Judges: H.J. Kania, C.J., Saiyid Fazl Ali, M. Patanjali Sastri, B.K. Mukherjea and Sudhi Ranjan Das, JJ.

Facts:

Sholapur Spinning and Weaving Company (Emergency Provisions) Act, 1950 (hereinafter, Act of 1950) was enacted dismissing managing agents of the company, removing its directors, authorising Government to appoint new directors, and curtailing rights of shareholders in the matter of voting.

Present writ petition under Article 32 of the Constitution was filed assailing the constitutional validity of the Act of 1950.

Issues:

(i) Whether present writ petition was maintainable?

(ii) Whether the Act of 1950 authorises any act amounting to acquisition or taking possession of private property within the meaning of Article 31 of the Constitution?

(ii) Whether the restrictions imposed by the Act of 1950 upon the rights of the petitioner as a shareholder in the company amounts to infringement of his right to acquire, hold or dispose of property within the meaning of Article 19(1)(f) of the Constitution?

(iv) Whether Act of 1950 could be said to have contravened the provision embodied in Article 14 of the Constitution?

Laws:

Constitution of India, 1950 - Article 14 - Right to equality and equal protection of the laws.

Constitution of India, 1950 - Article 19(1)(f) - Right to acquire, hold and dispose of property, guaranteed to every citizen.

Constitution of India, 1950 - Article 31 - Right to property.

Contentions:

Petitioners

(i) Interference by the Government in the affairs of the company is unauthorised and illegal.

(ii) The provisions of the Act of 1950 amount to deprivation of property of the shareholders as well as of the company within the meaning of Article 31 of the Constitution.

(iii) Restrictions imposed on the rights of the shareholders in respect to the shares held by them constitute an unjustifiable interference with their rights to hold property and as such are void under Article 19(1)(f) of the Constitution.

(iv) Act of 1950 denies to the company and its shareholders equality before the law, and equal protection of laws and thus offends the provisions of Article 14 of the Constitution.

Respondents

(i) Article 14 does not make it incumbent on the Legislature always to make laws applicable to all persons generally. It is open to the Legislature to classify persons and things and subject them to the operation of a particular law according to the aims and objects which that law is designated to secure.

(ii) In present case, affairs of the company were being grossly mismanaged so as to result in the cessation of production of an essential commodity and serious unemployment amongst a section of the community. It was competent for Parliament to enact a measure applicable to this company and its shareholders alone.

(iii) Burden of proving that the Act of 1950 is unconstitutional lay on the petitioner, and he has failed to adduce any evidence to show that the selection of this company and its shareholders for special treatment under the impugned Act was arbitrary.

(iv) Constitutionality of a statute could not be impugned under Article 32 except by a person whose rights were infringed by the enactment. In present case, there was no infringement of the individual right of a shareholder. Petitioner was not entitled to apply for relief under that article.

Analysis:

Writ by corporate bodies / shareholder - Whether maintainable

I. Article 32(1) of the Constitution guarantees to everybody the right to move Supreme Court, by, appropriate proceeding, for enforcement of the fundamental rights which are enumerated in Part III of the Constitution.

II. The fundamental rights guaranteed by the Constitution are available not merely to individual citizens but to corporate bodies as well, except where the language of the provision or the nature of the right compels the inference that they are applicable only to natural persons.

III. An incorporated company, therefore, may move Supreme Court for enforcement of its fundamental rights and so may the individual shareholders to enforce their own.

IV. However, it would not be open to an individual shareholder to complain of an Act which affects the fundamental rights of the company except to the extent that it constitutes an infraction of his own rights as well.

V. A corporation has a distinct legal personality of its own with rights and capacities, duties and obligations separate from those of its individual members. As the rights are different and inhere in different legal entities, it is not competent to one person to seek to enforce the rights another except where the law permits him to so do.

Provisions of Act of 1950 - Whether infringes Article 31 of Constitution

I. Act of 1950 did not infringe any fundamental right of the petitioner under Article 31(1) of the Constitution, as it did not deprive the company or the petitioner of any property save under authority of law.

II. Act of 1950 also did not infringe any fundamental right guaranteed by Article 31(2) of Constitution inasmuch as it did not authorise 'acquisition' of any property of the company or of the shareholders or 'the taking possession' of the property of the petitioner.

III. Nothing stipulated in the Act of 1950 which had the effect of depriving or authorising the 'acquisition' of the shares which the petitioner held in the company as a share holder. He was merely disabled from exercising some of the rights which an ordinary shareholder in a company could exercise in respect of his shares, such as the right to vote, to appoint directors, and to apply for winding up.

IV. On the contrary, if the Act of 1950 would have had authorised the 'taking possession' of the property of the company, the petitioner was not entitled to any relief on that score under writ jurisdiction of the Supreme Court.

Provisions of Act of 1950 - Whether infringes Article 19(1)(f) of Constitution

I. Act of 1950 did not impose any restrictions on the petitioner's right to acquire, hold and dispose of his shares. There was no infringement of Article 19(1)(f) of the Constitution.

II. Assuming that the restrictions imposed on the right of voting and other connected matters were restrictions on the right to acquire, hold or dispose of property within the meaning of Article 19(1)(f) of the Constitution, such restrictions were reasonable restrictions imposed in the interests of the public.

III. Same was done to secure the supply of a commodity which is essential to the community and to prevent serious unemployment amongst a section of the people.

IV. These restrictions, therefore, were completely protected by Article 19(5) of the Constitution.

Provisions of Act of 1950 - Whether infringes Article 14 of Constitution

I. Legislature has, in present case, proceeded against one company only and its shareholders. However, even one corporation or a group of persons can be taken as a class by itself for the purpose of legislation, provided it exhibits some exceptional features which are not possessed by others.

II. Courts should prima facie lean in favour of constitutionality and should support the legislation if it is possible to do so, on any reasonable ground. It is for the party who attacks the validity of the legislation to place all materials before the court which would go to show that the selection is arbitrary and unsupportable.

III. Throwing out of vague hints that there may be other instances of similar nature is not enough for this purpose.

IV. Petitioner, in present case, made no attempt to discharge the prima facie burden and no proper materials were placed on record to show that the legislation in question cannot be supported on any reasonable ground. Therefore, the attack on the legislation on the ground of the denial of equal protection of law cannot succeed.

Dissenting (Patanjali Sastri J.)

I. Act of 1950 denied the protections of law in relation to the incorporated joint stock companies as embodied in the Indian Companies Act, to the shareholders of the company concerned only. Provisions in relation to this in the Act of 1950 were, prima facie, in derogation to the protection of law provided under Article 14 of the Constitution.

II. Even when any law is made applicable to any class of persons or things and the classification is based on intelligible differentia having a rational nexus to the object sought to be achieved, its application if found to affect only one person or thing, cannot be a ground to question its constitutional vires.

III. In present case, the Act of 1950 selected a particular company and imposed, upon it and its shareholders, certain disabilities on the ground of its mismanagement and negligence in duty on the part of those charged with the conduct of its affairs. There arises no question of any reasonable classification arose and the law in question was ipso facto discriminatory in character and within the constitutional inhibition of Article 14 of the Constitution.

IV. As a general rule, all reasonable presumptions must be made in favour of the constitutional validity of a law made by competent legislature, no such presumption could have been drawn in this case, as prima facie, the law in question was discriminatory and the petitioner could not be saddled with the burden to prove that similar mismanagement existed in other companies.

V. The provisions of the Act of 1950, therefore, transgressed the express constitutional prescriptions on the legislative powers imposed by Article 14 of the Constitution.

Dissenting (Sudhi Ranjan Das, J.)

I. Act of 1950, ex facie, is nothing but an arbitrary selection of this particular company and its shareholders for discriminating and hostile treatment. This, by itself, is palpably an infringement of Article 14 of the Constitution.

II. Assuming that mismanagement and negligence in conducting the affairs of a company can be a reasonable basis of classification and that such a classification would bear a reasonable relation to the conduct of all delinquent companies and shareholders and may therefore create no inequality, a distinction cannot be made between the delinquent companies inter se or between shareholders of equally delinquent companies.

III. Assuming that it is permissible to make a law whereby all delinquent companies and their shareholders may be brought to book and all companies mismanaging their affairs and the shareholders of such companies may, in the interest of the general public, be deprived of their right to manage the affairs of their companies. Such a classification made by a law would bear a reasonable relation to the conduct of all delinquent companies and shareholders.

IV. However, a distinction cannot be made between the delinquent companies inter se or between shareholders of equally delinquent companies. One set cannot be punished for its delinquency while another set is permitted to continue, or become, in like manner, delinquent without any punishment unless there be some other apparent difference in their respective obligations and unless there be some cogent reason why prevention of mismanagement is more imperative in one instance than in the other.

V. To do so, would be nothing but an arbitrary selection, which can never be justified as a permissible classification.

Conclusions:

(i) Act of 1950 did not infringe any fundamental right of the petitioner guaranteed under Article 31(1) or 31(2) of the Constitution.

(ii) Act of 1950 did not impose any restrictions on the petitioner's right to 'acquire', 'hold' and 'dispose of' his shares, hence, there was no infringement of Article 19(1)(f) of the Constitution.

(iii) Petitioner failed to discharge the burden of proving that the Act of 1950 is discriminating and a hostile legislation, he therefore, cannot be held to have been denied the right to equal protection of the laws referred to in Article 14 of the Constitution. There exists no case of infringement of Article 14 of the Constitution.

Important Precedents:

(i) A.K. Gopalan vs. The State of Madras MANU/SC/0012/1950

(ii) State Trading Corporation of India Ltd. and Ors. vs. Commercial Tax Officer, Visakhapatnam and Ors. (MANU/SC/0038/1963)