No 5 N of 1974
Under Article 32 of the Constitution of India
Soli J Sorabjee Harish N Salve AK Verma KJ John Srinivasamurthy Ms Naina Kapur JB Dadachanji and Joel Pares for the Petitioners
Shanti Bhushan and AV 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 Undertak ings of three petitioners as violative of Articles 14 191f 191g and 31 of the Constitution
These writ petitions were heard along with Writ Petition Civil Nos 457 and 458 of 1972 pertaining to the acquisi tion of Tinsukhia Electric Supply Co Ltd and Dibrugarh Electric Supply Co Ltd under the provisions of the Tin sukhia and Dibrugarh Electric Supply Undertakings Acquisi tionAct 1973 Assam Act 1973 and the main contentions touching the constitutionality of such State laws providing for acquisition of private electricity undertakings inde pendently 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 con sidered in the main judgment in the said WP 481 Nos 457  458 separately rendered today
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 Govern ment 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 cancel lation 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 under taking 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 deriv ing 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 occupa tion or enjoyment of that undertaking as the prescribed authority may fix in the prescribed manner
Such authority shall take into consid eration 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 alterna tive basis Basis A or Basis B as may be chosen by the licensee in the exercise of the option given under Section 8
Section 71 contemplates and requires the appointment of an Accredited Agent by the licensee within three months of service of the order under Section 41
Such accredited agent 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 82 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 licen see within a period of seven consecutive account years immediately preceding the vesting date Basis B  contem plates 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 131 renders any dispute in respect of any of the matters in clauses a to e of Section 131 arbitrable
The Arbitrator is required by Section 112 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 agree ments between the licensee on the one hand and the managing agent or the managing 483 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 rele vance
Section 22i inter alia provides that no provi sions 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 ef fect
Section 23 refers to and deals with the action initi ated under the earlier State law viz the Tamil Nadu Elec tric 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 312 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
Sub section 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 con tained 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 Govern ment under the 1954 Act and in respect of such undertaking it shall be lawful for the Govern ment 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 312 of this Act the Government have postponed the date of vesting under the proviso to sub section 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 undertak ing 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 signifi cance in the case of the Kumbakonam Electric Supply Corpora tion Ltd and Nagapatam Electric Supply Co Ltd petition ers in WP 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
The Vellore Electric Corporation Ltd petitioner in WP No 5N of 1974 was granted on 1451929 by the Govern ment of the then Presidency of Madras under the provisions of the  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 expi ration of every subsequent period of 20 years during the continuance of the licence
At the relevant time when the order under Section 41 was made the remaining period of the licence was upto 145
The State Government in exercise of powers under Section 41 of the Act made an order dated 30101973 served on the petitioner on 511
1973 fixing 1121973 which was later postponed to 711974 as the date of vesting
The facts in WP 14 of 1974 are the following 485 The petitioner the Kumbakonam Electric Supply Corpora tion 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 1541930 under the  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 peri ods of 7 years each
At the time the impugned order under Section 41 of the Act was made in relation to the Electricity Supply Undertaking of this company the unex pired period of the licence was up to 1541978
On 1211968 the State Government in exercise of its power under Section 41 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 dis missed on 3171968
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
Howev er 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 3091973 the Act  in the present proceed ings 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 proceed ings taken under the 1954 Act except in cases where the vesting and the taking over of possession of the undertaking had already occurred before 3091973
The order under Sec tion 41 of the 1973 Act in the case of the petitioner in WP 14 of 1974 was made on 30101973 declaring 1121973 as the date of the vesting
In WP No 15 of 1974 the first petitioner the Nagapatnam Electric Supply Co Ltd a public limited compa ny was the grantee of a licence dated 2281933 under the  by the then Government Presi dency 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 peri ods of 486 7 years each
At the time the order under Section 41 impugned in the writ petition was made the unexpired period of the licence was upto 2281974
As in the case of Kumbak onam Electric Supply Corporation Ltd so in the present case Government in purported exercise of powers under Section 41 of the earlier Act viz the Tamil Nadu Elec tricity Supply Undertaking Acquisition Act 1954 had made an order on 1211968 declaring that the undertaking of the petitioner shall vest in the Government with effect from 1571968
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 371968
The Writ Appeal 337 of 1968 pre ferred 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 510 1972
Thereafter 1973 Act came into force
As stated earli er SectiOn 23 of the Act  sought to nullify the effect
of the action taken under the 1954 Act and a fresh order dated 30101973 under Section 41 of 1973 Act came to be promulgated declaring that the undertak ing of the 
petitioners would vest in Government with effect from 1121973
The three petitioner companies assail the constitu tional validity of the Act  as also the orders made under Section 41 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 constitu tionality 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 con tained in the present Act 
However some specific provi sions 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 entitle ment to the payment of market value as provid ed 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 Constitu tion b that pursuant to the order made under Section 41 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 circum stances the impugned Act  which in effect and substance acquires only these choses in action and not the undertakings as such which had already vested under the 1954 Act c that Section 232 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 im pugned orders which seeks to declare that the said undertakings vest again in Government this time pursuant to order pro mulgating under Section 41 of the impugned Act is violative of Article 14 191g 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 Elec tricity 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 191f as it then stood and 191g 488 e that at all events Section 45 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 undertak ing is arbitrary and violative of Articles 14 and 31 f that clause 52i of the Act which excludes from the compensation of the Amount  works paid for by the consumers is violative of Article 191g and Article 31 g that Section 10d providing for deduc tion from the Amount  sums due to the Govern ment or the Electricity Board by the licencee account of electricity supplied by Government is arbitrary as the provision empowers deduc tions of even sums bona fide disputed by the licencee of debts
h that while proviso to Section 6e enables debts mortgages and obligations of the licencee to attach to the amount to be given under the Act
Section 10 again envis ages the same amount  to be deducted from the amount  leading to a possible double recov ery of the same debt i that Section 10f providing for deduc tion 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 determina tion 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 Direc tive 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 conse quences 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 2041972
Arti cle 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 ful lindemnification principle had been done away with and the question of the adequacy of the amount was rendered non justiciable
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 petition ers  their rights under terms of the licence and the benefit of Sections 6 7  7A 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 undertak ings are challenged by the petitioner on several grounds the principal attack howev er being that the legislations brought forth as they were in the wake of the pri vate 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 legis lation 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 judicial ly accepted tests applied to Article 312 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 legis lation and if upon such scrutiny it appears that there is no nexus between the legislation and the principles in Article 39b the legis lation must be held to fall outside the pro tection 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 princi ple 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 elec tricity generated and distributed by the undertakings of the petitioner companies constitute material resources of the communi ty for the purpose and within the meaning of Article 39b  
The idea of distribution of the material resources of the community in Article 39b 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 na tionalisation 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 inter dicting 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 pro ceeds on an impermissible dichotomy of the components integral to the idea of nationali sation
The economic cost of social and eco nomic reform is perhaps amongst the most vexed problems of social and economic change and constitute the core element in Nationali sation
The need for constitutional immunities for such legislative efforts at social and economic change recognise the otherwise unaf fordable economic burden of reforms    It is therefore not possible to divorce the economic considerations or compo nents from the scheme of the nationalisation with which the former are inextricably inte grated
The financial cost of a scheme of nationisation lies at its very heart and cannot be isolated
Both the provisions relat ing to the vestitute of the undertakings in the State and those pertaining to the quanti fication 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
These observations fully answer the contention of Sri Salve in regard to the question whether impugned Act at tracts 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 im pugned 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 41 of 1954 Act
Sri Salve contends that by the operation of law the undertakings of the two petition ers namely Kumbakonam Electric Supply Corporation Ltd and Nagapatnam Electric Supply Co Ltd became vested in Govern ment and that Section 23 of the present Act virtually creates an artificial divestitive event and seeks to re invest it again in Govern 492 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
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 protec tion 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 inci dents and consequences of such vesting for purposes of the implementation of the 1954 Act
When the delivery of posses sion 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 situa tion emerg 493 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
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 in action is not sound
In any event the decision of this Court in State of Madhya Pradesh vs Ranojirao Shinde  Anr  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 vs Union of India  Ors  It is not necessary however to pronounce on this point as in our view what was acquired were not merely choses inaction but the undertak ings themselves
Contentions a b and c accordingly fail and are held and answered and against the petitioners
Re Contention d The submission of learned counsel on the point is that the impugned Act confers upon the State Government an alter native 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 indi vidual 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 vs Louisiane Light  Heat Producing  Mfg Co  were referred to the manufacture and distribution of gas by means of 494 pipes mains and conduits placed under legis lative 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 busi ness 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 vs The State of Punjab AIR 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 uncon stitutional
There is nothing unreasonable about this provi sion 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
Re Contention f This contention arises in the context of Sec
52i 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
52 has to be taken
52i 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 substantial ly 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 conten tion in that case fully answer the present point
Contention f is also insubstantial
Re Contention g Section 10d envisagesdeduction from the amount pay able 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 legiti mate 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 131e 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 unjus tified
Contention g has no substance either
Re Contention h The grievance sought to be made out on the matter is that while Section 62 of the Act has the effect of vesting all the assets specified in Sec
62ib in Government free from encumbrances and the proviso to Sec
62 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
10e ren ders one species of such debt viz
sums due to the Govern ment 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 sub stituted 496 security viz the amount 
62 and Sec
10e must be construed harmoniously and in a reasonable manner
There is no scope for any apprehension of a possible double recov ery of the same debt
There is no substance in contention h
Re Contention i The point of the matter is that sec
10f 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 arbi trary
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 Govern ment 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
Re Contention j Shri Salve submitted that the accredited representative is under sec
81 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 81
If the exercise of this power is arbitrary or capricious the licen see has remedies in Administrative Law
But the provision itself cannot be held to be bad
There is no substance in this contention either
Certain other subsidiary contentions were urged at the hearing
All these matters have been elaborately consid ered 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
However there is one aspect which merits considera tion
Shri Salve submitted that the petitioners in Writ Petn
No 5N of 1974 who initially on 1611974 had opted for basis A had sought a change to basis B by their application dated 4101977
On 221978 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 consti tutionality 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 221978 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 4101977 afresh within two months from today
We make it clear that the Government shall not unreasonably withhold the permis sion for the change
In the result subject to the direction in para 19 supra relating to WP No 5N of 1974 we find no sub stance in these writ petitions which are dismissed
There will be no order as to costs
TNA Petitions dismissed


Summary:
Respondent firm owned a Steel Rolling Mill situate at Madras
The said mill was leased out to a partnership firm viz Ms Steel Industries and after the expiry of the lease period the Respondent took back the possession of the Mill on 181962 and informed the Central Excise Authori ties who advised the Respondent to take out a licence for which it applied on 30111962 Respondent sold away the Rolling Mill on 841963
The Superintendent of Central Excise by his letter dated 13101965 raised a demand of Rs3101820 p on the respondent on account of excise duty
The Respondent having informed the Department that the firm had manufactured only 775455 metric tonnes of steel the demand of excise duty was reduced to Rs641938 p only
The Respondent though pleaded that it was not liable to pay excise duty demanded yet the Assistant Collector of Customs by his order dated 1461967 confirmed the demand
The Respondent firm challenged the validity of the demand by filing a Writ Petition in the High Court
Respond ent contended before the High Court that i it was entitled to exemption of duty ii that the demand for payment of excise duty was time barred and iii that Rules 10A under which the demand has been made are ultra rites as there was provision in the Act to enable the Government to frame rules for the recovery of duty short levied
The High Court allowed the Writ Petition and upheld the contention advanced by the Respondent holding that Rule 10A did not apply to cases where there has been no prior levy of excise duty in respect of the articles manufactured during the relevant period
Hence this appeal by the Department
445 The question that arose for determination by this Court was whether Rule 10A of the Rules as it stood at the rele vant time was valid Counsel for the appellant wile plead ing that the Rule was valid submitted that it was necessary to decide this question in view of the conflicting decisions creating difficulty for the Department in collecting short levies or escaped excise duty
Counsel referred to decisions reported in 19722 MLJ 476    and 19772 Tax LR 1680
Counsel for the Respondent urged that the Standing Counsel for the Central Government had conceded the ration ale of the decision in Haji JA Kateera sait vs Dy
Commer cial Tax Officer Mettupalayam 18 STC 370 which held that Sub Rule 7 of Rule S of the Central Sales Tax Madras Rules 1957 was in excess of the rule making power and as such the Sub rule as a whole was invalid
In view of the said decision the appellant would not be able to sustain the demand under Rule 10A and it is no longer open to the appellant to challenge the validity of Rule 10A in the appeal
Allowing the appeal and remanding the matter to the High Court Court HELD Chapter II of the Act deals with levy and collec tion of duty
Under Section 3 of the Act duties specified in First Schedule to the Act were to be levied
Rule 10A provided the machinery for collection of tax from assessee after the goods had left the factory premises
This rule contemplated that the duty or deficiency in duty was payable on a written demand made by the proper officer in cases where either the rules did not make any specific provision for the collection of any duty or of any deficiency in duty if the duty had for any reason been short levied
It was a residuary provision and it applied only when there was no other specific provision in the Rules
Where there had been no assessment at all there was no reason why claim and demand of the Respondent could not be said to be recoverable under Rule 10A 449E 448H 449B C The validity of the delegated legislation is generally a question of vires that is whether or not the enabling power has been exceeded or not
Rule 10A as it existed at the relevant time was valid and not ultra vires the rule making power
Demand notice lawfully issued under the rule by the competent authority could not therefore be chal lenged on the ground of the Rule 10A itself being ultra vires
Whether these could be challenged on any other ground must necessarily depend on the facts 446 and circumstances of each case
453E F Kerala Polythene vs Superintendent Central  Excise Ms Chhotabhai Jethabhai Patel vs Union of India Stateof Kerala vs KM Charie Abdullah  Co 1965 1 SCR601
Any rule if it could be shown to have been made to carry into effect the purposes of the Act  would be within the rule making power
452H 453A Citadel Fine Pharmaceuticals vs District Revenue Offi cer Chingleput  Ms Agarwal Brothers vs Union of India  NB Sanjane vs Elphin stone Spinning and Weaving Mills Company Ltd  Assistant Collector vs National Tobacco Co Ltd  and DR Kohli vs Atul Products Ltd   referred to