The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986
The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986
1. Background
Swadeshi Cotton Mills Company Limited was a textile company with several units across India (Kanpur, Naini, Ujjain, Raebareli, Maunath Bhanjan, etc.).
Due to serious mismanagement, financial crisis, and labor unrest, the mills stopped functioning properly.
The closure of mills caused huge unemployment and risked the supply of cotton textiles, which was an essential commodity for the public.
To safeguard workers’ interests and ensure continuous textile production, the Government of India decided to acquire the undertakings of Swadeshi Cotton Mills.
Parliament passed this special legislation in 1986.
2. Objective of the Act
To acquire and transfer the undertakings of Swadeshi Cotton Mills Company Limited to the Central Government.
To ensure the continued production of cotton textiles.
To protect employment of workers.
To maintain the supply of cloth and yarn to the common people.
3. Important Provisions of the Act
(a) Transfer of Undertakings (Section 3)
From the appointed day (1st April, 1986), the ownership of the undertakings of Swadeshi Cotton Mills stood transferred to the Central Government.
(b) Vesting in National Textile Corporation (NTC) (Section 4)
The undertakings acquired by the Central Government were vested in the National Textile Corporation Limited (NTC), which was a government company.
NTC was made responsible for management and revival.
(c) Effect of the Act
All properties, assets, rights, leaseholds, machinery, plants, stock, cash, and contracts of Swadeshi Cotton Mills automatically transferred to the Government and then to NTC.
All liabilities of the company before the appointed day did not transfer to NTC, they remained with the old company.
(d) Payment of Compensation (Section 8)
The Government fixed compensation for the acquisition at ₹24.57 crores payable to Swadeshi Cotton Mills Company Limited.
(e) Employment of Workers (Section 13)
All workers employed in the mills before the appointed day continued to be employed under NTC with the same conditions of service.
This provision protected jobs.
(f) Legal Protection
No claim could be made against the Government or NTC for any liability of the company prior to acquisition.
This ensured smooth takeover.
4. Case Laws Related to the Act
(a) Swadeshi Cotton Mills v. Union of India (1981 & 1986 series of cases)
Even before the 1986 Act, the Swadeshi Cotton Mills had been subject to earlier government interventions.
In Swadeshi Cotton Mills v. Union of India (1981), the Supreme Court discussed the power of the Government to take over management of industries under the Industries (Development and Regulation) Act, 1951.
Later, when Parliament passed the 1986 Act, the takeover was given permanent effect through acquisition.
(b) National Textile Corporation Ltd. v. Nareshkumar Badrikumar Jagad (1995)
After acquisition, disputes arose over ownership of certain assets and properties of Swadeshi Cotton Mills.
The Supreme Court held that all assets of the company automatically vested in the Government and then in NTC, as per the 1986 Act.
Former owners or creditors could not claim those assets.
(c) Workmen of Swadeshi Cotton Mills v. Union of India (1987 onwards in High Courts and SC)
Workers approached courts demanding better service conditions and wage arrears after takeover.
Courts held that since workers continued in service under NTC, their employment rights were protected, and NTC was bound to honor service continuity.
5. Significance of the Act
Protection of Workers – Thousands of workers retained their jobs.
Revival of Sick Mills – Mills were managed by National Textile Corporation.
Public Interest – Ensured continuous supply of cotton textiles to the market.
Precedent – This Act became an example for future acquisitions of sick industries in the public interest.
✅ Conclusion
The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986 is a special legislation that permanently transferred the company’s undertakings to the Government and then to NTC, mainly to protect employment, revive sick units, and maintain textile production.
Courts upheld the validity of this Act and clarified that once assets were vested in NTC, the old company or its creditors could not reclaim them.
0 comments