U.P. State Electricity Board, Lucknow
Vs. The Official Liquidator Lower Ganges jamuna Electricity Dist  INSC 105
(1 May 1973)
CITATION: 1973 AIR 2546 1974 SCR (1) 142 1973
SCC (2) 234
Electricity Supply Act, 1948, schedule 6, cl.
V A-Liability to hand over development reserve-Scope of.
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 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]
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
B. Sen, A. Banerjee and B. Dutta, for the
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
ElectricityDistributing 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.
(2) Any sum to be appropriated towards the
Development Reserve in respect of any accounting year under subparagraph (1),
may be appropriated in annual installments spread over a period not exceeding
five years from the commencement of that accounting year.
(3) The Development Reserve shall be
available only for investment in the business of electricity supply-of the
(4) On the purchase of the undertaking, the
Development 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 misappropriated 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 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
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.