DWARKADAS SHRINIVAS Vs. SHOLAPUR SPG ANDWVG CO LTD

JUDGEMENT

(1.) THE Sholapur Spinning and Weaving Co. , Ltd. , was incorporated with an authorised capital of RS. 48,00,000 divided into 1590 fully paid up ordinary shares of Rs. 1,000 each and 20 fully paid up ordinary shares of Rs, 500 each and 32,000 partly paid up redeemable cumulative first preference shares of Rs. 100 each. Therefore, the present paid up capital of the company is Rs. 32,00,000, Rs. 16,00,000 being fully paid up ordinary shares and Rs. 16,00,000 being partly paid up preference shares, Rs. 50 being unpaid on each of the 32,000 cumulative preference shares. On 27-7-1949, the directors of the mills gave a notice to the workers that the mills would be closed, and pursuant to this notice the mills were in fact closed on 27-8 1949. On 5-10-1949, Govt. appointed a Controller under the Essential Supplies Emergency Powers Act, 1946, and on 9 11-1949, the Controller asked the directors of the company to make a call of RS. 50 per share on the preference share holders, the amount remaining unpaid on each of the preference shares. The directors refused to comply with this requisition. Thereupon the Govt. of India on 9-1-1950, promulgated an Ordinance under Section 42, Govt. of India Act. This Ordinance, the particular provisions of which we shall presently consider, enabled the Central Govt. to take over the control of the mills and to appoint their own directors. The Ordinance also empowered the Central Govt. to delegate all its powers to the Provincial Govt. and under that power of delegation on 9-1-1950, the Central Govt. delegated all its powers to the Govt. of Bombay, and under these delegated powers the Govt. of Bombay appointed certain directors who are the defts. to the suit filed by the pltf. from which this appeal arises. These newly appointed directors passed a resolution on 7-2-1950; making a call of RS. 50 on each of the preference shares payable at the times stated in the resolution, and pursuant to this resolution a notice waa addressed on 22-2-1950, to the pltf; to pay the call on or before 3-4-1950. The pltf. thereupon filed this suit in a representative capacity on behalf of himself and other preference share-holders challenging the validity of the Ordinance and challenging the right of the directors to make the call. The suit was tried by Bhagwati J. who held that the Ordinance was valid, that the directors had the right to make the call, and that the pltf. was not entitled to any of the reliefs claimed by him in the suit. He thereupon dismissed the suit. From that order of dismissal the pltf has come in appeal before us.

(2.) IT ie open to the pltf. to challenge any provision of the Ordinance bo the extent that it affects his rights, or even challenge the Ordinance as a whole if he can satisfy us that the Ordinance is void and thereby no rights "are conferred upon the directors to make any call upon him. It is necessary, therefore, to look at the provisions of the impugned legislation. The preamble of the Ordinance states that "on account of mismanagement and neglect a situation has arisen in the affair of the Sholapur Mills which has prejudicially affected the production of an essential commodity and has caused serious unemployment amongst a certain section of the community," and it further goes on to state that "whereas an emergency has arisen which renders it necessary to make special provision for the proper management and administration of the company, the Governor-General is pleased to promulgate an Ordinance under Section 42, Govt. of India Act. " Section 2 of the Ordinance deals with definitions. Section 8 empowers the Central Govt. to appoint as many persons as it thinks fit to be directors of the company for the purpose of taking over its management and administration. Section 4 deals with the effect of appointment of directors of the company by the Central Govt. and the effect is : (1) That all the directors of the company who were holding office im. mediately before the issue of the order appointing new directors shall be deemed to have vacated their offices; (2) any contract of management between the company and any managing agent thereof shall be deemed to have terminated; (3) it is a direction to the directors to take such steps as may be necessary to take into their custody or under their control all the property and effects and actionable claims to which the company is or appears to be entitled; and (4) the directors appointed under this Ordinance shall be for all purposes the directors of the company daly constituted under the Companies Act and these directors shall alone be entitled to exercise all the powers of the directors of the company, whether such powers are derived from the Companies Act or from the memorandum or articles of association or otherwise. Section 5 deals with powers and duties of directors, and this section gives various powers to the directors for the purpose of efficiently managing the business of the company, and it then sets out certain powers in particular and these powers are the power to raise funds, to carry out such repairs as may be necessary, the power to employ persons, and the power to cancel or vary, either unconditionally or subject to such conditions as they think fit to impose, any contract or agreement entered into between the company and any other person, provided the directors are satisfied that such contract or agreement is detrimental to the interests of the company. Section 6 provides for a statement of affairs which has got to be made to the directors containing various particulars as to the financial position of the company Section 7 gives powers to the directors bo institute proceedings against past directors. Section 8 provides for a penalty for withholding documents or property from the newly appointed directors. Section 9 deals with filling up of casual vacancies. Section 10 provides that no managing agent shall be entitled to any compensation for the premature termination of his contract under this Ordinance, Section 11 deals with the cancellation of the appointment of directors appointed under the Ordinance, and it states that if at any time it appears to the Central Govt. that the purpose of the order appointing the directors has been fulfilled or that for any other reason it is unnecessary that the order shall remain in force, it may direct the directors to call a meeting of the share-holders of the company for the purpose of nominating a new body of directors and on such nomination the Central Govt. may by order cancel the appointment of directors made under the Ordinance, and on the cancellation of such appointment the directors shall be divested of the management and administration of the company and such management and administration shall vest in the new body of directors. Section 12 provides that notwithstanding anything contained in the Companies Act or in the memorandum or articles of association of the company, (1) it shall not be lawful for the share-holders of the company or any other person to nominate or appoint any person to be a director of the company; (2) no resolution passed at any meeting of the shareholders of the company shall be given effect to unless approved by the Central Govt. ; and (8) no proceeding for the winding up of the company or for the appointment of a receiver in respect thereof shall lie in any Ct. unless by or with the sanction of the Central Govt. Subsection (2) of Section 12 provides that subject to these provisions and subject to such exception, restrictions and limitations as the Central Govt. may, by notified order, specify, the Companies Act shall continue to apply to the company in the same manner as it applied thereto before the issue of the notified order under Section 3. Section 13 deals with the effect of the Ordinance notwithstanding the provision of any other law in operation Section 14 declares that the directors shall be deemed to be public servants, Section 15 deals with the delegation of powers by the Central Govt. to the Govt. of Bombay. Section 16 is in the nature of an indemnity clause. Section 17 is the rule-making section.

(3.) NOW it is not disputed by Mr. Engineer on behalf of the pltf. that the Legislature had the legislative competence to enact this law. If the Legislature had the competence, then equally so had the Governor General under Section 42. Legislative competence is to be found in List I of the Govt. of India Act, Entry No. 33. But the Ordinance is challenged on the ground that it contravenes Section 299 (2) of the Govt. of India Act and also contravenes certain of the fundamental rights secured to the citizen under our new Constitution. As we shall point out, it is unnecessary to consider the effect of Section 299, Govt. of India Act, because it is common ground between the parties that if the impugned legislation contravenes the provisions of Article 31 (2) of the Constitution, then it would be void to the extent of that contravention, and as Article 31 (2) is wider in its terms than Section 299, Govt. of India Act, it will be sufficient if we consider Article 31 (2) and it would not be necessary to decide whether the impugned legislation contravenes Section 299 (2),