# TINSUKHIA ELECTRIC SUPPLY CO. LTD v. STATE OF ASSAM AND ORS

- **Citation:** [1989] 2 S.C.R. 544
- **Court:** Supreme Court of India
- **Decided:** 1989-04-13
- **Case number:** Writ Petition No. 457 of 1972
- **Bench:** R.S. Pathak, Sabyasachi Mukharji, S. Natarajan, M.N. Venkatachaliah, S. Ranganathan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/tinsukhia-electric-supply-co-ltd-v-state-of-assam-and-ors-10291
- **Pages:** 56

## Headnote

Constitution of India, 1950: Articles 14, 19, 31-C and 39(b) and
(c)-Nationalisation-Acquisition and take over of electric. supply
companies by State Government-Validity of-Nexus between the legisC · lation and the objectives and principles of nationalisation-Court to
look into the real nature of the statute.
-Y
Indian
Electricity
Act,
1910/ Indian
Electricity
(Assam
Amendment) Act, 1973: Sections 5(2), 6(7) and ?A-Acquisition and
D take over of electricity supply companies-Constitutional validity of.
Tinsukhia and Dibrugarh Electric Supply Undertakings (Acquisition) Act, 1973: Sections 1(3), 2(f), (h), (j), 2(1), 3 to 10, 20 and 23Constitutional validity of-Acquisition and take over of Tinsukhia -f.--
Electric Supply Co. Ltd. and Dibrugarh Electhc Supply Co. Ltd.-'-
E Protection under Article 31-C of the Constitution of India-Payment of
compensation-Justiciability of.
p
G
The petitioners-Public Limited Companies-were granted
licences under the provisions of the Indian Electricity Act, 1910 for
supply of electricity within the respective licensed areas of Tinsukhia
and Dibrugarh Municipal Boards.
The Dil>rugarh Company was granted licence in 1928 on certain ,-',~
terms and conditions with an option to the State to purchase the undertaking on the expiry of 50 years and thereafter on the expiry of every
subsequent period of twenty years.
So also, the Tinsukhia company was granted licence in 1954 on +
certain terms and conditions with an option to the State Government to
purchase the undertaking ml the expiry of 20 years and thereafter on
the expiry of every 20 years.
H
The State Government negotiated with the ·companies for pur544
-
-
-
TINSUKHIA ELECTRIC SUPPLY CO. v. STATE
545
chasing them. The negotiations were going on for several years. On
27 .9.1972 the Governor promulgated two ordinances for the compulsory acquisition of the undertakings of the two companies. Subsequently, the ordinances were replaced by the Indian Electricity (Assam
Amendment) Act, 1973 and the Tinsukhia & Dibrugarh Electric Supply
Undertakings (Acquisition) Act, 1973.
~
The two legislations, one amending the provisions of Sections 5(2),
}-6(7) and 7-A ?~t~e Indian Electricity Act'.1910 ?nd the other pr~viding
·
for the acqu1S1bon of the two undertakings viz., the Tinsukh1a and
Dibrugarh Electric Supply Undertaking (Acquisition) Act, 1973 were
challenged in this Court by the writ-petitioners on several grounds. It
was contended that in view of the private negotiaticms and the exercise
Of the ·option to purchase, the legislations were not' bona fide, but cony
stituted a mere colourable exercise of legislative power and that the real
objects of the two legislations have no direct and reasonable nexus to the
objects envisaged in Article 39(b) of the Constitution. It was also contended that what was sought to be acquired was not the undertakings of
the two companies, hut the difference between the_ market value of the
undertakings agreed to by the State Government and the Book-value of
the undertakings which the law has substituted by virtue of the amendments' made in the Indian Electricity Act, 1910. The Article 31-C pro-
.~ tection given to the legislatio;.,,, and some of the specific provisions of
the acquisition law which. excluded certain items from the computation
of compensation and authorised . certain deductions in the amount of
compensation have also been challenged.
On behalf of the Respondents, it was contended that. electrical
energy has b~n a material source of the community and any legislativ_e
;....
measure to nationalise the undertaking fell squarely within the ambit of
•
Article 39(b) and was entitled to Article 31-C protection. It was also
. ~ asserted that book-value has been a well accepted ·concept of valuation
in_ accountancy, and it cannot be characterised as, illusory even if the
legislations did not enjoy the protection of Article 31-C.
Dismissing the writ petitions,
-+
HELD: (μ.S. Pathak. CJ, M.N. Venkatachaliah, S. Natarajan.
and

## Text

_Characters 0–39,934 of 131,846. This is a partial read: ask again with offset=39934 for what follows._

A
B
TINSUKHIA ELECTRIC SUPPLY CO. LTD.
v.
STATE OF ASSAM AND ORS.
APRIL 13, 1989
[R.S. PATHAK, CJ, SABYASACHI MUKHARJI,
S. NATARAJAN, M.N. VENKATACHALIAH AND
S. RANGANATHAN, JJ.]
Constitution of India, 1950: Articles 14, 19, 31-C and 39(b) and
(c)-Nationalisation-Acquisition and take over of electric. supply
companies by State Government-Validity of-Nexus between the legisC · lation and the objectives and principles of nationalisation-Court to
look into the real nature of the statute.
-Y
Indian
Electricity
Act,
1910/ Indian
Electricity
(Assam
Amendment) Act, 1973: Sections 5(2), 6(7) and ?A-Acquisition and
D take over of electricity supply companies-Constitutional validity of.
Tinsukhia and Dibrugarh Electric Supply Undertakings (Acquisition) Act, 1973: Sections 1(3), 2(f), (h), (j), 2(1), 3 to 10, 20 and 23Constitutional validity of-Acquisition and take over of Tinsukhia -f.--
Electric Supply Co. Ltd. and Dibrugarh Electhc Supply Co. Ltd.-'-
E Protection under Article 31-C of the Constitution of India-Payment of
compensation-Justiciability of.
p
G
The petitioners-Public Limited Companies-were granted
licences under the provisions of the Indian Electricity Act, 1910 for
supply of electricity within the respective licensed areas of Tinsukhia
and Dibrugarh Municipal Boards.
The Dil>rugarh Company was granted licence in 1928 on certain ,-',~
terms and conditions with an option to the State to purchase the undertaking on the expiry of 50 years and thereafter on the expiry of every
subsequent period of twenty years.
So also, the Tinsukhia company was granted licence in 1954 on +
certain terms and conditions with an option to the State Government to
purchase the undertaking ml the expiry of 20 years and thereafter on
the expiry of every 20 years.
H
The State Government negotiated with the ·companies for pur544
-
-
-
TINSUKHIA ELECTRIC SUPPLY CO. v. STATE
545
chasing them. The negotiations were going on for several years. On
27 .9.1972 the Governor promulgated two ordinances for the compulsory acquisition of the undertakings of the two companies. Subsequently, the ordinances were replaced by the Indian Electricity (Assam
Amendment) Act, 1973 and the Tinsukhia & Dibrugarh Electric Supply
Undertakings (Acquisition) Act, 1973.
~
The two legislations, one amending the provisions of Sections 5(2),
}-6(7) and 7-A ?~t~e Indian Electricity Act'.1910 ?nd the other pr~viding
·
for the acqu1S1bon of the two undertakings viz., the Tinsukh1a and
Dibrugarh Electric Supply Undertaking (Acquisition) Act, 1973 were
challenged in this Court by the writ-petitioners on several grounds. It
was contended that in view of the private negotiaticms and the exercise
Of the ·option to purchase, the legislations were not' bona fide, but cony
stituted a mere colourable exercise of legislative power and that the real
objects of the two legislations have no direct and reasonable nexus to the
objects envisaged in Article 39(b) of the Constitution. It was also contended that what was sought to be acquired was not the undertakings of
the two companies, hut the difference between the_ market value of the
undertakings agreed to by the State Government and the Book-value of
the undertakings which the law has substituted by virtue of the amendments' made in the Indian Electricity Act, 1910. The Article 31-C pro-
.~ tection given to the legislatio;.,,, and some of the specific provisions of
the acquisition law which. excluded certain items from the computation
of compensation and authorised . certain deductions in the amount of
compensation have also been challenged.
On behalf of the Respondents, it was contended that. electrical
energy has b~n a material source of the community and any legislativ_e
;....
measure to nationalise the undertaking fell squarely within the ambit of
•
Article 39(b) and was entitled to Article 31-C protection. It was also
. ~ asserted that book-value has been a well accepted ·concept of valuation
in_ accountancy, and it cannot be characterised as, illusory even if the
legislations did not enjoy the protection of Article 31-C.
Dismissing the writ petitions,
-+
HELD: (μ.S. Pathak. CJ, M.N. Venkatachaliah, S. Natarajan.
and S. Ranganathan, JJ-per Venkatachaliah, ]. J
A
B
c
D
E
F
G
1.1. The proposition that the legislative declaration of the nexus
between the law and the principles in Article ·39 is inconclusive and
justiciable is well settled. The sequentor is that whenever any immunity
H
546
SUPREME COURT REPORTS
[1989] 2 S.C.R.
A
is claimed for a law under Article 31-C, the Court has the power to -j..
examine whether the provisions of the law are basically and essentially
necessary for the effectuation of the principles envisaged in. Article
39(b) and (c). [539E, F]
B
1.2. It can, hardly be gain-said that the electrical energy generated and distributed by the undertakings of the petitioners conslitutes
"material resources of the community". The idea of distribution of the --f
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. The economic cost of social and
economic reform is, perhaps, amongst the most vexed problems of
C
social and economic change and constitute the core element in
Nationalisation. The need for constitutional immunities for such legislative efforts at social and economic change recognise ihe otherwise unaffordable economic burden of reforms. It is not possible to divorce the
economic considerations or components from the scheme of nationalisaz;>
lion with which the former are inextricably integrated. The financi;ll
cost of a scheme of nationalisation lies at its very heart and cannot be
isolated. Both the provisions relating to the vestiture 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 ambit of being considered as distinct proviE sions independent of each other. The debate whether nationalisation is
by itself to be considered as fulfilling a public purpose or whether the
nationalisation should he shown to be justified effectuation of the
avowed objectives of such nationalisation-the choice between the
pragmatis and the doctrinaire approaches-"-is concluded and no longer
available.[578C, D, E, 579C, D, H, SSOA, B, Ej
F
1.3. The right; title and interest ofthP licensee in the undertaking ...Jidoes not get transferred to the Board or the State, as the case may
be, immediately upon the mere exercise of the option to purchase. The
exercise of the option would have no such effect on the licensee's right to
carry on his business until the undertaking was actually taken over and
G
paid for. The contentions that immediately upon the exercise of the +
option, ipso-facto, the relationship between the parties get transformed
into one as between a Debtor and a Creditor and that the interest of the
licensee in the undertaking becomes an "actionable-right". or a "chosein-action" and that no public-purpose could be said to be served by the
acquisition of a "chose-in-action" are all out of place in the instant
H case. [582E. 583C]
-
, _,.,,
'i'
TINSUKHIA ELECTRIC SUPPLY CO. v. STATE
547
-+
1.4. The acquisition legislation was brought-forth for securing
A
the principles contained in Article 39(b) of the Constitution and is
protected under Article 31-C. The Assam amendment made to the
provisions of the Indian Electricity Act, 1910, amending the basis for
quantification of the amount payable in the case of a statutory purchase
pursuant to the exercise of the option in terms of the licence would ' B
~ apply to and govern cases of statutory-sales and· would not assume any
)-
immateriality in the instant case. [585E, F]
Kesavananda Bharati v. State of Kerala;·[\97J] Sujipl. SCR I;
-
Minerva Mills Ltd. v. Union of India, [1981] 1SCR206; Sanjeev Coke
Mfg. Co. v. Bharat Coking Coal. Ltd., (1983] 1 SCR 1000; State of
Tamil Nadu v. L. Abu Kavar Bai, AIR 1984 SC 326; Akadasi Padhan c
'y
v. State of Orissa and Ors., AIR 1963 SC 1047; Godra Electricity Co.
''
Ltd. and Anr. v. The State of Gujarat and Anr., (1975] 2 SCR 42 and
Madan Mohan Pathak v. Union of India and Ors., (1978] 2 SCR 334,
relied on;
Fergusan v. Skrupa, 372 U.S. 726; Fazilka Electric Supply Co.
D
Ltd. v. The Commissioner of Income Tax, Delhi, [1962] Suppl. 3 SCR
496 and Gujarai Electricity Board v. Shanti/al, (1969] l. SCR 580, referred to.
>-
Bihar State Electricity Board v. Patna Electricity Supply Co. Ltd.,
E
AIR 1982 Cal, 74; distinguished.
-
"History of the treatment of choses-in-action by the common
law"-by W.S. Holdsworth-Vol. 33-Harvard law Review referred
to .
. ~
F
2. · It may not be just to deprive a recompence that is just and fair,
-.~ in all cases. But that. is not to say that even .under a law which has
the protection of Art. 31-A or 31-C, the .adequacy, or justness or fairness of the compensation would, yet, be justiciable. Article 31-C is in
effect and substance is to 'urban property' of what Article 31-A is to
'agricultural property'. All the same, the concept of "Book-Value" is
G
4an accepted accountancy concept of value. It cannot be held to be
'
illusory. Even if the impugned law had no protection of Article 31-C
and tests appropriate to and available are applied, in the circumstances
of the present case, it cannot be saidJhat the principles envisaged in the
acquisition law lead to an "amount" which can be called unreal or
illusory., [590C, 592Bl
JI
548
SUPREME COURT REPORTS
[1989] 2 S.C.R.
A
Eswari Khetan Sugar Mills v. State of U.P., [1980] 3 SCR 331; +
·relied on.
B
c
Gwalior Rayon v. Union of India, f.1974] SCR 1671; referred to.
3. Under the law when a requ_isition is made by an intending
consumer for electrical-energy, the licensee has an obligation to lay
'-f
down service-lines. But, according to the provisions the entire cost of j
·
service-line is not required to be borne by the licensee. The licensee is \
entitled to call upon the consumer to pay part of the cost of service-
·
line-which may in a given case amount to a substantial part-in
accordance with the provisions in the Schedule to the Electricity Supply
Act. While it is true that the expression 'works' in Section 2(h) of the
Indian Railways Act, 1910 includes 'Service-lines', the reason why
-V
'Service-lines' could justifiably be excluded from valuation for pur-
'
poses of determination of the 'amount'. is that the new licensee is to
repair and maintain them. [593B, C; 592F, G]
D
Dakor-Umreth Electricity Co. Ltd. v. State of Gujarat, 13 GLR
88; approved.
4. On a reasonable construction, the expressions 'amounts
remaining' and 'in so far as such amounts have not been paid over'
-f-..
necessarily exclude any such duplication of the accountability of the
E licensee for these 'Reserves'. If any part of the reserves is invested in
"fixed assets" and the reserves in the form of such "fixed assets" are
taken-over by the Government pursuant to the acquisition, what
remains to be accounted for by the licensee is only the 'amounts remaining' in the pertinent accounts. The liability of the licensee for deduction
of the 'Reserves' from the 'amount' would arise only if the balance
,...!,
F
remaining in those accounts are not paid. [S94F, GI
5. As regards the liability of the licensee under Section ll(3) of
the Acquisition Act in respect of the amounts payable to employees
retrenched by the Government or the 'Board' as the case may be,
within one year from the vesting date after the take-over-ven if this
G question is justiciable-it is not unreasonable or arbitrary as it envis-
~
ages the continuance of a liability which was, otherwise, substantially
that of the licensee. [595F, G, H, 596A, Bl
6. Though some of the liabilities arising out of the conduct of the
licensees' business prior to vesting are not taken over by Government,
H some of those liabilities are, yet, authorised to be deducted from the
-
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TINSUKHIA ELECTRIC SUPPLY CO. v. STATE
549
amount. The purpose of this provision is too obvious to require any
statutory declaration or the obligations that arise in law and are
attandant upon these sums coming to the hands of and retained by the
Government. Quite obviously, the provision is not intended for an
unjust enrichment in the hands of Government. The purpose is
obviously to facilitate recovery of certain types of debts owed to public
:..--.
institutions etc., and the deduction is for' the benefit of those creditor-
• '
institutions. The Government would, plainly, be under a legal obliga-
,).. lion to pay the sums so deducted, to the concerned creditors. The provit
sions of the Statute must be read along, and in consonance, with the
general principles of law which import such obligations on the part of
the Government and an implied corresponding discharge to the petitioners to the extent of such deductions in their liabilities. There is a
resulting statutory-trust in the hands of the Government to pay the
sums so deducted to the respective creditors, even in the absence of
express provisions in this behalf in the Statute, the general principles of
law operate. As a matter of construction_it re_quires to be held that these
obligations and consequences follow. [596E, F, G, H, 597A]
7. The Courts strongly lean against any construction which tends
to reduce a Statute to a futility. The provision of a Statute must be so
construed as to make it effective and operative, on the principle "but res
majis v_aletU quam periat''. It is, n11 doubt, tn1e that if a Statute is
absolutely vague and its language wholly ihtractable and absolutely
meaningless, the Statute could be declared void for vagueness. This is
not in judicial-review by testing the law for arbitrariness or unreasonableness under Article 14; but what a Court of construction, dealing
with the language of a Statute, does in order to ascertain from, and
accord to, the Statute the meaning and purpose which the legislature
intended for it. It is, therefore, the Court's duty to make what it can of
the Statute, knowing that the statutes are meant to be operative and not
inept and that nothing short _of imp_ossibility shouid allow a Court to
declare a Statute unworkable. [597F, G, 598C]
·
A
B
c
D
E
F
Manchester Ship Canal Co. v. Manchester Race Course Co.,
[1904] 2 Ch. _352 and Fawcet Properties. v. Buckingham County
Council, [1960] 3 All.E.R. 503, referred to. --
G
8. Section IO of the Acquisition Act enjoins upon the Government
to appoint a person having adequate knowledge and _experience in
matters relating to accounts "toassess ihe net amount payable under the
Act by the Government to the licensee after making the deductions
mentioned in section 9". Proviso ·to Secti.ons 8 and 9 envisages priOr
H
A
B
c
D
E
F
G
550
SUPREME COURT REPORTS
[1989] 2 S.C.R.
notice to be issued to the licensee by the Government to show cause +.
against any deduction proposed to be made under Section 8 or 9, as the
case may be, within the period specified in the provisos. Even after
the Government so makes such determination of the amounts whiCh,
according to it, are deductible from the gross amount, such determination wonld not be final. The assessment of the net amount payable to.the
licensee will have to be made by the "Special Officer". It is reasonable
j.
to construe tbat the decision of the Government both under Sections 8
and 9 arrived at, even after giving an opportunity to the lincensee of --I,
being heard, would not be final, but the final determination will have to
'·
be made by the "Special Officer" appointed under section 10 of the
Act. Section 10(1) and (2) of the Act must be so construed a~ to enable
the "Special Officer" to take into account the determination respecting
the deduction under Sections 9 and 10 of the A~t made by thelGovernment and take the decision of his own in the matter. The power to c.(
''assess" the net amount by necessary implication takes within its
sweep the power to examine the validity of the determination made
by the Government in the matter of deductfon from the gross amount.
This power to \letermine and assess the 'net-amount' payable by necessary implication cover matters envisaged in Sections 8 and 9. Though
only Section 9 is specifically referred to in sub-sections (1) and (2) of
section 10, the language of sub-sections (I) and (2) which enable the
Special Officer to "assess" the net amount payable would by.necessary -f--
implication, attract the power to decide as to the validity and correctness of the deduction to be made under Section 8 as well. So construed,
the provisions of Section 10 would furnish a reasonably adequate
·machinery for the assessment of the "net-amount" payable to the
licensee. [598E-H; 599A-E]
9. So far as Arbitration is concerned, even after the decision of
the "Special Officer", there is the further arbitral forum to decide
disputes in respect of the specific areas in which disputes are rendered
arbitrable under Section 20. There is a provision for appointment of a
sitting or retired District or High Court Judge as arbitrator under the
said section. Hence it cannot be said that there is no proper machinery
for resolving the disputes between the Government and the licensee
rendering the Acquisition Act unworkable: [S99F, GI
Per Mukharji, J. (Concurring)
'
,.....,
+
l. Article 39(b) of the Constitution enJOms that the State in
particular should direct its policy towards securing that the ownership
H
and control of the material resources of the community are so distri-
-
-
-+
TINSUKHIA ELECfRIC SUPPLY CO. v. STATE
551
buted as to best subserve the common good and that the operation of the
economic system does not result in concentration of wealth and means
A,
of production to the common detriment. In order to decide whether a
Statute is within Article 31-C, the Court, if necessary, may examine the
nature and the character of the legislation and the matter dealt with as
to whether there is any nexus between tlie law and the principles
-.'.>(
mentioned in Article 39(b) and (c). On such an examination if it appears
B
'
that there is no such nexus between the legislation and the objectives
~and the principles mentioned in Article 39(b) and (c), the legislation will
not enjoy the protection of Article 31-C. In order to see the real nature
-
of the Statute, ifneed be, the Court may also tear the veil. [553E-H]
. '
-
Kesavananda Bharati v. State of Kera/a, [1973] Suppl. SCR l;
)<-
relied on.
Charles Russel v. The Queen, [1882] VII AC 829; referred to.
1 2 •. Whenever a question is raised that the Parliament or the State
Legislature have abused their powers and inserted a declaration in a
law for not giving effect to securing the Directive Principles specified in
Article 39(b) and (c), the Coui;t can and must necessarily go into that
question and decide. If the Court comes to the conclusion that the
---1:-
declaration was merely a pretence and that real purpose of the law is
the accomplishment of some object other than to give effect to the policy
of the State towards securing the Directive Principles as enjoined by
Article 39(b) and (c), the declaration would not debar the Court from
striking down any provision therein which violates Articles 14, 19 or 31.
In other words, if a law passed-ostensibly to give effect to the policy of
the State is, in truth and substance, one for accomplishing an unau-
;l, thorised object, the Court would be entitled to tear the veil created by
, the declaration and decide according to the nature of the law. The only
'>-.-question open to judicial review undei:Article 31-C is whether there is a
direct and reasonable nexus between the impugned law and the provi'
sions of Article 39(b) and (c). Reasonableness is evidently regarding the,
nexus and not regarding the law: l554D, E, F, ssss,,ci
-
\
Kesavananda Bharati v. State of Kera/a, [1973] Suppl. SCR '1;
Minerva Mills Ltd. v. Union of India, [1981] I SCR 206 and Sanjeev
Coke Mfg. Co. v. Bharat Coking Coal Ltd. & Anr., [1983] l SCR 1000,
relied on.
c
D
E
F
G
3. It is indisputed that the electric energy generated by tne
-~titioner companies constitutes material resources of the community
H
552
SUPREME COURT REPORTS
[1989] 2 S.C.R.
A
within the scope and meaning of Article 39(b), and having regard to the
true nature and the purpose of the legislations, reading the legislations
' entirely, the Iegislalions have a direct and reasonable nexus with tile objective
of distributing the material resources so as to subserve the common
good. The determination of' value t.herof and the substitution of the
book-value in place of market value, are only methods for such acquisi-
·+
B
tion anti do not disclose the true nature and character of the legislation, 'jbut are incidental provisions thereof. If that is the position then it is .J
incorrect to say that what was acquired, was not the material resources · \
but chose-in-action. The true nature and character of the legislations in
question was to acquire the material resources, namely, the electric
-
energy for better supply and distribution. [5560, E, F]
c
State of Tamil Nadu & Ors. v. L. Abu Kavur Bai & Ors., [1984] 1 ">I'
sec 515, relied on.
D
Bihar State Electricity Board & On. v. Patna Electricity Supply
Co. Ltd., AIR 1982 Cal. 74. distinguished.
4. Having regard to the true nature and character of the legislations in question the legislations are not colourable legislations in the
sense that there was no direct and reasonable nexus with Article 31 (h)
and (c) of the Constitution. [556H]
-f-·
E
ORIGINAL JURISDICTION: Writ Petition No. 457 of 1972
(Under Article 32 of the Constitution of India)
Mrs. A.K. Venna for the Intervener.
G
The following Judgments of the Court were delivered:
SABYASACHI MUKHARJI, J. I agree with Brother Venkatachaliah, that the contentions urged on behalf of the petitioner in support of the challenge to the impugned legislations must fail and the
H writ petitions must be dismissed. I would, however, like to express my
+
-
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TINSUKHTA ELECTRIC SUPPLY CO. v. STATE [MUKHARJI, J.] 553
views only on one aspect of the matter, which is common to this case as . A
well as the writ petitioQ No. 458/72, civil appeal No 4113/85 and writ
petition No. 5(N)/74, i.e. the scope of judicial review of legislation
where there. is declaration in the legislation under Art. 3K of the
Constitution.
In these writ petitions we are concerned with two legislations,
namely, the Indian Electricity (Assam Amendment Act, 1973, (Assam
Act IX of 1973), and the Tinsukhia & Dibrugarh Electric Supply
Undertakings (Acquisition) Act, 1973 (Act X of 1973). The main point
which is significant in these writ petitions, is the extent and scope of
judicial review of legislation where there is declaration under Art. 3 lC
of the Constitution, which enjoins that no law giving effect to the
y
policy of the State towards securing all or any of the principles laid
down, inter alia, namely, Articles 38, 39, 39A, 40, 41, 42, 43A, 44 to
48, 48A and 49 to 51 shall be deemed to be void on the ground that
those are inconsistent or take away or abridge any of the rights conferred by Article 14 or 19, and further provides that no Jaw containing a
declaration that it is for giving effect to such a policy, shall be called in
question in any court on the plea that it does not give effect to such a
policy. The two legislations in question are covered by the declaration
under Article 3 lC of the Constitution.
B
c
D
The principal q ucstion which falls for consideration is, whether
that declaration is justiciable and open to judicial review and the
E
extent of that judicial review. Article 39(b) of the Constitution en joins
that the State in particular should direct its policy towards securing
that the ownership and control of the material resources of the community are so distributed as to best subserve the common good and
,,;..
that the operation of the economic system does not result in concentration of wealth and means of production to the common detriment.
F
.,._. See, in this connection, the observations of Ray J. as the learned Chief
Justice then was, in Kesavananda Bharati v. State of Kera/a, [1973]
Suppl. SCR 1 at 451-452. Hence, in order to decide whether a Statute
is within Article 3 lC, the Court, if necessary, may examine the nature
and the character of legislation and the matter dealt with as to whether
4
there is any nexus between the law and the principles mentioned in
G
'
Article 39(b) and (c). On such an examination ifit appears that there is
no such nexus between the legislation and the objectives and the
principles mentioned in Article 39(b) & (c), the legislation will not
en joy the protection of Article 3 lC. Jn order to see the real nature of
the Statute, if need be, the court may also tear the veil.
H
554
SUPREME COURT REPORTS
[1989) 2 S.C.R.
A
Justice Jaganmohan Reddy in the same decision at page 530 of
the report reiter~ted that a law not attracting Article 3 lC cannot be
protected by a declaration by just mixing it with other laws really
falling within Article 3 lC with those that do not fall under that Article.
Hence, in such a case the Court will always be competent to examine
B
c
the true nature and character of the legislation in the particular
instance and its design and the primary matter dealt with-its object
and scope. In this connection, reliance was placed on the observations
of the Privy Council in Charles Russel v. The Queen, [1882) VII AC
829 at 838-840. Justice Palekar in the same decision at page 631 also
reiterated that if the court comes to the conclusion that the object of
the legislation was merely a pretence and the real object was discrimination or something other than the object specified in Article 39(b)
and (c), Article 31C would not be attracted and the validity of the
Statute would have to be tested independently of Article 3 lC.
Whenever a question is raised that the Parliament or the State
legislature have abused their powers and inserted a declaration in a
D law for not giving effect to securing the Directive Principles specified
in Article 39(b) & (c), the court can and must necessarily go into that
question and decide. See the observations of Justice Mathew in
Kesavananda Bharati's case (supra) at page 855 of the report. If the
court comes to the conclusion that the declaration was merely a pretence and that the real purpose of the law is the accomplishment of
E some object other than to give effect to the policy of the State towards
securing the Directive Principles as enjoined by Article 39(b) & (c),
the declaration would not debar the court from striking down any
provision therein which violates Articles 14, 19 or 31. In other words,
if a law passed ostensibly to give effect to the policy of the State is, in
truth and substance, one for accomplishing an unauthorised object,
F
the Court would be entitled to tear the veil created by the declaration
and decide according to the nature of the law. Also see pages 851 &
856 of the report. Justice Beg, as the learned Chief Justice then was, at
pages 884-885 of the report reiterated that a colourable piece of legislation with a different object altogether but merely dressed up as a law
intended for giving effect to the specified principles would fail to pass
G the test laid down by the first part, and the declaration by itself would
not preclude a judicial examination of the nexus, so that the courts can
still determine whether the law passed is really the one covered by the
niche carved out by Article 3 IC or merely pretends to be so protected
by parading under cover of the declaration: Justice DwiveJi at page
934 of the report said that the Court still retains power to determine
H whether the law has relevancy to the distribution of the ownership and
+
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TINSUKHJA ELECTRIC SUPPLY CO. v. STAIB [MUKHARJI, J.] 555
control of the material resources of the community and to the operation of the economic system. If the Court finds that the law has no such
relevancy, it can declare the law void. The declaration cannot be
utilised as a clog to protect law bearing no relationship with the objectives mention,ed in the two clauses of Article 39.
>(
With respect, I am inclined to agree with the observations of
. Justice Chandrachud, as the learned Chief Justice then was, at page
f-- 996 of the said report that the declaration under Article 31C does not
exclude the jurisdiction of the Court to determine whether the law is
A
B
•
for giving effect to the policy of the State towards securing the principles specified in Article 39(b) & (c).
c
-
~ -
Chief Justice Chandrachud in Minerva Mills Ltd. v. Union of
India, [1981] 1 SCR 206 at 261 observed that the clear intendment of
Article 31C is that the power to enquire "into the question whether
there is a direct and reasonable nexus between the provisions of a law
and a Directive Principle can not confer upon the courts the power to D
sit on judgment over the policy itself of the State. At the highest,
courts can, under Article 31C, satisfy themselves as to identity of the
law in the sense whether it bears a direct and reasonable nexus with ~he
directive principles. If the court is satisfied as to the existence of such
.---f nexus, the inevitable consequence provided for by Article 3 lC must
follow. He recorded that all the 13 Judges in Kesavananda Bharati's i;
case (supra) agreed. The only question open to judicial review under
Article 31C is whether there is a direct and reasonable nexus between
the impugned law and the provisions of Article 39(b} & (c). Reasonableness is evidently regarding the nexus and not regarding the law.
Justice Bhagwati, as the learned Chief Justice then was, reiteraF
ted at pages 337-338 of the report that if the Court finds that the law
-~ though passed seemingly for giving effect to a Directive Principle is; in
pith and substance, one for accomplishing an unauthorised purposeun-authorised in the sense of not being covered by any Directive Principle, such law would not have the protection of the amended Article
-+
3 lC, which does not give protection to a law which has merely some G
remote or tenuous connection with' a Directive Principle. What is
necessary is that there must be a real and substantial connection and
the dominant object of the law must be to give effect to the Directive
Principles. Also see the observations of this Court in Sanjeev Coke
Mfg. Co. v. Bharat Coking Coal Ltd. & Anr., [1983] 1 SCR 1000 '11
lillO.
-
H
556
SUPREME COURT REPORTS
[1989] 2 S.C.R.
-i.
A
Looked at from this point of view, it cannot be said that the
principles of colourable legislation would not be applicable. If it was
demonstrated that there was no direct and reasonable nexus between
these two impugned laws and the principles as enshrined under Article
3l(b) & (c) of the Constitution, then that would have been colourable
B legislations and would have been bad on that score.
'!
It was contended on behalf of the petitioner by Mr. Sorabji as
~
well as Mr. Rangarajan that in order to bye-pass lhe payment of compensation for acquisition of property of the petitioner in negotiations
the device of the impugned Acts was envisaged. In that context, the
-
substitution of the book-value in place of market value was, therefore,
c deprivation of property and is illusory and would amount to taking
away of property without compensation.
··.~
I do not and cannot agree. It is indisputed that the electric energy
generated by the supplier petitioner companies constitutes material
D resources of the community within the scope and meaning of Article
39(b ), and having regard to the true nature and the purpose of the
legislations, reading the legislations entirely, the object of the legislations have a direct and reasonable nexns with the objective of distributing the material resources so as to snbserve the common good.
?-·
The determination of value thereof and the substitution of the bookE
value in place of market value, are only methods for such acquisition
and do not disclose the true nature and character of the legislation, but
are incidental provisions thereof. If that is the position then it is incorrect to say that what was acquired, was not the material resources but
...
choses-in-action. The true nature and character of tbe legislations in·
question was to acquire the material resources, namely, the electric
,""-
F
energy for better supply and distribution. In that view of the matter
the principles of the d"l'ision of the Division Bench of the Calcutta
High Court in Bihar State EleCtricity Board & Ors. v. Patna Electricity
--\·
Supply Co. Ltd., AIR 1982 Cal. 74 would have no scope of application
to this case. A Constitution Bench of this Court in State of Tamil Nadu
& Ors. v. L. Abu Kavur Bai & Ors., [1984] 1 SCC 515 has expressed
G
the view that the Act giving effect to Article 39(b) & ( c) is protected if
a reasonable nexus is established.
+
In that view of the matter, I agree having regard to the true
nature and character of the legislations that the impugned legislations
are not colourable legislations in the sense that there was no direct and
H reasonable nexus with Article 3 l(b) & ( c) of the Constitution.
-+
TINSUKHIA ELECTRIC SUPPLY CO. v. STATE [VENKA TACHALIAH, J.]
557
On the other aspects of the matter, I agree with respect, with the
conclusion indicated in the judgment of Justice Venkatachaliah.
VENKA TACHALIAH, J. 1. In these two writ petitions invoking
Article 32 of the Constitution of India, the Tinsukia Electric Supply
Company Limited and the Dibrugarh Electric Supply Company
Limited, which are licensees under the Indian Electricity Act 1910 for
the supply of electricity within the areas of the municipal boards of Tinsukhia and Dibrugarh towns respectively, in th~ State of Ass11m and
the share-holder-Managing Directors of the two companies assail the
constitutional validity of the Indian Electricity (Ass~m Amendment)
Act, 1973, and of the Tinsukia and Dibrugarh Electric Supply Undertaking (Acquisition) Act, 1973. By the latter enactments, the undertakings of the two companies were sought to be acquired so as to vest
them in the Government with effect from 27.9.1972.
A
B
c
The petitioners also urge, in the petitions, a challenge to the
validity of the Twentyfourth and Twentyfifth Amendments to the
Constitution. This part of the petition, in view of the subsequent
D
pronouncements of this court on these amendments, does not survive.
2. The petitioner-companies are Public Limited Companies
registered under the Indian Companies Act, 1913, and are existing
companies under the Companies Act 1956 with their registered offices
at Tinsukhia and Dibrugarh respectively in tbe State of Assam. The
two companies, Tinsukhia Electric Supply Company Ltd., and the
Dibrugarh Electric Supply Company Ltd.-hereinafter referred to
respectively as the 'Tinsukhia Co.' and 'Dibrugarh Co.'-were granted
'licences under the provisions of the Indian Electricity Act, 1910('1910
Act' for short) for supply of electricity within the respectiv(' licenced
areas viz. of the Tinsukhia and Dibrugarh Municipal Boards. The
'Dibrugarh Company' was granted the 'Dibrugarh Electricity Licence,
1928' on terms and conditions particularised in the grant, incorporating, inter alia, an option to the State to purchase the undertaking on
the expiration of 50 years from 13.2.1928 the date of commencement
of the licence and thereafter on the expiration of every subsequent
period of twenty years.
The Tinsukhia Company was similarly granted the 'Tinsukhia
Electricity Licence, 1954', incorporating, inter-alia, a condition as to
E
F
G
the option exercisable by the State of Assam to purchase the electricity
undertaking of the licencee on the expiration of 20 years from
21.7.1954, the date of commencement of the licence, and thereafter on
H
558
SUPREME COURT REPORTS
[1989] 2 S.C.R.
A the expiration of every subsequent decennial period.
3. However, by two Ordinances, namely, The Indian Electricity
(Assam Amendment) Ordinance, 1972: (Assam Ordinance VII, 1972)
and the Tinsukhia & Dibrugarh Electricity Supply Undertakings
(Acquisition) ordinance, 1972, (Assam Ordinance VIII of 1972)
B promulgated by the Governor in exercise of his legislative powers
under Article 213 of the Constitution, the Electricity Supply Undertakings of the two companies were acquired by, and stood vested in,
the Government with effect from 23.30 hrs. on 27.9.1972. Possession
and control of the two undertakings were, accordingly, taken-over by
the Government of Assam that day. The two ordinances were subseC quently replaced by the two corresponding legislative enactments viz.,
the Indian Electricity (Assam Amendment) Act, 1973, (Assam Act
IX, 1913) and the Tinsukhia & Dibrugarh Electric Supply Undertakings (Acquisition) Act, 1973, (Assam Act, X of 1973).
At the time of filing of the writ petitions the two Ordinances had
p
not been replaced by the legislative measures. However, after the
coming into force of the two legislative enactments, with retrospective
effect from;the date of promulgation of the earlier ordinances, petitioners' sought, and· were granted by an order of this Court dated
18.12.1973, leave to amend the petitions so as to direct the challenge
against the enactments.
E
F
4. An advertence, though brief, to the factual antecedents leading upto to the promulgation of the Ordinances and to certan earlier
steps taken by the State Government to acquire the said undertakings,
first by negotiations, and later by exercise of the option to purchase, is
necessary in order to put the grounds o~ .challenge in their proper
perspective.
Respondent No. 4 i.e. the Assam State Electricity Board, it
would appear, had been expressing its intention to take-over the
undertaking of the Tinsukia Co. by private negotiations even from the
year 1964. Pursuant to and in implementation of this proposal the
!~
μ
Board had constituted a committee of. 3 members for assessing the
._.
value of the assets of the Tinsukhia's undertaking. On the valuation so
made and the inventories so prepared, the Board, on 27.3.1970,
informed the Tinsukia Co. that the Board had approved the valuation
of the assets of the undertaking at Rs.30,54,246, excluding, the value
of the land, whose value was later estimated at Rs.2,40,000. By letter
H
dated 4.3.1971, the Chairman of the Assam State Electricity Board
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TINSUKHIAELECfRICSUPPLYCO. v. STA1E [VENKATACHALIAH,J.)
559
~·· informed Tinsukia Co., that the company should immediately signify
and communicate its acceptance of the proposal to transfer the underA
taking to the Board at the valuation of Rs.33,00,000. The company,
appears to have tarried and did .not signify and communicate its
immediate and unqualified acceptance of the offer; but appears to
have had some counter-proposal in mind and, in the expectation of
··\
pursuading the Board to its view, requested the Chairman of the
B
Board to visit Tinsukia for holding further discussions in the matter of
~ valuation of the Undertaking. Thereafter the Chairman along with the
officers of the Board visited Tinsukia sometime in June, 1971, and
held discussion with the company. The company avers that pursuant to
these discussions, the Executive Engineer of the Board was asked by
the Chairman to prepare a fresh inventory as on 31.10.1971 in colla- c
~
boration with the company.
However, the Secretary of the Board sent a communication
dated 10.12.1971 to the company to the effect that as the conipany had
not conveyed )ts concurrence to the offer contained in the Board's
letter dated 25.3.1970 the said offer be treated as withdrawn. ThereD
after, the Board issued the notice dated 15/23 May 1972 to the
company conveying the Board's intention to exercise its option of
purchasing the undertaking under Section 6(1) of the 1910 Act read
.