Holding

The Uttar Pradesh amendment to the Electricity Act is constitutionally valid; the book‑value method of compensation is permissible and the amendment does not violate Articles 19(1)(t), 31(2), 31C or 39(b).

Summary

The State of Uttar Pradesh issued a notice under Section 6 of the Indian Electricity Act, 1910, to acquire the Upper Jamuna Valley Electricity Supply Company's undertaking upon expiry of a 35‑year licence in 1964. In 1975 the Uttar Pradesh government amended Sections 6 and 7‑A of the Act, replacing the market‑value basis of compensation with a book‑value basis. The company challenged the amendment as unconstitutional, alleging violations of Articles 19(1)(t), 31(2), the then‑non‑existent Article 31C and the principle of non‑retrospective legislation under Article 39(b). The Supreme Court held that the amendment was valid, that book value is an accepted accounting method and not illusory, and that the economic cost of nationalisation is not justiciable; the amendment was not colourable legislation and the right to compensation had not crystallised at the time of takeover. Consequently, the Court allowed the appeal, set aside the High Court judgments and dismissed the writ petition.

Issues considered

The constitutional validity of the Uttar Pradesh amendment to Sections 6 and 7‑A of the Electricity Act introducing a book‑value method of compensation.
Whether the amendment infringes Articles 19(1)(t), 31(2) and the (later) Article 31C of the Constitution.
Whether the amendment violates Article 39(b) by lacking a reasonable nexus to public purpose.
Whether the method of valuation (book value) is open to judicial scrutiny as illusory or inadequate.
Whether the right to compensation crystallised at the time of takeover, making the amendment retrospective and invalid.

Legislation cited

Constitution (Forty‑fourth Amendment) Act, 1978
Electricity Act, 1910s. 6, s. 7-A

Subjects

constitutional validitycompensation valuationbook valuenationalisationelectricity actArticle 19Article 31Article 39retrospective legislationproperty rights

Judgment

STATE OF U.P. A
v.
THE UPPER JAMUNA VALLEY ELECTRICITY
SUPPLY CO. LTD. AND ORS.

MAY 12, 2000
B
[S. SAGHIRAHMAD, Y.K. SABHARWAL AND S.N. VARIAVA, JJ.]

Electricity Act 19/0-Sections 6 and 7-A-As amended by Electricity
(U.P. Amendment and Validation) Act, 1976-Constitutionality-Take over C
of electrical undertaking and determination of its purchase price-Under
the licence granted by the State, State had a right to takeover the Electrical
Undertakings at the end of its term-Amendment brought about in the Act
by way of Amending Act of 1975-Changing the method or computation of
compensation by introducing the concept of book value in Section 7-A of
the Act and not the market value-Constitutionality of Amending Act D
challenged-Held, that the takeover of undertaking on 28.06.1964 had to
be tested on the touchstone of Articles 19(/)(j) and 31(2) and not Article
3/(c) as Article 31 (c) was not a part of the Constitution on the date of
takeover-Amending Act was not violative of Articles /9(l)(j) and 31(2)-
Further, determination of purchase price of the undertaking under Section E
7-A was not open to challenge as it was an accepted accountancy concept
and the same was not illusory-Quantification of the amount payable to
such undertaking form an integral and inseparable part of nationalisation--
Hence, economic costs of nationalisation was not justiciable and on the
date of takeover of undertaking, rights cannot be said to have been
crystallised and not entitled to market value of the property-What was F
acquired was not a chose-in action or debt but was the undertaking which
dealt with material resources of the count~Thus Amending Act is not a
colourable piece of legislation-C<f)lstitution of India, Articles /9(l)(j),
31(2), 3/(c) and 39(b).

On 28.06.1929 the Government of Uttar Pradesh granted a licence to G
Company 'M' for a period of35 years and it was subsequently transferred to
Respondent No. 1. Government had a right under the licence to purchase the
undertaking at the end of the terms of licence. The term was to expire on
27.06.1964. On 30.11.1962, the appellant served a notice to Respondent No.
1 under Section 6(1) of the Indian Electricity Act calling upon it to sell the H
429
430 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A undertaking to the appellant on the expiry of the said period. On 04.02.1975,
certain amendments were made in the Act by Indian Electricity (U.P.
Amendment and Validation) Ordinance No. 7 of 1975 and the same was
replaced by Indian Electricity (U.P. Amendment and Validation) Act, 1976
amending, inter alia, Sections 6 and 7-A of the Act in view of the
B nationalisation of the electric companies by the Central Government whereby
electric companies were sought to be purchased. Amendment sought to change
the method of computation of compensation by introducing the concept of book
value in Section 7-A of the Act and not the market value. Respondent No. I
challenged the constitutional validity of the Amending Act/Ordinance before
the High Court on the ground that rights under Articles 19(I)(t) and 31(2)
C were infringed and that Amending Act/ordinance was invalid having no
reasonable direct nexus to the principles under Article 39(b) of the
Constitution. Single Judge of the High Court upheld the challenge. Division
Bench dismissed the appeal filed against the judgement of the Single Judge.
Hence this appeal.

D It was contended by the appellant that the Ordinance came almost 11
years after the take over of the undertaking by the Government; that on
28.06.1964 when the undertaking was taken over, Sections 6, 7 and 7A, as
they then stood, provided for payment of market value; that in 1962, Article
19(1)(t) and Article 31(1) and 31(2) of the Constitution were there and that
E there was no Article 3l(c) in the Constitution; and that the provisions of the
Constitution and the law which must apply are those which were prevalent at
that time in 1962.

It was contended by Respondent No. 1 that law was not one for acquisition
of electrical undertakings but was one to acquire a chose-in action and to
F extinguish rights, which had accrued in the Electric Companies, to get the
market price; that the Act was merely a clock which the law was made to
wear, to undo the obligations arising out of the intended statutory sale, Article
3l(c) was not attracted; and that in any case every provision of a statute was
not entitled to protection of Article 3l(c) but only those which are necessary
G 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 would not
attract Article 3l(c).

Allowing the appeal, this Court

H HELD: 1.1. It is true that the law, which is to prevail, is the law, which
STATE OF U.P. 1•. UPPER JAMUNA VALLEY ELECTRICilY SUPPLY CO. LID. 4J J

was prevailing on the date of takeover, i.e., 28.06.1964. On that day the A
Constitution (Twenty-fifth Amendment) Act had not been enacted and Article
31-C was not there. It is also true that in Cooper case it has been held that
even after amendment of Article 31-C the term "compensation" meant "just
equivalent" or "full indemnification". However, Cooper r;,ase itself notes that
there has been a change inasmuch as the law pertains to change in the
principles of the method of determination of compensation pnd the method is B
a recognised principle applicable in the determination of co111pensation and
the principle is appropriate in determining the value of the property, then it
would not be open to the courts to question the valuation. Cooper case also
lays down that if several principles are appropriate and the one is selected
for determination of the value of the property to be acquired, selection of the C
principle to the exclusion of other principles is not open to challenge, for the
selection must be left to the wisdom of Parliament. Of course, the principles
specified must he appropriate to the determination of compensation for an
appropriate class of property sought to be acquired. In Tinsukhia case, this
Court has gone into the question as to whether the principle would be
appropriate even in Article 31-C was not applicable. Even though Cooper case D
has not been specifically referred to in Tinsukhia case still the principles
laid down in Cooper case have been kept in mind and dealt with. Even ifthe
principles laid down in the Cooper case are applicable, still it has been held
in Tinsukhia case, Thana Electric Supply Co. case and Ve/lore Electric
Corporation case that principles of valuation on book value is a well known E
concept of valuation and that the amount is not illusory.
[441-G-H; 442-A-C; 443-D-E; 444-DJ

1.2. What has been acquired, is not a chose-in action or a debt. What
has been acquired is the undertaking, which dealt with material resources of
the country. There was no crystallization of any amount. The only right was F
a right to receive compensation, which was to be worked out on certain
principles. All that the Amending Act has done, is to change the method of
principle on the basis of which the compensation was to be worked out. The
provisions for quantification of the amount payable to the undertaking form
an integral and inseparable part of the nationalisation and do not admit of G
being considered as distinct provisions independent of each other. The
economic costs of nationalisation was not justiciable. Thus, legislation is not
a piece of colourable legislation. [445-F-H)

Tinsukhia Electric Supply Co. Ltd. v. State ofAssam, [1989) 3 SCC 709;
Maharashtra State Electricity Board v. Thana Electric Supply Co., [1989) 3 H

J
432 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A SCC 616 and Ve/lore Electric Corporation Ltd. v. State of Tamil Nadu, (1989)
4 sec 138, followed.

Madan Mohan Pathak v. Union of India, (1978) 2 SCC 50 and State of
Bihar v. Sir Kameshwar Singh. (1952) SCR 889, distinguished.

B Rustom Gavasjee Cooper v. Union ofIndia, [1970) 1SCC248, Waman
Rao v. Union of India, (1981) 2 SCC 362; Ishwari Khetan Suagr Mills (P)
Ltd v. State of U.P. (1980[ 4 SCC 136 and Keshvanand Bharti v. State of
Kera/a, (1973) 4 SCC 225, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3656of1993.
c
From the Judgment and Order dated 11.1.89 of the Calcutta High Court
in A. No. 139/83 in Matter No. 1681 of 1981.

A.B. Rohtagi, R.C. Verma, Dr. B.S. Chauhan and R.B. Misra for the
D Appellant.
R.N. Trivedi, Additional Solicitor General, Ms. Arptia Sharma, Ms. Tania
Bery, Vineet Kumar, Sanjay, V.S. Chaudhary and Ms. Nina Gupta for Respondent
in Bank of India.

E The Judgment of the Court was delivered by

S. N. VARIA VA, J. 1. This Civil Appeal is against the Judgment dated
I Ith January, 1989 delivered by a Division Bench of the Calcutta High Court.
By this Judgment the Division Bench dismissed the appeal filed by the
Appellant against a Judgment of a learned single Judge of the Calcutta High
F Court which upheld the challenge of the I st Respondent to Ordinances and
Amendment Act set out hereinafter.

2. Briefly stated the facts are as follows:

G On 28th June, 1929, the Government of Uttar Pradesh granted to one
Mis. Martin & Co. 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 35 years. The
35 years period would thus end on 27th June, 1964. On 30th November, 1962'
H the Appellant served a notice on the I st Respondent, under Section 6( I) of

c
STATEOFU.P. v. UPPERJAMUNA VALLEYELECTRICITYSUPPLYCO.LTD. [S.N. VARIAVA,J.] 433

the Indian Electricity Act, 1910 (hereinafter called the said Act). By this the A
Appellant called upon the I st Respondent to sell the undertaking to the
Appellant on the expiry of the period of 35 years from the commencement of
the licence, i.e., at 12 O'clock in the night between the 27th and 28th June,
1%4.

3. On February4, 1975, Indian Electricity (U.P. Amendment and Validation) B
Ordinance No. 7 of 1975 was passed. This Ordinance amended certain
provisions of the Indian Electricity Act. Subsequently this Ordinance was
replaced by an Act namely Indian Electricity (U.P. Amendment and Validation)
Act, 1976. The Ordinance and the Act amended amongst others Sections 6
and 7-A of the Indian Electricity Act. C
4. 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.-(!) Where licence has been granted
to any person, not being a local authority, the State Electricity Board D
shall -

(a) in the case of a licence granted before the commencement of the
Indian Electricity (Amendment) Act, 1959 (32 of 1959), on the
expiration of each such period as is specified in the licence; and
(b) in the case of a licence granted on or after the commencement E
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 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 F
a notice in wr:ring 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.

(2) Where a State Electricity Board has not been constituted, or
if constituted, does not elect to purchase the undertaking, the State G
Government shall have the like option to be exercised in the like
manner of purchasing the undertaking.

(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 H
434 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A is included, shall have the like option to be exercised in the like
manner of purchasing the undertaking.

(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
B eighteen months before the expiry of the relevant period referred to
in sub-section (!) and if no such intimation as aforesaid is received
by the State Government, the State Electricity Board shall be deemed
to have elected not to purchase the undertaking.

(5) If the State Government intends to exercise the option of
c 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 the expiry
of the relevant period referred to in sub-section (!) and if no such
intimation, as aforesaid, is received by the local authority, the State
D Government shall be deemed to have elected not to purchase the
undertaking.

(6) Where a notice exerctsmg the option of purchasing the
undertaking has been served UjJOn the licensee under this section, the
licensee shall deliver the undertaking to the State Electricity Board,
E 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
purchaser shall pay to the licensee the purchase price determined in
F accordance with the provisions of sub-section (4) of Section 7-A."

5. Thus, under Section 6 the compensation, i.e. the purchase price was
to be determined in accordance with the provisions of sub-section (4) of
Section 7-A.
G
6. Section 7-A, as it originally stood, reads as follows:

"7-A Determination ofpurchase price.-{I) Where an undertaking of
a licensee, not being a local authority, is sold under sub-section (I)
of Section 5, the purchase price of the undertaking shall be the market
H value of the undertaking at the time of purchase or where the
STATEOFU.P. v. UPPERJAMUNA VALLEYELECTRICITYSUPPLYCO.LlD. [S.N. VARJAVA,J.) 435

undertaking has been delivered before the purchase under sub-section A
(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.

(2) The market value of an undertaking for the purpose of sub-
section ( 1) shall be deemed to be the value of all lands, buildings, B
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 the
purpose of purchase, and (ii) service lines or other capital works or
any part thereof which have been constructed at the expense of C
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
of the same for the purpose of the undertaking, but without any
addition in respect of compulsory purchase or of goodwill or of any D
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 under sub-section (I) of Section 5, purchase price of the
undertaking shall be such as the State Government, having regard to E
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, the purchase price shall be the value thereof as determined in
' accordance with the provisions of sub-sections (I) and (2): F
Provided that there shall be added to such value percentage, if
any, not exceeding twenty per centum of that value as may be specified
in the licence on account of compulsory purchase."

Section 7 is also relevant. It reads as follows: G
"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
5 or under sub-section (6) of Section 6, as the case may be, whichever H
436 SUPREME COURT REPORTS (2000] SUPP. I S.C.R.

A is earlier:

(i) the undertaking shall vest in the purchaser or the intending
purchaser, as !he case may be, free from any debt, mortgage or
similar obligation of the licensee or attaching to the undertaking:
Provided that any such debt, mortgage or similar obligation
B shall attach to the purchase money in substitution for the
undertaking;

(ii) the rights, powers, authorities, duties and obligations of the
licensee under his licence shall stand transferred to the purchaser
and such purchaser shall be deemed to be the licensee:
c
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."

7. By the abovementioned Ordinance and the Act, the amendment
D which was carried out, was that under Section 7-A 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
computing the market valu(l\:lhere had to be computation on the book value.

8. It must be mentioned that the abovementioned Ordinances and
E 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
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( I )(t) and Article 31 (2) were being
F violated. It was also claimed that the amending Act/Ordinance was invalid as
it had no reasonable direct nexus to the principles under 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
G 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 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
H intended statutory sale, Article 3I(c) was not attracted. It was also claimed
STATEOFU.P. 1•. UPPERJAMUNA VALLEYELECTRICITYSUPPLYCO.LID.[S.N. VARJAVA,J.] 437

that in any case, every provision of a statute was not entitled to protection A
of Article 3 l(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.
B
9. 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 3l(c).
It was held that the Act was not a piece of colourable legislation. It was held
that electric energy generated and distributed was a "material resource of the C
community" for the purpose and within the meaning of Article 3~\fb ). 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 eligible for, D
and entitled to, protection of Article 3 l(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 undertaking
in the State and those pertaining to the quantification of the amount, are E
integral and inseparable part of the 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 consideration for nationalisation F
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 view was taken in the cases of Maharashtra G
State Electricity Board v. 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.

I 0. Dr. Singhvi submitted that the present case would not be covered
by the aforementioned Judgments because in all those cases the Ordinance/ H
438 SUPREME COURT REPORTS [2000] SUPP. I S.C.R. 1

A Act was prior to or on the same day that the respective undertakings were
taken over. Dr. Singhvi submitted that in this case the Ordinance came on 4th
February, 1975, i.e., almost 11 years after the takeover of the undertaking by
the Government. He submitted that on 28th June, 1964 when the undertaking
was taken over, Sections 6, 7 and 7-A, as they then stood, provided for
payment of market value. He submitted that in 1962 Article 19(1)(t) and
B Articles 31 (I) and 31 (2) of the Constitution were there. He submitted that on
that day there was no Article 31 ( c) in the Constitution oflndia. He submitted
that the law on the subject was very clear. He submitted that the provisions
of the Constitution and the law which must apply, are those which were
prevalent at that time in 1962.
c 11. In support of this submission he relied upon the authority in the
case of Waman Rao v. Union of India, reported in [1981] 2 SCC 362. In this
case the validity of the Maharashtra Agricultural Land (Ceiling and Holdings)
Act 27 of 1961 and the subsequent amendment by Acts 21 of 1975, 4 7 of 1975
and 2 of 197 S were challenged. While considering this challenge this Court,
D inter a/ia, held as follows:

"I I. By Section 7 of the Constitution (Forty-fourth Amendment) Act,
1978 the reference to Article 31 was deleted from the concluding
portion of Article 31-A(I) with effect from June 20, 1979, as a
consequence of the deletion, by Section 2 of the 44th Amendment, of
E clause (t) of Article 19(1) which gave to the citizens the right to
acquire, hold and dispose of property. The deletion of the right to
property from the array of fundamental rights will not deprive the
petitioners of the arguments which were available to them prior to the
coming into force of the 44th Amendment, since the impugned Acts
F were passed before June 20, 1979 on which date Article 19(l)(t) was
deleted."

12. He also relied upon Paragraph 15 of the Judgment in Thana Electric
Supply Company's case (supra), wherein this Court has held that the
contentions of the parties would require to be examined in the light of Articles
G 19(l)(t) and 31 as they stood at the relevant time. It was held that Articles
19(l)(t) and 31 were deleted later, but that such deletion did not affect the
constitutional position with reference to which the present case would require
to be decided.

13. Dr. Singhvi also relied upon Ishwari Khetan Sugar Mills (P) Ltd.
H v. State ofU.P., reported in [1980] 4 sec 136. Ir. this case the challenge was
STATEOFU.P.1•. UPPERJAMUNA VALLEYELECTRICllYSUPPLYCO.LlD.(S.N. VARJAVA,J.] 439

under the U.P. Sugar Undertakings (Acquisition) Act 23 of 1971. While A
considering this challenge the Constitution Bench of this Court held that as
the legislation was put on the Statute Book on 27th August, 1971, the Court
would have to consider it in the light of Article 31 (2) as it stood on the
relevant date. It was held that Article 31(2) as amended by the 25th
Constitutional Amendment Act would not be attracted.
B
14. Dr. Singhvi submitted that the principles governing grant of
compensation would, therefore, be those which are laid down by 11 Judge
Bench of this Court in the case of R. Gavasjee Cooper and Ors. v. Union of
India, reported in (1970] I SCC 248. In this ca~e the vires of the Banking
Companies (Acquisition and Transfer of Undertakings) Ordinance 8 of I 969 C
and the Banking Companies (Acquisition and Transfer of Undertakings) Act
22 of 1969 was challenged. The challenge to the takeover of .e banks was
on the basis of Articles 14, 19 and 31 of the Constitution. This Court, inter
alia, held that prior to the amendment of Article 31(2) the term "compensation"
had been interpreted to mean "full indemnification". It was held that the law
was that the expropriated owner was on that account entitled to market value D
of the property on the date of the deprivation of the property. It was held that
even though Article 31 (2) was amended with effect from 27th April, 1955 by
the Constitution (Fourth Amendment Act, 1955), the expression
"compensation" continued to mean "just equivalent" or "full indemnification".
It was held that there was no dispute that Article 31(2) before and after E
amendment guaranteed a right to compensation for compulsory acquisition of
the property and that by giving to the owner, for compulsory acquisition of
. his property, compensation which was illusory, or determined by the
application of principles which were irrelevant, the constitutional guarantee
of compensation was not complied with. It was, however, noted that after the
amendment of the Article 31 (2) it was not open to the Courts to call in F
question the law providing for compensation on the ground that. it is
inadequate. It was noted that there was a line of thought that a reasonable
interpretation of this provision was that neither the principles prescribing the
"just equivalent" nor the "just equivalent" could be questioned in Court on
the ground of inadequacy of the compensation fixed, or arrived at, by the G
working of the principles. It was held that this meant that there could be many
methods of valuation and that the application of different principles of valuation
may lead to different results. The adoption of one principle may give a higher
value and the adoption of another principle may give a lessor value, but
nonetheless they were all principles on which compensation could be
.. determined. It was held that the Court could not say that the law should have H
440 SUPREME COURT REPORTS [2000) SUPP. I S.C.R.

A adopted one principle and not the other for that would be a question relating
to adequacy. It was held that, on the other hand, if a law laid down principles
which were not relevant to the property acquired or to the value of the
property at the time it was acquired, then the Courts could say that they were
not principles contemplated by Article 31 (2) of the Constitution. It was held
B that the line of thought providing for full indemnification and the line of
thought stating that the principles of valuation could not be gone into by the
Court, both ultimately supported the view that the principles specified by law
for determination of compensation was beyond the pale of challenge, if it was
relevant to the determination of compensation and was a recognised principle
applicable in determination of compensation for the property compulsorily
C acquired. It was held that the broad object underlining the principle of
valuation was to award to the owner the equivalent of his property with its
existing advantages and its potentialities. It was held that where there was •
an established market for the property acquired, the problem of valuation
presented a little difficulty but where there is no established market for the
D property, the object of the principle of valuation must be to pay to the owner
for what he had lost including the benefit of advantages present as well as
future. The Court then went on to set out certain methods of determination
of compensation. In this behalf it laid down as follows:

"94. The important methods of determination of compensation are: (i)
E market value determined from sales of comparable properties, proximate
in time to the date of acquisition, similarly situate, and possessing the
same or similar advantages and subject to the same or similar
disadvantages. Market value is the price the property may fetch in the .
open market if sold by a willing seller unaffected by the special needs
of a particular purchase; (ii) capitalization of the net annual profit out
F of the property at a rate equal in normal cases to the return from gilt-
edged securities. Ordinarily value of the property may be determined
by capitalizing the net annual value obtainable in the market at the
date of the notice of acquisition; (iii) where the property is a house,
expenditure likely to be incurred for constructing a similar house, and
reduced by the depreciation for the number of years since it was
G
constructed; (iv) principle of reinstatement, where it is satisfactorily
established that reinstatement in some other place is bona fide intended,
there being no general market for the property for the purpose for
which it is devoted (the purpose being a public purpose) and would
have continued to be devoted, but for compulsory acquisition. Here
H compensation will be assessed on the basis of reasonable cost of ..
STATEOFU.P.1•. UPPERJAMIJNA VALLEYELECTRICITYSUPPLYCO.LTD. [S.N. VARIAVA,J.] 441

reinstatement; (v) when the property has outgrown its utility and it A
is reasonably incapable of economic use, it may be valued as land
plus the break-up value of the structure. But the fact that the acquirer
does not intend to use the property for which it is used at the time
of acquisition and desires to demolish it or use it for other purpose,
is irrelevant; and (vi) the property to be acquired has ordinarily to be B
valued as a unit. Normally an aggregate of the value of different
components will not be the value of foe unit.

95. These are, however, not the only methods. The method of
determining the value of property by the application of an appre>oriate
multiplier to the net annual income or profit is a satisfactory method C
of valuation of lands with buildings, only ifthe land is fully developed,
i.e., it has been put to full use legally permissible and economically
justifiable, and the income out of the property is the normal commercial
and not a controlled return, or a return depreciated on account of
special circumstances. If the property is not fully developed, or the
return is not commercial, the method may yield a misleading result." D
It is to be noted that the Court itself laid down that these were not the
only methods of valuation.

15. Based upon the above authority Dr. Singhvi submitted that even
after the amendment of Article 31 (2), the principle remained "just equivalent" E
meaning "full indemnification". He submitted that in this case in 1962, i.e. the
unamended Sections 6, 7 and 7-A of the Indian Electricity Act, 1910 also
provided for payment of market value. He submitted that, therefore, the
principle laid down in Tinsukhia 's case, Thana Electric Supply Company's
case and Ve/lore Electric Corporation's case did not apply to this case. He

J submitted that all those cases were based upon Article 3 l(c) which did not
stand on the Statute Book at the time when this undertaking was taken over
by the Government. He submitted that in this case the market value would
F

-. have to be paid.

16. We have considered the submissions of Dr. Singhvi. Undoubtedly, G
the law which is to prevail, is the law which was prevailing on the date of
take- over, i.e., 28th of June, 1964. It is also clear that on that day the
Constitution (Twenty-fifth Amendment) Act had not been enacted and Article
3l(c) was not there. Undoubtedly, in Cooper's case it has been held that even
after amendment of Article 3 l(c) the term "compensation" meant "just
equivalent" or "full indemnification". However, Cooper's case itself notes that H
442 SUPREME COURT REPORTS [2000) SUPP. I S.C.R.

A there has been a change inasmuch as if the law pertains to change in the
principles of the method of determination of compensation and the method
is a recognized principle applicable in the determination of compensation and
the principle is appropriate in dekimining the value of the property, then it
would not be open to the Courts to question the valuation. Cooper's case
also lays down that if several principles are appropriate and one is selected
B for determination of the value of the property to be acquired, selecti011 of that
principle to the exclusion of other principles is not open to challenge, for the
selection must be left to the wisdom of the Parliament. Of course, the principles
specified must be appropriate to the determination of compensation for an
appropriate class of prop1:rty sought to be acquired.
c 17. In Tinsukhia 's case, this Court has gone into the question as to
whether the principles would be appropriate even if Article 3 l(c) was not
applicable. It ultimately held as follows:

"96. Even if the impugned law did not have the protection of Article
31-C, a hypothesis on which contention (c) is based, the adequacy or
D
inadequacy of the amount is not justiciable. The limitations of the
courts' scrutiny explicit in Article 31(2), are referred to by Mathew,J.
in the Kesavananda case (SCC p. 889, para 1751) :
" ... the word 'amount' conveys no idea of any norm. It supplies
no yardstick. It furnishes no measuring rod. The neutral word
E
'amount' was deliberately chosen for the purpose. I am unable
to understand the purpose in substituting the word 'amount' for
the word 'compensation' in the sub- article unless it be to deprive
the court of any yardstick or norm for determining the adequacy
of the amount and the relevancy of the principle fixed by law."
F
97. Referring. to what might, yet to open to judicial scrutiny, under
Article 31 (b), She lat and Grover, JJ. Observed in the Kesavananda

G
case: (SCC p. 457, para 591):
"But still on the learned Solicitor General's argument, the right to
receive the 'amount' continues to be a fundamental right. That
-
cannot be denuded of its identity. The obligation to act on some
principle while fixing the amount arises both from Article 31 (2)
and from the nature of the legislative power. For, there can be no
power which permits in a democratic system an arbitrary use of
power.... But the norm or the principles of fixing or determining the
H 'amount' will have to be disclosed to the court. It will have to
STAlEOFU.P.1•. UPPERJAMUNA VALLEYELECTRICITYSUPPLYCO.LTD. [S.N. VARIAVA,J.] 443

be satisfied that the 'amount' has reasonable relationship with A
the value of the property acquired or requisitioned and one or
more of the relevant principles have been applied and further that
the 'amount' is neither illusory nor it has been fixed arbitrarily,
nor at such a figure that it means virtual deprivation of the right
under Article 31 (2). The question of adequacy or inadequacy, B
however, cannot be gone into."

Justice Chandrachud observed: (SCC p. 1000, para 2122) :

"The specific obligation to pay an 'amount' and in the alternative
the use of the word 'principles' for determination of that amount C
must mean that the amount fixed or determined to be paid cannot
be illusory. If the right to property still finds a pi.ice in the
Constitution, you cannot mock at the man and ridicule his right
You cannot tell him: 'I will take your fortune for a farthing'."

98. All the same, the concept of "book value" is an accepted D
accountancy concept of value. It cannot be held to be illusory."

Even though Cooper's case has not been specifically referred to, in Tinsukhia 's
case, still the principles laid down in Cooper's case have been kept in mind
and dealt with. Keeping those principles in mind, in Tinsukhia 's case it has
been held that the concept of book value is an accepted accountancy concept E
and that it cannot be held to be illusory.

18. Further, in Thana Electric Supply Company's case it has been held
as :
"l S. As stated earlier, the principal controversy before the High Court F
was whether the provisions of the Amendment Act, 1976, which
scaled down, quite drastically, the measure of the recompense for the
taking over of the company's undertaking, were violative of Articles
14, 19(l)(t) and (g), and 31 of the Constitution oflndia, as contended
by the company, or whether the Amending Act of 1976 had the G
protection of and attracted the provisions of Article 31-C of the
Constitution, rendering the law immune from assailment on the ground
of violation of fundamental rights. The contentions of the parties
would require to be examined as the provisions of Articles 19(1 )(f) and
31 stood at the relevant time. Articles 19(1 )(f) and 31 were deleted
later; but that does not affect the constitutional position with reference H
444 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A to which the present cases would require to be decided."

Thus, in this case this Court proceeded on the basis that Articles 19( I )(f) and
31 applied to the facts of th'lt. case. The Court still set aside the Judgment
of the High Court, which had ~pheld the challenge. This Court still held that
the challenge on grounds of violation of Articles 14, 19 and 31 fails. The
B contention that compensation was not adequate and/or illusory, was not
accepted. In Ve/lore Electric Corporation's case also this Court considered
the challenge to the change in the method of valuation from market value to
book value on the basis of Articles 19( I )(g) and 31. In this case also it was
held that such a contention was not available, as it had been negatived in
C Tinsukhia 's case.

19. In our view, the authorities in Tinsukhia 's case, Thana Electric
Supply Company's case and Ve/lore Electric Corporation's case fully cover
the point urged by Dr. Singhvi. Even if the principles laid down in Cooper's
case (supra) are applicable, still it has been held by this Court, in the above-
D mentioned three cases that principle of valuation on book value is a well
known concept of valuation and that the amount is not illusory. We, therefore,
see no substance in this challenge.

20. Dr. Singhvi, however, submitted that the notice to take over the
undertaking was given on November 30, 1962 and the undertaking was taken
E over on June 28, 1964. He submitted that on the date of takeover the rights
of the !st Respondent had crystallised. He submitted that the !st Respondent,
therefore, became entitled to receive the market value of the property. He
submitted that as the amount payable had already got crystallised, a
subsequent acquisition could only be acquisition of money. He submitted
F that on June 28, 1964 the vesting took place. He submitted that thereafter
nothing more than payment of money was to be done. He submitted that by
a retrospective amendment, made in 1975, money could not be compulsorily
acquired. He submitted that there could be no public purpose in acquisition
of money and that such acquisition would amount to a forced loan. He
submitted that the restrictions laid down by the retrospective amendment
G were not reasonable. He submitted that no reasons for such restrictions were
given or could exist. He submitted that by the amendment the crystallised
right to money was being taken away.

21. In support of his submission, Dr. Singhvi relied upon the case of
Madan Mohan Pathak v. Union of India, reported in [ 1978] 2 SCC 50. In that
H case there was a settlement between the management and the labour under
STATEOFU.P. v. UPPERJAMUNA VALLEYELECTRICllYSUPPLYCO.LlD. [S.N. VARIAVA,J.) 445

which an annual cash bonus was to be paid to Class III and Class IV A
employees. By the Life Insurance Corporation (Modification of Settlement)
Act, 1976 Class III and Class IV employees were sought to be deprived of
the annual cash bonus that they were entitled to receive under the settlement.
This Court held that the term 'property' under Articles 19(l)(f), 31(1) and 31(2)
had to be given the widest interpretation and refers to property of every kind, B
tangible or intangible, debts and chose-in action. It was held that the chose-
in action could be compulsorily acquired under Article 31 (2). It was held that
the right to receive the annual cash settlement was a. right to property within
the meaning of Article 31 (2). It was held that extinguishments of the debt of
a creditor with the corresponding benefit to the State or State owned/controlled
Corporation would be transfer of ownership to the State and would amount C
to compulsory acquisition under Article 31 (2). It was held that acquisition of
money, debt and/or chose-in action must be made to serve a public purpose.
It was held that the impugned Act was a pure and simple case of deprivation
of the rights of the Class III and Class IV employees without any apparent
nexus with any public interest. It was held that an acquisition of a chose-in
action could not be for the purpose of augmenting the revenues of the State D
or reducing State expenditure as that would not be a public purpose and
would be violative of the constitutional guarantee embodied in Article 31 (2).
It was held that an acquisition of this nature amounted to a forced loan. Dr.
Singhvi also relied upon the case of State of Bihar v. Maharajadhiraja Sir
Kameshwar Singh of Darbhanga reported in [ 1952] S.C.R. 889. E

22. We are unable to accept the submission. As has been held in
Tinsukhia 's case, Thana Electric Supply Company's case and Ve/lore Electric
Corporation's case what has been acquired, is·not a chose-in action or a debt.
What has been acquired, is the undertaking which dealt with material resource
of the country. There was no crystallisation of any amount. The only right F
was a right to receive compensation which was to be worked out on certain
principles. All that the amending Act has done, is to change the method or
principle on the basis of which the compensation was to be worked out. It
has been held that the legislation is not a piece of colourable legislation. It
has also been held, in the abovementioned cases, that the provisions for G
quantification of the amount payable to the undertaking form an integral and
inseperable part of the nationalisation and do not admit of being considered
as distinct provisions independent of each other. It has been held that the
economic cost of nationalisation was not justiciable. In our view this case is
fully covered by the judgments in .Tinsukhia 's case, Thana Electric Supply
Company's case and Ve/lore Electric Corporation's case. H
446 SUPREME COURT REPORTS (2000] SUPP. I S.C.R.

A 23. In this view of the matter, the Appeal is allowed. The Judgment of
the Division Bench dated I Ith January, 1989 as well as the Judgment of the
learned single Judge dated July 19, 1982 are set aside. The Writ Petition filed
by the !st Respondent stands dismissed. There shall be no order as to costs.

RK.S. Appeal allowed.