment.
Moreover, the unemployment of those who could not be continued in
service is not because of the act of nationalisation since unemployment of
all employees was the logical consequence otherwise. The act of
nationalisation in this manner saves majority of the employees from               E
unemployment. The argument based on Article 21 is misplaced. [464-D-E]

      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 11 (NL)
of 1989.

     From the Judgment and Order dated 5.8.87 of the Bombay High                  F
Court in W.P. No. 249 of 1987.

     S.K. Dholakia S.D. Thakur, Ms. Chandan Ramamurthi M.A Krishna
Moorthy, S.M. Jadhav (D.M. Nargolkar), (NP), T.V.S. Narasimhachari,
R.B. Puranik and Nikhil Nayyar for the appearing parties.
                                                                                  G
      The Judgment of the Court was delivered by

      J.S. VERMA, J. This appeal by special leave is against the judgment
of the Bombay High Court dismissing a writ petition filed by the appellant
to challenge the validity of Sections 9(2), 10(2), 12(1), and 26 of the Central
India Spinning, Weaving and Manufacturing Company Limited, the                    H
    460                   SUPREME COURT REPORTS (1996] SUPP. 5 S.C.R.

A Empress Mills, Nagpur (Acquisition and Transfer of Undertaking) Act,
    1986 (Maharashtra Act No. XLVE of 1986).

           The Empress Mills, Nagpur, a textile undertaking, has been
    nationalised by the Central India Spinning, Weaving and Manufacturing
    Company Limited, the Empress Mills, Nagpur (Acquisition and Transfer
B   of Undertaking) Act, 1986 (for short "the Act"). The constitutional validity
    of Section 9(2), 10(2) 12(1) and 26 of the Act was questioned in a writ
    petition filed by the appellant claiming to be a representative union of the
    workmen employed in the Empress Mills on the ground that these
    provisions violate Articles 14, 19(1)(c) and 21 of the Constitution. The
C   Bombay High Court has rejected the challenge.

           The Empress Mills, Nagpur consists of five textile units and a paper
    division. It was the first venture of Jamsethji Tata, a pioneer in the field of
    industry. The background in which it was nationalised as mentioned in the
D   Statement of Object and Reasons accompanying the Bill is as under :

             "The Central India Spinning, Weaving and Manufacturing Com-
             p_any Limited was established at Nagpur as far back as 1874 and
             was engaged in the production and manufacture of yarn, cloth and
             paper through its industrial undertaking "The Empress Mills",
E            Nagpur. It has installed capacity of 1,10,500 spindles and 2,140
             looms and a paper manufacturing unit, capable of manufacturing
             2,000 tonp_es of paper per annum. The performance of the company
             till 1984 showed that it was earning profits and gainfully employed ·
             more than 6,000 workers. Its working results showed losses during
F            1984 and it was also anticipated that the operation of the under-
             taking would result in huge loss in 1985. In 1985, the Industrial
             Development Bank of India (IDBI) initiated the efforts, at the
             request of the company, to rehabilitate the undertaking. The In-
             dustrial Development Bank of India studied viability thereof and
             concluded that it operations could be made viable. A rehabilitation
G            package, consisting of reliefs from institutions, banks and State
             Government was also prepared. The Industrial Development Bank
              of India, in fact sanctioned the loan of Rs. 3 crores in March 1986,
             but the management did not avail of this facility because it felt that
              on account of further deterioration in condition of working of the
H            mills, additional assistance was required. While the Industrial
RASH1RIYAMILL MAZDOOR SANGH v. STA1E (J.S. VERMA, J.)            461

    Development Bank of India and some other banks were prepared A
    to consider revised package, the response of the management was
    not positive. Attempts were made to persuade the management
    to resume normal operations, by availing of concessions. It, how-
    ever, did not resile from its attitude and declared lock-out on 3rd
    may, 1986. As its earlier application for closure of the unit was B '
    rejected by the Government under Section 25-0 of the Industrial
    Disputes Act, 1947 on the ground that its operations are viable,
    the company and its creditors took recourse to voluntary and
  . compulsory winding up of the company. Though the creditors
    withdrew the petition for winding up, the company persisted in its
    course for voluntary winding up.                                    C

   2. The company had filed, the petition No. 183 of 1986 for voluntary
   winding up under the Companies Act, 1956 in the Bombay High
   Court, on the ground that on account of continuous losses, the
   company was unable to run and manage the industrial undertaking D
   further. The Bombay High Court, passed an order on 14th May,
   1986 in the said petition, appointing provisional liquidator. The
   liquidator has been in possession of the properties of the industrial
   undertaking.

   3. The undertaking had sizeable facilities to manufacture substan- E
   tial production of yarn, cloth and paper. I~s closure would have
   resulted in keeping idle these facilities and would have meant waste
   of national wealth, which could have been utilised viably for
   production of above-mentioned articles. Further, the industrial
   undertaking is the largest of its size in Nagpur and in the entire F
   Vidarbha region, which is industrially backward area in the State
   and therefore, economy of this region is linked up with the con"
   tinuance of this undertaking. In order to avoid adverse consequen-
   ces of closure of this undertaking on the economy of the region
   and on more than 6,000 workers, it was expedient to acquire the
   undertaking of the said company to ensure that the interest of the G
   general public and of the employees of the undertaking are served
   by the continuance, by the undertaking of the said company, of
   the manufacture, production and distribution of textile and paper
   products which are essential to the needs of the country. Such
   acquisition was for giving effect to the policy of the State towards H
    462                  SUPREME COURT REPORTS [1996] SUPP. 5 S.C.R.

A           securing the principle specified in clause (b) of Article 39 of the
            Constitution of India."

          The Preamble of the Act is as under :

            "An Act to provide for acquisition and transfer of undertaking of
B           the Central India Spinning, Weaving and manufacturing Company
            Limited, with a view to securing the proper management of such
            undertaking so as to subserve the interest of the general public by
            ensuring the continued manufacture, production and distribution
            of textile and paper products which are essential to the needs of
            the economy of the country and for matters connected therewith
c           or incidental thereto.

               WHEREAS, the Central India Spinning, Weaving and
            Manufacturing Company Limited, being an existing company as
            defined a clause (ii) of sub-section (1) of section 3 of the Com-
D           panies Act, 1956, had. been engaged in the manufacture and
            production of yarn, cloth and paper through its undertaking which
            was composite textile mill and paper manufacturing unit, styled as
            the Central India Spinning, Weaving and Manufacturing Company
            Limited, "The Empress Mills", Nagpur;

E              AND WHEREAS, in Petition No. 183 of 1986 filed by th~
            company for voluntary winding up, the High Court of Bombay had
            made an order for appointment of the provisional liquidator and
            the proceedings for its liquidation were pending;

               AND WHEREAS, the company had declared lock-out throw-
F           ing about more than 6,000 workers out of employment and the
            undertaking has not been functioning since 3rd May, 1986.

                AND WHEREAS, it was expedient to acquire the undertaking
            of the said company to ensure that the interest of the general public
            and of the employees of the undertaking were served by the
G
            continuance, by the undertaking of the said company, of the
            manufacture, production and distribution of textile and paper
            products which are essential to the needs of the country and to
            provide for matters connected therewith of incidental thereto;

H               AND WHEREAS, such acquisition is for giving effect to the
    RASHTRIYAMILLMAZDOORSANGHv.STAIB[J.S.VERMA,J.]                      463

        policy of the State towards securing the principle specified in        A
        clause (b) of article 39 of the Constitution.

            xxx                         xxx                            xxx

      The provisions contained in the Act have to be appreciated in the
above background. At the outset, it may be stated that the challenge based B
on Article 14 or Article 19 would not be available by virtue of Article 31C, <
if the enactment is for giving effect to the policy of the State towards
securing the directive principle specified in Clause (b) of Article 39 of the
Constitution. A declaration to this effect is contained in the Act itself.

      However, as held in Tinsukhia Electric Supply Co. Ltd. v. State of
                                                                               c
Assam & Ors., [1989] 3 SCC 709, judicial review is not excluded to examine
the nexus between the impugned 13.w and Article 39. In our opinion, the
permissible judicial scrutiny to this extent reveals that the enactment
undoubtedly is for effectuating the directive principle in Clause (b) of
Article 39 towards securing that the ownership and control of the under-       D
taking are so utilised as best to subserve the 5ommon good. The declaration
made to this effect in the Act is fully supported by the undisputed facts
mentioned in the Statement of Objects and Reasons and the Preamble. The
alternative to the nationalisation of this industry in the manner it is done
by this Act is liquidation and unemployment of all the employees of the        E
undertaking. The Act ensures continuance of the undertaking as a produc-
tive unit and continuation in employment of as many as possible. It was
stated at the bar that more than fifty per cent of the .employees have been
retained in service after nationalisation of the undertaking. There cannot
be any doubt that the requisite nexus of the Act with Article 39(b) is clear
and duly established. This being so, the Act is immune to challenge on any     F
ground based on Article 14 or Article 19 of virtue of Article 31C.

      The contention of learned counsel for the appellant relating to
absence of nexus of the Act with Article 39(b) being rejected, it is unneces-
sary to refer to his contentions based on Article 14 and Article 19(1)(c) G
because of the immunity conferred by Article 31C. The only surviving
challenge now is based on Article 21. Learned counsel for the appellant
contained that there is violation of Article 21 inasmuch as a large number
of workmen have been rendered unemployed because every employee has
not been continued in service. He submitted that this has resulted from the
powers given unilaterally to the new management by Section 9(2) to H
    464                   SUPREME COURT REPORTS [1996) SUPP. 5 S.C.R.

A reorganise the functioning of the different units and offices of the under-
    taking and the employees employed therein and thereby restructure such
    units and offices with such strength of employees as it deems fit. It was
    urged that this provision prescribes a procedure different from the
    provision for retrenchment under the Bombay Industrial Relations Act
    which is the general law applicable in the State of Maharashtra for the
B   retrenchment of workmen; and since it results in unemployment of the
    employees not continued in service as a result of this exercise of restructure
    of the units, it violates Article 21. This contention has no merit for several
    reasons.

C         In the first place, this argument is really based on Article_ 14 on the
    ground of difference in the procedure from that prescribed in the Bombay
    Industrial Relations Act, th.e general law which is not available because of
    Article 31C. Secondly, it overlooks the effect of the legislation which is to
    save as many ~mployees as possible from unemployment since the only
    other option is liquidation which would result in all the employees being
D   rendered unemployed. It is not a case, in effect of retrenchment. The
    argument is, therefore, based on a misappreciation of the effect of the
    enactment. Moreover, the unemployment of those who could not be con-
    tinued in service is not because of the act of nationalisation since un-
    employment of all employees was the logical consequence otherwise. The
E   act of nationalisation in this manner saves majority of the employees from
    unemployment. The argument based on Article 21 is misplaced.

           In our opinion, the above reasons alone are sufficient to reject the
     challenge made by the appellant to the constitutional validity of the
     aforesaid provision~ in Maharashtra Act No. XLVI of 1986.
F
           Consequently, the appeal is dismissed.

     K.H.N.S.                                                  Appeal dismissed.