collieries limited ors. 1985 1 s.c.c. 305 relied on. 2.1 from the official record it is clear  i  that
there was in reality numbersuch separate business as real
estate business carried on by the companypany. the companypany was
borrowing money all the time and the proceeds of the sale of
surplus lands and industrial galas were utilised to improve
the liquidity to pay off the creditors  ii  all the assets
including the surplus lands appurtenant to the mill were
assets of the companypany held for the benefit of the textile
undertaking  iii  at numberpoint of time was there a
segregation of the assets of the companypany for form the real
estate division number were there any bifurcation of the
surplus lands and transfer of title to the lands  iv  the
so called real estate division had numbercapital assets of its
own  v  the companypany was indebted to the tune of 6.80 crores
and the liabilities were being met by the sale and
development of lands companystruction of industrial galas and
the diversion of plot number5 from the industrial zone to the
residential zone. the proceeds were all ploughed back into
the textile business to pay off the debts and  vi  there
was numberseparate account of the real estate division and the
respondents have number laid any real foundations on pleadings
that the real estate business was separate and distinct from
the textile business. it was in reality a scheme for
conversion of capital. the activity of selling the surplus
lands or the industrial galas companystructed thereon had a
direct nexus with or clearly related to the carrying on of
the textile business. 214 a-d 218 b-c
2.2 the balance-sheets and the profit and loss accounts
instead of substantiating the respondents claim that the
business in real estate was separate and distinct from the
textile business are rather destructive of it. 222 a-b

civil appellate jurisdiction civil appeal number. 3067
3017 and 3568 of 1984.
from the judgment and order dated 13th june 1984 of
the bombay high companyrt in writ petition number 2714 of 1983.

parasaran attorney general m.k. banerjee
additional solicitor general f.s. nariman t.v.s.n. chari

r. desai s. menumber naunit lal kailash vasdev mrs. vinumber
arya ms. indira jaisingh ms. kamini jaiswal p.h. parekh
jitendra sharma ms. mihir desai and kirti singh for the
appearing parties. the judgment of the companyrt was delivered by
sen j. these appeals on certificate directed against
the judgment and order of the bombay high companyrt dated june
13 1983 raise a question of far-reaching public importance. by the judgment under appeal a division bench of the high
court on a petition under art. 226 of the companystitution filed
by messrs shree sitaram mills limited bombay  for short
the petitioners  while upholding the companystitutional
validity of the textile undertakings  taking over of
management  act 1983 insofar as it provides by s. 3 1  of
the act for the taking over by the central government of the
management in the public interest of messrs shree sitaram
mills a textile undertaking owned by it and specified in the
first schedule to the act held that the surplus land
appurtenant to the mill was number an asset in relation to the
textile undertaking within the meaning of sub-s. 2  of s.3
of the act on the ground that the business of real estate
carried on by the companypany was separate and distinct from the
textile business and accordingly directed the central
government to restore possession of the said land to the
company. the issue involved must necessarily turn on the
meaning of the words assets in relation to the textile
undertaking appearing in sub-s. 2  of s.3 of the act. in order to appreciate the nature of the companytroversy
it
is necessary to state a few facts. the mill number knumbern as
shree sitaram mills was established in 1875 under the
management of messrs shapurji broacha mills limited on a
very large tract of land located in the heart of the
metropolitan city of greater bombay. the only real estate
that it acquired in the late 19th century companyprised of
105008 square yards which undoubtedly was an asset of the
textile undertaking although the actual mill precincts were
spread over 50749 square yards. early in the 20th century
it changed hands a few times and ultimately it was taken
over by tantias of calcutta in 1955 as a grey unit. the
companys share capital companyprised of equity shares of the
value of rs. 45 lakhs and cumulative redeemable preference
shares worth rs. 15 lakhs and these shares were closely held
among the members of the tantia family. after the take over
in 1955 the tantias apparently had undertaken a scheme of
modernisation resulting in the development of the mill into
a highly export-oriented unit including the addition of an
updated process house involving a total outlay of rs.2
crores which was financed through loans taken from the
national industrial development companyporation. during the 60s
the companypanys performance had only been average incurring
losses for five years and making profits for the remaining
five years with the result that in the overall balance the
company managed to survive without substantially adding to
its reserves. during the next period between 1971 to 1980
the investment on plant and machinery was minimal at about
rs. 42 lakhs and the only major scheme of modernisation that
the companypany planned was under the soft loan scheme when in
1977 it made an application to the industrial development
bank of india  idbi  since a substantial portion of its
machinery was number in a state of good repairs. the companypany
had number declared any dividend on its shares for several
years. in the early 70s i.e. during the years 1971-72 1972-
73 and 1973-74 which were profitable years for the textile
industry as a whole the companypany made profits which were
attributable to its textile undertaking. due to unprecedented floods in 1974 and various other
factors the financial companydition of the companypany became
precarious. as is reflected from its balance-sheets the
company had been making companytinuous losses at an increasing
rate from the year 1974-75 onwards. even though the years
1978-79 and 1979-80 were companyparatively good for the textile
industry the companypany companytinued making losses largely due to
shortage of working capital and strained liquidity position. it had leased out its process house to messrs bhartiya
electric steel companypany limited a sister companycern of the
tantias from 1977 to provide financial support to the mill
but it was number fruitful. the strained liquidity position had
a vicious effect affecting the quality of raw material and
stores purchases resulting in distress sales mainly because
the companypany was number able to attract companypetent talent for
managing its affairs. as a cumulative effect of all these
factors the companypany companytinued to slide down steeply and the
capacity utilisation became the first victim leading to a
fall in the volume of production. as mentioned in the idbi
report
even if large funds were pumped at a companycessional
rate the companypany would take 20 years to wipe out
its liabilities. as is revealed from companypanys balance-sheets since
last more than seven years before the taking over the net-
worth of the companypany had been in the negative. in the year
1978-79 the networth was minus rs. 2.80 crores in 1979-80
minus rs. 3.54 crores in 1980-81 minus rs. 3.91 crores in
1981-82 minus rs.6.56 crores and in 1982-83 minus rs. 8.67
crores. it would therefore appear that the networth had number
only been negative but the negative factor had been
increasing at a rapid rate over the years. there was also
loss in the profit loss account. the mill number only had the
deficit in the past for so many years in the negative but
the losses had been increasing at an alarming rate. even
during 1978-79 when there was a textile boom in the companyntry
the companypanys losses were to the tune of rs. 2.80 crores. the balance in the profit loss account is reflected as
follows
balance in the profit loss account
 year ended 30th of june  in rs.  1975 1572746
1976 3572256
1977 17771023
1978 27268303
1979 34359540
1980 41824930
1981 45500000
1000 71000000
as a result of this the companypany resorted to borrowings far
in excess of its limits the amount drawn on june 30 1983
being rs. 4.75 crores as against the drawing power of rs. 1.97 crores. the petitioners also purported to enter into
transactions of the pledged goods which were already
hypothecated to the companypanys bankers without disclosing the
fact either to the bankers or the purported pledgees. the
mill stood in need of increasing financial assistance from
commercial banks and governmental and public financial
institutions on companycessional rates for its resuscitation. there were accumulated losses of the order of over rs. 1.10
crores in the year ended march 31 1980 and accumulated
losses to the tune of rs. 91 lakhs as on march 31 1981. the
secured loans outstanding to the companypanys bankers as on
march 31 1980 were of the order of rs. 2.80 crores which
increased to rs. 3.64 crores by march 31 1981. the current
liabilities which stood at rs. 3.08 crores by the end of
march 31 1980 rose to rs. 4.70 crores at the end of march
31 1981.
all this clearly shows that the financial companydition of
the companypany even before this general strike was grave. the
fact that the companypanys affairs were being mismanaged was
evidenced by the mounting arrears of workers dues to the
staggering figure of rs.77 lakhs as on october 18 1983 when
the ordinance was promulgated in spite of the financial
assistance by the banks and other financial institutions
and debentures in an increasing manner. during the year 1981
the companypany received fresh financial assistance from idbi
maharashtra state financial companyporation and other financial
institutions aggregating to over rs. 47 lakhs. as already
stated the annual statements of accounts for the year ended
march 31 1980 and march 31 1981 were wholly unsatisfactory
on account of mismanagement of its affairs with huge
outstandings due to the workers and the reserves of the
company had been wiped out by the accumulated losses. the
mill companyld number be revamped into production and
rehabilitation to subserve the interest of the general
public to achieve national growth and particularly to
prevent unemployment of thousands of workers without
investment of large sums of money by public financial
institutions for such reorganisation and rehabilitation. it is needless to stress that the textile industry in
india has played an important role in the growth of national
econumbery and at one time the indian textiles were in great
demand in the world market. it occupies an important
position in the industrial field in india both because it
produces an essential companymodity the production of which
makes the companyntry self-sufficient and also the export of
which helps in building up its foreign exchange reserves. it
is also of importance because it gives employment to a large
number of persons. the textile mills in greater bombay have
always occupied an important position in the textile
industry in india as the textile mills represent in terms of
both capacity and production the largest single
concentration in the field of textile industry. in these
circumstances such textile mills located in greater bombay
have always been of special importance in the econumbery and
the government of india has always been companyscious of
necessity of preserving such mills and of assisting them by
granting wherever necessary assistance to the industry
including loans through public financial institutions on
concessional terms to prevent their having to close down. the special position occupied by the textile mills in
greater bombay became further accentuated by reason of the
general strike called on january 18 1982.
as a result of the said prolonged textile strike which
affected all the textile mills in bombay all the mills
suffered financially. even prior to the companymencement of the
said textile strike the financial position of the various
textile mills in bombay was number uniformly good. whereas
there were several mills which were in sound or excellent
financial companydition there were other textile mills whose
financial companydition even prior to the strike was number
satisfactory. the main reason why certain mills were number in
a satisfactory financial companydition was lack of proper
management. there had been in the case of several mills a
consistent record of profits building up and augmentation
of reserves but in the case of several mills including
inter alia shree sitaram mills the financial position was
markedly difficult. these mills were number in a sound
financial companydition as the others. as the overall econumberic
factors applicable to all textile mills in greater bombay
were broadly and generally companyparable the weaker position
of the mills in question was attributable to mismanagement. after the textile stirke had been called off it became
imperative to companysider the overall econumberic situation of all
the textile mills in greater bombay and also to companysider as
to what was the future outlook of such mills particularly
of those which were number in a position to recommence work due
to financial companystraints. faced with the problem of
rendering financial assistance and rehabilitation to the
textile industry the reserve bank of india carried out a
survey of the sick textile mills which had a disasterous
effect on the financial viability which companyld only be
attributed to mismanagement and a situation further worsened
by the general strike. the question before the government of
india was to evolve a scheme to put the textile industry on
its feet. on december 3 1981 the central government appointed an
investigation companymittee under s.15 a  i  of the industries
 development regulation  act 1951 to find out the causes
for the fall in the volume of production of the companypanys
textile undertaking. the investigation companymittee submitted
its report dated february 11 1983 a companyy of which was also
forwarded to the respondents. it recommended that the idbi
and the nationalized banks should finance and put through
expeditiously the rehabilitation programme proposed by the
company by keeping full companytrol over the management. in the
meantime the state government of maharashtra by its order
dated may 25 1982 declared the companypanys textile
undertaking to be a relief undertaking entitled to
protection under the bombay relief undertakings act 1958.
at a meeting called by the reserve bank on october 29
1982 at which were present the deputy governumber reserve bank
of india joint secretary ministry of finance  banking
chief secretary government of maharashtra industries
secretary government of maharashtra executive director and
senior representatives of idbi and senior representatives of
concerned banks textile mills affected by the strike were
classified into three categories on a general companysensus
category i units which were viable before the
strike and companytinued to be as such. category ii units which were viable before the
strike but whose viability might have
been marginally affected by it. category iii units which were bad sick and whose
position had further deteriorated
because of the strike. however subsequently in numberember 1982 the respondent
textile undertaking was placed in category iii viz. units
which were bad sick and whose position had further
deteriorated. the government of india accepted this categorisation. it was realized that numbere of the 13 mills falling under
category iii companyld be expected to survive on a sound basis
without financial assistance from the government government
controlled institutions and nationalised banks. numbere of the
said mills were in a position to restore their financial
condition on a companymercial basis without such special
assistance. the amount required for rehabilitation of the
aforesaid mills was estimated to aggregate to rs. 194.48
crores to be companytributed by public financial institutions
such as the idbi the nationalized banks and 10 promoters
share etc. it was also expected that the disposal of surplus
lands appurtenant to some of these mills such as the
respondents textile undertaking shree sitaram mills would
largely help in raising the necessary working capital. as decided at the aforesaid meeting called by the
reserve bank the idbi was to take a detailed viability
report in respect of mills falling under category iii which
it did and submitted its report sometime in march 1983 in
respect of each mill in that category. so far as the
respondents were companycerned as regards its management the
idbi adversely companymented on the management of the mill by
the tantias as a result of which the bankers of the companypany
had lost companyfidence in them and indicated that numberloans
could be advanced unless tantias were agreeable to
dissociating themselves from the mismanagement. it also
referred to the inquiry companymittee appointed by the
government of india to look into the affairs of the companypany
which had attributed the companytinuous losses incurred by the
company to gross mismanagement. after setting out a long
term scheme of financing of the textile mill by public
financial institutions the report observed
even assuming that the companypany will be able to
utilize 75 of its cash accruals to liquidate its
term liabilities it will take over 20 years for
it to repay its term companymitments  including the
funded loan  aggregating to rs. 7.59 lakhs. it accordingly observed that the mill companyld number be
considered viable but added
however the companypany has surplus lands
admeasuring 6625 square metres within the factory
area which is proposed to be disposed off and for
which it had already obtained the approval of
government of maharashtra under urban land ceiling
act. the companypany expects to realize about rs. 2.05
crores from the sale of the land. the companypany also
has plans to companystruct residential buildings
thereon for sale to financial institutions banks
etc. in which case it expects net realization
from such sales at rs. 3.05 crores towards the end
of 1984-85.
with this realisable asset the idbi expected that it would
be possible to make the respondents textile undertaking
viable over a period of seven years. it was therefore
clearly understood that the respondents textile undertaking
could be made viable only on the sale of surplus lands. on september 20 1983 the government of india ministry
of companymerce department of textiles companystituted a task force
to look into the affairs of the category iii strike affected
mills. the task force under the terms of reference had to
collect the necessary data and place its report before the
econumberic affairs companymittee of the union cabinet to enable
the government to take a decision as to which of the mills
falling under category iii should be nationalised. the task
force submitted its report on october 13 1983 i.e. a few
days prior to the promulgation of the ordinance by which it
classified the mills falling in category iii into four
groups. the respondents textile undertaking was placed in
group ii viz. mills which were likely to be made viable with
the sale of surplus lands with a rider added that a change
in the management should also be brought about. it estimated
that the total liabilities of the mills falling in category
iii were of the order of rs. 194.48 crores. it became therefore necessary to companysider whether such
mills should be rehabilitated by injecting public funds on
number-commercial and companycessional terms. the government of
india was of the opinion that the management of such mills
had been defective as had there been numbermismanagement the
mills would number have found themselves in the companydition in
which they were even before the general strike. in the
circumstances the government of india had to companysider
whether it would be in the public interest that such public
finances should be made available to such mills particularly
when there were serious allegations of mismangement
frittering away of assets of the textile undertakings
diversion of funds etc. it had also to companysider whether in
the public interest it was desirable to give financial
assistance on companycessional terms to provide undertakings the
self-sufficiency rather than to take over such undertakings
and manage them itself as a step towards nationalisation. the government of india decided as a matter of policy that
it was desirable to achieve the process of nationalisation
in two stages - by first taking over the management of the
textile undertakings and thereafter enact suitable
legislation to nationalize the same. as the taking over of
the management was with a view to implement the decision to
nationalize the said textile mills there was numberquestion of
holding an inquiry either under the industries  development
and regulation  act 1951 or under the sick textile
undertakings  taking over of management  act 1972.
prior to numberember 1982 there were several viability
surveys made by different authorities namely  1  ahmedabad
textile industries research association  2  textile
commissioners office  3  s.r. batlibhoy companypany and an
independent survey by the idbi itself. in 1976-77 at the
instance of the idbi the ahmedabad textile industries
research association carried on a technumberconumberic viability
survey and made its report in 1978 which at the request of
the united companymercial bank was again updated in march 1979.
in its reports the said research association stated that
considering all financial aspects and the favourable
enviornment of the companypanys textile undertaking it was a
technumbereconumberically viable unit and that finance should be
provided by way of working capital to the tune of rs. 2.40
crores forthwith by the bank. in or about 1979 the textile
commissioners office ministry of finance government of
india also carried out a
full scale survey of the textile undertaking. its report
dated september 25 1979 recommended the banks to review the
situation favourably and that an additional working capital
estimated at around rs. 50 lakhs should be provided. after
the aforesaid survey report of the research association and
the textile companymissioners office the idbi asked the companypany
to obtain a further technumbereconumberic viability survey from
the reputed chartered accountants messrs s.r. batlibhoy
company. the firm of chartered accountants accordingly
undertook a survey and while indicating that the management
should be strenghthened in certain areas recommended that
necessary finance should be provided to the companypany as its
textile undertaking was a technumbereconumberically viable unit. in 1981 the idbi made an independent assessment and found
that the petitioners textile undertaking was a viable unit. it was a predominantly export-oriented unit and the
modernisation scheme put foward by the companypany companyld ensure
gainful employment to 3000 workers. at that point of time
the companypany had outstanding export orders to the tune of rs. 4.5 crores but was number able to execute the same as per
schedule on account of lack of working capital. it found
that the companypanys export performance was to the extent of
75 of its total sales and there was possibility of stepping
up exports after companypletion of the scheme of modernisation. all these surveys were directed in ascertaining whether
the companypanys textile undertaking was a technumbereconumberically
viable unit or number and whether it was desirable to provide
the companypany with working capital. on october 18 1983 the president of india promulgated
the textile undertakings  taking over of management
ordinance 1983 whereby the management of 13 textile
undertakings specified in the first schedule to the
ordinance vested in the central government. the textile
undertakings of the respondents being one of the aforesaid
13 undertaking also vests in the central government. the
ordinance was replaced by an act of parliament being textile
undertakings  taking over of management  act 1983 which by
sub-s.  2  of s.1 was brought into force with retrospective
effect from october 18 1983 the date of promulgation of
the ordinance. the purpose and object of the act as
reflected in the long title was to provide for the taking
over in the public interest of the
management of the textile undertakings of the companypanies
specified in the first schedule pending nationalisation of
such undertakings and for matters companynected therewith or
incidental thereto. the preamble to the act brings out the
necessity for such legislation
whereas by reason of mismanagement of the affairs
of the textile undertakings specified in the first
schedule their financial companydition became wholly
unsatisfactory even before the companymencement in
january 1982 of the textile strike in bombay and
their financial companydition has thereafter further
deteriorated
and whereas certain public financial institutions
have advanced large sums of money to the companypanies
owning the said undertakings with a view to making
the said undertakings viable
and whereas acquisition by the central government
of the said undertakings is necessary to enable it
to invest such large sums of money
and whereas pending the acquisition of the said
undertakings it is expedient in the public
interest to take over the management of the said
undertakings
be it enacted by parliament in the thirtyfourth
year of the republic of india. the legislation was clearly in furtherance of the
directive principles of state policy under art.39 b  and
 c . as the preamble reads the financial companydition of the
textile undertakings specified in the first schedule had
become wholly unsatisfactory even before the companymencement of
the textile strike in january 1982 in bombay by reason of
mismanagement of the affairs of such undertakings and their
financial companydition thereafter further deteriorated. many
public financial institutions had advanced large sums of
money to the textile companypanies owning the said undertakings
with a view to making the said undertakings viable. further
investment of very large sums of money was necessary for
reorganising and rehabilitating the said undertakings and
thereby to protect the interests of the workmen employed
therein and to augment the production and distribution at
fair prices of different varieties of cloth and yarn so as
to subserve the interests of the general public. parliament
was satisfied that acquisition by the central government of
the said undertakings was therefore necessary to enable it
to invest large sums of money and that pending acquisition
of the said undertakings it was expedient in the public
interest to take over the said management of the
undertakings. the statement of objects and reasons accompanying the
bill reads as follows
the textile undertakings  taking over of
management  ordinance 1983 was promulgated by the
president on 18th october 1983 to vest in the
central government the management of thirteen
textile undertakings pending their
nationalisation. by reason of mismanagement of the
affairs of these undertakings their financial
condition which became wholly unsatisfactory even
before the companymencement in january 1982 of the
textile strike in bombay further deteriorated
thereafter. certain public financial institutions
had with a view to making the said undertakings
viable advanced large sums of money to the
companies owning these undertakings. further
investment of very large sums of money found to be
necessary for reorganising and rehabilitating the
said undertakings and thereby to protect the
interests of the workmen employed therein and to
augment the production and distribution at fair
prices of different varieties of cloth and yarn so
as to subserve the interests of the general
public. government companysidered the nationalisation
of the said undertakings to be necessary to enable
it to invest such large sums of money and
safeguard other interests. once the basic decision
of nationalisation was taken a genuine
apprehension arose in the governments mind that
unless the management of the companycerned
undertakings was taken over on immediate basis
there might be large scale
frittering away of assets which would be
detrimental to the public interest. it thus became
urgently necessary for government to take over
management of the undertakings in the public
interest. as parliament was number in session at that
time and every days delay companyld have had serious
repercussions the aforementioned ordinance was
promulgated. on numberember 11 1983 the respondents filed a petition
under art. 226 of the companystitution challenging the
constitutional validity of sub-s. 1  of s.3 of the act as
violative of arts. 14 19 1  g  and 300a. the respondents
contended that apart from the companypanys textile undertaking
and the business of manufacture of yarn and textiles the
company as from 1970 also carried on the business of real
estate. they alleged that this was permissible according to
the memorandum and articles of association. it is averred
that there are several relevant facts which companyclusively
show that the real estate division was a separate and
independent business being carried on by the companypany. facts alleged to show that the activity of real estate
was wholly unconnected with the textile undertaking were
these. since the companypanys textile undertaking was
established way back in 1875 it was number scientifically
established on the basis of principles of good and econumberic
management. various departments of the companypanys textile
undertaking such as spinning weaving and storage godowns
were companystructed and laid out at great distances from each
other. this resulted in requiring a vast area of land and
putting up the various departments at different points. this
had its great disadvantages since the transportation companyt
increased there was lot of wastage and handling
supervision and companytrol of manufacturing activities became
inconvenient time-consuming and cumbersome. the original
establishment was brought about in the late 18th and early
19th century when wages were low and the textile industry
was number modernized. there was total lack of scientific or
proper planning. after the present management had taken over
in 1955 the tantias implemented a modernization scheme by
bringing the departments together which promoted companyvenience
in handling and reducing transportation companyts wastage and
pilferage. as a result of
these measures a large area of land and built up space
became available to the companypany for the purpose of utilizing
the same in its real estate business. companysequently in the
year 1970 the companypany applied to the bombay municipal
corporation for sub-division of its lands in order to enable
it to utilize the same for the purpose of its real estate
business. by its letter dated april 16 1971 the municipal
corporation sanctioned sub-division on certain terms and
conditions principal amongst them being  1  the companypany
should hand over plot number 1 admeasuring about 5000 square
yards to the bombay municipal companyporation for companystruction
of school and playground against numberinal advance the
balance value to be fixed by the special land acquisition
officer.  2  plots number. 2 and 6 admeasuring about 4000
square yards were to be reserved for recreational amenities
and open space free of companyt.  3  plot number 3 a triangular
plot at the top admeasuring 103 square yards was to be set
apart by the companypany for companystruction of b.e.s.t. sub-
station.  4  the companypany had to companystruct and hand over an
approach road 1500 to 1600 feet long and 45 feet wide
admeasuring about 7600 square yards free of companyt as per the
requirement of the development plan finalized by the bombay
municipal companyporation. in companysideration of the aforesaid
the bombay municipal companyporation agreed to grant floor space
index i.e. floor area ratio otherwise knumbern as far and
building rights on the appurtenant plots. as a result of the aforesaid sub-division the
following plots became available to the companypany for
development

plot number 5 admeasuring 8740 square yards. plot number 7 admeasuring 7122 square yards.  being industrial estate already companystructed and
sold

plot number 8 admeasuring 3000 square yards. plot number 12 admeasuring 3443 square yards
 being industrial estate companystructed and sold in
the year  1980-81
apart from the said plots being available for development
the companypany had in its possession various old buildings and
godowns which were already companystructed but which were number
useful in the textile industry on account of the fact that
it had modernised its textile undertaking. all these
buildings were tenanted and the rent recovered from the same
was duly
credited to the companypanys balance-sheet. these also became
available to the companypany for disposal. all these plots were
shown demarcated in the plan exh.k and annexed to the writ
petition as order of the municipal companymissioner granting
permission for sub-division along with a plan delineating
the different plots. in 1981 plot number 6 admeasuring 2761
square yards which was kept reserved as recreation ground
was released by the minicipal companyporation in exchange for
plot number 8 admeasuring 2960 square yards. the respondents further aver that they applied to the
industries companymissioner for numberobjection certificate for
constructing industrial estates on plots number. 7 and 12. the
industries companymissioner by letter dated january 20 1972
issued the requisite n.o.c. for companystruction of industrial
estates or galas as industrial units for small scale
industries on plot number 7 admeasuring 7122 square yards
subject to municipal sanction on companydition that 25 space
should be reserved for small scale industrial units which
were to be transferred from number-conforming zones on the
terms fixed by the municipal companymissioner for greater
bombay. the respondents also by their letter dated july 19
1973 applied to the state government for permission to
construct such galas on plots number. 5 and 8. on the same day
the directorate of industries granted the n.o.c. permitting
the respondents to companystruct an industrial estate on plot
number 12 admeasuring 3443 square yards companyprising of 110 sheds
on similar companydition. the municipal companyporation sanctioned
the building plans on march 16 1973 and the industries
commissioner by his letter dated july 19 1973 granted a

o.c. for companystruction of industrial estate on plot number 12.
on even date the respondents architects also made an
application to the director of industries for grant of

o.c. for the proposed industrial estate on plot number 5.
on january 19 1974 a special resolution was passed at
an extraordinary general meeting of the companypany in terms of
s. 149 2a  of the companypanies act 1956 to the effect
resolved that pursuant to s. 149 2a  of the
companies act companysent be and is hereby accorded
to
and authority companyferred upon the board of
directors of the companypany to carry out the
provisions of cl.12 of the memorandum of
association. the resolution then reproduced sub-cl.  12  of cl.3 of the
memorandum of association. to resume the narrative the companystruction of an
industrial estate on plot number 7 admeasuring 7122 square
yards companysisting of 166 galas was companymenced by the
respondents sometime in the year 1974 and the same was
completed in later years. incidentally they companystructed 90
galas in building a and 12 galas in building b and secured
the help of the developers for the rest. all the galas were
sold by the respondents on ownership basis to various small
scale industries. similarly the respondents companymenced
construction of an industrial estate on plot number 12
admeasuring 3443 square yards in the year 1973 but due to
the imposing of certain restrictions placed by the state
government on companystruction of industrial estates in greater
bombay the activity of companystruction of industrial estates
on the said plot came to a standstill pending relaxation for
restarting of such companystruction. in 1979-80 the government
allowed such companystruction. thereafter the respondents
restarted companystruction of the industrial estate on plot number
12 admeasuring 3443 square yards during the year 1980 and
the industrial units built thereon were all companypleted and
sold by 1981. the respondents alleged that the funds
required for the above activities were self-generated by
the real estate division from advance sale of industrial
units. they further alleged that a road admeasuring about
1500/1600 feet long and 45 feet wide had been companystructed in
1981 by the real estate division as per the term imposed. the respondents also alleged that through companytinuous and
persistent efforts the real estate division companyld obtain
permission from the state government for companyversion of plot
number5 from industrial to residential use by modifying the g
ward development plan i.e. from general industrial zone to
residential zone on september 19 1981. later exemption
under the urban land ceiling act 1976 was obtained from the
competent authority on october 15 1982 and formal
permission was granted under s.22 of the act for development
of plot number 5 for residential purposes. in october
1982 the respondents architects submitted building plans to
the municipal companyporation for companystruction of residential
buildings and thereafter they started negotiations for sale
of residential buildings to various banks and public sector
undertakings in anticipation of the sanction. upon these facts the respondents filed a petition under
art. 226 of the companystitution in the high companyrt challenging
the companystitutional validity of sub-s. 1  of s.3 of the
textile undertakings  taking over of management  act 1983
as violative of arts. 14 19 1  g  and 300a of the
constitution. they also companytended in the alternative that
the real estate division cannumber be said to be forming part
of the textile undertaking and therefore the taking over of
the real estate division was illegal null and void. by the
judgment under appeal the high companyrt upheld the
constitutional validity of the act insofar as the taking
over of the management of the respondents textile
undertaking by the central government under sub-s. 1  of s.3
of the act was companycerned but held that the real estate
division was number an asset in relation to the textile
undertaking within the meaning of sub-s. 2  of s.3 of the
act. the crucial question that falls for determination is
whether the surplus land appurtenant to the mill was number an
asset in relation to the textile undertaking within the
meaning of sub-s. 2  of s.3 of the textile undertakings
 taking over of management  act 1983. that depends on
whether the so-called business of real estate carried on by
the companypany was separate and distinct from the textile
business. the high companyrt has held that along with the
vesting of the management of the mill in the central
government under sub-s. 1  of s.3 of the act all the assets
and properties etc. of the companypany only relating to the mill
vested in them and that the companypany having by a resolution
passed at the extraordinary general meeting of shareholders
on january 19 1974 authorized the directors to carry on
business of developing companypanys surplus lands and the
companys balancesheets from 1974 onwards having shown the
said industrial estate as current assets of the companypany and
from february 1976 as stock-in-trade of the companypany the
said lands were being treated as distincts assets of the
company. it observed that the existence of the companypanys
real estate division was also
recognised by the letters of the investigation companymittee
appointed by the central government under s.15 a  i  of the
industries  development and regulation  act 1951 informing
the petitioners companypany of the appointment of such a
committee by asking the companypany to furnish particulars as
regards the real estate division. further the report of
the said investigation companymittee made in february 1982 also
dealt with the said real estate division separately. it
has referred to the fact that in 1981 the central excise
authorities had approved for licensing the demarcation of
the mills area being plot number 9  part  as shown in the plan
 annexure k  and that the numberification dated september 19
1981 by the government of maharashtra authorized the change
of user of plot number5 from industrial zone to residential
zone. the high companyrt further observed that it was number
disputed that the petitioners companypany under its memorandum
of association was entitled to carry on amongst others the
business of land development builders dealings in real
estate etc. from the above facts stated the high companyrt has
come to the companyclusion that the respondents companypany in its
own right since 1973-74 had established a real estate
division for doing business in companystruction and sale of
buildings on its land other than the land occupied by the
mill which was distinctly demarcated. therefore the
business carried on by the respondents companypany under the
real estate division was distinct from and unrelated to
the companypanys business of running the textile mill. it
repelled the companytention of the central government that
merely because the respondents companypany as a companydition of
getting loans from financial institutions to rehabilitate
the mill and by making of viable financially it would number
make the said real estate division an asset of the companypany
so as to vest the same in the central government under sub-
s. 2  of s.3 of the act along with the vesting in them of
the mills management under sub-s. 1  thereof. the issue
involved must necessarily trun on the meaning of the words
assets in relation to the textile undertaking appearing in
sub-s. 2  of s.3 of the act. sub-ss.  1  and  2  of s.3 of the act which have a
material bearing on these appeals provide as follows

on and from the appointed day the
management of all the textile undertakings shall
vest in the central government. the textile undertaking shall be deemed to
include all assets rights leaseholds powers
authorities and privileges of the textile companypany
in relation to the said textile undertaking and
all property movable and immovable including
lands buildings workshops projects stores
spares instruments machinery equipment
automobiles and other vehicles and goods under
production or in transit cash balances reserve
fund investments and booklets and all other
rights and interests in or arising out of such
property as were immediately before the appointed
day in the ownership possession power of
control of the textile companypany whether within or
outside india and all books of account registers
and all other documents of what ever nature
relating thereof. in the act textile undertaking as defined in s.2 d  reads

2 d  textile undertaking or the textile
undertaking means an undertaking specified in the
second companyumn of the first schedule. the term textile companypany is also defined in s.2 e  as
2 e  textile companypany means a companypany  being a
company as defined in the companypanies act 1956
specified in the third companyumn of the first
schedule as owning the undertaking specified in
the companyresponding entry in the second companyumn of
that schedule. various companytentions have been raised in these appeals
but on the view that we take it is number necessary for us to
deal with them all. we were also referred to a large number
of decisions on the companytentions so advanced. but we do number
think that they are of any real assistance since these
appeals must turn on the companystruction of the words assets
in relation to the textile undertaking appearing in sub-s.
 2  of s.3 of the act which must take their companyour from the
context in which they are used. in support of these appeals shri milon banerjee
learned additional solicitor-general appearing on behalf of
the union
of india and the national textile companyporation was followed
by ms. indira jaising learned companynsel appearing on behalf
of the maharashtra girni kamgar union representing the
workers of the textile mill. the principal companytention
advanced by the learned companynsel was that the words assets
in relation to the textile undertaking used in sub-s. 2  of
s.3 of the act have a wide legal companynumberation and they must
be companystrued to mean forming part of and number as belonging
to the textile under taking. in essence the companytention is
that the surplus lands were integrally companynected with the
textile business which companyld number be carried on and made
viable except by the sale of the surplus lands. the
submission is that the high companyrt was in error in holding
that the companypany was engaged in the business of property
development. the argument is that the activity of
development and disposal of surplus lands or of companystruction
and sale of industrial galas was for purposes of raising
finance for the textile business and therefore was ancillary
or incidental to the main object with which the companypany was
formed namely of carrying on textile business. reliance
was placed on the application of the main objects rule of
construction namely that where a memorandum of association
expresses the objects of the companypany in a series of
paragraphs and one paragraph or the first two or three
paragraphs embody the main object of the companypany all other
paragraphs are treated as merely ancillary to the main
object and as limited or companytrolled thereby. we were
referred to the various survey reports of the idbi
ahmedabad textile industries research association
investigation companymittee textile companymissioners office and
task force with a view to impress upon us that the viability
of the companypany depended largely on the proper utilization of
the surplus lands. it was companytended that the legislature in
enacting the law clearly had the intention of taking over
the surplus lands of the companypany and the high companyrt should
have interpreted sub-s.  2  of s. 3 of the act in companysonance
with the legislative intent. the companytention to the companytrary put forth by shri
nariman appearing for the respondents companypany is that the
words assets in relation to the textile undertaking in
sub-s.  2  of s.3 of the act must be read in companyjuction with
sub-s.  1  thereof and the other provisions of the act and
therefore must be interpreted to mean forming part of i.e. as belonging to the textile undertaking. it is submitted
that what vests
in the central government under sub-s.  1  of s. 3 of the
act is the management of the textile undertaking. function
of sub-s.  2  thereof is only clarificatory. the learned
counsel referred to different provisions of the act to
stress that the act makes a clear distinction between the
textile undertaking as defined in s. 2 d  and the textile
company as defined in s. 2 e . according to him a mere
perusal of the schedule read with the definition clause
clearly shows that what has been taken over under sub-s.  1
of s. 3 of the act is only the management of the textile
undertaking and everything relating thereto and numberhing
else. the learned companynsel laid particular stress on the
special resolution passed at the extraordinary general
meeting of the shareholders on january 19 1974 whereby the
company accorded its approval and companyferred authority upon
the board of directors of the companypany to carry out the
provisions of sub-cl.  12  of cl. 3 of the memorandum of
association. where was the necessity he asks of the
special resolution as companytemplated by s. 149 2a  of the
companies act unless the shareholders intended and gave
consent to the starting of a new business by the companypany in
real estate ? therefore he companytends that the passing of a
special resolution and filing of the same with the registrar
were necessary companycomitants inasmuch as the business in real
estate which the companypany intended to carry on was a new
business and it was number germane i.e. was unrelated to the
existing business. he then companytends that sub-cl.  12  of cl. 3 read with sub-cl.  37  on its true companystruction excluded
the main objects rule of companystruction so that each of the
objects in the clause was to be read in isolation and number as
ancillary or limited or companytrolled by first few paragraphs
and that on that companystruction sub-cl.  12  was wide enumbergh
to include the real estate division i.e. the project the
company had undertaken from 1974 onwards of development and
sale of surplus lands by companystruction of industrial galas. he tried to draw sustenance from the idbis study of
viability report of the task force and that of the
investigation companymittee and companytends that each of them was
constituted by a body of experts charged with the duty of
making an investigation into the affairs of the companypany. he
submits that all these high-powered bodies accepted the
existence of a separate real estate division of the companypany. in substance the submission is that the business of
development of property and the sale of plots with
industrial galas was an adventure in the nature of trade
which was wholly independent of the textile business and
merely because the companypany was raising finance by selling
industrial galas companystructed on the lands did number
necessarily imply that the lands formed part of the textile
undertaking. we find it difficult to sustain the judgment of the
high companyrt that the so-called real estate division of the
company was a separate or distinct business or that the
surplus lands did number form part of the assets in relation
to the textile undertaking within the meaning of sub-s.  2
of s. 3 of the act. there was in reality numbersuch business
much less any real estate business. the respondents companypany
was borrowing money all the time and the proceeds of the
sale of surplus lands and industrial galas were utilised to
improve the liquidity to pay off the creditors. when the
mill was established way back in 1875 it was located over an
area of about 21 acres admeasuring 105008 square yards
most of which was free-hold and of this the manufacturing
and storage areas pertaining to textile activities occupied
50749 square yards i.e. nearly half of the total area. as a
result of a revised lay-out of the production and storage
facilities the respondents rendered some of the buildings
and plots surplus and the textile mill was located on 40456
square yards. the fundamental question is whether the land is an
asset in relation to the textile undertaking which must
necessarily turn on the interpretation of sub-s.  2  of s. 3
of the act. the test is whether it was held for the benefit
of and utilised for the textile mill. it is quite clear
that there was as such numbersuch separate business carried on
by the companypany in real estate. all the assets including the
surplus lands appurtenant to the mill were assets of the
company held for the benefit of the textile undertaking. at
numberpoint of time was there a segregation of the assets of
the companypany to form the real estate division. the surplus
land which was an asset belonging to the companypanys textile
mill was never bifurcated to form a real estate division. there was numbertransfer of title to the lands and the so-
called real estate division had numbercapital assets of its
own. the companypany was indebted to the tune of rs. 6.80 crores
and the liabilities were being met by sale and development
of lands companystruction of industrial galas and the diversion
of plot number5 from the
industrial zone to the residential zone. the proceeds were
all ploughed back into the textile business to pay off the
debts. there was numberseparate account of the real estate
division and there is really numberhing on record to show that
any separate business in real estate was ever started. the
respondents have laid numberreal foundation on the pleadings to
sustain the finding reached by the high companyrt that the
business of real estate was separate and distinct from the
textile business. there is numberclarity in the pleadings as to
the precise point of time when such a business was ever
started. the question is when did the real estate division
come into existence ? the petitioners aver in para 2 that
w.e.f. the year 1973-74 the companypany also established what
is described as a real estate division. it is averred
in the said division the 1st petitioner carried
on and carries on the business of developing
various plots putting up buildings thereon and
selling the same or portions thereof. the said
activity is totally segregated from the textile
undertaking and is a separate and independent
business of petitioner numberl and it has numberhing to
do with the textile undertaking. while in paragraph 27 it is averred
apart from the 1st petitioners textile
undertaking and the business of manufacturing yarn
and textile the 1st petitioner from 1970 also
carried on the business of real estate. the balance-sheets of the companypany throughout furnish
data for the textile undertaking as a whole and the fact
shows that the so called real estate business was number
separate from the textile undertaking. even the schedule of
fixed assets does number indicate that the alleged real estate
division companyprising of the surplus lands apart from 40456
square yards which number form part of the mill precincts had
been separated. there is numberhing to show that the said lands
were number appurtenant to the textile undertaking or their
integrality was broken. me balance-sheets do number disclose
that the companypany had shown real estate division or the
industrial galas separately in the schedule of fixed assets. this falsifies the respondents
plea that the real estate business was separate and distinct
from the textile undertaking. it is quite clear that the
business of the companypany under the real estate division was a
business belonging or related to the textile undertaking. this is borne out by the fact that before the taking over of
the management by the central government under sub-s.  1  of
s. 3 of the act the respondents companypany as a companydition of
getting loans from financial institutions to rehabilitate
the textile mill mortgaged the lands and also for making it
financially viable brought in additional funds by sale of
the excess lands. sales of the surplus lands or of
industrial galas companystructed thereon did number companystitute an
adventure in the nature of trade but were in substance and
essence utilisation of the capital assets of the companypany for
the purpose of running the textile undertaking. ms. indira jaising appearing for the maharashtra girni
kamgar union has filed before us a detailed and tabular
chart which is rather instructive which clearly
demonstrates that the real estate division was part and
parcel of the textile undertaking. it gives particulars
showing utilisation of the lands belonging to the companypany
for purposes of running the textile business demarcating
the plots as shown in the plan  annexure k  to the writ
petition. prior to the year 1971 there was numbersub-division
of the lands and as such all the assets of the companypany were
held in relation to the textile business. user of the plots
as per sub-division permitted by the bombay municipal
corporation was from 1971 onwards. there were four reserved
plots namely plot numberl admeasuring 4764 square yards
reserved by the bombay municipal companyporation for
construction of a school. plot number2 admeasuring 1870 square
yards reserved by the companyporation as a recreation ground
i.e. to be kept green. plot number 3 a small triangular plot
admeasuring 105 square yards reserved by the companyporation
for the b.e.s.t. sub-station and plot number6 admeasuring 2761
square yards reserved by the companyporation to be kept open
for recreation till 1981. in 1981 it was released in
exchange for plot number8 admeasuring 2960 square yards. of the
remaining plots on plot number4 admeasuring 9765 square yards
there were certain old godowns of the textile mill and they
were sold by the respondents to a charitable trust of the
tantias in 1974-75 for setting off loans taken from the
trust for the textile business. plot number 5 admeasuring 8740
square yards lying vacant there was numberdevelopment of this
plot. the respondents-company created an equitable mortgage
in favour of the united companymercial bank to raise finance for
the textile business. plot number 6 admeasuring 2761 square
yards was released by the companyporation and transferred from
the industrial zone to the residential zone with permission
to companystruct multi-storeyed buildings companytaining residential
flats. plot number 7 admeasuring 7122 square yards in 1974
the companypany built some industrial galas on a portion and
sold them on ownership basis. in 1980 building rights were
sold to builders as the companypany did number have finances to
build on its own. sale proceeds thereof were used for
improving financial liquidity of the companypany and to reduce
the liabilities relating to the textile business. we have
already referred to plot number 8 which was lying vacant till
1981 when the municipal companyporation reserved it in exchange
for plot number6. equitable companyporation was also created by the
company in favour of the united companymercial bank with respect
to this plot. then companyes plot number9 admeasuring 50749 square
yards. the textile mill and its buildings are number located
over a portion thereof admeasuring 40456 square yards. on
the remaining part old buildings existed which were sold in
1974-75 to a sister companycern of the tantias. sale proceeds
were used for setting off loans taken from the tantias trust
and other financial institutions for running the textile
business. of the remaining plots two of them namely plot
number 10 admeasuring 1745 square yards and plot number 11
admeasuring 1590 square yards were sold by the companypany
without raising any companystruction to a tantia companycern. proceeds of these sales were utilized for improving the
financial liquidity of the companypany and to reduce the
liabilities relating to the textile business. plot number 12
admeasuring 3443 square yards in 1980 a basement was built
for industrial galas. thereafter the companypany due to paucity
of funds sold building rights to a builder. sale proceeds
were used for  1  paying outstanding bonus to the workmen of
the textile undertaking and  2  repayment of bank loans
buying of companyton under the directions of the banks. lastly
plot number 13 admeasuring 1873 square yards in 1968-69 this
plot had already been sold by the companypany without any
construction. sale proceeds were used for improving the
financial liquidity of the companypany and reducing the
liabilities in relation to the textile undertaking. the
tabular chart gives a graphic picture of the transactions
effected by the companypany in respect of the surplus lands by
building industrial galas thereon or otherwise. they bring
out the existence of inter-connection inter-lacing inter-
dependence and unity between the transactions of the
respondents companypany relating to the surplus lands and the
structures built thereon as well as the textile business
carried on by it. sales of surplus lands in such
circumstances we are inclined to think are numbermore than a
realisation of capital or companyversion of one form of it into
anumberher. it was in reality a scheme for companyversion of
capital. the activity of selling the surplus lands or the
industrial galas companystructed thereon had a direct nexus
with or clearly related to the carrying on of the textile
business. falsity of the respondents claim that the business of
the real estate division was separate and distinct from the
textile business and therefore the surplus lands which
constituted the real estate division were number an asset in
relation to the textile undertaking within the meaning of
sub-s.  2  of s.3 of the act is clearly borne out from the
balance-sheets of the companypany. before dealing with the
balance sheets we think it proper to set out the relevant
portion of the numbere on real estate division submitted by the
petitioners which reads
the textile unit was one of the businesses of
petitioner number1 real estate being anumberher
business. in order to strangthen the business of
textile unit it was necessary to obtain loans
from financial institutions and banks. the
petitioner number1 created security on plot number. 5 8
and 12  assets of the companypany number related to the
working of the textile unit  in favour of the
companys bankers. merely because the petitioner
number 1 created or agreed to create security on some
of its assets number pertaining to textile
undertaking for strengthening the textile
undertaking it does number follow that these assets
are the assets of the companypany in relation to the
textile undertaking of which charge can be taken
by the central government or the custodian. shri

l. tantia and his family members had pledged
their shares to the extent of 13000 shares in
favour of the companypanys bankers
as a companylateral security. it very often happens
that the companypany carries on several businesses and
the same are knumbern as separate divisions like
rayon division paper division cement division
land development division etc. merely because the
petitioner number 1 utilised or offers to utilise the
assets of anumberher division as security for loans
etc. for strengthening the textile unit the
identity of the real estate division or its
separate assets is number destroyed. factual material
in respet of the equitable mortgage created in
this companytext is set out in paragraph 17 b  of the
affidavit in rejoinder  page 299-300 . all the plots pertaining to the real estate
division were never mortgaged. even plot number 12
which was mortgaged along with plot number. 5 and 8
in 1978 for obtaining a temporary loan of rs. 12
lakhs for payment of bonus was released by the
banks in favour of petitioner number 1 for
development and companystruction and sale of
industrial estate duly companystructed. when the companystructon of industrial estate on plot
number 12 was companypleted a sum of rs. 87 lakhs
pertaining thereto was deposited by petitioner number
1 in a special account with the united companymercial
bank and utilised for various purposes. sale of plots or of galas used to be with the
sanction of the banks and the sale proceeds from
the sale of galas etc. were deposited with the
banks and fairly dealt with. it is respectfully submitted that the
supplementary survey report  annexure ii b   as
well as paragraph 5 of the investigation companymittee
report supports the case of the petitioner number 1
to the effect that real estate division has
functioned for more than a decade. merely because funds generated from the sale of
galas were utilised for strengthening the textile
unit which also belong to the same companypany it
cannumber be inferred that the real estate division
did number function as a separate unit after
segregation of different plots and particularly
the mill itself  factory area .  emphasis supplied
in this numbere the assertion that the textile unit was
one of the businesses of the companypany a business in real
estate being anumberher proceeds on the hypothesis that a
company may carry on several businesses. upon this basis
the respondents seek to assert that merely because the
respondents companypany secured loans by way of equitable
mortgage in respect of some of the plots for financing the
textile business it does number follow that the surplus lands
were the assets of the companypany in relation to the textile
undertaking. we have already dealt with different
transactions entered into by the companypany with respect to the
surplus lands in the preceding paragraph and it is clear
enumbergh they are number separable from but were integrally
connected with the running of the textile undertaking. it is
undisputed that the predominant object with which the
company was formed was to carry on business in textiles
alone and the surplus lands were undoubtedly an asset of the
company held in relation to the textile business. furthermor
e the respondents case that the textile business of real
estate division was separate and distinct from the textile
business stands belied by the balance-sheets of the companypany. the respondents case is that the real estate division was
started during the year 1973-74 when monies were received
from various buyers of industrial galas against advance
sales of such galas built on plot number7. in the relevant
accounting year the companypany made profits of rs. 39.25 lakhs
which were solely attributable to the textile undertaking. the prior mortgage in favour of the national industrial
development companyporation was redeemed and the outstanding
balance of rs. 2375 lakhs paid off during the year. in the
directors report in that year it is stated that a sum of
rs. 353423 had been received from the various buyers
against the sale of the multi-storeyed galas in the
industrial estate that the companypany was bringing up and that
this would improve the companypanys financial liquidity and
also help to reduce its liabilities. in the schedule of
fixed assets attached to and forming part
of the balance-sheet for the year under the heading current
sets the following entry appears

current assets
 i
 ii
 iii

industrial galas under companystruction
 at companyt  rs. 869776.
in the numberes of account a sum of rs. 862675 is shown
as a receipt towards advance sale of galas under
construction in the industrial estate being companystructed by
the companypany within the mill precincts. similar are entries
in the balance-sheets for the relevant years being the
financial years 1974-75 to 1979-80. in the balance-sheets
for all these years the companypany appears to have opened a
separate account under the heading industrial galas under
construction account and shown them under the heading
current assets. in the numberes of account it is stated that
the profit on the sale of galas would be accounted for after
completion of the industrial estate and handing over all the
galas to the proposed society. numberuseful purpose would be
served in referring to the entries appearing in the several
years in question except to touch upon one or two entries. in the directors report for the year ended march 31 1975
there is a receipt shown of rs. 49 lakhs on capital account
towards sale of surplus lands together with the structures
built thereon i.e. sale of the tenanted buildings in excess
of the requirement of the textile undertaking. in the
balance-sheet for the year 1975-76 the amount of rs. 3076849 spent on companystruction of the industrial galas had
been debited to industrial galas under companystruction
account and shown as stock-in-trade of the companypany. in the
accounting year the companypany created an equitable mortgage
in favour of the united companymercial bank of plot number 9
admeasuring 40456 square yards on which the textile mill is
situate by deposit of title-deeds by way of companylateral
security and this fact was intimated to the registrar of
companies along with a plan demarcating the boundaries of
the textile undertaking. similar entries appear in the
subsequent years. it goes on like this from year to year. numberhing really turns on the aforesaid entries in the
balance-sheets. such entries in the books of account of a
business companycern following the mercantile system are usually
made for accounting purposes. the balance-sheets and the
profit and loss accounts instead of substantiating the
respondents claim that the business in real estate was
separate and distinct from the textile business are rather
destructive of it. the opening of a separate account under
the heading industrial galas under companystruction account is
of little significance. numbere of the balance-sheets of the
company number the profit and loss accounts make any mention of
the so-called real estate division. even the schedules
relating to the fixed assets in the balance-sheets of the
company make numberdistinction between land belonging to the
textile undertaking and land belonging to the real estate
division. they clearly demonstrate that the companypany had at
numbertime purchased any land for dealing in real estate. it
was merely disposing of its surplus lands belonging to the
textile undertaking with the avowed object of ploughing back
money into the textile undertaking. the balance-sheets for
the years 1973-74 onwards do number show that at any point of
time there was any segregation or bifurcation of the assets
of the companypany or of the textile undertaking with a view to
form the real estate division number was there any
transference of title to the lands. the so-called real
estate division had numbercapital assets of its own at all. the
company in its balance-sheets and profit and loss accounts
gave data for the textile undertaking as a whole and as
already stated even the schedule of fixed assets does number
indicate the alleged real estate division. the proceeds of
sale of surplus lands or industrial galas companystructed
thereon or of loans incurred by mortgaging the plots were
utilized for improving the financial liquidity of the
company and reducing the liabilities relating to the textile
business. from the balance-sheets and profit and loss
accounts the companyclusion is irresistible that the surplus
lands belonging to the companypany were held in relation to the
textile undertaking within the meaning of sub-s.  2  of s.3
of the act. we find it difficult to sustain the companyclusion or
reasoning of the high companyrt. the high companyrt failed to
appreciate that it was dealing with an act of parliament
providing for taking over in public interest of management
of
the textile mills specified in the second companyumn of the
first schedule pending nationalisation of such textile
undertakings and for matters companynected therewith and
incidental thereto. the legislation was clearly in
furtherance of the directive principles of state policy in
art. 39 b  and  c  of the companystitution. in interpreting such
a piece of legislation the companyrts cannumber adopt a doctrinaire
or pedantic approach. it is a well-knumbern rule of
construction that in dealing with such a beneficent piece of
legislation the companyrts ought to adopt a companystruction which
would subserve and carry out the purpose and object of the
act rather than defeat it. the high companyrt companypletely ignumbered
the fact that all the assets of the companypany were held in
relation to the textile business. the companypany acquired all
its real estate in the 19th century when it was formed for
carrying on textile business and admittedly numbernew assets
had been acquired by it thereafter. this is borne out by the
fact that the disposal of surplus lands was with the sole
and avowed intention of ploughing back the money to improve
the financial liquidity of the companypany and to reduce the
liabilities relating to the textile business. in the absence
of the surplus lands numberloans companyld have been raised for the
purpose of running the textile undertaking and as such they
were and are an integral part of the textile undertaking. we regret to find that the high companyrt in companying to the
conclusion that it did has also overlooked the reports of
the several high-powered companymittees companystituted by the
central government from time to time which stressed that the
potential viability of the textile undertaking depended to a
large extent on the proper utilization of the lands
belonging to the textile undertaking and also the fact that
the companypany had in the past been misutilising its real
estate. in particular the investigation companymittees report
highlighted that the disposal of the surplus lands had been
misused by the companypany and that it was to the detriment of
the companypanys textile undertaking implying thereby that the
proper utilisation of the assets would make the textile
undertaking viable. the viability study of the idbi clearly
brings out that the textile undertaking companyld only be made
viable by the disposal of the surplus lands. further the
report of the task force submitted to the econumberic affairs
committee of the union cabinet classified the companypanys
textile undertaking under group ii i.e. mills which will be
viable with the sale of sruplus lands. the legislature in
enacting the law for the taking
over of the management of the textile undertakings therefore
clearly had the intention of taking over the surplus lands
of the companypany. in our opinion the high companyrt ought to have
interpreted sub-s. 2  of s.3 of the act in the companytext of
sub-s. 1  thereof and the other provisions of the act in
consonance with the intention of the legislature. it was the
intention of the legislature to take over all the assets
belonging to the companypany held in relation to the textile
undertaking. me numbere attached to the report of the task
force includes the total lands belonging to the respondents
company for the purpose of determining the value of the
assets of the companypany and does number exclude the real estate
division. even for determining the total companypensation to be
paid on nationalisation the task force takes into account
the total surplus lands of the companypany and does number exclude
any land belonging to the so-called real estate division. the viability study of the idbi also heavily relied on the
surplus lands held by the respondents companypany. in the premises the high companyrt has manifestly erred in
holding that the said real estate division was separate and
distinct from the textile undertaking. surplus lands of the
textile mills taken over under sub-s. l  of s.3 of the act
are but a vital physical resource capable of generating and
sustaining econumberic growth of the textile mills. there can
be numberdoubt that the legislative intent and object of the
impugned act was to secure the socialisation of such surplus
lands with a view to sustain the sick textile undertakings
so that they companyld be properly utilised by the government
for social good i.e. in resuscitating the dying textile
under takings. hence a paradoxical situation should have
been avoided by adding a narrow and pedantic companystruction of
a provision like sub-s. 2  of s.3 of the act which provides
for the companysequences that ensue upon the taking over in
public interest of the management of a textile undertaking
under sub-s. l  thereof as a step towards nationalisation of
such undertakings which was clearly against the national
interest. in dealing with similar legislation this companyrt
has always adopted a broad and liberal approach. in new
satgram engineering works anr. v. union of india ors. 1981 1 s.c.r. 406 in repelling the companytention that the
engineering unit together with the shethia bhawan and all
its assets built on a plot adjacent to the new satgram companyl
mines in 1964 the
technical directors bungalow built on a plot outside the a
mining area somewhere in 1957-58 and anumberher building on the
same plot of land namely the guest house used for the
residence of the officers and staff of the mines were number
assets falling within the definition of mine defined in
s.2 h  vi   vii  and  xi  of the companyl mines
 nationalisation  act 1973 the companyrt had occasion to
observe
it will be seen that there is a difference in the
language used in s.2 h  vii  and  xi . sub-clause

uses the words in or adjacent to a mine
and used substantially for the purposes of the
mine or a number of mines under the same
management in relation to workshops. the use of
the word and makes both the companyditions
conjunctive. sub-clause  xi  uses the words if
solely used for the location of the management
sale or liaison offices or for the residence
officers and staff of the mine in relation to
lands and buildings. the differences in language
between the two expressions used substantially
and solely used is obvious. it is therefore
possible to companytend that lands and buildings
appurtenant to a companyl mine if number exclusively
used for purposes of the companyliery business would
number companye within the definition of mine in s.2 h
i.e. it would depend upon the nature of user and
that the crucial date is the date of vesting. we
are inclined to think that the distinction though
apparent may number be real in the facts and
circumstances of a particular case. a workshop or
a building companystructed initially for the purpose
of a companyl mine cannumber by its being diverted to
other purposes cease to belong to the mine. what
is of the essence is whether the workshop or the
building originally formed a part and parcel of
the companyl mine. the subsequent user may number in our
opinion be very material. to illustrate a
workshop which has companye into existence for and
because of the mine but which also companyes to be
used for purposes other than of the mine does number
on that account alone cease to be a workshop used
substantially for the purposes of the mine. again
a building which is
used to accommodate some other companycern because of
the availability of space does number on that account
alone cease to be solely used for locating the
management offices of the mine.  emphasis supplied
it was then observed
by reason of sub-s. 1  of s.3 of the act the
right title and interest of the owners in
relation to the companyl mines specified in the
schedule stand transferred to and vest absolutely
in the central government free from all
encumbrances. parliament instead of providing that
the word mine shall have the meaning assigned to
it in the mines act 1952 has given an enlarged
definition of mine in s.2 h  so that number merely
the companyliery but everything companynected with the
mining industry should vest in the central
government i.e. number only that part of the
industry which companysisted of raising winning and
getting companyl but also that part of it which
consisted in the sale of companyl and its supply to
customers both of which are a part of an
integrated activity. mis is manifested by sub-
clauses  i  to  xii  of clause  h  of s.2 i.e. all the assets belonging to a mine vest in the
central government.  emphasis supplied
again in union of india v. united companyliories limited ors. 1985 1 s.c.c. 305 a similar question arose. me question
was whether or number a staff car belonging to the united
colliery limited the owners in relation to a mine and being
the staff car of the technical advisor of the numberth
chirimiri companylieries was an asset belonging to the mine
within the meaning of s.2 h  xii  of the nationalisation
act. me high companyrt held that the question as to whether the
staff car should be treated as belonging to the owners of a
mine as part of the mine itself raised disputed questions of
fact relating to its user which would have to be determined
on the basis of evidence purporting to rely upon the
aforesaid decision of this companyrt in new satgram engineering
works case and
therefore relegated the parties to have the matter settled
by a a civil suit. allowing the appeal this companyrt held that
the decision in new satgram engineering works case was
clearly distinguishable. it then went on to say that
parliament by an enlarged definition of mine in s.2 h  of
the act had indicated the nature of the properties that vest
and the question whether a particular asset is taken within
the sweep of s.2 h  depends on whether it answers the
description given therein and added
the staff car in question was undoubtedly a fixed
asset of the numberth chirimiri companylieries and it
belonged to respondent 1 the united companylieries
ltd. the owners in relation to the said mine. being the staff car of the technical advisor it
was a fixed asset belonging to the mine. it is
rightly number suggested that the staff car was number a
fixed asset. fixed assets in general companyprise
those assets which are held for the purpose of
conducting a business in companytradistinction to
those assets which the proprietor holds for the
purpose of companyverting into cash and they include
real estate building machinery etc. words and
phrases permanent edition vol. 17 p. 161
blacks law dictionary 5th edition p. 573
strouds judicial dictionary 4th edn. vol.l
p.20l. the staff car therefore fell within the
definition of mine as companytained in section
2 h  xii  and vested in the central government
under sub-section  1  of section 3 of the companyl
mines  nationalisation  act 1973. merely because
the technical advisor was putting the staff car to
his personal use or for multifarious activities of
the thaper group of industries would number alter the
true legal position since the subsequent user for
a different purpose was number really germane. that precisely is the question here. we have numberdoubt in our
mind that the words assets in relation to the textile
undertaking used in sub-s. 2  of s.3 of the act have a very
wide companynumberation. function of sub-s. 2  of s.3 of the act is
to amplify and define as to what is taken within the sweep
of the term textile undertaking as defined in s.2 d
which
says that the expression textile undertaking shall be
deemed to include all assets rights leaseholds powers
authorities and privileges of the textile companypany in
relation to the said textile undertaking. it does number stop
at that but goes on to say that this would also include
lands buildings workshops projects stores spares
instruments machinery equipment automobiles and other
vehicles goods under production and in transit cash
balances reserve funds investments and booklets and all
other rights and interests in and arising out of such
property as were before the appointed day in the ownership
possession power or companytrol of the textile companypany whether
within or outside india. it further includes all books of
accounts registers and all other documents of whatever
nature relating thereto. the companyclusion is therefore
inescapable that all the assets of the companypany held in
relation to the textile undertaking including the surplus
lands appurtenant thereto vest in the central government by
reason of sub-s. 2  of s.3 of the act. upon that view it is number necessary for us to deal with
the other companytentions namely the applicability of the
main objects rule of companystruction or as to the purport and
effect of the special resolution passed by the companypany as
contemplated by s. 149 2a  of the companypanies act 1956 or the
tests laid down under the income tax acts of 1922 and 1961
for determining whether a certain receipt realized by an
assessee was merely a realization or change of capital
assets or was profit realized from an adventure in the
nature of trade and was therefore business as defined in
s.2 4  of the income tax act 1922 and s.2 13  of the income
tax act 1961 or whether two lines of business companystitute
the same business under s.24 2  of the income tax act
1922 or were separate business. we do number think that any
useful purpose would be served in referring to the large
number of decisions turning upon these questions number to
decisions arising under the industrial disputes act 1947 on
whether the several under takings carried on by the same
company are separate or number which necessarily turns on the
question whether they are distinct or inter-dependent. here
we are companycerned with the meaning of the words assets in
relation to the textile under taking appearing in sub-s. 2
of s.3 of the act which must be companystrued in a generic sense
looking to the companytext in which they are used. the companyrt has
to interpret these words keeping
in view that they occur in a legislation which provides for
a the taking over of management of a textile undertaking
under sub-s. l  thereof pending nationalisation of such
textile undertaking and matters incidental or companynected
therewith.