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Swadeshi Cotton Mill v Union of India

Swadeshi Cotton Mill v Union of India

By Shiralee Kinariwal


This case mainly deals with two doctrines natural justice and audi alteram partem of the administrative law.  The term ‘natural justice’ signifies certain fundamental rules of judicial procedure. It has been defined to mean “fair play in action”. The development of the principle of natural justice has, like many other legal concepts, been elective. An early group of cases was concerned with deprivation of officers, requiring notice and hearing prior to the deprivation.

In the nineteenth century, the audi alteram partem principle was applied to a wide variety of bodies, private as well as public clubs,  associations, and trade unions were included within its ambit. The increase in the regulatory role of public authorities provided further opportunity for the generalized application of this maxim. Recently in manohar manikrao anchal v. State of maharashtra and others, the supreme court has observed that the concept of natural justice should also apply to the administrative matters.

 this case (swadeshi cotton mill v. Union of india) deals in various sections of industrial development and regulation act 1951 such as section 18aa (1) (a) and 18a (1) (b). These acts capacitate the union of india to take industries under control which are specified under the first schedule of the act.

Section 15 of this act defines that the central government has the power to full and complete investigation to any industries as mentioned in the act if they think that there is the substantial fall in the volume of the production, or if there is crumble in the quality of the products as produced by the industries, or there is the instance rise in the price of the article without any justification.







Swadeshi cotton mill co. Ltd. Was the appellant in this case which was incorporated as a private company with an authorized capital stock of rs.30 lakhs. The company was consolidated in 1921 by horseman family by converting their partnership business into a private joint stock company. In 1921, the company had only one undertaking i.e., the textile unit in kanpur known as “the swadeshi cotton mill, kanpur”. In the middle of 1956 and 1973, the company set up and or acquired five further textile units in pondicherry, naini, udaipur, maunath bhanjan and rae bareilly. All the six units were separately registered in accordance with the provisions of section 10 of the industries act 1951. In addition to these six units, the company had many other businesses and assets also. The company also maintained separate books of accounts for all six undertakings.

The government of india has exercised its power under  section 18-aa(a)(1) industries (development and regulation) act, 1951,as chapter iii-a consisting of several sections 18a, 18-aa, 18-b, 18-c, 18-d, 18-e and 18-f deal with "direct management or control of industrial undertakings by central government in certain cases". Sec. 18-a empowers the central government by notified order, to authorize any person or body of persons to take over the management of the whole or any part of an industrial undertaking or to exercise in respect of the whole, or any part of the undertaking such functions of control as may be specified in that order.

The appellant m/s. Swadeshi cotton mills were taken over by the government of india  on april 13, 1978 in exercise of the powers conferred on it under clause (a) of sub-section (1) of section 18-aa of the industries (development and regulation) act, 1951 on the ground that the company had by creation of encumbrances on the assets of its industrial undertakings, brought about a situation which had affected and is likely to further affect the production of articles manufactured or produced by it and that immediate action is necessary to prevent such a situation. The government authorized the national textile corporation limited to take over the management, subject to the conditions that the authorized person shall comply with all the directions issued from time to time by the central government and that the authorized person shall hold office for a period of five year.




1. Is it necessary to observe the rules of natural justice before enforcing a decision under section 18a of the act?

2.  What are the rules of natural justice in such a case?

3. (a) in the present case, have the rules to be observed once during the investigation under section 15 and then again after the investigation is completed and action on the report of the investigating committee taken under section 18a?

    (b) was it necessary to furnish a copy of the investigating committee's report before passing an order of take-over?



The court reversed the decision which was passed by the high court and held that section 18aa includes the rule of audi alterem partem at its pre-decisional stage. The term natural justice does not have any static and precise definition which needs to be followed. It depends upon the judiciary to do the fair judgment to the people of our country. And there is a right of fair hearing to each and every one. There are mainly two fundamental maxims of the natural justice i.e., audi alterem partem and nemo judex in sua causa the prior means that to hear the other side that is the court cannot give any judgment without hearing the other side of the party and the latter means no one can be judge of his own case. These two are the very important rules of audi alterem partem and because of which a fair hearing is held to the people as there is the principle of natural justice to be followed by our judiciary. If any situation has aroused that there is no legal point in the case then the judgment can use its power of giving judgment with the principle of natural justice is required.

The order of extension was passed by the government which was the main subject matter of the dispute among the parties. The decision which was passed before by the central government related to section 18 aa of the industrial (development and regulation) act 1951 was not against the rule of natural justice. And the appellant has also said that because of this decision the company has lost its rights of voting in related to the rights of shares. But the court said that this decision does not affect any voting rights of the shareholders in any way. The shares belong to the cotton mill company and the order above which is passed by the court has nothing to do with any of the voting rights of the cotton mill company.

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