Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4
PETITIONER:
U.P. STATE ELECTRICITY BOARD, LUCKNOW
Vs.
RESPONDENT:
THE OFFICIAL LIQUIDATOR LOWER GANGESJAMUNA ELECTRICITY DISTR
DATE OF JUDGMENT01/05/1973
BENCH:
ALAGIRISWAMI, A.
BENCH:
ALAGIRISWAMI, A.
PALEKAR, D.G.
CITATION:
1973 AIR 2546 1974 SCR (1) 142
1973 SCC (2) 234
ACT:
Electricity Supply Act, 1948, schedule 6, cl. V A-Liability
to hand over development reserve-Scope of.
HEADNOTE:
Under cl. VA of the 6th Schedule to the Electricity Supply
Act, 1948, on the purchase of an undertaking the development
reserve shall be handed over to the purchaser. The
appellant-Board purchased an electricity distributing
company in liquidation and insisted that a certain sum in
the development reserve should be handed over to it or
deducted from the purchase price. The official liquidator,
who was administering the company, contended that the
development reserve had, been used in adding to the assets
of the electricity undertaking and that, therefore that
amount could not be paid. The High
Court held against the appellant.
Dismissing the appeal to this Court,
HELD : The development reserve can be handed over to the
purchaser only if it is available. Since the entire sum has
been utilised by investment in the business and there is no
amount left in cash in the development reserve the official
liquidator cannot be directed to pay any amount, as
representing the development reserve to the appellant-Board.
[144-G]
(1) The whole of the development reserve had admittedly
gone into the ,creation of assets which had enhanced the
value of the undertaking, and the appellant-Board had the
benefit of all such, additions, improvements and accretions
to the assets of the undertaking. "at is really asked on
behalf of the appellant-Board is that the official
liquidator should pay to it a notional sum representing what
should have been the development reserve and not that there
is any amount available in the development reserve, but a
notional amount cannot be handed over. The demand of the
Board would amount to saying that it must be paid twice
over, once in the form of the assets created out of the
development reserve which it had already got, and again in
cash as though it is still available. There is no
justification either in law or in equity for such a demand.
[144E-H]
(2) Under cl. VA (3) of the 6th Schedule to the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4
Electricity Supply Act, the development reserve shall be
available only for investment in the business of
electricity supply of the undertaking. I here is no
allegation that the development reserve was used for any
purpose other than in the business of electricity supply of
the undertaking or on any item not permissible either under
the Electricity Supply Act, of the Indian Electricity Act,
1910. [144D-E]
(3) The provision regarding development reserve came into
existence. in 1957 when the new cl. VA was inserted in the
6th Schedule. The language of that clause therefore is not
the same as the language of cls. II, III and IV which have
been in the Act from the very beginning. But that does not
create any difficulty or problem in the interpretation of
cl. VA. [145C-D]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1201 of
1967.
Appeal by certificate from the judgment and decree dated
December 5, 1963 of the Allahabad High Court in Special
Appeal No. 727 of 1962.
S. N. Kacker, and O. P. Rana, for the appellant.
B. Sen, A. Banerjee and B. Dutta, for the respondent.
143
The Judgment of the Court was delivered by
ALAGIRISWAMI, J. This is an appeal against judgement of a
Division Bench of the Allahabad High Court affirming on
appeal the judgment of a learned Single Judge dealing with
company matters. The appellant is the U.P. State
Electricity Board and the respondent is the Official
Liquidator of the Lower Ganges Jamuna Electricity-
Distributing Co. Ltd. This company went into liquidation in
1937 and had been administered by the Official Liquidator
till it was purchased by the appellant Board on, 1-6-1961
for a sum of Rs. 7,82,256/- as mutually agreed. Thereafter
disputes arose ’about certain reserves of the company and in
the present appeal we are concerned only with what is called
the Development Reserve. It was by the Finance Act of 1955
that a provision was made in the Income Tax Act for
development rebate. In 1957 the Sixth Schedule of the
Electricity (Supply) Act, 1948 was amended introducing a new
clause VA which reads :
" (1) There shall be created a reserve to be
called the Development Reserve to which shall
be appropriated in respect
of each accounting year a sum equal to the
amount of income-tax and super-tax calculated
at rates applicable during the assessment year
for which the accounting year of the licensee
is the previous year, on the amount, of
development rebate to which the licensee is
entitled for the accounting year under clause
(vi) (b) of sub-section (2) of section’ 10 of
the Indian Income-tax Act, 1922.
Provided..............
(2) Any sum to be appropriated towards the
Development Reserve in respect of any
accounting year under subparagraph (1), may be
appropriated in annual instalments spread over
a period not exceeding five years from the
commencement of that accounting year.
(3) The Development Reserve shall be
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4
available only for investment in the business
of electricity supply-of the undertaking.
(4) On the purchase of the undertaking, the
Develop.merit Reserve shall be handed over to
the purchaser and maintained as such
Development Reserve :
Provided that where the undertaking is
purchased by the Board or the State
Government, the amount of the Reserve may be
deducted from the price payable to the
licensee."
The Board insisted that a sum of Rs. 1,45 422 in the
Development Reserve should be handed over to it or deducted
from the purchase price. Though in the beginning there was
a dispute about the actual amount in the Development Reserve
it was finally agreed that the above sum was the correct
figure.
The Official Liquidator contended that the Development
Reserve had been used in adding to the assets of the
Electricity Undertaking and, therefore, that amount could
not be paid. On the purchase of an Electricity Undertaking
by the Electricity Board the market value of the
144
Undertaking at the time of the purchase is payable under
section 7A of the Indian Electricity Act, 1910 and under
sub-section (2) of that section the market value shall be
deemed to be the value of all lands, buildings, works,
materials and plant of the licensee, suitable to, and used
by him, for the purpose of the undertaking...... but without
any addition in respect of compulsory purchase or of
goodwill or of any profits which may be or might have been
made from the undertaking or of any similar consideration.
As already noticed under clause VA of the Sixth Schedule to
the Electricity (Supply) Act, 1948, on the purchase of an
undertaking the Development Reserve shall be handed over to
the purchaser. It is on this basis that the appellant Board
insisted that a sum of Rs. 1,45,482/- should either be paid
to it or should be deducted from the purchase price payable
by it to the licensee. This contention having been
overruled by the Courts below this appeal has been filed.
It appears to us that the decision of the Courts below was
right. Under sub-cl. (3) of clause VA of the Sixth Schedule
to the Electricity (Supply) Act,’ 1948 the Development
Reserve shall be available only for investment in the
business of electricity supply of the undertaking. There is
no prohibition against the Development Reserve being used
for that purpose. There is no allegation that the
Development Reserve in this case was used for any purpose
other than in the business of electricity supply of the
undertaking. There is no allegation of the money in the
Development Reserve having been dissipated otherwise or mis-
appropriated or anything of that sort. There is no
allegation that any portion of the Development Reserve was
spent on any item not permissible under either of the two
Acts. There is no allegation that the Development Reserve
is as a matter of fact available in the form of either cash
or deposits banks or in investment in Government bonds or in
liquid cash. The whole of the Development Reserve has
admittedly gone into the creation of assets which have
enhanced the value of the undertaking and the appellant
Board has, had the benefit of all such additions,
improvements and accretions to the assets of the Electricity
Supply Undertaking as a consequence of the investment of the
Development Reserve in the business of electricity supply of
the undertaking What is really asked for on behalf of the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4
appellant Board is that the Official Liquidator should pay
to it a notional sum representing what should have been in
the Development Reserve and not that there is any amount
available in the Development Reserve. The argument that the
Development Reserve should be handed over is based upon sub-
cl. (4) of clause VA of the Sixth Schedule. The Development
Reserve can be handed over to the purchaser only if it is,
available. A notional amount cannot be handed over. The
Development Reserve has been converted into other assets
which have passed on to the appellant Board. In that sense
the appellant Board has had the benefit of the Development
Reserve, though not in cash but in other assets representing
the Development Reserve. The demand of the Board realty
amounts to saying that it must be paid twice over, once in
the form of the assets created out of the Development
Reserve, which it has already had, and again the same
Development Reserve in cash as though it is still available
in cash. There is no justification either in law of in
equity for such a demand. We are not impressed by the
argument on behalf of the appellant Board
145
that compared to the language used in clauses II, III and IV
which deal with the Tariffs and Dividends Control Reserve
and the Contingencies Reserve, the language in clause VA
regarding the Development Reserve is different and,
therefore, the Development Reserve should be handed over to
it. The Division Bench has dealt in detail with the
arguments regarding the distinction between the Development
Reserve and the other reserves advanced before it and we
find ourselves in agreement with those observations and
consider it unnecessary to repeat them. We can see no such
distinction which will lead to the conclusion that the
accumulated Development Reserve should be paid over to the
purchaser even where it has already been used up in the
creation of tangible assets which have passed on to the
purchaser. The principle is so clear that it does not lend
itself to any argument whatsoever. Nor does section 70 of
the 1948 Act give us any guide in interpreting the relevant
provision of law which will lead to the conclusion contended
for by the appellant The provision regarding Development
Reserve came into existence only in 1957 when the new clause
VA was inserted in the Sixth Schedule by Act 101 of 1956
with effect from. 1-4-1957. The language of that clause,
therefore, is not the same as the language of clauses II,
III ’and IV which have been in the Act from the every
beginning. But that by. itself does not create any
difficulty or problem in the interpretation of clause VA.
We, therefore,’find ourselves in agreement with the learned
Judges of the High Court that as the Development Reserve is
available for investment in the business-of electricity
supply of the undertaking and the entire sum therein has
been utilized by investment in such business and there is no
amount left in cash in the Development Reserve the Official
Liquidator cannot be directed to pay any amount to the
appellant Board as representing the Development Reserve.
The appeal is dismissed, the appellant, will pay the
respondent’s costs.
V.P.S. Appeal dismissed.
11-L944SupCI/73
146