Case: Upper Ganges Valley Electricity Supply Company Ltd Vs. U.P. Electricity Board

1. On February 5, 1929 the Governor-in-Council of the then Government of the United Provinces granted to Messrs Martin and Company a licence under Section 3 ofthe Indian Electricity Act, 1910 for supply of electric energy within the Districts of Bijnor and Moradabad. Messrs. Martin and Company, who were Managing Agents of the appellant Company, assigned that licence to it. By a notice dated January 31, 1957 the Government of Uttar Pradesh exercised its option to purchase the Undertaking of the appellant on the expiry of two years from the date of the notice. This period was on appellants request, extended till May 4, 1959. The respondent - Uttar Pradesh State Electricity Board - was constituted on April 1, 1959 and under Section 71 ofthe Electricity (Supply) Act, 1948, the option of the Government of Uttar Pradesh to purchase electrical undertakings stood transferred to the respondent.        2. By a letter dated May 1, 1959 respondent informed the appellant that it had decided to purchase the Undertaking on payment of a sum of Rupees 25,38,407/-, being the fair market value of all its assets, inclusive of solatium. On May 4, 1959 respondent made a provisional payment of Rupees 15 lakhs to the appellant which, the latter accepted under protest. The Undertaking was eventually taken over by the respondent on May 4/5, 1959.        3. Being unable to agree on the true market value of the Undertaking, parties referred their differences to two arbitrators. Out of the several contentions raised before the arbitrators, we are concerned with one only: whether, in the computation of the market value of its Undertaking, the appellant was entitled to compensation for the "service lines" which were laid with the help of the contributions made by consumers. On this question, arbitrators were unable to agree and therefore they referred it to the decision of an umpire, Shri Randhir Singh.        4. Out of the eight issues framed by the umpire, issues 1 (a), 1 (b), 7 and 8 only are relevant. These issues read thus :Issues No. 1 (a) : Is the Board entitled to a get a credit for the amount of consumers contribution paid for the service lines, laid on their premises and at their cost ?        Issue No. 1 (b) : What is the amount of the Consumers contribution for the period 1st of April, 1958 to 4/5 May, 1959 ?        Issue No. 7 : Has any excess payment been made by the Board to the Company ? If so are the Board entitled to a refund, and interest thereon ? What should be the rate of interest if any ?        Issue No. 8 : What was the fair market value of the Undertaking on the midnight of 4/5 May 1959 ?5. On these issues, the Umpire found thus :Issue No. 1 (a) : "The Company is not entitled to claim from the Board the value of the portion of the service lines which were laid at the cost of the consumers."        Issue 1 (b) : "The Consumers contribution from 1-4-58 to 31st of March, 1959 is Rupees 2,38,255/-. The amount of the contribution from 1-4-59 to 4/5 May, 1959 has not been proved ."6. On Issue No. 8, the Umpire found that on the date of purchase, the fair market value of the assets of the undertaking was Rs. 23,81,670/-. As the appellant had already received a sum of Rupees 15 lakhs from the respondent and as the respondent was entitled to a refund of Rupees 9,80,238/- on account of security deposits held by the appellant, the Umpire came to the conclusion by his award dated November 27, 1961 that the appellant had received Rupees 98,568/- in excess of the amount of the fair market value. On Issue No. 7, the Umpire accordingly held that the respondent had made an excess payment of the aforesaid amount to the appellant which the latter was liable to refund with future interest as awarded.        7. The appellant, by an application under Section 30 ofthe Arbitration Act, 1940 challenged the validity of the award in the Court of the Civil Judge, Moradabad on the ground that the Umpire had legally misconducted himself in not awarding compensation for the service lines. The learned Judge upheld a part of the award, to the extent to which the market value of the Undertaking was fixed at Rupees 23,81,670/- but he set aside the rest of it. Obviously, he misunderstood the appellants contention in regard to its right to receive compensation for the service lines. He mixed up that claim with the claim in regard to security deposits and overlooked considering the main question whether the appellant was entitled to compensation for the service lines.        8. The appellant filed an appeal in the High Court of Allahabad against that judgment while the respondent filed its cross-objections. By a judgment dated April 15, 1966 the High Court held that the Umpire was justified in refusing to award compensation to the appellant for the service lines. The appeal as well as the cross-objections were dismissed by the High Court. This appeal by special leave is directed against that judgment.

Court's reasoning:
22. The reason for this error may easily be this : Under Section 7 of the Act to which we have called attention, the licensee was entitled to the "payment of the value of all lands, buildings, works" etc. This section, along with certain others, was amended by the Electricity (Amendment) Act, 32 of 1959, which came into force on September 5, 1959. By this amendment, a new Section 7A was inserted in the Act in order to provide for the "Determination of purchases price". Under the relevant part of sub-section (2) of that section, the market value of an undertaking is to be the value of all lands, buildings, works etc. other than "service lines ..............which have been constructed at the expense of consumers". The appellants undertaking having been acquired on 4/5 May 1959, the provisions of old Section 7 and not of the newly added Section 7A would govern his rights. The Umpire made his award on November 27, 1961 relying, probably, on Section 7A which had no application23. Learned counsel for the respondent is right that even a mistake of law cannot vitiate the award unless the mistake is apparent on the face of the award. But here, the Umpire framed specific issues for decision, the first of these being : whether the respondent was "entitled to get a credit for the amount of consumers contribution paid for the service lines, laid on their premises and at their cost". The finding of the Umpire on this issue was that "The company is not entitled to claim from the Board the value of the portion of the service lines which were laid at the cost of the consumers." The calculations made by the Umpire in the award for ascertaining the true market value of the appellants undertaking show that the "value of the portion of services installed at the cost of the consumers" was expressly excluded from the total market value of the assets of the undertaking. It seems beyond the pale of controversy that the Umpire did not award compensation to the appellant in respect of the service lines for the sole reason that they were laid at the cost of the consumers. Some market-value the service-lines must have had, even if it be no more than the scrap value. But to the way of thinking which the Umpire adopted, that consideration had no relevance. The service-lines were paid for by the consumers and that, for the Umpire, was the end of the matters. That, patently, was the wrong end24. Respondent drew our attention to the decision in Durga Prosad Chamria v. Sewkishendas Bhattar, AIR 1949 PC 334   in which it was held that if a question of law is specifically referred to an arbitrator for his decision it would be contrary to well-established principles for a Court of law to interfere with the award, even if the Court itself would have take a different view of the point of law, had it been before it. This decision can have no application because the parties here did not refer any specific question of law for the decision of the arbitrators. The reference to arbitrators was on the broad question as to what was the fair market-value of the appellants undertaking. Being unable to agree on this question, the two arbitrators referred the matter to an Umpire. The Umpire raised a question of law and decided it. Parties had invited none to decide a specific question of law25. We are not disposed to hold as contended by the respondent, that if a part of the award be found to be invalid, the entire award should be set aside and remitted back for a fresh decision. The error which has occurred in the award of the Umpire relates to a matter which is distinct and separate from the rest of the award. The part which is invalid being severable from that which is valid, there is no justification for setting aside the entire award26. Normally, we would have remitted the award for a decision in the light of our judgment but that is likely to involve undue delay and expense in a dispute which is pending since 1959. Learned counsel for the appellant was agreeable that we should ourselves amend the award. Learned counsel for the respondent demurred but he was unable to indicate any cogent reason why we should not adopt a course which, far from causing any prejudice to the parties, was clearly in the interests of justice27. The Umpire has held that on the date of sale, the fair market value of the appellants undertaking was Rupees 23,81,670/-. He arrived at this figure after excluding from the total market value, the sum of Rupees 2,38,255/- which represented the consumers contributions to the cost of laying the service lines. These contributions, according to him, were made from April 1, 1958 to March 31, 1959. The date of sale being 4/5 May, 1959 the consumers contribution will roughly represent the market value of the service lines even if as required by the first proviso to Section 7 (1) of the Act as it then stood, due regard is to be had to the nature and condition for the time being of the "works", to the state of repair thereof, to the circumstance that they are in such a position as to be ready for immediate working and to the suitability of the same for the purposes of the undertaking.