# UNION OF INDIA v. THE METAL CORPORATION OF INDIA LTD. & ANR

- **Citation:** [1967] 1 S.C.R. 255
- **Court:** Supreme Court of India
- **Decided:** 1966-09-05
- **Case number:** Civil Writ No. 832-D of 1965
- **Bench:** K. Subba Rao, J. M. Shelat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-v-the-metal-corporation-of-india-ltd-anr-3819
- **Pages:** 11

## Headnote

Constitution of India, 1950, Art. 31(2)-Law for compulsory acqulrllion laying down print:ip/es of compensation-Test for corutltutlorral v•/1dity-Metal Corporation of India (Acquislt(On of Undertaking) Act (44 of
1965)-If ultra vires.
The Metal Corporation of India (Acquisition of Undertaking)
Act,
1965, was enacted for acquiring in the public interest, the undertaking of the
Metal Corporation of India.
The Act provided that the Corporation
was to vest in the Central Government on the commencement of the Act;
and that in the absence of an a~ent between the Governmenl and the
Corporation, the compensation payable to the Corporation was to be an
amount equal to the sum total of the value of the properties and asaets of
the Corporation on the date of the commencement of the Act calculated in
accordance with the provisions of Paragraph II of, the Schedule to the Act,
less the liabilities on the said date, calculated in accordance ·with the provisions of Paragraph III of the Schedule. One of the clauses laying down
principles of compensation, viz., clause (b) of para JI is in two parts.
The first p~rt provides for the valuation of plant, machinery or other
equipment which has not been worked or used and is in good condition,
and the second part provides for the valuation of any other plant, machi- ·
nery or equipment. The former have to be valued at the actual cost incurred by the Corporation in acquiring them and the latter, at the writtendown value determined in accordance with the provisions of the Income·
tax Act, 1961. On the question of the constitutional validity of the Act.
HELD: The Act contravened Art. 31(2) of the Constitution and was
therefore void. [265 CJ
Under Art. 31(2), no property shall be compulsorily acquired except
under a law which provides for compensation and either fix°' the amount
of compensation or specifies the princil,lles on which and the manner in
which the compensation is to be determined and given. If the compensation is illusory or if the principles prescribed are irrelevant to the value of
the p~
at or about the time of its acquisition, the law is bad. The
law, to justify itself, has to provide for the payment of a "just equivalent"
to the property acquired, or Jay down principles which are not arbitrary
but which are relevant to the fixation of compensation. It is only when
ihe principJes stand this test, that the adequacy of the resultant compensatiQn falls' outside judicial scrutiny uncler the second limb of Art. 31(2).
In the instant case, the two principles laid down in cl. (b) of Para II
of the Schedule are irrelevant to the fixation of the value of the macbinery
as on the date of acquisition. In the case of unused machinery, if it was
purchased in 1950 for Rs. 100 and, for oome reason. had not been med
in the working of the Undertaking but had been maintained in good condition, it may cost Rs. 1000 in 1965. A compensation of Ro. 100 for
that machinery could not be said to be ·a "just equivalent" of it. Similarly,
in the ca.e of used machinery, if it was purchased in 1950 for Rs. 1000,
256
SUPllEMB COUllT REPOllTS
[1967) I S.C.R.
the aggregato of all the depreciation allowances made year a(ter year may
chaust the •wn o( Rs. 1000 in ten years, with the result that, under the
Incom~ Act, the ~
will not be entitled to any depr&-
ciation after the tenth year.
It oould not, however, be wd that
after the tenth year, the machinery had no value and that the owner wu not
to be given any compensation.
Indeed,
such a machinery,
because o(
subsequent rise in prices, may be sold in 1965 for Rs. 10,000. Further,
the constitutional invalidity of cl. (b) of Para II of the Schedule alfects
the totality of the compensation payable; for, machinery is the major part
of the undertaking, the entire Undertakio~ is acquired as a unit, and, in
the context of compensation for tho enure Undertaking. the clauses of
Para II of the Schedule to the Act are not severable.
Therefore,
the
mere fact that in regard to some par

## Text

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UNION OF INDIA
v.
THE METAL CORPORATION OF INDIA LTD. & ANR.
September 5, 1966.
[K. SUBBA RAO, C.J. AND J. M. SHELAT, J.]
Constitution of India, 1950, Art. 31(2)-Law for compulsory acqulrllion laying down print:ip/es of compensation-Test for corutltutlorral v•/1dity-Metal Corporation of India (Acquislt(On of Undertaking) Act (44 of
1965)-If ultra vires.
The Metal Corporation of India (Acquisition of Undertaking)
Act,
1965, was enacted for acquiring in the public interest, the undertaking of the
Metal Corporation of India.
The Act provided that the Corporation
was to vest in the Central Government on the commencement of the Act;
and that in the absence of an a~ent between the Governmenl and the
Corporation, the compensation payable to the Corporation was to be an
amount equal to the sum total of the value of the properties and asaets of
the Corporation on the date of the commencement of the Act calculated in
accordance with the provisions of Paragraph II of, the Schedule to the Act,
less the liabilities on the said date, calculated in accordance ·with the provisions of Paragraph III of the Schedule. One of the clauses laying down
principles of compensation, viz., clause (b) of para JI is in two parts.
The first p~rt provides for the valuation of plant, machinery or other
equipment which has not been worked or used and is in good condition,
and the second part provides for the valuation of any other plant, machi- ·
nery or equipment. The former have to be valued at the actual cost incurred by the Corporation in acquiring them and the latter, at the writtendown value determined in accordance with the provisions of the Income·
tax Act, 1961. On the question of the constitutional validity of the Act.
HELD: The Act contravened Art. 31(2) of the Constitution and was
therefore void. [265 CJ
Under Art. 31(2), no property shall be compulsorily acquired except
under a law which provides for compensation and either fix°' the amount
of compensation or specifies the princil,lles on which and the manner in
which the compensation is to be determined and given. If the compensation is illusory or if the principles prescribed are irrelevant to the value of
the p~
at or about the time of its acquisition, the law is bad. The
law, to justify itself, has to provide for the payment of a "just equivalent"
to the property acquired, or Jay down principles which are not arbitrary
but which are relevant to the fixation of compensation. It is only when
ihe principJes stand this test, that the adequacy of the resultant compensatiQn falls' outside judicial scrutiny uncler the second limb of Art. 31(2).
In the instant case, the two principles laid down in cl. (b) of Para II
of the Schedule are irrelevant to the fixation of the value of the macbinery
as on the date of acquisition. In the case of unused machinery, if it was
purchased in 1950 for Rs. 100 and, for oome reason. had not been med
in the working of the Undertaking but had been maintained in good condition, it may cost Rs. 1000 in 1965. A compensation of Ro. 100 for
that machinery could not be said to be ·a "just equivalent" of it. Similarly,
in the ca.e of used machinery, if it was purchased in 1950 for Rs. 1000,
256
SUPllEMB COUllT REPOllTS
[1967) I S.C.R.
the aggregato of all the depreciation allowances made year a(ter year may
chaust the •wn o( Rs. 1000 in ten years, with the result that, under the
Incom~ Act, the ~
will not be entitled to any depr&-
ciation after the tenth year.
It oould not, however, be wd that
after the tenth year, the machinery had no value and that the owner wu not
to be given any compensation.
Indeed,
such a machinery,
because o(
subsequent rise in prices, may be sold in 1965 for Rs. 10,000. Further,
the constitutional invalidity of cl. (b) of Para II of the Schedule alfects
the totality of the compensation payable; for, machinery is the major part
of the undertaking, the entire Undertakio~ is acquired as a unit, and, in
the context of compensation for tho enure Undertaking. the clauses of
Para II of the Schedule to the Act are not severable.
Therefore,
the
mere fact that in regard to some parts o( the Undeni.: '11g, the principles
laid down in Para II provide for compensation does no. 1ffect the question,
especially when it has not been shown that the working out of
any one or more of the principles woutd give a higher compensation to
some parts o( the Undertaking so that the excess paid under one head
would offset the deficiency under another head. [261 F-H; 262 B; 264
B..C, F-H; 265 A-El
Vairau/u v. Special Deputy Collector,
[1965) I
S.C.R. 614 and
Jee;eebhoy v. Assistant Collector, [19651 I S.C.R. 636, followed.
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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1222 of
D
1966.
Appeal from the Judgment and order dated March 14, 1966
of the Punjab High Court (Circuit Bench) at Delhi in Civil Writ
No. 832-D of 1965.
S. V. Guptc, Solicitor-General, N. S. Bi11dro, R. II. Dhebar
and B. R. G. K. Acftar, for the appellant.
M. C. Seta/md, B. C. Dutt, Salltosh Chatterjee, B. Parthasarathy, 0. C. Mathur, and Ravinder Narain, for respondent No. I.
B. C. Dutt, Sanrosh Chatterjee. Anand Prakash, 0. C. Mathur
and Ravinder Narain, for respondent No. 2.
The Judgment of the Court was delivered by
Subba Rao, C. J. This appeal by certificate raises the question
of the constitutional validity of the Metal Corporation of India
(Acquisition of Undertaking) Act (No. XLIV of 1965), hereinafter
called the Act.
·
The relevant facts lie in a small compass. The 1st respondent,
The Metal Corporation of India Limited, hereinafter called the
Corporation, was a limited company constituted under the Indian
Companies Act, having for its objects, inter a/ia, the development
of zinc and lead mines at Zawar in the State of Rajasthan and the
construction of a zinc smelter and other connected works for producing electrolytic zinc and by-products. The Government was
satisfied that it was necessary to acquire the said Corporation in
public interest and on October 22, 1965, the President of India
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UNION v. METAL CORP. (Subba Rao,. C.J.)
257
promulgated an Ordinance (No. 6 of 1965) providing for the acquisition of the Corporation by the Central Government. Pursuant
to the said Ordinance, on or about October 23, 1965, the Central
Government took over the possession, control and administration
of the said Corporation. The Corporation, the ·1st respondent
and its Managing Director, the 2nd respondent filed a Writ Petition
under Art. 226 of the Constitution in the High Court of Judicature
for the State of Punjab, Circuit Bench at New Delhi, being Petition
No. 631-D of 1965, challenging the validity of the said Ordinance ..
In the meantime, the Parliament passed the Act on the same terms
as contained in Ordinance No. 6 of 1965: it received the assent of
the President of India on December 12, 1965. The respondent
filed another writ petition in the said High Court, being Writ Petition No. 832-D of 1965, for a declaration that the Act was ultra
vires the Constitution. The said High Court held that the Ordinance and the Act contravened the relevant provisions of Art. 31
of the Constitution and, therefore, were constitutionally void.
The present appeal is preferred against the said judgment of the
High Court.
It will be convenient at this stage to read the relevant provisions
of the Act. The preamble and the relevant provisions of the Act
read:
"Preamble.
An Act to provide for the acquisition of the undertaking of the Metal Corporation of India Limited for the
purpose of enabling the Central Government in the public
interest to exploit, to the fullest extent possible, zinc and
Jead deposits in and around the Zawar area in the State
of Rajasthan and to utilise those minerals in such manner
as to subserve the common good
Section 3. On the commencement of this Act, the
undertaking of the company shall, by virtue of this Act,
be transferred to, and vest ·in, the Central Government.
Section 10. (1) The Central Government shall pay
compensation to the company for the acquisition of the
undertaking of the company and such compensation shall
be determined in accordance with the principles specified in
the Schedule and in the manner hereinafter set out, that is
to say,-
.H
(2) Notwithstanding that separate valuations
a~e
calculated under the principles specified in the Schedule m
respect of the several matters referred to therein, the
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SUPREME COURT REPORTS
[1967] I S.C.R.
amount of compensation to be given shall be deemed to be
a single compensation to be given for the undertaking
as a whole.
(3)
THE SCHEDULE
Principles for determining compensation for
acquisition of the undertaking.
Paragraph /.-The compensation to be paid by the
Central Government to the company in respect of the
acquisition of the undertaking thereof shall be an amount
equal to the sum total of the value of the properties and
assets of the company on the date of commencement of
this Act calculated in accordance with the provisions of
paragraph II less the sum total of the liabilities and obligations of the company as on the said date calculated in
accordance with the provisions of paragraph III.
Paragraph ll.-(a) The market value of any land or
buildings;
(h) the actual cost incurred by the company in acquiring any plant, machinery or other equipment which ha~
not been worked or used and is in good condition and the
written-down value (determined in accordance with the
provisions of the Income-tax Act, 1961 (XLl!I of 1961),
of any other plant, machinery or equipment;
(c) the market value of any shares, securities or other
investments held by the company;
(d) the total amount of the premiums paid by the
company in respect of all leasehold properties reduced in
the case of each such premium by an amount which bears
to such premium the same proportion as the expired term
of the lease in respect of which such premium shall have
been paid bears to the total term of the lease:
{e) the amount of debts due to the company, whether
secured or unsecured, to the extent to which they are
reasonably considered to be recoverable.
(f) the amount of cash held by the company, whether
in deposit with a bank or otherwise;
(g) the value of all tangible assets and properties
other than those falling within any of the preceding clauses.
Paragraph lll.-The total amount of liabilities and
obligations incurred by the company in connection with
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UNION v. METAL CORP. (Subba Rao, C.J.)
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the formation, management and administration of the
undertaking and subsisting immediately before the commencement of thi~·Act."
The gist of the said provisions may be given thus. The Act was
made to acquire in public interest the undertaking of the Corporation. On the commencement of the Act, the undertaking was
transferred and vested in the Central Government. Under s. 10
of the Act, the Government shall pay compensation to the undertaking as a whole; but, in the absence of an agreement between the
Government and the Corporation, the compensation payable to the
Corporat10n has to be ascertained under the principles specified in the
Schedule in respect of the several matters referred to therein. Paragraph I of the Schedule lays down the manner in which the compensation to be paid to the Corporation for the acquisition of the
undertaking is to be ascertained. The said compensation shall be
an amount equal to the sum total of the value of the properties and
assets of the Corporation on the date of the commencement of the
Act calculated in accordance with the provisions of paragraph II
less the liabilities on the said date calculated in accordance with the
provisions of paragraph III of the Schedule. Broadly, the said
paragraph lays down the principles for ascertaining the value of
lands, buildings, machinery and equipment, amounts due to the
undertaking aaJ other tangible assets and properties. The different clauses of the paragraph adopt different principles for valuation.
But what is important for the present purpose is the principle embodied in cl. lb) of para II. It is in two parts: the first provides for
the valuation of plant, machinery or other equipment which has not
been worked or used and is in good condition, and the second·
provides for the valuation of any other plant, machinery or equipment. The former has to be valued at the actual cost incurred by
the Corporation in acquiring the same and the latter at the writtendown value determined in accordance with the provisions of the
Indian Income-tax Act, 1961.
The High Court held, on a construction of the said provisions,
that the principle contained in c1: (b) of paragraph Tl of the·
Schedule to the Act in respect of machinery etc. "cannot be called
relevant to the determination of •just equivalent', as it takes no
notice of the notorious fact that prices have been steadily rising
during the past several years, particularly of imported machinery
and plant". It also held, "that depreciation rule does not even
pretend to determine the actual depreciation in a particular case
and it is obvious that such depreciation has no real relationship
with the actual value of any machinery at any particular point of
time". On that reasoning, it came to the concluoion, having
regard to the decision of this Court in Vajravelu v. Special Deputy
Collector(') that the said provision in respect of machinery did
(I) [1965] l S.C.R. 614.
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SUPREME COURT REPORTS
[1967) l S.C.R.
not lay down a .principle for fixing compensation i.e., a just
equivalent to the machinery acquired.
The reasoning of the High Court was attacked by the learned
Additional Solicitor-General on the ground that it did not appreciate the true scope of the said decision of this Court and that, in
any view, it went wrong in applying the principle of the said decision
to the provisions of the Act. He contended that the Act laid down
the broad principle that compensation shall be paid for the entire
undertaking as a unit, but provided different modes for the ascertainment of the value of different parts thereof in such a way that
the deficiency in the valuation of one part was offset by the liberal
valuation of the other part. In that view, he contended, the Act
embodied a principle relevant to the ascertainment of compensation for the undertaking acquired and, therefore, the product
worked out under the said principle pertained only to the realm
of adequacy which was beyond the ken of judicial review.
He added
that compensation in Art. 31 of the Constitution meant that compensation which was regarded as just in the context of public acquisitions and that that test was satisfied in the present case.
Mr. M. C. Setalvad, learned counsel for the respondents, contended that though under the Act compensation was to be given to
the undertaking as one unit, the Act laid down principles for arriving at the valuation of the parts to arrive at the valuation of the
whole and that, therefore, every such principle should stand the test
laid down by this Court. So judged, 'the argument proceeded,
both the principles laid down in cl. (b) of para II of the Schedule
had no nexus to the ascertainment of compensation for the machinery
acquired, for in the case of unused .machinery, its cost price was the
guide and in the case of used machinery its written-down value was
the criterion and that both the methods were arbitrary.
We find it difficult to appreciate the arguments of the learned
Solicitor-General. It is true that under s. 10 of the Act the Central
Government shall pay compensation for the acquisition of the
undertaking to the Corporation and the said compensation arrived
at in the manner prescribed in the Schedule to the Act shall be
deemed to be a single compensation to be given to the undertaking
as a whole.
But it will be noticed that though a single compensation
for the undertaking is given, the said compensation shall be determined in accordance with the principles specified in the Schedule.
Under the Schedule, the compensation for the entire undertaking
shall be the amount equal to the sum total of the value of the properties and assets of the Corporation calculated in accordance
with the provisions of para II of the Schedule.
Under the said
para II, different principles are la~d down for ascer~aining ~he val~e
of different parts of the undertaking. If all the said prmc1ples laid
down in para II of the Schedule do not provide for the just equivalent
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of all the parts of the undertaking mentioned therein, the sum total
also cannot obviously be a just equivalent of the undertaking. So
too, if some of them do not provide for a just equivalent and others
do so, the sum total cannot equally be a just equivalent to the undertaking. In the case of the undertaking in question, the machinery
is the· most valuable part of the undertaking. Apropos the unused
machinery in good condition, how can the price for which the said
machinery was purchased years ago ·possibly represent its price at
the time of its acquisition? A simple illustration will disclose the
irrelevance of the principle. Suppose in 1950 a machinery was
purchased for Rs. 100 and, for some reasons, the same has not
been used in the working of the undertaking but has been 'llaintained in good condition. That machinery has not become obsolescent
and stm can be used effectively. If purchased in· open market it
will cost the owner Rs. 1,000. A compensation of Rs. 100 for that
machinery cannot be said to be a just equivalent of it. It is
common knowledge that there has been an upward spiral in
prices of the machinery in recent years. The cost price of a machinery. purchased about ten years ago is a consideration not relevant
for fixing compensation for its acquisition in 1965. The principle
must be such as to enable the ascertainment of its price at or about
the time of its acquisition. Nor the doctrine of written-down value
accepted in the Income-tax law can afford any guide for ascertaining
the compensation for the used machinery acquired under the Act.
Under the general scheme of the Income-tax Act, the income is to
be charged regardless of the diminution in the value of the capital.
But the rigour of this hard principle is mitigated by the Act granting
allowances in respect of depreciation in the value of certain assets
such as machinery, buildings, plant, furniture etc. These allowances are worked out on a notional basis for giving relief to the
income-tax assessee. This artificial rule of depreciation evolved
for income-tax purposes has no relation to the value of the said assets.
To illustrate: a machinery was purchased in the year 1950 for
Rs. 1,000. The aggregate of all the depreciation allowances made
year after year for ten years may exhaust the sum of Rs. 1,000
with the result, after the tenth year, the assessee will not be entitled
to any depreciation. From this it cannot be said that after the
tenth year the machinery has no value. Indeed, a machinery purchased for Rs, 1,000 in 1950, because of subsequent rise in prices
may be sold in 1_965 for Rs. 10,000. But the application of the
principle laid down in cl. (b) of para II of the Schedule to the Act
m regard to used machinery gives the owner no compensation at
all. Yet, the Government takes the machinery worth Rs. 10,000
gratis.
This illustration exposes the
extreme
arbitrariness
of the principle. It is, therefore, manifest that the two principles
of valuation embodied in cl. (b) of para II of the Schedule to the '.Act
are not relevant to the fixing of compensation for the machinery at.
the time of its acquisition under the Act. The argument of the
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SUPREME COURT REPORTS
[ 1967] 1 s.c.R.
learned Additional Solicitor-General that the working out of all the
principles in respect of different parts of the undertaking would
result in a product which would fairly represent, in the context of
public acquisitions, the "just equivalent" to the undertaking acquired is purely based on a surmise for, it is not shown that the working
out of any one or more of the principles would give a higher compensation to some parts of the undertaking so that the excess paid
under one head would offset the deficiency under another head.
Nor can the doctrine of inherent worth of a machinery has alli'
relevance in the matter of giving compensation for its acquisition
at a particular point of time, for the simple reason that the worth
of an article depends upon the market conditions obtaining at the
time of its acquisition.
It is impossible to predicate, irrespective
of such conditions, that a particular machinery has a fixed value
for all times.
Four decisions of this Court laid down the principles applicable
to the present case.
Indeed, but for the said decisions, we would
have posted this case before a Constitution Bench of five Judges.
But, as this appeal involves only the application of the construction
put upon Art. 31 of the Constitution by this Court in the said
decisions, we did not resort to that course. The first of them is
The State of West Bengal v. Mrs. Bela Banerjee('). There, the
validity of the West Beng-dl Land Development and Planning Act,
1948 was under scrutiny. Section 8 thereof provided that compensation to be awarded for compulsory acquisition to owners of land
was not to exceed the market value as on December 31, 1946. This
Court held that the said Act was ultra vires the Constitution and
void under Art. 32(2) thereof.
In that context, Patanjali Sastri,
C.J., observed:
"Turning now to the provisions relating to compensation under the impugned Act, it will be seen that the
latter part of the proviso to section 8 limits the amount
of compensation so as not to exceed the market value of the
land on December 31, 1946, no matter when the land is
acq11ired.
Considering that the impugned Act is a permanent enactment and lands may be acquired under it
many years after it aμne into force, the fixing of the market
value on December 31, 1946, as the ceiling on compensation, without reference to the value of the land at the time
of the acquisition is arbitrary and cannot be regarded as due
compliance in letter and spirit with the requirement of
article 31(2)."
The above decision was followed by this Court in Srate of Madras
v. D. Namasivaya Mudaliar(2).
There the respondents were owners
of certain lands which were to be compulsorily acquired under
(1) [19541 s.c.R. 558, 56,.
(2) (1964] 6 S.C.R. 936, 945
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Mad.ras Lignite (Acquisition of Land) Act, 1953. The Act came
into force ori August 20, 1953, before Art. 31 of the Constitution
was. amended by the Constitution (Fourth Amendment) Act, 1955.
By the said Act compensation for the acquisition of lignite-bearing
lands under the Land Acquisition Act was to be assessed on the
market value of the land prevailing on August 28, 1947, and not on
the date on which the notification was issued under s. 4(1) of the
Land Acquisition Act. It also provided that in awarding compensation, the value of non-agricultural improvements commenced since
April 28, 1947 would not be taken into consideration. This Court
held that the said Act was bad, because it contravened Art. 31(2)
of the Constitution, as it stood before the Constitution (Fourth
Amendment) Act, 1955. This Court, speaking through Shah, J.,
oooerved:
"Assuming that in appropriate cases, fixation of a date
anterior to the publication of the notification under s. 4(1)
for ascertainment of market value of the land to be acquired,
may not always be regarded as a violation of the constitutional· guarantee, in the absence of evidence that
compensation assessed on the basis of market value on
such anterior date, awards to the expropriated owner a
just monetary value of his property at the date on which
his interest is extinguished, the provisions of the Act
arbitrarily fixing compensation based on the market value
at a date many years before the notification under s. 4(1)
was issued, cannot be regarded as valid."
Then the learned Judge proceeded to state:
"To deny to the owner of the land compensation at
rates which justly indemnify him for his loss by awarding
him compensation at rates prevailing ten years before
the date on. which the notification under s. 4(1) was issued
amounts in the circumstances to a flagrant infringement
of the fundamental right of the owner of the land under
Art. 31(2) as it stood when the Act was enacted."
These two decisions turned upon the construction of Art. 31(2)
of the Constitution before the Constitution (Fourth Amendment)
Act, 1955. These cases laid down two. propositions: (I) "Compensation" under Art. 31(2) of the Constitution means a "just equivalent" of what the owner has been deprived_ of ; and (2) the value
of land at an anterior date is presumed to be no compensation within the meaning of the said Article. After the Constitution (Fourth
Amendment) Act, 1955, this Court had to construe in two decisions
the amended provision of Art. 31(2) vis-a-vis the expression "compensation" found therein. The first decision is that i11 Vajravelu
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[1967) I S.C.R.
v. Special Deputy Collector('). There, this Court observed at
p. 625-626:
"A scrutiny of the amended Article discloses that it
accepted the meaning of the expressions "compensation"
and "principles" as defined by this Court in Mrs. Bela
Banerjee's case(2)."
And it held that, if the compensation is illusory or if the principles
prescribed are irrelevant to the value of the property at or about the
time of its acquisition, it can be said that the Legislature committed
a fraud on power and, therefore, the law is bad. One of the illustrations given at p. 627 is relevant to the present enquiry and that is
as follows :
" .... if a law lays down principles which arc not
relevant to the property acquired or to the value of the
property at or about the time it is acquired, it may be said
that they arc not principles contemplated by Art. 31(2)
of the Constitution. If a law says ............ that
though it (house) is acquired in 1960 its value in 1930
should be given ........ the principles do not pertain to
the domain of adequacy but are principles unconnected
to the value of the property acquired."
Applying these principles, this Court in Jeejeebhoy v. Assistant
Collector('), held that the fixation of an anterior date for the ascertainment of the value of the property acquired without reference to
any relevant considerations which necessitated the fixing of an earlier date for the purpose of ascertaining the real value is arbitrary.
On that ground this Court held that the Land Acquisition (Bombay
Amendment) Act, 1948, did not provide for payment of just equivalent of what the owner was deprived of, as it provided for the ascertainment of compensation on the basis of the value of lands acquired as on January I, 1948 and not as on the date on which the
s. 4 notification under the 1894 Act was issued.
The relevant aspect of the legal position evolved by the said
decisions may be stated thus: Under Art. 31(2) of the Constitution,
A
B
c
D
E
F
no property shall be compulsorily acquired except under a law which
provides for compens;i.tion for the property acquired and either
G
fixes the amount of compensation or specifies the principles on
which and the manner in which compensation is to be determined
and given. The second limb of the provision says that no such
law shall be called in question in any court on the ground that the
compensation provided by the Jaw is not adequate. If the two
concepts, namely, "compensation" and the jurisdiction of the court
are kept apart, the meaning of the provisions is clear. The law to
H
(I) [196SI I s.c.R. 6t4.
(2) [1954) S.C.R. SSS.
(3) [1965) I S.C.R. 63 6.
UNION v. METAL CORP. (Subba Rao, C.J.)
26 5
A justify itself has to provide for the payment of a "just equivalent"
to the land acqui,red or lay down principles which will lead to that
result. If the principles laid .down are relevant to the fixation of
compensation and are not arbitrary, the adequacy of the resultant
product cannot be questioned in a court of!aw. The validity of the
B
c
D
E
principles, judged by the above tests, falls within judicial scrutiny, and if they stand the tests, the adequacy of the product falls
outside its jurisdiction. Judged by the said tests, it is manifest that
the two principles laid down in cl. (b) of para II of the Schedule to
the Act, namely, (i) compensation equated to the cost price in the
case of unused machinery in good condition, and (ii) written-down
value as understood in the Income-tax law as the value of used
machinery, are irrelevant to the fixation of the value of the said
machinery as on the date of acquisition. It follows that the impugned Act has not provided for "compensation" within the ·meaning of Ari. 31(2) of the Constitution and, therefore, it is void.
The. mere fact that in regard to some parts of the undertaking
the principles provide for compensation does not affect the real
question, for, machinery is the major part of the undertaking and,
as the entire undertaking is acquired as a unit, the constitutional
invalidity of cl. (b) of para II of the Schedule to the Act affects the
totality of the compensation payable to the entire undertaking.
ln the context of compensation for the entire undertaking, the
clauses of para II of the Schedule to the Act are not severable. In
the result, the Act, not having provided for compensation, is unconstitutional and the conclusion arrived at by the High Court is
correct.
The appeal fails and is dismissed with costs.
V.P.S.
Appeal dismissed.