U.P. State Electricity Board Vs. The Banaras Electric Light &
Power Co. Ltd.  INSC 349 (12 May 2000)
SAGHIR AHMAD, Y.K. SABHARWAL, & S.N. VARIAVA. J U D G M E NT S. N. Variava, J.
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 6th February, 1925 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 5th
February, 1975. On February 1, 1974 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 5th and 6th February, 1975.
3. On February 4, 1975, Indian Electricity (U.P.
and Validation) Ordinance No. 7 of 1975 was passed. This Ordinance amended
certain provisions of the Indian Electricity Act. Subsequently this Ordinance
was replaced by an Act namely Indian Electricity (U.P.
and Validation) Act, 1976. The Ordinance and the Act amended amongst others
Sections 6 and 7-A of the Indian Electricity Act.
this stage it is necessary to see what the unamended Sections 6 and 7-A
provided for. They read as follows:
Purchase of undertakings. - (1) 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; have 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(1) a notice in writing of not less than one year was to
be given and the purchase price was to be determined in accordance with the
provisions of sub-section (4) of Section 7-A.
Section 7-A, as it originally stood, read as follows: "7-A Determination
of purchase price.- (1) Where 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 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 of the book value.
must be mentioned that the above mentioned Ordinances and Amendment Act were
part of the policy of nationalisation of electric companies by the Union of
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 rule Article 31(c) was not attracted. It was also claimed that in any
case, every provision of a statute was not entitled to protection of Article
31(c) but only those which are necessary for giving effect to the principles in
Article 39(b) and accordingly the provision in the impugned law in relation to
the determination of the amount do not attract Article 31(c). In all the
matters it was claimed that the purchase price should be the market value.
Constitution Bench of this Court in the case of Tinsukhia Electric Supply Co.
Ltd. v. State of Assam, reported in (1989) 3 SCC 709, upheld the validity of
the Act/Ordinance. This Court held that the Act had nexus with the principles
in Article 39(b) and was therefore protected by Article 31(c). It was held that
the Act was not a piece of colourable legislation. It was held that electric
energy generated and distributed was a "material source of the
community" for the purpose and within the meaning of Article 39(b). It was
held that the idea of distribution of natural resources in Article 39(b)
envisages nationalisation. It was held that on an examination of the scheme of
the impugned law the inescapable conclusion was that the legislature measure
was one of nationalisation of the undertaking and this law was eligible for and
entitled to protection of Article 31(c). It was held that it was not possible
to divorce the economic consideration or component from the scheme of nationalisation
with which the former are inextricably integrated. It was held that the
financial costs of a scheme lies at its very heart and cannot be isolated. It
was held that with the provisions relating to vestiture of the undertaking in
the State and those pertaining to the quantification of the amount are integral
and unseparable parts of the 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
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
fairly conceded that this case would be covered by the above mentioned
this view of the matter, the Appeal is allowed.
Judgments of the Division Bench dated 17th September 1987 as well as the learned single Judge
dated 4th April 1984 are set aside. The Writ Petition
filed by the 1st Respondent stands dismissed. There shall be no order as to