The application presented by Chiranjit Lal Chowdhuri under Article 32 of the Constitution of India in the landmark case of Chiranjit Lal Chowdhuri vs Union of India.
He is a shareholder in Sholapur Spinning and Weaving Company Limited (Company) having a registered office in the State of Bombay and governed by the provisions of the Indian Companies Act.
The petitioner Chiranjit Lal Chowdhuri is the holder of three ordinary shares and eight preference shares which are pledged in the name of the Bank of Baroda.
In the present case, the petitioner asked for granting a writ of mandamus and other relief under Article 32 of the constitution. This appeal is filed by shareholders of the company challenging Sholapur Spinning and Weaving company LTD.
On 9th January 1950 government passed the ordinance empowering the government of India to take over the control and management of the company and its properties. For the above said purpose government can appoint its own directors and can delegate all or any power to the provincial government.
On 10 April 1950, the petitioner Chiranjit Lal Chowdhuri complained that the impinged act violated his three fundamental rights given in Article 14, Article 31, and Article 19 of the constitution.
He further said the interference of the government in the working of a company is unauthorized and illegal. The petitioner prayed for a writ of mandamus against both the GOI and provincial government. The company was also made respondent in this appeal rejections the arguments of the petitioner.
This act provided power to directors to manage the business of the company and was given powers to raise funds offering such security as they think fit, to carry out necessary repairs to the machinery or other property in their custody and to employ the necessary persons and define the necessary conditions of their service.
The right of the shareholders to see the management of the company was taken away, the business was conducted against their will and maybe against their advantage.
According to the government, all this was done to keep up the production of essential commodities and to avert serious unemployment amongst a certain section of the community.
Arguments advanced by the petitioner Chiranjit Lal Chowdhuri
Petitioner Chiranjit Lal Chowdhuri argued that the said act is only applied to his company and not other companies involved in the same business, this act amounts to a denial of equal protection guaranteed under Article 14 of the constitution.
The act was also challenged on the ground that it is violative of Article 19 of the constitution because it restricts the rights of shareholders. They also violate Article 31 because it takes away their property without compensation. Provisions of the act deprive the company and shareholders of their property.
Legislation is beyond the legislative competence of the parliament and is not covered by the central list.
Judgment of the case Chiranjit lal chowdhuri vs Union of India
Five judge bench headed by Chief justice was constituted to deliver the judgment. Majority judgement was given by Chief Justice KANIA, FAZL ALI, and MUKHERJEA JJ while Patanjali Sastri and Das JJ gave the dissenting judgement.
It was held that the act made by the government does not amount to the acquisition of property from shareholders and companies.
The court on the issue of possession of property guaranteed under Article 31, held that the said act has not dispossessed the petitioner Chiranjit Lal Chowdhuri from holding his property.
The court while deciding on this point said that the petitioner is still entitled to enjoy income from shares which he held, he is only disallowed to vote to appoint directors and participate in the management of the company.
The court declared that the act is not violating Article19(1)f of the constitution. Court held the shares which he holds do remain his property and his right to dispose of them is not lettered in any way.
The pecuniary benefit, which a shareholder derives from the shares he holds, is the dividend and there is no limitation on the petitioner’s right in this respect.
Court further said, “The rights or privileges which are appurtenant to or flow from the ownership of property, but by themselves and taken independently, they cannot be reckoned as property capable of being acquired, held or disposed of as is contemplated by Article 19(1)(f) of the Constitution.”
In so far as the petitioner’s rights as a shareholder were curtailed he was entitled to apply for relief under Article 30, in his own right on the ground that the Act denied to him the equal protection of the laws and therefore contravened Article14 even though the other shareholders did not join him in the application.
On the issue relating to violation of Article 14 the appeal was dismissed, views taken by the court while deciding this are as under.
- There can certainly be a law applying to one person or to one group of persons and it cannot be held to be unconstitutional if it is not discriminatory in its character.
- It would be bad law “if it arbitrarily selects one individual or a class of individuals, one corporation or a class of corporations and visits a penalty upon them, which is not imposed upon others guilty of like delinquency.
- The legislature has a wide field of choice in determining and classifying the subject of its laws, and if the law deals alike with all of a certain class, it is normally not obnoxious to the charge of denial of equal protection; but the classification should never be arbitrary. It must always rest upon some real and substantial distinction bearing a reasonable and just relation to the things in respect to which the classification is made, and classification made without any substantial basis should be regarded as invalid.
On the question related to acquisition and possession of the property, it was held, since there is no change in the ownership of the property it cannot be said to deprive of property.
The arguments advanced by the petitioner Chiranjit Lal Chowdhuri challenging the validity of the act on articles 19 and 31 stands fail. It was also said that the element of compensation comes only in cases of deprivation of property done through compulsory acquisition or possession of the property.
The fundamental right of the company was infringed because the company has no say in the appointment of servants or agents. This shows that the possession of the company was taken by the government from a company.
The contention of the respondent said that “This shows that the possession of the company was taken by the government from the company. A shareholder cannot appeal on behalf of the company.”
Both Patanjali and Das justice said in their judgment that singling out of one company is nothing but an “actually and palpably unreasonable and arbitrary” action.
On the challenge related to Article 31 and Article 19(1)(f), all the judges delivered the same judgement. Dissenting judgment was delivered on Article 14 of the constitution, but the appeal was dismissed because the majority did not hold it violative of Article 14 of the constitution.