Holding

Section 18AA does not exclude the audi alteram partem rule; the failure to give a pre‑decisional hearing renders the takeover order invalid, but it can be cured by a post‑decisional hearing as promised under Section 18F.

Summary

Swadeshi Cotton Mills challenged a Government order under Section 18AA of the Industries (Development and Regulation) Act, 1951, which authorised the National Textile Corporation to take over its management without a prior hearing. The Supreme Court examined whether the principle of audi alteram partem was implied in Section 18AA and whether a pre‑decisional hearing was required. By a majority, the Court held that Section 18AA does not exclude the duty to hear and that the lack of a prior hearing vitiated the takeover order, but because the Government had undertaken to provide a post‑decisional hearing under Section 18F, the order was not struck down and the matter was remitted to the Central Government to conduct a full, fair hearing. The appeals were allowed.

Issues considered

Whether the audi alteram partem rule of natural justice is implied in Section 18AA of the IDR Act and must be observed before a takeover order is made.
Whether a prior hearing is required or if a post‑decisional hearing under Section 18F suffices.
Whether the absence of a pre‑decisional hearing vitiates the takeover order and if such a defect can be cured by a subsequent hearing.

Legislation cited

General Clauses Act, 1897s. 21
Industries (Development and Regulation) Act, 1951s. 15, s. 16, s. 18A, s. 18AA, s. 18F

Subjects

natural justiceaudi alteram partemadministrative lawtakeover orderindustrial regulationSection 18AASection 18Fpre‑decisional hearingpost‑decisional hearingjudicial reviewurgencypublic interest

Judgment

SWADESHI COTTON MILLS A
v.
UNION OF INDIA
January 13, 1981

(R. S. SARKARIA, D. A. DESAI AND 0. CHINNAPPA REDDY, JJ.]
B
Industries (Development and Regulation) Act, 1951, (65 of 1951) Ss.
IBA (I)(b), IBAA(I)(a)-Taking over a/ an industrial undertaking-Oppor-
tunity of being heard-Whether and when to be given-Denial of oppor-
ttuzity-Whethcr vitiates order--Opinion of take-over by Government-Whether
liable to judicial scrutiny. c
Arl111inistrati\'C Law-Do(·trine of iYatural Justice-JVJ:at i~-Whe11 appli-
cnble-PrP-decisional and post-d'ecistianal hearing-When 1uises.

The Industries (Development and Regulation) Act, 1951 empowers the Unio!l
of India in the public interest to take under its control the industries specified
in the First Schedule to the Act. Item 23 of the First Schedule relates to
• textiles of various categories .
D
Section 15 authorises the Central Government to make or cause to be made
a tull and complete investigation into the circumstances of the case if the
• ·:I Central Government is. of the opinion that (a) in respect of any scheduled
industry or industrial undertaking or undertakings (i) there has been, or is likely
to be, a substantial fall in the volume of production for which, having regard E
to the economic conditions prevailing, there is no justification; or (ii) there has
been, or is likeJy to be, a marked deterioration in the quality of any article ...
which could have been or can be avoided; or (iii) there has been or is likely
to be a rise in the price of any article ..... for which there is no justification; or
(iv) it is necessary to take any such action for the purpose of conserving any
resources of national importance; or (b) any industrial undertaking is being
managed in a manner highly detrimental to the scheduled industry concerned F
or to public interest. After the investigation is made under section 15, section
16(1) empowers the Central Government if action is desirable, to issue appro~
priate directions, and section 16(2) provides for the issue of interim directions
by the Central Government pending investigation under section 15.

Chapter III-A consisting of Sections IBA, IB-AA, 18-B, IB-C, 18-D, 18-E
and 18~F deal with "direct management or control of Industrial Undertakings
by Central Government in certain cases". Sec. 18-A empowers the Central
G
Government by notified order, to authorise any person or body of persons to
take over the management of the whole or any part of an industrial under-
taking or to exercise in respect of the whole, or any part of the· undertaking
such functions of control as may be specified in the order, if the Central
Government is of opinion that :

(a) an industrial undertaking to which directions have been issued in pur-
suance of section 16 has failed to comply with such directions, or (b) an indus- H
trial undertaking in respect of which an investigation has been made under

'T•J,~.

~~
534 SUPREME COURT REPORTS (1981] 2 S.C.R.

A section 15 is being managed in a manner highly detrimental to the scheduled
industry concerned or to public interest.
Section 18AA(5) stipulates that the provisions of Sections 18-B to 18·E
shall be applicable to the industrial undertaking in respect of which an order
has been made under section 18-AA even as they apply to an industrial under··
taking taken over under Section 18-A. Section 18-F empowers the Central
B Government to cancel the order made under section 18-A if it appear& that the
purpose of the order has been fulfilled or it is not necessary that the orde(
should remain in force.

The appellant M/s. Swadeshi Cotton Mills was taken ove.r by the Govern-
ment of India by a notification dated April 13, 1978 in exercise of the powers
conferred on it under clause (a) of sub-section (1) of section !SAA of the 1
C Indu;tries (Development and Regulation) Act, 1951 on the ground that the
company had by creation of encumbrances on the assets of its industrial under..
takings, brought about a situation which had affected and is likely to further
affect the production of articles manufactured or produced by it and that imme-
diate action i~ ne·;~s~ary to· prevent such a situation,

The Government authorised the Natiollal Textile Corporation Limited to take
D over the management, subject to the conditions that the authorised person shalt
comply \Vitb all the directions issued from time to time by the Central Govern-
ment and that the authorised person shall hold office for a period of five years.

The appellant Mills challenged the aforesaid order in a writ petition in the
1-Iigh Court. The case was heard by a Full Bench of five Judges to consider the
question whether in construing section 1SAA of the Industries Development and
E Regulation Act, 1951, compliance with the principle of audi alteram partem is
to be implied and whether hearing is to be given to the· parties who would be
affected by the order to be passed prior to the passing of the order or whether
\
hearing can be given after the order is passed and whether the order passed under
the said Section i~ vitiated by not giving of such hearing and whether such vice
can be cured.
-
If' The Bench by a majority answered the three questions as follows : -
J.
(a) Section lSAA(l)(a) (b) excludes the giving of prior hearing to the pa<ty ·I
who would be affected by order thereunder.

(b) Section 18-F expressly provides for a post-decisional hearing to lhe
owner of the industrial undertaking, the management of which is taken over
G under section 18AA to have the order made under section 18AA. cancelled on
any relevant ground.

(c) As the taking over of management under section 18A is not vitiated
by the failure to grant prior hearing the question of any suCh vice being cured by
a grant of a subsequent hearing does not arise.

The minority, however, held that in compliance with the principles of natural
H justice, a prior hearing to the owner of the undertaking was required to be
given before the passing of an order under section 18AA, that the second question
did not arise as the denial of a prior hearing would not cure the vice by the
;),~1-]il"j
I

SWADESHI COTTON MILLS V. UNION 535

grant of subsequent hearing, but it would be open to the Court to moderat~ A
the relief in such a way that the order is kept alive to the extent necessary U:Dtil
the making of the fresh order to subserve public interest and to mak·e appropnate
directions.

After the decision on the reference the case was reheard on merits by a
Full Bench of three Judges and the writ petition was allowed in part. The B
challenge to the validity of the order being rejected but insofar as the impugned
order seekin.l. to take over the corporate entity of the company, the corporate
entity of tbe subsidiary and its assets, the petition was allo\Ved and the respon~
dents, the Union of India and the authorised person were directed to release
from its control and custody and/or deliver possession of any assets or property
of the company which were not referable to the industrial undertakings.
Appeals to this Court were filed on behalf of the Company as well as by c
the Union of India and the National Textile Corporation. ·
t;.··.···
~-, Two propositions were propounded on behalf of the company that : (a)
\Vhctber it was necessary to observe the rules· of natural justice before issuing
a notified order under section 18AA(l) (a) and further whether section 18-F
f'f'
ll impliedly excludes rtJles of natural justice· relating to prior bearing; and it was
contended (1) the mere use of the word 'immediate' in sub-clause (a) of D
section 18AA does not show a legislative intent to exclude the application of
audi ulterarn purtern rule altogether. (2) The word 'immediate' in clause (a-)
has been used in contra distinction to 'investigate'. It only means that under
r section 18AA action can be taken without prior investigation under section 15.:
The use of the word 'immediate' in section 18AA(l) (a) only dispenses with
jnvestigation under section 15 and not with the principle of audi alteram pm·te1n
altogether and this is indicated by the marginal note of section 18A _and para 3 E
of the Statement of Objects and Reasons of the Amendment Bill which inserted
.I
section 18AA in 1971. (3) The word 'immediate' occurs only in clause (a) and
)t not in clause (b) of section 18AA(l). It would be odd if intention to exclude
this principle of natural justice is spelt out in one clause of the sub--section when

I
-,,, the other clause does not exclude it. (4) Section 18-F does not exclude a
pre-decisional hearing. The so-called post-decisional hearing contemplated by
section 18-F cannot be and is not intended to be a substitute for a pre-decisional F
-'ii'- ."·' hearing. (5) Section 18F incorporates only a facet, albeit qualified, cf section 21
of the General Clauses Act. The language of the Section implicity prohibits
an enquiry into circumstances that led to the passing. of the order of take-over
• rind under it the aggrieved person is not entitled to show that on merits tbe
'/ order v...·as void ab initio. i_, (6) 'Immediacy' does not exclude a duty to act fairly
because even an emergent situation can co-exist with the canons of natural
justice. The only effect of urgency on the application of the principle of fair G
hearing would be that the width, form and duration of the hearing would be
lailored to the situation and reduced to the reasonable minimu1n so that it does
not delay and defeat the purpose of the contemplated action. (7) Where the
civil ronsequenct'lll of the administrative action are grave and its effect is highly
prejudicial to the rights and interests of the person affected and there is nothing
in the language and scheme of the statute which unequivocally excludes a fair
pre-decisional hearing and the post-decisional hearing provided therein is uot a
real remedial hearing equitable to a full right of appeal the Court should be
"
loath to infer a legislative intent to exclude even a minimal fair hearing at the
1'
f,!
536 SUPJ!EME COURT REPORTS (1981] 2 S.C.R. (':
A pre-decisional stage merely on ground of urgency. (8) The Central Govern- I~
ment aJppointed four Gove·mment Officials including one from the office of th~ !1¥!
Textile c·ommissioner to study the affairs of the Company and to make recon1-
mendation. This Official Group submitted its report on February 16, 1978. The
evidence on the basis of which the impugned order was passed was not disclosed ..

I
to the appellant company till May 1978, only after it had filed the writ petition
in the High Court. If there was anything adverse to the appellants in the
8 survey report there was time enough about six weeks between the submission
of the Survey Report and the passing of the impugned order for giving a short,
reasonable opportunity to the appellants to explain the adverse findings against
them. If there was immediacy situational modifications could be n1ade to meet i~
I~-

the requirement of fairness, by reducing the period of notice; that even the
manner and form of such notice could be simplified to eliminate delay, that '"\
telephonic notice or short opportunity for furnishing their ex.planation to the
c Company might have satisfied the requirements of natural justice. Such an
~

opportunity of hearing could ha-ve been given after the passing of a conditional
tantativi.: order and before its enforcement under section 18AA. For the inter-
regnum suitable interim action such as freezing the assets of the Company or
L
restraining the Company from creating further encumbrances, could b~ taken
under section 16.
f~
D On behalf of the Union of India and the Authorised Officer it was con-
tended that ( 1) the presumption in favour of audi alterani partenz rule '>tands lt
impliedly displaced by the language scheme, setting and t_he purpose of the ••
provision in section 18AA. (2) Section 18AA on its plain tenn.i;; deals with
situations where immediate preventive action is required. The paramount con- ....
V'
cern is to avoid serious problen1s which may be caused by· fa1l in production. '·j(

The purpose of an order under section 18AA is not to condemn the owner but
E te> p~otcct the scheduled industry. The issue under section 18AA is not solely
between the Government and the management of the industrial undertaking.
The object of taking action under this Section is to protect other outside interests
of the community at large and the workers. (3) The rule of natural justkc
i'
to give. a hearing has been incorporated in section 18-F which gives an oppor-
tunity of a post-decisional hearing to the owner of the undertaking who if he
H
feels aggrieved can on his application be heard, to show that even the original
F order under section 18AA was passed on invalid grounds and should be cancelled
or rescinded. (4) On a true construction of section 18AA read with section
18-F the requirements of natural justice and fair play can be read into the statute
only insofar as conforn1ance to such canons can reasonably and realistically
be required 0f it by the provision for a remedial hearing at a subsequent stage.
• •
(5) l.Jnder section 18-F the Central Government exercises curial functions and
that Section confers on the- aggrieved owner a right to apply to the Government
G to cancel the order of take-over. This section casts an obligation on the Central
Government to deal with and dispose of an application filed thereunder with
reasonable expedition.

Allo\ving the appeal by the Company,

HELD : (Sarkaria & Desai, JI. per Chinnappa Reddy, J. dissenting.)
H
In the facts and circumstances of the instant case, there has been a non-
compliance with the implied requirement of the audi alteram parten1 rule of

i ..
SWADESHI COTTON MILLS V. UNION 537

natural justice at the pre-decisional stage. The impugned order could be struck A
down as invalid on that score alone. But in view of the commitment/
concession that a hearing would be afforded to the Company, the case is remitted
to the Central Government to give a full, fair and effective hearing.
• [587G·H, 588Cj
1. 1he phrase 'natural justice' is not capable of a static and precise definition.
It cannot be imprisoned in the straight-jacket of a cast-iron formula. Rules of
B
natural justice are not embodied rules. Hence not possible to make an exhaustive
catalogue of such rules. Two fundamental maxims of natural justice have, now
become deeply and indelibly ingrained in the conlillon consciousness of mankind
as pre-eminently nece:;sary to ensure that the law is applied impartially objectively
and fairly. These twin principles are (i) audi alteram partem and (ii) nemo
judex in re sua. Audi alteram partem is a highly effective rule devised by the
f-, Courts to ensure that a statutory authority arrives at a just decision and it is
i..:alcu!atcd to act as a healthy check on the abuse or misuse of power. Its reach
c
l'hould not be nanowc<l and its applicability circumscribed. [554C'-G}
2. The rules of natural justice can operate only in areas not covered by any
law validly made. If a statutory provision either specifically or by inevitable
implication excludes the application of the rules of natural justice then the
Court cannot ignore the manJ.ate of the Legislature. Whether or not the appli-
cation of the principles of natural justice in a given case has been excluded in D
the exercise of statutory power depends upon the language and basic scheme
of the provision conferring the power, the nature· of the power the purpose for
\\hich it is conferred and the effect of tha·t power. [556A-BJ
3. The maxim audi alterani parte1n has many facets. Two of them are (a)
notice of the case to be met, and (b) opportunity to explain. The rule cannot
be sacrificed at the altar of administrative convenience or celerity; for, conve-
nience and justice are often not on speaking terms. Difficulties, however, arise
E
when lhe statute conferring the power does not expressly exclude this rule but its
exclusion is sought by implication due to the presence of certain facters such
as urgency where· the obligation to give notice and opportunity to be heard would
obtitruct the taking of prompt action of a preventive or remedial nature. Audi
altcra111 parte1n rule may be disregarded in an emergent situatiOn where imn1e-
diate action brooks no delay to prevent some imminent danger or injury or hazarJ
to paramount public interests. Section 133 of the Code of Criminal Procedure
empowers the' magistrates specified therein to make an exparte conditional order
in emergent cases for removal of dangerous public nuisances. Action undet F
section J 7 Land Acquisition Act furnishes another such instance. Similar!)'
action on grounds of public safety public health may justify disregard of the
rule of prior hearing. [556C-H]

4. Cases where ov.-ing t'o the compulsion of the f11ct situation. or the
necessity of taking speedy action no pre-decisional hearing is given but the G
action, is fo11owed soon by a full post-decisional hearing to the person affected
do not in reality constitute an exception to the a11di alteram parteni rule. To
call such cases as exception is a misnomer because they do not exclude fair
play in action but adapt it to the urgency of the situation by balancing the
co111peting claims of hurry <lnd hearing:. I560H-561A l
H
5. The general principle as distinguished from an absolute rule of uniform
:1pplication seems to be that where a statute does not in terms exclude lhis rule
538 SUPREME COURT REPORTS [1981] 2 S.C.R.

f\ of prior hearing but contemplates a post-decisional bearing amounting to a full
review of the original order on merits then such a statute would be construed :I,
"
as excluding the audi alteram partem rule at the pre-decisional stage. [56!G] ',

6. If the statute conferring the power is silent with regard to the giving of
a pre-decisional hearing to the person affected and the administrative decision
taken by the authority involves civil consequences of a grave nature and no
B full review or appeal on merits against that decision is provided courts will be
extremely reluctant to construe such a statute as eXcluding the duty Of affording
even a minimal hearing shorn of all its formal trappings and dilatory features
at the pre-decisional stage, unless viewed pragmatically it would paralyse the
administrative pruces8 or fru8trate the need for utmost promptitude. [561H)
7(i). A comparison of the provisions of Section 18A(l)(b) and Section
18AA(l) (c), bring out two main points of distinction: First, action under
c Section 18A(l) (b) L<i.D be taken only after an investigation bad been made
under Section 15; while under Section ! SAA (1 )(a) or (b) action can be taken
without such investigation. The language, scheme and setting of Section 18AA
1ead in the light of the Objects and Reasons for enacting this provision make
this position clear beyond doubt. Second, before taking action under Section
18A ( 1)(b), the Central Government has to form an opinion on the basis of
D the investigation conducted under section 15, in regard to the existence Of the
objective fac~ namely : that the industrial undertaking is being managed in a
manner highly detrimental to the scheduled industry concerned or to public
interest; while under section !SA(!) (a) the Government has to satisfy itself that
the persons incharge of the undertaking have brought about a situation likely
,...
to cause fall in production, by committing any of the three kinds of acts specified
in that provision. This shows that the preliminary objective fact attributable
E to the persons in charge of the management or affairs of the undertaking, on the
basis of which action may be !&ken under section lS(A)(lJ(b), is of far wider
amplitude than the circumstance, the existence of which is a &ine qua non for
taking action under section 18AA(l). The phrase "highly detrimental to the
scheduled industry or public interest" in section 18-A is capable of being cons-
trued to cc\'er a large variety of acts or things which may be considered wrong
with the m_a.nner of running the industry by the management. In contrast with it,
F action under section 18AA(l)(a) can be taken only if the Central Government
is satisfied with regard to the existence of the nvin conditions specifically men-
tioned therein, on the basis of evidence in its possession. [5690-HJ
7(ii). An analysis of section 18AA(l)(a), indicates that as a necessary preli-
minary to the exercise of the power thereunder, the Central Government must
be satisfied "from documentary or other evidence in its possession'" in regard
to the co-existence of two circumstances : (i) that the persons in charge of the
G industrial undertaking have by committing any of these acts, namely, reckless
investments, or creation of incumbrances on the assets of industrial undertaking,
or by diversion of funds, brought about a situation which is likely to affect the
production of the article manufactured or produced in the indnstrial undertaking.
and (ii) that immediate action is necessary to prevent such a situation.
[570B-D]

II 8. It cannot be laid down as a general proposition that whenever a statute
confers a power on an administartive authority and makes the exercise of that ......
ro\ver conditional on the formation of an opinion by that authority in regard
SWADESHI COTTON MILLS V. UNION 539

to the existence of an immediacy. its opinion in regard to that preliminary fact A
is not open to judicial scrutiny at all. While it may be conceded that an element
of subjectivity is always involved in the formation of such an opinion, the
existence of the circumstances from which the inference constituting the opinion.
as the sine qua non for action, are to be drawn, must be demonstrable, and the
existerice of such "circumstances", if questioned, must be proved at least
prima facie. [571 £.G]
B
9. From a plain reading of section 18AA, it is clear that it does not expressly
in unmistakable and unequivocal terms exclude the application of the audi alteram
partem rule at the pre-decisional stage. [574B]

In the instant case, so far as Kanpur Unit is concerned, it was lying closed
for more than three months before the passing of the impugned order. There
was no 'immediacy' in relation to that unit, which could absolve the Government C
from the obligation of complying fully with audi alteram partem rule at the
pre-decisiona-1 or pre-takeover stage. [583A]

Keshav Mills Co. Ltd. v. Union of India, 11973] 3 S.C.R. 22; Kam/a
Prasad Khetan v. Unian of India, [1957] S.C.R. 1052; Maneka Gandhi v. Union
of India, [1978] 2 S.C.R. 621; Sukhdev Singh & Ors. v. Bhagatram Sardar Singh,
[1975] 3 S.C.R. 619; A. K. Kraipak v. Union of India, [1970] I S.C.R. 457; D
Ridge v. Baldwin, [1964] A.C. 40; 196; Heatley v. Tasmanian Racing & Gaming
Conzn1ission, 14 Australian Law Reports 519; Nawabkhan Abbaskhan v. State of
Gujarat, [1974] 3 S.C.R. 427; State of Orissa v. Dr. Bina Pam Dei, [1962] 2
S.C.R. 625; Ambalal M. Shah v. Hathi Singh Manufacturing Co. Ltd. [1962] 3
S.C.R. 171; and S. L. Kapaor v. lagmohan & Ors., [19$1] I S.C.R. 746,
referred to.
E
(Per Cbinnappa Reddy, I. dissenting)

The principles of natural justice are not attra-cted to the situations contem-
plated by section !SAA of Industries (Development and Regulation) Act.

I. Natural justice like Ultra Vires and Public Policy is a branch of the public
law and is a formidable weapon which can be wielded to secure justice to the F
citizen. While it may be used to protect certain fundamental liberties, civil and
political rights, it may be used as indeed it is used more often than not, to
protect vested interests and to obstruct the path of progressive change. The
time has come to make an appropriate distinction between natural justice in its
application to fundamental liberties, civil and political rights and natural justice
in its application to vested interests. [590A-BJ '
G
2. Our constitution as befits the Constitution of a Socialist Secular Demo-
cratic Republic, recognises the paramountcy of the public weal over the private
interest. Natural justice, ultra vires, public policy, or any other rule of inter-
pretation must, therefore, conform, grow and be tailored to serve the public
interei)t and respond to the demands of an evolving society. [590C]

3(i). The principles of natural justice have taken deep root in the judicial H
conscience of our people. They are now considered so fundamental as to be
implicit in every decision making function, judicial, quasi-judicial or administra~
540 SUPREME COURT REPORTS [1981] 2 s.c.R.

A tive. Where authority functions under a statute and the statute provides for
the observance of the principles of natural justice in a particular manner, natural
justice will have to be observed in that manner and in no other. Where the
statute is silent about the observance of the principles of natural justice, such
statutory silence is taken to imply compliance with the principles of natural
justice. Where the conflict is between the public interest and the private interest
the presumption must necessarily be weak and may, therefore, be readily dis·
B placed. The presumption is also weak, where what are involved arc mere
property rights. In cases of urgency, particularly where the public interest ii
involved, pre-emptive action may be a strategic necessity. Even in cases of
pre-emptive action, if the statute so provides or if the Courts so deem fit in
appropriate cases, a postponed hearing may be substituted for natural justice.
[590A-C; 59lF-G)
3(ii). Where natural justice is implied, the extent of the implication and the
c nature of the hearing must vary with the statute, the subject and the situation.
[592B]
4. The absence of the expression 'immediate action' in section 18AA(1) (b)
Joes not make any difference. Section 18AA(l) (a) refers to a situation where
immediate preventive action may avert a disaster, whereas section 18AA
contemplates a situation where the disastet has occurred and action is necessary
D 10 restore normalcy. Restoration of production where production has stopp:d
in a key industry or industrial undertaking is as important and urgent in the
public interest as prevention of a situation where production may be affected.
Jmrnediate action ts, therefore, as necessary in the situation contemplated by
section J8AA(l)(b) as in the situation contemplated by section ISAA(l)(a).
[596 F-G)
5. The marginal note refers to the power to take over without investigation
E but there is no sufficient reason to suppose that the word immediate is used only
to contra-distinguish it from the investigation contemplated by section 15 of the
Act, though of course a consequence of immediate action under section 1SAA
may be to dispense with the enquiry under section 15. In fact, facts which
con1e to light during the course of an investigation under section 15 n1ay fornt
the hasi~ of action under section 18AA( 1) (a). ~'here in the course of an invcs~
ligation under section 15 it is discovered that the management have, by reckless
F
investments or creation of encumbrances on the assets of the industrial under-
taking or by diversion of funds brought about a situation which is likely to
affect the production of the a·rticles 1nanufactured or produced in the industrial
undertaking, if the Government is satisfied that immediate -action is necessary to
prevent such a situation, there is no reason why the Central Government n1ay
not straightaway take action under section 18AA(1) (a) without waiting for
cornpletion of investigation under section 15. [597 A-B1
G
6. Where there is a provision in the statute itself for revocation of the order
by the very authority making the decision, it appears to be unnecessary to insh.t
upon a pre-decisional observance of natural justice. [598AJ
7. The likelihood of production being jeopardized or the stoppage of produc-
tion in a key industrial undertaking is a matter of grave concern affecting the
public interest. Parliament has taken so serious a view of the matter that it
H has authorised the Central Govemment to take over the management of the
industrial undertaking if immediate action n1ay prevent jeopardy to production
or restore production where it has already stopped. 1"he necessity for in1mediate
oWADESHI COTTON MILLS v. UNION (Sarkaria, J.) 541

• action by the Central Government contemplated by Parliament is definitely A
indicative of the exclusion of natural justice. It is not as if the owner of the
industrial undertaking is left with no remedy. He may move the central
Government under section 18-F to cancel the order made under section 18AA .
• [598C-D]
8. Neither section 18·F of the Industries (Development and Regulation)
Act nor section 21 of the General Clauses Act by itself excludes natural justice. B
The exclusion of natural justice where such exclusion is not express has to be
implied. by reference to the subject, the statute and the statutory situation. Where
an express !tlovision in the statute itself provides for a post decisional hearing
the other provisions of the Statute will have to be read in the light of such
provision and the provision for post-decisional hearing may then clinch the issue
• where pre-decisional natural justice appears to be excluded on the other terms
of the statute. That a post-decisional hearing may also be had by the terms C
of section 21 of the General Clauses Act may not necessarily help in the
interpretation of the provisions of the statute concerned. [599 A-C]
Ridge v. Baldwin, 1964 A.C. p. 40; Annie G. Phillip v. Commissioner of
Internal Revenue, 75 L.Ed. 1289; John H. Fahey v. Paul Mallonee, 91 L.Ed.
2030; Margarita Fuentes v. Robert L. Shevin, Attorney General of Florida, 32
L.Ed. 2d 556 and Lawrence Mitchell v. W. T. Grant Co .. 40 L.Ed. 2d 406, D
referred t0.

OVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1629, 1857
.._ & 2087 of 1979.

From the Judgment and Order dated 1"5-1979 of the Delhi High
Court in Civil Writ No. 408 of 1978. E
F. S. Nariman, S. D. Parekh, A. D. Mehta, Lalit Bhasin, Vinay
Bhasin and Vineet Kumar for the Appellants in C.A. No. 1629 and
for R. 1 in C.A. No. 2087 /79.
V. N. Tarkunde, S. Ganesh, K. Vasdev and T.V.S.N. Chari for the
Appellants in CA 1857/79. F
Soli J. Sorabjee, Solicitor General and Girish Chandra for Appel-
l( !ants in CA 2087 and for Respondent (UOI) in CA 1629 /79.
Soli J. Sorabjee, Solicitor General, S. Ganesh Vasdev and T. V. S. N.
Chari for Respondent No. 2 in CA 1629.
T. V. S. N. Chari for Respondent No. 4 in CA 2087 Suresh Parik G
and S. Swarup for Respondent No. 3 in CA 2087.
• F. S. Nariman, B. P. Maheshwari and Suresh Sethi for Respon-
dent-Swadeshi Cotton Mills Co. Ltd. in CA No. 1857 and 2087 /79.
C. M. Chopra for Intervenor.
The Judgment of R. S. Sarkaria and D. A. Desai, JJ. was delivered H
bySarkaria, J. 0. Chinnappa Reddy, J. gave a dissenting Opinion.
2-152 SCl/81
SUPREME COURT REPORTS [1981] 2 S.C.R.

SARKARIA. J.These appeals arise out of a judgment, dated May 1, •
1979. of the High Court of Delhi, in the following circumstances :

Appellant No. l in Civil Appeal 1629 of 1979 is Swadeshi Cotton •
Miib Co. Ltd. (hereinafter referred to as the Company). Jt was in-
B corporated as a private company with an authorised capital of Rs. 30
1akl1> in 1921 by the Horseman family by converting their partnership
business into a Private Joint Stock Company. Its capital was raised in
1923 to Rs. 32 lakhs and thereafter in 1945 to Rs. 52.50 lakhs by
issue of bonus shares. In 1946, the Jaipuria family acquired substan-
tiol holding in the Company. Jaipuria family is the present manage-
C mcnt. By issue of further bonus shares in 1946, the capital of the
Company was increased to Rs. 122.50 lakhs. In 1948, the paid-up
capital of the Company was raised to Rs. 210 lakhs by the issue of
forther bonus shares. The subscribed and issued capital consisting
mainly of the bonus shares has since remained constant at Rs. 210
lakhs.
D In the year 1946, the Company had only one undertaking, a Tex-
tile Unit at Kanpur, known as "The Swadeshi Cotton Mills, Kanpur".
Between 1956 and 1973, the Company set up and/or acquired five
further Textile Units Jn Pondicherry, Naini, Udaipur, Maunath J
Bhanjan and Rae Bareilly. Each of these six Units or undertakings
of the Company was separately registered in accordance with the pro-
visions of Section 10 of the Industries (Development and Regulation)
Act, 1951 (hereinafter called the IDR Act).
In addition to these six industrial undertakings, the Company (it
is claimed) had other distinct businesses and assets. It holds inter
alia 97 per cent shares in the subsidiary, Swadeshi Mining and Manu-
F facturing Company Ltd., which owns two sugar Mills. The Company
claims, it has substantial income from other businesses and activities
including investments in its subsidiary and in other shares and secu-
rities which include substantial holding of 10,00,000 Equity Shares ~
of Rs. 10/" each in Swadeshi Polytex Ltd., representing 30 per cent
of the total equity capital value of Swadeshi Polytex Ltd., the intrinsic
G va1ue whereof exceeds Rs. 5 crores.
The Company made considerable progress during the years 1957
to 1973. The reserves and surplus of the Company increased from
•
Rs. 2.3 crores in 1957 to Rs. 4.3 crores in 1973-74, but declined to
Rs. 2.8 crores in 1976-77. The fixed assets of the Company in-
H creased from 5.8 crores in 1957 to 19 crores in 1973-74, but declined
to Rs. 18 crores, registering a marginal decrease of Rs. 1 crore in
1976-77.
SWADESHI COTTON MILLS v. UNION (Sarkaria, l.) 543

• The Company maintained separate books of acconnts for each of A
its six industrial undertakings. From and after April 1973, the Com-
pauy maintained separate sets of books of accounts of the businesses
and assets other than of the said six industrial undertakings. Annual
accounts of the six industrial undertakings were first prepared sepa-
rately in seven sets which were separately audited. The consoli-
dated annual a_ccounts of the Company were then prepared from such B
aunual accounts at the registered office of the Company at Kanpur,
and after audit, were placed before the shareholders of the Company.

.. The Company made over-all profits up to the year 19_69 and even
thereafter up to 1975. The Balance Sheet showed that the Company
suffered a loss of Rs_ 86.23 lakhs after providing depreciation of
Rs. 93.93 lakhs and gratuity of Rs. 48.79 lakhs, though the trading c
results showed a gross profit of Rs_ 56.49 lakhs. During the year
ending March 31, 1976, the Company again suffered a loss of
Rs. 294.82 lakhs after providing for depreciation. The last Balance
Sheet and Profit & Loss Account adopted by the shareholders and
published by the Company relates to the year ending March 31, 1977.
It shows that the Company suffered a loss of Rs. 200.34 Lakhs after D
taking into account depreciation of Rs. 73.27 lakhs which was not
provided in accounts.
Between 1975 and 1978, the Company created the undernoted
encumbrances on the fixed assets :
Unit As on As on As on As on Remar:"s E
31-3-75 31-3-76 31-3-77 31-3-78
(in lakhs) (in lakhs)
I 2 3 4 5 6
(i) Pondicherry 2·40 Nil Nil Nil On fixed assets
of Pondicherry
Unit F
(ii) Maunath Bhanjan 11 ·40 5·71 Nil Nil On fixed assets
of Maunath Bhan·
': jan Unit.
(Iii) Udaipur 2·76 Nil Nil Nil On fixed assets
'f'
of Udaipur Unit.
(iv) Kanpur (ICICI) 13·44 9·75 5·95 2·00 On fixed asset G
of Kanpur Unit
• (v) Kanpur Nil 150·00• 150·00 150 ·00 On fixed assets
of Kanpur, Mau-
~
nath Bhanjan &
I
Pondicherry Units
for wages and Bank H
.. *New encumbrance
dues
544 SUPREME COURT REPORTS [1981] 2 S.C.R.

A
I 2 3 4 5 6
(vi) Company 67 ·53 68 ·45 59 ·44 59 ·44 On diesel generat-
ing sets of Kan- ,
pur, Naini, Pondi-
cherry, Mannath
Bhanjan and Rae-
Bareilly Units.
(vil) Udaipur Nil 25 ·00• 25 ·00 25 ·00 On fixed assets
of Udaipur Unit
for gratuity fund.
(viii) Naini Nil Nil 70 ·oo•• 70 ·00 On fixed assets
of Naini for
c gratuity.
(ix) Kanpur, Rae 106 ·20 75 ·31 50 ·67 15 ·97 On new machinery
Bareilly & Naini of Kanpur, Rae
Bareilly & Naini
Units under-de-
ferred payment
D credit.
203·73 334·22 361 ·06 322·41

'.I'he borrowings of the Kanpur, Pondicherry, Naini, Udaipur,
Mannath Bhanjan and Rae Bareilly Units of the Company as Oil
March 31, 1978 against current assets were Rs. 256.78, 183.92,
E 271.05, 70.72, 47.98 and 55.82 lakhs respectively. All the en-
cnmbrances on fixed assets (except the encumbrances of Rs. 70 lakhs
on the fixed assets of Naini Unit for gratuity funding to get the benefit
of Section 44A of the Income-tax Act) were created prior to March
31. 1976.
F In the accounting year 1976-77, only one new encumbrance was
created by the Company on its fixed assets. The following are
statistics of production in each of the six units of the Company during
the years 1975-76, 1976-77 and 1977-78 : ':'
Name of the Unit 1975-76 1976-77 1977-78
(figures in lakhs)
G
Naini 66 ·13 kgs. 65 ·76 kgs, 72 ·35 kgs.
Udaipur 18 ·51 kg!, 18 ·50 kgs. 18 ·60 kgs.
•
Mannatb Bhanjan 15 ·59 kg!. 16 ·63 kgs. 18 ·49 kgs.
Rae Bareilly 12·09 kgs. 13 ·58 kgs. 14 ·00 kgs.
Pondicberry 170 ·52 Mtrs. 178 ·77 Mtrs. 176 ·54 Mtrs.
H Kanpur 318 ·75 Mtrs. 472 ·12 Mtrs. 238 ·22 Mtrs.

•New encumbrance. ••No new encumbrance..
SWADESHI COTTON MILLS v. UNION (Sarkaria, 1.) 545

• On April 13, 1978, the Government of India in exerCise of its A
power under clause (a) of sub-section (1) of Section 18AA of the
IDR Act, passed an order (hereinafter referred to as the impugned
order) which reads as follows :
"SO 265(E)/l 8AA/IDRA/78-Whereas the Central
Government is satisfied from the documentary and other
evidence in its possession, that the persons in charge of the B
industrial undertakings namely,
(i) M/s. £wadeshi Cotton Mills, Kanpur,
(ii) M/s. Swadeshi Cotton Mills, Pondicherry,
(iii) M/s. Swadeshi Cotton Mills, Naini, C
(iv) M/s. Swadeshi Cotton Mills, Maunath Bhanjan,
(v) M/s. Udaipur Cotton Mills, Udaipur, and
(vi) Rae Bareilly Textile Mills, Rae Bareilly of M/s.
Swadeshi Cotton Mills Company Ltd., Kanpur
(hereinafter referred to as the said industrial under- D
takings), have, by creation of encumbrances on the
assets of the said industrial undertakings, brougbt
about a situation which has affected and is likely to
further affect the production of articles manufactured
or produced in the said industrial undertakings and
that immediate action is necessary to prevent §uch a E
. situation;
Now, therefore, in exercise of power conferred by
clause (a) of sub-section (1) of Section !SAA of the Indus-
tries (Development and Regulation) Act, 1951 ( 65 of
1951), the Central Government hereby authorises the
National Textile Corporation Limited (hereinafter referred
to as the Authorised person) to take over the management
of the whole of the said industrial undertakings, subject to

- the following terms and conditions, namely : -
(i) The authorised person shall comply with all the
directions issued from time to time by the Central G
Government;
(ii) the authorised person shall hold office for a period of
five years from the date of publication of this order in
the Official Gazette;
(iii) the Central Government may terminate the appoint- H
ment of the authorised person earlier if it CO!JSiders
necessary to do so.
546 SUPREME COURT REPORTS [1981] 2 S.C.R.

A This order shall have effect for a period of five years com-
mencing from the date of its publication in the Official
Gazette.

Sd/- R. Ramakrishna
B Joint Secretary to the Govt. of India
(Seal)."

_ On April 19, 1978, three petitioners, namely, the Company through
its Joint Secretary, Shri Bhim Singh Gupta, its Managing Director, Dr.
Rajaram Jaipuria, and its subsidiary company, named; Swadeshi Mining
c and Manufacturing Company, through its Directors and Shareholdern
filed a writ petition under Article 226 of the Constitution in the Delhi
High Cami against the Union of India and the National Textile Cor-
poration to challenge the validity of the aforesaid Government Order
dated April 13, 1978. The writ petitiO!l was .further supplemented by
subsequent affidavits and rejoinders.
D
The Union of India and the National Textile Corporation Ltd., who
has been authorised to assume management of the undertakings con-
cerned were impleaded, as respondents. The writ petition first came
up for bearing before a Divison Bench who by its order dated August
11, 1978, requested the Chief Justice to refer it to a larger Bench. The
E case vras then heard by a three Judge Bench who by their order dated
October 12, 1978, requested the Hon'ble the Chief Justice to constitute
a still larger Bench to consider the question whether a prior hearing is
necessary to be' given to the persons affected before the order under
Section 18AA is passed. Ultimately, the reference came up for con-
sideration before a Full Bench of five Judges to consider the question,
F
which was reframed by the Bench as under :
"Whether in construing Section 18AA of the Industries
(Development and Regulation) Act. 1951, as a pure ques-
tion of law compliance with the principle of audi alteram
partem is to be implied. If so,
G
(a) whether such hearing is to be given to the parties
who would be affected by the order to be passed under the
said Section prior to the passing of the order; or
(b) whether such hearing is to be given after the passing
H of the order; and
(c) if prior hearing is to be normally given and the order
passed under the said Section is vitiated by not giving of such '
SWADESHI COTTON MILLS v. UNION (Sarkaria, J.) 547

• hearing. whe:hcr such vice can be cured by the grant u: a A
subsequent hearing."
The Bench. by a majority (consisting or Deshpande, CJ., R. Sacher
and M. L. Jain, JJ.) answered this three fold ques1io11 .,., follows ·
"(I) Section 18AA(J)(a)(b) excludes the giving of
prior hearing Lo the party who would be aHectcd by order B
thereunder.
(2) Section 18F expressly provides for a post-decisional
hearing to the owner of the industrial undertaking, the
... management of which is taken over under Section 1 SAA to
have the order made under Section l 8AA cancelled on any
relevant ground. c
( 3) As the taking over of management under Scetton
J 8AA is not vitiated by the failure to grant prior hearing, the
question of any such vice being: cured by a grant of a subse-
quent hearing does not arise."
H. L. Anand and N. N. Goswamy, JJ, however dissented. In the D
opinion of the minority, in compliance with the principles of natural
justice, a prior hearing to the owner of the undertaking was required
to be given before passing an order under Section I SAA. that the
second question did not arise as the denial of a prior hearing would
not cure the vice by the grant of subsequent hearing, but it would be
open to the Court to moderate the relief in such a way that the order E
is kept alive to the extent necessary until the making of the fresh order
to subscn·c public interest, and to make appropriate directions to
ensure that the subsequent hearing would be a full and complete review
of the circumstances of the take-over and for the preservatLon &nd
maintenance of the property during the interregnum.
After the decision of the reference. the case was reheard on merits
by a Bench of three learned Judges (consisting of Deshpande, C.J.,
Anand and M. L. Jain, JJ.) who by their judgment dated May l,

- 1979, disposed of the writ-petition. The operative part of the judg-
ment reads as under :
"In the result, the writ-petition succeeds in part, the G
challenge to the validity of the impugned order fails and to
that extent the petition is dismissed. The petition succeeds
in so far as it seeks to protect from the impugned order the
corporate entity of the company, the corporate entity of the
subsidiary and its assets, the holding of the company in Poly-
tex and the assets and property of the company which arc not H
referable to any of the industrial undertakings. The respon-
dents are hereby restrained from in any manner interfering
548 SUPREME COURT REPORTS (19S!] 2 S.C.R.

A with the corporate entity, the assets and property which are •
outside the impugned order. The respondents would release
from its control and custody and/or deliver possession of
any assets or property of the company, which arc not refer· ,
able to the industrial undertakings in terms of the observa-
tions made in paras 46 and 4 7 of the judgment, within a
8
period of three months from today (May 1, 19791. In the
peculiar circumstances the parties would bear their respective
costs."
On the application of the Company, the Delhi High Court certified
under Article l 33 of the Constitution that the case was lit for appeal
..
c to this Court. Subsequently, on July 12, 1979, a similar certificate was
granted by the High Court to the Union of India and the National
Textile Corporation Ltd. Consequently, the Company, the TJnion of
India and the National Textile Corporation have filed Civil Appeals
1629, 2087 and 1857 of 1979, respectively, in this Court. All the
three appeals will be disposed of by this judgment.
D
The primary, two-fold proposition posed and propounded by Shri
F. S. Nariman, learned coumel for the appellant-Company in Civil
Appeal 1629 of 1979, is as follows :
(a) \Vhether it is necessary to observe the rules of natural justice
before iS>uing a notified order under Section !SAA, or enforcing a deci-
E
sion ur:der Section 18AA, or
(b) \\bother the provisions of Section 18AA and/or Section lSF
impliedly exclude rules of natural justice relating to prior hearing.
There were other contentions also which were canvassed by the
learned counsel for the parties at considerable length. But for reasons
' mentioned in the final part of this judgn1ent, we do not think it neces-
sary, for the disposal of these appeals to deal with the same.
Thus. the first point for consideration is whether, as a matter of
law, it is necessary, in accordance with the rules of natural justice, to
give a hearing to the owner of an undertaking before issuing a notified
G order, or enforcing a decision of its take-over under Section 18AA.
Shri Nariman contends that there is nothing in the language,
scheme or object of the provisions in Section 1 SAA and/or Section
!SF which expressly or by· inevitable implication, excludes the applica-
tion of the principles of natural justice or the giving a pre-decisional
H hearing, adapted to the situation, to the owner of the undertaking. It
is submitted that mere use of the word "immediate" in sub-clause (a)
of Section J SAA ( 1 ) does not show a legislative intent to exclude the
SWADESHI COTTON Mii.LS v. UNION (Sarkaria, J.) 549

A
' application of audi a/term partem rule, altogether. It is maintained
that according to the decision of this Court in Keshav Mills Company
Ltd. v. Union of India('), even after a full investigation has been made
under Section of the LD.R. Act, the Government has tc observe the
rules of natural justice and fairplay, which in the facts of a particular
case, may include the giving of an opportunity to the affected owner to
B
explain the adverse findings against him in the investigation report In
support of his contention, that the use of the word "immediate" in
Section 18AA(l)(a) does not exclude natural justice, learned counsel
has advanced these reasons :

(i) The word "immediate" in clause (a) has been used in contra-
distinction to 'investigation'. It rn1ly means that under Section I SAA c
action can be taken without prior investigation under Section 15, if
there is evidence in the possession of the Government, that the assets
of the Company owning the undertaking arc being frittered away by
doing any of the three things mentioned in clause (al; or, the under-
taking has remained closed for a period of not less than three months
D
and the condition of plant and machinery is such that it is possible to
restart the undertaking. This construction. that the use of the word
"immediate" in Section 18AA(1) (a) only dispenses with investigatio111
under Section 15 and not with the principle of audi alterm partem al-
together, is indicated hy the marginal heading of Section: 18AA and
para 3 of the Statement of Objects and Reasons of the Amendment Bill E
which inserted Se<:tion 18AA, in 1971.

(ii) The word 'immediate' occurs only in clause (a) and not in
clause (b) of Section 18AA(l). It would be odd if intention to
exclude this principle of natural justice is spelt out in one clause of
the sub-section, when its other clause does not exclude it. F

(iii) Section 18F does not exclude a predecisional hearing. This
section was there, when in Keshav Mills' case, (ibid), it was held by
this Court, that even at the post-investigation stage, before passing
an order under Section 18A, the Government must proceed fairly
in accordance with the rules of natural justice. The so-called post-
G
decisional hearing contemplated by Section 18F cannot be-and is
not intended to be-a s\Jbstitute for a pre-decisional hearing. Section
A 18F, in tenns, deals with the power of Central Government to cancel
an order of take-over under two conditions, namely : First when "the
pUijpose of an order under Section 18A has been fulfilled, or, second
when "for any other reason it is not necessary that the order should H
reinain in force". "Any other reason" has reference to post-"take-
(!) [1973) 3 S.C.R. 22
550 SUPREME COURT REPORTS [ 1981 j 2 S.C.R.

A over" circumstances only, and doos not cover a reason relatable to
pre-takeover circumstances. An order of cancellation under Section
18F is intended to be prospective. This is clear from the plain meaning
of the expressions "remain in force", "necessary" etc. used in the
Section.
B Section 18 incorporates only a facet, albeit qualified, of Section
21 of the General Clauses Act, (Kam/a Prasad Kheta11 v. Union of
India('), referred to.) Therefore, the illusory right given by Section
18F to the aggrieved owner of the undertaking, to make an application
for cancellation of the order, is not a full right of appeal on merits.
The language of the Section impliedly prohibits an enquiry into
c circumstances that led to the passing of the order of "take-over", and
under it, the aggrieved person is not entitled to show that on merits,
the order was void ab initio.
As held by a Bench (consisting of Bhagwa.ti and Vakil JJ.) of
the Gujarat High Court, in Dosabhai Ratans/wh Keravale v. State of
D Gujarat('), a power to rescind or cancel an order, analogous to that
under Section 21, General Clauses Act, has to be construed as a
power of prospective cancellation, and not of retroactive obliteration.
It is only the existence of a full right of appeal on the merits or the
existence of a provision which unequivocally confers a power to
reconsider, cancel and obliterate completely the original order, just
E as in appeal, which may be construed to exclude natural justice or a
pre ·decisional hearing in an emergent situation. (Reference on this
point has been made to Wade's Administrative Law, 4th Edition, pp.
464 to 468.)

(iv) 'Immediacy' does not exclude a duty to act fairly, because,
F even an emergent, situation can co-exist with the canons of natural
justice. The only effect of urgency on the application of the principle
of fair-hearing would be that the width, form and duration of the
hearing would be tailored to the situation and reduced to the rca<on-
able minimum so that it does not delay and defeat the purpose ,,f
the contemplated action.
G
(v) Where the civil consequences of the administrative action--
as in the instant case-are grave and its effect is highly prejudicial
to the rights and interests of the person affected and there is noth;ng
in the language and scheme of the statute which unequivocally
excludes a fair pre-decisioml hearing, and the post-decisional hearin~
H provided therein is not a real remedial hearing equitable to a full'
- - - - -·---- - - ~

(ll [19571S.CR.1052
(2) (1970) IT Gujrat Law Reporter 361
SWADESlll COTTON MILLS v. UNION (Sarkaria, J.) 551

right of appeal, the Court should be loath to infer a legislative intent
to exclude even a minimal fair hearing at the pre-decisional stage
merely on ground of urgency. (Reference in this connection has
·been made to Wade's Administrative Law, ibid, page 468 bottom.)

Applying the proposition propounded by him to the facts of the
instant case, Shri Nariman submits that there was ample time at the
dispos11l of the Government to give a, reasonably short ncticc to the

.. Company to present its case. In this connection, it is pointed out
that according to pam 3 of the further affidavit filed by Shri Daulat
Ram on behalf of the Union of India and other respondents. the
Central Government had in its possession two documents, namely :
c
(a) c~py of the Survey Report on M/s. Swadeshi Cotton Mills
Company Ltd., covering the period from May to September. 1977
prepared by the office of the Textile Commissioner, and (b) Annual
Report (dated September 30, 1977) of the Company for the vear
ending March 31, 1971. In addition, the third circumstance mentioned D
in the a.ffidavit of Shri Daulat Ram is, that by an order dated

- January 28, 1978, the Central Government appointed four Govern-
ment Officials, including one from the office of the Textile Commis-
sioner, to study the affairs of the Company and to make
recommendation. This Official Group submitted its rCiJlOrt on
February 16, 1978. It is submitted that this evidence on the basis E
of which the impugned order was passed, was not disclosed to the
appellant Company till May 1978, only after it had filed the writ
petition in the High Court to challenge the impugned order. It is
emphasised that if the Survey Report was assumed to contain some-
thing adverse to the appellants, there was time enough-about six
F
weeks between the submission of the Survey RCiJlort and the oassing:
of the impugned order for giving a short, re11sonable opportunity to
the appellants to explain the adverse findings against them. It is
urged that even if there was immediacy, situational modifications
could be made to meet the requirement of fairness, by reducing the
period of notice; that even the manner and form of such notice could
be simplified to eliminate delay, that telephonic notice or short
opportunity for furnishing their explanation to the Company might
have satisfied the requirements of natural justice. Such an opportu-
nity of hearing could have been given after the passing of a conditional
tentative order and before its enforcement under Section 18AA. For
the interregnum suitable interim action such as freezing the assets of H
the Company or restraining the Ccmpany from creating further
encumbrances, etc. could be taken nnder Section 16.
552 SUPREME COURT REPORTS (1981] 2 S.C.R.

A Reference in this connection has been made to Keshav Mills case
(ibid); Mohinder Singh Gill v. Election Commissioner of India( 1);
Maneka Gandhi v. Union of India( 2 ) Sukhdev Singh & Ors. v.
Bhagatram Sardar Singh( 3 ); A. K. Kraipak v. Union of India(');
Ridge v. Baldwin('); Heatley v. Tasmanian Racing & Gaming Com-
mission(•); Commissioner of Police v. Tanos( 7 ); Secretary of State
8 for Education & Science v. Metropolitan Borough of Tameside( 8 );
Wiseman v. Borneman("); Nawabkhan Abba.1klu111 v. State of Guja-
rat('") and State of Orissa v. Dr. Bina Pani Dei(").

As against this, Shri Soli Sorabji, learned Solicitor-General
appearing on behalf of respondent 1, contends that the presumption
c in favour of audi alteram partem rule stands impliedly displaced Ly
the language, scheme, setting, and the purpose of the provision in
Section 18AA. It is maintained that Section 18AA, on its plain
terms, deals with situations where immediate preventive action is
required. The paramount concern is to avoid serious problems which
may be caused by fall in production. The purpose of an order under
D
Section 18AA is not to condemn the owner but to protect the
scheduled industry. The issue under Section 18AA is not solely
between the Government and the management of the industrial under-
taking. The object of tllking action under this Section is to protect
other outside interests of the community at large and the workers. On
E these premises, it is urged, the context, the subject-matter and the
legislative history of Section 18AA negative the necessity of giving
a prior hearing; that Section 1SAA does not contemplate any interval
between the making of an order thereunder and its enforcement,
because it is designed to meet an emergent situation by immediate
preventive action. Shri Sorabji submits that this rule of natural
justice in a modified form has been incorporated in Section 18F which
gives an opportunity of a post-decisional hearing to the owner of the
undertaking who, if he feels aggrieved, can, on his application, be
heard to show that even the original order under Section 18AA was
passed on invalid grounds and should be cancelled or rescinded. Thns,
(1) [1978] 2 S.C.R. 272
G
(2) [1978] 2 S.C.R. 621
(3) [1975]3 S.C.R. 619
(4) [1970] I S.C.R. 457
(5) [1964] A.C. 40; 196
(6) 14 Australian Law Reports 519
(7) [1958] 98 C.L.R. 383
(8) [1976] 3 All ER. 665.
(9) [1971] A.C. 297; Wade's Administrative Law p. 465
(10) [1974] 3 S.C.R. 427.
(I!) [1962] 2 S.C.R. 625.
SWADESH! COTTON MILLS v. UNION (Sarkaria, !.) 553

Shri Sorabji does not go to the length of contending that the principles A
of natural justice have been fully displaced or completely excluded
by Section 1SAA. On the contrary, his stand is that on.. ii, true con-
struction of Section 18AA read with Section 18F, the requirements
of natural justice and fair-play can be read into the statute only "in
so far all conformaqce to such canons can reasonably and realistically
B
be required of it", by the provision for 11 remedial hearing <1t a
subsequent stage.

Shri Sorabji further submits that since Section 18F does not specify
any period of time within which the aggrieved party can seek the
relief thereunder, the oppor.tunity of full, effective and post-decisional
hearing has to be given within a reasonable time. It is stressed that c
under Section 18F, the Central Government exercises curial functions,
and that Section confers on the 11ggrieved owner a right to apply to
the Govermnent to cancel the order of take-over. On a true con-
struction, this Section casts an obligation on the Central Govern-
ment to deal with and dispose of an application filed thereunder with
D
reasonable expedition. Shri Sorabji further concedes that on the
well-settled principle of implied and ancillary powers, the right of
hearing afforded by Section 18F carries with it the right to have
inspection and copies of all the relevant books, documents, papers etc.
and the Section obligates the Central Govermnent to take all steps
which are necessary for the effective hearing and disposal _of ar. E
application under Section 18F.
Shri Sorabji has in connection with his arguments cited thel!e
authorities : Mohinder Singh Gill v. Chief Election Comm/.ssioner
(ibid); In re. K. (An Infant), Official Solicitor v. K. & Anr.('); Colly-
more v. Attorney General (2 ); Union of India v. Col. J. N. Sinha(•);
Judicial Review, 3rd Edn. by De Smith('); Queen v. Davey(•); F
Gaiman v. National Association for Internal Revenue(•); John H.

-
N. Fahey v. Paul Millionee('); Schwartz's Administrative Law'( 8 );
Madhav Hayawadanrao Hoskot v. Maharashtra('); Vijay Kumar
Mundhra v. Union of India( 10 ); Joseph Kuruvilla Vellukumel v.
(1) [19651 A.C. 201 (H.L.). G
(2) [1969] 2 All E.R. 1207.
(3) A IR 1970 S.C. 40.
(4) Pages 162, 167, 169 & 170.
(5) [1899]2 QB. 301.
(6) [1930] 283 U.S. 589.
(7) 332 us. 248.

' (8)
(9)
1976 Ed. p. 210, para 74.
[1979] l S.C.R. 192.
H

(10) I.L.R. [19~2] 2 Delhi 483 F.B.
~54 SUPREME COURT REPORTS [1981] 2 s.. · ;.

A Reserve Eank of India('); Corpomtion of Ca!cutia v, Ca/cul/a Tram- "
ways(') and Furne II v, Whapgarei High Schoo/CJ,
Before deal.ng with the contentions advanced on b:ith sides, it wili
be useful to have a general idea of the concept of "natural justice"
and the broad principles governing its application or exclusion in the
B construction or administration of statutes and the exercise of judicial
or administrative powers by an authority or tribunal constituted
thereunder,
Well then what is "natural jusitce"? The phrase is not capable
of a static and precise definition, It cannot be imprisoned in the
straight-jacket of a cast-iron formula, Historically, "natural justice"
c has been used in a way "which implies the existence of moral principles
of self-evident and unarguable truth,(') In course of time, judges
nurtured in the traditions of British jurisprudence, often invoked it in
conjunction with a reference to "equity and good conscience". Legal
experts of earlier generations did not draw any distinction between
D "natural justice" and "natural law", "Natural justice" was considered
as "that part of nntural law which relates to the administration of
justice". Rules of natural justice are not embodied rules. Being
means to an end and not an end in themselves, it is not possible to
make an exhaustive catalogue of such rules,
But two fundamental maxims of natural justice have now become
E deeply and indelibly ingrained in the common consciousness of man-
kind, as pre-eminently necessary to ensure that the law is applied
impartially, objectively and fairly. Described in the form of Latin tags
these twin principles are : (i) audi alteram partem and (ii) nemo
judex in re sua. For the purpose of the question posed above, we are
primarily concerned with the first. This principle was well-recognised
F
even in the ancient world, Seneca, the philosopher, is said to have
referred in Medea that it is unjust to reach a decision without a full
hearing. In Maneka Gandhi's case, Bhagwati, J. emphasised that audi

G
alteram partem is a highly effective rule devised by the Courts to ensure
that a statutory authority arrives at a jnst decision and it is calculated
to act as a healthy check on the abuse or misuse of power. Hence
its reach should not be narrowed and its applicability circumscribed.
-
During the last two decades, the concept of natural justice has made
great strides in the realm of administrative law. Before the epoch-
making decision of the House of Lords in Ridge v. Baldwin, it was
(1) [1962] Supp. 3 S.C.R, 632.
II (2) [196415 S,C,R, 25.
(3) [197311 All E.R, 400.
(4) "Natural Justice" by Paul Jackson, 2nd Edn. Page 1
SWADESHI COTTON MllLS v. UNION (Earkaria, J.) 55:;

' generally thought that the rules of natural justice apply only to judicial A
or quasi-judicial proceedings; and for that purpose, whenever a breach ·
of the rule of natural justice was alleged, Courts in England used to
ascertain wh~ther the impugned action was taken by the statutory
authority or tribunal in the excrci'e of its adminisrative or quasi-judicial
power. In India also, this was the position before the decision, dated
February 7, 1967, of this Court in Dr. Bina Pani Dds case (ibid); B
wherein it was held that even an administrative order or decision in
matter; involving civil consequences, has to be made consistently with
the rules of natural justice. This supposed distinction between quasi-

-- judicial and administrative decisions, which was perceptibly mitigated
in Bina Pani Dei's case, was further rubbed out to a vanishing point in
A. K. Kraipak v. Union of India (ibid), thus:
c
"Jf the purpose of these rules of natural justice is to
prevent miscarriage of justcie one fails to see why those rules
should be made inapplicable to administrative enquiries.
Often times it is not easy to draw the line that demarcates
administrative enquiries from quasi-judicial enquiries ..... . D
Arriving at a just decision is the aim of both quasi-judicial
enquiries as well as administrative enquiries. An unjust deci-
sion in an administrative enquiry may have more far-reaching
effect than a decision in a quasi-judicial enquiry."
E
In A. K. Kraipak's case, the Court also quoted with approval the
observations of Lord Parker from the Queens Bench decision in In re
H. K. (An Infant) (ibid), which were to the effect, that good adminis-
tration and an honest or bona fide decision require not merely impar-
tiality or merely bringing one's mind to bear on the problem, but acting
fairly. Thus irrespective of whether the power conferred on a statutory JI
body or tribunal is administrative or quasi-judicial, a duty to act fairly,
that is, in consonance with the fundamental principles of substantive
justice is generally implied, because the presumption is that in a demo-
cratic polity wedded to the rule of law, the state or the Legislature does
not intend that in the exercise of their statutory powers its functionaries
should act unfairly or unjustly. G

• In the language of V.R. Krishna Iyer, J. (vide Mohinder SilU!h Gill's
case, ibid.) :

"Subject to certain necessary limitations natural justice is
now a brooding omnipresence although varying in its play. H
Its essence is good conscience in a given situation; nothing
more--but nothing less."
556 SUPREME COURT REPORTS [1981] 2 S.C.R.

A The rules of natural justice can operate only in areas not covered
by any law validly made. They can supplement the law but cannot
•
supplant it (Per Hegde, J. in A. K. Kraipak, ibid). If a statutory
provision either specifically or by inevitable implication excludes the
application of the rules of natural justice, then the Court Cll!lllOt ignore
the mandate of the Legislature. Whether or not the application of the
B principles of natural justice in a given case has been excluded, wholly
or in part, in the exercise of statutory power, depends upon the language
and basic scheme of the provision conferring the power, the nature of
the power, the purpose for which it is conferred and the effect of the
exercise of that power. (See Union of India v. Col. l. N. Sinha, ibid.)
C/ The maxim audi a/teram partem has many facets. Two of them
are : (a) notice of the case to be met; and (b) opportunity to explain.
This rule is universally respected and duty to afford a fair hearing in
Lord Loreburn's oft-quoted language, is "a duty lying upon every one
who decides something", in the exercise of legal power. The rule
cannot be sacrificed at the altar of administrative convenience or
D celerity; for, "convenience and justice"-as Lord Atkin felicitously put
it-"are often not on speaking terms"(').

v The next general aspect to be considered is : Are there any excep-
tions to the application of the principles of natural justice, particularly
the audi alteram partem rule? We have already noticed that the
E statute conferring the power, can by express language exclude its
application. Such cases do not present any difficulty. However,
difficulties arise when the statute conferring the power does not expressly
exclude this rule but its exclusion is sought by implication due to the
presence of certain factors : ·such as, urgency, where the obligation to •
give notice and opportunity to be heard would obstruct the taking of
F
prompt action of a preventive or remedial nature. It is proposed to
dilate a little on this aspect, because in the instant case before us,
exclusion of this rule of fair hearing is sought by implication from the ··~
use of the word 'immediate' in Section 1SAA(l). Audi a!teram partem
rule may be disregarded in an emergent situation where immediate
G action brooks no delay to prevent some imminent danger or injury or
hazard to paramount public interests. Thus, Section 133 of the Code
of Criminal Procedure, empowers the magistrates specified therein to
make an exparte conditional order in emergent cases, for removal of
dangerous public nuisances. Action under Section 17, Land Acquisition
•
Act, furnishes another such instance. Similarly, action on grounds of
H public safety public health may justify disregard of the rule of prior
hearing.
(I) General Medical Council v. Spackman [1943] AC 627 at 638
SWADESH[ COTTON MILLS v. UNION (Sarkaria, I.) 557

Be that as it may, the fact remains that there is no consensus of A
judicial opinion on whether more urgency of a decision is a practical
consideration which would uniformly justify non-observance of even an
' abridged form of this principle of natural justice. In Durayappah v.
Femando('). Lord Upjohn observed that "while urgency may rightly
limit such opportnnity timeously perhaps severely, there can never be
B
a denial of that opportunity if the principles of natural justice are
applicable.
These observations of Lord Upjohn in Durayappah's case were
quoted with approval by this Court ih Mohinder Singh Gill's case. It
is therefore, proposed to notice the same here.
In Mohinder Singh Gill's case, the appellant and the third respon-
c
dent were candidates for election in a Parliamentary Constituency.
The appellant alleged that when at the last hour of counting it appear-
ed that he had all but won the election, at the instance of respondent,
violence broke out and the Returning Officer was forced to postpone dec-
laration of result. The Returning Officer reported the happening to the D
Chief Election Commissioner. An officer of the Election Commission
who was an observer at the counting, reported about the incidents to
the Commission. The appellant met the Chief Election Commissioner
and requested him to declare the result. Eventually, the Chief Blee•
tion Commissioner iswod a notification which stated that taking all
circumstances ihto consideration the Commission was satisfied that E
the poll had been vitiated, and therefore in exercise of the powers under
Article 324 of the Constitution, the poll already hc'.d was cancdled
and a repoll was being ordered in the constituency. The appellant
contended that before making the impugned order, the Election Com-
mission had not given him a full and fair hearing and al: that he had
was a vacuous meeting where nothing was disclosed. The Election F
Commission contended that a prior hearing has, in fact, been given
~ to the appellant. In addition, on the que5tion of application of the

- principles of natural justice, it was urged by the respondents that the
tardy process of notice and hearing would thwart the conducting of
elections with speed, that un:ess civil consequences e·nsucd, hearing
was not necessary and that the right accrues to a candidate only when
he is declared elected. This contention, which had found favour with
G

the High Court, was negatived by this Court. Delivering the judg-
ment of the Court, V. R. Krishna Iyer, J.. lucidly explained the mean-
ing and scope of the concept of natural justic•c and its role in a case
where there is a competition between the necessity of taking speedy
(1) [1967] 2 AC 137
3-152SCf/81
558 SUPREME COURT REPORTS [l 98 JI 2 S.C.R.

A action and the duty to act fairly. It will b.o useful to extract those
illuminating observations, in extenso:

"Once we understand the son! of the rule as !airplay
in action - and it is so - we must hold that it extends to
B both the fields. After aa, administrative power in demo-
cratic set-up is not allergic to fairness in action and discre-
tionary, executive justice cannot degenerate into unilateral
injustice. Nor is there ground to be frightened of delay, in-
convenience and expense, if 'natural justice gains access. For
fairness itself is a flexible, pragmatic and relative concept,
c not a rigid, ritualistic or sophisticated abstraction. It is not
a bull in a china shop, nor a bee in one's bonnet. Its
essence is good conscience in a given situation; nothing
more - but nothing less. The 'exceptions' to the rules of
1>atural justice are a misnomer or rather are but a shorthand
form of expressing the idea that in those exclllSionary
0 cases nothing unfair can he inferred by not affording an op-
portunity to present or meet a case."

After referring to several decisions, including the observations of
Lord Upjohn in Durayappah v. Fernando, the COllrt explained that
mere invocation or existence of urgency does not exclude the duty of
giving a fair hearing to the pero;on affected :

"It is untenable heresy, in our view, to lock jaw the
victim or act behind his back by tempting invocation of ur-
gency, unless the clearest case of public injury flowing from
the least delay is self-evident. Even in such cases a remedial
F
hearing as soon as urgent action has been taken is the next
best. Our objection is not to circumscription dictated by cir-
cumstances, but to annihilation as an easy escape from
benignant, albeit inconvenient obligation. The procedural
pre-condition or fair hearing, however minimal, even post-
decisio'nal, has rekvance to administrative and judicial
-
G
gentlemanliness."
•
"We may not be taken to .... say that situational modi-
fications to notice and hearing are altogether impermissible .
. . . . . . .the glory of the law is not that sweeping rules are laid
H down but that it tailors principles to practical needs,
doctors remedies to suit the patient promotes not freezes
Life's processes, if we may mix metaphors.'' ......... .
SWADESHI COTTON MILLS v. UNION (Sarkaria, J.) 559

The Court further emphasised the necessity of striking pragmatic A
bala'nce between competing requirem2nts of acting urgently and fairly,
thus:
'
"Should the cardinal principle of "hearing' as condition
for decision-making be martyred for the cause of adminis-
B
trative, immediacy? We think not. The full panoply may
not be there but a manageable minimum may make-do."

" In Wiseman v. Borneman there was a hint of the compe-
titive c:aims of hurry ahd hearing. Lord Reid said: 'Ev•cn
.. ;_
where the decision has to be reached by a body acting judi- c
cially, there must be a balance between the need for expedi-
tion and the need to give full opportunity to the defendant to
see material against him (emphasis added). We agree that
the elaborate and sophisticated methodology of a formalised
hearing may be injurious to promptitude so essential in an
election under way. Even so, natural justice is pragmatically D
flexible and is amenable to capsulation under the compulsive
pressure of circumstances. To burke it altogether may not
be a stroke of fairness except in very exceptional circum-
stances."

The Court further pointed out that the competing claims of hurry E
and heari'ng can be reconciled by making situationa; modifications in
the audi alferam partem rule:

"Lord Denning M.R., in Manward v. Borneman, sum-
marised the obs·~rvations of the Law Lords in this form. No
F
doctrirwire approach is desirable but the Court must be anxi-
ous to salvage the cardinal rule to the extent permissible in a
given case. After all, it is not obligatory that counsel should
be allowed to appear hor is it compulsory that oral evidence
•
should be adduced. Indeed, it is not even imperative that
written statements should be called for disclosure of the G
prominent circumstances and asking for an immediate ex-
planation orally or otherwise may, in many cases be suflicient
compliance. It is eveu cohceivable that an urgent meeting
with the concerned parties summoned at an hour's notice, or
_in a crisis, even a telephone call, may suffice. If all that is
not possible as in the case of a fleeing person whose pass- H
port has to be impounded lest he should evade the course of
justice or a dangerous nuisance needs immediate abate-
560 SUPREME COURT REPORTS I 1981 J 2 S.C.R.

A ment, the action may be taken followed immediately by a '
hearing for the purpose of sustaining or setting aside the
action to the extent feasib}e. It is quite o'n the cards that
the Election Commission, if pressed by circumstances may
give a short hearing. In any view, it is not easy to appre-
ciate whether before further steps got under way he could
B have afiorded an opportunity of hearing the paiiies, and re-
voke the earlier directions ...... All that we need cmpha·
size is that the content of natural justice is a dependent vari-
able, not an easy casualty."

"Civil consequence' undoubtedly cover infraction of not
c merely property or personal rights but of civil liberties, mate-
rial deprivations and non-pecuniary damages. In its com-
prehensive connotation, everything that affects a citizen in his
civil life inflicts a civil consequence." (emphasis added)

In 'Muneka Gandhi, it was laid down that where in an emergent
0
situation, requiring immediate action, it is not practicabic to give prior
notice or opp01iunity to be heard, the prelimi'nary action should be
soon followed by a full remedial hearing.

The High Court of Australia in Commissioner of Polzce v. Twws,
E ibid, held that some urgency, or necessity of prompt action docs not
necessarily exclude natural justice because a true emergency situation
can be properly dealt with by short measures. In Heatley v. Tas-
manian Racing & Gaming Commission, ibid, the same High Court held
that without the use of unmistakable language in a statute. one would
not attribute to Parliament an intention to authorise the Commission
F to order a person not to deal in shares or attend a stock exchange
without observing 'natural justice. In circumstances o[ likely imme-
diate detriment to the public, it may be appropriate for the Com-
mission to issue a warning-off notice without notice or stated grounds
but limited to' a particular meeting, coupled with a notice that the •
Commission proposed to make a long-term order on stated grounds
G and to give an earliest practicable opportunity to the person affected to
appear before the Commission and show why the proposed long term
order be not made.

As pointed out in Mohinder Singh Gill v. Chief Election Com·
missioner and in Maneka Gandhi v. Union of India, ibid, such cases
B where owing to the compulsion of the fact situation or the
necessity of taking speedy action, no pre-decisional hearing is given
but the action is followed soon by a full post decisional hearing to the
SWADESHI COTTON MILLS v, UNION (Sarkaria, !.) 561

, person affected, do not, in reality, constitute a'n 'exception' to the audi A
alterani partem rule. To call such cases an 'exception' is a misnomer
because they do not exclude 'fair-play in action', but adapt it to the ur-
gency of the situation by balancing the competing claims of hurry and
' hearing.
'"The necessity for speed'', writes Paul Jackson, "may justify im- B
mediate action, it will, however, normally allow for a hearing at a
later stage. The possibility of such a hearing-and the adequacy of
any later remedy should the initial action prove to have been nnjnstifi-
ed--are considerations to be borne in mind when deciding whether the
need for urgent action excludes a right to rely on natural justice.
Moreover, however the need to act swiftly may modify or limit what c
natural justice requires. it must not be thought 'that because rough,
swift or imperfect justice only is available that there ought to be no
justice' Prati v. Wanganui Education Board.(1)"
Prof. <le Smith, the renowned author of 'Judicial Review' (3rtl
Edn.) has at pa~e 170, expressed his views on this aspect of the sub- D
ject. thus :
"Can the absence of a hearing before a decision is made
be adequately compensated for by a hearing ex post facto?
A prior hearing may be better than a subsequent hearing, but
a subsequent hearing is better than no hearing at all: and in
some cases the courts have held that statutory provision E
for an administrati vc appeal or even full judicial review
on the merits are sufficient to negative the existence of any
implied duty to hear before the original decision is made.
The approach may be acceptable where the original decision
does not cause serious detriment to the person affected, or
where there is also a paramount need for prompt action, F
or where it is impracticable to afford antecedent hearings."
.;-·· In short, the general principle-as distinguished from an absolute
I rule of uniform application-seems to be that where a statute does not
• in terms, exclude this rule of prior hearing but contemplates a
post-decisional hearing amounting to a full review of the original G
order on merits, then such a statute would he construed as excluding
. the lilldi alteram partem rule at the pre-decisional stage. Conversely,
if the statute conferring the power is silent with regard to the giving
of a pre-decisional hearing to the person affected and the administrative
decision taken by the authority involves civil consequences of a
grave nature, and no full review or appeal on merits against H
that decision is provided, courts will be extremely reluctant to con-
(!) [1977) I N.Z.L.R. 476.
562 SUPREME COURT REPORTS (1981] 2 S.C.R.

strue such a statute as excluding the duty of affording even a minimal
hearing, shown of all its fonnal trappings and dilatory features at the
pre-decisional stage, unless, viewed pragmatically, it would paralyse
the administrative process or frustrate the need or utmost promptitude.
In short, this rule of fairplay "must not be jettisoned save in
B very exceptional circumstances where ccmpulsive necessity so
demands". The court must make every effort to salvage this cardinal
rule to the maximum extent possible, with situational modifications.
But, to recall the words of Bhagwati, J., the core of it must, however,
remain, namely, that the person affected must have reasonable oppor-
tunity of being heard and the hearing must be a genuine hearing and
c not an empty public relations exercise.

Keeping the general principles stated above, let us now examine
the scheme content, object and legislative history of the relevant pro-
visions of the I.D.R. Act.

The I.D.R. Act (Act 65 of 1951) came into force on May 8,
D 1952. The Statement of Objects and Reasons published in the
Gazette of India, dated March 26, 1949, says that its object is to pro-
vide the Central Government with the means of implementing their
industrial policy which was announced in their Resolution, dated April
6, 1948, and approved by the Central Legislature. The Act
brings under Central Control the development and regulation of a
E
number of important industries specified in its First Schedule, the
activities of which affect the country as a whole and the development
of which mnst be governed by economic factors of all-India import.
The requirement with regard to regsitration, issue or revocation of
licences of these specific industrial undertakings has been provirled in
Chapter II of the Act. Section 3 ( d) defines an 'industrial undertaking'
to mean "any undertaking pertaining to a scheduled industry carried
on in one or more factories by any person or authority including Go-
vernment": Clause (f) of the same section defines "owner" in relation
to an undertaking.

G
Section 15 gives power to the Central Government to cause investi-
gation to be made into a scheduled industry or industrial undertaking.
-
The Section reads as follows :
"where the Central Government is of the opinion that-
(a) in respect of any scheduled industry or industrial
undertaking or undertakings-
,8
(i) there has been, or is likely to be a substantial fall in
the volume of production in respect of any article or class
SWADESHI COTTON MILLS v. UNION (Sarkaria, J.) 563

, of articles relatable to that industry or manufactured or pro- A
duced in the industrial •ondertaking or undertakings, as the
case may be; for which having regard to the economic con-
ditions prevailing, then.': is no justification, or
' (ii) there has been, or is likely to be, a marked deteri-
oration in the quality of any article or class of articles B
rclatable to that industry or manufactured or produced in
the industrial undertaking or undertakings, as the case may
be, which could have been or can be avoided; or

(iii) there has been or is likely to be a rise in the price
of any article or class of articles relatable to that industry c
or manufactured or produced in the industrial undertaking
or undertakings, as the case may be, for which there is no
justification; or

(iv) it is necessary to take any such action as is provided
in this Chapter for the purpose of conserving any resources D
of national importance which are utilised in the industry
or the industrial undertaking or undertakings, as the case
may be; or

(b) any industrial undertaking is being managed in a
manner highly detrimental to the scheduled industry con- E
cerned or to public interest.

the Central Government may make or cause to be made
a full and complete investigation into the circumstances of
the case by such person or body of persons as it may appoint
for the purpose."

Section 16 empowers the Central Government to issue appropriatit
directions to the industrial undertaking concerned on completion of
investigation under Section 15. Such directions may be for all or any
of the following purposes :
G
"(a) regulating the production of any article or class of
articles by the industrial undertaking or undertakings and
• fixing too standards of production;

(b) requiring the industrial undertaking or undertakings
to take such steps as the C~utral Government may consider
) H
necessary, to stimulate the development of the industry to
which the undertaking or und•crtakings relates or relate;
SU_PREME COURT REPORTS [J 981] 2 S.C.R.

A (c) prohibiting the industrial undertaking or under-
takings from resorting to any act or practice which might
reduce its or their production, capacity or economic value;
(d) controlling the prices, or regulating the distribution
of any article or class of articles which have been the subject-
8 matter of investigation."
Sub-section (2) enables the Central Government to issue such direc·
tions to the industrial undertakings pending investigation.
In the course, of the working of !.D.R. Act, certain practical diffi.
culties came to light. One of them was that "Government cannot take
c over the management of any industrial undertaking, even in a situation
ca11ing for emergent action without first issuing directions to it and
waiting to see whether or not they are obeyed." In order to remove
such difficulties, the Amending Act 26 of 1953 inserted Chapter IHA
containing Sections 18A to l 8F in the I.D.R. Act. Section 18A
D confers power on the Central Government to assume management or
control of an industrial undertaking in certain cases. The material
part of the Section reads as under :

"(1) If the Central Government is of opinion that
(a) an industrial undertaking to which directions have
E been issued in pursuance of Section 16 has failed to comply
with such directions, or
(b) an industrial undertaking in respect of which ah
investigation has been made under Section 15 (whether or
not any directions have been issued to the undertaking in
F pursuance of Section 16), is being managed in a manner
highly detrimental to the scheduled industry concerned or to
public interest:
the Central Government may, by notified order, authorise
any person or body of persons to take over the manage-
G ment of the whole or any part of the undertaking or to exer-
cise in respect of the whole or any part of the undertaking
such functions of control as may be specified in the order.
(2) Any notified order issued under sub-section (I) •
shall have effect for such period not exceeding five years as
mal'. be specified in the order."
e
Section ! SB specifies the effect of notified order under Section t 8A,
Sub-section (1) of the section reads thus :
SWADESHI COTTON MILLS r. U~ION (Sarkaria, J.) 565

• "On the issue of a notified order under Section 18A
authorising the taking over of the management of an indus-
trial undertaking-
( a) all persons in charge of the management including,
persons holding office as managers or directors of the indus-
trial undertaking immediately before the issue of the noti- B
tied order, shall be deemed to have vacated their offices as
such;
(b) any contract of management between the industrial
undertaking and any managing agent, or any director thereof
-""- holding office as such immediately before the issue of the c
notified order shall be deemed to have been terminated;
(c) the managing agent, if any, appointed under Section
18A shall be deemed to have been dnly appointed as the
managing agent in pursuance of the Indian Companies Act,
1913 (7 of 1913), and the memorandum and articles of D
association of the industrial undertaking, and the provisions
of the said Act and of the memorandum and articles shall,
subject to the other provisions contained in this Act, apply
accordingly, but no such managin1r agent shall be removed
from office except with the previous consent of the Central
Government; E
( d) the person or body of persons authorised under
Section I SA to take over the management shall take all such
steps as may be necessary to take into his or their custody
or control all the property, effects and actionable claims to
which the industrial undertaking is or appears to be entitled, F
and all the property and effects of the industrial under-
taking, shall be deemed to be in the custody of
the person or, as the case may be, the body of persons as
from the date of the notified order; and
(e) the persons, if any, authorised under Section 18A G
to take over the management of an industrial undertaking
which is a company shall be for all purposes the directors of
industrial undertaking duly constituted under the Indian
Companies Act, 1913 (7 of 1913). and shall alone be en-
titled to exercise all the powers of the directors of the indus-
trial undertaking, whether such powers are derived from D
the said Act or from the memorandum or articles of associa-
tion of the industrial undertaking or from any other source."
566 SUPREME COURT REPORTS [1981] 2 S.C.R.

A
Section 18D provides that a person whose office is lost under clause
(a) or whose contract of management is terminated under clause (b)
of Section 18B shall have no right to compensation for such loss or
termination. Section l 8F is material. It reads thus :

"Jf at any time it appears to the Central Government
B
on the application of the owner of the industrial undertaking
or otherwise that the purpose of the order made under
Section l 8A has been fulfilled or that for any other reason it
is not necessary that the order should remain in force. the
Central Government may. by notified order, cancel such
c order and on the cancellation of any such order the
management or the control, as the case may be of the indus-
trial undertaking shall vest in the owner of the undertaking."

By the Constitution Fourth Amendment Act 1955, Chapter IHA
of the I.D.R. Act was included as Item 19 in the Ninth Schedule of
D the Constitution.

Before we may come lo Section ! SAA, we may notice here the
legislative policy with regard to Cotton Textile Industry, as adumbrated
in the Cotton Textile Companies Management of Undertakings and
Liquidation or Reconstruction Act. 1967 (Act XXIX of 1967). The
E
Statement of Objects and Reasons for enacting this statute, inter a/ia,
says:

"The cotton textile industry provides one of the basic
necessities of .[ife and affords gainful employment to millions
of people. Over the last few years, this vital industry has
F been passing through difficult times. Some mills have
already to dos" down and the continuing economic operation
of many others is beset with many difficulties. These diffi-
culties have been aggravated in many cases by the heavy
burden of past debts. The taking over the management of
G the mills for a limited time and then restoring tlrem to origi-
nal owners has not remedied the situation. Steps are there-
fore, necessary to bring about a degree of rationalisation of
the financial and managerial structure of such units with a
view to their rehabilitation. so that production and employ-
ment may not suffer."
H
Textile Industry is also among the industries, included m the First
Schedu.Je to the I.D.R. Act.
SWADESHI COTTON MILLS v. UNION (Sarkaria, !.) 567

The Amendment Act 72 of 1971 inserted Section I SAA in the A
original I.D.R. Act. The material part of the Statement of Objects
and Reasons for introducing this Bill of 1971 published in the Gazette
of India Extraordinary, is as follows :

"The industries included in the First Schedule . . . . not
only substantially contribute to the Gross National produce
of the country, but also afford gainful employment to millions
of people. For diverse reasons a number of industrial under-
takings engaged in these industries have had to close down
and the continuing economic operation of many others is
beset with serious difficulties affecting industrial production c
and employment ... During the period of take over Govern-
ment has to invest public funds in such undertakings and
it must be able to do so with a measure of confafonce about
the continued efficient management of the undertaking at the
end of the period of take over. In cirder to ensure that at
the end of the period of take over by Government, the in- D
dustrial undertaking is not returned to the same hands which
were responsible for its earlier misfortune, it has been pro-
vided in the Bill that in relation to an undertaking taken
over by them, Government will have the power to move for
(i) the sale of the undertaking at a reserve price or higher
(Government purchasing it at the reserve price if no offer E
at or above the reserve price is received), action being
taken simultaneously for the winding up of the company
owning the industrial undertaking; or (ii) the reconstruc-
tion of the company owning the industrial undertaking with
a view to giving the Government a controlling interest in it. . F
.. With a view to ensuring speedy action by Government, it
has been provided in the Bill that if the Government has evi-
dence to the effect that the assets of the company owning
the industrial undertaking are being frittered away or the
undertaking has been closed for a pe<icd not less than three
months and such closure is prejudicial to the concerned G
scheduled industry and that the financial condition of the
company owning the industrial undertaking and the condition
of the plant and machinery installed in the undertaking is
such that it is possible to restart the undertaking and such
restarting-is in the public interest, Government may take
I over the management without an investigation." H

(emphasis added).
568 SUPREME COURT REPORTS [1981] 2 S.C.R.

A With the aforesaid Objects in view. Section 18AA was inserted by
the Amendment Act No. 72 of 1971. The marginal heading of the
Section is to the effect : "Power to take over industrial undertakings
without investigation under certain circumstances". This marginal ;
heading, it will be seen, accords with the Objects and Reasons extract-
J ed above. Section 18AA runs as under :
"Without prejudice to any other provision of this Act.
if, from the documentary or other evidence in its possession.
the Central Government is satisfi~d, in relation to an indus-
trial undertaking that-
c (a) the persons incharge of such industrial undertaking
have, by reckless investments or creation of encumbrances
on the assets of the industrial unde;taking, or by diversion
qf funds, brought about a situation which is likely tv affect
the production of articles manufactured or produced in the
industrial undertaking, and that immediate action i~ 11eccs~
D sary to prevent such a situation; or
(b) it has been closed for a period of not less than three
months (whether by reason of the voluntary winding up of
the company owning the industrial undertaking or for any
other reason) and such closure is prejudicial to the concern-
.E ed scheduled industry and that the financial con<litir-n of the
company owning the industrial undertaking and the condi-
tion .of the plant and machinery of such undertaking are
such that it is possible to re-start the undertaking an<l such
re-starting is necessary in the interests of the general public,
it may, by a notified order, authorise any person (herein-
after referred to as the 'authorised person') to take over
the management of the whole or any part of the industrial
undertaking or to exercise in respect of the whole or any
part of the undertaking such functions of control as may be
specified in the order.
G (2) The provisions of sub-section (2) of SectiDn J 8A
shall, as far as may be, apply to a notified order m2dc 1111,Icr
sub-section (I) as they apply to a notified order made uicJcr
sub-section (!) of Section l 8A.
(3) Nothing contained in sub-section (I) anJ "ub·
H section (2) shall apply to an industrial undertaking owned I
by a company which is being wound up by c,r under the
supervision of the Court.
SWADESHI COTTON MILLS v. UNION (Sarkaria, J.) 569

( 4) Where any notified order has been made under A
sub-section (1), the person or body of persons having, for
the time being, charge of the management or control of the
industrial undertaking, whether by or under the orders of
any court or any contract, instrument or otherwise, shall not-
withstanding anything contained in such order, contract,
instrument or other arrangement, forthwith make over the
charge of management or control, as the case may be, of
the industrial undertaking to the authorised person.
(5) The provisions of Section 18-B to 18-E (botn
inclusive) shall, as far as may be, apply to, or in relation to,
the industrial undertaking in respect of which a notified c
order has been made under sub-section (1), as they apply
lo an industrial undertaking in relation to which "' notdicd
order has been issued under Section 18-A."
A comparison of the provisions of Section J 8A(l )(bJ and Sec-
tion 18AA(l) (a) would bring out two main points of distinction: D
First, action under Section l 8A ( 1 )(b) can be taken only after an
investigation had been made under Section 15; while under Section
18AA(l)(a) or (b) action can be taken witho:it sud1 investigation.
The language, scheme and setting of Section I 8AA read in the light
of the Objects and Reasons for enacting this provi;ion make this
position clear beyond doubt. Second, before taking action under _E
Sectionl8A(l) (b), the Central Government h1;; to form an opinion
on the basis of the investigation conducted under Section 15, in regard
to the existence of the objective fact, nameiy : that the industrial
undertaking is being managed in a manner nighly detrimental to the
Scheduled industry concerned or to public interest; while under
F
Section 18AA(l) (a) the Government has to satisfy itself that the
persons incharge of the undertaking have brought about a situation
likely to cause fall in production, by committing any oi the three
kinds of acts specified in that provision. This shows that the preli-
minary objective fact attributable to the persons in charge of the
management or affairs of the unrlertaking, on the basis of which G
action may be taken under Section l 8A(l) (b), is of far wider
amplitude than the circumstances, the existence of which is a sine
qua non for taking action under Section l 8AA(l). The phrase
"highly detrimental to the scheduled industry or public interest" in
Section J 8A is capable of being construed to over a large variety of

• acts or things which may be considered wrong with the manner of
running the industry by the management. In contrast with it, action
.H

under Section 18AA(l) (a) can be taken only if the Central Gov-
570 SUPREME COURT REPORTS [198!] 2 S.C.R.

A ernment is satisfied with regard to the existence of the twin conditions
specifically mentioned therein, on the basis of evidence in its posses-
sion.

From an analysis of Section 18AA(l) (a), it will be clear that
as a necessary preliminary to the exercise of the power thereunder,
8 the Central Government must be satisfied "from documentary or
other evidence in its possession" in regard to the co-existence of two
circumstances :

(i) that the persons in charge of the industrial undertaking have
by committing any of these acts, namely, reckless investments, or
c creation of incumbrances on the assets of industrial undertaking, or
by diversion of funds, brought about a situation, which is likely to
affect the production of the article manufactured or produced in the
industrial undertaking, and
(ii) that immediate action is necessary to prevent such a
D situation.

Speaking for the High Court (majority), the learned Chief Justice
(Deshpande, C.J.) has observed that only with regard to the fulfil-
ment of condition (i) the satisfaction of the Government is required
to be objectively reached on the basis of relevant evidence in its
possession; while with regard to condition (ii), that is, the need foc
E immediate action, it is purely subjective, and therefore, the satisfao-
tion of the Government with regard to the immediacy of the situation
is outside the scope of judicial review.

Shri Sorabji has in his arguments, forcefully supported this
opinion of the High Court. He maintains that the satisfaction of the
F Government with regard to the existence of the immediacy is not
justicable. Relianc(l has been placed on the following passage in
the judgment of Channell, J. in Queen v. Davey & Ors.( 1) :
"The genernl principle of law is that an order affecting
his liberty or property cannot be made against any one
G without giving him an opportunity of being heard; the result
is that, if general words used in a statute empowering the
making of such an order as this, it must be made on notice
to the party affected. There are, however, exceptions to
this rule, which arise where it can be seen on the words of
the statute that it was intended that the order should be
H made on an ex parte application, and the case in which it is
easiest to see the propriety of the exception is where, looking
•
(I) [1899] 2 Q.B. at pp. 305-306
SIVADESHI COTTON MILLS v. UNION (Sarkaria, J.) 571

• at the scope and object of the legislation, it was clearly in- A
tended that the parties putting the law in force should
act promptly. Such a case is an order for the destruc-
tion of unsound mC'at, which clearly may be made ex parte,
because it is desirable in the interest of the public health
that it should be acted upon at once. The case of removing
an infectious person, likely to spread abroad the infection, B
to an infectious hospital is obviously of the same character."
According to the learned Solicitor-General, the power conferred 011
the Central Government is in the nature of an emergency power, that
the necessity for taking immediate action is writ large in Section
18AA(l) (a)-the provision being a legislative response to deal with c
an economically emergent situation fraught with national repercus-
sions. The object of the exercise of this power is not to punish anyone
but to take immediate preventive action in the public interest.
On the other hand, Shri Nariman submits that the High Court was
clearly in error in holding that the satisfaction of the Central Govern- D
ment with regard to the necessity of taking immediate action was not
open to judicial review at all. It is enphasised that the very language
of the provision shows that the necessity for taking immediate tiction
is a question of fact, which should be apparent from the relevant evi-
dence in the possession of the Government.
E
We find merit in this contention. It cannot be laid down as a
general proposition that whenever a statute confers a power on an
administrative authority and makes the exercise of that power condi-
tional on the formation of an opinion by that authority in regard to
the existence of an immediacy, its opinion in regard to that preliminary
fact is not open to jndicial scrutiny at all. While it may be conceded F
that an el.ement of subjectivity is always involved in the formatio:i of
such an opinion, but as was pointed out by this Court in Bariam
Chemicals (ibid), the existence of circumstances from which the
, inferences constituting the opinion, as the sine qua non for action
are to be drawn, must be demonstrable, and the existence of such
"drcums!ances", if questioned, must be proved at least prima facie. G

Section 18AA(l) (a), in terms, requires that the satisfaction of
the Government in regard to the existence of the circumstances or
conditions precedent set out above, including the necessity of taking
immediate action, mnst be based on evidence in the possession of the
• Government. If the satisfaction of the Government in regard to the
existence of any of the conditions, (i) and (ii), is based on no evi-
TI

dence, or on irrelevant evidence or on an extraneous consideration,
., ,.

572 SUPREME COURT REPORTS [1981] 2 S.C.R.

A it will vitiate the order of 'take-over', and the Court will be justified
in quashing such an illegal order on judicial review in appropriate
proceedings. Even where the statute conferring the discretionary
power does not, in terms, regulate or hedge around the formation of
the opinion by the statutory authority in regard to the existence of
B preliminary jurisdictional facts with express checks, the authority
has to form that opinion reasonably like a reasonable person.
While spelling out by a construction of Section ! SAA (1) (a) the
proposition that the opinion or satisfaction of the Government in
regard to the necessity of taking immediate action could not be the
subject of judicial review, the High Court (majority) relied on the
c analogy of Section 17 of the Land Acquisition Act, under which,
according to them, the Government's opinion in regard to the existence
of the urgency is not justiciable. This analogy holds good only upto
a point. Just as under Section ! SAA of the !.D.R. Act, in c;ase of a
l-
genuine 'immediacy' or imperative necessity of taking immediate ac-
D tion to prevent fall in production and consequent risk of irn"1'nent
injury paramount public interest, an order of 'take-over' can be

E
passed without prior, time-comuming investigation under Section
15 of the Act, under Section 17 ( 1) and ( 4) of the Land Acquisition
Act, also, the preliminary inquiry under Section SA can be dis1Pensed
with in case of an urgency. lt is true that the grounds on which the
Government's opinion as to the existence of the urgency can be cha!·
-
lenged are not unlimited, and the power conferred on the Government
under Section 17 ( 4) of that Act has been formulated in subjective
term; nevertheless, in cases, where an issue is raised, that the Govern-
ment's opinion as to urgency has been formed in a manifestly arbi-
trary or perverse fashion without regard to patent, actual and
F undeniable facts, or that such opinion has been arrived at o'n the
basis of irrelevant consideratiom or no material at all, or on materials
so tenuous, flimsy, slender or dubious that no reasonable man could
reasonably reach that conclusion, the Court is entitled to examine the
validity of the formation of that opinion by the Government in the
context and to the extent of that issue.
G •
In Narayan Govind Gavate v. St.ate of Maharashtra & Ors.(') this
Court held that while exercising the power under Section 17 ( 4) of
the Land Acquisition Act, the mind of the officer or authority con·
cerned has to be applied to the question whether there is an urgency

H
of such a nature that even the summary !Proceedings under Section SA
of the Act should be eliminated. It is not just the existence of an •
(1) A.I.R.1977 SC 183
sWADESHI COTTON MILLS v. UNION (Sarkaria, I.) 573

urgency but the need to dispense with an inqmry under Section •5A A
, of _the Act which has to be considered. If the circumstances on the
basis of which the Government formed its opinion with regard to the
existence of the urgency and the other conditions precedent, recited
\
in the notification, are deficient or defective, the Court may look
beyond it. At that stage, Section 106, Evidence Act can be invoked
B
by the party assailing the notification and if the Government or the
authority concerned does not disclose such facts or circumstances
especially within its knowledge, without even disclosing a sufficient
reason for their abstention from disclosure, they have to take the
consequences which flow from the non-production of the best evidence
which could be produced on behalf of the State if its stand was correct. c
Again, in Dora Phalauli v. State of Punjab & Ors.('), this Court
held that where the purported order does not recite the satisfaction
of the Government with regard to the existence of urgency, nor the
fact of the land being waste or arable land, the order was liable to be
strnck down and the mere direction, therein, to the Collector to take D
action on ground of urgency was not a legal and complete fulfilment
of the requirement of the law.
Recently, in State of Punjab v. Gurdial Singh('), V. R. Krishna
Iyer, J., speaking for the Court, made these apposite observations :
" ... It is fundamental that c01n,pulsory taking of a man's E
property is a serious matter and the smaller the man the
more serious the matter. Hearing him before depriving him
is both reasonable and pre-emptive of arbitrariness, and
denial of this administrative fuimess is constitutional
anathema except for good reasons. Save in real urgency
where public interest does not brook even the minimum F
time needed to give a hearing, land acquisition authorities
should not, having regard to Articles 14 (and 19), burke an
enquiry under Section 17 of the Act."
/- ~ From these decisions, it is abundantly clear that even under Sec-
tion 17 of the Land Acquisition Act, the satisfaction or opinion of G
Government/authority in regard to the urgency of taking action there-
under, is not altogether immune from judicial scrutiny.
For the reasons already stated, it is not possible to subscribe to
the proposition prqpounded by the High Court that the satisfaction
of the _Central. Government in regard to condition (ii), i.e. the exis-
H
(l) A.I.R. 1979 S.C.1594.
(2) A.I.R. 1980 S.C. 319.
4-152SCI/81
574 SUPREME COURT REPORTS [1981] 2 S.C.R.

A tence of 'immediacy', though subjective, is not open to judicial review
at all.
From a plain reading of Section 1SAA, it is clear that it doe~ not
expressly in unmistakable and unequivocal terms exclude the appli-
cation of the audi a/teram partem rule at the pre-decisional stage. I

B The question, therefore, is narrowed down to the issue, whether
the phrase "tlrat immediate action is necessary" excludes absolutely,
by inevitable implication, the application of this cardinal canon of
fairplay in all cases where Section 18AA(l)(a) may be invoked.
In our opinion, for reasons that follow, the answer to this question
must bo in the negative.
c
Firstly, as rightly pointed out by Shri Nariman, the expression
"immediate action" iii the said phrase, is to be construed in the light
of the marginal heading of the Section, its context and the Objects
and Reason for enncting this provision. Thus construed, the expres-
sion only means "without prior investigation" under Section 15.
D Dispensing with the requirement of such prior investigation does not
necessarily indicate an intention to exclude the application of the
fundamental fPrinciples of natural justice or the duty to act fairly by
affording to the owner of the undertaking likely to be affected, at the
pre-decisional stage, wherever practicable, a short-measure fair
hearing adjusted, attuned and tailored to the exigency of the situa-
E tion.
At this stage, it is necessary to examine two decisions of this
Court, viz., Ambalal M. Shah v. Hathi Singh Manufacturing Co.
Ltd.('); and Keshav Mills Co. Ltd. v. Union of India (ibid), because
according to the High Court (as per Deshpande, C.J., who wrote the
F leading opinion) these two decision&-which are binding on thr. High
Court--eonclusively show that : -
"The only prior hearing consisted of the investigation
under Section 15 read with Rule 5 before action under
Section 1 SA is taken. The very object of Section 18AA
is to enable action to be taken thereunder without being
G
preceded by the investigation under Section 15. On the
•
authority of the two Sµpreme Court decisions in Ambalal
M. Shah and Keshav Mills tliat the only hearing prior to
action under Section 18A was the investigation under Sec-
tion 15, it would follow that action under Section 18AA is •
H to be taken without the investigation under Section 15 and,
therefore, without a prior hearing."
(I) [1962] 3 S.C.R 171
SWADESHI COTTON MILLS v. UNION (Sarkaria, /.) 575

, Shri Nariman maintains that the High Court has not correctly
construed these decisions. According to the learned counsel, the
corollary deduced by the High Court, viz., that exclusion of the
investigation under Section 15 includes exclusion of the audi alteram
' partem rule at the pre-takeover stage, is just the contrary of what was
laid down by this Court in Keshav Mills in which Ambala/'3 case was
also noticed. Indeed, Shri Nariman strongly relies on this decision B
in support of his a£gument that if the application of this rule of natu-
ral justice at the pre-decisional stage is not excluded even where a
full investigation has been made, there is stronger reason to hold that
> it is to be observed in a case where there has been no investigation
at all. c
We will first notice the case of Kdhav Mills because that is a
later decision in which Ambala('s case was referred to. In that case,
the validity of an order passed by the Central Government under
Section 18A was challenged. By that impugned order the Gujarat
State Textile Corporation Ltd. (hereinafter referred to as the Cor-
poration) was appointed as authorised controller of the Company for D
a period of five years. The Company was the owner of a cotton
textile mill. Till 1965, the Company made flourishing business.
After the year 1964-65, the Company fell on evil days and the textile
mill of the Company was one of the 12 sick textile mills in Gujarat,
which had to be closed down during 1966 and 1968. On May 31,
1969, the Central Government passed ·an order appointing a Com- E
mittee for investigation into the affairs of the Company under Section
15 of the l.D.R. Act- After completing the inquiry, the Investigating
Committee submitted its report to the Goverrunent who thereafter on
November 24, 1970, passed the impugned order under Section 18A
authorising the Corporation to take over the management of the Com-
F
pany for a period of five years. The Company challenged the order
of 'take-over' by a writ-petition in the High Court of Delhi. The
High Court dismissed the petit.i,oo. The main contention of the
rcompany before the High Court was that the Government was not
competent to proceed under Section 18A against the Company
without supplying before hand, a copy of the report of the Tuvestigat- G
ing Committee to the Company. It was further contended that the
Government should also have given a hearing to the Company before
finally deciding UQOU take-over under Section 1SA. This contention
was pres5ed oh behalf of the Company in spite of the fact that an
opportunity had been given by the Investigating Committee to the
management and the employees of the Company for adducing H
evidence and for making representation before the completion of the
investigation. On the contentions raised by the Company and
576 SUPREME COURT REPORTS [1981] 2 s.c.R.

resisted by the respondent, in that case, the Court formulated the '
following questions :

( 1) Is it necessary to observe the rules of natural justice before f
enforcing a decision under Section 18A of the Act?
(2) What are the rules of natural justice in such a case?
B
(3)(a) In the present case, have the rules to be observed once
during the investigation under Section 15 and then again, after the
investigation is completed and action m the report of the Investi-

c
gating Committee taken under Section 18A ?
(b) Was it necessary to furnish a copy of the Investigating Com-
mittee's Report before passing an order of take-over?
A-
-
Mukherjea, J. speaking for the Court, answered these questions,
thus:
(1) "The first of these questions does not present any
D difficulty. It is true that the order of the Government of
India that has been challenged by the appellants was a
purely executive order embodying on administration deci-
sion. Even so, the quei;tion of natural justice does arise
in this case. It is too late now to contend that the prin-
ciples of natural justice need not apply to administrative
E order or proceedings; i'n the language of Lord Denning
M.R. in Regina v. Gaming Board, exparte Beniam(') "that
heresy was scotched in Ridge v. Baldwin"
(2) "The second question, however, as to what are the
principles of natural justice that should regulate an adminis-
trative act or order is a much more difficult one to answer.
F We do not think it either feasible or even d•csirable to lay
down a'ny fixed or rigorous yard-stick in this manner. Th~
concept of natural justice cannot be put into a straight.
jacket. It is futile, therefore, to look for definitions or
standards of natural justice from various decisions and then
try to apply them to the facts of any given case. The only
G
essential point that has to be kept in mind in all cases is
that the person concerned should have a reasonable oppor-
tunity of presenting his case and that the administrative •
authority concerned should act fairly, impartially and
reasonably. Where administrative officers are concerned,
H the duty is not so much to act judicially as to act fairly.
See, for instance, the observations of Lord Parker in In re
(!) [1970] 2 W.L.R. 1009.
~WADESHI COTTON MILLS v. UNIQN .(Sarkaria, J.) 577

' H.K. (an infa11J). It only means that such measure of
natural justice should be applied as was described by Lord
Reid in Ridge v. Baldwin as insusceptible of exact defi-
' nition but what a reasonable man would regard as a fair
procedure in particular circumstances. However, even the
application of the concept of fairplay requires real flexi-
bility. Everything will depend on the actual facts and
.circumstances of a case."
(3) (a) "For answering that question we shall keep in
mind . . . . . . and examine the nature and scope of the
·~ .. inquiry that had been carried out by the Investigating Com-
mittee set up by the Government, the scope and purpose of c
the Act and rules under which the Investigating Committee
was supposed to act, the matter that was being investigated
by the Committee and finally the opportunity that was afford-
ed to the appellants for presenting their case before the
Investigating Committee."
(After noticing the object, purpose and content oi the relevant
provisions, the judgment proceeded) : ~
"In fact, it appears from n ietter addressed by appellant
No. 2 Navinchandra Chandulal Parikh on behalf of the
Company to Shri H. K Bansal, Deputy Secretary, Ministry
of Foreign Trade and· Supply on 12th September, 1970 E
that the appellants had come to know that the Government
of India was in fact considering ti>' question of appointing
an authorised controller under Section 18A of the Act in
respect of the appellants undertaking. In that letter a
detailed account of the facts and circllimstances under
which the mill had to be closed down was given. There is
also an account of the efforts made by the Company's
Directors to restore the mill. There is no ;tttempt to mini-
mise the finan~ial difficulties of the Company in that letter
.... The letter specifically mentions the company's appli-
cation to the Gujarat State Textile Corporation Ltd., for
G
financial help . . . the Corporation ultimately failed to come
to the succour of the Company. Parikh requested Gov-
ernment not to appoint an authorised controller and further
prayed that the Government of India should ask the State
Government and the Gujarat Sta~ Textile pijrporation
Ltd., .to give a financiaf guarantee to the Company ... " H
"Only a few day6 before this letter had been addressed,
Parikh, it appears, had an interview with ·the Minister of ·
578 SUPREME COURT REPORTS (1981] 2 S.C.R.
'
A Foreign Trade on 26th August, 1970, when the Minister
gave him, as a special case, four weeks' time with effect
from 26th August, 1970 to obtain the necessary financial
guarantee from the State or the Gujarat State Textile Cor-
poration without which the Company had expressed its
inability to reopen and run the mill. In a letter of 22
B September, 1970, Bansal informed Parikh in clear language
that if the Company failed to obtain the necessary
guarantee by 26 September 1970, Government was pro·
ceeding to take action under the Act. It is obrious, there-
fore, that the appellants were .aware all long that as a result
c of the report of the Investigating Committee the Com-
pany's undertaking was going to be taken up by Govern-
ment, Parikh had not only made writte11 representations
• but had also seen the Minister of Foreign Trade and
Supply. He had requested the Minister not to take over
the undertaking and, on the contrary, to knd his good offices
D so that the Company could get financial support from the
Gujarat State Textile Corporation or from the Gujarat State
Government."
•• (emphasis added)
"All these circumstano;!s leave in no manner of doubt
that the Company had full opportunities to make all
E possible representations before the Government against the
proposed take-over of its mill under Section 18A. In this con-
nection, it is significant that even after the writ petition had
been filed before the Delhi High Court the Government of
India had given the appellants at their own request one
month's time to obtain the necessary funds to commence
the working of the mill. Even then, they failed to do
so .... "
"There are at least five features of the case which make
it impossible for us to give any weight to the appellants
complaint that the rules of natural justice have not been
G observed. First on their own showing they were perfectly
aware of the grounds on which Government had passed
•
the order under Section 18A of the Act. Secondly, they
are llot in a position to deny (a) that the Company has
sustained such heavy losses that its mill had to be closed
down indefinitely, and (b) that there was not only loss of
B production of textiles but at least 1200 persons had been
thrown out of employment. Thirdly, it is trallsparently clear
from the affidavits that the Company was not in a position
1 SWADESHI COTTON MILLS v. UNION (Sarkaria, /.) 579

to raise the resources to recommence the working of the A
mill. Fourthly, the appellants were given a full hearing at
' the time of the investigation held by the Investigating Com-
mitte and were also given opportunities to adduce evidence.
Fihally. even after the Investigating Committee had submit·
led its report, the appellants were in constant communion
with the Government and were in fact negotiating with Gov-
ernment for such help as might enable them to reopen the mill
and to avoid a take-over of their undertaking by the Govern-
ment. Having regard to these features it is impossible for
us to accept the contention that the appellants did not get
any reasonable opportunity to make out a case against the c
take-over of their undertaking or that the Government ha~
not treated the appellants fairly. There is not the slightest
jruitification in this case for the complaint that there has
been any denial of natural justice."
"In onr opinion, since the appellants have received a
l[)
fair treatment and also all reasonable opportunities to make
out their own case before Government they ca1uwt be allo-
wed to make any grievance of the fact that they were not
given a formal notice calling upon them to show cause why
their undertaking should not be taken over or that they had
not been furnished with a copy of the report. They had
E
made all the representations that they could possibly have
made against the proposed take-over. By ho stretch of
imagination, can it be said that the order for take-over took
them by surprise. In fact, Government gave them ample
opportunity to reopen and run the mill on their own if they
wanted to avoid the take-over. The blunt fact is that the
a!'Jiellants just did not have the irecessary resources to do
so. Insi.<!ence on formal hearin11 in such circumstances is
nothing but insistence on empty formality.''
(emphasis added)

(3) (b) "In our opinion it is not possible to lay down
any general principle on the question as to whether the
report of an investigating body or ah inspector ap-
pointed by an administrative authority should be made
available to the persons concerned in any given case before
the authority takes a decision upon that report. The
answer to this question also must always depend on the l!I
facts and circumstances of the case. It is not at all unlikely
that there may be artain cases where unless the repon i5
580 SUPREME COURJ; REPORTS [!981] 2 S.C.R.
'
A given the party concerned cannot make any effective repre-
sentatfon about the action that Government takes or pro-
poses to ta.ke on the basis of that report. Whether the re-
port should be furnished or not must therefore, depend in
every individual case on the merits of that case. We have
no doubt that in the instant case, non-disclosure of the re-
B
pon of the Investigating Committee has not caused any pre-
judice whatsoever to the appellants.
(emphasis added)

It will be seen from what has been extracted above that in
c Keshav Mills case, this Court did not lay it down as an invariable
rnle .that where a full investigation after 'notice to the owner of
the industrial undertaking has been held under Section 15, the owner
is never entitled on grounds of natural justioc, to a copy of the
investigation report and to an opportunity of making a representation
about the action that the Government proposes to take on the basis
D of that repon. On the contrary, it was clearly said that this rule of
nalural justice will apply at that stage in cases "where unless the re-
pon is give·n the party concerned cannot make any effe.ctive re-
presentation about the action that Government takes or proposes to
take ·on the basis of that report." It was held that the application
E or non-applicatio'n of this rnle depends on the facts and citc;umstances
of tlie particiilar case. In the facts of that case, it was found that the
non-disclosure of the investigatfon report had not caused any prejudice
whatever because the Company were "aware all along that as a result
of the report of the Investigating Committee the Company's undertaking
was going to be taken (over) by Government", and had full oppor-
F tunities; to make all possible representations before the Goverµment
against the proposed tak;over of the MµJ.

Shri Sorabji submitted that the observations made by this Court in
Keshav Mills case, to the effect, that in certain cases even at the post-
investigation stage. before making an order of take-over under Section
G 18A, it may be necessary to give another opport,unity to the affected
'owner of the undertaking to make a representation, appear to be
•
erroneous. The argument is that the Legislature has provided in
Sections 15 and 18A of the Act and Rule 5 framed thereunder, its
measure of this principle of natural justice and the sta!j~ at which it
has to be observed, 'The High Court, therefore, was not rig\lt in
H engraftir\g any further application of the rnle of natural justice at the
f' post infostigation s1nge. According to the learned Solicitor-G~neral
for the Meisicm of '\he case, it was not heoessary to go beyon4 the
.sWADESHI COTTON MILLS v. UNION. (Sarkaria, !.) 581

ratio of Shri Ambalal, M, Shah & Anr. v. .Hathi Si11gh Manufacturing :. A
Co. Ltd.(') which was followed in Keshav Mills case.
\
In onr opinion, the observations of this Court in Keshav Mills in
regard to the application of this rule of natural justice at the post-in-
vestigation stage cannot b~ called obiter dicta. There is \1othing in
those observations, which can be said to be inconsistent with the
ratio decidendi of Ambalal's case. The main ground on which the
order of take-over under Section 18A was challenged in Ambalal's
case was that on a proper construction of Section 18A, the Central
Government had the right to make the order under that Section on the
ground that the Company was being managed in a manner highly
detrimental to public interest, only wher•c the investigatio'ri made un- c
der Section 15 was initiated on the basis of the opinion as mentioned
in Section 15(b), whereas in the present case (i.e. Ambalal's case),
the investigation ordered by the Central Government was initiated on
the formation of an opinion as mentioned in clause (a) (i) of Section
15. It was urged that, in fact, the Committee appointed to investi-
gate had not directed its investigation into the question whether the D
industrial undertaking was being managed in the manner
mentioned abcve. The High Court came to the conclusion
that on a correct construction of Section 18 A(l) (b) it
was necessary before any order could be made thereunder that th~
inves,tigation should have been initiated on the basis of the opinion
mentioned in Section 15(b) of the Act. It also accepted the peti-
tioner's contention that no inwstigation had, in fact, been held info
the· question whether the undertaking was being managed in a manner
hlghly detrimental to public interest,

On. appeal .by sp~ial leave, .this Court reversed the decision of
t)ly IJ:igh Court, and held that the words nsed by the Legislatnre in F
~- Section J 8A ( 1) (b) "in respect of which an investigation has been
;ma<le uµder Section 15" cpuld not be cut down by the restricting
phfase "based on an opinion that the industrial undertaking is being
managed in a manner highly detrimental to the scheduled industry con-
cerned or to public interest"; that Section ISA (1) (b) empowers
the Central Government to authorise a persop to take .ov~r the man-
a
agement of 'an industrial undertaking if. the one condition of an in-
VeStigation made under Section 15 had been folfilled irre,spective of on
what opinion that investigation was initiated and the further condition
is fulfilled that the Central Government was of. opinion that such
~n'~ertaking was being rilana~~d in .~ manner highly d~trilllental ·.to the
sclieduled
_ _:_j_ '
industry
'
concerned
·--
or ,_~
to' public
..
interest. In' this' Court ' it
~'

(1) [1962] 3 S.C.R. 171.
582 SUPREME COURT REPORTS [1981] 2 S.C.R.

A was urged on behalf of the Company that absurd results would follow
if the words "investigation has been made under Section 15" are
;
held to include investigation based on any of the opinions mentioned
in Section 15(a). Asked to mention what the absurd results would
be, the counsel could only say that an order under Section 18A (I)
(b) would be unfair and contrary to natural justice in such cases, as
B the owner of an industrial undertaking would have no notice that the
quality of ma·nagement was being investigated. The Court found no
basis for this assumption because in its opinion, the management cou:d
not but be aware that investigation would be directed in regard to the
quality of management, also. It is to be noted that the question of
natural justice was casually and half heartedly raised in a different
c context as a last resort. It was negatived because in the facts and
circumstances of that case, the Company was fully aware that the
quality of the management was also being inquired into and it had
full opportunity to meet the allegations against it during investigation.
The second reason-which is more or less a facet of the first-
D for holdin2 that the mere use of the word "immediate" in the phrase
"immediate actioh is necessary'', does not necessarily and absolutely
exclude the prior application of the audi alteram partem rule, is that
immediacy or urgency requiring swift action is a situational fact
having a direct nexus with the likelihcql of adverse effect on fall in
production. And, such likelihood and the urgency of action to pre-
E vent it, may vary greatly in degree. The words "likely to affect pro-
duction" used in Section !SAA (1) (a) are flexible enough to com-
prehehd a wide spectrum of situations ranging from the one where·
the likelihood of the happ~ning of the apprehended event is imminent
to that where it may be reasonably anticipated to happen sometime in
the near future. Cases of extreme urgency where action under Sec-
r tion 18AA(l) (a) to prevent fall in production and consequent in-
jury to public interest, brooks absolutely no de:ay, would be rare. -
In most cases, where the urgency is not so extreme, it is practicable
to adjust and strike a balance between the competing claims of hurry
and hearing.
G The audi alteram partem rule, as already pointed out, is a very
flexible, malleable and adaptable concept of natural justice. To ad- •
just and harmonise the need for speed and obligation to act
fairly, it can be modified and the measure of its application cut short
in reasonable proportion to the exigencies of the situation. Thus, in
the ultimate analysis, the question, (as to what extent and in what
H measure) this rule of fair hearing will apply at the pre-decisional stage
will depend upon the degree of urgency, if any, evident from the facts
and circumstances of the particular case.
SWADESHI COTTON MILLS v. UNION (Sarkaria, !.) 583

In the instant case, so far as Kanpur Unit is concerned, it was lying
closed for more than three months before the passing of the impugned
' order. There was no 'immediacy' in relation to that unit, which
could absolve the Government from the obligation of complying fully
with the audi alteram partem rule at the pre-decisional or pre-takeover
stage. As regards the other five units of the Company, the question
B
whether on the basis of the evidential matter before the Govern-
ment at the time of making the impugned order, any reasonable per-
son could reasonably form an opinion about a likelihood of fall in
production and the urgency of taking immediate action, will be
discussed later. For the purpose of the question under consideration
we shall assume that there was a likelihood of fall in production. Even c
so, the undisputed facts and figures of production of 2 or 3 years pre-
ceding the take-over, relating to these units, show that on the average,
production in these units has remained fairly constant. Rather, in
some of these units, an upward trend in production was discernible.
Be that as it may, the likelihood of fall in production or adverse effect
on production in tb~se five units, could not, by any stretch of prognos- D
trcal!on or feat of imagination, be said to be imminent, or sq urgent
that it could not permit the giving of even a minimal but real hearing
to the Company before taking-over these units. There was an interval
of about si~ weeks between the Official Group's Report, dated February
16, 1978 and the passing of the impugned order dated April 13, 1978.
There was thus sufficient time available to the Government to serve a E
copy of that report on the appellant Company and to give them a
short-measure opportunity to submit their reply and representation
regarding the findings and recommendations of the Group Officers and
the proposed action under Section 18AA ( 1).

The third reason for our forbearance to imply the exclusion of the
audi a/teram partem rule from the language of Section 18AA(l) (a) is,
.
~··
that although the power thereunder is of a drastic nature and the con-
sequences of a take-over are far-reaching and its effect on the rights
and interests of the owner of the undertaking is grave and deprivatory,
yet the Act does not make any provision giving a full right of a reme-
dial bearing equitable to a full right of appeal, at the post-decisional G
• stage .
The High Court seems to be of the view that Section J 8F gives a
nght of full post-decisional remedial hearing to the aggrieved party.
Shri Soli Sorabji also elaborately supported that view of the High
Court. In the alternative, the learned counsel has committed himself H
on behalf of bis client, to the position, that the Central Government
will if required, give the Company a full and fair hearing on merits,
584 SUPREME COURT REPO)!.TS {1981] 2 S.C.R.

including an opportunity to show that the impugned order was not
made on adequate or valid grounds.
I
Shri Nariman on the other hand contends-and we think rightly-
that the so-called right of a post-decisional hearing available to the
aggrieved owner of the undertaking under Section 18F is illusory as in
B its operation and effect the power of review, if any, conferred there-
under, is prospective, and not retro~active, being strictly restricted to
and liependent upon the post-takeover circumstances.
By virtue of sub-section (2) of Section 18AA, the reference to
Section 18A in Section 18F will be construed as a reference to Section
c 18AA, also. The power of cancellation under Section l SF can he
exercised only an any of these grounds : (i) "that the purpose of the
order made under Section 18A has been fulfilled", or (il) "that for
any other reason it is not necessary that the order should remain in
force". 'These 'grounds' and the language in which they are couched
is clear enough to show that the cancellation contemplated thereunder
cannot have the e!Iect of annulling, rescinding or obliterating the order
of take-over with retro-active force; it can have only a prospective
effeet. Section l 8F embodies a principle analogous to that in Sectioll
21 of the General Clauses Act. The first 'ground' in Section 18F
for · the exercis_e oif the power, obvioµ~ly doe~ not cover a
review ol the merits or circumstances preceding and existing at the
date of passing the order of 'take-over' under Section 18AA(l). The
words "for any other reason" if read in isolation, no doubt, appear to
be of wide amplitude. But their ambit has been greatly cut down and
~ircumscribed by the contextua,J phrase "no longer necessary that it
should remain in force". Construed in this context, the expressioni
"for any other reason" cannot include a ground that the very order of
take-over was invalid or void ab initio. Thus, · the post-decision~
hearing. available to the aggrieved otwner ot the undertaldng is not an!
appropriate substitute for a fair-hearing, at the pre-decisional stage.
The Act does not provide any adequate remedial· hearing or right· of
redres~Jo the aggrieved party even where his under-taking has been
arbitrarily taken-over on insufficient grounds. Rather, the plight'' of
G the aggrieved owner is accentuated by the provision· in 18D which dis-
entitles him and other persons whose officers are Jost or whose conttact •
of management is terminated as a result of the 'take-over', from claim-
ing any c~mpensation whatever for such loss or termination.
Before we conclude the discussion on this point, we may notice one
If more argument that has been advanced on behalf of the respondents.
It is argued that this was a case where a prior hearing to the Company
could .o.nly be a useless formality because ·the impugned action has been
SWADESHI coiioN 'MILLS v. UNION (Sarkaria, /.) 58 s

taken on the basis ·of evidence, consisting of the Balance-sheet, account- A
' books and other records of the Company itself, the correctness af which
could not have been disputed by the Company. On these premises, it
is submitted that non-observance of the rule of audi a/trem partem
would not prejudice the Company, and thus make no difference.
The contention does not appear to be well-founded. Firstly, this B
documentary evidence, at best, shows that the Company was in debt
and the assets of some of its 'units' had been hypothecated or mort-
gaged as security for those debts. Given an opportunity the Company
might have explained that as a result of this indebtedness there was no
• likelihood of fall in production, which is one of the essential conditions
m regard to which the Government must be satisfied before taking c·
action under Section 18 ( 1) (a). Secondly, what the rule of natural
Justice requirr.d in the c!Icumstances of this case, was not only that the
Company should have been given an opportunity to explain the evi-
dence against it, but also an opportunity to be informed of the pro-
posed achon ot take-over and to represent why it be not taken.

In the renowned case, Ridge v. Baldwin & Ors. (ibid), it was con-
tended before the House of Lords that since the appellant police officer
had convicted himself out of his own mourh, a prior hearing to him by
lhe Watch Committee could not have made any difference; that on the
undeniable facts of that case, no reasonable body of men could have
reinstated the appellant. This contention was rejected by the House E
of Lords for the reason that if the Watch Committee had given the
police officer a prior hearing they would not have acted wrongly or
unrearnnably if they had in the exercise of their discretion decided to
take a more lenient course than the one they had adopted.

A similar argument was advanced in S. L. Kapoor v. lagmohan & p
Ors(') tu which decision two of us (Sarkaria and Chinuappa Reddy,
JJ.) were parties. In negativing this argument, this Court, inter a/ia,
quoted with approval the classic passage, reproduced below, from
the judgment of Megarry, J. in John v. Rees & Ors(2)
' "l\s everybody who has anything to do with the law
G,
well knows, the path of the law is strewn 'with examples of
opeu and shut cases which, somehow, were not; of unanswer-
able charges which, in the event, were completely answered;
of inexplicable conduct which was fully explained; of fixed
and unalterable determinations that, by discussion, suffered
a change. Nor are those with any knowledge of human
(I) [t981] 1 S.C.R. 746.
(2) (1970) I Chancery p. 345 •t).!402
586 SUPREME COURT REPORTS (1981] 2 S.C.R.

A nature who pause to think for a moment likely to under-
estimat~ the feelings of resentment of those who find that a
'
decision against them has been made without their being
a:torded any opponunity to mfluence the course of events." ,
In General Medical Council v. Spackman('), Lord Wright con-
B demned the oft-adopted attitude by tribunals to refuse relief on the
ground that a fair hearing could have made no difference to the result.
Wade in his Administrative Law, 4th Edn., page 454, has pointed out
that "in principle it is vital that the procedure and the merits should be
kept strictly apart, since otherwise the merits may be prejudged un-
fairly",
c
In Maxwell v. Department of Trade & Industry( 2 ), Lawton L.J.
expressed in the same strain that "doing what is right may still result
in unfairness if it is done in the wrong way." This view is founded
on the cordinal canon that justice mus.t not only be done but also
manifestly be seen to be done.
0
Observance of this fundamental principle is necessary if the
courts and the tribunals and the administrative bodies are to com-
mand public confidence in the settlement of disputes or in taldng
quasi-judicial or administrative decisions affecting civil rights or
legitiinate interests of the citizens. The same proposition was pro-
E pounded in R. v. Thames Magistrates' Court ex p. Polemis( 8 ), by
Lord Widgery C.J. at page 1375; :ind by the American Supreme Court
in Margarita Fuentes et al., v. Tobert L. Shevin(4).

In concluding the discussion in regard to this aspect of the matter,
we can do no' better than reiterate what was said by one of us (Chin-
F nappa Reddy, J.) in S. L. Kapoor v. Jagmohan (ibid) :
"In our view the principles of natural justice know of
no exclusionary rule dependent on whether it would have
made any difference if natural justice had been observed.
The non-observance of natural justice is itself prejudice to
G any man and proof of prejudice independently of proof of
denial of natural justice is unnecessary. It ill comes from a
person who has denied justice that the person who has been
denied justice is not prejudiced."

(I) [1955] 1 K.B. 24.
H (2) [1974] QB 523 at p. 540.
(3) [1974] I W.L.R. 1371.
(4) 32 L.Ed. 2d 556 at p. 574.
SWADESHI COTTON MILLS v. UNION (Sarkaria, I.) 587

We, therefore, over-rule this last contention . A
.. In sum, for all the reasons aforesaid, we are of the view that it
is not reasonably possible to construe Section I SAA( 1) as universally
excluding, either expressly or by inevitable intendment, the application
• of the audi alteram partem rule of natural justice at the pre-takeover
stage, regardless of the facts and circumstances of the particular case. B
In the circumstances of the insta'nt case, in order to ensure fairplay in
action it was imperative for the Government to comply substantially
with this fundamental rule of prior hearing before passing the impugned
order. We. therefore, accept the two-fold proposition posed and
propounded by Shri Nariman.
c
... ~
•
The further question to be considered is : What is the effect of the
noh-observance ot this fundamental principle of £airplay ? Does the
non-observance of the audi alteram partem rule, which in the quest
of justice under the rule of law, has been considered universally and
most spontaneously acceptable principle, render an administrative
decision having civil consequehces, void or voidable? In England, D
the outfall from the watershed decision, Ridge v. Baldwin brought with
it a rash of conflicting opinion oh this point. The majority of the
House of Lords in Ridge v. Baldwin held that the non-observance of

- this principle, had rendered the dismissal of the Chief Constable void.
Tlle rationale of the majority view is that where there is a duty to
act fairly, just like the duty to act reasonably, it has to be enforce4
as an implied statutory requiiement, so that failure to observe it means
that th" administrative act or decision was outside the statutory power,
unjustified by law, and therefore ultra vires and void. (See Wade's
Administrative Law, ibid, page 448). In India, this Court has con-
sistently taken the view that a: quasi-judicial or administrative deci-
F /
sion rendered ih violation of the audi alteram partem rule, wherever
it can be read as an implied requirement of the law, is null and
void. (e.g. Maneka Gandhi's case, ibid, and S. L. Kapoor v.
-''Pgmohan, ibid). In the facts and circumstances of the instant case,
'there has tr.en a non-compliahce with such implied requirement of the
audi alteram partem rule of natural justice at the pre-decisional stage. G
The impugned order therefore, could be struck down as invalid on
that score alone. But we refrain from doing so, because the learned
Solicitor-General in all fairness, has both orally and in his written
., submissiohs dated August 28, 1979, committed himself to the position
that under Section ! 8F, the Central Govermnent in exercise of its
curial functions, is bound to give the affected owner of the under- II
• taking taken-over, a "full and effective hearing on all aspects touching
the validity and/ or correctness of the order and/or action of take-
588 SUPREME COURT REPORTS [1981] 2 s.c.R.

A over", within a reasonable time after the take-over. The learned
Solicitor has assured the Court that such a hearing will be afforded to
the appellant Company if it approaches the Q:mtral Government for
cancellation of the impugned order. It is pointed out that •his was
the conceded position in the High Court that the aggrieved owner of •
the u'ndertaking had a right to such a hearing.
B
In view of this commitment! or concession fairly made by the
learned Solicitor-General, we refrain from quashing the impugned
order, and allowing Civil Appeal 1629 of 1979 send the case back to
the Central Government with the direction that it shall, within a reason-
able time, preferably within three months from today, give a full,
c fair and effective hearing to the aggrieved owner of the undertaking, r~ .
i.e., the Company, on all aspects of the matter, including those touch-
ing the validity and/or correctness of the impugned order and/or
action of take-over and then after a review of all the relevant materials
and circumstances including those obtaining on the date of the
impugned order, shall take such fresh decision, andior such remedial
D
action as may be necessary, just, proper and in accordance with
law.
In view of the above decision, no separate order is necessary in

E
Civil Appeals 1857 and 2087 of 1979.
All the three appeals arc disposed of accordingly with no order
-
as to costs. Since the appeals h\!ve been disposed of on the first i.nd
foremost point canvassed before us, in the manner indicated above,
it is not necessary to burden this judgment with a discussion of the
other poi'nts argued by the counsel for the parties.

F CHINNAPPA REDDY, J. l have the misfortune to be unable to agree
with the erudite opinion of my learned brother Sarkaria on the
question of the applicability of the principles of natural justice. I
do so with diffidence and regret.

The first of the submissions of Shri F. S. Nariman, learned coun-
G sel for the appellant company was that there was .a violation of the
principles of natural justice. He submitted that the provisions of
the Industries (Development and Regulation) Act did not rule out
natural justice and that !here were several occasions in the march
of events that led to the passing of the order under Sec. l 8AA •
when an opportunity could have been given to the Company and
H the principles of natnral justice observed but the Government of
India refrained from doing so. He urged that the immediate action •
contemplated by Sec. 18AA(l) (a) was not to be construed as negat-
SWADESHI COTTON MILLS v. UNION (Chinnappa Reddy,!.) 589

• ing natural justice but as intended merely to distinguish it from A
action under Sec. 18A which was to be taken only after investigation
under Sec. 15. He drew inspiration for this argument from the
marginal note to Section 18AA which is "power to take over indus-
trial undertakings without investigation under certain circumstances".
He also urged that Sec. 18F contemplated a post-decisional situation B
necessitating cancellation of the order of take-over but did not con-
template cancellation of the order of take-over on the ground that
such order ought never to have been made. He urged that the scope
of Sec. 18F was very narrow and did not entitle the party affected
to a fair hearing. In any case he argued that the remedy such as
it was povided by Sec. 18F was not an answer to the claim to pre- c
decisional natural justice. His submission was that natural justice
was not to be excluded except by the clear and unmistakable language
of the statute, though the "quantum'' of natural justice to be afford-
ed in an individual case might vary from case to case.

Shr> Soli Sorabji, learned Solicitor General, while conceding that D
statutory silence on the question of natural justice should ordinarily
lead to an implication by presumption that natural justice was to
be observed, urged that the presumption might be displaced by neces-
sary implication, as for instance where compliance with natural
justice might be inconsistent with the demands of promptitude, and
delayed action might lead to disaster. The presumption of implica- E
tion of natural justice was very weak where action was of a remedial
or preventive nature or where such action concerned property rights
only. In appropriate situations post-decisional hearing might displace
pre-decisional natural justice. The statute itself might well P,rovide for
a post-decisional hearing as a substitute for pre-decisional natural justice
in situations requiring immediate action. Sec. 18-F of the Industries F
Development and Regulation Act expressly provided for such a post-
decisional hearing and the urgency of the situation contemplated by
Sec. 18AA necessarily excluded pre-decisional natural justice. There
was no reason to belittle the scope of Sec. 18F, so, to exclude a fair
post-decisional hearing at the instance of the party affected and conse- G
quently, to imply pre-decisional natural justice.

Both the learned counsel invited our attention to considerable
case-law. I do not propose to discuss the case law as my brother
Sakraria has referred to all the cases in great detail. Before I con-
sider the submissions of the learned counsel as to the applicability of B
• the principles of natural justice, a few prefatory remarks, however,
require to be made.
5-152SCI/81
590 SUPREME COURT REPORTS [1981] 2 S.C.R.

A Natural justice, like Ultra Vires and Public Policy, is a branch of
the Public Law and is a formidable weapon which can be wielded to
secure justice to the citizeu. It is productive of great good as well
as much mischief. While it may be used to protect certain funda-
mental liberties, civil and political rights, it may be used, as indeed
it is used more often than not, to protect vested interests and to ob-
B struct the path of progressive change. In the context of modern wel-
fare legislation, the time ·has perhaps come to make an appropriate
distinction between natural justice in its application to fundamental
liberties, civil and political rights and natural justice in its application
to vested interests. Our Constitution, as befits the Constitution of
a Socialist Secular Democratic Republic, recognises the paramountcy
c of the public weal over the private interest. Natural justice, Ultra
Vires, Public Policy, or any other rule of interpretation must there-
fore, conform, grow and be tailored to serve the public interest and
respond to the demands of an evolving society.
In Ridge v. Baldwin('), it was thought by Lord Reid that natural
D justice had no easy application where questions of public interest and
policy were more important than the rights of individual citizens. He
observed :
"If a Minister is considering whether to make a scheme
for, say, an important new road, his primary concern will
E not be with the damage which its construction will do to the
rights of individual owners of land. He will have to consider
all manner of questions of public interest and, it may be, a
number of alternate schemes. He cannot be prevented from
attaching more importance to the fulfilment of his policy
than to the fate of individual objectors, and it would be
F quite wrong for the Courts to say that the Minister should
or could act in the same kind of way as a board of works
deciding whether a house should be pulled down."
And, as pointed out by a contributor in 1972 Cambridge Law Jour-
nal at page 14 :
G ". . . . . . the safeguarding of existing rights can after all
in some circumstances amount to little more than the fij!ht-
ing of a rear-guard action by the reactionary element in
society seeking only to preserve its own vested position."
The United States Supreme Court has recognised the distinction
H between cases where only property rights are involved and cases where
other civil and political rights are involved. In cases where only
•
(I) [1964) AC 40,
SWADESHI COTTON MILLS v. UNION (Chinnappa Reddy, !.) 591

' property rights are involved postponement of enquiry has been held A
not to be a denial of due process, vide : Annie G. Phillips v. Commis-
sioner of Internal Revenue('), John H. Fahey v. Paul Mallonee( 2 ),
• Margarita Fuentes v. Robert L. Shevin, Attorney General of
Florida('), and Lawrence Mitchell v. W. F. Grant Co.(<).

In the first case (75 L.Ed. 1289), Brandeis J. observed : B
"Where only property rights are involved, mere postpone-
ment of the judicial inquiry is not a denial of due process, if
the opportunity given for the ultimate judicial determination
of the liability is adequate. Delay in the judicial determina-
tion of property rights is not uncommon where it is essential
that Governmental needs be immediately satisfied. For the
c
protection of public health, a state may order the summary
destruction of property by administrative authorities without
antecedent notice or hearing. Because of the public neces-
sity the property of citizens may be summarily seized in war
time. And at any time, the United States may acquire pro- D
perty by eminent domain, withol!t paying, or determining the
amount of the compensation before the taking."
[ The principles of natural justice have taken deep root in the judi- tf'
cial conscience of our people, nurtured by Binapani, Kraipak, Mohinder
Singh Gill, Maneka Gandhi etc. etc. They are now considered so
E
fundameutal as to be "implicit in the concept of ordered liberty" and,
therefore, implicit in every decision making function, call it judicial,
quasi judicial or administrative. Where authority func~ons under a
statute and the statute provides for the observance of the principles of
natural justice in a particular manner, natural justice will have to be
observed in that manner and in no other. No wider right than that F
provided by statute can be claimed nor can the right be narrowed.
Where the statute is silent about the observance of the principles of
natural justice, such statutory silence is taken to imply compliance with
the principles of natural justice. The implication of natural justice be-
ing !Presumptive it may be excluded by express words of statute or by
necessary intendment. Where the conflict is between the public inte- G
re3t and the private interest, the presumption must necessarily be weak
and may, therefore, be readily displacedJThe presumption is also
• weak where what are involved are mere property rights. In cases of
urgency, particularly where the public interest is involved, pre-emptive
(I) 75 L Ed 1289
• (2) 91 L Ed 2030
(3) 32 L Ed 2d 556
(4) 40 L Ed 2d 406
592 SIJPREME COURT REPORTS [1981] 2 S.C.R.

A action may be a strategic necessity. There may then be no question
of observing natural justice. Even in cases of pre-emptive action. if
the statute so provides or if the Courts so deem fit in appropriate cases,
a postponed hearing may be substituted for natural justice. Where
natural justice is implied, the extent of the implication and the nature
'
of the hearing must vary with the statute, the subject and the situation.
B Seeming judicial ambivalence on the question of the applicability of the
principles of natural justice is generally traceable to the readiness of
judges to apply the principles of natural justice where no question of
the public interest is involved, particularly where rights and interests
other than property rights and vested interests are involved and the
reluctance of judges to apply the principles of natural justice, where
c there is suspicion of public mischief ~nd only property rights and
vested interests are involved.
In the light of these prefatory remarks, I will proceed to consider
the relevant statntory provisions. The Industries (Development and
Regulation) Act, 1951, was enacted pursuant to the pOIWer given to
D Parliament by Entry 52 of List I of the Seventh Schedule to the Cons-
titution. As required by that Entry Section 2 of the Act declares
that it is expedient in the public interest that the Union should take'
under its control the industries specified in the First Schedule to the •
Act. Item 23 of the First Schedule to the Act relates to Textiles of
various categories, Sec. 3(d) defines "Industrial undertaking" to
E
mean "any undertaking pertaining to a scheduled industry carried on
in one or more factories by any person or authority including Gov-
ernment''. The expression undertaking is not, however, defined
Sec. 3 (f) defines "Owner", "in relation to an industrial undertaking"
as "the person who, or the authority which, has the ultimate control
F over the affairs of the undertaking, and, where the said affairs are
entrusted to a manager, managing director or managing agents, such
manager, managing director or managing agent shall be deemed to be
the owner of the undertaking". Sec. 3 (j) provides that words and
expressions not defined in the Act but defined in the Companies Act
shall have the meaning assigned to them .in that Act. Sec. 10 obliges
G the owner of an industrial undertaking to register the undertaking in
the prescribed manner. Sec. lOA authorises the revocation of regis-
tration after giving an opportunity to the owner of the undertaking in
certain circumstances. Sec. 11 provides for the licensing of the new •
industrial undertaking and Sec. 1lA provides for the licensing of thri
production and manufacture of the new articles. Sec. 13 provides,
H among other things, that, except under, and in accordance with. a
licence issued in that behalf by the Central Government, no owner of
an industrial undertaking shall effect any snbstantial expansion or
SWADESHI COTTON MILLS v. UNION (Chinnappa Reddy,!.) 593
1

change the location of the whole or any part of an industrial under- A
taking. St;c. 14 provides for a full and complete investigation in
respect of applications for the grant of licence or permission under
Sections 11, 11 A, 13 or 29B. Sec. 15 authorises the Central Gov-
ernment to make or cause to be made a full and complete investigation
_into the circumstances of the case if the Central Government is of the
B
opinion that :

(a) in respect of any scheduled industry or industrial
undertaking or undertakings (i) there has been, or is likely
to be, a substantial fall in the volume of production .....
for which, having regard to the economic conditions prevail·
ing, there is no justification; or (ii) there has been, or is
c
likely to be, a marked deterioration in the quality Qf any
article ...... which could have been or can be avoided; or
(iii) there has been or is likely to be a rise in the price of
any arti,cle ...... for which there is no justification; or (iv)
it is necessary to take any such action for the purpose of D
conserving any resources of national importance; or

(b) any industrial undertaking is being managed in a
manner highly detrimental to the scheduled industry con-
cerned or to public interest. After the investigation is made
under Sec. 15, Sec. 16(1) provides, if the Central Govern-
E
ment is satisfied that such action is desirable, it may issue
appropriate directions for
(a) regulating the production of any article ...... and
fixing the standards of production;
(b) requiring the industrial undertaking to take such F
steps as the Central Government may consider
necessary, to stimulate the development of the
industry;
( c) prohibiting resort to any act or practice which might
reduce the undertaking's production, capacity or eco.. G
nomic value;
(d) controlli11g the prices, or regulating the distribution
of any article.

• Sec. 16(2) also provides for the issue of interim directions by the
Centr~l Government pending investigation under Sec. 15. Such direc- H
tions are to have effect until validly revoked by the Central Govern-
ment
594 SUPREME COURT REPORTS (1981] 2 S.C.R.

A Chapter III-A consisting o1' Sections !SA, 18-AA- 18-B, 18-C,
18-D, 18-E and 18-F deals with "direct management or control of
Industrial Undertakings by Central Government in certain cases".
I
Sec. 18-A which is entitled "Power of Central Government to assume
management or control of an industrial undertaking in certain cases"
provides that tj1e Central Government may, by notified order, autho-
8 rise any person or body of persons to take over the management of
the whole or any part of an industrial undertaking or to exercise in
respect of the whole or any part of the undertaking such functions of
control as may be specified in the order. if the Central Gcwernment
is of opinion that : . ./
C (a) an industrial undertaking to which directions have
been issued in pursuance of Sec. 16 has failed to
mmply with such directions, or
(b) an industrial undertaking in respect of which an
investigation has been made under section 15 is
being managed in a manner highly detrimental to the
D
scheduled industry concerned or to publio interest.

Sec. 18-AA refers to "Power to take over industrial undertakings
without investigation under certain circumstances". It enables the
Central Government by a notified order to authorise any person or
E body of persons to take over the management of the whole or any
part of an industrial undertaking or to exercise in respect of whole or
any part of the undertaking such functions of control as may be
specified in the order, if, without prejudice to any other provisions of
the Act, from the documentary or other evidence in its possession, the
Central Government is satisfied in relation to the industrial under-
F taking, that
''la) the persons incharge of such industrial undertakings
have, by reckless investments or creation of encum-
brances on the assets of the industrial undertaking,
or by diversion of funds, brought about a situation
which is likely to affect the production of articles
G
manufactured or produced in the industrial under-
taking, and that immediate action is necessary to pre-
vent such a situation; or •
(b) it has been closed for a period of not less than three

H
months (whether by reason of the voluntary wind-
ing up o1' the company owning the industrial under-
•
taking or for any other reason) and such closure is
prejudicial to the concerned scheduled industry and
SWADESHI COTTON MILLS v. UNION (Chinnappa Reddy,!.) 595

that the financial condition of the company owning A
the industrial undertaking and the condition of the
plant and machinery of such undertaking are such
that it is possible to re-start the undertaking and
such re-starting is necessary in the interests of the
general public".
B
Sec. J 8-AA(5) stipulates that the provisions of Sections 18-B to
18-E shall be applicable to the industrial undertaking in respect of
which an order has been made under s. 18-AA even as they apply
to an industrial undertaking taken over under Sec. 18-A. Sec. 18-B
specifies the eftect of a notified order under Sec. 18-A. Sec. !SC
empowers the Court to cancel or vary contracts made in bad faith etc. c
by the management of an undertaking before such management was
taken by the Central Government. Sec. 18-D provides that there
shall be no right to compensation for termination of office or
contract as a result of the 'take over'. Sec. 18-E deprives the
shareholders and the Company of certain rights under the Indian
D
Companies Act. if the industrial undertaking whose management is
taken over is a Company. Sec. 18-F empowers the Central Govern•
ment on the application of the owner of the industrial undertakingi
or otherwise to cancel the order made under Sec. 18-A if it appears
to the Central Government that the purpose of the order has been
fulfilled or that for •my other reason it is not necessary that the order E
should remain in force. Sec. 18FD(3) enables the Central Govern-
ment to exercise the powers under Sec. 18-F in relation to an under-
taking taken over under Sec. 18-AA.
The question for consideration is whether Sec. 18-AA excludes
natural justice by necessary implication. The development and regu- F
lation of certain key industries was apparently considered so basic
and vital to the economy of our country that Parliament, in its wis-
dom, thought fit to enact the Industries Development & Regulation,
Act, after making the declaration required by Entry 52 of List I of
the Seventh Schedule to the Constitution that it was expedient, in the
public interest, that the Union should take under its control the G
industries specified in the schedule to the Act, as earlier mentioned
by us. Apart from making provision for the establishment of a Cen-
tral Advisory Council and other Development Councils, and the
licensing of scheduled industries, the Act empowers the Central
Government to cause a full and complete investigation to be made
where there is a substantial fall in the volume of production for H
which there is no justification having regard to the prevailing econo-
mic conditions or there is marked deterioration in the quality of the
596 SUPREME COURT REPORTS (1981] 2 S.C.R.

A goods produced or the price of the goods produced is rising unjustifi-
ably or where conservation of resources of national importance is
necessary or the industrial undertaking is being managed in a manner •
highly detrimental to the scheduled industry or to public interest
(Sec. 15) and thereafter to issue necessary and appropriate direc-
tions to the industrial undertaking to mend matters suimbly (Sec. 16).
B Where the instructions issued under Sec. 16 are not complied with or
wher~ the investigation reveals that the industrial undertaking i&
being managed in a manner highly detrimenml to the scheduled
industry or to the public interest the Central Government may take
over the industry under Sec. 18-A. Whether there is an investiga-
tion or not, the Central Government may also 'take over' the manage-
c ment of the industry under Sec. 18-AA, if consequent on certain wil-
full acts of commission on the part of the management the produc-
tion is likely to be effected but immediate action may prevent suclt
a situation, or the industrial undertaking has been closed for a period
of not less than three months and the closure is prejudicial to the
D scheduled industry. Action under Sec. 18-AA is thus preventive
and remedial. Where there is an apprehension that production is
likely to be affected as a result of the wilful! acts of the management
or where the production has already come to a stand-still because of
the closure of the undertaking for a period of not less than three
months the Central Government is authorised to intervene to restore
production. The object clearly is to take immediate action to preven~
a situation likely to affect production or to restore production. There
was some argument at the Bar that the expression 'immediate action'
was not to be found in Sec. 18-AA(l)(b). I do not think that the
absence of the expression "immediate action in Sec. 18-AA(l) (b)
makes any difference. Sec. 18-AA(l) (a) refers to a situation
F where immediate preventive action may avert a disaster, whereas
Sec. 18-AA contemplates a situation where the disaster has occurred
and action is necessary to restore no.rmalcy. Restoration of produc-
tion where production has stopped in a key industry or industrial
undertaking is as important and urgent, in the public interest, as pre-
ven\iQl1 of a situation where production may be affected. Immediate
G
action is, therefore, as necessary in the situation contemplated by
Sec. 18-AA(l){b) as in the situation contemplated by Sec. 18-AA-
(1) (a).
It is true that the marginal note refers to the power to take over

H
without investigation but there is no sufficient reason to suppose that
the word 'immediate' is used only to contra-distinguish it from the
•
investigation contemplated by Sec. 15 of the Act, though, of course a
consequence of immediate action under Sec. 18-AA may be to dis-
SWADESHI COTTON MILLS v. UNION (Chinnappa Reddy,/.) 597

• pense with the enquiry under Sec. 15. In fact, facts which come to
light during the course of an investigation under Sec. 15 may form
the basis of action under Sec. 18-AA(l) (a). Where in the course
of an investigation under Sec. 15 it is discovered that the management
have, by reckless investments or creation of encumbrances on the
assets of the industrial undertaking or by diversion of funds brought B
about a situation which is likely to affect the production of the articles
manufactured or produced in the industrial undertaking, if the Gov-
ernment is satisfied that immediate action is necessary to prevent such
a situation, there is no reason why the Central Government may not
straight away take action under Sec. 18-AA(l) (a) without waiting
for completion of investigation under Sec. 15. Parliament apparently c
contemplated a situation where immediate action was necessary, and
having contemplated such a situation, there is no reason to assume
that Parliament did not contemplate situations which brooked not a
moments delay. If Parliament also contemplated situations which
did not brook a moment's delay, it would be difficult to read natural
justice into Sec. 18-AA. The submission of Shri Nariman was that D
the immediacy of the situation would be relevant and relateable to
the quantum of natural justice ~nd not to a total denial of natural
justice. According to him the scope and extent of the opportunity
to be given to the party against whom action is taken may depend
upon the situation but nothing would justify a negation of a natural
justice. He pointed out that in a situation of great urgency which
brooked no delay, an order under Sec. 18-AA might be made, the
situation could be so frozen that the persons incharge of the industrial
undertaking might do no more mischief and the GC>Vermnent could
then, without giving further effect to the order under Sec. 18-AA, give
a notice to the person incharge to show cau~e why the order under Sec.
F
18-AA should not be given effect. In another given case, according to
Shri Nariman, notice of, say two. weeks, might be given before making
an order, if the making of an order was not so very urgent. He sug-
gested that the opportunity to be given might vary from situation to
situation but opportunity there must be, either before the decision
was arrived at or so shortly after the decision was arrived at and be- G
fore any great mischief might result from the order. The argument
of Shri N ariman would vest in the Government a power to decide
from case to case the extent of opportunity to be given in each indivi-
dual case and, as a corollary, a corresponding right in the aggrieved
, party to claim that the opportunity provided was not enough. Such
a procedure may be possible, practicable and desirable in situations B
where there is no statutory provision enabling the decision making
authority to review, or reconsider its decision. Where there is a
598 SUPREME COURT REPORTS (1981] 2 S.C.R.

A provision in the statute itself for revocation of the order by the very •
authority making the decision, it 31Ppears to us to be unnecessary to
insist upon a pre-decisional observance of natural justice. The question
must be considered by regard to the terms of the statute and by an
examination, on the terms of the statute, whether it is possible, practi-
cable and desirable to observe pre-decisional natural justice and
B whether a post decisional review or reconsideration provided by the
statute itself is not a sufficient substitute.

The likelihood of production being jeopardized or the stoppage of
production in a key industrial undertaking is a matter of grave concern
affecting the public interest. Parliament has taken so serious a view
c of the matter that it has authorised the Central Government to take
over the mana_gement of the industrial undertaking if immediate action
may prevent jeopardy to production or restore production where it
has already stopped. The necessity for immediate action by the Cen-
tral Government, contemplated by Parliament, is definitely indicative
of the exclusion of natural justice. It is not as if the owner of the
D industrial undertaking is left with no remedy. He may move the
Central Government under Sec. 18-F to C'ancel the order made under
Sec. 18-AA. True some mischief affecting the management and top
executives may have already been done. On the other hand, greater
mischief affecting the public economy and the lives of many a thousand
worker may have been averted. While on the one hand mere property
E rights are involved, on the other vital public interest is affected. This
...... again, in the ligjit of the need for immediate action contemplat-
ed by Parliament, is a clear pointer to the exclusion of natural justice..
lLwas submitted by the learned counsel that Sec. 18-F did not pro-
vide any remedy but merely prnvided for cancellation of an order of
(I take over on the fulfilment of the purpose of the order of take over or
for any other reason which rendered further continuance in force of
the order unnecessary because of the happening of subsequent events.
According to the learned counsel the basic assumption of Sec. 18-F
was the validity of the order nnder Sec. 18-A or Sec. 18-AA. All that
Sec. 18-F did was to prescribe conditions for the exercise of the general
G power which every authority had under Sec. 21 of the General Clauses
Act to cancel its own earlier order. It was said that if Sec. 18-F could
be said to impliedly exclude natural justice there is then no reason not
to hold that Sec. 21 of the General Clauses Act similarly excluded
natural justice in every case. I am unable to agree with these sub-
missions of the learned counsel. Neither Sec. 18-F of the Industries ,
H (Development and Regulation) Act nor Sec. 21 of the General Clauses
Act, by itself, excludes natural justice. The exclusion of natural jus-
tice, where such exclusion is not express, has to be implied by reference
SWADESHI COTTON MILLS v. UNION (Chinnappa Reddy, J.) 599

' to the subject, the statute and the statutory situation. Where an ex- A
press provision in the statute itself provides for a post decisional hear-
ing the other provisions of the statute will have to be read in the light
of such provision and the provision for post decisional hearing may
then clinch the issue where pre-decisional natural justice appears to
be excluded on the other terms of the statute. That a post-decisional.
hearing may also be had by the terms of Sec. 21 of the General Clauses B
Act may not necessarily help in the interpretation of the provisions of
the statute concerned. On the other hand even the general provision
contained in Sec. 21 of the General Clauses Act may be sufficient
to so interpret the terms of a given statute as to exclude natural justice.
As I said it depends on the subject, statute and the statutory situation.
c
I am, therefore, satisfied that the principles of natural justice are
not attracted to the situations contemplated by Sec. 18-AA of the
Industries (Development and Regulation) Act. In view of the orde~
proposed by my learned brothers Sarkaria and Desai JJ. I do not pro-
pose to consider the other questions.
D
ORDER
As per majority decision, the appeals are allowed.

N. K. A. Appeals allowed.

\
,>'.