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The case came up before the five-judge bench of the Supreme Court after a three-judge bench had referred it to a higher bench because certain questions of seminal importance and high constitutional significance were raised in the course of arguments when the writ petition was originally heard.
1. The Bench of three Judges permitted Shriram Foods and Fertiliser Industries (hereinafter referred to as Shriram) to restart its power plant as also plants for manufacture of caustic chlorine including its by-products and recovery plants like soap, glycerine and technical hard oil, subject to the conditions set out in the Judgment.
2. The main issue in the original writ petition which was filed in order to obtain a direction for closure of the various units of Shriram on the ground that they were hazardous to the community.
3. But while the writ petition was pending there was escape of oleum gas from one of the units of Shriram on 4 and 6 December 1985 and applications were filed by the Delhi Legal Aid & Advice Board and the Delhi Bar Association for award of compensation to the persons who had suffered harm on account of escape of oleum gas.
4. The Court thought that these applications for compensation raised certain important issues and those issues should be addressed by a constitutional bench.

Judgement :

The first question which requires to be considered is as to what is the scope and ambit of the jurisdiction of this Court under Article 32.The Court wholly endorsed what had been stated by Bhagwati, J. in Bandhua Mukti Morcha v. Union of India and Ors. as regards the true scope and ambit of Article 32. It may now be taken as well settled that Article 32 does not merely confer power on this Court to issue a direction, order or writ for enforcement of the fundamental rights but it also lays a constitutional obligation on this Court to protect the fundamental rights of the people and for that purpose this Court has all incidental and ancillary powers including the power to forge new remedies and fashion new strategies designed to enforce the fundamental rights.
The next question which arises for consideration on these applications for compensation is whether Article 21 is available against Shriram which is owned by Delhi Cloth Mills Limited, a public company limited by shares and which is engaged in an industry vital to public interest and with potential to affect the life and health of the people. The issue of availability of Article 21 against a private corporation engaged in an activity which has potential to affect the life and health of the people was vehemently argued by counsel for the applicants and Shriram.[2]
The Court traced the evolution of the Doctrine of State Action to ascertain whether the defendants in this case fall under the definition of the term state, as provided under Article 12, or not. The Court also looked into the Industrial Policy of the Government. Under the Industrial Policy Resolution 1956 industries were classified into three categories having regard to the part which the State would play in each of them. The first category was to be the exclusive responsibility of the State. The second category comprised those industries which would be progressively State owned and in which the State would therefore generally take the initiative in establishing new undertakings but in which private enterprise would also be expected to supplement the effort of the State by promoting and development undertakings either on its own or with State participation. The third category would include all the remaining industries and their future development would generally be left to the initiative and enterprise of the private sector.[3]
If an analysis of the declarations in the Policy Resolutions and the Act is undertaken, we find that the activity of producing chemicals and fertilisers is deemed by the State to be an industry of vital public interest, whose public import necessitates that the activity should be ultimately carried out by the State itself, in the interim period with State support and under State control, private corporations may also be permitted to supplement the State effort. The argument of the applicants on the basis of this premise was that in view of this declared industrial policy of the State, even private corporations manufacturing chemicals and fertilisers can be said to be engaged in activities which are so fundamental to the Society as to be necessarily considered government functions.