Industries (Development and Regulation) Act, 1951, (65 of 1951) Ss. 184(1)(6), 18.44(1)(a)-Taking over of an industrial undertaking-Opportunity of being heard-Whether and when to be given Denial of opportunity-Whether vitiates order Opinion of take-over by Government-Whether liable to judicial scrutiny.

Administrative Law Doctrine of Natural Justice-What is-When applicable-Pre-decisional and post-decisional hearing-When arises.

The Industries (Development and Regulation) Act, 1951 empowers the Union of India in the public interest to take under its control the industries specified in the First Schedule to the Act. Item 23 of the First Schedule relates to textiles of various categories.

Section 15 authorises the Central Government to make or cause to be made a full and complete investigation into the circumstances of the case if the Central Government is of the 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 for which, having regard to the economic conditions prevailing, there is no justification; or (ii) there has been, or is likely to be, a marked deterioration in the quality of any article... which could have been or can be avoided; or (iii) there has been or is likely to be a rise in the price of any article.....for which there is no justification; or (iv) it is necessary to take any such action for the purpose of conserving any resources of national importance; or (b) any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest. After the investigation is made under section 15, section 16(1) empowers the Central Government if action is desirable, to issue appropriate directions, and section 16(2) provides for the issue of interim directions by the Central Government pending investigation under section 15.

Chapter III-A consisting of Sections 18A, 18-AA, 18-B, 18-C, 18-D, 18-E and 18-F deal with "direct management or control of Industrial Undertakings by Central Government in certain cases". Sec. 18-A empowers the Central Government by notified order, to authorise any person or body of persons to take over the management of the whole or any part of an industrial under- taking 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, if the Central Government 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 is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest.

Section 18AA(5) stipulates that the provisions of Sections 18-B to 18-E shall be applicable to the industrial undertaking in respect of which an order has been made under section 18-AA even as they apply to an industrial under- taking taken over under Section 18-A. Section 18-F empowers the Central Government to cancel the order made under section 18-A if it appears that the purpose of the order has been fulfilled or it is not necessary that the order should remain in force.

The appellant M/s. Swadeshi Cotton Mills was taken over by the Government of India by a notification dated April 13, 1978 in exercise of the powers conferred on it under clause (a) of sub-section (1) of section 18AA of the Industries (Development and Regulation) Act, 1951 on the ground that the company had by creation of encumbrances on the assets of its industrial under- takings, brought about a situation which had affected and is likely to further affect the production of articles manufactured or produced by it and that immediate action is necessary to prevent such a situation.

The Government authorised the National Textile Corporation Limited to take over the management, subject to the conditions that the authorised person shall comply with all the directions issued from time to time by the Central Government and that the authorised person shall hold office for a period of five years.

The appellant Mills challenged the aforesaid order in a writ petition in the High Court. The case was heard by a Full Bench of five Judges to consider the question whether in construing section 18AA of the Industries Development and Regulation Act, 1951, compliance with the principle of audi alteram partem is to be implied and whether hearing is to be given to the parties who would be affected by the order to be passed prior to the passing of the order or whether hearing can be given after the order is passed and whether the order passed under the said Section is vitiated by not giving of such hearing and whether such vice can be cured.

The Bench by a majority answered the three questions as follows:-

(a) Section 18AA(1) (a) (b) excludes the giving of prior hearing to the party who would be affected by order thereunder.

(b) Section 18-F 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 made under section 18AA cancelled on any relevant ground.

(c) As the taking over of management under section 18A is not vitiated by the failure to grant prior hearing the question of any such vice being cured by a grant of a subsequent hearing does not arise.

The minority, however, held that in compliance with the principles of natural justice, a prior hearing to the owner of the undertaking was required to be given before the passing of an order under section 18AA, that the second question did not arise as the denial of a prior hearing would not cure the vice by the grant of 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.

After the decision on the reference the case was reheard on merits by a Full Bench of three Judges and the writ petition was allowed in part. The challenge to the validity of the order being rejected but insofar as the impugned order seeking to take over the corporate entity of the company, the corporate entity of the subsidiary and its assets, the petition was allowed and the respondents, the Union of India and the authorised person were directed to release from its control and custody and/or deliver possession of any assets or property of the company which were not referable to the industrial undertakings.

Appeals to this Court were filed on behalf of the Company as well as by the Union of India and the National Textile Corporation.

Two propositions were propounded on behalf of the company that: (a) Whether it was necessary to observe the rules of natural justice before issuing a notified order under section 18AA(1) (a) and further whether section 18-F impliedly excludes rules of natural justice relating to prior hearing; and it was contended (1) the mere use of the word 'immediate' in sub-clause (a) of section 18AA does not show a legislative intent to exclude the application of audi alteram partem rule altogether. (2) The word 'immediate' in clause (a) has been used in contra distinction to 'investigate'. It only means that under section 18AA action can be taken without prior investigation under section 15 The use of the word 'immediate' in section 18AA(1) (a) only dispenses with investigation under section 15 and not with the principle of audi alteram partem altogether and this is indicated by the marginal note of section 18A and para 3. of the Statement of Objects and Reasons of the Amendment Bill which inserted section 18AA in 1971. (3) The word 'immediate' occurs only in clause (a) and not in clause (b) of section 18AA(1). It would be odd if intention to exclude this principle of natural justice is spelt out in one clause of the sub-section when the other clause does not exclude it. (4) Section 18-F does not exclude a pre-decisional hearing. The so-called post-decisional hearing contemplated by section 18-F cannot be and is not intended to be a substitute for a pre-decisional hearing. (5) Section 18F incorporates only a facet, albeit qualified, of section 21 of the General Clauses Act. The language of the Section implicitly prohibits an enquiry into circumstances that led to the passing of the order of take-over and under it the aggrieved person is not entitled to show that on merits the order was void alb initio. (6) 'Immediacy' does not exclude a duty to act fairly because even an emergent situation can co-exist with the canons of natural justice. The only effect of urgency on the application of the principle of fair hearing would be that the width, form and duration of the hearing would be tailored to the situation and reduced to the reasonable minimum so that it does not delay and defeat the purpose of the contemplated action. (7) Where the civil consequences of the administrative action are grave and its effect is highly prejudicial to the rights and interests of the person affected and there is nothing in the language and scheme of the statute which unequivocally excludes a fair pre-decisional hearing and the post-decisional hearing provided therein is not a real remedial hearing equitable to a full right of appeal the Court should be loath to infer a legislative intent to exclude even a minimal fair hearing at the pre-decisional stage merely on ground of urgency. (8) The Central Government appointed four Government Officials including one from the office of the Textile Commissioner to study the affairs of the Company and to make recommendation. This Official Group submitted its report on February 16, 1978. The evidence on the basis of which the impugned order was passed was not disclosed to the appellant company till May 1978, only after it had filed the writ petition in the High Court. If there was anything adverse to the appellants in the survey report there was time enough about six weeks between the submission of the Survey Report and the passing of the impugned order for giving a short, reasonable opportunity to the appellants to explain the adverse findings against them. If there was immediacy situational modifications could be made to meet the requirement of fairness, by reducing the period of notice; that even the manner and form of such notice could be simplified to eliminate delay, that telephonic notice or short opportunity for furnishing their explanation to the Company might have satisfied the requirements of natural justice. Such an opportunity of hearing could have been given after the passing of a conditional tentative order and before its enforcement under section 18AA. For the inter- regnum suitable interim action such as freezing the assets of the Company or restraining the Company from creating further encumbrances, could be taken under section 16.

On behalf of the Union of India and the Authorised Officer it was con- tended that (1) the presumption in favour of audi alteram partem rule stands impliedly displaced by the language scheme, setting and the purpose of the provision in section 18AA. (2) Section 18AA on its plain terms deals with situations where immediate preventive action is required. The paramount concern is to avoid serious problems which may be caused by fall in production. The purpose of an order under section 18AA is not to condemn the owner but to protect the scheduled industry. The issue under section 18AA is not solely between the Government and the management of the industrial undertaking. The object of taking action under this Section is to protect other outside interests of the community at large and the workers. (3) The rule of natural justice to give a hearing has been incorporated in section 18-F which gives an opportunity of a post-decisional hearing to the owner of the undertaking who if he feels aggrieved can on his application be heard, to show that even the original order under section 18AA was passed on invalid grounds and should be cancelled or rescinded. (4) On a true construction of section 18AA read with section 18-F the requirements of natural justice and fair play can be read into the statute only insofar as conformance to such canons can reasonably and realistically be required of it by the provision for a remedial hearing at a subsequent stage, (5) Under section 18-F the Central Government exercises crucial functions and that Section confers on the aggrieved owner a right to apply to the Government to cancel the order of take-over. This section casts an obligation on the Central Government to deal with and dispose of an application filed thereunder with reasonable expedition.