This article is written by Souradh C. Valson from Government Law College, Thiruvananthapuram and it discusses the duty to act fairly and its application in the Keshav Mills case.

Introduction

It is commonly accepted that there are three types of governmental functions; Legislative Executive, and Judicial. Usually, these three functions are carried out by the three different organs of the state, i.e, the legislature, executive and judiciary.

The legislature is responsible for lawmaking, the executive is responsible for the implementation of the law, and administration of the law and the judiciary is responsible for declaring and interpreting the law. The trouble lies in separating and distinguishing the functions and responsibilities of the three organs. There is no uniform, scientific, and precise test to differentiate between these functions. This problem is worsened when a single organ is vested with more than one function. Many authors and jurists have attempted to make such a classification, however, it is not easy.

What is the ‘duty to act fairly’

In Re R.N, Lord Parker C.J describes natural justice as the duty to act freely. Although the term duty to act freely and natural justice are similar, there is a key difference between the two. Natural Justice is the right given to the citizens to protect them against bias or arbitrary actions.

However, the duty to act fairly is a duty imposed on administrative and quasi-judicial bodies to prevent them from acting in a biased or arbitrary manner.

Why should authorities act fairly

The rule of law rightfully states that no person is above the law. This principle is enshrined to provide equality among people and to provide equal protection to the people. Authorities must act fairly to ensure an equal society. Thus only through fair actions can the fundamental rights of citizens be properly insured.

The legislature cannot make laws for every special circumstance that may arise, for this reason, judicial and administrative bodies, while pronouncing a judgment, or order must act with fairness to close the loopholes in the law. Another reason why authorities are bound to act fairly is to protect the legitimate expectation of the citizens. The development of a country is dependent on the cooperation of the three organs of the government. Fair action not only protects the citizens from arbitrary action but also creates transparency in the adjudicating bodies.

Principles of natural justice

• Nemo judex in causa sua

The first principle is that no person shall be the judge of his own case. An impartial person should be the judge of any case. The reason barring a person from judging his own case is to prevent any bias such as:

1. Pecuniary bias: If the adjudicating authority has any financial interest in the subject matter, however small it may be, it will lead to bias by the administrative authority.
2. Personal bias: If any judicial body has any relation with the party, both professional and personal, there will be a bias against that party.
3. Departmental bias: This form of bias is very common in administrative matters, and failure to rectify this bias is necessary for a fair administrative action. 
4. Subject matter bias: If the adjudicating authorities are directly or indirectly related to the subject matter, a fair verdict cannot be produced.

• Audi Alteram Partem

This Latin term embodies the principle that the courts cannot punish a person without offering an opportunity to present himself. This consists of four important components:

• Issuing notice: Parties to the case must be given fair notice about the case for a fair trial. Even if the laws governing the case do not specify the serving of notice, the parties must be given the notice. The notice should contain the charges against the accused. He can only be convicted on those charges.

• Right to adduce evidence and present case: After serving the notice, the parties must be given a fair chance to prepare and defend themselves in the case. Improper refusal of this right is seen as arbitrary.

• Right to cross-examine: Another aspect of fair hearing is the right to cross-examine the parties. Tribunals and courts should give the necessary documents to the parties and should ensure the presence of the officers who conducted the investigation.

• Right to appoint a legal representative: It is the right of the accused party to appoint a legal representative in matters of enquiry. The right to appoint a legal representative cannot be denied by any court.

• Reasoned decision

This is based on three principles: 

• The aggrieved party has the opportunity to present during an appeal or revision, the reason for rejection by the lower authority.
• It serves as an adequate reason for the party against whom the decision was given.
• It prevents the arbitrary exercise of power by the executive bodies on whom judicial power is vested.

Summary of Keshav Mills case

Facts 

Keshav Mills was a prominent textile mill in Petlad, Gujrat. The company flourished in its operations from its inception in 1935 to 1965. The majority of the shares in the company were in the hands of one particular family.

In the year 1965, the company started to lose its money due to various reasons and was in loss. This mill, among several mills in the state, was facing the same problem of unprecedented losses.

Subsequently, the government, according to the power vested in it under Section 15 of the Industries (Development and Regulation) Act, 1951, passed an order appointing an Investigating committee for conducting an inquiry into the affairs of the company.

The investigating committee had to find out the reasons for the present state of the company, deficiencies with the company, the immediate and long term requirements of the company, and the financial projections of the company. They allowed the company and its management to adduce evidence and make representations before the completion of the investigation.

The committee completed the inquiry and submitted its report to the government. Based on this report, the government passed an order under Section 18A of the Act directing the Gujarat State Textile Corporation (Authorised Controller)  to take over the management of the entire company for five years from the date of the order.

The assistant secretary of the authorised controller took control of the godowns, buildings, and other departments of Keshav mills. Subsequently, the company filed a writ petition under Article 226 before the Delhi High Court. 

The main contention raised by the petitioners was that; the government did not send any copy of the committee’s report to the company and also didn’t allow an opportunity of hearing to the petitioners.

The decision of the High Court

• The issue before the high court was whether taking over an industry under Section 18A without giving an opportunity of hearing vitiate the proceedings.
• The full bench of the Delhi High Court dismissed the petition after hearing both parties.
• The petitioners then filed an appeal by special leave to the Supreme Court.

Issues 

The dispute between the parties is on the question regarding which principles of natural justice are applicable in an industrial undertaking under Section 18A of the Act.

So the Supreme Court laid down the following issues:

1. Are all the principles of natural justice applicable in an industrial undertaking under Section 18A of the Act?
2. What is the principle applicable in this case?
3. a. Whether in this case, the rules have to be applied both during the investigation under Section 15 and while executing the report under Section 18A?
4. Whether the company has to be served with the report of the committee before issuing an order of taking over?

Relevant legal provisions

Industrial (Development and Regulation) Act, 1951

Section 15: Power to investigate in industrial undertakings and scheduled industries, when the government thinks that:

• If in any industrial undertaking or scheduled industries-
  • There has been, or there will likely be a reduction in the volume of the good produced by the industry without any justification.
  • There has been or there likely will be a deterioration of the goods produced, which can be avoided.
  • There has been or there likely will be an increase in the price of goods without any justification.
  • There is a need for protecting or preserving any resources of national importance which the industry utilises for its production.

Section 18A: Power of the Central Government to control industrial undertakings

• If the Central Government thinks that:
  • The industry or undertaking has failed to comply with the directions given by the Central Government.
  • After the investigation under Section 15, the investigating committee thinks that the industry is acting in a manner detrimental to the industry and national interest.

• The order issued under Section 18A shall be valid for five years from the date of the order, and the government has the power to appoint any person for managing the affairs of the undertaking.

The judgment of the court

The judgment was made by addressing the above mentioned three issues:

1st issue

The court held that the order by the Central Government to take over the mill was an executive decision, which includes an administrative decision, so the principle of natural justice doesn’t arise. The court relied on the Regina v. Gaming Board case, where it was held that when a fair decision was made on the basis of evidence adduced by an informant, not under charge, it is not necessary to reveal his identity.

2nd issue

Concerning the second issue, the court held that it is not practicable to lay down a specific set of rules of natural justice, which judicial and quasi-judicial bodies must follow in every case. Courts have to apply the essence of the principle of natural justice depending on the facts and circumstances of cases. The only imperative point is that the concerned person should have a reasonable opportunity to present themselves, and the administrative body must act fairly. Fair procedures are what a reasonable person would consider fair in a particular circumstance.

3rd issue

The Act was passed to regulate and develop industries in the country. To achieve the intended purpose of the Act, the government has certain powers to regulate the functioning and production of industries. In certain cases, if the government thinks it is expedient in the national interest to take over the functioning of certain industries, it can do that as well.

In this case, the court held that the appellants were given a fair treatment and reasonable opportunity to adduce evidence and present their case before the Investigation Committee. The non-disclosure of the report by the investigating committee to the company cannot be seen as violative of natural justice principles, as they were not prejudiced by the non-disclosure.

Summary of the case

In this case, the appellants were aggrieved by the action of the executive bodies for not submitting the report of the investigation. The court decided that the rule of natural justice cannot be framed into specific guidelines as it depends on the circumstances of the case. The parties have the right to receive the report of the investigating committee. The committee allowed the company to adduce evidence and make necessary submissions before it. 

After submitting the report, the Central Government took over control of the company by its power under Section 18A of the Act. The government, based on this report, took control of the company. By this action, the government did not affect the rights of the company and acted reasonably and fairly.  

Conclusion

The important benefit of adding the term duty to act fairly is to present protection from procedures where a classification between judicial and quasi-judicial is not possible. In England, the distinction between procedural and substantive law is clear and the courts through various judgments have held that the duty to act freely only applies to the procedural laws. In India “unfair procedure” is similar to “unreasonable” and “arbitrary” exercise of power. These unfair actions will lead to the violation of  Articles 14, 19, and 21 of the Constitution in the cases interpreted by the courts in E.R Royappa v State of Tamil Nadu, Maneka Gandhi v Union of India, and several other cases.

References

• 94 (2001) DLT 301, 2001 (60) DRJ 651, 2001 (78) ECC 677, 2002 (144) ELT 288 Del, 2003 262 ITR 269 
• https://indiankanoon.org/doc/800551/
• https://indiankanoon.org/doc/1550190/
• http://www.supremecourtcases.com/index2.php?option=com_content&itemid=1&do_pdf=1&id=809