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The Upper Jamuna Valley Electricity Supply Co. Ltd. Vs. the Municipal Corporation of Delhi - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberSuit Appeal No. 388 of 1970
Judge
Reported in9(1973)DLT148
ActsElectricity Act, 1910 - Sections 7A(1), 7(2), 7(4) and 7(6)
AppellantThe Upper Jamuna Valley Electricity Supply Co. Ltd.
RespondentThe Municipal Corporation of Delhi
Advocates: B.N.Sen,; C.M.Oberoi and; B. Dayal, Advs
Cases ReferredMadhaya Pradesh Electricity Board Jabalpur v. The Central India Electric Supply Co
Excerpt:
.....7a (1) arose concerning purchase price of undertaking - arbitrator appointed - arbitrator assessed market value of undertaking on principal of reproduction cost minus depreciation - appeal against such assessment - state electricity board purchased undertaking under section 6 after license of supply of electrical energy expired - value of undertaking should be determined as successfully constructed and in complete working order after deducting a proper sum of depreciation without taking into accounts rights of user - cost of planning and designing to be treated as forming part of purchase price - principal applied by arbitrator not wrong - under section 7a (1) arbitrator is only required to determine purchase price of undertaking and cannot award interest. - - the arbitrator's..........december, 1962, the municipality paid a sum of rs.5 lakhs on account and in part payment of the market value of the assets of the undertaking. the company valued the assets of the undertaking in accordance with the provisions of section 7(a)(1) of the indian electricity act as follows :- (i) total market value as at midnight on rs. 15, 03, 102. 02 21st/22nd deember, 1962. (ii) less value of assets constructed at co- rs. 4, 02, 488. 55 nsumors' cost as at midnight on 21st/22ad decmber. 1962. (iii) value of assets constructed at coma- rs. 11, 00, 613. 47 pane's expense. (iv) add solarium (addition in respect of rs. 1, 65,092.00 compulsory purchase) at 15% (v) total amount payable to company. rs. 12, 65, 705. 47 to which add interest at 12% per annum on balance outs-tending in accordance.....
Judgment:

R.N. Aggarwal, J.

(1) The Upper Jamuna Valley Electricity Supply Company Limited (hereinafter called the Company) was operating as licensee the Delhi Shahdara Electricity Undertaking. The said license was originally granted to M/s. Martin and Company the predecessors in business of M/s. Martin Burn Limited but was duly assigned by them to the Company with the permission of the authorities concerned. The said license was for an initial period of 30 years which expired on the night of 21st/22nd December, 1962. According to the provisions of the Indian Electricity Act. 1910 (hereinafter called the Act) and of the license, the local authority constituted for the licensed area had the right or option to purchase the Company's undertaking on giving at least one year's prior notice. The Municipal Corporation of Delhi (hereinafter called the Muicipality) was constituted pursuant to the provisions of the Delhi Municipal Corporation Act, 1957.' On 3rd/lllh October, 1960, the Municipality served notice upon the company under section 6(1) of the Act of its intention to purchase or take over the company's undertaking from midnight of 21st/22nd Decmber, 1962. la pursuance of the notice dated 3rd/llth October, 1960, the Municipality took over the Delhi Shahdara Electricity Undertaking from the dale 21st/22nd December, 1962. A detailed inventory of the physical quantities of materials comprising the fixed assets taken over by the Municipality from the company was prepared. This inventory was accepted as correct by both the parties and is no longer in dispute.

(2) On 21st December, 1962, the Municipality paid a sum of Rs.5 lakhs on account and in part payment of the market value of the assets of the undertaking. The company valued the assets of the undertaking in accordance with the provisions of section 7(A)(1) of the Indian Electricity Act as follows :-

(i) total market value as at midnight on Rs. 15, 03, 102. 02 21st/22nd Deember, 1962. (ii) Less value of assets constructed at co- Rs. 4, 02, 488. 55 nsumors' cost as at midnight on 21st/22ad Decmber. 1962. (iii) Value of assets constructed at coma- Rs. 11, 00, 613. 47 pane's expense. (iv) Add solarium (addition in respect of Rs. 1, 65,092.00 compulsory purchase) at 15% (v) Total amount payable to company. Rs. 12, 65, 705. 47 To which add interest at 12% per annum on balance outs-tending in accordance with our letter No. CE/SDR/44A/19309 dated 14th December 1965, until realisation thereof.

(3) The company after giving allowance of Rs. 5 lakhs claimed a sum Rs. 7, 65, 705.47 from the Municipality with interest at 12% per annum until realisation of the amount. Negotiations took place between the company and the purchaser with regard to the market value of the and ertaking but no settlement was reached. A dispute arose within the meaning of section 7A(1) of the Act concerning the purchase price of the undertaking and consequently on 6th November, 1969, the Lt. Governor appointed Shri Bhuvaneshwar P.Sinha, former Chief Justice of India as an arbitrator to determine the purchase price of the undertaking.

(4) The arbitrator entered the reference in November, 1969. The parties placed their respective statements of the case before the arbitrator. The company in support of its case examined William Knowles Malhews, B. C. Srivastava, Joginder Singh and Alfred Geoffery Matley Twining. The Delhi Electric Supply undertaking examined in support of its case G.S.Vohra The arbitrator awarded a sum of Rs. 7.07.500.00with interest at the rate of 6% per annum from the date the arbitration proceedings commenced uphill the date of payment of the amount with costs assessed at Rs. 25,000.00 in favor of the company. The arbitrator submitted the award to the court on 13th December, 1970. Notice of the filing of the award was given to the parties on 23rd December, 1970. The Municipality filed objections to the award under section 30 of the Arbitration Act. The main objections taken against the award by the Municipality are that the arbitrator was biased in favor of the company and the principle applied by the arbitrator in assessing the market value of the undertaking is not correct. The Municipality further objected to the award of interest and the costs. The Municipality pleaded that the arbitrator misconducted himself in fixing Rs. 4, 50.000.00 as costs of installation etc. erected at the cost of consumers while, according to Exhibit R-2, on 31st March, 1962, the amount received by the company from the consumers including local authorities for service lines and public lighting was Rs. 5, 47,796.75 p. The case of the Municipality is that the arbitrator should have allowed the full value of assets constructed at the consumer's cost as on 2st /22nd December, 1962. The Municipality further pleaded that there was an error apparent on the face of the award in as much as the arbitrator had not taken into consideration the statutory report. Exhibit R.2, in determining the market value of the undertaking.

(5) The company in reply to the objections maintained that the arbitrator was not guilty of any misconduct, and had not shown any bias in favor of the company. The company maintained that the arbitrator was competent to allow interest on the amount found due to the company. The company further maintained that the costs assessed by the arbitrator were proper an I the costs ware awarded without any extraneous considerations or bias in favor of the company.

(6) On the pleadings of the parties, the following issues were settled :-

1. Whether the award is liable to be set aside for the reasons stated in the objection petition 2 Relief.

Section 7-A, sub section (4) provides that where an undertaking of a licensee is purchased under section 6, the purchase pries shall be the value thereof as determined in accordance with the provisions of subsection (1) and (2). Sub-section (1) of section 7-A provides that the purchase price of the undertaking shall be the market value of the undertaking at the time of purchase of the undertaking and if there is any difference or dispute regarding such purchase pricethe same shall be determined by arbitration Sub-section (2) provides that the market value of an undertaking for the purposes of sub-section (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 the 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 are in such position as to be ready for immediate working and to the suitability of the same for the purpose of the under taking, 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.

(7) The arbitrator assessed the market value of the undertaking on the principle : reproduction cost minus depreciation. The arbitrator has in the award observed :-

'FORTUNATELY,the parties are agreed that I have to determine the amount necessary for replacing the Undertaking at the date of the taking over as a going concern minus the amount of depreciation which the Undertaking has undergone in process of time.'

(8) The counsel for the Municipality contended that the Municipality had at no lime agreed to the above-mentioned method of determining the market value Q. W 2. J. S. Ahluwalia deposed that he was looking after the arbitration proceedings in this case on behalf of the Delhi Electric Supply Undertaking and was being assisted by Shri Bishambar Dayal, Advocate, in the case before the arbitrator, that he did not enter into any agreement with the other party with respect to the assessment of valuation of the undertaking of the claimant-petitioner company nor did their advocate agree to any such mode of assessment of value. The witness further stated that the arbitrator maintained a true and correct record of the proceedings and he was supplying the parties with copies of the arbitration proceedings.the company in its reply to the objection petition has stated that the parties through their respective legal representatives did submit and agree before the Arbitrator on 5th May, 1970. that the arbitrator had to deter mice the amount necessary for replacing the undertaking at the date of its taking over as a going concern minus the amount of depreciation which the undertaking had undergone in process of time. On the material placed on the record, it is not possible to say that the statement of the arbitrator that the parties had agreed that he should determine the amount necessary for replacing the undertaking at the date of the taking over as a going concern minus the amount of depreciation which the undertaking had undergone in process of time is not correct. Be that as it may, it appears to be a settled principle that the method of assessing market value in statutory acquisition of an undertaking has to be on the principle : reconstruction cost, less depreciation. In Edinburgh Street Tramways Company v. Edinburgh Corporation, their Lordships of the House of Lords stated that the basis of valuation is the value of the tramway as successfully constructed and in complete working condition, after deducting a proper sum for depreciation, bat without taking into account the rights of user. In International Railway Co. v. Niagara Parka Commission, their Lordships of the Privy Council held that there was no justification for assessing the compensation at ' scrap value '. It was fundamental that it was a railway complete with equipment, machinery, and other works, which the company was bound to hand over to the commissioners on the expiry of the term and for which it was to be duly compensated. According to their Lordships, a proper basis of the compensation was the cost of reconstruction, less depreciation. Same view was expressed in toronto City Corporation v. toronto Railway Corporation. In Madhya Pradesh Electricity Board Jabalpur v. The Central India Electric Supply Co. Ltd. their Lordships held:

'When an undertaking is the subject of statutory acquisition by the State, the correct method of valuing a public utility concern is to grant the reconstruction cost less depreciation where the value of the franchise is excluded from the construction. After the license for supply of electrical energy for a particular region expired, the State Electricity Board purchased the undertaking under section 6 of the Electricity Act. In such case the basis of valuation would be the value of the undertaking as successfully constructed and in complete working order, after deducting a proper sum for depreciation, without taking into account rights of user. The cost of planning and designing can be justly treated as forming part of the purchase price.'

From the above mentioned authorities, it is clear that the principle applied by the arbitrator in assessing the market value of the undertaking in question is not wrong.

(9) Shri Bishamber Dayal next contended that in making the award the arbitrator had not taken into consideration the statutory report Exhibit R-2, submitted by the company. Shri Bishamber Dayal contended that in the statutory report the company had on 31st March, 1962, valued its entire assets at Rs. 11,13,994.58 p and after allowing depreciation fixed the depreciated value of the undertaking at Rs. 9,44,841.76 p. and the said assets included Rs 5,47.796.75 p. received from consumers including local authorities for service line and public lighting and the market value if calculated according to Exhibit R-2 would amount to less than Rs. 5 lakhs. In my view, this contention of Shri Bishamber Dayal is not sound. The figures mentioned in Exhibit R-2 do cot represent the market value of the entire assets of the undertaking. The said statutory report, R-2, contained only the figures of original costs, the amount of depreciation allowed thereon and the depreciated valve thereof, according to the provisions of the Act at the year ending 31st March, 1962. The company employed the services of William Mathews for assessing the market value of the undertaking. Mr. Mathews submitted the report Exhibit C/1 in 1963 with regard to the valuation of the undertaking. The market value of the undertaking assessed by Mathews was Ks. 14,85 508 73. Mr. Vohra inspected the undertaking on behalf of the Municipality and sub milled his report with regard to the market value of the undertaking. The arbitrator took into consideration both the reports and he accepted the report of Mathews in preference to the report of Vohra. It was completely within the jurisdiction of the arbitrator to appraise the evidence produced before him and come to a finding and it will not be open to this Court to re-appraise the evidence and sit in appeal on the arbitrators' award. There appears to be no misconduct on the pail of the arbitrator in determining the market value of the undertaking.

(10) Shri Bishamber Dayal next contended that the arbitrator should have allowed the total cost of installations erected at the cost of the consumers and no depreciation should have been allowed on that item. it was agreed before the arbitrator that the installations erected at the cost of the consumers are to be excluded from the computation of compensation. The parties only differed on the amount to be so deducted. The company had in its statement of purchase price deducted about Rs. 4 lakhs from the total price of the installations, but the Municipality claimed Rs. 5,47,796.00. The arbitrator allowed depreciation at the rate of Rs. 23.4% and fixed this amount at Rs. 4,50 000.00. There appears to be nothing basically wrong in the method applied by the arbitrator in determining the cost of installations erected at the expense of the consumers. The principle : cost minus depreciation appears lo be reasonable.

(11) I shall next deal with the point of interest. Shri Bishamber Dayal contended that the arbitrator was under section 7A of the Act only required to determine the market value of the undertaking and he had no jurisdiction to include interest in the award. There appears to be force in this contention of the learned counsel. Section 7-A by sub-section (4) lays down that where an undertaking of a licensee is purchased under section 6, the purchase price shall be the value thereof as determined in accordance with the provisions of sub-sections (1) and (2) of section 7-A. It is clear from the language of sub-section (1) of section 7-A. that the arbitrator is only required to determine the purchase price of the undertaking. The said provisions do not confer any power on the ablator to award interest In toronto City Carporation v. toronto Railway Corporation (supra) it was held that although the railway company as entitled to interest from the time when the City had obtained possession of the railway that interest could not be added to the award as it did not form part of the value of the assets. In International Railway Co. v. Niagara Parks Commission (supra) the rule laid down with regard to interest in the authority cited above was followed and it Was held that the arbitrators whose only duty was to ascertain the actual value of certain property at a certain time had no power to Include interest in heir assessment of value Same view was expressed in Monmouthshire County Council v Newport Burough Council This matter also came up for consideration in Madhaya Pradesh Electricity Board Jabalpur v. The Central India Electric Supply Co, (Supra) wherein their lordships held that on the purchase of an uadertaking on the expiry of the license, the right io operate the undertaking disappears and, therfore, the statute does nut provide for payment of interest. The Umpire has thereforee no right to allow interest on the amount of compensation awarded and to include it in his award under the Electricity Act or on equitable considerations.

(12) The view of the courts consistently has been that a statutory arbitrator can only award such interest if the statute concerned so provides. The arbitrator's powers have been clearly defined in section 7-A.. Under section 7-A. the arbitrator was required to ascertain the market value of the undertaking at a certain time. The arbitrator had no power to include interest in the assess that of the market value Shri sen. counsel for the respondent contended that the arbitrator was competent to award interest pendente lite and as well as on the principles of equity the award with regard to interest should not be disturbed. I regret my inability to agree with this contention of Shri Sen. The powers of the arbitrator are defined in section 7-A(1)NDIAN ELECTRICITY ACT, 1910^.. The arbitrator was only authorised to determine the purchase price of the undertaking. There was no power given to the arbitrator to award interest. On giving my careful consideration on this aspect of the case, I am of the view that the learned arbitrator was in eror awarding interest from the date of the commencement of the arbitration proceedings up to the date of the payment of the sum awarded.

(13) I shall next deal with the item of costs. Shri Bishamber Dayal contended hal the costs of Rs. 25,000/ awarded by the arbitrator is exhorbitant and he has given no basis for awarding Rs. 25,000.00 as costs. Under rule 8 of Schedule I of the Arbitration Act, the costs of the reference and award are in the discretion of the Umpire who may direct as to whom, by whom, and in what manner such costs or any part thereof shall be paid. The award of costs of the arbitration was a matter within the discretion of the arbitrator. The arbitrator while awarding costs observed:

THEcompany is also entitled to its costs which I assess at Rs. 25,000.00 taking into consideration the fact that it had to call Mr. Mathew from a different part of the world to get the valuation made by him proved before me.'

The company was substantially successful in the arbitration, and on the facts and circumstances of this case, it cannot be sail that the discretion exercised by the arbitrator in awarding Rs. 2S.000.00 as costs was not justified.

(14) Before I part with this case, one argument of Shri Bisbamber Dayal needs to be noticed. Shri Dayal basing himself on certain observations made by the arbitrator in the award, contended that the arbitrator was biased in favor of the company and this amounts to a judicial misconduct. The circumstances on which Sari Dayal relied are (1) the observation of the arbitrator in the award that the main witness on behalf of Delhi Electric Supply Undertaking, G S. Vohra has made himself scarce and could not be produced before him until after several adjournments (b) the observation by the arbitrator that the parties are agreed that he has to determine the amount necessaiy for replacing the undertaking at the date of the taking over as a going concern minus the amount of depreciation which the undertaking has undergone in process of time, (c) the failure of the arbitrator to take into consideration the statutory report. Exhibit R-2, and (d) the award of costs of Rs. 25,000.00 I have carefully gone through the record and I am of the view that the circumstances mentioned above do not, in anyway, indicate that the arbitrator was biased in favor of the company.

(15) Thus, my view is that the award with regard to interest is not valid and has to be set aside, This part of the award can be separated from the other parts of the award. The objections raised by the Municipality with regard to the other parts of the award are rejected. With the modification mentioned above, I make the award, dated 13th December 1970, a rule of the Court. The company will be entitled to interest at the rate of 6 per cent per annam on the sam of R.S. 7,07,500.00 uptil the sum awarded is paid. in the circumstances of this case I leave the parties to bear their own costs. A decree may be drawn up accordingly.


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