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PETITIONER: BIHAR STATE ELECTRICITY BOARD

       Vs.

RESPONDENT: THE PATNA ELECTRIC SUPPLY CO.  LTD.  & ORS.  INTERVENER

DATE OF JUDGMENT:       12/05/2000

BENCH: S.N.Variava, Y.K.Sabharwal, S.S.Ahmad

JUDGMENT:

L.....I.........T.......T.......T.......T.......T.......T..J       J U D G M E NT

     S.  N.  Variava, J.

     1.   This  Civil Appeal is against the Judgment  dated 22nd  July,  1981  delivered  by a  Division  Bench  of  the Calcutta  High Court (since reported in AIR (1982)  Calcutta p.74).   By  this Judgment the Division Bench dismissed  the Appeal  filed  by  the  Appellant against a  Judgment  of  a learned single Judge of the Calcutta High Court which upheld the  challenge  of the 1st Respondent to Ordinances and  the Amendment Act set out hereinafter.

     2.   Briefly stated the facts are as follows:  On  6th February  1924  the Government of Bihar granted to  one  M/s Octavices  Steel  &  Co.   Ltd.  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 50 years.  The 50 years period would thus end  on 5th  February,  1974.   On 5th January  1973  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 Appellant called  upon  the  1st Respondent  to sell the undertaking to the Appellant on  the expiry  of  the period of 50 years from the commencement  of the  licence,  i.e., at 12 O’clock in the night between  the 5th and 6th February, 1974.

     3.   Respondent  No.  5 is an Electric  Company  whose undertaking  is  also purchased.  They were added  by  Order dated 31.3.1992.  In their case the facts are that they were granted a licence for 50 years on 17th September, 1914.  The Notice  to  take over was given on 9th August, 1963 and  the undertaking was taken over on 17th September, 1964.

     4.   On  2nd February 1974, Indian Electricity  (Bihar Amendment)  Ordinance  No.   50 of 1974  was  passed.   This Ordinance   amended  certain  provisions   of   the   Indian Electricity  Act.  This Ordinance was followed by two  other Ordinances being Ordinance No.  83 of 1974 and Ordinance No. 123  of  1974.   Thereafter, the Indian  Electricity  (Bihar Amendment)  Act,  1974  (Act No.  15 of  1975)  was  passed. These  Ordinances  and  the   Act,  amended  amongst  others Sections 6 and 7-A of the Indian Electricity Act.

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     5.   At  this  stage it is necessary to see  what  the unamended  Sections  6 and 7-A provided for.  They  read  as@@            JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ follows:@@ JJJJJJJJ

     "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

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determination and payment of the purchase price.

     (7)  Where  an  undertaking is  purchased  under  this section,  the  purchaser  shall  pay  to  the  licensee  the purchase  price determined in accordance with the provisions of sub-section (4) of Section 7-A."

     6.   Thus,  under Section 6(1) a notice in writing  of not  less  than  one year was to be given and  the  purchase price was to be determined in accordance with the provisions of sub-section (4) of Section 7-A.

     7.   Section  7-A,  as it originally  stood,  read  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."

     8.  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

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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:    Provided  that  where  the undertaking  is  sold  or delivered to a  State  Electricity Board  or  the State Government, the licence shall cease  to have further operation."

     9.   The  change brought about by the above  mentioned Ordinances  and  the  Act  was that instead  of  one  year’s notice,  it  was provided that the notice should not  of  be less  than  6  months.  In 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 of  the  book  value. Section  7-A (3) now provided for the payment of a  solatium of 10 per cent of the book value.

     10.   It  must be mentioned that the  above  mentioned Ordinances  and  Amendment  Act were part of the  policy  of nationalisation of electric companies by the Union of India. Similar  amendments  were  made by  many  States.   Electric companies,  all over India, were sought to be so  purchased. Like   the  1st  Respondent,  a  number  of  other  Electric Companies  challenged  the  constitutional validity  of  the amending  Act/Ordinance.  The challenge was, inter alia,  on the  ground  that  the  rights under  Article  19(1)(f)  and Article 31(2) were being violated.  It was also claimed that the  Amending  Act/Ordinance  was  invalid   as  it  had  no reasonable  or direct nexus to the principles under  Article 39(b)  of  the Constitution.  It was also claimed  that,  in effect and substance, the law was not one for acquisition of electrical  undertakings  but was one to acquire a chose  in action  and  to extinguish rights, which had accrued in  the Electric  Companies,  to  get  the  market  price.   It  was contended  that the right to get compensation accrued on the day  the  notice was given.  It was contended that what  was being  acquired was the difference between the market  price which  the  State was obliged to pay and the book  value  to which  the  liability was now sought to be limited.  It  was claimed that as the Act was merely a clock which the law was made to wear to undo the obligations arising out of intended statutory rule Article 31(c) was not attracted.  It was also claimed  that in any case, every provision of a statute  was not  entitled to protection of Article 31(c) but only  those which  are necessary for giving effect to the principles  in Article  39(b) and accordingly the provision in the impugned law  in  relation to the determination of the amount do  not attract  Article  31(c).  In all the matters it was  claimed that the purchase price should be the market value.

     11.  A Constitution Bench of this Court in the case of Tinsukhia  Electric  Supply Co.  Ltd.  v.  State  of  Assam,@@ JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ

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reported  in  (1989) 3 SCC 709, upheld the validity  of  the Act/Ordinance.   This Court held that the Act had nexus with the  principles in Article 39(b) and was therefore protected by  Article 31(c).  It was held that the Act was not a piece of colourable legislation.  It was held that electric energy generated  and  distributed  was a "material source  of  the community" for the purpose and within the meaning of Article 39(b).  It was held that the idea of distribution of natural resources  in  Article 39(b) envisages nationalisation.   It was  held  that  on  an examination of  the  scheme  of  the impugned  law  the  inescapable   conclusion  was  that  the legislature  measure  was  one  of  nationalisation  of  the undertaking  and  this law was eligible for and entitled  to protection  of  Article 31(c).  It was held that it was  not possible  to divorce the economic consideration or component from the scheme of nationalisation with which the former are inextricably  integrated.   It was held that  the  financial costs  of  a  scheme lies at its very heart  and  cannot  be isolated.   It was held that with the provisions relating to vestiture  of  the  undertaking  in   the  State  and  those pertaining  to the quantification of the amount are integral and   unseparable   parts   of   the  integral   scheme   of nationalisation  and  do  not admit of being  considered  as distinct  provisions independent of each other.  It was held that   the  provisions  for  payment   of  amount   to   the undertaking,  by  reducing the market value to  book  value, formed  an  integral part of the nationalisation scheme  and that  economic  consideration for natuionalisation  was  not justiciable.   It was held that what was being acquired  was the  material  resources of the community.   The  contention that  immediately  upon giving of the notice the rights  got crystallised  was negatived.  It was held that the  exercise of  the  option did not affect licensee’s right to carry  on business.   It was held that the licensee’s rights would  be affected  only when the undertaking was actually taken over. Similar  view  was taken in the cases of  Maharashtra  State Electricity  Board  v.  Thana Electric Supply Co.   &  Ors., reported  in  (1989)  3  SCC   616,  and  Vellore   Electric Corporation  Ltd.   v.   State of Tamil  Nadu,  reported  in (1989) 4 SCC 138.

     12.   It  must  be  mentioned that in  all  the  above mentioned cases the undertakings were taken over, i.e.  they vested in the Government either prior to or on the same date as  the Ordinance.  As seen from facts set out above in  the case  of  the 1st Respondent the Ordinance is prior  to  the undertaking being taken over.  Thus the principles laid down in  above  mentioned  case would apply to  this  case  also. However,  in case of the 5th Respondent the undertaking  was taken over on 17th September, 1964, whereas the Ordinance is in February 1975.

     13.   Mr.   S.   K.  Jain however submitted  that  the principles  laid down in the above Judgments do not apply to this  case.   Mr.   Jain  submitted that in  all  the  above mentioned  decisions the Ordinances/Amending Act were either prior  to  or  on  the  same day  as  the  takeover  of  the undertaking.  He submitted that in this case the takeover is much  earlier  to the Amending Act.  He submitted  that  the Ordinances,  i.e.  Ordinance No.  15 of 1974 and 123 of 1974 did  not  apply and, therefore, the takeover was  not  under those  Ordinances.   Mr.   Jain took the Court  through  the provisions  of  the aforementioned Ordinances and  submitted that  the  provisions  of these  Ordinances  are  completely different  from  those  of the Ordinances/Act in  the  cases

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decided  by  the Court.  He submitted that the takeover  was under  the unamended Sections 6 and 7-A.  He submitted  that on February 6, 1974, as the takeover was under the unamended Sections  6  and 7-A of the Indian Electricity Act, the  1st Respondent  became  entitled  to receive market  value.   In support  of  his submission he took this Court  through  the Ordinance  No.   50 of 1974 and Ordinance No.  123 of  1974. He  submitted that amended Section 6 in Ordinance No.  50 of 1974  provided  that a notice in writing of not less than  6 months  was  to be given.  He submitted that in this case  a notice  of  one year had been given on January 5, 1973.   He submitted  that it was thus clear that this notice was under unamended  Section 6.  He submitted that after the Ordinance no  fresh  notice  had been given.  He  submitted  that  the acquisition  was under the unamended Sections 6 and 7-A  and by  the  Amending  Act  15  of   1975  there  could  be   no retrospective amendment taking away vested rights.

     14.   We  see no substance in these  submissions.   As mentioned  above the undertaking was taken over on  February 6, 1974.  On that day unamended Section 6 no longer stood on the  Statute  book.  It has been replaced by new  Section  6 which  was  incorporated  by  Ordinance  No.   50  of  1974. Undoubtedly  Ordinance No.  50 of 1974 provides for a notice of  not less than 6 months.  It was not necessary to give  a fresh notice.  The 1st Respondent had been given a notice of one  year  on 5th January 1973.  A notice of one year  is  a notice  of not less than 6 months.  Therefore, the  takeover was  under  the amended Sections.  On the date  of  takeover what  was  payable  was  book value and  not  market  value. Therefore,  the  principles laid down in  Tinsukhia’s  case, Thana  Electric  Supply Company’s case and Vellore  Electric Corporation’s case would apply.

     15.   Mr.   Jain next submitted that in this case  the vesting  took place on 5th/6th February, 1974.  He submitted that there was no provision for vesting in the Amendment Act 7  of  1976.  He submitted that in the present case  as  the vesting  was earlier, a retrospective provision of method of determination  of  compensation cannot apply.  He  submitted that  the method prevailing on date of vesting i.e.   market value  must continue to apply.  He submitted that the change in  the method of determination of compensation from  market value  to  book  value  could not  be  justified  by  taking recourse  to  Articles 39 (b) and 39 (c) read  with  Article 31(c).  We see no substance in this contention.  This is the very  argument,  which  amongst   others,  is  negatived  in Tinsukhia’s case.

     16.   Mr.   Jain  next submitted that  this  case  was specifically referred to by the 5 Judge Bench in Tinsukhia’s@@              JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ case.   He  relied upon para 11 and 76 of that judgment  and@@ JJJJJJJJJJ submitted  that  it  is  held  therein  that  this  case  is distinguishable.   He  further submitted that even in  Thana Electric  Supply  Company  case this case  was  specifically referred to.  He pointed out paras 31 & 32 of this judgment. Mr.   Jain submitted that the five Judge Bench of this Court has  held that this case was distinguishable.  He  submitted that this Bench (comprising three Judges) could not overrule the  decision  of the five Judge Benches and hold that  this case  was not distinguishable.  He submitted that this Bench thus  could  not  hold that this case was covered  by  those judgments.   We  see no substance in this  submission  also.

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The impugned Judgment proceeds on the footing that the right to  get  compensation  accrued  when the  Notice  dated  5th January,  1973  was given i.e.  when the option to  purchase was  exercised.  The impugned Judgment also proceeds on  the footing  that what was being acquired was a chose-in-action. In  para  76  of  the  judgment  in  Tinsukhia’s  case,  the correctness  of  the findings that the acquisition was of  a chose-in-action  were not gone into because it was held that the acquisition was of material resources viz.  the electric energy.   On that basis it is held that the principles  laid down  in the impugned judgment do not apply.  In Tinsukhia’s case  it  is  held that the rights accrued  when  option  to purchase was exercised.  In Thana Electric Supply Co.’s case the  principles laid down in the impugned judgment were  not accepted.   It was held that no rights accrued in favour  of the  Electric  Co.  at time that the option to purchase  was executed.   Thus  far  from laying down that  this  case  is different  both  the  Courts  (in Tinsukhia  as  well  Thana Electric  Supply Company’s case), specifically negative  the principles on which impugned judgment is based.

     17.  For all the above reasons the submission that the principle  laid  down  in Tinsukhia’s case,  Thana  Electric Supply  Company’s  case and Vellore  Electric  Corporation’s case do not apply is unacceptable.

     18.   So  far  as the case of the  5th  Respondent  is concerned,  we have today delivered Judgment in Civil Appeal No.   3658  of  1993, wherein also the taking  over  of  the undertaking  was much prior to the Ordinance and much  prior to  the 25th Constitutional Amendment Act by which  Articles 31(c)  was  incorporated.   For  reasons  set  out  in  that Judgment,  the case of the 5th Respondent is also covered by the  Judgments  in Tinsukhia’s case, Thana  Electric  Supply Company’s case and Vellore Electric Corporation’s case.

     19.   In  this  view  of the  matter,  the  Appeal  is allowed.  The Judgments of the Division Bench as well as the learned single Judge are set aside.  The Writ Petition filed by  the  1st  Respondent  and   the  5th  Respondent  stands dismissed.    There  shall  be  no   order  as   to   costs.