A) ABSTRACT / HEADNOTE
The case Dwarkadas Shrinivas of Bombay v. The Sholapur Spinning and Weaving Co. Ltd. and Others ([1954] SCR 674) is a landmark constitutional law decision that tested the validity of state intervention in corporate affairs under the fundamental rights enshrined in Part III of the Indian Constitution. It scrutinised the Sholapur Spinning and Weaving Co. (Emergency Provisions) Ordinance II of 1950, later replaced by Act XXVIII of 1950, which permitted the Central Government to take over the management of a privately held company in the national interest. The Supreme Court held that such a law, while perhaps intended to preserve economic stability and public welfare, could not override the Constitutionally guaranteed right to property under Article 31(2) unless it complied with its requirements — particularly the provision for compensation. The judgment also clarified the distinction between Article 19(1)(f) and Article 31, and interpreted the doctrine of eminent domain. The Court invalidated the Ordinance and the Act as they allowed the State to deprive private persons of property without due compensation or adherence to legal standards. This ruling reaffirmed the inviolability of constitutional protections against arbitrary state action and underscored the limited scope of police powers vis-à-vis property rights.
Keywords: Right to Property, Article 31, Eminent Domain, Constitutional Validity, Shareholder Rights, State Intervention, Ordinance Ultra Vires, Emergency Legislation, Fundamental Rights, Corporate Law.
B) CASE DETAILS
i) Judgement Cause Title:
Dwarkadas Shrinivas of Bombay v. The Sholapur Spinning and Weaving Co. Ltd. and Others
ii) Case Number:
Civil Appeal No. 141 of 1952
iii) Judgement Date:
18 December 1953
iv) Court:
Supreme Court of India
v) Quorum:
Chief Justice Patanjali Sastri, Justices Mehr Chand Mahajan, S.R. Das, Vivian Bose, and Ghulam Hasan
vi) Author:
Majority judgments by Patanjali Sastri C.J., Mahajan J., Das J., Bose J., and Ghulam Hasan J.
vii) Citation:
[1954] SCR 674
viii) Legal Provisions Involved:
Article 31(1), 31(2), 19(1)(f), Article 14, Article 32, Government of India Act, 1935 (Section 299(2)), and Essential Supplies (Emergency Powers) Act, 1946
ix) Judgments overruled by the Case (if any):
None explicitly overruled, but the majority distinguished the earlier decision in Chiranjit Lal Chowdhuri v. Union of India, [1950] SCR 869
x) Case is Related to which Law Subjects:
Constitutional Law, Corporate Law, Property Law, Administrative Law, Emergency Legislation
C) INTRODUCTION AND BACKGROUND OF JUDGEMENT
In the post-independence period, India witnessed widespread economic disruptions, leading to state intervention in several corporate enterprises. The Sholapur Spinning and Weaving Co. Ltd., a textile company incorporated under the Indian Companies Act, 1913, faced financial turmoil and labour unrest in 1949, prompting governmental oversight. Following the company’s refusal to infuse further capital, the Government of India promulgated Ordinance II of 1950, later replaced by Act XXVIII of 1950, authorising government-appointed directors to manage the company. This legislative measure was designed to resume mill operations and mitigate unemployment. However, such sweeping action sparked a constitutional challenge by Dwarkadas Shrinivas, a preference shareholder, who contended that the Act was ultra vires, violated his fundamental rights, and lacked compensatory provisions under Article 31. The constitutional question was whether this legislation infringed the proprietary rights of shareholders and whether the assumption of company control by the state was tantamount to a deprivation of property without compensation under the Constitution.
D) FACTS OF THE CASE
The Sholapur Spinning and Weaving Co. Ltd. was financially strained in 1949, resulting in mill closure. Directors announced closure on 27 July 1949, and mills were shut down shortly after. Due to the essential nature of the goods produced, and the ensuing labour issues, the Bombay Government appointed a Controller on 5 October 1949 under the Essential Supplies (Emergency Powers) Act, 1946. On 9 November 1949, the Controller asked the directors to call upon preference shareholders to pay the remaining ₹50 per share. The directors refused. Subsequently, the Governor-General promulgated the Sholapur Spinning and Weaving Co. (Emergency Provisions) Ordinance II of 1950, delegating all authority to the Bombay Government, which then replaced the Board of Directors. These new appointees issued a call notice for ₹1.62 lakh to Dwarkadas Shrinivas, who filed a suit challenging the validity of the Ordinance and the call resolution. His suit was dismissed by the Trial Court and the Bombay High Court. He appealed to the Supreme Court questioning the constitutionality of the Ordinance and Act XXVIII of 1950, alleging it deprived him of property and his rights as a shareholder without lawful authority and without compensation.
E) LEGAL ISSUES RAISED
i. Whether Ordinance II of 1950 and Act XXVIII of 1950 violated Article 31(2) by authorising deprivation of property without compensation.
ii. Whether the Ordinance infringed Article 19(1)(f) and Article 14 of the Constitution.
iii. Whether the action by the government amounted to acquisition or taking possession of property under the concept of eminent domain.
iv. Whether a preference shareholder had the locus standi to challenge such state action.
v. Whether the decision in Chiranjit Lal Chowdhuri v. Union of India applied to the present facts.
F) PETITIONER / APPELLANT’S ARGUMENTS
i. The counsels for Petitioner / Appellant submitted that
The Ordinance and its successor Act amounted to deprivation of property without compensation, directly violating Article 31(2) of the Constitution[1]. They argued that even if the state did not take ownership, the complete takeover of management and assets constituted effective possession, thereby triggering the requirement of compensatory measures. Citing Boyd v. United States, 116 U.S. 616, the appellant stressed that constitutional protections must not be eroded by indirect methods and “stealthy encroachments”[2]. The petitioner further contended that Article 19(1)(f) guarantees citizens the right to hold property and that this takeover impaired those rights. The distinction between deprivation and acquisition, the petitioner argued, was illusory where the effect was functional expropriation. Additionally, they challenged the State’s classification of the Ordinance as regulatory, stating that the powers granted were excessive and tantamount to complete denudation of property rights, contrary to Minister of State for the Army v. Dalziel, 68 CLR 261[3].
G) RESPONDENT’S ARGUMENTS
i. The counsels for Respondent submitted that
The Attorney General for India contended that no title or ownership had been transferred to the State. The appointed directors merely managed the company for the public interest, and hence, no compulsory acquisition had occurred. The Government’s action was within the bounds of social control legislation, necessary to mitigate industrial crisis. Citing the earlier decision in Chiranjit Lal Chowdhuri v. Union of India, [1950] SCR 869, the Respondents claimed that shareholders did not suffer direct infringement of rights[4]. The ordinance, in their view, only regulated management, and shareholders remained the legal owners of the company’s assets. Furthermore, the argument followed that Article 31(1) required authority of law for deprivation but did not mandate compensation for every form of interference unless it was formal acquisition.
H) RELATED LEGAL PROVISIONS
i. Article 31 of the Constitution of India – Right to Property and Compensation in Cases of Acquisition
ii. Article 19(1)(f) – Right to Acquire, Hold, and Dispose of Property
iii. Article 14 – Equality Before Law
iv. Section 299(2) of the Government of India Act, 1935 – Pre-Constitution Property Protections
v. Essential Supplies (Emergency Powers) Act, 1946
I) JUDGEMENT
a. RATIO DECIDENDI
i. The majority held that Article 31(2) applied because the State took effective possession and control of company property without compensation. This violated the fundamental rights of the company and shareholders. The court found the law went beyond regulation and amounted to functional expropriation, as all incidents of ownership were exercised by State appointees. The court held that even temporary assumption of property rights required compensation under Article 31. The majority also clarified that Article 31 is a self-contained provision and not merely a subset of Article 19(1)(f).
b. OBITER DICTA
i. Mahajan J. observed that protections in Article 31 should be liberally construed to uphold constitutional rights. He stated, “a close and literal construction deprives them of half their efficacy.” Das J. emphasised that legal title is irrelevant where control and possession are seized. Bose J. agreed that substantial deprivation, not formal transfer of title, was the key test. The court also reiterated that laws affecting property must provide principled compensation mechanisms.
c. GUIDELINES
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The term “taken possession of” under Article 31(2) includes functional control and exclusion of the original owner, not just formal title transfer.
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Eminent domain powers must be exercised only with compensation and for public purposes.
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Even temporary control over assets can constitute deprivation of property.
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Article 31 is broader than Article 19(1)(f) and operates independently.
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Chiranjit Lal Chowdhuri’s case was distinguishable, as it did not involve a preference shareholder directly called upon to pay capital.
J) CONCLUSION & COMMENTS
The Dwarkadas Shrinivas judgment is a cornerstone in constitutional jurisprudence concerning property rights, sharply defining the boundaries between regulation and expropriation. It invalidated governmental overreach under the garb of public interest. The Supreme Court effectively drew a bright line requiring compensation for deprivations, even where state actors do not take legal ownership. The decision upheld the sanctity of corporate governance structures, the rights of shareholders, and fortified judicial review against overbroad legislation. It also provided clarity on the independent operation of Article 31, affirming its superiority in matters of property compared to Article 19(1)(f). As such, it remains a precedent-setting interpretation of eminent domain and social control in the Indian context.
K) REFERENCES
a. Important Cases Referred
[1] Chiranjit Lal Chowdhuri v. Union of India, [1950] SCR 869
[2] Boyd v. United States, 116 U.S. 616
[3] Minister of State for the Army v. Dalziel, 68 CLR 261
[4] State of West Bengal v. Subodh Gopal Bose, [1954] SCR 587
[5] Pennsylvania Coal Co. v. Mahon, 260 U.S. 322
[6] A.K. Gopalan v. State of Madras, [1950] SCR 88
[7] State of Bihar v. Maharajah Kameshwar Singh, [1952] SCR 889
b. Important Statutes Referred
i. Constitution of India, Article 31, Article 19(1)(f), Article 14
ii. Government of India Act, 1935, Section 299(2)
iii. Essential Supplies (Emergency Powers) Act, 1946
iv. The Sholapur Spinning & Weaving Co. (Emergency Provisions) Ordinance II of 1950
v. Act XXVIII of 1950
