Vellore Electric Corporation Ltd. & Anr. v. State of Tamil Nadu & Ors.

VENKATACHALIAH, J. In these writ-petitions under Article -It 32 of the Constitution of India, three electric supply undertakings in E the State of Tamil Nadu, namely, Vellore Electric Corporation Ltd., Nagapatam Electric Supply Co. Ltd., and Kumbakonam Electric Sup- ply Corporation Ltd., challenge the constitutional validity of the Tamil -Nadu Private Electricity Supply Undertakings (Acquisition) Act, 1973, ('Act' for short) on the ground that the 'Act', which envisages the acquisition of the Electric Supply Undertakings of three petition- F ers, as violative of Articles 14, 19(1)(f), 19(1)(g) and 31 of the Constitution. These writ-petitions were heard along with Writ Petition (Civil) ---Nos. 457 and 458 of 1972, pertaining to the acquisition of Tinsukhia Electric Supply Co. Ltd., and Dibrugarh Electric Supply Co. Ltd., G under the provisions of the Tinsukhia and Dibrugarh Electric Supply ..... Undertakings (Acquisition}Act, 1973, (Assam Act 1973) and the main contentions touching the constitutionality of such State laws, providing for acquisition of private electricity undertakings-independently of and without recourse to the option to purchase envisaged by the terms of .licences and under the provisions Sections 6, 7 and 7 A of the Elec- H tricity Act 1910-are considered in the main judgment in the said WP -;} VELLORE ELECffiIC CORPN. v. STATE (VENKATACHALJAH, J.] 481 n ·'II ~/ ;},_, :1 Nos. 457 & 458, separately rendered today. A 2. The scheme and the broad features of The Tamil Nadu Pri- vate Electricity Supply Undertakings (Acquisition) Act, 1973, which received the assent of the President on 30th September, 1973, are that --! the "Act" enables and provides for the acquisition of the private undertakings engaged in th.e business of supplying electncity to the B public other than those belonging to and are under the control of the •· State Electricity Board or the local authorities. Section 2 of the Act declares that the "Act" is for giving effect to the policy of the State towards securing of the Directive Principles, specified in clauses (b) & ( c) of Article 39 of the Constitution of India. c I Section 3 is the interpretation clause. Section 4 empowers the State Government to· declare, by order in writing, that any undertaking shall vest in Government on the date specified in such order. The proviso to Section 4 enables the Government to modify, by advancing or post- poning, the date originally fixed in such order, or the modified date; or to cancel such order. The proviso is, however, subject to a limitation D which is in terms following: "So, however, that no such order shall be modified or ~- cancelled after the undertaking has vested in the Govern- ment but such cancellation shall not be deemed to prevent the Government from taking any proceeding de novo in E respect of such undertaking under this Act." - The mode of promulgation and the incidence and consequence of an order under sub-section (1) of Section 4, are envisaged in sub- ~ section (3) (4) & (5) of Sections 4 and 6 of the Act. Sub-sections (3), ( 4) and (5) of Section 4 provide: F "(3) Every order under sub-section (1) shall be- .~-- (a) served on the licensee in the pres~Tibed manner; and -{ G (b) published in such manner as the Government may deem fit. (4) On the vesting date the undertaking, to which the order under sub-section (1) relates, shall, sub1ect to the provisions of section 6, stand transferred to, and yest in~ the Government. H· ~>I:' ~ (5) Eyery licensee who, after the vesting date, was in possession of, or deriving any benefit from the undertaking vested in the Government under sub-section (1), shall be liable to pay to the Government, for the period, after such vesting, for which he was in such possession or deriving such benefit, an amount as compensation for the use, occu­ pation or enjoyment of that undertaking as the prescrib1>d authority may fix in the prescribed manner. Such authority shall take into consideration such factors as may be pres­ cribed." We shall refer to Section 6 and its impact at an appropriate stage later. Section 5 of the "Act" envisages the "amount" to be given to the licensee on whom an order has been served under Section 4 and pro­ vides for its determination on two alternative basis-Basis (A) or Basis (B)-as may be chosen by the licensee in the exercise of the option given under Section 8. Section 7(1) contemplates and requires the D appointment of an "Accredited-Agent" by the iicensee within three months of service of the order under Section 4(1). Such accredited­ agent is required within one month of his appointment or with such further time as may be granted by Government, signify the choice of the Basis for the determination of the "Amount''. Section 8(2) says that the choice of the Basis once intimated shall not be open to revi­ sion except with the concurrence of the Government. 'Basis (A)' pro­ vides that the amount to be given shall be equivalent to 12 times of the average net annual profits of the undertaking during a period of any five Account-years at the option of the licensee within a period of seven consecutive account-years immediately preceding the vesting date. 'Basis (B)' contemplates a different mode of determination of the amount. It provides for payment of the aggregate value of the sums specifieJ in clauses (i) to (ix) of sub-section (2) of Section 5. Section 10 speaks of the deduction that the Government is entitled to make for the amount. They are specified at clauses (a) to (i) of Section 10. Section 11 provides for the manner of payment of the "Amount''. Section 13(1) renders any dispute "in respect of any of the matters in clauses (a) to (e) of Section 13(1)" arbitrable. The Arbitrator is required, by Section 11(2), to be a District Judge or a person who is a retired District Judge or a retired High Court Judge. Chapter Ill of the Act, comprising Sections 14, 15, 16 and 17 contemplate and provide for the termination of agreements between H the licensee on the one hand and the managing-agent or the managing- - VELLORE ELECTRIC CORPN.C,v. STATE IVENKATc»,..'\LJAH, J.] 483 ~ .. - ""'' . ' ' ·v director,. as the c~se may.be, on ihe other; the continuation under the Go~hmnent or·. the EleCiridty Board;· of services of persons on· the staff of the"licensee taking an inventory of the as>ets and for informa­ tion in reg~rd to ihe documents maintained by the licensee and other incidental matters. · ' .... B , Sections 18 and 19 of Chapter IV deal with offences, penalities ~ and procedure therefor. Chapter V, comprising Sections 20, 21, 22, 23 - - • . and 2.4, deals with miscellaneous matters. Two sections in Chapter V are of particular relevance. Section 22(i), inter-alia, provides that no provisions of Electricity Act, 1910, or the Electricity Supply Act, 1948, in so far as such provisions are inconsistent with any of the provisions of the Act, shall have any effect. Section 23 refers to and deals with the action initiated under the earlier State law viz., the Tamil Nadu Electric Supply Undertaking (Acquisition) Act, 1954, (Tami!Nadu Act 29 of 1954) which is repealed by the 'Act'. Sub-section (1) of Section 23 says that the said Act 29 of 1954 shall cease to apply to any undertaking as defined in Section 3(12) of.the 'Act' which has "not. vested with and taken possession of by the Government under the provisions of the 1954 Act" before t!;e commencement of the 1973 Act. Sub-section (2) and (3) of Section 23 envisage and provide for situations where some action had been initiated by the 1954 Act but such action had not culminated in the vesting of the undertaking and possession thereof being taken-over by Government. Sub-section (2) and (3) of Section 23 provide: · "(2) Notwithstanding anything contained in \he 1954 Act, if, in pursuance of any order under sub-section (1) of section 4 of the 1954 Act in respect of any undertaking as defined in section 3 (12) of this Act, the Government have not taken possession of such undertaking before the com- F mencement of this Act that order shall lapse and be of no effect and such undertaking shall not vest and shall be deemed never to have vested in the Government under the 1954 Act and in respect of such undertaking it shall be lawful for the Government to make an order under sub:. section (1) of section 4 of this Act and the provisions of this G Act shall'accordingly apply to such undertaking." "(3) Notwithstanding anything contained in the 1954 Act, where, in respect of any undertaking as defined in section 3( 12) of this Act, the Government have postponed the date of vesting under the proviso to sub-section (1) of H A section 4 of the 1954 Act, that undertaking shall not vest, "-; and shall be deemed never to have vested, in the Govern- " ment under the 1954 Act, notwithstanding the expiration of a period of one year from the date originally fixed under sub-section ( 1) of section 4 of the 1954 Act and in respect of B such undertaking it shall be lawful for the Government to make an order under sub-section (1) of section 4 of this ).-Act, and the provisions of this Act shall accordingly apply to such undertaking." , The provisions of Section 23 acquire particular significance in the -case of the Kumbakonam Electric Supply Corporation Ltd. and ~ Nagapatam Electric Supply Co. Ltd., petitioners in W.P. 14 & 15 of 1974, as. indeed, proceedings for the acquisition of the undertakings of f these two .companies had been initiated under the 1954 Act but full effectuation thereof had been interrupted by the interlocutory orders made by courts in proceedings in which these two companies had D challenged the validity of the 1954 Act. Section 23 of the present 'Act' seeks legislatively to set at naught such legal consequences as might come to be considered as ensuing from the action taken under the earlier 1954 A{:t. Some contentions urged in these cases centre round what the petitioners refer to as some irreversible, vested rights accord- ing to them under the earlier proceedings under the 1954 Act. i- E 3. The Vellore Electric Corporation Ltd., petitioner in WP No. 5(N) of 1974, was granted on 14.5.1929 by the Government of the then-Presidency of Madras under the provisions of the Indian Elec- -tricity Act, 1910, ('1910 Act' for short), for the supply of electri- cal-energy within the municipal limits of Vellore town which was later F extended to cover the adjacent area of Ranipet. Clause 12 of the j... licence envisages the option to the Government to purchase the licensee's undertaking on the expiry of 30 years from the commence- ment of the licence or if licence is renewed thereafter on expiration of every subsequent period of 20 years, during the continuance of the . ----- licence. At the relevant time when the order under Section 4(1) was G made, the remaining period of the licence was upto 14.5.1979. The State Government in exercise of powers under Section 4(1) of the Act ~· made an order da~d 30.10.1973, served on the petitioner on 5.11.1973 fixing 1.12.1973 (which was later postponed to 7.1.1974) as the date of vesting. H 4. The facts in W.P. 14 of 1974 are the following: · VELLORE ELECTRIC CORPN. v. STATE (VENKATACHALIAH, J.l 485 v The petitioner, the Kumbakonam Electric Supply Corporation Ltd., a public limited company, then engaged in:the business of dis- A trlbution and supply of electrical energy in the Taluks of Kumbakonam and Papanasam and a portion of Than javur Taluk, in the District of Thanjavur in· the State of Tamil Nadu, was granted a licence dated 15.4.1930 under the Indian Electricity Act, 1910, by the Government I --../ - - of the then-Presidency of Madras. The initial period of the licence was 20 years with a provision for renewal for further periods of 7 years . ., each. At the time the impugned order under Section 4(1) of the "Act" was made, in relation ·to the Electricity Supply Undertaking of this company, the unexpired period of the licence was up to 15'.4.1978. On 12.1.1968, the State Government in exercise of its power under Section 4(1) of the Madras Electricity Supply Undertakings (Acquisition) Act, 1954, made an order for the taking-over of the undertaking. The petitioner~company filed a writ-petition No. 704 of 1968 in the High Court of Madras, challenging the constitutional vali­ dity of the 1954 Act under which the order was made. That writ~ petition was dismissed on 31.7.1968. The Writ Appeal No. 338of1968, filed by the petitioner was also dismissed by the Division Bench. The petitioner preferred, by special leave, an appeal to this Court in CA 119 of 1971. During the pendency of lhe proceedings before the High Court and before this Court, petitioner had had the benefit of inter­ locutory orders, "staying delivery of possession of the undertaking". However, the petitioner withdrew the appeal, according to it, on the suggestion of the Government with ·a view to facilitating negotiations for a settlement. However, on 30.9.1973, the 'Act' in the present proceedings came into force .. As noticed earlier, sub-section (2) and (3) of Section 23 of the 'Act' statutorily abrogates the effect, incidents and consequ­ ences of all earlier proceedings taken under the 1954 Act, except in cases where the vesting and the taking over of possession of the under­ taking had already"occtired before 30.9.1973. The. order under Section 4(1) of the 1973 Act in the case of the petitioner in WP 14 of 1974 was made on 30; 10.1973 declaring 1..12.1973 as the date of the vesting. 5. In WP No. 15 of 1974, the first petitioner, the Nagapatam Electric Supply Co. Ltd., a public limited company, was the grantee of a licence, dated 22.8.1933, under the Indian Electricity Act, 1910, by the then-Government, Presidency of Madras; for the St\ ply of elec­ tricity in the areas specified in the grant. The initial period of the licence was 20 years with a provision for renewal for further periods of G' A 7 years each. At the time the order under Section 4(1) impugned in the "} I writ-petition was made, the unexpired period of the licence was upto 22.8.1974. As in the case of Kumbakonam Electric Supply Corpora- tion Ltd., so in the present case, Government in purported exercise of powers under Section 4(1) of the earlier Act, viz., the Tamil Nadu ~ B Electricity Supply Undertaking (Acquisition) Act, 1954, had made an order on 12.1.1968 declaring that the undertaking of th'.· petitioner ~ shall vest in the Government with eff~ct from 15.7.1968. The peti- tioner also challenged the constitutional validity of the 1954 Act in WP 1 No. 703 of 1968 in the High Court of Madras. The writ-petition was dismissed in Madras High Court on 3.7.1968. The Writ Appeal 337 of 1968 preferred by the company before a Division Bench of the High c Court, also came.to be dismissed. The Company preferred, by special leave, CA No. 120 of 1971 before this Court. During the pendency of y the proceedings in the High Court and in the appeal before this Court, [j there were interlocutory orders, staying delivery of possession of the \~ undertaking. The appeal before this Court was however, withdrawn by ii D the company on 5.10.1972. "'1' Thereafter, 1973 Act came into force. As stated earlier, Scctii>n 23 of the 'Act' sought to nullify the effect of the action taken under the 1954 Act and a fresh order dated 30.10.1973 under Section 4(1) of 1973 Act came to be promulgated declaring that the undertaking of the f f. petitioners would vest in Government with effect from 1. 12.1973. 6. The three petitioner-companies assail the constitutional vali- dity of the 'Act' as ;tlso the orders made under Section 4(1) in the -individual cases. F We have heard Sri Harish Salve, learned counsel for the peti- 1.-. tioners in the three petitions and Shri Shanti Bhushan, learned Senior Advocate for the State of Tamil Nadu and its authorities. The challenge in the main, is to the constitutionality of the "Act", on the J basis of discrimination as between the procedures for take-over con- ·-· tained in Section 6 and 7 of the Electricity Act, 1910, on the one hand ~ G and the less advantageous, so far as licencee is concerned, contained in ' ! the present 'Act'. However, some specific provisions are also cha!- ~ lenged as arbitary and unreasonable. The contentions in support of the petitions urged at the hearing • of these petitions-of which (b) & (c) are particular to WP Nos. 14 and H \ 15 of 1974--may be noticed and formulated thus: - '"ll•ii$"1 -·'~' ', ~:S:-; VELLORE ELECTRIC CORPN. v. STATE [VENKATArnALIAH, J.J ,, '487 '·' "(a) that the legislative declaration in Section 2 of the 'Act' that 'A the legislation is for giving effect to the Directive Principles of State Policy, specified in clauses (b) & ( c) of Article 39 of the Constitution is invalid, it being merely a pretext to undo and take away the petitioners' legitimate entitlement to the payment of market-value as provided in the terms of the licence read with Section 6 and 7 of Electricity Act, 1910, B and, accordingly, the legislation does not attract the con­ stitutional validity from challenge under Article 31-C of the Constitution; · (b) that, pursuant to the order made under Section 4(1) of the 1954 Act petitioners' undertakings stood vested in Govern- C ment in the year 1968 and the concomitant right to receive compensation as determinable under and in terms of the 1954 Act was came to be vested in the petitioners and got crystalized into a 'chose-in-action' and that in the circums­ tances the impugned 'Act' which in effect and substance acquires only these "choses-in-action", and not the under- D takings as such which had already vest~.d under the 1954 Act; ( c} that Section 23(2) of the Impugned Act in so far .it seeks to unodo the legal incidents and consequences of the order made which provided a less disadvantageous standards for the determination of the amount and the impugned orders E which seeks to declare that the said undertakings vest again in Government;-this time pursuant to order promulgating under Section 4(1) of the impugned Act is violative of Article 14, 19(1)(g) and 31 (as the latter Articles then stood) being a fraud on the power to acquire; · ' ' ;; F· (d) that ihe 'Act' is violative of Article 14. of the Constitution in. ·as much as it seeks to confer upon the Government an alterna- · tive and· discriminatory power of ·attaining the same end, namely, the acquisition of petitioner5' undertakings on terms more advantageous•to the Government and more disadvan­ tageous to the petitioners than those contained in the Elec- G tricity Act 1910; . . . I ·l, ' that the direct effect of the impugned Act is to extinguish the rights conferred upon the P.etitioners · iii carry on a la...:iu1 . business in terms 'of thesl.lbsisting licences in their favour and is violative of Ariicie 19(1)(£) (as it then stood) and 19(J)(g): ~- -._ ~ ~tj ,- -;;·,:-· H ,.·A·;.~ .• ,.,,. , <r., ·~·,e~-- ·-· . ' " :f !! ir " ' ' ~ ' ! ' H ·~ ,, (e) that, at all events, Section 4(5) of the Act which renders a ·-.; licencee, who after the vesting date was in possession of, or deriving any benefit from, the. undertaking liable to pay to Government compensation for the use occupation enjoy­ ment of the undertaking is arbitrary and violative of Articles 14and31; (f) that clause 5(2)(i) of the Act which excludes from the com­ pensation of the 'Amount' works paid-for by the consumers 1 is violative of Article 19{l){g) and Article 31; (g) that Section 10( d) providing for deduction from the 'Amount' sums due to ~he Government or the Electricity Board by the licencee account of electricity supplied by Government is arbitrary, as the provision empowers deduc­ tions of even sums bona fide disputed by the licencee of debts. {h) that, while proviso to Section 6{e) enables debts, mortgages and obligations of the licencee to attach to the "amount" to be given under the Act. Section 10 again envisages the same 'amount' to be deducted from the 'amount', leading to a possible double recovery of the same debt; ./. (i) that Section lO{f) providing for deduction of loss sustained by Government by reason of any property belonging to the undertaking not having been handed over at the \Ilarket- value of the prnperty is unreasonable in as much a~ under Basis B. Such Market-value is not but only the book-value is the basis of determination of the amount; l (j) that provisions of Section 8 which prescribes a period of one month during which the accredited representative has to exercise a right of auction is unreasonably short, rendering -·~ the procedure prescribed for the choice of the Basis of . determination of the 'Amount unfair and arbitrary.' ,. 'r--7. Re: Contentions (a), (b), & (c): These contentions could be dealt with together. The principal argument is that that there is no rational and direct nexus between the objects of the Act and the Directive Principles of (1) State Policy adumorated in _clauses {b) & (c) of Article 39 in as much as the VELLORE ELECTRIC CORPN. v. STATE [VENKATACHALIAH, J.) 489 "' impugned Act was brought forth only to' avoid the consequences of the · terms of thelleences and the beneficient provisions of Section 6, 7,and 7-A of tlie' Electridty Act i910. If there is, thus, no protection tci' the law of Artide 31-C; then its provisions would clearly vidlate Articles 14,19and31. .· · · ' · '' .·\. These contentions have to be examined with reference to the B · provisions of.the Constitution as they stood in 1973. Article 31-C was ' introduced by Section 3 of the Constitution (25th ·Amendment) Act 1971 with effect from 20.4.1972. Article 31-C, before !he expansion of its scope h.{the 42nd·Amendment, protected a law giving effect to the Policy of the Sfate towaii:ls implementing the principles specified in Clauses (h) &• ( c) of Article 39. Article 31 itself had not then been deleted but its scope had been considerably cut down and a law provid- c J ·i l ing for acquisition of property ;even if it did-not have the protection of Artide31-C, could not be'tested with reference to the adequacy of the 'amount' payable !pr th-.;'•kcquisitioit. The'!fjust;equivaleng or full- • ·~ indemnification pnnciple had been done away \Vitti and the question of , "• . ::.'":i the adequacy of the amount was Tendered non-justiciable .• ,;•· '-• -~ . D '. · ;•fli4 . ·~: was stre'imo'u~{~ ~;;~ -:~-s~\alve that ·t~e im~~;~d 1 Act;hadi ' ·~ ,, .no rational and direct n"exus:wiih the objects of.clauses (b) & (c) of ;:s::.,.J'•,;;f ~;· \- ·Article . 39.as the coveft'bilt easily discernible pu"rpose'of the A'.ct waS:,.' , • " -~;,:Ji !~ ' io;d~hy!to"i:he'iietitioners'•theif'ri@,ts llnder terms'b(the'iicence and. ""· ,;· ;J~, . tii:'l;~ benefit~otSectionk6; 71& 7(A)'of'the'f'191iJ Act'." A somewhat." E . . .l similiir•colitentioif was'. til'-ged in WP Nos.'457 &'458. of '1972. \vhere a ... • "' .. s~01l1_ar!leW,slation 'of,'.ih'fState ?t'A,;ssam·w~s·~haile?ged>The conten~ •. ·. ·• ~··.-~-'.''~.'.1••.'_'. • •·:. t10n _1s_ noticed m ouqudgment m those appeals thus:• , . ,... : '~ · 1 ·.>~· ':ij r:_;"l'-_. -,~ .• -·!_~·'.::· .. ~ .-:.,,f:~:·:. ·, -t!:";1·._~:_, _~f ~ " .. ' :·'' :··- - '.,:_ ' -~-;:·;., ' ~ , '~1 .. , . the a·cquisiticiflYof, the tWO' Uridertiikings are Cha[- . · · ... • Jenged bythe·petitionfr'on severaigroiinds;'the principal F' . ,,,_, ' .. '· attack, howevei/beirig that the Ie'gislations, brought forth, . . . as they were, in the wake of the private-negotiations and'' . 1;,:,the eiiercise• ot'the optfon fo purchas.e,:are not 'bo1lafiile, ('-{·.~. · ~~ bllt coils~~%~~ a·:me~~"~Olo'!ra~1e ~~~T~is·~,.:?! ~h.~~~~gislatiVe · 'ii: '"~power and that;' at''all eyents the 'rea1"m1ectsfof. the two . . leglslatfons haje no~iilir~C! arid "rea~nablf he~us~t? the G );. ''.' objects envisage in' clause (b}ofArticle 39 of tlie Constitu­ tion and that a careful and critical discernment of the con- . '''text in which thel[egislat[on was brought'forth would lay •1', ;.;·~-bare· before: the judicial eye that \Vhat was sought to be :;r;.~ :f';~ acquired was not "t'.illdertakings"Ofthe two ColliJ>anies but· <' '' .• really the difference between the -:;'market-v_ah,ie" of the H " '~ I '! ' }. ~ ' • ·k ii! J t- ,'.{ ' i. J • i 'D undertakings which the State had agreed, under the private treaties,.. to pay and what, in any event, the State was obliged ,.to pay under the provisions of Section 7 A, as it then stood on the one hand and the "Book-Value" of the undertaking, which the _law seeks to substitute on the other. If the protective umbrella of Article 31-C is, thus, out of the way, the 'amount' payable under the impugned ~- law, it is urged, would be illusory even.on the judicially accepted tests applted to Article 31(2) as it then stood 1 " " ..... Learned Counsel submitted that in order to decide whether a Statute is within Article 31-C or not, the Court has to examine the nature and character of the legis­ lation and if upon such scrutiny it appears that there is no nexus between the legislation and.the principles in Article 3~(b) the legislation must be held to fall outside the protec- tion of Article 31-C .... " , . ; ' · The contention was not accepted. Repelling it, we observed in the course of the judgm~nt in WP Nos. 457, & 458 of 1972: • .'·!, .. 'f "The proposition of Sri Sorab)~e,dn principle, is, there-• fore, une.xceptionable; but the question remains',whetlie~, . upon the application of the appropriate tests, the.impugned statute fails to measure-up to the.requirell)ents of th.e Con­ ,, stitution ~o earn.the protection under Article 31-C~''' ... " , 11 '· i i d'. ' '.'" ;j",, ·; ;+1 -~, "It ,is not disputed that the electricity generated and distributed . by the undertakings of the petitioner-com­ panies constitute "material resources of the community" for the purpose and within the meaning of Article 39{b)." l - . . " .... The idea of distribution Qf the material resources of ,the.community in Article 39(b) is not necessarily limit~d to , the idea of what is taken 'over for distribution amongst the intendb.d,beneficiaries. That.is one of the modes of "dis­ tribution". Nationalisation is another mode , . , . " .. "On an examination of the scheme of the impugned law the conclusion becomes inescapable that the.legislative· measure is one of nationalisation of the undertakings and the law is eligible for and entitled to the protection of Article 31-C." I ~- ... *' /' .. v - •··.·-~"r ' ' ·''·' ,f . . VELLORE ELECTRIC CORPN. v. STAIB [VENKATACHALIAH, J.) 491 Referring to the contention in that case that not every provision of a'•' A~ law can and need to eligible for the protection ofArticle 31-C and tliaf( " accordingly, the provisions as to the quantification 'of the amount ' which were meant to achieve an pblique motive ani:I interdicting and extinguishing rights to receive market-value under the 1910 Act would not attrad the protection of Article 31-C,It'was held: -' ' · ". . . . We are ·afraid this contention proceeds. on an impermissible dichotomy of the components integral to .the idea of nationalisation. The economic cost of social and . economic. reform is, perhaps, amongst the' most ,.vexed problems of social and econ.~ritic change and consiitiite tlie B' core element in Nationalisation. The •need for constitu­ tional. im'iliunities for such legislative efforts at =social anil C economic change. recognise· the ·· o'iii~rwise tun affordable ' ''rt - econoffiicburdenofreforms .; ... '-~.'· ~-. _:)-.:i .• . . !'i~::;·-,.;- ,,. .. ,,.,,f'i-·~ .er·~·"'' ;~f· "~·· 1 - '\j ~~-'- :'H:~ '.'It is·, therefore, not possible to.divorce the economic·:· ~onsideraticins 'or compci}l'cqfs .. frorit,,the scheme of the ~ 0 •.. 1•· · •·,• .nation_alisation,with .'whii:h the 1.fornier·· are. inexificably · ·l · iniegrated.' The ffinah~ial cost of 3' scheme bf natibnisaticin' ,,'\;',. · rlies.at-its>ery heart and 23:~not be isolated.· Both the provi: ''ir-: ·· "' sions relating·to the vestitute ofc'the,underialdngs in the., State. and f!'.those pertaining io the quantification of ·the . ,,,L,~• :'Am,sunt''.:aiedntegrar'aiidHnseparabte1-part~'of -the in-· E _,~;L 'JI. • '' ;/\ ., tegraJrscheine·of.llaticilialisation and do'not adinifof,being•· ;,.,-,,,,. - . '"lti,: · co~idered'•as]i'ctistfnct·· pro;isions .. independent of·,~ach) "":1"1 ,. t other." · -i - · '"'.'" i''.1 ·f.'t: ,.'>+,,-~~~-- -' ;,;;;,J,~':',~~:·:!:lf 1:,:=·;:;~~~ ~i:~~>' ~' . . >'Article 31,C or not.If Article 31-C comes in/Articles 14, 19 and 31 go,../-, ; !\I',~ :':-~~~~.;~i%f ~~=J~~;~i:~&J;~;ii: . '·;~' ' .,; 'in>.Goveirim~'ni',\under; the J'954· Act. •It, is, ·no 'doubt~'.true that G),. '!~ . "T appropriate.orders had been h,ad~ _under Secti6n 4(1) cif.11954 Act, Sri , , ;.4 . ,·~· ,,.. - - -. ' . 'r . . - .-___ ' ". - • " Salve:eonte.nds that.by·the ciperati,ori·of Iaw;.the.undertakings·of the ' · ·;ti twoJpetitio'llers, ,namely;'.Kumbakonam .Electric Supply Corporation cii ,,:,;'1 Ltd:· ;arid Nagapatani;,Electrlc·:Supply .Co. Ltd,,;'became 'vested dn • " .. ,,,,. Government and that Section 23 of thep~esent Act virtualiy creates an j artjficial'.divestitive)event and s~~ks'!tci ~e-inv!:.~r•{i.~gai.!.'.in pi'ivern- Hi it ,:41. "' .. :'' -:' ~- ,_ ' :'~,. i.: .• ~ .. .,,:- :;,, -'~-:~ ::t,J:·,~·(, ~·<1~"f;ti:~·:,~,i+~ ;.· ~r •: ~~~r'"<i~ ~~~:.'?~ ~,r-"'~' 9>~ ment by the. device under the impugned Act with the sole object of cutting down the quantum of the "amount". Sri Salve pointed out that Section 5 of the 1954 Act envisaged three alternative Bases-Basis A, Basis B, and Basis C-and_tha_tunder Basis A the amount equal to 20 times of the average net annual profit of the undertaking during a period of five consecutive accounting year.; immediately preceding the vesting date was payable. The number of years' purchase value is, Sri Salve says, now reduced to 12 by the impugned Act. Shri Salve submits that the amount payable under the 1973 Act is wholly illusory. 9. Shri Shanti Bhushan, learned Senior _coµnsel for the State, submitted that if it is held that the legislation has the protection of Article 31-C, barring the question of legislative competence all other attacks based Oil Articles 14 and 19 and 31 cannot be countenanced. Sri Shanti Bhushan submitted that all the contentions that the petitioners 'f advance in support of their challenge to the validity of the Act rest, in the ultimate analysis, on Articles 14, 19 and 31 which is precisely what Article 31-C forbids. So far as legislative competence is concerned, Shri Shanti Bhushan submitted that it is;referable to Entry 42 of List III and with Presiden­ tial assent, the legislation prevails over any other law and, t[\erefore, no question. of lack of legislative competence can be urged. Learned counsel s_ubmitted ihat the contentions urged by the petitioners, in the last analysis, wo_uld amount to this:.,that a legislation1which -offends Articles 14. 19 and 3 t •would ~ot be a valid law at all and would, therefore, not•be•eligible to.protection.Article of 31-C. If a law satisfies the demand of Article 14, 19 and 31 then such a law, says learned counsel, would not need the protection of Article 3_1-C at an' and that such an· approach would render Article 3 l'C itse!Fmeaning- less. •· ,, In regard to the Contention (d), Sri. Shanti Bhushan would say that it proceeds on a factual fallacy. There cannot; it is urged a vesting·'' of the undertaking )n the Government und~r the 1954 Act urile!i!; the,' concept of vesting ,has and is accompained by, the plen_itude ··of the•­ legal incidents a:nd ·consequences of such vesting for purj>oses of the· • implementation of the 1954 Act. When. the delivery of possession of · the undertaking pursuant to the alleged vesting under the 19~4Act ha'd been interdicted by:'the High Court and the Suprem-e Couri by ordiors of stay,•at the instance of the petitioners, the exercise under the 1954 Act became infructuous and the present stance of the petitioners is mer_ely an attempt tri exploit to their own advantage a situation emerg- ;~ - - - - ·V ; ( VELLORE ELECTRIC CORPN. v. STATE (VENKATACHALIAH, J.) 493' ing from the· consequences of their own;. actions. That apart, the con­ tentfon (d), says counsel, is re.ally one based on.Articles 14, 19 and,31 and the protection of Article 31-C to the Act would, in any event, disallow any such attack.· i · , ' ·~ . , ~ 10. On a consideration of the matter, we think that all the Contentions-::-( a). (b), (c) and (d)-are covered in one form or the other B -by our pronouncement in WP Nos. 457 and 458 of 1972. We are also of ... -,. , the opinion that Sri Salve's contention that what was sought to be acquired was mere "choses-in-action" is not sound. In any event, the 'decision of this Court in State of Madhya Pradesh v. Ranojirao Shinde & Anr., [1968] 3 SCR 489 relied upon by Shri Salve to contend that choses-in-action could not be acquired would require. to be read with -"'c' later pronouncement'in Madan Mohan Pathak v. Union of India. & ::· Ors:, [1978] 3 SCR'334. It is not necessary,' however, to pronounce on this poini as in our view what was acquired were not mere,ly choses-in-" action.but the undertakings-themselves. : ·,·, Ji • . . .. Contentions (a).;'•(b) and (c),accordingly fail and a~e held and ,,p answered~and againSt.ihe p~titione·rs. .--· .· : · ; . "- :," ¥_~-, ~!'l~(~: .. l~'~·;::'"-,;'.lf,:"·;_ - .·_,_·,: "'. f'l ··J· . . ·,_,~!I:· -<- i· •' ·11. R~.:· Cqnteniion (d):\r'. ,, ··r; "• -~- }f ~hi:~~u!Jll~sion of l~~~l~··;6u~~el on':~he -$o:~t is' that;. the: ::·~;)~ ·;~ .· ,_ .. ilnpugned ,Ac(confers upon thetState·\GC\V'ernili~tit an altemali'\'e. ~ :,.~~'~,. -\~~ .. ;~prOcedure,-::~OnCurrently ·with :the· orie enVis'ag~d:;'iri Sec: 6 :al the r. .. -· · .. ;·-·· ._·-~ri.--~-f~:.;7~~~ - . Electricity. Act, i1910, for attaining the same end viz., the' acquisition oL, ... .. . • ' :~~~l~~[~c;~~~:~n~~~i~~~!:J~~~~eif i:~~~:~;~ii~;~:·a~~~~jl~f~;: ~ :,,;:,;>!'! :i> , . - ,,.__~ . •. -· ,._.. . - , ,,~. "' ; • - ,;_~'"':H j ta](e away the" property of the licensee. The option under St!c. Fis ·;.' ' ' · -''really sta!Utory and in its. essential .nature the power ih1ot distinguish- F~:,~./ .' able tr6m 1the, State's power to ~equire an inC!ividual's properiy wh_ich ,__ - • {- •_: - . - _. . ,. - ~,_ - ' •;1-< : .• (:-:'~ .,.,. . ·' really.is and forms the basis of the impugned Act.:::" · · ~- ; ~ - . ··: . ·-.:;;; }7-, "'.' J""' ; ' ·_·:t_-.,1 ~ ·: ' . ~ - ' - . . ·.: ·---'' . •Jt appears. to us that there are:certain falla;ieS'basic to ,!1Je'iifgti- ·::A' ~~en~, The sp~cial nature of the .sub1~ct matte'; of~he gr~nt m'r<;,l .. at!.'W _ . '"'t· . ~.. to·d1stnbul!on"m the· commumty of such matenal-resources ~be<1t G,. ·; · l' . electricity; :.Vater,. gaf~r other _essential amenities of life-was ~~c~g-• ;' ';:.-:ii . •. ,~. · riisecf bf this Court.!rThe following observations· ohhe United >States · ~: '"1'- Siiprem~ Court in Ne_w Orleans Gaslight Co: v. Louisiiine Light _&, • HeatProdui:ing&Mfg. Co., 115U.S.650werereferredto: ·c. 4:' ·: ,: .. r, i,:,..~ . -- f _· - ' - ;, ••. -_2 -. l. '.'.·:~·'.:..:-;> .. "the manufacture and distributfrm of gas by· means of•:. H .<•::. 1 . ~-:· . ·,, .. '~ ,~,e1:i:£:~'.1;:~ ~":,',,_' .),{:- I ~·.· i~, '•· ' '* . *' -. ' pipes, mains and conduits placed under legislative autho­ rity in the public ways of a municipal.ity, is not an ordinary business in which everyone may engage as of common right upon terms ~f equality; but is a franchise relating to matters of which the public may assume control ..... " and said: " .......... It thus appears that American Lawyers describe the business of supplying energy as well as the business of supplying water and gas as a franchise, and it · also appears that, in granting licence or sanction to a person to engage in such business, a condition is usually imposed for the compulsory acquisition of the business when the licence or sanction comes to an end". [See The Okara .Electric Supply Co. Ltd . . v. The State of Punjab, AIR 1960 SC284] If the ,impugned law is within the legislative competence of the State Legislature-as indeed it must be held to be-the State law, with. the Presidential assent, prevails and i~.not over-borne by the Central '' law .. The impugned State law, by its 22nd Section, express.ly exdudes the operation of any p~ovision of the Electricity Act, 1910, in so far a.s such provision~ incbnsistent with the provisions of the State-Law. ' · · " The constitutional immunity afforded to the State.law prevenis :. ' any challenge to it on grounds based on Article 14 or 19.We have held that the State law.has such protection. The contentioin (d) has thus, no foundation.It has to fail. · . · · F Re: Contention (e): , • ... 12. "This pertains fo the liability of the license.e to account to Government in respect of possession of and any benefit derived from the undertaking after.the date of the vesting. This provision is assailed as arbitrary and unconstitutional. There is nothing unreasonable about · · G . this provision which merely recognises the obligation of a licensee to ·' account for its acts in relation to a property which has already vested in Government. There is no substance in this contention either. ' .• · 13. Re: Contention (f): H This contention arises in the context of Sec. 5(2)(i) of the Act. In -l '""';.<"' '-~,t -:~ ',,j .:{ J ~~1· . :· ;, :t· - .~ !; • VELLORE ELECTRIC CORPN: v. STATE [VENKATACHALJAH, J.] ' -~· 495 I.( computing the amount payable .under "Basis B" .. the aggregate value of· tb~ sums.· specified iri several clauses of 1 'Sec. 5(2) has to be-taken.. ·A Se~. 5(2)(i) while requiring the,b'ook value of all •;completed-works in beneficial use pertaining to the.undertaking and handed over.to the "Government" to be taken, however, excludes therefrom works paid •••• for by the consumers. The contention of the petitioners. is that the B J "works paid for by the consiimer" is .. also the propert:Y of the licensee -1 and cannot ;legitimately be excluded. A substantially similar conten- -._ tio_n was urged a11d has b!!en considered and negatived at p_ara 29 of our judgment in_,~P Nos. 457 and 458 of 1972. The reasons ~lated by us in negativing the-content.ion in that c~se fully answer the present point: Con,tention (f) is also _insubstantial. •" . . ?~ - "''·' '14.',Re: Contention (g/ -r .,u· ::- -,,:-'1 '.. ·. \·;'-~ • . ,( c ,, ; , .• ,i., ,,:o;Section 1!Q(d) ,envisages,..:de?uction.from _the amount, payabl"" 'fowaros.and on account of arrears of electricity charges payable by the >S".;.-~---~ - - . ···_· :·-: • ·: ""'.'".: .. '":J - _-- _ .. ' """" '" - • lice,I1seeto th_e, Goyernmento,r ,the, ~ectricity B<?ard a~ the _case may b~~fqr,th". supplypf Electricity.made by ,th~m t_othe licensee: '.fhis_isa D .. ;,, legiti.1nate ,item,: of .deduc5i<>,n·.::B11t; th~ poin! .. ShricSalve. sought. to put :; . across is.that,.even £!:, disputed1and,.untenable Claim in that .behalf• '"' [,i(· . , b~co~~s. e11tt~l.e~ 1 tq,dedilction,. :mer~· is ":~just!ficatio,n for, this ~ppre- f'~1 • h~11s1on. ~e~t!,?n p< l)(e ! m?k~~ s1;1.~h a dWP,1;1te ~?n~ otthe arb1tr'lbJe ' . 'i ~. ·' : ·. d1sp1;1tes !1.nd ito .• d<?duct15m>:of a disput~d .~.tail\!: can b.~justified liy ... • lt-.. ji~-':;.,: rq~~~e~f!!~~ft_-~f tti~ .. ~fRUE.~\~~;;.w~~01'is'~r:,J1_aS q¢~e~:~ RiSt,~i,~:~-I~-dg: -~r a ,_ E • (11' ... ~e.~7,.d1 ~1?h Co!lrt J?dge"'.!hol~~:.f)!a\othefd:,~uctI()n 1s: 1~e1ust~f1ed;.; > i .• • ~ t." , ,~Jet~~l~p~ (g) h~s n? s~bsta~cee,it~:r.J, . .,,.,, •... · '" ·: .. '\t ,,, r , ... ··~ ;~:~,· '.'.'.'.--_-:.-~:fr --~1(·,i!.,~~ .,f · ·fl-·., _ _.. ·1: ,~;<t't· ''..ti.--~~~: .- :1 ·.;r~-· "'· ':ft, r. • .. : .:~-~ ";!' .. ''"··'··· · "15.,:'Re: Conten"tion..(h):: ·.,.'" .•. ,,. •.·· ·.,, ,:. '"' ~ .:~(.- ~-~;,,,:J:~J· ~i· '· '- -- ~· _~.-;_,,~ :··· :·1 ./i" l . , 'i<:,The,gliey~nce S()!!gh_:t~~be,mad~ out~n:the matter i~ that ~bile . Ff't' Se".tr,on 6(2).of the Act.has the effe<;t of vestmg all the:assets,spec1fied;, .. · in Sec~ 6(2)(i)(o) in Gciv.emment free froin encumorances ,and the · .~~_proviso to Sec. 6(2) renders the amount ·payable to the'licensee as · "'' " ... s,~~stituteJ.,secJ!rity for tre. dejjts; m?rtga~~s~al)d _obligations _in sub- · .. ; . :· , S~\tUtIC>~ ,of. the \j!SSf ts· vestmg m.8ovemment;,however, •,;>ec. 10( e) , ·::..~ :, render,;;.,CJ11e_species,sif.s~ch debt viz,: sums due .. to theG<Jy.ernment o~,. G .• '" . . the.:Electnc1ty Board, hable _to be deduc_te~. frgm. the amo!'nt. Shn ' , ts~tyio,contends that this would make. for a'double' recovery of.the same , •. , . deb~; This,;\Ve are afraid, is a,wrong \Vay of looking at the,two.provi- · ... \1'.. _ . 'sions: If.a.debt is deducted from the "amount",.the debt issatisfiecl .. ~~~ :is~'?~tinguish~d and. no;'.,~lther deb~ remain~ ·outstanding· t.,;,/iet_ i 1tse[f, attached to and• became an encumbrance. upoll' the substituted•~·". H• *1.!:i}~~- ""'"' /;.- '":",,,<· ,- . .-: : - - . ~~- - .,.- . .·. :_~ :· --·: .-,· .. ': ;·;_:;:-~·~:·i~~;. ~' ;. ,, l. '· 14' " ,, if .• :i " 'i ' <, ., ' , , ~- '.~ -~ , i_ ' ' '.\. 496 SUPREME COURT REPORTS [1989) 2 S.C.R. security viz., the 'amount'. Sec. 6(2) and Sec. lO(e) must be construed harmoniously and in a reasonable manner. There is no scope for· any_ apprehension of a: possible double recovery of the same debt. There is no substance in contention (h). 16. Re: Contention (i): ~ The point of the matter is that sec. lO(f) entitles the deduction of ~ the market value of any "property" or "right" which vests in Govern- ment and which is not delivered by the licensees to Government. The grievance of the petitioner is that while recovery of "market value" is sought to be made for non-delivery of the item, however, in computing the "amount" only the "book value" of such "property" Or "right" is taken into account. This, it is contended, is an instance of application of double standards and is, therefore, arbitrary. We see no substance in this contention. •Tue measure of the reimbursement for an asset withheld by the licensee is the corresponding expenditure to beiiii.cur{ red by Government for replacement which, in eminently conceivable' cases, could be the market value· of the asset which is so' withheld by · the licensee and which has to be replaced fo keep the undertaking functioning. There is no substance in this contention either. }I ·17. Re: Co'!.lention (j).: Shri Sa!Ve submitted that the·accredited rep~esentative 'is,··~ri?er • sec. 8(1), given only a .month's'tim~.from the date of his appointme'nt to signify the choice under sectiori·5'as to oftlie basis of delerm\ri~tibri;': · of the amount. The time granted, it is said, is\mreasonably short. Th~. argument clearly o~erlooks the cla~se 'or ~heh rurther time as may be granted by the Government' occurring in Section 8(1). If the exercis'e of this power is arbitrary or capricious the lice.nsee has remedies in Administrative Law: But the· provision itself cannot be held to be bad;. There is no substance· in this contention either. 18. Certain other subsidiary contentio~'s were urged a.t the hear-'' ing. All these matters have been elaborately cons_idered in· our.judg- ' .-! ,_,, L G ment in Writ Peto. Nos. 457 and 458 of 1972 arising out of the Assam • "- legislation. We have not foun~ any merit in them. '" ·' · ·."• . 19. However, "there is one aspect which merits consideration. Shri Salve submitteil thatthe petitioners in Writ Peto. No.: 5(N) of 1974, .who initially, on 16.1.1974, had opted for basis A had sought a· H change to basis B by their application dated 4.10.1977. On 2:2.'1978, .. , - . - •'), - .~: . VELLORE ELECTRIC CORPN. v. STAIB [VENKATACHALIAH, J.] . '497 ·.jll Government refused :to permit the change. Shri Salve submits that a. serious and indeed, irreparable hardship has been occasioned to the petitioners by this arbitrary refusal. In these writ petitions we have dealt with questions of constitutionality leaving the questions of con­ struction of the provisions to the appropriate authorities. However, having regard to the checkered history of the proceedings, it appears to us that Shri Salve's submission deserves to be accepted. Accord­ ingly, the. order of the Government dated 2.2.1978 refusing a change in the basis for determinatiOn of the amount is set aside and the Govern­ ment is directed to consider and dispose of the application dated 4.10.1977 afresh within two months from today. We make it clear that the Government shall not unreasonably withhold the permission for the change. 20. In the result, subject to the direction in para 19 supra relat­ ing to W.P. No. 5(N) of 1974, we find no substance in these writ petitions which are dismissed. There will be no order as to costs. T.N.A. •; - Petitions dismissed. If··' ··•t<'~·.' 1 - -~: A D ·.~