Skip to content


Swadeshi Cotton Mills Co. Ltd. and ors. Vs. Union of India and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtDelhi High Court
Decided On
Case NumberCivil Writ Appeal No. 408 of 1978
Judge
Reported inILR1979Delhi387
ActsIndustries (Development and Regulation) Act, 1951 - Sections 15
AppellantSwadeshi Cotton Mills Co. Ltd. and ors.
RespondentUnion of India and anr.
Advocates: F.S. Nariman,; Lalit Bhasin,; V.D. Mehta,;
Cases ReferredJohn H. Fahey and A. V. Ammann v. Paul Mallonee
Excerpt:
industries (development & regulation) act, 1951 - sections 15, 18aa, 18aa(1)(a), 18aa(1)(b) & 18aa(a)(b) and 18f--vis-a-vis article 14,19,31 & 31a(1)(b), constitution of india--whether impugned order dated 13-4-1978 vocative of the principle of natural justice.; in the instant case the petitioners challenged the validity of the order dated 13th april, 1978 by which the central government took over the management of six industrial undertakings belonging to petitioner no. 1 under section 18aa(1)(a) of the industries (development & regulation) act (as amended) on the ground that no hearing was giving to the petitioners before the impugned order was passed and that the said order is void for violation of the principle of natural justice. during the hearing before three.....order s.o.265(e)/18aa/idra/78 - whereas the central government is satisfied from the documentary and other evidence in its possession, that the persons in charge of the industrial undertaking, namely, (i) m/s. swadeshi cotton mills, kanpur, (ii) m/s. swadeshi cotton mills, pondicherry, (iii) m/s. swadeshi cotton mills, naini, (iv) m/s. swadeshi cotton mills, maunath bhanjan, (v) m/s. udaipur cotton mills ltd., udaipur and (vi) m/s. rai bareli textile mills ltd., rae bareli of m/s. swadeshi cotton mills co. ltd., kaapur (hereinafter referred as the said industrial undertakings), have by creation of encumbrances on the assets of the said industrial undertakings, brought about a situation which has affected and is likely to further affect the production of articles manufactured or produced.....
Judgment:
ORDER

S.O.265(E)/18AA/IDRA/78 - Whereas the Central Government is satisfied from the documentary and other evidence in its possession, that the persons in charge of the industrial undertaking, namely, (i) M/s. Swadeshi Cotton Mills, Kanpur, (ii) M/s. Swadeshi Cotton Mills, Pondicherry, (iii) M/s. Swadeshi Cotton Mills, Naini, (iv) M/s. Swadeshi Cotton Mills, Maunath Bhanjan, (v) M/s. Udaipur Cotton Mills Ltd., Udaipur and (vi) M/s. Rai Bareli Textile Mills Ltd., Rae Bareli of M/s. Swadeshi Cotton Mills Co. Ltd., Kaapur (hereinafter referred as the said industrial undertakings), have by creation of encumbrances on the assets of the said industrial undertakings, brought about a situation which has affected and is likely to further affect the production of articles manufactured or produced in the said industrial undertaking and that immediate action is necessary to prevent such a situation;

NOWtherefore, in exercise of power conferred by clause (a) of sub-section (1) of section 18AA of the Industries (Development and Regulation) Act, 1951 (65 of 1951), the Central Government hereby authorises the National Textile Corporation Limited (hereinafter referred to as the Authorised person) to take over the management of the whole of the said industrial undertaking. .. .'

The effect of that order is take over the management of the undertaking and some further consequential results also follow. One of them being that all persons in charge of management including directors shall be deemed to have vacated their offices as such and persons, if any, authorised to take over the management of the industrial undertaking, which is Company, shall alone be entitled to exercise the powers of directors of industrial undertaking.

(38) The present petition was filed in this Court challenging the legality and validity of this order. Amongst other grounds one of the main grounds urged was that the petitioner had not been given any opportunity of hearing before the impugned order was passed and this amounted to violation of principles of natural justice, resulting in the order being void. The matter was first placed before a Division Bench which referred the matter to a three judges Full Bench. During the hearing before three judges Full Bench, it was felt that the correctness of a previous Full Bench decision of this Court in Vijay Kumar Mundhra v. Union of India and others LL.R. (1972) Ii Delhi 483 in so far as it held that a prior hearing need not be given to persons affected before passing an order under Section 18AA of the Act might require reconsideration and the hearing Bench by its order of 12th October, 1978, thereforee, referred the question of law to a larger Bench. This Bench on the opening day of its hearing reframed the questions to be answered I by it as under:

'Whether in construing section 18AA of the Industries Development and Regulation Act, 1951 as a pure question of law compliance with the principle of audi alteram partem is to be implied. If so.

(A)Whether such hearing is to be given to the parties who would be affected by the order to be passed under the said section prior to the passing of the order ; or

(B)Whether such hearing is to be given after the passing of the order ; and

(C)If prior hearing is to be normally given and the order passed under the said section is vitiated by not giving of such hearing, whether such vice can be cured by the grant of a subsequent hearing.

Order under Section 18a is a purely executive order embodying an administrative decision. (See The Keshav Mills Co. Ltd. and Another v. Union of India and Others (1973) 1 S.C. 380 . Same would be the nature of order under Section 18AA of the Act. Principle of audi alteram partem as a facet of the rules of natural justice are by now well settled. The rule that a party to whose prejudice the order is intended to be passed is entitled to the hearing applies equally to judicial tribunal and bodies of persons invested with authority to adjudicate upon matters involving civil consequences vide. These rules can operate only in areas not covered by any law validly made. In other words they do not supplant the law of the land but supplement it. The law must now be taken to be well settled that even in administrative proceedings which involve civil consequences the doctrine of natural justice must be held to be applicable vide Maneka Gandhi v. Union of India, : [1978]2SCR621. The rules of natural justice are not embodied rules. What particular rule of natural justice should apply to a given case must depend to a great extent on the facts and circumstances of that case, the frame work of the law under which the enquiry is held and the constitution of the Tribunal or body of persons appointed for that purpose. Whenever a complaint is made before a Court that some principle of natural justice had been contravened the Court has to decide whether the observance of that rule was necessary for a just decision on the facts of that case (A.K. Kraipak and others) (Supra).

(39) In order, thereforee, to answer the question whether right to prior hearing is excluded in the present case it is obviously necessary to look at the legislation in hand and the nature of the order that is contemplated by it. The Act came into force on 8th May, 1952. The object of the Act is to provide the Central Government with a means to implement the Industrial Policy which was announced in resolution of 1948 and approved by the Central Legislature. The Act brings under Central control the development and regulation of a number of important industries the activities of which affect the country as a whole and the development of which must be governed by economic considerations of all India import. Chapter Ii of the Act deals with registration, issue of and revocation of licenses of industrial undertaking.

(40) Section 15 of the Act deals with the power of Central Government to cause investigation to be made where in its opinion there lies been or is likely to be substantial fall in the volume of production or marked deterioration in the quality of any article, or where there has been or is likely to be a rise in price of any article or class of articles relatable to that industry or where it is necessary to take action for the purpose of conserving any resources of national importance which are utilised in the industry or any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest.

(41) Section 16 permits the Central Government to give direction as may be appropriate after making the investigation under Section 15.

(42) Section 17 of the Act (now repealed) provided for issuing of directions in pursuance of investigation held under Section 15 of the Act. Some practical difficulties in the working of the Act were felt by the Central Government and a further amendment of the Act was made by the Parliament Amendment Act 26 of 1953. The statement of object and reasons among others gave as one of the reasons for bringing in the amendment that the Government could not take over the management of any industrial undertaking even in such a situation calling for emergent action without first issuing directions to it and waiting to see whether or not they arc obeyed. The amending Act of 1953 introduced into the Act a new Chapter 3-A containing Section 18A. This amendment empowered the Central Government under Section 18a(l)(b) to take over the management of the undertaking in respect of which investigation has been made under Section 15 whether or not any directions have been issued to undertaking under Section 16 of the Act. The Parliament viewed the power of Central Government to take over the management of such undertakings in certain cases of such great importance as aid for the proper development and economic planning of the country that by the Constitution (4th Amendment Act 1955) Chapter 3-A of the Act was inserted as item 19 to Ninth Schedule of the Constitution. The importance to the economy of this Act continue lo be accepted is clear from the fact that the whole of the Act with up-to-date amendments now forms a part of Ninth Schedule at item No. 88, I am mentioning this aspect only to emphasise the anxiety of Parliament to immunise from Constitutional challenge the power of the Central Government to take over the management in certain cases mentioned in the statute. Apparently, Section 18a was not found sufficiently effective so as to permit taking immediate action to prevent mismanagement. In order to remedy this. Section 18AA was inserted in the Act by Amending Act 72 of 1971. Section 18AA(1) reads as under:

'18AA(1)Without prejudice to any other provision of this Act, if, from the documentary or other evidence in its possession, the Central Government is satisfied, in relation to an industrial undertaking, that

(A)the persons in charge of such industrial undertaking have, by reckless investments or creation of incumbrances on the assets of the industrial undertaking, or by diversion of funds, brought about a situation which is likely to affect the production of articles manufactured or produced in the industrial undertaking, and that immediate action is necessary to prevent such a situation ; or

(B)it has been closed for a period of not less than three months (whether by reason of the voluntary winding up of the company owning the industrial undertaking or for any other reason) and such closure is prejudicial to the concerned scheduled industry and that the financial condition of the company owning the industrial undertaking and the condition of the plant and machinery of such undertaking are such that it is possible to restart the undertaking and such restarting is necessary in the interests of the general public,

ITmay, by a notified order, authorise any person or body of persons (hereafter referred to as the 'authorised person') to take over the management of the whole or any part of the industrial undertaking or to exercise in respect of the. whole or any part of the undertaking such functions of control as may be specified in the order.'

Statement of objects and reasons emphasise that the proper development of these industries is vital to the economic development of the country. These industries not only substantially contribute to the Gross National Product of the country but also afford gainful employment to millions of people. For diverse reasons a number of industrial undertakings engaged in these industries have had to close down and the continuing economic operation of many others be set with serious difficulties affecting industrial production and employment. Action has thereforee to be taken to rehabilitate such undertakings by investment of public funds and managerial skill and put them on their feet.

(43) It will be seen that Section 18A(l)(b) does not limit or restrict the reasons on the basis of which the Government is to form its opinion that the industrial undertaking is being managed in a manner highly detrimental to the scheduled industry or to public interest. It may be sheer incompetence or deliberate fraud or ignorance of proper management technique. The Central Government can take all or any of the circumstances which come to its notice, as a consequence of investigation under Section 15 of the Act. On the other hand exercise of power under Section 18AA(1)(a) is restricted to a limited set of circumstances mentioned therein. Before an action can be taken under Section 18AA(l)(a) the Central Government is to be satisfied from documentary or other evidence in its possession that the person in charge of such industrial undertaking have:

(I)by reckless investment ;

(II)or creation of incumbrances on the assets of industrial undertaking;

(III)or by diversion of funds, brought about a situation which is likely to affect the production of article manufactured or produced in the industrial undertaking, and that immediate action is necessary to prevent such a situation.

it may by notified order take over the management of the whole or any part of the industrial undertaking. Thus while Section 18a permits action in broad category of cases, the sweep of Section 18AA of the Act is restricted and also conditioned by the Central Government's satisfaction that immediate action is necessary. The two Sections 18a and 18AA are meant to operate in different fields and the slow and leisurely manner of investigation contemplated under Section 18a is totally out of context and tune with the immediacy of the action called for under Section 18AA.

(44) Mr. Nariman concedes that the object of Section 18aa was certainly to dispense with the requirement of holding an investigation under Section 15 prior to passing an order under Section 18AA(1). But he seriously contends that thereby requirement of prior hearing is not excluded from the purview of Section ISAA. I cannot agree. If the construction suggested by Mr. Nariman were to be accepted it would defeat the object of bringing in Section 18AA. The compulsion of immediacy is an important element of Section 18aa, satisfaction of Central Government is derived from the documentary or other evidence in its possession. It is only if a situation is brought about by those three methods that this section becomes applicable. Thus, there is an inbuilt restraint in the statute for taking action under Section 18AA(1). If the only purpose of Section 18AA(1) was to dispense with the investigation under Section 15, as contended by Mr. Nariman, I see no reason why it was necessary to have incorporated Section 18AA, separately ; the same purpose could have been satisfied by the legislature by amending first two lines in clause (b) of Section 18A(1) by adding after the sentence the words given in parenthesis, namely 'an industrial undertaking in respect of which an investigation has been (or has not been) made under Section 15.' This would have resulted in empowering the Central Government to take over the management without holding an investigation, just as at present Section 18A(1)(b) contemplates a situation of passing an order whether or not any directions have been issued to the undertaking in pursuance of Section 16. But the fact that it was not done and instead Section 18aa was introduced is an obvious pointer that because of immediacy of action not only investigation but also prior hearing was being dispensed with. The purpose of Section 18AA was to deal with a grave and emergent situation brought about only by three kinds of actions of the persons in charge of industrial undertaking, namely by reckless investment, or creation of encumbrances on the assets of industrial undertaking or by diversion of funds. It would be appreciated that these activities are those about which documents or other evidence would be very readily available with the Central Government. The Act give's power by Section 19 to the Central Government for the purpose of ascertaining the position of working of any industrial undertaking to inspect any premises or order the production of documents, book or register. The licensing, and expansion of the undertaking are controlled under the Act and no substantial expansion can take place without the authorisation of the Central Government. The encumbrances on the assets, or diversion of funds and reckless investment are matters which are easily available from the scrutiny of the records of the undertakings and from the normal information which has to be supplied to the Central Government under the Act and the Rules. The objective existence of essential fads can thus be easily demonstrated and also verified from records of the Government. The activities of these undertakings affect the country as a whole and if these industries were to close down it would affect production, necessary consequence will be further unemployment in a country which is already beset with the evil of millions of unemployed. That such a situation has to be handled on almost a war footing and that the problems posed by it permit no delay is self evident, more so because of the mandate of the constitution to secure for all its citizens economic and social justice. When livelihood of thousands and health of the economy is in jeopardy the leisurely process of slow decision by giving of prior hearing ill befits the situation calling for emergent action. It is true that the hearing may not accord to a hearing as in a court of law. It is also true that hearing can be tailored to meet the requirements of any urgent situation and that it may be hurried up and not done in a very leisurely manner. But whatever the methodology devised and howsoever the matter be hurried if a hearing that has to be given is to be reasonable one and not just an empty formality, the whole process must necessarily take time and all this when the conditions are so grave that every moment's delay may mean an irreversible deterioration of economy and the flooding of the market by the unemployed thousands. One also cannot easily ignore the risk of giving a prior hearing before passing an order under Section 18AA. If, as Mr. Nariman contends notice be given to the owner of an undertaking, calling upon him to show cause as to why an order under Section 18AA(1) may not be passed it may very well happen that in the meantime further reckless investment and diversion of funds or encumbrances on assets may be created. That the realisation of this immediacy of action and danger of prior hearing was present when the amendment was moved by the Minister in charge when he said in Lok Sabha 'We have introduced the Industries (Development and Regulation) Amendment Bill, 1971 to deal with a situation about which the Hon'ble members of this House are aware and have frequently expressed concern. The spectra of sick and closed industrial units has already assumed a threatening dimension, bringing in its wake a chain of economic and social problems. We have taken a close look at the industries (Development and Regulation) Act to find out whether the existing provisions of the Act could meet the needs of the situation. While the existing provisions are all right to deal with a normal situation, these are quite inadequate in the present content. Take, for instance, section 15 of the Act under which Government is empowered to make or cause to be made an investigation into the affairs of industrial undertakings. Whereas investigations under this section are extremely useful and necessary, they are time-consuming and may sometimes enable any unscrupulous management to fritter away whatever resources are left with it. Unfortunately, under the present Act, there are no provisions to take over a concern without an investigation even though the Government might be having documentary or other evidence to the effect that the management is trying to ruin the concern.' (Vide-Lok Sabha Debates, Fifth Series Vol. X-No. 25, December 16, 1971, Pages 7 and 8).

(45) It is obvious that the reason behind the amendment was the necessity of taking urgent action in a manner that it is not frustrated by the action of those from whom management was being taken over. It is true that speech of the Minister in Parliament moving the Bill may not be read for interpreting the provision of a statute but it can certainly be referred to for the purpose of finding out the evil which the amendment of statute was intended to remedy, the reason behind the Amendment of law, and the purpose of ascertaining the object which the legislature had in view in using the words in question. Speech by the mover made in Parliament when introducing the clauses was referred to without objection by Lord Denning in

(46) I am aware that to permit the passing of order prejudicial to a person without giving him a prior hearing is prima facie repugnant to one's sense of justice. Courts no doubt ought and do make all efforts not to give countenance to such a 'situation where an order can be passed to the prejudice of a person without first giving him notice and a hearing. But such an approach is not possible in a situation where to apply the principles of natural justice by giving a prior hearing would defeat and frustrate the object of the statute. Thus. if a statutory provision can be read consistently with the principles of natural justice the courts should do so. But if a statutory provision either specifically or by necessary implication excludes the application of any rules of natural justice the court cannot ignore the mandate of the legislature or the statutory authority and read into the concerned provision the principles of natural justice. Since the left of the law is not logic but experience and every legal proposition must, in the ultimate analysis, be tested on the touch-stone of pragmatic realism, the audi alteram partem rule would, by the experimental test, be excluded if importing the right to be heard has the effect of paralysing the administrative process or the need for promptitude or the urgency of the situation so demands.

(47) Mr. Nariman, though willing to concede that action may be taken without prior hearing in cases of spread of fire or infectious disease strongly contends that there could be no justification in taking action under Section 18AA(1) of the Act without a prior hearing because there could be no immediacy which would suffer by giving a prior hearing. The fallacy in the argument is that the urgency which dispenses with prior hearing before passing an order is sought to be restricted to the usual urgency to prevent spread of fire and disease but seeks to under estimate the grave importance of the industrial recovery, which is the purpose of an order under Section 18AA(1). Nor does it fully appreciate the gravity of a situation in a developing country like ours where any delay in taking action to prevent the fall of production or the closure of industrial undertakings can cause incalculable harm. To imply prior hearing in these cases would be a certain invitation to delay without all the attendant consequences. Situations like these cannot be controlled by armchair discussions around the table, but by immediate action. Prior hearing in such a case would defeat the very purpose of urgent action. If the only purpose of amending the Act in 1971 was to dispense with the investigation only and not prior hearing, as contended by Mr. Nariman it seems to me that the exercise was a futility because then there was no justification in having restricted the exercise of power by the Central Government only on the basis of specific and limited conditions mentioned in Section 18AA(1). Parliament could not have provided urgent action in those limited area, and at the same time to have reduced its efficacy and potency by omitting investigation only but retaining the requirement of prior hearing which would again lead to delay and in many cases to frustration of the object of the order under Section 18AA(1). No doubt the duty to act judiciously should normally be implied where statute is silent. But the presumption in favor of importing the rule may be partly or wholly displaced where compliance with rule would be inconsistent with a paramount need for taking urgent preventive or remedial action (Halsbury 4th Edition, Vol. I, Para 74). In administrative law the right to prior notice and an opportunity to be heard may be held to be excluded by implication. Thus, it may be excluded where it is impracticable to give any prior notice or opportunity to be heard, or where an obligation to give notice and opportunity to be heard would obstruct the taking of prompt action specially action of preventive or remedial nature (Judicial Review of Administrative Action by S.A.D. Smith, 3rd Edition, Page 164, 167). Reference should also be made to Joseph Kuruvilla Vellukunnel v. Reserve Bank of India and others, : AIR1962SC1371. There a provision in the Banking Companies Act provided that if an application for winding up is made by the Reserve Bank, the High Court shall order the winding up of the Bank. The provision was challenged as being vocative of Article 19 of the Constitution and also being against principles of natural justice as it provided no hearing to the Bank. Repelling the challenge the Court said 'It was impossible that the Reserve Bank with the run on the Bank would sit down to decide after hearing whether to take action or not while withdrawals were being made at the rate of Rs. 7 lakhs per day. The emergency of the situations which may arise is itself the justification for the procedure open under the Act and taken in this case.'

(48) The statute has also indicated the cases in which opportunity of hearing is provided for. Thus, Section' 18a dealing with revocation of registration and Section 15 deals with the investigation and Section 18A which is dependant on the investigation, provide an opportunity of hearing to the parties affected. No such right to hearing is provided in Section 18AA. It is accepted that the Parliament may evince an intention of excluding the operation of rule by expressly providing for notice and opportunity to be heard for one purpose but omit to make any such provision for another (vide Halsbury Law 4th Edition. Vol. 1. Para 74). This would be another indication that the Parliament did not wish to imply a prior hearing in Section 18AA.

(49) There is another reason why the prior hearing is not to be implied. In passing an order under Section 18AA(1) apart from the satisfaction of the existence of facts mentioned in the section there is a large deal of discretion with the Central Government whether to take action or not. Various consideration of policy both economic and administrative have to be considered by the government before pa-sing on order under Section 18AA. It should be recognised that before such a decision is taken under Section 18AA considerable consultations amongst the various limbs of the government would have taken place to consider various alternatives. Section 18AA(1) does not make it incumbent on the government to take over the management even if the objective conditions are satisfied. It still has a very large measure of discretion. This is because it is quite likely that there may be a number of industrial undertaking which satisfy the objective conditions of Section 18AA(I); obviously serious thought ha? to be given by the Government as to how many industrial undertakings it should take over and also which industry. All these arc matters within the policy frame of the government. The object of order under Section 18AA(1) is not really penal in the sense of punishing any owner of industrial undertaking. Its purpose is remedial to nurse back the industry so that it serves social purpose. The consequences to individual owners. are more incidental and a by product. The primary anxiety of the government is to serve the main purpose of national economy. It is well to recollect the observations of Chandrachud, C.J. that when laws affecting large chunks of the community are enacted stray misfortunes are inevitable and that social legislation without tears, affecting vested rights, is virtually impossible. The order is not really aimed at individual owner ; it seeks to control the industry in public interest and that is why the rule that no party should be condemned before being given an opportunity of hearing does not really apply with that strictness because the purpose of order under section 18AA is not so much condemnation of the individual as to serve a public purpose to prevent fall of production or to restart a closed undertaking. That in such an eventually where policy considerations are dominant it may not be correct to imply the rule of (audi alteram partem, was accepted by Lord Reid Wherein he said 'If a minister is considering whether to make a Scheme for, say, an important new road, his primary concern will not be with the damage which its construction will do to the rights of individual owners of land. He will have to consider all manner of questions of public interest and, it may be, a number of alternative schemes. He cannot be prevented from attaching more importance to the fulfillment of his policy than to the fate of individual objectors, and it would be quite wrong for the courts to say that the minister should or could act in the same kind of way as a board of works deciding whether a house should be pulled down.' (See Ridge V. Baldwin and others 1964 A.C. 40 . The purpose of the order under Sec. 18AA is to put the industry on its feet so that it serves the needs of the community. This necessarily requires funds and large investment. Government must take a policy decision as to which sector needs priority like say Textile or Engineering or Tea, etc. The funds being limited, exercise of discretion would have to be based on the inside knowledge of finance, economy possessed by government. In this vital aspect of decision making rule of audi alteram partem is a strange bedfellow. The larger the 'policy' content of discretion the more reluctant may be the courts to inter the existence of such a duty before the discretionary decision is taken. (S.A.D. Smith. P-164). The problems posed by unemployment and unutilised productive units call for no less urgent and immediate action by the government than any action to be taken during war time. Property rights must yield to public interest. One must also not forget the history of this legislation which was to take under Central control the development and regulation of the scheduled industries. Right from the initial passing of the Act, the Government has been keeping a watch on these industries the activities of which effect the economy vitally. Reports and directions constantly provide the government with a fairly deep insight into the working of the industrial undertakings so that the objective facts on which it is to be satisfied under Sec. 18AA pose no problem. It is not as if the Central Government is a stranger to the working of these undertakings. The situation is otherwise. As a matter of fact it is a common knowledge that in any worthwhile industrial undertaking the contribution of five public financial institutions alone may be to the extent of anything between 15 per cent to 30 per cent of the total paid-up capital. The interest that the Central Government thus evinces, apart from being on account of public interest, is even justifiable on mundane, financial considerations. Thus even without giving a prior hearing the Central Government will have credible, factual evidence before it. As an illustration the petitioner-company does not challenge the charge of the government that it has raised Rs. 70 lakhs as loan for providing gratuity fund for workers and also to raising Rs. 150 lakhs as loan from the Bank for the purpose of paying wages to workman etc. and bank dues, though it justifies the action I am not going into the merits or otherwise of these transactions. All that I am pointing out is that because of the close watch kept by the Central Government as required by the Act absence of prior hearing docs net mean that necessary facts from the record of the company would not be available to it, when passing order under Section 18AA(1) of the Act.

(50) Mr. Nariman referred to urge hearing must be implied in Section 18AA a.s it was implied in Section 18A. But it must be appreciated that when the Supreme Court said that before passing an order under Section 18A. some reasonable opportunity has to be given, it was said with reference to investigation under Sec. 15 and the Rule 5 which provided for an opportunity of hearing before the Investigator. That this is so is clear from the observation of Court at page 389 'Once an investigation has been validly made under Sec. 15 it was held sufficient to empower the Central Government to authorise a person to take over the management of an industrial undertaking irrespective of the nature of content of the opinion on which the investigation was initiated. In view of this decision it is not possible for the appellants to contend that they were not aware that as a result of the report of the Investigating Committee the Government could pass an order under Section 18A(l)(b) and assume management or control of the Company's undertaking.' The Court thereforee held that sufficient opportunity had been given. As for the Investigating Committee's report, it was held that it will depend on the circumstances of each case; in that case it was found that no prejudice was caused by not giving that report. That case has no applicability to order under Section 18AA where power has to be exercised to meet an urgent situation. Though the words 'immediate emotion' is not mentioned in clause (b) of Section 18AA(1); in my view the same urgency is present and implicit in that clause. As a matter of fact clauses (a) and (b) of sub-section (1) of Section 18AA are only the opposite sides of the same coin, while in clause (a) urgency is to prevent a situation which is likely to affect production or articles, clause (b) compels and demands urgent action to remedy a situation caused by the closure of industrial undertaking for not less than 3 months so as to restart the industrial undertaking. In either case the urgency to raise production of articles through the exercise of power under Section 18AA is the common determinant factor. In my view the urgency to exclude prior hearing will have to be read in both clause (a) and (b) of sub-section (1) of Section 18AA. To say that though there is no statutory requirement but nevertheless prior hearing must be read in Section 18AA(I) is to fly against the very object and purpose of the amendment which introduced Section 18AA in 1971. In my view such an interpretation will defeat and frustrate the purpose of the Act. I would, thereforee hold that Section 18AA(1) does not require either explicitly or by implication that before passing an order under it the owner of industrial Undertaking must be given an opportunity of hearing. In view object of Section 18AA being for urgent and remedial action prior hearing must as a fact of natural justice be held to be inapplicable to orders passed under it.

(51) Before leaving this part of the case I must hasten to add that I am not suggesting that because no prior hearing is necessary the satisfaction of the Central Government when passing orders under Section 18AA is totally immune from challenge. It may be and is certainly open to a party to challenge order of the Central Government on the ground that the satisfaction at which the Central Government has arrived at is not based on any documentary or other evidence or that there is no material on the basis of which a. reasonable person could have been so satisfied or that its satisfaction is non-existent. It is now not open to dispute that as the authority has to act in accordance with and within limits of legislation its order can be challenged if it is beyond those limits or is passed on grounds extraneous to the legislation or if there are no grounds at all for passing it or if the grounds are such that no one can reasonably arrive at the opinion or satisfaction requisite under the legislation and also in. It is not as if thereforee an order passed under Section 18AA is immune from judicial scrutiny. Of course, the Sufficiency or property of material will not be challengeable in the Court of Law but the basis of satisfaction will have to be shown to be within the limits laid down in Section 18AA(1) in order to sustain the validity of the action.

(52) On my finding that no prior notice and hearing is contemplated when passing an order under Section 18AA of the Act, it would normally have been held that the principles of natural justice are not applicable at all when passing an order under Section 18AA. This is because uptil now the courts have usually been of the view that the principles of natural justice only encompass a prior hearing before an order is made. In that context, whenever the courts, have been of the view that prior hearing could not be implied it used to be held that the principles of natural justice are excluded. But that approach has now to he modified in view of the latest decisions of the supreme Court in Maneka Gandhi v. Union of India. In the former case while recognising that the right to prior hearing may in Some eventualities be excluded it was emphasised that the audi alteram partem rule is not cast in a rigid mould and judicial decisions establish that it may he hearing prior to the decision as it may even be post decision remedial hearing. Bhagwati. J. further said:

'It would not thereforee be right to conclude that the audi alteram partem rule is excluded merely because the power to impound a passport might be frusted. if prior notice and hearing were to be given to the person concerned before impounding his passport. The passport Authority may proceed to impoi.ind the passport without giving any prior opportunity to the person concerned to be heard, but as soon as the order impounding the passport is made, an opportunity of hearing, remedial in aim should be given to him. A fair opportunity of being heard following immediately upon the order impounding the passport would satisfy the mandate of natural justice and a provision requiring giving of such opportunity to the person concerned can and should be read by implication in the passport Act. 1967'.

Similarly in Gill's case it was observed by Krishna lyer, J.at page 872:

'While natural justice is universally respected, the standards vary with situations contracting into a brief, even post decisional opportunity, or expanding into trial-type trappings.'

Thus, thereforee, though I hold that no prior hearing is implied before passing an order under Section 18AA(1) of the Act, there is no reason not to read a post decisional opportunity which is now said by the Supreme Court to be an aspect of natural justice. This conclusion also flows from Section 18F of the Act which is applicable to and order passed under Section 18AA because of the provision of sub-section 3 of the Sec. 18FD. Section 18F empowers the Central Government to cancel or vary an order, either on, its own or on the application of the owner of the industrial undertaking. This section thus contemplates a post decisional opportunity to owner of undertaking against the order passed un,der Section 18AA. Mr. Nariman, however contended that section 18F does nut permit a representation to be made to show that the order in the first instance was unjustified and invalid. This contention seems to restrict the scope of Section 18F, for which there does not appear to be any justification. Section 21 of the General Clauses Act already empowers the authority (The Central Government) to add to, amend, vary or rescind any notification issued by it. If the only purpose of Section 18F was to confer on the Central Government the same power which it already enjoys under Section' 21 of the Central Clauses Act, the exercise is futile. Section 18F has a larger purpose, in that, it enables owner of the industrial undertaking to apply to the Government for the purpose of persuading it to cancel the order for any reason including the one that it is no longer necessary' or it was not valid or had some other infirmity when it was originally passed. The Central Government, if moved by an owner will be under a duty to deal with the matter in a fair manner, because this power under Section 18F is coupled with a duty to act. This right in Section 18F in the nature of post decisional hearing contemplated in Maneka Gandhi's Case and would also meet the ends of justice.

(53) Mr. Nariman's contention' that subsequent hearing before the Central Government which has passed the original order under Section 18AA is only a public relation exercise and not a real hearing must be rejected as it assumes want of faith on the part of Government without any basis. As said in John H. Fahey and A. V. Ammann 91 L Ed. 2030 at 2040(31)

Objection is made to the administrative hearing upon the ground that it is before the said authority which has preferred the charges and that it cannot be expected, thereforee, to be fair and impartial and that the Act does not provide for judicial review of the Board's determination on the hearing. We cannot agree that courts should assume in advance that an administrative hearing may not be fairly conducted.

I can find Do reason' to assume that if good reasons are shown to the Central Government that an order passed under Section 18AA should not have been passed or was not justified, it will not amend, vary or rescind the order if the circumstances so warrant.

(54) Another reason, for implying post decisional hearing is that the risk of purpose of order under Section 18AA being frustrated by giving a prior hearing is absent in giving a subsequent hearing after the passing of an order in pursuance of Section 18F, and in, the light of Maneka's case. This is because on the passing of the order the possession of the undertakings vest in the person authorised by the Central Government and the danger of frittering away of the assets by old management is checked. Subsequent hearing serves the purpose of giving an, opportunity to the owner of the undertaking to make its representation to the Central Government and to point out why an order should not have been passed or allowed to continue while at the same time the assets of the undertakings are safely under custody of the government. I am, thereforee, persuaded to hold that the requirements of natural justice are sufficiently satisfied when the statute provides under Section 18F an opportunity to the owner of undertaking to move the Central Government to amend or even rescind its original order passed under Section 18AA(1) of the Act with a duty implied on the Central Government to consider the representation in an impartial and disinterested manner on the merits. As the grievance, if any, is of the owner of undertaking he must move on his own for reconsideration by the Central Government; the latter is under no obligation in law to itself invite the owner for a hearing and the government's silence in this regard means no infirmity and does not make the impugned order bad.

(55) I shall now deal with the argument of Mr. Nariman that a hearing subsequent to the passing of order can be said to comply with rules of natural justice only if the order which is impugned has not already become effective, before a hearing is given. For this he seeks to rely on De Verteuil v. Knaggs and another 1918 A.C. 557. In that case power was given to the Governor to order the transfer of indentured Immigrants from one employer to another on, sufficient grounds shown to his satisfaction. Such an order was passed on December 16, 1915 but without giving an opportunity and hearing to the concerned employer. It was found that subsequent to the passing of order the employer had represented to the Governor and also had an interview with him in, January 1916. Their lordships held that in the circumstances fair opportunity had been given to the party. Mr. Nariman sought to derive the ratio that it was because the order was not put into effect that the subsequent hearing was held to satisfy the rule. Though factually the order may not have been put into operation in that case, the House was laying no such extreme proposition as contended by Mr. Nariman. On the contrary the House of Lords while holding that in making an order by the Governor he has, apart from special circumstances, a duty to give a fair opportunity to the concern,ed person to rebut any statement made to his prejudice also recognised that there may be special circumstances which would justify a Governor acting in good faith to take action even if he did not give an opportunity to the person affect to make any relevant statement. The instance mentioned were when a decision may have to be given on an emergency when promptitude is of great importance. The authority is of no avail to the petitioner.

(56) Reference was next made to Twist v. Brandwich Municipal Council, (12 Australian Law Report 379x33). In that case the Local Government Act empowered a municipal council to order the owner of a building within a reasonable time fixed by the council's order to demolish the building if it is in a state of dilapidation. An owner may on receipt of such an order appeal again,st it to the District Court and a decision in appeal shall be final. The council sent a notice to Twist asking him to demolish the building. Twist went to the Court with an allegation that the rules of natural justice have been, violated inasmuch as he has not been heard by the Municipal Council before issuing the impugned notice. Chief Justice Barwick and Mason J. negativing this contention held that as the appeal has been provided for challenging the order of the Municipal Council no requirement of prior hearing by the Municipal Council in the first instance was contemplated in the statute. Even Jacobs J. on whom Mr. Nariman relied held that even if the order has been passed without hearing the owner, it is not void and it would be alright if the council was to hear him later, and he refused to quash the order. Jacobs J. thus even, contemplated the possibility of during the vice of absence of prior hearing by giving a sub-sequent hearing to the date of passing of the order. This authority does not help the petitioner.

(57) Reference is then made to Heatley v. Tas Manian Racing and Gaming Commission, (14 Australian Law Reports 519x34). Under the Racing and Gaming Act, a notice was served upon the applicant requiring him to refrain from entering the race-course ground. No opportunity was given before making the said order. The Supreme Court of Tasmania dismissed the writ of certiorari. High Court allowed the appeal and in course of judgment referred to the well known rule of construction of statute that there is a presumption that legislature does not intend to deny natural justice to its citizens. The Court, however, also accepted the rule that on occasions where prompt and urgent action is necessary and in circumstances of immediate detriment to the public it would be in accordance with the requirement of natural justice to pass an order without notice and without opportunity, though the order may be effected for a short period of time.

(58) Reference was then made to Southern Railway Company vs. Commonwealth Virginia 78 Law Ed. 260 in which the validity of an order which permitted the State Highway Commissioner to direct the Railways of eliminating the grade crossing without prior hearing was challenged on the ground that it violated the due process of law. The majority held that as there was no provision, for review, statute violated the Fourteenth Amendment. No such constitutional challenge is permissible or even urged in proceedings before us. It may, however, be noticed that the case did not deal with the question whether if because of urgency of the matter an order was passed without hearing and a subsequent hearing was given, it would only be valid if the order was not put into operation.

(59) Next case referred to was United States of America vs. Illinois Central Railroad Company 78 L Ed. 909. la that Case challenge was made to the fixing of the rates by the Interstate Commerce Commission without hearing the party concerned. On order being challenged the Commissioner conceded that the order was tentative and that final order will be passed after hearing the party concerned. It was clearly stated by the Commissioner that if an order had been passed without hearing, it would be their duty to hear if a complaint was made by the party affected and they would, in that case, suspend the order. On this assurance being given, the Court held that there was no violation of due process of law on the ground that a hearing was not accorded at the stage of passing of initial order and that it was enough that an opportunity will be given for a full and fair hearing before the order come into operation. That case was decided on the concession made on interpretation of the Statute and no such law was laid down that in no case can an order be effective if no prior hearing has been given to the party affected.

(60) Similarly in S. M. Nickey vs. State of Mississippi 78 L Ed. 1323 a State Act was held not to violate constitutional mandate of due process of law even if the tax was assessed without notice and it was enough that an opportunity was given to make the available defenses before the Competent Tribunal before the command to pay the tax becomes final and irrevocable. The procedure under the Act was for the State to realise the,.tax due from the person by filing the suit, the determination of the assessment was considered a prima facie evidence and it was open to the defendant to assail the validity and legal consequence of the assessment. In that case also, the prima facie assessment was not held to be bad and subsequent opportunity to challenge the assessment was held to be good.

(61) The contention of Mr. Nariman that either the order under Section 18AA should not be passed without giving prior hearing or if passed without hearing should be kept in abeyance if opportunity of subsequent hearing is to be held to satisfy the rules of natural justice, cannot be spelt out from any of these authorities.

(62) On the contrary American' Courts have recognised that due process clause does not in all cases require a hearing before an administrative order becomes effective particularly in cases of emergency. necessity or compelling public interest and where only property rights are involved. A stature vesting administrative agencies with summary powers or powers of compulsion need not necessarily provide for notice and hearing prior to the exercise of such powers (vide Art. 406; p. 215, American Jurisprudence, IInd Vol.).

(63) Where Corporation had distributed all its assets amongst its stockholders statute provided for realisation of any deficiency against a Corporation to be recovered from the stockholders. The Commissioner of Internal Revenue made the assessment and the objection was that the summary procedure violated the constitution because it did not provide for judicial determination of the transferee's liability at the outset and thus violated the due process of law and the principle of separation of the powers between the executive and the legislature. There the remedy provided was that the transferee could either pay the amount and then challenge it by action in the court of law to recover the amount or he could appeal to the Board of Tax Appeals and could obtain, a stay of payment by tax by giving a bond to secure payment. The court held that there was no violation of due process guarantee. Rejecting the specific objection that collection of tax will not be stayed, where the matter is before a Circuit Court of appeal, unless a bond was filed, the Court observed 'it has already been shown that the right of the United States to exact immediate payment and to relegate the taxpayer to a suit for recovery, is paramount. The privilege of delaying payment pending immediate judicial review, by filing a bond, was granted by the soverign as a matter of grace solely for the convenience of the taxpayer.' This case is thus an authority for the proposition that the operation of an order need not be kept in abeyance to satisfy the test of natural justice in case of post decisional hearing. The Court also observed 'Where only property rights are involved, mere postponement of the judicial inquiry is not a denial of due process, if the opportunity given for the ultimate judicial determination of the liability is adequate'.

(64) Challenge was made to the fixing of maximum prices of commodities by the administrator under the Price Control Act. The statute provided that the administrator will by regulation fix the prices. A right was given to the party concerned to raise objection before the administrator who may alter or amend his order as the circumstances require. The Emergency court of Appeal was also provided and any person, aggrieved by the denial or a partial denial of his protest by the administrator could file an appeal but the appellate court had no power to issue a temporary restraint order with the result that the order by the administrator continued to operate till the matter was finally decided by the Emergency court of Appeals. It was objected that if administrator denies a protest, no stay or injunction, may become effective till the final decision of the appeal Court, and also that the process of reaching a final decision may be time consuming. Rejecting this contention the court said 'In any event, we are unable to say that the denial of interlocutory relief pending a judicial determination of the Validity of the regulation would, in the special circumstances of this case, involve a denial of constitutional right.'

(65) In Chester Bowles As Administrator of the Office of Price Administration vs. Mrs. Kate C. Willingham and J. R. Hicks. 88 L Ed. 892, challenge was made to the constitutionality of a provision by which an administrator could fix and regulate the rents to be charted. Objection was taken on the ground that the Act made no provision for giving hearing to landlords before the order for regulation is fixed or become effective. Repelling the objection it was observed:

Delay in the judicial determination of property rights is not uncommon where it is essential that governmental needs be immediately satisfied.

A case quite analogous to the present one under consideration is to be found in John H. Fahey and A. V. Ammann v. Paul Mallonce 91 L Ed 2030 332 U.S. 245. The statute provided that whenever in the opinion of Federal Home Loan Bank Administration any Federal Saving and Loan Association is conducting its business in an unlawful and unsafe manner or cannot with safety continue in business, is in imminent danger or becoming impaired or has suspended payment of its obligations, the Administration without notice or hearing may appoint a conservator to conserve the association's assets. Any conservator shall forthwith upon appointment take possession of the association and demand possession from Secretary, Director of the- Association. After the appointment of a conservator and within 14 days the directors concerned may demand a hearing and to show-cause why conservator or receiver should not have been appointed. Federal Home Loan Bank Administration may after hearing determine whether to continue the order or to discharge the order appointing a conservator. Objection was taken to the validity of the statute on the ground that it provides for a hearing on' the appointment after the conservator takes possession instead of before. Rejecting it, the Court said 'It is complained that these regulations, provide for hearing after the conservator takes possession instead of before. This is a drastic procedure. But the delicate nature of the institution and the impossibility of preserving credit during an. investigation has made it an almost invariable custom to apply supervisory authority in this summary manner. It is a heavy responsibility to be exercised with the disinterestedness and restraint, but in the light of the history and customs of banking we cannot say it is unconstitutional.'

(66) It is thus not correct to say that in law if a hearing is given subsequent to the passing of order the same cannot amount to complying with rule of natural justice if the order passed has been put into operation. No precedent or principle of law supports such a contention. which must be rejected.

(67) I would thereforee hold that the nature of the order under Section 18AA contemplates subsequent or post decisional hearing only and as such the question of any infirmity in the impugned order because of absence of prior hearing does not arise.

(68) I may note that Mr. Sorabjee at one time sought to argue that even if we were to hold that prior hearing is to be implied under Section 18AA the vide of such an' order in not having given a hearing may be cured by giving subsequent hearing. I am not prepared to subscribe to such a view nor can such a conclusion follow from Maneka's case. In that case the Supreme Court held that subsequent hearing only was to be implied when passing order of suspension of passport un, der the Passport Act and that is why it did not quash the order of suspension impounding the passport. I do not understand the law to be that in case a prior hearing is found to be the requirement of natural justice and the same is not given this infirmity could be got over by the government by offering to give a subsequent hearing. The reason is that a prior hearing is implied so that the government may pass an order after properly informing itself of the full facts and hearing the pros and cons on the matters. But notwithstanding this if it chooses to go ahead and passes and order without first giving an opportunity the only course for the court is to quash the impugned order. It may be that after the order had been quashed it will be open to the government to again start the proceedings afresh and to pass a final order, but only after giving first an opportunity of hearing to the party effected. So, it may be that ultimately the final order may again be the same which was passed without hearing but that is a matter of detail and on merits and is no reason to countenance and to permit an order to stand which has been passed without first giving an opportunity of hearing. But as in the present case I am holding that no prior hearing is implied in, Section 18AA there is no vice attached to the impugned order on this ground.

(69) Mr. Nariman had urged that this Bench should decide whether when an order is passed under Section 18AA, it will result in taking over the management of all the unite even if it is proved on record that there is fall in production only in one unit and other units are making profit. This assumption of facts is seriously contested in the reply affidavit. We are however not called upon to adjudication this aspect in tills reference. That may be matter for the hearing Bench to decide if it is raised before it on merits. We are considering only the question of natural justice and it seems to me that for the purpose of answering the reference it is of no consequence as to whether the impugned order permits take over of one unit or of all the units. If the Court comes to the conclusion that there has been no violation of principles of natural justice, the order will be up held. even if the interpretation is that the take-over can be of all the units. The argument of Mr. Nariman is aimed at showing the harshness of the effect of an order under Sec, 18AA and not in the manner of passing it to which alone natural justice lies relevancy. If the petitioner has grievance as to the harshness of the effect of an order under Section 18AA, that point may be raised before the hearing Bench. The applicability of the principle of natural justice is not effected by the fact whether the owner of the industrial undertaking holds one unit or more than one units, natural justice does not depend upon the fatness of bank account or the volume of the assets. The demand of natural justice is based on more non-mundane and higher principle namely fairness in decision and supplying justice in action which affect the third party. I would, thereforee, refrain from giving any finding on this aspect of the question posed by Mr. Nariman.

(70) As the reference to the Five Judges have arisen because of the decision in Vijay Kumar Mundra v. Union of India and others I.L.R. (1972) Ii Delhi 483 to which I was a party, I consider it necessary to say a few words about it. In that case the question of natural justice was argued only on the basis that a prior hearing before the passing of the order under Section 18AA was necessary. It was not argued that even if prior hearing was' not to be given a subsequent hearing may be given in terms of Section 18F. There was, thereforee, no occasion for dealing with the question of subsequent hearing as an aspect of natural justice. The trend of the decision, is clearly to accept the contention of the Union of India that the nature of the order passed under Section 18AA did not require a prior hearing and that the statute itself contained the restraint as an alternative safeguard to the rule of natural justice. The bench found as a matter of fact that the petitioner had been associated with all the aspects on which the petitioner could be given a hearing and the matters had also been subject matter of correspondence and negotiations for quite sometime and it was not as if the impugned action had been taken behind anyone's back or had come as a sudden unexpected event. The finding of the bench was that even if the opportunity was to be given, in point of fact sufficient opportunity had been given to the petitioner concerned. Though in a way it may possibly appear that no firm finding may have been given about the inapplicability of the prior hearing when passing an order under Section 18AA, there is no doubt that the whole trend of the judgment proceeded on the basis of acceptance of the argument that natural justice was not applicable in the case of order under Section 18AA. thereforee the full bench in Vijay Kumar Mundra correctly decided that the rule of audi alteram partem in so far as it requires a prior hearing before passing an adverse order was not applicable when passing an order under Section 18AA of the Act.

(71) For the reasons mentioned above, I agree with the conclusions arrived at by Honble the Chief Justice.

M.L. Jain, J.

(72) The question that has been raised is: Whether no notified order can be made under Section 18AA of the Industries (Development and Regulation) Act, 1951, without hearing the persons in-charge of the industrial undertaking, and, if made, with what consequences? Do the Full Bench decision of this court in which held that prior hearing was excluded, not reflect the correct position of law? I proceed to answer.

(73) The scope of Art. 14 of the Constitution having been widened, the writ of certiorari is available against any unreasonableness or arbitrariness, be it in a quasi-judicial order or an administrative order or an executive action. This is a new dimension that certiorari has acquired and borrowing from an American expression, I preferred to call it 'certified mandamus' in Madan Mohanji v. State of Rajasthan, . Compliance with natural justice is, thereforee, insisted upon, under our Constitution if the State or any authority wants to escape invalidation of its acts on the grounds of inequality under Art. 14. As per 'from a positivistic point of view, equality is antithetic to arbitrariness. In fact equality and arbitrariness are sworn enemies ; one belongs to the rule of law in a republic, while the other to the whim and caprice of an absolute monarch. Where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is thereforee vocative of Article 14'. Any restriction imposed upon a fundamental right guaranteed by Art. 19 is thereforee considered procedurally unreasonable if it seeks or empowers an authority to curtail it without complying with rules of natural justice. It was assumed that prior hearing was the most important facet of natural justice. That is the genesis of the present. reference.

(74) What is then this natural justice? Natural justice, it is said, is 'fair play in' action', or 'the justice of the common law', or 'the general principle of law', 'distillate of due process', 'quintessence of the process of justice'. Let us examine a few of the English cases from which we derive 'the majestic concept' of the principles of natural justice. I will not refer to Australian or American precedents that were placed before us for they, like us, depend for their inspiration largely upon the English sources. In The Queen v. Davey (1899) 2 Qb 301 Channell, J., said

The general principle of law is that an order affecting his liberty or property cannot be made against any one without giving him an opportunity of being heard.

(75) In Lord Reid divided the available case law in certain categories : (i) dismissal of a servant, (ii) deprivation of property, (iii) deprivation of privilege, and (iv) defense and war regulations. He held that prior hearing was not necessary where master dismissed his servant or where a servant is dismissed from an office held during pleasure, but it will not necessary where dismissal from an office could take place only if there was something against him to warrant his. dismissal. Hearing was required in cases of deprivation of property or privilege. But, in case of defense and war regulations, hearing was dispensed with where any action' was required to be taken 'on reasonable grounds to believe' that such action was called for. Lord Reid was of the view that 'the principle of audi alteram partem goes back many centuries in our law and appears in a multitude of judgments of judges of the highest authority. But, in Wiseman v. Borneman 1971 A.C. 297 he had to caution:

Natural justice requires that the procedure before any tribunal which is acting judicially shall be fair in all the circumstances and I would be sorry to see this fundamental general principle degenerate into a series of hard and fast rules.

Lord Morris of Borth-Y-Gest put the matter in a more workable manner:

Approach the question by considering whether in all the circumstances the tribunal acted fairly.

Rather,

Whether in the particular circumstances the tribunal acted unfairly so that it could be said that their procedure did not match with what justice demands.

Lord Pearson observed:

Whether in the particular circumstances the tribunal acted entrusted is held to be required to apply these principles in performing these functions unless there is a provision to the contrary. But where some person or body is entrusted by Parliament with administrative or executive functions there is no presumption that compliance with principles of natural justice is required, although as 'Parliament is not to be presumed to act unfairly', the Courts may be able in' suitable cases (perhaps always) to imply an obligation to act with fairness. Fairness however does not necessarily require plurality of hearings or representations and counter-representations. If there were too much elaboration of procedural safeguards, nothing could be done simply and quickly and cheaply. Administration of executive efficiency and economy should not be too readily sacrificed.

(76) Out of the several reasons given by Lord Pearson m Wiseman v. Borneman (supra) for excluding prior hearings; one was that 'here was no express provision of hearing and if the Parliament had intended to confer a right to appear and be heard or to make representation, it would have been easy and natural to insert an express provision, and the other was that the decision was predominantly of an administrative or executive character. Lord Hailsham of St. Marylebone L.C. said:

It is true of course that the courts will lean heavily against any construction of a statute which would be manifestly unfair. But they have no power to amend or supplement the language of a statute merely because on one view of the matter a subject feels himself entitled to a larger degree of say in the making of a decision that the statute accords him. Still less it is the functioning of the courts to form first a judgment on the fairness of an Act of Parliament and then to amend or supplement it with new provisions so as to make it conform to that judgment.

Earlier in In re H.K. (an infant) (1967) 2 Qb 617, Parker, CJ., said:

Good administration and an honest or bona fide decision must, as it seems to me, require not merely impartiality, nor merely bringing one's mind to bear on the problem but acting fairly.

Viscount Dilhorne

I would only emphasise that one should not start by assuming that what Parliament has done in the lengthy pro cess of legislation is unfair. One should rather assure that what has' been done is fair until the contrary is shown.

And where omission to provide for a hearing is deliberate,

It should be assumed that Parliament did not think that the requirements of fairness made it advisable to provide any such rights for the person affected. If this was the view of Parliament, it would require a very strong case to justify the addition to the statute of requirements to meet one's own opinion of fairness.

(77) In Furnell v. Whanqarei High School Board (1973) 2 Wlr 92 , Lord Reid and Viscount Dilhorne found themselves in a minority. The majority stated that 'natural justice is but fairness writ large and juridicially'.

(78) Commenting on these decision, S. A. de Smith in Judicial Review of Administrative Action, 1973 ed. 3rd, page 208, said 'Since 1967 the concept of duty to act fairly has often been used by judges to denote an implied procedural obligation. In general it means a duty to observe the rudiments of natural justice for a limited purpose in the exercise of functions that are not analytically judicial but administrative.'

(79) J. F. Garner, Administrative Law, 1974 ed. 4th, page 129, commented:

Recent decisions seem to suggest that there is a category of situations in which natural justice does not apply but where the courts will require the administration to be 'fair'. It is not yet entirely clear whether this 'mini-natural justice' is a separate principle in itself, or whether it is in truth merely an example of requiring a lower standard of natural justice in these 'administrative' decisions. Generally the language used in the decisions seems to suggest the former, but in Machine v. Football Association (1973), (48) The Times, July 21), Lord Denning suggested that in the context of a domestic tribunal such as the disciplinary committee of the Football Association the requirements of natural justice meant no more than the committee must 'act fairly.

(80) In Breen vs. Amalgamated Engineering Union (1971) 1 All Er 1148, (49) Lord Denning, the most famous of all our judicial protagonists for natural justice said

It is now well settled that a statutory body which is entrusted by statute with a discretion must act fairly. It does not matter whether its functions are described as judicial or quasi-judicial on the one hand, or as administrative on the other hand, or what you will. Still it must act fairly. ...... .Then comes the problem : ought such a body, statutory or domestic to give reasons for its decision or to give the person concerned a chance of being heard. Not always, but sometimes. It all depends on what is fair in the circumstances.

(81) After examining some of these decisions. H. M. Seervai in his 'Constitutional Law of India', para 16.220, concluded as follows:

As we have seen recent English decisions, even when they speak of natural justice with reference to administrative acts, recognise the distinction between a function which is clearly quasi-judicial and an administrative function where there is a duty to act fairly. The latter duty involved giving to the person affected the rudiments of natural justice; the duty to act quasi-judicially ordinarily gives to the person affected, much greater procedural safeguards. This is not surprising, for if administrative actions were treated as a series of justiciable controversies administration would grind to a halt.

(82) It would be noticed that there is no insistence upon and alteram partem but upon 'fairness' in action. That approach released natural justice from the limited rules on the one hand and extended the scope of judicial review on the other. Same was the position at home. In A. K. Karipak and others vs. Union of India. : [1970]1SCR457 , the Supreme Court recognised:

'The concept of natural justice has undergone a great deal of change in recent years. In the past it was through that it included just two rules, namely (1) no one shall be a judge in his own cause (Nemo debet esse index propria causa), and (2) no decision shall be given against a party without affording him a reasonable hearing (audi alteram parlem). Very soon thereafter a third rule was envisaged and that is that quasi-judicial enquiries must be held in good faith, without bias and no arbitrarily or unreasonably. But in the course of years many more subsidiary rules came to be added to the rules of natural justice..... ..As observed by this Court in the rules of natural justice are not embodied rules. What particular rule of natural justice should apply to a given case must depend to a great extent on the facts and circumstances of that case the frame-work of the law under which the enquiry is held and the constitution of the Tribunal or body of persons appointed for that purpose. Whenever a complaint is made before a court that some principle of natural justice had been contravened the court has to decide whether the observance of that rule was necessary for a just decision on the facts' of that case'.

In the Court observed that the only essential point that has to be kept in mind in all cases is that the person concerned should have a reasonable opportunity of presenting his case and that administrative authority concerned should act fairly, impartially and reasonably. Where administrative officers are concerned, the duty is not so much to act judicially as to act fairly. It only means that such measure of natural justice should be applied as was described by Lord Reid in Ridge v. Baldwin 1964 Ac 40, as 'insusceptible of exact definition but what a reasonable man would regard as a fair procedure in particular circumstances.'

(83) It follows from these cases that in administrative matters', the executive authority is required to act justly and fairly and cannot act arbitrarily or capriciously. This should mean that if no hearing is given before an adverse order is made but if the procedure is, by reasonable standards, just and fair, it then satisfied natural justice. But in there is a noticeable yet welcome departure and 'just and fair' game to be equated with audi alteram partem. The Court said:

The audi alteram partem is not cast in a rigid mould and judicial decisions establish that it may suffer situational modifications. The core of it must, however, remain, namely, that the person affected must have a reasonable opportunity of being heard and that hearing must be a genuine hearing and not an empty public relations exercise ....... It may be a sophisticated full-fledged hearing or it may be a hearing which is very brief and minimal, it may be a hearing prior to the decision or it may even be post-decisional remedial hearing.

(84) In Rameshwar Dayal and others v. State of U.P. Air 1978 S.C. 1558 audi alteram partem was read into the provisions of the Code of Criminal Procedure, for example sec. 540 thereof (Old), where the High Court refused the accused an opportunity of giving evidence to rebut the evidence of witnesses examined by the High Court under sec. 540 Cr. P.C. and it was' held that normally, this error would have been sufficient to vitiate the judgment and would require the case to be remitted for a fresh decision.

(85) The Supreme Court in Maneka Gandhi, however, added that audi alteram partem may equally be excluded where, having regard to the nature of action to be taken, its object and purpose and the scheme of the relevant statutory provision; fairness does not demand its implication and even warrants its exclusion. But if the denial of natural justice or say of fairness in action offends Art. 14, then the legislature cannot expressly or even by necessary implication exclude fairness and if the statute has to be saved from unconstitutionality, then natural justice has to be implied. In the Supreme Court vide para 49 of the report, observed as follows:

EVENotherwise, the rule of natural justice bears upon construction where a statute is silent save in that category where a legislation is charged with the vice of unreasonableness and consequential voidness.

But, since the impugned provision, i.e. section 18AA, is shielded by the IXth Schedule against the 'brooding omnipresence of Art. 14', it can exclude natural justice and yet be constitutional but at the same time IXth Schedule does not oust natural justice if it can be construed to be implicit in a given provision, because though the IXth Schedule is a constitutional sanction for

(86) Now, Shri F. S. Nariman, the learned counsel for the petitioners, submits that section 18AA does imply audi alteram parlem. First of the reasons advanced by him is that in Kesava Mills Co. (supra), the Supreme Court, dealing with an order made under section 18a of the Industries (Development and Regulation) Act, 1951, came to the conclusion that the principles of natural justice are attracted under section 18a under which management of the undertaking is taken over after investigation. In nature, the order under section 18AA is an different.

(87) His second contention is that the notified order is subject to certain conditions reflecting mismanagement and not merely incompetence of, the persons in charge, and in order to arrive at a finding of mismanagement, hearing must be given because notified order is consequent upon such a finding.

(88) His third contention is that section 18AA is formulated in a language which suggests the necessity of a prior hearing. The power conferred is not an absolute discretion but depends upon satisfaction based upon evidence, documentary or otherwise, in possession of the Central Government, pointing to an objective conclusion that the persons in charge of the said undertaking have by reckless investments and creation of encumbrances on the assets of the industrial undertaking or by diversion of funds brought about a situation which is likely to affect the production of articles manufactured or produced in the industrial undertaking and that immediate action is necessary to prevent such a situation. The section is not concerned with policy considerations. As a matter of fact, the nature of the power is quasi-judicial as it involved a determination visiting the management with civil consequences, namely, ouster from management.

(89) His fourth contention is that the mere use of the word 'immediate action' does not point to such urgency as contrasted with takeover of management without investigation. Hence, the marginal note that management can be taken over without investigation under certain circumstances; the marginal note being a clear pointer that what Parliament intended to exclude was investigation and not natural justice. In any case the immediacy of action does not lead to the conclusion that natural justice was intended to be excluded. An unmistakable meaning can alone displace the presumption of natural justice. He then proceeded to point out that the Civil consequences that follow a notified order under section 18AA are so severe in nature that the Parliament cannot be deemed to have contemplated all these consequences to ensue without an opportunity to the party concerned of putting its case before the Government. It does not only divest the present management of their powers but deprives its directors of the status conferred under the Companies Act. The shareholders are also not allowed to pass any resolution without the approval of the Central Government; nor can the company be wound up without the previous approval of the Central Government. The further provisions also lay down that such an undertaking can be eventually sold. These are provisions which are nothing short of a clever device of virtual nationalisation without its label. The Government has taken over, and it maintains that sec. 18AA gives it the power to do so, the owner company as well. All such drastic consequences suggest that the Parliament could have never intended to exclude audi alteram partem. It rather meant to be suparadded.

(90) I have considered. Decisions which are purely administrative stand on a wholly different footing from quasi-judicial as well as from judicial decisions and must be distinguished accordingly. When a person resolves to act in a particular way, the mental step may be described as a decision. So a judge decides an issue of fact upon conflicting evidence, or a question of law upon a forensic argument. In the case of administrative decision, there is no such obligation upon the person charged with the duty of taking a decision. The grounds upon which he acts, and the means which he takes to inform himself are left entirely to his discretion. In Kesava Mills (supra), a hearing was necessary because prior investigation was contemplated. Hearing was given during the investigation but hearing was dispensed with before making an order under sec. 18a because the management knew of the impending action and did in fact make representation. But section 18AA provides for taking over management whether any investigation has been undertaken or not. If investigation has been dispensed with, it is deliberate and it is all the more difficult to supplement the provisions. The marginal note to the section cannot be called in aid for the purpose of construing the statute. It cannot control the plain words of the statue. It may explain the ambiguous words or may be used for knowing the drift of the section : vide Now, what is its drift over here? The marginal note itself was wrongly framed 'without prejudice to any other provision of this Act' and is against the words which plainly include with or without investigation. thereforee, the marginal note cannot assist in concluding that some sort of an enquiry is contemplated before a notified order is issued. If no investigation or enquiry of some kind is envisaged, what for is the investigation dispensed with? No doubt, the section provides for a power which affects the rights of the person in charge of the undertaking but that does not convert it into a quasi-judicial enquiry. The very fact that an immediate action is required to prevent a situation drifting to a fall in production leads to the inference that natural justice cannot be read into it without stultifying the purpose. The conditions specified in the section make the action amenable to judicial review but do not call for a prior hearing. The Parliament has given the power to no less an authority than the Government of India and has hedged the power with certain conditions, fulfillment whereof is the only requirement for the exercise of the power. It even appears to me that given those conditions, it is the duty of the Central Government to take over the management without any loss of time. Sickness of an industry is far more devastating in its effects visible and invisible than flight of a person out of the country, a falling building, or a fire breaking out, or sale of unsound meant or an infectious person refusing removal to a hospital [The Queen v. Davey (supra)]. The executive has been entrusted thereforee to take action promptly to save the situation from deteriorating further into an economic disaster. The provisions are akin to war regulations, for wars are not fought only on the battle grounds but have to be waged against poverty and indigence with the same sense of urgency and compulsion. It was appointed out that in a case of closure for not less than three months under clause (b) of section 18AA(1) audi alteram partem cannot be excluded and, if so, it follows that it cannot be excluded in case of clause (a) as well. I am unable to subscribe to this argument because the mismanagement and mischief are writ large on the face of the situation specified in clause (b). The very fact of closure for a period of three months means loss of production for long and the condition of the plant and finances being good for re-starting and yet the undertaking continuing to remain closed, are too obvious to call for any further enquiry or hearing. If any authority is required for this proposition, then one is readily available in The Banking Companies Act, 1949, Sec. 38, provides that if the Reserve Bank applies for the winding up of a Bank, the High Court shall order the winding up. There was no opportunity to show cause given to the banking company by the Reserve Bank before it made the application. One of the grounds on which the provisions of the Act were challenged was that the whole procedure was a denial of the principles of natural justice. The Supreme court held that 'the emergency of the situations that may arise is itself the justification for the procedure open under the Act and taken in this case'. No doubt the confined Joseph Kuruvilla to the special circumstances of the credit organisation and the very special position of the Reserve Bank. But then sec. 18AA deals with more sensitive and explosive situation and the power is to be exercised by the Central Government itself. The ratio of Joseph Kuruvilla applies aptly to a case under sec. 18AA.

(91) Denial of natural justice is a blemish of arbitrariness. By enacting the provisions of Arts. 31A and 31B, the constituent power has protected an order made under sec. 18AA from any such attack, To my mind, what it bluntly means is this that arbitrariness is permissible and thereforee denial of audi alteram partem. In it has been held that if a statutory rule is within the powers conferred by a section of a statute protected by Art. 31B, it is difficult to say that the rule must further be scrutinised under Arts. 14, 19 etc. In agreement with these decisions. Beg, C. J and Desai, J., in took the view that it is incorrect to say that the placing of the Act in the Ninth Schedule protected only the grant of powers but no: their exercise. If an impugned order falls within the section, no question of violating a fundamental right can arise. If it falls outside, no question of applying any of the fundamental rights arises as it would then be purely an illegal action. The whole object of protection of powers is to protect their use against attacks upon their validity based upon provisions of Part Iii of the Constitution. But, the remaining five Judges held that the immunity enjoyed by the Parent Act cannot proprio vigore be extended to an off spring of the Act but since the power conferred by the Act was undoubtedly purposive and it is incontrovertible that the order was promulgated in order to achieve the purpose set out in the Act, the Government was not considered to have trespassed upon a field which does not properly belong to them. The notified order under Sec. 18AA if promulgated to achieve the avowed purpose of the Act, will thereforee, stand protected against absence of natural justice.

(92) In the Supreme Court has forged two new tools for interpretation of a welfare legislation ; (i) a Third World perspective and (ii) the Gandhian talisman, 'Recall the face of the poorest' and the weakest man whom you may have seen and ask yourself, if the step you contemplate is going to be of any use to him'. The statute before us is. certainly a welfare measure ensuring continuity of employment in a developing country of the weaker section of the people and in its construction, audi alteram partem which as shown above is a rule of interpretation and has to yield place to the imaginable reflection on the face of the toiler who is the person ultimately affected. It seems, thereforee, that if there is evidence in possession of the Government, documentary or otherwise, calling for action, there is no need to launch an enquiry and allow the situation to deteriorate meanwhile. Yet even in the midst of such an urgency and promptness, the Parliament has taken care to provide for fairness by requiring that even though the specified conditions and circumstances may exist, the Government cannot take action unless it has evidence in its possession. That is the extent of fair play to which Parliament has gone and no further. It is a valid' substitute which shuts out audi alteram partem. If upon such evidence the Central Government is satisfied that the person in charge of the undertaking have by reason of certain actions mentioned in the section brought about a situation which is likely to affect the production and an immediate action is necessary, or where the company has been closed for more than three months and could be re-started but is not being re-started by the company, then the Central Government is empowered to take over management, which is a take over for the general good of the people, for the good of the labour, and also for the welfare of the shareholders and management too. It invests public funds into it, puts it on its feet and then delivers it back. For doing so, it must have commensurate powers even to wind it up and sell it if inspire of the best efforts the undertaking fails to pick up. This, to my mind, is a measure protecting the undertaking against madness [clause (a) and mischief clause (b)]. The courts will, of course, have the power to see whether the action is intra vires, whether the conditions mentioned in the section have been fulfillled or not and also to see if the action is mala fide or colourable exercise of the power. It is not necessary to require the Government to give a notice and thereby time to the persons in charge and permit them to ruin the industry and frustrate the apparent purpose of legislation. The procedure of taking over laid down in the legislation is not insufficient so as to require to be supplemented by audi alteram partem, vide Lord Reil again in Wiseman V. Borneman (supra). It may seem an action prejudicial to the managers who bent upon mismanagement have ceased to have any credentials to continue but in fact and in effect it is an action beneficial in the interest of every one concerned with the welfare of the undertaking. Provisions in case of those economically ill and those mentally or socially ill have to be of the same strain. And when you protect a man in danger, you do not go about issuing notices to him. It is then, not correct to describe the takeover of management as a thin guise for nationalisation. The Parliament has provided two safeguards against such apprehension, one is that the Government management has a fixed period, and the other application of Sec. 18F by virtue of section 18FD, sub-sec. (3). It provides that either on an application of the owner or on its own the Government may cancel the notified order when it has achieved its purpose or for any other reason. The learned Additional Solicitor-General rightly urged that this provision casts a duty and obligation on the Government to take fresh stock of the matter and restore the management. This power is apart from the wider then sec. 21 of the General Clauses Act which also empowered the Government to cancel the notified order. It is not that the undertaking is left without any remedy. It was urged that the effect of non-compliance of prior hearing is to invalid are the order and immediately restore the management while the order under section 18F contemplates cancellation of a valid order and, thereforee, the management is precluded from showing to the Central Government that it was necessary to have made it at all. I do not think that section 18F can be restricted to such an interpretation because the words 'for any other reason' take in their sweep the contention that the order should never have been made at all and the Central Government cannot turn round and say that according to section 18F they can cancel an order only if there is no challenge to its validity, but cannot cancel it if it was initially uncalled for. Relief under sec. 18F is always available to the petitioners only if they choose to so avail. I am, thereforee, of the view that no audi alteram partem can be implied in sec. 18AA, and thereforee there is no question of post-decisional hearing which must it be remembered is curative of an initial vice from which the impugned order does not suffer.

(93) Now, as to the alternative : Whether a subsequent hearing which the Government undertakes to give, can fulfill the requirement of the rule of audi alteram partem, assuming that it can be so implied as convassed by Sh. Nariman. It was appointed out by Shri Sorabji, the learned Additional Solicitor-General, that in Maneka Gandhi such a post-decisional hearing was allowed and considered to have cured the vice of want of prior hearing. The learned counsel for the petitioners, Shri Nariman, appointed out that the post-decisional hearing is contemplated when an order is made but its execution is deferred. He also appointed out that a post-decisional hearing should be remedial in aim. The post-decisional hearing which the Govt. is now prepared to give is not remedial in aim and will be an empty formality because the Minister for Industries of the Central Government has made it known to the Parliament that the Central Government would not return the industries to the industrial house. I agree that' the post-decisional hear- ing, as we see things, is not going to make the matter any the better. If the order were not executed, then post-decisional hearing had some meaning or if a post-decisional hearing had been given before the management invoked Art. 226 of the Constitution, then one could have said that the requirements of natural justice, if any, have been complied with. In Maneka Gandhi the Court had noticed that the statute provided that after the passport was impounded, the authority was required to record in writing a brief statement of the reasons and furnish a copy of the statement to the holder of the passport, so that the validity of the reasons could be challenged in appeal or by way of a representation. On a consideration of all the circumstances, the court further held that the power to impound a passport is quasi-judicial and since no prior hearing was given it suffered from a vice which required to be cured. We thus see 'that the Passport Act itself contemplated a post-decisional hearing and thereforee the offer of the Attorney-General to give a post-decisional hearing was in accordance with the provisions of the law. As a matter of fact, even in the absence of any such offer made by the Government, the court could have directed that as contemplated by the statute, the statement of reasons for impounding the passport should be given to the party concerned so that it should help her in showing to the Central Government that the reasons recorded did not justify the impounding. Since, a notified order under section 18AA is purely an administrative decision and does not contemplate any hearing to be given, the question of post-decisional hearing does not arise at all. The offer is ex gratia.

(94) I consider with due respect that Vijay Kumar Mundhra and M/s. Janki Sugar Mills (both supra) have laid down the law correctly and as a pure question of law compliance with the rule of audi alteram partem cannot be implied in section 18AA. No question thereforee, of prior hearing or subsequent hearing in respect of an order under that section arises, apart from what is envisaged under sec. 18F.

(95) For the reasons aforesaid, I agree with the answer proposed by my Lord the Chief Justice to this reference.

H.L .Anand, J.

(96) I have had the benefit of perusing the judgments of my learned colleagues but regret my inability to either share the conclusions, the reasons on which they are based or the approach to the question, but for which, as indeed its difficult nature and importance, I would not have accentuated the existing plurality of judgments, a practice which is increasingly looked upon with disfavor.

(97) It is unnecessary to give an elaborate back drop in which the reference was made. It may, however, be mentioned that the ground of violation of the audi alteram partem rule was not seriously agitated either before the Division Bench, which initially heard the petition, or before the Full Bench consisting of three Judges, to which it was eventually referred because of the decision of a Full Bench of this Court in the case of Vijay Kumar Mundhra v Union of India & Others, (1) by which it had been held that a take-over order under Section 18AA(A)(B), assailed in that case, was outside the purview of the rule. It later transpired that the Full Bench decision, which was apparently contrary to the current trend of expanding of horizons of the rule, had not escaped the watchful eye of Deshpande, J. as his Lordship then was, and his Lordship had doubted its correctness and recommended is reference to a larger Bench. At this stage of the proceedings, inspired by the course of action followed in the case of Maneka Gandhi (2), and not unmindful of the fact that the undertakings had been taken over without any previous warning much less a hearing, the Additional Solicitor General also made somewhat similar offer as was made in that case to give a post-decisional hearing at an appropriate level to the petitioner so as to 'cure the vice', if any, of the impugned order, an offer which was apparently not acceptable to the petitioners. The fact, however, that Deshpande, J. had doubted the correctness of the Full Bench decision in the case of Vijay Kumar Mundhra and one of us Anand, J. also appeared to be inclined to that view the petitioners' interest in the ground of the violation of the rule was apparently revived. That is what led to the present reference.

(98) The question posed by the Reference, as re-cast by this Bench, is as follows:

'Whether in construing section 18AA of the Industries (Development & Regulation) Act, 1951 as a pure question of law compliance with the principle of audi alteram partem is to be implied? If so,

(A)Whether such hearing is to be given to the parties who would be affected by the order to be passed under the said section; prior to the passing of the order; or

(B)Whether such hearing is to be given after the passing: of the order; and

(C)If prior hearing is to be normally given and the order passed under the said section is vitiated by not giving of such hearing, whether such vice can be cured by the grant of a subsequent hearing'?

(99) The time honoured rule of audi alteram partem, an essential component of the principles of natural justice and an integral part of the larger concept of rule of law, has been variously described as 'substantial justice', 'the essence of justice', 'fundamental justice', 'universal justice', 'rational justice', 'justice without any epithet' or 'fairly in action'. The terms expresses the close relationship between common law and moral principles and has an impressive ancestry. That no man is to be judged unheard was a precept known to the Greeks, inscribed in ancient times upon images in places where justice was administered, proclaimed in Seneca's Medea, enshrined 'in the scriptures (3), traced recently to the Dharmashastra in India, (4) mentioned by St. Augustine, embodied in Germanic as well as African proverbs, ascribed in the Year Books to the law of nature, asserted by Coke to be principle of divine justice and traced by an eighteenth Century Judge to the events in the Garden of Eden, (3) whenever the Lord himself asked of Adam and Eve if they had eaten of the forbidden fruit before 'their fall from Heavens to earth.

(100) In the field of administrative law, the development and the extension of the frontiers of the rule are attributable to legislative as well as judicial anxiety to ensure that in all matters affecting liberty, freedoms and human rights, whether of property or otherwise, the executive authority empowered to take action acts in a just and fair manner and as bulwark against any arbitrary, unreasonable or capricious executive action. In a system like ours, which is governed by the doctrine of rule of law, every executive action must conform to the constitutional and legal constraints and be just and fair not only in the content of the order or the decision, but also in the manner in which it has been arrived at. Thus, the duty to act in a just and fair manner has two aspects to it; one is relevant to the substantive decision and the other is in the nature of a procedural safeguard. One is intended to ensure that the decision is not arbitrary, implying an executive obligation to arrive at a just decision in any matter affecting rights, interests liberties or freedoms. The other is intended to associate the person to be affected with the process of decision making, so that he has notice of what is intended to be done and a fair opportunity to make a representation against it. The two faces operate in different fields because the decisions may be unreasonable or arbitrary in its contend even though the parties sought to be affected may have been given all the opportunity of making a representation Conversely, a decision that may be arrived at in denial of the right of representation may nevertheless turn out to be just and fair. One facet of the rule, thereforee, emphasises the obligation of the executive authority to be just and fair while the other recognises the right of the person to be heard before any condemnatory or deprivatory order is made. In theory, executive authority, as indeed all statutory and constitutional authorities, are not only required to act in a just and fair manner, but also presumed to act in such a manner. In actual practice, however, there are compulsions and constraints of different nature and shade such as political pressure, financial interest, caste, class, community, religious or other leanings or bias which may sully the stream of executive action. Cases are not unknown where there have been gross deviations from the path of executive rectitude because of extraneous pressures and compulsions which have in their wake caused widespread prejudice, harm, injury and otherwise put the rights, interests, freedoms and liberties of the individuals in jeopardy. The audi alteram partem rule is part of the judicial and legislative methodology to guard against such jeopardy and ensure that justice is done, or to put it differently, miscarriage of justice is prevented. It is for this reason that any authority empowered to take any decision which may affect any person in his right, interest, property, reputation or otherwise is under a duty not only to arrive at a just decision but also to arrive at a decision in a just manner i.e. after giving a reasonable opportunity to the person sought to be affected by the action of being heard. A review of the history of the growth and development of this rule in England, as indeed in this country, and for that matter in the entire civilised world, establishes beyond doubt that the rule wherever applicable is immutable in its core or essence even though it has been and may be subjected to situational modifications in its contents, form, extent and even the stage of application. The rule would be inapplicable only where administrative action is incapable of causing any injustice or injury or where the insistence on the application of the rule would frustrate the object of the action sought to be taken, in which case the requirement of the rule would be satisfied by a post decisional hearing of a remedial nature as soon after the action as possible. The application of the rule may also be excluded by an express or implied legislative mandate but where it is implied, it must be clear and unequivocal. It is well established that the application of the rule would be implied even if the statute is quiet with regard to it if such application would be attracted having regard to the nature of the power and its consequence because in that event the justice of the common law would supply the omission of the Legislature (5).

(101) It is important to bear in mind that brevity is the hallmark of legislative action because having regard to the growing volume of legislation, the Legislature can ill afford to be elaborate with the result that being hard pressed for time and space. there is an attempt to compress the essential legislative mandate, leaving the rest either to the legislative dictionary like the General Clauses Act, judicial interpretation and well known principles which would be implied and, thereforee, read into the legislation even where they are explicitly not there. This leads to the adoption of known legislative devices, one of which is to make an administrative or executive decision subject to judicial review. Once the language of the statute makes the executive or the administrative decision within the scope of judicial review, the Legislature implies thereby that in the process of judicial review, the judicial mind would ensure justice between the conflicting interests of the State and the citizen by the application of time honoured principles which are known to be a part of the judicial methodology. Audi alteram partem rule has been integral part of this methodology. Where however, the Legislature intends to make elaborate provision for shearing, such provisions are incorporated in the statute itself so as to make them statutory safe-guards. Such provisions are to be found in statute like the Code of Criminal procedure. Where, however, 'the Legislature does not want any judicial interference of rules out the application of the principles like audi alteram partem because of the policy content of the administrative act or decision, the normal legislative pattern is an express exclusory provision. In such cases, normally a post-decisional safeguard is invariably incorporated in the statute either by way of a statutory appeal or a right of representation or an obligation to give reasons and supply a copy of the adverse order to the party affected. Where, however, the Legislature does not adopt either of the two methods, but is silent as to the application of the rule, but nevertheless makes the action justiciable, it must be implied that the Legislature intended the application of the rule but left its extent, scope, form and the stage of its compliance to judicial moderation, having regard to the compulsion to do justice between the State and the citizen. In such cases, the Court would imply the duty to hear but subject to such situational modifications as the peculiar circumstances of a case may justify.

(102) What then is the position of the rule in the context of section 18AA of the Act? There can be no doubt that an order under Section 18AA would deprive the owner of dominion and control over, as indeed the right to manage, the industrial undertaking, forming subject matter of the order, and may eventually result in the deprivation of the other attributes of the ownership of the undertaking and, on one interpretation of some of provisions of the Act, to dominion and control over, the management and the various attributes of ownership of all the undertakings, if the owner happens to be a company, industrial or non-industrial, scheduled or unscheduled and even its other business interests, investments and even the corporate entity itself. It is also beyond doubt that once the undertaking of the owner, whether a corporate body or otherwise, is taken over on the ground that he or it was frittering away its resources either because he or it was guilty of reckless investments or creation of encumberances, whether reckless or otherwise, or diversion of funds to public detriment or for other permissible reasons, it would mean sufficient condemnation of the entrepreneur so as to make it difficult for him, if not impossible, to finance any other business or reject through any financial institution, bank, public issue or public deposits or to inspire public confidence and credit in the market for years to come. The order being, thereforee, both deprivatory and condemnatory, it is equally beyond doubt that unless one finds words or express or implied exclusion, the power under the Act would be within the rule. It was also agreed that there was no express provision excluding the rule and, thereforee, the basic question that must be answered is whether there is anything in the Section or in the scheme of the Act generally which may justify the conclusion that the operation of such a salutary rule was outside a provisions which empowered the executive authority to take such a drastic action, or there is some clear indication in the language of the Section or in its context which may justify a necessary implication of its exclusion.

(103) The exclusion of the rule from Section 18AA was sought to be justified primarily on two grounds. The first ground was based on a comparative examination of Section 18A and 18AA and the contention that while the rule was incorporated in Section 18A by virtue of the provision of Rule 5 of the Investigation of Industrial Undertakings (Procedure) Rules, 1967, for short, the Rules, such a requirement was done away with in the case of Section 18AA because the process of investigation itself was dispensed with. The second ground for exclusion was based on the need for immediate action for which there was an express provision in Section 18AA(1)(a) and perhaps an implied one in Section 18AA(1)(b) and it was, thereforee, urged that in view of the urgency of the matter, which justified dispensing with investigation, and called for immediate action, there could be no scope either for notice or of any hearing before the action.

(104) The first ground of exclusion based on a comparison of the two Sections appears to me to arise out of a misconception of the scheme of Sections 15 to 18a of the Act, the different areas in which Section 15 and 18a may operate as also the correlation between investigation and the take over decision under Section 18A. It is also based on the wrong assumption that the hearing before the investigator was, as it were, necessarily a substitute for the right of representation which must be implied in Section 18a before the authority competent to decide on the take over and the further assumption that independently of the hearing before the Investigator, there was an implied exclusion of the rule of audi alteram partem from Section 18a itself. The Full Bench decision of this Court is also based on this misconception and assumption. An analysis of these provisions would clearly bring out these misconceptions and wrong assumptions.

(105) Section 15 of the Act empowers the Central Government to 'make or caused to be made a full and complete investigation into the circumstances of the case by such person or body of persons as it may appoint for the purpose if it is of opinion that

(A)in respect of any scheduled industry or industrial undertaking or undertakings.

(I)there has been or is likely to be a substantial fall in the volume of production which is unjustified; or

(II)there has been or is likely to be, a marked deterioration in the quality of its products which could have been avoided ; or

(III)there has been, or was likely to be, a rise in the price of any goods for which there would be no justification; or

(IV)it is necessary to take action to conserve any resources of national importance ; or

(B)if any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest.

Section 18 enables the association of persons possessing special knowledge of any matter with the course of investigation. Sub-section (2) of Section 18 provides that 'the person or body of persons so appointed shall have all the powers of a civil court under the Code of Civil Procedure 190S, for the purpose of taking evidence on oath (which he or it is hereby empowered to administer) and of enforcing the attendance of witnesses and compelling the production of documents and material objects' The Rules made in exercise of power conferred by Section 30 of the Act, lay down the procedure to be followed by the Investigator in making an investigation under Section 15. Rule 4 lays down elaborate procedure to be followed and, inter alia, provides that the Investigator may, before commencing the investigation, call upon the management of the undertaking, its employees and such other persons as may be concerned with the investigation to furnish to the Investigator written statements relating to the affairs of the industry. Rule 5, which is the material rule, runs thus:

5.Opportunity for hearing. The Investigator shall before completion of his investigation give the Management and the employees of the undertaking or undertakings in respect of which the investigation is ordered, reasonable opportunity of being heard including opportunity to adduce any evidence.

It may be useful to bear in mind in this context that ordinarily, whether or not a person is associated with the course of investigation, there is no right of representation at the investigation stage because the investigation is merely a process to sift facts and on the conclusion of it Investigator is to make a report to the authority which appointed it. An adverse order, if any, is to be made by such authority on a consideration of the report, as indeed, other circumstances or material. It may also be useful to bear in mind that in any investigation into the affairs of an industry or an industrial undertaking, the industry and the undertaking has, by the very nature of investigation. It is also important to bear in mind that the things, to be associated with the course of investigation, need not be confined to the affairs of an undertaking but may extend to an industry as a whole. The investigation envisaged by Section 15 is to be full, and complete not only on the language of Section 15, but also on the wide powers of the body which is to hold the investigation and the elaborate provisions in the rule as to the procedure to be followed for the purpose. It is interesting to notice in this context that but for Rule 5, neither the management nor the employees of an undertaking would have been entitled to any opportunity of being heard before completion of investigation except in so far as they may have such an opportunity by the very fact that they are and have to be associated with the process of investigation. Rule 5 was, thereforee, intended to supplement the normal law and to confer an additional statutory benefit which, but for it, would not have been read either in the Rules or in Section 15 itself for the simple reason that the investigator was not to take any adverse action, but was merely to report the findings of the investigation and it was for the decision making authority under Section 16, or, if necessary, under Section 18a, to either accept the report and to act on it or to reject it altogether. Another aspect of Section 15 must also be kept in mind. The investigation under Section 15 may be by the Central Government itself through any of its officers or by any outside agency or person. In either case, the authority or the person who conducts the investigation, need not necessarily be the authority or person who ultimately is concerned with decision-making under section 16 or section 18a of the Act. It would perhaps never be the same authority.

(106) Section 16 empowers the Central Government on completion of investigation, if satisfied, 'that action under this Section is desirable' to issue such directions as may be appropriate for all or any of the purposes mentioned in clauses (a) to (d) of sub-section (II) of that Section. Section 18a empowers the Central Government to assume management or control of an undertaking or to exercise any function or control, if it is of opinion that:

'(A)an industrial undertaking to which directions have been issued in pursuance of section 16 has failed to comply with such directions ; or

(B)an industrial undertaking in respect of which an investigation has been made under Section 15 (whether or not any directions have been issued to the undertaking in pursuance of Section 16), is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest.'

A moment's reflection would make it abundantly clear that while an action under Section 18a must be preceded by an investigation under Section 15, the subject matter and scope of investigation under Section 15, of consideration by the Central Government under Section 16 before making a direction and of the consideration before the Central Government under Section 18a before a take-over order need not necessarily be co-extensive. It would also clearly bring out that the authority which conducts the investigation and the authority which considers the matter at the two later stages need not necessarily be the same. In the first instance, the investigation under Section 15 may relate to a schedule industry and not to any particular undertaking. Action under section 15 could nevertheless be taken in relation the industrial undertaking as distinct from the industry as a whole Secondly, while the investigation under Section 15 may have a very wide sweep, the actual directions that may be issued Section 16 may be limited to any aspect of the investigation or any facet of the functioning of an industry or a particular undertaking or a group of undertakings. Thirdly, a consideration under Section 18a may or may not directly involve the outcome of the investigation. For instance, a take-over order under Section 18A(l)(a) could be justified merely if directions had been issued under Section 16 of the Act and the undertaking had failed to comply with such directions. In such a case, an authority under Section 18a would not be concerned with the question as to the state of the industry or the industrial undertaking or the desirability of issuing a direction or its justification but with the limited question if a direction had been issued under Section 16 and, if so, if there has been a failure to comply with such direction. Lastly, even under Section 18A-(l)(b) the scope of consideration by the Central Government may or may not be as co-extensive with the sweep of the investigation under Section 15.

(107) That being the scheme of these Sections, a pertinent question arises if as a matter of law or of interpretation of Section 18a, it could be legitimately said that it excludes by express provision or necessary intendment a right of representation by a person sought to be affected by an order independently of the right conferred by Rule 5 to be exercised at the stage of investigation or to put it differently, whether the right of representation statutorily recognised in Rule 5 at the investigation stage is exhaustive of the right of representation before an order of take-over can be made under Section 18a of the Act. It appears to me to be obvious that having regard to the nature of the order that can be made under Section 18a, its civil consequences, its deprivatory and condemnatory nature, a right of representation is implied under Section 18a before such an order could be made. Thus far there is no difficulty because such a right cannot be disputed. While in theory, the right of representation under Section 18a on the basis of the audi alteram partem rule is distinct from and in addition to the statutory right conferred by Rule 5, as indeed Rule 4 of the Rules, not only on the management of the undertaking, but also its employees, the latter of whom ordinarily would have no such right on an extension of the audi alteram partem rule, in actual practice, the two may at times overlap. But the right under Section 15 or under Rule 5 could not be said to the necessarily a substitute for the right under Section 18a for a variety of reasons. In the first place, the right of representation before the investigation would not be a substitute for the right of representation before the Central Government under Section 18a because the two authorities may not be and are rarely the same. An effective right of representation before a take-over must be a representation before an authority which makes the order and not an authority which was merely concerned with a course of investigation. Secondly, the scope of investigation and the scope of consideration in Section 18a may or may not be co-extensive and, if they are not co-extensive, the representation at the earlier stage could not be of any avail at the later stage. Thirdly, the Central Government under Section 18A may be concerned with an aspect of the take-over which may be wholly foreign to the subject matter of investigation as, for example a take-over by virtue of Section 18A(1)(a) which is wholly unconnected with the reason for the direction and in which the limited question that the Central Government is required to consider it, if any direction had been issued and there was failure to comply with it. While, thereforee, the right of representation under Section 18a, having its genesis in the audi alteram partem rule would ordinarily be independent of the statutory right of representation under Rule 5 at the stage of investigation, it may happen in a given case that while exercising the right under Rule 5, the management or the employees or other persons interested may have placed before the authorities, which were eventually called upon to consider the desirability of a take-over, their point of view or had otherwise fullest possible opportunity of placing before the Central Government their point of view with regard to the take over either on a formal notice to show cause or otherwise, but before the order of take over was made. In such a case, even though there may be no strict compliance with the provisions of Section 18A, it could be legitimately said that the party has had ample opportunity to make a representation against the threatened take-over of which they had sufficient notice in that in the course of investigation they were fully aware of the allegations made against the management, had ample warning that on that account the management of the industrial undertaking may be taken over and had made effective representations to the Central Government incorporating their point of view with regard to the proposed take over. It may also be that in a fit case, the management may have no possible point of view to urge or show any cause because of the admitted position that the various requirements of Section 18a had been fully satisfied. In such a case, any enforcement of the right of representation before the actual take over would obviously have been an idle formality because even if the representation had been made, it would not have made any difference in the situation or the consequential order.

(108) The decision of the Supreme Court in the case of Keshva Mills(6) with regard to which there was considerable controversy before us, is perhaps the worst case of its kind in which the audi alteram partem rule could possibly have been invoked. The company was one of the 12 sick textile mills in Gujarat which had to be closed down in 1966 and 1968. In May 1969, Government passed an order appointing a committee for investigation into the affairs of the company under Section 15 of the Act. The company was throughout associated with the course of investigation and availed of all possible opportunities to represent its point of View before the Investigating Committee. The Investigating Committee submitted its report to Government in January 1970. Between January 1970 and November 1970, the management of the company exchanged correspondence with the Central Government which clearly indicated that they were aware of the possibility of a take over as well as the reasons for it. In the course of this correspondence the management sought to justify the circumstances which led to the unfavorable situation and compelled the Government to order investigation and consider the take-over of the management The management also mentioned that it had approached the Gujarat State Textile Corporation and certain financial institutions for financial help to rehabilitate the undertaking and plea was made to the Government that the takeover be not resorted to. The correspondence left no doubt that the management would require a minimum of Rs. 20 lakhs for rehabilitation c^ the unit which it was unable to secure. The Managing Director of the company met the Minister for Foreign Trade in August 1970 and obtained time from him to get the necessary financial guarantees from the State or the Gujarat State Textile Corporation. It is only when all these efforts failed that the Government was compelled to make an order of take-over in November 1970. Even so, the company challenged the take over order in the High Court and even in the High Court the proceedings were adjourned at the request of the company and the company was given additional opportunity to obtain the necessary funds to commence the working of the undertaking. Even there they failed. In the Supreme Curt, the take over order was challenged on the ground that it was not competent for the Government to proceed under Section 18a without supplying a copy of the report of the Investigating Committee to the company and that the company should not only have been supplied with a copy of the report, but should also have been given a formal show cause notice before finally deciding upon the take over of the company's undertakings.

(109) The Court posed the following three questions for its decision:

'(I)Is it necessary at all to observe the rules of natural justice before enforcing a decision under Sec. 18a of the Act 7

(II)What are the rules of natural justice in such a case?

(III)(a) In the facts and circumstances of the present case, have the rules to be observed once during the investigation under Sec. 15 and then again after the investigation is complete and action on the report of the Investigating Committee taken under Sec. 18a?

(B)Was it necessary to furnish a copy of the Investigating Committee's Report before passing the order of takeover?'

The first of these was an abstract question of law on the interpretation of Section 18a and was answered in the affirmative- This is what the Court observed:

The first of these questions does not present any difficulty. It is true that the order of the Government of India that has been challenged by the appellants was a purely executive order embodying an administrative decision. Even so the question of natural justice does arise in this case. It is too late now to contend that the principles of natural justice need not apply to administrative orders or proceedings ; in the language of Lord Denning M.R. in Regina v. Gaming Board Ex parte Benaim (1970) 2 Wlr 1009 'that heresy was scotched in Ridge v. Baldwin 1964 Ac 40.

On the 2nd question, the court felt relieved of an obligation to lay down any definition or standard of natural justice and observed that 'the person concerned should have a reasonable opportunity of presenting his case and that the administrative authority concerned should act fairly, impartially and reasonably'. The third question was not an abstract question of law, but a question as arising in the peculiar facts and circumstances of that case. On an examination of the course of events since the appointment of the Investigating Committee, the Court came to the conclusion that 'the Company had full opportunities to make all possible representations before the Government against the proposed take-over of its null under Section 18A' and expressed the view that 'since the appellants have received a fair treatment and also all reasonable opportunities to make out their own case before Government they cannot be allowed to make any grievance of the fact that they were not given a formal notice calling upon them to show cause why their undertaking should not be taken or that they had not been furnished with a copy of the report. They had made all the representations that they could possibly have made against the proposed take over. By no stretch of imagination can it be said that the order for take-over took them by surprise. In fact Government gave them ample opportunity to reopen and run the mill on their own if they wanted to avoid the take-over. The blunt fact is that the appellants just did not have the necessary resources to do so. Insistence on a formal hearing in such circumstances is nothing but insistence on an empty formality'. These observations of the Supreme Court, to my mind, leave no manner of doubt that although as a matter of law, there is a right of representation under Section 18a of the Act, independently of the right under Rule 5, of being heard by the Investigating Committee or the investigator, a formal notice under Section 18a was unnecessary on the facts of that case and may be unnecessary even otherwise because even without such a notice, the company had been heard not only at the investigating stage, but also by Government subsequent to the report of the investigation and before the take-over decision. The decision of the Supreme Court in this case, thereforee, reinforces the conclusion arrived at by me above on an examination of the scheme of the provisions of Sections 15 to Isa that the right of representation implied in Section 18a by virtue of the nature of the order would be independently and in addition to the right under Rule 5 to make a representation before the Investigating Committee or the investigator. Having regard to the fact that in the facts of the case before the Court, the company had ample opportunity to make a representation to Government before the order of take-over it was unnecessary to put the matter more explicitly. Whether on the facts and circumstances of a particular case hearing at one stage with or without a subsequent hearing at the later stage would meet the requirements of natural justice is a different matter and would not be relevant to arrive at the true construction of Section 18a for the purpose of its comparison with Section 18AA.

(110) If the right of representation is, thereforee, implied in Section 18a of the Act, independently of the right conferred by Rule 5, when the Legislature dispensed with the need for investigation under Section 18AA, either by an indication to that effect in the marginal note or a similar indication in the statement of objects and reasons or otherwise, it could not be said to have thereby relieved the Government of an obligation to comply with the audi alteram partem rule because there is nothing in the frame of the two sections which, would justify such a conclusion. Such a rule would be implied because what the Supreme Court said of a take-over order under Section 18a would be equally true of a take-over order under Section 18AA i.e. 'there can be no question that whenever an order is made under Section 18a against a company, it has far reaching consequences on the rights of that company, its shareholders, its employees and all persons who have contractual dealings and transactions with that company'. If there was a right of representation before the order of take-over under Section 18a even where there had been a full and complete investigation, the need for such an opportunity would be all the more under a provision which dispenses with either because it is unnecessary or otherwise, the whole course of investigation and empowers the Government to make an order without any investigation whatsoever. It is, thereforee. not possible to accept the contention that in doing away with the need of an investigation as a preliminary for a take over under Section 18AA, the Legislature was impliedly dispensing with the audi alteram partem rule. The Full Bench decision of this Court which has proceeded on the basis that the only opportunity of making a representation under Section 18a was at the investigating stage and that having been dispensed with in a case under Section 18AA, the audi alteram partem rule stood impliedly excluded, would appear to me with respect, to be no more good law in view of the decision of the Supreme Court in Keshva Mills (supra). It may also be mentioned that in the case of Mundhra (supra), it was unnecessary for the Full Bench to construe Section 18AA vis-a-vis the audi alteram partem rule because the decision ultimately turned more on the circumstance that the factory had admittedly remained closed for more than the period requisite under Section 18AA(l)(b) and the requirement of the Section had admittedly been fully satisfied and in that context, there was no possible cause that the company could have shown to the Central Government against a take-over order. It was, thereforee, not a sheer coincidence that the take-over order in that case had not been challenged either by the company or by its management or any group of shareholders claiming to have controlling interest in it or even by its employees, but by a single shareholder, who was not even its Director, and a firm which claimed to be its creditor. It is, thereforee, understandable why the Full Bench did not enter into any elaborate discussion of the scheme of the provisions of Sections 15 and 18A or a comparative examination of Sections 18A and 18AA to test the validity of its conclusions.

(111) Before going to the second ground urged for the exclusion of the rule, it would be proper to discuss an ancillary reasoning of the Full Bench in support of exclusion based on a comparison of Section 18a, 12 and 18C of the Act on the one hand and Section 18AA on the other, and the impact of the Constitutional protection that the Act enjoys on the question of exclusion.

(112) According to the Full Bench, the absence of a specific provision for a hearing in 18AA would exclude the operation of the rule because such a provision was made by the Legislature in Sections 18a, 12 and 18C of the Act. This reasoning, with respect, appears to be fallacious. In the first instance, none of these provisions are analogous to the provisions either of Section 18a or 18AA and, thereforee, it is not possible to compare the two sets of provisions. Secondly, Section 18a deals with the revocation of registration, and a provision of an opportunity in such a Section was perhaps considered necessary by way of abundant caution because the question as to the right of hearing before revocation of registration of an undertaking would, but for such a provision, have been controversial, if not doubtful. So far as Section 12 is concerned, there is no specific provision for a hearing and the Full Bench, with respect, was in error in reading such a provision in the Section. So far as Section 18C is concerned, there is no specific provision for any notice in it either, but is implied because the Section requires 'due enquiry'. It is, thereforee, not possible to reinforce the conclusion with regard to exclusion with reference to any of these provisions.

(113) Has the constitutional protection that the Act enjoys by virtue of Article 31A(l)(b) and 31B of the Constitution and its consequential inclusion in the Ninth Schedule any impact on the question of exclusion of the rule from Section 18AA?. To my mind, the immunity that the Act enjoys by virtue of the constitutional protection has no impact at all either on the question of construction of its provisions or the specific question of the exclusion of the rule from Section 18AA, The constitutional protection immunises the statute, but does not extend to the administrative decisions or any action in exercise of it, which would still be open to challenge even on the grounds which may not be available to challenge the virus of the Act. That apart, the rule of audi alteram partem was not born out of an anxiety to save a statute from the vice of arbitrariness. As I have already appointed out, it has a more impressive ancestry and a more sublime purpose and object, namely, to ensure that the executive action would be just and fair not only in its content, but also in the manner in which it was arrived at. In construing statutes,. the rule is sometimes employed with a view to attribute to the Legislature the necessary element of fairness and the need for the rule would not disappear merely because the product of the Legislature had been given immunity. It would still be both necessary and possible to show that in making any particular provision the Legislature was not acting in an unreasonable manner and had expressly or impliedly incorporated the necessary safeguards. In any event, the constitutional protection must be ignored for the purpose of construing the statute because there was none when the statute became part of the statute book and the constitutional protection may not remain for all times. It is, thereforee, still possible to argue that the Legislature would not have made a provision which could have been struck down as arbitrary having regard to the principles embedded in precedents, whether or not Court would have the power to strike it down at a particular point of time.

(114) How far the necessity of immediate action to prevent a precipitate situation with regard to production in an industrial undertaking, which has been made an ingredient of clause (a) of subsection (1) of Section 18AA could justify exclusion of the audi alleram partem rule, is the next question that must be considered. To my mind, the question must be answered in the negative for a variety of reasons. In the first instance, if the right of the person affected to a reasonable opportunity of being heard is to be read into Section 18a of the Act, even though an order under that Section could be made only after a complete and full investigation followed in a fit case by appropriate directions before the take-over, there is nothing in the need for immediate action under Section 18AA(l)(a) which may admit of a differential treatment. Such a right must be implied in the latter provision in spite of need for immediate action. Secondly, need for an immediate action, in the context of the provisions of Sections 15 and 16 of the Act and having regard to the statement of object and reasons for the addition of Section 18AA, as reinforced by the marginal note to it, has its impact on the investigation under Section 15 and the remedial directions that could ordinarily be issued under Section 16. Ordinarily, a take-over order would be made under Section 18a of the Act for the simple reason that the Section has a much wider sweep than Section 18AA and any action under Section 18a would not have to suffer the limitations which are inherent under Section 18AA. The structure of Section 18a, however, makes it obvious that any order under Section 18A must be preceded by a full and complete investigation under Section 15, even though a take-over order could eventually be made under Section 18a, whether or not any directions have been issued pursuant to Section 16, if the Central Government was of opinion that the undertaking was being managed in a manner highly detrimental to the industry concerned or to public interest. There may, however, be occasions where a take-over order may be justified with reference to readily available material or evidence which is in the possession of the Central Government. Why should it be necessary in such a case for Government to embark on a long and time consuming process of a full and complete investigation. Even if such material, whether documentary or otherwise, may nevertheless require some further investigation, though not as full and complete an investigation as is envisaged by Section 15, there may be urgency of various types because of which Government could ill-afford even such an investigation. Again, there may be cases in which because of the nature of evidence available, directions under Section 16 may be an exercise in futility and the matter is such that it does not brook any delay because delay would prejudicially affect the interest of the industry, the undervaluing or public interest. In such situations, why must Government be compelled to unnecessarily delay remedial action. Section 18AA which was added to the statute in 1971 was an answer to this need and incorporate an enabling provision which is not in derogation of the existing provisions of Sections 15 to 18a but in addition to it, and that is why 'without prejudice to' the existing provisions. The result is that while Government was free in a fit case to have an elaborate investigation under Section 15 or to issue directions under Section 16 and take-over an undertaking under Section 18a, where the requirements of Section 18AA(1)(a) or (b) were satisfied. Government would be relieved of the fetters of Sections 15 and 16 and certain limitations inherent in Section 18a and straightaway make an order under Section 18AA, so long as the requirements of the Section are satisfied without either the investigation envisaged in Section 15 and without resort to the provision with regard to pre-takeover directions, which are in the nature of a warning, an opportunity to mend its ways and take self-imposed remedial measures or industrial discipline. The need for immediate action envisaged by Section 18AA(l)(a) must, thereforee, be seen in this context. It is not possible to read anything more in it, much less an express or implied exclusion of the salutary rule of audi alteram partem. If anything, such a rule would be more rigidly insisted upon in a case under Section 18AA because a take-over order in such a case would be on an ex parte examination by Government of some material without any investigation whatsoever or also without any warning and opportunity for self-discipline and remedial action short of a take-over which is implicit in Section 16. Thirdly, if having regard to the nature of the orders to be made under Sections 18A and 18AA and their grave consequence, the audi alteram partem rule must be read into these provisions, one would have expected a definite indication of its exclusion and if it was intended to be excluded, either an express inclusion of a modified version of the rule or at least a legislative mandate of a post-decisional remedial hearing. There is, however, no such provision, not even an obligation that soon after the take-over order. Government would disclose the reasons for the order or to invite a representation from any person who may have been affected by it or to consider and decide such representation or some provision of a review or an appeal by the authority which made the order or any higher authority. The absence of such a provision would also militate against the theory of exclusion. This discomfiture brought out the retort that Section 18F was such a provision. When it was appointed out that it would not be possible to read into that Section either the right to make a representation against the take-over order on the ground that it should not have been made or could not have been made or an obligation on the part of the Government to deal with such a representation or to otherwise treat that Section as a provision for a post-decisional hearing, it was urged that there was no reason to restrict the scope of the Section to its obvious plain meaning and that it should be construed as widely as possible so as to enlarge it. This is how the Section runs:

18F.If at any time it appears to the Central Government on the application of the owner of the industrial undertaking or otherwise that the purpose of the order made under Section 18a has been fulfillled or that for any other reason it is not necessary that the order should remain in force, the Central Government may, by notified order, cancel such order and on the cancellation of any such order the management or the control, as the case may be, of the industrial undertaking shall vest in the owner of the undertaking.

On its plain meaning, it confers power on the Central Government, either on the application of the owner, of the undertaking or otherwise to cancel a take-over order either if the purpose of the order had been 'fulfilled' or for any other reason, the continuation of the order was not 'necessary'. While there is a large body of Judge made laws in India, as elsewhere, and Courts have often in the process of interpretation of laws, not only straightened the creases in the statute and to have given extended meaning to expressions, courts have not so far gone to the extent of virtually re-writing a provision for that would clearly be a transgression into the real in of legislation. Section 18F comes into play only where either the take-over order had served its 'purpose' or it is otherwise ceased to be 'necessary' because of a change in the situation in which it was made. It is not possible to read into the Provision either the right to make representation against the take-over order on the ground that it could not have been or should not have been made at all or a corresponding obligation to consider such a representation. Such requirements would be wholly outside the scope of Section 18F whatever may be the power of Government to review or rescind its order otherwise. Whatever may be the compulsions to widen its scope. the argument, to my mind, is only a counsel of dispair. If Parliament intended to provide for a substitute for a pre decisional hearing, it would not have used the devious methods of making a provision for it in Section 18F, but would have incorporated a specific provision for a post-decisional hearing as a full and complete review of the circumstances of the take-over its legality, propriety and desirability. To hold to the contrary would be to attribute to Parliament a certain amount of indifference and unconcern which could not be justified on the basis of any known rule of interpretation. Lastly, the need for immediate action under Section 18AA is not of the genre of urgency arising out of elemental forces on which there is no human control or of the type of urgency or emergency which would not have been foreseen or which would by its very intensity and nature not only make compliance with the rule impossible, but also frustrate its very object. The cases of out break of pestilence, fire, likelihood of collapse of a building are of that genre one can visualise a large number of other cases as well where any opportunity to show cause against the proposed action may enable the person to frustrate its object. A long line of decision both in England and in this country have clearly brought out the distinction. An order under Section 18AA does not ordinarily fall in that category at all because the precipitate situation sought to be prevented had its genesis in creation of encumberances, reckless or otherwise, or of diversion of funds which by their very nature take their own time to bring about a situation, albeit financial situation, in an undertaking which may be likely to effect the production. It is the same in the case of closures. These need not necessarily be sudden occurrences which pose an immediate threat but are actions which have their impact in course of time. Sickness in industry is ordinarily not an overnight phenomenon. Its first symptoms are visible much ahead of time and unless the authority concerned was complacent or indifferent, the slow deteriorating financial position of an undertaking or the elements of its sickness give clear and definite warnings from time to time. It is, however, possible that in a given case a situation may suddenly develop and may not admit of any delay whatsover. But even that would not justify the exclusion of the rule even though it may constitute a situational compulsion so as to justify the modification of the content and the extent of application of the rule, timeously(7) or otherwise. The rule is immutable in its fundamental or its core that the person sought to be affected must be heard. It is, however, flexible and pragmatically so in the nature of the hearing and its form and therein lies the resilience of the rule. as indeed its endurability. While the right of representation must not be denied if the order sought to be made could have civil or other disastrous consequences or amounts to a, condemnation of a person, there is no right to a full fledged hearing, as if in a trial, not a vested right in the form of the hearing and even the stages at which a person may be heard. What should be the scope of the hearing, the extent of it or the stage of it may, however, vary from case to case and it is not possible to reduce it to a formula or to a straight jacket the extent of the rule in that behalf, for that would be stultifying the role itself. The importance of the matter is the substance of the rule and that must be insisted upon unless such a course is just not possible or the party sought to be heard obstruct such a course or is able or found to be engaged in frustrating its object.

(115) The argument that a prior hearing must be impliedly excluded because a compliance with the rule may frustrate the object of the action in that during the interregnum the management of the undertaking may conceal, remove, fritter away or otherwise deal with the assets in a manner which may be prejudicial to public interest, is wholly unsustainable and ignores the very wide powers that Section 18AA confers when it authorises not only the takeover of the management of the undertalcing, but enables the Government 'to exercise in respect of the whole or part of the undertaking such functions of control as may be specified in the order'. If, thereforee, there is any danger that the assets may disappear or that there was any likelihood of the action being frustrated, Government is entitled to make a freezing order or restraint order, even attachment orders, pending the actual take over. In cases of real urgency, Government may even take over an undertaking for a short period and extend the operation of the order after the hearing even if the object could not be achieved by first making orders in the nature of exercise of control to be followed by a full fledged take-over.

(116) It is necessary to bear in mind in the context of the requirement. of the rule an obvious distinction between the take-over of management of an undertaking under the Act and nationalisation of an industry or an undertaking. While a take-over of the management under the Act has its genesis in any act of non-feasance, misfeasance or malfeasance of the management or the objective state of an industry as a whole and is, thereforee, not only deprivatory but also condemnatory and would thereforee, have far reaching consequences for the entrepreneur, the management or the corporate body, as indeed the people behind the body, the nationalisation of an industry or an undertaking is a political or economic measure of the Government pursuant to its economic policy, its socio-economic objectives, which may also be deprivatory in nature, but is not necessarily condemnatory. If Government decides to nationalise an industry or an undertaking as a measure of its economic policy or on account of its political expediency or pursuant to its socio-economic objectives, it does not attract judicial review nor would it involve any prior or subsequent hearing because the Government measure is in the nature of an instrument of social justice and execution of Government policies as such are not justiciable. Such a measure would be in the nature of a mini economic revolution and the rule is obviously not attracted to such revolutions. No vested interest was ever given an opportunity of being heard before any of the great revolutions were made. The lake-over of the management because of the condemnatory content is, however, a different matter. It is not only justiciable and must, thereforee, be confined to the terms of the statute, but would also attract the rule audi alteram partem because you are not taking over the management of an industry or an undertaking because you are ideologically committed against any particular pattern of corporate venture or industry such as a family hegemony or private section. To involve any consideration of socio-economic objectives of Government policy in defending a takeover without the procedural safeguards appears to ignore this important distinction.

(117) In a precedent oriented legal system like ours, arguments in a cause are considered incomplete without being reinforced by precedents. Learned counsel for the parties by their assiduous research referred to a large number of precedents most of which have been discussed in the various judgments. These precedents throw considerable light on the various facets of the question before us but do not provide the answer. I have referred to some of these decisions above. It is, however, necessary to comment on, two decisions because they were heavily relied upon to justify exclusion of the rule from Section 18AA. One is the decision of the Supreme Court in the case of Pillai Bank(8) and the other is an American, decision in' the case of John H. Fahey and A. V. Ammann v. Paul Mallonee(9). These two decisions, to my mind, are clearly distinguishable and have no bearing on the question before us. Both these decisions deal with the banking industry and the system of monitoring of banking institutions, both in the United States and in this court and turned on the peculiar position that the apex banking bodies enjoyed in the two countries. Moreover, the provisions of the Banking Companies Act, now known as the Banking Regulations Act, provide for a continuing dialogue between the Reserve Bank on the one hand and the banking institutions on the other. Under the Banking Regulations Act, the Reserve Bank is empowered, an,d indeed makes directions from time to time regulating the working of the system of banking. The regulation of the banking industry involves monetary policies which is a highly technical subject and it is for this reason that both the decisions clearly point out why these cases should be treated as a class apart. The position of the Reserve Bank as the Bankers' bank and an independent statutory body itself ensures adequate safeguard against any misuse of the provision for the winding up of a banking institution. It must also be borne in mind that banking is a very sensitive industry. Any disturbance in the operation of any banking institution could cause considerable dislocation in industry, as indeed in the economy itself, and that is why a differential treatment was justified which could not possibly be extended to the present case. In the later case of Corporation of Calcutta(IO), the peculiar position of the banking industry was explained by the Supreme Court when it declined to extend the principle laid down in, the case of Pillai Bank to that of the Corporation of Calcutta. These decisions, thereforee, to my mind, have no relevance to the question before us.

(118) The audi alteram partem rule is a salutary rule, a rich heritage preserved for posterity by poineering, inspiring an,d noble judicial and juridical thought spanning almost a century and has served as a bulwark against arbitrary executive action and as an effective instrument to ensure the executive action is just and fair. It has saved innumerable persons and institutions from the onslaught of authoritarian regimes, arbitrary acts and injustice and preserved the priceless liberties, freedoms, property, status and reputations from illegal jeopardy. It is of the highest importance that such a golden rule is preserved for posterity not only in' its pristine form but with its horizons as far extended as possible. If and when the Legislature excludes the operation of the rule when ordinarily it would be attracted for whatever compulsions, the lovers of freedom and liberty would be unhappy but where its frontiers are sought to be restricted by judicial intervention, they are bound to describe it as most unfortunate.

(119) For all these reasons, it is not possible to construe Section 18AA of the Act as in any manner excluding the right of a hearing prior to the making of the order. For the Fame reason, it is not possible to read into the Section any provision for a post-decisional hearing in substitution of the n,ormal hearing prior to the making of the order.

(120) If prior hearing was, thereforee, the necessary condition for a valid order, any order in breach of it would be void and would ordinarily be quashed in proceedings under Article 226 of the Constitution of India. In that sense, the vice of the order could be cured only by an effacement of it and there would, thereforee, be no question of such a vice being cured by grant of a subsequent hearing. The decision of the Supreme Court in the case of Maneka Gandhi(ll), to my mind, does not sanctify the proposition that the vice of an order, which was void for want of a prior hearing, could be cured by a sub-sequent hearing. In that case, on a construction of the Passport Act, the majority found that there was no right of a pre-decisional hearing and the only right that a passport holder had was impliedly the right of a post-decisional hearing if the passport was revoked. Even that right was denied in that case because no post-decisional hearing had been given. It was in this context that the Court considered an offer of a post-decisional hearing as capable of removing the vice of the order. Where the right was to a post-decisional hearing, a delayed post-decisional hearing would be capable of curing the vice, but not where the right was to a prior hearing. It is important to bear in mind in this context that even if the revocation order in that case had been quashed, a fresh one could have been made immediately following that without a prior hearing on' the law laid down in that behalf by the Court with the only obligation to furnish a copy of the order to the petitioner and to consider the representation that she may make. The form of the relief was, thereforee, irrelevant in that case. Ordinarily, thereforee, an order which has been made in denial of the right of prior hearing must be quashed and the aggrieved party restored to its rights. Lord Reid did not doubt that if an officer or body realised that it had acted hastily and re-considered the whole matter afresh after affording to the person concerned a proper opportunity to present his case, then its later decision will be valid(12), but nevertheless appointed out while referring to the effect of the subsequent hearing that it was a 'very inadequate substitute for a full re-hearing' partly because the Watch Committee 'did not annual the decision which they had already published and proceed to make a new decision'. This may be understood as laying down that in case a pre-decisional hearing was implied and was denied, the vice could not be removed without removing the order. In spite of this possible understanding of the observations of Lord Reid, Meggary, J., however, expressed the view that it was not essential that there should be any formal annulment of the former decision before starting afresh(13).

(121) Whether the vice of a void order made in denial of a right of prior hearing could be removed without removing the order itself raises a number of difficult questions. If a subsequent hearing is capable of removing the vice in every case, would it not stultify the rule and the salutary requirement of prior hearing degenerate into a post-decisional hearing, which in, certain circumstances may be no more than a mere ritual, a public relations exercise or a mere exercise in futility. The question whether such subsequent hearing by the authority which has already taken the action would nevertheless be effective and would not degenerate into a mere public relations exercise and whether such a subsequent hearing would be effective and officious only if given either by a higher or a different authority or by a specially constituted authority with certain essential safeguards built into it to ensure a full and free review of the entire circumstances so as to ensure a just and fair order in spite of the fact that action has already been taken and Government may have to an extent committed itself to it, raise difficult questions, answers to which would depend on a variety of factors and circumstances. The nature of the order, the stakes involved, the status of the authority which made it, the extent to which the authority making the order has by its conduct, pronouncement and defenses committed itself to it, the political, economic and social compulsions behind the action, the controversial nature of the order and other circumstances which may militate against the possibility of an authority retracing its steps, are some of the factors and circumstance which would determine if such a hearing would be effective. In theory, every public functionary is presumed to act in a just and fair manner and perform his official obligations without fear or favor. Unfortunately, however, that may not always be so in actual practice for a variety of reasons. There is the proverbial gap between plans, policies and their implementation. There are extraneous factors, compulsions, incentives and pressures such as political pressure, executive pressure from higher authorities, ideological religious, social, economic, communal caste, regional, professional and host of other affinities may successfully, consciously or unconsciously, affect the straight flow of the executive mind. Whether subsequent hearing, thereforee, could be of any avail belongs to the realm of conjecture, a part of the twilight region and one of the many unanswered question's. But does that mean that in every case in which an order has been made in denial of the right, it must first be set aside? Are their no exceptions? It would also involve the question if the court is bound in every case to quash a void order made in denial of the prior hearing or does this also admit of exceptions. An order may have been made because of certain compulsions. The hearing may not have been given because of a misconception. Any take-over causes considerable dislocation, impedes normal functioning of industry, the process of take-over involves both time and expenditure. If such an order is vacated and then' followed by a fresh order it would cause considerable prejudice to various interests Government may have invested large funds in reviving or running the industry. The quashing of the order in such a case may involve paramount considerations of public interest. There may be circumstances which may justify even a void order being kept alive, until the conclusion of the subsequent hearing, even though in a modified form, within narrower limits so that a reasonable balance is struck between the larger public interest and the claims of private interest. What course the Court would adopt while dealing with a void order made in denial of the right of prior hearing would, thereforee, depend not only on the power of the Court to modulate relief, but also on a host of other circumstances and while ordinarily the vice of the order could not be cured without removing the order itself, it would be open to the Court in a fit case to moderate the relief in such a way so as to subserve public interest even while ensuring that the subsequent hearing would be a full and complete re-hearing of the matter and the public interest and the interest of the person affected would be fully protected during the interregnum. What order the Court would make in different situations with regard to the Various matters such as the modification of the impugned order, the limitations of its scope, the level at which the subsequent hearing would be granted and the manner in which the property is to be dealt with would, thereforee, depend upon the facts and circumstances of each case. Any decision on these questions would be outside the reference.

(122) I would, thereforee, answer the reference thus : In construing Section 18AA of the Act as a pure question of law, compliance with the principle of audi alteram partem was to be implied.

(A)Yes.

(B)Does not arise.

(C)If an order is vitiated on account of denial of prior hearing, such a vice could not be cured by the grant of a subsequent hearing, but it would be open to the Court to moderate the relief in such a way that the order is kept alive to the extent necessary until the making of the fresh order to subserve public interest and to make appropriate directions to ensure that the subsequent hearing would be a full and complete review of the circumstances of the take-over and for the preservation and maintenance of the property during the interrenum.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //