Case: Oriental Gas Co. Ltd. &amp; Ors Vs. State Of West Bengal

the plant. 20. We may also refer to Principles and Practice of Rating Valuation by Roger Emeny and Hector M, Wilks. At page 197 of the 3rd edn ., public utility undertakings are considered and it is said: Public Utility Undertakings were prior to 1950 valued by the profits method. This method was used because public utility undertakings were not generally speaking let, added to which they enjoyed some element of monopoly....insofar that there are public utility undertakings or quasi public utility undertakings which are not covered by a formula, and in the absence of rental evidence, it is probable that the profits method of valuation would be applicable. There is no shortage of case law to help the valuer when using the profits method for public utility undertaking. 21. It is thus clear from the very authorities cited by Shri Sen. that tangible and intangible property of a public utility undertaking, may not necessarily be valued separately and it is a sound principle to treat them as indivisible and value the undertaking as an integrated whole. The authorities also treat the capitalisation of net profit as one of the recognised principles of valuation of Public Utility Undertaking, though it may not be the best in the sense that it may not yield that result which is most advantageous t o the owner of the undertaking. But we are not concerned with the question which principle will yield the result most advantageous to the owner of the undertaking but with the question whether the particular principle is a relevant principle at all. In the language used in American Jurisprudence the principle of capitalisation of net income is unquestionably relevant even in the case of Public Utility Undertakings. In our view, it requires no authority to say that capitalisation of net income is a sound principle of valuation. Any purchaser will immediately put himself the question what profit does the undertaking make and how much should I invest to get the return ? He may pay more if the prospects of better income in the future are bright and if the plant, machinery and buildings are in excellent condition. He may pay less if the future is not so bright and if the plant, machinery and buildings are in a poor state and require immediate replacement and repair. He m ay pay more ll if the undertaking is possessed of substantial, unencumbered properties. He may pay less if the lease of the land on which the factory is located is about to expire. Thus the price may vary depending - on various factor s but the basic consideration is bound to be the profit yielding capacity of the undertaking. Shri Sen asserted that the lands belonging to the company which were purchased by way of investment, can fetch a price of Rupees six to seven crores. There is nothing in the petition to indicate that any lands were purchased by way of investments and not for the purpose of gas works or that the lands are capable of being sold independently of the undertaking. Perhaps, no one will come forward to purchase land next to a gas works. Perhaps there are other factors which make the land unsale able or which depreciate the value of the land. We do not know. Suffice it to say that the assertion of Shri Sen is not borne out by any st atement to that effect in the Writ Petition. Shri Sell suggested that the petitioner might be given an opportunity to amend the Writ Petition. We do not think we can do that. The acquisition was made in 1962. The impugned Act was passed in 1970. T he Writ Petition was filed in 1971 and has been pending in this Court for sever years. If there was any substance in the present assertion, the petitioner would surely have mentioned it prominently in the Writ Petition. It would not have taken the petitioner so many years to discover a circumstance claimed by his Counsel to be so very vital. We do not think we will be justified in permitting any amendment at this stage. The case of the petitioner right through has been that the principle of capitalisation of income was irrelevant. With that submission we emphatically do not agree.Shri Sens next submission was that the choice of the period of five years immediately preceding the take over of the management and control of the Company for the purpose of calculating the average annual income was arbitrary as those five years were particularly lean years for the Company because of some special circumstances. The charge of arbitrariness is baseless. The fiv e years immediately preceding the take over of the control and management of the Company were the years 1955-56, 1956-57, 1957-58, 1958-59 and 1959-60 during which years the profits according to the balance sheets of the Company, were Rs. 15, 86, 789, Rs. 13, 81, 177, Rs. 7, 50, 582, Rs. 1, 64, 158 and Rs. 1, 82, 123/- respectively. Now, if the Legislature wanted to be unfair to the Company, the last years profit could have been taken as the criterion on the ground that the value to be ascertained wa s the value on the date of take over and not some hypothetical anterior date. Or, instead of taking the advantage of the period of the preceding five years, the Legislature could well have taken the average of the preceding three years. If that. We should not however be understood as having decided that A Section 9 (2) offends Article 31 (2) of the Constitution. Shri Chatterjee, learned Counsel for the State of West Bengal, argued that the earlier decision of the Calcutta High Court in the petition under Article 226 of the Constitution operated as res judicata. 22. In the view that we have taken on the main question it is unnecessary to consider this argument except to say that there does not appear to be any substance in it. 23.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]In fact the very argument of Shri Sen that the principle of capitalisation of net profit as a sole factor to determine compensation is not relevant, appears to us to imply that it is a relevant, principle alongwith others. CAlfred Johr in his Eminent Domain Valuation and Procedure, states in Section 66: At the outset, we must bear in mind that when private property is acquired for public use under the power of eminent domain, just compensation must be paid to the owner. How is the just compensation determined ? That is the problem which we will discuss at some length. Dealing particularly with the question of valuation of Public Utilities, the author mentions the reasons why the principles of valuation in the case of acquisition of Public Utilities are sometimes different from those pertaining to the usual acquisitions. Then he proceeds to say that in estimating a just compensation of Utility property consideration must be given to two types of properties, the tangible properties and the intangible properties. Tangible property such as land may be valued at the market value while property like plant etc. may have to be valued on the basis of original cost, cost of permutation, allowance for depreciation etc. In the case of intangible property the author states that the Courts do not indicate the method used in reaching the intangible item of going concern value . and confesses that there probably is none . After remarking that valuation of a going concern based on capitalisation of net earnings assumes too many contingencies, the author refers to the case of Appleton Water Co. v. Railroad Commission [154 Wis. 121, 148, 142, N.W. 476, 47 L.R.A . (N.S.) 770], where the Court said that the fundamental difficulty with an attempt to set a definite sum as representing going concern value is that it is an attempt to divide a thing which is in its nature practically indivisible. The value of t he plant and business is an indivisible gross amountIt is thus clear from the very authorities cited by Shri Sen. that tangible and intangible property of a public utility undertaking, may not necessarily be valued separately and it is a sound principle to treat them as indivisible and value the undertaking as an integrated whole. The authorities also treat the capitalisation of net profit as one of the recognised principles of valuation of Public Utility Undertaking, though it may not be the best in the sense that it may not yield that result which is most advantageous t o the owner of the undertaking. But we are not concerned with the question which principle will yield the result most advantageous to the owner of the undertaking but with the question whether the particular principle is a relevant principle at all. In the language used in American Jurisprudence the principle of capitalisation of net income is unquestionably relevant even in the case of Public Utility Undertakings. In our view, it requires no authority to say that capitalisation of net income is a sound principle of valuation. Any purchaser will immediately put himself the question what profit does the undertaking make and how much should I invest to get the return ? He may pay more if the prospects of better income in the future are bright and if the plant, machinery and buildings are in excellent condition. He may pay less if the future is not so bright and if the plant, machinery and buildings are in a poor state and require immediate replacement and repair. He m ay pay more ll if the undertaking is possessed of substantial, unencumbered properties. He may pay less if the lease of the land on which the factory is located is about to expire. Thus the price may vary depending - on various factor s but the basic consideration is bound to be the profit yielding capacity of the undertaking. Shri Sen asserted that the lands belonging to the company which were purchased by way of investment, can fetch a price of Rupees six to seven crores. There is nothing in the petition to indicate that any lands were purchased by way of investments and not for the purpose of gas works or that the lands are capable of being sold independently of the undertaking. Perhaps, no one will come forward to purchase land next to a gas works. Perhaps there are other factors which make the land unsale able or which depreciate the value of the land. We do not know. Suffice it to say that the assertion of Shri Sen is not borne out by any st atement to that effect in the Writ Petition. Shri Sell suggested that the petitioner might be given an opportunity to amend the Writ Petition. We do not think we can do that. The acquisition was made in 1962. The impugned Act was passed in 1970. T he Writ Petition was filed in 1971 and has been pending in this Court for sever years. If there was any substance in the present assertion, the petitioner would surely have mentioned it prominently in the Writ Petition. It would not have taken the petitioner so many years to discover a circumstance claimed by his Counsel to be so very vital. We do not think we will be justified in permitting any amendment at this stage. The case of the petitioner right through has been that the principle of capitalisation of income was irrelevant. With that submission we emphatically do not agree.Shri Sens next submission was that the choice of the period of five years immediately preceding the take over of the management and control of the Company for the purpose of calculating the average annual income was arbitrary as those five years were particularly lean years for the Company because of some special circumstances. The charge of arbitrariness is baseless. The fiv e years immediately preceding the take over of the control and management of the Company were the years 1955-56, 1956-57, 1957-58, 1958-59 and 1959-60 during which years the profits according to the balance sheets of the Company, were Rs. 15, 86, 789, Rs. 13, 81, 177, Rs. 7, 50, 582, Rs. 1, 64, 158 and Rs. 1, 82, 123/- respectively. Now, if the Legislature wanted to be unfair to the Company, the last years profit could have been taken as the criterion on the ground that the value to be ascertained wa s the value on the date of take over and not some hypothetical anterior date. Or, instead of taking the advantage of the period of the preceding five years, the Legislature could well have taken the average of the preceding three years. If that. We should not however be understood as having decided that A Section 9 (2) offends Article 31 (2) of the Constitution. Shri Chatterjee, learned Counsel for the State of West Bengal, argued that the earlier decision of the Calcutta High Court in the petition under Article 226 of the Constitution operated as res judicata.In the view that we have taken on the main question it is unnecessary to consider this argument except to say that there does not appear to be any substance in it.