# MAHARASHTRA STATE ELECTRICITY BOARD v. THANA ELECTRIC SUPPLY CO. & OTHERS

- **Citation:** [1989] 2 S.C.R. 518
- **Court:** Supreme Court of India
- **Decided:** 1989-04-13
- **Case number:** Civil Appeal No. 4113 of 1985
- **Bench:** R.S. Pathak, Sabyasachi Mukharji, S .. Natarajan, M.N. Venkatachaljah, S. Ranganathan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/maharashtra-state-electricity-board-v-thana-electric-supply-co-others-10289
- **Pages:** 26

## Headnote

Indian Eelectricity Maharashtra Amendment) Act, 1976 & Indian
C
Electricity (Maharashtra Amendment and Validation) Act, 1974: Sections 4, 5 and 6/Section 2-Constitutional validity of-Whether pro_, ·
tected by Article 3 JC of the Constitution.
Constitution of India: Articles 14, 19, 31, 31C, 39(b)-LegislaD live enactment challenged as not conforming to Constitutional
mandate-Duty of Court-Nexus between the law and objects of Article
39(b )-Could be shown independently of any declaration of the
legislature-Indian Electricity (Maharashtra Amendment) Act 1976,
Sections 4 to 6 and Indian Electricity (Maharashtra Amendment and
...
Validation) Act 1974 Section 2-Whether constitutionally valid.
E
The respondent-Company took over, with the consent of the State
Government, the licence granted to a private firm under the Indian
Electricity Act, 1910 for supply and distribution of electricity in the
areas covered by the licence, and became entitled to the benefits and
f
privileges of the licence. Under cl. (11) of th<l licence, Government had
the option to purchase the undertaking on the.
1expiry of the period of
licence.
~
The licence was to expire on 21st September, 1977. The State
Electricity Board, in exercise of its option, issued a notice to the ComG
pany on 26th August, 1976 and required it to sell and deliver the undertaking to the Board on the midnight between 2 lst and 22nd September,
1977.
Under the provisions of the Indian Electricity Act, 1910, as they
H
stood at the time of option, the Company was entitled to be paid the
518
....
-
ELECTRICITY BOARD v. ELEC. SUPPLY CO.
519
' "'
market value of the undertaking. But, by the Amending Act, 1976 the
A
Bill for which had been introduced in the State legislature on 13. 7 .1976
the principle of market value in the relevant provisions of the 1910 Act was
substituted by the concept of "Amount" legislatively fixed as a sum
equal to the depreciated Book-Value of the assets of the undertaking to
be taken over. The amended provisions were to govern cases where
+
notices had been issued prior to the amendment.
B
).
The responOeitt-Company filed writ petitions before the High
Court challenging the validity of ss. 4, 5 and 6 of the Indian Electricity
(Maharashtra Amendment) Act, 1976 ands. 2 of the Indian Electricity
(Maharashtra Amendment and Validity) Act, 1974 as violative of Arts.
14, 19(l)(f) and (g) and 31 of the Constitution.
c
t
The appellants, the State and the Electricity Board, claimed
protection of Art. 31-C to the Amending Act, 1976 and the consequent
immunity from attack on the ground of violation of Arts. 14, 19 and 31.
The High Court held that in the absence of a declaration in the
D
Amending Act of 1976 that.the law was one intended to give effect to the
objects of Art. 39(b) and (c) of the Constitution, the Amending Act
cannot have the protection of Art. 31-C. Declaring s. 4 of the Amending
~ Act as violative of Art. 19(l)(f) and Art. 14, it held that the State could
not unilaterally rednce, even by _legislation, its liability to pay the
purchase price under a consensual transaction and that conferment on
E
Government of power to fix instalments was grossly unreasonable and
-
arbitrary and that provision for payment of interest at the Reserve
Bank rate plus one per cent made more nnreasonable the provisions of the
Amending Act .
..
The High Court also rejected the respondent-Company's claim as F
't to the Constitutional infirmity attributed to s. 2 of the 1974 Act and ss. 5
and 6 of the Amending Act, 1976. It further rejected the Company's
contention that, upon the service of the notice exercising the option to
purchase, the Company's right to be paid the market value under the
law as it then stood, was crystallised into an "actionable claim" or "A
~
chose-in-action" and that What was sought to be acquired was not the
G
undertaking itself but a chose-in-action, and that the law was bad for
excluding the service lines from computation of the amount.
The appellants filed app

## Text

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A
B
MAHARASHTRA STATE ELECTRICITY BOARD
v.
THANA ELECTRIC SUPPLY CO. & OTHERS.
APRIL 13, 1989
[R.S. PATHAK, CJ, SABYASACHI MUKHARJI,
S .. NATARAJAN, M.N. VENKATACHALJAH AND
S. RANGANATHAN, JJ.]
Indian Eelectricity Maharashtra Amendment) Act, 1976 & Indian
C
Electricity (Maharashtra Amendment and Validation) Act, 1974: Sections 4, 5 and 6/Section 2-Constitutional validity of-Whether pro_, ·
tected by Article 3 JC of the Constitution.
Constitution of India: Articles 14, 19, 31, 31C, 39(b)-LegislaD live enactment challenged as not conforming to Constitutional
mandate-Duty of Court-Nexus between the law and objects of Article
39(b )-Could be shown independently of any declaration of the
legislature-Indian Electricity (Maharashtra Amendment) Act 1976,
Sections 4 to 6 and Indian Electricity (Maharashtra Amendment and
...
Validation) Act 1974 Section 2-Whether constitutionally valid.
E
The respondent-Company took over, with the consent of the State
Government, the licence granted to a private firm under the Indian
Electricity Act, 1910 for supply and distribution of electricity in the
areas covered by the licence, and became entitled to the benefits and
f
privileges of the licence. Under cl. (11) of th<l licence, Government had
the option to purchase the undertaking on the.
1expiry of the period of
licence.
~
The licence was to expire on 21st September, 1977. The State
Electricity Board, in exercise of its option, issued a notice to the ComG
pany on 26th August, 1976 and required it to sell and deliver the undertaking to the Board on the midnight between 2 lst and 22nd September,
1977.
Under the provisions of the Indian Electricity Act, 1910, as they
H
stood at the time of option, the Company was entitled to be paid the
518
....
-
ELECTRICITY BOARD v. ELEC. SUPPLY CO.
519
' "'
market value of the undertaking. But, by the Amending Act, 1976 the
A
Bill for which had been introduced in the State legislature on 13. 7 .1976
the principle of market value in the relevant provisions of the 1910 Act was
substituted by the concept of "Amount" legislatively fixed as a sum
equal to the depreciated Book-Value of the assets of the undertaking to
be taken over. The amended provisions were to govern cases where
+
notices had been issued prior to the amendment.
B
).
The responOeitt-Company filed writ petitions before the High
Court challenging the validity of ss. 4, 5 and 6 of the Indian Electricity
(Maharashtra Amendment) Act, 1976 ands. 2 of the Indian Electricity
(Maharashtra Amendment and Validity) Act, 1974 as violative of Arts.
14, 19(l)(f) and (g) and 31 of the Constitution.
c
t
The appellants, the State and the Electricity Board, claimed
protection of Art. 31-C to the Amending Act, 1976 and the consequent
immunity from attack on the ground of violation of Arts. 14, 19 and 31.
The High Court held that in the absence of a declaration in the
D
Amending Act of 1976 that.the law was one intended to give effect to the
objects of Art. 39(b) and (c) of the Constitution, the Amending Act
cannot have the protection of Art. 31-C. Declaring s. 4 of the Amending
~ Act as violative of Art. 19(l)(f) and Art. 14, it held that the State could
not unilaterally rednce, even by _legislation, its liability to pay the
purchase price under a consensual transaction and that conferment on
E
Government of power to fix instalments was grossly unreasonable and
-
arbitrary and that provision for payment of interest at the Reserve
Bank rate plus one per cent made more nnreasonable the provisions of the
Amending Act .
..
The High Court also rejected the respondent-Company's claim as F
't to the Constitutional infirmity attributed to s. 2 of the 1974 Act and ss. 5
and 6 of the Amending Act, 1976. It further rejected the Company's
contention that, upon the service of the notice exercising the option to
purchase, the Company's right to be paid the market value under the
law as it then stood, was crystallised into an "actionable claim" or "A
~
chose-in-action" and that What was sought to be acquired was not the
G
undertaking itself but a chose-in-action, and that the law was bad for
excluding the service lines from computation of the amount.
The appellants filed appeal in this Court assailing the correctness
of the High Court's view thats. 4 of the Amending Act was bad. The
respondent-Company, also filed a cross appeal, questioning the correctH
520
SUPREME COURT REPORTS
[1989) 2 S.C.R.
A
ness of the judgment on the points held against it.
It was contended on behalf of the appellants that the law was
entitled to the protection of Art. 31C and that the High Court was in
error in postulating that the absence of the express legislative declaration in the law that it was enacted for giving effect to the directive
B
principles of State Policy in Art. 39(b) and (c), was itself conclusive
~
against the attraction of Art. 31-C. It was urged that the presence of
,
such a declaration merely furnished evidence of a reasonable and direct I'\
nexus between the legislation and the objects of Art. 39(b) and (c) but
the declaration was by itself not conclusive either way, and the court
was entitled to go behind the facade of the declaration and scrutinise
whether there was really such a direct and reasonable nexus, and that
C
the absence of such an express declaration did not preclude the State
from showing the existence of the requisite nexus, and that apart
·-\
&ltogether from the protection of Art. 31-C, the Amending Act of 1976
D
was justifiable as a reasonable restriction on the freedom under
Art. 19(I)(f) and (g).
On behalf of the Company, it was contended that any appeal to
and reliance upon Art. 31-C was wholly misplaced, as the option to
purchase the undertaking was in effectuation of a purely consensual
transaction and that the scheme of the Electricity Act, 1910, and the
-j.
covenants in the license enabling the Government or the Board, as the
E
case may be, to exercise the option to purchase did not amount to a
compulsory acquisition of the undertaking, and that the provisions of
-
the Amending Act, 1976, which had the effect of bringing down the
-
F
purchase-price payabk under a mutual agreement, could not be
justified on any nexus with or for the effectuation of the objects of
Art. 39(b).
_ _.,
The point for consideration was whether Indian Electricity .'< ·
(Maharashtra Amendment) Act, 1976, which statutorily modified the
principles for the determination of the purchase price for the undertaking from the principle of market value contained in the unamended
s. 7 A of 1910 Act to the concept of" Amount" equal to the depreciated
G book-value of the assets under s. 7 A as amended the Amending Act of ...
1976, could be said to be a law enacted for the acquisition of the undertaking with a reasonable and direct nexus with the object of Art. 39(b)
of the Constitution and, therefore, had the protection of Art. 31-C.
Allowing the appeals preferred by the appellants-Maharashtra
H State Electricity Board and dismissing the cross :appeal of the
ELECTRICITY BOARD v. ELEC. SUPPLY CO.
4' respondent-Company, this Cpurt,
521
HELD: The provisions of the Amending Act of 1976 have a direct
and substantial relationship with the objects of Art. 39(b) and,
therefore, are entitled to the protection of Art. 31-C. Therefore,
all challenge to the law on the ground of violation of Articles 14, 19
and 31 must necessarily fail. That apart, there is no merit in the
grievance that service-lines had been omitted from computation of
the amount. Similarly, there is no merit in the contention that the
value of the "goodwill" has been omitted from computation of the
amount. [542D-F]
The nexus between the law and the objects of Art. 39(b) could be
shown imlepeiidently of an express declaration by the legislature In the
law that it was enacted for giving effect to the directive principles of
State Policy contained in Art. 39(b).-'.rhe absence of evidence of nexus,
in the form of such an express declaration, was not by itself evidence of
absence of such nexus. [534F-G]
State of Maharashtra v. Basantibai, A.LR. 1986 SC 1466 at 1475
and Fazilka Electric Supply Co. Ltd. v. The Commissioner of Income
Tax, Delhi 1962 Supp. 3 S.C.R. 496, referred·to.
A
c
D
The business of an electricity supply undertaking, a public utility
service, in pursuance of a license granted under the Electricity Act, .E
1910 is comprehensively controlled by the terms of that Statute. The
-
terms on which a franchi~e is created and conferred are amenable to
unilateral modification by Statute, and include the term pertaining to
the quantification of the price payable for the take-over. The proposi-
+-
lion that the right to the _payment of the price gets crystallised into a
'chose-in-action' independently of or even before the actual transfer of F
'j... ownership of the undertaking, cannot be accepted. [539C-D I
Fazilka Electric Supply Company's case, [1962] Supp. 3 S.C.R.
496 and Gujarat Electricity .Board v. Girdharilal Motilal, [1969] l
S.C.R. 589, referred to.
Even if the provisions of the Electricity Act, 1910 are held and
understood to provide for take over by the State. of a privately owned
undertaking only by the adoption of the expedient of a consensual sale, '
that circumstance, by itself, would not be __ decisive of whether the
amending Act of 1976 had. no direct and reasonable nexus with the
G
objects of Art 39(b). [539F]
H
A
B
c
D
522
SUPREME COURT REPORTS
[1989] 2 S.C.R.
The effect of the relevant provisions of the 1910 Act, as amended
by the amending Act of 1976, is the transfer of the ownership and
control of material resources of the community for purposes of ensuring
that they are so distributed as best to subserve the common good. In
effect, the provisions bring about nationalisation in the larger sense of
that term. The Amending Act of 1976 sought to limit the economic
burden of this reform. [S40C-D I
The expression "nationalisation" means 'the acquisition and con- A
trol of privately owned business by Government.' [5400-E]
The idea of nationalisation of a material resource of the community cannot be divorced from the idea of distribution of that resource in
the community in a manner which advanced common-good. [S40G I
No doubt, the protection of Art. 31-C is accorded only to those
provisions which are basically and essentially necessary for giving effect
to the objects of Art. 39(b). l540HJ
But, the High Court, was in error in taking the view that, while
the provision for the take-over in the Principal Act might amount to
a power to acquire, the objects the Amending Act of 1976, which
merely sought to beat down the price, could not be said to be part of -4that power and was, therefore, incapable of establishing any nexus with
E
Art. 39(b). [541A-B]
F
The amending Act of 1976, renders the cost of this economicreform brought about with the objects of Art. 39(b) in view an affordable one in terms of money. This can not be held to have no direct or
reasonable nexus with the objects of Act. 39(b)? When a legislative
enactment is challenged as not conforming to the constitutional
mandate the judicial branch of the Government has only one duty-to
lay the Article of the Constitution which is invoked beside the Statute
which is challenged and to decide whether the latter squares with the
former. [54 lB-C I
G
The community's economic burden for social and economic
reforms is an integral part of the exercise involved in social
and economic change in the ushering in of an egalitarian and eclectic
social and economic order in tune with the ethos of the Constitution.
The cost in terms of monetary expenditure of economic change is
a factor integrated with the objects of Art. 39(b). The Court must,
H on matters of economic policy, defer to legislative judgment as con-
-
-
-
ELECTRICITY BOARD v. ELEC. SUPPLY CO. [VENKATACHALIAH, J.]
523
ditioned by time and circumstances. The wisdom of social change, is,
dependant, in some degree, upon trial and error, on the felt ueeds of the
A
time. [S42A-C]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4113
of 1985 etc. etc.
From the Judgment and Order dated 20.7.1984 of the Bombay
High Court in Misc. Petition No. 1115 of 1977.
.B
T.R. Andhyarujina, S.B. Bhasme, R.A. Dada, V.S. Desai,
A.K. Sen, M.L. Dhamuka, M.A. Firoz, A.S. Bhasme, A.M.
Khanwilkar, Harish Salve, R.F. Nariman, J.B. Dadachanji, Mrs.
A.K. Verma, Joel Pares, B.H. Vani, D.N. Misra, Arnn Madan and C
Miss A. Subhashini for the appearing parties.
The Judgment of the Court was delivered by
VENKATACHALIAH, J. These appeals, the first two by the
D
State Electricity Board of Maharashtra, by certificate, and the State of
Maharashtra, by special leave, arise out of and are directed against the
same judgment dated 20.7.1984, of the High Court of Judicature at
Bombay made in proceedings under Article 226 of the Constitution in
Misc. Petn. No. 1115 of 1975. The writ-petition before the High Court
was filed by the respondent-The Thana Electricity Supply Company E
Limited-('company' for short) challenging the constitutional validity
of Sections 4, 5 and 6 of the Indian Electricity (Maharashtra Amendment) Act, 1976, (Maharashtra Act No. XLIV of 1976) ("Amending
Act of 1976", for short) and Sec. 2 of the Indian Electricity
(Maharashtra Amendment and Validation) Act, 1974. RespondentCompany by its CMP No. 40944 of 1984 (CA No. 243 of 1985) sought F
certain reliefs which had been disallowed by the High Court. That
CMP was treated as a petition for grant of Special Leave and Special
Leave was granted on 11.1.1985. That is how CA 243 of 1985 has come
to be registered.
2. The compass of the controversy before the High Court could G
broadly be indicated.
The "company" became entitled, by transfer, to the benefit and
privileges of the "Thana Electricity Licence 1927" granted on
14.9.1927 by the then-Government of Bombay under the Indian
Electricity Act, 1910, for supply and distribution of electricity in the H
524
SUPREME COURT REPORTS
[1989] 2 S.C.R.
A areas covered by the license. The grant was originally in favour of a
firm of partners under the name and style 'Messrs P. Patel & Co.' On
16.2.1928, respondent-Company was formed as a Private Limited
Company with the object of taking over the license from the said firm
Messrs P. Patel & Co. Government, by its order dated 11.6.1928,
consented to the transfer of the license to the said Private Limited
B Company. On 15.1.1965, the Private Limited Company became a
Public Limited Company.
The license was to expire, by efflux of time on the 21st day of
September,. 1977. Clause 11 of the license envisaged the option to the
Government, usual to such grants, to purchase the undertaking on the
C expiration of the period of the license. The Bill for the Amending Act,
1976, was introduced in the Legislature on 13. 7 .1976. The State
Electricity Board, by notice dated 26th of August 1976 served on the
company, exercised its option to purchase the undertaking on the
expiry of the period of the license and accordingly, required the company to sell and deliver the undertaking to the Appellant-Board on the
D mid-night between 21st and 22nd day of September, 1977. The provisions of the Electricity Act 1910, as they stood on the day the option
was exercised, would entitle the Company to be paid the "MarketValue" of the undertaking.
However on 20.9.1976, the Amending Act 1976, pursuant to the
E Bill introduced on 13.7.1976 became law. The Act received the assent
of the President on 2nd September, 1976, and came into force with
effect from 20th September, 1976, within a month of the option to
purchase contained in the notice dated 26.8.1976. By this Amending
Act of 1976 the principle of "Market-Value" in the relevant provisions
of the 1910 Act was substituted by the concept of an "Amount" legisF latively fixed as a. sum equal to the depreciated Book-Value of the
assets of the "undertaking" to be taken over. The Amended provisions were to govern cases where, as here, notices had been issued
prior to the amendment. The Company and its shareholders challenged the Amending Act of 1976 as violative of Articles 14, 19(1)(f) &
(g) and 31 of the Constitution. The Appellants-State of Maharashtra
G and the State Electricity Board-claimed the protection of Article
31-C to the Amending Act of 1976 and the consequent immunity from
attack on the ground of violation of Articles 14, 19 and 31.
3. While the High· Court rejected the appellants' claim that the
impugned Law had the protection of Article 31-C, it did not also
H accept the contention of the company as to the constitutional infirmity
-
-
-
-
. '{_
!
ELECTRICITY BOARD v. ELEC. SUPPLY CO. [VENKATACHALIAH, J.]
525
attributed to Section 2 of the 1974 Act and Sections 5 and 6 of the
Amending Act of 1976; but the High Court declared that Section 11
of the Amending Act of 1976 was violative of Article 19(1)(f) and
Article 14.
A
The High Court rejected the contention of the 'Company' that
upon the service of the Notice exercising the option to purchase, the
B
company's right to be paid the' market,.value', under the law as it then
stood, was crystallised into an "actionable claim" or a 'chose-inaction' and that what was sought to be acquired was not the 'undertaking' itself but a "chose-in-action". While the State and Electricity
Board assail the correctness of the view of the High Court that Section
4 of the Amending Act of 1976 was bad, the Company, in its appeal
No. CA 243of1985 has questioned the correctness of the Judgment on C
the points held against it.
4. The company filed the writ-petition in the High Court on
1.9.1977. On 21.9.1977 the High Court by its interlocutory-order
permitted the take-over of the Hndertaking subject to the Board payD
ing tu the company Rupees four crores am,! five lakhs. The Board paid
and took possession on 21/22 September, 1977. On 11.1.1985, in the
appeals of the State and Board, this Court ordered a further payment
of Rupees one crore and sixteen lakhs to the company.
5. We must, here, advert to three legislative events touching the
E
provisions of the 1910 Act in relation to its application to the State of
Maharashtra.
On 27 .10.1974, the Governor of Maharashtra promulgated
Ordinance No. 18 of 1974, which was later replaced by the Indian
Electricity (Maharashtra Amendment and Validation) Act No. LXIII
F
of 1974. By that Act, inter-alia, Section (1-AA) was inserted in Sec. 3
of 1910 Act, which was deemed always to have been inserted, to the
effect to that licence granted shall be published in the GovemmentGazette and that, as stipulated in Section 3(2)(cc), the licence shall
commence on the date on which such licence was published in the
Gazette. The 1974 amending Act also substituted Sub-section (6) and G
amended sub-section (7) of Sec. 6 of the 1910 Act. The substituted
Sub-Sec. ( 6) provided that where notice exercising the option to
purchase had been served, the licensee shall deliver the undertaking
pending determination and payment of the purchase price and interest. This was, apparently, intended to over-come certain judicial
observations touching the legalities of a take-over without the tender
H
526
SUPREME COURT REPORTS
[1989] 2 S.C.R.
j..
; ~ .. f,
A.
of the price. The amended Sub-section (7) restricted the interest to
"the Reserve Bank of India rate ruling at the time of the delivery of
the undertaking plus one per centum from the date of delivery of the
undertaking to the date of payment of the purchase price."
The Amending Act of 1976 was, indeed, more far reaching and
B
brought about certain fundamental changes in the basis of the payment
for the take over. The idea of "market value" was done away with and
---1was substituted by the concept of an 'Amount' which was to be limited
""'·
to the 'depreciated book value'. The ~tatement of objects and reasons
accompanying the Amending Bill sets out its main objects:
-
c
"Section 7 A of the Indian Electricity Act, 1910, provides
for determination of purchase price where any undertaking -t
of a licensee is sold under sub-section (1) of section 5 or
purchased under section 6 of the Act. The basis for
determining such price is the market value of the undertaking at the time of purchase or at the time of delivery of
D
the undertaking. Having regard to the present trend of
rising prices, the market value of an undertaking would be
much higher than the original purchase price. In such an
event, the purchaser will be required to incur very heavy
4' ..
expenditure for payment of the purchase price or payment
'
of compensation in accordance with the existing provisions
E
of the Act and will involve the purchaser in heavy financial
commitments. In the interest of the consumer and social
justice, therefore, it is necessary to amend the Act suitably
-
to provide for payment of an amount equal to the depreciated book value of the undertaking either in cash or in
annual instalments.
A·
F
The BHI is intended to achieve these objects."
~~.
By the Amending Act of 1976 sub-sec. (2) of sec. 5 of 1910 Act
was substituted. The Sub-sec. (2), as substituted, reads:
G
"(2) Where an undertaking is sold under sub-section (1),
-~
the purchaser shall pay to the licensee for the undertaking
an amount determined in accordance with the provisions of
sub-sections ( 1) and (2) of section 7A";
In Sub-sec. (3) and Proviso to Section 5 and Section 6 of 1910 Act, the
H
words "payment of market-value" were substituted by the words
ELECTRICITY BOARD v. ELEC. SUPPLY CO. [VENKATACHALIAH, J. I 527
Ji:
"payment of the amount for the undertaking". Sub-sec. (7) of Sec. 6
was substituted. The substituted sub-section provided:
A
"(7) Where an undertaking is purchased under this
Section, the p\lrchaser shall pay t\> the licensee the amount
determined in accordance with the provisions of Section
-r
7 A and interest at the Reserve Bank of India rate ruling at
B
'~
the time of delivery of the undertaking plus one per centum
on the amount payable for the undertaking for the period
from the date of delivery of the undertaking to the date of
-
payment of such amount."
Sub-sections (1) and (2) of the new Section 7 A of Act said:
c
T
"7A(l) where an undertaking of a licensee is sold under
sub-section (1) of section 5 or purchased under section 6,
the amount payable for the undertaking shall be the book
value of the undertaking at the time of delivery of the
undertaking.
D
(2) The book-value of an undertaking for the pur-
,;i,.
poses of sub-section ( 1) shall be deemed to be the de predated book-value as shown in the accounts rendered by the
licensee in accordance with the provisions of section 11 of
all lands, buildings, works, materials and plant of the
E
licensee, suitable to, and used for him, for the purpose of
the undertaking other thanf.
(i) a generating station declared by the licensee not
to form part of the undertaking for the purpose of purchase; and
F
t-
(ii) the service lines or other capital works or any
part thereof, which have been constructed at the expense
of the consumers,-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
G
of any similar consideration.''
Sub-sec. (3) the new Sec. 7 A envisaged payment of a solatium of ten
per cent of the "book-value" as determined under sub-sec. (1) and (2)
of new Sec. 7 A overriding "any stipulation contained in any licence,
instrument, order, or agreement or any law for the time being in force
H
528
SUPREME COURT REPORTS
[1989] 2 S.C.R.
A
for payment of any additional sum, by whatever name it was called."
·'f.
•
Similarly sub-sec. (4) of the new Sec. 7A sought to give an overriding effect to the provisions of the new Sec. 7 A and provided that no
provisions of any Act for the time being in force including "the other
provisions of this Act or any rule made thereunder or any licence"
B
shall have effect in so far as they are inconsistent with sec. 7 A. New
--+
Section 7 A(5) enabled the payment of the amount either in lump-sum
I
or in instalments, together with the rate of interest stipulated in ?\
Section 6(7) as amended.
-
Section 5 of the Amending Act, 1976, provided:
c
"The provisions of section 5, 6 and 7A of the Princi-
--t··
pal Act as amended by this Act, shall have effect in relation
to all the licensees in respect of their undertakings, including any licensee on whom a notice requiring him to sell the
undertaking has been issued under sub-section (1) of
D
section 5, or on whom a notice exercising the option of
purchasing the undertaking has been served under subsection (1) of section 6 of the Principal Act before the
commencement of the Indian Electricity IM aharashtra
+
Amendment) Act, 1976, and the purchase price in respect
of whose undertaking was not determined before such
E
commencement."
(Emphasis Supplied) -
Another legislative development was the amending Act, 1981,
which occurred during the pendency of the writ petition before the
_,),
High Court. The amendment provided that where the amount was
F
payable in instalments the interest would be payable from the date of
'
the delivery of the undertaking to the date of payment of the last
·--1'
instalment.
6. The effect of the Amending Act of 1976, in substance, was
that the concept of "Market-Value" was substituted by the concept of
G
an "amount", which was the book value of the undertaking at the time
--'.\-
of its delivery. The "book-value" was deemed to be the "depreciated
book-value" as shown in the accounts rendered by the licensee in
accordance with section 11 of the 1910 Act, of all lands, buildings,
works, materials, plants, etc. The licensee was given a solatium of ten
per cent of such book value. The provisions of the Amending Act of
H
1976 were made applicable to all licensees including a licensee upon
ELECfRJCITYBOARD v. ELEC. SUPPLY CO. [VENKATACHALIAH, J.]
529
-t whom a notice requiring him to sell the undertaking had been served
A
prior to coming into force of the Amending Act of 1976, but the
purchase price had not been determined before the Amendment of the
Act. The up-shot of the Amending Act of 1976 was that the entitlement of the company for payment for its "undertaking", respecting
which the notice exercising the Board's option to purchase had been
t··
served on 26.8.1976, i.e. prior to the date of coming into force of the
B
AAmending Act, 1976, also came to be governed by the provisions of
the Amending Act, 1976. While on the basis of the provisions as they
then stood the respondent-company was entitled to the payment of the
-
"market-value" as determinable under these provisions, now, by
virtue of the Amending Act, of 1976, the respondent-company became
entitled to the payment of an "amount" which was equal to and c
-+
represented the "depreciated book value" of all the lands, buildings,
works etc., instead of the "Market-Value".
7. As stated earlier, the principal controversy before the HighCourt was whether the provisions of the Amendment Act, 1976, which
scaled down, quite drastically, the measure of the recompense for the
D
taking-over of the company's undertaking, were violative of Articles
14, 19(1)(f) and (g), and 31 of the Constitution of India, as contended
-:i:
by. the company, or whether the Amending Act of 1976 had the protection of and attracted the provisions of Article 31-C of the Constitution,
rendering the Jaw immune from assailment on the ground of violation
of fundamental rights. The contentions of the parties would require to
E
-
be examined as the provisions of Articles 19(1)(f) and 31 stood at the
relevant time. Articles 19(1)(f) and 31 were deleted later; but that
does not affect the constitutional position with reference to which the
,
present cases would require to be decided.
~-
Some aspects of the contentions bearing on the inter-relation
F
·Abetween a law of the kind we are concerned with andArticle31-C have
been considered in our judgment in the compani_on matters arising out
of the Assam Legislation in W.P. Nos. 457 and 458 of 1972 rendered
separately today.
-1The High Court was persuaded to the view that the absence of a G
legislative declaration in the Amending Act of 1976 itself was decisive
against the acceptability of the State's contention that the Jaw was one
for giving effect to the objects of Article 39(b) and (c). The High Court
observed:
"A Division Bench of this court (to which one of us, Rege
H
A
B
c
D
E
F
G
H
530
SUPREME COURT REPORTS
[1989] 2 S.C.R.
J., was a party) has held (in writ petition No. 2401of1983,
The Elphinstone Spinning and Weaving Mills Company
Ltd. v. The Union of India) that to bring an enactment
within the protection of Article 31 C so as to bar a challenKe
to it on the ground of infringement of Articles 14 or 19, it
was necessary that the enactment should contain a declaration manifesting the intention of Parliament or a State Legislature to give effect by that enactment to the directive principles in Article 39(b) or (c). This could be done either by
specific reference to Article 39(b) or ( c) in the enastment
or by incorporating in it the wording of Article 39(b) or ( c).
The Amending Act of 1976 does not contain a declaration,
manifesting the State Legislature's intention to give effect
thereby to the directive principles contained in Article 39
(b) or (c). Having regard to this, counsel for the respondents have not pressed before us the argument based on
Article 31 C but have reserved it, should it be necessary,
for the Supreme Court."
(Emphasis Supplied)
On this premise, the High Court did not enter into the question
whether the Amending Act of 1976 was really one for giving effect to
the policy in Article 39(b) and (c). With the protection of Article 31C
to the legislation so held unavailable; the High Court proceeded to
consider whether the provisions of the impugned law including those
that gave power to Government to postpone payment by instalments
and those that limited the rate of interest etc. violated the
fundamental-rights under Articles 14 and 19. Rejecting the contention
of the appellants that with the payment of Rs.4,05,00,000, under the
order of the Court, the grievance of the company about the arbitrariness of the provisions giving power to the Government to decide either
or pay the amount in lump-sum or in instalments, becoming purely
academic, the High Court said:
"It is crystal clear from the orders of the learned Judge that
the payment of Rs.4,05,00,000 was made by the Board to
the company pursuant to these orders and as a condition of
being allowed to take possession of the company's under,
taking. The company is, therefore, entitled to urge that the
provisions delaying payment of the purchase price and
enabling it to be paid by instalments are unreasonable and
unconstitutional."
•.
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·I._
I
.
ELECTRICITY BOARD v. ELEC. SUPPLY CO. [VENKATACHALIAH, J.l
531
8. In the view of the High Court the State Electricity Board, as a
matter of its declared policy, was purchasing the private electricity A
undertakings as and when their licenses expired and that the reduction
in.the measure of payment, sought to be achieved by the Amending
Act of 1976 was violative of Article 19(1)(f). The High Court held:
" . . . . . . . . Electricity undertakings were compulsorily purchased upon payment of their market value until
1976, when the Amending Act of 1976 was mooted. There is
no explanation in the affidavit made on behalf of the respondents as to what it was that made it imperative in the public
interest at that point of time to reduce the purchase price
from market value to depreciated book value. There is no
statement in the affidavits that upon the basis of market
value _the Board could no longer have effected compulsory
purchase ...... "
(emphasis supplied)
B
c
" ....... The obligation to pay market value did not
D
deter the State from adopting this po)icy. The affidav :ts on
behalf of the respondents do not aver that after compulsory
purchases in the past the electricity tariff had to be raised;
all that they state is that the expenditure incurred on compulsory purchases had to be taken into account .... "
" ........ Considering all these factors, the objects
E
and reasons for the Amending Act of 1976 could only be
thus to reduce the Board's liability on compulsory purchase. Legislation enacted to reduce the State's liability or
augment the State's funds as its only purpose infringes the
fundamental right given by Article 19(1)(f). We have p
already cited the cases that so hold."
It is to be recalled that the Statement of Objects and Reasons and
the Financial Statement appended to the Bill set-out these considerations
compelling the State to cut-down the compensation. But according to
t!te High Court, the absence of their reiteration in the affidavits would G
assume materiality.
9. The High Court, in substance, also held that the State could
not unilaterally reduce, even by legislation, its liability to pay the
purchase price under a consensual transaction and that such an
attempt would be violative of Article 19(1)(f). We may set out the H
532
SUPREME COURT REPORTS
[1989] 2 S.C.R.
reasoning of the High Court where the inference drawn on the premise
A
appears a non-sequitur:
" ....... Though the purchase is compulsory, though
the terms of the contract are amendable by legislation,
though the electricity franchise and its returns are controlB
led by legislation and though the purchase deals with a
material resource, control over which is a directive principie, the State as the purchaser under a contrac~ cannot be
countenanced to act unilaterally to drastically reduce its
liability in regard to the purchase price. Such a reduction is
not reasonable, not in the public interest and infringes the
c
fundamental right under Article 19(1)(f).
(Emphasis Supplied)
Upholding the company's contention that the reduction in the
quantum of ,the payment brought about by the Amending Act of 1976
violated Article 19( l)(g), the High Court said:
D
"The reduction in the purchase price cannot but have
a direct and proximate effect on the licensee's right to carry
on the business of electricity supply while the licence was
current. Upon compulsory purcha'se of his undertaking the
licensed would do or want fo do other business. The depleE
tion in his capital of so considerable a nature as that caused
by the reduction of the purchase price of his undertaking
from market value to depreciated book value cannot but
hinder him in doing so. There would, therefore, also be a
transgression of the guarantee of Article 19( l)(g)."
F
Further, the conferment on Government of the power to fix
instalments was held to be "grossly unreasonable and· arbitrary and
violative of Article 19(1)(f) and (g) and Article .14~. The provision for
payment of interest at the Reserve Bank rate plus one percent, according to the High Court, made "more unreasonable the provisions of the
Amending Act, 1976" and that "A rate approximating, if not equal, to
G
the higher commercial rate of interest would have been more
appropriate."
10. The High Court, however, rejected the company's contention that its right to payment of 'marke.t•vah1e' became crystallised
upon the service on it of the notice exercising the Board's option to
J-1
purchase the undertaking and thai what was sought to be acquired was
-ji-·
~
•
..,
-+-
-
' _.,
)<
,:,.-
~--
+
ELECTRICITY BOARD dO:LEC. SUPPLY CO. [VENKATACHALIAH, J.]
533
a mere 'chose-in-action' and not the undertaking itself. High Court A
also rejected the contention that the law was bad for excluding the
'service-lines' from the computation of the 'amount'. The correctness
of these rejections is challenged in the company's cross-appeal i.e.
C.A. No. 243 of 1985.
11. We have heard Shri Andhyarujina, learned Senior Advocate for the State of Maharashtra and the State Electricity Board and
Shri A.K. Sen, learned Senior Advocate for the respondent-company.
The principal contention urged on behalf of the State and the
Electricity Board was that the High Court was in error in denying to
B
the impugned law the protection of Article 31-C. It was urged that the
High Court fell into a serious error in postulating that the absence of C
an express legislative declaration in"the law that the law was enacted
for giving effect to the principles of State Policy in Article 39(b) and
(c) was itself conclusive against the attraction of Article 31-C. It was
1.lrged that the presence of an express legislative declaration in that
behalf merely furnished evidence of a reasonable and direct nexus
D
between the legislation and the objects of Article 39(b) and (c) but
such a declaration was, however, not by itself conclusive either way
and the court was entitled to go behind the facade of. the declaration
where tbere is one and scrutinise whether really there was such a direct
and reasonable nexus and that, as a corollary, it followed that the
absence of such an express declaration did not preclude the State from
E
showing the existence of the requisite nexus. The ·impugned law, it
was contended, was one intended to give effect to the directive principles contained in Article 39(b) and was entitled to the protection of
Article 31-C.
Sri A.K. Sen for the licensee-company contended that any
F
appeal to and reliance upon Article 31-C is wholly misplaced inasmuch
as the option to purchase the undertaking was in effectuation of a
purely consensual transaction and that the scheme of the Electricity
Act, 1910, and the covenants in the license enabling the Government
or the Board, as the case may be, to exercise the option to purchase
did not amount to a "compulsory" acquisition of ihe undertaking. It G
was urged that the impugned provisions of the Amending Act of 1976,
which had ihe. effect of bringing down the purchase-price payable
under a mutual agreement, could not be justified on any nexus with or
for the effectuation of the objects of Article 39(b ).
The point that arises for consideration in these appeals, thereH.
fore, is whether:
·
A
B
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p
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534
SUPREME COURT REPORTS
(1989] 2 S.C.R.
"the Maharashtra Act No. XLIV of 1976, which
statutorily modifies the principles for the determination of
the purchase price for the undertaking-from the principle
of Market-value contained in the unamended Section 7 A of
1910 Act to the concept of an 'amount' equal to the depreciated book-value of the assets under Section 7A as
amended by Maharashtra Act No. XLIV of 1976-could be
said to be a law enacted for the acquisition of the undertaking with a reasonable and direct nexus with the object of
Article 39(b) of the Constitution and has, therefore, the
protection of Article 31-C?"
If the contention of the State and the Electricity Board prevails and is
accepted, all other contentions which, in turn, rest on an alleged
infraction of Articles 14, 19(l)(f) and (g) and 31 do not survive. It is,
however, the contention of Shri Andhyaru jina that the question
whether the power given to the Government to postpone payment of
the price by fixing instahnents and statutory limitations on the rate of
interest are violative of Article 19(l)(f) and (g) became purely
academic in the present case, as indeed, under the orders of the High
Court Rupees Four Crores and Five Lakhs had been paid even before
possession was taken and that a further sum of Rupees One Crore and
Sixteen Lakhs was paid pursuant to the orders of this Court. Learned
counsel also submitted further that apart altogether from the protection of Article 31-C, the Amending Act, of 1976 is justifiable as a
reasonable restriction on the freedom under Article 19(1)(f) and (g).
At the outset the misconception that an express legislative declaration in the legislation is condition precedent to the attraction of
Article 31-C would, perhaps, require to be removed. The High Court,
---'
F
we say so with respect, was under a clear misconception on the point
that an express incantation was necessary in the law itself.