U.P. State Electricity Board Vs. Agra Electric Supply Co. Ltd. 
INSC 342 (12 May 2000)
J U D
G M E N T L.I.T.J S. N. Variava,
This Civil Appeal is against the Judgment dated 17th September, 1987 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.
Briefly stated the facts are as follows: On 18th December, 1923 the Government of Uttar Pradesh granted to one M/s
Martin & Co. a licence for supply of electric
energy. This licence was subsequently transferred to the 1st Respondent. One of
the terms of the licence was that at the end of the licence period the
Government had a right to purchase the undertaking. The licence was for a
period of 50 years. The 50 years period would thus end on 17th December, 1973. On December 4, 1972 the Appellant served a notice on the 1st Respondent, under
Section 6(1) of the Indian Electricity Act, 1910 (hereinafter called the said
Act). By this the Appellants called upon the 1st Respondent to sell the
undertaking to the Appellant on the expiry of the period of 50 years from the
commencement of the licence, i.e., at 12 O'clock in the night between the 17th and 18th December, 1973.
3. On February 4, 1975, Indian Electricity (U.P.
and Validation) Ordinance No. 7 of 1975 was@@
JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ passed. This
Ordinance amended certain provisions of the Indian Electricity Act.
Subsequently this Ordinance was replaced by an Act namely Indian Electricity
and Validation) Act, 1976. The Ordinance and the Act amended amongst others
Sections 6 and 7-A 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@@
JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ read as follows: "6.
Purchase of undertakings. - (1)@@ JJJJJJJJ Where licence has been granted to
any person, not being a local authority, the State Electricity Board shall, -
(a) in the case of a licence granted before the commencement of the Indian
Electricity (Amendment) Act, 1959 (32 of 1959), on the expiration of each such
period as is specified in the licence; and (b) in the case of a licence granted
on or after the commencement of the said Act, on the expiration of such period
not exceeding thirty years and of every such subsequent period, not exceeding
twenty years, as shall be specified in this behalf in the licence;
the option of purchasing the undertaking and such option shall be exercised by
the State Electricity Board serving upon the licensee a notice in writing of
not less than one year requiring the licensee to sell the undertaking to it at
the expiry of the relevant period referred to in this sub- section.
Where a State Electricity Board has not been constituted, or if constituted,
does not elect to purchase the undertaking, the State Government shall have the
like option to be exercised in the like manner of purchasing the undertaking.
Where neither the State Electricity Board nor the State Government elects to
purchase the undertaking, any local authority constituted for an area within
which the whole of the area of supply is included shall have the like option to
be exercised in the like manner of purchasing the undertaking.
the State Electricity Board intends to exercise the option of purchasing the
undertaking under this section, it shall send an intimation in writing of such
intention to the State Government at least eighteen months before the expiry of
the relevant period referred to in sub-section (1) and if no such intimation as
aforesaid is received by the State Government the State Electricity Board shall
be deemed to have elected not to purchase the undertaking.
the State Government intends to exercise the option of purchasing the
undertaking under this section, it shall send an intimation in writing of such
intention to the local authority, if any, referred to in sub- section (3) at
least fifteen months before the expiry of the relevant period referred to in
sub-section (1) and if no such intimation as aforesaid is received by the local
authority, the State Government shall be deemed to have elected not to purchase
Where a notice exercising the option of purchasing the undertaking has been
served upon the licensee under this section, the licensee shall deliver the
undertaking to the State Electricity Board, the State Government or the local
authority, as the case may be, on the expiration of the relevant period
referred to in sub-section (1) pending the determination and payment of the
Where an undertaking is purchased under this section, the purchaser shall pay
to the licensee the purchase price determined in accordance with the provisions
of sub-section (4) of Section 7-A."
Thus, under Section 6 the compensation, i.e. the purchase price was to be
determined in accordance with the@@
JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ provisions of
sub-section (4) of Section 7-A.
Section 7-A, as it originally stood, reads as follows: "7-A Determination
of purchase price.- (1) Where@@ JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ an undertaking
of a licensee, not being a local authority, is sold under sub-section (1) of
Section 5, the purchase price of the undertaking shall be the market value of
the undertaking at the time of purchase or where the undertaking has been
delivered before the purchase under sub- section (3) of that section, at the
time of the delivery of the undertaking and if there is any difference or dispute
regarding such purchase price, the same shall be determined by arbitration.
The market value of an undertaking for the purpose of sub- section (1) 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,
other than; (i) a generating station declared by the licence not to form part
of the undertaking for the purpose of purchase, and (ii) service lines or other
capital works or any part thereof which have been constructed at the expense of
consumers, due regard being had to be nature and condition for the time being
of such land, buildings, works, materials and plant and the state of repair
thereof and to the circumstance that they are in such position as to be ready
for immediate working and to the suitability of the same 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.
Where an undertaking of a licensee, being a local authority, is sold under
sub-section (1) of Section 5, purchase price of the undertaking shall be such
as the State Government, having regard to the market value of the undertaking
at the date of delivery of the undertaking, may determine.
Where an undertaking of a licensee is purchased under Section 6, the purchase
price shall be the value thereof as determined in accordance with the
provisions of sub-sections (1) and (2): Provided that there shall be added to
such value percentage, if any not exceeding twenty per centum of that value as
may be specified in the licence on account of compulsory purchase." 7.
Section 7 is also relevant. It reads as follows:
Vesting of the undertaking in the purchaser.- Where an undertaking is sold
under Section 5 or Section 6, then upon the completion of the sale or on the
date on which the undertaking is delivered to the intending purchaser under
sub-section (3) of Section 5 or under sub-section (6) of Section 6, as the case
may be, whichever is earlier - (i) the undertaking shall vest in the purchaser
or the intending purchaser, as the case may be, free from any debt, mortgage or
similar obligation of the licensee or attaching to the undertaking: Provided
that any such debt, mortgage or similar obligation shall attach to the purchase
money in substitution for the undertaking;
the rights, powers, authorities, duties and obligations of the licensee under
his licence shall stand transferred to the purchaser and such purchaser shall
be deemed to be the licensee: Provided that where the undertaking is sold or
delivered to a State Electricity Board or the State Government, the licence
shall cease to have further operation."
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.
must be mentioned that the above mentioned Ordinances and Amendment Act were
part of the policy of@@ JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ
nationalisation of electric companies by the Union of India.
amendments were made by many States. Electric companies, all over India, were sought to be so purchased.
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.
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.
Constitution Bench of this Court in the case of Tinsukhia Electric Supply Co.
Ltd. v. State of Assam,@@
JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ 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 39(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
integral 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.
view was taken in the cases of Maharashtra State Electricity Board v. Thana
Electric Supply Co. & Ors., reported in (1989) 3 SCC 616, and Vellore
Electric Corporation Ltd. v. State of Tamil Nadu, reported in (1989) 4 SCC 138.
This case is entirely covered by the above mentioned Judgments. Dr. Singhvi,
however, submitted that the notice to take over the undertaking was given on December 4, 1972 and the undertaking was taken over
on December 18, 1973. He submitted that on the date of
takeover the rights of the 1st Respondent had crystallised.
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 crystallised, a subsequent acquisition could only be acquisition of
money. He submitted that on December 18, 1973
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.
support of his submission Dr. Singhvi relied upon the case of Madan Mohan Pathak
v. Union of India, reported in (1978) 2 SCC 50. 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 were
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).
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. Mr. Singhvi also relied upon the case of State of Bihar v. Maharajadhiraja
Sir Kameshwar Singh of Darbhanga reported in (1952) S.C.R. 889.
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 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. As set out above it has been held that the legislation has nexus to
the objects under Article 39(b) and is protected under Article 31(c).
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 inseperable
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 nationalization 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.
this view of the matter, the Appeal is allowed. The Judgment of the Division
Bench dated September
17, 1987 as well as
the Judgment of the learned single Judge dated April 4, 1984 are set aside. The Writ Petition filed by the 1st
Respondent stands dismissed. There shall be no order as to costs.