State of U.P. v. Upper Jamuna Valley Electricity Supply Co. Ltd., (SC) BS87498
SUPREME COURT OF INDIA

Before:- S. Saghir Ahmad, Y.K. Sabharwal and S.N. Variava, JJ.

Civil Appeal No. 3656 of 1993. D/d. 12.5.2000.

State of U.P. - Appellant

Versus

Upper Jamuna Valley Electricity Supply Co. Ltd. and others - Respondent

For the Appellant :- A.B. Rohtagi, Sr. Advocate, R.C. Verma, Dr. B.S. Chauhan and R.B. Misra, Advocates.

For the Respondent :- R.N. Trivedi, Addl. Solicitor General, Ms. Arptia Sharma, Ms. Tania Bery, Vineet Kumar, Sanjay V.S. Chaudhary, Ms. Nina Gupta Advocates.

Indian Electricity Act, 1910, Section 7A (as amended by Indian Electricity (U.P. Amendment and Validation) Act, 1976) - Electricity - License - Purchase of undertaking from licencee - Determination of purchase price - What has been acquired is undertaking which dealt with material resource of country and not chose-in-action or debt - Amount payable by computing book value and not market value - Not illusory - The only right was a right to receive compensation - Provisions for quantification of amount payable to undertaking form an integral and inseparable part of nationalisation and do not admit of being considered as distinct provisions independent of each other - Thus economic costs of nationalisation was not justiciable.

[Paras 19 and 22]

Cases Referred :-

Tinsukhia Electric Supply Co. Ltd. v. State of Assam reported in (1989) 3 SCC 709.

Maharashtra State Electricity Board v. Thana Electric Supply Co., reported in (1989) 3 SCC 616.

Vellore Electric Corporation Ltd. v. State of Tamil Nadu, reported in (1989) 4 SCC 138.

Waman Rao v. Union of India, reported in (1981) 2 SCC 362.

Ishwari Khetan Sugar Mills (P) Ltd. v. State of U.P., reported in (1980) 4 SCC 136.

R. Cavasjee Cooper v. Union of India, reported in (1970) 1 SCC 248.

Madan Mohan Pathak v. Union of India, reported in (1978) 2 SCC 50 : 1978 Lab IC 612.

State of Bihar v. Maharajadhiraja Sir Kameshwar Singh Darbhanga reported in 1952 SCR 889.

JUDGMENT

S.N. Variava, J. - This Civil Appeal is against the judgment dated 11th January, 1989 delivered by a Division Bench of the Calcutta High Court. By this judgment the Division Bench dismissed the Appeal filed by the Appellant against a judgment of a learned single Judge of the Calcutta High Court which upheld the challenge of the 1st respondent to Ordinances and Amendment Act set out hereinafter.

2. Briefly stated that facts are as follows:

3. On February 4, 1975, Indian Electricity (U.P. Amendment and Validation) Ordinance No. 7 of 1975 was passed. This Ordinance amended certain provisions of the Indian Electricity Act. Subsequently this Ordinance was replaced by an Act namely Indian Electricity (U.P. Amendment and Validation) Act, 1976. The Ordinance and the Act amended amongst others Sections 6 and 7A of the Indian Electricity Act.

4. At this stage it is necessary to see what the unamended Sections 6 and 7-A provided for. They read as follows:

5. Thus, under Section 6 the compensation, i.e. the purchase price was to be determined in accordance with the provisions of sub-section (4) of Section 7-A.

6. Section 7-A as it originally stood, reads as follows:

Section 7 is also relevant. It reads as follows :

7. By the above mentioned Ordinance and the Act, the amendment which was carried out was that under Section 7-A instead of purchase price being the market value, it was now provided that the amount payable for the undertaking would be the book value of the undertaking. Thus, instead of computing the market value, there had to be computation on the book value.

8. It must be mentioned that the above mentioned Ordinances and Amendment Act were part of the policy of nationalisation of electric companies by the Union of India. Similar amendments were made by many States. Electric companies, all over India, were sought to be so purchased. Like the 1st Respondent, a number of other Electric Companies challenged the constitutional validity of the amending Act/Ordinance. The challenge was, inter alia, on the ground that the rights under Article 19 (1) (f) and Article 31 (2) were being violated. It was also claimed that the Amending Act/Ordinance was invalid as it had no reasonable direct nexus to the principles under Article 39 (b) of the Constitution. It was also claimed that, in effect and substance, the law was not one for acquisition of electrical undertakings but was one to acquire a chose in action and to extinguish rights, which had accrued in the Electric Companies, to get the market price. It was contended that the right to get compensation accrued on the day the notice was given. It was contended that what was being acquired was the difference between the market price which the State was obliged to pay and the book value to which the liability was now sought to be limited. It was claimed that as the Act was merely a clock which the law was made to wear, to undo the obligations arising out of intended statutory sale, Article 31 (c) was not attracted. It was also claimed that in any case, every provision of a statute was not entitled to protection of Article 31 (c) but only those which are necessary for giving effect to the principles in Article 39 (b) and accordingly the provision in the impugned law in relation to the determination of the amount do not attract Article 31 (c). In all the matters it was claimed that the purchase price should be the market value.

9. A Constitution Bench of this Court in the case of Tinsukhia Electric Supply Co. Ltd. v. State of Assam reported in (1989) 3 SCC 709, upheld the validity of the Act/Ordinance. This Court held that the Act had nexus with the principles in Article 39 (b) and was therefore protected by Article 31 (c). It was held that the Act was not a piece of colourable legislation. It was held that electric energy generated and distributed was a "material resource of the community" for the purpose and within the meaning of Article 39 (b). It was held that the idea of distribution of natural resources in Article 39 (b) envisages nationalisation. It was held that on an examination of the scheme of the impugned law the inescapable conclusion was that the legislature measure was one of nationalisation of the undertaking and this law was eligible for and entitled to protection of Article 31 (c). It was held that it was not possible to divorce the economic consideration or component from the scheme of nationalisation with which the former are inextricably integrated. It was held that the financial costs of a scheme lies at its very heart and cannot be isolated. It was held that with the provisions relating to vestiture of the undertaking in the State and those pertaining to the quantification of the amount are integral and unseparable parts of the scheme of nationalisation and do not admit of being considered as distinct provisions independent of each other. It was held that the provisions for payment of amount to the undertaking, by reducing the market value to book value, formed an integral part of the nationalisation scheme and that economic consideration for nationalisation was not justiciable. It was held that what was being acquired was the material resources of the community. The contention that immediately upon giving of the notice the rights got crystallised was negatived. It was held that the exercise of the option did not affect licensee's right to carry on business. It was held that the licensee's rights would be affected only when the undertaking was actually taken over. Similar view was taken in the cases of Maharashtra State Electricity Board v. Thana Electric Supply Co., reported in (1989) 3 SCC 616, and Vellore Electric Corporation Ltd. v. State of Tamil Nadu, reported in (1989) 4 SCC 138.

10. Dr. Singhvi submitted that the present case would not be covered by the aforementioned judgments because in all those cases the Ordinance/Act was prior to or on the same day that the respective undertakings were taken over. Dr. Singhvi submitted that in this case the Ordinance came on 4th February, 1975, i.e. almost 11 years after the takeover of the undertaking by the Government. He submitted that on 28th June, 1964 when the undertaking was taken over, Sections 6, 7 and 7-A, as they then stood, provided for payment of market value. He submitted that in 1962 Articles 19 (1) (f) and 31 (1) and 31 (2) of the Constitution were there. He submitted that on that day there was no Article 31 (c) in the Constitution of India. He submitted that the law on the subject was very clear. He submitted that the provisions of the Constitution and the law which must apply are those which were prevalent at that time in 1962.

11. In support of this submission he relied upon the authority in the case of Waman Rao v. Union of India, reported in (1981) 2 SCC 362. In this case the validity of the Maharashtra Agricultural Land (Ceiling and Holdings) Act 27 of 1961 and the subsequent amendment by Acts 21 of 1975, 47 of 1975 and 2 of 1976 were challenged. While considering this challenge this Court, inter alia, held as follows :

12. He also relied upon Paragraph 15 of the Judgment in Thana Electric Supply Company's case, (supra), wherein this Court has held that the contentions of the parties would require to be examined in the light of Articles 19 (1) (f) and 31 as they stood at the relevant time. It was held that Articles 19 (1) (f) and 31 were deleted later, but that such deletion did not affect the constitutional position with reference to which the present case would require to be decided.

13. Dr. Singhvi also relied upon Ishwari Khetan Sugar Mills (P) Ltd. v. State of U.P., reported in (1980) 4 SCC 136. In this case the challenge was under the U.P. Sugar Undertakings (Acquisition) Act 23 of 1971. While considering this challenge the Constitution Bench of this Court held that as the legislation was put on the Statute Book on 27th August, 1971, the Court would have to consider it in the light of Article 31 (2) as it stood on the relevant date. It was held that Article 31 (2) as amended by the 25th Constitutional Amendment Act would not be attracted.

14. Dr. Singhvi submitted that the principles governing grant of compensation would, therefore, be those which are laid down by 11 Judge Bench of this Court in the case of R. Cavasjee Cooper v. Union of India, reported in (1970) 1 SCC 248. In this case the vires of the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance 8 of 1969 and the Banking Companies (Acquisition and Transfer of Undertakings) Act 22 of 1969 was challenged. The challenge to the takeover of the banks was on the basis of Articles 14, 19 and 31 of the Constitution. This Court, inter alia, held that prior to the amendment of Article 31 (2) the term "compensation" had been interpreted to mean "full indemnification". It was held that the law was that the expropriated owner was on that account entitled to market value of the property on the date of the deprivation of the property. It was held that even though Article 31 (2) was amended with effect from 27th April, 1955 by the Constitution (Fourth Amendment Act, 1955), the expression "compensation" continued to mean "just equivalent" or "full indemnification". It was held that there was no dispute that Article 31 (2) before and after amendment guaranteed a right to compensation for compulsory acquisition of the property and that by giving to the owner, for compulsory acquisition of his property, compensation which was illusory, or determined by the application of principles which were irrelevant, the constitutional guarantee of compensation was not complied with. It was, however, noted that after the amendment of the Article 31 (2) it was not open to the Courts to call in question the law providing for compensation on the ground that it is inadequate. It was noted that there was a line of thought that a reasonable Interpretation of this provision was that neither the principles prescribing the "just equivalent" nor the "just equivalent" could be questioned in Court on the ground of inadequacy of the compensation fixed or arrived at by the working of the principles. It was held that this meant that there could be many methods of valuation and that the application of different principles of valuation may lead to different results. The adoption of one principle may give a higher value and the adoption of another principle may give a lessor value, but nonetheless they were all principles on which compensation could be determined. It was held that the Court could not say that the law should have adopted one principle and not the other for that would be a question relating to adequacy. It was held that, on the other hand, if a law laid down principles which were not relevant to the property acquired or to the value of the property at the time it was acquired, then the Courts could say that they were not principles contemplated by Article 31 (2) of the Constitution. It was held that the line of thought providing for full indemnification and the line of thought stating that the principles of valuation could not be gone into by the Court both ultimately supported the view that the principles specified by law for determination of compensation was beyond the pale of challenge, if it was relevant to the determination of compensation and was a recognised principle applicable in determination of compensation for the property compulsorily acquired. It was held that the broad object underlining the principle of valuation was to award to the owner the equivalent of his property with its existing advantages and its potentialities. It was held that where there was a established market for the property acquired the problem of valuation presented a little difficulty but where there is no established market for the property, the object of the principle of valuation must be to pay to the owner for what he had lost including the benefit of advantages present as well as future. The Court then went on to set out certain methods of determination of compensation. In this behalf it laid down as follows :

It is to be noted that the Court itself laid down that these were not the only methods of valuation.

15. Based upon the above authority Dr. Singhvi submitted that even after the amendment of Article 31 (2) the principle remained "just equivalent" meaning "full indemnification". He submitted that in this case in 1962, i.e. the unamended Sections 6, 7 and 7A of the Indian Electricity Act, 1910 also provided for payment of market value. He submitted that, therefore, the principle laid down in Tinsukhia's case, Thana Electric Supply Company's case and Vellore Electric Corporation's case, did not apply to this case. He submitted that all those cases were based upon Article 31 (c) which did not stand on the Statute Book at the time when this undertaking was taken over by the Government. He submitted that in this case the market value would have to be paid.

16. We have considered the submissions of Dr. Singhvi, Undoubtedly, the law which is to prevail is the law which was prevailing on the date of take over, i.e. 28th of June, 1964. It is also clear that on that day the Constitution (Twenty-fifth Amendment) Act had not been enacted and Article 31 (c) was not there. Undoubtedly, in Cooper's case, it has been held that even after amendment of Article 31 (c) the term "compensation" meant "just equivalent" or "full indemnification". However, Cooper's case itself notes that there has been a change inasmuch as if the law pertains to change in the principles of the method of determination of compensation and the method is a recognised principle applicable in the determination of compensation and the principle is appropriate in determining the value of the property, then it would not be open to the Courts to question the valuation. Cooper's case also lays down that if several principles are appropriate and one is selected for determination of the value of the property to be acquired, selection of that principle to the exclusion of other principles is not open to challenge, for the selection must be left to the wisdom of the Parliament. Of course, the principles specified must be appropriate to the determination of compensation for an appropriate class of property sought to be acquired.

17. In Tinsukhia's case, this Court has gone into the question as to whether the principles would be appropriate even if Article 31 (c) was not applicable. It ultimately held as follows :

Even though Cooper's case, has not been specifically referred to, in Tinsukhia's case, still the principles laid down in Cooper's case have been kept in mind and dealt with. Keeping those principles in mind, in Tinsukhia's case it has been held that the concept of book value is an accepted accountancy concept and that it cannot be held to be illusory.

18. Further, in Thana Electric Supply Company's case, it has been held as :

Thus, in this case this Court proceeded on the basis that Articles 19 (1) (f) and 31 applied to the facts of that case. The Court still set aside the judgment of the High Court which had upheld the challenge. This Court still held that the challenge on grounds of violation of Articles 14, 19 and 31 fails. The contention that compensation was not adequate and/or illusory was not accepted. In Vellore Electric Corporation's case, also this Court considered the challenge to the change in the method of valuation from market value to book value on the basis of Articles 19 (1) (g) and 31. In this case also it was held that such a contention was not available, as it had been negatived in Tinsukhia's case.

19. In our view, the authorities in Tinsukhia's case, Thana Electric Supply Company's case and Vellore Electric Corporation's case fully cover the point urged by Dr. Singhvi. Even if the principles laid down in Cooper's case, (supra) are applicable, still it has been held by this Court, in the above mentioned three cases that principles of valuation on book value is a well known concept of valuation and that the amount is not illusory. We, therefore, see no substance in this challenge.

20. Dr. Singhvi, however, submitted that the notice to take over the undertaking was given on November 30, 1962 and the undertaking was taken over on June 28, 1964. He submitted that on the date of takeover the rights of the 1st Respondent had crystallised. He submitted that the 1st Respondent, therefore, became entitled to receive the market value of the property. He submitted that as the amount payable had already got crystalised, a subsequent acquisition could only be acquisition of money. He submitted that on June 28, 1964 the vesting took place. He submitted that thereafter nothing more than payment of money was to be done. He submitted that by a retrospective amendment, made in 1975, money could not be compulsory acquired. He submitted that there could be no public purpose in acquisition of money and that such acquisition would amount to a forced loan. He submitted that the restrictions laid down by the retrospective amendment were not reasonable. He submitted that no reasons for such restrictions were given or could exist. He submitted that by the amendment the crystallised right to money was being taken away.

21. In support of his submission Dr. Singhvi relied upon the case of Madan Mohan Pathak v. Union of India, reported in (1978) 2 SCC 50 : 1978 Lab IC 612). In that case there was a settlement between the management and the labour under which an annual cash bonus was to be paid to Class III and Class IV employees. By the Life Insurance Corporation (Modification of Settlement) Act, 1976 Class III and Class IV employees were sought to be deprived of the annual cash bonus that they are entitled to receive under the settlement. This Court held that the term 'Property' under Articles 19 (1) (f), 31 (1) and 31 (2) had to be given the widest interpretation and refers to property of every kind, tangible or intangible, debts and chose-in-action. It was held that the chose-in-action could be compulsory acquired under Article 31 (2). It was held that the right to receive the annual cash settlement was a right to property within the meaning of Article 31(2). It was held that extinguishments of the debt of a creditor with the corresponding benefit to the State or State owned/controlled Corporation would be transfer of ownership to the State and would amount to compulsory acquisition under Article 31(2). It was held that acquisition of money, debt and/or chose-in-action must be made to serve a public purpose. It was held that the impugned Act was a pure and simple case of deprivation of the rights of the Class II and Class IV employees without any apparent nexus with any public interest. It was held that an acquisition of a chose-in-action could not be for the purpose of augmenting the revenues of the State or reducing State expenditure as that would not be a public purpose and would be violative of the constitutional guarantee embodied in Article 31 (2). It was held that an acquisition of this nature amounted to a forced loan. Dr. Singhvi also relied upon the case of State of Bihar v. Maharajadhiraja Sir Kameshwar Singh Darbhanga reported in 1952 SCR 889.

22. We are unable to accept the submission. As has been held in Tinsukhia's case, Thana Electric Supply Company's case and Vellore Electric Corporation's case what has been acquired is not a chose-in-action or a debt. What (has) been acquired is the undertaking which dealt with material resource of the country. There was no crystallisation of any amount. The only right was a right to receive compensation which was to be worked out on certain principles. All that the amending Act has done is to change the method or principle on the basis of which the compensation was to be worked out. It has been held that the legislation is not a piece of colourable legislation. It has also been held, in the above mentioned cases, that the provisions for quantification of the amount payable to the undertaking form an integral and inseparable part of the nationalisation and do not admit of being considered as distinct provisions independent of each other. It has been held that the economic costs of nationalisation was not justiciable. In our view this case is fully covered by the judgments in Tinsukhia's case, Thana Electric Supply Company's case and Vellore Electric Corporation's case.

23. In this view of the matter, the Appeal is allowed. The judgment of the Division Bench dated September 11th January, 1989 as well as the Judgment of the learned single Judge dated July 19, 1982 are set aside. The Writ Petition filed by the 1st Respondent stands dismissed. There shall be no order as to costs.

Appeal allowed.