Full Judgment Text
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PETITIONER:
VELLORE ELECTRIC CORPORATION LTD. AND ANR.
Vs.
RESPONDENT:
STATE OF TAMIL NADU & ORS.
DATE OF JUDGMENT13/04/1989
BENCH:
VENKATACHALLIAH, M.N. (J)
BENCH:
VENKATACHALLIAH, M.N. (J)
RANGNATHAN, S.
PATHAK, R.S. (CJ)
MUKHARJI, SABYASACHI (J)
NATRAJAN, S. (J)
CITATION:
1989 AIR 1741 1989 SCR (2) 475
1989 SCC (4) 138 JT 1989 Supl. 105
1989 SCALE (1)1103
ACT:
Constitution of India, 1950: Articles 14, 19, 31, 31-C,
39(b) and 39(c).
’Material Resources of the Community’--Whether include
electrical energy generated and distributed by private
undertakings.
Acquisition of undertakings--Compensation--Justiciability
of.
Procedure under Indian Electricity Act, 1910--Alter-
native concurrent procedure envisaged under Tamil Nadu
Private Electricity Supply Undertakings (Acquisition) Act,
1973--Whether discriminatory and unconstitutional.
Tamil Nadu Private Electricity Supply Undertakings
(Acquisition) Act, 1973: Sections: 2-6, 10(f) and 23.
Constitutional validity of--Object of the Act--Whether
has nexus to objects of Article 39(b) and (c) of the Consti-
tution and therefore protection of ArtiCle 31-C.
Procedure for acquisition of undertakings initiated
under Tamil Nadu Electricity Supply Undertakings (Acquisi-
tion) Act, 1954--Proceedings interrupted by Courts
order--Fresh acquisition proceedings under subsequent Act of
1974 Whether acquisition of ’choses-in-action’.
Provision relating to liability of licensee to account
to Government in respect of possession of and any benefit
derived from undertaking after date of vesting--Whether
arbitrary or unconstitutional.
’Compensation Amount’--Provision for exclusion of works
paid
476
for by the consumers--Whether unconstitutional.
Sums due to Government and Electricity Boards from
licensee-Provision for deduction from compensation
amount--Whether unconstitutional.
Acquisition--Property belonging to
undertaking--Non-delivery of--Loss sustained by
Government--Computation of--Basis--Market value--Whether
unconstitutional.
Acquisition--"Accredited Representative"--Time granted
to signify choice as to basis of determination of
amount--Whether unreasonably short and arbitrary.
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HEADNOTE:
The petitioner companies viz., Veilore Electric Corpora-
tion Ltd., Kumbakonam Electric Supply Corporation Ltd. and
Nagapatam Electric Supply Corporation Ltd. were grantee of
licences under the Indian Electricity Act, 1910 by the
Government of the then Presidency of Madras for supply of
electrical-energy in their respective areas.
In exercise of its power under Section 4(1) of the
Madras Electricity Supply Undertakings (Acquisition) Act,
1954, the State Government issued orders dated 12.1.1968
taking over the undertakings of the Petitioner Companies
viz., Kumbakonam Electricity Supply Company and Nagapatam
Electric Supply Company declaring that their undertakings
shall vest in the Government with effect from the dates
specified in their respective orders.
These two petitioner companies filed writ petitions in
the High Court of Madras challenging the constitutional
validity of the 1954 Act, which were dismissed.
The Writ Appeals filed by them were also dismissed by a
Division Bench of the High Court. Thereafter appeals were
filed in this Court, which were however, later withdrawn.
Though proceedings for the acquisition of the undertak-
ings of these two companies had been initiated under the
1954 Act but full effectuation thereof had been interrupted
by the interlocutory orders made by the courts staying
delivery of possession of the undertaking.
Subsequently the Tamil Nadu Private Electricity Supply
Undertakings (Acquisition) Act, 1973 came into force which,
inter alia, nul-
477
lifted the effect of the action taken under the 1954 Act. On
30.10.1973 the State Government issued fresh orders under
Section 4(1) of 1973 Act declaring that the undertakings of
these two petitioner companies shah vest in Government with
effect from 1.12.1973.
A similar order was passed b.v the State Government
under Section 4(1) of 1973 Act in respect of the third
petitioner company viz. Vellore Electric Corporation Ltd.,
declaring that the undertaking of this company shall vest in
the Government with effect from 7.1.1974. By an order dated
2.2.1978 the State Government also rejected the application
of the petitioner Vellore Electric Corporation seeking a
change in the basis for determination of amount from basis A
to basis B under the 1974 Act.
Writ Petitions were filed in this Court under Article 32
of the Constitution by the three affected companies chal-
lenging the constitutional validity of the Tamil Nadu Pri-
vate Electricity Supply Undertakings (Acquisition) Act,
1973, as well as the orders made under Section 4(1) on the
ground that the ’Act’, which envisages the acquisition of
the Electric Supply Undertakings of petitioners as violative
of Articles 14, 19(1)(f), 19(1)(g) and 31 of the Constitu-
tion.
Dismissing the Writ Petitions,
HELD: 1. The electricity generated and distributed by
the undertakings of the petitioner-companies constitute
"material resources of the community." for the purpose and
within the meaning of Article 39(b).
1.1 The idea of distribution of the material resources
of the community in Article 39(b) is not necessarily limited
to the idea of what is taken over for distribution amongst
the intended beneficiaries. That is one of the modes of
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"distribution". Nationalisation is other mode.
1.2 On an examination of the scheme of the impugned law
the conclusion becomes inescapable that the legislative
measure is one of nationalisation of the undertakings and
the law is eligible for and entitled to the protection of
Article 31-C.
1.3 The economic cost of social and economic reform is,
perhaps, amongst the most vexed problems of social and
economic change and constitute the core element in National-
isation. The need for constitutional immunities for such
legislative efforts at social and economic
478
change recognise the otherwise unaffordable economic burden
of reforms. It is, therefore, not possible to divorce the
economic consideration or components from the scheme of the
nationalisation with which the former are inextricably
integrated. The financial cost of a scheme of nationalisa-
tion lies at its very heart and cannot be isolated. Both the
provisions relating to the vestitute of the undertakings in
the State and those pertaining to the quantification of the
’Amount’ are integral and inseparable parts of the integral
scheme of nationalisation and do not admit of being consid-
ered as distinct provisions independent of each other.
Tinsukia Electric Supply Co. Ltd..v. State of Assam,
[1989](3) S.C.C. 709; applied.
1.4 In view Of the fact that what was acquired in the
instant case were not merely "choses-in-action" but the
undertakings themselves, it is not necessary to go into the
question whether a "choses-in-action" can at all be ac-
quired.
State of Madhya Pradesh v. Ranojirao Shinde & Anr.,
[1968] (3) S.C.R. 489 and Madan Mohan Pathak v. Union of
India & Ors., [1978] (3) S.C.R. 334; referred to.
2. The subject matter of the grant in relation to dis-
tribution in the community of such material resources be it
electricity, water, gas or other essential amenities of life
has a special nature.
New Orleans Gaslight Co. v. Louisiane Light & Heat
Producing & Mfg. Co., 115 U.S. 650; The Okara Electricity
Supply Co. Ltd. v. The State of Punjab, A.I.R. 1960 S.C.
284; referred to.
2.1 The impugned law is within the legislative compe-
tence of the State Legislature and such State law, with the
Presidential assent, prevails and is not over-borne by the
Central law. The impugned State law, by its 22nd section,
expressly excludes the operation of any provisions of the
Electricity Act, 1910, in so far as such provision is incon-
sistent with the provisions of the Stare Law. The Constitu-
tional immunity afforded to the State law prevents any
challenge to it on grounds based on Article 14 or 19.
3. There is nothing unreasonable about the provision
which merely recognises the obligation of a licensee to
account for its acts in relation to a property which has
already vested in Government. There-
479
fore Section 4 which pertains to the liability of the licen-
see to account to Government in respect of possession of and
any benefit derived from the undertaking after the date of
the vesting is not arbitrary and unconstitutional.
4. The deduction envisaged by Section 10(d) from the
amount payable towards and on account of arrears of elec-
tricity charges payable by the licensee to the Government or
the Electricity Board as the case may be for the supply of
Electricity made by them to the licensee is a legitimate
item of deduction. It cannot be held to be arbitrary on the
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apprehension that even a disputed and untenable claim in
that behalf becomes entitled to deduction. Section 13(1)(e)
makes such a dispute as one of the arbitrable disputes and
no deduction of a disputed claim can be justified by the
Government if the arbitrator--who is or has been a District
Judge or a retired High Court Judge-holds that the deduction
is unjustified.
5. If a debt is deducted from the "amount", the debt is
satisfied and is extinguished and no further debt remains
outstanding to get itself attached to and becomes an encum-
brance upon the substituted security viz., the ’amount’.
Section 6(2) and Section 10(e) must be construed harmonious-
ly and in a reasonable manner. There is no scope for any
apprehension of a possible double recovery of the same debt.
Therefore the Act cannot be challenged on the ground of
possible double recovery of the same debt under Section 6(2)
and Section 10(e).
6. The measure of the reimbursement for an asset with-
held by the licensee is the corresponding expenditure to be
incurred by Government for replacement which, in eminently
conceivable cases, could be the market value of the asset
which is so withheld by the licensee and which has to be
replaced to keep the undertaking functioning. Therefore
Section 10(f) cannot be held to be arbitrary on the ground
that it is an instance of application of double standards
because while recovery of "market value" is sought to be
made for non-delivery of the item whereas in computing the
"amount" only the "book value" of such "property" or "right"
is taken.
7. It cannot be said that the accredited representative
is, under Section 8(1), given only a month’s time from the
date of his appointment to signify the choice under Section
5 as to the basis of determination of the amount. Section
8(1) also provides ’or such further time as may be granted
by the Government’. If the exercise of this power is arbi-
trary or capricious the licensee has remedies in Administra-
tive
480
Law. But the provision itself cannot be held to be bad or
invalid on the ground that time granted under the Section to
signify choice under Section 5 is unreasonably short.
8. The order of the Government dated 2.2.1978 rejecting
the application of the Petitioner, Vellore Electric Corpora-
tion and refusing a change in the basis for determination of
amount from basis A to basis B is set aside and the Govern-
ment is directed to consider the matter afresh.
JUDGMENT:
ORIGINAL JURISDICTION: Writ Petition No. 5 (N) of 1974.
(Under Article 32 of the Constitution of India).
Soli J. Sorabjee, Harish N Salve, A.K. Verma, K.J. John,
Srinivasamurthy, Ms. Naina Kapur, J.B. Dadachanji and Joel
Pares for the Petitioners.
Shanti Bhushan and A.V. Rangam for the Respondents.
The Judgment of the Court was delivered by
VENKATACHALIAH, J. In these writ-petitions under Article
32 of the Constitution of India, three electric supply
undertakings in the State of Tamil Nadu, namely, Vellore
Electric Corporation Ltd., Nagapatam Electric Supply Co.
Ltd., and Kumbakonam Electric Supply Corporation Ltd.,
challenge the constitutional validity of the Tamil Nadu
Private Electricity Supply Undertakings (Acquisition) Act,
1973, (’Act’ for short) on the ground that the ’Act’, which
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envisages the acquisition of the Electric Supply Undertak-
ings of three petitioners, as violative of Articles 14,
19(1)(f), 19(1)(g) and 31 of the Constitution.
These writ-petitions were heard along with Writ Petition
(Civil) Nos. 457 and 458 of 1972, pertaining to the acquisi-
tion of Tinsukhia Electric Supply Co. Ltd., and Dibrugarh
Electric Supply Co. Ltd., under the provisions of the Tin-
sukhia and Dibrugarh Electric Supply Undertakings (Acquisi-
tion)Act, 1973, (Assam Act 1973) and the main contentions
touching the constitutionality of such State laws, providing
for acquisition of private electricity undertakings--inde-
pendently of and without recourse to the option to purchase
envisaged by the terms of licences and under the provisions
Sections 6, 7 and 7A of the Electricity Act 1910--are con-
sidered in the main judgment in the said WP
481
Nos. 457 & 458, separately rendered today.
2. The scheme and the broad features of The Tamil Nadu
Private Electricity Supply Undertakings (Acquisition) Act,
1973, which received the assent of the President on 30th
September, 1973, are that the "Act" enables and provides for
the acquisition of the private undertakings engaged in the
business of supplying electricity to the public other than
those belonging to and are under the control of the State
Electricity Board or the local authorities.
Section 2 of the Act declares that the "Act" is for
giving effect to the policy of the State towards securing of
the Directive Principles, specified in clauses (b) & (c) of
Article 39 of the Constitution of India. Section 3 is the
interpretation clause. Section 4 empowers the State Govern-
ment to declare, by order in writing, that any undertaking
shall vest in Government on the date specified in such
order. The proviso to Section 4 enables the Government to
modify, by advancing or postponing, the date originally
fixed in such order, or the modified date; or to cancel such
order. The proviso is, however, subject to a limitation
which is in terms following:
"So, however, that no such order shall be
modified or cancelled after the undertaking
has vested in the Government but such cancel-
lation shall not be deemed to prevent the
Government from taking any proceeding de novo
in respect of such undertaking under this
Act."
The mode of promulgation and the incidence
and consequence of an order under sub-section
(1) of Section 4, are envisaged in subsection
(3) (4) & (5) of Sections 4 and 6 of the Act.
Sub-sections (3), (4) and (5) of Section 4
provide:
"(3) Every order under sub-section (1) shall
be--
(a) served on the licensee in the prescribed
manner; and
(b) published in such manner as the Government
may deem fit.
(4) On the vesting date the under-
taking, to which the order under sub-section
(1) relates, shall, subject to the provisions
of section 6, stand transferred to, and vest
in, the Government.
482
(5) Every licensee who, after the
vesting date, was in possession of, or deriv-
ing any benefit from the undertaking vested in
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the Government under sub-section (1), shall be
liable to pay to the Government, for the
period, after such vesting, for which he was
in such possession or deriving such benefit,
an amount as compensation for the use, occupa-
tion or enjoyment of that undertaking as the
prescribed authority may fix in the prescribed
manner. Such authority shall take into consid-
eration such factors as may be prescribed."
We shall refer to Section 6 and its impact at an appropriate
stage later.
Section 5 of the "Act" envisages the "amount" to be
given to the licensee on whom an order has been served under
Section 4 and provides for its determination on two alterna-
tive basis--Basis (A) or Basis (B)--as may be chosen by the
licensee in the exercise of the option given under Section
8. Section 7(1) contemplates and requires the appointment of
an ,Accredited-Agent" by the licensee within three months of
service of the order under Section 4(1). Such accredited-
agent is required within one month of his appointment or
with such further time as may be granted by Government,
signify the choice of the Basis for the determination of the
"Amount". Section 8(2) says that the choice of the Basis
once intimated shall not be open to revision except with the
concurrence of the Government. ’Basis (A)’ provides that the
amount to be given shall be equivalent to 12 times of the
average net annual profits of the undertaking during a
period of any five Account-years at the option of the licen-
see within a period of seven consecutive account-years
immediately preceding the vesting date. ’Basis (B)’ contem-
plates a different mode of determination of the amount. It
provides for payment of the aggregate value of the sums
specified in clauses (i) to (ix) of sub-section (2) of
Section 5. Section 10 speaks of the deduction that the
Government is entitled to make for the amount. They are
specified at clauses (a) to (i) of Section 10. Section 11
provides for the manner of payment of the "Amount". Section
13(1) renders any dispute "in respect of any of the matters
in clauses (a) to (e) of Section 13(1)" arbitrable. The
Arbitrator is required, by Section 11(2), to be a District
Judge or a person who is a retired District Judge or a
retired High Court Judge.
Chapter III of the Act, comprising Sections 14, 15, 16
and 17 contemplate and provide for the termination of agree-
ments between the licensee on the one hand and the
managing-agent or the managing-
483
director, as the case may be, on the other; the continuation
under the Government or the Electricity Board, of services
of persons on the staff of the licensee taking an inventory
of the assets and for information in regard to the documents
maintained by the licensee and other incidental matters.
Sections 18 and 19 of Chapter IV deal with offences,
penalties and procedure therefore Chapter V, comprising
Sections 20, 21, 22, 23 and 24, deals with miscellaneous
matters. Two sections in Chapter V are of particular rele-
vance. Section 22(i), inter-alia, provides that no provi-
sions of Electricity Act, 1910, or the Electricity Supply
Act, 1948, in so far as such provisions are inconsistent
with any of the provisions of the Act, shall have any ef-
fect. Section 23 refers to and deals with the action initi-
ated under the earlier State law viz., the Tamil Nadu Elec-
tric Supply Undertaking (Acquisition) Act, 1954, (Tamil Nadu
Act 29 of 1954) which is repealed by the ’Act’. Sub-section
(1) of Section 23 says that the said Act 29 of 1954 shall
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cease to apply to any undertaking as defined in Section
3(12) of the ’Act’ which has "not vested with and taken
possession of by the Government under the provisions of the
1954 Act" before the commencement of the 1973 Act. Sub-
section (2) and (3) of Section 23 envisage and provide for
situations where some action had been initiated by the 1954
Act but such action had not culminated in the vesting of the
undertaking and possession thereof being taken-over by
Government. Sub-section (2) and (3) of Section 23 provide:
"(2) Notwithstanding anything con-
tained in the 1954 Act, if, in pursuance of
any order under sub-section (1) of section 4
of the 1954 Act in respect of any undertaking
as defined in section 3 (12) of this Act, the
Government have not taken possession of such
undertaking before the commencement of this
Act that order shall lapse and be of no effect
and such undertaking shall not vest and shall
be deemed never to have vested in the Govern-
ment under the 1954 Act and in respect of such
undertaking it shall be lawful for the Govern-
ment to make an order under subsection (1) of
section 4 of this Act and the provisions of
this Act shall accordingly apply to such
undertaking."
"(3) Notwithstanding anything
contained in the 1954 Act, where, in respect
of any undertaking as defined in section 3(12)
of this Act, the Government have postponed the
date of vesting under the proviso to sub-
section (1) of
484
section 4 of the 1954 Act, that undertaking
shall not vest, and shall be deemed never to
have vested, in the Government under the 1954
Act, notwithstanding the expiration of a
period of one year from the date originally
fixed under sub-section (1) of section 4 of
the 1954 Act and in respect of such undertak-
ing it shall be lawful for the Government to
make an order under sub-section (1) of section
4 of this -Act, and the provisions of this Act
shall accordingly apply to such undertaking."
The provisions of Section 23 acquire particular signifi-
cance in the case of the Kumbakonam Electric Supply Corpora-
tion Ltd. and Nagapatam Electric Supply Co. Ltd., petition-
ers in W.P. 14 & 15 of 1974, as, indeed, proceedings for the
acquisition of the undertakings of these two companies had
been initiated under the 1954 Act but full effectuation
thereof had been interrupted by the interlocutory orders
made by courts in proceedings in which these two companies
had challenged the validity of the 1954 Act. Section 23 of
the present ’Act’ seeks legislatively to set at naught such
legal consequences as might come to be considered as ensuing
from the action taken under the earlier 1954 Act. Some
contentions urged in these cases centre round what the
petitioners refer to as some irreversible, vested rights
according to them under the earlier proceedings under the
1954 Act.
3. The Vellore Electric Corporation Ltd., petitioner in
WP No. 5(N) of 1974, was granted on 14.5.1929 by the Govern-
ment of the then--Presidency of Madras under the provisions
of the Indian Electricity Act, 1910, (1910 Act’ for short),
for the supply of. electrical-energy within the municipal
limits of Vellore town which was later extended to cover the
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adjacent area of Ranipet. Clause 12 of the licence envisages
the option to the Government to purchase the licensee’s
undertaking on the expiry of 30 years from the commencement
of the licence or if licence is renewed thereafter on expi-
ration of every subsequent period of 20 years, during the
continuance of the licence. At the relevant time when the
order under Section 4(1) was made, the remaining period of
the licence was upto 14.5. 1979. The State Government in
exercise of powers under Section 4(1) of the Act made an
order dated 30.10.1973, served on the petitioner on 5.11.
1973 fixing 1.12.1973 (which was later postponed to
7.1.1974) as the date of vesting.
4. The facts in W.P. 14 of 1974 are the following:
485
The petitioner, the Kumbakonam Electric Supply Corpora-
tion Ltd., a public limited company, then engaged in the
business of distribution and supply of electrical energy in
the Taluks of Kumbakonam and Papanasam and a portion of
Thanjavur Taluk, in the District of Thanjavur in the State
of Tamil Nadu, was granted a licence dated 15.4.1930 under
the Indian Electricity Act, 1910, by the Government of the
then-Presidency of Madras. The initial period of the licence
was 20 years with a provision for renewal for further peri-
ods of 7 years each. At the time the impugned order under
Section 4(1) of the "Act" was made, in relation to the
Electricity Supply Undertaking of this company, the unex-
pired period of the licence was up to 15.4.1978.
On 12.1.1968, the State Government in exercise of its
power under Section 4(1) of the Madras Electricity Supply
Undertakings (Acquisition) Act, 1954, made an order for the
taking-over of the undertaking. The petitioner-company filed
a writ-petition No. 704 of 1968 in the High Court of Madras,
challenging the constitutional validity of the 1954 Act
under which the order was made. That writ petition was dis-
missed on 31.7.1968. The Writ Appeal No. 338 of 1968, filed
by the petitioner was also dismissed by the Division Bench.
The petitioner preferred, by special leave, an appeal to
this Court in CA 119 of 197 1. During the pendency of the
proceedings before the High Court and before this Court,
petitioner had had the benefit of interlocutory orders,
"staying delivery of possession of the undertaking". Howev-
er, the petitioner withdrew the appeal, according to it, on
the suggestion of the Government With a view to facilitating
negotiations for a settlement.
However, on 30.9.1973, the ’Act’ in the present proceed-
ings came into force. As noticed earlier, sub-section (2)
and (3) of Section 23 of the ’Act’ statutorily abrogates the
effect, incidents and consequences of all earlier proceed-
ings taken under the 1954 Act, except in cases where the
vesting and the taking over of possession of the undertaking
had already occurred before 30.9.1973. The order under Sec-
tion 4(1) of the 1973 Act in the case of the petitioner in
WP 14 of 1974 was made on 30.10.1973 declaring 1.12.1973 as
the date of the vesting.
5. In WP No. 15 of 1974, the first petitioner, the
Nagapatnam Electric Supply Co. Ltd., a public limited compa-
ny, was the grantee of a licence, dated 22.8.1933, under the
Indian Electricity Act, 1910, by the then-Government, Presi-
dency of Madras, for the supply of electricity in the areas
specified in the grant. The initial period of the . licence
was 20 years with a provision for renewal for further peri-
ods of
486
7 years each. At the time the order under Section 4(1)
impugned in the writ-petition was made, the unexpired period
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of the licence was upto 22.8.1974. As in the case of Kumbak-
onam Electric Supply Corporation Ltd., so in the present
case, Government in purported exercise of powers under
Section 4(1) of the earlier Act, viz., the Tamil Nadu Elec-
tricity Supply Undertaking (Acquisition) Act, 1954, had made
an order on 12.1.1968 declaring that the undertaking of the
petitioner shall vest in the Government with effect from
15.7.1968. The petitioner also challenged the constitutional
validity of the 1954 Act in WP No. 703 of 1968 in the High
Court of Madras. The writ-petition was dismissed in Madras
High Court on 3.7.1968. The Writ Appeal 337 of 1968 pre-
ferred by the company before a Division Bench of the High
Court, also came .to be dismissed. The Company preferred, by
special leave, CA No. 120 of 1971 before this Court. During
the pendency of the proceedings in the High Court and in the
appeal before this Court, there were interlocutory orders,
staying delivery of possession of the undertaking. The
appeal before this Court was however, withdrawn by the
company on 5.10. 1972.
Thereafter, 1973 Act came into force. As stated earli-
er, SectiOn 23 of the ’Act’ sought to nullify the effect. of
the action taken under the 1954 Act and a fresh order dated
30.10.1973 under Section 4(1) of 1973
Act came to be promulgated declaring that the undertak-
ing of the . petitioners would vest in Government with
effect from 1.12.1973.
6. The three petitioner-companies assail the constitu-
tional validity of the ’Act’ as also the orders made under
Section 4(1) in the individual cases.
We have heard Sri Hansh Salve, learned counsel for the
petitioners in the three petitions and Shri Shanti Bhushan,
learned Senior Advocate for the State of Tamil Nadu and its
authorities. The challenge in the main, is to the constitu-
tionality of the "Act", on the basis of discrimination as
between the procedures for take-over contained in Section 6
and 7 of the Electricity Act, 1910, on the one hand and the
less advantageous, so far as licencee is concerned, con-
tained in the present ’Act’. However, some specific provi-
sions are also challenged as arbitrary and unreasonable.
The contentions in support of the petitions urged at
the hearing of these petitions--of which (b) & (c) are
particular to WP Nos. 14 and 15 of 1974--may be noticed and
formulated thus:
487
"(a) that the legislative declaration in
Section 2 of the ’Act’ that the legislation is
for giving effect to the Directive Principles
of State Policy, specified in clauses (b) &
(c) of Article 39 of the Constitution is
invalid, it being merely a pretext to undo and
take away the petitioners’ legitimate entitle-
ment to the payment of market-value as provid-
ed in the terms of the licence read with
Section 6 and 7 of Electricity Act, 19 10,
and, accordingly, the legislation does not
attract the constitutional validity from
challenge under Article 31-C of the Constitu-
tion;
(b) that, pursuant to the order made under
Section 4(1) of the 1954 Act petitioners’
undertakings stood vested in Government in the
year 1968 and the concomitant right to receive
compensation as determinable under and in
terms of the 1954 Act was came to be vested in
the petitioners and got crystalized into a
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’chose-in-action’ and that in the circum-
stances the impugned ’Act’ which in effect and
substance acquires only these "choses-in-
action", and not the undertakings as such
which had already vested under the 1954 Act;
(c) that Section 23(2) of the Impugned Act
in so far it seeks to undo the legal incidents
and consequences of the order made which
provided a less disadvantageous standards for
the determination of the amount and the im-
pugned orders which seeks to declare that the
said undertakings vest again in
Government--this time pursuant to order pro-
mulgating under Section 4(1) of the impugned
Act is violative of Article 14, 19(1)(g) and
31 (as the latter Articles then stood) being a
fraud on the power to acquire;
(d) that the ’Act’ is violative of Article
14 of the Constitution in as much as it seeks
to confer upon the Government an alternative
and discriminatory power of attaining the same
end, namely, the acquisition of petitioners’
undertakings on terms more advantageous to the
Government and more disadvantageous to the
petitioners than those contained in the Elec-
tricity Act 1910;
that the direct effect of the impugned Act is
to extinguish the rights conferred upon the
petitioners to carry on a lawful business in
terms of the subsisting licences in their
favour and is violative of Article 19(1)(f)
(as it then stood) and 19(1)(g):
488
(e) that, at all events, Section 4(5) of
the Act which renders a licencee, who after
the vesting date was in possession of, or
deriving any benefit from, the undertaking
liable to pay to Government compensation for
the use occupation enjoyment of the undertak-
ing is arbitrary and violative of Articles 14
and 31;
(f) that clause 5(2)(i) of the Act which
excludes from the compensation of the ’Amount’
works paid-for by the consumers is violative
of Article 19(1)(g) and Article 31;
(g) that Section 10(d) providing for deduc-
tion from the ’Amount’ sums due to the Govern-
ment or the Electricity Board by the licencee
account of electricity supplied by Government
is arbitrary, as the provision empowers deduc-
tions of even sums bona fide disputed by the
licencee of debts.
(h) that, while proviso to Section 6(e)
enables debts, mortgages and obligations of
the licencee to attach to the "amount" to be
given under the Act. Section 10 again envis-
ages the same ’amount’ to be deducted from the
’amount’, leading to a possible double recov-
ery of the same debt;
(i) that Section 10(f) providing for deduc-
tion of loss sustained by Government by reason
of any property belonging to the undertaking
not having been handed over at the marketvalue
of the property is unreasonable in as much as
under Basis B. Such Market-value is not but
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only the book-value is the basis of determina-
tion of the amount;
(j) that provisions of Section 8 which
prescribes a period of one month during which
the accredited representative has to exercise
a right of auction is unreasonably short,
rendering the procedure prescribed for the
choice of the Basis of determination of the
’Amount unfair and arbitrary.’
7. Re: Contentions (a), (b), & (c):
These contentions could be dealt with together. The
principal argument is that that there is no rational and
direct nexus between the objects of the Act and the Direc-
tive Principles of (1) State Policy adumorated in clauses
(b) & (c) of Article 39 in as much as the
489
impugned Act was brought forth only to avoid the conse-
quences of the terms of the licences and the beneficent
provisions of Section 6, 7 and 7-A of the Electricity Act
1910. If there is, thus, no protection to the law of Article
31-C, then its provisions would clearly violate Articles 14,
19 and 31.
These contentions have to be examined with reference to
the provisions of the Constitution as they stood in 1973.
Article 31-C was introduced by Section 3 of the Constitution
(25th Amendment) Act 1971 with effect from 20.4.1972. Arti-
cle 31-C, before the expansion of its scope by the 42nd
Amendment, protected a law giving effect to the Policy of
the State towards implementing the principles specified in
Clauses (b) & (c) of Article 39. Article 31 itself had not
then been deleted but its scope had been considerably cut
down and a law providing for acquisition of property, even
if it did not have the protection of Article 31-C, could not
be tested with reference to the adequacy of the ’amount’
payable for the acquisition. The ’just-equivalent’ or ful-
lindemnification principle had been done away with and the
question of the adequacy of the amount was rendered non-
justiciable.
It was strenuously urged on Sri Salve that the impugned
Act had no rational and direct nexus with the objects of
clauses (b) & (c) of Article 39 as the covert but easily
discernible purpose of the Act was to deny to the petition-
ers’ their rights under terms of the licence and the benefit
of Sections 6, 7 & 7(A) of the 1910 Act. A somewhat similar’
contention was urged in WP Nos. 457 & 458 of 1972 where a
similar legislation of the State of Assam was challenged.
The contention is noticed in our judgment in those appeals
thus:
" .... the acquisition of the two undertak-
ings are challenged by the petitioner on
several grounds, the principal attack, howev-
er, being that the legislations, brought
forth, as they were, in the wake of the pri-
vate-negotiations and the exercise of the
option to purchase, are not bona fide, but
constitute a mere colourable exercise of the
legislative power and that, at all events the
real objects of the two legislations have no
direct and reasonable nexus to the objects
envisage in clause (b) of Article 39 of the
Constitution and that a careful and critical
discernment of the context in which the legis-
lation was brought forth would lay bare before
the judicial eye that what was sought to be
acquired was not "undertakings" of the two
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companies but really the difference between
the "market-value" of the
490
undertakings which the State had agreed, under
the private treaties, to pay and what, in any
event, the State was obliged to pay under the
provisions of Section 7A, as it then stood on
the one hand and the "Book-Value" of the
undertaking, which the law seeks to substitute
on the other. If the protective umbrella of
Article 31-C is, thus, out of the way, the
’amount’ payable under the impugned law, it is
urged, would be illusory even on the judicial-
ly accepted tests applied to Article 31(2) as
it then stood
"
" ..... Learned Counsel submitted
that in order to decide whether a Statute is
within Article 31-C or not, the Court has to
examine the nature and character of the legis-
lation and if upon such scrutiny it appears
that there is no nexus between the legislation
and the principles in Article 39(b) the legis-
lation must be held to fall outside the pro-
tection of Article 31-C .... "
The contention was not accepted. Repelling it,
we observed in the course of the judgment in
WP Nos. 457 & 458 of 1972:
"The proposition of Sri Sorabjee, in princi-
ple, is, therefore, unexceptionable; but the
question remains whether, upon the application
of the appropriate tests, the impugned statute
fails to measure-up to the requirements of the
Constitution to earn the protection under
Article 31-C ..... "
"It is not disputed that the elec-
tricity generated and distributed by the
undertakings of the petitioner-companies
constitute "material resources of the communi-
ty" for the purpose and within the meaning of
Article 39(b)."
" .... The idea of distribution of the
material resources of the community in Article
39(b) is not necessarily limited to the idea
of what is taken over for distribution amongst
the intended beneficiaries. That is one of the
modes of "distribution". Nationalisation is
another mode .... "
"On an examination of the scheme of
the impugned
law the conclusion becomes inescapable
that the legislative measure is one of na-
tionalisation of the undertakings and the law
is eligible for and entitled to the protection
of Article 31-C."
491
Referring to the contention in that case that
not every provision of a law can and need to
eligible for the protection of Article 31-C
and that; accordingly, the provisions as to
the quantification of the amount which were
meant to achieve an oblique motive and inter-
dicting and extinguishing rights to receive
market value under the 1910 Act would not
attract the protection of Article 31-C, It was
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held:
" .... We are afraid this contention pro-
ceeds on an impermissible dichotomy of the
components integral to the idea of nationali-
sation. The economic cost of social and eco-
nomic reform is, perhaps, amongst the most
vexed problems of social and economic change
and constitute the core element in Nationali-
sation. The need for constitutional immunities
for such legislative efforts at social and
economic change recognise the otherwise unaf-
fordable economic burden of reforms ..... "
"It is, therefore, not possible to
divorce the economic considerations or compo-
nents from the scheme of the nationalisation
with which the former are inextricably inte-
grated. The financial cost of a scheme of
nationisation lies at its very heart and
cannot be isolated. Both the provisions relat-
ing to the vestitute of the undertakings in
the State and those pertaining to the quanti-
fication of the "Amount" are integral and
inseparable parts of the integral scheme of
nationalisation and do not admit of being
considered as distinct provisions independent
of each other."
8. These observations fully answer the contention of Sri
Salve in regard to the question whether impugned Act at-
tracts protection of Article 31-C or not. If Article 31-C
comes in, Articles 14, 19 and 31 go out.
The second limb of the Contention (a) is that the im-
pugned Act seeks to take-over petitioners’ undertakings
which had already vested in Government under the 1954 Act.
It is, no doubt, true that appropriate orders had been made
under Section 4(1) of 1954 Act. Sri Salve contends that by
the operation of law, the undertakings of the two petition-
ers, namely, Kumbakonam Electric Supply Corporation Ltd. and
Nagapatnam Electric Supply Co. Ltd. became vested in Govern-
ment and that Section 23 of the present Act virtually
creates an artificial divestitive event and seeks to re-
invest it again in Govern-
492
ment by the device under the impugned Act with the sole
object of cutting down the quantum of the "amount". Sri
Salve pointed out that Section 5 of the 1954 Act envisaged
three alternative Bases--Basis A, Basis B, and Basis C--and
that under Basis A the amount equal to 20 times of the
average net annual profit of the undertaking during a period
of five consecutive accounting years immediately preceding
the vesting date was payable. The number of years’ purchase
value is, Sri Salve says, now reduced to 12 by the impugned
Act. Shri Salve submits that the amount payable under the
1973 Act is wholly illusory.
9. Shri Shanti Bhushan, learned Senior counsel for the
State, submitted that if it is held that the legislation
has the protection of Article 31-C, barring the question of
legislative competence all other attacks based on Articles
14 and 19 and 31 cannot be countenanced. Sri Shanti Bhushan
submitted that all the contentions that the petitioners
advance in support of their challenge to the validity of the
Act rest, in the ultimate analysis, on Articles 14, 19 and
31 which is precisely what Article 31-C forbids.
So far as legislative competence is concerned, Shri
Shanti Bhushan submitted that it is referable to Entry 42 of
List III and with Presidential assent, the legislation
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prevails over any other law and, therefore, no question of
lack of legislative competence can be urged.Learned counsel
submitted that the contentions urged by the petitioners, in
the last analysis, would amount to this: that a legislation
which offends Articles 14. 19 and 31. would not be a valid
law at all and would, therefore, not be eligible to protec-
tion Article of 31-C. If a law satisfies the demand of
Article 14, 19 and 31 then such a law, says learned counsel,
would not need the protection of Article 31-C at all and
that such an approach would render Article 31-C itself
meaningless.
In regard to the Contention (d), Sri Shanti Bhushan
would say that it proceeds on a factual fallacy. There
cannot, it is urged a vesting of the undertaking in the
Government under the 1954 Act unless the concept of vesting
has and is accompanied by, the plenitude of the legal inci-
dents and consequences of such vesting for purposes of the
implementation of the 1954 Act. When the delivery of posses-
sion of the undertaking pursuant to the alleged vesting
under the 1954 Act had been interdicted by the High Court
and the Supreme Court by orders of stay, at the instance of
the petitioners, the exercise under the 1954 Act became
infructuous and the present stance of the petitioners is
merely an attempt to exploit to their own advantage a situa-
tion emerg-
493
ing from the consequences of their own actions. That apart,
the contention (d), says counsel, is really one based on
Articles 14, 19 and 31 and the protection of Article 31-C to
the Act would, in any event, disallow any such attack.
10. On a consideration of the matter, we think that all the
Contentions--(a), (b), (c) and (d)--are covered in one form
or the other our pronouncement in WP Nos. 457 and 458 of
1972. We are also of the opinion that Sri Salve’s contention
that what was sought to be acquired was mere "choses-in-
action" is not sound. In any event, the decision of this
Court in State of Madhya Pradesh v. Ranojirao Shinde & Anr.,
[1968] 3 SCR 489 relied upon by Shri Salve to contend that
choses-in-action could not be acquired would require to be
read with later pronouncement in Madan Mohan Pathak v. Union
of India & Ors., [1978] 3 SCR 334. It is not necessary,
however, to pronounce on this point as in our view what was
acquired were not merely choses-inaction but the undertak-
ings themselves.
Contentions (a), (b) and (c) accordingly fail and are
held and answered and against the petitioners.
11. Re: Contention (d):
The submission of learned counsel on the point is that
the impugned Act confers upon the State Government an alter-
native procedure, concurrently with the one envisaged in
Sec. 6 of the Electricity Act, 19 10, for attaining the same
end viz., the acquisition of an Electricity Undertaking. It
is urged that Sec. 6 of the 1910 Act has been held to amount
to conferment of power upon the authorities to take away the
property of the licensee. The option under Sec. 6 is really
statutory and in its essential nature the power is not
distinguishable from the State’s power to acquire an indi-
vidual’s property which really is and forms the basis of the
impugned Act.
It appears to us that there are certain fallacies basic
to the argument. The special nature of the subject matter of
the grant in relation to distribution in the community of
such material resources--be it electricity, water, gas or
other essential amenities of life--was recognised by this
Court. The following observations of the United States
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Supreme Court in New Orleans Gaslight Co. v. Louisiane Light
& Heat Producing & Mfg. Co., 115 U.S. 650 were referred to:
"the manufacture and distribution of gas by
means of
494
pipes, mains and conduits placed under legis-
lative authority in the public ways of a
municipality, is not an ordinary business in
which everyone may engage as of common right
upon terms of equality; but is a franchise
relating to matters of which the public may
assume control ..... "
and said:
" .......... It thus appears that
American Lawyers describe the business of
supplying energy as well as the business of
supplying water and gas as a franchise, and it
also appears that, in granting licence or
sanction to a person to engage in such busi-
ness, a condition is usually imposed for the
compulsory acquisition of the business when
the licence or sanction comes to an end". [See
The Okara.Electric Supply Co. Ltd. v. The
State of Punjab, AIR [1960 SC 284]
If the impugned law is within the legislative competence
of the State Legislature--as indeed it must be held to
be--the State law, with the Presidential assent, prevails
and is not over-borne by the Central law. The impugned State
law, by its 22nd Section, expressly excludes the operation
of any provision of the Electricity Act, 1910, in so far as
such provision is inconsistent with the provisions of the
State-Law.
The constitutional immunity afforded to the State law
prevents any challenge to it on grounds based on Article 14
or 19. We have held that the State law has such protection.
The contention (d) has thus, no foundation. It has to fail.
Re: Contention (e):
12. This pertains to the liability of the licensee to
account to Government in respect of possession of and any
benefit derived from the undertaking after the date of the
vesting. This provision is assailed as arbitrary and uncon-
stitutional. There is nothing unreasonable about this provi-
sion which merely recognises the obligation of a licensee to
account for its acts in relation to a property which has
already vested in Government. There is no substance in this
contention either.
13. Re: Contention (f):
This contention arises in the context of Sec. 5(2)(i) of the
Act. In
495
computing the amount payable under "Basis B" the aggregate
value of the sums specified in several clauses of 1 Sec.
5(2) has to be taken. Sec. 5(2)(i) while requiting the book
value of all "completed-works in beneficial use pertaining
to the undertaking and handed over to the Government" to be
taken, however, excludes therefrom works paid for by the
consumers. The contention of the petitioners is that the
"works paid for by the consumer" is also the property of the
licensee and cannot legitimately be excluded. A substantial-
ly similar contention was urged and has been considered and
negatived at para 29 of our judgment in WP Nos. 457 and 458
of 1972. The reasons stated by us in negativing the conten-
tion in that case fully answer the present point. Contention
(f) is also insubstantial.
14. Re: Contention (g):
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Section 10(d) envisages,deduction from the amount pay-
able towards and on account of arrears of electricity
charges payable by the licensee to the Government or the
Electricity Board. as the case may be, for the supply of
Electricity made by them to the licensee. This is a legiti-
mate item of deduction. But, the point Shri Salve sought to
put across is that ,even a disputed and untenable. claim in
that behalf becomes entitled to deduction. There is no
justification for this apprehension. Section 13(1)(e) makes
such a dispute as one of the arbitrable disputes and no
deduction of a disputed claim can be justified by Government
if the arbitrator--who is or has been a District Judge or a
retired High Court Judge-holds that the deduction is unjus-
tified. Contention (g) has no substance either.
15. Re: Contention (h):
The grievance sought to be made out on the matter is
that while Section 6(2) of the Act has the effect of vesting
all the assets specified in Sec. 6(2)(i)(b) in Government
free from encumbrances and the proviso to Sec. 6(2) renders
the amount payable to the licensee as substituted security
for the debts, mortgages and obligations in substitution of
the assets vesting in Government, however, Sec. 10(e) ren-
ders one species of such debt viz,. sums due to the Govern-
ment or the Electricity Board, liable to be deducted from
the amount. Shri Salve contends that this would make for a
double recovery of the same debt. This, we are afraid, is a
wrong way of looking at the two provisions. If a debt is
deducted from the "amount", .the debt is satisfied and is
extinguished and no further debt remains outstanding to get
itself attached to and became an encumbrance upon the sub-
stituted
496
security viz., the ’amount’. Sec. 6(2) and Sec. 10(e) must
be construed harmoniously and in a reasonable manner. There
is no scope for any apprehension of a possible double recov-
ery of the same debt. There is no substance in contention
(h).
16. Re: Contention (i):
The point of the matter is that sec. 10(f) entitles the
deduction of the market value of any "property" or "right"
which vests in Government and which is not delivered by the
licensees to Government. The grievance of the petitioner is
that while recovery of "market value" is sought to be made
for non-delivery of the item, however, in computing the
"amount" only the "book value" of such "property" or "right"
is taken into account. This, it is contended, is an instance
of application of double standards and is, therefore, arbi-
trary. We see no substance in this contention. The measure
of the reimbursement for an asset withheld by the licensee
is the corresponding expenditure to be incurred by Govern-
ment for replacement which, in eminently conceivable cases,
could be the market value of the asset which is so withheld
by the licensee and which has to be replaced to keep the
undertaking functioning. There is no substance in this
contention either.
17. Re: Contention (j):
Shri Salve submitted that the accredited representative
is, under sec. 8(1), given only a month’s time from the date
of his appointment to signify the choice under section 5 as
to of the basis of determination of the amount. The time
granted, it is said, is unreasonably short. The argument
clearly overlooks the clause ’or such further time as may be
granted by the Government’ occurring in Section 8(1). If the
exercise of this power is arbitrary or capricious the licen-
see has remedies in Administrative Law. But the provision
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itself cannot be held to be bad. There is no substance in
this contention either.
18. Certain other subsidiary contentions were urged at
the hearing. All these matters have been elaborately consid-
ered in our judgment in Writ Petn. Nos. 457 and 458 of 1972
arising out of the Assam legislation. We have not found any
merit in them.
19. However, there is one aspect which merits considera-
tion. Shri Salve submitted that the petitioners in Writ
Petn. No. 5(N) of 1974, who initially, on 16.1.1974, had
opted for basis A had sought a change to basis B by their
application dated 4.10.1977. On 2.2.1978,
497
Government refused to permit the change. Shri Salve submits
that a serious and indeed, irreparable hardship has been
occasioned to the petitioners by this arbitrary refusal. In
these writ petitions we have dealt with questions of consti-
tutionality leaving the questions of construction of the
provisions to the appropriate authorities. However, having
regard to the checkered history of the proceedings, it
appears to us that Shri Salve’s submission deserves to be
accepted. Accordingly, the order of the Government dated
2.2.1978 refusing a change in the basis for determination of
the amount is set aside and the Government is directed to
consider and dispose of the application dated 4.10.1977
afresh within two months from today. We make it clear that
the Government shall not unreasonably withhold the permis-
sion for the change.
20. In the result, subject to the direction in para 19
supra relating to W.P. No. 5(N) of 1974, we find no sub-
stance in these writ petitions which are dismissed. There
will be no order as to costs.
T.N.A. Petitions
dismissed.
498