Chiranjit Lal Chowdhuri v. Union of India & Ors, 1951 AIR 41

Case Analysis

Chiranjit Lal Chowdhuri v. Union of India & Ors, 1951 AIR 41

June 30, 2024

Author: Madhumita Saha, Student, Lajpat Rai Law College, Sambalpur University, Odisha

Edited by: Gaurav Katiyar, Student, University of Lucknow

TABLE OF CONTENTS

CASE DETAILS…………………………………………………………………..4
INTRODUCTION AND BACKGROUND OF JUDGEMENT………………….4
FACTS OF THE CASE…………………………………………………………5-6
LEGAL ISSUES RAISED………………………………………………………6-7
PETITIONER/APPELLANT’S ARGUMENTS…………………………………7
RESPONDENT’S ARGUMENTS………………………………………………7-8
RELATED LEGAL PROVISIONS……………………………………………..8-9
JUDGEMENT………………………………………………………………….9-11
Ratio decidendi…………………………………………………………….10-11
Obiter dicta…………………………………………………………………..11
REFERENCES…………………………………………………………………..12
Important cases referred……………………………………………………..12
Important statutes referred………………………………………………….12
ABSTRACT……………………………………………………………………..13
ABOUT THE AUTHOR……………………………………………………..….13

TABLE OF CASES

McCabe Vs Atchison, 235 U.S. 151
Barbier Vs Connally, 113 U.S. 27
Gulf C. & S. F.R. Co. Vs Ellis, 163 U.S. 150 at 159
Southern Railway Co. Vs Greene, 216 U.S. 400
Radics Vs New York, 264 U.S.
Minister for State for the Army Vs Datziel, 1944 68 CLR 261
Pennsylvania Coal Company Vs Mahon, 260 U.S. 393
Kesavananda Bharati Vs State of Kerala AIR 1973 SC 1461
Minerva Mills Vs Union of India AIR 1980 SC 1789
Golaknath Vs State of Punjab AIR 1967 SCR (2) 762

1.CASE DETAILS

A) Judgement Cause title/ Case name	Chiranjit Lal Chowdhuri v. Union Of India
B) Case Number	72 of 1950
C) Judgement Date	4/12/1950
D) Court	Supreme Court of India
E) Quorum/ Constitution of Bench	Bench of five judges (Constitutional Bench)
F) Name of Judges	Hon’ble Justice H.J. Kania Hon’ble Justice Saiyid Fazal Ali Hon’ble Justice M. Patanjali Sastri Hon’ble Justice B.K. Mukherjee Hon’ble Justice S.R. Dass
G) Citation	Chiranjit Lal Chowdhuri Vs Union of India and Others, 1951 AIR 41
H) Legal Provisions Involved	Constitution of India 1950; Articles-14, Article19(1)(f), Article 19(5), Article 31, Article 32 Indian Companies (Amendment) Act of 1930 Sholapur Spinning and Weaving Company (Emergency Provisions) Act, 1950

2.INTRODUCTION AND BACKGROUND OF JUDGEMENT

The question related to the violation of Article 19(1)(f) and Article 31 of the Constitution. The constitutional bench opined that there has been no curtailment of the rights of the petitioner.

On the question relating to the infringement of Article 14 of the Constitution, the five-judge bench or the constitutional bench held the judgment in the ratio of 3:2. The majority judgment was given by Hon’ble Chief Justice H. J. Kania, Justice Saiyid Fazal Ali, and Justice B. K. Mukherjee while Justice M. Patanjali Sastri and Justice S. R. Dass was dissented from the majority.

Hence, The Hon’ble Court held that, the Sholapur and Weaving Company (Emergency Provisions) Act does not deprive the petitioner (shareholder) of enjoyment of his basic rights. Also, the Act enacted does not aim for the acquisition of property of the company.

There is a mere denial of the voting rights of the shareholders while the petitioner still has the Right to hold and earn income from his shares. Also, there is no infringement with the rights provided under Article 14 and Article 19(1)(f) of the Constitution as per the majority.

3.FACTS OF THE CASE

In the instant case, the petition is filed by Chiranjit Lal Chowdhuri¹, a shareholder of Sholapur Spinning and Weaving Company Limited governed under the provisions of the Indian Companies Act. He was the holder of three ordinary shares and eight preference shares pledged under the Bank of Baroda.
In August 1949, mills of the company were shut down and the reason specified in the ordinance laid that it was due to the mismanagement & the need to produce essential commodities. Later a Central Act named, Sholapur and Weaving Company (Emergency Provisions) Act² was enacted for the regulation of the Company’s affairs.

This Act empowered the government to interfere in the functioning of the mill, appoint new directors, curtail voting rights of the shareholders and modify the Indian Companies Act concerning the company.

The Act somewhere recreated and validated the provisions of the Ordinance and was questioned by the Petitioner (Shareholder). The petitioner challenged the constitutional validity of both the Ordinance & the Act as violative of Article 14, 19(1)(f) and 31 of the Constitution of the shareholder as well as the Company.

Further, the petitioner prayed for the writ of mandamus³ against the Central Government, Government of Bombay & Directors restraining them from interfering with the management of the Company and to declare the Ordinance and Act as unconstitutional.

PROCEDURAL BACKGROUND OF THE CASE:

A company in Sholapur known as the Sholapur Spinning and Weaving Company Limited. The company was engaged in the production of an essential commodity and also it had huge number of employees and workers. But, the Company was not working well or malfunctioning amiss during the post-independence era in 1950 and huge number of employees and workers had been left jobless and unemployed and are not paid remunerations.

At the present time, Then Government of India was trying to overtake the industry and was trying to nationalize them, so as to secure the workers and give them financial support and concomitantly support the economy. In such a situation, The Governor General of India found that it is in the hands of maladministration and a situation has arisen in the affairs of the company which has affected the production of an essential commodity and also caused serious joblessness among certain section of the community.

Therefore, he promulgated an ordinance which was later on reenacted by an act of the parliament and this act was known as the Sholapur Spinning and Weaving Company (Emergency) Provisions Act 1950. Based on this Act, the directors of the company who were the core management of the company were dismissed and the government was given permission to appoint new directors and the rights of the shareholders of the company were diminished.

Also, the Government modified the Indian Companies Act so as to bring it in accordance with the provision of the ordinance and based on that, new directors were appointed by the government. Chiranjit Lal Chowdhury who was the shareholder of the company filed a petition challenging Article 14, 19(1)(f) & 31 of the Constitution.

FACTUAL BACKGROUND OF THE CASE:

The Sholapur Spinning and Weaving Company Ltd. Was not working well. The Government of India trying to overtake the Industry. Hence, an ordinance was enacted by the parliament known as Sholapur Spinning and Weaving Company (Emergency) Provisions Act 1950. The Government was authorized to appoint new directors and rights of the Shareholders of the company. A writ petition filed by Chiranjit Lal Chowdhury (the shareholder of the company).

LEGAL ISSUES RAISED

HERE THREE LEGAL ISSUES ARE RAISED-

Whether the Sholapur and Weaving Company (Emergency Provisions) Act is in contravention to Article 14, 19(1)(f) & 31 of the Constitution?
Whether the impugned Act imposed any restriction on the petitioner’s right of acquisition of private property of the Company or the shareholder?
Whether the impugned Act amounts to the acquisition or possession of the private property within the meaning of Article 31 of the Constitution?

PETITIONER/ APPELLANT’S ARGUMENTS

The counsels for Petitioner or Appellant submitted that,

The Acts made applicable to only this company and not to other companies. Further, the Act also denies the provision of equality and equal protection of the law as guaranteed under Article 14 of the Constitution. Thus, this is violative of Article 14 of the Constitution of India. Challenging the Constitutional validity of Sholapur and Weaving Company (Emergency Provisions) Act.
This act is harming the Right to Management of the company. Government has targeted only one particular company instead of others violating the Right to Equality.
The foremost and primary purpose of the Sholapur and Weaving Company (Emergency Provisions) Act is to control and take over the possession of the mill of the Sholapur Spinning and Weaving Company limited. This action is beyond the power of the legislative body.
Hence, The Act restricts the rights of the shareholders thereby causing unreasonable interference with the rights provided under Article 19(1)(f) of the Constitution of India.
The petitioner also claimed violation of Article 31 of the Constitution of India caused as a result of the control of the Government on the company’s property. The possession was unjustified, without any compensation.
Further, the legislation is beyond the competence of the Parliament as it was not covered under the central list under the seventh schedule.

RESPONDENT’S ARGUMENTS

The counsels for Respondent submitted that,

The condition of the Company was unusual and the inquiry revealed that there was mismanagement within the company. Thus, to control the situation, to protect the future inconvenience and for smooth functioning of the Company, the Central Government laid the Ordinance first and further this Act.
The classification made was reasonable and thus there was no violation of Article 14 of the Constitution of India.
The power defined under Article 31(1) of the Constitution is different from those rights mentioned under Article 31(2) of the Constitution. The appointment of Directors in the management of the Company by the Government does not lead to dispossession of property. Single person legislation can be made if there is reasonable ground and circumstances.

7.RELATED LEGAL PROVISIONS

Constitution of India 1950; Articles-14, 19(1)(f), 19(5), 31, 32.

Article 14 speaks that 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) dealt with the Right to acquire, hold and dispose of the property. As it was one of the fundamental rights which was enshrined under the Indian constitution, but The 44^th Amendment act of 1978 of the Indian Constitution removed this right from the list of Fundamental Rights and enshrined it under article 300A as a constitutional right.
Article 19(5) says “Nothing in the sub-clauses and of the said cause shall affect the operation of any existing law in so far as it imposes, or prevents the State from making any law imposing, reasonable restrictions on the exercise of any of the rights conferred by the said sub-clauses either in the interests of the general public or for the protection of the Interests of any scheduled tribe.”
Article 31 of the Constitution was replaced and repealed by the 44^th Constitutional Amendment Act in 1978. Clause (1) states, a person should not be deprived of hisher property. Clause (2) states, A property should not be acquired compulsorily.
Article 32 of the Indian Constitution which is the Right to Constitutional Remedies is a Fundamental Right, which says that Individuals have their Exclusive Right to approach to the Supreme Court of India and they can seek the enforcement or fulfilment of other Fundamental rights guaranteed or provided by the Indian Constitution.
Indian Companies (Amendment) Act, 1930

“This Act shall came into force on such date 2 as the Central Government may, by notification in the Official Gazette, appoint”.

Sholapur Spinning and Weaving Company (Emergency Provisions) Act, 1950.

“This Act deals with dismissing managing agents of a company, removing its directors, authorising the Government to appoint new Directors and curtailing Rights of Shareholders in the matter of voting, etc.”.

8.JUDGEMENT

The bench of five judges opined that there has been no curtailment of the rights of the petitioner.

The majority judgment was given by Hon’ble Chief Justice H. J. Kania, Justice Saiyid Fazal Ali, and Justice B. K. Mukherjee while Justice M. Patanjali Sastri and Justice S. R. Dass dissented from the majority oner.
The Judges held that, a single person Legislation can be made unless there is reasonable ground and circumstances.
To protect the future Inconvenience the Sholapur Spinning and Weaving Company (Emergency) Provisions Act was enacted.
The facts in relation with the industry were “Extraordinary” in nature. Hence, the court held that, the government has restricted the rights but not taken away.
The Hon’ble Court held that the Sholapur and Weaving Company (Emergency Provisions) Act does not deprive the petitioner (shareholder) of enjoyment of his basic rights. Also, the Act enacted does not aim for the acquisition of property of the company.
There is a mere denial of the voting rights of the shareholders while the petitioner still has the right to hold and earn income from his shares. Also, there is no infringement with the rights provided under Article 14 and Article 19(1)(f) of the Constitution as per the majority.

RATIO DECIDENDI

“The Constitution of India under Article 32 empowers the citizens to approach the Supreme Court for the enforcement of individual rights in case it is violated. These rights are not only available to the natural person but also the companies.

In order to establish the maintainability of this case, the onus lies on the petitioner to prove that the law in question is beyond the legislative competence of a particular legislature and that this Act in itself contravenes the constitutional guarantees of the petitioner as provided in Part III of the Constitution.

In a question related to violation of Article 31 of the Constitution, the court opined that the sovereign has an inherent right to acquire private property in good faith for public use.”

However, this Act does not usually acquire the property of the petitioner and the legal as well beneficial interest arising out of the share the petitioner holds remains intact.

Furthermore, there is no curtailment on the petitioner to hold, buy, sell or dispose of his property. Besides, the shareholder entitlement to the dividend remains unaffected. The disabilities provided in the legislation impose reasonable restraint that is sought for public interest i.e. to ensure regular supply of essential commodities or materials to the people and prevent the issue of unemployment. Hence, the Act is not considered to be violative of Article 19(1)(f) and the legislation falls within the exception of Article 19 (5) of the Constitution.

“Concerning the violation of Article 14 of the Constitution, the court observed that ‘the guarantee against the denial of equal protection of the laws does not mean that identically the same rules of law should be made applicable to all persons within the territory of India.’ In the instant matter, the classification made is reasonable, keeping in view the mismanagement of the Company leading to serious unemployment and non-availability of essential commodities.

The court referred to the case of Middleton v. Texas Power and Light Company⁴,

where the Supreme Court of America observed that the legislative body correctly

assess the need of people, and the enacted laws are made to address the problems of people and discrimination if any is done on adequate grounds.

Moreover, the burden is on the petitioner to establish that the classification or distinction so made by the enacted legislation is improper and arbitrary. The petitioner failed to discharge the prima-facie burden either by a claim or by placing any material records in this regard.

Court also observed that the petitioner’s argument on the validity of the law based on the claim that the Act in question not placed in the Central List lacks substance. This Sholapur and Weaving Company (Emergency Provisions) Act comes under Item No. 43 of the Union List named as ‘incorporation, regulation and winding up of trading corporations.’”

OBITER DICTA:

“Article 14 of the Constitution, as already stated, lays down an important fundamental right, which should be closely and vigilantly guarded, but in construing it, we should not adopt a doctrinaire approach which might choke all beneficial legislation.”

“If a law is made applicable to a class of persons or things and the classification is based upon differentia having a rational relation to the object sought to be attained, it can be no objection to its constitutional validity that its application is found to affect only one person or thing.”

9.CONCLUSIONS AND COMMENTS

In the instant case of Chiranjit Lal Chowdhuri Vs Union of India, the petitioner claims for the infringement of his fundamental rights that later turns out not to be infringed. Hence, The legislative competence of the Parliament to enact the legislation was the primary question before the Hon’ble Court.

Therefore, the appeal stands dismissed with costs.

10.REFERENCES