Case: Union Of India Vs. The Metal Corporation Of India Ltd. &amp; Anr

2. The relevant facts lie in a small compass. The 1st respondent, The Metal Corporation of India Limited, hereinafter called the Corporation, was a limited company constituted under the Indian Companies Act, having for its objects, inter alia, the development of zinc and lead mines at Zawar in the State of Rajasthan and the construction of a zinc smelter and other connected works for producing electrolytic zinc and by-products. The Government was satisfied that it was necessary to acquire the said Corporation in public interest and on October 22, 1965, the President of India promulgated an Ordinance (No. 6 of 1965) providing for the acquisition of the Corporation by the Central Government. Pursuant to the said Ordinance, on or about October 23, 1965, the Central Government took over the possession, control and administration of the said Corporation. The Corporation, the 1st respondent and its Managing Director, the 2nd respondent filed a Writ Petition under Art. 226 of the Constitution in the High Court of Judicature for the State of Punjab, Circuit Bench at New Delhi, being Petition No. 631-D of 1965, challenging the validity of the said Ordinance. In the meantime, the Parliament passed the Act on the same terms as contained in Ordinance No. 6 of 1965: it received the assent of the President of India on December 12, 1965. The respondent filed another writ petition in the said High Court, being Writ Petition No. 832-D of 1965, for a declaration that the Act was ultra vires the Constitution. The said High Court held that the Ordinance and the Act contravened the relevant provisions of Art. 31 of the Constitution and. therefore, were constitutionally void. The present appeal is preferred against the said judgment of the High Court.

Court's reasoning:
9. The relevant aspect of the legal position evolved by the said decisions may be stated thus: Under Art. 31 (2) of the Constitution, no property shall be compulsorily acquired except under a law which provides for compensation for the property acquired and either fixes the amount of compensation or specifies the principles on which and the manner in which compensation is to be determined and given. The second limb of the provision says that no such law shall be called in question in any court on the ground that the compensation provided by the law is not adequate. If the two concepts, namely, "compensation" and the jurisdiction of the court are kept apart, the meaning of the provisions is clear. The law to Justify itself has to provide for the payment of a "just equivalent" to the land acquired or lay down principles which will lead to that result. If the principles laid down are relevant to the fixation of compensation and are not arbitrary, the adequacy of the resultant product cannot be questioned in a court of law. The validity of the principles, judged by the above tests, falls within the judicial scrutiny, and if they stand the tests, the adequacy of the product falls outside its jurisdiction. Judged by the said tests, it is manifest that the two principles laid down in Cl. (b) of para II of the Schedule to the Act, namely, (i) compensation equated to the cost price in the case of unused machinery in good condition, and (ii) written-down value as understood in the Income-tax law is the value of used machinery, are irrelevant to the fixation of the value of the said machinery as on the date of acquisition. It follows that the impugned Act has not provided for "compensation" within the meaning of Art. 31 (2) of the Constitution and therefore, it is void.10. The mere fact that in regard to some parts of the undertaking the principles provide for compensation does not affect the real question, for, machinery is the major part of the undertaking and, as the entire undertaking is acquired as a unit, the constitutional invalidity of Cl. (b) of para II of Schedule to the Act affects the totality of the compensation payable to the entire undertaking. In the context of compensation for the entire undertaking, the clauses of para II of the Schedule to the Act are not severable. In the result, the Act, not having provided for compensation, is unconstitutional and the conclusion arrived at by the High Court isgist of the said provisions may be given thus. The Act was made to acquire in public interest the undertaking of the Corporation. On the commencement of the Act, the undertaking was transferred and vested in the Central Government. Under S. 10 of the Act, the Government shall pay compensation to the undertaking as a whole but, in the absence of an agreement between the Government and the Corporation. The compensation, payable to the Corporation has to be ascertained. under the principles specified in the Schedule in respect of several in matters referred to therein. Paragraph l of the Schedule lays down the manner in which the compensation, is to be paid to the Corporation for the acquisition of the undertaking is to be ascertained. The said compensation shall be an amount equa1 to the sum total of the value of the properties and assets of the Corporation on the date of the commencement of the Act calculated in accordance with the provisions of paragraph II less the liabilities on the said date calculated in accordance with the provisions of paragraph III of the Schedule. Broadly. the said paragraph lays down the principles for ascertaining the value of lands, buildings machinery and equipment, amounts clue to the undertaking and other tangible assets and properties. The different clauses of the paragraph adopt different principles for valuation. But what is important for the present purpose is the principle embodied in Cl. (b) of para II. It is in two parts: the first provides for the valuation of plant machinery or other equipment which has not been worked or used and is in good condition and the second provides for the valuation of any other plant, machinery or equipment. The former has to be valued at the actual cost incurred by the Corporation in acquiring the same and the latter at thevalue determined in accordance with the provisions of the Indian7. We find it difficult to appreciate the arguments of the learned Solicitor General. It is true that under S. 10 of the Act the Central Government shall pay compensation for the acquisition of the undertaking to the Corporation and the said compensation arrived at in the manner prescribed in the Schedule to the Act shall be deemed to be a single compensation to be given to the undertaking as a whole. But it will be noticed that though a single compensation for the undertaking is given the said compensation shall be determined in accordance with the principles specified in the Schedule. Under the Schedule, the compensation for the entire undertaking shall be the amount equal to the sum total of the value of the properties and assets of the Corporation calculated in accordance with the provisions of para II of the Schedule. Under the said para II, different principles are laid down for ascertaining the value of different parts of the undertaking. If all the said principles laid down in para II of the Schedule do not provide for the just equivalent of all the parts of the undertaking mentioned therein, the sum total also cannot obviously be a just equivalent of the undertaking. So too, if some of them do not provide for a just equivalent and others do so, the sum total cannot equally be a just equivalent to the undertaking. In the case of the undertaking in question, the machinery is the most valuable part of the undertaking. Apropos the unused machinery in good condition, how can the price for which the said machinery was purchased years ago possibly represent its price at the time of its acquisition? A simple illustration will disclose the irrelevance of the principle. Suppose in 1950 a machinery was purchased for Rs. 100/and, for some reasons, the same has not been used in the working of the undertaking but has been, maintained in good condition. That machinery has become obsolescent and still can be used effectively. If purchased in open market it will cost the owner Rs.A compensation of Rs. l00/for that machinery cannot be said to be a just equivalent of it.It is common knowledge that there has been an upward spiral in prices of the machinery in recent years. The cost price of machinery purchased about ten years ago is a consideration not relevant for fixing compensation for its acquisition in l965. The principle must be such as to enable the ascertainment of its price at or about the time of its acquisition. Nor the doctrine ofvalue accepted in thelaw can afford any guide for ascertaining the compensation for the used machinery acquired under the Act. Under the general scheme of theAct, the income is to be charged regardless of the diminution in the value of the capital. But the rigour of this hard principle is mitigated by the Act granting allowances in respect of depreciation in the value of certain assets such as machinery buildings, plant, furniture etc. These allowances are worked out on a notional basis for giving relief to theassessee. This artificial rule of depreciation evolved forpurposes has no relation to the value of the said assets. To illustrate: a machinery was purchased in the year 1950 for Rs.The aggregate of all the depreciation allowances made year after year for ten years may exhaust the sum of Rs 1,000 /with the result, after the tenth year, the assessee will not be entitled to any depreciation. From this it cannot be said that after the tenth year the machinery has no value. Indeed, a machinery purchased for Rs. l, 000/in 1950, because of subsequent rise in prices, may be sold in 1965 for Rs.But the application of the principle laid down in Cl. (b) of para II of the Schedule to the Act in regard to used machinery gives the owner no compensation at all. Yet, the Government takes the machinery worth Rs. 10,000/gratis. This illustration exposes the extreme arbitrariness of the principle. It is, therefore, manifest that the two principles of valuation embodied in Cl. (b) of para II of the Schedule to the Act are not relevant to the fixing of compensation for the machinery at the time of its acquisition under the Act. Theargument of the learned Additional Solicitor General that the working out of all the principles in respect of different parts of the undertaking would result in a product which would fairly represent, in the context of public acquisitions, the "just equivalent" to the undertaking acquired is purely based on a surmise for, it is not shown that the working out of any one or more of the principles would give a higher compensation to some parts of the undertaking that the excess paid under one head would offset the deficiency under another head. Nor can the doctrine of inherent worth of a machinery has any relevance in the matter of giving compensation for its acquisition at a particular point of time for the simple reason that the worth of an article depends upon the market conditions obtaining at the time of its acquisition.It is impossible to predicate, irrespective of such conditions, that a particular machinery has a fixed value for all times.8. Four decisions of this Court laid down the principles applicable to the present case. Indeed, but for the said decisions, we would have posted this case before a Constitution Bench of five Judges. But, as this appeal involves only the application of the construction put upon Art. 31 of the Constitution by this Court in the said decisions, we did not resort to that course. The first of them is State of West Bengal v. Mrs. Bela Banerjee, 1954 SCR 558     at p. 564: (AIR 1954 SC 170   at p 173). There, the validity of the West Bengal Land Development and Planning Act. 1948 was under scrutiny. Section 8 thereof provided that compensation to be awarded for compulsory acquisition to owners of land was not to exceed the market value as on December 31, 1946. This Court held that the said Act was ultra vires the Constitution and void under Art. 31 (2) thereof. In that context, Patanjali Sastri, C. J.,now to the provisions relating to compensation under the impugned Act, it will be seen that the latter part of the proviso to S. 8 limits the amount of compensation so as not to exceed the market value of the land on December 31, 1946, no matter when the land is acquired. Considering that the impugned Act is a permanent enactment and lands may be acquired under it many years after it came into force, the fixing of the market value on December 31, 1946, as the ceiling on compensation, without reference to the value of the land at the time of the acquisition is arbitrary and cannot be regarded as due compliance in letter and spirit with the requirement of article 31above decision was followed by this Court in State of Madras v. D. Namasivaya Mudaliar, (1964) 6 SCR 936     at p. 945: (AIR 1965 SC 190   at p. 194). There the respondents were owners of certain lands which were to be compulsorily acquired under Madras Lignite (Acquisition of Land) Act, 1958. The Act came into force on August 20 1958, before Art. 31 of the Constitution was amended by the Constitution (Fourth Amendment) Act, 1955. By the said Act compensation for the acquisition oflands under the Land Acquisition Act was to be assessed on the market value of the land prevailing on August 28, 1947 and not on the date on which the notification was issued under S. 4 (1) of the Land Acquisition Act. It also provided that in awarding compensation, the value ofimprovements commenced since April 28, 1947, would not be taken into consideration. This Court held that the said Act was bad, because it contravened Art. 31 (2) of the Constitution, as it stood before the Constitution (Fourth Amendment) Act, 1955. This Court, speaking through Shah, J.,that in appropriate cases, fixation of a date anterior to the publication of the notification under S. 4 (1) for ascertainment of market value of the land to be acquired, may not always be regarded as a violation of the constitutional guarantee, in the absence of evidence that compensation assessed on the basis of market value on such anterior date, awards to the expropriated owner a just monetary value of his property at the date on which his interest is extinguished, the provisions of the Act arbitrarily fixing compensation based on the market value at a date many years before the notification under S. 4 (1) was issued, cannot be regarded asthe learned Judge proceeded todeny to the owner of the land compensation at rates which justly indemnify him for his loss by awarding him compensation at rates prevailing ten years before the date on which the notification under S. 4 (1) was issued amounts in the circumstances to a flagrant infringement of the fundamental right of the owner of the land under Art. 31 (2) as it stood when the Act was enacted." These two decisions turned upon the construction of Art. 31 (2) of the Constitution before the Constitution (Fourth Amendment) Act, 1955. These cases laid down two propositions: (1) "Compensation" under Art. 31 (2) of the Constitution means a "just equivalent" of what the owner has been deprived: and (2) the value of land at an anterior date is presumed to be no compensation within the meaning of the said Article. After the Constitution (Fourth Amendment) Act, 1955, this Court had to construe in two decisions the amended provision of Art. 31 (2)the expression "compensation" found therein. The first decision is that in (1965) 1 SCR 614  : (AIR 1965 SC 1017  ). There, this Court observed at pp.(of SCR): (at p. 1023 of AIR):"A scrutiny of the amended Article discloses that it acceptedthe meaning of the expressions "compensation" and "principles" as defined by this Court in Mrs. Bela Banerjees case 1954 SCR 558 (AIR 1954 SCit held that, if the compensation is illusory or if the principles prescribed are irrelevant to the value of the property at or about the time of its acquisition, it can be said that the Legislature committed a fraud on power and, therefore, the law is bad. One of the illustrations given at p. 627 (of SCR): (at p. 1024 of AIR) is relevant to the present enquiry and that is as. if a law lays down principles which are not relevant to the property acquired or to the value of the property at or about the time it is acquired, it may be said that they are not principles contemplated by Art. 31 (2) of the Constitution If a law says ....that though it (house) is acquired in 1950 its value in 1930 should be given .......... the principles do not pertain to the domain of adequacy but are principles unconnected to the value of the propertythese principles, this Court in Jeejeebhoy v. Assistant Collector, (1965) 1 SCR 636  : (AIR 1965 SC 1096  ) held that the fixation of an anterior date for the ascertainment of the value of the property acquired without reference to any relevant considerations which necessitated in fixing of an earlier date for the purpose of ascertaining the real value is arbitrary. On that ground this Court held that the Land Acquisition (Bombay Amendment) Act, 1948, did not provide for payment of just equivalent of what the owner was deprived, as it provided for the trans ascertainment of compensation on the basis of the value of lands acquired as on January 1, 1948 and not as on the date on which S. 4 notification under, the 1894 Act was issued.