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Jucgilal Kamlapat Cotton Spinnhw and Weaving Mills Co. Ltd. and anr. Vs. Union of India and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtDelhi High Court
Decided On
Case NumberCivil Writ Petition No. 1762 of 1983
Judge
Reported inILR1984Delhi783
ActsIndustries (Development and Regulation) Act, 1951 - Sections 15
AppellantJucgilal Kamlapat Cotton Spinnhw and Weaving Mills Co. Ltd. and anr.
RespondentUnion of India and anr.
Advocates: Soli J. Sorabjee,; H.N. Salve,; Ravnder Narain,;
Cases ReferredLiversidoe v. Anderson
Excerpt:
(i) industries (development & regulation) act, 1951 - section 15--ingredients an scope of, considered and discussed. (ii) natural justice--audi alteram partem--before passing an order under section 15 of the industries (development & regulations) act, the management of an industrial undertaking must be given a hearing. the questions that arose for the consideration of the court were, first, whether an order passed under section 15(a)(i) and 15(b) of the industries (development and regulation) act has any civil consequences or adverse effects in any manner and particularly whether the credibility of the management of the industrial under taking in respect of which the investigation is ordered is adversely affected. secondly, whether the management of an industrial undertaking in.....prakash narain, j.(1) this petition under article 226 of tja.e constitution of india is concerned with the validity, ten- ability and legality of an order dated august, 6, 1983, passed by the central government under section 15 of the industries (development and regulation) act, 1951, hereinafter referred to as the act, in respect of the rayon unit of the first petitioner. (2) the first petitioner is a public incited company incorporated and registered under the companies act, 1913. the second petitioner is a shareholder of the first petitioner. respondents i to 7 are the union of india and persons appointed by the central government by its impugned order dated august 6. 1983 for the purpose of investigation postulated by the said order. respondent no. 8 is the state of uttar pradesh.(3).....
Judgment:

Prakash Narain, J.

(1) This petition under Article 226 of tja.e Constitution of India is concerned with the validity, ten- ability and legality of an order dated August, 6, 1983, passed by the Central Government under Section 15 of the Industries (Development and Regulation) Act, 1951, hereinafter referred to as the Act, in respect of the Rayon Unit of the first petitioner.

(2) The first petitioner is a public incited company incorporated and registered under the Companies Act, 1913. The second petitioner is a shareholder of the first petitioner. Respondents I to 7 are the Union of India and persons appointed by the Central Government by its impugned order dated August 6. 1983 for the purpose of investigation postulated by the said order. Respondent No. 8 is the State of Uttar Pradesh.

(3) The first petitioner has, inter alia, a cotton textile mill at Kanpur and a mill for manufacture of rayon filament yarn, also at Kanpur. The cotton mill has been in existence from 1931 and it reported to be doing very well. It is the other miB which has run into difficulties. The industrial license under the Act for the manufacture of 'rayon filament yarn originally granted to J.K. Commercial Corporation Ltd. in February, 1956. The said license was amended on June 19, 1956 by substituting the name of the first petitioner in place of the J.K. Commercial Corpora- -tion Ltd^ This license was further amended on March 2.2, 1958 by the first respondent setting out that under-it .manufacture could be undertaken ofrayoo filament yam and also man-made fibre, including regenerated cellulose rayon nylon and the like. On Octobers, 1957 the first respondent granted to the first petitioner a license or permission to manufacture certain new items, viz., sulphuric acid and carborn-sulphide in the petitioner's existing rayon unit. There were certain other modifications made in the license on February 15, 1961. For the manufacture of rayon filament yarn and the said by products the first petitioner set up a factory at Jajmau, Kanpur and commenced production of the rayon filament yarn in or about the year 1959. Subsequent to this, applications made for diversification were, however, not accepted by the Central Government. An application for modernisation of rayon plant by installation of viscose rayon spinning lie with 120 positions and other balancing equipment was also not accepted. These applications Were rejected between the year 1960 and 1971. Certain excise duty exemptions were granted on the product of the Rayon Unit of the petitioner in 1967 but were withdrawn with effect from March 31, 1979. According to the petitioners there were diverse difficulties faced by the Rayon Unit with the result that there was an aggregate loss of Rs. 37 lacs between 1959 and 1975. On October 1, 1975 the rayon plant was given on license to another company, M/s. J. K. Synthetics Ltd., who started the rayon plant. However, on March 4. 1975 the rayon unit had to close down on account of a 100 per cent power cut and it remained closed for eight months. On an assurance given by the 8th respondent the Government of the State of Uttar Pradesh, on September 24, 1975 at ahigh-level meeting that there would be uninterrupted supply of power to the rayon unit to the extent of 4500 Kva this plant was restarted with effect from October 1, 1975. Looking at the various conditions for which the petitioners say they were not responsible, the Uttar Pradesh Government recommended to the Central Government for grant of relief of excise duty to the first petitioner's rayon unit by a communication dated February 11,-1976. By 1978 the aggregate losses came to Rs. 172.62 lacs incurred by J.K. Synthetics Ltd., the licensee. Two factors were allegedly mainly contributing to the adverse state of preduction. These were continuous power break-downs or power-cuts and labour troubles. Between August, 1979 to July, 1980 the rayon unit remained closed on account of labour trouble, power-cuts and certain other economic factors. In August, 1980 the-rayon plant was restarted on an assurance, said to have been .given by the Chief Minister of the Government of Uttar Pradesh; to-make sufficient power available without interruptions. Labour trouble, however, was still there and, indeed, increased. In December, 1980 the two Unions controlling the labour started work-to rule stay-in-strike and other disbursing features the result was that the plant had to again close down in December, 1980 and remained closed till January, 1981. The Plant resumed production on January 15, 1981 after some settlement had been arrived at with the labour unions. It again had to close down because of labour trouble in January, 1981. At the request of the first petitioner the Central Government appointed Shri Inamdar, by a communication dates' June 6,1981, for examination of the problems faced by the rayon unit with a view to finding out a solution. Shri lnamdar gave-his report and findings in July, 1981. The factory which had been closed down by virtue of a closure notice was reopened in the middle of 1981. The labour trouble, however, continued as also frequent power- cuts and power interruptions. By 1982 the total loss suffered amounted to Rs. 863.86 lacs. It is pointed out by the petitioners that by this time the rates for consumption of electricity had also been raised. The aggregate loss from 1975 to 1980 by this time came to Rs. 1129.48 lacs. On May 12. 1983 M/s J. K. Synthetics terminated the license agreement with effect from May 16, 1983 before the expiry of the license on account of the staggering losses. As the first petitioner was unable to bear the burden of losses of rayon unit, it gave once of closure with effect from July, 1983 in the form prescribed under Section 25PFA of the Industrial Disputes Act. Notice was given to the workers and Demand Drafts for two months' wages in lieu of notice were issued with offer to pay other labour dues. The Government of Uttar Pradesh then took up the matter and consultations were held with the first petitioner. On May 16117,1983 the factory of the first petitioner was allegedly seized by workers who prevented access to the petitioner's officers. On June 8, 1983 the petitioners surrendered their license under the Act and offered to sell the rayon unit to the Central Government free of encumbrances for a token price of Re. 11-. M/s. J. K. Synthetics Ltd. also offered to transfer to the Central Government or its nominee certain assets pertaining to the aforesaid rayon unit and lying in the factory premises of the rayon unit for a token price of Re. l.00 . The offer was time-bound. On June Ii, 1983, however, the petitioners withdraw the time-limit placed for acceptance of the offer by the Central Government. On June 15, 1983 the Central Government appointed a Task Force, headed by the second respondent to visit the factory premises without any prior notice to the first petitioner. The Task Force looked into the functioning and affairs of t^e rayon unit and submitted its report towards the end of June, 1983. Certain meetings thereafter were held between the officers of the petitioners and officers of the Central Government, the latter examining the possibility of re-starting the rayon unit. On August 6, 1983 the impugned order was passed by the Central Government. These are the undisputed facts.

(4) The impugned 6rder dated August 6, 1983 reads as uadci: Ministry Of Industry Department Of Industrial Development New Delhi, the 6th August, 1983 ' Order S.O. 561 (E). Whereas the industrial undertaking known as Messrs. J. K. Rayon owned by Messrs. J. K. Cotton Spinning and Weaving Mills Company Limbed, Kanpur, is engaged in the Scheduled industry namely, the Textiles industry. And Whereas, the Central Government is of the opinion that there has been substantial fall in the volume of production and deteriorations in quality in respect of Viscose Filament Yarn manufactured in the said industrial udertaking for which having regard to the economic conditions prevailing, there is no justification. And Whereas, the Central Government is further of the opinion that the said Industrial Undertaking i,s being managed in a manner highly detrimental to the Textiles industry and the public interest; Now, thereforee, in exercise of the powers conferred by section 15 of the Industries (Development and Regulation) Act, 1951(65 of 1951), the Central Government hereby appoints, for the purpose of making a full and complete investigation into the circumstances of the case, a body of persons consisting of: . (i) Shri Suresh Kumar, Additional Textile Commissioner, Ministry of Commerce .... Chairman. (ii) Shri Ashok Kumar, Director, Deptt. of Banking, Ministry of Commerce . .. Member (iii) Shri N. D. Bhatia, Director, (Inspection & Investigation) Department of Company Affairs, Ministry of Law, Justice & Co. Affair?. ... Member (iv) Shri Ravi Prakash, Special Secretary Industries, Government of Uttar Pradesh. ... Member (v) Shri B. K. Malhotra, Manager, IFCA. ..... Member (vi) Shri S. N. Agarwal, Company Secretary, Ntc, Up, Member-Secretary. ... Member 2. The above body shall submits its report within a period of two weeks from the date of publication of this order in the official gazette. Sdl- A. P. Sarwan, Joint Secretary to the Government of India.'

(5) The petitioners moved this court by a petition under Article 226 of the Constitution of India on August Ii, 1983. Rule was obtained on August 12, 1983. While issuing rule this court also stayed the operation of the impugned order dated August 6, 1983.

(6) By way of return the first respondent has filed an affidavit sworn by Shri C. R. Sundaramurti, Deputy Secretary, Ministry of Commerce, Department of Textiles, Udyog Bhavan, New Delhi. The petitioners have also filed a rejoinder to this affidavit.

(7) Section 15 of the Act, so far as it is relevant for this case, reads as under : '15. Ttower to cause investigation to be made into schedul- ed industries or industrial undertaldngs. Where the Central Government is of the opinion that 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 in respect of any article or class of articles relatable to that industry or manufactured or produced in the industrial undertaking or undertakings as the case may be, for which, having regard to' the economic conditions prevailing there is no justification; or (ii) there has .. ... ............ (iii) there has been or is likely to be a rise in the price of any article or class of articles relatable to that industry or manufactured or produced in the industrial undertaking or undertakings, as the case may be, for which there is no justification; or (iv) it is necessary to take any such action as is provided in this chapter for the purpose of conserving any resources of national importance which are utilised in the industry or the industrial undertaking or undertakings, as the case may be ; or (b) any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest ; the Central Government may make or cause 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.'

(8) The petitioners' case is that inasmuch as the issuance of an order under Section 15 of the Act. as issued, adversely affects the credibility of the first petitioner and has civil consequence?, it was implicit that the petitioners should have been given some sort of a hearing before the impugned order was issued., In other words, in issuing the impugned order the Central Governmemt has violated the rule of natural justice. It is further submitted by the petitioners that even otherwise the conditions precedent for the issue of an order under Section 15 of the Act were not satisfied and, thereforee, the order has to be struck down as being without jurisdiction, ultra virus and illegal. It is contended that there was no relevant material before the Central Government to issue anorder under Section 15(a)(i) or 15(b) of the Act. Indeed, there was no application of mind in issuing the impugned order as it ha;s been passed without there being relevant material and by ignoring relevant material. In fine, the order is arbitrary and so, even mala fide in law.

(9) The first respondent traverses the contentions of the petitioners. According to it the impugned order was passed after taking into consideration relevant material available to the Central Government. It was made within jurisdiction and after full application of mind. The first respondent contends that it was bound to order statutory investigation in view of the conditions prevailing and, thereforee, the contentions of the petitioners are untenable. According to the Central Government no rule of natural justice or requirement for hearing could be placed by the petitioners at this stage. Section 15 of the Act does not postulate it. In any case, the petitioners will get full opportunity to put their point of view during the investigation contemplated by the impugned order. The investigation contemplated is in the nature of a fact finding enquiry to enable the Government to wake up its mind as to what action should be taken to further the legislative intent of the Act that industry should be not only run but run in such a manner that it subserves the purpose of the common good.

(10) Before we proceed to examine the respective contentions of the parties in the context of the facts pleaded, it will be appropriate to clearly understand the legal position. We will, thereforee, first dilate on purely the legal propositions of the requirement to comply with the rule of natural justice, claimed by the petitioners, before making on order under Section 15 of the Act and the scope and postulates of this section.

(11) We have already read Section 15 of the Act, so far a( it is relevant for the purpose of the present case. It is obvioul that the opinion that the Central Government is required to form before passing an order under Section 15 of the Act is to be on a subjective satisfaction. The law is now well-settled and it can not be doubted that the opinion postulated by this section is not and cannot be whim or caprice. The subjective opinion has to be based on relevant material. Further in forming it the Central Government should not ignore any vital or relevant facts. Once the opinion is correctly so formed it is not liable to be challenged unless it is shown that there was absence of material, or there was ignoring relevant material so that there would be non-existence of the basic postulates warranting the making of an order under Section 15. A valid order having been made, an investigation has to be held for the purposes mentioned in Section 15(a)(i) and 15. The first question, thereforee, that arises is whether such an investigation has any civil consequences, or passing of such an order adversely affects the petitioner in any manner and particularly whether the credibility of the management of the industrial undertaking in respect of which the investigation is ordered is adversely affected. Learned counsel for the petitioners strongly contended that there would be adverse effect on the credibility and reputation of the first petitioner, Learned Counsel for the respondents on the other hand, contended that a fact finding enquiry, as postulated by Section 15 of the Act, casts to stigma on the management of the rayon unit and, thereforee, there is no question of the rule of natural justice being attracted.

(12) In our opinion, the contention of the petitioners is well- founded. A more reading of the provisions of Section 15, set out above, makes it obvious. Clause (a)(i) of Section 15 can be invoked when, prima fade, on the basis of material available with the Central Government it is of the view that there is no justification fora substantial fall in the volume of production. thereforee, prima facie the management is under some . sort of suspicion, if not blame, though this is not said so in specific terms in this provision. Under Section 15(b), however, the prima facie opinion has to be in terms that. the management is at fault in running the industry in such a manner which is highly deterimeatal to the scheduled industry concerned or even to public interest. To say that will such a prima facie charge being investigated or such a suspicion being the basis of the investigator and yet there being no adverse effect on or to the management or that such an .investigation would have no civil consequences is an argument which cannot be accepted.

(13) As far back as in Rohtas Industries Ltd. v. S. D. Agarwal and another etc., : [1969]3SCR108 , the Supreme Court had clearly, laid down the law in this regard. That was a case in which the Central Government had passed an order appointing an Inspector under sub-clauses (i) and (ii) of clause (b) of Section 237 of the Companies Act, 1956, to investigate the affairs of Rohtas Industries Ltd. A question arose as to whether appointment of an inspector has any effect on the company whose affairs are to be investigated when, admittedly, the report of investigation is only meant to inform the Central Government and the report of the investigation may or may not be accepted. The Supreme Court observed after examining the entire scheme of Sections 235 to 237 of the Companies Act, 1956, that it was clear that the Legislature' considered that investigation into the affairs of a company is a very serious matter and it should not be ordered except on good grounds. It held, 'It is true that the investigation under Section 237(b), is of a fact finding nature. The reports submitted by the Inspector does not bind anybody. The Government is not required to act on the basis of that report, the company has to be called upon to have its say in the matter but yet the risk it may be a grave one is that the appointment of an Inspector is likely to receive such press publicity as a result of which the reputation and prospects of the company may be adversely affected.'

(14) The same view vis-a-vis Section 15 of the Act has been. taken by a Division Bench of this court in Rai Bahadur Rurdutroy Moti Lal Jute Mills Private Ltd. vs. Union of India, I.L.R. 1975 (1) Del 382(2). In this case by an order made under Section 15(a)(i) [Section 15(b) not being invoked at all/ the Central Government set up a committee for investigation into the affairs of the petitioner's undertaking. Our learned brothers observed, 'It must not be forgotten that in business houses, an order under section 15(1) for investigation of the affairs make a serious inroad and affects the ctedibility of the undertaking considerably........'

(15) LN.MOHINDER Singh Gill and another v. The Chief Election Commissioner, New Delhi and others Air 1978 S.C. 951(3), the question' arose whether the rule of audi alteram partem could be invoked in challenging the exercise of the. power by Election Commission under Articis 324 of the Constituation in cancelling a poll in the entire constituency and whether before making such an order the rule of audi alteram partem had to be complied with. It was not disputed in that case that the rule of natural justice would be attracted if the impugned act had any civil consequence to the complaining party. It was urged that a civil right being adversely affect is a sine qua non for the invocation of the audi alteram partem rule. It was held that fair hearing is a postulate of decision making where decision has to be arrived at on appreciation of vital facts. It was observed 'The philosophy behind natural justice is, in one sense, participatory justice in the process of democratic rule of law. The silence of a statute has no exclusionary effect except where it flows from necessary implication.'

(16) In Smt. Maneka Gandhi v. Union of India and another : [1978]2SCR621 (4) the challenge was to the impounding of a passport issued under the Passports Act, 1967. The contention was that the holder of the passport was entitled to be heard on gropnds which, according to the authorities concenied, justified impounding of the passport. Without such a hearing the impugned action of the impounding of the passport was liable to be struck down as, inter alia, having offaided the rule of natural justice or the audi alteram partem rule. Referring with approval to the rule propounded in an earlier decision of the Supreme Court (A. K. Kraipak v. Union of India, : [1970]1SCR457 ) or to the earlier prevailing orthodox view, it was held that if an administrative action seriously interferes with the constitutional right than obviously the audi alteram partem rule would be attracted. It will be so attracted even where statutory rights are adversely affected. Going further the court held that compliance with this rule arises from the State's duty to act fairly. The Supreme Court approved of the dicta of Lord Morris of Borth-y-Gest of 'fair play in action'. In other words, laying down the rule that State must always act in a just and fair manner it was held that the rule of natural justice would be attracted to administrative action which may have any civil consequence or any adverse effect on the persons in respect of whom the order has been made.

(17) In A.K. Kraipak v. Union of India, : [1970]1SCR457 , the Supreme Court was concerned with a challenge to selections mad6 from among the Officers serving in the Forest Department of the State of Jammu and Kashmir to the Indian Forest Service. The orthodox argument regarding the absence of the requirement to give a hearing in exercise of administrative power as opposed to quasi judicial power was raised. Their lordships observed that. in the development of administrative law in this country the dividing line between an administrative power and a quasi-judicial power is quite thin and was being gradually obliterated. The Supreme Court noticed with approval the following observations of Lord Parker, C.J.in Reg. v. Criminal Injuries Compensation Board; Ex parte Lain 1967 (2) Q.B. 864(6) which are as follows 'With regard to Mr. Bridge's secofid point I can not think that Atkin LJ. intended to confine .his prin cipie to cases in which the determination affected rights in the sense of enforceable rights. Indeed, in the Electricity Commissioners case, the rights determined were at any rate not immediately enforceable rights since the scheme laid down by the commissioners had to be approved by the Minister of Transport and by resolutions of Parliament. The commissioners nevertheless were held amenable to the jurisdiction of this court. Moreover, as can be seen from Rex v. Postmaster-General, Ex parte Carmichael 1938 1 Kb 291 and Rex v. Boycott; Ex parte Keasley, 1939 2 Kb 651 the remedy is available even though the decision is merely a step as a result of which legally enforceable rights may be affected.'

(18) thereforee, it is too late in the day for anyone to urge that an order under Section 15 of the Act, particularly under section 15(b), is a purely administrative order which is merely a step-in-aid of some possible action in future and, thereforee, does not attract the rule of audi alteram partem. Admittedly, in the present case the petitioners have not been heard prior to the order being made. The impugned order, it is urged, has, thereforee, to be held to be vocative of the rule of natural justice and in derrogation of the audi alteram partem rule.

(19) Shri Bhandare, learned counsel for the respondents, urged that the rule of natural justice or the maxim of audi alteram partem could not be claimed by the petitioners prior to the passing of an order under Section 15: He contended that, admittedly, the mill was lying closed and there has been not only fall in production but almost no production. In this situation keeping in view the discipline of the Act and to ensure that Industry is carried on and not close down, the Central Government has either to pass an order under Section 18A of Section 18AA of the Act or purchase the rayon unit for Re. 1)- as offered by the petitioners, or to decide not to take any action. Before it does so, it has to inform itself of the entire situation and that is what is the purpose of the statutory investigation under Section 15 of the Act. Since opportunity of hearing, i.e. post-decisional hearing, will be given during investigation, there was no need for a hearing prior to making of an order under Section 15. Inviting our attention to Section 3(c) and 3(d) of the Act he urged that the words 'carried on' or 'carries on' are not to be construed in present. These have to be construed to mean where manufacturing process can be carried on or was being carried on and is possible to be carried on. In other words, where manufacturing process is ordinarily so carried on. Nothing, however, turn on this point.

(20) What has to be seen is whether the post-decisional hearing contemplated during investigation can be a; substitute for pre-decisional hearing, advocated by the petitioners. Shri Bhandare, learned counsel for the respondents, first invited our attention to the decision of the Supreme Court in D.A. Rasheed and others v. The State of Kerala 1975(2) S.C. 93(7). This decision is not relevant for the issue that we are examining. Indeed, this decision reaffirms the earlier decision of the Supreme Court in Rohtas Industries Ltd. and notices with approval Lord Atkin's classic words in Liversidoe v. Anderson 1942 A.C. 206(8). The existence of the relevant material is the sine qua non for passing of an administrative order ^hich requires the formation of subjective satisfaction. This decision throws no light on the applicability of the audi alteram partem rule.

(21) Reliance was also placed on The Kodava Mills Co. Ltd. and another v. Union of India and others, : [1973]3SCR22 and Swadeshi Cotton Mills etc. v. Union of India etc. : [1981]2SCR533 . In Kesava Mills' case the administrative order challenged was one which was passed under Section 18A of the Act. It was admitted that during investigation the company was given a full opportunity of being heard and also an opportunity of adducing evidence. In that' view of the matter it was observed that the company could not be heard to complain that there was a failure to observe the rules of natural justice before passing an order under Section 18A of the Act. This observation, thereforee, is of no avail on the facts of the present case. In Swadeshi Cotton Mill's case the administrative order was passed under Section 18AA of the Act. One of the questions that arose for consideration was whether in construing Section 18AA as a pure question of law compliance with the principle of audi alteram partem has to be implied. If so, whether such a 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 whether such a hearing is to be given after passing of the order and 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. A full Bench of this court heard the parties on a reference being made of the above proposition. The majority was of the opinion that Section 18AA(1)(a)(b) excludes the giving of prior .hearing to the party who would be affected by an order there under. Section 18F. expressly provides for a post-decisional hearing to the owner of the industrial undertaking,, the management of which is taken over under Section 18AA to have the order so made cancelled on any relevant ground. As the taking over of management under Section 18AA can be set aside by failure to grant post decisional hearing, the question of this vice of absence of predecisional hearing beipg cured by the grant of a subsequent hearing did not arise. On the facts of this case the Supreme Court observed that the audi alteram partem rule is a very flexible, malleable and adaptable concept of natural justice. In the ultimate analysis the question as to what extent and in what measure this rule of fair hearing will apply as the predecisional stage will depend upon the degree of Urgency if any, evident from the facts and circumstances of a particular case. On facts it was held that there was sufficient time available to the Government to serve a copy of the report on the appellant company and to give them a short measure opportunity to submit their reply and representation regarding the findings and recont-mendations of the Group Officers and the proposed action under Section 18AA(1). The High Court's view as much was not approved. It was held, 'In sum, for all the reasons aforesaid we are of the view that it is not reasonably possible to construe Section 18AA(1) as universally excluding, either expressly or by inevitable intendment, the application of the such alteram partem rule of natural justice at the pre-takeover stage, regardless of the facts and circumstances of the particular case. In the circumstances of the instant case, in order to ensure fairplay in action it was imperative for the Government to comply substantially with this fundamental rule of prior hearing before passing the impugned order. We, thereforee, accept the two-fold proposition posed and propounded by Shri Nariman.' This case also, thereforee, does not' to advance the proposition propounded by Shri Bhandare that, if necessary, post-decisional hearing could be given and pre-decisional hearing was not necessary. Indeed, nothing has been shown to us that there was such desperate hurry to pass an order under Section 15 of the Act so as to exclude at least the very minimal hearing which should have been given to the petitioners before passing the impugned order.

(22) Lastly, reliance was placed by Shri Bhandare on M/s. Sukhwinder Pal Bipan Kumar and others v. State of Punjab and others, : [1982]2SCR31 . This was a case of suspension of a license to deal in foodgrains issued under the Punjab Foodgrains Dealers Licensing and Price Control Order (1978). The power to suspend the license without first giving a hearing was upheld. Once again, this decision is of no help to us. In the acts of the case the power exercised was held to be one by which suspension could be ordered by way of interim measure pending the holding of an enquiry as to whether there is any breach which must result in the cancellation of the license. It was observed that such a power would be valid as it was a measure of social control in the interest of community, and also agin terms, post-decisional hearing was contemplated.

(23) On a conspectus of the law, and we have no doubt in holding that on the facts of the present case the audi alteram partem rule was attracted and that the petitioners had to be given some sort of a hearing or say in the matter before the impugned action was taken which could adversely affect the credibility of the first petitioner.

(24) We now come to the second aspect and proceed to dilate upon what are the necessary ingredients of Section 15(a)(1) or Section 15(b) of the Act. It is settled law that the existence or non-existence of relevant material can be a matter of judicial review if an administrative order is ' challenged on the ground that there was no relevant material available with the State to enable it to pass an administrative order by arriving at an opinion or in its subjective satisfaction. Likewise, the State cannot plead that such an order, if passed, is not subject lo judicial review to find out as to whether any relevant material has been ignored. We have, thereforee to see what are the postulates necessary before an order can be passed under Section 15(a)(i) or Section 15(b) of the Act.

(25) Clause (a)(i) contemplates that the opinion has to be formed by the Central Government (i) in respect of any scheduled industry or industrial undertaking or undertakings, (ii) there must be some material to show there has been or is' likely to be substantial fall in the volume of production in respect of any article or class of articles produced or manufactured by the scheduled industry or industrial undertaking or undertakings. (iii) the economic conditions prevailing have to be known and have to be taken into account and (iv) that having regard to the economic conditions prevailing at the national level. State level or even local level, regarding the whole industry or part of the industry regarding the industry in the whole country or the scheduled industry in a particlular State of locality, facts disclose, at least prima facie, that there is not justification for substantial fall in the volume of production or alikely fall in such production.

(26) Regarding Section 15(b) the postulates will be : (i) the opinion has to be formed regarding an industrial undertaking ; (ii) the opinion should be that, prima facie, it is being mis-managed, (iii) the industrial undertaking is being nus-mana.ged to the extent that it is highly detrimental; (iv) such mis-managing of industrial undertaking is detrimental to the scheduled industry concerned or to public interest or to either. In order words, there is some fault with the management.

(27) If the above are the postulates, it is obvious that the Central Govt. must have material relevant to satisfy itself about the existence of the above postulates for passing an order under Section 15(a)(i) or Section 15(b) or both, as has been done in the present case. If this material is not there, or if relevant material has not been taken into consideration in arriving at a subjective decision or forming an opinion to issue an order, then the order woud be without' jurisdiction, ultra virus and even arbitrary. We make no comment at this stage regarding mala fides in law.

(28) The facts, as disclosed during the hearing, may now be examined to see whether the postulates of Section 15(a)(i) or Section 15(b) or either or both have been satisfied or not satisfied.

(29) Learned counsel for parties have taken us at great length, through the reports of Shri Inamdar the Task Force and cost audit reports in respect of the rayon unit of the first petitioner. Admittedly, there has been substantial fall in the volume of production of the rayon unit. Indeed, it has been lying closed down since May 12, 1983 with intermittant closures since commencement of production. This postulate, thereforee, was satisfied. The next is as to what were the economic conditions prevailing. It is on record that there were power-cuts and power-cuts of substantial durations. There was labour trouble and even over-employment in the rayon unit. The location of the rayon unit was well- known. Its high cost of production could not be disputed. The cost of raw material and its availability were known. There was material to show whether there was demand for the financial product. The marketing feasibility and viability were also known or at least there was some material in regard to making a prima facie opinion about the same. Conditions of other units making the same product were also known. The way the management was functioning was also known. It was also known as to what was the position of labour and power in the sister unit of petitioner No. 1, i.e. the cotton mill. In this view of the matter one could say that for the requirement of knowledge of the economic conditions there was some relevant material available with the Central Government. Admittedly, the cotton mill, also located at Kanpur, was doing well. thereforee, it will be difficult to say that the order under Section 15(a)(i) did not satisfy the postulates analysed by us earlier. With the admitted stoppage of production what had to be found out by investigation was whether any of the above factors or a combination of one or more was responsible for the fall in production, indeed stoppage of production.

(30) It was also argued by Mr. Sorabjee, learned counsel for the petitioners, that if it was known to the Central Government that there were good reasons for fall in production or indeed stoppage of production there would be no jurisdiction to make an order under Section 15(a)(i) of the Act. Referring to the admitted position about labour and power and the observations of Shri Inamdar and the Task Force or even the cost audit reports that the management could not be blamed, he urged that an investigation as envisaged by Section 15(a)(i) could not be ordered. We do not agree. Assuming that the management was an efficient management, and its efficiency appears to be evident from the management of the cotton mill, the Government was entitled to investigate as to why the rayon unit could not continue to be on steam and give production according to its installed capacity. Indeed, the question did arise in these circumstances as to whether the blame for fall in production was on ac- count of one cause or another, labour or management, or even the State which was to supply the power. May be, the stoppage of production was on account of certain factors which had still to be found out. The puzzle had to be solved and, thereforee, an order under Section 15(a)(i) or Section 15(b) could be made on the material as available to the Central Government. We cannot agree with Mr. Sorabjee that on the basis of the observation in Shri Inamdar's report or the Task Force or even the cost audit reports the Government should have come to the conclusion that the Unit not being viable there was no option but to let it remain closed.

(31) The position regarding the postulates of Section 15(b), however, is entirely different. In our view, there was no material before the Central Government, to come to the conclusion, even, prima facie, that the rayon unit was being managed in a manner highly detrimental to the scheduled industry concerned and certainly there was no material available that the rayon unit was being managed in a manner highly detrimental to public interest. No doubt, the labour was unemployed. This created a problem. May be, the stoppage of the rayon unit caused shortage of the end product, although there is no evidence of it on the record, all the same there had to be some evidence to show that prima facie it was the fault of the management and the stoppage of the rayon unit created situation which was detrimental to the interest of the industry or detrimental to public interest. Public interest is a term which is now well-understood. Mere non-employment of some workmen may create a problem but the extent of the problem has to be such that it is detrimental to public interest. Reliance by Shri Bhandare, learned counsel for the respondents, on observations in the cost audit reports in this regard cannnot be accepted. Indeed, these observations in the cost audit reports have been torn out of context and have been quoted in the counter-effidavit filed by the respondents by not reproducing the other observations in the reports. We may refer to the counter-affidavit and the cost audit reports in .this regard and quote only a few parts of it. There are two cost audit reports, one for the year ending 31-12-1980 and the other for the year ending 31-1-1981. Quoting from the cost audit report for the period 31-12-1980 what is reproduced in the counter-affidavit of the first respondent is as follows : 'Reference is also craved to the following observations of the Cost auditor in his report for the period 1980 - A.6(2)(b) 'Consumption in quantity and cost of rayon pulp per kg. of viscose filament yarn have gone up because of increase in waste and due to increase in prices of raw material'.' When we turn to the relevant cost audit report, we find that though the above observation has no dubt been made yet what has been left out are the other observations and findings.

(32) The cost audit report deals with various factors for the above factual statement and sets out in Para 16(1)(c) as follows: 'The consumption of rayon pulp per kg. of Viscose filament yarn has gone up too much due to more waste produced by 11 per cent as compared to previous year. However it has been clarified by the company that the higher wastage ratio is due to frequent power interruptions and labour trouble.' In para 4.2 it is stated : . 'The capacity utilisation is too low because management declared closure due to Power cut imposed by U.P. Govt. to the extent of 66.67 per cent w.e.f. 1-1-80 to 15-7-80. Factory started working from 16th July, 1980.' With regard to the report for the year ending 31-12-81, once again the same observation is quoted in regard to consumption of rayon pulp per kg. of viscose filament yarn having gone up. Looking at the cost audit report, we find it also accepts the reason for it, and gives the reasons for the waste with suggestions to enforce quality control measures.

(33) It is significant that with reference to the type of product which the rayon unit was required to produce the evidence in regard to the fact of closure on account of power interruptions or labour trouble causing increase in consumption of rayon pulp per kg. of viscose filament yarn has been ignored. We need not cite more examples. Suffice it to say that though it may be true that the reports of Shri Inamdar and the Task Force may be regarded as some what incomplete investigations or enquiries. nevertheless these reports did bring out sufficient information which was relevant and should have been taken into consideration in forming a subjective opinion. Completely ignoring them by merely saying that these could not be a substitute for a statutory investigation is not correct. The cost audit report by itself could not form the basis for forming an opinion, as postulated bysection 15 of the Act. It is not clear from the counter affidavit of the respondents whether the cost audit report is the only material which the Central Government has taken into consideration. The reports of Shri Inamdar and the Task Force are relied upon here and there and yet it is said that these could not form the basis for forming an opinion. That only leaves the cost audit reports as the material on which the opinion was formed. We have gone through the entire reports for the years ending 31-12-1980 and 31-12-1981. In our view, the cost audit reports alone cannot form the relevant material to meet all the postulates of Section 15(b) of the Act. We need say no more. In this view of the matter, we hold that valid opinion postulated by Section 15(b), which is a sine qua non for passing an order under Section 15(b) has been formed on the basis of no material and certainly by ignoring the relevant material. The opinion, thereforee, is arbitrary and without jurisdiction.

(34) The result of our above discussion, thereforee, may be summarised as under: (a) The order under Section 15(a)(i) has been passed by forming an opinion based on relevant material. Whether this was sufficient or not sufficient to form an opinion is not a question which can be subject matter of judicial review. (b) The opinion formed to pass an order under Section 15(b) Of the Act is based on no material and thereforee, the very basic postulate not being there, the order stands vitiated and must be held to be arbitrary. (c) It being an administrative order based on the statuto-rily required opinion to beformed as the sine qua non for passing the order, it is difficult to predicate whether it was the facts and circumstances relevant .to Section 15(a)(i) or the nonexistence facts, and circumstances for Section 15(b) which weighed more with the Central Government in passing the order both under Section 15(a)(i)and 15(b) of the Act. thereforee, the whole order falls. (d)Pre-decisional hearing in the facts and circunistances of the case was necessary, whether the order had to be passed under Section 15(a)(i) or Section 15(b) of the Act, or both. The impugned order, thereforee, cannot be sustained.

(35) In the view that we have taken on two of the main points urged before us, we did not find it necessary to make any comments on the third limb of the challenge to the impugned order put forward by the petitioners. We refer to the contention of Mr. Sorabjee that the impugned order is liable to he strucck down on grounds of legal malafides.

(36) The result is that we quash the impugned order dated August 6, 1983, passed by the Central Government under Section 15(a)(i) and (b) of the Act, and restrain the respondents from taking any action there under. A writ would issue accordingly. The petitioners will be entitled to costs. Counsel's fee Rs. 2000.00.


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