SEN - (1.) THESE appeals on certificate directed against the judgment and order of the Bombay High Court dated 13/06/1983 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 Constitution filed by Messrs Shree Sitaram Mills Limited, Bombay (for short 'the petitioners') while upholding the constitutional 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 not 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 Company 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.
(2.) IN order to appreciate the nature of the controversy, it is necessary to state a few facts. The mill now known 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 comprised of 1,05,008 square yards which undoubtedly was an asset of the textile undertaking, although the actual mill precincts were spread over 50,749 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 Company's share capital comprised 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 Corporation. During the 60s, the Company's 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 Company 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 not in a state of good repairs. The Company had not 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 Company made profits which were attributable to its textile undertaking. Due to, unprecedented floods in 1914 and various other factors, the financial condition of the Company became precarious. As is reflected from its balance-sheets, the Company had been making continuous losses at an increasing rate from the year 1974-75 onwards. Even though the years 1978-79 and 1979-80 were comparatively good for the textile industry, the Company continued, 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 Company Limited, a sister concern of the Tantias, from 1977 to provide financial support to the mill but it was not 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 Company was not able to attract competent talent for managing its affairs. As a cumulative effect of all these factors, the Company continued 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 plumped at a concessional rate, the company would take 20 years to wipe out its liabilities." As is revealed from Company's balance-sheets, since last more than seven years before the taking over, the net worth of the Company had been in the negative. In the year 1978-79 the net worth 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 net worth had not only been negative but the negative factor had been increasing at a rapid rate over the years. There was also loss in the Profit and Loss Account. The mill not 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 country, the Company's losses were to the tune of Rs. 2.80 crores. The balance in the Profit and Loss Account is reflected as follows : JUDGEMENT_117_SUPP1_1986Html1.htm As a result of this, the Company resorted to borrowings far in excess of its limits, the amount drawn on 30/06/1983 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 Company's 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 concessional rates for its resuscitation. There were accumulated losses of the order of over Rs. 1. 10 crores in the year ended 31/03/1980 and accumulated losses to the tune of Rs. 91 lakhs as on 31/03/1981. The secured loans outstanding to the Company's bankers as on 31/03/1980 were of the order of Rs. 2.80 crores which increased to Rs. 3.64 crores by 31/03/1981. The current liabilities which stood at Rs. 3.08 crores by the end of 31/03/1980 rose to Rs. 4.70 crores at the end of 31/03/1981.
(3.) ALL this clearly shows that the financial condition of the Company even before this general strike was grave. The fact that the Company's affairs were being mismanaged was evidenced by the mounting arrears of workers' dues to the staggering figure of Rs. 77 lakhs as on 18/10/1983 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 Company received fresh financial assistance from IDBI, Maharashtra State Financial Corporation and other financial institutions aggregating to over Rs. 47 lakhs. As already stated, the annual statements of accounts for the year ended 3/03/1980 and Ma 3/03/1981 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 could not 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 economy 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 commodity the production of which makes the country 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 economy and the Government of India has always been conscious 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 18/01/1982. 6A. 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 commencement of the said textile strike, the financial position of the various textile mills in Bombay was not uniformly good. Whereas there were several mills which were in sound or excellent financial condition, there were other textile mills whose financial condition even prior to the strike was not satisfactory. The main reason why certain mills were not in a satisfactory financial condition 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 not in a sound financial condition as the others. As the overall economic factors applicable to all textile mills in Greater Bombay were broadly and generally comparable, the weaker position of the mills in question was attributable to mismanagement. ;