Holding

The amendment is constitutionally valid and the takeover on 6 February 1974 falls under the amended provisions, making book value the payable compensation.

Summary

The Bihar State Electricity Board served a one‑year notice to Patna Electric Supply Co. in January 1973 to purchase its undertaking, which was taken over on 6 February 1974. While the takeover was pending, the Indian Electricity (Bihar Amendment) Ordinances and the 1974 Amendment Act changed the notice period to six months and stipulated that compensation be based on book value rather than market value. The respondents challenged the validity of these amendments as violative of Articles 19(1)(f) and 31(2) of the Constitution and argued that the original notice entitled them to market value. The Supreme Court held that the amendment was a valid exercise of the State’s power to nationalise electricity undertakings, fell within the protection of Article 31(c), and that the earlier one‑year notice satisfied the new six‑month requirement, so the takeover was governed by the amended provisions and book value was payable. Consequently, the appeal was allowed, overturning the lower courts’ decisions.

Issues considered

Whether the Indian Electricity (Bihar Amendment) Act, 1974 and related Ordinances violate Articles 19(1)(f) and 31(2) of the Constitution.
Whether the amendment can be applied retrospectively to a takeover that occurred after the notice but before the amendment came into force.
Whether a notice of one year satisfies the amended requirement of a minimum six‑month notice, obviating the need for a fresh notice.
Whether the amendment is protected under Article 31(c) as part of a scheme of nationalisation of electricity undertakings.

Legislation cited

Electricity Act, 1910s. 6, s. 7-A

Subjects

constitutional lawnationalisationelectricitycompensationbook valuemarket valuenotice periodretrospective legislationArticle 19Article 31Article 39takeover

Judgment

BIHAR STATE ELECTRICITY BOARD A
v.
PATNA ELECTRIC SUPPLY CO. LTD. AND ORS.

MAY 12, 2000

[S. SAGHIRAHMAD, Y.K. SABHARWAL AND S.N. VARIAVA, JJ.] B

Indian Electricity Act, 1910: Sections 6 and 7-A (as amended by Act
15 of 1975).

Electric company-Purchase/takeover of-After issue of Ordinance- C
Challenge of-On grounds of violation of Arts. 19(1)(/) and 31(2)-Held:
Amending Act/Ordinance not violative of Arts. 19(1)(/) and 31(2)-Hence
valid-Indian Electricity (Bihar Amendment) Act, 1974-Constitution ofIndia,
1950, Arts. 19(1)(/) and 31(2).

Electric Company-Purchase/takeover of-Market value or Book D
value-Payability of-Notice of takeover given on 5-1-1973 and undertaking
taken over on 6-2-1974 after promulgation of amending Ordinance-Held:
On the day of taking over unamended S. 6 no longer stood on the Statute
book-Notice of one year is a notice of not less than 6 months-ft is
unnecessary to give fresh notice-Therefore, the takeover is under the E
amended Sections-Hence, book value is payable, not market value.

Respondent No. I was granted a licence for supply of electric energy.
One of the terms of the licence was that at the end of the licence period the
Government had a right to purchase the undertaking. The licence was for a
period of 50 years. On the expiry or the licence period the appellant served a F
notice dated 5-1-1973 on respondent No.I under Section 6(1) of the Indian
Electricity Act, 1910. By this notice the appellant called upon respondent No.I
to sell its undertaking. The undertaking was accordingly taken over on 6-2-
1974.

Subsequently, Sections 6 and 7-A of the Act were amended by the Indian G
Electricity (Bihar Amendment) Act, 1974, which came into force on
2-2-1974. The Amending Act provided a notice period of not less than 6 months
instead of one year. The purchase price was the book value of the undertaking
instead of the market value. The first respondent's undertaking was taken
over after the amending Ordinance. H
379
380 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A The first respondent challenged the validity of the Ordinance and the
Amending Act before the High Court on the ground ofviolation of its rights
under Articles 19(1)(f) and 31(2) of the Constitution. The High Court upheld
the cballt:nge. Hence this appeal

Allomng the cppenl, this Court
B
HELD: 1. The undertaking was taken over on 6-2-1974. On tbct day
the unamended Section 6 of the Indian Elt:ctricity Act, 1910 no longer stood
on the Statute book. It bas been replcced by a new Section 6, which was
incorporated by the Indian Ekctricity (Bibar Amendment) Act, 1974 (Act No.
15of1975). Undoubtedly the Amending Act provides for a notice of not less
C than 6 months. It was not necessary to give a fresh notice. The fll'St respondent
bad been given a notice of not less than 6 months. Therefore, the takeover
was under the amended Sections. On the date of takeover what was payable
was book value and not market value. (387-D-EJ

D Tinsulchia Electric Supply Co. Ltd v. State ofAssam, (1989) 3 SCC 709,
followed.

Maharashtra State Electricity Board v. Th<fne Electric Supply Co.
(1989) 3 SCC 615 and Ve/lore Electric Corporation Ltd v. State of Tamil
Nadu, (1989) 4 SCC 138, relied on.

E Patna Electric Supply Co. Ltd v. Bihar State ElectriciJy Board, AIR
(1982) Cal 74, reversed.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2630 of
1982.

F From the Judgment and Order dated 22.7.81 of the Calcutta High Court
in Appeal from Appellate Order No. 16 of 1980.

V.R. Reddy, Dr. A.M. Singhvi, Ms. Pareena Swarup, Sunil Morarka,
Praveen Swarup, Pramod Swarup, Bharatiji Jaiswal, Pradeep Agrawal, A. Mishra,
A.P. Dhamija, Sushil Kr. Jain, Ms. Meera Mathur and V. Shekhar for the
G appearing parties.

The Judgment of the Court was delivered by

S.N. VARIAVA, J. I. This Civil Appeal is against the Judgment dated
22nd July, 1981, delivered by a Division Bench of the Calcutta High Court
H (since reported in AIR (1982) Calcutta p. 74). By this Judgment the Division
BIHARSTATEELECTRICITYBOARD v. PATNAELECTRICSUPPLY[S.N. VARIAVA,J.] 381
Bench dismissed the Appeal filed by the Appellant against a Judgment of a A
learned single Judge of the Calcutta High Court which upheld the challenge
of the 1st Respondent to Ordinances and Amendment Act set out hereinafter.
2. Briefly stated the facts are as follows:

On 6th February, 1924 the Government ofBihar Pradesh granted to one B
Mis Octavices Steel & Co. Ltd a licence for supply of electric energy. This
licence was subsequently transferred to the I st Respondent. One of the terms
of the licence was that at the end of the licence period the Government had
a right to purchase the undertaking. The licence was for a period of 50 years.
The 50 years period would thus end on 5th February, 1974. On 5th January,
1973, the Appellant served a notice on the lst Respondent, under Section 6(1) C
of the Indian Electricity Act, 1910 (hereinafter called the said Act). By this the
Appellant called upon the l st Respondent to sell the undertaking to the
Appellant on the expiry of the period of 50 years from the commencement of
the licence, i.e., at 12 O'clock in the night between the 5th and 6th February,
1974.
D
3. Respondent No. 5 is an Electric Company whose undertaking is also
purchased. They were added by Order dated 31.3.1992. In their case the facts
are that they were granted a licence for 50 years on 17th September, 1914. The
Notice to take over was given on 9th August, 1963 and the undertaking was
taken over on 17th September, 1964.
E
4. On 2nd February 1974, Indian Electricity (Bihar Amendment) Ordinance
No. 50 of 1974 was passed. This Ordinance amended certain provisions of the
Indian Electricity Act. This Ordinance was followed by two other Ordinances
being Ordinance No. 83of1974 and Ordinance No. 123of1974. Thereafter,
the Indian Electricity (Bihar Amendment) Act, 1974 (Act No. 15of1975) was F
passed. These Ordinances and the Act, amended amongst others Sections 6
and 7-A of the Indian Electricity Act.

5. At this stage it is necessary to see what the unamended Sections 6
and 7-A provided for. They read as follows:
"6. Purchase of undertakings.-{ I) Where licence has been granted G
to any person, not being a local authority, the State Electricity Board
shall, -
(a) in the case of a licence granted before the commencement
of the Indian Electricity (Amendment) Act, 1959 (32of1959),
on the expiration of each such period as is specified in the H
382 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A licence; and

(b) in the case of a licence granted on or after the commencement
of the said Act, on the expiration of such period not
exceeding thirty years and of every such subsequent period,
not exceeding twenty years, as shall be specified in this
B behalf in the licence; have the option of purchasing the
undertaking and such option shall be exercised by the State
Electricity Board serving upon the licensee a notice in writing
of not less than one year requiring the licensee to sell the
undertaking to it at the expiry of the relevant period referred
to in this sub-section.
c
(2) Where a State Electricity Board has not been constituted, or if
constituted, does not elect to purchase the undertaking, the
State Government shall have the like option to be exercised in
the like manner of purchasing the undertaking.

D (3) Where neither the State Electricity Board nor the State
Government elects to purchase the undertaking, any local
authority constituted for an area within which the whole of the
area of supply is included, shall have the like option to be
exercised in the like manner of purchasing the undertaking.

E "(4) If the State Electricity Board intends to exercise the option of
purchasing the undertaking under this section, it shall send an
intimation in writing of such intention to the State Government
at least eighteen months before the expiry of the relevant period
referred to in sub-section (I) and if no such intimation as aforesaid,
is received by the State Government, the State Electricity Board
F shall be deemed to have elected not to purchase the undertaking.
(5) If the State Government intends to exercise the option of
purchasing the undertaking under this section, it shall send an
intimation in writing of such intention to the local authority, if
any, referred to in sub- section (3) at· least fifteen months before
G the expiry of the relevant period referred to in sub-section (I)
and if no such intimation, as aforesaid, is received by the local
authority, the State Government shall be deemed to have elected
not to purchase the undertaking.
(6) Where a notice exercising the option of purchasing the
H undertaking, has been served upon the licensee under this
BIHARSTATEELECTRICITYBOARDv. PATNA ELECTRIC SUPPLY [S.N. VARIAVA,J.) 383
section, the licensee shall deliver the undertaking to the State A
Electricity Board, the State Government or the local authority, as
the case may be, on the expiration of the relevant period referred
to in sub-section (I) pending the determination and payment of
the purchase price.

(7) Where an undertaking is purchased under this section, the B
purchaser shall pay to the licensee the purchase price determined
in accordance with the provisions of sub-section (4) of Section
7-A."

6. Thus, under Section 6( I) a notice in writing of not less than one year
was to be given and the purchase price was to be determined in accordance C
with the provisions of sub-section ( 4) of Section 7-A.
7. Section 7-A, as it originally stood, read as follows:

"7-A Determination ofpurchase price.-( I) Where an undertaking of
a licensee, not being a local authority, is sold under sub-section(!)
of Section 5, the purchase price of the undertaking shall be the market D
value of the undertaking at the time of purchase or where the
undertaking has been delivered before the purchase under sub- section
(3) of that section, at the time of the delivery of the undertaking and
if there is any difference or dispute regarding such purchase price, the
same shall be determined by arbitration. E
(2) The market value of an undertaking for the purpose of sub-
section (I) shall be deemed to be the value of all lands, buildings,
works, materials and plant of the licensee suitable to, and used by
him, for the purpose of the undertaking, other than; (i) a generating
station declared by the licence not to form part of the undertaking for F
the purpose of purchase, and (ii) service lines or other capital works
or 'illlY part thereof which have been constructed at the expense of
consumers, due regard being had to be nature and condition for the
time being of such land, buildings, works, materials and plant and the
state of repair thereof and to the circumstance that they are in such
position as to be ready for immediate working and to the suitability G
of the same for the purpose of the undertaking, but without any
addition in respect of compulsory purchase or of goodwill or of any
profits which may be or might have been made from the undertaking
or of any similar consideration.

(3) Where an undertaking of a licensee, being a local authority, is sold H
384 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A under sub-section (I) of Section 5, purchase price of the undertaking
shall be such as the State Government, having regard to the market
value of the undertaking at the date of delivery of the undertaking,
may determine.

(4) Where an undertaking of a licensee is purchased under Section 6,
B the purchase price shall be the value thereof as determined in
accordance with the provisions of sub-sections (I) and (2):

Provided that there shall be added to such value percentage, if
l!flY not exceeding twenty per centum of that value as may be specified
in the licence on account of compulsory purchase."
c 8. Section 7 is also relevant. It reads as follows:
"7. Vesting of the undertaking in the purchaser.-Where an
undertaking is sold under Section 5 or Section 6, then upon the
completion of the sale or on the date on which the undertaking is
delivered to the intending purchaser under sub-section (3) of Section
D
5 or under sub-section (6) of Section 6, as the case may be, whichever
is earlier -
(i) the undertaking shall vest in the purchaser or the intending
purchaser, as the case may be, free from any debt, mortgage or
E similar obligation of the licensee or attaching to the undertaking:
Provided that any such debt, mortgage or similar obligation
shall attach to the purchase money in substitution for the
undertaking;
(u) the rights, powers, authorities, duties and obligations of the
F licensee under his licence shall stand transferred to the purchaser
and such purchaser shall be deemed to be the licensee:
Provided that where the undertaking is sold or delivered to
a State Electricity Board or the State Government, the licence
shall cease to have further operation."
G 9. The change brought about by the above mentioned Ordinances and
the Act was that instead of one year's notice, it was provided that the notice
should not be of less than 6 months. In Section 7A instead of purchase price
being the market value, it was now provided that the amount payable for the
undertaking would be the book value of the undertaking. Thus, instead of
H computing the market value, there had to be computation of the book value.
BIHARSTATEELECTRICITY BOARD v. PATNA ELECTRIC SUPPLY [S.N. VARIAVA,J.] 385
Section 7-A(3) now provided for the payment of a solatium of IO per cent of A
the book value.

10. It must be mentioned that the above mentioned Ordinances and
Amendment Act were part of the policy of nationalisation of electric companies
by the Union of India. Similar amendments were made by many States. Electric B
companies, all over India, were sought to be so purchased. Like the I st
Respondent, a number of other Electric Companies challenged the
constitutional validity of the amending Act/Ordinance. The challenge was,
inter alia, on the ground that the rights under Article 19(l)(f) and Article
31 (2) were being violated. It was also claimed that the Amending Act/Ordinance
was invalid as it had no reasonable or direct nexus to the principles under C
Article 39(b) of the Constitution. It was also claimed that, in effect and
substance, the law was not one for acquisition of electrical undertakings but
was one to acquire a chose-in action and to extinguish rights, which had
accrued in the Electric Companies, to get the market price. It was contended
that the right to get compensation accrued on the day the notice was given.
It was contended that what was being acquired was the difference between D
the market price which the State was obliged to pay and the book value to
which the liability was now sought to be limited. It was claimed that as the
Act was merely a clock which the law was made to wear to undo the obligations
arising out of intended statutory rule Article 31 (c) was not attracted. It was
also claimed that in any case, every provision of a statute was not entitled E
· to protection of Article 31 (c) but only those which are necessary for giving
effect to the principles in Article 39(b) and accordingly the provision in the
impugned law in relation to the determination of the amount do not attract
Article 31 (c). In all the matters it was claimed that the purchase price should
be the market value.
F
11. A Constitution Bench of this Court in the case of Tinsukhia Electric
Supply Co. Ltd v. State of Assam, reported in (1989] 3 SCC 709, upheld the
validity of the Act/Ordinance. This Court held that the Act had nexus with
the principles in Article 39(b) and was therefore protected by Article 31 (c ).
It was held that the Act was not a piece of colourable legislation. It was held G
that the electric energy generated and distributed was a "material source of
the community" for the purpose and within the meaning of Article 39(b). It
was held that the idea of distribution of natural resources in Article 39(b)
envisages nationalisation. It was held that on an examination of the scheme
of the impugned law, the inescapable conclusion was that the legislature
measure was one of nationalisation of the undertaking and this law was H
386 SUPREME COURT REPORTS (2000] SUPP. I S.C.R.

A eligible for and entitled to protection of Article 31 (c). It was held that it was
not possible to divorce the economic consideration or component from the
scheme of nationalisation with which the former are inextricably integrated. It
was held that the financial cost of a scheme lies at its very heart and cannot
be isolated. It was held that with the provisions relating to vestiture of the
B undertaking in the State and those pertaining to the quantification of the
amount are integral and unseparable parts of the integral scheme of
nationalisation and do not admit of being considered as distinct provisions
independent of each other. It was held that the provisions for payment of
amount to the undertaking, by reducing the market value to book value,
formed an integral part of the nationalisation scheme and that economic
C consideration for nationalisation was not justiciable. It was held that what
was being acquired was the material resources of the community. The
contention that immediately upon giving of the notice the rights got crystallised,
was negatived. It was held that the exercise of the option did not affect
licensee's right to carry on business. It was held that the licensee's rights
would be affected only when the undertaking was actually taken over. Similar
D view was taken in the cases of Maharashtra State Electricity Boardv. Thana
Electric Supply Co. & Ors., reported in [ 1989] 3 SCC 616, and Ve/lore Electric
Corporation Ltd v. State of Tamil Nadu, reported in [1989] 4 SCC 138.

E
12. It must be mentioned that in all the abovementioned cases the
undertakings were taken over, i.e. they vested in the Government either prior
.
to or on the same date as the Ordinance. As seen from facts set out above
in the case of the I st Respondent the Ordinance is prior to the undertaking
being taken over. Thus, the principles laid down in abovementioned case ,
would apply to this case also. However, in case of the 5th Respondent the
undertaking was taken over on 17th September, 1964, whereas the Ordinance
F is in February 1975.

13. Mr. S. K. Jain, however, submitted that the principles laid down in
the above Judgments do not apply to this case. Mr. Jain submitted that in
all the abovementioned decisions the Ordinances/Amending Acts were either
G prior to or on the same day as the takeover of the undertaking. He submitted
that in this case the takeover is much earlier to the Amending Act. He
submitted that the Ordinances, i.e. Ordinance Nos. 15 of 1974 and 123 of 1974
did not apply and, therefore, the takeover was not under those Ordinances.
Mr. Jain took the Court through the provisions of the aforementioned
Ordinances and submitted that the provisions of these Ordinances are
H completely different from those of the Ordinances/Acts in the cases decided
BIHARSTATEELECTRICITYBOARD v. PATNA ELECTRIC SUPPLY [S.N. VARIAVA,l.] 387
by the Court. He submitted that the takeover was under the unamended A
Sections 6 and 7-A. He submitted that on February 6, 1974, as the takeover
was under the unamended Sections 6 and 7-A of the Indian Electricity Act,
the !st Respondent became entitled to receive market value. In support of his
submission he took this Court through the Ordinance No. 50 of 1974 and
Ordinance No. 123of1974. He submitted that amended Section 6 in Ordinance B
No. 50 of 1974 provided that a notice in writing of not less than 6 months
was to be given. He submitted that in this case a notice of one year had been
given on January 5, 1973. He submitted that it was thus clear that this notice
was under unamended Section 6. He submitted that after the Ordinance no
fresh notice had been given. He submitted that the acquisition was under the
unamended Sections 6 and 7-A and by the Amending Act 15 of 1975 there C
could be no retrospective amendment taking away vested rights.

14. We see no substance in these submissions. As mentioned above the
undertaking was taken over on February 6, 1974. On that day unamended
Section 6 no longer stood on the Statute book. It has been replaced by new
Section 6 which was incorporated by Ordinance No. 50of1974. Undoubtedly D
Ordinance No. 50 of 1974 provides for a notice of not less than 6 months. It
was not necessary to give a fresh notice. The 1st Respondent had been given
a notice of one year on 5th January, 1973. A notice of one year is a notice
of not less than 6 months. Therefore, the takeover was under the amended
Sections. On the date of takeover what was payable, was book value and not E
market value. Therefore, the principles laid down in Tinsukhia 's case, Thana
Electric Supply Company's case and Ve/lore Electric Corporation's case
would apply.

15. Mr. Jain next submitted that in this case the vesting took place on
5th/6th February, 1974. He submitted that there was no provision for vesting F
in the Amendment Act 7 of 1976. He submitted that in the present case as
the vesting was earlier, a retrospective provision of method of determination
of compensation, cannot apply. He submitted that the method prevailing on
date of vesting i.e. market value must continue to apply. He submitted that
the change in the method of determination of compensation from market value
to book value could not be justified by taking recourse to Articles 39 (b) and G
39 (c) read with Article 3 l(c). We see no substance in this contention. This
is the very argument, which amongst others, is negatived in Tinsukhia 's case.

16. Mr. Jain next submitted that this case was specifically referred to by
the 5 Judge Bench in Tinsukhia 's case. He relied upon paras 11 and 76 of that
judgment and submitted that it is held therein that this case is distinguishable. H
388 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A He further submitted that even in Thana Electric Supply Company case this
case was specifically referred to. He pointed out paras 31 and 32 of this
judgment. Mr. Jain submitted that the five Judge Bench of this Court has held
that this case was distinguishable. He submitted that this Bench (comprising
three Judges) could not overrule the decision of the five Judge Bench and
B hold that this case was not distinguishable. He submitted that this Bench
thus could not hold that this case was covered by those judgments. We see
no substance in this submission also. The impugned Judgment proceeds on
the footing that the right to get compensation accrued when the notice dated
5th January, 1973 was given i.e. when the option to purchase was exercised.
The impugned Judgment also proceeds on the footing that what was being
C acquired was a chose-in action. In para 76 of the judgment in Tinsukhia's
case, the correctness of the findings that the acquisition was of a chose-in
action were not gone into because it was held that the acquisition was of
material resources viz. the electric energy. On that basis it is held that the
principles laid down in the impugned judgment do not apply. In Tinsukhia's
case it is held that the rights accrued when option to purchase was exercised.
D In Thana Electric Supply Co. 's case the principles laid down in the impugned
judgment were not accepted. It was held that no rights accrued in favour of
the Electric Co. at time that the option to purchase was executed. Thus, far
from laying down that this case is different both the Courts (in Tinsukhia as
well as Thana Electric Supply Company's case}, specifically negative the
E principles on which impugned judgment is based.

17. For all the above reasons the submission that the principle laid
down in Tinsukhia 's case, Thana Electric Supply Company's case and Ve/lore
Electric Corporation's case do not apply, is unacceptable.
18. So far as the case of the 5th Respondent is concerned, we have
F today delivered Judgment in Civil Appeal No. 3658of1993, wherein also the
taking over of the undertaking was much prior to the Ordinance and much
prior to the 25th Constitutional Amendment Act by which Article 3 l(c) was
incorporated. For reasons set out in that Judgment, the case of the 5th
Respondent is also covered by the Judgments in Tinsukhia 's case, Thana
G Electric Supply Company's case and Ve/lore Electric Corporation's case.
19. In this view of the matter, the Appeal is allowed. The Judgments of
the Division Bench as well as the learned single Judge are set aside. The Writ
Petition filed by the I st Respondent and the 5th Respondent stands dismissed.
There shall be no order as to costs.

H v.s.s. Appeal allowed.