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Kerala State Electricity Board Vs. Marthoma Rubber Company Ltd. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtKerala High Court
Decided On
Case NumberC.R.P. Nos. 2803 of 1978, 67 to 72, 188, 201 and 226 of 1981
Judge
Reported inAIR1981Ker223
ActsTelegraph Act, 1885 - Sections 10 and 16
AppellantKerala State Electricity Board
RespondentMarthoma Rubber Company Ltd.
Appellant Advocate C.K.S. Panicker and; G. Janardhana Kurup, Advs.
Respondent Advocate P.J. Varghese,; K.J. Leuis,; K.P. Dandapani,;
Cases ReferredK.S.E. Board v. William
Excerpt:
.....10 and 16 of telegraph act, 1885 - dispute pertaining to determination of rate of interest on compensation - rate of interest should be fair and reasonable as according to change of time - reasonableness should be judged in comparision to developments and rate of interest offered by other organisations - matter remitted back with direction to decide as according to observation made by high court. - - at the same time, we are free to formulate principles, which we consider just and proper in cases like the present, under the concerned enactments, where most often, fruit bearing trees have to be compensated for, apart from the land on which they stand as on land acquisition. ' 14. we think that it will be safe toadopt the return on a fixed deposit forthe usual period of 63 months..........k.s.e. board v. william (1981 ker lt 95) which inspired the board to raise the contention that the rate of return at 5% need not be true for all times.4. section 51 of the indian electricity act 1910 confers on the state government power to authorise any public officer, licensee or any other person engaged in the business of supplying energy to the public under the indian electricity act to exercise any of the powers which the telegraph authority possesses under the act with respect to the placing of telegraph lines and posts for the purposes of a telegraph established or maintained by the government or to be so established or maintained. section 42 of the electricity (supply) act, 1948 enables the electricity board to exercise all powers which the telegraph authority possesses under.....
Judgment:

P. Subramonian Poti, Ag. C.J.

1. A question of some general importance arises for decision in these petitions, These are revisions by the Kerala State Electricity Board against orders passed in various petitions filed under Section 10 and Section 16 of the Indian Telegraph Act, 1885 before the District Courts. The courts below have evidently followed the decision of this Court in Electricity Board V. Thomas, 1961 Ker LT 238 : (AIR 1961 Ker 237), and have determined compensation in the manner it was determined in that decision. The Division Bench in that case considered the question of the proper rule for determining compensation and laid down the principle that compensation payable is to be the present value of an annuity which yields afair return at the rate of 5 per cent per annum. That the appropriate rule to be applied for determining compensation is that of determining the present value of an annuity yielding fair return is not a matter in controversy. But such fair return was taken as 5% when the Division Bench rendered the decision in 1961. One of us, Justice Poti, had occasion to consider this question recently in K. S. E. Board v. Williams, 1981 Ker LT 95. It was noticed in that case that today fair return, noticing the relevant economic situation in the country, would not be 5% but more. There was no occasion to decide in that case what exactly would be such fair return. The correctness of the decision in 1961 Ker LT 238 : (AIR 1961 Ker 237) was not doubted in that case. The principle to be adopted in determining compensation was rightly pointed out by the Division Bench in Electricity Board v. Thomas (AIR 1961 Ker 237), But the rate of reasonable return on an investment which was determined at 5% in that case need not be true for all times. That would call for determination in each case independently considering various factors bearing on the question of reasonable return on a proper investment. That is what was said in the decision in K.S.E. Board v. Williams, 1981 Ker LT 95.

2. When one of these revisions, C.R.P. 2803 of 1978, came up before our learned brother Viswanath Iyer J., the learned Judge noticed that the decision in Electricity Board's case 1961 Ker LT 238: (AIR 1961 Ker 237), was being questioned and therefore he referred the case to a Division Bench. Since the decision in Electricity Board's case was by a Division Bench the matter came up before a Full Bench on reference by the Division Bench.

3. Having heard counsel appearing in all these cases let us state at the very outset that the principle adopted by the learned Judges in Electricity Board's case (1961 Ker LT 238) : (AIR 1961 Ker 237) concerning the mode of determining compensation is not under challenge here and it is agreed on all sides that the said principle is unexceptionable. We are concerned in these cases only with a limited enquiry, our decision may be of considerable consequence as it would have impact upon similar cases relating to compensation. For a long time past compensation was being determined as if at all times the reasonable return on investment should be taken as 5% which was therate adopted in 1961 Ker LT 238 : (AIR 1961 Ker 237). Perhaps it was the decision in K.S.E. Board v. William (1981 Ker LT 95) which inspired the Board to raise the contention that the rate of return at 5% need not be true for all times.

4. Section 51 of the Indian Electricity Act 1910 confers on the State Government power to authorise any Public Officer, licensee or any other person engaged in the business of supplying energy to the public under the Indian Electricity Act to exercise any of the powers which the Telegraph authority possesses under the Act with respect to the placing of telegraph lines and posts for the purposes of a telegraph established or maintained by the Government or to be so established or maintained. Section 42 of the Electricity (Supply) Act, 1948 enables the Electricity Board to exercise all powers which the telegraph authority possesses under Part III of the Indian Telegraph Act, 1885. Thus the power to be exercised in this behalf is defined in terms of the relevant provisions of the Telegraph Act. Section 10(d) of the Act causes an obligation on the telegraph authority while placing or maintaining a telegraph line under, over, along or across, and posts in or upon any immovable property to pay full compensation to all persons interested for any damage sustained by them by reason of the exercise of those powers. The District Judge is to be moved for adjudication under Section 16 of the Act in case there is dispute as to the sufficiency of the compensation payable under Section 10(d) of the Act.

5. It is agreed that in all these cases claim for compensation relates to such compensation on account of trees being felled from the land for the purpose of drawing electricity lines. How is the compensation thereof to be determined? The Division Bench in Electricity Board's case (AIR 1961 Ker 237) said thus (at p. 239) :--

'It can hardly admit of any doubt, particularly in the case of an agricultural land, that the destruction of a fruit bearing or yielding or income producing tree standing on it, deprives the owner of its usufruct for the period during which it would bo productive, and causes damage ta that extent, nor is it possible to deny, that it is a specific item of damage which can be valued and assessed, though in a given case, it may be combined with other damage.'

The Court went on to say thus:

'For this, 10 the generality of cases, the simplest and the straightforwardcourse is to ascertain the yield of the tree during the period of its productivityin future. In such cases, the market value is not a sensitive guage which canbe relied upon to register every small diminution in it. For example, the lostor destruction of a tree in urban land, in which the emphasis is more OP its utilityOr its potential value as a house or building site, may not affect its market value;so too perhaps in the case of, say an extensive agricultural land, the loss of oneor two trees may not affect its market value, in the sense, of what a willingpurchaser would be prepared to offer to a willing vendor. Yet, under Section 10 proviso(d), there is no reason why the Board may cause such damage, and yet the ownershall go without any remedy. Such a method of ascertaining the yield is obviously inapplicable, where other kinds of damages consequent on the taking of the electric supply line, are in issue. We do not propose to decide what these are, but we may observe that in certain cases, the market value test may yield satisfactory results and can and ought to be adopted, The matter may be examined also from another point of view. For ascertaining the market value, especially of agricultural lands with fruit bearing trees, it is a recognised method to capitalise the net annual yield. Applying this method, the market value after the destruction of a fruit bearing tree, must necessarily be less than what it was before, and the difference can easily be ascertained. In such cases, whichever test is adopted, thesame result can be reached. It follows therefore, that the contention of thelearned counsel for the Board, that the difference in the market value, can alonefurnish a test in all cases, irrespective of the nature of the damage caused or ofother considerations, cannot be accepted. In assessing damage on account of thedestruction of fruit bearing or yielding trees, it is a permissible and often a simple method, to base it on the usufruct of which the owner has been deprived,without embarking upon an enquiry as to the market value of the land before andafter the damage was caused. But. This does not preclude the Court, from applying the market value test, in appropriate cases.'

The Court then found that on the pleadings and on the materials on record thecases before the Bench were not all fit subjects for the application of the market value test. Therefore the mode of compulation on yield basis was adopted. Dealing with this the Bench said thus:

'The first step is to ascertain, what rate of interest on capital investment, the annual net yield may be taken to represent..... We may at once point out,that we are not here concerned with an acquisition under the Land Acquisition Act, and do not, by this judgment, intend to lay down or unsettle any principle which has established itself in such cases. At the same time, we are free to formulate principles, which we consider just and proper in cases like the present, under the concerned enactments, where most often, fruit bearing trees have to be compensated for, apart from the land on which they stand as on land acquisition. We think, that the rule of capitalisation at 8 1/3 years' purchase, based as it is, on 12 per cent interest, and formulated decades ago, ought not to be followed in these cases and at the present time. Having regard to the condition of the money market and the value of the security afforded by investment on land, which, as is generally held, is inferior to what are called gilt-edged securities, we venture to think, that a rate of interest at 5% per annum may be considered to be reasonable and fair, from all points of view.'

Inferring to the case of the Board for adopting a principle pressed for acceptance of the Court, a principle which according to the Court, did not appear to have so far received judicial recognition, the court remarked that the principle pointed out appeared to be sound and reasonable and added-

'It has to he observed, that the rule of capitalisation us followed and applied, fails to take note of what is so obvious, that the tree would cease to be productive after a certain number of years and yet, what is paid, amounts to investment of capital, yielding what is the equivalent of the net annual rental, in perpetuity.' In this background the court noticed that the only other principle which can be accepted was that urged by the Board, That was 'to ascertain the present value of annuity, which represents a fair return on the amount at 5 per cent interest per annum.'

6. We are in respectful agreement with the principle enunciated by the Division Bench in the Electricity Board's case (AIR 1961 Ker 237), If we capitalisethe income for the number of years during which the tree is expected to yield in future at the prevalent rate of interest the capitalised value will represent not only the return for those years, but in addition the capital that would remain intact at the end of the period. To put the same idea in a different way, it would represent such recurring return for all time and not for the limited period during which alone the tree would have continued to yield income. Therefore that would not be just equivalent of the compensation. If 5% return would be a reasonable return and the tree-s would normally be expected to yield, say for 25 years more what is paid as compensation must yield the annual return at 5% which would be equivalent of what the owner of the trees would have obtained had those trees continued to stand in the property for 25 years but since the trees would cease to yield income at the end of 25 years the amount paid a1-compensation must exhaust itself by the end of that period. In other words it will be as if the amount of income is received only for a period of 25 years. In that event the determination should be as if an annuity for 25 years is provided for. What amount invested today will yield annuity for a specified period will have to be computed. The present value of recurring payments for a specified number of years will have to be worked out. It will be easy to work it out on the basis of the valuation tables provided in the Appendix in 'Parks on Valuations Land and Houses.' The present value of Re. 1 per annum at specified rate of interest return for a specified number of years could be easily found from the table. That would serve as the basis for determining what such value will be applying the multiplier representing the specified number of years.

7. The controversy here concerns the rate of interest return to be adopted for the different years with which the different cases are concerned. Whether it should be more than 5% and if so what should be the rate of interest return for the different years relevant for these cases calls for decision not because the decision in 1961 Ker LT 238 : (AIR 1961 Ker 237) is in any way under challenge, but because the adoption of the very principle in that decision necessitates fresh examination in each case.

8. We may once again even at therisk of repetition notice what has beensaid by the Division Bench in support ofadopting 5% as reasonable rate of return. The Court said thus (at p. 241) :--

'Having regard to the condition of the money market and the value of the security afforded by investment on land, which, as is generally held, is inferior to what are called gilt-edged securities, we venture to think, that a rate of interest at 5% per annum may be considered to be reasonable and fair, from all points of view.'

9. The prevalent rate of interest depends mainly on the condition of the money market at the time. Most of the commercial lending today is by Banks and the rates of interest adopted by Banks are regulated by directions from the Reserve Bank of India. This in turn reflects the National Policy as to interest. Thus, as matters stand today, rate of interest is very much in the realms of regulation by the State.

10. Our learned brother Isaac J. in the decision of the Full Bench in Raru-kulty v. Spl. Tyhsildar (1973 Ker LT 573) : (AIR 1973 Ker 254) had occasion to observe thus (at p. 258):--

'The rates of interest for gilt-edged securities have also gone up much higher than what they were a few decades ago, We have nationalised banks which give more than 6% interest on fixed deposits, With growth of industry, channels for investment and rates of return have also increased. These are all relevant considerations in fixing the market value of land.'

In the same case, one of us, Poti J., had observed thus;

'All told it will be unreasonable to expect a prudent investor to sink his money in purchase of properties with buildings unless he is assured of an appreciable increase in the income return, from what he could safely obtain by depositing his money with a Nationalised Bank and earn, say 7% as yearly interest. I am only indicating that the ancient concept of return on gilt-edged securities as the basis for capitalisation may no longer be appropriate.'

The Full Bench was speaking with reference to a period earlier than that with which we are concerned in these cases.

11. That the reasonable interest rate does not continue to be 5% cannot be a matter on which there is scope for controversy. Though the case had been referred to the Full Bench and counsel for the respondents argued mostly objecting to adopting a rate higher than 5% wehave very little material to determine what should be the reasonable rate of return.

12. The last decade saw unprecedented inflation in this country. The interest rates on loans advanced by Banks have been steadily on the increase. The interest rate on fixed deposits have also been steadily increasing over the last 10 years. While the Full Bench of this Court noticed 7% as the ruling rate on fixed deposits in 1973 it has risen up to 10% today and it is apparently receiving further attention. Any prudent man expects to receive a return not less than what he would receive on a deposit for a term of 5 years or so in a Nationalised Bank. Of course, he may invest in land without anticipating such return. That is because the steady inflation in the value of land over the last few years particuarly the latter half of the seventies was sufficient to act as incentive to invest in urban real estate in places where urban ceiling was yet to be enforced. The meteoric rise in prices of urban land gives an incentive for investment therein unrelated to the concept of interest. It will be safer therefore to consider reasonable return on forms of investment such as deposits in Nationalised Banks as that which a prudent man may anticipate. The material that we have with us furnished by Sri T. L, Viswanatha Iyer, one of the counsel for the respondents, material on which there is no dispute, shows rates of Bank interest for fixed deposits for a period of 63 months and more during the period from 1974 to date. We give the table below:

Rate of interest on Term Deposits for term above 5 years.

From

22-7-1974

From

1-8-1978

From

13-9-1979

10%

9%

10%

No doubt there may be some forms of investment such as in National Savings which may yield a slightly lower rate of interest. But that would be coupled with other advantages which may induce persons to make them. We are speaking of an ordinary man who would generally think of making a prudent investment.

13. We notice that A. K. Mitra in his book 'Theory and Practice of Valuation' has at page 255 shown, details of interest on gilt-edged securities over the period from 1959-60 to 1964-65. That varied from 5.05% to 4.80%. Speaking of recent trends the author observes:

'In present market conditions Government loans bearing low rates of interestare purchased only by scheduled banks, financial institutions, and people in high brackets of wealth who have to pay abnormally high rates of wealth tax. Current issues of N.P.S.C. bear 10.25% interest per annum equivalent to 9% per month. Older concept of using the securities on Government loans as yardsticks should be replaced by using the rates of interests on fixed deposits of nationalised banks or N.P.S.C.'

14. We think that it will be safe toadopt the return on a fixed deposit forthe usual period of 63 months as reasonable anticipated return on a long termbasis on a safe and prudent investment,We adopt the rates shown in the tableas interest rates for the respective years,as reasonable rates. It is neither to be5% as contended by respondents in thosecases nor 10% in all cases as contendedby the Board. The date when compensation becomes due will be the relevantdate.

15. It is contended by one of the petitioners, namely, the petitioner in C.R.P. 2803 of 1978, that where the Electricity Board itself had earlier adopted 5% return as the basis for determination of compensation, no interference is called for. That is a question with which we are not concerned here. When the matter goes back it is open to the parties to raise the contention in the court below,

16. We set aside the orders in these cases, direct the court below to apply the rule as to percentage of return based on the above approach in all those cases. The matter is remitted back for early disposal in the light of what we have said in this order, Disposed of as above. No costs,

17. The counsel for the respondent in C.R.P. No. 201/81 made an oral application under Article 134A of the Constitution of India for certificate for leave to appeal to the Supreme Court. We see no reason to grant leave since no substantial question of law of general importance which needs to be decided by the Supreme Court arises. Leave declined.


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