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CASE NO.: Writ Petition (civil)  675 of 2004

PETITIONER: M.P. State Electricity Board                                     

RESPONDENT: Union of India & Ors.                                            

DATE OF JUDGMENT: 13/09/2006

BENCH: S.B. Sinha & Dalveer Bhandari

JUDGMENT: J U D G M E N T WITH T.C. (C) No. 44 of 2005 T.C. (C) No. 45 of 2005 and T.C.(C) No. 46 of 2005

S.B. SINHA, J :

       Interpretation and application of Section 58 of the Madhya Pradesh  Reorganisation Act, 2000 (for short "the 2000 Act") arises for  consideration in these writ petitions.   

       Parliament enacted Electricity (Supply) Act, 1948 (for short "the  1948 Act"), in terms whereof the Madhya Pradesh State Electricity Board  (for short "MPSEB") was established on 1.4.1957.  It was a body  corporate in terms of Section 12 thereof.  The territorial jurisdiction of the  Board was the entire State of Madhya Pradesh as notified and constituted  by ’States Reorganisation Act, 1956’ (for short "the 1956 Act").

       A new State known as State of Chhattisgarh comprising of 16  districts carved out of the State of Madhya Pradesh was formed on  1.11.2000.  Distribution of assets and liabilities of the States are  indisputably governed by the 2000 Act.  Pursuant to or in furtherance of  the provisions of Section 58 of the 2000 Act, the State of Chhattisgarh  was entitled to constitute its own State Electricity Board.  It was  constituted with effect from 15.11.2000.  It started collecting revenue  with effect from the said date but it offered the revenues collected to the  MSEB till 30th November, 2000.  The State of Madhya Pradesh also  constituted a new Board with effect from 1.1.2001.  It informed the  Government of India about the formation thereof and requested it to issue  necessary orders under Section 58(4) of the 2000 Act enabling the  successor Boards to take over assets, liabilities of the existing Board.   

       A meeting of the officers of the both the States was held by the  Special Secretary, Ministry of Home on creation of new States on  10.1.2001.  On a complaint made by the State of Madhya Pradesh that the  revenues were being collected illegally by the Chhattisgarh State  Electricity Board (for short "CSEB"), it was recorded:

"The Government of India made clear that no  unilateral action is to be taken by any State and  revenues realized within the State relating to  distribution of power should be remitted without  fail to M.P. State Electricity Board till the Board is  bifurcated on a date as certified by the competent  authority.  It was decided that the new Boards  should come into being by 31st March, 2001

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positively.  The Director, Ministry of Power  indicated that steps were being taken by his  Ministry to settle disputes of successor States and  exercises were underway to complete the  bifurcation of the State Electricity Board by end of  the current financial year."

       Several correspondences also passed between the respective State  Governments and the Boards as well by and between them and the  Central Government.

       It stands admitted that the States could not arrive at a material  agreement on the division of assets and liabilities of the MSEB.  A  notification was issued by the Government of India approving  constitution of the successor Boards with effect from 15.4.2001.   Guidelines in regard to division of assets, rights, liabilities, contracts and  employees as also for arrangement for distribution of power were laid  down therein.  The State of Madhya Pradesh made a representation to the  Secretary, Government of India, Ministry of Personnel requesting for  modification and/ or review of the said notification in regard to the basis  of the apportionment of assets and liabilities.  A writ petition came to be  filed by the MPSEB before the High Court of Delhi inter alia against the  CSEB for remittance of revenues illegally retained for the period  1.12.2000 to 14.4.2001.  Provisionally, apportionment of assets and  liabilities was confirmed by the Government of India, Ministry of  Personnel by a letter dated 4.12.2001 with effect from 15.4.2001 opining  that the revenue collected by the CSEB before the said date should be  remitted to MPSEB.  The Central Government appointed the Central  Electricity Authority (CEA) as an independent agency for ascertaining  the total liabilities of the two States and their classification in terms of the  purported criteria laid down in the notification dated 12.4.2001.   

       The State of Chhattisgarh filed a writ petition in the High Court of  Chhattisgarh questioning the said orders of the Central Government dated  12.4.2001 and 4.12.2001.  A transfer application was filed by the MPSEB  for transfer of the said writ petition to the High Court of Delhi which was  allowed by an order dated 19.8.2002.   

       The Central Government issued an order purported to be under  Section 58(4) of the 2000 Act on 23.5.2003 provisionally allocating  various liabilities of the MPSEB between the MPSEB and the CSEB.   The said order was questioned by the CSEB before the High Court of  Delhi.

       In the course of hearing before the High Court of Delhi, the Union  of India suggested that the dispute between the parties should be resolved  by passing a final order by it upon giving an opportunity of hearing on all  the issues raised by the parties in the said writ petition.  The said  suggestion on the part of the Central Government was accepted by the  High Court of Delhi by an order dated 10.8.2004.  Pursuant to or in  furtherance of the said representation before the High Court, admittedly  the Government of India convened formal meetings of the parties on  5.6.2004 and 28.9.2004.  On or about 2.11.2004, a notification was issued  fixing 15.11.2000 as the date of dissolution of the erstwhile MPSEB.  It  was further provided therein that the erstwhile MPSEB would remain  functional within the State of Madhya Pradesh upto 31.12.2000.  A  notification was thereafter issued by the Government of India on  4.11.2004 in regard to apportionment of assets, rights and liabilities of  MPSEB between successor Boards of Madhya Pradesh and Chhattisgarh.   In the notification dated 4.11.2004, the basis of the apportionment of the  various items were stated to be as under:

Fixed Assets On the basis of geographical nexus Current Assets

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77.03:22.97 (MP : Chhattisgarh) \026  in the ratio of power consumption Security Deposits from consumers On the basis of location of the  consumers Liability on account of ED payable  to the State Government 77.03:22.97 (MP:Chhattisgarh) \026 in  the ratio of power consumption Liabilities Long term 90:10 (MP:Chhattisgarh) \026 in the  ratio of fixed assets

Current 77.03:22.97 (MP:Chhattisgarh) \026 in  the ratio of power consumption Post and Staff As per recommendations of State  Advisory Committee \026 EB Staff related liabilities As per Ministry of Power letter no.  42/8/2000-R&R (Vol. V) dated  6.1.2004 MPEB Power Right to power Along with plants

       A statement showing principles adopted in orders dated 12.4.2001  and 23.5.2003  and changes made by order dated 4.11.2004 reads as  under:

S.No. Head (assets/  liabilities) Principle of  allocation as per  order dated  12.4.2001 &  23.5.2003 Principle of  allocation as per  order dated  4.11.2004 1. Fixed Assets On geographical  nexus On geographical  nexus 2. Movable assets Population ratio  (73.38:26.62) Power  consumption ratio  (77.03:22.97) 3. Liabilities a. Project/ asset  specific b. other + current  liability

With asset

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Population ratio  (73.38:26.62)

In asset ratio  (90:10) Power  consumption ratio  (77.03:22.97) 4. Date of dissolution

15.11.2000

       A statement showing the consequences of increasing the liabilities  of MPSEB by more than about Rs. 2000 crores is given heretobelow:                                                                  Rs. in crores Liabilities Total MPSEB CSEB Remarks Liabilities as  on 14.4.2001 16620 12976 3644 Division of liabilities  as per GOI order dt.  23.5.2003 Liabilities as  on  15.11.2000 11851 9946 1905 Division of liabilities  as per GOI order dt.  4.11.2004 Undistributed  liabilities  payable to  NTPC 107.99 107.99 0

Undistributed  liabilities  payable to  NPCIL 12.15 12.15 0

Other  undistributed  liabilities 4646.08 4646.08 0 To be borne by  MPSEB as per GOI  Order dt. 4.11.2004

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Addl.  Liabilities as  per order dt.  4.11.2004 16617.22 14712.22 (88.54%) 1905 (11.46%) Revised liabilities as  on 14.4.2001

1736.22 -1739 Addl. Liabilities on  SEBs

305 -305 Net of surplus  revenue with CSEB  claimed by MPSEB

60 -60 Approx. revenue for  the period 15.11.00 to  30.11.00

2101.22 -2104 Net loss as on  14.4.2001

       The legality and/ or validity of the said two notifications are in  question in the writ petition filed before this Court.

       The writ petitions filed by the CSEB and pending before the High  Court of Delhi questioning the legality of the orders dated 12.4.2001,  4.12.2001 and 23.5.2003 passed by the Central Government, have been  transferred to this Court by orders dated 25.4.2005 and 10.5.2005.

       We may notice that in this writ petition the writ petitioner has  prayed for the following reliefs:  

"(a)    Call for records of the proceedings of the  Central Government relating to the Notifications/  Orders dated 12.04.2001, 26.12.2001, 23.5.2001,  2.11.2004 and 4.11.2004 passed by the Ministry of  Power, Govt. of India;

(b)     Quash the impugned Notifications/ Orders  dated 2.11.2004 and 4.11.2004 being  unconstitutional and in violation of Article 14 of  the Constitution;

(c)     Direct Respondent No. 1 to dissolve MPEB  in consonance with orders/ directions dated  12.4.2001, 4.12.2001 and 23.5.2003 passed by the  Government of India under Section 58(4) of the

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MPRA;

(d)     Direct Respondent No. 1 to perform its  constitutional and the statutory duty to lay down  proper criterion for apportionment of assets, rights  and liabilities in accordance with law and to ensure  equitable, just, fair and reasonable apportionment  of assets, rights and liabilities amongst the  successor Boards on the basis of revenue potential  so as to avoid undue hardship and disadvantage to  any of the successor Boards; and

(e)     Pass any other order and/ or direction, as  this Hon’ble Court may deem fit and proper in the  facts and circumstances of the case."

       The main contentions raised in the writ petition as also the transfer  petitions are :

(i)     Fixation of a date of dissolution as 15.11.2000 is ultra vires  Article 14 of the Constitution of India. (ii)    Division of assets and liabilities had been made without giving  due regard to revenue generation potential which is of  paramount importance. (iii)   The Central Government acted arbitrarily in rejecting the  contention of the Petitioner \026 Board and in particular in  ignoring the provisions contained in the proviso appended to  Section 131 of the Electricity Act, 2003.   (iv)    Apportionment of assets and liabilities pursuant to fixation of  cut-off date as 15.11.2000 had caused serious prejudice to the  Petitioner \026 Board as would be evident from the following:

(a)     as against the consumption of 78%, the capacity allotted was only  68%. (b)     as against 88% of liabilities allocated to Madhya Pradesh, the  revenues allocated is 64%. (c)     The order of the Central Government has failed to take into  account the adverse consumer mix. (d)     MPSEB has to service large agricultural load with low revenue  yield and thus left with lower average realizable tariff as compared to  CSEB which is as under: Description Unit MPEB MPSEB CSEB Units sold Mus 18,958.20 13,560.11 5398.08 Total  Revenue Rs. Crore 5,234.22 (100%) 3,460.41 (66%) 1773.81 (34%) Average  Realisable  Tariff Paise/KWH

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276 255 329

(e)     The effect of the bifurcation as per the impugned notifications  dated 2.11.2004 & 4.11.2004 on the MPSEB finances are as under:

Particulars MPEB After Bifurcation

MPSEB CSEB Total Income 5,993.02 3,991.27 2,001.75 -Sale of Power 5,318.60 3,543.65 1,774.95 -Subsidy &  Grants 279.46 205.06 74.40 -Other Income 394.96 242.55 152.41 Total  Expenditure 7,466.83 6,007.15 1,459.68 -Power Purchase 2,866.56 2,338.08 528.48 -Power  Generation 1,488.43 1,175.39 313.04 -Repairs &  Maint. 218.03 142.86 75.17 -Employee Cost 1,142.56 899.94 242.62 -Interest & Fin.  Charge (Net) 953.31 785.65 167.66 -Depreciation 564.46 459.59 104.87 -Admin.  Charges

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92.27 77.65 14.62 -Other Debits 150.96 125.00 25.96 -Net prior period  Exp. 84.50 78.26 6.24 -Expenses  Capitalised -94.25 -75.27 -18.98 Net Surplus (+)/  Deficit (-) (-) 1,473.81 (-)2,015.88 (+)542.07

       It is contended that by reason thereof, the petitioner - Board has  been saddled with an additional liability of Rs. 2015 crores whereas the  CSEB was created with an annual profit and a power surplus.  The ratio  of population between the States of Chhattisgarh and Madhya Pradesh  although is 27:73 but in view of the fact that the State of Madhya Pradesh  got lesser proportion of both natural resources and physical assets; yet it  was saddled with liabilities which are disproportionate to its revenues.   The Central Government having exercised its power under Section 58(4)  of the 2000 Act and the parties have acted on the basis thereof, it acted  illegally without jurisdiction in fixing a date purported to be under Sub- section (3) of Section 58 of the 2000 Act as 15.11.2000.

       The contentions of the CSEB, on the other hand, are:

(i)     The writ petition is not maintainable as the Central Government in  exercise of its power under Section 58 of the 2000 Act acted in a  quasi-judicial capacity and, thus, the impugned order cannot be  said to be violative of Article 14 of the Constitution of India.   (ii)    The impugned notifications having been issued upon compliance  of the principles of natural justice and upon due compliance of the  mandate contained in Section 58 of the 2000 Act, no exception to  the notifications dated 2.11.2004 and 4.11.2004 can be taken.   (iii)   Power granted to a new State to constitute its Electricity Board is  an absolute one and it can be made functional with effect from the  date of its constitution and having regard to the fact that the CSEB  was constituted on 15.11.2000, the Central Government cannot be  said to have acted illegally or without jurisdiction in fixing the said  date as the appointed day in terms of Sub-section (3) of the 2000  Act.

       The stand of the Central Government was that the provisional order  dated 12.4.2001 provided for only an interim arrangement and, thus, it  could fix a specific date in terms of sub-section (3) of Section 58 of the  2000 Act.  As CSEB came into existence on 15.11.2000, the date  suggested by the MPSEB, viz., 15.4.2001 would itself have been arbitrary  and unreasonable.  Current assets and liabilities of the Board were  required to be apportioned and the same having been done on the basis of  power consumption ratio of the States, which is roughly 77:23, the same  cannot be said to be arbitrary particularly when the current liabilities,  mostly on fuel and power purchases, were directly relatable to the power  consumption ratio.  

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       The 2000 Act was enacted to provide for the reorganization of the  existing State of Madhya Pradesh and for matters connected therewith.   Section 2 of the said Act provides for the interpretation of the terms  mentioned thereto.  Section 2(a) defines the "appointed day" to mean the  day which the Central Government may, by notification in the Official  Gazette, appoint.  Indisputably, the appointed day is 1.11.2000.   

       ’Population ratio’ in relation to the States of Madhya Pradesh and  Chhattisgarh is defined to mean the ratio of 485.7:176.2.  ’Successor  State’ in relation to the existing State of Madhya Pradesh  has been  defined in Section 2(j) to mean the State of Madhya Pradesh or  Chhattisgarh.

       The 2000 Act makes various provisions for apportionment of assets  and liabilities between the two States.  Section 37 of the 2000 Act  provides for apportionment of the assets and liabilities of two States.   Section 43 provides for the assets and liabilities relating to the  undertaking of the existing State of Madhya Pradesh whether directly  owned or through a body corporate constituted or incorporated or  registered under any Central, State or Provincial Act.  Three undertakings  of the State, viz., the State Electricity Board, the State Road Transport  Corporation and the State Warehousing Corporation have, however, been  given a special treatment in terms of Section 58 of the 2000 Act.  As  interpretation of the said provision would fall for our consideration, we  may notice the relevant clauses thereof herein:

"58. Provisions as to Madhya Pradesh State  Electricity Board, State Road Transport  Corporation and Stale Warehousing  Corporation .-- (1) The following bodies corporate constituted for  the existing State of Madhya Pradesh, namely:-- (a) the State Electricity Board constituted under  the Electricity Supply Act, 1948; (b) the State Road Transport Corporation  established under the Road Transport Corporations  Act, 1950; and (c) the State Warehousing Corporation established  under the Warehousing Corporations Act, 1962, shall, on and from the appointed day, continue to  function in those areas in respect of which they  were functioning immediately before that day,  subject to the provisions of this section and  arrangements for the functioning of such body  corporates as may be mutually agreed upon  between the successor States failing which to such  directions as may, from time to time, be issued by  the Central Government. (2) Any directions issued by the Central  Government under sub-section (1) in respect of the  Board or the Corporation shall include a direction  that the Act under which the Board or the  Corporation was constituted shall, in its  application to that Board or Corporation, have  effect subject to such exceptions and modifications  as the Central Government thinks fit. (3) The Board or the Corporation referred to in  sub-section (1) shall cease to function as from, and  shall be deemed to be dissolved on such date as the  Central Government may, by order, appoint; and  upon such dissolution, its assets, rights and  liabilities shall be apportioned between the  successor States of Madhya Pradesh and  Chhattisgarh in such manner as may be agreed

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upon between them within one year of the  dissolution of the Board or the Corporation, as the  case may be, or if no agreement is reached, in such  manner as the Central Government may, by order,  determine:  (4) Nothing in the preceding provisions of this  section shall be construed as preventing the  Government of the State of Madhya Pradesh or, as  the case may be, the Government of the State of  Chhattisgarh from constituting, at any time on or  after the appointed day, a State Electricity Board  or a State Road Transport Corporation or a State  Warehousing Corporation for the State under the  provisions of the Act relating to such Board or  Corporation; and if such a Board or Corporation is  so constituted in either of the States before the  dissolution of the Board or the Corporation  referred to in sub-section (1),-- (a) provision may be made by order of the Central  Government enabling the new Board or the new  Corporation to take over from the existing Board  or Corporation all or any of its undertakings,  assets, rights and liabilities in that State, and (b) upon the dissolution of existing Board or  Corporation,-- (i) any assets, rights and liabilities which would  otherwise have passed to that State by or under the  provisions of sub-section (3) shall pass to the new  Board or the new Corporation instead of to that  State; (ii) any employee who would otherwise have been  transferred to or re-employed by that State under  sub-section (3), read with clause (i) of sub-section  (5), shall be transferred to or re-employed by the  new Board or the new Corporation instead of to or  by that State."

       An electricity board is constituted under the 1948 Act.   Constitution and incorporation of a Board, thus, is a function required to  be carried under the 1948 Act.  After coming into force of the 1948 Act,  each State is enjoined with a duty to constitute its own electricity board.   On reorganization of the State, the MPSEB was to be dissolved.  Both the  States were required to constitute their new Boards.  Assets and liabilities  of the erstwhile Board were, thus, required to be apportioned between the  two new entities.  The framers of the Act probably opined that, keeping in  view of the fact that the dispute in regard to apportionment of assets and  liabilities would be a State function, both the States can resolve the  dispute, if any, amicably. However, a provision had to be incorporated in  the said Act that in case the parties being not resolving their disputes  amicably, the Central Government shall by an order determine a date as  also issue requisite directions in regard to apportionment of assets and  liabilities.

       Sub-section (1) of Section 58 of the 2000 Act is an enabling  provision providing for continuation of function of the Board till  arrangements for the functioning of such body corporates as may be  mutually agreed upon between the successor States, failing which such  directions as may, from time to time found necessary, be issued by the  Central Government.

       Sub-section (3) of Section 58 of the 2000 Act empowers the  Central Government to fix a date as it may by order appoint.  Once such a  date is fixed, the Board would cease to function.  With effect from the  date so appointed by the Central Government, the Board shall be deemed  to be dissolved.  Sub-section (3) of Section 58 of 2000 Act also provides

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for consequences of such dissolution, i.e., upon such dissolution, its  assets, rights and liabilities shall be apportioned between the successor  States.  Such apportionment is to be made in the manner, in absence of an  agreement between the two States, as the Central Government may by  order determine.  Sub-section (4) of Section 58, on the other hand,  contains a special provision.  It enables both the States to constitute  respective State Electricity Boards.  Such constitution of the State  Electricity Boards could only be made on or after the appointed day, i.e.,  1.11.2000.

       In the event of constitution of such Boards by either of the States  before the dissolution of the Board by the State concerned, the Central  Government by order direct take over of the new Board or Corporation  from the existing Board or Corporation all or any of its undertakings,  assets, rights and liabilities thereof.  Clause (b) of Sub-section (4) of  Section 58 contemplates that upon such dissolution any asset, right and  liability which would otherwise have passed to that State by or under the  provisions of sub-section (3) shall pass to the new Board or the new  Corporation instead of to or by that State.

       The principal question which arises for consideration is that if the  Central Government had directed that the Board constituted by the  respective States shall act in a particular manner, whether the same could  subsequently be changed.  The difficulty which arises in application of  the provisions of Sub-sections (3) and (4) of Section 58 of the 2000 Act  lies principally due to the fact that both the Boards have been constituted  with effect from different dates.  Whereas CSEB was constituted with  effect from 15.11.2000, the MPSEB was constituted with effect from  1.1.2001.  Unfortunately, the Central Government passed a provisional  order.  It is, however, difficult to accept the submission of Mr. Vivek  Tankha, learned senior counsel appearing on behalf of the Petitioner, that  no provisional order could at all be passed.  Passing of a provisional  order, in our opinion, in terms of sub-section (4) of Section 58 is implicit.   By reason of the said provision, not only the States are enabled to  constitute separate State Electricity Boards which even otherwise could  have been done in terms of the 1948 Act but also to take over the  functions of the erstwhile Board.  Such taking over of the functions may  be in its entirety or in phases.  We may notice that whereas in clause (a)  of sub-section (4) of Section 58 of the 2000 Act the expression "all or any  of its undertakings, assets, rights and liabilities in that State" having been  used, the word "all" is missing in clause (b) thereof.  Evidently, the  Parliament thought it to be unnecessary.  Whereas clause (1) provides for  mere take over of function from the existing Board all or any of its  undertakings; clause (b) has a direct nexus with the final order which may  be passed under Sub-section (3) of Section 58 of the 2000 Act.

       We may notice that factually the CSEB started functioning with  effect from 15.11.2000 although it had remitted all the revenues collected  to the MPSEB from 15.11.2000 to 31.11.2000.  It had started independent  collection of revenue with effect from 1.12.2000.  MPSEB as also the  State of Madhya Pradesh although had all along been aware that the  CSEB had been realizing revenue from the consumers, a protest was  made.  Only in the meeting it was recorded that no new State should do it  unilaterally.  The minutes of the said meeting or the direction of an  officer of the Central Government was not and could not have been a  direction in terms of Sub-section (4) of Section 58 of the 2000 Act.   

       There must have been some bickering between the two States with  regard to collection of revenue.  It appears that the Additional Secretary  of MPSEB by a letter dated 21.11.2000 directed the Chief Engineer,  CSEB that the revenue collections should be kept in Chhattisgarh and  should not be remitted to the Madhya Pradesh with effect from  21.11.2000.  Yet again in the minutes of discussions between the Chief  Ministers of the States of Chhattisgarh and Madhya Pradesh held on 25th  November, 2000, it was acknowledged that the State of Chhattisgarh had

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already set up a separate Electricity Board with effect from 15.11.2000.   It was further noticed that it has also approached the Government of India  for orders under Section 58(4) of the 2000 Act.  In the said backdrop, it  was inter alia agreed:

"Since the Government of Chhattisgarh has  already set up a separate Electricity Board w.e.f.  15.11.2000 and approached the Government of  India for orders u/s 58(4) of the MPRA, 2000, it  has become imperative to consider relevant  principles for apportionment of assets, rights &  liabilities and manpower of the MPEB analogous  to the principles enunciated in the Madhya Pradesh  Reorganization Act, 2000 for apportionment of  assets and liabilities of the State Government  (Chapter VI) and for undertakings (Section 43),  assets and liabilities should be shared in the same  ratio \026 more so because the ability to discharge  liabilities is dependant on the productive potential  of the assets.  Relevant ratios for the successor  States of Madhya Pradesh and Chhattisgarh are as  follows:

Item Chhattisgarh M.P. 1. Population ratio (S.2(h), MPRA) 176.2 485.7 2. Own generation 31.03% 69.87% 3. Energy supply  (ex-bus) 21.43% 78.57%

Assets, rights and liabilities of the MPEB can  provisionally be shared between the successor  States according to any of these ratios, since entry/  operation of non-State owned organizations is now  not barred by law as well as practice.  However, in  order to maintain present arrangements for  generation, transmission and supply of electric  power in both the successor States safeguards  should also be provided u/s 75 of the Madhya  Pradesh Reorganization Act."

       Yet again the Chief Secretary of the Government of Madhya  Pradesh by a letter dated 28.11.2000 addressed to the Secretary, Ministry  of Power opined that the principles for apportionment of the assets should  be as given in the record of discussions of the meeting dated 25th  November, 2000.  The Government of Madhya Pradesh expressed its  view that the assets, rights and liabilities of the MPSEB provisionally be  shared between the successor States according to any of those ratios.  It  was, however, suggested:

"\005However, while issuing orders under Section  58(4)(a) of the MP Reorganisation Act, 2000, prior

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to dissolution of the MPEB, the Government of  India should simultaneously make provision for  the division of : -  A.      Fixed assets B.      Movable assets/ stores C.      Right to revenues/ receivables D.      Right to collect arrears E.      Liabilities (mutual payment to be backed by  State Govt. mandate to RBI) F.      Contracts (including PPAs) G.      Allocation of employees

So that the successor organizations may be enabled  to become fully functional without any delay."

       Yet again, the Chief Minister of the Government of Madhya  Pradesh in a letter dated 27.12.2000 addressed to the Chief Minister of  the State of Chhattisgarh recognized the necessity of having talks at their  level so as to arrive at a mutually acceptable solution to the issues relating  to the division of Electricity Board.  From a circular letter dated 19th  December, 2000 issued by the MPSEB, it appears that it was recognized  that the CSEB had been constituted and it had started working  independently with effect from 1.12.2000 stating:

"The new State of Chhattisgarh has been  constituted w.e.f. 1.11.2000.  Thereafter a separate  Chhattisgarh State Electricity Board has been  constituted for the new State, which has started  working independently w.e.f. 1.12.2000.  In  respect thereof, it has been decided that after the  issue of this circular, matters relating to the various  offices/ employees of the Electricity Board situated  in the State of Chhattisgarh may not be forwarded  to the Board for its approval and all such pending  matters may be returned after listing them out."

       The Minister of Power, Government of India noticing certain grid  indiscipline as regards drawal of power from the grid requested the Chief  Minister of the State of Chhattisgarh stated:

"\005I would also urge upon you to take in  immediate review of the pattern of drawls from the  regional grid and ensure that drawls under no  circumstances exceed the quantum is scheduled by  Regional Load Despatch Centre.  For this purpose  you may kindly give instructions to your SEB to  strictly maintain grid discipline, including resort to  load shedding it and when necessary."

       This also goes to show that the functioning of the CSEB had been  recognized by the Central Government.   

       Yet again the Chief Secretary of the Government of Madhya  Pradesh by a letter dated 29th January, 2001 addressed to the Secretary,  Ministry of Power stated:

"\005I would also urge that while assets, rights and  liabilities may be transferred to the successor  Boards in the respective States by the order of the  Central Govt. u/s 58(4), unilateral appropriation by  States is not permissible under the Act; and this  view was confirmed by Govt. of India, in the  meeting convened by the Ministry of Home  Affairs on 10.1.2001, who had made clear that no  unilateral action is to be taken by any State and

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revenues realized within the State relating to  distribution of power should be remitted without  fail to the MPEB till the Board is bifurcated on the  date as certified by a competent authority."

       Allocation of power between the two States had also started, as  would appear from an order of the Central Government of the Ministry of  Power dated 31st January, 2001.   

       Furthermore, the Chief Minister of the Government of Madhya  Pradesh in a letter dated 20th February, 2001 addressed to the Minister of  Power, Government of India stated:

"As you are aware, the State of Madhya Pradesh  was bifurcated on 1st November 2000 and the  rights, assets and liabilities of the MP Electricity  Board have to be divided between the successor  States under Section 58 of the MPRA, 2000.

It is understood that the Government of India  contemplate issue of provisional orders in the near  future, since successor Boards have already set up  by the Governments of Madhya Pradesh and  Chhattisgarh.  MPEB has huge financial liabilities  and the future interests of creditors (including GoI  institutions) have also to be borne in mind.  It is  our earnest desire that this distribution, though a  complex task, be fair to both the States by ensuring  that assets and liabilities are divided in the same  proportion; and should not lose sight of the fact  that, unlike the State Government, the MPEB is a  commercial entity.

You will agree that the earning capacity (turnover  sales revenue) of any enterprise is by far the best  index of its capability to discharge liabilities.   While this capacity can be assessed by experts, in  the interim suitable proxies should be used to  estimate the situation closely enough so that  neither of the successor Boards is handicapped at  start.  As you know, sales revenues of the  Electricity Boards are dependant on the generation  capacity (variable), the tariff rate and the consumer  profile (which are relatively constant).  Generation  capacity is, thus, directly correlated with sales  revenues and we have, therefore, suggested that  this measure be used for distribution of liabilities  instead of population, which has no economic  nexus with the earning capacity of the Electricity  Board.  I request that the Government of India may  abjure any unequal, interim division based on  simplistic assumptions which will endanger the  viability of the successor boards, while making  subsequent adjustments an arduous task.  The  provisional order may also come into force  prospectively; and revenues unilaterally  appropriated by the CSEB remitted to the MPEB  before that date, so that the organization  may  discharge accrued liabilities towards coal  companies, NTPC, etc."

       It appears that a meeting was also held between the Empowered  Committees on 3rd July, 2002  at Bhopal in regard to the division of assets  and liabilities wherein a large number of officers represented their

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respective States participated.  In the context of independent working of  the two State Electricity Boards, it appears, an order dated 12th April,  2001 was issued.  Paragraph 2 of the said Order categorically states that  the assets, liabilities, rights and undertakings of the existing Board would  provisionally pass on to the successor Boards with effect from 15.4.2001  in the manner specified therein.  CSEB contends that the said order was  an artificial one.  Such a contention must have been raised by it before the  Central Government also.

       It may or may not be legal but indisputably it was a provisional  one.  Although there does not exist any provision in Sub-section (4) of  Section 58 therefor, the Central Government in exercise of its statutory  power was not denuded to pass a provisional order.  Even under Section  14 of the General Clauses Act, a statutory authority may exercise his  statutory power  from time to time.  Furthermore, on a plain reading of  the provision of Sub-section (4) of Section 58 vis-‘-vis Sub-section (3)  thereof, it appears that any order passed by the Central Government  directing a new Board or Corporation to take over from an existing Board  or Corporation evidently would be a provisional power in the sense that  the same would be subject to a final decision which may be taken by the  Central Government in terms of Sub-section (3) of Section 58 of the 2000  Act.

       It is difficult to accept the contention of Mr. Tankha that sub- section (3) of Section 58 of the 2000 Act must follow an order passed  under sub-section (4) thereof.  If such a contention is accepted, the same  would result in anomaly or absurdity.  As we have noticed hereinbefore,  in terms of sub-section (4) of Section 58, the Central Government is not  required to pass a final order in the sense that the take over may be in  relation to all or any of the undertakings and the assets, rights and  liabilities are qualified by the expression "take over".  Whereas sub- section (3) of Section 58 contemplates dissolution of the erstwhile Board,  as we have noticed hereinbefore, the date on which the new Board takes  over from the existing Board may be different from its dissolution.   Constitution of two boards admittedly has been made from different  dates.  The Central Government was to fix any of them or specify another  date.   

       Once an appointed day was fixed by the Central Government, this  Court can interfere therewith only if it is violative of Article 14 of the  Constitution of India being arbitrary in nature.  The order impugned in  the writ petition was admittedly passed by the Central Government upon  giving an opportunity of hearing to both the parties.  We have referred to  some of the correspondences exchanged between the parties and/ or the  respective State Governments inter se or with the Central Government  only for the purpose of showing that there had been certain materials  before the Central Government to appoint a day for the purpose of sub- section (3) of Section 58 of the 2000 Act.  Sub-sections (3) and (4)  provide for a scheme.  A meaningful interpretation is required to be given  thereto.  Both the provisions are required to be construed harmoniously.   

       The Central Government under the 2000 Act has an important role  to play.  Such a statutory role is envisaged only when the States differ in  their approach.  It was, therefore, required to resolve the dispute wherefor  it was obligatory on its part to arrive at an independent decision.

       The respective Boards had come into being on 15.11.2000 and  1.1.2001.  The Central Government as indicated hereinbefore could have  chosen any of the aforementioned dates.  For the said purpose, the  functioning of the respective Boards was required to be considered.   

       While interpreting the said provisions for determining the dispute  between the Boards, the Central Government was bound to consider the  hardships which may have been faced by the parties.  It may also be that  the writ petitioner \026 Board had altered its position, pursuant to the

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provisional order of the Central Government, but the same was not  decisive.  It could have been only one of the factors for arriving at a  decision by the Central Government.

       Sub-section (3) of Section 58 may not be a stand alone clause, but  it envisages passing of a final order.  Once an order is passed, a legal  fiction is raised by reason whereof the existing Board would be deemed  to be dissolved.  For such purposes, it was not necessary that actual state  of affairs should have been the putative state of affairs.

       In Ashok Leyland Ltd. v. State of T.N. and Another [(2004) 3 SCC  1], this Court observed:          "In Bhavnagar University v. Palitana Sugar Mill  (P) Ltd. (SCC 111 at p. 123) it was stated that the  purpose and object of creating a legal fiction in the  statute is well known. But when a legal fiction is  created it must be given its full effect. It was held  in East End Dwellings Co. Ltd. v. Finsbury  Borough Council: (All ER p. 599 B-C) "If you are bidden to treat an imaginary state of  affairs as real, you must surely, unless prohibited  from doing so, also imagine as real the  consequences and incidents which, if the putative  state of affairs had in fact existed, must inevitably  have flowed from or accompanied it. One of these  in this case is emancipation from the 1939 level of  rents. The statute says that you must imagine a  certain state of affairs; it does not say that, having  done so, you must cause or permit your  imagination to boggle when it comes to the  inevitable corollaries of that state of affairs." (See also ITW Signode India Ltd. v. CCE Scale :  SCC para 58.) 71. These decisions, therefore, show that whenever  a legal fiction is created by a statute, the same shall  be given full effect."

[See also Bharat Petroleum Corporation Ltd. v. P. Kesavan and Another,  (2004) 9 SCC 772]

       What is, thus, contemplated by clause (b) of Sub-section (4) of  Section 58 of the 2000 Act is that upon dissolution of the existing Board,  the assets, rights and liabilities instead of vesting or continuing to vest in  the State as was contemplated under Sub-section (3) shall vest in the new  Board.

       In that view of the matter, the submission of Mr. Tankha that the  word "and" used in between clauses (a) and (b) of sub-section (4) of  Section 58 of the 2000 Act must be read conjointly is devoid of any  merit.  The word "and" has been used for the purpose of showing the two  different consequences arising therefrom.

       Clauses (a) and (b) of sub-section (4) of Section 58 of the 2000 Act  operate in different fields.  They have different consequences and, thus,  both cannot operate simultaneously.  When an order is passed by the  Central Government under clause (a) of sub-section (4) of Section 58, it  merely provides for only take over of the existing Board by the new  Board but the same would not mean that the date provisionally fixed must  be the date of dissolution as envisaged under sub-section (3) thereof.   Two different dates are, thus, possible to be fixed, one provisional and  other final.  When a date is appointed in terms of sub-section (3) of  Section 58 of the 2000 Act, the same shall be final and the consequences  arising therefrom shall ensue.

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       In the backdrop of the aforementioned events and particularly in  view of the fact that the Central Government had passed the impugned  orders in terms of its undertaking given before the High Court of Delhi  and upon compliance of the principles of natural justice, it is difficult for  us to agree with the contention of the learned senior counsel that the  Central Government has failed to apply its mind.

       We, however, agree with Mr. Tankha that sub-section (1) of  Section 58 of the 2000 Act contemplates only a situation where the  existing Board is dissolved after the appointed day and it is continued till  its dissolution.  The Act to that effect is anomalous but it does not lead to  an absurdity.  Although the writ petitioner \026 Board came into force from  1.1.2001, having regard to the fixation of the appointed day as 1.11.2000,  there cannot be a vacuum and with a view to avoid an absurd situation, all  attempts must be made to iron out the creases.  When a statute is  ambiguous, the construction which better serves the ends and answers the  principles of fairness and justice should be accepted.

       Unfortunately, in this behalf, while enacting the 2000 Act, the  Parliament did not follow the corresponding provisions of the 1956 Act in  terms whereof the original State Electricity Board was to function for a  period of one year from the appointed day.  The said provision evidently  was made in the 1956 Act evidently for giving effect to the arrangements  in regard to commencement of functioning of the new Board which  would take some time and with a view to avoid a situation of this nature.   But only because there does not exist any such provision, the same leads  to some amount of ambiguity, it would not mean that we would not give  effect to the substantive provision as contained in Sub-section (3) of  Section 58 of the 2000 Act.

       Illegality, if any, committed by CSEB in taking over of the assets  of the Madhya Pradesh Electricity Board without there being any formal  order of the Central Government in terms of Section 58(2) of the 2000  Act by itself may not be enough to arrive at the conclusion that the cut-off  date fixed would be vitiated in law.

       It could have been a relevant consideration but not the only one.

       We, therefore, are of the opinion that the cut-off date fixed by the  Central Government cannot be said to be so arbitrary so as to attract the  wrath of Article 14 of the Constitution of India.  The logical corollary of  our finding would be that the said date has been fixed in supersession of  the earlier orders.   

       We have noticed hereinbefore that the said order has been issued in  supersession of all earlier orders.  The writ petitions filed by the CSEB  questioning the validity of the said orders, therefore, become infructuous.

       The only question which survives now is as to whether the order  dated 4.11.2004 regarding division of assets and liabilities between two  successor Boards is just and proper.  The apportionment of current assets  and liabilities has been made on the basis of power consumption ratio of  States. Any other variable might not have any rational nexus with the  apportionment of current assets and liabilities.  It was submitted that the  Central Government had adopted the most rational method of  apportionment of current assets and liabilities as the power consumption  ratio had a rational link with the subject matter of apportionment.  It was  further submitted that any change from this principle would have resulted  in the same grievance from the CSEB.  Long term assets and liabilities  were divided in the ratio of 90:10 and hence, overall, the MPSEB had  been given 85% of the assets and 84% of the liabilities.  The action on the  part of the Central Government cannot hence be said to be irrational.  It  may be observed that the revenue generation capacity would be the most  favourable variable to them as would be clear from the table given below:

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Criteria Madhya Pradesh Chhattisgarh Consumption 77% 23% Connected load 79% 21% Energy Consumption 77% 23% Installed Capacity 67% 33% Revenue Generation 64% 36%

       We have noticed hereinbefore that at one point of time, the MPSEB  was agreeable for apportionment of the assets on any of the grounds.

       Revenue generation capacity may although be one of the grounds,  the same cannot be said to be an irrelevant criteria as it has a rational  nexus with current assets and liabilities.  Fixing current liabilities on the  basis of revenue generation capacity is not and cannot be held to be  arbitrary or irrational.   

       Population ratio as defined in Section 2(h) is not relevant for  application of Section 58.  Whenever population ratio is to be applied for  the purpose of apportionment of assets and liabilities, the Parliament  stated so categorically.  We may refer to, by way of example, that in  Sections 42 and 43 the division of assets and liabilities have been made  relatable to the population ratio.  In the instant case, the Central  Government had maintained two other criteria, viz., geographical  constitution and fixed assets.

       Ordinarily, in a matter of this nature, this Court, in exercise of its  discretionary jurisdiction under Article 32 of the Constitution of India  shall not interfere.  It would exercise judicial restraint.  It may be  erroneous but not illegal.  It may not be just and proper for one of the  State Boards, but it is for the other.

       In UJ. Fernandes & Co. v. The Deputy Chief Controller of Imports  & Exports and others [ (1975) 1 SCC 716], this Court held: "Really, the petitioner’s contention is that the  licensing authorities misapplied or wrongly  applied the Imports and Exports Control Act. A  petition under Article 32 will not be competent to  challenge any erroneous decision of an authority.  (See Gulabdas & Co. v. Assistant Collector of  Customs and State of J.&K. v. Mir Gulam Rasul.)  A wrong application of law would not amount to a  violation of fundamental right. Das, C.J. said in the  case of Gulabdas & Co. that if the provisions of  law are good and the orders passed are within the  jurisdiction of the authorities there is no infraction  of fundamental right if the authorities are right or  wrong on facts. In the case of Gulabdas & Co. the  petitioners challenged the order of the Assistant  Collector of Customs The Customs Authorities  assessed duty under Item 45(4) of the Indian  Customs Tariff. The petitioners in that case

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contended that the duty should have been assessed  under Item 45(a). This Court held that there was  neither any violation of fundamental right under  Article 19 or any unequal treatment and the  petition was not maintainable. This Court in the  case of Ujjam Bai v. State of U.P. as also in the  case of Bhatnagars & Co. Ltd. v. Union of India  held the same view that any erroneous decision  would not be a violation of fundamental rights."

       In Fertilizer Corporation Kamgar Union (Regd.), Sindri and Others  v. Union of India and Others [(1981) 1 SCC 568], this Court held:

"In view of the fact that neither the decision to sell  nor the sale proceedings were unreasonable, unjust  or unfair, it cannot be held that the petitioner’s  rights if any, under Article 14 are violated. The  learned Attorney-General contended that  arbitrariness would be actionable under Article 32,  only if it causes injury to the fundamental rights of  the petitioner, and that the petitioners in the instant  case have no fundamental right in the exercise of  which they can challenge the sale. We consider it  unnecessary to examine this contention because  the sale is not vitiated by any unfairness or  arbitrariness. If and when a sale of public property  is found to be vitiated by arbitrariness or mala  fides, it would be necessary to consider the larger  question as to who has the right to complain of it."

       We, therefore, are of the opinion that it is not a case where the  Court would exercise its extra-ordinary jurisdiction under Article 32 of  the Constitution of India.

       For the reasons aforementioned, the writ petition filed by MPSEB  is dismissed and the transfer cases filed by CSEB are allowed.  No costs.