Case: Vellore Electric Corporation Limited and Another Vs. State of Tamil Nadu and Others

2. These writ petitions were heard along with Writ Petition (Civil) Nos. 457 and 458 of 1972, pertaining to the acquisition of Tinsukhia Electric Supply Co. Ltd., and Dibrugarh Electric Supply Co. Ltd., under the provisions of the Tinsukhia and Dibrugarh Electric Supply Undertakings (Acquisition) Act, 1973 (Assam Act 10 of 1973) and the main contentions of private electricity undertakings - independently of and without recourse to the option to purchase envisaged by the terms of licenses and under the provisions of Sections 6, 7 and 7-A of the Electricity Act, 1910 - are considered in the main judgment in the said WP Nos. 457 & 458, separately rendered today (Tinsukhia Electric Supply Co. Ltd v. State of Assam, (1989) 3 SCCe scheme and the broad features of the Tamil Nadu Private Electricity Supply Undertakings (Acquisition) Act, 1973, which received the assent of the President on September 30, 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 localThe Vellore Electric Corporation Ltd., petitioner in W. P. No. 5(N) of 1974, was granted on May 14, 1929 by the government of the then Presidency of Madras under the provisions of the Indian Electricity Act, 1910 (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 licensees undertaking on the expiry of 30 years from the commencement of the licence or if licence is renewed thereafter on expiration of every subsequent period of 20 years, during the continuance of the licence. At the relevant time when the order under Section 4(1) was made, the remaining period of the licence was up to May 14, 1979. The State Government in exercise of powers under Section 4(1) of the Act made an order dated October 30, 1973, served on the petitioner on November 5, 1973 fixing December 1, 1973 (which was later postponed to January 1, 1974) as the date ofThe facts in W.P. No. 14 of 1974 are thepetitioner, the Kumbakonam Electric Supply Corporation Ltd., a public limited company, then engaged in the business of distribution and supply of electrical energy in the Talukas 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 April 15, 1930 under the Indian Electricity Act, 1910, 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 periods of 7 years each. At the time the impugned order under Section 4(1) of the "Act" was made, in relation to the Electricity Supply Undertaking of this company, the unexpired period the licence was up to April 15,On January 12, 1968, the State Government in exercise of its power under Section 4(1) of the Tamil Nadu 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 dismissed on July 31, 1968. 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 C. A. No. 119 of 1971. During the pendency of the proceedings before the High Court and before this Court, petitioner had the benefit of interlocutory orders "staying delivery of possession of the undertaking". However, the petitioner withdrew the appeal, according to it, on the suggestion of the government with a view to facilitating negotiations for aHowever, on September 30, 1973, the Act in the present proceedings came into force. As noticed earlier, sub-sections (2) and (3) of Section 23 of the Act statutorily abrogates the effect, incidents and consequences of all earlier proceedings taken under the 1954 Act, except in cases where the vesting and the taking over of possession of the undertaking had already occurred before September 30, 1973. The order under Section 4(1) of the 1973 Act in the case of the petitioner in W. P. No. 14 of 1974 was made on October 30, 1973 declaring December 1, 1973 as the date of theIn W. P. No. 15 of 1974, the first petitioner, the Nagapatam Electric Supply Co. Ltd., a public limited company, was the grantee of a licence, dated August 22, 1933, under the Indian Electricity Act, 1910, by the then government, Presidency 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 periods of 7 years each. At the time the order under Section 4(1) impugned in the writ petition was made, the unexpired period the licence was up to August 22, 1974. As in the case Kumbakonam Electric Supply Corporation Ltd., so in the present case, government in purported exercise of powers under Section 4(1) of the earlier Act, viz., the Tamil Nadu Electricity Supply Undertaking (Acquisition) Act, 1954, had made an order on January 12, 1968 declaring that the undertaking of the petitioner shall vest in the government with effect from July 15, 1968. The petitioner also challenged the constitutional validity of the 1954 Act in W.P. No. 703 of 1968 in the High Court of Madras. The writ petition was dismissed in Madras High Court on July 3, 1968. The writ Appeal No. 337 of 1968 preferred by the company before a Division Bench of the High Court, also came to be dismissed. The company preferred, by special leave, C.A. 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 October 5,Thereafter, 1973 Act came into force. As stated earlier, Section 23 of the Act sought to nullify the effect of the actin taken under the 1954 Act and a fresh order dated October 30, 1973 under Section 4(1) of 1973 Act came to be promulgated declaring the the undertaking of the petitioners would vest in government with effect from December 1,The three petitioner-companies assail the constitutional validity of the Act as also the orders made under Section 4(1) in the individual cases

Reasoning: 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 Directive Principles of State Policy adumbrated in clauses (b) and (c) of Article 39 inasmuch as the impugned Act was brought forth only to avoid the consequences of the terms of the licenses and the beneficent provisions of Sections 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 andThese 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 theAmendment) Act, 1971 with effect from April 20, 1972. Article 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) and (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 full indemnification principle had been done away with and the question of the adequacy of the amount was renderedcontention was not accepted. Repelling it, we observed in the course of the judgment in W.P. Nos. 457 & 458 of 1972 (Tinsukhia Electric Supply Co. Ltd. v. State of Assam, (1989) 3 SCC 709 ) : (SCC p. 735, para 53; p. 737, para 57; p. 738, para 61; pp. 738-39, paraproposition of Sri Sorabjee, in principle, 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 electricity generated and distributed by the undertakings of the petitioner-companies constitute "material resources of the community" for the purpose and within the meaning of Article 39(b)"... The idea of distribution of the material resources of the community in Article 39(b) 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 nationalisation of the undertakings and the law is eligible for and entitled to the protection of Articleto the contention in that case that not every provision of a law can and need be 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 interdicting and extinguishing rights to receive market value under the 1910 Act would not attract the protection of Article 31-C, it was held : (SCC p. 739, para 63; p. 739, para 64)"... We are afraid this contention proceeds on an impermissible dichotomy of the components integral to the idea of nationalisation. The economic cost of social and economic reform is, perhaps, amongst the most vexed problems of social and economic change and constitute the core element in nationalisation. The need for constitutional immunities for such legislative efforts at social and economic change recognise the otherwise unaffordable economic burden ofis, therefore, not possible to divorce the economic considerations or components from the scheme of the nationalisation with which the former are inextricably in integrated. The financial cost of a scheme of nationalisation lies at its very heart and cannot be isolated. Both the provisions relating to the vestiture of the undertakings in the State and those pertaining to the quantification 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.e observations fully answer the contention of Sri Salve in regard to the question whether impugned Act attracts the protection of Article 31-C or not. If Article 31-C comes in, Articles 14, 19 and 31 goOn a consideration of the matter, we think that all the contentions - (a), (b), (c) and (d) - are covered in one form or the other by our pronouncement in W.P. Nos. 457 and 458 of 1972 (Tinsukhia Electric Supply Co. Ltd. v. State of Assam, (1989) 3 SCC 709 ). We are also of the opinion that Sri Salves 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 v. Ranojirao Shinde ((1968) 3 SCR 489 : AIR 1968 SC 1053 ) relied upon by Sri Salve to contend that choses-in-action could not be acquired would require to be read with later pronouncement in Madan Mohan Pathak v. Union of India (115 US 650). It is not necessary, however, to pronounce on this point as in our view what was acquired were not merely chose-in-action but the undertakingsContentions (a), (b) and (c) accordingly fail and are held and answered against theThe grievance sought to be made out on the matter is that while Section 6(2) of the Act has the effect of vesting all the assets specified in Section 6(2)(i)(b) in government free from encumbrances and the proviso to Section 6(2) 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, Section 10(e) renders one species or such debt viz., sums due to the government or the Electricity Board, liable to be deducted from the amount. Sri 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 become an encumbrance upon the substituted security viz., the amount". Section 6(2) and Section 10(e) must be construed harmoniously and in a reasonable manner. There is no scope for any apprehension of a possible double recovery of the same debt. There is no substance in contention (h)Re ContentionThe point of the matter is that Section 10(f) 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, arbitrary. 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 government 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 contentionSri Salve submitted that the accredited representative is, under Section 8(1), given only a months time from the date of his appointment to signify the choice under Section 5 as to 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 8(1). If the exercise of this power is arbitrary or capricious the licensee has remedies in Administrative Law. But the provision itself cannot be held to be bad. There is no substance in this contentionCertain other subsidiary contentions were urged at the hearing. All these matter have been elaborately considered in our judgment in Writ Petition Nos. 457 and 458 of 1972 (Tinsukhia Electric Supply Co. Ltd. v. State of Assam, (1989) 3 SCC 709 ) arising out of the Assam legislation. We have not found any merit inHowever, there is one aspect which merits consideration. Sri Salve submitted that the petitioners in Writ Petition No. 5(N) of 1974, who initially, on January 16, 1974, had opted for Basis A had sought a change to Basis B by their application dated October 4, 1977. On February 2, 1978, government refused to permit the change. Sri 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 constitutionality leaving the questions of construction of the provisions to the appropriate authorities. However, having regard to the chequered history of the proceedings, it appears to us that Sri Salves submission deserves to be accepted. Accordingly the order of the government dated February 2, 1978 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 October 4, 1977 afresh within two months from today. We make it clear that the government shall not unreasonably withhold the permission for the change