Chiranjit Lal Chowdhuri vs The Union Of India And Others, 1951 AIR 41

Chiranjit Lal Chowdhuri vs The Union Of India And Others, 1951 AIR 41

DATE OF JUDGMENT: 04/12/1950

COURT: Supreme Court of India

JUDGES: Kania, Hiralal J. (Cj), Fazal Ali, Saiyid, Sastri, M. Patanjali, Mukherjea, B.K., Das, Sudhi Ranjan

REFERENCE: 1951 AIR 41

PARTIES : Petitioner: Chiranjit Lal Chaudhary, Respondent: The Union Of India & Ors.

SUBJECT: The judgment highlights the concept of class legislation under Article 14.

FACTS: The petition is filed by Chiranjit Lal, who is a shareholder of the company, Sholapur Spinning and Weaving Company Limited. The directors of this company gave out a notice on 29 July 1949 stating that the mills were going to shut down. On January 9, 1950, the Governor-General of India promulgated an Ordinance. The preamble to the ordinance read, “on account of mis- management and neglect, a situation has arisen in the affairs of the Sholapur Spinning and Weaving Company Limited which has prejudicially affected the production of an essential commodity and has caused serious unemployment amongst a certain section of the community “.

This ordinance, was later replaced by an Act of Parliament called the “Sholapur Spinning and Weaving Company (Emergency Provisions)Act”. (referred to as The Act)

This Act allowed the government to interfere in the functioning and regulation of the mill.

The petitioner challenged the pith and substance of both the ordinance and The Act. The petitioner asked for an injunction and a writ of mandamus against the UOI.

IMPORTANT PROVISIONS:

The Indian Constitution

• Article 14: The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.
• Article 19(1) (f): Freedom to acquire, hold and dispose of property
• Article 31: Compulsory acquisition of property- clause (1) No person shall be deprived of his property save by authority of law.

Clause (2) No property shall be compulsorily acquired or requisitioned save for a public purpose and save by authority of a law which provides for acquisition of the property for an amount which shall be fixed by such law; and no such law be called in question in any curt on the ground that the amount so fixed is not adequate

Sholapur Spinning and Weaving Company (Emergency Provisions)Act

Section13: “(a) It shall not be lawful for the shareholders of the company or any other person to nominate or appoint any person to be a director of the company.

• No resolution passed at any meeting of the share- holders of the company shall be given effect to unless approved by the Central Government.
• No proceeding for the winding up of the company or for the appointment of a receiver in respect thereof shall lie in any court unless by or with the sanction of the Central Government.”

Ordinance:

Section 3 :of the Ordinance, the Central Government may, at any time, by notified order, appoint as many persons as it thinks fit, to be directors of the company for the purpose of taking over its management and administration and may appoint one of such directors to be the Chairman.

section 12 :that so long as the management by the statutory directors continues, the shareholders would be precluded from nominating or appointing any person to be a director of the company and any resolution passed by them will not be effective unless it is approved by the Central Government. This section lays down further that during this period no proceeding for winding up of the company, or for appointment of a receiver in respect thereof could be instituted in any court, unless it is sanctioned by the Central Government, and the Central Government would be competent to impose any restrictions or limitations as regards application of the provisions of the Indian Companies Act to, be affairs of the company.

Section 12, under which the Central Government may, by notified order, direct that all or any of the powers exercisable by it under this Ordinance may be exercised by the Government of Bombay.

ISSUE:

1. Whether the impugned act infringes upon Article 14 or not?

ANALYSIS OF THE JUDGEMENT:

Chiranjit Lal contends that,

• The shareholders of the Sholapur company have been subjected to discrimination and that the Act is violative of article 14.
• The Act has selected one company, and taken complete control of it, thereby causing class legislation.
• All other companies which are similar to the mill, have not been met with the same fate.
• Petitioner calls the act, “arbitrary” and “unreasonable” and asks the court to take “judicial notice” of the matter.
• Also, it was stated that there were unreasonable restrictions placed on the right of the petitioner to acquire property under article 19(1)(f).
• There was also a claim of violation of article 31.

Contention of UOI and others.

• The situation that existed in the Mills was “unusual” and “distinct”.
• A special enquiry had been undertaken, and it was on the grounds of the enquiry, that an ordinance and further an Act was brought out.
• The management of the company kept it from running smoothly, and hence, government intervention was highly needed.
• Under article 14, it is not only important to apply the law equally to all persons, it is also essential to classify, where classification is based on reasonable grounds.

The court’s view:

• The facts relating to the mill were of “extraordinary” character.
• The Act justifiably treated the Mill as a separate class.
• The mill dealt with essential commodities and hence, it was a situation of emergency for the larger public interest to formulate an Ordinance followed by an Act.
• The intelligible differentia exercised has a rational relation with the object sought to be achieved.
• With respect to article 19(1)(f), the court held that, the government has not usurped the rights of the shareholders, or vested it in any authority. The rights have only been restricted and not taken away.
• W.r.t. the argument relating to Article 31, the judges thought of it as irrelevant.
• The burden to prove that the Act was unconstitutional and arbitrary laid on the petitioner and having failed to prove it, the petition by Majority opinion was dismissed.

The court finally held that, the presumption of the judiciary should always be in favour of the constitutionality of the legislation. However, the burden to prove that a particular legislation is guided by unfettered and unguided power, is on the petitioner. Here, since the petitioner was unable to do so, the court was of the opinion that the class legislation was based on reasonable grounds.

CONCLUSION: Any act formulated must follow the proportionality test and the Wednesbury principles in order to fall within the constitutional ambit of Article 14. The Act here is appropriate and necessary as per the proportionality test and also reasonable, devoid of any unjust power or authority, according to the Wedesbury doctrine.