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Thana Electric Supply Company Ltd. and ors. Vs. Maharashtra State Electricity Board, Bombay and ors. - Court Judgment

LegalCrystal Citation
SubjectElectricity;Constitution
CourtMumbai High Court
Decided On
Case NumberMisc. Petn. No. 1115 of 1977
Judge
Reported inAIR1985Bom48; ILR1985Bom1514
ActsElectricity Act, 1910 - Sections 6; Electricity ( Maharashtra Amendment) Act, 1976 - Sections 4; ;Constitution of India - Articles 14, 19(1) and 31(2)
AppellantThana Electric Supply Company Ltd. and ors.
RespondentMaharashtra State Electricity Board, Bombay and ors.
Appellant AdvocateD.R. Dhanuka,;F.H.J. Taleyarkhan,;S. Ganesh,;M.R. Sathe and;S.N. Kamdar, Advs.
Respondent AdvocateT.R. Andhyarujina,;R.A. Dada,;S.N. Naik, ;S. Venkiteswaran,;P.P. Khambata,;P. Shankarnarayan,;M.A. Dhotre,;R.L. Dalal,;V.G. Rege and;L.K. Chatterjee, Advs.
Excerpt:
a) it was adjudged that the right of the company to obtain purchase price in accordance with its market value and obligation of board to pay such price do not get crystallized into a debt or actionable claim. ; b) it was adjudged that the right to receive the price is 'property' within meaning of articles 31(2) and 19(1) (f) of the constitution of india. ; c) it was adjudged that the right to receive a price was only drastically restricted- there was no extinguishments or acquisition of difference between the market value and depreciated book value of the undertaking- therefore the provisions of article 31(2) of the constitution of india are not attracted. ; d) it was adjudged that the provisions of section 4 of the amending act of 1976 violate the fundamental rights guaranteed by.....bharucha, j.1. this writ petition, which has been referred for hearing and final disposal to a division bench, concerns the compulsory purchase by the maharashtra state electricity board, respondent 1, of the undertaking of the thana electric supply company ltd., petitioner 1. principally the petition challenges the constitutionality of the electricity (maharashtra amendment)act, 44 of 1976.2. to appreciate the rival contentions a chronology of events needs to be set out.3. on 14th september 1927 the government of bombay by notification issued a licence under the provisions of the electricity act, 1910, known as the thana electric licence, 1927 to messrs phiroze erachshaw, behramji muncherji and rustomji pestonji carrying on business in partnership in the name of m/s p. patel and company......
Judgment:

Bharucha, J.

1. This writ petition, which has been referred for hearing and final disposal to a Division Bench, concerns the compulsory purchase by the Maharashtra State Electricity Board, respondent 1, of the undertaking of the Thana Electric Supply Company Ltd., petitioner 1. Principally the petition challenges the constitutionality of the Electricity (Maharashtra Amendment)

Act, 44 of 1976.

2. To appreciate the rival contentions a chronology of events needs to be set out.

3. On 14th September 1927 the Government of Bombay by notification issued a licence under the provisions of the Electricity Act, 1910, known as the Thana Electric Licence, 1927 to Messrs Phiroze Erachshaw, Behramji Muncherji and Rustomji Pestonji carrying on business in partnership in the name of M/s P. Patel and Company. Clause 11 of the said licence (which was later renumbered clause 12) read thus:

'Purchase of undertaking

11. (1) the option of purchase given by S. 7 of the Act shall first be exercisable on the expiration of 50 years from the commencement of this license and thereafter on the expiration of every subsequent period of twenty years during the subsistence of this license. The value of all lands, building, works, materials and plant of the licensees to be paid for in accordance with the said section shall be their fair market value at the time of such purchase, which shall be determined in case of difference or dispute by arbitration, due regard being had to the various matters mentioned in the first proviso to sub-s, (1) of the said S. 7 and there shall be added to such value so computed as aforesaid on account of compulsory purchase a sum equivalent to ten per cent, of the amount of such value.

(2) in accordance with S. 3 sub-. (2), cl. (d)(ii) of the Act it is hereby declared that the generating, transforming and distributing stations to be used in connection with the undertaking, shall form part of the undertaking for the purpose of purchase under S. 5 or 7 of the Act'

4. On 16th February 1928 petitioner 1 was incorporated as a private limited company under the Companies Act, 1913, with the object of taking over the said licence from M/s P. Patel & Co. On the same day M/s P.Patel & Co. requested the Government of Bombay to transfer the said licence to the private limited company. On 11th June 1928 a Memorandum of Consent recorded that the Governor in council was pleased to consent to the transfer. On 24th January 1936 a notification was issued by the Government of Bombay which inserted a new clause, clause 9, in the said licence and renumbered the subsequent clauses.

5. On 5th September 1959 the Electricity Act, 1910, was amended by the Electricity (Amendment) ct, 32 of 1959 (now called ' the Amending Act of 1959 ). The amendments which are relevant to this petition are set out later. 6. 6. On 15th January 1965 the private limited company became public limited company. On 7th September 1973 a special resolution was passed by the company to enable it to diversify its business. On 2nd February 1974 the amendment was confirmed by this court.

6. On 15th January 1965 the private limited company became a public limited company. On 7th September 1973 a special resolution was passed by the company to enable it to diversify its business. On 2nd February 1974 the amendment was confirmed by this court.

7. On 17th October 1974 the State of Maharashtra, respondent 1, promulgated an ordinance, being Ordinance No. 18 of 1974, amending the provisions of the Electricity Act 1910, in its application to the State of Maharashtra. The provisions of the ordinance were enacted in the Electricity ( Maharashtra Amendment and Validation) Act.1974, ( now called ' the Amending Act of 1974' ). The provisions of the Amending Act of 1974 are set out hereinafter.

8. On 13th July 1976 Bill No. 45 of 1976 to amend the Electricity Act, 1910, in its application to the State of Maharashtra was introduced in the State legislature. It was passed as the Electricity ( Maharashtra Amendment) Act, 44 of 1976, (now called 'the Amending Act of 1976'.) It received the assent of the President on 2nd September 1976. It was published in the Maharashtra Government Gazette on 11th September 1976. It came into force on 20th September 1976. The provisions of the Amending Act of 1976 are set out in some detail later.

9. In the mean while, on 26th August 1976 the Maharashtra State Electricity Board served upon the company a notice exercising the option to purchase. The notice stated that the Board had decided to purchase the company's undertaking in exercise of the option to purchase under sub-s. 1(a) of S. 6, Electricity Act, 1910, on the expiration of the period of fifty years mentioned in cl. 12 of the said licence. The notice required the company to sell and deliver the undertaking to the Board on the expiry of the period of 50 years, i.e., on the mid-night of 21st/22nd September 1977, pending the determination and payment of purchase price and interest in accordance with sub-s. (6) and all other relevant provisions of the Electricity Act, 1910, as in force at the time of the delivery of the undertaking.

10. On 1st September 1977 this petition was filed. It seeks, in the main, a declaration that Ss. 4, 5 and 6 of the Amending Act of 1976 are unconstitutional, and cancellation of the notice dated 26th August 1976 exercising the option to purchase. On 13th and 21st September 1977 interim orders were passed in the petition. On 26th September 1977 the Board paid to the company Rs. 405 lakhs. On the night of 26th/27th September 1977 possession of company's undertaking was taken by the Board.

11. On 14th September 1981 the Electricity (Maharashtra Amendment) Act, 1981, (now called 'the Amending Act of 1981') received the assent of the Governor of the State. Its provision is noticed hereinafter.

12. We now set out the relevant provisions.

13. Section 3, Electricity Act, 1910 provided that the Local Government could, on application made in the prescribed form, grant to any person a licence to supply energy in any specified area, and to lay down electric supply lines for the conveyance and transmission of energy. Sub-section (3) of S. 3 stated that, where in its opinion the public interest so permitted, the local government could, on the application or with the consent of the licensee, make alterations or amendments in the terms and conditions of the licence as it deemed fit. Section 7 is most relevant to our purpose and reads thus:

7.(1) where a license has been granted to any person not being a local authority, and the whole of the area of supply is included in the area for which a single local authority is constituted, the local authority shall, on the expiration of such subsequent period, not exceeding fifty years, and of every such subsequent period, not exceeding twenty years, as shall be specified in this behalf in the license, have the option of purchasing the undertaking, and , if the local authority, with the previous sanction of the Local Government, elects to purchase, the licensee shall sell the undertaking to the local authority on payment of the value of all lands, buildings, works, materials and plant of the licensee suitable to, and used by him for, the purposes of the undertaking, other than a generating station declared by the license not to form part of the undertaking for the purpose of purchase, such value to be, in case of difference or dispute, determined by arbitration:

Provided that the value of such lands, buildings, works, materials and plant shall be deemed to be4 their fair market-value at the time of purchase, due regard being had to the nature and condition for the time being of such lands, buildings, works, materials and plant, and to the state of repair thereof, and to the circumstance that they are in such a position as to be ready for immediate working, and to the suitability of the same for the purposes of the undertaking : Provided also that there shall be added to such value as aforesaid such percentage, if any, not exceeding twenty per centum on that value as may be specified in the license, on account of compulsory purchase. (2) where -

(a) the local authority dies not elect to purchase under sub-s.(1), or

(b) the whole of the area of supply is not included in the area for which a single local authority is constituted, or

(c) a licensee supplies energy from the same generating station to two or more areas of supply, each controlled by its own local authority, and has been granted a license in respect of each area of supply, the local Government shall have the like option upon the lime terms and conditions.

(3) where a purchase has been effected under sub-s. (1) or sub (2),

(a) the undertaking shall vest in the purchasers, free from any debts, mortgages or similar obligations of the licensee or attaching to the undertaking :

Provided that any such debts, mortgages or similar obligations shall attach to the purchase-money in substitution for the undertaking : and, (b) save as aforesaid, the license shall remain in full force, and the purchaser shall be deemed to be the licensee:

Provided that where the Local Government elects to purchase under Sub-s. (2), the license shall, after purchase, in so far as the Local Government is concerned, cease to have any further operation. (4)not less than two years notice in writing of any election to purchase under this section shall be served upon the licensee by the local authority or the Local Government, as the case may be.

(5) Notwithstanding anything hereinbefore contained, a local authority may, with the previous sanction of the Local Government, waive its option to purchase and enter into an agreement with the licensee for the working by him of the undertaking until the expiration of the next subsequent period referred to in sub-s.(1), upon such terms and condition as may be stated in such agreement.'

Section 10 empowered the local government to vary the terms and conditions upon which and the periods on the expiration of which the licensee was bound to sell his undertaking.

14. The Rules made under the Electricity Act. 1910, provide the contents of the draft licence. These include the proposed periods after which the right to purchase would take effect. Annexure III to the Rules contained the form of the draft licence. Clause 9 thereof sets out the form of the option to purchase. Rule 16 required the local government, if it had approved the draft licence either in its original form or in a modified form, to so inform the applicant. Under R.17. if the applicant was willing to accept the licence in the form proposed by the local government, the local government was obliged on receipt of an intimation in writing of such acceptance, to publish the licence in the Gazette and notify that it had been granted. Under R .18 the date of a notification under R .17 was deemed to be the date of commencement of the licence.

15. The provisions of the Electricity (Amendment) Act.1950, relevant for the purposes of this petition are contained in S. 7 thereof. Thereby Ss. 5, 6 and 7 of the principal Act are substituted. The substituted Ss. 6, 7 and 7-A read thus :

6. 'Purchase of undertakings-(1) Where a license has been granted to any person, not being a local authority, the State Electricity Board shall,-

(a) in the case of a license granted before the commencement of the Electricity Amendment Act, 1959, on the expiration of each such period as is specified in the license; and

(b) in the case of a license granted on or after the commencement of the said Act, on the expiration of such period not exceeding twenty years and of every such subsequent period, not exceeding ten years, as shall be specified in this behalf in the license;

have the option of purchasing the undertaking and such option shall be exercised by the State Electricity Board serving upon the licensee a notice in writing of not less than one year requiring the licensee to sell the undertaking to it at the expiry of the relevant period referred to in this sub-section.

(2) Where a State Electricity Board has not been constituted, or if constituted, does not elect to purchase the undertaking, the State Government shall have the like option to be exercised in the like manner of purchasing the undertaking.

(3) Where neither the State Electricity Board nor the State Government elects to purchase the undertaking, any local authority constituted for an area within which the whole of the area of supply is included shall have the like option to be exercised in the like manner of purchasing the undertaking.

(4) If the State Electricity Board intends to exercise the option of purchasing the undertaking under this section, it shall send an intimation in writing of such intention to the State Government at least eighteen months before the expiry of the relevant period referred to in sub-s.(1) and if no such intimation as aforesaid is received by the State Government the State Electricity Board shall be deemed to have elected not to purchase the undertaking.

(5) If the State Government intends to exercise the option of purchasing the undertaking under this section, it shall send an intimation in writing of such intention to the local authority, if any, referred to in sub-s.(3) at least fifteen months before the expiry of the relevant period referred to in sub-s.(1) and if no such intimation as aforesaid is received by the local authority, the State Government shall be deemed to have elected not to purchase the undertaking.

(6) Where a notice exercising the option of purchasing the undertaking has been served upon the licensee under this section, the licensee shall deliver the undertaking to the State Government or the local authority, as the case may be, on the expiration of the relevant period referred to in sub-s. (1) pending the determination and payment of the purchase price.

(7) Where an undertaking is purchased under this section, the purchaser shall pay to the licensee the purchase price determined in accordance with the provisions of sub-s.(4) of S. 7-A.

7. Vesting of the undertaking in the purchaser-Where an undertaking is sold under S. 5 or S. 6, then upon the completion of the sale or on the date on which the undertaking is delivered to the intending purchaser under sub-s. (3) of S. 5 or under sub-s.(6) of S. 6 as the case may be, whichever is earlier--

(i) the undertaking shall vest in the purchaser or the intending purchaser as the case may be, free from any debt, mortgage or similar obligation of the licensee or attaching to the undertaking :

Provided that any such debt, mortgage or similar obligation shall attach to the purchase money in substitution for the undertaking ; (ii) the rights, powers, authorities, duties and obligations of the licensee under his license shall stand transferred to the purchaser and such purchaser

shall be deemed to be the licensee:

Provided that where the undertaking is sold or delivered to a State Electricity Board or the State Government, the license shall cease to have further operation. 7A. Determination of purchase price - (1) Where an undertaking of a licensee, not being a local authority, is sold under sub- s.(1) of S. 5, the purchase price of the undertaking shall be the market value of the undertaking at the time of purchase or where the undertaking has been delivered before the purchase under sub-s. (3) of that section, at the time of the delivery of the undertaking and if there is any difference or dispute regarding such purchase price, the same shall be determined by arbitration.

(2) the market value of an undertaking for the purpose of sub-s. (1) shall be deemed to be the value of all lands, buildings, works, materials and plant of the licensee suitable to and used by him, for the purpose of the undertaking, other than (1) a generating station declared by the license not to form part of the undertaking for the purpose of purchase, and (ii) service lines or other capital works or any part thereof which have been constructed at the expense of consumers, due regard being had to the nature and condition for the time being of such lands, buildings works, materials and plant and the state of repair thereof and to the circumstance that they ate in such position as to be ready for immediate working and to the suitability of the same for the purpose of the undertaking, but without any addition in respect of compulsory purchase or of goodwill or of profits which may be or might have been made from the undertaking or of any similar consideration.

(3) Where an undertaking of a licensee, being a local authority, is sold under sub-s (1) of S. 5, the purchase price of the undertaking shall be such as the State Government, having regard to the market value of the undertaking at the date of delivery of the undertaking, may determine.

(4) Where an undertaking of a licensee is purchased under S. 6, the purchase price shall be the value thereof as determined in accordance with the provisions of sub-ss. (1) and (2): Provided that there shall be added to such value such percentage, if any, not exceeding twenty per centum of that value as may be specified in the license on account of compulsory purchase.'

16. The Electricity (Maharashtra Amendment and Validation) Act, 1974, replaced the Electricity (Maharashtra Amendment and Validation) Ordinance, 1974. By reason thereof a new definition was inserted in S. 2 of the principal Act and was deemed always to have been inserted. It provided that a licence commenced on the date on which such licence was published in the Gazette. Accordingly, the Amending Act of 1974 stated the provisions of any rule made under the principal act or of any licence which were inconsistent with the provisions of this new definition would be and would be deemed always to have been repealed. The Amending Act of 1974 substituted sub-s. (6) of the principal Act with the following:

'(6) Where a notice exercising the option of purchasing the undertaking has been served upon the licensee under this section, the licensee shall deliver the undertaking to the State Electricity Board, the State Government or the local authority, as the case may be, on the expiration of the relevant period referred to in sub-s. (1) pending the determination and payment of the purchase price and interest.'

The Amending Act of 1974 added to sub-s. (7) of the principal Act the following words, ' and interest at the Reserve Bank of India rate ruling at the time of delivery of the undertaking plus one per centum, on the purchase price of the undertaking for the period from the date of delivery of the undertaking to the date of payment of the purchase price.'

17. The Statement of Objects and Reasons of the Bill introducing the Electricity (Maharashtra Amendment) Act, 1976, read thus :

'Section 7-A, Electricity Act, 1910, provides for determination of purchase price where any undertaking of a licensee is sold under sub-s. (1) of S. 6 of that Act. The basis for determining such price is the market value of the undertaking at the time of the purchase or at the time of delivery of the undertaking. Having regard to the present trend of rising prices, the market value of an undertaking would be much higher than the original purchase price. In such an event, the purchaser will be required to incur very heavy expenditure for payment of the purchase price or payment of compensation in accordance with the existing provisions of the Act and will involve the purchaser in heavy financial commitments. In the interest of the consumer and social justice, therefore, it is necessary to amend the Act suitably to provide for payment of an amount equal to undertaking and either in cash or in annual instalments.

The Bill is intended to achieve these objects,'

The Financial Memorandum accompanying the bill stated, inter alia, this:

'Under S. 7A, Electricity Act, on revocation of the licence as well as on the purchase of the undertaking, the Board or the State Government as the case may be has to pay compensation or purchase price at the market value of the undertaking. In the normal course this market value will be very high. Under the amended Act, the Board or the State Government will be required to pay as compensation or purchase price the depreciated book value of the undertaking. This will be less than the compensation or purchase price to be paid under the present Act.

Since purchase of an electrical undertaking by the State Government would be a rare possibility the extent of expenditure to Government involved cannot be foretold with any amount of accuracy.'

18. The provisions of the Electricity (Maharashtra Amendment) Act, 1976, being the subject of challenge in this petition, it is necessary to set out Ss. 2,3,4 and 5 thereof in extenso.

2. '(1) in S. 5, Electricity Act, 1910, in its application to the State of Maharashtra (herinafter referred to as 'the principal Act' ),--

(a) for sub-s. (2), the following shall be substituted, namely:--

'(2) Where an undertaking is sold under sub-s. (1), the purchaser shall pay to the licensee for the undertaking an amount determined in accordance with the provision of sub-ss. (1) and (2) of S. 7A'; (b) in sub-sec.(3),--

(i) for the words 'payment of the purchase price of the undertaking' the words 'payment of the amount for the undertaking' shall be substituted;

(ii) in the proviso,--

(1) for the words 'purchase price of the undertaking' the words ' amount for the undertaking' shall be substituted; and

(2) for the words ' payment of the purchase price' the words ' payment of such amount' shall be substituted.

(1) in sub-s. (6), for the words 'payment of the purchase price' the words ' payment of the amount' shall be substituted; and

(2) for sub-s. (7), the following shall be substituted, namely:--

'(7) Where an undertaking is purchased under this section, the purchaser shall pay to the licensee the amount determined in accordance with the provisions of S. 7-A and interest at the Reserved Bank of India rate ruling at the time of delivery of the undertaking plus one per centum on the amount payable for the undertaking for the period from the date of delivery of the undertaking to the date of payment of such amount'. 4. For S. 7A of the principal Act, the following new section shall be substituted, namely :--

'7A (1) Where an undertaking of a licensee is sold under sub-s. (1) of S. 5 or purchased under S. 6, the amount payable for the undertaking shall be the book-value of the undertaking at the time of delivery of the undertaking.

(2) the book-value of an undertaking for the purposes of sub-s. (1) shall be deemed to be the depreciated book-value as shown in the accounts rendered by the licensee in accordance with the provisions of S. 11 of all lands, buildings, works, materials and plant of the licensee, suitable to, and used for him, for the purpose of the undertaking other than---

(i) a generating station declared by the licence not to form part of the undertaking for the purpose of purchase; and

(ii) the service lines or other capital works or any part thereof, which have been constructed at the expense of the consumers,--

but without any addition in respect of compulsory purchase or of goodwill or of any profits which may be or might have been made from the undertaking or of any similar consideration.

(3) Notwithstanding anything contained in any licence or any instrument, order, agreement or law for the time being in force, in respect of any additional sum by whatever name may it be called, payable to a licensee for compulsory purchase, the licensee shall be entitled only to a solatium of ten per centum of the book-value as determined under sub-ss. (1) and (2), for compulsory purchase of his undertaking under S. 6.

(4) No provision of any Act for the time being in force, including the other provisions of this Act and of any rule made thereunder or of any instrument including any licence, having effect by virtue of any such Act, or any rule made thereunder, shall, in so far as it is inconsistent with any of the provisions of this section, have any effect.

(5)(a) the amount payable to a licensee under sub-s.(1) shall be payable in cash either in lump sum or in annual instalments as the State Government may fix;

(b) Where any such amount is payable in instalments, the unpaid amount where its payment has become due shall carry interest at the rate referred to in sub-s. (7) of S. 6'

5. The provisions of Ss. 5, 6 and 7A of the principal Act as amended by this Act, shall have effect in relation to all the licensees in respect of their undertakings, including any licensee on whom a notice requiring him to sell the undertaking has been issued under sub-s.(1) of S. 5, or on whom a notice exercising the option of purchasing the undertaking has been served under sub-s. (1) of S. 6 of the principal Act before the commencement of the Electricity (Maharashtra Amendment) Act, 1976, and the purchase price in respect of whose undertaking was not determined before such commencement.'

Section 6 is the 'saving' provision.

19. The Electricity (Maharashtra Amendment) Act, 1981, substituted Cl. (b) in sub-s. (5) of S. 7A of the principal Act. The substituted Cl. (b) read thus:

'(b) Where any such amount is payable in instalments, the interest shall be payable, at the rate referred to in sub-s.(7) of S. 6, for the period from the sate of delivery of the undertaking to the date of payment of the last instalment. With the first instalment, such interest shall be paid on the whole amount from the delivery of the undertaking to the date or payment of that instalment. With each subsequent instalment, such interest shall be paid on the amount due after payment of the last preceding instalment for the period from the payment of the last preceding instalment to the date of the succeeding instalment.'

20. Summarising, the unamended Electricity Act, 1910, gave the licensor the option of purchasing the licensee's undertaking on payment of the value of all lands, buildings, works, materials and plant of the licensee suitable to and used by him for the purposes of the undertaking, other than a generating station declared by him not to form part of the undertaking. The value such lands, buildings, works, materials and plant was deemed to be their fair market-value at the time of purchase, due regard being had to their nature, condition and state of repair. In the case of difference or dispute as to such value, the unamended Act provided for its determination by arbitration. The unamended Act provided for payment of a percentage of the value, not exceeding 20%, as was specified in the licence, on account of compulsory purchase. The option to purchase was required to be exercised upon the giving of notice in writing to the licensee not less than two years in advance.

21. By reason of the Amending Act of 1959 the State Electricity Boards were given the option of purchasing the licensee's undertakings. The option was to be exercised by serving upon the licensee a notice in writing of not less than one year. The licensee was obliged to deliver the undertaking on the expiration of the relevant period, pending the determination and payment of the purchase price. The undertaking vested in the Board upon the completion of the sale or upon the date on which the undertaking was delivered, whichever was earlier, and it vested free from any debt, mortgage or similar obligation of the licensee or attaching to it. The determination of the purchase price was provided for in S. 7A now introduced. The purchase price of the undertaking was the market value of the undertaking at the time of purchase or, when the undertaking had been delivered before the purchase, at the time of the delivery of the undertaking . the market value was deemed to be the value of all lands, buildings, works, materials and plant of the licensee suitable to and used by him for the purpose of the undertaking, other than a generating station declared by him not to form part of the undertaking and service lines or other capital works constructed at the expense of consumers. In the event of a difference or dispute regarding the purchase price, determination thereof arbitration was provided for. To the purchase price so determined a percentage, not exceeding 20% of the value, as specified in the license, was required to be added on account of compulsory purchase.

22. By reason of the Amending Act of 1974 a provision for payment of interest pending the determination and payment of the purchase price was added, such interest being at the Reserve Bank of India rate ruling at the time of delivery of the undertaking plus one per cent, payable on the purchase price from the date of delivery of the undertaking to the date of its payment.

23. The Amending Act of 1976 made drastic changes. Instead of the words 'purchase price' wherever used the word 'amount' was substituted. The substituted S. 7A provided that the 'amount' would be the book value of the undertaking at the time of its delivery, the book value being deemed to be the depreciated book value as shown in the accounts rendered by the licensee in accordance with the provisions of S. 11 of the principal Act of all lands, buildings, works, materials and plant of the licensee suitable to and used by him for the purpose of the undertaking and service-lines or capital works constructed at the expense of consumers. No forum was provided by the Amending Act of 1976 to determine the amount in the event there was a dispute or difference about it. The provision of payment of a percentage on account of compulsory purchase was excluded by the Amending Act of 1976, but the licensee was entitled to a solatium of ten per cent of the book value. The amount was payable in cash either in lump sum or in annual instalments as the State Government would fix. Wherever the amount was payable in instalments the unpaid amount, where its payment had become due, would carry interest at the Reserve Bank of India rate ruling at the time of delivery of the undertaking plus one per cent. The provisions of the Amending Act of 1976 were made applicable to all licensees, including a licensee upon whom notice requiring him to sell his undertaking had been served but the purchase price had not been determined before the commencement of that Amending Act.

24. It remains only to refer to the Amending Act of 1981 by reason of which, where the amount was payable in instalments, interest was made payable from the date of delivery of the undertaking to the date of payment of the last instalment.

25. The challenge made by the petitioners is based upon Art. 31(2) and Art. 19(1)(f) and (g) of the Constitution. The respondents contend that Art. 31C applies and the impugned provisions are, consequently, beyond challenge. In the alternative, they contend that there is no acquisition so that Art. 31(2) does not apply, and that there is only the restriction is reasonable within the meaning of Art. 19(5) and (6).

26. A Division Bench of this Court (to which one of us, Rege J., was a party) has held (in Writ Petition No.2401 of 1983, Elphinstone Spinning and Weaving Mills Company Ltd. v. Union of India) that to bring an enactment within the protection of Art. 31C so as to bar a challenge to it on the ground of infringement of Art. 14 or 19, it was necessary that the enactment should contain a declaration manifesting the intention of Parliament or a State Legislature to give effect by that enactment to the directive principles in Art. 39(b) or (c); this could be done either by specific reference to Art. 39(b) or (c) in the enactment or by incorporating in it the wording of Art. 39(b) or (c). The Amending Act of 1976 does not contain a declaration manifesting the State Legislature's intention to give effect thereby to the directive principles contained in Art. 39(b) or (c). Having regard to this, counsel for the respondents have not pressed before us the argument based on Art. 31C but have reserved it, should it be necessary, for the Supreme Court.

27. It is not in dispute that a licence issued under the provisions of the Electricity Act, 1910, amounts to a contract; that, as a result of the contract, the Board is entitled to exercise the option to purchase the licensee's undertaking; that the transfer of the undertaking pursuant to the exercise of the option amounts to a contractual and consensual transfer of the undertaking to the Board; and that, upon exercise of the option, the Board is obliged to purchase the undertaking and pay a price in lieu thereof and the licensee is bound to sell the undertaking. (See Fazilka Electric Supply Co. Ltd. v. Commr. of Income-tax, Delhi, : [1962]46ITR127(SC) , and Gujarat Electricity Board v. Shantilal R. Desai, : [1969]1SCR580 . It is also not in dispute that the Board is a State within the meaning of Art. 12(g) of the Constitution.

28. It was contended on behalf of the company that upon the service on the company of the Board's notice exercising the option to purchase, the right of the company to obtain the purchase price of the undertaking in accordance with its market value and the obligation of the Board to pay such purchase price got crystallised into a debt or chose in action; that the right to receive the purchase price for the undertaking on the basis of its market value amounted to a right to property within the meaning of Art. 31 of the Constitution; that the corresponding obligation on the part of the Board to pay such purchase price amounted to a debt or chose in action; that the amending Act of 1976 purported to extinguish a part of this property right; that this amounted to acquisition of that part of the debt which was the difference between the market value of the undertaking and its depreciated book value; that this acquisition was without payment of compensation, and was without a public purpose inasmuch as it was only to augment the revenue of the State; and that the Amending Act of 1976 was, therefore, violative of Art. 31(2) of the Constitution.

29. The first question to be considered, therefore, is: is there a debt created by the exercise of the option to purchase? The option was to purchase the undertaking on the expiration of fifty years from the commencement of the licence. The notice dated 26th August 1976 stated that the Board had decided to purchase the company's undertaking, in exercise of the option, on the expiration of the period of fifty years. Accordingly, the company was required by the notice to sell and deliver its undertaking to the Board on the expiry of the period of fifty years, i.e., on the midnight of 21st /22nd September 1977. The sale of the undertaking by the company to the Board was, therefore, in fact and in law, completed at midnight of 21st/22nd September 1977. It was upon such completion that the Board became liable to pay to the company the purchase price of the undertaking. The purchase price became a debt due by the Board to the company only upon the sale being so completed. Till then there was no present obligation upon the Board to pay to the company the purchase price. Till then the company had not become the owners of money equivalent to the purchase price. Till then there was no debt due by the Board to the company. (See Kesoram Industries and Cotton Mills Ltd. v. Commr. of Wealth Tax (Central ), Calcutta, : [1966]59ITR767(SC) . In our view, therefore, it cannot be held that upon the service of the notice dated 26th August 1976 exercising the option to purchase, the right of the company to obtain the purchase price of the undertaking in accordance with its market value and the obligation of the Board to pay such price got crystallised into a debt:

30. Great reliance was placed by Mr. Dhanuka, learned counsel for the company, upon the judgment of a Division Bench of the Calcutta High Court in Bihar State Electricity Board v. Patna Electricity Supply Co. Ltd., : AIR1982Cal74 . This judgment was delivered in appeal from the judgment of a learned single Judge : AIR1980Cal222 to which reference is necessary for fully appreciating the factual position.

31. On 5th January 1973 the Bihar State Electricity Board, the appellant before the Division Bench, served upon the Patna Electric Supply Co, Ltd. a notice exercising the undertaking of the Patna company and requiring the Patna company to sell its undertaking to the Bihar Board on 5th/6th February 1974. On 2nd February 1974 Bihar Ordinance No. 50 of 1974 was issued. Thereby S. 7A, Electricity Act, 1910, was amended in Bihar so that book value instead of market value became payable as the purchase price of an undertaking in respect of which an option to purchase was exercised. On 5th/6th February 1974 the Bihar Board took possession of the Patna company's undertaking and its title vested in the Bihar Board. On 2nd February 1974 the Bihar Board paid to the Patna company as ad hoc interim payment of purchase price the sum of Rs. 30 lakhs. By Bihar Ordinance No.83 of 1974 Bihar Ordinance No.50 of 1974 was renewed. By Bihar Ordinance No. 123 of 1974 Bihar Ordinance No. 83 of 1974 was renewed. On 5th January 1975 the provisions of that Ordinance were enacted in Bihar Act 15 of 1975. The Bihar Board claimed that it was liable to pay to the Patna company only the book value of its undertaking. The Patna company filed a writ petition in the Calcutta High Court on 19th March 1975. On 19th February 1976 Bihar Amendment Act 7 of 1976 was passed. It applied the provisions of the Bihar Act 15 of 1975 with retrospective effect from 2nd February 1974 to undertakings already purchased. The learned single Judge hearing the writ petition held that Bihar Ordinance No. 50 of 1974, in so far as it altered the basis of compensation, was void and unenforceable. He directed the Bihar Board to pay to the Patna company the purchase price in accordance with the provisions of unamended S. 7A. Against this decision the Bihar Board preferred an appeal.

32. The Division Bench considered in appeal the question as to when the right to get the purchase price accrued. It observed that at the time the option was exercised by the Bihar Board the Patna company was entitled to get the market value of the undertaking to be determined in accordance with the unamended provisions of S. 7A. There was, therefore, an implied contract between the Patna company and the Bihar Board that the Bihar Board would pay to the Patna company the market price in the event it purchased the undetaking. The Bihar Board, therefore, was liable to pay to the Patna company the market value of the undertaking in terms of the unamended provision. When the option was exercised the Patna company was bound to sell and the Bihar Board was bound to purchase the undertaking. It was difficult to accept the contention that this binding effect on either party was without the fixation of the purchase price or consideration. As soon as this stage was reached, upon the exercise of the option to purchase by the service of a notice, the Bihar Board had to purchase the undertaking on payment of the market value of the undertaking to be determined in accordance with the unamended provisions of S. 7A. The option having been exercised under the unamended S. 6, the provisions of the substituted S. 7A were inapplicable. The Patna company had acquired the right to receive the market value of the undertaking under S. 7A of the Act before it was amended. By Bihar Act 7 of 1976 that right of the Patna company to get the market value was taken away with retrospective effect and the Patna company was only entitled to receive the book value of the undertaking. Therefore, a portion of the property of the Patna company was acquired by Bihar Act 7 of 1976 by providing for payment of book value, which was less than the market value. The provision for payment of the book value could not be regarded as a provision for payment of compensation for the acquisition of the property of the Patna company. The acquisition of part of the debt or chose in action by Bihar Act 7 of 1976 with retrospective effect was without any public purpose inasmuch as it was intended only for augmenting the State's revenue or reducing the State's expenditure. Bihar Act 7 of 1976 was, therefore, ultra vires Art. 31(2) of the Constitution.

33. It will be seen from the chronology that the sale of the undertaking by the Patna company to the Bihar Board took place on 5th/6th February 1974. On that date the purchase price became a debt payable by the Bihar Board to the Patna company. Bihar Act 7 of 1976 reduced that debt to the extent of the difference between the market value and the book value. Upon those facts there was an acquisition of that part of the debt and it was intended to reduce the State's expenditure. Consequently, it was without a public purpose. The Patna company was, therefore, entitled to the purchase price on the basis of the unamended provision. It is, however, difficult to adopt the reasoning of the judgment of the Division Bench of the Calcutta High Court. On the facts before us, in our view, no debt had come into existence when the Amending Act of 1976 was brought into force. That Act did not, therefore, extinguish or acquire a part of such debt and it cannot be held to be void as acquiring a debt without compensation or for public purpose.

34. Reliance was placed by Mr. Dhanuka upon the judgment of the Supreme Court in the case of Madan Mohan Pathak v. Union of India : (1978)ILLJ406SC . It was relied upon by the Division Bench of the Calcutta High Court in the Bihar Board's case. It is enough to state of facts that on 21st May 1976 the Calcutta High Court had passed an order recognising the right of the petitioners, employees of the Life Insurance Corporation, to certain payments which had been agreed upon under Settlements between the Life Insurance Corporation and its employees. On 29th May 1976 the Life Insurance Corporation (Modification of Settlement) Act, 1976, was enacted by Parliament denying to the employees the rights which had been recognised by the Settlements, approved of by the Central Government, acted upon by some payments to the employees and recognised as rights by the Calcutta High Court. The validity of the Life Insurance Corporation (Modification of Settlement) Act was challenged. The principal judgment was delivered by Bhagwati, J. on behalf of Krishna Iyer and D.A. Desai, JJ. And himself. He noted the argument that the right of the employees to receive payment under the Settlements was property and, since the impugned statute provided for compulsory acquisition of this property without payment of compensation, it was violative of Art. 31(2) and hence null and void. The first question that he considered was whether the right to receive payment under the Settlements was property. Reviewing the Court's earlier judgments he held that property within the meaning of Art. 31(2) comprised every form of property, tangible or intangible, including debts and choses in action, such as unpaid accumulation of wages, pension and cash grants. The debts due and owing from the Life Insurance Corporation in respect of the said payments were the property of the employees within the meaning of Art. 31(2). The next question that was considered was whether debts and chose in action could form the subject matter of compulsory acquisition so as to attract the provisions of Art. 31(2). The learned Judge held that there was no reason why a chose in action could not be acquired for a public purpose other than the mere adding to the revenues of the State. There might be debts due and owing by poor and deprived tillers, artisans and landless labourers to moneylenders. The State might acquire such debts with a view to relieving the weak and exploited debtors from the harassment and oppression to which they might be subjected by their economically powerful creditors. The purpose of the acquisition in such a case would not be to enrich the coffers of the State. The purpose of such acquisition being relief of the distress of poor and helpless debtors, it would be clearly a public purpose. It was difficult to see what public purpose could possibly justify a law acquiring public debts due by the State or annuity deposits returnable by it or the provident fund payable by it. If the legislature enacted a law acquiring any of these choses in action, it could only be for the purpose of augmenting the revenues of the State or reducing State expenditure and that would clearly not be a public purpose and the legislation would be violative of the constitutional guarantee embodied in Art. 31(2). The debts due and owing from the Life Insurance Corporation to its employees in respect of the payments under the Settlements were 'property' within the meaning of Art. 31(2) and could be compulsorily acquired. When a debt due and owing by the State was extinguished by law, there was a transfer of ownership of the money representing the debt from the creditor to the State or the State-owned or controlled corporation. The extinguishment of the debt of the creditor with corresponding benefit to the State or State-owned or controlled corporation would clearly and indubitably involve transfer of ownership of the amount representing the debt from the former to the latter. This was the real effect of extinguishment of the debt and, by grabbing it in the form of extinguishment, the state or the State-owned or controlled corporation could not obtain benefit from the creditor and avoid the applicability of Art.31(2). Chandrachud, S.Murtaza Fazal Ali and Singhal JJ. Agreed with the conclusions of Bhagwati J. that the impugned Act violated the provisions of Art. 31(2) and was, therefore, void.

35. The Supreme Court held in Pathak's case that the payments under the settlements were debts due by the L.I.C. to its employees, that the impugned Act acquired the debts or choses in action, that the sole purpose of such acquisition was to augment the State's revenue, that there could be no public purpose for such acquisition, and that the constitutional guarantee provided by Art. 31(2) was violated by the impugned Act. In the case before us there was no debt due and owing by the Board to the company on the date the Amending Act of 1976 came into force. This Act cannot, therefore, be held to have acquired a debt.

36. The term 'chose in action' does not appear in the Transfer of Property Act, 1882. The term used in it is 'actionable claim'. An actionable claim was defined therein as broadly as in English law until 1900 when the present definition was substituted in S. 3. Thereunder an actionable claim means a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional contingent. An actionable claim, therefore, does not, as applied to the present case, go beyond the term 'debt' and, as we have seen, there was no debt due by the Board to the company on the day the Amending Act of 1976 came into force so that there was no acquisition of any part of it.

37. We next consider whether a right under or a benefit to a contract was extinguished or acquired by the Amending Act of 1976. Reference must be made to the judgment of the Supreme Court in Dwarkadas Shrinivas v. Sholapur Spinning & Weaving Co. Ltd., : [1954]1SCR674 . The Supreme Court held that a contract which a person had with the company which was acquired and which might be cancelled in exercise of powers under the acquiring ordinance was property within the meaning of Art. 31. If it was taken possession of or acquired, the person who was deprived of its benefit could challenge the constitutionality of the ordinance.

38. Counsel for the respondents contend, however, that the right to the price is only an incident of the contract, one of the bundle of rights thereunder, and is not 'property' within the meaning of Art. 31(2) and Art. 19(1)(f). The right to receive the price is, so far as the seller is concerned, virtually the only benefit of the contract and is, in our judgment, 'property'.

39. Prior to the coming into operation of the Amending Act of 1976 the licensee was entitled to receive as the purchase price of his undertaking upon compulsory purchase the market value thereof. Upon its coming into operation the licensee became entitled to receive as the purchase price of his undertaking upon compulsory purchase the depreciated book value thereof. The Amending Act of 1976, while retaining the licensee's right to receive a price for his undertaking, severely curtailed it for the price was drastically reduced. In the circumstances, it would not be, in our judgment, correct to hold that the Amending Act of 1976 extinguishes or acquired the difference between the market value of the undertaking and its depreciated book value and that, consequently, it attracts the provisions of Art. 31(2).

40. The provisions of Art. 31(2) not being attracted, we turn to the challenge under Art. 19(1)(f) and (g).

41. The challenge is founded on the submissions, among others, that postponed payment of the purchase price makes the provisions unreasonable and jeopardises the company's business activities and that the provision enabling the State Government to fix the quantum of instalments by which the purchase price will be paid is unguided and arbitrary. Counsel for the respondents argue that it is not open to the company to take these grounds because it has not been aggrieved by these provisions. They say that the company was paid simultaneously with the takeover of its undertaking the sum of Rs.4,05,00,000/-, being the purchase price, and it received it voluntarily.

42. The petition was filed on 1st September 1977. The said licence was to stand terminated on the midnight of 21st/22nd September 1977. At the time when the petition was filed no payment on account of the purchase price had been made. On 13th September 1977 the petition cane up for admission before a learned single Judge. By his order of that date the learned Judge admitted the petition and considered the question of interim relief. Bearing all the circumstances in mind he was not inclined to stay the operation of the notice exercising the option in the absolute manner desired. This was, however, subject to the Board agreeing to make a certain immediate payment against the taking-over. He was of the opinion that, subject to the agreed calculation of the book value, the Board should pay to the company the full amount excluding the excepted items. To enable calculations in this behalf to be made the matter was stood over to 21st September 1977. On 21st September 1977 the learned Judge recorded that it was urged before him on behalf of the Board that it should be allowed to make the payment by instalments. He observed that the Board should be prevented from taking over the company's undertaking till the full amount of the book value, broadly ascertained, was paid over to the company. He found such amount to be Rs. 4,05,00,000/-. He directed the Board to make payment of this amount to the company and ordered 'that till such payment is first made and till joint inventory is completed, the first respondent will be restrained from taking possession of the undertaking of the petitioner company or any part thereof.'

43. It is crystal clear from the orders of the learned Judge that the payment of Rs. 4,05,00,000/- was made by the Board to the company pursuant to those orders and as a condition of being allowed to take possession of the company's undertaking. The company is, therefore, entitled to urge that the provisions delaying payment of the purchase price and enabling it to be paid by instalments are unreasonable and unconstitutional.

44. Mr. Dhanuka, learned counsel for the company, urged that Ss. 4, 5 and 6 of the Amending Act of 1976 were void as contravening Arts. 19(1)(f) and 19(1)(g) of the Constitution on the following grounds: that the purchase price of the undertaking had been reduced from market value to depreciated book value; that the purchase price was not payable immediately upon possession of the undertaking being taken by the Board; that the State Government was given the power to decide whether the purchase price should be paid in annual instalments and to decide the amount of such instalments entirely as it deemed fit; that the provision for payment of interest was at a rate which was wholly inadequate; that no machinery was provided for the determination of the purchase price in the event it was disputed; that service lines which belonged to the company but which had been set up with moneys obtained from consumers were excluded in the computation of the price; and that these provisions were made retrospectively applicable so as to affect concluded contracts of purchase. The reduction of the purchase price from market value to depreciated book value was totally unrealistic and unreasonable. This was compounded by the fact that no guidelines were contained in the Amending Act of 1976 in respect of the exercise of the power of the State Government to fix the instalments by which the purchase price was payable; not even an outer time limit within which the purchase price should be fully paid was provided. The drastic curtailment in the quantum of the purchase price and the provision for indefinite delay in its payment jeopardised the business of the company.

45. The judgment in M/s. Laxmi Khandsari v. State of U.P., : [1981]3SCR92 , was brought to our notice by Mr. Dhanuka. It cites with approval the judgment in Saghir Ahmed v. State of U. P., : [1955]1SCR707 , and holds that where there is a clear violation of Art. 19(1) the State has to justify by 'acceptable evidence, inevitable consequence or sufficient materials' that the restriction is in public interest and contains the quality of reasonableness.

46. It will be remembered that the Statement of Objects and Reasons of the Amending Act of 1976 states. 'Having regard to the present trend of rising prices, the market value of an undertaking would be much higher than the original purchase price. In such an event, the purchaser will be required to incur very heavy expenditure for payment of the purchase price or payment of compensation in accordance with the existing provisions of the Act and will involve the purchaser in heavy financial commitments. In the interest of the consumer and social justice, therefore, it is necessary to amend the Act suitably to provide for payment of an amount equal to the depreciated book value of the undertaking and either in cash or in annual instalments. The Bill is intended to achieve these objects.' The Financial Memorandum accompanying the Bill stated that in the normal course the market value would be very high. Under the amended Act the Board or the State Government would be required to pay as compensation or purchase price the depreciated book value. This would be less than the purchase price to be paid under the principal Act.

47. The affidavit in reply to the petition made on behalf of the Board contends that the legislature is the sole judge of public interest and that the provisions of the Amending Act of 1976 are made in the public interest. As a matter of policy the Board proposed to take over or acquire almost all the electric undertakings in the State. Most of the electrical undertakings had already been taken over by the Board. As regards the rest the matter was being considered by the Board from time to time. It is denied that there are no guidelines as to in what cases the purchase price should be paid in lump sum or by annual instalments and what should be the quantum of such annual instalments. It states, 'the question of payment in one lump sum or by instalments would depend upon the quantum involved and the capacity of the first respondent to pay.' In the affidavit in reply to the petition made on behalf of the State it is submitted that the restrictions imposed are reasonable for the purpose of achieving the objects of the Act. The provision for making payment of the purchase price in one lump sum or by annual instalment was made in the public interest because the funds available by deferring such payments in respect of large undertaking could be made use of for meeting the obligations of the State Government for the co-ordinated development of electric generation in the State thereby promoting public interest. In the affidavit in reply made on behalf of the Board to amendments to the petition it is submitted that the public purpose of the Amending Act of 1976 was evident from the Statement of Objects and Reasons thereof. It was manifest that if the purchase price equivalent to the market value of an undertaking was paid such payment of expenditure by the Board would be reflected in a higher burden of electricity tariffs upon the general consumers whom the Board was set up to serve and this would hinder the primary duty of the Board of supplying electricity and distributing it in the most efficient and economical manner and for promoting the use of electricity within the State. The provisions of the Amending Act of 1976 gave effect to the directive principles of State policy prescribed by Art. 39(b) & (c). In the affidavit in sub-rejoinder made on behalf of the Board it is stated that in reducing the burden of the purchase price on the State from market value to depreciated book value there was the larger social purpose of bringing into State control a material resource of the community. It was the general policy of the State to purchase all electricity undertakings upon expiry of licence periods and it was the total impact of the purchase price payable in respect of all undertakings in the State which was to be considered and not the mere burden of the purchase price of one undertaking. The reduction in the purchase price from market value to depreciated book value was a matter of legislative judgment in the implementation of the policy. Payment of purchase price based on market value would result in a higher burden of electricity tariffs upon the general consumers and would hinder the primary duty of the Board of supplying electricity and distributing it in the most efficient and economical manner and also of promoting the use of electricity within the State. The acquisition of licences of undertakings was one of the four major items of the Board's annual plan outlay.

48. We have already referred to the Supreme Court judgment in Pathak's case : (1978)ILLJ406SC . The majority of the learned judges took the view that the impugned Act abrogating payments to the employees of the L.I.C. under the settlements was violative of Art.31(2). They did not consider whether the Act also infringed Art.19(1)(f) because of the settled practice to decide no more than what was absolutely necessary and because, once it was held that the impugned Act infringed Art. 31(2), its validity could not be tested by reference to Art. 19(1)(f) by reason of Art. 31(2B). Beg C.J., however, rested his separate but concurring judgment only on Art. 19(1)(f). holding that the prospects held out, the representations made, the conduct of the Government and equities arising therefrom could all be taken into consideration for judging whether a particular piece of legislation was reasonable, the learned Chief Justice held that the Act was struck by the provisions of Art. 19(1)(f) and was not saved by Art. 19(6).

49. Mr. Dhanuka relied upon the judgment of the Supreme Court in State of Madhya Pradesh v. Ranojirao Shinde, : [1968]3SCR489 . The respondents to that appeal were entitled to receive cash grants from the State. The impugned Act abolished the cash grants and provided for payment of compensation. The Supreme Court observed that an Act which empowered the State to appropriate someone else's property for itself solely with a view to augment its resources could not be considered a reasonable restriction in the interest of the general public. If Art. 19(5) was interpreted to mean that the State could take by authority of law anyone's property for the purpose of increasing its assets or revenues, the guarantee given by Art. 19(1)(f) would become illusory, a proposition to which the Supreme Court could not subscribe.

50. Great reliance was placed by Mr. Dhanuka upon the judgment of the Supreme Court in Godhra Electricity Company v. State of Gujarat, : [1975]2SCR42 . It was contended on behalf of the appellants in that case that the provisions of S. 6(6), Gujarat Act 32 of 1959, amending the Electricity Act, 1910, which postponed the payment of purchase price till after the determination of its quantum by an arbitrator were unreasonable restriction upon the fundamental right to carry on business under Art. 19(1)(g) and also violative of the fundamental right under Art. 19(1)(f). On behalf of the State it was contended that since the appellants, undertaking had been purchased consequent upon a valid notice exercising the option to purchase, the appellants had no right to carry on the business of supplying electricity and there was no infringement of the fundamental right under Art. 19(1)(g). It was also submitted that the obligation to pay interest on the purchase price from the date of delivery of the undertaking up to the date of its payment was implicit in the Amending Act or, at any rate, the arbitrator was bound, under the common law of the land, to award interest for the period during which the arbitration proceedings were pending. The court observed that although the Gujarat Board was liable to pay interest under the general law for the period during which the licensee had not been paid the purchase price, the arbitrator, functioning under the provisions of the Act, could not award any interest on the amount determined by him. The licensee's claim for interest could be enforced only in a suit. The fact that the claim for interest could be enforced in a suit by the licensee did not mitigate the unreasonableness of the provision which authorised the Gujarat board to take delivery of the undertaking without payment of the purchase price. It was unreasonable to require the licensee to deliver his undertaking without payment of the purchase price or, if the payment was deferred, without compensating him by way of interest for the period during which the payment was withheld. The fact that the arbitrator was seized of the question of determination of purchase price and that he was bound to make his award within the specified time in law did not mean that the licensee need not be compensated for the delay in payment of the purchase price. If the arbitrator could have awarded interest for the period between the dates of delivery of the undertaking and payment of the purchase price, probably it could have been said that the provision for delivery without payment of the purchase price was nor unreasonable. But to deprive the licensee of his undertaking without payment of the purchase price and then ask him to go to court to enforce the liability for interest for the period for which the purchase price had been withheld was unreasonable. The validity of the provision, the Supreme Court held, could also be challenged on the ground that the fundamental right under Art. 19(1)(f) had been infringed.

51. In regard to service lines our attention was drawn by Mr. Dhanuka to two judgments of the Supreme Court. In Upper Ganges Valley Electricity Supply Co. Ltd. v. U. P. Electricity Board, : [1973]3SCR107 , concerning a point of time when the Electricity Act, 1910, had not been amended to exclude service lines from the computation of purchase price, 'the value of the portion of services installed at the cost of the consumers.' It was observed that the conditions of the licence, the provisions of the Act and the legal position pointed only in one direction: that the appellant was entitled to receive compensation for service lines laid at the cost of the consumers. In Calcutta Electric Supply Corporation v. Commr. of Wealth Tax, : [1971]82ITR154(SC) , concerning a point of time after the said amendment, it was held that service lines constructed at the expense of the consumer were part of the assets of the undertaking and were includible for the purposes of wealth tax.

52. Counsel for the respondents submitted that the reduction of the purchase price from market value to depreciated book value was not unreasonable having regard to the following factors: (1) the Amending Act of 1976 was passed to take over a material resource and to subserve a directive principle; (2) the rights of licensees of electricity undertakings were capable of legislative modification and this was at all times to their knowledge; (3) the electricity franchise and the profits thereof were controlled by legislation, the licensees being entitled only to reasonable return; and (4) payment of the purchase price on the basis of market value would result in the imposition of higher tariffs upon electricity consumers. The Board, it was argued, was established for co-ordinating the development of electricity on a regional basis. It was set up as a suitable organisation to work the grid system of electric supply on quasi-commercial lines. (See Statement of Objects and Reasons of the Electricity (supply) Act, 1948). The Board was the instrumentality of serving the general public and the general body of electricity consumers in the State. It was the policy of the State Government that the Board should purchase private electricity undertakings as and when their licences expired. If the purchase price of such undertakings had to be determined on the basis of market value the Board would be faced with the problem of paying the market value of the undertakings which would be very high considering the present inflationary trends and rising prices. The market value would be considerably higher than the original purchase price. It was, therefore, in the interests of the consumers and social justice that, instead of the market value, an amount equal to the depreciated book value should be paid, either in cash or annual instalments. An electricity licence was a matter of grant by the State and was a special type of business impressed with a public character. It was granted for accomplishing public objects (See Okara Electric Supply Co. Ltd., v. State of Punjab, : [1960]2SCR239 . The licensee must be deemed ti have the knowledge that the purchase price of the undertaking would be a matter of legislative unilateral amendment. The return of the license of an electricity undertaking was controlled by the provisions of the Electricity (Supply) Act and he could obtain no more as a clear profit than a reasonable return. Payment of the depreciated book value was not an illusory payment. (See Ishwari Khetan Sugar Mills (P) Ltd. v; State of U.P., : [1980]3SCR331 . The provisions for payment of interest offsets the prejudice, if any, caused by the deferment of the payment of the purchase price. (See Godhra Electricity Co. Ltd. v. State lines which had been constructed at the expense of consumers were excluded from the computation of the purchase price for the reason that no licensee should be paid for something to which he himself had not contributed in a matter of compulsory purchase.

53. Learned counsel for the respondents drew our attention to authorities, some of which we have already noted. Two others we now advert to.

54. In Lord Krishna Sugar Mills Ltd. v. Union of India, : [1960]1SCR39 , the question of delay in payment was considered. It was held that since the owners of sugar taken over and sent abroad got payment after the sale price was received from abroad and necessary deductions had been made, their payment was likely to be 'somewhat' delayed but, looking to the 'small quantity' involved, it was not likely to make it very hard for them. Such deferment was, therefore, not found to be unreasonable. The emphasis, it will be noticed, is on the fact that the payment would be 'somewhat' delayed and on the fact that a 'small quantity' was involved.

55. In M/s. Laxmi Khandsari v. State of U. P., : [1981]3SCR92 , the Supreme Court said, '......As to what are reasonable restrictions would naturally depend on the nature and circumstances of the case, the character of the statute, the object which it seeks to serve, the existing circumstances, the extent of the evil sought to be remedied as also the nature of restraint or restriction placed on the rights of the citizen. It is difficult to lay down any hard or fast rule of universal application but this Court has consistently held that in imposing such restrictions the State must adopt an objective standard amounting to a social control by restricting the rights of the citizens where the necessities of the situation demand. It is manifest that in adopting the social control one of the primary considerations which should weigh with the Court is that as the directive principles contained in the Constitution aim at the establishment of an egalitarian society so as to bring about a welfare State within the framework of the Constitution, these principles also should be kept in mind in judging the question as to whether or not the restrictions are reasonable. If the restrictions imposed appear to be consistent with the directive principles of State policy they would have to be upheld as the same would be in public interest and manifestly reasonable......'

56. In that the provisions of the Amending Act of 1976 abridge the price upon compulsory purchase of electricity undertakings from market value to depreciated book value, they affect the licensee's right under Art. 19(1)(f). This is not disputed, but it is contended that the restriction is reasonable in the public interest. The onus of demonstrating reasonableness in the public interest is upon the respondents. We have briefly analysed the contents of the affidavits of the respondents that are relevant to such demonstration. The affidavits do not, by 'acceptable evidence, inevitable consequences or sufficient materials' discharge that onus.

57. The Electricity Act, 1910, as enacted contemplated State control over the material resource of electricity by providing for compulsory purchase of electricity undertakings. This was already the objective of the parent Act. It cannot, therefore, be held to be the object of the Amending Act of 1976.

58. The Electricity Act, 1910, as enacted, provided for the compulsory purchase of electricity undertakings upon payment of their market value. The Amending Act of 1959 only excluded some assets of the undertakings from the computation of the market value. Electricity undertakings were compulsorily purchased upon payment of their market value until 1976, when the Amending Act of 1976 was mooted. There is no explanation in the affidavits made on behalf of the respondents as to what it was that made it imperative in the public interest at that point of time to reduce the purchase price from market value to depreciated book value. There is no statement in the affidavits that upon the basis of market value the Board could no longer have afforded compulsory purchases. In this connection it is relevant to notice that the Financial Memorandum in respect of the Amending Act of 1976 stated, 'So far as Maharashtra State is concerned, it is a matter of policy that Maharashtra State Electricity Board is purchasing private Electricity Undertakings as and when their licences expire......' It is clear from this statement that the State had adopted the policy that the Board should purchase electricity undertakings as and when their licences expired at a point of time when the consideration for such purchase was the market value of the undertakings. The obligation to pay market value did not deter the State from adopting this policy. The affidavits on behalf of the respondents do not aver that after compulsory purchases in the past the electricity tariff had had to be raised; all that they state is that the expenditure incurred on compulsory purchases had to be taken into account. The Statement of Objects and Reasons of the Amending Act of 1976 says that payment of the purchase price at the market value would require the purchaser to incur 'very heavy expenditure' and involve 'heavy financial commitments'. Considering all these factors, the object and reason for the Amending Act of 1976 could only be this: to reduce the Board's liability on compulsory purchase. Legislation enacted to reduce the State's liability or augment the State's funds as its only purpose infringes the fundamental right even by Art. 19(1)(f). We have already cited the cases that so hold.

59. It must be borne in mind that we are not here concerned with the acquisition of property by the employment of the principles and provisions of law in that behalf. That the Amending Act of 1976 substitutes the word 'amount' for the phrase 'purchase price' wherever used in the principal Act makes no difference to this position. We are here concerned with a consensual transaction, a transaction arising out of a contract. Though the purchase is compulsory, though the terms of the contract are amendable by legislation, though the electricity franchise and its returns are controlled by legislation, and though the purchase deals with a material resource, control over which is a directive principle, the State, as the purchaser under a contract, cannot be countenanced to act unilaterally to drastically reduce its liability in regard to the purchase price. Such a reduction is not reasonable, not in the public interest and infringes the fundamental right under Art. 19(1)(f).

60. The reduction in the purchase price cannot but have a direct and proximate effect on the licensee's right to carry on business. The licensee was carrying on the business of electricity supply while the licence was current. Upon compulsory purchase of his undertaking the licensee would do, or want to do other business. The depletion in his capital of so considerable a nature as that caused by the reduction of the purchase price of his undertaking from market value to depreciated book value cannot but hinder him in doing so. There would, therefore, also be a transgression of the guarantee of Art. 19(1)(g).

61. The Amending Act of 1976 provides that the amount of the purchase price 'shall be payable in cash, either in lump sum or in annual instalments as the State Government may fix'. The power to fix instalments vested in the State Government is not guided or channelised. The enactment does not even provide an outer time limit for the full payment of the purchase price. In our view, the provision for the fixation of instalments is grossly unreasonable. It is also arbitrary. It, therefore, violates the fundamental rights conferred by Arts. 19(1)(f) and (g) and 14.

62. It was contended on behalf of the respondents that it should be assumed that the power to fix instalments would be exercised reasonably. The affidavit made on behalf of the Board in reply to the petition states 'that the question of payment in one lump sum or by instalments would depend upon the quantum involved and the capacity of respondent 1 to pay'. In plainer words, it is averred by the Board that the purchase price would be payable when able. A statement of this nature does not inspire us with any confidence that the provision for the fixation of instalments would be reasonably exercised.

63. Further, it is denied in the Board's affidavit in reply that there are no guidelines for the fixation of instalments. The reference appears to be to the Board's internal guidelines. The Board's guidelines do not lessen the arbitrariness and unreasonableness of the statutory provision. In any event, in the affidavit in sub-rejoinder made on behalf of the Board a copy of the Board's internal guidelines is annexed. They require, in cases where the valuation is not finalised before taking over the undertaking that 75% of the book value be paid on taking possession of the undertaking. The affidavit on behalf of the Board in reply states that the Board had decided to pay the Company the sum of Rs.1.7 crores immediately after taking over its undertaking. The sum of 75% of Rs.4.05 crores, which was the Board's own valuation on the basis of depreciated book value of the undertaking. The internal guidelines do not appear to have then guided the Board. There is then not much reason to suppose that they shall in future.

64. The payment of interest is no panacea for undue deferment of the payment of the principal amount. The judgment of the Supreme Court in the Godhra Electricity Company's case : [1975]2SCR42 holds that even for the period it takes an arbitrator to determine the purchase price, interest on the purchase price must be paid to the licensee. It holds that it is unreasonable not to arm the arbitrator with the power to award such interest and to require the licensee to move the Court for it. The Godhra Electricity Co. judgment does not support the submission made on behalf of the respondents that because interest is being paid it is not unreasonable to defer payment of the purchase price.

65. In our view, the provision for payment of interest only 'at the Reserve Bank of India rate ruling the time of the delivery of the undertaking plus 1%' makes more unreasonable the provisions of the Amending Act of 1976 which require the payment as price of only the depreciated book value of the undertaking and which enable this payment to be long deferred. A rate approximating, if not equal to the higher commercial rate of interest, would have been more appropriate.

66. On the aspect of interest we have proceeded upon the basis that the Amending Act of 1981 is valid and effective. We do not find it necessary, in the circumstances, to consider Mr. Dhanuka's submission, made at the concluding stages of the hearing, that the Amending Act of 1981 is invalid and ineffective because the President's assent to its provisions was not obtained.

67. Mr. Dhanuka submitted that it was unreasonable not to take into account the condition and state of repairs of the undertaking. Even after the Amending Act of 1974, he pointed out, due regard was required to be had, in computing the market value of the undertaking, to the nature and condition for the time being of the lands, buildings, works, materials and plant and the state of repairs thereof and to the circumstance that 'that are in such position as to be ready for immediate working'. In computing market value it is proper that regard should be had to the condition and state of repairs of the undertaking, but the condition and state of repairs is not relevant if all that is going to be paid is the undertaking's depreciated book value.

68. The Amending Act of 1976, as also the Amending Act of 1959, exclude from consideration the computation of the purchase price, the value of service lines and other capital works constructed at the expense of consumers. Mr. Dhanuka submitted that these were assets of the licensee and it was unreasonable to exclude them. The exclusion of service lines and capital works is justified on the basis that the licensee should not be paid for something to which he has himself not contributed. It appears to us not unreasonable to provide that the licensee should not get the market value of service lines and other capital works installed at no cost to himself, but the exclusion of service lines and other capital works when only the depreciated book value of the undertaking is to be paid adds to the unreasonableness of that provision.

69. The Amending Act of 1976 has effect in relation to all licensees, including licensees upon whom notices exercising the option of purchase have been served before its commencement and the purchase price in respect of whose undertakings has not been determined before such commencement. In other words licensees, the purchase price of those undertaking has been determined prior to the commencement of the Amending Act of 1976, remain unaffected by its provisions. Mr. Dhanuka assailed this differentiation on the ground of Art. 14. In his submission, equals were thereby treated unequally and unequals equally and there was no nexus between the criteria adopted for the differentiation and the object of enactment. Licensees, he argued, upon whom notices exercising the option to purchase had been served prior to its commencement ought to have been treated on the same basis as licensees, the purchase price of whose undertakings had been determined prior to its commencement.

70. Having regard to the object of the Amending Act of 1976 we are not inclined to hold that the criteria adopted for differentiation has no nexus to its object or that equals are treated unequally and unequals equally. It is not irrational that licensees, the purchase price of whose undertakings had been determined on the basis of market value prior to the commencement of the Amending Act of 1976, be so paid.

71. The last argument of Mr. Dhanuka which we may note is based upon the judgment of a Division Bench of the High Court of Karnataka in Writ Petition No. 6761 of 1974. The Kanara Electric Supply Co., Ltd. v. State of Karnataka. The proceedings were a challenge to the provisions of the Karnataka Electricity Supply Undertakings (Acquisition) Act, 1974. The Act provided, as its name suggested, for the acquisition of electrical undertakings within the State. S.4(1) provided that with effect from the appointed date the undertakings of the companies named in the Act would stand transferred to and vest in the Government. S. 6 of the Act referred to the effect and consequences of the vesting. S. 5 laid down the principles on which the amounts to be paid to the companies were to be determined and paid. S. 7 enumerated the deductions the Government was entitled to make from the amounts. It was urged on behalf of the petitioners that the impugned Act was unworkable and the language of its material provisions intractable as it provided no machinery for the determination and resolution of various complicated facts of a technical nature essential for a just and proper determination of the amounts payable to the companies upon vesting. The Court considered the provisions of the Act in regard to the determination of the amount payable and the permissible deductions. It also considered various judgments of Courts in India and in England and concluded that 'in the absence of some machinery or adjudicatory forum for resolution of the various complicated issues that arise in the implementation and effectuation of provisions of the Act, in particular Ss. 5, 6 and 7, the task of finding out what vests in Government under S. 6; what is the amount determinable and payable to the companies against the compulsory acquisition of their undertakings under S. 5; and what sums are liable to be deducted under S. 7 becomes virtually unattainable. On any principle, we cannot fill the vacuum and create an adjudication forum and sustain the Act.

Provisions of Ss.5, 6 and 7 are the core provisions which go to the heart of the matter and the unworkability and intractability of these provisions, in our opinion, render the whole Act unworkable without leaving any part which could survive by severance. We have, therefore, no option but to declare the 'Act' unworkable.'

72. Mr. Dhanuka referred to the provisions of the Electricity Act as amended in 1959 and pointed out that under S. 6(7), where an undertaking was purchased, the purchaser was required to pay to the licensee 'the purchase price determined in accordance with the provisions of sub-s. (4) of S. 7A'. Sub-sec. 4 of S. 7A states that 'where an undertaking of a licensee is purchased under S. 6, the purchase price shall be the value thereof as determined in accordance with the provisions of sub-Ss. 1 and 2'. Sub-sec. (1) of S.7-A states that the purchase price of the undertaking at the time of purchase or, where the undertaking has been delivered before the purchase, at the time of delivery of the undertaking 'and if there is any difference or dispute regarding such purchase price, the same shall be determined by arbitration.'

73. Mr. Dhanuka drew our attention to the provisions of the Amending Act of 1976 and pointed out that while 'determination' of the amount was contemplated, the provision for determination by arbitration in case of difference or dispute was removed. In Mr. Dhanuka's submission, there was much scope for disputes or differences to arise between the Board and the licensee in regard to the determination of the amount payable, particularly in regard to the permissible deductions therefrom. In him submission, in the absence of a forum for the determination of such disputes or differences the Amending Act of 1976 was unworkable and ought to be so declared.

74. Counsel for the respondents urged that the chance of a dispute or difference arising was remote because what was required to be paid was only the depreciated book-value and that had to be paid upon the basis of the licensee's own statements made in his annual returns. In counsel's submission, there was nothing in the Amending Act of 1976 which could be termed intractable and its provisions were not unworkable merely because of the absence of a provision for a forum to determine the purchase price in case disputes or differences should arise.

75. We cannot accept the submission that the possibility of a dispute or difference in regard to the determination of the amount or the permissible deductions is remote or unlikely. However, we do not think that the absence of the provision of a forum to decide disputes and differences in the Amending Act of 1976 would justify holding that its provisions are unworkable or intractable. We are guided by the observations of Lord Dunedin in Murray v. Commissioner of Inland Revenue 1918 AC 541 which are quoted in the Karnataka judgment :

'It is our duty to make what we can of statutes, knowing that they are meant to be operative, and not inept, and nothing short of impossibility should in my judgment allow a judge to declare a statute unworkable.............'

It does not appear to us that the provisions of the Amending Act of 1976 are such as can be termed impossible of performance. In the absence of a forum provided for by the enactment it is open to the licensee to resort to the Courts of the land should disputes or differences arise as to the amount payable or the permissible deductions. The most that can be said is that the absence of this provision makes the substantive provision of the enactment the more unreasonable.

76. We note Mr. Dhanuka's argument that the Development Reserve of the company cannot be deducted from the amount payable to it. This question does not arise before us.

77. The contention that the Board's notice to the company dated 26th August 1976 exercising the option to purchase was invalid was expressly not pressed before us.

78. In the body of the petition there is a challenge to Ss. 4, 5 and 6 of the Amending Act of 1976, to the Amending Act of 1974 and to the Amending Act of 1959. The Amending Act of 1974 is challenged on the ground that it alters the date of commencement of the licence. The Amending Act of 1959 is challenged on the ground that it reduces the period of notice for exercise of the option to purchase from two to one year and excludes the value of service lines from the computation of the purchase price. The prayers to the petition, however, challenge the validity only of Ss. 4, 5 and 6 of the Amending Act of 1976 and of S. 2 of the Amending Act of 1974. We make it clear that we do not uphold the challenge to the Amending Act of 1974 and to the Amending Act of 1959. We also do not uphold the challenge to Ss. 5 and 6 of the Amending Act of 1976. We hold that the provisions of S. 4 of the Amending Act of 1976 violate the fundamental rights guaranteed by Art. 19(1)(f), Art. 19(1)(g) and Art. 14.

79. The petition is, accordingly, made absolute in terms of prayer (a) to the extent aforestated. The 1st and 2nd respondents shall pay to the petitioners the costs of the petition.

80. Petition allowed.


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