Case: U.P. State Electricity Board Vs. Upper Jamuna Valley Electri.Sup.Co

On 28th June, 1929 the Government of Uttar Pradesh granted to one M/s. Martin and Co. a licence for supply of electric energy. This licence was subsequently transferred to the 1st respondent. One of the terms of the licence was that at the end of the licence period the Government had a right to purchase the undertaking. The licence was for a period of 35 years. The 35 years period would thus end on 27th June, 1964. On 30th November, 1962 the Appellant served a notice on the 1st respondent, under Section 6(1) of the Indian Electricity Act, 1910 (hereinafter called the said Act). By this the Appellants called upon the 1st respondent to sell the undertaking to the appellant on the expiry of the period of 35 years from the commencement of the licence, i.e., at 12 Oclock in the night between the 27th and 28th June, 1964On February 4, 1975, Indian Electricity (U.P. Amendment and Validation) Ordinance No. 7 of 1975 was passed. This Ordinance amended certain provisions of the Indian Electricity Act. Subsequently this Ordinance was replaced by an Act namely Indian Electricity (U.P. Amendment and Validation) Act, 1976. The Ordinance and the Act amended amongst others Sections 6 and 7-A of the Indian Electricity ActAt this stage it is necessary to see what the unamended Sections 6 and 7-A provided for. They read as follows :"6. Purchase of undertakings.- (1) Where licence has been granted to any person, not being a local authority, the State Electricity Board shall, -(a) in the case of a licence granted before the commencement of the Indian Electricity (Amendment) Act, 1959 (32 of 1959) on the expiration of each such period as is specified in the licence; and(b) in the case of a licence granted on or after the commencement of the said Act, on the expiration of such period not exceeding thirty years and of every such subsequent period, not exceeding twenty years, as shall be specified in this behalf in the licence;have the option of purchasing the undertaking and such option shall be exercised by the State Electricity Board serving upon the licensee a notice in writing of not less than one year requiring the licensee to sell the undertaking to it at the expiry of the relevant period referred to in this sub-section(2) Where a State Electricity Board has not been constituted, or if constituted, does not elect to purchase the undertaking, the State Government shall have the like option to be exercised in the like manner of purchasing the undertaking(3) Where neither the State Electricity Board nor the State Government elects to purchase the undertaking, any local authority constituted for an area within which the whole of the area of supply is included shall have the like option to be exercised in the like manner of purchasing the undertaking(4) If the State Electricity Board intends to exercise the option of purchasing the undertaking under this section, it shall send an intimation in writing of such intention to the State Government at least eighteen months before the expiry of the relevant period referred to in sub-section (1) and if no. such intimation as aforesaid is received by the State Government the State Electricity Board shall be deemed to have elected not to purchase the undertaking(5) If the State Government intends to exercise the option of purchasing the undertaking under this section, it shall send an intimation in writing of such intention to the local authority, if any, referred to in sub-section (3) at least fifteen months before the expiry of the relevant period referred to in sub-section (1) and if no. such intimation as aforesaid is received by the local authority, the State Government shall be deemed to have elected not to purchase the undertaking(6) Where a notice exercising the option of purchasing the undertaking has been served upon the licensee under this section, the licensee shall deliver the undertaking to the State Electricity Board, the State Government or the local authority, as the case may be, on the expiration of the relevant period referred to in sub-section (1) pending the determination and payment of the purchase priceThus, under Section 6 the compensation, i.e. the purchase price was to be determined in accordance with the provisions of sub-section (4) of Section 7-ASection 7-A as it originally stood, reads as follows :"7-A. Determination of purchase price.- (1) Where an undertaking of a licensee, not being a local authority, is sold under sub-section (1) of Section 5, the purchase price of the undertaking shall be the market value of the undertaking at the time of purchase or where the undertaking has been delivered before the purchase under sub-section (3) of that section, at the time of the delivery of the undertaking and if there is any difference or dispute regarding such purchase price, the same shall be determined by arbitration(2) The market value of an undertaking for the purpose of sub-section (1) shall be deemed to be the value of all lands, buildings, works, materials and plant of the licensee suitable to and used by him, for the purpose of the undertaking other than;(i) a generating station declared by the licence not to form part of the undertaking for the purpose of purchase, and (ii) service lines or other capital works or any part thereof which have been constructed at the expense of consumers, due regard being had to be nature and condition for the time being of such land, buildings, works, materials and plant and the state of repair thereof and to the circumstance that they are in such position as to be ready for immediate working and to the suitability of the same for the purpose of the undertaking, but without any addition in respect of compulsory purchase or of goodwill or of any profits which may be or might have been made from the undertaking or of any similar consideration(3) Where an undertaking of a licensee, being a local authority, is sold under sub-section (1) of Section 5 purchase price of the undertaking shall be such as the State Government, having regard to the market value of the undertaking at the date of delivery of the undertaking, may determine(4) Where an undertaking of a licensee is purchased under Section 6 the purchase price shall be the value thereof as determined in accordance with the provisions of sub-sections (1) and (2);Provided that there shall be added to such value percentage, if any not exceeding twenty per centum of that value as may be specified in the licence on account of compulsory purchase."Section 7 is also relevant. It reads as follows :" 7. Vesting of the undertaking in the purchaser.- Where an undertaking is sold under Section 5 or Section 6 then upon the completion of the sale or on the date on which the undertaking is delivered to the intending purchaser under sub-section (3) of Section 5 or under sub-section (6) of Section 6 as the case may be, whichever is earlier-(i) the undertaking shall vest in the purchaser or the intending purchaser, as the case may be, free from any debt, mortgage or similar obligation of the licensee or attaching to the undertaking :Provided that any such debt, mortgage or similar obligation shall attach to the purchase money in substitution for the undertaking;(ii) the rights, powers, authorities, duties and obligations of the licensee under his licence shall stand transferred to the purchaser and such purchaser shall be deemed to be the licensee :By the above mentioned Ordinance and the Act, the amendment which was carried out was that under Section 7-A instead of purchase price being the market value, it was now provided that the amount payable for the undertaking would be the book value of the undertaking. Thus, instead of computing the market value, there had to be computation on the book value.

Reasoning:
16. We have considered the submissions of Dr. Singhvi undoubtedly, the law which is to prevail is the law which was prevailing on the date of take over, i.e., 28th of June, 1964. It is also clear that on that day the Constitutionh Amendment) Act had not been enacted and Article 31(c) was not there. Undoubtedly, in Coopers case 1969 SC 442) it has been held that even after amendment of Article 31(c) the term "compensation" meant "just equivalent" or "full indemnification." However, Coopers case itself notes that there has been a change inasmuch as if the law pertains to change in the principles of the method of determination of compensation and the method is a recognized principle applicable in the determination of compensation and the principle is appropriate in determining the value of the property, then it would not be open to the Courts to question the valuation. Coopers case also lays down that if several principles are appropriate and one is selected for determination of the value of the property to be acquired, selection of that principle to the exclusion of other principles is not open to challenge, for the selection must be left to the wisdom of the Parliament. Of course, the principles specified must be appropriate to the determination of compensation for an appropriate class of property sought to be acquired19. In our view, the authorities in Tinsukhias case 1989 SC 576) Thana Electric Supply Companys case 1989 SC 578) and Vellore Electric Corporations case 1989 SC 575) fully cover the point urged by Dr. Singhvi. Even if the principles laid down in Coopers case 1970 SC 575) (supra) are applicable, still it has been held by this Court, in the above mentioned three cases that principles of valuation on book value is a well known concept of valuation and that the amount is not illusory. We, therefore, see no. substance in this challengeDr. Singhvi, however, submitted that the notice to take over the undertaking was given on November 30, 1962 and the undertaking was taken over on June 28, 1964. He submitted that on the date of takeover the rights of the 1st Respondent had crystallised. He submitted that the 1st respondent, therefore, became entitled to receive the market value of the property. He submitted that as the amount payable had already got crystallised, a subsequent acquisition could only be acquisition of money. He submitted that on June 28, 1964 the vesting took place. He submitted that thereafter nothing more than payment of money was to be done. He submitted that by a retrospective amendment, made in 1975, money could not be compulsory acquired. He submitted that there could be no. public purpose in acquisition of money and that such acquisition would amount to a forced loan. He submitted that the restrictions laid down by the retrospective amendment were not reasonable. He submitted that no. reasons for such restrictions were given or could exist. He submitted that by the amendment the crystallised right to money was being taken away21. In support of his submission Dr. Singhvi relied upon the case of Madan Mohan Pathak v. Union of India reported in 1978 SC 152 : 1978 Lab IC 612). In that case there was a settlement between the management and the labour under which an annual cash bonus was to be paid to Class III and Class IV employees. By the Life Insurance Corporation (Modification of Settlement) Act, 1976 Class III and Class IV employees were sought to be deprived of the annual cash bonus that they are entitled to receive under the settlement. This Court held that the term Property under Articles 19(1)(f), 31(1) and 31(2) had to be given the widest interpretation and refers to property of every kind, tangible or intangible, debts and. It was held that then could be compulsory acquired under Article31(2). It was held thatthe right to receive theannual cash settlement was a right to property within the meaning of Article31(2). It was held thatextinguishments of the debt of a creditor with the corresponding benefit to the State or State owned/controlled corporation would be transfer of ownership to the State and would amount to compulsory acquisition under Article31(2). It was held thatacquisition of money, debt and/or chose in action must be made to serve a publicpurpose.It was held that theImpugned Act was a pure and simple case of deprivation of the rights of the Class II and Class IV employees without any apparent nexus with any public interest. It was held that an acquisition of an could not be for the purpose of augmenting the revenues of the State or reducing State expenditure as that would not be a public purpose and would be violative of the constitutional guarantee embodied in Article31(2). It was held thatan acquisition of this nature amounted to forced loan. Dr. Singhvi also relied upon the case of State of Bihar v. Maharajadhiraja Sir Kameshwar Singh of Darbhanga reported in 1952 SCR 889 : 1952 AIR(SC) 252)22. We are unable to accept the submission. As has been held in Tinsukhias case 1989 SC 576); Thana Electric Supply Companys case 1989 SC 578) and Vellore Electric Corporations case 1989 SC 575) what has been acquired is not an or a debt. What been acquired is the undertaking which dealt with material resource of the country. There was no. crystallisation of any amount. The only right was a right to receive compensation which was to be worked out on certain principles. All that the amending Act has done is to change the method or principle on the basis of which the compensation was to be worked out. It has been held that the legislation is not a piece of colourable legislation. It has also been held, in the above mentioned cases, that the provisions for quantification of the amount payable to the undertaking form an integral and inseperable part of the nationalisation and do not admit of being considered as distinct provisions independent of each other. It has been held that the economic costs of nationalization was not justiciable. In our view this case is fully covered by the judgments in Tinsukhias case, Thana Electric Supply Companys case and Vallore Electric Corporations case.