19 of 1959
Petition under Article 32 of the Constitution of India for enforcement of fundamental rights
Veda Vyasa section K Kapur and Ganpat Rai for the petitioners
section M Sikri Advocate General for the State of Punjab N section Bindra and D Gupta for the respondents
November 13
The Judgment of the Court was delivered by GAJENDRAGADKAR J
The Okara Electric Supply Co Ltd which is a Joint Stock Company and Shrimati V V Oberoi one of the principal shareholders of the said company hereinafter called petitioners 1 and 2 respectively have filed the present petition against the State of Punjab and the Punjab 241 State Electricity Board hereinafter called respondents 1 and 2 respectively in which they have claimed a writ order or direction in respect of a notice issued The by respondent 1 on January 3 1958
The petition was presented on January 3 1959 and it claimed an order or writ restraining the respondents from giving effect to the said notice
It appears that on January 4 1959 in pursuance of the said impugned notice the respondents took possession of the petitioners  property in question and so by an order passed by the learned Chamber Judge the petitioners were allowed to make an additional claim for a writ or order or direction in the nature of mandamus directing the respondents to hand over to the petitioners the said property in question
This petition is made on the ground that the impugned notice and action taken by the respondents in pursuance of it are illegal and unauthorised and they affect the petitioners  fundamental rights under articles 19 and 31 of the Constitution
The first petitioner was granted sanction under section 28 of the 9 of 1910 hereinafter called the Act authorising it to engage in the business of supplying energy at Muktsar by Government Notification No 1766 1  C 4828784 published on May 26 1948
By virtue of the said sanction the first petitioner has ever since been engaged in the business of supplying electric energy at the said place and for the purpose of its business it has set tip an electricity undertaking at considerable cost
On January 3 1958 the Secretary to respondent 1 P W D Irrigation and Electricity Branches Chandigarh issued notice against the first petitioner purporting to exercise the option given to respondent 1 by cl 11 of the said notification
By this notice the first petitioner was told that respondent 1 had exercised its option under the said clause and that on the expiry of the period of one year after the receipt of the notice by the first petitioner its undertaking shall vest in and become the absolute property of respondent 1
The first petitioner has been having bulk supply from P W D Electricity branch of respondent 1 and 31 242 according to the petition respondent 1 could not and will not take over the plant and yet has ordered the first petitioner that it cannot sell the plant without permission of respondent 1
The imposition of this condition is wholly illegal and it amounts to an unreasonable restriction on the petitioners  right to carry on business and to hold and dispose of its property
The petition alleges that cl 1 1 of the notification on which the impugned notice is founded is ultra vires section 28 of the Act and that alternatively if the inclusion of the said clause in the notification is justified by section 28 of the Act section 28 itself is ultra vires since it offends against articles 19 and 31 of the Constitution
It is on these allegations that originally the petition claimed an order against the enforcement of the notice and subsequently added the prayer for a writ of mandamus directing respondent 1 to restore to the petitioners possession of the property which has been taken over by  respondent 1 after the filing of the present petition
The claim thus made is denied by both the respondents
It is urged that the petitioners cannot challenge the validity of cl 11 which was accepted by them before the Constitution came into force
It is further urged that the said clause is justified by the provisions of section 28 of the Act and that both the said clause and section 28 are intra vires and valid
The respondents further alleged that after possession was taken of the property of the first petitioner in exercise of the option under cl 11 the first petitioner had been repeatedly called upon by the respondents to assist them in making a proper valuation of the assets of the first petitioner taken over by the respondents
In fact an amount of Rs 60000 has been paid to the first petitioner in part payment by way of compensation and it has been accepted by it though under protest but the work of completing the valuation of the total assets has been delayed and hampered by the non cooperative attitude of the first petitioner
Thus the first question which falls to be decided on this petition is whether cl 11 of the notification is 243 justified by section 28 of the Act
The notification consists of 14 clauses and it sets out exhaustively the terms and conditions on which sanction had been granted to the first petitioner under section 28 of the Act
For the purpose of the present petition it would be enough to refer to 11 only
This clause provides that the provincial Government shall have the option to acquire the undertaking at any time October 21 1950 provided firstly That not less than one Year   notice in writing of the election to acquire shall be served upon the supplier by the Provincial Government provided secondly that the generating station shall not form part of the undertaking for the purpose of acquisition if the undertaking is acquired after grid supply from the East Punjab Public Works Department Electricity Branch has reached Muktsar provided thirdly that the price to be paid to the supplier for such lands buildings works materials and plant as may be acquired by the Provincial Government under this clause will be the fair market value at the time of purchase without any addition in respect of compulsory purchase or of goodwill or of any profits which may be or might have been made from the undertaking such value to be in case of difference or dispute determined by arbitration in the manner prescribed in section 52 of the Act provided fourthly that the Provincial Government shall pay the price of the property acquired under this clause within a period of six months after the price has been determined Mr Veda Vyas for the petitioners contends that the condition which gives respondent 1 the option to acquire the property of the petitioners is ultra vires
We are concerned with section 28 as it stood prior to its amendment by Act 32 of 1959
Section 281 reads thus   No person other than a licensee shall engage in the business of supplying energy except with the previous sanction of the State Government and in accordance with such conditions as the State Government may fix in this behalf and any agreement to the contrary shall be void
 244 The Act which was passed in 1910 to amend the law relating to the supply and use of electrical energy was intended to provide for and regulate the supply of energy by granting licences and so the provisions in respect of licences are dealt with by sections 3 to 27 in Part 11
Part III in which section 28 occurs deals with the supply of energy non licensees
It appears that the Legislature intended to adopt the course of sanctioning the supply of energy by lion licensees as a temporary measure and in areas wherever it was expedient to do so
A person other than a licensee cannot engage in the business of supplying energy except with the previous sanction of the State Government and section 281 authorises the State Government to impose conditions subject to which it proposes to grant sanction
This position is not disputed but the argument is that the conditions which can be legitimately imposed in granting sanction must be such as would relate to or have bearing on the business of supplying energy
Such conditions  in this behalf  it is urged cannot include any conditions as to compulsory acquisition of the property of the person to whom sanction is intended to be given
The acquisition of such property does not relate and has no bearing on the business of supplying energy and is in no manner connected with it
It would be competent to the State Government to provide for the area of supply the aerial lines the nature of the supply the limitation of prices to be charged for the supply of energy and the purchase of energy in bulk
These and other similar conditions can be properly regarded as conditions  in behalf of  the business if supplying energy  but the condition of compulsory acquisition of the supplier s property cannot be treated as falling under section 281
In support of this construction reliance is placed on the provisions of sections 5 and 6 which specifically deal with the question about the acquisition of the undertaking
Section 3 of the Act provides for the granting of licences and section 4 for the revocation and amendment of licences
Having provided for the grant revocation and amendment of the licences section 5 deals inter 245 alia with the question of paying compensation
to the licensee whose licence has been revoked similary section 6 makes appropriate provisions for compensation where the licence of local authority has been revoked
Section 7 makes a provision for the purchase of an undertaking and lays down the procedure for determining the value of the properties
The petitioners urge that where the Legislature thought it necessary to acquire properties of the licensees either on the revocation or the cancellation of the licences it has made express provisions in that behalf a similar provision would have been made in respect of persons other than licensees to whom sanction is granted under section 28 if it was in the contemplation of the Legislature that the properties of such persons may be acquired
Thus presented the argument no doubt appears to be plausible
Prima facie there is
some force in the contention that conditions  in this behalf  in the context should mean conditions which are relevant to or connected with the business of supplying energy
In deciding this question however it is essential to bear in mind the Specialnature of the article viz energy for the supply ofwhich sanction is granted and to take intoaccount the scheme of the Act in regard to the conditions which are intended to be imposed on the business of its supply
In this connection it would not be unreasonable to ascertain how the supply of
energy is regulated in England and America
It is clear that the Act is based on the provisions of the English law and it would be useful to inquire whether conditions for the acquisition of the supplier s property were treated as a part of the conditions on which the supplier was allowed to carry on the business of supplying electricity
This aspect is considered by Halsbury under the heading Acquisition of undertaking by Local Authority In Local Authority  it is observed  within whose jurisdiction the area of supply or any part of it is situated may within six months after the expiration of 42 years or any shorter period specified in the special order from the coming to force of the said 246 order  by a notice in writing require the undertakers to sell and thereupon the undertakers must sell too them their undertaking or so much of it as within its jurisdiction upon terms of paving the then value of all lands buildings works materials and plant of the undertakers suitable to and used by them for the purpose of the undertaking within such jurisdiction such value to be determined by arbitration in case of difference 1
It would thus appear that where sanction was given to a person for carrying on the business of supplying electricity under a special order a condition was introduced in the said order itself for the compulsory acquisition of the undertaking on payment of adequate compensation to the person concerned
Subsequently after the passing of the Electric Lighting Act 1909 powers to supply electricity were not granted by provisional orders but a large number of such orders still remained in force and as Halsbury has observed  many of these orders are in a standard form but a number contain special clauses of which the most common is a clause giving special purchase rights to local Authorities
These special orders were confirmed by Acts and contained special clauses for the protection of county bridges for the breaking up of streets for the connection of the generating stations and systems of different undertakings and the use of such generating stations in common for the purpose of such undertakings  2
It is thus clear that where a licence was given to a person to supply electricity it generally included the right of the licensing authority to acquire the licensee s property on terms and conditions included in the licence by the provisional order
The American lawyers describe the right or privilege to supply electricity as a franchise
This right falls under a class of rights  in public streets which are granted for furtherance of public purposes but which involving as they do the right to use the streets in 1 Halsbury s Laws of England Vol 12 2nd Ed page 597 article 1152
2 Halsbury s Laws of England Vol
12 2nd Ed page 668 footnote t
247 various ways give rise to a series of questions as between the grantee of the right on the one hand and the municipality or abutting owners on the other  Dillon in  Muncipal Corporations  further observes that  for convenience these rights are described as franchises to use the public streets and highways and whether correctly or incorrectly denominated franchises they answer in essential respects to the definition and elements of a franchise from the State 
 The business of furnishing water and light  observes the author  when carried on by a corporation or individual of necessity involves the use of streets and highways of the municipality and the right to lay pipes mains and conduits and to erect poles and stretch wires therein and to maintain operate and use them is a franchise vested in the State and it can only be exercised by a corporation or individual pursuant to the authority granted by the State 2
The question of the purchase of works of companies by municipality is also considered by Dillon  Where a municipal corporation has granted a franchise to a water or gas company to construct its plant to use the city streets for pipes and mains and to furnish water or light to the city and its inhabitants it has been held that the legislature under special constitutional restrictions was without authority to compel the city to purchase the property or plant of the company if it desired to acquire or construct works of its own but in the absence of constitutional limitations statutes may be enacted and contracts made which in their effect prevent municipalities from establishing water works of their own until they have at least offered to purchase the works of corporations organised and existing within their limits  3
The learned author also says that  If a municipality stipulates in a contract with a water or other public service company that it shall have the right to purchase the works of the company at a time and in a 1 Dillon s Municipal Corporations 5th Ed Vol  section 1210
2 Dillon s Municipal Corporations 5th Ed Vol 111 p 213637 section 1304
3 Ibid P 2183 section 1312 248 manner specified and if such stipulation is inserted in and becomes a part of a grant of the right to use Electric the streets and public places of the municipality for the purpose of laying mains and pipes the corpor ation is estopped to deny the authority of the municipality to make and enforce the stipulation  1
In New Orleans Gas Light Co vs Louisiana Light and Heat Producing and Manufacturing Co 2 it has been held by the Supreme Court of the United States of America that  the manufacture and distribution of gas by means of pipes mains and conduits placed under legislative authority in the public ways of a municipality is not an ordinary business in which everyone may engage as of common right upon terms of equality but is a franchise relating to matters of which the public may assume control and when not forbidden by the organic law of the State may be granted by the Legislature as a means of accomplishing public objects to whomsoever and upon what terms it pleases 
In that case the question which arose for decision of the court related to the validity of the constitutional prohibition upon State laws impairing the obligation of contracts but with that aspect of the matter we are not concerned in the present appeal
It thus appears that American lawyers describe the business of supplying energy as well as the business of supplying water and gas as a franchise and it also appears that in granting licence or sanction to a person to engage in such business a condition is usually imposed for the compulsory acquisition of the business when the licence or sanction comes to an end
Let us look at this question from a practical point of view
If a person is granted sanction to engage in the business of supplying energy it is not denied that section 281 would justify the imposition of a time limit on the grant of sanction
If sanction is granted for a specified number of years and it comes to an end what would happen to the constructions made by the supplier for the purpose of supplying energy  He 1 Ibid
P 2187 section 1312
2   29 L Ed 516 249 cannot dismantle them because thereby he would cause damage to public property such as streets and so he cannot take them away
In such a case the Legislature may well provide for the acquisition of such constructions in order to safeguard the interest of the person to whom temporary sanction is granted
Such a provision also serves another public purpose
It guarantees the availability of suitable constructions and works which may be used for the continuance of the supply of electricity by another agency
In other words the statutory provision which deals with the grant of sanction to a person to engage in the business of supplying energy must having regard to the special features of the business necessarily deal with the position which would arise on the termination of the sanction and so it would not be unreasonable to assume that the statutory provisions which deals with this question would think of making adequate provision empowering the State Government to provide for the compulsory acquisition of the assets of the supplier on payment of proper compensation
It is in the light of this special feature of the business of supplying energy that we must construe section 281 of the Act
Besides the provisions of sections 5 6 and 7 also afford assistance in the matter
They clearly show that in the case of a licence specific provisions have been made for the acquisition of the undertaking in cases of revocation or cancellation of licences
The reason for thus providing for compulsory acquisition of licensee s undertaking is equally relevant in the case of the sanction with which section 281 deals
It is true that section 28 does not specifically and expressly provide for compensation as the other sections do but that must be because recourse to the provisions of Pt
III was intended not to be the rule but only as a temporary measure wherever it was deemed necessary to do so and so the Legislature left it to the State Government to provide for compulsory acquisition in the light of the guidance given by the provisions contained in sections 5 6 and 7
Let us then look at section 281 in the light of these con siderations
It authorises the State Government to 32 250 give sanction to a person to engage in the business of supplying energy on conditions in that behalf
The expression  such conditions in this behalf  in the context should take in conditions dealing with the Position which would inevitably arise when the business comes to an end
There is no doubt that the grant of sanction contemplated by section 28 cannot be permanent
It was always bound to be temporary issued on an ad hoc basis according to the requirement of each case and when granting sanction for a specified number of years it is in the interest of the grantee himself that some provision should be made for payment of compensation
to him in respect of the investment made by him in carrying out the business of supplying energy when otherwise it would be difficult for him to collect his assets in that behalf
That is why we think that the relevant words should not be given a narrow and limited construction for which the petitioners contend
In our opinion the context requires that the said words should receive a wider and liberal construction
A condition for the acquisition of the property of the petitioners like cl 11 would therefore fall within the scope of section 281
The challenge to the validity of this condition on the ground that it is ultra vires section 281 must accordingly fail
If section 28 permits the imposition of such a condition does it violate article 19 or article 31 of the Constitution  That is the next question which must be considered
It is not seriously disputed that article 312 on which reliance is placed by the petitioners cannot be of much help to them for article 315 provides inter alia that nothing in cl
2 shall affect the provisions of any existing law other than the law to which the provisions of cl
6 applies
It is conceded that cl
6 does not apply to the Act so that it follows that article 312 cannot be invoked to challenge the validity of the Act
Mr Veda Vyas attempted to contend that the vires of the Act could be challenged if not under article 312 at least under section 2992 of the Government of India Act 1935 but he realised that he was up against a similar difficulty created by the provisions of section 2994 which says that nothing in section 299 shall affect the provisions 251 of any law in force at the date of the passing of the Act and he conceded that in 1910 when the Act was passed the Legislature was competent to pass it and it then suffered from no infirmity
That is why though an attempt was made to press into service article 312 it was ultimately given up
We need not therefore discuss this point any further
In regard to the attack on section 28 on the ground that it offends article 19f or g the answer is obvious
The limitations imposed by section 28 quite clearly are reasonable restrictions and have been imposed in the interests of the general public within the meaning of Art 195 of the Constitution
As we have already seen such limitations are generally imposed on the business of supplying energy and their reasonableness cannot be and has in fact not been seriously challenged
Therefore we have no hesitation in holding that the vires of section 28 cannot be successfully challenged
Incidentally we may observe that on the day when the Constitution came into force what vested in the petitioners was the property subject to the liability imposed on it by cl 11 of the notification and so when the Constitution came into force the only rights which the petitioners had in their property in question were rights of a limited character which were subject to the exercise by the State of its election to acquire the said property
In this connection the respondents rely on the decision of this Court in Director of Endowments Government of Hyderabad vs Akram Ali1 and seek to urge that the exercise of the option given to respondent 1 by cl 11 of the notification cannot be successfully challenged as ultra vires under article 19 of the Constitution we do not however think it neces sary to decide this point because it was fairly conceded before us that if section 28 is valid and is construed to include a condition like cl
It of the notification no other point would survive
There is one more minor point to which reference may be made
In the petition the validity of the notice given by respondent to the petitioners prohibiting them from dealing with the property was 1 AIR 1956 SC 60 252 challenged but that is no longer a matter in dispute between the parties since respondent I has in substance withdrawn the said notice
This fact however would be relevant on the question of costs
The result is the petition fails but in the circumstances of this case there would be no order as to costs
Petition dismissed


Summary:
The U P Union Bank was in occupation of a building belonging to the respondent as a tenant
After the passing of the winding up order of the bank the Official Liquidators removed the offices of the bank from the premises and called upon the respondent landlord to take possession thereof
The respondent refused to do so as part of the premises was occupied by some trespassers
Thereafter the Official Liquidators did not do any business in the building in connection with the winding up of the bank
The respondent claimed the entire rent from the date of the winding up order up to the date on which the Official Liquidators would give him vacant possession of the premises
The High Court held that in view of the proviso to r 97 of the Rules framed by the High Court under the Companies Act the respondent was entitled to recover the entire rent claimed by him and not pro rata with the other creditors of the bank
The proviso to r 97 of the Company Rules runs thus  Provided that where the official liquidator remains in occupation of premises demised to a company which is being wound up nothing herein contained shall prejudice or affect the rights of the landlord of such premises to claim payment 190 by the Company or the Official Liquidator of rent during the period of the company s or the Official Liquidator s occupation On appeal by the Official Liquidators by a certificate of the High Court Held that the landlord respondent was not entitled to claim priority in respect of payment of rent because the proviso to r 97 of the Company Rules framed by the High Court affirms the right of the landlord to claim payment of rent accruing due since the date of winding up but does not deal with the question of priority in payment thereof and further because the building in question did not remain in the possession of the liquidators for the purpose of liquidation
In re Oak Pits Colliery Company  followed
Held further that section 230 of the Companies Act 1913 which specifies categories to which priority in payment should be given does not give priority to rent due to landlord and it is not within the competence of the High Court to give priority by its rules to a category which is not included in that section
Under section 193 the Court has power to order payment of the costs and expenses of winding in such priority as it thinks fit in cases where the assets are insufficient to discharge the liabilities and section 2303 empowers the Court to direct the company to retain such sums as may be necessary for the costs and expenses of winding up even before discharging the debts for which priority is given by section 230
If a debt can reasonably be described as costs and expenses of winding up the court may direct preferential payment thereof otherwise only pro rata payment with the other ordinary creditors can be claimed out of the assets of the company