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CASE NO.: Appeal (civil) 3654  of  1993

PETITIONER: U.P. STATE ELECTRICITY BOARD

       Vs.

RESPONDENT: THE BANARAS ELECTRIC LIGHT & POWER CO. LTD.

DATE OF JUDGMENT:       12/05/2000

BENCH: S. SAGHIR AHMAD, Y.K. SABHARWAL, & S.N. VARIAVA.

JUDGMENT:

J U D G M E NT S. N. Variava, J. L...I...T.......T.......T.......T.......T.......T.......T..J     1.  This Civil Appeal is against the Judgment dated 17th September 1987 delivered by a Division Bench of the Calcutta High  Court.  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 Amendment Act set out hereinafter.

   2.   Briefly  stated the facts are as follows:   On  6th February,  1925  the Government of Uttar Pradesh granted  to one  M/s  Martin  & Co.  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,  1975.  On February 1, 1974 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 Appellants 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, 1975.

   3.   On  February  4,  1975,  Indian  Electricity  (U.P. Amendment  and  Validation)  Ordinance No.  7  of  1975  was passed.   This  Ordinance amended certain provisions of  the Indian  Electricity  Act.  Subsequently this  Ordinance  was replaced   by  an  Act   namely  Indian  Electricity   (U.P. Amendment  and Validation) Act, 1976.  The Ordinance and the Act  amended amongst others Sections 6 and 7-A of the Indian Electricity Act.

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

   "6.   Purchase of undertakings.  - (1) Where licence has

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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 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."

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   5.   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.

   6.   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."

   7.  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  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

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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."

   8.   By  the above mentioned Ordinance and the Act,  the amendment which was carried out was that 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.

   9.   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  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.

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

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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 nationalisation  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.

   11.   This  case  is  entirely   covered  by  the  above mentioned judgments.  Dr.  Singhvi fairly conceded that this case would be covered by the above mentioned Judgments.

   12.   In this view of the matter, the Appeal is allowed. The  Judgments  of the Division Bench dated  17th  September 1987  as  well as the learned single Judge dated  4th  April 1984  are  set  aside.  The Writ Petition filed by  the  1st Respondent  stands dismissed.  There shall be no order as to costs.