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PETITIONER: U.P. STATE ELECTRICITY BOARD, LUCKNOW

       Vs.

RESPONDENT: THE OFFICIAL LIQUIDATOR LOWER GANGESJAMUNA ELECTRICITY DISTR

DATE OF JUDGMENT01/05/1973

BENCH: ALAGIRISWAMI, A. BENCH: ALAGIRISWAMI, A. PALEKAR, D.G.

CITATION:  1973 AIR 2546            1974 SCR  (1) 142  1973 SCC  (2) 234

ACT: Electricity Supply Act, 1948, schedule 6, cl. V  A-Liability to hand over development reserve-Scope of.

HEADNOTE: Under cl.  VA of the 6th Schedule to the Electricity  Supply Act, 1948, on the purchase of an undertaking the development reserve  shall  be  handed  over  to  the  purchaser.    The appellant-Board   purchased  an   electricity   distributing company  in liquidation and insisted that a certain  sum  in the  development  reserve  should be handed over  to  it  or deducted from the purchase price.  The official  liquidator, who  was  administering  the  company,  contended  that  the development  reserve had, been used in adding to the  assets of  the  electricity undertaking and  that,  therefore  that amount could not be paid.  The High Court held against the appellant. Dismissing the appeal to this Court, HELD  :  The development reserve can be handed over  to  the purchaser only if it is available.  Since the entire sum has been utilised by investment in the business and there is  no amount left in cash in the development reserve the  official liquidator  cannot  be  directed  to  pay  any  amount,   as representing the development reserve to the appellant-Board. [144-G] (1)  The  whole  of the development reserve  had  admittedly gone  into  the ,creation of assets which had  enhanced  the value  of the undertaking, and the appellant-Board  had  the benefit of all such, additions, improvements and  accretions to  the assets of the undertaking.  "at is really  asked  on behalf   of  the  appellant-Board  is  that   the   official liquidator should pay to it a notional sum representing what should have been the development reserve and not that  there is  any amount available in the development reserve,  but  a notional  amount cannot be handed over.  The demand  of  the Board  would  amount to saying that it must  be  paid  twice over,  once  in the form of the assets created  out  of  the development  reserve which it had already got, and again  in cash  as  though  it  is  still  available.   There  is   no justification either in law or in equity for such a  demand. [144E-H] (2)  Under   cl.   VA  (3)  of  the  6th  Schedule  to   the

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Electricity  Supply  Act, the development reserve  shall  be available   only   for  investment in  the   business   of electricity  supply  of  the  undertaking.   I  here  is  no allegation  that  the development reserve was used  for  any purpose other than in the business of electricity supply  of the undertaking or on any item not permissible either  under the  Electricity Supply Act, of the Indian Electricity  Act, 1910. [144D-E] (3)  The  provision regarding development reserve came  into existence. in 1957 when the new cl.  VA was inserted in  the 6th Schedule.  The language of that clause therefore is  not the same as the language of cls.  II, III and IV which  have been in the Act from the very beginning.  But that does  not create  any difficulty or problem in the  interpretation  of cl.  VA. [145C-D]

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1201  of 1967. Appeal  by  certificate from the judgment and  decree  dated December  5,  1963 of the Allahabad High  Court  in  Special Appeal No. 727 of 1962. S.   N. Kacker, and O. P. Rana, for the appellant. B. Sen, A. Banerjee and B. Dutta,   for the respondent.  143 The Judgment of the  Court was delivered by ALAGIRISWAMI,  J. This is an appeal against judgement  of  a Division  Bench  of the Allahabad High  Court  affirming  on appeal  the judgment of a learned Single Judge dealing  with company   matters.    The  appellant  is  the   U.P.   State Electricity  Board  and  the  respondent  is  the   Official Liquidator   of   the  Lower  Ganges   Jamuna   Electricity- Distributing Co. Ltd.  This company went into liquidation in 1937  and had been administered by the  Official  Liquidator till  it was purchased by the appellant Board  on,  1-6-1961 for a sum of Rs. 7,82,256/- as mutually agreed.   Thereafter disputes arose ’about certain reserves of the company and in the present appeal we are concerned only with what is called the Development Reserve.  It was by the Finance Act of  1955 that  a  provision  was  made in  the  Income  Tax  Act  for development  rebate.   In  1957 the Sixth  Schedule  of  the Electricity (Supply) Act, 1948 was amended introducing a new clause VA which reads :               "  (1) There shall be created a reserve to  be               called the Development Reserve to which  shall               be appropriated in respect               of  each  accounting year a sum equal  to  the               amount of income-tax and super-tax  calculated               at rates applicable during the assessment year               for which the accounting year of the  licensee               is  the  previous  year,  on  the  amount,  of               development  rebate to which the  licensee  is               entitled for the accounting year under  clause               (vi) (b) of sub-section (2) of section’ 10  of               the Indian Income-tax Act, 1922.               Provided..............               (2)   Any  sum to be appropriated towards  the               Development   Reserve   in  respect   of   any               accounting year under subparagraph (1), may be               appropriated in annual instalments spread over               a  period  not exceeding five years  from  the               commencement of that accounting year.               (3)   The   Development   Reserve   shall   be

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             available only for investment in the  business               of electricity supply-of the undertaking.               (4)   On the purchase of the undertaking,  the               Develop.merit Reserve shall be handed over  to               the   purchaser   and   maintained   as   such               Development Reserve :               Provided   that  where  the   undertaking   is               purchased   by   the  Board   or   the   State               Government,  the amount of the Reserve may  be               deducted   from  the  price  payable  to   the               licensee." The  Board  insisted  that  a sum of Rs.  1,45  422  in  the Development Reserve should be handed over to it or  deducted from the purchase price.  Though in the beginning there  was a dispute about the actual amount in the Development Reserve it  was  finally agreed that the above sum was  the  correct figure. The  Official  Liquidator  contended  that  the  Development Reserve  had  been  used  in adding to  the  assets  of  the Electricity  Undertaking and, therefore, that  amount  could not be paid.  On the purchase of an Electricity  Undertaking by the Electricity Board the market value of the 144 Undertaking  at  the time of the purchase is  payable  under section  7A  of the Indian Electricity Act, 1910  and  under sub-section  (2) of that section the market value  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...... 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. As already noticed under clause VA of the Sixth Schedule  to the  Electricity (Supply) Act, 1948, on the purchase  of  an undertaking the Development Reserve shall be handed over  to the purchaser.  It is on this basis that the appellant Board insisted that a sum of Rs. 1,45,482/- should either be  paid to it or should be deducted from the purchase price  payable by  it  to  the  licensee.   This  contention  having   been overruled by the Courts below this appeal has been filed. It  appears to us that the decision of the Courts below  was right.  Under sub-cl. (3) of clause VA of the Sixth Schedule to  the  Electricity  (Supply) Act,’  1948  the  Development Reserve  shall  be  available only  for  investment  in  the business of electricity supply of the undertaking.  There is no  prohibition against the Development Reserve  being  used for   that  purpose.   There  is  no  allegation  that   the Development  Reserve in this case was used for  any  purpose other  than  in the business of electricity  supply  of  the undertaking.   There  is no allegation of the money  in  the Development Reserve having been dissipated otherwise or mis- appropriated  or  anything  of  that  sort.   There  is   no allegation  that any portion of the Development Reserve  was spent  on any item not permissible under either of  the  two Acts.   There is no allegation that the Development  Reserve is as a matter of fact available in the form of either  cash or deposits banks or in investment in Government bonds or in liquid  cash.   The  whole of the  Development  Reserve  has admittedly  gone  into  the creation of  assets  which  have enhanced  the  value of the undertaking  and  the  appellant Board   has,  had  the  benefit  of  all   such   additions, improvements and accretions to the assets of the Electricity Supply Undertaking as a consequence of the investment of the Development Reserve in the business of electricity supply of the  undertaking What is really asked for on behalf  of  the

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appellant  Board is that the Official Liquidator should  pay to  it a notional sum representing what should have been  in the  Development  Reserve and not that there is  any  amount available in the Development Reserve.  The argument that the Development Reserve should be handed over is based upon sub- cl. (4) of clause VA of the Sixth Schedule.  The Development Reserve  can be handed over to the purchaser only if it  is, available.   A notional amount cannot be handed  over.   The Development  Reserve  has been converted into  other  assets which have passed on to the appellant Board.  In that  sense the  appellant Board has had the benefit of the  Development Reserve, though not in cash but in other assets representing the  Development  Reserve.  The demand of the  Board  realty amounts  to saying that it must be paid twice over, once  in the  form  of  the assets created  out  of  the  Development Reserve,  which  it  has already had,  and  again  the  same Development Reserve in cash as though it is still  available in  cash.   There is no justification either in  law  of  in equity  for  such  a demand.  We are not  impressed  by  the argument on behalf of the appellant Board 145 that compared to the language used in clauses II, III and IV which  deal with the Tariffs and Dividends  Control  Reserve and  the  Contingencies Reserve, the language in  clause  VA regarding   the  Development  Reserve  is   different   and, therefore, the Development Reserve should be handed over  to it.   The  Division  Bench  has dealt  in  detail  with  the arguments regarding the distinction between the  Development Reserve  and  the other reserves advanced before it  and  we find  ourselves  in agreement with  those  observations  and consider it unnecessary to repeat them.  We can see no  such distinction  which  will  lead to the  conclusion  that  the accumulated  Development Reserve should be paid over to  the purchaser  even  where it has already been used  up  in  the creation  of  tangible assets which have passed  on  to  the purchaser.  The principle is so clear that it does not  lend itself  to any argument whatsoever.  Nor does section 70  of the 1948 Act give us any guide in interpreting the  relevant provision of law which will lead to the conclusion contended for  by  the appellant The provision  regarding  Development Reserve came into existence only in 1957 when the new clause VA  was  inserted in the Sixth Schedule by Act 101  of  1956 with  effect from. 1-4-1957.  The language of  that  clause, therefore,  is not the same as the language of  clauses  II, III  ’and  IV  which have been in the  Act  from  the  every beginning.   But  that  by.  itself  does  not  create   any difficulty  or problem in the interpretation of clause  VA. We, therefore,’find ourselves in agreement with the  learned Judges of the High Court that as the Development Reserve  is available  for  investment in  the  business-of  electricity supply  of  the undertaking and the entire sum  therein  has been utilized by investment in such business and there is no amount left in cash in the Development Reserve the  Official Liquidator  cannot  be  directed to pay any  amount  to  the appellant Board as representing the Development Reserve. The  appeal  is  dismissed,  the  appellant,  will  pay  the respondent’s costs. V.P.S.                                  Appeal dismissed. 11-L944SupCI/73 146