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The Narasaraopeta Electric Corporation Ltd. by Its Managing Director, V.V. Sastri Vs. the State of Madras Represented by the Secretary, Public Works Department - Court Judgment

LegalCrystal Citation
SubjectElectricity
CourtChennai High Court
Decided On
Case NumberCivil Misc. Petn. Nos. 975 and 4697 of 1951
Judge
Reported inAIR1951Mad979; [1951]21CompCas297(Mad); (1951)1MLJ277
ActsCode of Civil Procedure (CPC) , 1908; Madras Electricity Supply Undertakings (Acquisition) Act, 1949 - Sections 8 and 15; Government of India Act, 1935 - Sections 299(2); Constitution of India - Articles 5, 19, 19(1) and 31; Madras Electricity Supply Undertakings (Acquisition) Rules - Rule 19
AppellantThe Narasaraopeta Electric Corporation Ltd. by Its Managing Director, V.V. Sastri
RespondentThe State of Madras Represented by the Secretary, Public Works Department
Appellant AdvocateC.V. Dhikshitalu, ;N. Rajeshwara Rao, ;K.V.R. Sarma, ;D. Narasaraju, ;K.P. Krishnamurthi and ;A. Krishnawami, Advs.
Respondent AdvocateThe Adv. General, for the State Council
Cases ReferredMissouri Pacific Railway v. State of Nebrasaka
Excerpt:
- - section 21 is the usual clause protecting persons acting in good faith under the act or under any rule or order made thereunder. i have given the general scheme and the purposes of the act to better appreciate the arguments advanced. narasaraju, the learned advocate for one of the petitioners, relied upon the decisions of the judicial committee which dealt with the constitution of canada under the british north america act, 1867. under section 91 of that act, the parliament of canada has the power to make laws for the peace, order and good government of canada in relation to all matters not assigned exclusively to the legislatures of the provinces. ' 10. these decisions clearly establish that the provincial legislature has no power to enact a law which affects the status and.....satyanarayana rao, j.1. these two petitions raise the question of the validity of the madras electricity supply undertakings (acquisition) act, 1949 (act xliii of 1949) (hereinafter called the impugned act), and they were therefore heard together. in c.m.p. no. 975 of 1951 the petitioner is the narasaraopeta electric corporation limited by its managing director v.v. sastry and the company was incorporated under the indian companies act. the petitioner in c.m.p. no. 4697 of 1951 is the rajahmundry electric supply corporation limited, by its vice-chairman, appana rangarao and this company was also incorporated under the indian companies act. the petitioners in both the petitions obtained licences for the supply of electricity under the provisions of the indian electricity act, 1910. the.....
Judgment:

Satyanarayana Rao, J.

1. These two petitions raise the question of the validity of the Madras Electricity Supply Undertakings (Acquisition) Act, 1949 (Act XLIII of 1949) (hereinafter called the impugned Act), and they were therefore heard together. In C.M.P. No. 975 of 1951 the petitioner is the Narasaraopeta Electric Corporation Limited by its Managing Director V.V. Sastry and the Company was incorporated under the Indian Companies Act. The petitioner in C.M.P. No. 4697 of 1951 is the Rajahmundry Electric Supply Corporation Limited, by its Vice-chairman, Appana Rangarao and this Company was also incorporated under the Indian Companies Act. The petitioners in both the petitions obtained licences for the supply of electricity under the provisions of the Indian Electricity Act, 1910. The memorandum of association of the two companies authorised each company not only to carry on the business of electricity supply but also several other objects enabling the company to carry on trade or business of various kinds. In G.O. No. Misc. 3496, dated 18th September 1950, the Government issued a notification under Section 4(1) of the Act declaring that the undertaking of the Narasaraopeta Electric Corporation under the licence shall vest in the Government of the State of Madras from 25th January 1951 and called upon the Corporation to appoint an accredited representative under Section 8 of the Act and also to submit inventories and all other particulars required under Section 17 of the Act. A similar notification dated 2-9-1950 under Section 4 (1) of the Act was issued by the Government in respect of the Rajahmundry Electric Supply Corporation Limited, also fixing the date of vesting. In the first of the petitions the petitioner prayed for the issue of a Writ of Mandamus or other appropriate writ or directions restraining the State of Madras from taking over the undertaking in pursuance of the notification. The relief in the second petition is for the issue of a Writ of certiorari or other appropriate writ calling for the records and quashing the orders of the Government issued under Section 4 (1) of the Act. The grounds on which the notification is impugned are substantially the same in both the petitions:

2. The contentions raised are:

(1) that the Act is beyond the legislative power of the Provincial Legislature as it is in substance and in effect a law in respect of companies which is within the exclusive jurisdiction of the Central Legislature;

(2) that the Act offends Section 299(2) of the Government of India Act, 1935 and the fundamental rights recognised and guaranteed under Articles 19(1)(f) and 31 of the Constitution; and

(3) that even if the whole of the Act is not void, at least some of its provisions are invalid .

3. It was faintly argued that the impugned Act is inconsistent with Article 14 of the Constitution: but the argument was not elaborated and pursued and therefore may be left out of consideration.

4. I shall now proceed to consider the first contention. The impugned Act was enacted at a time when the Government of India Act, 1935 as modified and adapted by the Indian Independence Act, 1947 and the Indian Provisional Constitution Order, 1847 were in force. The competence, therefore, of the Provincial Legislature to enact the Act must be decided by reference to the provisions of the Government of India Act, 1935. The Indian Electricity Act, 1910 enacted the law relating to supply and use of electrical energy in India by individuals or Corporations under a licence obtained from the Local Government. As part of the post-war reconstruction and development schemes, the Central Government decided in 1947 to develop electricity in India on a regional basis and as there was no co-ordinated system of development of electricity in India, it was decided to introduce what is known as the 'grid system' which came into vogue in the United Kingdom under the Electricity Act, 1926. The need for extending the benefits of electricity to semi-urban and rural areas in an efficient and economic manner was also felt; but it was found that the Electricity Act of 1910 was wholly inadequate to achieve the object and legislative power was needed to link together under one control electrical development in the country. With this object in view, the Electric supply Act of 1948 (Act LIV of 1948) was placed on the Statute Book in September 1948, its main object being to constitute a central electricity authority and to enable the provincial governments to constitute electricity Boards. The powers and duties of these boards were defined by the Act. In 1949, the Government of Madras felt that the supply of electricity should be nationalised in order to ensure supply to other areas and also to extend the benefit of the electric power to rural areas for agricultural and other purposes. The result was the passing of the Madras Electricity Supply Undertakings (Acquisition (Act (Madras Act XLIII (43) of 1949) which is now impugned as invalid. It received the assent of the Governor-General on 18th January 1950 and after the Constitution came into force, was also certified by the President under Article 31(6) of the Constitution.

5. The Act applies to all undertakings of licencees whether they belong to individual owners or firms or Corporations or Companies or Local authorities. Section 4 of the Act empowers the Government to take over any undertaking by order in writing declaring that the undertaking shall vest in the Government on a specified date which should not however be earlier than four months from the date of the declaration. The Government is given the power to postpone the date of vesting from time to time. Section 5 provides for the compensation payable to a licensee who is not a local authority. The basis of compensation is divided into three classes, A. B. & C and option is given under Section 9 to the accredited representative of the undertaking to choose any one of the three basis of compensation. Under basis (a), the compensation payable is 20 times the average net annual profit of the undertaking during a period of five years preceding the vesting date. Basis (b) fixes the compensation on the aggregate value of the shares of the company constituting the share capital of the undertaking reckoned in the manner laid down in Section 5. Under basis (c) compensation is calculated on the book value of the assets of the undertaking computed in the manner indicated in Sub-section 3 of Section 5. I have avoided the details as they are not relevant. Section 6 of the Act provides for the payment of compensation and the manner of determining it where the licensee is a local authority. Section 7 provides for the vesting of rights and liabilities of the undertaking in the Government in cases where the compensation is payable in respect of an undertaking under basis (a) or basis (b) and Sub-section (2) to Section 7 provides for the vesting of the properties and liabilities if compensation is payable under basis (c). Section 8 of the Act requires that in cases where the licensee is not a local authority within three months of the receipt of an order under Section 4 (1), intimating the vesting date, the licensee should appoint an individual as an accredited representative in connection with the handing over of the undertaking of the fixed assets as the case may be to the Government and performing on behalf of the licensee, the functions specified in the Act. If the licensee is a company, however, under Sub-section (2) to Section 8, the accredited representative is required to be appointed by the share-holders of the Company at a meeting specially convened for the purpose. Power is conferred upon the Government to appoint an accredited representative if the licencee fails to appoint an accredited representative within the time specified. The accredited representative may be removed for causes specified in Sub-section (4) to Section 8 and the remuneration is payable to him from the compensation deposited under the Act. Under Sub-section (6) of Section 8 all assurances conveyed, and all statements made, by such representative shall be binding on the licensee. Section 10 empowers the Government to deduct from the compensation payable to the licensee under the Act the loss incurred by it by reason of certain transactions which are not bona fide and effected after 1st October 1947. Section II deals with the deductions from the compensation and Section 15 relates to the termination of managing agency agreements between the licensee and the managing agent or managing director. Section 16 provides for the termination by the Government of the services of the existing staff after giving notice and Section 17 relates to inventories to be prepared and Section 18 confers power on any officer or servant authorised by the Government in that behalf to enter upon any land or premises in the possession of the licensee to make a survey or examination or investigation for the purposes of the Act after giving due notice. Section 19 deals with the penalties and Section 20 is a special provision relating to offences by Corporations. Section 21 is the usual clause protecting persons acting in good faith under the Act or under any rule or order made thereunder. Section 22 provides for the rule-making power and Sections 23 and 24 provide for certain formal matters. There are two schedules to the Act, one relating to calculation of net profits under Section 5 (1) and other details and the other dealing with certain deductions and the method of calculating them. I have given the general scheme and the purposes of the Act to better appreciate the arguments advanced.

6. Under the Government of India Act, 1935 the power to make laws with respect to corporations is conferred on the Federal Legislature as is evident from item 33 of List I, Federal Legislative List which is in these terms:

'Corporations, that is to say, the incorporation, regulation and winding-up of trading corporations, including banking, insurance and financial corporations, but not including corporations, owned or controlled by a Federated State and carrying on business only within that State or co-operative societies, and of corporations, whether trading or not, with objects not confined to one Unit.'

'Electricity' is in the concurrent List, List 3 and is item 31. The short but a difficult question to decide is, is the impugned Act a law with respect to electricity or a law with respect to corporations. If the latter, undoubtedly, the Provincial Legislature has no power to enact the law and the impugned Act must be declared 'ultra vires' of the Provincial Legislature. If the former, the impugned Act must be upheld.

7. It is, in my opinion, wise to bear in mind and to adhere to the note of warning sounded by Sir Montague Smith in the judgment of the Judicial Committee in 'The Citizens Insurance Company of Canada v. Parsons', (1882) 7 AC 96 and repeated by Viscount Haldane L. C. in 'Jhon Deere Plow Company Ltd. v. Wharton', (1915) AC 330 , that while discharging the difficult duty of arriving at a reasonable construction of the language of the sections relating to Constitution to confine oneself to the interpretation of the particular provisions in the Statute on which the decision depends. Section 100 of the Government of India Act, 1935 defines the powers of the Federal and Provincial Legislatures: 'With respect to any of the matters enumerated in List I (Federal Legislative List), List II (Provincial Legislative List) and List III (Concurrent Legislative List)'. The language employed is, it may be noted, ' 'with respect to' any of the matters enumerated'. In the British North America Act, the expression used is 'in relation to all matters'. The language of the Government of India Act is analogous to the language employed in Section 51 of the Commonwealth of Australia Constitution Act where also the expression 'with respect to' occurs. Notwithstanding this difference in language, the meaning of both the expressions is, in my opinion, not materially different. The matter enumerated in item 33 of the Federal Legislative List, List I of the VII Schedule to the Government of India Act, is 'Corporations, that is to say, the incorporation, regulation and winding-up of trading corporation etc.' The subject-matter, therefore, is 'corporations' in item 33 of List I and 'Electricity' in item 31 of the Concurrent List and these are the legislative subject matters with which we are concerned. The consequential effects of legislation are not the same as the legislative subject matter. A legislation may have many results but in order to determine the subject-matter of legislation, one has to look at its true nature and character not its ultimate effect -- vide 'Russell v. The Queen', (1882) 7 A C 829 . In other words, as has been repeatedly laid down, the pith and substance of the enactment must be considered to determine the nature and character of its subject-matter. It is impossible to conceive of a legislation which does not in some manner trench upon other fields reserved for a different legislature. In other words every legislation has got a double aspect, i.e. from one aspect and for one purpose the legislation may fall under one head but for another purpose and in another aspect, it may be possible to treat it as falling under a different head. The solution in such cases in order to arrive at and determine the category under which it falls Is to have regard to the true nature and character of the legislation in the particular instance to ascertain the class or subject to which it legitimately belongs and this is the pith and substance of it. To illustrate the difficulty in drawing the line and the correct approach to the problem, I am tempted to quote the observation of Higgins J. in 'Huddart, Parker and Co. Proprietary Limited v. Moorehead', 8 C LR 330 :

'Now, how are we to determine what is the subject of any law of any legislation, when two or more things that might be subjects of legislation are mentioned in it? The mere fact of mentioning corporation in these Sections 5 and 8 does not necessarily make them a law 'with respect to' on the subject of Corporations. If a Licensing Act provides that the Licensing Court shall not transfer the licence of a wife to her husband unless the husband be approved by the Court as a holder of a licence, we should not call it legislation 'with respect to' marriage or of marital relations. If an Act provides that every marriage shall be celebrated in the presence of two witnesses of full age, and shall be registered, we should not call it legislation 'with respect to' witnesses, or 'with respect to' infancy or 'with respect to' registration. The st is a law 'with respect to' dealing in intoxicating liquors; the second is a law 'with respected,' marriage.'

To use the words of the Privy Council in 'Russell v. Reg', (1882) 7 AC 829 at p. 839, we must find what is 'the primary matter dealt with'. We must find 'the true nature and character of the legislation in the particular instance under discussion ..........in order to ascertain the class of subjectto which it really belongs'. Is this a law substantially with respect to corporations, or is it a law substantially with respect to trade? The regulation of trade combination is 'the primary matter dealt with' (to use the phrase of 'Russell v. Reg', (1882) 7 AC 829. As Lord Watson said during the argument of 'Attorney-General for Ontario v. Attorney-General for Quebec', Lefroy's Legislative Power in Canada, p. 418, 'that which it' (the Act) 'accomplished and that which is its main object to accomplish, is the object of the Statute' (as distinguished from the motives which influenced the legislature.)' In that case, one of the questions for consideration was whether the Commonwealth Parliament was within its powers in enacting Sections 5 and 8 of the Australian Industries Preservation Act, 1906 which undoubtedl interfered with the domestic trade in a State. It was claimed on behalf of the Commonwealth Parliament that it had such a power under placitum XX of Section 51 of the Commonwealth of Australia Constitution Act which is as follows: 'Foreign Corporations, and trading or financial corporations formed within the limits of the Commonwealth'. It was held that this power did not carry with it a power to legislate so as to interfere with the internal trade and commerce of the States. Sections 5 and 8 of the Australian Industries Preservation Act, 1906 prohibited a foreign corporation or trading or financial corporation formed within the commonwealth from making or entering into contracts or engaging in or continuing in combination with a view to restrain trade or commerce within the Commonwealth to the detriment of the public or with intent to destroy or injure by means of unfair competition any Australian industry the preservation of which is advantageous to the Commonwealth and also prevented such Corporations from acquiring monopolies. As pointed out by Griffith C. J. in 'Huddart, Parker and Co. Proprietary Limited v. Moorehead', 8 Canadian L.R. 330 , it is necessary to distinguish between acts which are 'ultra vires' a Corporation and acts which, though otherwisewithin the powers of a Corporation, are prohibited by positive law. The result in either case is undoubtedly to prevent the Corporation from effectually doing the act. But although the effect is identical, the cause is quite different. In one case there is no capacity in the Corporation to enter into contracts relating to particular subject-matters because it is beyond its powers. In the other case, though it is within its powers, it is a thing which the law prohibits the corporation from entering into. At page 353 Griffith C. J. says:

'The denial of capacity to the Corporation to enter into contracts relating to the subject-matter of domestic trade or the particular branch of that trade may rest with the Commonwealth. But the conditions governing the validity of a contract relating to any subject-matter rests with the legislature having control of that subject-matter, which, in the case of domestic trade, is the State Legislature. The importance of this distinction is apparent when it is remembered that a particular intent is an element of the offences created by Sections 5 and 8. The entering into the contracts or combinations specified without that intent is not prohibited. The sections, therefore, are not directed to the capacity of the corporation, which is assumed, but to their behaviour while acting within their capacity.'

The subject-matter of item 33 in the Federal List can only be interpreted as confined to the incorporation and the capacity and status of the companies or corporations and must be limited to the manner in which a corporation may be brought into existence and how its business is to be conducted and how it should be dissolved. The Indian Companies Act provides for these matters. The Constitution, the management and the winding up of the companies are within the purview of this item. The Company may carry on any business which is within the objects of the memorandum of association, i.e., within its capacity taut a State Legislature may under the appropriate item impose restrictions regarding the method or the manner in which a particular business or businesses should be conducted. It might impose restriction regarding licences in respect of particular businesses, may acquire part of the business and may provide for various other matters relating to its activities. The activities and the functions and the business of a Corporation are outside its constitution and management and therefore not within the exclusive legislative power of the Central Legislature. Under this item the Federal Legislature has power to create, protect and destroy an artificial person but the power does not extend to its functions and activities. The law with respect to corporations, therefore, must be a law on the subject of corporations.

8. Mr. Narasaraju, the learned Advocate for one of the petitioners, relied upon the decisions of the Judicial Committee which dealt with the Constitution of Canada under the British North America Act, 1867. Under Section 91 of that Act, the Parliament of Canada has the power to make laws for the peace, order and good government of Canada in relation to all matters not assigned exclusively to the legislatures of the Provinces. Section 91 gives a list of the matters which are within the exclusive legislative authority of the Parliament of Canada. Item 2 of the list relates to 'the regulation of trade and commerce'. Section 92 enumerates the subjects which are within the exclusive power of the provincial legislature and item 11 relates to 'incorporation of companies with Provincial objects'. There is no express power conferred upon the Parliament of Canada to mate laws in relation to corporations or companies with extra Provincial objects. It has been decided as early as 1881 In the 'Citizens Insurance Co. of Canada v. Parsons', 7 AC 96, that Parliament has the authority to incorporate companies for inter provincial objects under the general power conferred upon the Parliament in relation to all matters not coming within the class of subjects assigned exclusively to the legislatures of the Provinces. This power, however, and the power to regulate trade and commerce under item 2 of Section 91 do not carry with it the exclusive right to regulate the contracts of such corporations in respect of matters within the Provinces. The words 'regulation of trade and commerce' have been so interpreted as to confer on the Dominion Parliament the power to make political arrangements in regard to trade which requires the sanction of Parliament, regulation of trade in matters of inter-provincial concern and perhaps also a general regulation of trade affecting the whole Dominion. This decision was considered and the principles enunciated therein have been followed and applied in later cases by the Judicial Committee.

9. The scheme of distribution of the powers between the Dominion and the Provincial Legislatures as regards the incorporated companies came up for consideration before the Judicial Committee in 'John Deere Plow Company v. Wharton', (1882) 7 AC 96. In that case a Provincial Legislature passed an Act prohibiting companies which have not been incorporated in the Province from taking proceedings in the Courts of the Province in respect of contracts made within the Province and also imposed penalties if the company carried on business in the Province without obtaining a licence. The question that had to be determined was whether the particular legislation in the Province was valid under the British North America Act. The power of the Legislature to make laws in relation to matters in item 11 of Section 92 viz., 'incorporation of companies with provincial objects' cannot extend to a Dominion company, the objects of which were extra-provincial. The Parliament of Canada, as laid down in 'The Citizens Insurance Company of Canada v. Parsons', 1915 A C 330 , had the undoubted power under the subject 'regulation of trade and commerce' to prescribe the limitations on the powers of companies the objects of which extend to the entire Dominion and the Provinces can only legislate without depriving a Dominion company of its status and powers which were conferred upon it by a Dominion Legislation. As observed by Viscount Haldane L. C. at pages 340 and 341 of 'John Deers Plow Co. v. Wharton', 1915 A C 330 :

'They do not desire to be understood as suggesting that because the status of a Dominion company enables it to trade in a province and thereby confers on it civil rights to some extent, the power to regulate trade and commerce can be exercised in such a way as to trench, in the case of such companies, on the exclusive jurisdiction of the Provincial legislatures over civil rights in general. No doubt this jurisdiction would conflict with that of the Province if civil rights were to be read as an expression of unlimited scope. But, as has already been pointed out, the expression must be construed consistently with various powers conferred by Sections 91 and 92, which restrict its literal scope. It is enough for the present purposes to say that the Province cannot legislate so as to deprive a Dominion Company of its status and powers. This does not mean that these powers can be exercised in contravention of the laws of the Province restricting the rights of the public in the Province generally. What it does mean is that the status and powers of a Dominion Company as such cannot be destroyed by Provincial Legislation. This conclusion appears to their Lordships to be in full harmony with what was laid downby the Board in 'Citizens Insurance Company of Canada v. Parsons', (1882) 7 AC 96; 'Colonial Building and Investment Association v. Attorney-General for Quebec', (1884) 9 AC 157 and Bank of Toronto v. Lambe', (1887) 12 AC 575.'

It was held that the law of the Province requiring the company to obtain a Provincial licence and to register it in the Province as a condition of exercising its powers conferred upon it by the Dominion Legislation was invalid and inoperative. The Provincial Legislation in that case affected the status and corporate capacity of a Dominion Company and the powers which such status and capacity carried with it. The peculiar position of the Canadian Parliament in respect of companies is that it possesses not only the power to incorporate but also the authority to legislate regulating the powers of those companies, under Section 91, item 2, 'regulation of trade and commerce'. Any provincial law therefore which trenches upon such power is undoubtedly invalid. To the same effect is the decision in 'Great West Saddlery Company Ltd. v. King', (1921) 2 AC 91. There also a company was incorporated under the Dominion law with power to trade in any Province. A Provincial Law required that such companies should not carry on their business of trading in the Province unless registered or licensed therein. The legislation of the Province was held invalid and 'ultra vires'. Viscount Haldane L. C. stated the position at page 100 in these words:

'If therefore in legislating for the incorporation. of companies under Dominion Law and invalidly endowing them with powers, the Dominion Parliament has by necessary implication given these companies a status which enables them to exercise these powers in the Provinces, they cannot be interfered with by any provincial law in such a fashion as to derogate from their status and: their consequent capacities, or, as the result of this restriction, to prevent them from exercising the powers conferred on them by Dominion Law. Their Lordships, however, observed that when a Company has been incorporated by the Dominions Government with powers to trade in any Province it may nonetheless consistently with the general scheme, be subject to Provincial laws of general application, such as laws imposing taxes, or relating to mortmain, or even requiring licences for certain purposes or as to the forms of contract; but they were careful not to say that the sanctions by which such Provincial laws might be enforced could validly be so directed by the Provincial Legislatures as indirectly to sterilize or even to effect, if the local laws were not obeyed, the destruction of the capacities and powers which the Dominion had validly conferred. To have said so would have been to misread the scheme of the British North America Act, which is one that establishes interlacing and independent legislative authorities. Within the spheres allotted to them by the Act the Dominion and the Provinces are rendered on general principle co-ordinate Governments. As a consequence, where one has legislative power the other has not, speaking broadly, the capacity to pass laws which will interfere with its exercise. What cannot be done directly cannot be done indirectly. This is a principle which has to be kept closely in view in testing the validity of the Provincial Legislation under consideration as affecting Dominion Companies.''

In 'Attorney-General for Manitoba v. Attorney-General for Canada', (1929) AC 260, the Judicial Committee had to consider the validity of a Provincial law which prohibited the Dominion Company from selling their own shares within the Province without the consent of the Provincial Commissioner or Board. In the light of the decisions already referred to it was held by Viscount Sumner that the Provincial Law affected the status and capacity conferred on the companies by Dominion Legislation and it was 'ultra vires'. It was observed at p. 266 as follows:

'An artificial person, incorporated under the powers of the Dominion with certain objects, invested by these powers with capacities to trade in pursuit of those objects and with the status and capacities of a Dominion incorporation, is under these Acts liable in the most ordinary course of business to be still-born from the moment of incorporation, sterilized in ail its functions and activities, thwarted and interfered with in its first and essential endeavours to enter on the beneficial and active employment of its powers, by the necessity of applying to a Provincial executive for permission to begin to act and to raise its necessary capital, a permission which may be subjected to conditions or refused altogether according to the view, which in their discretion that executive may take of the plans, promises and prospects of a creation of the Dominion.'

10. These decisions clearly establish that the Provincial Legislature has no power to enact a law which affects the status and capacity of a Dominion company and also to sterilize and nullify such company from exercising its functions and activities in pursuance of the powers conferred upon it by a Dominion legislation. The two things, the status and capacity of a company on the one hand and the powers and activities and functions which it can exercise are different and the power of the Dominion Parliament to legislate on these subjects is derived from two different sources, the former under the general power under Section 91 and the latter under the power to regulate trade and commerce.

11. But these decisions do not really help the petitioners in their contention that the impugned Act deprives a part of the business of the companies and therefore it is 'ultra vires' the Provincial Legislature, as the subject-matter of legislation is within the exclusive competence of the Central legislature under item 33. The preamble to the impugned Act states that the object is to make provision for the acquisition of undertakings in the Province of Madras engaged in the supply of electricity. The objects and reasons of the bill as published in the Port St. George gazette make it abundantly clear that the purpose of the acquisition was for the public benefit. It is no doubt true that legislative proceedings cannot be called in aid to interpret a statute or its provisions. They are however certainly not excluded from consideration when one has to determine the object and purpose of an Act -- see 'Charanjit Lal Chowdhury v. The Union of India', (1951) SCJ 29 . The Act applies to all undertakings of licensees whether the licensees are natural persons or artificial persons like companies or local authorities or partnerships. The subject-matter of the Act, in my opinion, is the acquisition of undertakings supplying electricity. It may be that as a result of the acquisition under the powers conferred by this Act some of the companies who happen to be licensees may be deprived of part of their business. But the Act in no way affects the capacity or the status of the Company. It does not alter its constitution. It takes away only part of the business. In the light of the decisions already referred to it cannot be said that the subject-matter of the impugned Act is 'Corporations' within item 33 of list I of the Second (sic.) Schedule. On the other hand, it comes within the purview of 'electricity' in the concurrent list.

12. Reference was made by learned counsel for the petitioners to the decisions of the JudicialCommittee interpreting 'banking' which is item 15 in Section 91 of the British North America Act. I do not see how these decisions support the contention of the petitioners. It has been held in 'Tenant v. The Union Bank of Canada', (1894) AC 31, that under this item the Dominion Parliament has the authority conferred upon it by the words 'Banking, Incorporation of Banks, and the Issue of Paper money' not only to enact a law relating to incorporation of Banks but also a law conferring upon such companies the power or the privilege of carrying on the business of bankers. The word 'banking' is wide enough, it is said, to embrace 'every transaction coming within the legitimate business of a banker'. The power under this head therefore extends not only to the incorporation of banks but also to legislate in respect of the powers which a Bank would exercise as appertaining to its business of banking. To the same effect is the decision in 'Attorney-General for Canada v. Attorney-General for the Province of Quebec', (1947) A. C. 33. It was held that the transaction of receiving from depositors bank deposits repaying such deposits to the depositors is within the purview of the legitimate business of banking. The pith and substance of the Act which was impugned in that case related to the business of banking and it was held 'ultra vires' the Provincial Legislature. Of course, if the subject-matter of the legislation in question is undoubtedly and in substance and in effect within the power exclusively assigned to the Dominion Legislature, it is not open to the Provincial Legislature to trench on such a field with impunity. A legislation which transgresses the limits of the provincial field will undoubtedly be 'ultra vires.' Of course, as pointed out by the Judicial Committee in 'Attorney-General for Alberta v. Attorney-General for Canada', (1939) A C 117, it is not open to either the Dominion Parliament or the Province under the guise or the pretence of exercising a legislative power in relation to a subject or subjects assigned to their respective jurisdictions to carry out the object so as to trespass on the jurisdiction of another.

13. If follows that the impugned Act is 'intravires' the Provincial Legislature.

14. The next point for consideration is whether all or any of the provisions of the impugned Act offend Section 299(2) of the Government of India Act and Articles 19(1)(f) and 31 of the Constitution. The President certified the Act under Article 31(6) of the Constitution. The petitioners therefore are faced with an insuperable difficulty by reason of the certificate. Article 31(6) states:

'Any law of the State enacted not more than eighteen months before the commencement of this Constitution may within three months from such commencement be submitted, to the President for his certification; and thereupon, if the President by public notification so certifies it shall not be called in question in any Court on the ground that it contravenes the provisions of Clause (2) of this article or has contravened the provisions of Sub-section (2) of Section 299 of the Government of India Act, 1935.'

On plain reading of this provision, it seems to me, that it is not open to the petitioners to urge before us any grounds based on the assumption that the Act contravenes the provisions of Clause (2) of Article 31 or Section 299(2) of the Government of India Act, 1935. Under Section 299(2) of the Government of India Act,

'Neither the Federal nor a Provincial Legislature shall have power to make any law authorising the compulsory acquisition for public purposes of any land, or any commercial or industrial undertaking, or any interest in, or in any company owning, any commercial or industrialundertaking, unless the law provides for the payment of compensation for the property acquired and either fixes the amount of the compensation, or specifies the principles on which, and the manner in which, it is to be determined.'

If the complaint therefore is that just compensation was not provided by the Act and even if this contention is well-founded, in view of the certificate granted by the President, that ground is not open to the petitioners. If this Clause however is construed as imposing a limitation on the legislatures, Federal or Provincial to acquire only for a public purpose and as an essential condition for the acquisition, assuming the contention is correct, even such an objection is not open in view of the certificate. I do not for a moment agree with the contention that this Sub-section imposes a condition that the acquisition should only be for a public purpose as on a plain reading of the clause it only requires that provision should be made for payment of compensation for the property acquired either by fixing the amount of compensation or at any rate specifying the principles and the manner in which it has to be determined. It is no doubt true as appears in the Joint Parliamentary Committee Report that the framers of the Government of India Act, 1935 originally intended that the power of acquisition should be confined only to public purposes. But, while a limited restriction in respect of acquisition of land is imposed by Sub-section (3) of that section, there is no express language requiring that the acquisition should be only made if it is required for a public purpose, a power analogous to the power of eminent domain under the American constitution. If the contention is open, it should have necessitated the consideration of the question whether or not the acquisition is for a public purpose and whether the compensation should be just compensation as required under the Australian and American Constitutions. It has been held in 'Missouri Pacific Railway v. State of Nebrasaka', (1894) 164 U S 403 : 41 Law Ed 489, that taking by a State of the private property of one person or corporation without the owners' consent, for the private use of another, is not due process of law, and is a violation of the 14th amendment of the Constitution of the United States. It was treated as a case of taking property for a purpose other than a public one and therefore was not covered by the power of eminent domain. That the purpose in the present case is a public purpose is beyond doubt in view of the objects and reasons stated when the bill was published and made clear in the course of the debate. It is therefore unnecessary to consider in this case, these interesting questions. The Act, therefore, cannot be attacked on the ground that it contravenes either Section 299(2) of the Government of India Act, 1935 or Article 31(2) of the Constitution.

15. It is however open, notwithstanding the certificate, for the petitioners to challenge the validity of the Act on grounds other than those which are prohibited by the certificate. It does not prevent them from establishing that the Act is in fact beyond the competency of the legislature or that even apart from Section 299(2), the legislature could acquire property only for a public purpose. I do not wish to express any final opinion whether or not it is open to the Government to acquire property for a purpose other than a public purpose under the provisions of the Constitution as it is unnecessary to decide that question in the present case.

16. The only other objection is that it takes away the fundamental right recognised and conferred by Article 19(1)(f) of the Constitution. In the first place that Sub-clause applies only to 'citizens' and a company incorporated under theIndian Companies Act does not satisfy the requirements of the definition of citizen in Article 5. The petitioners, therefore, are not entitled to invoke Article 19. This question was recently decided by my Lord the Chief Justice and myself in C-M.P. No. 4652 of 1951. Apart from that the right to acquire, hold and dispose of property is subject to the right to take away property under Article 31. Under Article 31(1) which corresponds to Section 299(1) of the Government of India Act, 1935, no person shall be deprived of his property save by authority of law and Sub-clause (2) of that Article provides for acquisition. Deprivation of property may be brought about for different reasons. It may be confiscation or may be forfeiture and not necessarily acquisition. Limits on the Dower of acquisition are prescribed by Sub-clause (2) of Article 31 and Sub-clauses (3) and (4) of the same Article. Under the present Constitution in List I, the Union List, Item 33 relates to 'acquisition or requisitioning of property for the purposes of the Union' and in the State List, Item 36 'acquisition or requisitioning of property, except for the purposes of the Union, subject to the provisions of Entry 42 in List III', the concurrent List, Item 42 of that list is

'principles on which compensation for property acquired or 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 such compensation is to be given.'

The Legislative power to enact a law relating to acquisition of property is derived from these items in the various lists. A person may acquire for himself and hold and dispose of property subject to reasonable restricitions which may be imposed by legislation under Sub-clause (5) of Article 19, but all this is subject to the overriding power of acquisition conferred and recognised by Article 31. The impugned Act is not in any manner inconsistent with the fundamental rights enumerated in part III of the Constitution.

17. It is not seriously disputed that some of the provisions of the Act are invalid as they encroach upon the rights of the shareholders and the directors of the company under the Indian Companies Act. It is not seriously disputed that rule 19 of the rules frames under the Act compelling the liquidation and winding up of a company whose undertaking is taken over under the powers conferred by the Act is beyond the legislative power of the Province. That rule must, therefore, be declared invalid. The provision authorising the Government to appoint an accredited representative in case the shareholders of a company default in making the appointment seems to me to deprive altogether the rights of the company and the directors. The accredited representative nominated by the Government in such cases is given the power to bind by his assurances and by the statements and representations, the licencee. He is the person who has to choose the basis of compensation (a), (b) or (c) and is also the person authorised to bring about arbitration in respect of matters enumerated in Sub-section (3). Practically a nominee of the Government is the person clothed with full authority to deal with all matters relating to the licencee on his behalf. If the shareholders do not appoint the accredited representative within the time allowed it is open to the Government to proceed 'ex parte' regarding the fixation of compensation and drive the licencee to a Court for settling the amount of compensation or a machinery may be provided by which the directors or the shareholders may be compelled to appoint an accredited representative on their behalf. The power conferred on the Government to appoint an accredited representative where the shareholders fail to appoint one seems to me to be invalid. Section 15 of the Act terminates the managing agency agreement between the licencee and his managing agent land the managing director on the vesting date The two companies have other businesses which they ban legitimately carry on and there does not seem to be any necessity to put an end to the agency agreement 'in toto.' It may be that this provision, as pointed out by the learned Advocate-General, was enacted for the benefit of the managing agent as otherwise they would not have been entitled to any remuneration or commission. But there is no reason to put an end to the agreement altogether. As suggested by my Lord the Chief Justice in the course of the arguments, the difficulty can be got over by reading Section 15 as terminating the managing agency agreement between the licencee on the one hand and his managing agent or managing director on the other, restricting it in so far as it relates to the undertaking covered by the licence and no more. In this view there is no necessity to hold that Section 15 is also invalid.

18. For these reasons, I am of opinion that subject to the modifications mentioned above, the petitions fail and must be dismissed with costs.

Rajamannar, C.J.

19. I agree entirely and have nothing to add.


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