Ram Krishna Dalmia v. Justice S.R. Tendolkar

In 1956 the Central Government set up a Commission of Inquiry into companies promoted or controlled by Ram Krishna Dalmia and his associates. They said they were singled out for hostile treatment. The Supreme Court upheld the inquiry, restated the two conditions of valid reasonable classification under Article 14, and struck out only a few words of the notification.

Quick Revision

Parties

• Shri Ram Krishna Dalmia — appellant in Civil Appeal No. 455 of 1957 and respondent in No. 656. He was the petitioner in Miscellaneous Application No. 48 of 1957 in the Bombay High Court.
• Shri Shriyans Prasad Jain and Shri Sital Prasad Jain — appellants in Civil Appeal No. 456 of 1957. They were the petitioners in Miscellaneous Application No. 49 of 1957.
• Shri Jai Dayal Dalmia and Shri Shanti Prasad Jain — appellants in Civil Appeal No. 457 of 1957. They were the petitioners in Miscellaneous Application No. 50 of 1957.
• Shri Justice S.R. Tendolkar and others — respondents in the first three appeals. Justice Tendolkar, a Bombay High Court Judge, was Chairman of the Commission. The source calls the Union respondent No. 4.
• Union of India — respondent in Civil Appeals Nos. 455 to 457 and appellant in Civil Appeals Nos. 656 to 658 of 1957. It issued the notification.
• Das C.J. — delivered the judgment of the Court. The bench also had Aiyyar, Sinha, S.K. Das and Sarkar JJ. There are no separate opinions.

Procedural History

1. The Commissions of Inquiry Act, 1952 (LX of 1952) received the President's assent on 14 August 1952. The Central Government brought it into force by a notification under section 1(3).
2. On 11 December 1956 the Central Government issued notification S.R.O. 2993. It appointed the Commission under section 3.
3. On 9 January 1957 a second notification applied sub-sections (2), (3), (4) and (5) of section 5 to the Commission.
4. On 11 February 1957 a third notification fixed two years from that date for the Commission to exercise its functions and report.
5. On 12 February 1957 the petitioners filed three Miscellaneous Applications under Article 226. They challenged the Act and the notification and asked for a writ or order quashing it.
6. On 29 April 1957 a Division Bench of the Bombay High Court gave one judgment on Miscellaneous Applications Nos. 48 to 50 of 1957. Rules had been issued and the Union of India had shown cause.
7. The High Court discharged the rules and dismissed the applications. It held the notification legal and valid except the last part of clause (10), from the words and the action to in future cases. It directed the Commission not to proceed with that part.
8. The petitioners filed Civil Appeals Nos. 455, 456 and 457 of 1957. The Union of India filed Civil Appeals Nos. 656, 657 and 658 of 1957 against the part of the order that struck down the last part of clause (10).
9. The Supreme Court decided all six appeals together on 28 March 1958.

Facts

1. The Commissions of Inquiry Act, 1952 allows the appropriate Government to appoint a Commission of Inquiry. The Commission inquires into a definite matter of public importance.
2. Under section 4 the Commission has the powers of a civil court trying a suit under the Code of Civil Procedure. These cover summoning witnesses and examining them on oath, discovery and production of documents, evidence on affidavits and requisitioning public records. They also cover commissions to examine witnesses and any other prescribed matter.
3. Section 5 lets the Government confer more powers by notification. Section 6 says a statement made before the Commission cannot be used against the person in any civil or criminal proceeding. The exception is a prosecution for false evidence. The statement must answer a question the Commission required, or be relevant to the inquiry.
4. Section 7 lets the Government end the Commission by notification. Section 8 lets the Commission regulate its own procedure. Section 9 gives indemnity for things done in good faith.
5. On 11 December 1956 the Central Government issued S.R.O. 2993 from the Ministry of Finance (Department of Economic Affairs).
6. The notification recited five matters made to appear to the Government:
   • A large number of companies and some firms were promoted or controlled by Ramakrishna Dalmia, Jaidayal Dalmia, Shanti Prasad Jain, Sriyans Prasad Jain and Shital Prasad Jain, or some of them, with relatives, employees and others close to them.
   • The investing public subscribed large amounts in the shares of some of these companies.
   • There were gross irregularities, which might amount to illegalities, in management. These included manipulation of accounts and unjustified transfers and use of funds and assets.
   • The money subscribed was largely used against the companies' interests and for the personal benefit of those in control or management.
   • The investing public suffered considerable losses as a result.
7. The Government said a full inquiry was needed into these matters of definite public importance. It cited the grave consequences to the investing public and the need to decide measures to prevent a recurrence.
8. It appointed Justice S.R. Tendolkar, a Bombay High Court Judge, as Chairman. The members were N.R. Modi of A.F. Ferguson & Co., Chartered Accountants, and S.C. Chaudhuri, Commissioner of Income-tax.
9. The notification set eleven heads of inquiry:
   • (1) The administration of the affairs of the companies in the Schedule.
   • (2) The affairs of other companies and firms the Commission finds to be connected with them.
   • (3) The nature and extent of control over such companies by the named persons, their relatives, employees and connected persons.
   • (4) The total subscription from the public, the amount subscribed by the named persons, and how far funds were misused, misapplied or misappropriated.
   • (5) The extent and nature of investments, loans, use of funds and assets, and transfers of funds between the companies.
   • (6) The results of those investments, loans, transfers and uses.
   • (7) The reasons or motives for them, whether they were justified and whether they were made in good faith in the companies' interests.
   • (8) The losses suffered by the investing public, how far they were avoidable, and what steps those in control took to avoid them.
   • (9) The personal gains made by any person or group, named or not, through connection with or control over the companies.
   • (10) Irregularities, frauds, breaches of trust, action against honest commercial practice, or breach of any law that came to the Commission's knowledge. Breaches with criminal proceedings pending in court were excepted. The clause then asked for the action the Commission thought should be taken. This was to be as and by way of securing redress or punishment, or to act as a preventive in future cases.
   • (11) The measures needed to ensure proper administration of funds and assets of companies and firms in future.
10. The Schedule named nine companies:
    • Dalmia Jain Airways Ltd.
    • Dalmia Jain Aviation Ltd. (now Asia Udyog Ltd.)
    • Lahore Electric Supply Company Ltd. (now South Asia Industries Ltd.)
    • Sir Shapurji Broacha Mills Ltd.
    • Madhowji Dharamsi Manufacturing Company Ltd.
    • Allen Berry and Co. Ltd.
    • Bharat Union Agencies Ltd.
    • Dalmia Cement and Paper Marketing Company Ltd. (now Delhi Glass Works Ltd.)
    • Vastra Vyavasaya Ltd.
11. The notification did not fix a time for the Commission to finish its inquiry and report.
12. On 9 January 1957 the Government applied sub-sections (2) to (5) of section 5 to the Commission. On 11 February 1957 it fixed two years from that date for the functions and the report.
13. The petitioners say a Bombay solicitor, Shri Tricumdas Dwarkadas, was appointed an officer on Special Duty in March 1946 to indicate lines for revising the Indian Companies Act. His report was incomplete.
14. The Government then appointed Shri Thiruvenkatachari, Advocate-General of Madras, to inquire further. On his report a memorandum of tentative proposals was circulated to organisations.
15. On 28 October 1950 the Indian Company Law Committee, known as the Bhaba Committee, was appointed. It collected materials and made a comprehensive report. The Indian Companies Act was recently remodelled on that report.
16. The Bombay Shareholders' Association filed a memorandum before the Bhaba Committee. The petitioners say it made the same or similar allegations against other businessmen and their companies.
17. The Union relied on affidavits by H.M. Patel, Principal Secretary to the Finance Ministry. They set out the background to the notification and refer to several reports.
18. The Central Government had appointed investigators to scrutinise the affairs of three of the petitioners' concerns. They had reported to the Government. The Government also had the Bhaba Committee Report and all the Memoranda filed before it.
19. The petitioners in Civil Appeals Nos. 456 and 457 said by affidavit that none of them promoted or managed any of the companies.

Issues Raised

1. Did the notification go beyond section 3 of the Act, since the conduct of an individual person or company cannot be a definite matter of public importance?
2. Was the Act beyond Parliament's competence under Article 246, read with Entry 94 of List I and Entry 45 of List III? The petitioners said these entries allow only an inquiry for future legislation.
3. Did Parliament or the Government usurp the functions of the judiciary by authorising or appointing this Commission?
4. Can a Commission be asked to suggest measures, or to recommend action to secure redress or punishment?
5. If the words about redress or punishment are invalid, can they be severed from the notification?
6. Does the Act offend Article 14, because it gives the Government arbitrary and uncontrolled power to select who is inquired into?
7. Did the Government fail to follow the policy of the Act in the notification? The petitioners said it singled them out for hostile and discriminatory treatment when there was no definite matter of public importance.
8. May the Court look at affidavits and other material outside the notification to find the basis of classification?
9. Is the notification bad because it was made in bad faith (mala fide) and amounted to abuse of power?
10. Is the original notification defective because it fixed no time, and could the later notification fixing a time cure that?
11. Is the notification bad as a delegation of essential legislative function, or because it violates Article 23?

Arguments Contended

For the appellants (the petitioners, Civil Appeals Nos. 455 to 457 of 1957)

1. The notification went beyond the Act. Section 3 allows an inquiry only into a definite matter of public importance. The conduct of an individual person or company cannot be such a matter.
2. Even if the notification is within the Act, the Act is beyond Parliament's competence. Entry 94 of List I and Entry 45 of List III cover inquiries for the purpose of the matters in the lists. They allow a law about holding an inquiry, not about other functions.
3. Counsel accepted that the legislative heads must be read liberally and include ancillary matters. But the words for the purpose of mean the inquiry must serve future legislation.
4. An inquiry for administrative purposes cannot be made under these entries. Still less can a law cover an inquiry into alleged wrongs by an individual or company to punish a suspected delinquent.
5. The inquiry is neither legislative nor administrative. It is a clear usurpation of judicial functions. Parliament and the Government arrogated judicial powers that belong to neither.
6. Parliament cannot turn itself into a court. The only exceptions are breach of its privileges (committal for contempt) and impeachment.
7. Parliament cannot inquire into individual wrongs or private disputes, bring a culprit to book or gather material for proceedings against him. That is not in aid of legislation.
8. If a prosecution is to be launched, the preliminary investigation must follow the Code of Criminal Procedure. A legislature must not start its own investigation and take away the citizen's normal protection under the Code.
9. Counsel for the appellants in Nos. 456 and 457 said the Commission may find facts for the Government to act on, but cannot be asked to suggest any measure, legislative or executive. He did not concede that executive action is contemplated.
10. Article 14 protects every person against the law and against executive action, at every stage of State action. Article 14 is violated by the Act, by the notification, or by both.
11. Article 14 is the principal ground. It is said to make the Act and the notification, or either, invalid. The Court framed the arbitrary-power question for the Act itself.
12. Even if the Act lays down a policy, the Government did not exercise its discretion properly on a reasonable classification. It did not implement the Act's policy.
13. Nothing new had happened since the Tricumdas Dwarkadas, Thiruvenkatachari and Bhaba Committee inquiries and the remodelled Companies Act. So there was no definite matter of public importance.
14. All the matters in the first preamble relate to the supposed acts and conduct of the petitioners. The act and conduct of individuals can never be a definite matter of public importance.
15. The petitioners and their companies were arbitrarily singled out for hostile and discriminatory treatment and a harassing and oppressive inquiry. Discrimination started when the Government conceived the idea of the notification.
16. The Bombay Shareholders' Association memorandum made similar allegations against other businessmen and companies. Those persons were similarly situated, yet the Government applied the Act only to the petitioners.
17. The five clauses of the first preamble disclose no intelligible differentia that groups the petitioners and their companies as a class.
18. No outside matter may be considered. The basis of classification must appear on the face of the notification. Counsel relied on observations in the dissenting judgments in Chiranjitlal Chowdhury and on item (2) of Fazl Ali J.'s summary in Balsara.
19. The qualities attributed to the petitioners are not peculiar to them. They are found equally in other persons and companies who were left out.
20. The notification was mala fide. The Bhaba Committee had been set up and the Companies Act remodelled. The real aim was to get information the Government could not get under the Code of Criminal Procedure.
21. Counsel for the appellants in Nos. 456 and 457 added that the Government knew his clients did not promote or manage any company. Including them was outside the power conferred and was also mala fide.
22. The original notification is defective because it fixed no time. A later notification cannot cure that.
23. The notification delegates essential legislative function. This was argued only feebly.
24. The notification violates Article 23. Counsel said the point was premature and reserved his client's right to raise it later.

For the respondents (the Union of India and the Commission)

1. Section 3 on its face makes a classification. It allows an inquiry only into a definite matter of public importance. That classification rests on an intelligible differentia with a reasonable relation to its object. The Solicitor-General placed the Act in the first category.
2. In the alternative, section 3 shows Parliament's policy. Parliament wants Commissions to inquire into definite matters of public importance. Nobody can know when or where such a matter will arise. So it leaves the Government to act at the right time.
3. Modern events cannot all be foreseen. A legislature cannot provide for every eventuality. This delegation is not unguided or uncontrolled. The Government must act within the section, where a definite matter of public importance exists and an inquiry is necessary in its opinion or is required by a resolution of the House of the People or the Legislative Assembly.
4. The Union relied on the affidavits of H.M. Patel and the reports they refer to. They set out the background and the circumstances behind the notification.

Court's Reasoning

Das C.J. (for the Court; no paragraph numbers in the source)

1. Noted: The six appeals challenge one common judgment of a Division Bench of the Bombay High Court dated 29 April 1957. That judgment decided Miscellaneous Applications Nos. 48 to 50 of 1957 under Article 226. The High Court discharged the rules and dismissed the applications. It held the notification valid except the last part of clause (10). The Union appeals against that exception.
2. Noted: The Court set out the Act and the notification. The Act's long title says it provides for Commissions of Inquiry and vests them with certain powers. Section 3(1) lets the appropriate Government appoint a Commission if it thinks it necessary, and it must do so if the House of the People or the State Legislative Assembly passes a resolution. The inquiry is into a definite matter of public importance and the performance of functions within the time the notification specifies. Section 3(2) allows one or more members and a Chairman.
3. Noted: Section 4 gives civil court powers. Section 5 allows additional powers by notification. Section 6 protects statements made before the Commission from use against the speaker. Section 7 lets the Government end the Commission. Section 8 lets it regulate its own procedure and act despite a temporary absence or a vacancy. Section 9 gives indemnity for acts done in good faith. The other sections are not material.
4. Noted: The Court noted that the notification did not fix a time. It then recorded the notifications of 9 January 1957 and 11 February 1957 and the filing of the petitions on 12 February 1957.

A. The notification is within section 3

5. Noted: The first objection is that the notification goes beyond the Act. Section 3 allows an inquiry only into a definite matter of public importance. The petitioners say the conduct of an individual or company cannot be such a matter.
6. Held: The Court rejected this argument. Floods, famine and pestilence may be a definite matter of public importance. So may the conduct of villagers who cut bunds and cause floods.
7. Held: The failure of a big bank ruins many people of moderate means. The conduct of the persons who managed it is equally a definite matter of public importance. So are the modes of operation of notorious dacoits.
8. Held: In each case the question is whether there is a definite matter of public importance that calls for an inquiry. A definite matter does not have to be only an abstract public benefit such as public health. It need not be only a public evil such as famine.
9. Held: The conduct of an individual, a company or a group may become so dangerous that it prejudices or threatens public well-being. Then it is a definite matter of public importance that calls urgently for a full inquiry.
10. Held: Section 3 also allows a Commission to be appointed to perform functions specified in the notification. So the notification is within the powers given by section 3 and cannot be questioned as going beyond the Act.

B. Legislative competence: Entry 94 of List I and Entry 45 of List III

11. Noted: The petitioners then argued that the Act is beyond the Constitution if the notification is within it. Parliament enacted the Act under Article 246 with Entry 94 of List I and Entry 45 of List III of the Seventh Schedule. Entry 94 covers inquiries for the purpose of any matters in List I. Entry 45 covers inquiries for the purpose of any matters in List II or List III.
12. Noted: Counsel conceded that legislative heads are to be read very liberally and include ancillary matters. The words with respect to in Article 246 support this reading.
13. Noted: Counsel argued that for the purpose of means inquiry for future legislation. So an inquiry for administrative purposes, or into alleged wrongs of an individual to punish him, falls outside the entries. The High Court accepted this view.
14. Held: The Court, with great respect, did not accept that view. It would add words to the entries, so that they read inquiries for the purpose of future legislation.
15. Held: Entry 45 in the Concurrent List settles the matter. Parliament may legislate on inquiries for the purpose of matters in List II. But Parliament has no power to legislate on the matters in List II.
16. Held: So a law on such an inquiry can never be for future legislation by Parliament on those matters. Parliament can still make a law for an inquiry for List II purposes, even if no State Legislature wants to legislate.
17. Held: A law made under these entries may cover inquiries into any aspect of the matters in the lists. It is not confined to them as mere heads of legislative topics.
18. Held: Such a law may also serve administrative purposes. The inquiry will cover all matters that can properly be regarded as ancillary to the inquiry.
19. Held: The words for the purposes of show that the inquiry is not limited to the specific matters in the entries. It may extend to collateral matters necessary for the legislative or other purpose of those matters.
20. Held: The Court could not hold that an inquiry under these entries is limited to future legislative purposes only.

C. Usurpation of judicial functions

21. Noted: Counsel went through the heads of inquiry. He argued that the inquiry is neither legislative nor administrative and so usurps the judiciary. He said Parliament cannot convert itself into a court, except for breach of its privileges (contempt) or impeachment.
22. Noted: He argued that a legislature cannot inquire into individual wrongs, or bring the culprit to book, or gather materials to start civil or criminal proceedings. A preliminary investigation for a prosecution must follow the Code of Criminal Procedure.
23. Noted: The High Court accepted this reasoning. After reading the Act and the eleven heads, it held the last part of clause (10) ultra vires (beyond the powers of) the Act. It said such an inquiry or report usurps judicial power. It held that part invalid from the words and the action to in future cases.
24. Held: The Court agreed in part with the High Court's result but not its reasoning. It gave more than one reason.
25. Held: First, neither Parliament nor the Government itself undertook any inquiry. Parliament made a law on inquiry and left it to the appropriate Government to appoint a Commission in the circumstances in section 3. The Government then used its powers to set up this Commission.
26. Held: Second, the High Court's conclusion is inconsistent with a later part of its own judgment. There it said the Commission can only make recommendations that are not enforceable proprio vigore (by their own force). The Court agreed that the Commission's only power is to inquire, report and recommend.
27. Held: The Commission has no power of adjudication, in the sense of an order that can be enforced proprio vigore. A clear distinction must be drawn between a decision that has no force or penal effect and a decision that becomes enforceable at once or after some action.
28. Held: The Commission only investigates and records findings and recommendations. Its inquiry or report is not a judicial inquiry in the sense of exercising judicial function properly so called.
29. Held: So no question of usurpation of judicial power by Parliament or the Government arises on these facts.
30. Noted: The Court called the High Court's long discussion of American authorities wholly inappropriate and unnecessary. Those authorities rest on the categorical separation of powers expressly provided in the American Constitution.
31. Noted: The Court said it was not called on to express an opinion on whether a division of legislative, executive and judicial power is nevertheless implicit in the Indian Constitution.
32. Noted: It also did not need to consider whether, if the Act had given the Government power to set up a Commission with judicial powers, the law could be supported under some entry on courts read with these entries. A legislation may be founded on several entries.

D. Recommendations of the Commission and the words about redress or punishment

32. Noted: Counsel for the appellants in Nos. 456 and 457 said the Commission may find facts but cannot suggest any measure, legislative or executive. The Court could not accept so wide a proposition.
33. Held: An inquiry needs facts to be collected from evidence. Recording findings in a report is ancillary to the inquiry. The inquiry is useless unless the findings reach the Government that set it up.
34. Held: It is equally ancillary that the body gives its own view on the facts it found, for the Government to consider. The Court said the whole purpose of an expert Commission would fail if its advice on measures could not be placed before the Government.
35. Held: The recommendations are of great importance to the Government. They help it decide what legislative or administrative measures to adopt. There can be no objection even to a recommendation of some form of punishment sufficiently deterrent to delinquents in future.
36. Noted: The Commission has no judicial powers and its report is only recommendatory. A statement made before it is wholly inadmissible in later proceedings under section 6. The Court held there is no point in recommendations for action as and by way of securing redress or punishment.
37. Held: In agreement with the High Court, those words refer to wrongs already done. Redress or punishment for them must be imposed by a properly constituted court using its own discretion, not influenced by the view of any person or body, however august.
38. Held: Only the words in the last part of clause (10) about action to be taken "as and by way of securing redress or punishment" are not necessary or ancillary to the Commission's purposes. They go outside the Act and the two legislative entries and must be deleted.
39. Noted: After the deletion, the latter portion of clause (10) reads as follows. And the action which in the opinion of the Commission should be taken to act as a preventive in future cases.

E. Severability

40. Held: The Court substantially agreed with the High Court on severability. The deletion does not affect the efficacy of the notification at all.
41. Why: There is no reason to think the Government would not have issued the notification without those words. They are not inextricably wound up with the texture of the notification.

F. Article 14: the settled principles

42. Noted: The principal ground for the invalidity of the Act or the notification is Article 14. The Court quoted the explanation of Article 14 given by a Constitution Bench of seven Judges in Budhan Choudhry v. State of Bihar, at pages 1048-49.
43. Noted: Budhan Choudhry listed the earlier cases on Article 14 and said no lengthy discussion was needed. It said: "while article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation."
44. Noted: To pass the test of permissible classification two conditions must be fulfilled, said Budhan Choudhry. First, the classification must rest on an intelligible differentia that distinguishes the persons or things grouped together from others left out. Second, that differentia must have a rational relation to the object of the statute.
45. Noted: Budhan Choudhry added that classification may rest on different bases, such as geography, objects or occupations. There must be a nexus between the basis of classification and the object of the Act. Article 14 condemns discrimination by a law of procedure as well as by a substantive law.
46. Noted: The Court said later cases consistently apply this principle. It then listed six further settled principles from the decisions:
    • (a) A law may be constitutional even if it relates to a single individual, where special circumstances apply to him and not to others. He may then be treated as a class by himself.
    • (b) There is always a presumption in favour of the constitutionality of an enactment. The burden is on the person attacking it to show a clear transgression of constitutional principles.
    • (c) The legislature is presumed to understand its people's needs, to direct its laws at problems shown by experience and to base its discriminations on adequate grounds.
    • (d) The legislature may recognise degrees of harm. It may confine its restrictions to cases where the need is deemed clearest.
    • (e) To sustain the presumption, the court may consider matters of common knowledge and common report, the history of the times, and any state of facts that can be conceived as existing at the time of legislation.
    • (f) Good faith and knowledge of existing conditions are presumed. But if nothing on the face of the law or the surrounding circumstances supports the classification, the presumption cannot be carried so far as to assume undisclosed and unknown reasons for subjecting some individuals or corporations to hostile or discriminating legislation.
47. Noted: The Court said these principles must be borne in mind constantly when it decides on a law attacked as discriminatory and violating equal protection.

G. Five classes of statute under Article 14

48. Noted: A close reading of the decisions shows that a statute tested under Article 14 falls into one of five classes.
49. Noted: Class (i): the statute itself shows the persons or things it applies to. The basis of classification may appear on its face or from surrounding circumstances. The court asks whether the classification rests on a differentia with a reasonable relation to the statute's object. It does not matter if the law applies to one person or thing or to a class.
50. Noted: If the tests are met, the court upholds the law. Cases of this kind are Chiranjitlal Chowdhri, State of Bombay v. F.N. Balsara, Kedar Nath Bajoria, V.M. Syed Mohammad & Co. and Budhan Choudhry.
51. Noted: Class (ii): the statute directs its provisions at one or several individual persons or things, but no reasonable basis of classification appears on its face or from circumstances or common knowledge. The court strikes it down as naked discrimination. Examples are Ameerunnissa Begum v. Mahboob Begum and Ramprasad Narain Sahi v. State of Bihar.
52. Noted: Class (iii): the statute makes no classification and leaves selection to the Government's discretion. The court does not strike it down out of hand for that reason. It examines whether the statute lays down any principle or policy to guide the Government. If none is laid down, the court strikes down the law and the executive action under it. The law gives arbitrary and uncontrolled power, and the discrimination is inherent in the statute.
53. Noted: Examples of class (iii) are State of West Bengal v. Anwar Ali Sarkar, Dwarka Prasad Laxmi Narain v. State of Uttar Pradesh and Dhirendra Krishna Mandal v. Superintendent and Remembrancer of Legal Affairs.
54. Noted: Class (iv): the statute leaves selection to the Government but lays down a policy or principle to guide it. The court upholds the law, as in Kathi Raning Rawat v. State of Saurashtra.
55. Noted: Class (v): the statute leaves selection to the Government according to its own policy or principle. If the Government does not follow that policy in selecting, the executive action alone, not the statute, is condemned. Kathi Raning Rawat was cited again here.

H. Does the Act offend Article 14?

55. Noted: The Court asked which category the Act and the notification fall into. The Act's long title shows its purpose. Section 3 lets the Government appoint a Commission of Inquiry for a definite matter of public importance and to perform functions within the time the notification specifies.
56. Noted: It was clear, and not controverted, that the functions must be ancillary to and in aid of the inquiry. They cannot be independent of or unconnected with it.
57. Noted: The Government can appoint a Commission only for a definite matter of public importance and no other matter. The Solicitor-General said the section itself makes a classification and the Act falls in the first category.
58. Noted: In the alternative he said the section shows Parliament's policy. Parliament leaves it to the Government to act when the moment arrives. The delegation is guided, because the Government must find a definite matter of public importance that in its opinion needs an inquiry or that the House of the People or Assembly requires.
59. Held: If the preambles or provisions of class (i) statutes could be read as reasonable classification, and the preamble in Kathi Raning Rawat laid down a policy, section 3 can be read the same way. It makes a reasonable classification or at least declares the policy and lays down a principle. That puts the Act in the fourth category, if not the first.
60. Held: On the authorities, it cannot be said that arbitrary and uncontrolled power has been delegated. So the law itself is not bad.

I. Does the notification offend Article 14?

61. Noted: The petitioners next said that the Government did not exercise its discretion properly on a reasonable classification. Article 14 protects against both the legislative and the executive organ of the State.
62. Noted: The Court noted that Article 12 defines State to include the Government. Article 13 defines law to include a notification or order. So the petitioners may challenge the notification's constitutionality.
63. Noted: The attack is that the Government did not implement the policy in the Act and went beyond the authority delegated to it. The petitioners relied on the Tricumdas Dwarkadas report, the Thiruvenkatachari inquiry and the Bhaba Committee Report. They said nothing new had happened since, so no further inquiry was needed.
64. Held: The Court found no force in this. First, the Bhaba Committee at page 29 of its Report said further inquiries on some company matters might have to be made in future. So the need for a fresh inquiry cannot be ruled out.
65. Held: Second, the Government may appoint a Commission if, in its opinion, it is necessary. The preamble recites five matters made to appear to the Government. The Government concluded that they are definite matters of public importance. They arose from the grave consequences to the investing public and the need to prevent a recurrence.
66. Held: Parliament left the matter to the Government's discretion. If the Government has formed the opinion that a definite matter of public importance has arisen, the Court will not lightly brush aside that opinion.
67. Noted: The petitioners said the Commission may be set up only if a definite matter of public importance exists. They said every matter in the first preamble is about the acts of the petitioners, and an individual's acts can never be such a matter.
68. Held: The Court did not accept this. The act or conduct of individuals may assume such dangerous proportions as to affect public well-being. The notification therefore cannot be struck down for lack of a definite matter of public importance.

J. Were the petitioners singled out for hostile treatment?

69. Noted: The Court said this point gave it considerable anxiety. The petitioners said they and their companies were arbitrarily singled out for hostile and discriminatory treatment and a harassing and oppressive inquiry. They said Article 14 covers State action at all stages.
70. Noted: They said the discrimination began when the Government conceived the idea of the notification. They relied on the Bombay Shareholders' Association memorandum before the Bhaba Committee. It had made similar allegations against other businessmen and companies, who were left out.
71. Noted: The Court accepted that the notification primarily or even solely affects the petitioners and their companies. But Parliament left selective application of the Act to the Government. The Government must decide on the materials available to it and the opinion it forms.
72. Held: The Government cannot be expected to hold a judicial inquiry into the truth of the materials. It cannot examine informants on oath in the presence of the parties likely to be affected.
73. Held: The Government must act on the information available to it. It is the best judge of the reliability of its source. If it acts in good faith on the materials and honestly concludes that the petitioners' conduct is a definite matter of public importance, the Court will be slow to hold the executive action bad and illegal.
74. Noted: The Court said it was not unmindful that very wide discretionary power was conferred. It was anxious that such power could be misused and turned into an engine of oppression.
75. Held: The bare possibility that powers may be misused or abused cannot per se (by itself) lead a court to deny that the powers exist. Parliament confided the discretion to the appropriate Government, not to a petty official.
76. Noted: The Court cited Matajog Dobey v. H.C. Bhari, which said "a discretionary power is not necessarily a discriminatory power". It added that abuse of power is not easily assumed where the discretion is vested in the Government and not in a minor official.
77. Noted: The Court said that if the Government administered the law "with an evil eye and an unequal hand", or for an oblique or unworthy purpose, the arms of this Court would be long enough to strike down such abuse with a heavy hand.
78. Noted: The Court then asked what the salient facts were. The Central Government had appointed investigators to scrutinise three of the petitioners' concerns. They had reported to it. It also had the Bhaba Committee Report and the Memoranda filed before that Committee, and may have had other information.
79. Held: On those materials it formed its opinion. Up to this stage there is no question of legal proof of the allegations as in a court. The only question is whether the allegations, if honestly believed, make a definite matter of public importance. The Court could not say they did not.

K. Looking at affidavits and outside material

80. Noted: The petitioners said the five clauses of the first preamble show no intelligible differentia that groups the petitioners and their companies as a class. The Union relied on the affidavits of H.M. Patel and the reports.
81. Noted: The petitioners objected that no extraneous matter may be referred to. They relied on observations in the dissenting judgments in Chiranjitlal Chowdhury's case and on item (2) in Fazl Ali J.'s summary in Balsara's case.
82. Noted: In Chiranjitlal the majority read the Ordinance's preamble as part of the Act. It treated the recitals, helped by the presumption of validity, as sufficient at first sight for treating the company as a class by itself. It held the petitioner had not discharged his onus.
83. Noted: The dissenting Judges there said the petition and affidavit gave no indication of the differentia, and the statute did not show any basis on its face. This went into item (2) of the summary in Balsara.
84. Held: Those observations cannot mean that classification must always appear on the face of the law, or that outside material cannot be used. In Chiranjitlal parliamentary proceedings that showed the surrounding circumstances were referred to.
85. Noted: In Kathi Raning Rawat the hearing was adjourned so the respondent could file an affidavit with the material circumstances. In Kedarnath Bajoria the situation brought about by war conditions was noticed. The same is true of Thanyal Kunju Musaliar v. V. Venkitachulam Potti and Pannalal Binjraj v. Union of India.
86. Held: There is no objection to considering the matters in H.M. Patel's affidavits together with the notification. The question is whether there was any valid basis for treating the petitioners and their companies as a class by themselves.

L. Intelligible differentia and the onus on the petitioners

87. Noted: The petitioners said the qualities attributed to them are not peculiar to them. They said those qualities are found equally in other persons and companies, who were left out though similarly situated.
88. Held: There is no force in this. Parliament confided selective application to the Government, so the discretion is the Government's. Until the contrary is proved, it is presumed that the Government, responsible to Parliament, will act honestly, properly and within the policy laid down by Parliament.
89. Held: The Government may have thought that, even if some qualities are found elsewhere, the combination in the petitioners' companies was unique. It may have thought the evil was more pronounced there. It may have thought the need for an inquiry was more urgent and clear for them.
90. Noted: The Court stated the gist of the allegations:
    • A small group of persons had controlled many companies since before 1946, including a banking company and an insurance company.
    • Some of these were private companies and some were public companies in which the public had invested heavily.
    • The financial years of some companies differed from those of the others.
    • Company funds were used to buy shares in other companies that had large reserves, to gain control over them. The funds were also used for the personal benefit of these individuals.
    • Shares were bought on blank transfer deeds and were not registered in the names of the companies whose funds paid for them. The same shares could thus appear in the balance sheets of different companies with different financial years.
    • After 1951 several companies went into voluntary liquidation, or their assets were transferred under a sham scheme of arrangement or reorganisation.
    • After getting control, the group appointed some of themselves as managing director or selling agent on high pay. They later cancelled the appointment and paid very large amounts as compensation.
    • Funds of one company were transferred to another to cover up the real financial position.
91. Noted: The Court said it is not for it to say, and it did not even suggest, that the allegations are well founded. The question is whether the qualities, if honestly believed, are so peculiar or unique that the petitioners can be regarded as a class by themselves.
92. Held: The Court was not of opinion that they are not. The facts on the face of the notification and in the affidavits support the presumption of constitutionality of the notification.
93. Held: Given the presumption of validity of the Act and the notification, the petitioners had to allege and prove beyond doubt that similarly situated persons or companies were left out. They also had to show that the petitioners were singled out for discriminatory and hostile treatment.
94. Held: The petitioners failed to discharge that onus. The petitions do not even aver that other persons or companies are similarly situated.
95. Noted: The allegations in the Bombay Shareholders' Association memorandum were not proved by legal evidence. The Bhaba Committee report also contains matter that may support the view that, by the combination of evils or their degree, the petitioners may be grouped as a class by themselves.
96. Held: The plea of breach of the equal protection clause cannot be sustained.

M. Mala fides, time limit, delegation and Article 23

97. Noted: The next contention is that the notification is bad because the Government's action was mala fide (in bad faith) and an abuse of power. Counsel for the appellant in No. 455 said no personal motive or ill will against the petitioners is alleged.
98. Noted: His point was that the Bhaba Committee had been set up and the Companies Act remodelled. So the Commission was not set up for a legitimate purpose. The main idea was to obtain information the Government could not get under the Code of Criminal Procedure.
99. Noted: Counsel for the appellants in Nos. 456 and 457 relied on his clients' affidavits. He said the Government knew none of them promoted or managed any company, so including them was outside its power and was mala fide.
100. Held: No substantial ground was brought before the Court. The Court was not satisfied that the circumstances in the notification and affidavits could not, if true, be the basis of a further inquiry.
101. Noted: It is for the Commission to inquire into the allegations, reach its own findings and report with recommendations. The Court said it was not desirable to say more.
102. Held: "the charge of mala fides has not been brought home to the Government."
103. Noted: A point was taken that the original notification was defective because it fixed no time, and a later notification could not cure that. The Court found no substance in it.
104. Held: The third notification amended the original by fixing a time. The Government could have issued a fresh notification appointing a Commission and fixing a time. The same result can come from the combined effect of two notifications.
105. Held: In any case the amending notification read with the original may be treated as a fresh notification under section 3, operative at least from the date of the later notification.
106. Noted: It was feebly argued that the notification is bad as a delegation of essential legislative function.
107. Held: Assuming there is a delegation of legislative function, it is not vitiated, because the Act laid down its policy. The delegate's legislation must conform to that policy.
108. Noted: Lastly it was argued that the notification violates Article 23. Counsel frankly said the point was premature and reserved his client's right to raise it in future. No other point was urged.

Authorities

The judgment has no numbered paragraphs, so the references below are to the blocks in Das C.J.'s judgment.

• Budhan Choudhry v. The State of Bihar, [1955] 1 SCR 1045 (seven-Judge Constitution Bench) — followed. The Court quoted its explanation of Article 14 and of the two conditions for permissible classification (section F). It is also listed under class (i) (section G).
• Chiranjit Lal Choudhuri v. The Union of India, [1950] SCR 869 — followed in the Budhan list and class (i). Majority and dissenting views are explained in section K.
• The State of Bombay v. F. N. Balsara, [1951] SCR 682 — class (i) example. The Court explained item (2) of Fazl Ali J.'s summary (sections G and K).
• The State of West Bengal v. Anwar Ali Sarkar, [1952] SCR 284 — class (iii) example, where law and executive action were struck down (section G).
• Kathi Raning Rawat v. The State of Saurashtra, [1952] SCR 435 — class (iv) and class (v) authority. The Court compared its preamble with section 3 and noted the adjourned hearing for an affidavit (sections G, H and K).
• Lachmandas Kewalram Ahuja v. The State of Bombay, [1952] SCR 710; Qasim Razvi v. The State of Hyderabad, [1953] SCR 581; Habeeb Mohamad v. The State of Hyderabad, [1953] SCR 661 — listed in the Budhan Choudhry quotation as earlier Article 14 cases (section F).
• Kedar Nath Bajoria v. The State of West Bengal, [1954] SCR 30 — class (i) example. War conditions were noticed (sections G and K).
• V. M. Syed Mohammad & Company v. The State of Andhra, [1954] SCR 1117 — class (i) example (section G).
• Ameerunnissa Begum v. Mahboob Begum, [1953] SCR (page as printed, 44) and Ramprasad Narain Sahi v. The State of Bihar, [1953] SCR 1129 — class (ii) examples of naked discrimination (section G).
• Dwarka Prasad Laxmi Narain v. The State of Uttar Pradesh, [1954] SCR 803, and Dhirendra Krishna Mandal v. The Superintendent and Remembrancer of Legal Affairs, [1955] 1 SCR 234 — class (iii) examples (section G).
• Matajog Dobey v. H. C. Bhari, [1955] SCR 925, 932 — quoted for the point that a discretionary power is not necessarily discriminatory (section J).
• A. Thanyal Kunju Musaliar v. V. Venkitachulam Potti (names as printed), [1955] 2 SCR 1196, and Pannalal Binjraj v. Union of India, [1957] SCR 233 — cases where surrounding circumstances were taken into account (section K).
• American authorities discussed by the High Court — called inappropriate and unnecessary (section C).
• Also cited in footnotes: none. The source's footnote markers point only to the report citations listed above.

Statutes and provisions

• Commissions of Inquiry Act, 1952 (LX of 1952), sections 1(3), 3(1), 3(2), 4, 5, 6, 7, 8 and 9 — described in the opening steps of the reasoning. Section 3(1) is the main power to appoint a Commission.
• Article 12 — State includes the Government (section I). Article 13 — law includes a notification or order (section I).
• Article 14 — equal protection of the laws (sections F to L). Article 23 — point reserved (section M).
• Article 226 — the High Court applications (opening steps). Article 246, Entry 94 of List I and Entry 45 of List III — legislative competence (section B).
• Code of Civil Procedure (civil court powers under section 4) and the Code of Criminal Procedure (argued as the proper route for criminal investigation); the Indian Companies Act and its remodelling.

Ratio and obiter in the reasoning

• Ratio: the Act and the notification are valid. A single individual or company may be a class by itself. The Government's selection is presumed proper until the petitioner proves otherwise.
• Ratio: a Commission with only advisory powers is not a judicial body. Words asking it to recommend redress or punishment for past wrongs are beyond the Act.
• Obiter: the Court gave no opinion on whether separation of powers is implicit in the Constitution (section C). It also did not decide whether a law creating a Commission with judicial powers could be supported under court-related entries (section C).

Judgement

1. Civil Appeals Nos. 455, 456 and 457 of 1957 are dismissed with costs.
2. Civil Appeals Nos. 656, 657 and 658 of 1957 succeed only in part. The reasoning deletes the words as and by way of securing redress or punishment. The operative order names the words by way of redress or punishment.
3. Only the words by way of redress or punishment in the latter portion of clause (10) are deleted. The Court's text reads: and the action which in the opinion of the Commission should be taken ... to act as a preventive in future cases.
4. There is no order as to costs in the three appeals filed by the Union of India.
5. The source's closing note records Civil Appeals Nos. 455, 456 and 457 as dismissed and Nos. 656, 657 and 658 as partly allowed.
6. Lower court decision as recorded: the Bombay High Court discharged the rules and held the notification valid except the last part of clause (10), which it held invalid. This Court narrowed that invalid part to the words about redress or punishment.

Legal Principle / Ratio

Article 14 forbids class legislation but allows reasonable classification. The classification must rest on an intelligible differentia, and that differentia must have a rational relation to the object of the law.

A law or notification may relate to a single individual or company that can be treated as a class by itself. The law is presumed valid, and the person attacking it must prove the clear breach.

Key holding quoted from Budhan Choudhry: "while article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation."

Subsequent Treatment

K.S. Puttaswamy v. Union of India (Writ Petition (Civil) No. 494 of 2012, decided 24 August 2017, nine-Judge Constitution Bench, opinion of Dr D.Y. Chandrachud J.)

• In para 164 of his opinion, the Judge notes the settled principles for a substantive challenge to a law on the ground that it violates a fundamental right. The first is the presumption of constitutionality.
• A footnote to that sentence lists Ram Krishna Dalmia v. Shri Justice S.R. Tendolkar, AIR 1958 SC 538, among the authorities. This is a footnote citation. The opinion does not discuss the case.

Janhit Abhiyan v. Union of India (Writ Petition (Civil) No. 55 of 2019, decided 7 November 2022, Constitution Bench, opinion of J.B. Pardiwala J.)

• In para 93 of his opinion, the Judge says there is always a presumption in favour of the constitutionality of an enactment. The burden is on the person attacking it to show a clear transgression of the Constitution.
• He cites Shri Ram Krishna Dalmia v. Shri Justice S.R. Tendolkar, 1959 SCR 279 : AIR 1958 SC 538, for this. He also cites S.M.N. Raina's book.

AHAR v. State of Maharashtra (Indian Hotel and Restaurant Association (AHAR) and another; Writ Petition (Civil) No. 576 of 2016; decided 17 January 2019; A.K. Sikri and Ashok Bhushan JJ.)

• In para 20 the Court reproduces para 120 of its earlier 2013 decision. That passage says: as held in Ram Krishna Dalmia, the legislature may recognise degrees of harm and confine restrictions to cases where the need is clearest.
• The earlier decision agreed with the US Court in Patsone that a State may direct a law at what it sees as the evil, without covering the whole field. But it said that such a conclusion must rest on general consensus or empirical data. In that case the State had neither empirical data nor a general consensus.
• In para 45 the Court records a submission that the onus was on the State to justify fairness and reasonableness, which is the principle laid down in Ram Krishna Dalmia and two other cases. The submission was that the State had not discharged this onus.

Comparative Analysis

• Puttaswamy and Janhit Abhiyan cite the case only for the presumption of constitutionality and the burden on the challenger. Neither uses its classification test.
• AHAR shows two uses. The 2013 passage used the degrees-of-harm principle but held the State lacked data or consensus. The petitioners' counsel used the case for the onus on the State.
• The case laid down the presumption in favour of the law and the burden on the challenger. AHAR, citing the case for degrees of harm, held that such a conclusion must rest on general consensus or empirical data. The State had neither.

Critical Analysis

Analysis based on the judgment text.

• The Court left open whether separation of powers is implicit in the Constitution. It decided only that this Commission has no enforceable powers, so no judicial power was usurped.
• The Court admitted anxiety that wide discretionary power may be abused. It relied on the presumption that the Government acts honestly and on the Court's power to strike down abuse later.
• The petitioners lost partly because they did not even aver that similar persons were left out. The judgment does not say what evidence would have shifted the onus. It also says it does not suggest that the allegations are well founded.

Significance

• The judgment restates the Article 14 test of reasonable classification. It also lists the six principles on presumption of constitutionality, single-person classes and degrees of harm.
• It sets out the five classes of statute under Article 14. The judgment uses these five classes to test whether the Act and the Government's selection are valid.
• It holds that a Commission of Inquiry that only recommends does not exercise judicial power.
• Later Supreme Court decisions still cite it for the presumption of constitutionality (see Subsequent Treatment).

Exam-Important Points

• Rule: Article 14 forbids class legislation but allows reasonable classification with intelligible differentia and a rational relation to the object. Trap: the Court quoted this from Budhan Choudhry; it did not originate it.
• A single individual can be a class by himself where special circumstances apply to him and not to others.
• The presumption of constitutionality puts the burden on the challenger. The petitioners failed because they did not even aver that similar persons were left out.
• Remember the five classes of statute, including where law and executive action both fall (class iii) and where only the action falls (class v).
• The Court may look at affidavits and outside material to find the basis of classification. It need not appear on the face of the law.
• A Commission whose findings are not enforceable proprio vigore does not exercise judicial power. Only the words about redress or punishment were deleted.
• The deletion was severable. The order: appeals 455-457 dismissed with costs; 656-658 partly allowed, no order as to costs.

Prepared from the full text of the judgment. Paragraph numbers follow the official Supreme Court judgment text; law reports may number the same paragraph differently.