Holding

The Bihar Sugar Undertakings (Acquisition) Act, 1985 is a valid exercise of the State’s power under Entry 42 of List III and its provisions, including the retrospective clause, are constitutionally sound.

Summary

The Supreme Court examined the Bihar Sugar Undertakings (Acquisition) Act, 1985, which sought to acquire certain sugar mills and associated distilleries. Petitioners challenged the Act on the ground that it was beyond the State's legislative competence, overlapped with the central Sugar Undertaking (Taking over of Management) Act, 1978, and that its retrospective provision (Section 4(4)(ii)(e)) unjustly nullified a 1983 sale of a distillery. The Court held that the power to acquire property under Entry 42 of List III is a distinct competence of the State, and the Act falls within this entry, not infringing Entries 7, 52, or 24. It rejected the claim that the Act overlapped with the 1978 Act, affirmed that the distillery is part of the scheduled undertaking, and upheld the validity of the retrospective clause. Consequently, all petitions were dismissed and the Act was upheld.

Issues considered

The Bihar Sugar Undertakings (Acquisition) Act, 1985 is within the legislative competence of the State under Entry 42 of List III.
Whether the Act overlaps with the central Sugar Undertaking (Taking over of Management) Act, 1978.
Whether Section 4(4)(ii)(e) of the 1985 Act, which retrospectively invalidates transfers after 29 Oct 1978, is constitutionally valid.
Whether the distillery sold in 1983 falls within the scope of the acquisition under the Act.
Whether the Act provides adequate compensation and whether its valuation method is reasonable.

Legislation cited

Constitution of Indias. Article 14, s. Article 19(1)(g), s. Article 246, s. Article 254(1), s. Article 300A, s. Article 31, s. Entry 24 List II, s. Entry 42 List III, s. Entry 52 List I
Industries (Development and Regulation) Act, 1951

Subjects

legislative competenceacquisition of propertyEntry 42 List IIIretrospective legislationdistillery acquisitioncompensationconstitutional validitysection 4(4)(ii)(e)state vs centre legislation

Judgment

SHRI KRISHNA GYANODA Y SUGAR LTD. AND ANR. A
v.
STATE OF BIHAR

FEBRUARY 18, 2003

[S. RAJENDRA BABU, D.M. DHARMADHIKARI AND B
G.P. MATHUR, JJ.]

Bihar Sugar Undertakings (Acquisition) Act, 1985:

Act providing for acquisition and transfer of sugar undertaking in the C
State-Validity of-Held, Act within the legislative competence of the State
since the legislation falls under Entry 42 ofList !JJ-Acquisition and requisition
ofproperty-Object and purpose for which the Act was enacted-Discussed-
1nclusion of alcohol industries in the list of scheduled industries in 1951 Act
does not detract legislative power of States to acquire distilleries since D
acquisition is different from control and regulation of industries-1985 Act
and 1978 Act do not overlap the same field thus 1985 Act not invalid-
Constitution of India, 1950-Articles 246, 254(1) and Entry 42 of List II{-
Industries (Development and Regulation) Act, 1951-Sugar Undertaking
[Taking over of Management] Act, 1978.
E
State issuing notification to acquire certain sugar mills of a party on
29.10. 78-Party selling one of its distillery to third party on 5. 6.83-Subsequent
notification withdrawing earlier notification-Sugar undertakings taken over
L by Ordinance of 1985 replaced by Act of 1985-Whether distillery sold to
third party cover~d by the 1985 Act-Held, yes since section 4(4)(ii)(e) nullifies
all alienations effected after 29.10.78 of the properties and taking over of the F
same-Scope and applicability of section 4(4)(ii)(e)-Discussed

Bihar Sugar Undertakings (Acquisition) Act, 1976 was enacted to
provide for acquisition and transfer of certain sugar undertakings in the
State. Thereafter on 29.10.1978 notifications were issued and petitioner's G
sugar mills-SKG were included in the schedule of the Act. Petitioner
challenged the same. High Court struck down the notification as ultra vires
and quashed the take overs. Respondent-State filed appeals. During the
pendency of the appeals petitioners withdrew their writ petition.
Thereafter, the Division Bench set aside the judgment under appeal so far
75 H
.r
}

76 SUPREME COURT REPORTS [2003) 2 S.C.R.

A as the petitioners were concerned. On 5.7.1983 petitioner sold the distillery
at H to United Distilleries (P) Ltd. On 29.9.1984, State Government issued
a notification purporting to withdraw the notification dated 29.10.1978
to the extent it related to the petitioner's sugar mills. The said notification
was challenged. High Court granted stay. Workers of the petitioner also
B challenged the notification. Thereafter, both the writ petitions were
transferred to this Court. Meanwhile, an Ordinance was issued by the
State Government which is replaced by Act 12of1985, to acquire the sugar
mills of the petitioners. Petitioners-SKG and United Distilleries (P) Ltd.
and others challenge the said notification.

c [Acquisition]
Petitioners-SKG contended that the Bihar Sugar Undertakings
Act, 1985 is beyond the legislative competence of the State;
that Entry 42 of List III to the Seventh Schedule to the Constitution
provides for acquisition of property and does not deal with take-over of
industries under Entry 24 of List II to the Seventh Schedule, which are
subject the provision of Entry 52 of List I to the Seventh Schedule; that
D the decision in Ishwari Khetan Sugar Mills (P) Ltd. v. State of U.P. stands
overruled by the decision in Synthetics & Chemicals Ltd. v. State of U.P.;
that none of the objectives of the Act have been achieved and the purposes
for which the enactment was made having failed impugned Act cannot be
enforced, therefore, must be declared to be invalid; that the valuation of
E the sugar undertaking en the basis of book value is not reasonable; that
the inclusi!m of alcohol industries in the list of scheduled industries in the
Industries (Development and Regulation) Act, 1951 detracts legislative
power of the States to acquire distilleries; and that the Sugar Undertaking
[Taking over of Management] Act, 1978 was enacted to provide for the
take-over in public interest of the management of certain sugar
F undertakings and the impugned enactment is also for better management
of sugar industries, therefore, the two enactments overlap the same field.

Petitioners-United Distilleries (P) Ltd. contended that petitioner's
distillery is not covered by the Bihar Sugar Undertakings (Acquisition)
Act, 1985 as the object of the Act is to acquire only such distilleries as
G had been operating till as late as the crushing season 1984-85 as ancillary
units or sister concerns or subsidiary mills of certain specified sugar mills;
that on 16.12.1985 the date of the Act coming into force the distillery was
no longer in the ownership, possession, power and control of the sugar
undertaking and it is only assets of the undertaking which are part thereof
H that stood taken over or vested in the Government and that Section 4 has
KRISHNA GY AN ODAY SUGAR LTD. v. ST ATE 77
no applicability to a transfer or disposition of property which has been A
finally completed long before the appointed day, thus the; transfer of the
distillery in question in favour of the petitioner on 5.6.1983 is not affected
by the said provision; that sections 6,7, lst Schedule, 2nd Schedule etc.
do not even mention the petitioners nor provide for any compensation;
that the acquisition of property by the State on any ground pertaining to B
a period anterior to the date 29.9.1984 is per se arbitrary and violative of
Article 14 of the Constitution; that further the Act ddes not make any
provision to exclude the bona fide purchaser for value and such inclusion
treats unequals as equals and does not provide any machinery for
identifying such bona fide purchasers for value but on the other hand,
Section 4(4)(ii)(e) declares that all transfers after 29.10.1978 shall be C
invalid; that only a distillery connected or related to the sugar undertaking
can be acquired and it cannot be presumed so by reason of its proximity
to the location of the sugar undertaking; that the application of Section
4(4)(ii)(e) retrospectively from 29.10.1978 to the transfer of property,
namely, distillery without compensation renders the Act wholly arbitrary,
unreasonable, confiscatory and violative of Articles 14, 19(1)(g) and also D
Article 19(1)(1) read with Article 31; that in the earlier Act, the distillery
was not sought to be acquired nor was there any restriction on the transfer
of distillery at any time; and that it is that distillery which had been
transferred and the Government could not take action by bringing any
retrospective provision to affect the interests of petitioners. E
Respondents-State contended that enactment having been struck
down by the High Court and thereafter when the appeal was pending, the
=---· writ petitions, having been withdrawn the whole object of the Act stood
misfired, in the meanwhile, several actions had been taken by several
persons to transfer or sell the distilleries which were making profits and F
part of the sugar undertakings and in that background, the enactment was
made considering the history of the legislation, certain provisions of the
Act have come into force from as early as 29.10.1978; that the lease deed
itself indicated that the distillery is in existence in the common premises
along with the sugar undertakings, agreement to sell also contemplates G
acquisition of the property, and clause (h) of the indenture contemplated
the nationalization of the sugar mill as a consequence of which the distillery
J
J
' also being taken over, therefore, it cannot be stated that it is not within
the contemplation of the parties at all.

Disposing of the matters, the Court H
!
78 SUPREME COURT REPORTS [2003] 2 S.C.R.

A HELD: I.I. Power to legislate for acquisition of property is an
independent and separate power and is exercisable only under Entry 42,
List III and not as an incident of the power to legislate in respect of a
specific head of legislation in any of the three lists. When the impugned
enactment truly falls within Entry 42 of List III-"acquisition and
B requisitioning of property"-there is a reluctance to enter upon an
examination of the mutually competing claims of Entry 7 or Entry 52 of
List 1 and Entry 24 of List II. Entries which deal with "industries" and
"acquisition" are entirely different subject matters. Therefore, the
submission that the impugned acquisition of sugar undertakings is beyond
the competence of the State Legislature is rejected. [86-C-E)
c R.C. Cooper v. Union of India, [1970) 3 SCR 530 and Ishwari Khetan
Sugar Mills (P) Ltd. and Ors. v. State of U.P. and Ors., [1980) 4 SCC 136,
relied on.

1.2. In Synthetics & Chemicals Ltd 's case, this Court was concerned
D with the question of levy of excise duty on alcohol not fit for human
consumption and the questions posed by this Court for consideration do
not cover the aspects raised in the instant case. Therefore, the decision in
Synthetics & Chemicals Ltd 's case does not overrule impliedly or otherwise
the decision in !shwari Khetan 's case. The submission that at any rate the
E take-over of distillery is bad cannot also be sustained inasmuch as the
concept of acquisition of an undertaking is an entirely different matter
from the control and regulation of the industries. [86-E, F; 87-A)

Ishwari Khetan Sugar Mills (P) Ltd and Ors. v. State of U.P. and Ors.,
[1980) 4 sec 136, referred to.
F Synthetics & Chemicals Ltd and Ors. v. State of U.P. and Ors., [1990)
1 sec 109, distinguished.

1.3. When the Government carries out an experiment for various
purposes in the commercial or economic field, it has its own hazards
G particularly when the courts intercede, grant interim orders, the objectives
of the Act cannot be achieved at all. In this background it becomes
hazardous to examine the submissions whether the Act had failed or not
particularly when it has not been put into full force. [89-G]

Malpe Vishwanath Acharaya and Ors. v. State of Maharashtra and Anr.,
H 119981 2 sec 1, distinguished.
~.
\

KRISHNA GY ANO DAY SUGAR LTD. v. STATE 79
1.4 The manner in which value of the properties should be taken A
either book value of any other value cannot be examined because book
value is one of the methods in which the values of undertakings are
determined. There is no material placed before the Court to show as to
what other method could be adopted which would be more reasonable or
as to how the book value taken does not reflect the true value of the B
undertakings. Therefore, it is difficult to conclude one way or the other
on the basis of the submission that the valuation of the sugar undertaking
on the book value is not reasonable, thus it is rejected. [90-B, C)

1.5. The submission that at any rate the take-over of distillery is bad
.,.... cannot also be sustained inasmuch as the concept of acquisition of an
undertaking is an entirely different matter from the control and regulation
c
of the industries.

1.6. The Sugar Undertaking [Taking over of Management) Act, 1978
Act was enacte'd to provide for temporary taking over of the management
of certain sugar undertakings in certain situations for the purpose of D
mainly to maintain the continuity of production of sugar for avoiding
undue hardship to cane producing farmers and to best subserve the
interests of all sections of the people for a limited period the management
of every sugar undertaking which fails or ceases to manufacture sugar or
which fails to pay promptly amounts due for the cane acquired for the
purposes of the undertaking. After the expiry of the period mentioned E
therein which at any rate shall ·not exceed seven years from the date of

-
~
\
vesting, the management of the undertaking shall revert back to the
original owners thereof. The objects and reasons of the Central Act are
clearly to make provision for taking over the management of the defaulting
sugar undertakings for a specified period. It is thus clear that the objects, F
purpose and provisions of the two enactments are entirely different.
Further even when the State becomes the owner of the sugar undertaking,
it is possible for the Central Government in exercise of its power under
the 1978 Act or under the 1951 Act to take over the management.
Therefore, the two powers exercised are different and distinct. But a
comparison of the provisions of the two enactments makes it clear that it G
...._ . is not merely to take over the management but to take over the entire
)
undertaking that the impugned Act has been brought into effect. It is not
merely the management that is vested but the entire undertaking that is
vested in the Government. Further return of the undertaking after a
. certain period does not arise either. Therefore, the submission that the H
. r

-,.,
I

!

80 SUPREME COURT REPORTS [2003] 2 S.C.R.

A exercise of power under Entry 42 of List III to acquire the undertaking is
not for the avowed purpose of taking over the entire undertaking but the
management is not tenable and is rejected and also the submission that
. the 1978 Act and the impugned Act overlap is also rejected.

2.1. The object of Section 4(4)(ii)(e) is that irrespective of any
B provision in any other law, transfer, disposition of properties moveable
or immovable either in part or in whole made after 29th October, 1978
of the scheduled undertaking shall be invalid and stand annulled and the
Collector shall take possession of such properties with the properties of
the undertaking because under the prior enactment a notification has been
C issued on 29.10.1978 to take over the sugar mills under Section 17 of the
Act then in force. In reading the enactment as a whole this provision is to
be treated as an independent provision. Therefore, there is definitely a
cloud in relation to properties belonging to the sugar undertaking which
were sought to be taken over. Not only that day is relevant for the purpose
of taking over but also if the objectives of the Act have to be achieved
D situations will have to be taken note of which have arisen prior to the date
of the enactment and, therefore, it becomes absolutely necessary to make
proper provisions to cover such situations. If the said transaction stood _,
nullified the fact that the properties stood transferred to the petitioner
on 5.6.1983 will not be of any consequence and that property will have to
E be treated as the property of the sugar undertaking being taken over under
the impugned Act. Thus if the true effect of Section 4(4)(ii)(e) is borne in
mind, the distillery of tile petitioner must be deemed to be in the ownership,

p
possession, power and control of the undertaking on the appointed day.

Utkal Contractors v. State of Orissa, [1987] 3 SCC 279; Girdhari Lal
v. Balbir Nath, (1986] 2 SCC 237 and Reserve Bank of India v. Peerless,
(1987] 1 sec 424, referred to.
-
Brett v. Brett, [1824-34] All E.R. 776 and Hawkins v. Gathercole,
(1855] 43 ER 1125, referred to.

2.2 There was no need to mention the petitioner's name under
G Sections 6 and 7 and First and Second Schedules to the Act. The provision
of the impugned enactment in so far as compensation is concerned is
Section 7 of the Act. The said Section does not say to whom the amount is
to be paid and such amount will have to be given to all those persons who
are interested in the property after meeting prior claims as indicated in
H the said provision. Therefore, it cannot be proceeded on the basis that no
\
KRISHNA GY ANO DAY SUGAR LTD. v. STATE 81
provision for compensation is made to attract the wrath of Article 31 of A
the Constitution.

C.B. Gautam v. Union of India and Ors., 11993) 1SCC78, referred to.

2.3. Law can be made not only prospectively but also retrospectively.
The State had enacted earlier Act 13 of 1977 which was declared to be B
invalid and thereafter in appeal the said decision had been challenged and
subsequently the Notification dated 29.10.1978 under Section 17 of that
Act had been issued which stood withdrawn subsequently and which was
also the subject matter of challenge. In that background, it cannot be said

- that by reason of withdrawal of the initial acquisition of the said sugar
mills under the 1976 Act would result in acceptance of the transfers prior
to 29.9.1984. Therefore, the submission that the acquisition of the
petitioner's properties by the State anterior to 29th September, 1984 is
C

per se arbitrary is untenable and is rejected. [95-G, H; 96-A)

2.4. The instant case is clearly one for acquisition of property and
not by way of any pre-emptive purchase. Thus there is no justification in D
the submission that the provision contained in Section 4(4)(ii)(e) is invalid.
[97-D)

C.B. Gautam v. Union of India and Ors., [1993) 1 SCC 78 and Harshad
Shanti/al Mehta v. Custodian and Ors., [1998) 5 SCC 1, distinguished.
E
2.5. There cannot be serious dispute that the distillery and sugar
undertaking are inter-connected in several ways, particularly by supply

-· of molasses manufactured by the latter. By virtue of Section 4(4)(ii)(e),
ownership, possession, power or control continues to be with sugar
undertaking and, in addition, its location is an additional factor to F
ascertain whether it is a related industry or not. Thus, the submission that
the distillery cannot form subject matter of acquisition is rejected.
[97-F, G)

2.6. It is no doubt true that a challenge could be based on Articles
31 and 19(1)(f) in a matter of this nature when the enactment has G
retrospective operation from 29.10.1978, but there are several reasons why
nothing follows from this situation. The transfer itself has been in favour
of the petitioner on 5.6.1983, that is, long after the constitutional provisions
stood deleted. [98-C, DJ

Chairman, Railway Board and Ors. v. C.R. Rangadhamaiah and Ors., H
82 SUPREME COURT REPORTS [2003] 2 S.C.R.

A (1997) 6 SCC 623 and State of Gujarat and Anr. v. Raman Lal Keshav Lal
Soni and Ors., (1983) 2 SCC 33, distinguished.

State of A.P. and Ors. v. Mc dowel/ & Co. and Ors., (1996( 3 SCC 709,
referred to.

B 2. 7. When all properties are sought to be acquired even if not
specifically set out therein, it is rather doubtful to say that a distillery will
not be included in it. In the Bihar Sugar Undertakings (Acquisition) Act,
1985 position is made abundantly clear. Thus, in the circumstances, the
submission that retrospective operation of Section 4(4)(ii)(e) is bad cannot
C be sustained. (99-A)

1985.
CIVIL ORIGINAL JURISDICTION : Writ Petition (C) No. 12598 of
-
(Under Article 32 of the Constitution of India.)

D WITH

W.P. (C) No. 1600/86, T.C. (C) No. 26/85, W.P. (C) Nos. 1487, 1260/
86, SLP(C) No. 7887/94, W.P. (C) No. 83/86, Cont. Pet (C) No. 298/97 and
T.C. (C) No. No. 66 of 1999.

E Ranjit Kumar, Yashwant Das, Rakesh Dwivedi, Sunil Gupta, Anurag
Dubey, K.B. Upadhyay, S.R. Setia, D.P. Pande, Arvind Kumar Tiwary, Aditya.
Dubey, Alok Tripathi, A.R. Chaphekar, D.N. Goburdhan, Ms. Pinky Anand,
Ms. Geeta Luthra, B. Partha Sarthy, Lakshmi Raman Singh, Gourab Banerjee,
Ms. Sandhya Manda!, Vidya Dhar Mahajan, Praveen Kumar, Navin Prakash,
F Irshad Ahmad, Mrs. Anjali K. Varma, Niraj Gupta, R.R. Singh, Vivek Vishnoi,
Harish J. Jhaveri, P.R. Iyer Seetharaman, Ashok Kumar Singh, Deba Prasad
Mukherjee, Bijan Kumar Ghosh, Ratan Kumar Choudhuri and B.B. Singh for
the appearing parties.

The Judgment of the Court was delivered by
G RAJENDRA BABU, J.: W.P.[C] Nos.1258/85, 1600/86, 1487/86 and
1260/86.

The Bihar Sugar Undertakings [Acquisition] Act, 1976 [Bihar Act XIII
of 1977] [hereinafter referred to as 'the Act'] was passed by the State
H Legislature and received the assent of the President on June 4, 1977 and was
KRISHNA GY ANODA Y SUGAR LTD. v. STATE [RAJENDRA BABU, J.) 83
published in the Gazette on June 3(}, 1977. The Act was to provide for A
acquisition and transfer of certain sugar undertakings in the State of Bihar
and for matters connected therewith or incidental thereto. Under Section 3 of
the Act, the undertakings listed in the Schedule stood transferred to and
.. vested in the Government of Bihar or a Corporation with all the assets,
liabilities, rights, titles, interest and obligation including any mortgage, charge B
of other encumbrance or lien trust of similar obligations attaching to the
undertaking. Under Section 2(h) of the Act 'schedule undertaking' is defined
to mean an undertaking engaged in the manufacture or production of sugar
by means of vacuum pans and with the aid of mechanical power in a factory
specified in the schedule and comprises of several items as set out therein.
c
The undertakings mentioned in the Schedule are eight in Ii.umber. Under
Section 17 of the Act, the State Government was authorised to add other
sugar undertakings to be included in the Schedule by notification.

On 29.10.1978, a notification was issued under Section 17 of the Act
to include 16 more sugar undertakings including the three sugar mills of the D
petitioners in the Schedule to the Act.

Several writ petitions were filed in the Calcutta High Court challenging
the notification issued under Section 17 of the Act which included the
petitioners' sugar mills thereunder. Interim stay was granted restraining E
possession being taken over on 31.10.1978. On 12.7.1979, the writ petitions
were heard together and were allowed and the Act as well as the notification
under Section 17 of the Act were declared ultra vires and the take-overs were
quashed. On 28.10.1979 the State Government preferred appeals to the
Division Bench of the High Court. In the pending appeals, the Petitioners
sought leave to withdraw their writ petition C.R.No.784 of 1978 and the F
Division Bench dismissed the writ petition as withdrawn and set aside the
judgment under appeal so far as the petitioner therein were concerned. On
5.7.1983, the distillery at Hathua was sold by the petitioner to United
Distilleries (P) Ltd. The petitioners, on 21.9 .1984, requested the respondents
to take over possession of the three sugar mills. Thereafter a notification was G
issued by the State Government on 29.9.1984 purporting to withdraw the
notification dated 29.10.1978 to the extent it related to the three sugar mills
of the petitioners stating that this notification was issued pursuant to the order
of the Division Bench of the High Court dated 18.9.1984. Writ petitions were
filed in the Calcutta High Court challenging the notification dated 29.9.1984
proposing to withdraw the acquisition. The High Court granted stay of the H
84 SUPREME COURT REPORTS (2003] 2 S.C.R.

A operation. Workers of the petitioners also filed writ petition in the Patna High
Court challenging the notification dated 29.9.1984. Subsequently this Court
transferred the writ petitions from the Calcutta and the Patna High Court to
this Court by an order made on 11.2.1985.

In the meanwhile, an Ordinance was issued by the Bihar Government
B so as to acquire the sugar mills of the petitioners. Writ petition was filed
before this Court challenging the Ordinance. Now, the Ordinance is replaced
by Act 12 of 1985 and that the Act is also under challenge before us.

On behalf of the petitioners, five major contentions have been urged:

C 1. That the impugned enactment is beyond the legislative competence
of the State ofBihar since the industries covered by the enactment
fall under Entry 52 of List 1 to the Seventh Schedule to the
Constitution.

2. That the decision in Ishwari Khetan Sugar Mills (P) Ltd. and Ors.
D v. State of U.P. and Ors., (1980) 4 sec 136, stands overruled by
the decision in Syntheics & Chemicals Ltd and Ors. v. State of
U.P. and Ors., (1990] 1 SCC 109.

3. Inclusion of alcohol industries in the list of scheduled industries
in the Industries (Development and Regulation) Act, 1951 detracts
E legislative power of the State to acquire distilleries;

4. Entry 42 of List .III to the Seventh Schedule to the Constitution
provides for acquisition of property and does not deal with take-
over of industries under Entry 24 of List II to the Seventh Schedule
to the Constitution, which are subject the prqvision of Entry 57
F of List I to the Seventh Schedule to the Constitution.

5. The Act has failed, and therefore, must be declared to be invalid.

Before we embark upon the consideration of the various contentions
urged before us, it in necessary for us to refer to the decision of this Court
G in R.C. Cooper v. Union of India, (1970] 3 SCR 530. In that decision the
scope of Entry 42 of List III to the Seventh Schedule to the Constitution has
been considered in detail. After tracing the history of the different entries in
Lists I and II in relation to acquisition of property this is what this Court
stated:
H
"Before the Constitution (Seventh Amendment) Act, Entry 33 List I
\ \

KRISHNA GYANODAY SUGAR LTD. v. STATE (RAJENDRA BABU, J.] 85
.. invested the Parliament with power to enact laws with respect to A
acquisition or requisitioning for the purpose of the Union, and Entry
38 List II conferred upon the State Legislature the power to legislate
with respect to acquisition or requisitioning for the remaining purposes.
Those entries are now deleted, and a single Entry 42 List III invests
the Parliament and the State Legislatures with power to legislate with
respect to "acquisition and requisitioning" of property. By Entry 42 B
in the Concurrent List power was conferred upon the Parliament and
the State Legislatures to legislate with respect to "Principles on which
compensation for property acquired or requisitioned for the purpose
of the Union or for any other public.purpose is to be determined, and
the form in which such compensation is to be given". Power to C
legislate for acquisition of property is exercisable only under Entry
42 List III, and not as an incident of the power to legislate in respect
of a specific head of legislation in any of the three lists; Rajahmundy
Electric Supply Corporation Ltd. v. The State of Andhra, [1954] SCR
779 at p. 785. p. 567 (underlining by us).
D
This decision clearly enunciates that the power to acquire property is
a separate, distinct and independent power and is not an incident of the
power to legislate under other entries. Therefore, such power could be
exercised by the State and is not covered by either Entry 7 or Entry 52 of List
I.
E
Shri Ranjit Kumar submitted that the decision in R.C. Cooper's case
stands on a different footing as at the relevant time, when in that case Bank
Nationalisation was challenged Article 31 was available and in the present
cases, it does not exist. There are no competing entries in List I of the
Seventh Schedule to the Constitution because the Bank Nationalisation was F
done by the Central Government itself.

None of these contentions have a bearing upon· the aspect we are
considering. In R.C. Cooper, this Court considered the scope of Entry 42 of
List III to the Seventh Schedule to the Constitution, which did not depend
upon the existence of Article 31 of the Constitution or the manner or the G
.. extent to which undertakings were taken over. Independent of these aspects
the ambit and width of Entry 42 of List III has been explained by this Court
which was reiterated by this Court in Ishwari Khetan 's case.

Following decision in R.C. Cooper's case. in Ishwari Khetan's case this
Court stated as follows: H
~'
'

86 SUPREME COURT REPORTS [2003] 2 S,C.R.

A "There is thus a long line of decisions which clearly establishes the
proposition that power to legislate for acquisition of property is an
independent and separate power and is exercisable only under Entry ·
42, List III and not as an incident of the power to legislate in respect
of a specific head of legislation in any of the three lists. This power
...
of the State legislature to legislate for acquisition of property remains
B intact and untrammelled except to the extent where on assumption of
control of an industry by a declaration as envisaged in Entry 52, List
I, a further power of acquisition is taken over by a specific legislation."
[p, 154].

C Though there are two judgments rendered, both the judgments are agreed that
the matter could be disposed of on the ground that the legislation falls under
Entry 42 of List III and cannot be related to Entry 7 or Entry 52 of List I.
When the impugned enactment truly falls within Entry 42 of List III-
"acquisition and requisitioning of property"-there is a relucta~ce on our
part to enter upon an examination of the mutually competing claims of Entry
D 7 or Entry 52 of List I and Entry 24 of List II. Entries which deal with
"industries" and "acquisition" are entirely different subject-matters. Therefore,
we do not think it is any longer open to the learned counsel for the petitioners
to contend that impugned acquisition of sugar undertakings is beyond the
competence of the State Legislature.

E The argument advanced on behalf of the petitioners that the decision in
Synthetics & Chemical Ltd. 's case overrules the decision in Ishwari Khetan 's
case is plainly untenable. In Synthetics & Chemical Ltd. 's case, this Court
was concerned with the question of levy of excise duty on alcohol not fit for
human consumption and three questions have been posed by this Court for
p consideration and they are as under:

(i) whether the power to levy excise duty in case of industrial alcohol
was with the State legislature or the Central Legislature?

(ii) what is the scope and ambit of Entry ~ of List II of the Seventh
Schedule of the Constitution?
G
(iii) whether, the State Government has exclusive right or privilege of
manufacturing, selling distributing, etc. of alcohols including
•
industrial alcohol. In this connection, the extent, scope and ambit
of such right or privilege has also to be examined.

H None of these questions cover the aspects raised before us. Therefore,
\
KRISHNA GY ANODA Y SUGAR LTD. v. STATE [RAJENDRA BABU, J.] 87
we hold that the decisions in Synthetics & Chemicals Ltd. 's case does not A
overrule impliedly or otherwise the decision in Jshwari Khetan 's case. The
argument that at any rate the take-over of distillery is bad cannot also be
sustained inasmuch as the concept of acquisition of an undertaking is an
entirely different matter from the control and regulation of the industries.

The argument that a sugar undertaking is a going concern and cannot B
constitute property within the meaning of Entry 42 of List III is exploded by
this Court in R. C. Cooper's case in the following words:

"Under that entry "property" can be compulsorily acquired. In its
normal connotation "property" means "highest right a man can have
to anything, being that right which depend on another's courtesy: it C
includes ownership, estates and interests in corporeal things, and also
rights such as trade-marks, copyrights, patents and even rights in
personam capable of transfer or transmission, such as debts; and
signifies a beneficial right to or a thing considered as having a money
value, especially with injufed." The expression "undertaking" in s.4 D
of Act 22 of 1969 clearly means a going concern with all its rights,
liabilities and assets-as distinct from the various rights and assets
which compose it. In Halsbury's Laws of England, 3rd Edn. Vol. 6,
Art. 75 at p. 43, it is stated that "Although various ingredients go to
make up an undertaking the term describes not the ingredients but the
completed work from which the earnings arise." E
Transfer of and vesting in the State Corporation of the entire
undertaking of a going concern is contemplated in many Indian
Statutes: e.g. Indian Electricity Act, 1910, ss. 6, 7 & 7 A; Air
corporation Act, 1953 ss. 16 & 17; Imperial Bank of India Act 1920,
ss. 3 & 4; State Bank oflndia Act, 1955, s.6(2), (3) & (4); State Bank F
oflndia (Subsidiary Banks) Act, 1959; Banking Regulation Act, 1949,
s. 36 AE; and Cotton Textile Companies Act, 1967, ss.4(1) & 5(1).
Power to legislate for acquisition of "property" in Entry 42 List III
therefore includes the power to legislate for acquisition of an
undertaking. But, says Mr. Palkhivala, liabilities of the banks which G
are included in the connotation of the expression "undertaking" cannot
be treated as "property". It is however the assets, rights and obligations
of a going concern which constitute the undertaking; the obligations
and liabilities of the business form an integral part of the undertaking,
and for compulsory acquisition cannot be divorced from the assets,
rights and privileges. The expression "property" in Entry 42 List III H
88 SUPREME COURT REPORTS [2003) 2 S.C.R.

A has a wide connotation, and it includes not only asseis, but the
organisation, liabilities and obligations of a going concern as a unit.
A law may, therefore, be enacted for compulsory acquisition of an
undertaking as defined in s.5 of Act 22 of 1969." [pp. 567-568).

The learned counsel for the petitioners adverted to the Sugar Undertaking
B [Taking over of Management] Act, 1978 [hereinafter referred to as 'the 1978
Act'], which was enacted by Parliament to provide for the take-over in public
interest of the management of certain sugar undertakings and contended that
the impugned enactment is also for better management of sugar industries
and, therefore, the two enactments overlap the same field. He also submitted
C that in the guise of acquisition of undertaking what is really sought to be
done by the State Government is to take over the management of the sugar
undertakings in the manner as sought to be done under the 1978 Act.

The 1978 Act was enacted to provide for temporary taking over of the
management of certain sugar undertakings in certain situations for the purpose
D of mainly to maintain the continuity of production of sugar for avoiding
undue hardship to cane producing farn1ers and to best subserve the interest
of all .sections of the people for a limited period the management of every
sugar undertaking which fails or ceases to manufacture sugar or which fails
to pay promptly amounts due for the cane acquired for the purposes of the
undertaking. After the expiry of the period mentioned therein which at any
E rate shall not exceed seven years from the date of vesting, the management
of the undertaking shall revert back to the original owners thereof. The
Industries [Development and Regulation) Act, 1951 also contemplates certain
provisions under Chapter III-A for direct management or control of industrial
undertakings by the Central Government, that is, in certain cases, the Central
F Government has always exercised such powers of taking over of the
management of the industrial undertakings for a temporary period in certain
situations.

The Statement of Objects and Reasons set out in the impugned Act are,
inter alia,
G
" ........... .It is proposed to nationalise these sick mills and the distilleries
in the larger public interest and in the interest of the State economy
and also in the interest of the cane growers and labourers."

The Objects and Reasor.s of the Central Act are clearly to make provision
H for taking over the management of the defaulting sugar undertakings for a
KRISHNA GYANODAY SUGAR LTD. v. STATE [RAJENDRA BABU, J.) 89

specified period. It is thus clear that the objects, purpose and provisions of A
the two enactments are entirely different. Further even when the State becomes
the owner of the sugar undertaking, it is possible for the Central Government
in exercise of its power under the 1978 Act or under the Industries
(Development and Regulation) Act to take over the management. Therefore,
the two powers exercised are different and distinct. But a comparison of the B
provisions of the two enactments will make it clear that it is not merely to
take over the management but to take over the entire undertaking that the
impugned Act has been brought into effect. It is not merely the management
that is vested but the entire undertaking that is vested in the Government.
Further return of the undertaking after a certain period does not arise either.
The contention, therefore, urged that the exercise of power under Entry 42 C
of List III to acquire the undertaking is not for the avowed purpose of taking
over of the entire undertaking but the management is not tenable and, therefore
rejected. Nor is the contention that the two enactments, the 1978 Act and the
impugned Act overlap is also not well founded.

The contention advanced now is that the sugar undertakings were taken D
over by the Bihar Ordinance 38of1985 replaced by Act XII of 1985 as early
as 21.10.1985. Now it is urged that none of the objectives of the said Act
have been achieved; that the purposes for which the enactment was made
having failed impugned Act cannot be enforced, and that Act should be
declared to be invalid and, in this context, reliance is placed on the decision E
of this Court in Malpe Vishwanath Acharya and Ors. v. State of Maharashtra
and Anr., [1998) 2 SCC I.

Let us examine the circumstances that have arisen in this case after the
Act came into force. On the Ordinance coming into force, the validity of the
same was challenged and taking over of the distillery was stayed and in fact p
one of the distilleries the possession of which had already been taken over
was handed back subject to certain conditions. The interim order was in force
throughout. When the Government carries out an experiment for various
purposes in the commercial or economic field, it has its own hazards
particularly when the courts intercede, grant interim orders, the objectives of
the Act cannot be achieved at all. In this background it becomes hazardous G
to examine the contentions put forth on behalf of the Petitioners whether if
the Act had failed or not particularly when it has not been put into full force.
The situation dealt with in Malpe Vishwanath Acharya is altogether different.
What was noticed therein is that when the Act was enacted, though valid,
with the passage of time some of the provisions thereof like freezing of rent H
1
I

90 SUPREME COURT REPORTS (2003] 2 S.C.R.

A it became irrational and unjust and, therefore, violated Article 14 of the
Constitution. It is in those circumstances the law was declared to be invalid
and not otherwise. Therefore, this contention also does not appeal to us.

It was lastly contended by Shri Ranjit Kumar that the valuation of the
sugar undertaking on the basis of book value is not reasonable.
B
The manner in which value of the properties should be taken either
book value or any other value cannot be examined by us because book value
is one of the methods in which the values of undertakings are determined.
There is no material placed before the courts to show as to what other method
could be adopted which would be more reasonable or as to how the book
C valu~ taken does not reflect the true value of the undertakings. Therefore, it
is difficult to conclude one way or the other on the basis of this contention.
Hence it is rejected.

W.P. [CJ No. 83 of 198_6

D This writ petition is filed by United Distilleries (P) Ltd., which is stated
·to have· purchased a distillery with the bottling plant under an agreement
dated September 20, 1982. It is contended on behalf of the petitioners that
petitioner distillery is not covered by the Act for the following reasons:

I. The object of the Act is to acquire only such distilleries as have
E been operating till as late as the recent past, that is, the crushing
season 1984-85 as ancillary units or sister concerns or subsidiary
mills of certain specified sugar mills;
2. The vesting under Section 3( 1) of the Act is only of a sugar
schedule undertaking if they were immediately before the
F appointed day in the ownership, possession, power or control of
the undertaking;
3. Various other provisions, for instance, Sections 6,7, 1st Schedule,
2nd Schedule etc. tlo not even mention the petitioners nor provide
for any compensation for it;
G 4. Section 4, which provides for consequences of vesting, applies
only to properties which, in the first place, get vested in the State
in terms of Section 3, which have been to ill as late as immediately
before the appointed date, that is, 16.12.1985 in the ownership,
possession, power and control of the undertaking. Hence that part
H of the section, namely, sub-section 4(ii)(e) also has applicability
KRISHNA GY ANODA Y SUGAR LTD. v. STA TE [RAJENDRA BABU, J.] 9J
only to such an executory agreement or promise [as distinct from A
an executed Agreement] of transfer or disposition of property
which has so far, that is, till as late as immediately before the
appointed day, i.e., 16.12.1985 not resulted in the absolute, final
and complete transfer of the property in favour of a third party.
The said provision, it is submitted, has no applicability to transfer B
or disposition of property which has ben finally completed long
before the appointed day, 16.12.1985. Thus the transfer of the
distillery by SKG in favour of the petitioners on 5.6.1983 in not
affected by Section 4(4)(ii)(e).

The other argument advanced on behalf of the petitioners is that in the C
event this argument is not accepted, acquisition of property by the State on
any ground pertaining to a period anterior to the date 29. 9 .1984 is per se
arbitrary and violative of Article 14 of the Constitution because on that date
the State had itself withdrawn the initial acquisition of the said sugar mills
under the 1976 Act thereby accepting that all transfers prior to 29.9.1984
were unobjectionable and valid; that by Section 2(h)(i) of the 1976 Act, even D
a distillery owned and controlled by a wholly independent and separate person
is also roped in; that further the Act does not make any provision to exclude
the bona fide purchaser for value and such inclusion treats unequals as equals
and does not provide any machinery for indentifying such bona fide purchasers
for value but on the other hand, Section 4(4)(ii)(e) declares that all transfers
after 29.10.1978 shall be invalid; that the 'adjacent' location of the distillery E
in the factory premi5es of the sugar undertaking is merely an accidental
circumstance and that does not indicate that the distillery has any connection
or is a related distillery and a related distillery need not necessarily be
adjacently located and that aspect is irrelevant for any consideration of finding
out whether the distillery has any connection with the sugar undertakings or F
not; that the application of Section 4(4)(ii)(e) retrospectively from 29.10.1978
to the transfer of property, namely, distillery without compensation renders
the Act wholly arbitrary, unreasonable, confiscatory and violative of Articles
14,19(1)(g) and also Articles 19(1)(f) read with Article 31 [as they stood
before the Constitution Forty Fourth Amendment] or alternatively, Article
300A for the reason that at the time when the transfer in favour of the G
petitioners was made i.e. on 5.6.1983; that in the earlier Act, the distillery
was not sought to be acquired nor was there any restriction on the transfer
of distillery at any time; that it is at that distillery which had been transferred'
and the Government could not take action by bringing any retrospective
provision to affect the interest of Petitioners. H
I

'I
92 SUPREME COURT REPORTS [2003] 2 S.C.R.

A Shri Rakesh Dwivedi, learned senior councel appearing for the State of
Bihar, drew our attention to the background in which this enactment has been
brought into force. He pointed out the various circumstances set forth in the
counter affidavit which led to the enactment and which are also available in
the short cause title of the enactment to take over the sugar undertakings and
that enactment having been struck down by the Calcutta High Court and
B thereafter when the appeal was pending, the writ petitions having been
withdrawn the whole object of the Act stood misfired. In the meanwhile,
several actions had been taken by several persons to transfer or sell the
distilleries which were making profits and part of the sugar undertakings. In
that background, the enactment was made considering the history of this
C legislation, certain provisions of the Act have come into force from as early
as 29.10.1978. He further submitted that the lease deed itself indicated that
the distillery is in existence in the common premises· along with the sugar
undertakings. The Agreement to sell also contemplates acquisition of the
•
property. Clause (h) of the Indenture contemplated the nationalisation of the
sugar mill as a consequence of which the distillery also being taken over.
D "Therefore, it cannot be stated that it is not within the contemplation of the
parties at all. Shri Dwivedi further submitted that though Section 4(4)(ii)(e)
retrospectively comes into force 29.10.1978 inasmuch as the sale in favour
of the Petitioners having been made only on June 5,1983, it is not necessary
to examine the retrospective nature of the provisions of the Act anterior to
E that date.
Elaborating his first contention, Shri Gupta for the petitioner submitted
that in the Bihar Act XIII of 1977 "scheduled undertaking" means an
undertaking engaged in the manufacture or production of sugar by means of
vacuum pans and with the aid of mechanical power in a factory specified in
F the schedule and comprises of several components but does not include a
'distillery'. It is only in the impugned Act 'distiller' is subsequently included
by an inclusive definition which reads as follows:-

"Section 2(h): 'Scheduled undertaking' means an undertaking engaged
in the manufacture or production of sugar by means of vacuum pans
G and with the aid of mechanical power in a factory specified in the
First Schedule and includes:-

(i) Distillery Paper unit and all lands, buildings, works, plants,
machinery, equipments, instruments, stores, vehicles, Railway siding
in or adjacent to the mill;
H
KRISHNA GYANODAY SUGAR LTD. v. STATE [RAJENDRA BABU, J.) 93
x x x A
(rest is not relevant for our purpose)

He firstly contended that on the date of the Act coming into force the
distillery was no longer in the ownership, possession, power and control of
the sugar undertaking on 16.12.1985 when the Act came into force and it is B
only assets of the scheduled undertaking which are part thereof that stood
taken over or vested in the Government; that the Statement of Objects and
Reasons and the Preamble indicate that the object of the Act was to acquire
only such distilleries as had been operating till as late as the crushing season
1984-85 and ancillary units or sister concerns or subsidiary mills of certain C
specified sugar mills and various other provisions do not even advert to a
person of the nature of the petitioner by not providing for any compensation
and, therefore, the distillery in question falls completely outside the scope of
the impugned Act. In this context, he placed strong reliance upon the decisions
in Breit v. Brett, (1824-34) All E.R. 776; Hawkins v. Gathercole, (1855) 43
ER 1125; Utkal Contractors v. State of Orissa, [1987] 3 SCC 279; Girdhari D
Lal v. Balbir Nath,'[1986] 2 SCC 237, and Reserve Bank ofIndia v. Peerless
[1987) 1 SCC 424. He also submitted that Section 4 as a.whole is a provision
for enumerating certain consequences of vesting and applies only to properties
which in the first place get vested in the State in terms of Section 3, that is,
properties which have been till as late as immediately before the appointed E
day (16.12.1985) in the ownership, possession, power and control of the
undertaking; that hence a part of Section 4(4)(ii)(e) has also applicability
only to such an executory agreement or promise as distinct from an executed
agreement of transfer or disposition of property which has so far, that is, till
as late as immediately before the appointed day (16.12.1985) not resulted in
the absolute, final and complete transfer of the property in favour of a third F
party; that it has no applicability to a transfer or disposition of property
which has been finally completed Jong before the appointed day (16.12.1985);
that thus the transfer of the distillery in question in favour of the petitioner
on 5.6.1983 is not affected by the said provision.

The impugned Act seeks to take over the sugar undertakings including G
a 'distillery' operated in such undertaking. What is urged before us comes in
the teeth of Section 4(4)(ii)(e) and if we correctly understand the scope of
this provision, the arguments advanced on behalf of the parties can be truly
appreciated and, for that purpose, it is necessary to set out that provision in
full which is as follows:- H
I

·-1

A
94 SUPREME COURT REPORTS

"Section 4. Certain consequences of vesting.-
(2003] 2 S.C.R.
-
(4)(ii) For removal of doubts it is hereby declared that, save as
otherwise expressly provided in this section or 'in any other section
of this Act.-

B (e) Notwithstanding any provision in any other law, all the transfer,
disposition of properties moveable or immoveable either in part or in
whole made after 29th October, 1978 of the scheduled under taking
shall be invalid and stand annulled. The Collector shall take possession
of such properties with the properties of the undertaking."

C Section 4 falls into different parts. The first part is covered by an non-
obstante clause by which the properties along with encumbrances and to '
what extent vest in the State and clause (4)(i) covers such a situation. But
clause 4(ii) opens with a clause ''.for removal of doubts, it is hereby declared
that, save as otherwise expressly provided in this Section or in any other
D section of this Act.. ... and thereafter clause 4(ii)( e) is set out. The opening
clause "removal of doubts" does not fit in the non-obstante clause with which
Section 4(4)(ii)(e) opens. Indeed, the object of Section 4(4)(ii)(e) is evident
from the very language employed in that provision which indicates that
irrespective of any provision in any other law transfer, disposition of properties
moveable or immoveable either in part or in whole made after 29th October,
E 1978 of the scheduled undertaking shall be invalid and stand annulled and
the Collector shall take possession of such properties with the properties of
the undertaking. In correctly reading the enactment as a whole what we have
to do is to treat this provision as an independent provision which provides for
consequences to which we have adverted to, that is, nullification of all
F alienations effected after 29th October, 1978 of the properties and taking
over of the same. That is, because under the prior enactment a notification
has been issued on 29.10.1978 to take over the sugar mills under Section 17
of the Act then in force. Therefore, there is definit~ly a cloud in relation to
properties belonging to the sugar undertaking which were sought to be taken
over. Not only that day is relevant for the purpose of taking over but also if
G the objectives of the Act have to be achieved situations will have to be taken
note of which have arisen prior to the date of the enactment and, therefore,
it becomes absolutely necessary to make proper provisions to cover such
situations. If the said transaction stood nullified the fact that the properties
stood transferred to the petitioner on 5.6.1983 will not be of any consequence
H and that property will have to be treated as the property of the sugar
undertaking being taken over under the impugned Act. Therefore, the exercise
KRISHNA GY ANODAY SUGAR LTD. v. STA TE [RAJENDRA BABU, J.] 95
suggested by the learned counsel as to the restricted construction that has to A
be placed on the expression 'distillery' in Section 3( I) or Section 4 cannot
be accepted. The decisions referred to by the learned counsel cannot be of
any assistance on the construction made by us on the provisions of the Act.
If on the date of coming into force of the Act, the transactions entered into
after 29th October, 1978 stood annulled in respect of the properties that are B
being taken over, the said properties must be held as still the properties of the
sugar undertaking. Thus if the true effect of Section 4(4)(ii)(e) is borne in
mind, the distillery of the petitioner must be deemed to be in the ownership,
possession, power and control of the undertaking on the appointed day. Hence,
we reject the first contention of the learned counsel that the Act has no

-- applicability to the distillery of the petitioner.

The contention on behalf of the petitioner that. there is no reference to
C

the petitioner nor any compensation is provided under Sections 6 and 7 and
First and Second Schedules to the Act is not correct. There was no need to
mention the petitioner's name in any one of these provisions. Indeed, in C.B.
Gautam 's case it was held that where the agreement for sale itself provided D
that the property was intended to be sold free from all encumbrances or
leasehold rights, and the property vested in the Central Government free
from all encumbrances, the holders of encumbrances and leasehold interests
would have to obtain their compensation from the amount awarded by
Government as purchase price to the owner of the property. The provision of E
the impugned enactment in so far as compensation is concerned is Section 7
of the Act. The said Section does not say to whom the amount is to be paid
and such amount will have to be gi'ven to all those persons who are interested
in the property after meeting prior claims as indicated in the said provision.
Therefore, we do not think that we can proceed on the basis that no provision
for compensation is made to attractthe wrath of Article 31 of the Constitution. F
The next contention put forth by the learned counsel for the petitioner
is that the acquisition of the petitioner's properties by the State anterior to
29th September, 1984 is per se arbitrary because on that day the State had
itself withdrawn the initial acquisition of the said sugar mills under the 1976
Act thereby accepting that all transfers prior to 29.9.1984 were unobjectionable G
and valid. This contention plainly has no force. Law can be made not only
prospectively but also retrospectively. The State had enacted earlier Act 13
of 1977 which was declared to be invalid and thereafter in appeal the said
decision had been challenged and subsequently the Notification dated
29.10.1978 under Section 17 of that Act had been issued which stood H
I
>-·
96 SUPREME COURT REPORTS [2003] 2 S.C.R.

A withdrawn subsequently and which was also the subject matter of challenge.
In that background, it cannot be said that by reason of withdrawal of the
acquisition of the said sugar mills .would result in acceptance of the transfers .,
prior to 29.9.1984. Therefore, this argument of the learned counsel is untenable
and is rejected.

B Relying upon the decision of this Court in C.B. Gautam v. Union of
India and Ors., [ 1993] I SOC 78, Shri Gupta contended that the distillery
belongs to a wholly independent and separate person who is a bona fide
purchaser of value and no provision is made to identify such purchasers but
declares under Section 4(4)(ii)(e) that all transfers after 29.10.1978 to be
C invalid; that while interpreting a similar provision arising under the Income
Tax Act under Section 269-UE under which the properties would vest in the
Government free from all encumbrances and considering the scheme of the
provision of the Income Tax Act, this Court in C. B. Gautam 's case stated that
an order made for compulsory purchase under Section 269-UD has the effect
of vesting the property in the Central Governm.ent free from all encumbrances
D or leasehold rights the value of which might not be reflected in the apparent
consideration mentioned in the agreement for sale; that such encumbrance
holders and holders of leasehold rights might not have anything to do with
the attempt at tax evasion which was intended. to be plugged and the
Government would be liable to pay as compensation to the owner of the
E property an amount equal to the amount of apparent consideration; that the
leasehold rights would get destroyed and would be handed over to the
appropriate authority; that similar would be the position in a mortgage; that
the apparent consideration even if it is equivalent to the fair market value
would be indicative of the market value of the property subject to such
encumbrances and in such a case the properties would be compulsorily
F purchased and amount to be paid for the purchase would be only equal to the
apparent consideration and this apparent consideration would not take into
account the value of the encumbrances on the property like mortgages and
so on or the leasehold rights. This Court in that background held that the
provisions of Section 269-UE insofar as it provides that the property in
G respect of which an order under sub-section (I) of Section 269-UD is passed
shall vest in the Central Government free of all encumbrances cannot be
valid inasmuch such provision has no rational nexus with the object of the •.
legislation which is avoiding evasion of tax and therefore, was read down so
as to make them inapplicable to bona fide encumbrances holders in possession.
Further, this Court also noticed a distinction between acquisition of property
H by pre-emptive purchase and acquisition of property. Adverting to the decision
'

KRISHNA GY ANO DAY SUGAR LTD. v. STATE [RAJENDRA BABU, J.) 97

in Rambhai Manja Nayak v. Union of India, (1983) 142 !TR 211 (Guj. HC), A
affirmed by this Court in Rambhai Manjanath Nayak v. Union of India,
[1992] 4 SCC 742 this Court in Gautam 's case held that there was a similar
provision that the property in question ves.t in the Central Government free
from all encumbrances under provision of section 269-1(4) of the Income
Tax Act. In the said decision, the Gujarat High Court held that it is only after B
all interests-proprietary as well as possessory - are extinguished by the
acquisition of the property that the property vests absolutely in the Central
Government. This view was distinguished by this Court by stating that in that
case the Court was concerned with compulsory acquisition under Chapter
XX-A of the income Tax Act and such a situation cannot be compared with
the case before the Court which is one of compulsory pre-emptive purchase C
made by the Central Government in which amount to be paid is only apparent
consideration which does not take into account the value of encumbrances.
The present case is clearly one for acquisition of property as demonstrated in
the earlier part of this judgment and not by way of any pre-emptive purchase
of the type with which this Court was concerned in C.B. Gautam 's case. The
decision of this Court in Harshad Shanti/al Mehta. v. Custodian and Ors., D
[1998] 5 SCC I, merely follows the decision in C.B. Gautam 's case and does
. not lay down any new principle. We think, there is no justification whatsoever
for .the petitioner to contend that the provision contained in Section 4(4)(ii)(e)
is in any way invalid on the basis of these two decisions.
E
The learned counsel contended that only a distillery connected or related
to the sugar undertaking can be acquired and it cannot be presumed so by
reason of its proximity to the location of the sugar undertaking. This argument
does not assume any significance in the view we have taken. There cannot
be serious dispute that the distillery and sugar undertaking are inter-connected
in several ways, particularly by supply of molasses manufactured by the F
latter. By virtue of Section 4(4)(ii)(e), ownership, possession power or control
continues to be with sugar undertaking and, in addition, its location is an
additional factor to ascertain whether it is a· related industry or not. Thus, we
find no substance in the contention that the distillery cannot form subject
matter of acquisition.
G
It is next contended that the application of Section 4(4)(ii)(e)
retrospectively from 29.10.1978 to the transfer of distillery without
compensation renders the whole Act arbitrary, unreasonable, confiscatory
and violative of Articles, 14, 19(\)(g), 19(1)(£) and Article 31 or alternatively
Article 300A for the reason that at the" time when the transfer was made, that H
I
)--.

98 SUPREME COURT REPORTS (2003] 2 S.C.R.

A is, 5.6.1983. In this context, strong reliance has been placed on the decision
of this Court in Chairman, Railway Board and Ors. v. C.R. Rangadhamaiah
and Ors., [1997] 6 sec 623; State of A.P. and Ors. V. Mcdowell & Co. and
Ors., [I 996) 3 SCC 709 and State of Gujarat and Anr. v. Raman Lal Keshav
Lal !ioni and Ors., (1983) 2 SCC 33.

B In Chairman, Railway Board's case, the point that arose for consideration
was whether pension as admissible under the rules in force at the time of
retirement cobld be retrospectively reduced. This Court held the same as
unreasonable and arbitrary and, therefore, violative of Articles, 14 and 16.
This Court explained the scope of Articles 19(1 )(t) and 31 which were not
C in existence on the date of the notification but in existence when the
'notifications were made effective retrospectively and so no challenge could
be based on them. It is no doubt true that a challenge could be based on
Articles 31 and 19(1 )(t) in a matter of this nature when the enactment has
retrospective operation from 29.10.1978, but there are several reasons why
nothing follows from, this situation. Firstly, the transfer itself has been in
D favour of the petitioner .on 5 .6.1983, that is, long after the constitutional
provisions stood deleted. The context ·of a pensioner wh~ has a prior vested
right and was receiving such pension being deprived of such pension by
giving him a lesser sum is altogether a different circumstance and, in the
present case, it cannot be said that there is no provision for payment of
E compensation.
The decisicin of this Court in State of Gujarat and Anr. v. Raman Lal
Keshav Lal Soni has absolutely no relevance to the present case. In that case,
it was held that the Government servants do not lose their status merely on
f>eing sent to some institution or body controlled by the Government and on
F being paid out of the funds of that institution or body; that a retrospective
amendment of the enactment creating a differential classification in relation
to their original position and depriving the ex-municipal employees of their
present status of government servants and consequential benefits would be
violative of Article 14 and 311. No such right arises, in so far as petitioner
G in the present case in concerned.
Further, the learned counsel contended that sugar undertaking sought to
be acquired was defined in a different fllanner under the earlier enactment,
that is, Bihar Sugar undertakings (Acquisition) Act, 1976, though several
aspects of the components of the sugar undertaking were mentioned, it did
H not refer specifically to a distillery and thus it was never under the
KRISHNA GYANODAY SUGAR LTD. v. STATE [RAJENDRA BABU, J.] 99

contemplation of the Act on the earlier occasion to acquire a distillery. But A
when all properties are sought to be acquired even if not specifically set out
therein, it is rather doubtful to say that a distillery will not be included in it.
In the present Act position is made abundantly clear. In the circumstances,
we think that the contention of the learned counsel that retrospective operation
of Section 4(4)(ii)(e) is bad, cannot be sustained.
B
· · Inasmuch as all the contentions of the petitioner have been rejected,
these petitions shall stand dismissed.

T.C. [CJ Nos. 26185 and 66199

In view of the order made by us in the writ petitions, T.G. [CJ Nos. 26/ C
85 and 66/99 have become infructuous and stand disposed of accordingly.

Cont.Pet. [CJ No. 298/97

This petition was filed for enforcement of the order made by this Court
on 7.2.1986. The stand of the petitioners is that there is non-compliance of D
the direction given by this Court in the manner provided therein. Various
contentions are put forth before us to interpret the said order and to contend
that the manner of compliance by respondents is not sufficient by a process
of circuitous reasoning. It is clear that unless there is a wilful disobedience,
which can be spelt out from the conduct of the respondents, no action can be E
taken in contempt. Hence the notice issued shall stand discharged and the
proceedings shall stand dropped.

SLP [CJ No. 7887/94

The facts that have arisen and the issues involved in this appeal by F
special leave are different from those that have arisen in the aforesaid writ
petitions and the transfer cases. Hence, this petition be delinked from the
present batch of cases.

N.J. Matters disposed of.