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PETITIONER: VELLORE ELECTRIC CORPORATION LTD. AND ANR.

       Vs.

RESPONDENT: STATE OF TAMIL NADU & ORS.

DATE OF JUDGMENT13/04/1989

BENCH: VENKATACHALLIAH, M.N. (J) BENCH: VENKATACHALLIAH, M.N. (J) RANGNATHAN, S. PATHAK, R.S. (CJ) MUKHARJI, SABYASACHI (J) NATRAJAN, S. (J)

CITATION:  1989 AIR 1741            1989 SCR  (2) 475  1989 SCC  (4) 138        JT 1989  Supl.    105  1989 SCALE  (1)1103

ACT: Constitution  of  India, 1950: Articles 14,  19,  31,  31-C, 39(b) and 39(c).     ’Material  Resources of the Community’--Whether  include electrical  energy  generated  and  distributed  by  private undertakings. Acquisition  of   undertakings--Compensation--Justiciability of.     Procedure under  Indian  Electricity  Act,  1910--Alter- native  concurrent  procedure  envisaged  under  Tamil  Nadu Private  Electricity Supply Undertakings (Acquisition)  Act, 1973--Whether discriminatory and unconstitutional.     Tamil  Nadu  Private  Electricity  Supply   Undertakings (Acquisition) Act, 1973: Sections: 2-6, 10(f) and 23.     Constitutional  validity of--Object of the  Act--Whether has nexus to objects of Article 39(b) and (c) of the Consti- tution and therefore protection of ArtiCle 31-C.     Procedure  for  acquisition  of  undertakings  initiated under  Tamil Nadu Electricity Supply Undertakings  (Acquisi- tion)   Act,    1954--Proceedings  interrupted   by   Courts order--Fresh acquisition proceedings under subsequent Act of 1974  Whether acquisition of ’choses-in-action’.     Provision  relating to liability of licensee to  account to  Government in respect of possession of and  any  benefit derived  from  undertaking after  date  of  vesting--Whether arbitrary or unconstitutional.    ’Compensation  Amount’--Provision for exclusion of  works paid 476 for by the consumers--Whether unconstitutional.     Sums  due  to  Government and  Electricity  Boards  from licensee-Provision    for   deduction   from    compensation amount--Whether unconstitutional.     Acquisition--Property            belonging            to undertaking--Non-delivery     of--Loss     sustained      by Government--Computation   of--Basis--Market   value--Whether unconstitutional.     Acquisition--"Accredited  Representative"--Time  granted to   signify  choice  as  to  basis  of   determination   of amount--Whether unreasonably short and arbitrary.

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HEADNOTE:     The petitioner companies viz., Veilore Electric Corpora- tion  Ltd., Kumbakonam Electric Supply Corporation Ltd.  and Nagapatam  Electric Supply Corporation Ltd. were grantee  of licences  under  the  Indian Electricity Act,  1910  by  the Government  of the then Presidency of Madras for  supply  of electrical-energy in their respective areas.     In  exercise  of  its power under Section  4(1)  of  the Madras  Electricity Supply Undertakings  (Acquisition)  Act, 1954,  the  State Government issued orders  dated  12.1.1968 taking  over  the undertakings of the  Petitioner  Companies viz.,  Kumbakonam Electricity Supply Company  and  Nagapatam Electric  Supply Company declaring that  their  undertakings shall  vest  in the Government with effect  from  the  dates specified in their respective orders.     These  two petitioner companies filed writ petitions  in the  High  Court of Madras  challenging  the  constitutional validity of the 1954 Act, which were dismissed.     The Writ Appeals filed by them were also dismissed by  a Division  Bench of the High Court. Thereafter  appeals  were filed in this Court, which were however, later withdrawn.     Though proceedings for the acquisition of the  undertak- ings  of  these two companies had been initiated  under  the 1954 Act but full effectuation thereof had been  interrupted by  the  interlocutory  orders made by  the  courts  staying delivery of possession of the undertaking.     Subsequently  the Tamil Nadu Private Electricity  Supply Undertakings (Acquisition) Act, 1973 came into force  which, inter alia, nul- 477 lifted the effect of the action taken under the 1954 Act. On 30.10.1973  the State Government issued fresh  orders  under Section 4(1) of 1973 Act declaring that the undertakings  of these two petitioner companies shah vest in Government  with effect from 1.12.1973.     A  similar  order was passed b.v  the  State  Government under  Section  4(1)  of 1973 Act in respect  of  the  third petitioner  company viz. Vellore Electric Corporation  Ltd., declaring that the undertaking of this company shall vest in the Government with effect from 7.1.1974. By an order  dated 2.2.1978 the State Government also rejected the  application of  the  petitioner Vellore Electric Corporation  seeking  a change in the basis for determination of amount from basis A to basis B under the 1974 Act.     Writ Petitions were filed in this Court under Article 32 of  the Constitution by the three affected  companies  chal- lenging  the constitutional validity of the Tamil Nadu  Pri- vate  Electricity  Supply  Undertakings  (Acquisition)  Act, 1973,  as well as the orders made under Section 4(1) on  the ground  that the ’Act’, which envisages the  acquisition  of the Electric Supply Undertakings of petitioners as violative of  Articles 14, 19(1)(f), 19(1)(g) and 31 of the  Constitu- tion. Dismissing the Writ Petitions,     HELD:  1. The electricity generated and  distributed  by the  undertakings  of  the  petitioner-companies  constitute "material  resources of the community." for the purpose  and within the meaning of Article 39(b).     1.1  The idea of distribution of the material  resources of the community in Article 39(b) is not necessarily limited to  the idea of what is taken over for distribution  amongst the  intended  beneficiaries. That is one of  the  modes  of

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"distribution".  Nationalisation is other mode.     1.2 On an examination of the scheme of the impugned  law the  conclusion  becomes inescapable  that  the  legislative measure  is one of nationalisation of the  undertakings  and the  law is eligible for and entitled to the  protection  of Article 31-C.     1.3 The economic cost of social and economic reform  is, perhaps,  amongst  the  most vexed problems  of  social  and economic change and constitute the core element in National- isation.  The  need for constitutional immunities  for  such legislative efforts at social and economic 478 change recognise the otherwise unaffordable economic  burden of  reforms. It is, therefore, not possible to  divorce  the economic consideration or components from the scheme of  the nationalisation  with  which  the  former  are  inextricably integrated.  The financial cost of a scheme of  nationalisa- tion lies at its very heart and cannot be isolated. Both the provisions relating to the vestitute of the undertakings  in the State and those pertaining to the quantification of  the ’Amount’ are integral and inseparable parts of the  integral scheme of nationalisation and do not admit of being  consid- ered as distinct provisions independent of each other.     Tinsukia  Electric  Supply Co. Ltd..v. State  of  Assam, [1989](3) S.C.C. 709; applied.     1.4  In view Of the fact that what was acquired  in  the instant  case  were not merely  "choses-in-action"  but  the undertakings themselves, it is not necessary to go into  the question  whether  a "choses-in-action" can at  all  be  ac- quired.     State  of  Madhya Pradesh v. Ranojirao  Shinde  &  Anr., [1968]  (3)  S.C.R. 489 and Madan Mohan Pathak v.  Union  of India & Ors., [1978] (3) S.C.R. 334; referred to.     2.  The subject matter of the grant in relation to  dis- tribution in the community of such material resources be  it electricity, water, gas or other essential amenities of life has a special nature.     New  Orleans  Gaslight  Co. v. Louisiane  Light  &  Heat Producing  & Mfg. Co., 115 U.S. 650; The  Okara  Electricity Supply  Co.  Ltd. v. The State of Punjab, A.I.R.  1960  S.C. 284; referred to.     2.1  The impugned law is within the  legislative  compe- tence of the State Legislature and such State law, with  the Presidential  assent, prevails and is not over-borne by  the Central  law. The impugned State law, by its  22nd  section, expressly  excludes the operation of any provisions  of  the Electricity Act, 1910, in so far as such provision is incon- sistent with the provisions of the Stare Law. The  Constitu- tional  immunity  afforded  to the State  law  prevents  any challenge to it on grounds based on Article 14 or 19.     3.  There  is nothing unreasonable about  the  provision which  merely  recognises the obligation of  a  licensee  to account  for  its acts in relation to a property  which  has already vested in Government. There- 479 fore Section 4 which pertains to the liability of the licen- see to account to Government in respect of possession of and any  benefit derived from the undertaking after the date  of the vesting is not arbitrary and unconstitutional.     4.  The  deduction envisaged by Section 10(d)  from  the amount  payable towards and on account of arrears  of  elec- tricity charges payable by the licensee to the Government or the  Electricity Board as the case may be for the supply  of Electricity  made  by them to the licensee is  a  legitimate item of deduction. It cannot be held to be arbitrary on  the

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apprehension  that  even a disputed and untenable  claim  in that behalf becomes entitled to deduction. Section  13(1)(e) makes  such a dispute as one of the arbitrable disputes  and no  deduction  of a disputed claim can be justified  by  the Government if the arbitrator--who is or has been a  District Judge or a retired High Court Judge-holds that the deduction is unjustified.     5. If a debt is deducted from the "amount", the debt  is satisfied  and is extinguished and no further  debt  remains outstanding to get itself attached to and becomes an  encum- brance  upon  the substituted security viz.,  the  ’amount’. Section 6(2) and Section 10(e) must be construed harmonious- ly  and  in a reasonable manner. There is no scope  for  any apprehension of a possible double recovery of the same debt. Therefore  the  Act cannot be challenged on  the  ground  of possible double recovery of the same debt under Section 6(2) and Section 10(e).     6.  The measure of the reimbursement for an asset  with- held by the licensee is the corresponding expenditure to  be incurred  by Government for replacement which, in  eminently conceivable  cases, could be the market value of  the  asset which  is  so withheld by the licensee and which has  to  be replaced  to  keep the  undertaking  functioning.  Therefore Section  10(f) cannot be held to be arbitrary on the  ground that  it is an instance of application of  double  standards because  while  recovery of "market value" is sought  to  be made  for non-delivery of the item whereas in computing  the "amount" only the "book value" of such "property" or "right" is taken.     7. It cannot be said that the accredited  representative is,  under Section 8(1), given only a month’s time from  the date of his appointment to signify the choice under  Section 5  as to the basis of determination of the  amount.  Section 8(1)  also provides ’or such further time as may be  granted by  the Government’. If the exercise of this power is  arbi- trary or capricious the licensee has remedies in Administra- tive 480 Law.  But the provision itself cannot be held to be  bad  or invalid on the ground that time granted under the Section to signify choice under Section 5 is unreasonably short.     8. The order of the Government dated 2.2.1978  rejecting the application of the Petitioner, Vellore Electric Corpora- tion and refusing a change in the basis for determination of amount from basis A to basis B is set aside and the  Govern- ment is directed to consider the matter afresh.

JUDGMENT: ORIGINAL JURISDICTION: Writ Petition No. 5 (N) of 1974. (Under Article 32 of the Constitution of India).     Soli J. Sorabjee, Harish N Salve, A.K. Verma, K.J. John, Srinivasamurthy,  Ms. Naina Kapur, J.B. Dadachanji and  Joel Pares for the Petitioners. Shanti Bhushan and A.V. Rangam for the Respondents. The Judgment of the Court was delivered by     VENKATACHALIAH, J. In these writ-petitions under Article 32  of  the  Constitution of India,  three  electric  supply undertakings  in  the State of Tamil Nadu,  namely,  Vellore Electric  Corporation  Ltd., Nagapatam Electric  Supply  Co. Ltd.,  and  Kumbakonam  Electric  Supply  Corporation  Ltd., challenge  the  constitutional validity of  the  Tamil  Nadu Private  Electricity Supply Undertakings (Acquisition)  Act, 1973, (’Act’ for short) on the ground that the ’Act’,  which

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envisages  the acquisition of the Electric Supply  Undertak- ings  of  three petitioners, as violative  of  Articles  14, 19(1)(f), 19(1)(g) and 31 of the Constitution.     These writ-petitions were heard along with Writ Petition (Civil) Nos. 457 and 458 of 1972, pertaining to the acquisi- tion  of Tinsukhia Electric Supply Co. Ltd.,  and  Dibrugarh Electric  Supply Co. Ltd., under the provisions of the  Tin- sukhia and Dibrugarh Electric Supply Undertakings  (Acquisi- tion)Act,  1973, (Assam Act 1973) and the  main  contentions touching the constitutionality of such State laws, providing for  acquisition of private electricity  undertakings--inde- pendently of and without recourse to the option to  purchase envisaged by the terms  of licences and under the provisions Sections  6, 7 and 7A of the Electricity Act 1910--are  con- sidered in the main judgment in the said WP 481 Nos. 457 & 458, separately rendered today.     2.  The scheme and the broad features of The Tamil  Nadu Private  Electricity Supply Undertakings (Acquisition)  Act, 1973,  which  received the assent of the President  on  30th September, 1973, are that the "Act" enables and provides for the  acquisition of the private undertakings engaged in  the business  of supplying electricity to the public other  than those  belonging to and are under the control of  the  State Electricity Board or the local authorities.     Section  2  of the Act declares that the  "Act"  is  for giving effect to the policy of the State towards securing of the Directive Principles, specified in clauses (b) & (c)  of Article  39 of the Constitution of India. Section 3  is  the interpretation clause. Section 4 empowers the State  Govern- ment  to declare, by order in writing, that any  undertaking shall  vest  in  Government on the date  specified  in  such order.  The proviso to Section 4 enables the  Government  to modify,  by  advancing or postponing,  the  date  originally fixed in such order, or the modified date; or to cancel such order.  The  proviso is, however, subject  to  a  limitation which is in terms following:               "So,  however,  that no such  order  shall  be               modified  or cancelled after  the  undertaking               has vested in the Government but such  cancel-               lation  shall  not be deemed  to  prevent  the               Government from taking any proceeding de  novo               in  respect  of such  undertaking  under  this               Act."                   The mode of promulgation and the incidence               and consequence of an order under  sub-section               (1) of Section 4, are envisaged in  subsection               (3) (4) & (5) of Sections 4 and 6 of the  Act.               Sub-sections  (3),  (4) and (5) of  Section  4               provide:               "(3)  Every order under sub-section (1)  shall               be--               (a)  served on the licensee in the  prescribed               manner; and               (b) published in such manner as the Government               may deem fit.                         (4)  On the vesting date the  under-               taking,  to which the order under  sub-section               (1) relates, shall, subject to the  provisions               of  section 6, stand transferred to, and  vest               in, the Government.               482                        (5)  Every  licensee who,  after  the               vesting date, was in possession of, or  deriv-               ing any benefit from the undertaking vested in

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             the Government under sub-section (1), shall be               liable  to  pay  to the  Government,  for  the               period,  after such vesting, for which he  was               in  such possession or deriving such  benefit,               an amount as compensation for the use, occupa-               tion  or enjoyment of that undertaking as  the               prescribed authority may fix in the prescribed               manner. Such authority shall take into consid-               eration such factors as may be prescribed." We shall refer to Section 6 and its impact at an appropriate stage later.     Section  5  of the "Act" envisages the  "amount"  to  be given to the licensee on whom an order has been served under Section 4 and provides for its determination on two alterna- tive basis--Basis (A) or Basis (B)--as may be chosen by  the licensee  in the exercise of the option given under  Section 8. Section 7(1) contemplates and requires the appointment of an ,Accredited-Agent" by the licensee within three months of service  of the order under Section 4(1).  Such  accredited- agent  is  required within one month of his  appointment  or with  such  further time as may be  granted  by  Government, signify the choice of the Basis for the determination of the "Amount".  Section  8(2) says that the choice of  the  Basis once intimated shall not be open to revision except with the concurrence of the Government. ’Basis (A)’ provides that the amount  to be given shall be equivalent to 12 times  of  the average  net  annual  profits of the  undertaking  during  a period of any five Account-years at the option of the licen- see  within  a  period of  seven  consecutive  account-years immediately preceding the vesting date. ’Basis (B)’  contem- plates  a different mode of determination of the amount.  It provides  for  payment of the aggregate value  of  the  sums specified  in  clauses  (i) to (ix) of  sub-section  (2)  of Section  5.  Section  10 speaks of the  deduction  that  the Government  is  entitled to make for the  amount.  They  are specified  at clauses (a) to (i) of Section 10.  Section  11 provides for the manner of payment of the "Amount".  Section 13(1) renders any dispute "in respect of any of the  matters in  clauses  (a) to (e) of Section  13(1)"  arbitrable.  The Arbitrator  is required, by Section 11(2), to be a  District Judge  or  a  person who is a retired District  Judge  or  a retired High Court Judge.      Chapter III of the Act, comprising Sections 14, 15,  16 and 17 contemplate and provide for the termination of agree- ments  between  the  licensee  on  the  one  hand  and   the managing-agent or the managing- 483 director, as the case may be, on the other; the continuation under  the Government or the Electricity Board, of  services of persons on the staff of the licensee taking an  inventory of the assets and for information in regard to the documents maintained by the licensee and other incidental matters.     Sections  18  and 19 of Chapter IV deal  with  offences, penalties  and  procedure therefore  Chapter  V,  comprising Sections  20,  21, 22, 23 and 24, deals  with  miscellaneous matters.  Two sections in Chapter V are of particular  rele- vance.  Section 22(i), inter-alia, provides that  no  provi- sions  of Electricity Act, 1910, or the  Electricity  Supply Act,  1948,  in so far as such provisions  are  inconsistent with  any of the provisions of the Act, shall have  any  ef- fect. Section 23 refers to and deals with the action  initi- ated under the earlier State law viz., the Tamil Nadu  Elec- tric Supply Undertaking (Acquisition) Act, 1954, (Tamil Nadu Act 29 of 1954) which is repealed by the ’Act’.  Sub-section (1)  of Section 23 says that the said Act 29 of  1954  shall

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cease  to  apply to any undertaking as  defined  in  Section 3(12)  of  the ’Act’ which has "not vested  with  and  taken possession of by the Government under the provisions of  the 1954  Act"  before the commencement of the  1973  Act.  Sub- section  (2) and (3) of Section 23 envisage and provide  for situations where some action had been initiated by the  1954 Act but such action had not culminated in the vesting of the undertaking  and  possession  thereof  being  taken-over  by Government. Sub-section (2) and (3) of Section 23 provide:                         "(2)  Notwithstanding anything  con-               tained  in the 1954 Act, if, in  pursuance  of               any  order under sub-section (1) of section  4               of the 1954 Act in respect of any  undertaking               as defined in section 3 (12) of this Act,  the               Government  have not taken possession of  such               undertaking  before the commencement  of  this               Act that order shall lapse and be of no effect               and such undertaking shall not vest and  shall               be deemed never to have vested in the  Govern-               ment under the 1954 Act and in respect of such               undertaking it shall be lawful for the Govern-               ment to make an order under subsection (1)  of               section  4 of this Act and the  provisions  of               this  Act  shall  accordingly  apply  to  such               undertaking."                          "(3)    Notwithstanding    anything               contained  in the 1954 Act, where, in  respect               of any undertaking as defined in section 3(12)               of this Act, the Government have postponed the               date  of  vesting under the  proviso  to  sub-               section (1) of               484               section  4 of the 1954 Act,  that  undertaking               shall  not vest, and shall be deemed never  to               have vested, in the Government under the  1954               Act,  notwithstanding  the  expiration  of   a               period  of one year from the  date  originally               fixed  under sub-section (1) of section  4  of               the 1954 Act and in respect of such  undertak-               ing  it shall be lawful for the Government  to               make an order under sub-section (1) of section               4 of this -Act, and the provisions of this Act               shall accordingly apply to such undertaking."     The provisions of Section 23 acquire particular signifi- cance in the case of the Kumbakonam Electric Supply Corpora- tion Ltd. and Nagapatam Electric Supply Co. Ltd.,  petition- ers in W.P. 14 & 15 of 1974, as, indeed, proceedings for the acquisition  of the undertakings of these two companies  had been  initiated  under the 1954 Act  but  full  effectuation thereof  had  been interrupted by the  interlocutory  orders made  by courts in proceedings in which these two  companies had  challenged the validity of the 1954 Act. Section 23  of the present ’Act’ seeks legislatively to set at naught  such legal consequences as might come to be considered as ensuing from  the  action  taken under the earlier  1954  Act.  Some contentions  urged  in  these cases centre  round  what  the petitioners  refer  to as some irreversible,  vested  rights according  to them under the earlier proceedings  under  the 1954 Act.     3. The Vellore Electric Corporation Ltd., petitioner  in WP No. 5(N) of 1974, was granted on 14.5.1929 by the Govern- ment of the then--Presidency of Madras under the  provisions of the Indian Electricity Act, 1910, (1910 Act’ for  short), for  the supply of. electrical-energy within  the  municipal limits of Vellore town which was later extended to cover the

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adjacent area of Ranipet. Clause 12 of the licence envisages the  option  to the Government to  purchase  the  licensee’s undertaking on the expiry of 30 years from the  commencement of the licence or if licence is renewed thereafter on  expi- ration  of every subsequent period of 20 years,  during  the continuance  of the licence. At the relevant time  when  the order  under Section 4(1) was made, the remaining period  of the  licence  was upto 14.5. 1979. The State  Government  in exercise  of  powers under Section 4(1) of the Act  made  an order  dated 30.10.1973, served on the petitioner  on  5.11. 1973   fixing  1.12.1973  (which  was  later  postponed   to 7.1.1974) as the date of vesting. 4. The facts in W.P. 14 of 1974 are the following: 485     The petitioner, the Kumbakonam Electric Supply  Corpora- tion  Ltd.,  a public limited company, then engaged  in  the business of distribution and supply of electrical energy  in the  Taluks  of Kumbakonam and Papanasam and  a  portion  of Thanjavur  Taluk, in the District of Thanjavur in the  State of  Tamil Nadu, was granted a licence dated 15.4.1930  under the  Indian Electricity Act, 1910, by the Government of  the then-Presidency of Madras. The initial period of the licence was 20 years with a provision for renewal for further  peri- ods  of 7 years each. At the time the impugned  order  under Section  4(1)  of  the "Act" was made, in  relation  to  the Electricity  Supply Undertaking of this company,  the  unex- pired period of the licence was up to 15.4.1978.     On  12.1.1968, the State Government in exercise  of  its power  under Section 4(1) of the Madras  Electricity  Supply Undertakings (Acquisition) Act, 1954, made an order for  the taking-over of the undertaking. The petitioner-company filed a writ-petition No. 704 of 1968 in the High Court of Madras, challenging  the  constitutional validity of  the  1954  Act under which the order was made. That writ petition was  dis- missed on 31.7.1968. The Writ Appeal No. 338 of 1968,  filed by the petitioner was also dismissed by the Division  Bench. The  petitioner  preferred, by special leave, an  appeal  to this  Court in CA 119 of 197 1. During the pendency  of  the proceedings  before  the High Court and before  this  Court, petitioner  had  had the benefit  of  interlocutory  orders, "staying delivery of possession of the undertaking".  Howev- er, the petitioner withdrew the appeal, according to it,  on the suggestion of the Government With a view to facilitating negotiations for a settlement.     However, on 30.9.1973, the ’Act’ in the present proceed- ings  came into force. As noticed earlier,  sub-section  (2) and (3) of Section 23 of the ’Act’ statutorily abrogates the effect,  incidents and consequences of all earlier  proceed- ings  taken  under the 1954 Act, except in cases  where  the vesting and the taking over of possession of the undertaking had already occurred before 30.9.1973. The order under  Sec- tion  4(1) of the 1973 Act in the case of the petitioner  in WP 14 of 1974 was made on 30.10.1973 declaring 1.12.1973  as the date of the vesting.     5.  In  WP  No. 15 of 1974, the  first  petitioner,  the Nagapatnam Electric Supply Co. Ltd., a public limited compa- ny, was the grantee of a licence, dated 22.8.1933, under the Indian Electricity Act, 1910, by the then-Government, Presi- dency of Madras, for the supply of electricity in the  areas specified in the grant. The initial period of the  . licence was 20 years with a provision for renewal for further  peri- ods of 486 7  years  each.  At the time the order  under  Section  4(1) impugned in the writ-petition was made, the unexpired period

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of the licence was upto 22.8.1974. As in the case of Kumbak- onam  Electric  Supply Corporation Ltd., so in  the  present case,  Government  in  purported exercise  of  powers  under Section 4(1) of the earlier Act, viz., the Tamil Nadu  Elec- tricity Supply Undertaking (Acquisition) Act, 1954, had made an order on 12.1.1968 declaring that the undertaking of  the petitioner  shall  vest in the Government with  effect  from 15.7.1968. The petitioner also challenged the constitutional validity  of the 1954 Act in WP No. 703 of 1968 in the  High Court  of Madras. The writ-petition was dismissed in  Madras High  Court  on 3.7.1968. The Writ Appeal 337 of  1968  pre- ferred  by the company before a Division Bench of  the  High Court, also came .to be dismissed. The Company preferred, by special leave, CA No. 120 of 1971 before this Court.  During the pendency of the proceedings in the High Court and in the appeal  before this Court, there were interlocutory  orders, staying  delivery  of  possession of  the  undertaking.  The appeal  before  this  Court was however,  withdrawn  by  the company on 5.10. 1972.      Thereafter, 1973 Act came into force. As stated  earli- er, SectiOn 23 of the ’Act’ sought to nullify the effect. of the action taken under the 1954 Act and a fresh order  dated 30.10.1973 under Section 4(1) of 1973     Act came to be promulgated declaring that the  undertak- ing  of  the .  petitioners would vest  in  Government  with effect from 1.12.1973.      6. The three petitioner-companies assail the  constitu- tional  validity of the ’Act’ as also the orders made  under Section 4(1) in the individual cases.      We have heard Sri Hansh Salve, learned counsel for  the petitioners in the three petitions and Shri Shanti  Bhushan, learned Senior Advocate for the State of Tamil Nadu and  its authorities. The challenge in the main, is to the  constitu- tionality  of the "Act", on the basis of  discrimination  as between the procedures for take-over contained in Section  6 and 7 of the Electricity Act, 1910, on the one hand and  the less  advantageous,  so far as licencee is  concerned,  con- tained  in the present ’Act’. However, some specific  provi- sions are also challenged as arbitrary and unreasonable.      The  contentions in support of the petitions  urged  at the  hearing  of  these petitions--of which (b)  &  (c)  are particular to WP Nos. 14 and 15 of 1974--may be noticed  and formulated thus: 487                  "(a)  that the legislative  declaration  in               Section 2 of the ’Act’ that the legislation is               for giving effect to the Directive  Principles               of  State Policy, specified in clauses  (b)  &               (c)  of  Article  39 of  the  Constitution  is               invalid, it being merely a pretext to undo and               take away the petitioners’ legitimate entitle-               ment to the payment of market-value as provid-               ed  in  the  terms of the  licence  read  with               Section  6  and 7 of Electricity Act,  19  10,               and,  accordingly,  the legislation  does  not               attract   the  constitutional  validity   from               challenge under Article 31-C of the  Constitu-               tion;                  (b) that, pursuant to the order made  under               Section  4(1)  of the  1954  Act  petitioners’               undertakings stood vested in Government in the               year 1968 and the concomitant right to receive               compensation  as  determinable  under  and  in               terms of the 1954 Act was came to be vested in               the  petitioners  and got crystalized  into  a

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             ’chose-in-action’  and  that  in  the  circum-               stances the impugned ’Act’ which in effect and               substance  acquires  only  these   "choses-in-               action",  and  not the  undertakings  as  such               which had already vested under the 1954 Act;                  (c) that Section 23(2) of the Impugned  Act               in so far it seeks to undo the legal incidents               and  consequences  of  the  order  made  which               provided a less disadvantageous standards  for               the  determination of the amount and  the  im-               pugned orders which seeks to declare that  the               said     undertakings    vest     again     in               Government--this  time pursuant to order  pro-               mulgating  under Section 4(1) of the  impugned               Act  is violative of Article 14, 19(1)(g)  and               31 (as the latter Articles then stood) being a               fraud on the power to acquire;                  (d) that the ’Act’ is violative of  Article               14 of the Constitution in as much as it  seeks               to  confer upon the Government an  alternative               and discriminatory power of attaining the same               end,  namely, the acquisition of  petitioners’               undertakings on terms more advantageous to the               Government  and  more disadvantageous  to  the               petitioners than those contained in the  Elec-               tricity Act 1910;               that the direct effect of the impugned Act  is               to  extinguish the rights conferred  upon  the               petitioners  to carry on a lawful business  in               terms  of  the subsisting  licences  in  their               favour  and is violative of  Article  19(1)(f)               (as it then stood) and 19(1)(g):               488                  (e)  that, at all events, Section  4(5)  of               the  Act which renders a licencee,  who  after               the  vesting  date was in  possession  of,  or               deriving  any  benefit from,  the  undertaking               liable  to pay to Government compensation  for               the use occupation enjoyment of the  undertak-               ing is arbitrary and violative of Articles  14               and 31;                  (f)  that clause 5(2)(i) of the  Act  which               excludes from the compensation of the ’Amount’               works  paid-for by the consumers is  violative               of Article 19(1)(g) and Article 31;                (g) that Section  10(d) providing for  deduc-               tion from the ’Amount’ sums due to the Govern-               ment or the Electricity Board by the  licencee               account of electricity supplied by  Government               is arbitrary, as the provision empowers deduc-               tions  of even sums bona fide disputed by  the               licencee of debts.                  (h)  that,  while proviso to  Section  6(e)               enables  debts, mortgages and  obligations  of               the  licencee to attach to the "amount" to  be               given  under the Act. Section 10 again  envis-               ages the same ’amount’ to be deducted from the               ’amount’, leading to a possible double  recov-               ery of the same debt;                  (i) that Section 10(f) providing for deduc-               tion of loss sustained by Government by reason               of  any property belonging to the  undertaking               not having been handed over at the marketvalue               of the property is unreasonable in as much  as               under  Basis B. Such Market-value is  not  but

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             only the book-value is the basis of determina-               tion of the amount;                  (j)  that  provisions of  Section  8  which               prescribes a period of one month during  which               the accredited representative has to  exercise               a  right  of auction  is  unreasonably  short,               rendering  the  procedure prescribed  for  the               choice  of the Basis of determination  of  the               ’Amount unfair and arbitrary.’               7. Re: Contentions (a), (b), & (c):     These  contentions  could be dealt  with  together.  The principal  argument  is that that there is no  rational  and direct  nexus between the objects of the Act and the  Direc- tive  Principles of (1) State Policy adumorated  in  clauses (b) & (c) of Article 39 in as much as the 489 impugned  Act  was brought forth only to  avoid  the  conse- quences  of  the terms of the licences  and  the  beneficent provisions  of Section 6, 7 and 7-A of the  Electricity  Act 1910. If there is, thus, no protection to the law of Article 31-C, then its provisions would clearly violate Articles 14, 19 and 31.     These contentions have to be examined with reference  to the  provisions of the Constitution as they stood  in  1973. Article 31-C was introduced by Section 3 of the Constitution (25th Amendment) Act 1971 with effect from 20.4.1972.  Arti- cle  31-C,  before the expansion of its scope  by  the  42nd Amendment,  protected a law giving effect to the  Policy  of the  State towards implementing the principles specified  in Clauses  (b) & (c) of Article 39. Article 31 itself had  not then  been deleted but its scope had been  considerably  cut down  and a law providing for acquisition of property,  even if it did not have the protection of Article 31-C, could not be  tested  with reference to the adequacy of  the  ’amount’ payable  for the acquisition. The ’just-equivalent’ or  ful- lindemnification  principle had been done away with and  the question  of  the adequacy of the amount was  rendered  non- justiciable.     It was strenuously urged on Sri Salve that the  impugned Act  had  no rational and direct nexus with the  objects  of clauses  (b)  & (c) of Article 39 as the covert  but  easily discernible purpose of the Act was to deny to the  petition- ers’ their rights under terms of the licence and the benefit of Sections 6, 7 & 7(A) of the 1910 Act. A somewhat similar’ contention  was urged in WP Nos. 457 & 458 of 1972  where  a similar  legislation of the State of Assam  was  challenged. The  contention is noticed in our judgment in those  appeals thus:               "  ....  the acquisition of the two  undertak-               ings  are  challenged  by  the  petitioner  on               several grounds, the principal attack,  howev-               er,  being  that  the  legislations,   brought               forth,  as they were, in the wake of the  pri-               vate-negotiations  and  the  exercise  of  the               option  to  purchase, are not bona  fide,  but               constitute  a mere colourable exercise of  the               legislative power and that, at all events  the               real  objects of the two legislations have  no               direct  and  reasonable nexus to  the  objects               envisage  in clause (b) of Article 39  of  the               Constitution  and that a careful and  critical               discernment of the context in which the legis-               lation was brought forth would lay bare before               the  judicial eye that what was sought  to  be               acquired  was  not "undertakings" of  the  two

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             companies  but really the  difference  between               the "market-value" of the               490               undertakings which the State had agreed, under               the private treaties, to pay and what, in  any               event, the State was obliged to pay under  the               provisions of Section 7A, as it then stood  on               the  one  hand  and the  "Book-Value"  of  the               undertaking, which the law seeks to substitute               on  the other. If the protective  umbrella  of               Article  31-C  is, thus, out of the  way,  the               ’amount’ payable under the impugned law, it is               urged, would be illusory even on the judicial-               ly accepted tests applied to Article 31(2)  as               it then stood               "                        "   .....  Learned Counsel  submitted               that  in order to decide whether a Statute  is               within  Article 31-C or not, the Court has  to               examine the nature and character of the legis-               lation  and if upon such scrutiny  it  appears               that there is no nexus between the legislation               and the principles in Article 39(b) the legis-               lation  must be held to fall outside the  pro-               tection of Article 31-C  ....  "               The contention was not accepted. Repelling it,               we  observed in the course of the judgment  in               WP Nos. 457 & 458 of 1972:               "The  proposition of Sri Sorabjee, in  princi-               ple,  is, therefore, unexceptionable; but  the               question remains whether, upon the application               of the appropriate tests, the impugned statute               fails to measure-up to the requirements of the               Constitution  to  earn  the  protection  under               Article 31-C  .....  "                        "It  is not disputed that  the  elec-               tricity  generated  and  distributed  by   the               undertakings   of   the   petitioner-companies               constitute "material resources of the communi-               ty" for the purpose and within the meaning  of               Article 39(b)."               "   ....   The  idea of  distribution  of  the               material resources of the community in Article               39(b)  is not necessarily limited to the  idea               of what is taken over for distribution amongst               the intended beneficiaries. That is one of the               modes  of "distribution".  Nationalisation  is               another mode  ....  "                        "On  an examination of the scheme  of               the impugned                     law  the conclusion becomes  inescapable               that  the legislative  measure is one  of  na-               tionalisation of the undertakings and  the law               is eligible for and entitled to the protection               of Article 31-C."               491               Referring to the contention in that case  that               not  every provision of a law can and need  to               eligible  for the protection of  Article  31-C               and  that; accordingly, the provisions  as  to               the  quantification of the amount  which  were               meant to achieve an oblique motive and  inter-               dicting  and extinguishing rights  to  receive               market  value  under the 1910  Act  would  not               attract the protection of Article 31-C, It was

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             held:               "   ....  We are afraid this  contention  pro-               ceeds  on  an impermissible dichotomy  of  the               components integral to the idea of  nationali-               sation.  The economic cost of social and  eco-               nomic  reform  is, perhaps, amongst  the  most               vexed  problems of social and economic  change               and constitute the core element in  Nationali-               sation. The need for constitutional immunities               for  such  legislative efforts at  social  and               economic change recognise the otherwise  unaf-               fordable economic burden of reforms  .....  "                         "It  is, therefore, not possible  to               divorce the economic considerations or  compo-               nents  from the scheme of the  nationalisation               with  which the former are inextricably  inte-               grated.  The  financial cost of  a  scheme  of               nationisation  lies  at  its  very  heart  and               cannot be isolated. Both the provisions relat-               ing  to the vestitute of the  undertakings  in               the State and those pertaining to the  quanti-               fication  of  the "Amount"  are  integral  and               inseparable  parts of the integral  scheme  of               nationalisation  and  do not  admit  of  being               considered as distinct provisions  independent               of each other."     8. These observations fully answer the contention of Sri Salve  in  regard to the question whether impugned  Act  at- tracts  protection of Article 31-C or not. If  Article  31-C comes in, Articles 14, 19 and 31 go out.     The  second limb of the Contention (a) is that  the  im- pugned  Act  seeks to  take-over  petitioners’  undertakings which  had already vested in Government under the 1954  Act. It is, no doubt, true that appropriate orders had been  made under  Section 4(1) of 1954 Act. Sri Salve contends that  by the operation of law, the undertakings of the two  petition- ers, namely, Kumbakonam Electric Supply Corporation Ltd. and Nagapatnam Electric Supply Co. Ltd. became vested in Govern- ment  and  that  Section 23 of  the  present  Act  virtually creates  an  artificial divestitive event and seeks  to  re- invest it again in Govern- 492 ment  by  the device under the impugned Act  with  the  sole object  of  cutting down the quantum of  the  "amount".  Sri Salve  pointed out that Section 5 of the 1954 Act  envisaged three alternative Bases--Basis A, Basis B, and Basis  C--and that  under  Basis  A the amount equal to 20  times  of  the average net annual profit of the undertaking during a period of  five consecutive accounting years immediately  preceding the vesting date was payable. The number of years’  purchase value is, Sri Salve says, now reduced to 12 by the  impugned Act.  Shri Salve submits that the amount payable  under  the 1973 Act is wholly illusory.     9.  Shri Shanti Bhushan, learned Senior counsel for  the State,  submitted that  if it is held that  the  legislation has the protection of Article 31-C, barring the question  of legislative  competence all other attacks based on  Articles 14 and 19 and 31 cannot be countenanced. Sri Shanti  Bhushan submitted  that  all the contentions  that  the  petitioners advance in support of their challenge to the validity of the Act  rest, in the ultimate analysis, on Articles 14, 19  and 31 which is precisely what Article 31-C forbids.     So  far  as legislative competence  is  concerned,  Shri Shanti Bhushan submitted that it is referable to Entry 42 of List  III  and  with Presidential  assent,  the  legislation

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prevails  over any other law and, therefore, no question  of lack of legislative competence can be urged.Learned  counsel submitted that the contentions urged by the petitioners,  in the last analysis, would amount to this: that a  legislation which  offends Articles 14. 19 and 31. would not be a  valid law at all and would, therefore, not be eligible to  protec- tion  Article  of  31-C. If a law satisfies  the  demand  of Article 14, 19 and 31 then such a law, says learned counsel, would  not  need the protection of Article 31-C at  all  and that  such  an  approach would render  Article  31-C  itself meaningless.     In  regard  to the Contention (d),  Sri  Shanti  Bhushan would  say  that  it proceeds on a  factual  fallacy.  There cannot,  it  is urged a vesting of the  undertaking  in  the Government under the 1954 Act unless the concept of  vesting has and is accompanied by, the plenitude of the legal  inci- dents  and consequences of such vesting for purposes of  the implementation of the 1954 Act. When the delivery of posses- sion  of  the undertaking pursuant to  the  alleged  vesting under  the 1954 Act had been interdicted by the  High  Court and the Supreme Court by orders of stay, at the instance  of the  petitioners,  the exercise under the  1954  Act  became infructuous  and  the present stance of the  petitioners  is merely an attempt to exploit to their own advantage a situa- tion emerg- 493 ing from the consequences of their own actions. That  apart, the  contention  (d), says counsel, is really one  based  on Articles 14, 19 and 31 and the protection of Article 31-C to the Act would, in any event, disallow any such attack. 10. On a consideration of the matter, we think that all  the Contentions--(a), (b), (c) and (d)--are covered in one  form or  the  other our pronouncement in WP Nos. 457 and  458  of 1972. We are also of the opinion that Sri Salve’s contention that  what  was sought to be acquired was  mere  "choses-in- action"  is  not sound. In any event, the decision  of  this Court in State of Madhya Pradesh v. Ranojirao Shinde & Anr., [1968]  3 SCR 489 relied upon by Shri Salve to contend  that choses-in-action  could not be acquired would require to  be read with later pronouncement in Madan Mohan Pathak v. Union of  India  & Ors., [1978] 3 SCR 334. It  is  not  necessary, however, to pronounce on this point as in our view what  was acquired  were not merely choses-inaction but the  undertak- ings themselves.     Contentions  (a), (b) and (c) accordingly fail  and  are held and answered and against the petitioners. 11. Re: Contention (d):     The  submission of learned counsel on the point is  that the impugned Act confers upon the State Government an alter- native  procedure,  concurrently with the one  envisaged  in Sec. 6 of the Electricity Act, 19 10, for attaining the same end viz., the acquisition of an Electricity Undertaking.  It is urged that Sec. 6 of the 1910 Act has been held to amount to conferment of power upon the authorities to take away the property of the licensee. The option under Sec. 6 is  really statutory  and  in  its essential nature the  power  is  not distinguishable  from the State’s power to acquire an  indi- vidual’s property which really is and forms the basis of the impugned Act.     It appears to us that there are certain fallacies  basic to the argument. The special nature of the subject matter of the  grant in relation to distribution in the  community  of such  material resources--be it electricity, water,  gas  or other  essential amenities of life--was recognised  by  this Court.  The  following  observations of  the  United  States

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Supreme Court in New Orleans Gaslight Co. v. Louisiane Light & Heat Producing & Mfg. Co., 115 U.S. 650 were referred to:               "the  manufacture and distribution of  gas  by               means of               494               pipes, mains and conduits placed under  legis-               lative  authority  in  the public  ways  of  a               municipality,  is not an ordinary business  in               which  everyone may engage as of common  right               upon  terms  of equality; but is  a  franchise               relating  to matters of which the  public  may               assume control  .....  "               and said:                         "  ..........  It thus appears  that               American  Lawyers  describe  the  business  of               supplying  energy as well as the  business  of               supplying water and gas as a franchise, and it               also  appears  that, in  granting  licence  or               sanction  to a person to engage in such  busi-               ness,  a condition is usually imposed for  the               compulsory  acquisition of the  business  when               the licence or sanction comes to an end". [See               The  Okara.Electric  Supply Co.  Ltd.  v.  The               State of Punjab, AIR [1960 SC 284]     If the impugned law is within the legislative competence of  the  State  Legislature--as indeed it must  be  held  to be--the  State law, with the Presidential  assent,  prevails and is not over-borne by the Central law. The impugned State law,  by its 22nd Section, expressly excludes the  operation of any provision of the Electricity Act, 1910, in so far  as such  provision is inconsistent with the provisions  of  the State-Law.     The  constitutional immunity afforded to the  State  law prevents any challenge to it on grounds based on Article  14 or 19. We have held that the State law has such  protection. The contention (d) has thus, no foundation. It has to fail.                Re: Contention (e):     12.  This pertains to the liability of the  licensee  to account  to Government in respect of possession of  and  any benefit  derived from the undertaking after the date of  the vesting. This provision is assailed as arbitrary and  uncon- stitutional. There is nothing unreasonable about this provi- sion which merely recognises the obligation of a licensee to account  for  its acts in relation to a property  which  has already vested in Government. There is no substance in  this contention either.              13. Re: Contention (f): This contention arises in the context of Sec. 5(2)(i) of the Act. In 495 computing  the amount payable under "Basis B" the  aggregate value  of  the sums specified in several clauses of  1  Sec. 5(2) has to be taken. Sec. 5(2)(i) while requiting the  book value  of all "completed-works in beneficial use  pertaining to the undertaking and handed over to the Government" to  be taken,  however,  excludes therefrom works paid for  by  the consumers.  The  contention of the petitioners is  that  the "works paid for by the consumer" is also the property of the licensee and cannot legitimately be excluded. A substantial- ly similar contention was urged and has been considered  and negatived at para 29 of our judgment in WP Nos. 457 and  458 of 1972. The reasons stated by us in negativing the  conten- tion in that case fully answer the present point. Contention (f) is also insubstantial.              14. Re: Contention (g):

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   Section  10(d) envisages,deduction from the amount  pay- able  towards  and  on account  of  arrears  of  electricity charges  payable  by the licensee to the Government  or  the Electricity  Board.  as the case may be, for the  supply  of Electricity made by them to the licensee. This is a  legiti- mate item of deduction. But, the point Shri Salve sought  to put across is that ,even a disputed and untenable. claim  in that  behalf  becomes  entitled to deduction.  There  is  no justification for this apprehension. Section 13(1)(e)  makes such  a  dispute as one of the arbitrable  disputes  and  no deduction of a disputed claim can be justified by Government if the arbitrator--who is or has been a District Judge or  a retired High Court Judge-holds that the deduction is  unjus- tified. Contention (g) has no substance either.                   15. Re: Contention (h):     The  grievance  sought to be made out on the  matter  is that while Section 6(2) of the Act has the effect of vesting all  the assets specified in Sec. 6(2)(i)(b)  in  Government free from encumbrances and the proviso to Sec. 6(2)  renders the  amount payable to the licensee as substituted  security for the debts, mortgages and obligations in substitution  of the  assets vesting in Government, however, Sec. 10(e)  ren- ders one species of such debt viz,. sums due to the  Govern- ment  or the Electricity Board, liable to be  deducted  from the  amount. Shri Salve contends that this would make for  a double recovery of the same debt. This, we are afraid, is  a wrong  way  of looking at the two provisions. If a  debt  is deducted  from the "amount", .the debt is satisfied  and  is extinguished and no further debt remains outstanding to  get itself  attached to and became an encumbrance upon the  sub- stituted 496 security  viz., the ’amount’. Sec. 6(2) and Sec. 10(e)  must be construed harmoniously and in a reasonable manner.  There is no scope for any apprehension of a possible double recov- ery  of the same debt. There is no substance  in  contention (h).                16. Re: Contention (i):     The point of the matter is that sec. 10(f) entitles  the deduction  of the market value of any "property" or  "right" which vests in Government and which is not delivered by  the licensees to Government. The grievance of the petitioner  is that  while recovery of "market value" is sought to be  made for  non-delivery  of the item, however,  in  computing  the "amount" only the "book value" of such "property" or "right" is taken into account. This, it is contended, is an instance of application of double standards and is, therefore,  arbi- trary.  We see no substance in this contention. The  measure of  the reimbursement for an asset withheld by the  licensee is  the corresponding expenditure to be incurred by  Govern- ment for replacement which, in eminently conceivable  cases, could be the market value of the asset which is so  withheld by  the  licensee and which has to be replaced to  keep  the undertaking  functioning.  There  is no  substance  in  this contention either.               17. Re: Contention (j):     Shri Salve submitted that the accredited  representative is, under sec. 8(1), given only a month’s time from the date of his appointment to signify the choice under section 5  as to  of  the basis of determination of the amount.  The  time granted,  it  is said, is unreasonably short.  The  argument clearly overlooks the clause ’or such further time as may be granted by the Government’ occurring in Section 8(1). If the exercise of this power is arbitrary or capricious the licen- see  has remedies in Administrative Law. But  the  provision

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itself  cannot be held to be bad. There is no  substance  in this contention either.     18.  Certain other subsidiary contentions were urged  at the hearing. All these matters have been elaborately consid- ered in our judgment in Writ Petn. Nos. 457 and 458 of  1972 arising out of the Assam legislation. We have not found  any merit in them.     19. However, there is one aspect which merits considera- tion.  Shri  Salve submitted that the  petitioners  in  Writ Petn.  No.  5(N) of 1974, who initially, on  16.1.1974,  had opted  for basis A had sought a change to basis B  by  their application dated 4.10.1977. On 2.2.1978, 497 Government refused to permit the change. Shri Salve  submits that  a  serious and indeed, irreparable hardship  has  been occasioned to the petitioners by this arbitrary refusal.  In these writ petitions we have dealt with questions of consti- tutionality  leaving  the questions of construction  of  the provisions  to the appropriate authorities. However,  having regard  to  the  checkered history of  the  proceedings,  it appears  to us that Shri Salve’s submission deserves  to  be accepted.  Accordingly,  the order of the  Government  dated 2.2.1978 refusing a change in the basis for determination of the  amount is set aside and the Government is  directed  to consider  and  dispose of the  application  dated  4.10.1977 afresh  within two months from today. We make it clear  that the  Government shall not unreasonably withhold the  permis- sion for the change.     20.  In the result, subject to the direction in para  19 supra  relating  to W.P. No. 5(N) of 1974, we find  no  sub- stance  in these writ petitions which are  dismissed.  There will be no order as to costs. T.N.A.                                             Petitions dismissed. 498