The Okara Electric Supply Co. Ltd.
& ANR Vs. The State of Punjab & ANR  INSC 135 (13 November 1959)
SINHA, BHUVNESHWAR P.(CJ) SUBBARAO, K.
GUPTA, K.C. DAS SHAH, J.C.
CITATION: 1960 AIR 284 1960 SCR (2) 239
CITATOR INFO :
R 1969 SC 239 (14) RF 1989 SC1741 (11)
of temporary sanction for supplying energy-Condition imposed for compulsory
acquisition of undertaking on Payment of compensation-Whether ultra
vires-Statute authorising imposition of such condition-Whether infringes
fundamental rights-Indian Electricity Act, 1910 (IX of 1910), s. 28(1)Constitution
of India, Arts. 19(1)(f) and Art. 31.
Section 28(1) of the Indian Electricity Act,
1910 authorised the State Government to grant sanction to a non-licensee to
engage in the business of supplying energy on " such conditions in this
behalf " as it may fix. By a notification dated May 26, 1948, issued under S. 28(1) the first respondent granted sanction to the first petitioner,
to engage in the business of supplying energy to Muktsar.
Clause 11 of the notification provided that
the Provincial Government shall have the option of acquiring the undertaking at
any time after October 21, 1950, after giving one year's notice and that it
shall pay the price of lands, buildings, works, material and plant that may be
acquired at the fair market value. On January 3, 1958, the first respondent issued a notice exercising the option given under cl. 11 and intimated to the
first petitioner that upon expiry of one year its undertaking shall vest and
become the absolute property of the first respondent. On January 4, 1959, the first respondent took possession of the undertaking in pursuance of the notice.
The petitioners contended that cl. 11 of the notification was ultra vires S. 28
and that if cl. 11 was justified by S. 28 then S. 28 was void as it offended
Arts. 19 and 31 of the Constitution.
Held, that cl. 11 of the notification was
intra vires S. 28. A statutory provision which dealt with the grant of sanction
to 240 a person to engage in the business of supplying energy must, having
regard to the special features of the business, necessarily deal with the
position which would arise on the termination of the sanction ; so it could be
assumed that such statutory provision would make adequate provision empowering
the State Government to provide for the compulsory acquisition of the assets of
the supplier on payment of proper compensation. Though S. 28(1) did not
specifically provide for compulsory acquisition on payment of compensation, the
expression " such conditions in this behalf " in S. 28(1) in the
context would include conditions dealing with the position which would
inevitably arise when the business came to an end. The sanction under S. 28
being necessarily temporary it was in the interest of the: grantee himself that
some provision was made for payment of compensation to him. A condition for
'acquisition like cl. 11 was, therefore, within the scope of S. 28(1).
New Orleans Gas Light Co. v. Louisiana Light
and Heat Producing and Manufacturing Co. 115 U.S. 650; 29 L. Ed.
516, referred to.
Held, further, that S. 28 was valid and did
not offend either Art. 19 or Art. 31. The Act could not be challenged on the
ground of violating Art. 31(2) as it was an existing law which was saved by
clause (5) of the Art. 31.
Similarly, it was saved by S. 299(4) of the
Government of India Act, 1935, from an attack under s. 299(2). The restrictions
imposed by S. 28 of the Act were reasonable restrictions imposed in the
interests of the general public within the meaning of Art. 19(5). Such
limitations were generally imposed on the business of supplying energy.
ORIGINAL JURISDICTION: Petition No. 19 of
Petition under Article 32 of the Constitution
of India, for enforcement of fundamental rights.
Veda Vyasa, S. K. Kapur and Ganpat Rai, for
S. M. Sikri, Advocate-General for the State
of Punjab, N. S. Bindra and D. Gupta, for the respondents.
1959. November 13. The Judgment of the Court
was delivered by GAJENDRAGADKAR J.-The Okara Electric Supply Co. Ltd., which is
a Joint Stock Company and Shrimati V. V. Oberoi, one of the principal
shareholders of the said company (hereinafter called petitioners 1 and 2
respectively) have filed the present petition against the State of Punjab and
the Punjab 241 State Electricity Board (hereinafter called respondents 1 and 2
respectively) in which they have claimed a writ, order or direction in respect
of a notice issued The by respondent 1 on January 3, 1958. The petition was
presented on January 3, 1959 and it claimed an order or writ restraining the
respondents from giving effect to the said notice. It appears that on January
4. 1959, in pursuance of the said impugned notice the respondents took
possession of the petitioners' property in question, and so, by an order passed
by the learned Chamber Judge the petitioners were allowed to make an additional
claim for a writ or order or direction in the nature of mandamus directing the
respondents to hand over to the petitioners the said property in question. This
petition is made on the ground that the impugned notice and action taken by the
respondents in pursuance of it are illegal and unauthorised and they affect the
petitioners' fundamental rights under Arts. 19 and 31 of the Constitution.
The first petitioner was granted sanction
under s. 28 of the Indian Electricity Act, 1910 (9 of 1910) (hereinafter called
the Act) authorising it to engage in the business of supplying energy at
Muktsar by Government Notification No.
1766-1 & C-48/28784 published on May 26,
1948. By virtue of the said sanction the first petitioner has ever since been
engaged in the business of supplying electric energy at the said place and for
the purpose of its business it has set tip an electricity undertaking at
considerable cost. On, January 3, 1958, the Secretary to respondent 1, P. W.
D., Irrigation and Electricity Branches, Chandigarh, issued notice against the
first petitioner purporting to exercise the option given to respondent 1 by cl.
11 of the said notification. By this notice the first petitioner was told that
respondent 1 had exercised its option under the said clause, and -that on -the
expiry of the period of one year after the receipt of the notice by the first
petitioner its undertaking shall vest in and become the absolute property of
The first petitioner has been having bulk
supply from P. W. D. Electricity branch of respondent 1, and, 31 242 according
to the petition, respondent 1 could not and will not take over the plant and
yet has ordered the first petitioner that it cannot sell the plant without
permission of respondent 1. The imposition of this condition is wholly illegal
and it amounts to an unreasonable restriction on the petitioners' right to
carry on business and to hold and dispose of its property.
The petition alleges that cl. 1 1 of the
notification on which the impugned notice is founded is ultra vires s. 28 of
the Act, and that alternatively, if the inclusion of the said clause in the
notification is justified by s. 28 of the Act, s. 28 itself is ultra vires
since it offends against Arts. 19 and 31 of the Constitution. It is on these
allegations that originally the petition claimed an order against the
enforcement of the notice and subsequently added the prayer for a writ of
mandamus directing respondent 1 to restore to the petitioners possession of the
property which has been taken over by' respondent 1 after the filing of the
The claim thus made is denied by both the
respondents. It is urged that the petitioners cannot challenge the validity of
cl. 11 which was accepted by them before the Constitution came into force. It
is further urged that the said clause is justified by the provisions of s. 28
of the Act and that both the said clause and s. 28 are intra vires and valid.
The respondents further alleged that after
possession was taken of the property of the first petitioner in exercise of the
option under cl. 11 the first petitioner had been repeatedly called upon by the
respondents to assist them in making a proper valuation of the assets of the
first petitioner taken over by the respondents. In fact an amount of Rs. 60,000
has been paid to the first petitioner in part payment by way of compensation
and it has been accepted by it though under protest; but the work of completing
the valuation of the total assets has been delayed and hampered by the non-cooperative
attitude of the first petitioner.
Thus the first question which falls to be
decided on this petition is whether cl. 11 of the notification is 243 justified
by s. 28 of the Act. The notification consists of 14 clauses and it sets out
exhaustively the terms and conditions on which sanction had been granted to the
first petitioner under s. 28 of the Act. For the purpose of the present
petition it would be enough to refer to 11 only.
This clause provides that the provincial
Government shall have the option to acquire the undertaking at any time October
21 1950, provided firstly That not less than one Year-,' notice in writing of
the election to acquire shall be served upon the supplier by the Provincial
provided secondly that the generating station
shall not form part of the undertaking for the purpose of acquisition if the
undertaking is acquired after grid supply from the East Punjab Public Works
Department, Electricity Branch, has reached Muktsar; provided thirdly that the
price to be paid to the supplier for such lands, buildings, works, materials
and plant as may be acquired by the Provincial Government under this clause
will be the fair market value at the time of purchase (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) such value to be in case of
difference or dispute determined by arbitration in the manner prescribed in s.
52 of the Act; provided fourthly that the Provincial Government shall pay the
price of the property acquired under this clause within a period of six months
after the price has been determined." Mr. Veda Vyas, for the petitioners,
contends that the condition which gives respondent 1 the option to acquire the
property of the petitioners is ultra vires.
We are concerned with s. 28 as it stood prior
to its amendment by Act 32 of 1959. Section 28(1) reads thus :
" No person, other than a licensee,
shall engage in the business of supplying energy except with the previous sanction
of the State Government and in accordance with such conditions as the State
Government may fix in this behalf, and any agreement to the contrary shall be
void." 244 The Act which was passed in 1910, to amend the law relating to
the supply and use of electrical energy was intended to provide for and
regulate the supply of energy by granting licences and so the provisions in
respect of licences are dealt with by ss. 3 to 27 in Part 11. Part III in which
s. 28 occurs deals with the supply of energy nonlicensees. It appears that the
Legislature intended to adopt the course of sanctioning the supply of energy by
lion-licensees as a temporary measure and in areas wherever it was expedient to
do so. A person other than a licensee cannot engage in the business of
supplying energy except with the previous sanction of the State Government and
28(1) authorises the State Government to
impose conditions subject to which it proposes to grant sanction. This position
is not disputed; but the argument is that the conditions which can be
legitimately imposed in granting sanction must be such as would relate to or
have bearing on the business of supplying energy. Such conditions " in
this behalf ", it is urged, cannot include any conditions as to compulsory
acquisition of the property of the person to whom sanction is intended to be
given. The acquisition of such property does not relate and has no bearing on
the business of supplying energy and is in no manner connected with it.
It would be competent to the State Government
to provide for the area of supply, the aerial lines, the nature of the supply,
the limitation of prices to be charged for the supply of energy and the
purchase of energy in bulk. These and other similar conditions can be properly
regarded as conditions " in behalf of " the business if supplying
energy ; but the condition of compulsory acquisition of the supplier's property
cannot be treated as falling under s. 28(1).
In support of this construction reliance is
placed on the provisions of ss. 5 and 6 which specifically deal with the
question about the acquisition of the undertaking. Section 3 of the Act
provides for the granting of licences and s. 4 for the revocation and amendment
of licences. Having provided for the grant, revocation and amendment of the
licences s. 5 deals inter 245 alia with the question of paying compensation. to
the licensee whose licence has been revoked similary s. 6 makes appropriate
provisions for compensation where the licence of local authority has been
revoked. Section 7 makes a provision for the purchase of an undertaking and
lays down the procedure for determining the value of the properties.
The petitioners urge that where the
Legislature thought it necessary to acquire properties of the licensees either
on the revocation or the cancellation of the licences it has made express
provisions in that behalf; a similar provision would have been made in respect
of persons other than licensees to whom sanction is granted under s. 28 if it
was in the contemplation of the Legislature that the properties of such persons
may be acquired. Thus presented, the argument no doubt appears to be plausible.
Prima facie there is. some force in the contention that conditions " in
this behalf " in the context should mean conditions which are relevant to
or connected with the business of supplying energy. In deciding this question,
however, it is essential to bear in mind the Specialnature of the article,
viz., energy for the supply ofwhich sanction is granted, and to take
intoaccount the scheme of the Act in regard to the conditions which are
intended to be imposed on the business of its supply.
In this connection it would not be
unreasonable to ascertain how the supply of. energy is regulated in England and
America. It is clear that the Act is based on the provisions of the English law
and it would be useful to inquire, whether conditions for the acquisition of
the supplier's property were treated as a part of the conditions on which the
supplier was allowed to carry on the business of supplying electricity. This
aspect is considered by Halsbury under the heading Acquisition of undertaking
by -Local Authority In Local Authority ", it is observed, " within
whose jurisdiction the area of supply or any part of it is situated may within
six months after the expiration of 42 years or any shorter period specified in
the special order from the coming to force of the said 246 order ... by a
notice in writing require the undertakers to sell and thereupon the undertakers
must sell too them their undertaking or so much -of it as within its
jurisdiction) upon terms of paving the then value of all lands, buildings,
works, materials and plant of the undertakers suitable to and used by them for
the purpose of the undertaking within such jurisdiction such value to be
determined by arbitration in case of difference (1)". It would thus appear
that where sanction was given to a person for carrying on the business of
supplying electricity under a special order, a condition was introduced in the
said order itself for the compulsory acquisition of the undertaking on payment
of adequate compensation to the person concerned.
Subsequently, after the passing of the
Electric Lighting Act, 1909, powers to supply electricity were not granted by
provisional orders but a large number of such orders still remained in force;
and, as Halsbury has observed, " many of these orders are in a standard
form but a number contain special clauses of which the most common is a clause
giving special purchase rights to local Authorities. These special orders were
confirmed by Acts and contained special clauses for the protection of county
bridges, for the breaking up of streets, for the connection of the generating
stations and systems of different undertakings and the use of such generating
stations in common for the purpose of such undertakings " (2). It is thus
clear that where a licence was given to a person to supply electricity it
generally included the right of the licensing authority to acquire the
licensee's property on terms and conditions included in the licence by the
The American lawyers describe the right or
privilege to supply electricity as a franchise. This right falls under a class
of rights " in public streets which are granted for furtherance of public
purposes but which involving as they do the right to use the streets in (1)
Halsbury's "Laws of England", Vol. 12, 2nd Ed., page 597, Art. 1152.
(2) Halsbury's "Laws of England",
Vol. 12, 2nd Ed., page 668, footnote (t).
247 various ways, give rise to a series of
questions as between the grantee of the right on the one hand and the
municipality or abutting owners on the other " Dillon in " Muncipal
Corporations " further observes that " for convenience these rights
are described as franchises to use the public streets and highways, and whether
correctly or incorrectly denominated franchises, they answer in essential
respects to the definition and elements of a franchise from the State ".
" The business of furnishing water and light ", observes the author,
" when carried on by a corporation or individual, of necessity involves
the use of streets and highways of the municipality; and the right to lay
pipes, mains and conduits, and to erect poles and stretch wires therein and to
maintain, operate and use them, is a franchise vested in the State, and it can
only be exercised by a corporation or individual pursuant to the authority
granted by the State "(2).
The question of the purchase of works of
companies by municipality is also considered by Dillon: " Where a
municipal corporation has granted a franchise to a water or gas company to
construct its plant, to use the city streets for pipes and mains, and to
furnish water or light to the city and its inhabitants, it has been held that
the legislature under special constitutional restrictions was without authority
to compel the city to purchase the property or plant of the company if it
desired to acquire or construct works of its own; but in the absence of
constitutional limitations statutes may be enacted and contracts made which in
their effect prevent municipalities from establishing water works of their own
until they have at least offered to purchase the works of corporations
organised and existing within their limits " (3). The learned author also
says that " If a municipality stipulates in a contract with a water or
other public service company that it shall have theright to purchase the works
of the company at a time and in a (1) Dillon's "Municipal
Corporations", 5th Ed., Vol.
111, P. 1905, S. 1210.
(2) Dillon's ,Municipal Corporations",
5th Ed., Vol. 111, p. 213637 S. 1304.
(3) Ibid, P. 2183, s. 1312, 248 manner
specified, and if such stipulation is inserted in and becomes a part of a grant
of the right to use Electric the streets and public places of the municipality
for the purpose of laying mains and pipes, the corporation is estopped to deny
the authority of the municipality to make and enforce the stipulation "
In New Orleans Gas Light Co. v. Louisiana
Light and Heat Producing and Manufacturing Co. (2), it has been held by the
Supreme Court of the United States of America that " the manufacture and
distribution of gas by means of pipes, mains and conduits placed under
legislative 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, when not forbidden by the organic law of the State, may be
granted by the Legislature as a means of accomplishing public objects to
whomsoever, and upon what terms, it pleases ". In that case the question
which arose for decision of the court related to the validity of the
constitutional prohibition upon State laws impairing the obligation of
contracts but with that aspect of the matter we are not concerned in the
present appeal. 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 business, a condition is usually imposed for the compulsory
acquisition of the business when the licence or sanction comes to an end.
Let us look at this question from a practical
point of view. If a person is granted sanction to engage in the business of
supplying energy it is not denied that s. 28(1) would justify the imposition of
a time limit on the grant of sanction. If sanction is granted for a specified
number of years, and it comes to an end what would happen to the constructions
made by the supplier for the purpose of supplying energy ? He (1) Ibid. P.
2187, S. 1312. (2) 115 U.S. 650; 29 L. Ed.
249 cannot dismantle them because thereby he
would cause damage to public property such as streets, and so he cannot take
them away. In such a case the Legislature may well provide for the acquisition
of such constructions in order to safeguard the interest of the person to whom
temporary sanction is granted. Such a provision also serves another public
purpose. It guarantees the availability of suitable constructions and works
which may be used for the continuance of the supply of electricity by another
In other words, the statutory provision which
deals with the grant of sanction to a person to engage in the business of
supplying energy must, having regard to the special features of the business,
necessarily deal with the position which would arise on the termination of the
sanction; and so it would not be unreasonable to assume that the statutory
provisions which deals with this question would think of making adequate
provision empowering the State Government to provide for the compulsory
acquisition of the assets of the supplier on payment of proper compensation. It
is in the light of this special feature of the business of supplying energy
that we must construe s. 28(1) of the Act.
Besides, the provisions of ss. 5, 6 and 7
also afford assistance in the matter. They clearly show that in the case of a
licence specific provisions have been made for the acquisition of the
undertaking in cases of revocation or cancellation of licences. The reason for
thus providing for compulsory acquisition of licensee's undertaking is equally
relevant in the case of the sanction with which s. 28(1) deals. It is true that
s. 28 does not specifically and expressly provide for compensation as the other
but that must be because recourse to the
provisions of Pt.
III was intended not to be the rule but only
as a temporary measure wherever it was deemed necessary to do so; and so the
Legislature left it to the State Government to provide for compulsory
acquisition in the light of the guidance given by the provisions contained in
ss. 5, 6 and 7.
Let us then look at s. 28(1) in the light of
these considerations. It authorises the State Government to 32 250 give
sanction to a person to engage in the business of supplying energy on
conditions in that behalf. The expression " such conditions in this behalf
" in the context should -take in conditions dealing with the Position
which would inevitably arise when the business comes to an end. There is no
doubt that the grant of sanction contemplated by s. 28 cannot be permanent.
It-was always bound to be temporary, issued
on an ad hoc basis according to the requirement of each case, and when granting
sanction for a specified number of years it is in the interest of the grantee
himself that some provision should be made for payment of compensation. to him
in respect of the investment made by him in carrying out the business of
supplying energy when otherwise it would be difficult for him to collect his
assets in that behalf.
That is why we think that the relevant words
should not be given a narrow and limited construction for which the petitioners
contend. In our opinion, the context requires that the said words should
receive a wider and liberal construction. A condition for the acquisition of
the property of the petitioners, like cl. 11 would, therefore, fall within the
scope of s. 28(1). The challenge to the validity of this condition on the
ground that it is ultra vires s. 28(1) must accordingly fail.
If s. 28 permits the imposition of such a
condition does it violate Art. 19 or Art. 31 of the Constitution ? That is the
next question which must be considered. It is not seriously disputed that Art.
31(2) on which reliance is placed by the petitioners cannot be of much help to
them for Art. 31(5) provides inter alia that nothing in cl. (2) shall affect
the provisions of any existing law other than the law to which the provisions
of cl. (6) applies. It is conceded that cl. (6) does not apply to the Act, so
that it follows that Art. 31(2) cannot be invoked to challenge the validity of
the Act. Mr. Veda Vyas attempted to contend that the vires of the Act could be
challenged if not under Art. 31(2) at least under s. 299(2) of the Government
of India Act, 1935; but he realised that he was up against a similar difficulty
created by the provisions of s. 299(4) which says that nothing in s. 299 shall
affect the provisions 251 of any law in force at the date of the passing of the
and he conceded that in 1910 when the Act was
passed the Legislature was competent to -pass it and it then suffered from no
infirmity. That is why though an attempt was made to press into service Art.
31(2) it was ultimately given up. We need not, therefore, discuss this point
In regard to the attack on s. 28 on the
ground that it offends Art. 19(f) or (g) the answer is obvious. The limitations
imposed by s. 28 quite clearly are reasonable restrictions and have been
imposed in the interests of the general public within the meaning of Art 19(5)
of the Constitution. As we have already seen such limitations are generally
imposed on the business of supplying energy and their reasonableness cannot be
and has in fact not been seriously challenged. Therefore, we have no hesitation
in holding that the vires of s. 28 cannot be successfully challenged.
Incidentally we may observe that on the day
when the Constitution came into force what vested in the petitioners was the
property subject to the liability imposed on it by cl. 11 of the notification;
and so, when the Constitution came into force the only rights which the
petitioners had in their property in question were rights of a limited
character which were subject to the exercise by the State of its election to
acquire the said property. In this connection the respondents rely on, the
decision of this Court in Director of Endowments, Government of Hyderabad v.
Akram Ali(1) and seek to urge that the
exercise of the option given to respondent 1 by cl. 11 of the-notification
cannot be successfully challenged as ultra vires under Art.
19 of the Constitution; we do not, however,
think it necessary to decide this point because it was fairly conceded before
us that if s. 28 is valid and is construed to include a condition like cl. It
of the notification no other point would survive.
There is one more minor point to which
reference may be made. In the petition the validity of the notice given by
respondent to the petitioners prohibiting them from dealing with the property
was (1) A.I.R. 1956 S.C. 60.
252 challenged; but that is no longer a
matter in dispute between the parties since respondent I has in substance
withdrawn the said notice. This fact, however, would be relevant on the
question of costs.
The result is the petition fails but in the
circumstances of this case there would be no order as to costs.