STATE OF U.P. v. THE UPPER JAMUNA VALLEY ELECTRICITY SUPPLY CO. LTD. AND ORS

Citation: [2000] SUPP. 1 S.C.R. 429

Court: Supreme Court of India

Bench: S. SAGHIR AHMAD, Y.K. SABHARWAL, S.N. VARIAVA

Judgment text

STATE OF U. P. v. THE UPPER JAMUNA VALLEY ELECTRICITY SUPPLY CO. LTD. AND ORS. MAY 12, 2000 [S. SAGHIRAHMAD, Y. K. SABHARWAL AND S. N. VARIAVA, JJ. ] Electricity Act 19/0-Sections 6 and 7-A-As amended by Electricity (U. P. Amendment and Validation) Act, 1976-Constitutionality-Take over of electrical undertaking and determination of its purchase price-Under the licence granted by the State, State had a right to takeover the Electrical Undertakings at the end of its term-Amendment brought about in the Act by way ofAmending Act of 1975-Changing the method or computation of compensation by introducing the concept of book value in Section 7-A of the Act and not the market value-Constitutionality of Amending Act challenged-Held, that the takeover of undertaking on 28. 06.

1964 had to be tested on the touchstone of Articles 19(/)(j) and 31(2) and not Article 3/(c) as Article 31 (c) was not a part of the Constitution on the date of takeover-Amending Act was not violative of Articles /9(l)(j) and 31(2)- Further, determination ofpurchase price of the undertaking under Section 7-A was not open to challenge as it was an accepted accountancy concept and the same was not illusory-Quantification of the amount payable to such undertaking form an integral and inseparable part ofnationalisation-- Hence, economic costs of nationalisation was not justiciable and on the date of takeover of undertaking, rights cannot be said to have been crystallised and not entitled to market value of the property-What was acquired was not a chose-in action or debt but was the undertaking which dealt with material resources of the count~Thus Amending Act is not a colourable piece of legislation-C oriate multiplier to the net annual income or profit is a satisfactory method ofvaluation of lands with buildings, only ifthe land is fully developed, i.

e. , it has been put to full use legally permissible and economically justifiable, and the income out ofthe property is the normal commercial and not a controlled return, or a return depreciated on account of special circumstances. If the property is not fully developed, or the return is not commercial, the method may yield a misleading result. " It is to be noted that the Court itself laid down that these were not the only methods of valuation. 15. Based upon the above authority Dr. Singhvi submitted that even after the amendment ofArticle 31(2), the principle remained "just equivalent" meaning "full indemnification". He submitted that in this case in 1962, i. e. the unamended Sections 6, 7 and 7-A of the Indian Electricity Act, 1910 also provided for payment of market value. He submitted that, therefore, the principle laid down in Tinsukhia 's case, Thana Electric Supply Company's case and Ve/lore Electric Corporation's case did not apply to this case.

He submitted that all those cases were based upon Article 3 l(c) which did not J stand on the Statute Book at the time when this undertaking was taken over by the Government. He submitted that in this case the market value would -. have to be paid. 16. We have considered the submissions of Dr. Singhvi. Undoubtedly, the law which is to prevail, is the law which was prevailing on the date of take- over, i. e. , 28th of June, 1964. It is also clear that on that day the Constitution (Twenty-fifth Amendment) Act had not been enacted and Article 3l(c) was not there. Undoubtedly, in Cooper's case it has been held that even after amendment of Article 3 l(c) the term "compensation" meant "just equivalent" or "full indemnification".

However, Cooper's case itself notes that there has been a change inasmuch as if the law pertains to change in the principles of the method of determination of compensation and the method is recognized principle applicable in the determination of compensation and the principle is appropriate in dekimining the value of the property, then it would not be open to the Courts to question the valuation. Cooper's case also lays down that if several principles are appropriate and one is selected for determination of the value of the property to be acquired, selecti011 of that principle to the exclusion of other principles is not open to challenge, for the selection must be left to the wisdom ofthe Parliament. Ofcourse, the principles specified must be appropriate to the determination of compensation for an appropriate class of prop1:rty sought to be acquired. 17.

In Tinsukhia 's case, this Court has gone into the question as to whether the principles would be appropriate even if Article 3l(c) was not applicable. It ultimately held as follows: "96. Even if the impugned law did not have the protection of Article 31-C, a hypothesis on which contention (c) is based, the adequacy or inadequacy of the amount is not justiciable. The limitations of the courts' scrutiny explicit in Article 31(2), are referred to by Mathew,J. in the Kesavananda case (SCC p. 889, para 1751) : "... the word 'amount' conveys no idea of any norm. It supplies no yardstick. It furnishes no measuring rod. The neutral word 'amount' was deliberately chosen for the purpose. I am unable to understand the purpose in substituting the word 'amount' for the word 'compensation' in the sub- article unless it be to deprive the court of any yardstick or norm for determining the adequacy of the amount and the relevancy of the principle fixed by law. " 97. Referring.

to what might, yet to open to judicial scrutiny, under Article 31(b), Shelat and Grover, JJ. Observed in the Kesavananda case: (SCC p. 457, para 591): "But still on the learned Solicitor General's argument, the right to receive the 'amount' continues to be a fundamental right. That cannot be denuded of its identity. The obligation to act on some principle while fixing the amount arises both from Article 31(2) and from the nature ofthe legislative power. For, there can be no power which permits in a democratic system an arbitrary use of power.... But the norm or the principles of fixing or determining the 'amount' will have to be disclosed to the court. It will have to STAlEOFU. P. 1•. UPPERJAMUNA VALLEYELECTRICITYSUPPLYCO. LTD. [S. N. VARIAVA,J.

] 443 be satisfied that the 'amount' has reasonable relationship with the value of the property acquired or requisitioned and one or more ofthe relevant principles have been applied and further that the 'amount' is neither illusory nor it has been fixed arbitrarily, nor at such a figure that it means virtual deprivation of the right under Article 31 (2). The question of adequacy or inadequacy, however, cannot be gone into. " Justice Chandrachud observed: (SCC p. 1000, para 2122) : "The specific obligation to pay an 'amount' and in the alternative the use of the word 'principles' for determination of that amount must mean that the amount fixed or determined to be paid cannot be illusory. If the right to property still finds a pi. ice in the Constitution, you cannot mock at the man and ridicule his right You cannot tell him: 'I will take your fortune for a farthing'. " 98. All the same, the concept of "book value" is an accepted accountancy concept of value.

It cannot be held to be illusory. " Even though Cooper's case has not been specifically referred to, in Tinsukhia 's case, still the principles laid down in Cooper's case have been kept in mind and dealt with. Keeping those principles in mind, in Tinsukhia 's case it has been held that the concept of book value is an accepted accountancy concept and that it cannot be held to be illusory. 18. Further, in Thana Electric Supply Company's case it has been held as : "l S.

As stated earlier, the principal controversy before the High Court was whether the provisions of the Amendment Act, 1976, which scaled down, quite drastically, the measure of the recompense for the taking over of the company's undertaking, were violative of Articles 14, 19(l)(t) and (g), and 31 of the Constitution oflndia, as contended by the company, or whether the Amending Act of 1976 had the protection of and attracted the provisions of Article 31-C of the Constitution, rendering the law immune from assailment on the ground of violation of fundamental rights. The contentions of the parties would require to be examined as the provisions of Articles 19(1)(f) and 31 stood at the relevant time. Articles 19(1 )(f) and 31 were deleted later; but that does not affect the constitutional position with reference to which the present cases would require to be decided. " Thus, in this case this Court proceeded on the basis that Articles 19( I)(f) and 31 applied to the facts of th'lt. case.

The Court still set aside the Judgment of the High Court, which had ~pheld the challenge. This Court still held that the challenge on grounds of violation of Articles 14, 19 and 31 fails. The contention that compensation was not adequate and/or illusory, was not accepted. In Ve/lore Electric Corporation's case also this Court considered the challenge to the change in the method of valuation from market value to book value on the basis of Articles 19( I)(g) and 31. In this case also it was held that such a contention was not available, as it had been negatived in Tinsukhia 's case. 19. In our view, the authorities in Tinsukhia 's case, Thana Electric Supply Company's case and Ve/lore Electric Corporation's case fully cover the point urged by Dr. Singhvi.

Even if the principles laid down in Cooper's case (supra) are applicable, still it has been held by this Court, in the abovementioned three cases that principle of valuation on book value is a well known concept of valuation and that the amount is not illusory. We, therefore, see no substance in this challenge. 20. Dr. Singhvi, however, submitted that the notice to take over the undertaking was given on November 30, 1962 and the undertaking was taken over on June 28, 1964. He submitted that on the date of takeover the rights of the ! st Respondent had crystallised. He submitted that the ! st Respondent, therefore, became entitled to receive the market value of the property. He submitted that as the amount payable had already got crystallised, a subsequent acquisition could only be acquisition of money. He submitted that on June 28, 1964 the vesting took place. He submitted that thereafter nothing more than payment of money was to be done.

He submitted that by a retrospective amendment, made in 1975, money could not be compulsorily acquired. He submitted that there could be no public purpose in acquisition of money and that such acquisition would amount to a forced loan. He submitted that the restrictions laid down by the retrospective amendment were not reasonable. He submitted that no reasons for such restrictions were given or could exist. He submitted that by the amendment the crystallised right to money was being taken away. 21. In support of his submission, Dr. Singhvi relied upon the case of Madan Mohan Pathak v. Union ofIndia, reported in [1978] 2 SCC 50. In that case there was a settlement between the management and the labour under STATEOFU. P. v. UPPERJAMUNA VALLEYELECTRICllYSUPPLYCO. LlD. [S. N. VARIAVA,J. ) 445 which an annual cash bonus was to be paid to Class III and Class IV employees.

By the Life Insurance Corporation (Modification of Settlement) Act, 1976 Class III and Class IV employees were sought to be deprived of the annual cash bonus that they were entitled to receive under the settlement. This Court held that the term 'property' under Articles 19(l)(f), 31(1) and 31(2) had to be given the widest interpretation and refers to property of every kind, tangible or intangible, debts and chose-in action. It was held that the chosein action could be compulsorily acquired under Article 31(2). It was held that the right to receive the annual cash settlement was a. right to property within the meaning of Article 31(2). It was held that extinguishments of the debt of a creditor with the corresponding benefit to the State or State owned/controlled Corporation would be transfer of ownership to the State and would amount to compulsory acquisition under Article 31(2). It was held that acquisition of money, debt and/or chose-in action must be made to serve a public purpose.

It was held that the impugned Act was a pure and simple case of deprivation of the rights of the Class III and Class IV employees without any apparent nexus with any public interest. It was held that an acquisition of a chose-in action could not be for the purpose of augmenting the revenues of the State or reducing State expenditure as that would not be a public purpose and would be violative of the constitutional guarantee embodied in Article 31(2). It was held that an acquisition of this nature amounted to a forced loan. Dr. Singhvi also relied upon the case of State of Bihar v. Maharajadhiraja Sir Kameshwar Singh ofDarbhanga reported in [1952] S. C. R. 889. 22. We are unable to accept the submission. As has been held in Tinsukhia 's case, Thana Electric Supply Company's case and Ve/lore Electric Corporation's case what has been acquired, is·not a chose-in action or a debt. What has been acquired, is the undertaking which dealt with material resource of the country.

There was no crystallisation of any amount. The only right was a right to receive compensation which was to be worked out on certain principles. All that the amending Act has done, is to change the method or principle on the basis of which the compensation was to be worked out. It has been held that the legislation is not a piece of colourable legislation. It has also been held, in the abovementioned cases, that the provisions for quantification of the amount payable to the undertaking form an integral and inseperable part of the nationalisation and do not admit of being considered as distinct provisions independent of each other. It has been held that the economic cost of nationalisation was not justiciable. In our view this case is fully covered by the judgments in . Tinsukhia 's case, Thana Electric Supply Company's case and Ve/lore Electric Corporation's case. A 23. In this view of the matter, the Appeal is allowed.

The Judgment of the Division Bench dated I Ith January, 1989 as well as the Judgment of the learned single Judge dated July 19, 1982 are set aside. The Writ Petition filed by the ! st Respondent stands dismissed. There shall be no order as to costs. RK. S. Appeal allowed.