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The Management of Nagapattinam Electric Supply Co. Ltd., Madras and anr. Vs. the State of Madras - Court Judgment

LegalCrystal Citation
SubjectConstitution
CourtChennai High Court
Decided On
Case NumberWrit Appeal Nos. 337, 338, 380 and 381 of 1968 and W.P. Nos. 4235 and 4236 of 1968
Judge
Reported inAIR1971Mad358; (1971)IIMLJ347
ActsIndian Electricity Act, 1910 - ; Constitution of India - Articles 14, 19(1) and 31(2); Madras Act, 1954 - Sections 4(1); Government of India Act, 1935 - Sections 299(2); ;Indian Income-tax Act 1922 - Sections 10(2)
AppellantThe Management of Nagapattinam Electric Supply Co. Ltd., Madras and anr.
RespondentThe State of Madras
Cases ReferredGujarat Electricity Board v. Shantilal R. Desai
Excerpt:
.....1959) and as violative of articles 14, 19(1)(f) and 31(2) of constitution of india, 1950--whether electricity undertaking was intangible asset and hence not property within meaning of entry 42 of concurrent list--held that act was valid and points raised against its validity untenable --meaning of word property in entry 42 of list iii--pith and substance of said central act.; in writ appeals the validity of the madras electricity supply undertakings (acquisition) act, 1954 (madras act xxix of 1954) was assailed on grounds of legislative competency, repugnancy of its provisions to those of the indian electricity act, 1910 (central act ix of 1910) as amended by the indian electricity (amendment) act, 1959 (central act xxxii of 1959) and also as violative of articles 14, 19(1)(f) and 31(2)..........by g.o.ms. no. 39 public works and by g.o.ms. 38 public works, both dated 12-1-1968, the state government in exercise of its powers under section 4(1) of madras act xxix of 1954 declared that the two undertakings shall vest in the government with effect from 15-7-1968 and 16-6-1968 respectively. the appellants then moved, but unsuccessfully, by separate petitions on 21-2-1968 for writs directing the government to forbear from enforcing its vesting orders, on the ground that they were void and ultra vires of the central acts 9 of 1910 and 32 of 1959.2. the attack on madras act xxix of 1954 as being incompetent is on the two-fold premises that (1) electricity undertaking as a going concern is an intangible asset which is not property within the meaning of entry 42 of the.....
Judgment:
1. The validity of the Madras Electricity Supply undertakings (Acquisition) Act, 1954 (Madras Act XXIX of 1954) is assailed on grounds of legislative competency, repugnancy of its provisions to those of the Indian Electricity Act, 1910 (Central Act 32 of 1959), and also as violative of Arts. 14, 19(1)(f) and 31(2) of the Constitution. Kailasam J. held against the appellants, the Nagapattinam Electric Supply Co. Ltd. and the Kumbakonam Electric Supply Corporation Ltd. Both are public limited companies incorporated under the Companies Act 1913 and carried on the business of distributing and supply electrical energy within the limits respectively of Nagapattinam and of the revenue taluks of Kumbakonam. Papanasam and part of Thanjavur taluk. They did so under licences granted by the then Province of Madras under the Indian Electricity Act, 1910. The licence in favour of the first of them was under G. O. Ms. 1822 Works dated 22-8-1933 for a period of 20 years in the first instance. It was renewed for further periods of seven years each as provided in the licence. The current licence is due to expire on 22-8-1974. The other appellant's licence was under G.O.Ms. 1230 Works dated 15-4-1971. By G.O.Ms. No. 39 Public Works and by G.O.Ms. 38 Public Works, both dated 12-1-1968, the State Government in exercise of its powers under Section 4(1) of Madras Act XXIX of 1954 declared that the two Undertakings shall vest in the Government with effect from 15-7-1968 and 16-6-1968 respectively. The appellants then moved, but unsuccessfully, by separate petitions on 21-2-1968 for writs directing the Government to forbear from enforcing its vesting orders, on the ground that they were void and ultra vires of the Central Acts 9 of 1910 and 32 of 1959.

2. The attack on Madras Act XXIX of 1954 as being incompetent is on the two-fold premises that (1) Electricity Undertaking as a going concern is an intangible asset which is not property within the meaning of Entry 42 of the Concurrent List 'acquisition or requisition of the Undertaking could, in any case, be only in terms of the licence, and not merely by statutory compulsion independent of such terms. Entry 9 in List II in the Seventh Schedule to the Government of India Act, 1935 authorised the Provincial Legislature to make a law with respect to compulsory acquisition of land. S. 299(2) of that Act stated that neither the Provincial nor the Federal Legislature had power to make a law authorising compulsory acquisition for public purposes of any land, or commercial or industrial undertaking, or any interest in or in any company owning any commercial or industrial undertaking, unless the law provided for the payment of compensation for the property acquired. Under the scheme of distribution of power within the Federal and Provincial Legislature, the British Parliament did not grant to either of them any power to make a law for compulsory acquisition of a commercial or industrial undertaking, but left it to the Governor-General in his discretion to empower either of them to enact such a law. In the absence of such authorisation, Rajahmundry Electric Supply Corporation Ltd. v. State of Andhra, , Struck down the Madras Electricity Supply Undertakings (Acquisition) Act (43 of 1949) as incompetent for the provincial Legislature to make it. It was held that the acquisition of commercial or industrial undertaking not being the subject-matter of any Entry in any of the three legislative Lists, neither the Federal Legislature not the Provincial Legislature could enact a law with respect to compulsory acquisition of a commercial or industrial undertaking. The Constitution of India provided Entry 33 in List I 'Acquisition or requisitioning of property for the purposes of the Union'; Entry 36 in List II 'Acquisition or requisitioning of property except for the purposes of the Union, subject to the provisions of Entry 42 in List III which was as to Principles on which compensation for property acquired requisitioned for the purposes of the Union or of a State or for any other public purpose is to be determined, and the form and the manner in which compensation is to be given. The Constitution (Seventh Amendment) Act 1956 deleted the three Entries and substituted Entry 42 in List III by the existing Entry 'Acquisition and requisitioning of property'. In the circumstances, therefore, West Ramnad Electric Distribution Co. Ltd. v. State of Madras, upheld the validity of Madras Act

XXIX of 1954. It went upon the assumption that it was competent for the State Legislature to enact it. Unlike Entry 9 in List II of the Government of India Act 1935 which used the language "Acquisition or requisitioning of land". Entry 42 in List III after the Seventh Amendment, does not use the word 'land' but 'property'. 'Property' was also the word that had been used in Entry 33 in List I, and Entry 36 in List II before the Seventh Amendment and there was no provision in the Constitution corresponding to Section 299(2) of the Government of India Act, 1935. In view of this history, and the deliberate change in language. The word 'property' in Entry 42 of List II as it occurs now, should be given the widest scope. There is no reason why 'property' in Entry 42 is to comprise of only tangibles, and not intangibles. In our view neither Art. 19(1)(f) nor Art. 31(2) in which the word 'property' occurs compels us to give Entry 42 in List III a narrower scope excluding intangibles. In fact, in the context of the guarantee by Art. 19(1), the word 'property' in clause (f) should include all forms of assets, tangible or intangible. So too we think the expression 'property' in Art. 31(2) as substituted by the Constitution (Fourth Amendment) Act, 1955 and even before it, comprehends an undertaking like the Electricity Undertakings in question. Property means a bundle of rights, which need not necessarily be physical assets, but may include also a going concern, or undertaking. Construing this very Entry 42, the majority judgment in R. C. Cooper v. Union of India, held that power to legislate for acquisition of

property in that Entry included the power to legislate for acquisition of an undertaking. After pointing out that property meant the highest right a man could have to anything and included not only assets, but the organisation, liabilities and obligations of a going concern as a unit, it was held that an undertaking in Section 4 of Central Act 22 of 1959 meant a going concern with all its rights, liabilities and assets as distinct from various rights and assets which composed it.

3. We are also not impressed by the contention that omission of the word 'compulsory' in Entry 42 in List III of the Constitution made any difference to the power of eminent domain enshrined in that Entry. Acquisition or requisitioning in the nature of things implies and pre-supposes statutory compulsion. While defining the meaning of 'compulsory acquisition' 10 Halsbury's Laws of England, at page 4, points out that "where the acquiring authority has power to acquire only by agreement, this instance is no different from an ordinary purchase and sale." But where there has been an exercise of compulsory powers in pursuance of a notice to treat, in this case it can be said strictly to have been an exercise of compulsory powers, the service to treat being not in itself an exercise of compulsory powers. In Fazilka Electric Supply Co. Ltd. v. Commr. of Income-tax, Delhi, , the view was expressed by the Supreme Court that for purposes of Sec. 10(2)(vii) of the Indian Income-tax Act 1922, a compulsory purchase mentioned in the second proviso to sub-section (1) of Section 7 of the Indian Electricity Act, 1910 was not a compulsory acquisition in the sense that it is without reference to, and independent of any agreement by the licensee. The Supreme Court held that Section 7 merely provided for an option of purchase to be exercised on the expiration of certain periods agreed to between the parties, and not for compulsory acquisition. Entry 42 in List III authorises the State Legislature to make a law to acquire or requisition an undertaking compulsorily and independent of any agreement between the parties providing for option of compulsory purchase. We do not think that Gujarat Electricity Board v. Shantilal R. Desai, departed from the view in

but only held that a sale compelled by law might also be a sale under the Sale of Goods Act, but that did not mean that the right to purchase the undertaking did not vest in the concerned authority by virtue of Section 7. The court further pointed out that the right might accrue either because it was directly conferred by Section 7, or because it was obtained as a result of a contract compelled by that section, and that in either case it was a right obtained by the authority of Section

7. The right to purchase by exercising the option under the provisions of the Indian Electricity Act, 1910 is not referable to the power under Entry 42 of List III which is independent of an agreement providing under compulsion of law for an option to purchase. Madras Act XXIX of 1954 which empowered Government to compulsory acquire an electrical undertaking squares with Entry 42 of List III in the Seventh Schedule of the Constitution and is within the competence of the State Legislature.

4. The more important ground of the appellants is one based on repugnancy. But ever here we are not satisfied that it is of much substance. There is certainly repugnancy in the sense that the provisions of Central Act 9 of 1910 and the Amending Act 32 of 1959 on the one hand, and those of Madras Act XXIX of 1954 as to the manner of purchase or acquisition, as the case may be, and the basis for and the mode of determining the value or compensation, as well as the occasion for such purchase or acquisition, or who is entitled to purchase or acquire the undertaking. Central Act 9 of 1910 is a law relating to the supply and use of electrical energy. It provides for grant of licence by the State Government on certain terms which include their initial duration, and of renewals. The State Government is empowered to revoke a licence if public interest required it in the specified cases at the expiration of such periods not exceeding a terms of years and of such periods not exceeding a terms of years and of such subsequent period not exceeding a lesser stated time limit as provided for in the licence. A local authority had the opposition of purchasing the undertaking, and on its election to purchase, the licensee should sell the undertaking to it on payment of fair market value at the time of the purchase of the lands, buildings, works, materials and plants of the licensee with the solatium of not exceeding 20 per cent of such value as is stipulated in the licence on account of the compulsory purchase. But if the local authority does not elect to purchase, the State Government had a like option upon the like terms and conditions. But in the case of revocation, however, the duration of the licence or renewal has no relevance. But on revocation, the State government may require a local authority to exercise the option to purchase or, if it does not desire to do so, the State Government was invested with the power to vary the terms and conditions of the permit upon which, and the periods on the expiration of which the licensee should be bound to sell his undertaking. Having regard to the nature of the business of the undertaking, sufficient notice of the election to exercise the option has been provided for the licensee. Subsequently b in 1948, the Elelctricity (Supply) Act provided for, inter alia, constitution of State Electricity Boards a part of the countrywide scheme for rationalisation of the production and supply of electricity and generally for taking measures conducive to electrical development. Having regard to the provisions of the Act, and the experiences so far gained, the Central Act 9 of 1910 underwent drastic amendments introduced by Act 32 of 1959. The provisions relating to the grant of licences remained the same, but it was provided that before granting licence, it was necessary to consult the State Electricity Board. Power to revoke licences in the specified cases was retained, but there was slight change as to how it should be exercised, and also in regard to the notice before revocation. The option to purchase where licence has been revoked, was shifted to the State Electricity Board, and if it was not willing to purchase, it was given to the State Government also did not desire to purchase, the option vested with the local authority concerned. In respect of purchase otherwise than following revocation, the Amending Act provides that the State Electricity Board shall have the option to purchase the undertaking in the case of a licence granted before the amendment, on the expiration of each such period as is specified in the licence, and in the case of a licence granted after it, on the expiration of such period not exceeding 20 years and of every such subsequent period, not exceeding ten years, as shall be specified in that behalf in the licence. The Board shall exercise the option by serving upon the licensee written notice of not less than one year requiring the licensee to sell the undertaking to it at the expiry of the relevant period. But if the State Electricity Board had not been constituted, or if it exists and it was not willing to purchase the undertaking the State Government has a like option. In case the State Government is unwilling, the option goes to the local authority. By the amendment a new power is vested in the State Government to amend a licence if, in it opinion, public interest permits it, and in exercise of this power, the State Government may alter or amend any of the terms and condition of the licence, including the provisions specified in Section 3, sub-section (2), clause (f). This is a large and extensive power which the State Government can exercise as if thinks fit, but only subject to its opinion that public interest permits it. Then there are in the Amending Act provisions as to vesting of the undertaking in the purchaser, and for determination of purchase price which shall be the market value of the undertaking at the time of the purchase, or where the undertaking has been delivered before the purchase, at the time of the delivery of the undertaking and if there is any difference or dispute regarding such purchase price, the same should be determined by arbitration. The market value of an undertaking shall be deemed to be the value of all lands, buildings, works,. materials, and plant of the licensee, but excluding certain items mentioned in Section 7-A(2). If the undertaking is sold to a local authority, the purchase price shall be such as the State Government, having regard to the market value of the undertaking at the time of the delivery of the undertaking, may determine. This scheme for payment of market value and the determination of the market value, would apply also to a purchase consequent on revocation of a licence. A general power for government to vary the terms of purchase has also been embodied in the original Act by the amendment. Notwithstanding anything in Sections 5, 6 and 8, the State Government may, in any licence to be granted under the Act, vary the terms and conditions upon which, and the periods on the expiration of which the licensee shall be bound to sell his undertaking, or direct that, subject to such conditions and restrictions, if any, as it may think fit to impose, the provisions of the said sections or any of them shall not apply.

5. On the contrary, Madras Act XXIX of 1954 by Section 4 empowers the Government to declare, by an order in writing, that any undertaking shall vest in it on the date specified, such date not being earlier than four months from the date of the declaration, the Government is further empower to postpone the date from time to time, subject to a maximum period of one year from the date originally fixed, and by Section 5, it lays down the principles for determining compensation payable to a licensee. It says that compensation shall be determined under any one of the Bases A, B and C specified in the section. The choice of the Bases of compensaation A, B and C is, by Section 8, left to the accredited representative of the licensee who should appoint him within three months of the receipt of an order under Section 4(1), intimating the vesting date. It may be seen, therefore, that Madras Act XXIX of 1954 which intervened between the Central acts 9 of 1910 and 32 of 1959 is at variance with the essential provisions in either of the Central Acts, in regard to the occasion, and mode, purchase, basis and mode of determination of compensation.

6. But we are clearly of opinion that such variance is not within the purview of Art. 254(1) and (2), and does not affect the validity of Madras Act XXIX of 1954. The pith and substance of the Central Acts is that they are laws providing for the generation, supply, distribution and use of electricity, and as such, are laws on electricity, within the purview of Entry 38 of the Concurrent List. It is true that they provide also for option to purchase the undertaking in the manner provided therein. But that does not make them laws any more than on electricity under the said Entry. held that the true scope and effect of Section 7 of Central Act 9 of 1910 was merely to provide for an option of purchase to be exercised on the expiration the parties, and that did not provide for a compulsory purchase or compulsory acquisition without reference to and independent of any agreement by the licensee. Again the Supreme Court emphasised this aspect in . The court observed that while, as in

the condition as to the option of purchase either by the local authority or by the Government was the result of an agreement between the applicant which had applied for licence, and the Government which granted the licence, it was nonetheless a sale compelled by law and one under the Sale of Goods Act. We have already noticed , which held that the Madras Electricity Undertakings (Acquisition) Act (43 of 1949) was not a law on electricity, but a law on acquisition of electricity undertaking, and as such it was invalid for want of State Legislative power to enact it. Once it is held that the condition as to the option of purchase provided in the Central Acts is the result of an agreement, though compelled by law, it is at once it is held that the condition as to the option of purchase provided in the Central Acts is the result of an agreement, though compelled by law, it is at once clear that it is not a provision providing for acquisition in the ordinary legal sense of the terms related to power of eminent domain which is exercised without reference to and independent of any agreement. Further, as held in ,

power to legislate for acquisition of property, is exercisable only under Entry 42 of List III, and not as an incident of the power to legislate in respect of a specific head of legislation in any of the three Lists. The Central Acts and the impugned State Act being laws with respect to different matters enumerated in the Concurrent List, no question of inconsistency between the two sets of laws made by Parliament, and by the State Legislature can arise to attract Art. 254(1) or (2). The appellants' ground based on repugnancy therefore, fails.

7. On the ground that the impugned Act in effect provides for cancellation of a licence at any time, it is said that the Act is unreasonable and void as violating Art. 19(1)(f) of the Constitution. We fail to see any merit in this contention. Madras Act XXIX of 1954 has nowhere provided for cancellation of licence. It is entirely a measure providing for acquisition of undertakings other than those belonging to and under the control of the State Electricity Board. The cancellation, if any, of the licence is not by reason of any express provision of the Act, but because of the acquisition of the Undertaking in exercise of the powers under Section 4(1). It is next contended that the electricity licensees all over India, including Tamil Nadu, have fixed successive periods, revocable with acquisition under specified conditions as to notice, and that if Madras can under the impugned Act terminate a licence, the Act violates Art. 14. But in our view, the underlying essential that a special provisions of law in Madras by reason of the Presidential consent is to be regarded as part of a Parliamentary law on the same matte, is erroneous, and, therefore, the contention that such State law must be tested by Art. 14 to see why Madras should differently treat it, cannot be sustain. As we said the Central enactments, and the impugned State Act are on two different subject-matters of the Concurrent List I the concurrent filed of power. Even if the State law is on the same subject, which has provisions different from those in the Central enactments on the same subject-matter, or topic or power, we do not think that there is any room for applying Art. 14 on the basis that the same Parliamentary law arbitrarily treated Madras differently from other States. The three alternative Bases A, B, and C of determining compensation as provided in Section 5 of Madras Act XXIX of 1954 were held by the Supreme Court as not violative of Art. 31(2). It was pointed out that Art. 31(2) required, in the context of a law with reference to Entry 42 of List II, that the principles laid down by the Legislature for determination of compensation must be such as to ensure a just equivalent of what the owner has been deprived of. Referring to the three bases, the Supreme Court in , held that although in none of them the

Legislature referred to the market value of the undertaking, that itself could not justify a contention that what was intended to be paid by way of compensation must necessarily mean much less than the market value. On that view of the matter which prevails, it cannot be held that Section 5 providing for determination of compensation on the alternative bases A, B or C offends Art. 31(2). The appeals and writ petitions are dismissed with costs in each of writ appeals Nos. 337 and 338 of 1968. Counsel's fee in each of them Rs. 250. No costs in the other writ appeals and writ petitions.

8. Appeals dismissed.


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