Vellore
Electric Corporation Ltd. & Anr Vs. State of Tamil Nadu & Ors [1989] INSC 128 (13 April 1989)
Venkatachalliah,
M.N. (J) Venkatachalliah, M.N. (J) Rangnathan, S. Pathak, R.S. (Cj) Mukharji, Sabyasachi (J)
Natrajan, S. (J)
CITATION:
1989 AIR 1741 1989 SCR (2) 475 1989 SCC (4) 138 JT 1989 Supl. 105 1989 SCALE
(1)1103
ACT:
Constitution
of India, 1950: Articles 14, 19, 31, 31-C,
39(b) and 39(c).
'Material
Resources of the Community'--Whether include electrical energy generated and
distributed by private undertakings.
Acquisition
of undertakings--Compensation--Justiciability of.
Procedure
under Indian Electricity Act, 1910--Alternative concurrent procedure envisaged
under Tamil Nadu Private Electricity Supply Undertakings (Acquisition) Act,
1973--Whether discriminatory and unconstitutional.
Tamil Nadu
Private Electricity Supply Undertakings (Acquisition) Act, 1973: Sections: 2-6,
10(f) and 23.
Constitutional
validity of--Object of the Act--Whether has nexus to objects of Article 39(b)
and (c) of the Constitution and therefore protection of ArtiCle 31-C.
Procedure
for acquisition of undertakings initiated under Tamil Nadu Electricity Supply
Undertakings (Acquisition) Act, 1954--Proceedings interrupted by Courts
order--Fresh acquisition proceedings under subsequent Act of 1974 Whether
acquisition of 'choses-in-action'.
Provision
relating to liability of licensee to account to Government in respect of
possession of and any benefit derived from undertaking after date of
vesting--Whether arbitrary or unconstitutional.
'Compensation
Amount'--Provision for exclusion of works paid 476 for by the
consumers--Whether unconstitutional.
Sums
due to Government and Electricity Boards from licensee-Provision for deduction
from compensation amount--Whether unconstitutional.
Acquisition--Property
belonging to undertaking--Non-delivery of--Loss sustained by
Government--Computation of--Basis--Market value--Whether unconstitutional.
Acquisition--"Accredited
Representative"--Time granted to signify choice as to basis of
determination of amount--Whether unreasonably short and arbitrary.
HEAD NOTE:
The
petitioner companies viz., Veilore Electric Corporation Ltd., Kumbakonam
Electric Supply Corporation Ltd. and Nagapatam Electric Supply Corporation Ltd.
were grantee of licences under the Indian Electricity Act, 1910 by the
Government of the then Presidency of Madras for supply of electrical-energy in
their respective areas.
In
exercise of its power under Section 4(1) of the Madras Electricity Supply
Undertakings (Acquisition) Act, 1954, the State Government issued orders dated
12.1.1968 taking over the undertakings of the Petitioner Companies viz., Kumbakonam
Electricity Supply Company and Nagapatam Electric Supply Company declaring that
their undertakings shall vest in the Government with effect from the dates
specified in their respective orders.
These
two petitioner companies filed writ petitions in the High Court of Madras
challenging the constitutional validity of the 1954 Act, which were dismissed.
The
Writ Appeals filed by them were also dismissed by a Division Bench of the High
Court. Thereafter appeals were filed in this Court, which were however, later
withdrawn.
Though
proceedings for the acquisition of the undertakings of these two companies had
been initiated under the 1954 Act but full effectuation thereof had been
interrupted by the interlocutory orders made by the courts staying delivery of
possession of the undertaking.
Subsequently
the Tamil Nadu Private Electricity Supply Undertakings (Acquisition) Act, 1973
came into force which, inter alia, nul477 lifted the effect of the action taken
under the 1954 Act. On 30.10.1973 the State Government issued fresh orders
under Section 4(1) of 1973 Act declaring that the undertakings of these two
petitioner companies shah vest in Government with effect from 1.12.1973.
A
similar order was passed bv the State Government under Section 4(1) of 1973 Act
in respect of the third petitioner company viz. Vellore Electric Corporation
Ltd., declaring that the undertaking of this company shall vest in the
Government with effect from 7.1.1974. By an order dated 2.2.1978 the State
Government also rejected the application of the petitioner Vellore Electric
Corporation seeking a change in the basis for determination of amount from
basis A to basis B under the 1974 Act.
Writ
Petitions were filed in this Court under Article 32 of the Constitution by the
three affected companies challenging the constitutional validity of the Tamil Nadu
Private Electricity Supply Undertakings (Acquisition) Act, 1973, as well as the
orders made under Section 4(1) on the ground that the 'Act', which envisages
the acquisition of the Electric Supply Undertakings of petitioners as violative
of Articles 14, 19(1)(f), 19(1)(g) and 31 of the Constitution.
Dismissing
the Writ Petitions,
HELD:
1. The electricity generated and distributed by the undertakings of the
petitioner-companies constitute "material resources of the
community." for the purpose and within the meaning of Article 39(b).
1.1
The idea of distribution of the material resources of the community in Article
39(b) is not necessarily limited to the idea of what is taken over for
distribution amongst the intended beneficiaries. That is one of the modes of
"distribution". Nationalisation is other mode.
1.2 On
an examination of the scheme of the impugned law the conclusion becomes
inescapable that the legislative measure is one of nationalisation of the
undertakings and the law is eligible for and entitled to the protection of
Article 31-C.
1.3
The economic cost of social and economic reform is, perhaps, amongst the most
vexed problems of social and economic change and constitute the core element in
Nationalisation. The need for constitutional immunities for such legislative
efforts at social and economic 478 change recognise the otherwise unaffordable
economic burden of reforms. It is, therefore, not possible to divorce the
economic consideration or components from the scheme of the nationalisation
with which the former are inextricably integrated. The financial cost of a
scheme of nationalisation lies at its very heart and cannot be isolated. Both
the provisions relating to the vestitute of the undertakings in the State and
those pertaining to the quantification of the 'Amount' are integral and inseparable
parts of the integral scheme of nationalisation and do not admit of being
considered as distinct provisions independent of each other.
Tinsukia
Electric Supply Co. Ltd..v. State of Assam, [1989](3) S.C.C. 709; applied.
1.4 In
view Of the fact that what was acquired in the instant case were not merely
"choses-in-action" but the undertakings themselves, it is not
necessary to go into the question whether a "choses-in-action" can at
all be acquired.
State
of Madhya Pradesh v. Ranojirao Shinde & Anr., [1968]
(3) S.C.R. 489 and Madan Mohan Pathak v. Union of India & Ors., [1978] (3)
S.C.R. 334; referred to.
2. The
subject matter of the grant in relation to distribution in the community of
such material resources be it electricity, water, gas or other essential
amenities of life has a special nature.
New
Orleans Gaslight Co. v. Louisiane Light & Heat Producing & Mfg. Co.,
115 U.S. 650; The Okara Electricity Supply Co. Ltd. v. The State of Punjab, A.I.R. 1960 S.C. 284; referred to.
2.1
The impugned law is within the legislative competence of the State Legislature
and such State law, with the Presidential assent, prevails and is not
over-borne by the Central law. The impugned State law, by its 22nd section,
expressly excludes the operation of any provisions of the Electricity Act,
1910, in so far as such provision is inconsistent with the provisions of the
Stare Law. The Constitutional immunity afforded to the State law prevents any
challenge to it on grounds based on Article 14 or 19.
3.
There is nothing unreasonable about the provision which merely recognises the
obligation of a licensee to account for its acts in relation to a property
which has already vested in Government. There479 fore Section 4 which pertains
to the liability of the licensee to account to Government in respect of
possession of and any benefit derived from the undertaking after the date of
the vesting is not arbitrary and unconstitutional.
4. The
deduction envisaged by Section 10(d) from the amount payable towards and on
account of arrears of electricity charges payable by the licensee to the
Government or the Electricity Board as the case may be for the supply of
Electricity made by them to the licensee is a legitimate item of deduction. It
cannot be held to be arbitrary on the apprehension that even a disputed and
untenable claim in that behalf becomes entitled to deduction. Section 13(1)(e)
makes such a dispute as one of the arbitrable disputes and no deduction of a
disputed claim can be justified by the Government if the arbitrator--who is or
has been a District Judge or a retired High Court Judge-holds that the
deduction is unjustified.
5. If
a debt is deducted from the "amount", the debt is satisfied and is
extinguished and no further debt remains outstanding to get itself attached to
and becomes an encumbrance upon the substituted security viz., the 'amount'.
Section
6(2) and Section 10(e) must be construed harmoniously and in a reasonable
manner. There is no scope for any apprehension of a possible double recovery of
the same debt.
Therefore
the Act cannot be challenged on the ground of possible double recovery of the
same debt under Section 6(2) and Section 10(e).
6. The
measure of the reimbursement for an asset withheld by the licensee is the
corresponding expenditure to be incurred by Government for replacement which,
in eminently conceivable cases, could be the market value of the asset which is
so withheld by the licensee and which has to be replaced to keep the
undertaking functioning. Therefore Section 10(f) cannot be held to be arbitrary
on the ground that it is an instance of application of double standards because
while recovery of "market value" is sought to be made for
non-delivery of the item whereas in computing the "amount" only the
"book value" of such "property" or "right" is
taken.
7. It
cannot be said that the accredited representative is, under Section 8(1), given
only a month's time from the date of his appointment to signify the choice
under Section 5 as to the basis of determination of the amount. Section 8(1)
also provides 'or such further time as may be granted by the Government'. If
the exercise of this power is arbitrary or capricious the licensee has remedies
in Administrative 480 Law. But the provision itself cannot be held to be bad or
invalid on the ground that time granted under the Section to signify choice
under Section 5 is unreasonably short.
8. The
order of the Government dated 2.2.1978 rejecting the application of the
Petitioner, Vellore Electric Corporation and refusing a change in the basis for
determination of amount from basis A to basis B is set aside and the Government
is directed to consider the matter afresh.
ORIGINAL
JURISDICTION: Writ Petition No. 5 (N) of 1974.
(Under
Article 32 of the Constitution of India).
Soli
J. Sorabjee, Harish N Salve, A.K. Verma, K.J. John, Srinivasamurthy, Ms. Naina Kapur,
J.B. Dadachanji and Joel Pares for the Petitioners.
Shanti
Bhushan and A.V. Rangam for the Respondents.
The
Judgment of the Court was delivered by VENKATACHALIAH, J. In these writ-petitions
under Article 32 of the Constitution of India, three electric supply
undertakings in the State of Tamil Nadu,
namely, Vellore Electric Corporation Ltd., Nagapatam Electric Supply Co. Ltd.,
and Kumbakonam Electric Supply Corporation Ltd., challenge the constitutional
validity of the Tamil Nadu Private Electricity Supply Undertakings
(Acquisition) Act, 1973, ('Act' for short) on the ground that the 'Act', which
envisages the acquisition of the Electric Supply Undertakings of three
petitioners, as violative of Articles 14, 19(1)(f), 19(1)(g) and 31 of the
Constitution.
These
writ-petitions were heard along with Writ Petition (Civil) Nos. 457 and 458 of
1972, pertaining to the acquisition of Tinsukhia Electric Supply Co. Ltd., and Dibrugarh
Electric Supply Co. Ltd., under the provisions of the Tinsukhia and Dibrugarh
Electric Supply Undertakings (Acquisition)Act, 1973, (Assam Act 1973) and the
main contentions touching the constitutionality of such State laws, providing
for acquisition of private electricity undertakings--independently of and
without recourse to the option to purchase envisaged by the terms of licences
and under the provisions Sections 6, 7 and 7A of the Electricity Act 1910--are
considered in the main judgment in the said WP 481 Nos. 457 & 458,
separately rendered today.
2. The
scheme and the broad features of The Tamil Nadu Private Electricity Supply
Undertakings (Acquisition) Act, 1973, which received the assent of the
President on 30th September, 1973, are that the "Act" enables and
provides for the acquisition of the private undertakings engaged in the
business of supplying electricity to the public other than those belonging to
and are under the control of the State Electricity Board or the local
authorities.
Section
2 of the Act declares that the "Act" is for giving effect to the
policy of the State towards securing of the Directive Principles, specified in
clauses (b) & (c) of Article 39 of the Constitution of India. Section 3 is
the interpretation clause. Section 4 empowers the State Government to declare,
by order in writing, that any undertaking shall vest in Government on the date
specified in such order. The proviso to Section 4 enables the Government to
modify, by advancing or postponing, the date originally fixed in such order, or
the modified date; or to cancel such order. The proviso is, however, subject to
a limitation which is in terms following:
"So,
however, that no such order shall be modified or cancelled after the
undertaking has vested in the Government but such cancellation shall not be
deemed to prevent the Government from taking any proceeding de novo in respect
of such undertaking under this Act." The mode of promulgation and the
incidence and consequence of an order under sub-section (1) of Section 4, are
envisaged in subsection (3) (4) & (5) of Sections 4 and 6 of the Act.
Sub-sections
(3), (4) and (5) of Section 4 provide:
"(3)
Every order under sub-section (1) shall be-(a) served on the licensee in the
prescribed manner; and (b) published in such manner as the Government may deem
fit.
(4) On
the vesting date the undertaking, to which the order under sub-section (1)
relates, shall, subject to the provisions of section 6, stand transferred to,
and vest in, the Government.
482
(5) Every licensee who, after the vesting date, was in possession of, or
deriving any benefit from the undertaking vested in the Government under
sub-section (1), shall be liable to pay to the Government, for the period,
after such vesting, for which he was in such possession or deriving such
benefit, an amount as compensation for the use, occupation or enjoyment of that
undertaking as the prescribed authority may fix in the prescribed manner. Such
authority shall take into consideration such factors as may be
prescribed." We shall refer to Section 6 and its impact at an appropriate
stage later.
Section
5 of the "Act" envisages the "amount" to be given to the
licensee on whom an order has been served under Section 4 and provides for its
determination on two alternative basis--Basis (A) or Basis (B)--as may be
chosen by the licensee in the exercise of the option given under Section
8.
Section 7(1) contemplates and requires the appointment of an ,Accredited-Agent"
by the licensee within three months of service of the order under Section 4(1).
Such accreditedagent is required within one month of his appointment or with
such further time as may be granted by Government, signify the choice of the
Basis for the determination of the "Amount". Section 8(2) says that
the choice of the Basis once intimated shall not be open to revision except
with the concurrence of the Government. 'Basis (A)' provides that the amount to
be given shall be equivalent to 12 times of the average net annual profits of
the undertaking during a period of any five Account-years at the option of the
licensee within a period of seven consecutive account-years immediately
preceding the vesting date. 'Basis (B)' contemplates a different mode of
determination of the amount. It provides for payment of the aggregate value of
the sums specified in clauses (i) to (ix) of sub-section (2) of Section 5.
Section 10 speaks of the deduction that the Government is entitled to make for
the amount. They are specified at clauses (a) to (i) of Section 10. Section 11
provides for the manner of payment of the "Amount". Section 13(1)
renders any dispute "in respect of any of the matters in clauses (a) to
(e) of Section 13(1)" arbitrable. The Arbitrator is required, by Section
11(2), to be a District Judge or a person who is a retired District Judge or a
retired High Court Judge.
Chapter
III of the Act, comprising Sections 14, 15, 16 and 17 contemplate and provide
for the termination of agreements between the licensee on the one hand and the
managing-agent or the managing483 director, as the case may be, on the other;
the continuation under the Government or the Electricity Board, of services of
persons on the staff of the licensee taking an inventory of the assets and for
information in regard to the documents maintained by the licensee and other
incidental matters.
Sections
18 and 19 of Chapter IV deal with offences, penalties and procedure therefore
Chapter V, comprising Sections 20, 21, 22, 23 and 24, deals with miscellaneous
matters. Two sections in Chapter V are of particular relevance. Section 22(i),
inter-alia, provides that no provisions of Electricity Act, 1910, or the
Electricity Supply Act, 1948, in so far as such provisions are inconsistent
with any of the provisions of the Act, shall have any effect. Section 23 refers
to and deals with the action initiated under the earlier State law viz., the
Tamil Nadu Electric Supply Undertaking (Acquisition) Act, 1954, (Tamil Nadu Act
29 of 1954) which is repealed by the 'Act'. Sub-section (1) of Section 23 says
that the said Act 29 of 1954 shall cease to apply to any undertaking as defined
in Section 3(12) of the 'Act' which has "not vested with and taken
possession of by the Government under the provisions of the 1954 Act"
before the commencement of the 1973 Act. Subsection (2) and (3) of Section 23
envisage and provide for situations where some action had been initiated by the
1954 Act but such action had not culminated in the vesting of the undertaking
and possession thereof being taken-over by Government. Sub-section (2) and (3)
of Section 23 provide:
"(2)
Notwithstanding anything contained in the 1954 Act, if, in pursuance of any
order under sub-section (1) of section 4 of the 1954 Act in respect of any
undertaking as defined in section 3 (12) of this Act, the Government have not
taken possession of such undertaking before the commencement of this Act that
order shall lapse and be of no effect and such undertaking shall not vest and
shall be deemed never to have vested in the Government under the 1954 Act and
in respect of such undertaking it shall be lawful for the Government to make an
order under subsection (1) of section 4 of this Act and the provisions of this
Act shall accordingly apply to such undertaking." "(3)
Notwithstanding anything contained in the 1954 Act, where, in respect of any
undertaking as defined in section 3(12) of this Act, the Government have
postponed the date of vesting under the proviso to subsection (1) of 484
section 4 of the 1954 Act, that undertaking shall not vest, and shall be deemed
never to have vested, in the Government under the 1954 Act, notwithstanding the
expiration of a period of one year from the date originally fixed under
sub-section (1) of section 4 of the 1954 Act and in respect of such undertaking
it shall be lawful for the Government to make an order under sub-section (1) of
section 4 of this -Act, and the provisions of this Act shall accordingly apply
to such undertaking." The provisions of Section 23 acquire particular
significance in the case of the Kumbakonam Electric Supply Corporation Ltd. and
Nagapatam Electric Supply Co. Ltd., petitioners in W.P. 14 & 15 of 1974,
as, indeed, proceedings for the acquisition of the undertakings of these two
companies had been initiated under the 1954 Act but full effectuation thereof
had been interrupted by the interlocutory orders made by courts in proceedings
in which these two companies had challenged the validity of the 1954 Act.
Section 23 of the present 'Act' seeks legislatively to set at naught such legal
consequences as might come to be considered as ensuing from the action taken
under the earlier 1954 Act. Some contentions urged in these cases centre round
what the petitioners refer to as some irreversible, vested rights according to
them under the earlier proceedings under the 1954 Act.
3. The
Vellore Electric Corporation Ltd., petitioner in WP No. 5(N) of 1974, was
granted on 14.5.1929 by the Government of the then--Presidency of Madras under
the provisions of the Indian Electricity Act, 1910, (1910 Act' for short), for
the supply of. electrical-energy within the municipal limits of Vellore town which was later extended to
cover the adjacent area of Ranipet. Clause 12 of the licence envisages the
option to the Government to purchase the licensee's undertaking on the expiry
of 30 years from the commencement of the licence or if licence is renewed
thereafter on expiration of every subsequent period of 20 years, during the
continuance of the licence. At the relevant time when the order under Section
4(1) was made, the remaining period of the licence was upto 14.5. 1979. The
State Government in exercise of powers under Section 4(1) of the Act made an
order dated 30.10.1973, served on the petitioner on 5.11. 1973 fixing 1.12.1973
(which was later postponed to 7.1.1974) as the date of vesting.
4. The
facts in W.P. 14 of 1974 are the following:
485
The petitioner, the Kumbakonam Electric Supply Corporation Ltd., a public
limited company, then engaged in the business of distribution and supply of
electrical energy in the Taluks of Kumbakonam and Papanasam and a portion of Thanjavur
Taluk, in the District of Thanjavur in the State of Tamil Nadu, was granted a licence
dated 15.4.1930 under the Indian Electricity Act, 1910, by the Government of
the then-Presidency of Madras. The initial period of the licence was 20 years
with a provision for renewal for further periods of 7 years each. At the time
the impugned order under Section 4(1) of the "Act" was made, in
relation to the Electricity Supply Undertaking of this company, the unexpired
period of the licence was up to 15.4.1978.
On
12.1.1968, the State Government in exercise of its power under Section 4(1) of
the Madras Electricity Supply Undertakings (Acquisition) Act, 1954, made an
order for the taking-over of the undertaking. The petitioner-company filed a
writ-petition No. 704 of 1968 in the High Court of Madras, challenging the
constitutional validity of the 1954 Act under which the order was made. That
writ petition was dismissed on 31.7.1968. The Writ Appeal No. 338 of 1968,
filed by the petitioner was also dismissed by the Division Bench.
The
petitioner preferred, by special leave, an appeal to this Court in CA 119 of
197 1. During the pendency of the proceedings before the High Court and before
this Court, petitioner had had the benefit of interlocutory orders,
"staying delivery of possession of the undertaking". However, the
petitioner withdrew the appeal, according to it, on the suggestion of the
Government With a view to facilitating negotiations for a settlement.
However,
on 30.9.1973, the 'Act' in the present proceedings came into force. As noticed
earlier, sub-section (2) and (3) of Section 23 of the 'Act' statutorily
abrogates the effect, incidents and consequences of all earlier proceedings
taken under the 1954 Act, except in cases where the vesting and the taking over
of possession of the undertaking had already occurred before 30.9.1973. The
order under Section 4(1) of the 1973 Act in the case of the petitioner in WP 14
of 1974 was made on 30.10.1973 declaring 1.12.1973 as the date of the vesting.
5. In
WP No. 15 of 1974, the first petitioner, the Nagapatnam Electric Supply Co.
Ltd., a public limited company, was the grantee of a licence, dated 22.8.1933,
under the Indian Electricity Act, 1910, by the then-Government, Presidency of
Madras, for the supply of electricity in the areas specified in the grant. The
initial period of the . licence was 20 years with a provision for renewal for
further periods of 486 7 years each. At the time the order under Section 4(1)
impugned in the writ-petition was made, the unexpired period of the licence was
upto 22.8.1974. As in the case of Kumbakonam Electric Supply Corporation Ltd.,
so in the present case, Government in purported exercise of powers under
Section 4(1) of the earlier Act, viz., the Tamil Nadu Electricity Supply Undertaking
(Acquisition) Act, 1954, had made an order on 12.1.1968 declaring that the
undertaking of the petitioner shall vest in the Government with effect from
15.7.1968. The petitioner also challenged the constitutional validity of the
1954 Act in WP No. 703 of 1968 in the High Court of Madras. The writ-petition
was dismissed in Madras High Court on 3.7.1968. The Writ Appeal 337 of 1968
preferred by the company before a Division Bench of the High Court, also came
.to be dismissed. The Company preferred, by special leave, CA No. 120 of 1971
before this Court. During the pendency of the proceedings in the High Court and
in the appeal before this Court, there were interlocutory orders, staying
delivery of possession of the undertaking. The appeal before this Court was
however, withdrawn by the company on 5.10. 1972.
Thereafter,
1973 Act came into force. As stated earlier, SectiOn 23 of the 'Act' sought to
nullify the effect. of the action taken under the 1954 Act and a fresh order
dated 30.10.1973 under Section 4(1) of 1973 Act came to be promulgated
declaring that the undertaking of the . petitioners would vest in Government
with effect from 1.12.1973.
6. The
three petitioner-companies assail the constitutional validity of the 'Act' as
also the orders made under Section 4(1) in the individual cases.
We
have heard Sri Hansh Salve, learned counsel for the petitioners in the three
petitions and Shri Shanti Bhushan, learned Senior Advocate for the State of Tamil Nadu and its authorities. The challenge
in the main, is to the constitutionality of the "Act", on the basis
of discrimination as between the procedures for take-over contained in Section
6 and 7 of the Electricity Act, 1910, on the one hand and the less
advantageous, so far as licencee is concerned, contained in the present 'Act'.
However, some specific provisions are also challenged as arbitrary and
unreasonable.
The
contentions in support of the petitions urged at the hearing of these
petitions--of which (b) & (c) are particular to WP Nos. 14 and 15 of 1974--may
be noticed and formulated thus:
487
"(a) that the legislative declaration in Section 2 of the 'Act' that the
legislation is for giving effect to the Directive Principles of State Policy,
specified in clauses (b) & (c) of Article 39 of the Constitution is
invalid, it being merely a pretext to undo and take away the petitioners'
legitimate entitlement to the payment of market-value as provided in the terms
of the licence read with Section 6 and 7 of Electricity Act, 19 10, and,
accordingly, the legislation does not attract the constitutional validity from
challenge under Article 31-C of the Constitution;
(b)
that, pursuant to the order made under Section 4(1) of the 1954 Act
petitioners' undertakings stood vested in Government in the year 1968 and the
concomitant right to receive compensation as determinable under and in terms of
the 1954 Act was came to be vested in the petitioners and got crystalized into
a 'chose-in-action' and that in the circumstances the impugned 'Act' which in
effect and substance acquires only these "choses-inaction", and not
the undertakings as such which had already vested under the 1954 Act;
(c)
that Section 23(2) of the Impugned Act in so far it seeks to undo the legal
incidents and consequences of the order made which provided a less
disadvantageous standards for the determination of the amount and the impugned
orders which seeks to declare that the said undertakings vest again in
Government--this time pursuant to order promulgating under Section 4(1) of the
impugned Act is violative of Article 14, 19(1)(g) and 31 (as the latter
Articles then stood) being a fraud on the power to acquire;
(d)
that the 'Act' is violative of Article 14 of the Constitution in as much as it
seeks to confer upon the Government an alternative and discriminatory power of
attaining the same end, namely, the acquisition of petitioners' undertakings on
terms more advantageous to the Government and more disadvantageous to the
petitioners than those contained in the Electricity Act 1910;
that
the direct effect of the impugned Act is to extinguish the rights conferred
upon the petitioners to carry on a lawful business in terms of the subsisting licences
in their favour and is violative of Article 19(1)(f) (as it then stood) and
19(1)(g):
488
(e) that, at all events, Section 4(5) of the Act which renders a licencee, who
after the vesting date was in possession of, or deriving any benefit from, the
undertaking liable to pay to Government compensation for the use occupation
enjoyment of the undertaking is arbitrary and violative of Articles 14 and 31;
(f) that
clause 5(2)(i) of the Act which excludes from the compensation of the 'Amount'
works paid-for by the consumers is violative of Article 19(1)(g) and Article
31;
(g)
that Section 10(d) providing for deduction from the 'Amount' sums due to the
Government or the Electricity Board by the licencee account of electricity
supplied by Government is arbitrary, as the provision empowers deductions of
even sums bona fide disputed by the licencee of debts.
(h) that,
while proviso to Section 6(e) enables debts, mortgages and obligations of the licencee
to attach to the "amount" to be given under the Act. Section 10 again
envisages the same 'amount' to be deducted from the 'amount', leading to a
possible double recovery of the same debt;
(i)
that Section 10(f) providing for deduction of loss sustained by Government by
reason of any property belonging to the undertaking not having been handed over
at the marketvalue of the property is unreasonable in as much as under Basis B.
Such Market-value is not but only the book-value is the basis of determination
of the amount;
(j)
that provisions of Section 8 which prescribes a period of one month during
which the accredited representative has to exercise a right of auction is
unreasonably short, rendering the procedure prescribed for the choice of the
Basis of determination of the 'Amount unfair and arbitrary.' 7. Re: Contentions
(a), (b), & (c):
These
contentions could be dealt with together. The principal argument is that that
there is no rational and direct nexus between the objects of the Act and the
Directive Principles of (1) State Policy adumorated in clauses (b) & (c) of
Article 39 in as much as the 489 impugned Act was brought forth only to avoid
the consequences of the terms of the licences and the beneficent provisions of
Section 6, 7 and 7-A of the Electricity Act 1910. If there is, thus, no
protection to the law of Article 31-C, then its provisions would clearly
violate Articles 14, 19 and 31.
These
contentions have to be examined with reference to the provisions of the
Constitution as they stood in 1973.
Article
31-C was introduced by Section 3 of the Constitution (25th Amendment) Act 1971
with effect from 20.4.1972. Article 31-C, before the expansion of its scope by
the 42nd Amendment, protected a law giving effect to the Policy of the State
towards implementing the principles specified in Clauses (b) & (c) of
Article 39. Article 31 itself had not then been deleted but its scope had been
considerably cut down and a law providing for acquisition of property, even if
it did not have the protection of Article 31-C, could not be tested with
reference to the adequacy of the 'amount' payable for the acquisition. The
'just-equivalent' or fullindemnification principle had been done away with and
the question of the adequacy of the amount was rendered nonjusticiable.
It was
strenuously urged on Sri Salve that the impugned Act had no rational and direct
nexus with the objects of clauses (b) & (c) of Article 39 as the covert but
easily discernible purpose of the Act was to deny to the petitioners' their
rights under terms of the licence and the benefit of Sections 6, 7 & 7(A)
of the 1910 Act. A somewhat similar' contention was urged in WP Nos. 457 &
458 of 1972 where a similar legislation of the State of Assam was challenged.
The
contention is noticed in our judgment in those appeals thus:
"
.... the acquisition of the two undertakings are challenged by the petitioner
on several grounds, the principal attack, however, being that the legislations,
brought forth, as they were, in the wake of the private-negotiations and the
exercise of the option to purchase, are not bona fide, but constitute a mere colourable
exercise of the legislative power and that, at all events the real objects of
the two legislations have no direct and reasonable nexus to the objects
envisage in clause (b) of Article 39 of the Constitution and that a careful and
critical discernment of the context in which the legislation was brought forth
would lay bare before the judicial eye that what was sought to be acquired was
not "undertakings" of the two companies but really the difference
between the "market-value" of the 490 undertakings which the State
had agreed, under the private treaties, to pay and what, in any event, the
State was obliged to pay under the provisions of Section 7A, as it then stood
on the one hand and the "Book-Value" of the undertaking, which the
law seeks to substitute on the other. If the protective umbrella of Article
31-C is, thus, out of the way, the 'amount' payable under the impugned law, it
is urged, would be illusory even on the judicially accepted tests applied to
Article 31(2) as it then stood " " ..... Learned Counsel submitted
that in order to decide whether a Statute is within Article 31-C or not, the
Court has to examine the nature and character of the legislation and if upon
such scrutiny it appears that there is no nexus between the legislation and the
principles in Article 39(b) the legislation must be held to fall outside the
protection of Article 31-C .... " The contention was not accepted.
Repelling it, we observed in the course of the judgment in WP Nos. 457 &
458 of 1972:
"The
proposition of Sri Sorabjee, in principle, is, therefore, unexceptionable; but
the question remains whether, upon the application of the appropriate tests,
the impugned statute fails to measure-up to the requirements of the
Constitution to earn the protection under Article 31-C ..... " "It is
not disputed that the electricity generated and distributed by the undertakings
of the petitioner-companies constitute "material resources of the
community" for the purpose and within the meaning of Article 39(b)."
" .... The idea of distribution of the material resources of the community
in Article 39(b) is not necessarily limited to the idea of what is taken over
for distribution amongst the intended beneficiaries. That is one of the modes
of "distribution". Nationalisation is another mode. " "On
an examination of the scheme of the impugned law the conclusion becomes
inescapable that the legislative measure is one of nationalisation of the
undertakings and the law is eligible for and entitled to the protection of
Article 31-C." 491 Referring to the contention in that case that not every
provision of a law can and need to eligible for the protection of Article 31-C
and that; accordingly, the provisions as to the quantification of the amount
which were meant to achieve an oblique motive and interdicting and
extinguishing rights to receive market value under the 1910 Act would not
attract the protection of Article 31-C, It was held:
"
.... We are afraid this contention proceeds on an impermissible dichotomy of
the components integral to the idea of nationalisation. The economic cost of
social and economic reform is, perhaps, amongst the most vexed problems of
social and economic change and constitute the core element in Nationalisation.
The need for constitutional immunities for such legislative efforts at social
and economic change recognise the otherwise unaffordable economic burden of reforms
..... " "It is, therefore, not possible to divorce the economic
considerations or components from the scheme of the nationalisation with which
the former are inextricably integrated. The financial cost of a scheme of nationisation
lies at its very heart and cannot be isolated. Both the provisions relating to
the vestitute of the undertakings in the State and those pertaining to the
quantification of the "Amount" are integral and inseparable parts of
the integral scheme of nationalisation and do not admit of being considered as
distinct provisions independent of each other."
8.
These observations fully answer the contention of Sri Salve in regard to the
question whether impugned Act attracts protection of Article 31-C or not. If
Article 31-C comes in, Articles 14, 19 and 31 go out.
The
second limb of the Contention (a) is that the impugned Act seeks to take-over
petitioners' undertakings which had already vested in Government under the 1954
Act.
It is,
no doubt, true that appropriate orders had been made under Section 4(1) of 1954
Act. Sri Salve contends that by the operation of law, the undertakings of the
two petitioners, namely, Kumbakonam Electric Supply Corporation Ltd. and Nagapatnam
Electric Supply Co. Ltd. became vested in Government and that Section 23 of the
present Act virtually creates an artificial divestitive event and seeks to
reinvest it again in Govern492 ment by the device under the impugned Act with
the sole object of cutting down the quantum of the "amount". Sri
Salve pointed out that Section 5 of the 1954 Act envisaged three alternative
Bases--Basis A, Basis B, and Basis C--and that under Basis A the amount equal
to 20 times of the average net annual profit of the undertaking during a period
of five consecutive accounting years immediately preceding the vesting date was
payable. The number of years' purchase value is, Sri Salve says, now reduced to
12 by the impugned Act. Shri Salve submits that the amount payable under the
1973 Act is wholly illusory.
9. Shri
Shanti Bhushan, learned Senior counsel for the State, submitted that if it is
held that the legislation has the protection of Article 31-C, barring the
question of legislative competence all other attacks based on Articles 14 and
19 and 31 cannot be countenanced. Sri Shanti Bhushan submitted that all the
contentions that the petitioners advance in support of their challenge to the
validity of the Act rest, in the ultimate analysis, on Articles 14, 19 and 31
which is precisely what Article 31-C forbids.
So far
as legislative competence is concerned, Shri Shanti Bhushan submitted that it
is referable to Entry 42 of List III and with Presidential assent, the
legislation prevails over any other law and, therefore, no question of lack of
legislative competence can be urged.Learned counsel submitted that the
contentions urged by the petitioners, in the last analysis, would amount to
this: that a legislation which offends Articles 14. 19 and 31. would not be a
valid law at all and would, therefore, not be eligible to protection Article of
31-C. If a law satisfies the demand of Article 14, 19 and 31 then such a law,
says learned counsel, would not need the protection of Article 31-C at all and
that such an approach would render Article 31-C itself meaningless.
In
regard to the Contention (d), Sri Shanti Bhushan would say that it proceeds on
a factual fallacy. There cannot, it is urged a vesting of the undertaking in
the Government under the 1954 Act unless the concept of vesting has and is
accompanied by, the plenitude of the legal incidents and consequences of such
vesting for purposes of the implementation of the 1954 Act. When the delivery
of possession of the undertaking pursuant to the alleged vesting under the 1954
Act had been interdicted by the High Court and the Supreme Court by orders of
stay, at the instance of the petitioners, the exercise under the 1954 Act
became infructuous and the present stance of the petitioners is merely an
attempt to exploit to their own advantage a situation emerg493 ing from the
consequences of their own actions. That apart, the contention (d), says
counsel, is really one based on Articles 14, 19 and 31 and the protection of
Article 31-C to the Act would, in any event, disallow any such attack.
10. On
a consideration of the matter, we think that all the Contentions--(a), (b), (c)
and (d)--are covered in one form or the other our pronouncement in WP Nos. 457
and 458 of 1972. We are also of the opinion that Sri Salve's contention that
what was sought to be acquired was mere "choses-inaction" is not
sound. In any event, the decision of this Court in State of Madhya Pradesh v. Ranojirao
Shinde & Anr., [1968] 3 SCR 489 relied upon by Shri Salve to contend that choses-in-action
could not be acquired would require to be read with later pronouncement in Madan
Mohan Pathak v. Union of India & Ors., [1978] 3 SCR 334. It is not
necessary, however, to pronounce on this point as in our view what was acquired
were not merely choses-inaction but the undertakings themselves.
Contentions
(a), (b) and (c) accordingly fail and are held and answered and against the
petitioners.
11.
Re: Contention (d):
The
submission of learned counsel on the point is that the impugned Act confers
upon the State Government an alternative procedure, concurrently with the one
envisaged in Sec. 6 of the Electricity Act, 19 10, for attaining the same end
viz., the acquisition of an Electricity Undertaking. It is urged that Sec. 6 of
the 1910 Act has been held to amount to conferment of power upon the
authorities to take away the property of the licensee. The option under Sec. 6
is really statutory and in its essential nature the power is not
distinguishable from the State's power to acquire an individual's property
which really is and forms the basis of the impugned Act.
It
appears to us that there are certain fallacies basic to the argument. The
special nature of the subject matter of the grant in relation to distribution
in the community of such material resources--be it electricity, water, gas or
other essential amenities of life--was recognised by this Court. The following
observations of the United States Supreme Court in New Orleans Gaslight Co. v. Louisiane
Light & Heat Producing & Mfg. Co., 115 U.S. 650 were referred to:
"the
manufacture and distribution of gas by means of 494 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 said:
"
.......... 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". [See The Okara.Electric Supply Co. Ltd. v. The State of Punjab, AIR
[1960 SC 284] If the impugned law is within the legislative competence of the
State Legislature--as indeed it must be held to be--the State law, with the
Presidential assent, prevails and is not over-borne by the Central law. The
impugned State law, by its 22nd Section, expressly excludes the operation of
any provision of the Electricity Act, 1910, in so far as such provision is
inconsistent with the provisions of the State-Law.
The
constitutional immunity afforded to the State law prevents any challenge to it on
grounds based on Article 14 or 19. We have held that the State law has such
protection.
The
contention (d) has thus, no foundation. It has to fail.
Re:
Contention (e):
12.
This pertains to the liability of the licensee to account to Government in respect
of possession of and any benefit derived from the undertaking after the date of
the vesting. This provision is assailed as arbitrary and unconstitutional.
There is nothing unreasonable about this provision which merely recognises the
obligation of a licensee to account for its acts in relation to a property
which has already vested in Government. There is no substance in this
contention either.
13.
Re: Contention (f):
This
contention arises in the context of Sec. 5(2)(i) of the Act. In 495 computing the
amount payable under "Basis B" the aggregate value of the sums
specified in several clauses of 1 Sec.
5(2) has
to be taken. Sec. 5(2)(i) while requiting the book value of all
"completed-works in beneficial use pertaining to the undertaking and
handed over to the Government" to be taken, however, excludes therefrom
works paid for by the consumers. The contention of the petitioners is that the
"works paid for by the consumer" is also the property of the licensee
and cannot legitimately be excluded. A substantially similar contention was
urged and has been considered and negatived at para 29 of our judgment in WP
Nos. 457 and 458 of 1972. The reasons stated by us in negativing the contention
in that case fully answer the present point. Contention (f) is also
insubstantial.
14.
Re: Contention (g):
Section
10(d) envisages,deduction from the amount payable towards and on account of
arrears of electricity charges payable by the licensee to the Government or the
Electricity Board. as the case may be, for the supply of Electricity made by
them to the licensee. This is a legitimate item of deduction. But, the point Shri
Salve sought to put across is that ,even a disputed and untenable. claim in
that behalf becomes entitled to deduction. There is no justification for this
apprehension. Section 13(1)(e) makes such a dispute as one of the arbitrable
disputes and no deduction of a disputed claim can be justified by Government if
the arbitrator--who is or has been a District Judge or a retired High Court
Judge-holds that the deduction is unjustified. Contention (g) has no substance
either.
15.
Re: Contention (h):
The
grievance sought to be made out on the matter is that while Section 6(2) of the
Act has the effect of vesting all the assets specified in Sec. 6(2)(i)(b) in
Government free from encumbrances and the proviso to Sec. 6(2) renders the
amount payable to the licensee as substituted security for the debts, mortgages
and obligations in substitution of the assets vesting in Government, however,
Sec. 10(e) renders one species of such debt viz,. sums due to the Government or
the Electricity Board, liable to be deducted from the amount. Shri Salve
contends that this would make for a double recovery of the same debt. This, we
are afraid, is a wrong way of looking at the two provisions. If a debt is
deducted from the "amount", .the debt is satisfied and is
extinguished and no further debt remains outstanding to get itself attached to
and became an encumbrance upon the substituted 496 security viz., the 'amount'.
Sec. 6(2) and Sec. 10(e) must be construed harmoniously and in a reasonable
manner. There is no scope for any apprehension of a possible double recovery of
the same debt. There is no substance in contention (h).
16.
Re: Contention (i):
The
point of the matter is that sec. 10(f) entitles the deduction of the market
value of any "property" or "right" which vests in
Government and which is not delivered by the licensees to Government. The
grievance of the petitioner is that while recovery of "market value"
is sought to be made for non-delivery of the item, however, in computing the
"amount" only the "book value" of such "property"
or "right" is taken into account. This, it is contended, is an
instance of application of double standards and is, therefore, arbitrary. We
see no substance in this contention. The measure of the reimbursement for an
asset withheld by the licensee is the corresponding expenditure to be incurred
by Government for replacement which, in eminently conceivable cases, could be
the market value of the asset which is so withheld by the licensee and which
has to be replaced to keep the undertaking functioning. There is no substance
in this contention either.
17.
Re: Contention (j):
Shri
Salve submitted that the accredited representative is, under sec. 8(1), given
only a month's time from the date of his appointment to signify the choice
under section 5 as to of the basis of determination of the amount. The time
granted, it is said, is unreasonably short. The argument clearly overlooks the
clause 'or such further time as may be granted by the Government' occurring in
Section 8(1). If the exercise of this power is arbitrary or capricious the
licensee has remedies in Administrative Law. But the provision itself cannot be
held to be bad. There is no substance in this contention either.
18.
Certain other subsidiary contentions were urged at the hearing. All these
matters have been elaborately considered in our judgment in Writ Petn. Nos. 457
and 458 of 1972 arising out of the Assam legislation. We have not found any merit in them.
19.
However, there is one aspect which merits consideration. Shri Salve submitted
that the petitioners in Writ Petn. No. 5(N) of 1974, who initially, on
16.1.1974, had opted for basis A had sought a change to basis B by their application
dated 4.10.1977. On 2.2.1978, 497 Government refused to permit the change. Shri
Salve submits that a serious and indeed, irreparable hardship has been
occasioned to the petitioners by this arbitrary refusal. In these writ
petitions we have dealt with questions of constitutionality leaving the
questions of construction of the provisions to the appropriate authorities.
However, having regard to the checkered history of the proceedings, it appears
to us that Shri Salve's submission deserves to be accepted. Accordingly, the
order of the Government dated 2.2.1978 refusing a change in the basis for
determination of the amount is set aside and the Government is directed to
consider and dispose of the application dated 4.10.1977 afresh within two
months from today. We make it clear that the Government shall not unreasonably
withhold the permission for the change.
20. In
the result, subject to the direction in para 19 supra relating to W.P. No. 5(N)
of 1974, we find no substance in these writ petitions which are dismissed.
There will be no order as to costs.
T.N.A.
Petitions dismissed.
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