Case: Oriental Gas Co. Ltd. &amp; Ors Vs. State Of West Bengal

The appellant, the oriental Gas Company Ltd. was originally constituted in England by a deed of settlement in April 1853, as the oriental Gas Company for the purpose of manufacture, supply distribution and sale of fuel gas in Calcutta. It was later incorporated in accordance with the provisions of the English Joint Stock Companies Act, 1862. By a subsequent arrangement the control and management of the Company passed from British into Indian hands. Over the course of the years the Company acquired extensive properties and became the owner of large plants. machinery, buildings, lands pipelines, stores etc. the total market value of the appellants industrial undertaking was estimated by the appellant as on 22nd March, 1962, at Rs. 7, 00, 00, 000/-. In 1958, the Government of West Bengal, being of the view that the Company which enjoyed a monopoly in the supply of Gas in Calcutta was negligent in looking after the interest of the consumers, appointed a Committee to inquire into the unsatisfactory condition of supply of gas in Calcutta and to suggest remedial measures including valuation of the undertaking for the purpose of taking over the gas supply undertaking. The Member of the Committee were: the Chief Secretary, the Sheriff of Calcutta, the Secretary, Commerce and Industries Department, the Administrator, Durgapur Project and the Director, Central Fuel Research Institute. The Committee was assisted by several experts. The Committee re-F ported that the present Gas Works in Calcutta including the distributing system was in a bad state of disrepair and a very poor state of maintenance. The Committee recommended that the Gas Works and the distribution system should be taken over immediately under the management of the State Govt. in order to ensure and maintain the supply of gas to the consumers in Calcutta. After the report of the Committee was received by the Government of West Ben gal, the West Bengal Legislature enacted the oriental Gas Company Act (West Bengal Act XV of 1960) providing for the taking over for a limited period, of the management and control and the subsequent acquisition of the undertaking of the oriental Gas Co. Ltd. The undertaking of the Company was defined to mean the properties of the company, movable or immovable other than cash balances and reserve funds but including works, workshops, plants, machineries, furniture, equipments and stores, and lands appertaining thereto, actually in use immediately before the commencement of this Act, or intended to be used, in connection with the production of gas or supply thereof in Calcutta and its environs;. Section 3 of the Act provided for the taking over of the management and control of the undertaking of the Company for a period of five years from the date specified in a notification to be issued. Section 7 provided for the acquisition of the undertaking of the Company at any time within the period of the said five years. Section 8(])(a) provided for the payment of annual compensation during the period of the take over of the management and control of the undertaking of the Company. Section 8(1)(b) provided for the compensation payable for the acquisition of the undertaking of the Company.

Court's reasoning:
In fact the very argument of Shri Sen that the principle of capitalisation of net profit as a sole factor to determine compensation is not relevant, appears to us to imply that it is a relevant, principle alongwith others. CAlfred Johr in his Eminent Domain Valuation and Procedure, states in Section 66: At the outset, we must bear in mind that when private property is acquired for public use under the power of eminent domain, just compensation must be paid to the owner. How is the just compensation determined ? That is the problem which we will discuss at some length. Dealing particularly with the question of valuation of Public Utilities, the author mentions the reasons why the principles of valuation in the case of acquisition of Public Utilities are sometimes different from those pertaining to the usual acquisitions. Then he proceeds to say that in estimating a just compensation of Utility property consideration must be given to two types of properties, the tangible properties and the intangible properties. Tangible property such as land may be valued at the market value while property like plant etc. may have to be valued on the basis of original cost, cost of permutation, allowance for depreciation etc. In the case of intangible property the author states that the Courts do not indicate the method used in reaching the intangible item of going concern value . and confesses that there probably is none . After remarking that valuation of a going concern based on capitalisation of net earnings assumes too many contingencies, the author refers to the case of Appleton Water Co. v. Railroad Commission [154 Wis. 121, 148, 142, N.W. 476, 47 L.R.A . (N.S.) 770], where the Court said that the fundamental difficulty with an attempt to set a definite sum as representing going concern value is that it is an attempt to divide a thing which is in its nature practically indivisible. The value of t he plant and business is an indivisible gross amountIt is thus clear from the very authorities cited by Shri Sen. that tangible and intangible property of a public utility undertaking, may not necessarily be valued separately and it is a sound principle to treat them as indivisible and value the undertaking as an integrated whole. The authorities also treat the capitalisation of net profit as one of the recognised principles of valuation of Public Utility Undertaking, though it may not be the best in the sense that it may not yield that result which is most advantageous t o the owner of the undertaking. But we are not concerned with the question which principle will yield the result most advantageous to the owner of the undertaking but with the question whether the particular principle is a relevant principle at all. In the language used in American Jurisprudence the principle of capitalisation of net income is unquestionably relevant even in the case of Public Utility Undertakings. In our view, it requires no authority to say that capitalisation of net income is a sound principle of valuation. Any purchaser will immediately put himself the question what profit does the undertaking make and how much should I invest to get the return ? He may pay more if the prospects of better income in the future are bright and if the plant, machinery and buildings are in excellent condition. He may pay less if the future is not so bright and if the plant, machinery and buildings are in a poor state and require immediate replacement and repair. He m ay pay more ll if the undertaking is possessed of substantial, unencumbered properties. He may pay less if the lease of the land on which the factory is located is about to expire. Thus the price may vary depending - on various factor s but the basic consideration is bound to be the profit yielding capacity of the undertaking. Shri Sen asserted that the lands belonging to the company which were purchased by way of investment, can fetch a price of Rupees six to seven crores. There is nothing in the petition to indicate that any lands were purchased by way of investments and not for the purpose of gas works or that the lands are capable of being sold independently of the undertaking. Perhaps, no one will come forward to purchase land next to a gas works. Perhaps there are other factors which make the land unsale able or which depreciate the value of the land. We do not know. Suffice it to say that the assertion of Shri Sen is not borne out by any st atement to that effect in the Writ Petition. Shri Sell suggested that the petitioner might be given an opportunity to amend the Writ Petition. We do not think we can do that. The acquisition was made in 1962. The impugned Act was passed in 1970. T he Writ Petition was filed in 1971 and has been pending in this Court for sever years. If there was any substance in the present assertion, the petitioner would surely have mentioned it prominently in the Writ Petition. It would not have taken the petitioner so many years to discover a circumstance claimed by his Counsel to be so very vital. We do not think we will be justified in permitting any amendment at this stage. The case of the petitioner right through has been that the principle of capitalisation of income was irrelevant. With that submission we emphatically do not agree.Shri Sens next submission was that the choice of the period of five years immediately preceding the take over of the management and control of the Company for the purpose of calculating the average annual income was arbitrary as those five years were particularly lean years for the Company because of some special circumstances. The charge of arbitrariness is baseless. The fiv e years immediately preceding the take over of the control and management of the Company were the years 1955-56, 1956-57, 1957-58, 1958-59 and 1959-60 during which years the profits according to the balance sheets of the Company, were Rs. 15, 86, 789, Rs. 13, 81, 177, Rs. 7, 50, 582, Rs. 1, 64, 158 and Rs. 1, 82, 123/- respectively. Now, if the Legislature wanted to be unfair to the Company, the last years profit could have been taken as the criterion on the ground that the value to be ascertained wa s the value on the date of take over and not some hypothetical anterior date. Or, instead of taking the advantage of the period of the preceding five years, the Legislature could well have taken the average of the preceding three years. If that. We should not however be understood as having decided that A Section 9 (2) offends Article 31 (2) of the Constitution. Shri Chatterjee, learned Counsel for the State of West Bengal, argued that the earlier decision of the Calcutta High Court in the petition under Article 226 of the Constitution operated as res judicata.In the view that we have taken on the main question it is unnecessary to consider this argument except to say that there does not appear to be any substance in it.