ANIL KUMAR NEOTIA AND ORS. versus UNION OF INDIA & ORS.

Citation: [1988] 3 S.C.R. 738 · Decided: 26-04-1988 · Supreme Court of India · Bench: SABYASACHI MUKHERJI · Disposal: Dismissed

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Judgment (excerpt)

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ANIL KUMAR NEOTIA AND ORS. 
v. 
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UNION OF INDIA & ORS. 
APRIL 26, 1988 
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[SABYASACHI MUKHARJI AND G.L. OZA, JJ.] 
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Swadeshi Cotton Mills Ltd. (Acquisition and Transfer of Under-
takings) Act, 1986-Challenging constitutional validity of. 
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This writ petition challenged the constitutional validity of the 
Swadeshi Cotton Mills Ltd. (Acquisition and Transfer of Undertakings) -t 
.... 
c Act, 1986. 
The Central Government had passed an order for taking over the 
management of six undertakings of the Swadeshi Cotton Mills, in 
respect whereof there were proceedings in the High Court, and this 
D Court hy its judgment dated the 12th February, 1988, in M/s. 
Doyarpack Systems Pvt. Ltd. v. Union of India & Ors.-SLPs (Civil) 
Nos. 4826 & 7405 of 1987-had disposed of the matter. The petitioners, 
claiming to he shareholders of the respondent No. 4-Swadeshi Cotton 
Mills Co. Ltd. and to have interest in its business, affairs and proper-
·-1, 
ties, filed this writ petition, contending that the effect of the decision of 
E this Court above said was to take away valuable assets of the respondent 
No. 4, without paying any compensation therefor and to impose on 
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respondent No. 4 liabilities without any corresponding assets available 
to discharge the liabilities, and further, that the acquisition virtually 
amounted to confiscation of the shares of respondent No. 5 and respon-
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dent No. 6 held by respondent No. 4, and that the rights of the share-
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holders of the respondent No. 4 were substantially damaged. The 
petitioners challenged the vires and constitutional validity of sections 3 
and 4 of the Swadeshi Cotton Mills Ltd. (Acquisition and Transfer of 
Undertakings) Act 1986 ('The Act') in so far as those sought to divest 
respondent No. 4 of the shares in respondent No. 5 and respondent 
No. 6 and certain excluded assets, contending that the Act was violative 
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of Articles 14 and I9(l)(g) of the Constitution. 
_..._ 
Dismissing the petition, the Court, 
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HELD: The petitioners' contentions were not tenable because all 
the contentions had been directly or indirectly dealt with in the judg-
H ment of this Court afore-said. It was not correct that no public 
738 
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A.K. NEOTIA v. U.O·.I. 
739 
purpose was served by acquisition. U was held that section 8 provides 
for payment of compensation in lumpsum and the transfer and vesting 
of whatever is comprised in section 3. It was incorrect to state that there 
was no compensation for taking over of the shares. It was found by the 
said judgment that the net wealth of the company. was negative and, 
therefore, sections 3 and 4 could be meaningfully read if all the assets 
including the shares were considered to be taken over by the acquisi-
tion. That was the only irresistible conclusion that followed from the 
construction of the documents and the history of the Act. The Act in 
question was passed to ensure the principles enunciated in clauses (b) 
and ( c) of Article 39 of the Constitution. In that context, it was held that 
to leave a company, the net wealth of which was negative at the time of 
take-over of the management with the shares held by it as investment in 
other company, was not only to defeat the principles of Article 39(b) 
and ( c) of the Constitution but it would permit the company to reap the 
fruits of its mismanagement. That would be as absurd situation. In this 
context, the contentions now sought to be urged were no longer open to 
the petitioners. It was held by the judgment of this Court afore-
mentioned that there was a public purpose which was analysed and 
spelled out from the different provisions of the A<t. There was <Ompen-
sation for the acquisition of the property. The contentions of the 
petitioners had been dealt with and repelled by the said judgment of 
this Court. The Court reiterated the reasoning of that judgment. [744B; 
746B; 747F-H] 
The acceptance of the petitioner's case wonld mean that the State 
would pump in Rs.-I5 crores of public money to release the shares from 
its liabilities and then hand over the shares free from such liability back 
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to the company when the net worth of the company at the time of 
take-over of management was negative, and in the teeth of the present 
financial liabilities built up by the company the shares would inevitably 
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have been sold in discharge of its liabilities and in any event the shares 
stood charged with the very liabilities which related to the u

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