Case: Maharashtra State Electricity Board Vs. Thana Electric Supply Co. &amp; Others

that term. The Amending Act of 1976 sought to limit the economic burden of this reform. 35. The expression "nationalisation" means the acquisition and control of privately owned business by government [See Blacks Law Dictionary, 5th edn., p. 924]. In A New English Dictionary on Historical Principles by Murray, Vol. VI page 32 the word nationalisation is stated to connote the acquisition and operation by a national government of business enterprises formerly owned an operated by private individuals or corporations. Most States have nationalised their postal and telegraphic systems, and many have nationalised railways and other means of transportation. It is the policy of socialism to nationalize all productive industry. 36. The idea of nationalisation of a material resource of the community cannot be divorced from the idea of distribution of that resource in the community in a manner which advances common good. The cognate and sequential question would be whether the provisions of the Amending Act, 1976, had a reasonable and direct nexus with the objects of Article 39(b). It is true, the protection of Article 31-C is accorded only to those provisions which are basically and essentially necessary for giving effect to the objects of Article 39(b). The High Court from the trend of its reasoning in the judgment, appears to take the view that while the provision for the takeover in the Principal Act might amount to a power to acquire, however, the objects of the Amending Act of 1976, which merely sought to beat down the price could not be said to be part of that power and was, therefore, incapable of establishing any nexus with Article 39(b). There is, we say so with respect, a fallacy in this reasoning. 37. The Amending Act of 1976, renders the cost of this economic reform brought about with the objects of Article 39(b) in view an affordable one in terms of money. Can this be held to have no direct or reasonable nexus with the objects of Article 39(b) ? When a legislative enactment is challenged as not conforming to the constitutional mandate "the judicial branch of the government" it is said has only one duty - to lay the article of the Constitution which is invoked beside the statute which is challenged and to decide whether the latter squares with the former." (United State v. Butler, 297 US1). 38. In the financial memorandum appended to the Amending Act of 1976 it is, inter alia, stated: "So far as Maharashtra State is concerned, it is a matter of policy that Maharashtra State Electricity Board is purchasing private electricity undertakings as and when their licences expire. This policy will be continued and the Board will take over private undertakings hereafter also as and when their licence periods expire.Under Section 7-A of the Indian Electricity Act, on revocation of the licence as well as on the purchase of the undertaking, the board or the State Government as the case may be has to pay compensation or purchase price at the market value of the undertaking. In the normal course this market value will be very high. Under the amended Act, the Board or the State Government will be required to pay as compensation or purchase price the depreciated book value of the undertaking. This will be less than the compensation or purchase price to be paid under the present Act.Since purchase of an electrical undertaking by the State Government would be a rare possibility the extent of expenditure to government involved cannot be foretold with any amount of accuracy." 39. The communitys economic burden for social and economic reform is an integral part of the exercise involved in social and economic change in the ushering in of an egalitarian and eclectic social and economic order in tune with the ethos of the Constitution. The cost - in terms of monetary expenditure - of economic change is a factor integrated with the objects of Article 39(b). The court must, on matters of economic policy, defer to legislative judgment as conditioned by time and circumstances. The wisdom of social change is, dependent, in some degree, upon trial and error, on the felt needs of the time. 40. A similar contention was urged in Writ Petition Nos. 457 and 458 of 1972 ((1988) 1 SCC 311 : 1988 SCC (L&S) 256 : (1987) 5 ATC 325). We have discussed at para 50 of that judgment the inevitability of integrating the costs of social and economic reform - in terms of monetary burden on the State - with the effectuation of the directive principles. 41. We accordingly hold that the provisions of Amending Act of 1976 have a direct and substantial relationship with the objects of Article 39(b) and, therefore, are entitled to the protection of Article 39-C. If the impugned law has such protection, as we indeed hold that it has, all challenges to it on the ground of violation of Articles 14, 19 and 31 must necessarily fail. That apart, even on the merits, many of the contentions are insubstantial. For instance, the grievance that "service lines" had been omitted from computation of the amount is without merit. That again has been dealt with in paras 88 to 92 of the judgment in Writ Petition Nos. 457 and 458 of 1972 ((1988) 1 SCC 311 : 1988 SCC (L&S) 256 : (1987) 5 ATC 325). Insubstantial, likewise, is the contention that the value of the "goodwill" has been omitted from computation of the amount. 42. So far as the companys cross-appeal in CA No. 243 of 1985 in which the company assails the correctness of the judgment of the High Court to the extent it has gone against the company is concerned, we approve the reasons of the High Court in coming to such conclusions as it did on those aspects. Some of those aspects have, again, been dealt with in our judgments in WP Nos. 457 and 458 of 1972 and Writ Petition Nos. 5, 14 and 15 of 1974. 43.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]If the contention of the State and the Electricity Board prevails and is accepted, all other contentions which, in turn, rest on an alleged infraction of Articles 14, 19(1)(f) and (g) and 31 do not survive. It is, however, the contention of Shri Andhyarujina that the question whether the power given to the government to postpone payment of the price by fixing instalments and the statutory limitations on the rate of interest are violative of Article 19(1)(f) and (g) became purely academic in the present case as, indeed, under the orders of the High Court Rupees four crores and five lakhs had been paid even before possession was taken and that a further sum of Rupees one crore and sixteen lakhs was paid pursuant to the orders of this Court. Learned counsel also submitted further that apart altogether from the protection of Article 31-C, the Amending Act of 1976 is justifiable as a reasonable restriction on the freedom under Article 19(1) (f) andAt the outset the misconception that an express legislative declaration in the legislation in condition precedent to the attraction of Article 31-C would, perhaps, require to be removed. The High Court, we say so with respect, was under a clear misconception on the point that an express incantation was necessary in the law itself. The nexus between the law and the objects of Article 39 (b) could be shown independently of any such declaration by the legislature. The absence of evidence of nexus, in the form of an express declaration, was not by itself evidence of absence of such nexus. Indeed in State of Maharashtra v. Basantibai Mohanlal Khetan ((1986) 2 SCC 516 : AIR 1986 SC 1466 , 1475), this Court, while examining the correctness of the view of High Court that Article 31-C was inapplicable in the absence of such a declaration in the very law itself, observed : (SCC pp. 530-31, paraArticle 31-C does not say that in an Act there should be a declaration by the appropriate legislature to the effect that it is being enacted to achieve the object contained in Article 39(b). In order to ascertain whether it is protected by Article 31-C, the court has to satisfy itself about the character of the legislation by studying all parts of it. The question whether an Act is intended to secure the objects contained in Article 39(b) or not does not depend upon the declaration by the legislature but depends on itsThis proposition was not accepted. This Court said : (SCR p.the whole scheme of the Electricity Act and the rules made thereunder is kept in mind, it becomes obvious that notwithstanding the use of the expression "compulsory purchase" in the second proviso to sub-section (1) of Section 7, there is no compulsory purchase or compulsory acquisition in the sense in which that expression is ordinarilystrong reliance on these observations Shri Sen contended that any proposition of a "compulsory acquisition" with the cognate implication of the acquisition seeking to subserve the objects of Article 39(b) is alien to the present case which was one of a contractual sale. Shri Sen also referred to Article 31 (2-A), as it then stood, whichWhere a law does not provide for the transfer of the ownership or right to possession of any property to the State or to any corporation owned or controlled by the State, it shall not be deemed to provide for the compulsory acquisition or requisitioning of property, notwithstanding that it deprives any person of hiscontend that where the transfer of ownership is not brought about by the operation of law itself - but, as here, only by a consensual transaction - there is no idea of a "compulsory acquisition" in the situation which might, in turn, serve the objects of ArticleThe Division Bench of the High Court held that as the option to purchase had been exercised prior to the issue of Ordinance-50 of 1974, the licensee was entitled to the market value under the unamended Section 7-A. The High Court in effect took the view that once the option was exercised and communicated, the option with all the incidents that go with it including the stipulation as to the particular price implicit in the option binds both the parties and that the right to receive the preaches price was crystallised into a chose-in-action. The reasoning of the High Court is on thesethe time the option was exercised by the appellant under Section 7-A of the Act, the respondent company was entitled to the market value of the undertaking to be determined in accordance with the provisions of sub-section (2) of Section 7-A. There was, therefore, an implied contract between the respondent company and the appellant that the appellant would pay to the respondent company the market price of the undertaking in the event it purchased the undertaking. The option of purchase was exercised by the appellant before the amendment of Section 6 and Section 7-A of the Act by the Bihar Ordinance 50 of 1974. The appellant is, therefore, liable to pay to the respondent company the market value of the undertaking in terms of the unamended provision Sectionother words, when the option is exercised the licensee is bound to sell and the concerned authority is bound to purchase the undertaking. It is difficult to accept the contention that this binding effect on either party will be without the fixation of the purchase price or the consideration for the transaction. As soon as this stage is reached after the exercise of option to purchase by the service of a notice as mentioned in Section 6 of the Act, the concerned authority has to purchase the undertaking on payment of the market value of the undertaking to be determined in accordance with the provision of Section 7-A of the ActThe right to receive the market value of the undertaking is a debt or a chose-in-action and is property within the meaning of Article 19(1)(f) and Article 31(2) of theIt was held in that case the amending processes were violative of the licensees fundamental rights under Article 31(2) of theWhat, in the ultimate analysis, underlies, and is indeed, the emphasis in, Shri Sens submissions is the postulate that in the takeover by government of an "undertaking", there is no element of "nationalisation" of the undertaking and consequently, no question of effectuation of the objects of Article 39 (b) arises. The arguments addressed in the case are not without their interesting aspects as to what, in the last analysis, is and should bel, the form and content of a law which seeks to serve the objects of Article 39(b). In the decision of the Calcutta High Court (AIR 1982 Cal 74 : (1981) 1 Cal LJ 372) relied upon by Shri Sen, no appeal was made by the Electricity Board to the protection of Article 31-C. That apart, the concept of the licensees rights crystallising themselves into a chose-in-action upon the exercise of the option that commended itself to the Calcutta High Court did not appeal to the Bombay High Court in the judgment underThe business of an electricity supply undertaking, a public utility service, in pursuance of a licence granted underthe Electricity Act, 1910, is comprehensively controlled by the terms of that statute. The terms on which a franchise is created and conferred are amenable to unilateral modification by statute. The terms which are so amenable to unilateral alteration to the disadvantage of the licensee include the term pertaining to the quantification of the price payable for the takeover. It is difficult to accept the proposition that the right to the payment of the price gets crystallised into a chose-in-action independently of or even before the actual transfer of ownership of the undertaking. In Fazilka Electric Supply Company case (1962 Supp 3 SCR 496 : AIR 1963 SC 464 : (1962) 46 ITR 127 ) it was, no doubt, held that the transfer of the ownership of the undertaking was the result of consensual, bilateral activity. However, in Gujarat Electricity Board v. Girdharlal Motilal ((1969) 1 SCR 589 : AIR 1969 SC 267 ) referring to the relevant provisions of the 1910 Act it was held that they conferred power on the State Electricity Board "to take away the property of theIt appears to us that even if the provisions ofthe Electricity Act, 1910, are held and understood to provide for takeover by the State of a privately owned undertaking only by the adoption of the expedient of a consensual sale, that circumstance, by itself, would not be decisive of whether the Amending Act of 1976 has no direct and reasonable nexus with the objects of Article 39(b). The High Court, itself referring to the object of the relevant provisions of the 1910 Act enabling a takeoverElectricity act, 1910, as enacted contemplated State control over the material resources of electricity by providing for compulsory purchase of electricityt so far as the Amending Act was concerned the High Courtwas already the objective of the parent Act. It cannot, therefore, be held to be the object of the Amending Act ofThe reasoning of the High Court that the Amending Act, 1976, which was incorporated into the became part of the Principal Act, would have no such purpose, does not square with its own view of the purpose of the Principal Act. After having said that the relevant provisions of the Amending Act did not share with the Principal Act the objective of takeover of an undertaking the High Court on a logical corollary of that premise, held that the Amending Act had no nexus with the object of ArticleThe effect of the relevant provisions of the 1910 Act, as amended by the Amending Act of 1976, is the transfer of the ownership and control of material resources of the community for purposes of ensuring that they are so distributed as best to subserve the common good. In effect, the provisions bring about nationalisation in the larger sense of that term. The Amending Act of 1976 sought to limit the economic burden of thisThe expression "nationalisation" means the acquisition and control of privately owned business by government [See Blacks Law Dictionary, 5th edn., p. 924]. In A New English Dictionary on Historical Principles by Murray, Vol. VI page 32 the word nationalisation is stated toacquisition and operation by a national government of business enterprises formerly owned an operated by private individuals or corporations. Most States have nationalised their postal and telegraphic systems, and many have nationalised railways and other means of transportation. It is the policy of socialism to nationalize all productiveThe idea of nationalisation of a material resource of the community cannot be divorced from the idea of distribution of that resource in the community in a manner which advances common good. The cognate and sequential question would be whether the provisions of the Amending Act, 1976, had a reasonable and direct nexus with the objects of Article 39(b). It is true, the protection of Article 31-C is accorded only to those provisions which are basically and essentially necessary for giving effect to the objects of Article 39(b). The High Court from the trend of its reasoning in the judgment, appears to take the view that while the provision for the takeover in the Principal Act might amount to a power to acquire, however, the objects of the Amending Act of 1976, which merely sought to beat down the price could not be said to be part of that power and was, therefore, incapable of establishing any nexus with Article 39(b). There is, we say so with respect, a fallacy in thisThe Amending Act of 1976, renders the cost of this economic reform brought about with the objects of Article 39(b) in view an affordable one in terms of money. Can this be held to have no direct or reasonable nexus with the objects of Article 39(b) ? When a legislative enactment is challenged as not conforming to the constitutional mandate "the judicial branch of the government" it is said has only one duty - to lay the article of the Constitution which is invoked beside the statute which is challenged and to decide whether the latter squares with the former."State v. Butler, 297In the financial memorandum appended to the Amending Act of 1976 it is, inter alia,far as Maharashtra State is concerned, it is a matter of policy that Maharashtra State Electricity Board is purchasing private electricity undertakings as and when their licences expire. This policy will be continued and the Board will take over private undertakings hereafter also as and when their licence periodsSection 7-A of theIndian Electricity Act,on revocation of the licence as well as on the purchase of the undertaking, the board or the State Government as the case may be has to pay compensation or purchase price at the market value of the undertaking. In the normal course this market value will be very high. Under the amended Act, the Board or the State Government will be required to pay as compensation or purchase price the depreciated book value of the undertaking. This will be less than the compensation or purchase price to be paid under the presentpurchase of an electrical undertaking by the State Government would be a rare possibility the extent of expenditure to government involved cannot be foretold with any amount ofThe communitys economic burden for social and economic reform is an integral part of the exercise involved in social and economic change in the ushering in of an egalitarian and eclectic social and economic order in tune with the ethos of the Constitution. The cost - in terms of monetary expenditure - of economic change is a factor integrated with the objects of Article 39(b). The court must, on matters of economic policy, defer to legislative judgment as conditioned by time and circumstances. The wisdom of social change is, dependent, in some degree, upon trial and error, on the felt needs of theA similar contention was urged in Writ Petition Nos. 457 and 458 of 1972 ((1988) 1 SCC 311 : 1988 SCC (L&S) 256 : (1987) 5 ATC 325). We have discussed at para 50 of that judgment the inevitability of integrating the costs of social and economic reform - in terms of monetary burden on the State - with the effectuation of the directiveWe accordingly hold that the provisions of Amending Act of 1976 have a direct and substantial relationship with the objects of Article 39(b) and, therefore, are entitled to the protection of Article 39-C. If the impugned law has such protection, as we indeed hold that it has, all challenges to it on the ground of violation of Articles 14, 19 and 31 must necessarily fail. That apart, even on the merits, many of the contentions are insubstantial. For instance, the grievance that "service lines" had been omitted from computation of the amount is without merit. That again has been dealt with in paras 88 to 92 of the judgment in Writ Petition Nos. 457 and 458 of 1972 ((1988) 1 SCC 311 : 1988 SCC (L&S) 256 : (1987) 5 ATC 325). Insubstantial, likewise, is the contention that the value of the "goodwill" has been omitted from computation of theSo far as the companys cross-appeal in CA No. 243 of 1985 in which the company assails the correctness of the judgment of the High Court to the extent it has gone against the company is concerned, we approve the reasons of the High Court in coming to such conclusions as it did on those aspects. Some of those aspects have, again, been dealt with in our judgments in WP Nos. 457 and 458 of 1972 and Writ Petition Nos. 5, 14 and 15 of 1974