Judgment

CHINNAPPA REDDY, J.:- Shri Raju Ramachandran appearing for an employee who claims that a sum of Rs. 5712.61 p. is due to him from the Lord Krishna Textile Mill, out of which a sum of Rs. 3722.20p had become due before the take over of management of the Mill under the Sick Textile Undertakings (Taking Over of Management) Act made a concise, but interesting submission that the low priority given to amounts due to employees relating to the pre-take-over management period in the Second Schedule of the Sick Textile Undertakings (Nationalisation) Act was unconstitutional both because it did not sub-serve the object of giving effect to the policy of the State towards securing the directive principle specified in Art. 39(b) of the Constitution and also because the classification had no nexus with the object of the statute as stated in the Preamble.

2. Section 21 of the Sick Textile Undertakings (Nationalisation) Act is as follows : -

"21. The claims arising out of the matters specified in the Second Schedule shall have priorities in accordance with the following principles, namely : -

(a) category I will have precedence over all other categories and category II will have precedence over category III and so on;

(b) the claims specified in each of the categories, except category IV, shall rank equally and be paid in full, but if the amount is insufficient to meet such claims in full, they shall abate in equal proportions and be paid accordingly;

(c) the liabilities specified in category priorities be discharged, subject to the priorities specified in this section, in accordance with the terms of the secured loans and the priority, inter se, of such loans; and

(d) the question of payment of a liability with regard to a matter specified in a lower category shall arise only if a surplus is left after meeting all the liabilities specified in the immediately higher category."

The Second Schedule of the Act is as follows :

"The Second Schedule

(See sections 21, 22, 23 and 27) Order of priorities for the discharge of liabilities in respect of a sick textile undertaking

Part A

Post-take-over management period

Category I -

(a) Loans advanced by a bank.

(b) Loans advanced by an institution other than a bank.

(c) Any other loan

(d) Any credit availed of for purpose of trade or manufacturing operations.

Category II. -

(a) Revenue, taxes, cesses, rates or any other dues to the Central Government or a State Government.

(b) Any other dues.

Part B

Pre-take-over management period

Category III. -

Arrears in relation to provident fund, salaries, and wages, and other amounts, due to an employee.

Category IV. -

Secured loans.

Category V.-

Revenue, taxes, cesses, rates or any other dues to the Central Government, a State Government, a local authority or a State Electricity Board.

Category VI. -

(a) Any credit availed of for purpose of trade or manufacturing operations.

(b) Any other dues."

3. From Sec. 21 it is clear that the liabilities of the post-take-over management period are given priority over the liabilities of the pre-take-over management period and among the liabilities of the pre-take-over management period, arrears in relation to provident fund, salaries and wages and other amounts, due to an employee are given priority. Sec. 39 of the Act declares that the Nationalisation Act is "for giving effect to the policy of the State towards securing the principles specified in cl. (b) in Art. 39 of the Constitution." Art. 39(b) of the Constitution enjoins the State to direct its policy towards securing "that the ownership and control of the material resources of the community are so distributed as best to sub serve the common good." It is obvious that any legislation which nationalises an undertaking towards securing the directive principles contained in Art. 39(b) must ordinarily provide for the discharge of the liabilities of the undertaking and if so, the legislation must also arrange the priorities for the discharge of the liabilities. The distinction made between the lia