High Court Strikes Down Sections 3A & 6A Of Kerala Cashew Factories (Acquisition) Act As Unconstitutional And Arbitrary

Justice Gopinath P passed the order by relying upon the Apex Court decision in S.T. Sadiq v. State of Kerala and others (2015) which had struck down Section 6 of the Act as unconstitutional.

“The provisions of Section 3A (as amended by the Amending Act, 2015) and Section 6A (inserted by the Amending Act, 2015) of the Kerala Cashew Factories (Acquisition) Act, 1974 are declared unconstitutional and are struck down. The provisions are arbitrary and discriminatory and violative of Article 14 of the Constitution of India.”

Background Facts

The Petitioner, a cashew factory owner is before the High Court whose factory was proposed to be taken over by the government for the reason that his factory was lying closed for a long time and that there is no possibility of its reopening which would lead to large-scale unemployment.

He thus challenged the constitutional validity of Sections 3A, 6A and also the order dated August 06, 2015, by which the Kerala Government took over his cashew factory under Section 3A of the 1974 Act. The petitioner seeks possession of his cashew factory and compensation for its illegal acquisition.

Section 3 deals with the order of acquisition and Section 3A deals with the power to acquire the cashew factory in the public interest. The initial notification issued under Section 3 to acquire factories including that of the petitioner was struck down in Indian Nut Products & Others v. Union of India (1994). These factories which were taken over by the government and entrusted to Kerala State Cashew Workers Apex Industrial Co-operative Society (CAPEX) were directed to be handed over to their owners.

In 1995, the Act was amended to introduce Section 3A states that the Government may by notification take over any Cashew Factory if it was closed for not less than three months and such closure had affected the majority of its workers. Section 6 introduced by way of amendment in 1995 enabled the State Government to acquire cashew factories in public interest under certain circumstances laid down in Section 3.

In S T Sadiq (supra) filed by the petitioner itself, the Apex Court struck down Section 6 as unconstitutional. Subsequently, the Act was amended again in 2015 and Section 6A was inserted which is identical to Section 6 which enables the acquisition of factories inserted in Schedule III of the Act. Thus, the petitioner's factory was included in the Schedule under Section 6 and was not returned to him.

Petitioners Submissions

It was argued that the Apex Court in Indian Nut Products & Others v. Union of India (1994) had set aside the acquisition of certain factories on the ground that notices were not issued as per law. It is alleged that the petitioner's factory is also covered under this judgment but was not returned to him. It was stated that once the Apex Court found that notifications under Section 3 were bad in law, the State could not have issues similar notifications under Section 3A.

It was stated that the factory of the Petitioner and one more factory were only not returned and this is contrary to the observations in S T Sadiq (supra). It was also argued that law directing against one or two individuals when they are to be treated on the same footing as other factory owners is ultra vires to the Constitution. Further, it was submitted that the amendments brought in 2015 have not received presidential assent are not protected under Article 31 B of the Constitution and can be challenged for fundamental rights violations.

It was also argued that the legislature cannot directly annul the judgment in S T Sadiq (supra) by introducing an identical provision as Section 6A. It was argued that this would amount to violation of Separation of powers which is part of the Doctrine of Basic Structure of the Constitution.

Further, it was submitted that introducing provisions with retrospective effect to take away the rights of persons given by judgments of the Court is illegal. It was contended that there was rationale in making the 2015 Amending Act with retrospective effect. It was also stated that there is violation of Article 300A of the Constitution since the petitioner was deprived of his property without just compensation.

Respondents Submissions

It was submitted that the Petitioner's factory closed in 1981 and large numbers of labourers became unemployed and affected the local economy of that area. It was thus stated that the rights of labourers outweigh the property rights of the petitioner.

It was stated that the Petitioner's factory was taken over under Section 3A and not under Section 6A, hence the challenge against Section 6A was unsustainable. It was argued that the Apex Court in S T Sadiq (supra) did not strike down Section 3A and only Section 6 was struck down as unconstitutional. Therefore, it was argued that Petitioner cannot challenge Section 3A in a fresh writ petition.

It was also submitted that the Amendment made to Section 3A in 2015 does not discriminate between cashew factories, thus arguing that there is no discrimination and violation of Article 14. It was also stated that Section 3A after amendment does not grant arbitrary power to the government for acquisition and that Section 3A is not in violation of the Apex Court judgment in S T Sadiq (supra).

Relying upon Apex Court judgments, it was argued that the legislature has the power to bring amendments with retrospective effect. It was submitted that atatute cannot be declared unconstitutional lightly, since there is a presumption of constitutionality, especially when two views are possible.

Court Findings

The Court found that the original notification by which the factory of the Petitioner was acquired was set aside by the  Apex Court in Indian Nut Products (supra). It noted that even though many factories were returned pursuant to the Apex Court order, the factory of the Petitioner was not returned. 

The Court stated that the legislature can alter the basis of judgment by even amending the law retrospectively, but no authority to nullify a binding inter partes judgment.

Regarding the maintainability of a new writ petition to challenge Section 3A, the Court stated that even though it was challenged in S T Sadiq (supra) and was not struck down, it could again be challenged since it brought new changes after the 2015 Amendment. It was stated that the prior challenge before the amendment does not preclude the petitioner from filing a fresh petition to challenge Section 3A.

The Court further stated that the Apex Court in S T Sadiq (supra) struck down Section 6 as unconstitutional and the legislature has introduced an identical provision by way of Section 6A.

“Section 6 and Section 6A are identical provisions. Section 6 was struck down by Apex Court in S T Sadiq (supra). “Section 6A is thus nothing but a reincarnation of the earlier Section 6 of the Amendment Act, 1995, which was declared unconstitutional by the Supreme Court. The only difference between Section 6 of the Amendment Act, 1995 [which was declared unconstitutional by the Supreme Court in S.T. Sadiq (supra)] and Section 6A introduced by the Amending Act, 2015 is that Section 6A provided for a resolution by the Legislature”, added the Court.

The Court stated that the acquisition under Section 3 aims to prevent large-scale unemployment, and Section 3A introduced in the 1995 amendment deals with the closure of factories and prejudice to the employees that leads to large-scale unemployment. Court stated that even though both sections are worded differently, the intent is the same which is to take over the cashew factory to prevent huge unemployment. The Court thus stated that taking over the factory as per Section 3A amounts to hostile discrimination since the Apex Court has already set aside the original notification and ordered the return of several other cashew factories, which are similar to that of the petitioner's factory. The Court held that there is no intelligible differentia and Sections 3A and 6A are manifestly arbitrary since they create a classification without a reasonable basis.

The court said, “It is declared that there is no intelligible differentia between the 36 factories that were returned to the respective owners following the judgment in Indian Nut Products (supra) and the factory of the petitioner and that there was hostile discrimination in retaining the ownership and possession of the factory of the petitioner considering the fact that all these factories had been originally taken over upon grounds relatable to Section 3(1)(c) of the 1974 Act.

Further, the Court stated that Sections 3A and 6A are also prima facie violative of Article 300A due to lack of just compensation.

Allowing the writ petition, the Court quashed the order issued against the petitioner for taking over his factory. It ordered that the possession, ownership of the factory and the land appurtenant to it be handed over to the petitioner.

Counsel for Petitioner: Advocates P.B.Krishnan, P.M.Neelakandan, S.Nithin Anchal, Sabu George, P.B.Subramanyan

Counsel for Respondents: Advocate General K.Gopalakrishna Kurup, Special Government Pleader T B Hood, Central Government Counsel Sindhumol T P, Advocates M.K.Chandra Mohandas, Jelson J.Edampadam, Pirappancode V.S.Sudhir

Case Number: W.P.(C)NO.18663/2016

Case Title: S T Sadiq v State of Kerala

Citation: 2024 LiveLaw (Ker) 595