KAMLA PRASAD KHETAN vs. THE UNION OF INDIA

Case Analysis

KAMLA PRASAD KHETAN vs. THE UNION OF INDIA

May 3, 2025

A) ABSTRACT / HEADNOTE

The case of Kamla Prasad Khetan v. The Union of India, decided by the Hon’ble Supreme Court of India in 1957, dealt with a significant issue concerning the power of the Central Government to take over the management of industrial undertakings under Section 18A of the Industries (Development and Regulation) Act, 1951, particularly the scope and limits of such takeover, and the validity of extending the notified period under Section 21 of the General Clauses Act, 1897. The central dispute revolved around the legality of a continued extension of management control over Ishwari Khetan Sugar Mills Ltd., in light of alleged mismanagement by one of the company’s directors and family disputes. The petitioners challenged the constitutional and statutory legitimacy of the orders, claiming a violation of fundamental rights under Article 32 of the Constitution. However, the Court ruled in favour of the Union of India, holding that both the original and amending orders passed under Section 18A were valid and made in good faith. The decision laid down important jurisprudence on the application of Section 21 of the General Clauses Act in industrial regulation and reinforced the powers of the State in safeguarding public interest in industrial governance. The judgment also clarified the scope of judicial review concerning the Government’s administrative discretion under industrial regulatory laws.

Keywords: Section 18A Industries Act 1951, General Clauses Act Section 21, mismanagement, fundamental rights, industrial takeover, bona fides, Article 32

B) CASE DETAILS

i) Judgement Cause Title
Kamla Prasad Khetan v. The Union of India

ii) Case Number
Petition No. 54 of 1955

iii) Judgement Date
1st May 1957

iv) Court
Supreme Court of India

v) Quorum
S.R. Das, C.J., Jafer Imam, S.K. Das, Govinda Menon, and A.K. Sarkar, JJ.

vi) Author
Justice S.K. Das (Majority); Justice A.K. Sarkar (Concurring, Separate Opinion)

vii) Citation
AIR 1957 SC 676; [1957] SCR 1052

viii) Legal Provisions Involved

Section 18A, 15, 16 of The Industries (Development and Regulation) Act, 1951
Section 21 of the General Clauses Act, 1897
Article 32 of the Constitution of India

ix) Judgments overruled by the Case (if any)
None

x) Case is Related to which Law Subjects
Constitutional Law, Industrial Law, Administrative Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

This case arose from a challenge to the Central Government’s takeover of the management of a private sugar mill, Ishwari Khetan Sugar Mills Ltd., under the Industries (Development and Regulation) Act, 1951. The takeover stemmed from family disputes within the Khetan family, whose members managed the mill. Allegations of financial irregularities, mismanagement, and internal litigation led the Government to intervene under Section 18A following an investigation under Section 15. The petitioners contested the validity of the takeover and its extension, arguing that the conditions required for invoking Section 18A were not satisfied and the appointment of the authorised controller was not bona fide. The Court had to interpret whether such an extension could be legally sustained under Section 21 of the General Clauses Act, especially when the original conditions may no longer be present.

D) FACTS OF THE CASE

The Ishwari Khetan Sugar Mills Ltd. was managed by a family-managed firm of agents comprising members of the Khetan family. Due to internal disputes and mutual allegations of misappropriation and obstructive legal proceedings, the functioning of the mill was severely disrupted. Following a complaint by one branch of the family, the Central Government issued an order on 18 December 1952, under the Essential Supplies (Temporary Powers) Act, 1946, giving limited control to Kedar Nath Khetan.

This control was upgraded by an order under Section 18A of the Industries Act, 1951 on 14 November 1953, appointing him as the authorised controller for one year. Due to constitutional concerns post the Dwarkadas Srinivas v. Sholapur Spinning and Weaving Co. Ltd. judgment, the order was withdrawn on 21 May 1954. But, after further investigation under Section 15, another takeover order was issued on 8 November 1955, and later extended by amendment on 7 November 1956. The petitioners (including Kamla Prasad Khetan) challenged these actions under Article 32.

E) LEGAL ISSUES RAISED

i) Whether the preconditions under Section 18A(1)(b) of the Industries Act were met when the 1955 and 1956 orders were issued.
ii) Whether the Government could lawfully amend a prior notified order under Section 21 of the General Clauses Act without re-satisfying the original conditions.
iii) Whether the appointment of the same individual, who was previously in management, as controller constituted a mala fide act.
iv) Whether the petitioners’ fundamental rights under Article 19(1)(f) and (g) were infringed by the impugned orders.

F) PETITIONER/ APPELLANT’S ARGUMENTS

i) The counsels for the petitioners submitted that the appointment and extension of the controller under Section 18A was ultra vires because the conditions in clause (b) of sub-section (1) were not fulfilled at the time of the amending notification. They argued that no fresh investigation or mismanagement existed when the extension was made, and thus Section 21 of the General Clauses Act was wrongly invoked.

They asserted that Kedar Nath Khetan, being part of the original management and family disputes, had a personal interest and his continued appointment was mala fide. The control orders were seen as a camouflage to maintain power within one faction of the Khetan family, despite the legal ownership and fundamental rights of the others.

They also cited Dwarkadas Srinivas v. Sholapur Spinning and Weaving Co. Ltd., AIR 1954 SC 119, arguing that deprivation of management amounted to violation of Article 31(2) and Article 19(1)(f) rights without due process.

G) RESPONDENT’S ARGUMENTS

i) The counsels for the Union of India submitted that the Government had made a valid assessment of the mismanagement and public interest concerns under Section 15, and was within its right to issue and amend orders under Section 18A.

They emphasised that the continuation of family disputes, obstruction of meetings, litigations, and paralysis of management were adequate grounds. They asserted that the order under Section 18A in 1955, and its amendment in 1956, were both issued in good faith.

They referred to Section 21 of the General Clauses Act to argue that once the conditions were met in the initial takeover, the power to amend it existed without re-fulfilment of the original conditions, provided the circumstances had not changed to eliminate the need for continuation.

H) RELATED LEGAL PROVISIONS

i) Section 18A(1)(b) – Industries (Development and Regulation) Act, 1951: Authorises takeover if there is investigation and mismanagement.
ii) Section 15 and 16 – Provide for investigation and direction by the Central Government.
iii) Section 21 – General Clauses Act, 1897: Allows amendment of orders if original power exists.
iv) Article 32 – Right to constitutional remedy for enforcement of fundamental rights.
v) Article 31B and Ninth Schedule – Protects Section 18A from constitutional invalidity.

I) JUDGEMENT

a. RATIO DECIDENDI

i) The Supreme Court held that once the Government forms the opinion based on an investigation and mismanagement, the condition continues until management returns to the owner. Thus, an amending order prolonging the term under Section 21 of the General Clauses Act does not require fresh satisfaction of those conditions.

The majority also held that the controller’s appointment could not be questioned unless evidence showed an ulterior purpose. There was no mala fide.

b. OBITER DICTA

i) Justice Sarkar, in a concurring opinion, held that the phrase “like conditions” in Section 21 does not refer to the original requirements of Section 18A(1)(b) but refers to the time-bound limit under Section 18A(2), i.e., orders not to exceed five years.

c. GUIDELINES

Once an order under Section 18A is passed after fulfilling the dual condition (investigation and mismanagement), an amendment to that order under Section 21 of the General Clauses Act does not require re-fulfilling those conditions.
The appointment of a controller, unless shown to be for an ulterior motive, cannot be set aside on the ground of mala fide.
The Government’s discretion in such appointments is not subject to judicial review unless there is a breach of statute or constitutional principles.

J) CONCLUSION & COMMENTS

The Court’s reasoning in this case harmonised administrative discretion with constitutional rights by interpreting the regulatory statute in light of public interest and legislative intent. The decision affirmed the Government’s broad discretion under industrial laws and laid down clear parameters for judicial review in such economic interventions. It also provided clarity on how Section 21 of the General Clauses Act operates vis-à-vis special statutes like the Industries Act. The case remains a cornerstone precedent for regulatory control in post-independence India’s industrial jurisprudence.

K) REFERENCES

a. Important Cases Referred