Chiranjit Lal Chaudhari v. UOI

Introduction

In Chiranjit Lal Chaudhari v. UOI the lawsuit provided a proper judgement throwing light on the right of the Central Government. The shareholder fought for his infringed fundamental right, which turns out to be not infringed. It was later revealed after keen analysis of the Supreme Court that it was in fact the Directors right that was violated. The judgement, thus, confirmed that the Central Government has a right to frame an act or ordinance for a particular company alone. 

Background of the case

The mills of the company were shut down due to mismanagement on the part of the company. The Central Government enacted a Central Act to regulate the functioning of the Company. This act was questioned by the shareholder. The shareholder filed a petition on the validity of the ordinance as it violated the fundamental rights of both shareholder and the company. 

Facts

This petition was filed by the petitioner i.e., Chiranjit Lal Chaudhari who is a shareholder in Sholapur Spinning and Weaving Company limited (Company) having a registered office in the State of Bombay and governed by the provisions of Indian Companies Act. The president was a shareholder of three ordinary shares and eight preference shares which is pledged in the name of Bank of Baroda. The company has the authorised capital of 48 lakhs and paid up share capital of 32 lakhs. The petition is filed for the issue of writ of mandamus and declares the Act and Ordinance passed by the Central Government to be ultra vires.

The mills were closed in August 1949 and the Central Government gave a clear explanation through the ordinance as to why it had to shut down the mill. It said it was due to improper management and the need to produce essential commodities. This closure led to unemployment. Section 3 of the ordinance gives power to the government to appoint any number of members as the directors of the company and with respect to Section 4 of the Ordinance deems that the existing company members and managing directors will be deemed to be terminated from the posts and the agreement with the company among these members. Section 5 of the Ordinance gives powers to the members including the powers to modify or even terminate the agreements. Section 12 of the Ordinance says that in case of premature termination of the members, compensation is not allowed.

The Ordinance was repealed by the Sholapur Spinning and Weaving Company (Emergency Provisions) Act in April, 1950 (herein called the Act). The provisions were recreated and validated the actions taken under the Ordinance.

Issues

1. Whether the petition is maintainable?
2. Whether the impugned legislation amounts to acquisition or taking possession of private property within the meaning of the Article 31 of the Constitution of India?
3. Whether the Act is in contravention with Article 14, 19(1)(f) and 31 of Constitution of India?

Petitioners Contention

• The main aim of the act is to control and remove the mills of the company which are the biggest valuable asset to it. It is beyond the power of the legislature.
• It is the Government which has control over the property of the company which results in deprivation of the property for the company and the shareholders. This act of the Government is against Article 31 of the Indian Constitution.
• The deprivation on the share of the shareholders is unjustifiable interference and it violates Article 19(1) (f) of the Indian Constitution.
• Unjustified possession is clearly a violation of Article 31 of the Constitution of India.
• The enactment does not ensure equality before law and equal protection law. Hence, it is considered to be against Article 14 of the Constitution of India.
• This legislation is not covered under any of the legislative lists under the seventh schedule and hence it is passed without any legislative competence.
• The Act passed is applicable only to one company and not to any other or all companies. Hence it is violative of Article 14 under the Constitution.

Respondents Contention

• The word property in Article 31 means full property and thus it is a combination of rights linked with property. Article 31 grants totality of rights.
• The power that is defined in Article 31(1) is completely different from the right guaranteed under Article 31(2) of the Constitution.
• It will not attract Article 31 of the Constitution as the property was not dispossessed by the shareholders or the company. The directors act as the agents of the company and their valuable assessments are not disposed of. Even though management is controlled by the directors appointed by the state, it does not lead to dispossession of the property.

Related Provisions

• Article 14 of the Indian Constitution- Equality before Law.
• Article 19(1) (f) of the Indian Constitution- Right to to practise any profession, or to carry on any occupation, trade or business.
• Article 31 of Constitution of India – Saving of laws providing for acquisition of estates,
• The Sholapur Spinning and Weaving Company (Emergency Provisions) Act, 1950

Ratio Decidendi

• Anybody whose fundamental right has been infringed can approach the Supreme Court under Article 32 of the Indian Constitution.
• The fundamental rights are not only guaranteed to the natural persons also to the company and its shareholders. A shareholder cannot sue on behalf of the company.
• To make the case maintainable, the petitioner must prove that the law not only lacks legislative competence but also violates rights guaranteed under part III of the Constitution.
• The petition was accepted.
• Doctrine of Eminent Domain is applied here, where the State/ Sovereign is having the power to take possession of the property and use it for the public purpose is allowed without the permission of the owner even against the wish of the owner.
• Two conditions were considered for the possession of the private property. They are property to be used for public use and the payment of the compensation to the owner.
• There was no restriction on the petitioner to buy, sell or dispose of his property and hence it is not violative of Article 19(1) (f) of the Constitution. 
• The efforts of the state fall within the restrictions under Article 19(5) and cannot be a proper contention to say that there has been a violation under Article 19(1) (f) of the Constitution.
•  Equal protection of law does not mean that all the citizens in the country should be regulated under the same law. It means that there should be no discrimination on the basis of sex, caste, place of birth etc.
• No evidence has been provided by the petitioner there has been a misuse by the companies the same nature. The petitioner has failed to prove the burden of proof placed upon him.
• List 43 of the Central list is about “incorporation, regulation and winding up of trading corporations” and closing of the mill falls within this category.

Obiter Dicta

• According to the facts of the case, the directors have been removed hence it is their fundamental right that has been infringed and hence they have to approach the court and no one on behalf of them can.
• Proceedings under Article 32 cannot be made a declaratory suit. The directors can be considered as public servants and writ of mandamus applied in the case is applicable to them. But they also want the ordinance along with the act to be declared unconstitutional which is not granted under Article 32 of the Constitution.
• The right to property cannot be considered to be infringed as right guaranteed under Article 31 is totality of rights.
• The legislature has all the rights to deny equal protection of law unless and until it is not arbitrary. The classification must be reasonable and just.

Conclusion

It is very much evident from the case analysis that the reasoning might differ from each and every person. It also explains that the Corporation also has fundamental rights and the act and ordinance passed by the Central Government of India in good faith considering the rise in unemployment is not violative of Article 19(1)(f) and Article 31 of the Constitution as claimed by the petitioner. The central Government has absolute right under Entry 43 of the Union List; the classification is given to the Government which should not be used arbitrarily.

References

1. https://indiankanoon.org/
2. http://lawtimesjournal.in/
3. http://www.the-laws.com/

Questions

1. What was the law passed by the Central government of India and why was it done?
2. What rights does Article 32 guarantee?
3. Explain the Entry 43 in the Union List