Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 14
PETITIONER:
GODHRA ELECTRICITY CO. LTD. & ANR.
Vs.
RESPONDENT:
THE STATE OF GUJARAT AND ANOTHER
DATE OF JUDGMENT12/09/1974
BENCH:
MATHEW, KUTTYIL KURIEN
BENCH:
MATHEW, KUTTYIL KURIEN
RAY, A.N. (CJ)
CITATION:
1975 AIR 32 1975 SCR (2) 42
1975 SCC (1) 199
CITATOR INFO :
RF 1975 SC1303 (16,17)
F 1990 SC 123 (31)
R&E 1991 SC1947 (5,16)
ACT:
Indian Electricity Act, 1960, ss. 6, 7 and 7A-’Date of
commencement of licence’ what is-Taking undertaking and
postponing payment of purchase price without interest under
s. 6(6). if affects fundamental right under Art. 19(1) (f)
and (g)-Whether shareholder can challenge validity of
section. Interpretation of Deeds-Notification-Subsequent
conduct if relevant.
HEADNOTE:
Section 6(1) of the Indian Electricity Act, 1910 as amended
by the Amendment Act of 1959, provided that where a, licence
had been granted to any person, the State Electricity Board
shall, in the case of a licence granted before the
commencement of the Amendment Act, on the expiration of such
period as is specified in the licence, have the option of
purchasing the undertaking and such option shall be
exercised by the State Electricity Board serving upon the
licensee a notice in writing of not less than one year,
requiring the licensee to sell the undertaking to it at the
expiry of the period. Section 6(6) provided that where a
notice exercising the option of purchasing the undertaking
has been served upon the licensee the licensee shall deliver
the undertaking to the State Electricity Board on the expiry
of the relevant period referred to in sub-section (1)
pending the determination and payment of the purchase price.
By a, notification dated November 16, 1922, a licence was
granted to the predecessor of the first appellant company,
under s. 3 of the Act. The licence was signed on 17th
November and the notification granting it was published in
the official Gazette dated 23rd November. The licence was
for a period of 50 years from its commencement. The second
respondent exercised the option to purchase the undertaking
by or notice under s. 6(1) by calling upon the appellants to
sell the undertaking to it on the midnight intervening
between 15th and 16th November, 1972. Thereafter, the first
respondent took over management of the undertaking and then
handed it over to the second respondent.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 14
The appellants filed a writ petition challenging the
validity of the notice issued by the second respondent and
the vires of ss. 6, 7 and 7A of the Act. The High Court
dismissed the petition.
In appeal to this Court it was contended that (1) the date
of the commencement of the licence was the date on which the
notification granting the licence was published in the
official gazette, namely,, November 23, 1922 and not the
date of the notification granting the licence, that is
November 16. 1922, and, therefore, the 50 years period did
not expire on the midnight intervening between, 15th and
16th November, 1972, and so. the notice given by the second
respondent was bad: and (2) that the provisions of s. 6(6)
of the Art were invalid as they abridged the right
guaranteed under Art. 19(1) (f) and (g) of the Constitution.
Allowing the appeal on the second ground,
HELD : There was no valid purchase of the undertaking and
the taking delivery of the undertaking by the second
respondent was unlawful and the, second respondent must re-
deliver the undertaking to the licensee. [56B]
(1) (a) Rule 17 of the Indian Electricity Rules, 1922
provides for the publication of the licence in the official
gazette to notify that it has been granted. Rule 18 states
that the date of notification under r. 17 shall be deemed to
be the date of the commencement of the licence. Clause 2(e)
of the licence provides that the date of the notification in
the gazette that the licence has been granted is the date of
the commencement of the licence. The words "the
43
licence has been granted" do not postulate that the licence
has already been signed and granted because, there is
nothing strange in making the date of the notification in
the gazette that the licence have been granted, though
anterior in point of time to the date of signing the
licence, as, the date of the commencement of the licence.
Clause 2(e) of the licence will have to be read in harmony
with rule 18 and if so read it will be found that ’,he date
of the notification is only deemed to be the date of the
commencement of the licence, that is, the date of the
notification granting the licence and the date of
commencement of the licence are the same namely November 16,
1922. [46G-47E]
(b)There is a distinction between the date of the
notification and the date of Publication of the notification
in the Gazette and the parties themselves had this
distinction in mind as is shown by the provision by which
the licence was subsequently amended. A Court is not
prevented from looking into the subsequent conduct or
acting of parties to find out the meaning of the terms of a
document when there is a latent ambiguity. Extrinsic
evidence to determine, the effect of an instrument is
permissible when there remains a doubt as to its true
meaning and evidence of the acts done under it is a safe
guide to the intention of the varies, particularly when acts
are done shortly after the date of the instrument. [47E-F;
52A-C]
The inquiry before the Court is as to what the intention of
the parties was from the language used. If the meaning of
the word or phrase or sentence in clear extrinsic evidence
is not admissible. But a word or phrase is always not
crystal clear. Parties themselves might not have been clear
as to the meaning of the word or phrase when they entered
into the contract, or, unanticipated situations might arise
or come, into the contemplation of the parties subsequently.
When there is latent ambiguity extrinsic evidence in the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 14
shape of an interpreting statement in which both parties
have concurred should be admissible. When both parties
subsequently say that, by the word or phrase which in the
context is ambiguous, they meant a particular intention, it
only supplies a glossary as to the meaning of the word or
phrase. [51A-D]
Prernn v. simmonds [1971] 3 All E.R. 237; James Miller- and
Partners Ltd. v. Whitworth Street Estates (Manchester) Ltd.
[1970] 1 All E.R. 796 A.G. v. Wickman Ltd. [1973] 2 All E.R.
39; Watchan v. East African Protectorate, [1919] A.C. 533:
Dee v. Rias (1832) 8 Bing, 178 at p. 186, Chapman v. Bluck
(1838) 4 Bing N.G. 187 at p. 195. Odgers’ Construction of
Deeds and Statutes 5th ed. by Dworkin P. 83. Lamb v. Goring
Brick Co. [1932] I. K.B. 710 at 721’ Balkishan v. Legge 27
IA. 58 and Abdulla Ahmed v. Animendra Kissan Mitter [1950]
S.C.R. 30, 46 referred to.
(2)But s. 6(6) of the Act as amended violates the
fundamental right under Art. 19(1)(f) and (g) of the second
appellant. [54G-H]
(a)The State Electricity Board is liable to pay interest
under the general law for the period during which the
licensee has not been paid the purchase price but the
arbitrator appointed under s. 7A, though he is bound to
determine the purchase price and make the award within a
specified time, cannot award any interest on the market
value of the undertaking as determined by him, because,
there is no provision which enables him to do so.
Therefore,. the licensee’s claim for interest can be
enforced only in a suit. The fact that the claim for
interest can be enforced in a suit by the licensee would not
mitigate the unreasonableness of the provisions which
authorise the Board to take delivery of the undertaking
without payment of purchase price.[53F-H]
Satinder Singh v. Amrao singh [1961] 3 S.C.R. 676Toronto
City Corporation v. Toronto Railway Corporation [1925] A.C.
177at pp. 193-194. M.P’. Electricity Board v. Central India
Electric Supply Co. A.I.R. 1972 M.P. 47, Upper Jammuna
Valley Electricity Supply Co. Ltd. v. Municipal Corporation
of Delhi unreported decision referred to.
(b) Under the proviso to s. 7(ii) if an undertaking is sold
or delivered to the Electricity Board or to the State the
licence ceases to, have any further operation. But the
words sale or delivery in this proviso mean a valid sale, or
a.
44
valid delivery. A licensee cannot be told that he has no
right to carry on business unless a valid purchase is made
at the expiry of the period. If the licensee cannot be
required to sell the undertaking without payment of the
purchase price It the time of the delivery of the
undertaking or without a provision in law for payment of
interest on the purchase price during the period when
payment is withheld there would be no valid termination of
the licence and the licensee will be entitled to carry on
the business. [54C-F]
(c) The first appellant being a Corporation is not a
citizen and has no fundamental right under Art. 19. But the
value of the investment in the company by the second
appellant is substantially reduced by the illegal delivery
of the undertaking to the Board and his right to carry on
the business of supplying, electricity through the agency of
the company is abridged, and he, alongwith other
shareholders, are left with the burden of the debts of the
undertaking. If the second appellant’s right to carry on
business through the agency of the company is taken away or
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 14
is abridged or his right to a divisible share in future of
the property of the company is diminished or abridged by
taking delivery of the undertaking without payment of the
purchase price, there is no reason why he should be disabled
from challenging the validity of the sub-section. [54H55A-B,
E.]
R. C. Cooper v. Union of India [1970] 3 S.C.R. 530 at p.
556, Bennett Coleman & Co. v. Union of India [1973] 2
S.C.R. 757 at p. 773, followed.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2016 of
1973.
Appeal by Special Leave from the judgment and order dated
the 15th/16th October, 1973 of the Gujarat High Court in
Spl. Civil Apples. No. 1752 of 1972.
B. Sen, R. H. Dhebar, P. C. Kapoor, P. R. Ramasesh and R.
V. Desai, for the appellants.
G. A. Shah and R. N. Sachthey, for respondent No. 1.
F. S. Nariman, Addl. Sol. Genl. of India and N. M.
Shroff, for respondent No. 2.
Soli J. Sorabjee, Ravinder Narain and K. John, for the
intervener. (The Amalgamated Elect. Co. Ltd).
The Judgment of the Court was delivered by
MATHEW, J.-The appellants filed a writ petition before the
High Court of Gujarat challenging the validity of a notice
issued by the ’Gujarat State Electricity Board, respondent
No. 2, dated November 8, 1971, whereby respondent No. 2
purported to exercise the option of purchasing the
electrical undertaking of appellant No. 1 under S. 6 of the
Indian Electricity Act, 1910 (hereinafter referred to as
’the Act’) and for a declaration that the provisions of
sections 6, 7 and 7A of the Act are ultra vires Articles 14,
19(1) (f), 19(1) (g) and 31 of the Constitution. The High
Court dismissed the petition and this appeal, by
certificate, is against that judgment.
The Government of the Province of Bombay granted a licence
by notification dated November 16, 1922, under S. 3 of the
Act known as the ’Godhra Electric Licence, 1922’ in favour
of Lady Sulochana Chinubhai and Company, Ahmedabad. The
licence was signed on November 17, 1922 and the notification
granting it was published in
45
the Bombay Government Gazette dated November 23, 1922 The
licence was transferred to the ist appellant-company viz.,
the Godhra Electricity Co. Ltd. The licence was for a
period of 50 years initially from its commencement. The
initial period of 50 years, according to the respondents,
was to expire on the midnight intervening between the 15th
and 16th November, 1972. The second respondent exercised
the option to purchase the undertaking of the 1st appellant
company by a notice dated November 8, 1971, under s. 6(1) of
the Act by calling upon the appellants to sell the
undertaking to it on the midnight intervening between the
15th and 16th of November, 1972. Thereafter. the Government
of Gujarat issued a notification under rule 115(2) of the
Defence of India Rules taking over the management of the
undertaking on November 18.1973. On December 21, 1973 of the
State Government handed over the undertaking to the 2nd
respondent.
Before we proceed further, it would be convenient at this
stage to note the amendment mad& in the Act by Act 32 of
1959. A comparison of the original s. 7 with sections 6, 7
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 14
and 7A shows that the changes made by sections 6, 7 and 7A
in the original s. 7 were six in number. They were : (1)
the maximum length of the initial period to be specified in
the licence for exercise of the option to purchase was
originally fifty years whereas after the amendment, it was
reduced to thirty years and the maximum length of subsequent
periods was also reduced by the amendments from twenty years
to ten years; (2) the notice of exercise of option was
originally required to be of’ not less than two years but
after the amendments, a notice of not less than one year
would be sufficient for exercising the option; (3) the
option to purchase under the old law vested in the Board but
after the amendments it was also conferred on the State
Government and’ the local authority in case the Board did
not elect to purchase, (4) the licensee could not be obliged
under the old law to sell the undertaking to the purchaser
except against payment of the purchase price but after the
amendments, the licensee was bound to deliver the under-
taking to the purchaser on the expiration of the relevant
period pending the determination and payment of the purchase
price; (5) there. was a right of waiver of the option to
purchase under the old law but as a result of the
amendments, that right was taken away; and (6)’ the service
lines constructed at the expense of the consumers were not
required by the old law to be excluded in determining the
purchase price but under the amended law they were required
to be specifically excluded.
In this appeal, we are concerned with two contentions raised
by the appellants. They are, that the date of the
commencement of the licence was the date on which the
notification granting the licence was published in the
Bombay Gazette, viz., November 23, 1922 and not the date of
the notification granting the licence i.e., November 16,
1922, and, therefore, the 50 years’ period did not expire on
the midnight intervening between the 15th and 16th November,
1972 and so, the notice requiring the licensee to sell the
undertaking on the expiryof the period, namely, 15h
November, 1972 was bad; and that the,
46
_provisions of sub-section (6) of S. 6 of the Act are
invalid as they ,abridge the right guaranteed under Article
19(1)(f) and 19(1)(g).
Section 6(1) of the Act provides that where a licence has
been granted to any person, not being a local authority, the
State Electricity Board shall
(a) in the case of a licence granted before
the commencement of the Indian Electricity
(Amendment) Act 32 of 1959, on the expiration
of such period as is specified in the licence,
and
(b) in the case of a licence granted on or
after the commencement of the said Act, on the
expiration of such period not exceeding twenty
years, and of every such subsequent period,
not exceeding ten years, as shall be specified
in this behalf in the licence;
-have the option of purchasing the undertaking and such
option shall be exercised by the State Electricity Board
serving upon the licensee a notice in writing of not less
than one year requiring the licensee to se the undertaking
to it at the expiry of the relevant period referred to in
this sub-section.
The ruling of this Court make it clear that when the State
or the ’State Electricity Board exercises its statutory
option to purchase the undertaking of a licensee, it must in
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 14
all respects conform strictly to the requirements of S. 6(1)
and that the failure to conform to any one of them would
render the exercise of the option ineffective (see Gujarat
Electricity Board v. Shantilal R. Desai(1) and Gujarat Elec-
tricity Board v. Girdharlal Motilal and Another).(2) Clause
11(a) of the licence states that the option to purchase
given by S. 7 of the Act shall be exercisable first on the
expiration of 50 years computed from the commencement of the
licence. Accordingly, it was necessary that the notice in
this case should have required the licensee to sell the
undertaking at the expiry of the initial period of 50 years.
As already stated, the notice specified the date of the
expiry of the period as November 15, 1972. So, the question
is, whether the period of 50 years expired on November 15,
1972, and, that will depend upon the answer to the question
as to what is the date of the commencement of the licence.
Clause 2(e) of the licence says :
"The date of the notification by the
Government of Bombay in the Bombay Government
Gazette that this licence has been granted is
in this licence referred to as ’the
commencement of this licence’ ".
Rule 17 of the Indian Electricity Rules, 1922, provides for
publication of the licence in the local official gazette to
notify that it has been granted. Rule 18 states that the
date of the notification under Rule 17 shall be deemed to be
the date of the commencement of the licence. Clause 2(e) of
the licence make, it clear that it is the date -of the
notification in the gazette that the licence has been
granted is
(1) [1959] 1 S. C. R. 580.
(2) [1969] 1 S. C. R. 889.11
47
the date of ’commencement of this licence’. As already
stated, the date of the notification granting the licence
was November 16, 1922. There can, therefore, be no doubt
that the date of commencement of the licence was November
16, 1922.
But counsel for the appellants as well as the intervener
contended that it is impossible to imagine that a licence
could be granted without the licenser signing the licence
and as the licence bears the date November 17, 1922 and was
signed only on that day, it could not be said that ’the
licence has been granted’ before November 16, 1922. The
argument was that there could be no grant of a licence
before it is signed by the licenser and when clause 2(e) of
the licence speaks of the date of "the notification........
in the Bombay Government Gazette that this licence has been
granted" it postulates that the licence has already been
signed and granted and, therefore, the date of the
notification granting the licence can never be November 16,
1922 when it is seen that the licence has been signed on
November 17, 1922. We have already seen that rule 18
provides that the date of the notification shall be deemed
to be the date of commencement of the licence. We have to
read clause 2(e) of the licence in the light of the
provisions of r. 18. Therefore, there is nothing strange in
making the date of the notification in the Gazette that the
licence has been granted, though anterior in point of time
to the date of signing the licence, as the date of
commencement of the licence. In other words, clause 2(e) of
the licence will have to be read in Harmony with rule 18 and
if so, read, it will be found that the date of the
notification is only deemed to be the date of the
commencement of the licence.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 14
The Additional Solicitor General also submitted that there
is a distinction between the date of a notification and the
date of the publication of the notification in the Gazette
and that the parties themselves had this distinction in mind
is clear from the provision by which the licence was
subsequently amended. That amendment reads
"... that the following amendment be made in
the fourth annexure to the Godhra Electric
Licence, 1922, which was granted in Government
notification No. 177, dated 16th November,
1922, and published at pages 2652 to 2656 of
Part I of the Bombay Government Gazette dated
23rd November 1922 viz., the clause mentioned
below be inserted as clause 5 to the said
fourth annexure. . . ".
The question whether subsequent ’interpreting statement’
made by parties to a written instrument is admissible in
evidence to construe the written instrument is not free from
doubt. In Prenn v. Simmonds,(1) the House of Lords held
that negotiations between parties previous to the formation
of a contract are inadmissible to prove the intention of the
parties in case of ambiguity in the terms of the contract.
In James Miller and Partners Ltd. v. Witworth Street Estates
(Manchester) Ltd.(2), the House of Lords held that
subsequent conduct of the parties to a contract is not
admissible to construe the
(1) [1971] 3 All E. R. 237.
(2) [1970] 1 All E. R. 796.
48
contract. The decision was followed in the recent case of
Schuler A. G. v. Wickman Ltd.(1) where Lord Reid said at
pp. 45-46 :
"I must add some observations about a matter
which was fully argued before your Lordships.
The majority of the Court of Appeal were
influenced by a consideration of actings
subsequent to the making of the contract. In
my view, this was inconsistent with the
decision of this House in James Miller and
Partners Ltd. v. Whitworth Street Estates
(Manchester) Ltd."
Lord Morris of Borth-y-Cest said at pp. 52-53
"But in a case such as the present I see Do
reason to doubt the applicability or the
authority of what was said in James Miller and
Partners Ltd. v. Whitworth Street Estates
(Manchester) Ltd. If on the true construction
of a contract a right is given to a party,
that right is not diminished because during
some period either the existence of the right
or its full extent was not appreciated."
Lord Wilberforce has stated that subsequent actions ought
not to have been taken into account, that extrinsic evidence
is not admissible for the construction of a written
contract, that the parties intentions must be ascertained,
on legal principles of construction, from the words they
have used and that it is one and the same principle which
excludes evidence of statements or actions, during
negotiations, at the time of the contract, or subsequent to
the contract, any of which to the lay mind might at first
sight seem to be proper to receive. Lord Simon said, after
referring to the case of Whitworth Street Estates (supra)
"it is true that, on strict analysis, what was
said by Lord Hodson, Viscount Dilhorne and
Lord Wilberforce cannot be regarded as a vital
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 14
step towards their conclusions; but, as I have
already ventured to demonstrate, the point was
directly in issue between the parties in your
Lordship’s House. I am therefore firmly of
the opinion that what was said should be
regarded as settling the law on this point. I
am reinforced in this opinion because, in my
view, Whitworth Street Estates was a correct
decision on the point for reasons additional
to those given in the speeches."
He then said :
"Sir Edward Sugden’s frequently quoted and
epigrammatic dictum in Attorney General v.
Drurmmond (1842, Dr. & War 353, at 368)
:...... tell me what you have done under such
a deed, and I will tell you what that deed
means" really contains a logical flaw: if you
tell me what won have done under a deed, I can
at best tell you only what you think that deed
means. Moreover, Sir Edward Sugdan was
expressly dealing with ’ancient instruments’.
I would add
(1) [1973] 2 All E. R. 39.
49
thirdly, that the practical difficulties
involved in admitting subsequent conduct as an
aid to interpretation are only marginally, if
at all, less than are involved in admitting
evidence of prior negotiations."
In the process of interpretation of the terms of a contract,
them court can frequently get great assistance from the
interpreting statements made by the parties- themselves or
from their conduct in rendering or in receiving performance
under it. Parties can, by mutual agreement, make their own
contracts; they can also, by mutual agreement, remake them.
The process of practical interpretation application,
however, is not regarded by the parties as a remaking of the
contract; nor do the courts so regard it. Instead, it is
merely further expression by the parties of the meaning that
they give and have given to the terms of their contract
previously made. There is no good reason why the courts
should not give great weight to these further expressions by
the parties, in view of the fact that they still have the
same freedom of contract that they had originally. The
American Courts receive subsequent actions as admissible
guides in interpretation. It is true that one party cannot
build up his case by making an interpretation in his own
favour. it is the concurrence therein that such a party can
use against the other party. This concurrence may be
evidenced by the other party’s express assent thereto, by
his acting in accordance with it, by his receipt without
objection of performances that indicate it, or by saying
nothing when knows that the first party is acting on
reliance upon the interpretation (see Corbin on contracts,
Vol. III, pp. 249 and 254-55).
The rule that obtains in other jurisdictions is also, the
same
"In France construction of a contract is
within the sole province of the judges of fact
who are entirely free to use whatever material
seems relevant to them... The rule is the same
in Germany where since 1888 it is established
that even statements made by one of the
contracting parties to a third person about
the content of the contractual intentions are
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 14
admissible guides to interpretation. In Italy,
Art. 1362(2) provides in impressively succinct
language. The Vienna convention on the law of
Treaties of 1969 (which to a large extent
merely codifies earlier international
practice) enjoins the interpreter of a treaty
to take into account ’any subsequent practice
in the application of the treaty which
establish the agreement of the parties
regarding its interpretation’, Art. 31(3)(b)"
(see Notes by F. A Mann on L Schuler A. G. v.
Wickman Machine Tool Sales Ltd. (1973) 2 W. L.
R. 683), Law Quarterly Review, Vol. 809, pp.
464-465).
The real reason against taking into account the subsequent
conduct of the parties is the rule which excludes extrinsic
evidence in the construction of written contract.
In Watchman v. East Africa Protectorate(1) the question
arose as to whether the land intended to be conveyed was
that described by
(1) [1919] A.C. 533
5-LI51 SupCI/75
50
the boundaries in the certificate issued by the Government
or the area marked on the plan, which disagreed. The
parties bad always treated the latter as the, true area
conveyed. It was held by the Privy Council that evidence of
user may be given in order to show the sense in which the
parties construed the language employed, and that this rule
applies to both modern and ancient documents and whether the
ambiguity be patent or latent.
As regards Watcham’s case, this is what Lord Reid said
Schitler A. G. v. Wickman Ltd.(supra)
"It was decided in Watcham v. Attorney General
of East Africa Protectorate that in deciding
the scope of an ambiguous title to land it was
proper to have regard to subsequent settings
and there are other authorities for that view.
There may be special reasons for construing a
title to land in light of subsequent
possession had under it but I find it
unnecessary to consider that question.
Otherwise I find no substantial support in the
authorities for any general principle
permitting subsequent acting of the parties to
a contract to be used as throwing light on its
meaning. I would therefore reserve my opinion
with regard to Watcham’s case but repeat my
view expressed in Whitworth with regard to the
general principle".
In Doe v. Rias(1), Tindal, C.J. said :
"We are to look at the words of the instrument
and to the acts of the parties to ascertain
what their intention was; if the words of the
instrument be ambiguous, we may call in the
aid of the acts done under it as a clue to the
intention
of the parties".
And in Chapman v. Bluck(2), Park J. said
"The intention of the parties may be collected
from the language of the instrument and may be
elucidated by the conduct they have pursued."
Odgers observers(1)
"In the case of an ambiguity, judicial notice
will be taken of the way in which the parties
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 14
themselves have interpreted their rights and
duties under the document".
We are not certain that if evidence of subsequent acting
under a document is admissible, it might have the result
that a contract would mean one thing on the day it is signed
but by reason of subsequent event it would mean something a
month or year later. Subsequent
(1) (1832) 8 Bing. 178 at p. 186.
(2) (1838) 4 Ring, N. C. 187 at p. 195.
(3) See Odgers, Construction of Deeds and Statutes, 5th ed.
by Dworkin, p. 83.
51
’interpreting’ statements might not always change the
meaning of a word or a phrase. A word or a phrase, is not
always crystal clear. When both parties subsequently say
that by the word or phrase which, in the context, is
ambiguous, they meant this, it only supplies a glossary as
to the meaning of the word or phrase. After all, the
inquiry is as to, what the intention of the parties was from
the language used. And, why is it that parties cannot clear
the latent ambiguity in the language by a subsequent
interpreting statement ? If the meaning of the word or
phrase or sentence is clear, extrinsic evidence is not
admissible. It is only when there is latent ambiguity that
extrinsic evidence in the shape of interpreting statement in
which both parties have concurred should be admissible. The
parties themselves might not have been clear as to the
meaning of the word or phrase when they entered into the
contract. Unanticipated situations might arise or come into
the contemplation of the parties subsequently which would
sharpen their focus and any statement by them which would
illuminate the darkness arising out of the ambiguity of the
language should not be shut out. In the case of an
ambiguous instrument, there is no reason why subsequent
interpreting statement should be inadmissible.
"The question involved is this : Is the fact
that the parties to a document, and
particularly to a contract, have interpreted
its terms in a particular way and have been in
the habit of acting on the document in
accordance with that interpretation, any
admissible guide to the construction of the
document ? In the case of an unambiguous
document, the answer is ’No’. (see Odgers’
Construction of Deeds and Statutes, 5th ed. by
G. Dworkin, pp. 118-119).
But, as we said, in the case of an ambiguous one, the answer
must be ’yes’. In Lamb v. Coring Brick Co. (1), a selling
agency contract contained the words ’the price shall be
mutually agreed’. Documents showing the mode adopted for
ascertaining the price were put in evidence without
objection. In the Court of Appeal, Greer L. J. said
"In my opinion, it is not necessary to
consider how this contract was acted on in
practice. If there had been an ambiguity and
the intention of the parties had been in
question at the trial, I think it might have
been held that the parties had placed their
own constructions on the contract and, having
acted upon a certain view, had thereby agreed
to accept it as the true view of its meaning".
In Balkrishen v. Legge(2) the privy Council said that in
deciding the question whether a particular deed is a
mortgage by conditional sale or an out and out sale, oral
evidence of the intention is inadmissible under s. 92 of the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 14
Evidence, Act for construing the deed nor can evidence of an
agreement at variance with the terms of the deed admitted,
but the case must be decided on a consideration of the
contents of the document with such extrinsic evidence of
other circumstances as may show in what manner the language
of the document is related to existing facts. We do not
think
(1) [1932] 1 K. B. 710, at 721.
(2) 27 I. A. 58.
52
it necessary to consider or decide in this case the exact
reach of that decision. Nor is it necessary to advert to
the various decisions of the High Courts where the ratio of
that case has been interpreted. It is enough to say that
there is nothing in that decision which would prevent a
court from looking into the subsequent conduct or actings of
parties to find out the meaning of the terms of a document
when.. there is latent ambiguity.
In these circumstances, we do not think we will be justified
in not following the decision of this Court in Abdulla Ahmed
v. Animendra Kissen Mitter(1), where this Court said that
extrinsic evidence to determine the effect of an instrument
is permissible where there, remains a doubt as to its true
meaning and that evidence of the acts done under it is a
guide to the intention of the parties, particularly, when
acts are. done shortly after the date- of the instrument.
The point then for consideration is whether s. 6(6) of the
Act is violative of the fundamental right under Articles
19(1) (f) and 19(1) (g). Section 6(6) reads :
"Where a notice exercising the option of
purchasing the undertaking has been served
upon the licensee under this section, the
licensee shall deliver the undertaking to the
State Electricity Board, the State Government
or the local authority, as the case may be, on
the expiration of the relevant period referred
to in sub-section (1) pending the determina-
tion and payment of the purchase price".
The appellants submitted that the provision of S. 6(6) which
postpones the payment of the purchase price till after the
determination, of the quantum of the purchase price by the
arbitrator is an unreasonable restriction upon the
fundamental right of citizens to carry on business under
Article 19 (1) (g) and also violative of their fundamental
right under Article 19(1) (f). They submitted that before
the amendment in 1959 to the Act, the State Electricity
Board was bound to pay the purchase price before they could
take delivery of the undertaking but that under s. 6(6), it
was not necessary that the purchase price should be paid
before the undertaking is delivered to the State Electricity
Board, and, that is unreasonable.
The learned Additional Solicitor General, on the other hand,
submitted that the appellants had no right to carry on the
business when the Board chose to exercise the option to
purchase the undertaking. at the expiry of the period. The
argument was that when a valid notice to exercise the option
to purchase the undertaking has been served on the licensee,
the licensee thereafter has no right to carry on the
business of supplying electricity and, therefore, there is
no question of sub-section (6) of s. 6 abridging the
fundamental-right of the appellants under Article 19 (1)
(g). He also submitted- that the obligation to pay interest
on the purchase price from the date of the delivery of the
undertaking up to the date of its payment is-implicit in s,
7A
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 14
(1) [1960] S.C. R. 30,46.
53
or at any rate the arbitrator functioning under that section
is bound, under the common law of the land to award interest
for the period during which the arbitration proceedings were
pending.
An arbitrator appointed under the section to determine the
quantum of the purchase price can pass an award only in
accordance with the terms of s. 7A. Section 7A provides
that where an undertaking of a licensee is sold, the
purchase price of the undertaking shall be the market value
of the undertaking at the time of the purchase or, where the
undertaking has been delivered before purchase under sub-
section (3) of s. 5, at the time of the delivery of the
undertaking and if there is any difference or dispute
regarding such purchase price, the same shall be determined
by the arbitrator. There is, therefore, no provision which
enables the arbitrator to award any interest on the market
value of the undertaking at the time of the purchase merely
because the market value is determined on a subsequent date.
There can be no doubt about the correctness of the general
rule under which a purchaser who takes possession is charged
with interest on his purchase money from that time until it
is paid. This rule has been applied to compulsory
purchases(1). But the question is whether the arbitrator
has power under the’ Act to award interest on the purchase
price. In Toronto City Corporation v. Toronto Railway
Corporation(2), the Privy Council held that the general rule
under which a purchaser who takes possession is charged with
interest on his purchase money from that time until it is
paid was well established, and had on many occasions been
applied to compulsory purchases but the duty of the
arbitrators in that case was not to determine all the rights
of the company, but only to ascertain the actual value of
certain property at a certain time and that it was a truism
to say that such value could not include interest upon it
and that the liability for interest lay outside of the
arbitration for its enforcement. In M.P. Electricity Board
v.Central India Electric Supply Co.(3) the Madhya Pradesh
High Court and in Upper Jammuna Valley Electricity Supply
Co., Ltd. v. Municipal Corporation of Delhi(4 ) decided on
April 3, 1972, the Delhi High Court, took the view that the
arbitrator functioning under the Act has no jurisdiction to
award interest on the purchase price.
The position therefore, is that although the State
Electricity Board is liable to pay interest under the
general law for the period during which the licensee has not
been paid the purchase price, the arbitrator, functioning as
he does, under the pro-visions of s. 7A of the Act cannot
award any interest on the market value of the undertaking as
determined by him. The licensee’s claim for interest can be
enforced only in a suit. The fact that the claim for
interest can be enforced in a suit by the licensee would not
mitigate the unreasonableness of the provision which
authorises the Board to take delivery of the undertaking
without payment of the purchase price.
(1) see Satinder Singh v. Amrao Singh, [1961] 3 S. C. R.
676.
(2) [1925] A. C. 177 at pp. 193-194.
(4) Unreported decision.
(3) A. I. R. 1972 M. P. 47.
54
In support of the contention, that when once the notice
exercising the option to purchase the undertaking has been
served, the licensee has no further right to carry on the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 14
business, the learned Additional Solicitor General placed
reliance on the decision of this Court in Kalyan Singh v.
State of U.P.(1) where this Court said that if a scheme has
become final under S. 68D(3) of the Motor Vehicles Act, it
has the effect of extinguishing all the rights of an
operator to ply his stage carriage under the permit.
A licensee cannot be told that he has no right to carry on
the business unless a valid purchase is made at the expiry
of the period. If the licensee cannot be required to sell
the undertaking without payment of the purchase price at the
time of delivery of the undertaking. or without a provision
in law for payment of interest on the purchase price during
the period when payment is withheld, there would be no valid
termination of the licence. It is unreasonable to require a
licensee to deliver the undertaking without payment to him
of the purchase price or, if the payment is deferred,
without compensating him by way of interest for the period
during which the payment has been withheld. The fact that
an arbitrator is seized of the question of the determination
of the purchase price and that he is bound to make the award
within a specified time in law would not mean that the
licensee need not be compensated for the delay in payment of
the purchase price. The proviso to S. 7(ii) makes it clear
that when an undertaking is sold or delivered to the
Electricity Board or to the State, the licence shall cease
to have any further operation. When the proviso talks of
sale and delivery, it means a valid sale or a valid
delivery. Admittedly, the ’undertaking belonged to the
licensee and if delivery of the undertaking is to be taken
by the State. Electricity Board, the purchase price must be
paid before the delivery or, there must be a provision for
payment of interest on the purchase price for the period
during which payment is withheld. Otherwise, the licence
will not cease to have operation and the licensee will be
entitled to carry on the business.
If the arbitrator could have awarded the interest for the
period between the date of delivery of the undertaking and
the payment of the purchase price, probably it could have
been said that the provision for delivery without payment of
the purchase price would not be reasonable. But, to deprive
the licensee of his undertaking without payment of the
purchase price and then ask him or it to go to a court to
enforce the liability for interest for the period for which
the purchase price has been withheld is unreasonable. We
hold that S. 6(6) violates the fundamental right under Art.
19(1)(g) and 19(1)(f) of the 2nd appellant.
The undertaking, no doubt, belonged to the 1st appellant, a
corporation. Not being a citizen, it has no fundamental
right under
(1) [1962] Supp. 2 S. C. R. 76.
55
Art. 19. The 2nd appellant is a shareholder and the
Managing Director of the Company. If his right to carry on
the business through the agency of the Company is taken away
or abridged, or,, his right to a divisible share in future
of the property of the company is diminished or abridged in
taking delivery of the, undertaking without payment of the
purchase price, there is no reason why he should be disabled
from challenging the validity of the sub-section.
In R. C. Cooper v. Union of India(1) this Court said
"Jurisdiction of the Court to grant relief
cannot be denied, when by State action the
rights of the individual shareholder are
impaired, if that action impairs the rights of
the Company as well. The test in determining
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 14
whether the shareholder’s right is impaired is
not formal; it is essentially qualitative : if
the State action impairs the right of the
shareholders as well as to the Company, the
Court will not, concentrating merely upon the
technical operation of the action deny itself
jurisdiction to grant relief."
The second appellant contends that the value of his
investment in the Company is substantially reduced by the
illegal delivery of the undertaking to the Board; that his
right to carry on the business of supplying electricity
through the agency of the Company is abridged and that he,
along with the other shareholders are left with the burden
of the debts of the undertaking.
In Bennett Coleman & Co. v. Union of India(2) one of us,
Ray, J. as be then was, speaking for the majority said :
"As a result of the Bank Nationalisation case
(supra) it follows that the Court finds out
whether the legislative measure directly
touches the company of which the petitioner is
a shareholder. A shareholder is entitled to
protection of Article 19. That individual
right is not lost by reason of the-fact that
he is a shareholder of the company. The Bank
Nationalisation case (supra) has established
the view that the fundamental rights of
shareholders as citizens are not lost when
they associate to form a company. When their
fundamental rights as shareholders are
impaired by State action their rights
as shareholders are protected. The reason is
that the shareholders’ rights are equally and
necessarily affected if the rights of the
company are affected."
(1) [1970] 3 S. C. R. 530 at P. 556.
(2) [1973] 2 S. C. R. 757, at p. 773.
56
We think the second appellant is entitled to challenge the
validity of the sub-section on the ground that it abridged
his fundamental right under Articles 19(1)(g) and 19(1)(f).
In the result we hold that there was no valid purchase of
the undertaking and that taking delivery of the undertaking
was unlawful. The State Electricity Board is directed to
redeliver the undertaking to the licensee. We set aside the
judgment under appeal and allow the appeal to the extent
indicated but, in the circumstances, without any order as to
costs.
V.P.S.
Appeal allowed.
57