Kerala State Cashew Development Corp vs Shahal Hassan Mussaliar & Anr

Shahal Hassan Mussaliar & Anr. ..Respondents

WITH

Civil Appeal No.8249/2001, Civil Appeal No.8248/2001 Civil Appeal No.8250/2001 Civil Appeal No.8251/2001 Civil Appeal No.8252/2001 JUDGMENT

Dr. ARIJIT PASAYAT, J.

1. In all these appeals challenge is to the judgment of a Division Bench

of the Kerala High Court in several writ appeals and original petitions.

2. The High Court referred to the factual position in Writ Appeal

No.1835/97 which was directed against the judgment of learned Single

Judge, dated 4th September, 1997 in O.P. No.16424/94. The High Court

noted that the factual basis in all the cases is similar except the dates and the

areas involved and the location of the factories.

3. Since the grounds of challenge raised by the appellant and the

responses of the respondents are common, they are taken up together. The

background facts are to be noted in brief:

4. The first respondent is the owner of a factory situated in an extent of

2.29 acres of land in Kotttarakkara Taluk of Kollam District. The factory

comprises several buildings like godown, office, shelling and peeling sheds,

grading shed etc. with necessary machineries and equipments installed

2 therein for facilitating the work of the factory. This factory was being run by

the first respondent, up to the year 1969. Sometime in the year 1969, first

respondent who was managing the factory himself, desired to go abroad.

So, he leased out his factory to the second respondent-Kerala State Cashew

Development Corporation (hereinafter referred to as the `Corporation'), a

statutory corporation set up in the State of Kerala, for development of the

cashew industry. Ext. P1 is the copy of the lease deed dated 17th July, 1970

by which the cashew factory of the first respondent was leased out to the

second respondent on a monthly lease rent of Rs.1,500/-. The lease was

initially for a period of three years and, on the expiry of the said terms, a

fresh lease deed was executed, which too expired on 16th July, 1976. It is

the case of the first respondent that, while he was running the factory, he

used to provide employment to the workers for about 300 days in a year.

After the expiry of the lease deed on 16th July, 1976, the first

respondent, being unwilling to further lease out the factory, called upon the

second respondent Corporation to release and hand over the factory and its

assets to him. The Corporation, however, did not release the factory and, in

the meanwhile, the State of Kerala passed the Kerala Cashew Factories

(Requisitioning) Act, 1979 (hereinafter referred to as the `Act'). This act

3 was passed for the following purpose, as indicted in the preamble which

reads as follows:

"Whereas certain cashew factories had been leased out by the owners thereof to the Kerala State Cashew Development Corporation Limited, which is a company owned by the Government of Kerala;

And whereas such cashew factories were at the time of the lease either closed down or run by persons other than the owners thereof;

And whereas the term of lease in respect of some of such cashew factories has expired and the owners of some of such factories are not willing to extend the terms of the lease;

And whereas suits have been filed in the courts by the owners of some of such cashew factories for delivery of possession thereof;

And whereas in the interests of the workers of the cashew factories it is considered necessary to enable the said Corporation to continue in possession and management of such of those cashew factories which if given back to the owners thereof could not be run properly and in accordance with law and would either be sold or leased out to private individuals."

4 The object of the Act appears to be that, there were large number of

such cashew factories which have been leased out to the second respondent

Corporation under leases which had expired and it was intended to legalise

the continuing possession of the lessee Corporation. The preamble to the

Act suggests that the Act was intended to protect the interests of the

workers, for which purpose it was necessary to enable the second

respondent Corporation to continue in possession and management of those

cashew factories and further that, if the factories were given back to the

owners they would not be run properly and in accordance with law, and

would either be sold or leased out to private individuals. Section 3 of the

Act gives power to the Government to requisition a cashew factory in the

possession of Corporation under a lease, even if the lease is current or time

expires. Section 3 of the Act, which is the focus of attention, reads as under:

"3. Power to requisition cashew factories:

(1) When the Government IS satisfied that if the owner of a cashew factory which is in the possession of the Corporation under a lease, whether current or time-expires, is put in possession thereof, such owner could not run that factory properly and in accordance with law and would either sell it or lease it out to any private individual and there would be large scale

5 unemployment of the workers of that factory or their conditions of service would be adversely affected, the Government may, notwithstanding any judgment, decree or order of any court, by order published in the Gazette, requisition that cashew factory for such period not exceeding five years as may be specified in the order and may make such further orders as appear to them to be necessary or expedient in connection with the requisition;

Provided that before making an order under this sub-section in respect of a cashew factory, the Government shall give the owner of that factory and every person interested in that factory a notice of their intention to take action under this sub-

section and the grounds therefor and consider the objection that may be preferred in pursuance of such notice.

(2) Where a cashew factory is requisitioned under sub-section (1), such cashew factory together with all machinery, other accessories and other movable properties as were immediately before the date of publication of order under sub-section (1) in the possession of the corporation and all books of account, registers and other documents relating thereto shall vest in the Government with effect from the said date.

(3) The Government may, by order in writing direct that a cashew factory vested in them under sub-section (2) shall, instead of continuing to vest in them, vest in the Corporation with effect from such date, not being a date earlier than the

6 date of publication of the order under sub-section (1), as may be specified in the order.

(4) Where an order vesting a cashew factory in the Corporation is made under sub-

section (3), all rights, liabilities and obligations of the Government in relation to such factory shall, on and from the date of such vesting, be deemed to have become the rights and liabilities and obligations respectively of the Corporation.

One salient factor of Section 3 which immediately strikes the eye is that the power of the State Government to requisition the factory was for such period "not exceeding five years". In other words, there was a maximum period of five years upto which the cashew factory could be requisitioned in pursuit of the objective with which the legislation was enacted. Section 4 of the Act provides that the Government may at any time release from requisition any cashew factory requisitioned under Section 3 and upon this happening the Government shall restore the factory in as good a condition as it was when possession thereof was taken by virtue of the lease executed by it with the owner of the cashew factory, subject to the provisions contained in such lease and to changes caused by reasonable wear and tear and irresistible force. Section 4 also requires the Government to restore the cashew factory and its assets on the factory being released from requisition. Section 5 empowers the Government to determine the rent for requisitioning the factory, in accordance with the principles laid down therein. Section 11 of the Act bars the jurisdiction of the Civil Court in regard to any dispute in respect of any matter which the Government or the second respondent-Corporation is empowered to determine under the Act and protects action taken in

7 good faith in pursuance of any power conferred by or under the Act."

5. The Kerala Cashew Factories (Requisitioning) Act, 1979 was

amended by Act 26 of 1985 (hereinafter referred to as `Amending Act').

Section 2 of Amending Act amends Section 3 of the Act, the effect of which

is to remove the outer limit or five years on requisition, imposed under

Section 3 of Act. As a result of amendment carried out by Amending Act,

the Government may by order published in the Gazette:-

(a) requisition that cashew factory for such period not exceeding

five years as may be specified in the order;

(b) extend the period of requisition by five years at a time;

(c) make such further orders as appear to them to be necessary or

expedient in connection with the requisition.

6. The objection of the factory owner apart from substantive challenge

to the power of requisition raised to the challenge stating that there was no

material in existence which is requisitioned for subjective satisfaction of the

Government about different factors as noted in each of the requisitioning

orders. To put differently, the substantive challenge was that the Amending

8 Act enables the State Government to requisition the cashew factory for an

indefinite period of time; virtually thereby enabling the State Government to

acquire the factory without following the provisions of any law and

therefore, was contrary to Articles 145, 19(1)(g) and 300A of the

Constitution of India, 1950 (in short the `Constitution'). Coming to the

factual aspect as noted that while private cashew factories was giving 250

days of work in year, the Corporation on account of financial situation was

unable to give, on an average, more than 60 days of work in a year for the

earlier ten years. With reference to the factual scenario of 1993 it was

pointed out that while the factory was run by the Corporation and it gave

work to the workers for 12 days and during the subsequent year 1994 only

for 13 days. It was pointed out that the factory was returned, there was

scope for greater number of days work for the workers. The objections were

rejected and subsequent requisitioning orders were passed by merely

reproducing the conditions precedent in the Amending Act. It was,

therefore, submitted that the action of the Corporation and the State

Government is illegal and unconstitutional.

7. Before learned Single Judge stand was that where any statute

empowers the State to continue to extend a requisition order for an

9 indefinite period, it is nothing but an order for acquisition and, therefore, it

is a colourable exercise of power which is not available to the State under

the Act. The conceptual difference between the requisition and acquisition

of property was highlighted. The stand was opposed by the State and the

Corporation. The High Court after noticing the factual scenario came to

hold that power of requisition granted to the Government under Section 3 of

the Parent Act was limited to a maximum period of five years. By the

Amending Act, 1985 this limitation was removed and the Government was

empowered to extend the lease indefinitely by instalments of five years at a

time. The learned Single Judge held that his power is bad for reasons

enunciated in H.D. Vora's case. By this case, it virtually amount to a power

of acquisition.

8. The stand of the State and the Corporation was that in view of what

has been stated by this Court in Kesavananda Bharati v. State of Kerala

(1973 (4) SCC 225) and Sonia Bhatia v. State of U.P. (AIR 1981 SC 1274)

when a law was enacted to further the directive principles of State policy

enumerated in Part IV of the Constitution then, irrespective of other

considerations, it must be upheld. The High Court did not accept the stand.

It was noted that the principle of law highlighted in the decisions in

10 Keshvananda Bharati's and Sonia Bhatia's cases (supra) were not applicable

to the facts of the present case.

9. The High Court referred to salient features of Section 3 which relates

to the power of the State Government to requisition the factory for such

period "not exceeding five years". In other words, there was a maximum

period of five years up to which the cashew factory in question could be

requisitioned in line with the objective with which the legislation was

enacted. Section 4 of the Act provides that the Government may at any time

release from requisition any cashew factory requisitioned under Section 3

and upon this happening the Government shall restore the factory in as good

a condition as it was when the possession thereof was taken by virtue of the

lease executed by it with the owner of the cashew factory, subject to the

provisions contained in such lease and to changes caused by reasonable

wear and tear and irrespective force. Under the said provision the

Government is required to restore the cashew factory and its assets on the

factory being released from requisition. Section 4 empowers the

Government to determine the rent for requisitioning the factory. While

doing so, the principles laid down therein have to be kept in view. Section

11 of the Act bars the jurisdiction of the Civil Court in regard to any dispute

in respect of any matter which the Government or the Corporation is

11 empowered to determine under the Act and protects action taken in good

faith in pursuance of any power conferred by or under the Act.

10. The grievance of the factory owner was that the authority declined to

extend the lease and refused to renew the lease in favour of the Corporation.

A request was made to return the concerned cashew factory with all its

assets. That prayer was also not complied with. There were pleas of set up

of certain amounts/dues. Having failed in his attempt to persuade the

authorities to return its factory and its assets, the Original Petition

No.16424/1994 was filed for a direction to the authorities to hand back the

possession of the concerned cashew factory with all its assets. During the

pendency of the original petition, notice was served under Section 3(1) of

the Act, notifying the intention to requisition the concerned cashew factory

under the Act for a further period of five years on the ground that if the

owner is put in possession of the cashew factory, he may not run the factory

properly, in accordance with law and may either sell it or lease it out to

private individuals resulting larger scale unemployment of workers and

adversely affecting their part of service. A statement of objection was filed,

inter alia, taking the stand that the Government has no right to extend the

lease for an indefinite period. It was stated that no such fact existed which

12 could have enabled the State Government to arrive at a decision that upon

return of the factory, they would not run it or close it down or lease it out to

the private individuals resulting in large scale unemployment of workers or

thereby adversely affecting the conditions of workers. By another notice,

the Government extended the period of requisition for a period of five years.

Objection was also filed.

11. Section 3 of the Amending Act validated the continued possession of

the cashew factories requisitioned under Section 3(1) of the Act which had

vested in the second respondent Corporation under sub-section (3) of that

Section notwithstanding the expiry of the lease period and notwithstanding

anything contained in any law, or any decree or order of any court, and

notwithstanding anything to the contrary in the terms of the contract or

agreement. The result of Amending Act was that it validated the action of

the appellant and the second respondent even if contrary to the terms of the

lease, even if time had expired, and even if there was a decree for eviction

made by a competent court of law.

12. The High Court referred to a decision of this Court in Minerva Mills

v. Union of India (AIR 1980 SC 1789) to hold that a fundamental

13 distinction was drawn by this Court between the constitutional law and

ordinary law as in the criterion of validity. Learned Single Judge accepted

the challenges in the writ petitions. The writ appeals were also dismissed.

The Division Bench also took note of the observation of learned Single

Judge about the period of employment offered by the factory under

requisition. It also noted that the financial condition of the Corporation was

far from satisfactory and, therefore, there was no material to show that it

was in a better position to manage and run the factory than the owner

himself. Appellants and respondent-writ petitioner reiterated the stands

before the High Court.

13. While in the case of Constitutional law its validity is inherent, in the

case of ordinary law its validity is to be tested on the touchstone of the

Constitution.

14. It was noted that in Sonia Bhatia's case (supra) this Court upheld the

validity of the U.P. Imposition of Ceiling on Land Holdings Act, 1961 on

the ground that it was a valuable piece of social legislation with the object

of ensuring equitable distribution of land by taking away land from large

tenure holders and distributing the amount among the landless tenants or

14 using the same for public utility schemes which was in the larger interest of

the community. The High Court noted that the question to be answered was,

however, justifying the initial requisitioning of the cashew factory was,

since requisition by definition must be of temporary character and it cannot

be tuned into a permanent deprivation of proprietary rights so as to amount

to acquisition at back door. This is precisely what this Court has described

as a fraud on the power in H.D. Vohra's case. It was submitted that the

High Court should not have treated an action of the State Government and

of the Corporation to be actually an opinion or acquisition under the colour

of requisition. Learned counsel for the respondent on the other hand

submitted that both the learned Single Judge and the Division Bench have

analysed factual scenario in great detail keeping in view the statutory

provisions. The conclusion as submitted would not warrant any

interference.

15. The first contention which weighed with the learned Single Judge

was that any statute which empowers the State to continue to extend a

requisition order for an indefinite period was nothing but an order for

acquisition, it was a colourable exercise of power, which the State did not

possess under the Act. The distinction between requisition and acquisition

15 of property has been the subject matter of several decisions of the Supreme

Court and the line of demarcation between the two is well defined in the

celebrated judgment in H.D. Vora v. State of Maharashtra (AIR 1984 SC

866). In this case this Court had occasion to consider the validity of

repeated continued requisitions of private premises initially acquired under

the emergency powers during war years. This Court pointed out that the

two concepts, one of requisition and the other of acquisition, are totally

distinct and independent. Acquisition means the acquiring of the entire title

of the expropriated owner, whatever the nature and extent of that title may

be. The entire bundle of rights which was vested in the original holder

passes on acquisition to the acquirer, leaving nothing to the former. The

concept of acquisition has an air of permanence and finality in that there is

transference of the title of the original holder to the acquiring authority. In

contradistinction, the concept of requisition involves merely taking of

domain or control over property without acquiring rights of ownership and

must by its very nature be of temporary duration. This Court summed up by

pointing out that, the State cannot under the guise of requisition continue

dominion over some one's property for an indefinite period of time, because

that would be a fraud on the power conferred on the government. If the

Government wants to take over the property for an indefinite period of time,

16 the Government must acquire the property, but it cannot use the power of

requisition which is exercisable by the Government only for a public

purpose which is of a transitory character. If the public purpose for which

the premises are required is of a perennial or permanent character from the

very inception, no order can be passed requisitioning the premises and, in

such a case, the order of requisition, if passed, would be a fraud upon the

statute, for the Government would be requisitioning the premises, when

really speaking they want the premises for acquisition, the object of taking

the premises being not transitory but permanent in character. Where the

purpose for which the premises are required is of such a character that from

the very inception it can never be served by requisitioning the premises, but

it can be achieved only by acquiring the property, which would the case

where the purpose is of a permanent character or likely to subsist for an

indefinite period of time, the Government may acquire the premises, but it

certainly cannot requisition the premises and continue the requisitioning

indefinitely.

16. In Grahak Sanstha Manch v. State of Maharashtra (1994 (4) SCC

192), a Constitution Bench of this Court approved of the decision in H.D.

Vora's case (supra) and held that the said decision did not require

17 reconsideration. However, the Constitution Bench did not approve the

reasoning in H.D. Vora's case (supra) that the requisition order cannot be

made for a permanent purpose leaving the question open and holding that

the order of requisition can continue for a reasonable period of time though

in H.D. Vora's case (supra) it was considered to be unreasonable in the facts

of the case. In Rajendra Kumar Gupta v. State of U.P. (1997 (4) SCC 511),

the same principle has been reiterated by this Court.

17. In Union of India v. Elphinstone Spinning and Weaving Co. Ltd.

(AIR 2001 SC 724), this Court was concerned with a challenge to the

Textile Undertakings Act, under which the Government was empowered to

take over the management of certain textile mills whose financial condition

had deteriorated "pending natioalisation". The question was whether this

power was liable to be challenged on the ground that it amounted to

acquisition in reality. Repelling the challenge, it was held by this Court that

power was not even liable to challenge as abridging Article 31-A (1) of the

Constitution introduced by the Constitution First Amendment Act of 1951,

clause (1)(b) of which provides that, notwithstanding anything contained in

Article 13, no law providing for the taking over of the management of any

property by the State for a limited period either in the public interest or in

18 order to secure the proper management of the property shall be deemed to

be void on the ground that it is inconsistent with, or takes away or abridges

any of the rights conferred by Article 14 and Article 19. This Court was of

the view that parliament had in enacting the Textile Industries Act, 1983

clearly indicated that the taking over was for a temporary period "pending

nationalization of Textile Mills". Merely because nationalization would

take long time, it cannot be urged that the power was to be exercised for

indefinitely long time since the exercise of the power was delimited by the

happening of a contingency. Thus, the power of requisitioning is liable to

be upheld, if it is to be exercised for a temporary duration, which is limited

either in terms of time or by reason of a contingency.

18. In Charanjit v. Union of India (AIR 1951 SC 41) the difference

between the temporary and transitory nature of requisition and permanent

nature of acquisition was highlighted by this Court. It was inter alia held

that upon acquisition the entire bundle of rights which were vested in the

former original holder would pass on to the acquirer leaving nothing in the

former, while requisition would keep merely possession in the person

requisitioning while leaving the title of the owner in tact. In other words, if

the possession of property by exercise of dominion thereupon is continued

19 indefinitely, it would amount to colourable exercise of or fraud on the

power and nothing but a back door expropriation of property. As was

observed in Raghubir Singh v. Court of Wards, Ajmer (AIR 1953 SC 373)

and Corporation of Calcutta v. Cal. Tramways Co. Ltd. (AIR 1964 SC 1279)

that though it is open to the State to impose reasonable restrictions upon

fundamental rights guaranteed under the Constitution, the nature of the

restrictions should not be such that right guaranteed becomes illusory. If

that happens then the restrictions should cease to be reasonable. We find

there is no merit in all these appeals which are to be dismissed. We direct

accordingly. It is, however, brought to our notice by learned counsel for the

appellant that the State Government intends to limit the period by another

ten years. This is a matter about which we express no opinion. The appeals

fail and are dismissed with no orders as to costs.

........................................J. (Dr. ARIJIT PASAYAT)

........................................J. (P. SATHASIVAM) New Delhi, March 16, 2009

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