# MIS. PILIBHIT ELECTRIC SUPPLY CO. (P) LTD. AND ANR v. SPECIAL OFFICER (ELECTRICITY) AND ANR

- **Citation:** [1996] Supp. 7 S.C.R. 324
- **Court:** Supreme Court of India
- **Decided:** 1996-10-09
- **Case number:** Civil Appeal No. 1339 of 1981
- **Bench:** N.P. Singh, S.B. Majmudar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mis-pilibhit-electric-supply-co-p-ltd-and-anr-v-special-officer-electricity-and-14784
- **Pages:** 33

## Headnote

Electricity Act, 191(}-Sections 6A & 7A as substituted by U.P. Act 14
of 1976-Compensation-Detemiination of-Revocation of licences and acC quisition of undertaking-Cost of supervision actually incun-ed-lt has to be
considered as an addition to book value of acquired asset~onstrnction of
service line~ontributions made by consumer~omputation of capital
base of licensee.
I
The appellant licensee functioning under the provisions of the InD dian Electricity Act, 1910 having licence to generate electrical energy for
being supplied to consumers in Pillibhit town of Uttar Pradesh, was a
purchaser of the licensee rights !from the earlier licensee and held Pillibhit
Electric Licence, 1935 from 1.4.ll954. The said licence was revoked as per
the provisions of clause (3) of U.P. Ordinance 1937 of 1975 in exercise of
the powers vested in the U.P. State u/s. 6A of the Indian Electricity Act.
E The U.P. State Electricity Board took over the electrical undertaking of the
appellant on 1.12.1975. The Special Officer passed the award of compensation u/s. 7 A of the Indian Eledricity Act, 1910, as substituted by the U.P.
Act 14 of 1976.
F
The appellant ex-licensee challenged the award by filing this appeal
in quest of additional compensation. It was alleged that in the impugned
award the Special Officer had erroneously excluded supervision charges
actually incurred by the appellant from the book value of the assets as
defined by the Explanation to Section 7-A(2). The appellant contended that
the gross amount of compensation payable to the appellant licensee had
G to be the aggregate value of the amount specified in Section 7-A(2) which
would include book value of all c:ompleted works in beneficial use pertaining to the undertaking and taken over by the State Government; that it
had incurred from )ear to year large amounts of supervision charges paid
to the staff engaged for having st:pervision over these fixed assets and the
H appellant was entitled to at least 15% of the cost of supervision actually
324
.
I
PILIBHITELECIRICSUPPLY CO. (P) LTD. v. SPL OFRCER(ELECIRICITY) 325
incurred as permissible under Explanation (ii) to Section 7-A(2); that A
Section 7·A(2)(ii) nowhere laid down that the costs of supervision actually
incurred should be capitalised by the licensee from year to year; that this
original cost of the asset was meant to be calculated in connection with the
operation of the Sixth Schedule which operated of its own even independently of the acquisition proceeding and prior thereto and had a direct B
linkage with paragraph I of the Sixth Schedule as applicable at the relevant
time and had an entirely different purpose to achieve and had nothing to
do with Explanation (ii) to Section 7-A(2) of the Act; that the concept .of
clear profit has to be kept in view for ascertaining the legality of tariff
charges; that the concept of reasonable return defined in sub-para (9) of
paragraph XVII of Sixth Schedule, encompassed in respect of any year of C
account, the sum of the amounts mentioned in clauses (a) to (e) thereof
and for finding out whether clear profit in a given accounting year exceeded
reasonable return, reasonable return had to be calculated for the year and
for determining reasonable return capital base has to be ascertained as
required by clause XVIl(9)(a) and for finding out capital base, original D
cost of fixed assets was required to be computed as per clause XVIl(l)(a)
and for that purpose original cost was to be ascertained as per clauses
XVll(6)(a) and (c); that as per Section 7-A(2)(i) the book value of all
completed works in beneficial use pertaining to the undertaking and taken
over by the State Government or local authority, had to be computed but
that computation must exclude the works constructed at the cost of and E
the works paid for by the consumers and thus the works for which payment
emanated from the consumers were not to be taken into consideration
while computing the book value of the completed works which were

## Text

_Characters 0–39,840 of 82,196. This is a partial read: ask again with offset=39840 for what follows._

A
MIS. PILIBHIT ELECTRIC SUPPLY CO. (P) LTD. AND ANR.
B
v.
SPECIAL OFFICER (ELECTRICITY) AND ANR.
OCTOBER 9, 1996
[N.P. SINGH AND S.B. MAJMUDAR, JJ.]
Electricity Act, 191(}-Sections 6A & 7A as substituted by U.P. Act 14
of 1976-Compensation-Detemiination of-Revocation of licences and acC quisition of undertaking-Cost of supervision actually incun-ed-lt has to be
considered as an addition to book value of acquired asset~onstrnction of
service line~ontributions made by consumer~omputation of capital
base of licensee.
I
The appellant licensee functioning under the provisions of the InD dian Electricity Act, 1910 having licence to generate electrical energy for
being supplied to consumers in Pillibhit town of Uttar Pradesh, was a
purchaser of the licensee rights !from the earlier licensee and held Pillibhit
Electric Licence, 1935 from 1.4.ll954. The said licence was revoked as per
the provisions of clause (3) of U.P. Ordinance 1937 of 1975 in exercise of
the powers vested in the U.P. State u/s. 6A of the Indian Electricity Act.
E The U.P. State Electricity Board took over the electrical undertaking of the
appellant on 1.12.1975. The Special Officer passed the award of compensation u/s. 7 A of the Indian Eledricity Act, 1910, as substituted by the U.P.
Act 14 of 1976.
F
The appellant ex-licensee challenged the award by filing this appeal
in quest of additional compensation. It was alleged that in the impugned
award the Special Officer had erroneously excluded supervision charges
actually incurred by the appellant from the book value of the assets as
defined by the Explanation to Section 7-A(2). The appellant contended that
the gross amount of compensation payable to the appellant licensee had
G to be the aggregate value of the amount specified in Section 7-A(2) which
would include book value of all c:ompleted works in beneficial use pertaining to the undertaking and taken over by the State Government; that it
had incurred from )ear to year large amounts of supervision charges paid
to the staff engaged for having st:pervision over these fixed assets and the
H appellant was entitled to at least 15% of the cost of supervision actually
324
.
I
PILIBHITELECIRICSUPPLY CO. (P) LTD. v. SPL OFRCER(ELECIRICITY) 325
incurred as permissible under Explanation (ii) to Section 7-A(2); that A
Section 7·A(2)(ii) nowhere laid down that the costs of supervision actually
incurred should be capitalised by the licensee from year to year; that this
original cost of the asset was meant to be calculated in connection with the
operation of the Sixth Schedule which operated of its own even independently of the acquisition proceeding and prior thereto and had a direct B
linkage with paragraph I of the Sixth Schedule as applicable at the relevant
time and had an entirely different purpose to achieve and had nothing to
do with Explanation (ii) to Section 7-A(2) of the Act; that the concept .of
clear profit has to be kept in view for ascertaining the legality of tariff
charges; that the concept of reasonable return defined in sub-para (9) of
paragraph XVII of Sixth Schedule, encompassed in respect of any year of C
account, the sum of the amounts mentioned in clauses (a) to (e) thereof
and for finding out whether clear profit in a given accounting year exceeded
reasonable return, reasonable return had to be calculated for the year and
for determining reasonable return capital base has to be ascertained as
required by clause XVIl(9)(a) and for finding out capital base, original D
cost of fixed assets was required to be computed as per clause XVIl(l)(a)
and for that purpose original cost was to be ascertained as per clauses
XVll(6)(a) and (c); that as per Section 7-A(2)(i) the book value of all
completed works in beneficial use pertaining to the undertaking and taken
over by the State Government or local authority, had to be computed but
that computation must exclude the works constructed at the cost of and E
the works paid for by the consumers and thus the works for which payment
emanated from the consumers were not to be taken into consideration
while computing the book value of the completed works which were taken
over from the licensee by the acquiring authority. From this total amount
of book value of the assets so computed depreciation calculated in accordance with the Sixth and Seventh Schedules to the Electricity (Supply) Act,
1948 had to be deducted and that would necessarily mean depreciation on
the computed book value of the acquired assets which had entered the
computation of the book value as per the first part of Section 7- A(2)(i).
It was alleged further that the Special Officer had erroneously deducted
an amount pertaining to variations in the energy bill raised by the Board
which seriously disputed by·the appellant. Deductions on account of the
purported balance in the Consumer Rebate Reserve Account and in the
Tariffs and Dividends Control Reserve Account were challenged as illegal.
F
G
The respondents submitted that the the cost of supervision men- H
326
SUPREME COURT REPORTS [1996] SUPP. 7 S.C.R.
A tioned in the Explanation to Section 7·A(2) has necessarily a linkage with
the Sixth Schedule and Section 57 of the Supply Act as the Sixth Schedule
becomes a part and parcel of the very licence issue to the licensee and that
is why the Special Officer was justified in insisting that in absence of
capitalisation of costs of supervision from year to year by the appellant
B the claim was not maintainable for addition of supervision charges; that
when the Legislature has clearly provided for deduction of depreciation
from the book value of all completed works as per the Sixth Schedule read
with the Seventh Schedule, paragraph XII of the Sixth Schedule as ap·
plicable in 1975 when the appellant's undertaking was acquired would also
C be relevant; that the two bills referred to the period prior to the take over
were for the period for October 1974 to November 1975 and October and
November 1975 and as this energy was admittedly supplied to the licensee
by the Board which was the predecessor of this Undertaking before the
vesting date, i.e., 1.12.1975 the predecessor Board was entitled to deduct
the said sum from the amount payable to the licensee for such acquisition
D •and purchase as computed u/s. 7-A(l) r/w. sub-section (2).
Allowing the appeal accordingly, this Court
HELD : 1.1. The aspect of original cost which may include proper
E addition on account of supervision not exceeding 15% of the cost referred
to in sub-para (a) of clause (b) of definition paragraph XVII of the Sixth
Schedule has nothing to do with the computation of proper compensation
payable to the licensee as per Section 7-A sub-section (2) Explanation (ii)
of the Indian Electricity Act. Cost of supervision actually incurred up to
F
the ceiling of 15% of the amount referred to in paragraph (i) of the
Explanation to Section 7-A(2) had to be straightaway added to the book
value of fixed assets which was to be paid for by the acquiring authority.
The provision of computation of original cost as found in paragraph XVII
clause (6) of the Sixth Schedule referred to the 'proper addition on account
of supervision' which left a discretion regarding computation of the
G amount of supervision. Therefore, concept of capitalisation of the cost of
supervision for computing the original cost of the asset for the purpose of
· paragraph I of the Sixth Schedule has nothing to do with the cost of
supervision actually incurred which had to be considered as an addition
to the book value of the acquired fixed assets for computing compensation
H under Section 7-A sub-section (2). [341-F-H, 342-A·B]
•
.
'
..
PILIBHITELECTRlCSUPPLY CO. (P) LTD. v. SPL OFFICER(ELECTRlCITY) 327
1.2. The provisions of Sixth Schedule to the Supply Act are general A
provisions which were enacted to lay down guidelines for fixation of
licensee's charges to consumers as provided in Section 57 of the Supply
Act and also for supplying guidelines to the Rating Committee under
Section 57-A and for that purpose various paragraphs of Schedule 6·have
been enacted and are made a part and parcel of the terms and conditions B
of the licence. But so far as the question of compensation is concerned,
Seetion 7-A of the Act represents a complete circle. Under the provisions
of the Explanation to Section 7·A(2) for computing the book value of any
fixed asset, its original cost has to comprise of two ingredients • the
purchase price paid by the licensee for the asset and secondly 15% addition
to the said purchase price by way of cost of supervision actually incurred
on such an asset. It is almost analogous to solatium to be paid for
acquisition of land under Land Acquisition Act. No question of capitalisation of such supervision charges from year to year is contemplated by the
said Explanation. All that is required to be shown by the licensee is whether
it had actually incurred the supervision costs in connection with the staff
engaged for supervising the concerned fixed assets which were sought to
c
D
be acquired from the licensee. Unless clear evidence was available on
record pointing to the actual amount of cost incurred by the licensee from
year to year for meeting the wage bill of supervisory staff which was
entrusted with the sole duty of supervising the concerned fixed assets E
which ultimately vested in the State and the Electricity Board, it could not
be said that the appellant had made out a case for grant of costs of
supervision actually incurred by it in maintaining these fixed assets and
that it had satisfied the requirements of Explanation (ii) to Section 7 A(2)
of the Act. [342-D-G, 343-F]
F
1.3. While considering the question of total capital base which includes the assets consisting of service lines for installation of which
contributions are made by consumers towards the construction of such
service lines, the net cost of such service lines after deducting such con- G
tributions has to be included in the costs of such fixed assets. However,
for computing the depreciation as per paragraph VI on such assets,
wherein consumers have contributed towards 1their acquisition, the total
original cost of construction of the service lines had to be taken into
account. The Special Officer had applied paragraph XII whole hog while H
•
328
SUPREME COURT REPORTS [1996] SUPP. 7 S.C.R.
A deducting the depreciation from the book value of all completed works
which were acquired from the licensee as per Section 7-A(2)(i). The said
approach of the Special Officer was ex facie unjustified. Paragraph XII of
the Sixth Schedule to the Supply Act deals with a special type of asset,
namely, service lines which are installed by the licensee wherein the conB somers have contributed towards the cost of construction of such service
lines. For this type of assets, in computing the capital base of the licensee,
the contribution by the consumers has to be excluded but for computing
depreciation under paragraph VI for such assets, namely, the service lines,
the total original cost of construction of service Jines has to be taken into
C account which may include the cost of construction of service lines incurred by the licensee as well as the other part of the component of the
cost of construction of service lines which has come from the pockets of
the consumers. But entire paragraph XII deals with only one type of assets,
namely, service Jines construction cost of which is wholly or partially borne
D by the consumers. Paragraph VI of Schedule VI, however, is general in
nature and covers all types of tixed assets and the method of computation
of depreciation on these tixed assets. Fixed assets employed in the business
of electricity supply may consist of those assets which are wholly acquired
at the cost of the licensee and may also include assets like service lines ·
which may partly be acquired and installed at the cost of the licensee and
E
F
partly out of contribution of the consumers who would be interested in
getting electrical supply at their own premises and for that purpose they
may be willing and may be made to pay contribution towards extension of
service lines to their premises. Therefore, reference to service lines in
paragraph XII of Schedule VI is with a view to finding out as to how
depreciation has to be computed for such a special type of asset, namely,
service Jines wherein consumecs have also contributed towards their installation. Consequently on a conjoint reading of paragraph VI and paragraph XII of Sixth Schedule the depreciation on such service lines installed
by drawing upon the contributions from the consumers' is required to
G include the total original cost of construction of such service lines and that
would necessarily include the component of the amount of cost contributed
by the consumers. However that has nothing to do with the computation
of depreciation on the assets which are required by the acquiring authority
under Section 6-A read with Section 7-A(2)(i). It is now well settled that
H service lines whose installation had been paid for by the consumers are
PILIBHITELECIRIC SUPPLY CO. (P) LID. v. SPL OFflCER (ELECTRICITY) 329
not to be compensated for and they vest in the acquiring authority under A
Section 6-A read with Section 7-A free of cost or payment of compensation
to the licensee. The logic underlying this settled legal position is that as
the licensee had not spent from his pocket for installing such an asset, he
was not required to be compensated for that part of the asset which was
paid for by consumers. A mere look at Section 7-A(2)(i) shows that the B
gross amount payable to such licensee for acquiring his assets amongst
others has to consist of an amount of the book value of all completed works
in the beneficial use pertaining to the undertaking. While computing such
book value of acquired assets the works paid for by the consumers have
to be ignored and omitted from consideration. Therefore, the amount of C
book vain~ computed as per Section 7- A(2)(i) will consist of only those
works which are for beneficial use of the undertaking which was installed
and acquired by the licensee at its own cost. From the book value of the
assets which were financed by the licensee as computed as per Section
7- A(2)(i) when a question arises about deducting the depreciation, only D
the calculation of such depreciation on the concerned asset is to be done
in accordance with Sixth Schedule because the words advisedly used by the
Legislature in Section 7-A(2)(i) in this connection are less depreciation
calculated in accordance with the Sixth Schedule read with the Seventh
Schedule. Therefore, only the method of calculation of depreciation has to E
be applied by way of reference to the Sixth Schedule. But the type of asset
for which depreciation has to be computed is not to be gathered from the
Sixth Schedule. It has to be gathered from the very first part of Section
7-A(2)(i), namely, only self- financed fixed assets whose book value is to
be computed by the Special Officer for payment to the licensee and from
that amount depreciation is to be deducted which would necessarily mean
depreciation on the very same asset which has undergone the book valuaF
tion as per Section 7-A(2)(i). If for calculating the book value of such
assets the works paid for by the consumers are to be excluded; they
necessarily cannot be included for the purpose of ascertaining deductible
depreciation on such assets. Consequently reference to paragraph XII G
Schedule VI would be totally out of picture and redundant so far as the
scheme of Section 7-A(2) (i) is concerned. The Special Officer was patently
in error when he computed the depreciation on the assets under Section
7-A(2)(i) by adding the amount of depreciation on the service lines which
were paid for by the consumers. Amount of Rs. 2,48, 718.81 must be treated H
330
SUPREME COURT REPORTS [1996] SUPP. 7 S.C.R.
A to have been wrongly deducted from the book value by way of.depreciation
on consumer-financed assets, namely, service lines.
B
[347-E-H, 348-A-H, 349-A-H, 350-A-B, G]
1.4. The Special Officer exercising quasi-judicial functions under
Section 7-A of the Act who has the same powers as are vested in a Civil
Court under the Code of Civil Procedure, 1908 when trying a suit, in
respect of the matters enumerated in Section 7-A sub-section 7(7)(b) could
not have called for such an opinion of Legal Rememberancer and even
though Section 7 ·A clause (7)(a) permits the Special Officer to have the
assistance of such officers and staff of the State Government or the State
C Electricity Board or the licensee as he may deem fit in assessing the net
amount payable, it has to be done in presence of the licensee and an
opportunity should have been given to the licensee to meet such an opinion .
. As that has not been done in the present case such an exercise on the part
of the Special Officer and the reliance placed by him on the opinion of the
Legal Rememberancer obtained behind the back of the licensee must be
D treated to be totally an incompetent and uncalled for exercise and such an
opinion should have been completely ignored by the Special Officer. The
Special Officer had wrongly deducted from the book value of the assets as
computed under Section 7-A(2)(i) an amount of Rs. 2,48,718.81 and that
amount was required to be added back to the book value of the assets
E which was to be made payable to the appellant-licensee by way of additional
compensation. [351-B-F]
F
1.5. The Special Officer was entitled to deduct from the amount
payable to the licensee for the acquisition of his undertaking the amount
due to the Board by way of supply of energy to the licensee. Even though
the bill might have been issued after the acquisition and the appointed day
as the bills referred to the period 11rior to the appointed day in connection
with with the electricity admittedly supplied by the Board to the licensee,
the licensee was statutorily bound to reimburse the Board to the extent of
these bills and that amount could be legitimately deducted from the
G computed amount of compensation by the Special Officer as enjoined by
Section 7-A sub-section (5)(b). (352-F-G]
1.6. From the amount of compensation payable to the purchaser the
Special Officer can deduct the amounts remaining in Tariffs and
H Dividends Control Reserve, Contingencies Reserve and the Development
...
PILIBHITELECTRIC SUPPLY CO. (P) LTD. v. SPL OFFICER(ELECTRICITY) 331
Reserve, insofar as such amounts have not been paid over by the licensee A
to the purchaser. These are trust amounts in the hands of the licensee
which are ultimately to be paid over to the consumers and at the time of
acquisition of its undertaking the said reserves have to be handed over to
the purchaser, namely, the Board. But what is to be handed over to the
Board by the licensee is the amount remaining in the Tariffs and Dividends B
Control Reserve. So far as the figures of the outstanding amounts in these
reserves were concerned they were supplied by the licensee to the Special
Officer. Accordingly the amount of Rs. 8,615 stood credited to the Tariffs
and Dividends Control Reserve while an amount of Rs. 54,560 stood in the
Consumer Rebate Reserve which was also part and parcel of Tariffs and
Dividends Control Reserve. However the Special Officer artificially inflated the balances of these reserves and held that Tariffs and Dividends
Control Reserve should be treated to be showing the balance of Rs. 46,826
instead of Rs. 8,615 while the Consumer Rebate Reserve balance should
c
be inflated to Rs. 97,727 instead of Rs. 54,560. On the clear language of
Section 7-A(5)(h) such an exercise was not contemplated. While deducting D
the depreciation from the book value of the concerned assets as per Section
7-A(2)(i) the amount of extra depreciation which is dehors the permissible
scheme of the Sixth Schedule read with Seventh Schedule of the Supply
Act had to be ignored. Once that is done Section 7-A(2)(i) gets completely
exhausted and complied with. The said provision clearly in.dicates that E
whatever amounts have remained in the concerned Reserve Accounts with
the licensee on the date of acquisition have to be paid over to the purchaser. Thus actual balances of these Reserves as reflected from the books
of accounts of the licensee, has to be handed over to the Board. The said
provision nowhere, permits an exercise of artificially inflating the balanF
ces of these Reserves which are not reflected by the books of accounts of
the licensee. As even the awarded amount as per the Award of 31st March
1980 was still not paid to the appellant the Board is directed to pay up the
appellant the amount as awarded by the Special Officer with interest
thereon at the relevant Reserve Bank rate ruling at the appointed day, that
is, 1.12.1975 plus one per cent for the period from the date of award to the G
date of actual payment to the appellant-licensee .
[353-C-F, 354-D, F-G, 356-C]
Tinsukhia Electric Supply Co. Ltd. v. State of Assam & Ors., [1989] 2
SCR 544, relied on.
H
332
SUPREME COURT REPORTS [1996] SUPP. 7 S.C.R.
A
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1339 of
1981.
From the Judgment and Order dated 31.3.80 of the Special Officer
under the India Electricity Act, 1910.
B
Sunil Gupta, Ashok Sagar, Ms. Punita Singh, for .TBD & Co. for the
Appellants.
R.B. Misra and Kavin Gulati for the Respondent No. 1.
c
B.S.en, Pradeep Misra and T. Mahipal for the Respondent No. 2.
The Judgment of the Court was delivered by
S.B. MAJMUDAR, J. The appellant Electric Supply Co~ has brought
in challenge the judgment and award dated 31st March 1980 rendered by
Special Officer under Section 7-A as substituted in the Indian Electricity
D Act, 1910 (hereinafter referred to as 'the Act') by U.P. Act 14 of 1976. The
appellant, original licensee, under the Act had sought appropriate compensation under the aforesaid provision from the Special Officer entrusted
with the task of determining the purchase price of the appellant's Undertaking acquired under Section 6-A as inserted by the very same Act of the
E U.P. Legislature. This appeal by grant of special leave under Article 136
of the Constitution of India was pressed at the time of final hearing by their
learned senior counsel Shri Salve and learned counsel Shri Gupta on the
following grounds :
F
G
1.
In the impugned award the Special Officer had erroneously
excluded supervision charges actually incurred by the appellant
from the book value of the assets as defined by the Explanation
to Section 7A(2).
2.
The Special Officer had erroneously deducted from the book
value of the assets of the appellant an amount of Rs. 2,48,718
being the purported depreciation on works paid for by the
consumers.
3.
The Special Officer had erroneously deducted an amount of
Rs. 2,67,622 pertaining to variations in the energy bill raised by
H
the Board which were seriously disputed by the appellant. In the
..
PILIBHITELECTRJCSUPPLYCO. (P) LID. v. SPL OFFICER (ELECTRICITY) [S.B. MAJMUDAR.J.)
333
aforesaid item ultimately the claim was reduced to Rs. 60,603.78. A
4.
The Special Officer had erroneously deducted from the amount
payable to the appellant an amount of Rs. 92,727 on account of
the purported balance in the Consumer Rebate Reserve Account
and an amount of Rs. 46,826 on account of the purported balance
in the Tariffs and Dividends Control Reserve Account. So far as B
this item of claim is concerned ultimately the learned counsel for
the appellant confined the claim to the total amount of Rs. 76,423
being the purported inflated balance in the Tariffs and Dividends
Control Reserve Account and Rs. 38,211 being such balance in
the Consumer Rebate Reserve Account.
C
In the Special Leave Petition originally two additional claims were also put
forward as item no. 2 consisting of Rs. 35,483 and item no. 5 consisting of
Rs. 1,51,111. But at the time of hearing of this appeal these two claims were
not pressed. We are therefore, concerned with the aforesaid four claims
surviving for consideration.
D
Backdrop facts
Before we deal with these claims, it will be necessary to note a few
relevant background facts. The appellant-licensee was functioning under
the provisions of the Indian Electricity Act, 1910 having licence to generate E
electrical energy for being supplied to consumers in Pilibhit town of U ttar
Pradesh. It was a purchaser of the licensee rights from the earlier licensee
named M/s Champion Electrical Engineering Works. The said licensee had
got its licence from 1935. On 1st April 1954 Mis Champion Electrical
Engineering Works transferred to the appellant its licence to generate F
electricity in Pilibhit town. Thus the appellant became a transferee-licensee
and held Pilibhit Electric Licence, 1935 from 1st April 1954. The said
licence was revoked as per the provisions of clause (3) of U.P. Ordinance
1937 of 1975 in exercise of the powers vested in the U.P. State under
Section 6-A of the Indian Electricity Act, 1910 as inserted in the aforesaid G
Act by the said Ordinance. Pursuant to the said revocation of the
appellant's licence and acquisition of its assets, the U.P. State Electricity
Board took over the electrical undertaking of the appellant at 00.00 Hrs.
on 1st December 1975. On such acquisition of the assets of the appellant
and the taking over of the electrical undertaking of the appellant by the
U.P .. state Electricity Board and as the undertaking of the appellantH
334
SUPREME COURT REPORTS (1996] SUPP. 7 S.C.R.
A licensee stood statutorily acquired for the purpose of the State Electricity
Board under Section 6-A of the Act. the question arose regarding determination of appropriate compensation to be paid to the erstwhile licensee
for acquisition of its assets under the Act. The determination of the amount
was to be made under Section 7-A as substituted by the U.P. Amending
B Act that task was statutorily assigned to a Special Officer. The Special
Officer after hearing the appellant's representative on diverse claims put
forward under the said provision for determination of appropriate amount
of compensation passed the impugned award dated 31st March 1980.
The aforesaid award is brought in challenge by the appellant exC licensee by filing this appeal in quest of additional compensation. At this
stage it may be stated that direct writ petitions under Article 32 of the
Constitution of India challenging the constitutional validity of Section 7-A
of the parent Act were pending in this Court since 1972. Consequently the
appellant challenged the impugned award directly in this Court after
D obtaining special leave as stated above. A Constitution Bench of this Court
in the case of Tinsukhia Electric Supply Co. Ltd. v. State of Assam & Ors.,
[1989) 2 SCR 544 upheld the vires of the said provision. Consequently this
appeal survived for consideration of the payment of proper compensation
to the appellant ex-licensee whose licence was also revoked and whose
undertaking got acquired under the said Section 7-A as substituted in the
E State of U.P. by Amending Act 14 of 1976.
Statutory background
Before adverting to the aforesaid four claims for compensation it will
p
be necessary to note the relevant statutory provisions. The Indian
Electricity Act, 1910 deals with supply of energy and licences in connection
therewith. As per Section 3 of the said Act the State Government may on
application made in the prescribed form and on payment of the prescribed
fees, if any, grant after consulting the State Electricity Board, license to any
person to supply energy in any specified area, and also to lay down or place
G electric supply-lines for the conveyance and transmission of energy. 'State
Electricity Board' as defined by Section 2(11) of the Act, in relation to any
State means the State Electricity Board, if any, constituted for the State
under Section 5 of the Electricity (Supply) Act, 1948 (54 of 1948), and
includes any Board which functions in that State under Sections 6 and 7 of
H the said Act. The appellant was the transferee-licensee functioning under
.
•
PILIBHITELECJRJCSUPPLYCO. (P) LID.>. SPL OFFICER (ELECTRICITY) [S.B. MAJMUDAR,l.]
335
the said Act and was entru~ted with the right to generate electricity through A
its undertaking functioning at Pilibhit in U.P. State. It is this undertaking
of the appellant which came to be acquired under Section 6-A of the Act
as inserted by Section 3 of the U.P. Act 14 of 1976. Said Section 6-A
dealing with 'Revocation of licences and acquisition of undertaking' along
with its relevant sub-sections reads as under :
"6-A. Revocation of licences and acquisition of u11de1taki11g.- (1) In
B
this section 'appointed day' means in relation to licensees other
than local authorities, December 1, 1975 and in relation to local
authorities being licensees, such date as may be specified by the
State Government by notification in that behalf, and different dates C
may be specified for different such undertakings.
(2) Notwithstanding anything contained in Sections 4, 4-A, 5
and 6, the licence of every undertaking, unless revoked before the
commencement of the Indian Electricity (Uttar Pradesh Second
Amendment) Ordinance, 1975, shall stand revoked with effect D
from the appointed day.
(3) On revocation of the licence under sub-section (2), the
following provisions shall have effect, namely:-
(a) every undertaking the licence in respect of which stands
revoked shall by virtue of this section stand and be deemed
to have stood transferred to and vest and be deemed to have
vested in the State Electricity Board, hereinafter in this section called "the Board" free from any debt, mortgage or
similar obligation of the licensee attaching to the undertaking:
Provided that any such debt, mortgage or similar obligation
shall attach to the amount payable for the undertaking as mentioned in clause (h;
(b) ·······························
(c) .............................. .
(d) .............................. .
(e) ·······························
E
F
G
H
A
B
c
336
SUPREME COURT REPORTS (1996] SUPP. 7 S.C.R.
(f) ·······························
(g) ·······························
(h) the Board shall pay to the licensee an amount determined in
accordance with the provisions of Section 7-A:
Provided that the licensee shall be in addition to the said
amount, be entitled to interest thereon at the Reserve Bank rate
ruling at the appointed day plus one per centum for the period
from the appointed day to the date of payment of the said amount."
It is not in dispute between the parties that pursuant to the said provisions
the appellant's undertaking stood statutorily acquired by the respondentBoard with effect from the appointed day, that is, 1.12.1975. So far as the
question of compensation to be paid to the appellant-licensee for the
aforesaid acquisition of its undertaking is concerned, Section 7-A is reD quired to be noted. The relevant provisions of the said Section 7-A in the
light of which the controversy in the present case will have to be resolved
read as under :
E
F
G
H
"7-A. Detennination of amount.- (1) Where an undertaking of a
licensee has been purchased by the State Electricity Board in
consequence of revocation of his licence under sub-section (2) of
Section 4 or is sold under sub-section (1) of Section 5 or is
purchased under Section 6 or acquired under Section 6-A, the
amount payable therefor shall be determined as hereinafter
provided.
(2) The gross amount payable to such licensee shall be the
aggregate value of the amounts specified below :-
(i)
the book value of all completed works in beneficial use
pertaining to the undertaking and taken over by the State
Electricity Board, the State Government or local authority,
as the case may be (excluding works constructed at the cost
of local bodies for street lighting and works paid for by
consumers), less depreciation calculated in accordance with
the Sixth Schedule read with the Seventh Schedule to the
Electricity (Supply) Act, 1948;
:::t
PILIBHITEI.ECTRICSUPPLY CO. (Pl LID.'· SPI.. OFFICER (El.ECTRICITY) (S.B. MAJMUDAR,J.]
337
(ii) the book value of all works in progress taken over, excluding
works paid for by the consumers or prospective consumers;
(iii) the book value of all stores, including spare parts taken over,
and in the case of used stores and spare parts, if taken over,
such sum as may be decided upon by the Special Officer
referred to in sub-section ( 6) (hereinafter referred to as the
Special Officer);
(iv) the book valut! of all other fixed assets in use on the date of
vesting under Section 6-A or Section 7, hereinafter referred
to as the vesting date, and taken over, less depreciation
calculated in accordance with the said Schedules;
(v) the book value of all plants and equipments existing on the
vesting date, if taken over but no longer in use owing to wear
and tear or to obsolescence, to the extent such value has not
been written off in the book of the licensee, less depreciation
calculated in accordance with the said Schedules;
Explanation - The book value of any fixed asset means its
original cost, and shall comprise -
A
B
c
D
(i)
the purchase price paid by the licensee for the asset, including E
the cost of delivery and all charges properly incurred in
erecting and bringing the asset into beneficial use as shown
in the books of the undertaking;
(ii) the cost of supervision actually incurred, but not exceeding F
fifteen per cent of the amount referred to in paragraph (i) :
Provided that before deciding the amount under this sub-section,
the licensee shall be given an opportunity by the Special Officer
of being heard, after giving him a notice of at least 15 days therefor.
(3) .............................. ..
(4) .............................. ..
G
( 5) The purchaser shall be entitled to deduct the following sums
from the gross amount payable under the foregoing sub-section to H
338
A
SUPREME COURT REPORTS (1996] SUPP. 7 S.C.R.
a licensee -
(a) the amount, if any, already paid in advance;
(b) where the purchaser is the State Electricity Board the amount
due, if any, including interest thereon, from the licensee to
B
the Board, for energy supplied by the Board before the
vesting date;
c
D
E
F
G
(c) ····························
(d) ... , ....................... .
(e) ····························
(f) ····························
(g) ........................... .
(h) the amounts remaining in Tariffs and Dividends Control
Reserve, Contingencies Reserve and the Development Reserve,
insofar as such amounts have not been paid over by the licensee
to the purchaser.
·
(i) ·····························
( 6) The State Government shall appoint, by order in writing, a
person having adequate knowledge and experience in matter relating to accounts, to be Special Officer to assess the net amount
payable under this section to the licensee, after making the deductions mentioned in this section.
(7)(a) Th" Special Officer may call or the assistance of such
officers and staff of the State Government or the State Electricity
Board' or the licensee as he may deem fit in assessing the net
amount payable.
(b) The Special Officer shall have the same powers as are
vested in a Civil Court under the Code of Civil Procedure. 1908,
\
(Act V of 1908) when trying a suit, in respect of the following
H
matters-
-
'·
PILIBH!TELECTRJCSUPPLYCO. (P) LID. v. SPL OFFICER (ELECTRICITY) (S.R M,VMUDAR,J.J
339
(i)
enforcing the attendance of any person and examining him A
on oath;
(ii) compelling the production of documents; and
(iii) issuing commissions for the examination of witnesses.
The Special Officer shall also have such further powers as may
be specified by the State Government by notification in the
Gazette."
B
c
The other relevant statutory provisions which are required to be noted are
found in Electricity Supply Act, 1948, [hereinafter referred to as 'the
Supply Act'] which is an Act to provide for the rationalisation of the
production and supply of electricity, and generally for taking measures
conducive to electrical development. U.P. State Electricity Board is constituted under Section 5 of the Supply Act. The State Electricity Board is
enjoined by Section 18 of the Supply Act to arrange, in co-ordination with D
the Generating Company or Generating Companies, if any, operating in
the State, for the supply of the electricity that may be required within the
State and for the transmission and distribution of the same, in the most
efficient and economical manner. As per Section 2 sub-section ( 6) of the
supply Act 'licensee' means a person licensed. Section 57 of the Supply Act E
deals with 'licensee's charges to consumers' and it provides that the
provisions of the Sixth Schedule shall be deemed to be incorporated in the
licence of every licensee, not being a local authority and the licensee is
required to comply with the provisions of the said Schedule. The Sixth
Schedule to the Supply Act as it stood on the appointed day when the
appellant's undertaking was acquired will be referred to by us at an
appropriate stage while we will consider the aforesaid four claims for
additional compensation as put forward by the learned senior counsel for
F
the appellant.
•
In the background of the aforesaid statutory provisions we now G
proceed to consider the four claims for additional compensation pressed
for our consideration.
Claim No. 1
This claim is based on Section 7-A sub-section (2) Explanation (ii) H
340
SUPREME COURT REPORTS (1996] SUPP. 7 S.C.R.
A extracted earlier. The appellant contends that as per the aforesaid
provision the gross amount of compensation payable to the appellant-licensee has to be the aggregate value of the amount specified in section 7-A(2)
and which ~ould include book value of all completed works in beneficial
use pertaining to the undertaking and taken over by the State Government
B as in the present case. As per the Explanation the book value of any fixed
asset means its original costs and shall also comprise of the cost of
supervision actually incurred but not exceeding the amount referred to in
paragraph (i) of the said Explanation. The appellant submits that it had
incurred from year to year large amounts of supervision charges paid to
C the staff engaged for having supervision over these fixed assets and the said
claim was wrongly disallowed by the Special Officer, even though the
appellant was entitled to at least 15% of the cost of supervision actually
incurred by the appellant as permissible under Explanation (ii) to Section
7-A(2). A look at the relevant part of the Award on this aspect shows that
according to the appellant the salary and wages paid to the officers and
D supervisory staff of the undertaking were debited to· the Revenue Account
and the cost of the assets amounting to Rs. 25,58,581 as shown in the
audited Balance Sheet was required to be raised by Rs. 3,82,737 being the
supervision charges at the rate of 15% of the total supervision charges
actually incurred for supervising and maintaining these assets. This claim
E was rejected by the Special Officer on two counts; (i) that as per the
provisions of the Sixth Schedule to the Supply Act these supervision
charges had to be capitalised by the appellant from year to year when they
were incurred and as that was not done these supervision charges could
not be awarded: and (ii) in any case there was no clear evidence led by the
F appellant in respect of the said claim. Learned senior appearing for the
appell~nt vehemently submitted that both these reasons given by the Special Officer were erroneous. In that connection it was submitted that
Section 7-A sub-section (2) Explanation (ii) nowhere laid down that the
costs of supervision actually incurred should be capitalised by the licensee
from year to year.