Holding

The Assam Electricity (Assam Amendment) Act, 1973 and the Tinsukia & Dibrugarh Electric Supply Undertakings (Acquisition) Act, 1973 are constitutionally valid, have a direct and reasonable nexus with Article 39(b), are protected by Article 31‑C, and the valuation and deduction mechanisms are not illusory or arbitrary.

Summary

The petitioners, Tinsukia and Dibrugarh Electric Supply Companies, challenged the Assam Electricity (Assam Amendment) Act, 1973 and the Tinsukia & Dibrugarh Electric Supply Undertakings (Acquisition) Act, 1973 on the ground that the statutes were colourable, lacked a real nexus with Article 39(b) and (c) of the Constitution, and that the substitution of book‑value for market‑value made the compensation illusory. The Court examined whether the legislative declaration under Article 31‑C was justiciable and whether the provisions relating to valuation, deductions, service‑lines and employee liabilities were arbitrary. It held that electricity generated by the companies is a material resource of the community, that nationalisation is a permissible mode of distribution under Article 39(b), and that the statutes have a direct and reasonable nexus with the directive principle, thereby attracting Article 31‑C protection. The method of using book‑value was deemed an accepted accounting concept and not illusory, and the various deduction provisions were found to be integral to the scheme of acquisition. Consequently, all the petitioners' contentions were rejected and the writ petitions dismissed.

Issues considered

The constitutional validity of the Assam Electricity (Assam Amendment) Act, 1973 and the Tinsukia & Dibrugarh Electric Supply Undertakings (Acquisition) Act, 1973 under Article 31‑C.
Whether the statutes have a direct and reasonable nexus with the principles of Article 39(b) and (c).
Whether the substitution of book‑value for market‑value and the method of determining the "amount" is arbitrary or illusory, violating Article 31(2).
Whether the legislation is colourable, i.e., a pre‑text to avoid payment of full compensation.
Whether the exercise of the statutory option to purchase transforms the licensee's rights into a chose‑in‑action.
Whether the provisions for deductions, service‑lines, reserves and employee liabilities are unreasonable or unconstitutional.
Whether the declaration under Article 31‑C is subject to judicial review.

Legislation cited

Constitution of Indias. Article 14, s. Article 19, s. Article 31-C, s. Article 39(b), s. Article 39(c)
Indian Electricity Act, 1910s. 5(2), s. 6(7), s. 7-A
Indian Electricity (Assam Amendment) Act, 1973s. 5(2), s. 6(7), s. 7-A
Tinsukia & Dibrugarh Electric Supply Undertakings (Acquisition) Act, 1973s. 10, s. 11, s. 1(3), s. 20, s. 2(1), s. 23, s. 2(f), s. 2(h), s. 2(j), s. 3, s. 4, s. 5, s. 6, s. 7, s. 8, s. 9

Subjects

nationalisationArticle 31-CArticle 39(b)compensationbook valueelectricity supplyconstitutional validitycolourable legislationchose-in-actionvaluation

Judgment

TINSUKHIA ELECTRIC SUPPLY CO. LTD.
A v.
STATE OF ASSAM AND ORS.

APRIL 13, 1989

B [R.S. PATHAK, CJ, SABYASACHI MUKHARJI,
S. NATARAJAN, M.N. VENKATACHALIAH AND
S. RANGANATHAN, JJ.]

Constitution of India, 1950: Articles 14, 19, 31-C and 39(b) and
(c)-Nationalisation-Acquisition and take over of electric. supply
companies by State Government-Validity of-Nexus between the legis-
C · lation and the objectives and principles of nationalisation-Court to
look into the real nature of the statute. -Y

Indian Electricity Act, 1910/Indian Electricity (Assam
Amendment) Act, 1973: Sections 5(2), 6(7) and ?A-Acquisition and
D take over of electricity supply companies-Constitutional validity of.

Tinsukhia and Dibrugarh Electric Supply Undertakings (Acquisi-
tion) Act, 1973: Sections 1(3), 2(f), (h), (j), 2(1), 3 to 10, 20 and 23-
Constitutional validity of-Acquisition and take over of Tinsukhia -f.--
Electric Supply Co. Ltd. and Dibrugarh Electhc Supply Co. Ltd.-'-
E Protection under Article 31-C of the Constitution of India-Payment of
compensation-Justiciability of.

The petitioners-Public Limited Companies-were granted
licences under the provisions of the Indian Electricity Act, 1910 for
supply of electricity within the respective licensed areas of Tinsukhia
-
p and Dibrugarh Municipal Boards.

The Dil>rugarh Company was granted licence in 1928 on certain ,-',~
terms and conditions with an option to the State to purchase the under-
taking on the expiry of 50 years and thereafter on the expiry of every
subsequent period of twenty years.
G
So also, the Tinsukhia company was granted licence in 1954 on
certain terms and conditions with an option to the State Government to
+
purchase the undertaking ml the expiry of 20 years and thereafter on
the expiry of every 20 years.

H The State Government negotiated with the ·companies for pur-
544
TINSUKHIA ELECTRIC SUPPLY CO. v. STATE 545

chasing them. The negotiations were going on for several years. On
27 .9.1972 the Governor promulgated two ordinances for the com- A
pulsory acquisition of the undertakings of the two companies. Subse-
quently, the ordinances were replaced by the Indian Electricity (Assam
Amendment) Act, 1973 and the Tinsukhia & Dibrugarh Electric Supply
Undertakings (Acquisition) Act, 1973.
B
~ The two legislations, one amending the provisions of Sections 5(2),
}-6(7) and 7-A ?~t~e Indian Electricity Act'.1910 ?nd the other pr~viding
· for the acqu1S1bon of the two undertakings viz., the Tinsukh1a and

- Dibrugarh Electric Supply Undertaking (Acquisition) Act, 1973 were
challenged in this Court by the writ-petitioners on several grounds. It
was contended that in view of the private negotiaticms and the exercise
Of the ·option to purchase, the legislations were not' bona fide, but con- c
y stituted a mere colourable exercise of legislative power and that the real
objects of the two legislations have no direct and reasonable nexus to the
objects envisaged in Article 39(b) of the Constitution. It was also con-
tended that what was sought to be acquired was not the undertakings of
the two companies, hut the difference between the_ market value of the D
undertakings agreed to by the State Government and the Book-value of
the undertakings which the law has substituted by virtue of the amend-
ments' made in the Indian Electricity Act, 1910. The Article 31-C pro-
.~ tection given to the legislatio;.,,, and some of the specific provisions of
the acquisition law which. excluded certain items from the computation
of compensation and authorised .certain deductions in the amount of E
compensation have also been challenged.
- On behalf of the Respondents, it was contended that. electrical
energy has b~n a material source of the community and any legislativ_e
;.... measure to nationalise the undertaking fell squarely within the ambit of
• Article 39(b) and was entitled to Article 31-C protection. It was also F
. ~ asserted that book-value has been a well accepted ·concept of valuation
in_ accountancy, and it cannot be characterised as, illusory even if the
legislations did not enjoy the protection of Article 31-C.

Dismissing the writ petitions,

-+ and S.HELD: (µ.S. Pathak. CJ, M.N. Venkatachaliah, S. Natarajan.
Ranganathan, JJ-per Venkatachaliah, ]. J
G

1.1. The proposition that the legislative declaration of the nexus
between the law and the principles in Article ·39 is inconclusive and
justiciable is well settled. The sequentor is that whenever any immunity H
546 SUPREME COURT REPORTS [1989] 2 S.C.R.

A is claimed for a law under Article 31-C, the Court has the power to -j..
examine whether the provisions of the law are basically and essentially
necessary for the effectuation of the principles envisaged in. Article
39(b) and (c). [539E, F]

1.2. It can, hardly be gain-said that the electrical energy gene-
B rated and distributed by the undertakings of the petitioners conslitutes
"material resources of the community". The idea of distribution of the --f
material resources of the community in Article 39(b) is not necessarily ~
limited to the idea of what is taken over for distribution amongst the
intended beneficiaries. That is one of the modes of "distribution".
Nationalisation is another mode. The economic cost of social and
economic reform is, perhaps, amongst the most vexed problems of
C social and economic change and constitute the core element in
Nationalisation. The need for constitutional immunities for such legisla-
tive efforts at social and economic change recognise ihe otherwise un-
affordable economic burden of reforms. It is not possible to divorce the
economic considerations or components from the scheme of nationalisa-
z;> lion with which the former are inextricably integrated. The financi;ll
cost of a scheme of nationalisation lies at its very heart and cannot be
isolated. Both the provisions relating to the vestiture of the under-
takings in the State and those pertaining to the quantification of the
"Amount" are integral and inseparable parts of the integral scheme of
nationalisation and do not ambit of being considered as distinct provi-
E sions independent of each other. The debate whether nationalisation is
by itself to be considered as fulfilling a public purpose or whether the
nationalisation should he shown to be justified effectuation of the
avowed objectives of such nationalisation-the choice between the
pragmatis and the doctrinaire approaches-"-is concluded and no longer
-
available.[578C, D, E, 579C, D, H, SSOA, B, Ej
F
1.3. The right; title and interest ofthP licensee in the undertaking ...Ji-
does not get transferred to the Board or the State, as the case may
be, immediately upon the mere exercise of the option to purchase. The
exercise of the option would have no such effect on the licensee's right to
carry on his business until the undertaking was actually taken over and
G paid for. The contentions that immediately upon the exercise of the +
option, ipso-facto, the relationship between the parties get transformed
into one as between a Debtor and a Creditor and that the interest of the
licensee in the undertaking becomes an "actionable-right". or a "chose-
in-action" and that no public-purpose could be said to be served by the
acquisition of a "chose-in-action" are all out of place in the instant
H case. [582E. 583C]
, _,.,, 'i'

TINSUKHIA ELECTRIC SUPPLY CO. v. STATE 547

-+ 1.4. The acquisition legislation was brought-forth for securing A
the principles contained in Article 39(b) of the Constitution and is
protected under Article 31-C. The Assam amendment made to the
provisions of the Indian Electricity Act, 1910, amending the basis for
quantification of the amount payable in the case of a statutory purchase
pursuant to the exercise of the option in terms of the licence would ' B
apply to and govern cases of statutory-sales and· would not assume any
~ immateriality in the instant case. [585E, F]
)-
Kesavananda Bharati v.
State of Kerala;·[\97J] Sujipl. SCR I;
- Minerva Mills Ltd. v. Union of India, [1981] 1SCR206; Sanjeev Coke
Mfg. Co. v. Bharat Coking Coal. Ltd., (1983] 1 SCR 1000; State of
Tamil Nadu v. L. Abu Kavar Bai, AIR 1984 SC 326; Akadasi Padhan c
'y v. State of Orissa and Ors., AIR 1963 SC 1047; Godra Electricity Co.
'' Ltd. and Anr. v. The State of Gujarat and Anr., (1975] 2 SCR 42 and
Madan Mohan Pathak v. Union of India and Ors., (1978] 2 SCR 334,
relied on;
D
Fergusan v. Skrupa, 372 U.S. 726; Fazilka Electric Supply Co.
Ltd. v. The Commissioner of Income Tax, Delhi, [1962] Suppl. 3 SCR
496 and Gujarai Electricity Board v. Shanti/al, (1969] l. SCR 580, refer-
red to.
>-
Bihar State Electricity Board v. Patna Electricity Supply Co. Ltd.,
E

-
AIR 1982 Cal, 74; distinguished.

"History of the treatment of choses-in-action by the common
law"-by W.S. Holdsworth-Vol. 33-Harvard law Review referred
to .
~
.
F
2. · It may not be just to deprive a recompence that is just and fair,
-.~ in all cases. But that. is not to say that even .under a law which has
the protection of Art. 31-A or 31-C, the .adequacy, or justness or fair-
ness of the compensation would, yet, be justiciable. Article 31-C is in
effect and substance is to 'urban property' of what Article 31-A is to
'agricultural property'. All the same, the concept of "Book-Value" is
G
an accepted accountancy concept of value. It cannot be held to be
4- illusory. Even if the impugned law had no protection of Article 31-C
'
and tests appropriate to and available are applied, in the circumstances
of the present case, it cannot be saidJhat the principles envisaged in the
acquisition law lead to an "amount" which can be called unreal or
illusory., [590C, 592Bl
JI
548 SUPREME COURT REPORTS [1989] 2 S.C.R.

A Eswari Khetan Sugar Mills v. State of U.P., [1980] 3 SCR 331; +
·relied on.

Gwalior Rayon v. Union of India, f.1974] SCR 1671; referred to.

3. Under the law when a requ_isition is made by an intending
B consumer for electrical-energy, the licensee has an obligation to lay '-f
down service-lines. But, according to the provisions the entire cost of j ·
service-line is not required to be borne by the licensee. The licensee is \
entitled to call upon the consumer to pay part of the cost of service- ·
line-which may in a given case amount to a substantial part-in
accordance with the provisions in the Schedule to the Electricity Supply -
Act. While it is true that the expression 'works' in Section 2(h) of the
c Indian Railways Act, 1910 includes 'Service-lines', the reason why -V
'Service-lines' could justifiably be excluded from valuation for pur- '
poses of determination of the 'amount'. is that the new licensee is to
repair and maintain them. [593B, C; 592F, G]

D Dakor-Umreth Electricity Co. Ltd. v. State of Gujarat, 13 GLR
88; approved.

4. On a reasonable construction, the expressions 'amounts
remaining' and 'in so far as such amounts have not been paid over' -f-..
necessarily exclude any such duplication of the accountability of the
E licensee for these 'Reserves'. If any part of the reserves is invested in
"fixed assets" and the reserves in the form of such "fixed assets" are
taken-over by the Government pursuant to the acquisition, what
remains to be accounted for by the licensee is only the 'amounts remain-
ing' in the pertinent accounts. The liability of the licensee for deduction
of the 'Reserves' from the 'amount' would arise only if the balance ,...!,
F remaining in those accounts are not paid. [S94F, GI

5. As regards the liability of the licensee under Section ll(3) of
the Acquisition Act in respect of the amounts payable to employees
retrenched by the Government or the 'Board' as the case may be,
within one year from the vesting date after the take-over-ven if this
G question is justiciable-it is not unreasonable or arbitrary as it envis- ~
ages the continuance of a liability which was, otherwise, substantially
that of the licensee. [595F, G, H, 596A, Bl

6. Though some of the liabilities arising out of the conduct of the
licensees' business prior to vesting are not taken over by Government,
H some of those liabilities are, yet, authorised to be deducted from the
TINSUKHIA ELECTRIC SUPPLY CO. v. STATE 549

amount. The purpose of this provision is too obvious to require any
A
statutory declaration or the obligations that arise in law and are
attandant upon these sums coming to the hands of and retained by the
Government. Quite obviously, the provision is not intended for an
unjust enrichment in the hands of Government. The purpose is
obviously to facilitate recovery of certain types of debts owed to public
:..--. institutions etc., and the deduction is for' the benefit of those creditor- B
•' institutions. The Government would, plainly, be under a legal obliga-
,).. lion to pay the sums so deducted, to the concerned creditors. The provi-
t sions of the Statute must be read along, and in consonance, with the
general principles of law which import such obligations on the part of
the Government and an implied corresponding discharge to the peti-
tioners to the extent of such deductions in their liabilities. There is a
resulting statutory-trust in the hands of the Government to pay the c
sums so deducted to the respective creditors, even in the absence of
express provisions in this behalf in the Statute, the general principles of
law operate. As a matter of construction_it re_quires to be held that these
obligations and consequences follow. [596E, F, G, H, 597A]
D
7. The Courts strongly lean against any construction which tends
to reduce a Statute to a futility. The provision of a Statute must be so
construed as to make it effective and operative, on the principle "but res
majis v_aletU quam periat''. It is, n11 doubt, tn1e that if a Statute is
absolutely vague and its language wholly ihtractable and absolutely
meaningless, the Statute could be declared void for vagueness. This is E

- not in judicial-review by testing the law for arbitrariness or unreason-
ableness under Article 14; but what a Court of construction, dealing
with the language of a Statute, does in order to ascertain from, and
accord to, the Statute the meaning and purpose which the legislature
intended for it. It is, therefore, the Court's duty to make what it can of
the Statute, knowing that the statutes are meant to be operative and not F
inept and that nothing short _of imp_ossibility shouid allow a Court to
declare a Statute unworkable. [597F, G, 598C] ·

Manchester Ship Canal Co. v. Manchester Race Course Co.,
[1904] 2 Ch. _352 and Fawcet Properties. v. Buckingham County
Council, [1960] 3 All.E.R. 503, referred to. -- G

8. Section IO of the Acquisition Act enjoins upon the Government
to appoint a person having adequate knowledge and _experience in
matters relating to accounts "toassess ihe net amount payable under the
Act by the Government to the licensee after making the deductions
mentioned in section 9". Proviso ·to Secti.ons 8 and 9 envisages priOr H
550 SUPREME COURT REPORTS [1989] 2 S.C.R.

A
notice to be issued to the licensee by the Government to show cause +.
against any deduction proposed to be made under Section 8 or 9, as the
case may be, within the period specified in the provisos. Even after
the Government so makes such determination of the amounts whiCh,
according to it, are deductible from the gross amount, such determina-
tion wonld not be final. The assessment of the net amount payable to.the
B licensee will have to be made by the "Special Officer". It is reasonable j.
to construe tbat the decision of the Government both under Sections 8
and 9 arrived at, even after giving an opportunity to the lincensee of --I,
being heard, would not be final, but the final determination will have to '·
be made by the "Special Officer" appointed under section 10 of the
Act. Section 10(1) and (2) of the Act must be so construed a~ to enable -
c the "Special Officer" to take into account the determination respecting
the deduction under Sections 9 and 10 of the A~t made by thelGovern-
ment and take the decision of his own in the matter. The power to c.(
''assess" the net amount by necessary implication takes within its
sweep the power to examine the validity of the determination made
by the Government in the matter of deductfon from the gross amount.
D This power to \letermine and assess the 'net-amount' payable by neces-
sary implication cover matters envisaged in Sections 8 and 9. Though
only Section 9 is specifically referred to in sub-sections (1) and (2) of
section 10, the language of sub-sections (I) and (2) which enable the
Special Officer to "assess" the net amount payable would by.necessary -f--
implication, attract the power to decide as to the validity and correct-
E ness of the deduction to be made under Section 8 as well. So construed,
the provisions of Section 10 would furnish a reasonably adequate
·machinery for the assessment of the "net-amount" payable to the
licensee. [598E-H; 599A-E]
-
9. So far as Arbitration is concerned, even after the decision of ,.....,'
F the "Special Officer", there is the further arbitral forum to decide
disputes in respect of the specific areas in which disputes are rendered
arbitrable under Section 20. There is a provision for appointment of a
sitting or retired District or High Court Judge as arbitrator under the
said section. Hence it cannot be said that there is no proper machinery
for resolving the disputes between the Government and the licensee
G rendering the Acquisition Act unworkable: [S99F, GI
+
Per Mukharji, J. (Concurring)

l. Article 39(b) of the Constitution enJOms that the State in
particular should direct its policy towards securing that the ownership
H and control of the material resources of the community are so distri-
TINSUKHIA ELECfRIC SUPPLY CO. v. STATE 551

-+ buted as to best subserve the common good and that the operation of the
economic system does not result in concentration of wealth and means A,
of production to the common detriment. In order to decide whether a
Statute is within Article 31-C, the Court, if necessary, may examine the
nature and the character of the legislation and the matter dealt with as
to whether there is any nexus between tlie law and the principles
-.'.>( mentioned in Article 39(b) and (c). On such an examination if it appears B
' that there is no such nexus between the legislation and the objectives
~and the principles mentioned in Article 39(b) and (c), the legislation will
not enjoy the protection of Article 31-C. In order to see the real nature
- of the Statute, ifneed be, the Court may also tear the veil. [553E-H] .'

Kesavananda Bharati v. State of Kera/a, [1973] Suppl. SCR l;
)<- relied on. c

Charles Russel v. The Queen, [1882] VII AC 829; referred to.
1

2•. Whenever a question is raised that the Parliament or the State
Legislature have abused their powers and inserted a declaration in a D
law for not giving effect to securing the Directive Principles specified in
Article 39(b) and (c), the Coui;t can and must necessarily go into that
question and decide. If the Court comes to the conclusion that the
---1:- declaration was merely a pretence and that real purpose of the law is
the accomplishment of some object other than to give effect to the policy
of the State towards securing the Directive Principles as enjoined by E

- Article 39(b) and (c), the declaration would not debar the Court from
striking down any provision therein which violates Articles 14, 19 or 31.
In other words, if a law passed-ostensibly to give effect to the policy of
the State is, in truth and substance, one for accomplishing an unau-
;l, thorised object, the Court would be entitled to tear the veil created by
, the declaration and decide according to the nature of the law. The only F
'>-.-question open to judicial review undei:Article 31-C is whether there is a
direct and reasonable nexus between the impugned law and the provi'
sions of Article 39(b) and (c). Reasonableness is evidently regarding the,
nexus and not regarding the law: l554D, E, F, ssss,,ci - \
Kesavananda Bharati v. State of Kera/a, [1973] Suppl. SCR '1; G
Minerva Mills Ltd. v. Union of India, [1981] I SCR 206 and Sanjeev
Coke Mfg. Co. v. Bharat Coking Coal Ltd. & Anr., [1983] l SCR 1000,
relied on.

3. It is indisputed that the electric energy generated by tne
-~titioner companies constitutes material resources of the community H
552 SUPREME COURT REPORTS [1989] 2 S.C.R.

A within the scope and meaning of Article 39(b), and having regard to the
true nature and the purpose of the legislations, reading the legislations
·+
' entirely, the Iegislalions have a direct and reasonable nexus with tile objective
of distributing the material resources so as to subserve the common
good. The determination of' value t.herof and the substitution of the
book-value in place of market value, are only methods for such acquisi-
B tion anti do not disclose the true nature and character of the legislation, 'j-
but are incidental provisions thereof. If that is the position then it is .J
incorrect to say that what was acquired, was not the material resources · \
but chose-in-action. The true nature and character of the legislations in
question was to acquire the material resources, namely, the electric -
energy for better supply and distribution. [5560, E, F]
c State of Tamil Nadu & Ors. v. L. Abu Kavur Bai & Ors., [1984] 1 ">I'
sec 515, relied on.
Bihar State Electricity Board & On. v. Patna Electricity Supply
Co. Ltd., AIR 1982 Cal. 74. distinguished.
D
4. Having regard to the true nature and character of the legisla-
tions in question the legislations are not colourable legislations in the
sense that there was no direct and reasonable nexus with Article 31 (h)
and (c) of the Constitution. [556H] -f-·
E ORIGINAL JURISDICTION: Writ Petition No. 457 of 1972

(Under Article 32 of the Constitution of India) -

Mrs. A.K. Venna for the Intervener.
G
The following Judgments of the Court were delivered: +
SABYASACHI MUKHARJI, J. I agree with Brother Venkata-
chaliah, that the contentions urged on behalf of the petitioner in sup-
port of the challenge to the impugned legislations must fail and the
H writ petitions must be dismissed. I would, however, like to express my
TINSUKHTA ELECTRIC SUPPLY CO. v. STATE [MUKHARJI, J.] 553

views only on one aspect of the matter, which is common to this case as . A
well as the writ petitioQ No. 458/72, civil appeal No 4113/85 and writ
petition No. 5(N)/74, i.e. the scope of judicial review of legislation
where there. is declaration in the legislation under Art. 3K of the
Constitution.

In these writ petitions we are concerned with two legislations, B
namely, the Indian Electricity (Assam Amendment Act, 1973, (Assam
Act IX of 1973), and the Tinsukhia & Dibrugarh Electric Supply
Undertakings (Acquisition) Act, 1973 (Act X of 1973). The main point
- which is significant in these writ petitions, is the extent and scope of
judicial review of legislation where there is declaration under Art. 3 lC
of the Constitution, which enjoins that no law giving effect to the
y policy of the State towards securing all or any of the principles laid c
down, inter alia, namely, Articles 38, 39, 39A, 40, 41, 42, 43A, 44 to
48, 48A and 49 to 51 shall be deemed to be void on the ground that
those are inconsistent or take away or abridge any of the rights confer-
red by Article 14 or 19, and further provides that no Jaw containing a
declaration that it is for giving effect to such a policy, shall be called in D
question in any court on the plea that it does not give effect to such a
policy. The two legislations in question are covered by the declaration
under Article 3 lC of the Constitution.

The principal q ucstion which falls for consideration is, whether
that declaration is justiciable and open to judicial review and the E
extent of that judicial review. Article 39(b) of the Constitution en joins
that the State in particular should direct its policy towards securing
that the ownership and control of the material resources of the com-
munity are so distributed as to best subserve the common good and
,,;.. that the operation of the economic system does not result in concentra-
tion of wealth and means of production to the common detriment. F
.,._. See, in this connection, the observations of Ray J. as the learned Chief
Justice then was, in Kesavananda Bharati v. State of Kera/a, [1973]
Suppl. SCR 1 at 451-452. Hence, in order to decide whether a Statute
is within Article 3 lC, the Court, if necessary, may examine the nature
and the character of legislation and the matter dealt with as to whether
4 there is any nexus between the law and the principles mentioned in G
' Article 39(b) and (c). On such an examination ifit appears that there is
no such nexus between the legislation and the objectives and the
principles mentioned in Article 39(b) & (c), the legislation will not
en joy the protection of Article 3 lC. Jn order to see the real nature of
the Statute, if need be, the court may also tear the veil.
H
554 SUPREME COURT REPORTS [1989) 2 S.C.R.

A Justice Jaganmohan Reddy in the same decision at page 530 of
the report reiter~ted that a law not attracting Article 3 lC cannot be
+
protected by a declaration by just mixing it with other laws really
falling within Article 3 lC with those that do not fall under that Article.
Hence, in such a case the Court will always be competent to examine
the true nature and character of the legislation in the particular
B instance and its design and the primary matter dealt with-its object
and scope. In this connection, reliance was placed on the observations
of the Privy Council in Charles Russel v. The Queen, [1882) VII AC
829 at 838-840. Justice Palekar in the same decision at page 631 also
reiterated that if the court comes to the conclusion that the object of
the legislation was merely a pretence and the real object was discrimi-
-
nation or something other than the object specified in Article 39(b)
c and (c), Article 31C would not be attracted and the validity of the
Statute would have to be tested independently of Article 3 lC.

Whenever a question is raised that the Parliament or the State
legislature have abused their powers and inserted a declaration in a
D law for not giving effect to securing the Directive Principles specified
in Article 39(b) & (c), the court can and must necessarily go into that
question and decide. See the observations of Justice Mathew in
Kesavananda Bharati's case (supra) at page 855 of the report. If the
court comes to the conclusion that the declaration was merely a pre-
tence and that the real purpose of the law is the accomplishment of
E some object other than to give effect to the policy of the State towards
securing the Directive Principles as enjoined by Article 39(b) & (c),
the declaration would not debar the court from striking down any
provision therein which violates Articles 14, 19 or 31. In other words,
if a law passed ostensibly to give effect to the policy of the State is, in
truth and substance, one for accomplishing an unauthorised object,
F the Court would be entitled to tear the veil created by the declaration
and decide according to the nature of the law. Also see pages 851 &
856 of the report. Justice Beg, as the learned Chief Justice then was, at
pages 884-885 of the report reiterated that a colourable piece of legis-
lation with a different object altogether but merely dressed up as a law
intended for giving effect to the specified principles would fail to pass
G the test laid down by the first part, and the declaration by itself would
not preclude a judicial examination of the nexus, so that the courts can
still determine whether the law passed is really the one covered by the
niche carved out by Article 3 IC or merely pretends to be so protected
by parading under cover of the declaration: Justice DwiveJi at page
934 of the report said that the Court still retains power to determine
H whether the law has relevancy to the distribution of the ownership and
TINSUKHJA ELECTRIC SUPPLY CO. v. STAIB [MUKHARJI, J.] 555

control of the material resources of the community and to the opera- A
tion of the economic system. If the Court finds that the law has no such
relevancy, it can declare the law void. The declaration cannot be
utilised as a clog to protect law bearing no relationship with the objec-
tives mention,ed in the two clauses of Article 39.
B
>( With respect, I am inclined to agree with the observations of
. Justice Chandrachud, as the learned Chief Justice then was, at page
f-- 996 of the said report that the declaration under Article 31C does not
exclude the jurisdiction of the Court to determine whether the law is
• for giving effect to the policy of the State towards securing the princi-
ples specified in Article 39(b) & (c).
c
~- Chief Justice Chandrachud in Minerva Mills Ltd. v. Union of
India, [1981] 1 SCR 206 at 261 observed that the clear intendment of
Article 31C is that the power to enquire "into the question whether
there is a direct and reasonable nexus between the provisions of a law
and a Directive Principle can not confer upon the courts the power to D
sit on judgment over the policy itself of the State. At the highest,
courts can, under Article 31C, satisfy themselves as to identity of the
law in the sense whether it bears a direct and reasonable nexus with ~he
directive principles. If the court is satisfied as to the existence of such
.---f nexus, the inevitable consequence provided for by Article 3 lC must
follow. He recorded that all the 13 Judges in Kesavananda Bharati's i;
case (supra) agreed. The only question open to judicial review under

- Article 31C is whether there is a direct and reasonable nexus between
the impugned law and the provisions of Article 39(b} & (c). Reason-
ableness is evidently regarding the nexus and not regarding the law.

Justice Bhagwati, as the learned Chief Justice then was, reitera- F
ted at pages 337-338 of the report that if the Court finds that the law
-~ though passed seemingly for giving effect to a Directive Principle is; in
pith and substance, one for accomplishing an unauthorised purpose-
un-authorised in the sense of not being covered by any Directive Princi-
ple, such law would not have the protection of the amended Article
3 lC, which does not give protection to a law which has merely some G

-+ remote or tenuous connection with' a Directive Principle. What is
necessary is that there must be a real and substantial connection and
the dominant object of the law must be to give effect to the Directive
Principles. Also see the observations of this Court in Sanjeev Coke
Mfg. Co. v. Bharat Coking Coal Ltd. & Anr., [1983] 1 SCR 1000 '11
lillO. - H
556 SUPREME COURT REPORTS [1989] 2 S.C.R.

A Looked at from this point of view, it cannot be said that the
-i.
principles of colourable legislation would not be applicable. If it was
demonstrated that there was no direct and reasonable nexus between
these two impugned laws and the principles as enshrined under Article
3l(b) & (c) of the Constitution, then that would have been colourable
legislations and would have been bad on that score.
B
'!
It was contended on behalf of the petitioner by Mr. Sorabji as
well as Mr. Rangarajan that in order to bye-pass lhe payment of com- ~
pensation for acquisition of property of the petitioner in negotiations
the device of the impugned Acts was envisaged. In that context, the
substitution of the book-value in place of market value was, therefore,
-
c deprivation of property and is illusory and would amount to taking
away of property without compensation. ··.~

I do not and cannot agree. It is indisputed that the electric energy
generated by the supplier petitioner companies constitutes material
resources of the community within the scope and meaning of Article
D 39(b ), and having regard to the true nature and the purpose of the
legislations, reading the legislations entirely, the object of the legisla-
tions have a direct and reasonable nexns with the objective of dis-
tributing the material resources so as to snbserve the common good.
The determination of value thereof and the substitution of the book- ?-·
value in place of market value, are only methods for such acquisition
E and do not disclose the true nature and character of the legislation, but
are incidental provisions thereof. If that is the position then it is incor-
rect to say that what was acquired, was not the material resources but
...
choses-in-action. The true nature and character of tbe legislations in·
question was to acquire the material resources, namely, the electric
F
energy for better supply and distribution. In that view of the matter ,""-
the principles of the d"l'ision of the Division Bench of the Calcutta
High Court in Bihar State EleCtricity Board & Ors. v. Patna Electricity
Supply Co. Ltd., AIR 1982 Cal. 74 would have no scope of application
--\·
to this case. A Constitution Bench of this Court in State of Tamil Nadu
& Ors. v. L. Abu Kavur Bai & Ors., [1984] 1 SCC 515 has expressed
the view that the Act giving effect to Article 39(b) & ( c) is protected if
G a reasonable nexus is established.
+
In that view of the matter, I agree having regard to the true
nature and character of the legislations that the impugned legislations
are not colourable legislations in the sense that there was no direct and
reasonable nexus with Article 3 l(b) & (c) of the Constitution.
H
TINSUKHIA ELECTRIC SUPPLY CO. v. STATE [VENKATACHALIAH, J.] 557
-+ On the other aspects of the matter, I agree with respect, with the
A
conclusion indicated in the judgment of Justice Venkatachaliah.

VENKA TACHALIAH, J. 1. In these two writ petitions invoking
Article 32 of the Constitution of India, the Tinsukia Electric Supply
Company Limited and the Dibrugarh Electric Supply Company
Limited, which are licensees under the Indian Electricity Act 1910 for B
the supply of electricity within the areas of the municipal boards of Tin-
sukhia and Dibrugarh towns respectively, in th~ State of Ass11m and
the share-holder-Managing Directors of the two companies assail the
constitutional validity of the Indian Electricity (Ass~m Amendment)
Act, 1973, and of the Tinsukia and Dibrugarh Electric Supply Under-
taking (Acquisition) Act, 1973. By the latter enactments, the under-
takings of the two companies were sought to be acquired so as to vest c
them in the Government with effect from 27.9.1972.

The petitioners also urge, in the petitions, a challenge to the
validity of the Twentyfourth and Twentyfifth Amendments to the
Constitution. This part of the petition, in view of the subsequent D
pronouncements of this court on these amendments, does not survive.

2. The petitioner-companies are Public Limited Companies
registered under the Indian Companies Act, 1913, and are existing
companies under the Companies Act 1956 with their registered offices
at Tinsukhia and Dibrugarh respectively in tbe State of Assam. The E
two companies, Tinsukhia Electric Supply Company Ltd., and the
Dibrugarh Electric Supply Company Ltd.-hereinafter referred to
respectively as the 'Tinsukhia Co.' and 'Dibrugarh Co.'-were granted
'licences under the provisions of the Indian Electricity Act, 1910('1910
Act' for short) for supply of electricity within the respectiv(' licenced
areas viz. of the Tinsukhia and Dibrugarh Municipal Boards. The F
'Dibrugarh Company' was granted the 'Dibrugarh Electricity Licence,
1928' on terms and conditions particularised in the grant, incorporat-
ing, inter alia, an option to the State to purchase the undertaking on
the expiration of 50 years from 13.2.1928 the date of commencement
of the licence and thereafter on the expiration of every subsequent
period of twenty years. G

The Tinsukhia Company was similarly granted the 'Tinsukhia
Electricity Licence, 1954', incorporating, inter-alia, a condition as to
the option exercisable by the State of Assam to purchase the electricity
undertaking of the licencee on the expiration of 20 years from
21.7.1954, the date of commencement of the licence, and thereafter on H
558 SUPREME COURT REPORTS [1989] 2 S.C.R.

A the expiration of every subsequent decennial period.

3. However, by two Ordinances, namely, The Indian Electricity
(Assam Amendment) Ordinance, 1972: (Assam Ordinance VII, 1972)
and the Tinsukhia & Dibrugarh Electricity Supply Undertakings
(Acquisition) ordinance, 1972, (Assam Ordinance VIII of 1972)
B promulgated by the Governor in exercise of his legislative powers
under Article 213 of the Constitution, the Electricity Supply Under-
takings of the two companies were acquired by, and stood vested in,
the Government with effect from 23.30 hrs. on 27.9.1972. Possession
and control of the two undertakings were, accordingly, taken-over by
the Government of Assam that day. The two ordinances were subse-
C quently replaced by the two corresponding legislative enactments viz.,
the Indian Electricity (Assam Amendment) Act, 1973, (Assam Act
IX, 1913) and the Tinsukhia & Dibrugarh Electric Supply Under-
takings (Acquisition) Act, 1973, (Assam Act, X of 1973).

At the time of filing of the writ petitions the two Ordinances had
p not been replaced by the legislative measures. However, after the
coming into force of the two legislative enactments, with retrospective
effect from;the date of promulgation of the earlier ordinances, peti-
tioners' sought, and· were granted by an order of this Court dated
18.12.1973, leave to amend the petitions so as to direct the challenge
against the enactments.
E
4. An advertence, though brief, to the factual antecedents lead-
ing upto to the promulgation of the Ordinances and to certan earlier
steps taken by the State Government to acquire the said undertakings,
first by negotiations, and later by exercise of the option to purchase, is
-
necessary in order to put the grounds o~ .challenge in their proper !~
F perspective.

Respondent No. 4 i.e. the Assam State Electricity Board, it
would appear, had been expressing its intention to take-over the
undertaking of the Tinsukia Co. by private negotiations even from the
year 1964. Pursuant to and in implementation of this proposal the
µ Board had constituted a committee of. 3 members for assessing the ._.
value of the assets of the Tinsukhia's undertaking. On the valuation so
made and the inventories so prepared, the Board, on 27.3.1970,
informed the Tinsukia Co. that the Board had approved the valuation
of the assets of the undertaking at Rs.30,54,246, excluding, the value
of the land, whose value was later estimated at Rs.2,40,000. By letter
H dated 4.3.1971, the Chairman of the Assam State Electricity Board
TINSUKHIAELECfRICSUPPLYCO. v. STA1E [VENKATACHALIAH,J.) 559
~·· informed Tinsukia Co., that the company should immediately signify
and communicate its acceptance of the proposal to transfer the under- A
taking to the Board at the valuation of Rs.33,00,000. The company,
appears to have tarried and did .not signify and communicate its
immediate and unqualified acceptance of the offer; but appears to
have had some counter-proposal in mind and, in the expectation of
pursuading the Board to its view, requested the Chairman of the B
··\ Board to visit Tinsukia for holding further discussions in the matter of
~ valuation of the Undertaking. Thereafter the Chairman along with the
officers of the Board visited Tinsukia sometime in June, 1971, and
held discussion with the company. The company avers that pursuant to
these discussions, the Executive Engineer of the Board was asked by
the Chairman to prepare a fresh inventory as on 31.10.1971 in colla-
boration with the company. c
~
However, the Secretary of the Board sent a communication
dated 10.12.1971 to the company to the effect that as the conipany had
not conveyed )ts concurrence to the offer contained in the Board's
letter dated 25.3.1970 the said offer be treated as withdrawn. There- D
after, the Board issued the notice dated 15/23 May 1972 to the
company conveying the Board's intention to exercise its option of
purchasing the undertaking under Section 6(1) of the 1910 Act read
..A with clause 12(iv) of the licence on the expiration "the term of the
' licence" and, accordingly, required the company to sell the under-
taking to the Board on the expiration of 21.9.1974 when the 20 year E

- period of the licence would come to an end. In response to this notice,
the company sent its communication dated 17 .8.1972 seeking confir-
mation of its expectation that the purchase price for the statutory sale
would be determined in accordance with the provisions of section 7A
"-,, of the 1910 Act and that such price would also be tendered to the
company on or before the date of taking-over. Nothing further appears F
~ to have happened pursuant to this notice to purchase. But, as stated
earlier, the two Ordinances were promulgated on 27. 9. 1972 for the
compulsory acquisition of the undertaking of the company.

So far as the Dibrugarh company is concerned, similar negotia-
tions for purchase by private negotiations had been initiated and the G
i Chief Engineer of the Board accompanied by the Finance and
Accounts Member of the Board visited Dibrugarh on 27 .1.1965 for
discussions as to the valuation of the undertaking. Nothing moved in
the matter for some years. However, in the communication dated
3.8.1970 addressed by the Secretary to Government 'of Assam, Power
(Electric:ity), Mines and Minerals Department, to the Secretary of the Ii
560 SUPREME COURT REPORTS [1989] 2 S.C.R.
)..._
Board, it was reiterated that Government had decided that the under-
A taking of the Dibrugarh Co. should be taken-over by negotiation.
While matters remained thus, the company's undertaking was taken
over on 27.9.1972 pursuant to the two ordinances promulgated by the
Governor.

B 5. We may briefly tum to the provisions of the two enactments
'f.
which have since replaced the two Ordinances:

The amendments made to Sections 5, 6 and 7A of the Indian
~
Electricity Act, 1910, by the Indian Electricity (Assam Amendment)
*
Act, 1973, are substantial and far-reaching. Section 2 of the Amending
Act amended Section 5 of the Principal Act by substituting the ex.,res-
c sion "the purchase price of the undertaking" in sub-sec. (2) of Section
·~
5 by the expression 'an amount'. Section 3 of the Amending Act which
amended sub-Sec. (7) of Section 6 of the Principal Act substituted the
words 'the purchase-price' occurring in sub-Sec. (7) of Section 6 by the
words "an amount". The amendments brought about by Section 4 of
D the Amending Act to Section 7-A of the Principal Act were ~ually
substantial. Section 7A of the Principal Act,· it may be recalled, pro-
vided that where an undertaking of a licensee, not being a local autho-
rity, was sold under sub-Sec. (1) of Section 5 the purchase-price of the
undertaking shall be the market-value of the undertaking at the time
of purchase, or where the undertaking had been delivered before the
7'-·
E purchase under sub-Sec. (3) of Sec. 5, at the time of delivery of the
undertaking, and that if there was any difference of dispute regarding
such purchase price, the same shall be determined by arbitration. But
Section 4 of the Amending Act substituted an entirely different provi-
-
sion in the place of the old section 7-A. It substituted "book-value" in
place of "market-price". Sections 5(2), 6(7) and 7-A, of the Principal ,'¥,
F Act after their amendment read thus:

"Section 5(2): Where an undertaking is sold under ~.
sub-section (1) the purchaser shall pay to the licencee an
amount in accordance with the provisions of sub-sections
(1) and (2) of Section 7-A."
G
Sub-sec. (7) of Section 6, after the amendment, reads: -+-
Section 6(7): Where an undertaking is purchased
under this section, the purchaser shall pay to the licensee
an amount determined in accordance with the provisions.of
H sub-sections (1), (2) and (3) of Section 7A.
TINSUKHIA ELECfRIC SUPPLY CO. v. STAIB [VENKATACHALIAH, J.] 561

Section 7A reads:
A
"7-A. Determination of amount payable. (1) where
an undertaking of a licensee is sold under sub-section (1) of
Sec. 5 or purchased under Sec. 6, the amount payale for the
undertaking shall be the book value of the undertaking at
the time of purchase or where the undertaking has been B
delivered before the purchase under sub-Section (3) of
Sec. 5, at the time of delivery of the undertaking.

(2) The book value of an undertaking for the purpose
of sub-section (1) shall be deemed to be the depreciated
book value as shown in the audited balance-sheet of the
licensee under the law for the time being in force, of all
c
lands, buildings, works, materials and plant of the licensee,
suitable to and used by him for the purpose of the under-
taking, other than (i) a generating station declared by the
licensee not to fonn part of the undertaking for the purpose
of purchase, and (ii) service lines or other capital works or D
any part thereof which have been constructed at the ex-
pense of the consumers, but without any addition in respect
of compulsory purchase or of goodwill or any profit which
may be or might have been made from the undertaking or
of any similar consideration.
E
(3) Notwithstanding anything contained in any
licence or any instrument, order agreement or law for the
time being in force in respect of any additional sum by
whatever name may it be called, payable to a licensee for
compulsory purchase, the licensee shall be entitled only to
a solatium of ten per centum of the book value as deter- F
mined under sub-sections (1) and (2) for compulsory
purchase of his undertaking under Sec. 6.

(4) No provision of any Act for the time being in
force including the either provisions of this Act and of any
rules made thereunder or of any instrument including G
licence have effect by virtue of any of such Acts or any rule
made thereunder, shall, in so far as it is inconsistent with
any of the provisions of this section, have any effect."

It is material to point out that sub-section (3) of Section 1 of the
Amending Act. provides that the Amending Act shall be deemed to H
562 SUPREME COURT REPORTS [1989] 2 S.C.R.
:)...
have come into force on 27.9.1972, which was the date of promulga-
A
tion of the earlier Ordinance.

6. We may now notice some of the material provisions of the
Acquisition Act i.e. Assam Act X of 1973. Section 1(3) provides that
the Act shall be deemed to have come into force on 27 .9.1972. Clauses
B (f), (h), (j) & (I) of the interpretation-clause (Sec. 2) may be noticed: 'f.
2(f) 'Fixed Assets' includes works, spare parts, stores, ~

c
tools, motor and other vehicles, office equipment and furniture;

2(h): 'Licensee' means the Tinsukia Electric Supply Company
Ltd. and/or the Dibrugarh Electric Supply Company Private
-
Ltd., as the case may be; """

2(j): 'Undertaking' means the Tinsukia Electric Supply Under-
taking owned and managed by the Tinsukia · Electric Supply
Company Ltd., a11d/or the Dibrugarh Electric Supply Under-
D taking owned and 'managed by the Dibrugarh Electric Supply
Company Private Ltd., as the case may be;

2(1): 'Works' includes electric supply lines and any lands, build-
ings, machinery or apparatus required to supply energy and to } ..
carry into effect the object of a licence granted under the Electr-
E icity Act;

Section 3(2) provides: -
3(2): Any notice given under any of the provisions of the
Electricity Act or the Electricity Supply Act to the licensee for A
F the purchase of the undertaking and in pursuance of which notice
the undertaking has not been purchased before the commence- ~
ment of this Act, shall lapse and be of no effect.

Explanation: There shall be no obligation on the part of the
Government or the Board to purchase any undertaking in
G pursuance of any notice given as aforesaid, nor shall the service +-
of such notice' be deemed to prevent the Government from
taking any proceeding de novo in respect of the undertaking
under this Act.

Section 4 provides:

4. Vesting date. The Tinsuk.ia and Dibrugarh Electric Sup-
TINSUKHIAELECfRICSUPPLYCO. v. STATE [VENKATACHALIAH,J.J 563

ply Undertakings shall be deemed to be transferred to and shall
A
vest in the Government, on the 27th day of Septeinber, 1972, at
11.30P.M. .

Section 5 provides for the transfer of the undertaking so acquired
by Government to the Board.
B
Section 6 provides for the gross ·amount payable to the licensee.

6. Gross amount payable to Licensee. (1) The gross amount
payable to a licensee shall be the aggregate value of the amounts
specified below: ·

(i) the book value of all completed works in beneficial use c
pertaining to the undertaking and taken over by the Government
(excluding works paid for by· consumers) less depreciation
calculated in .accordance with Schedule I;

(ii) the book value of all works in progress taken over by D
the Government, excluding works paid for by consumers or
prospective cunsumers;

.. cl (iii) the book value of all stores including spare parts taken
over by the Goven1ment and in the case of used stores and spare
parts, if taken over, such sums as may be decided upon by the E

- Government;

(iv) the book value of all other fixed assets in use on the
vesting date and taken over by the Government less depreciation
..,I.., calculated in accordance with.Schedule I;
F
(v) the book value of all plants and equipments existing on
the vesting date, if taken over by the Government, but no longer
in use owing to wear and tear or to obsolescence, to the extent
such value has not been written off in the books of the licensee
less depreciation calculated in accordance with Schedule I;
G
(vi) the amount due from consumers in respect of every hire-
purchase agreement referred to in Sec. 7(i)(ii) less a sum which
bears to the difference between the total amount of the instal-
ments and the original cost of the material or equipment, the
same proportion as the amount due· bears to the total ·amount of
the instalments; H
564 SUPREME COURT REPORTS [1989] 2 S.C.R.
A
(vii) any amount paid actually by the licensee in respect of ->---
every contract referred to in Section 7(i)(iii).

Explanation-The book value of any fixed asset means its
original cost and shall comprise-
B
(i) the purchase price paid by the licensee for the asset,
including the cost of delivery and all charges properly incurred in
erecting and bringing the asset into beneficial use as shown in the ~
books of the undertaking;

(ii) the fOSt of supervision actually incurred but not "
exceeding fifteen per cent of the amount referred to in para-
graph (i);

Provided that before deciding the amounts under this sub-
section, the licensee shall be given an opportunity by the
b Government of being heard, after giving him a notice of at least :15
days therefor.

· (2) In addition a sum equal to 10 per cent of the amounts
!lSSessed .under Clauses (i) to (iv) of sub-section(!} shall be paid
to the licensee by the Government. >..
(3) When any asset is acquired by the licensee after the
expiry of the period· to which the latest annual accounts relate,
the book value of the asset shall be such as may be decided upon ...
by the Government;

F Provided that before deciding the book value of any such
asset, the licensee shall be given an opportunity by the Govern-
ment of being heard after giving him a notice of at least 15 days
therefor.

Section 7 provides:
G
7. Vesting of undertakings. {!} The property, rights,
liabilities and obligations specified below in respect of the under-
taking shall vest in the Government of the vesting date;

(i) all the fixed assets of the licensee and all the documents
H relating to the undertaking;
TINSUKHIAELECTRICSUPPLYCO. v. STATE [VENKATACHALIAH,J.] 565

(ii) all the rights, liabilities, and obligations of the licensee. A
under hire-purchase agreements, if any, for the supply of mate-
rials or equipment made bona fide before the vesting date;

(iii) all the rights, liabilities and obligations of the licensee
under any other contract entered into bona fide before the vest-
ing date, not being a contract relating to the borrowing or lead- B
ing of money, or to the employment of staff.

(2) All the assets specified in sub-Section (l)(i) shall vest
in the Government free from any debts, mortgages or similar
obligations of the licensee or attaching to the undertaking;

Provided that such debts, mortgages or obligations shall
c
attach to the amount payable under this Act for the assets.
J•
(3) In the case of an ·undertaking which· vests in the
Government under this Act, the license granted to it under part
II of the Electricity Act shall be deemed to have been terminated D
on the vesting date and all the rights, liabilities and obligations of
the licensee under any agreement to supply electricity eniered
into before that date shall devolve or shall be deemed to have
.-A devolved on the Government;
._,_ .... ff. -~ ..
., Provided that where any slich agreement:is not in con- E
formity with the rates and conditions of supply approved by the
- Government and in force on the vesting date, the agreement
shall be voidable af the option of the Government. ·

(4) In respect of any undertaking to which Sec. 4 applies, it
shall be lawful for the Government or their authorised represen- F
tative on and.•fter the vesting date, atter removing any obstruc-
tion that may be or might have been offered, to take possession
of the entire undertaking, or as the case·•may be the fixed ·assets
and of all documents relating to the undertaking which the
Government may require for carrying it on.
G
(5) All the liabilities and obligations, other than those ves-
ting in the Government under sub-Sections (1) and (3), shall
continue to be the liabilities and obligations of the licensee, after
the vesting date.

Explanation. All liabilities and obligations in respect .of H
566 SUPREME COURT REPORTS [1989] 2 S.C.R.

A staff, taxes, provident fund, employees' state Insurance, Indus- J,,._
trial disputes and all other matters, upto and including the vest-
ing date, shall continue to be the liabilities and· obligations of the
licensee, after the vesting date.

Section 9 provides:
B
9. Deductions from the gross amount. the Government Y..-
shall be entitled to deduct the following sums from the gross ~
amount payable under this_Act to a licensee-

(a) the amount, if any, already paid in advance;
c (b) the amount if any, specified in Sec. 8;
-,...J,,
(c) the amount due, if any; including interest thereon,
from the licensee to the Board, for energy supplied by the Board
·before the vesting date;
D
(d) all amounts and arrears of interest, if any thereon, due
from the licensee to the Government,

(e) the amount, if any, equivalent to the loss sustained by
the Government by reason of any property or rights belonging to
E the undertaking not having been handed over to the Govern-
ment, the amount of such loss being deemed to be the amount by
which the market value of such property or rights exceeds the
amount payable therefor under this Act, together with any
income which niight have been realized by the Gcivemment, if
-
the prop_erty or rights had been handed over on the vesting date;
f
(f) the amount of all loans due from the licensee to any ~
financial institutions C\)nstituted by or under the authority of the " ,
Government and arrears, or interest, if any, thereon;

(g) all sums paid by consumers by way of security deposit
G and arrears of interest due thereon on the vesting date, in so far
as they have not been paid over by the licensee to the Govern-
ment, less the amounts which according to the books of the
licensee are due from the consumers to the licensee for energy
supplied by him before that date;

H (h) all advances from c<msumers and prospective consum-
TINSUKHIAELECTRICSlJpPLYCO. v. STATE{VENKATACHALIAH,J.] 567

ers, and all sums which have been or oughi to be set aside to the A
credit of the consumers' fund, in so far as such advances or sums
have not been paid over by the licensee to the Government;

· (i) the amounts remaining in Tariffs and Dividends Con-
trol Reserve, Contingencies Reserve and Development Reserve,·
in so far as such amounts have not been paid over by licensee to B
the Government;

(j) the amount, if any, as specified in Ss. 11(2) and 11(3):

(k) the amount, if any, relating to debts, mortgages Qr
obligations as mentioned in proviso to sec. 7(2);

Provided that before making any deduction under ibis ~
tion, the licensee shall be given a notice to show @use against
such deduction, wiihin a period of fifteen days from the date of
receipt of such notice.
D
Section 10 en11bles the Government to appoint, by order in writ-
ing, a person having ·adequate knowledge and experience in matters
relating to accounts as Special Officer to assess the net amount payable
under this Act, after making the deductions enumerated in section 9.

Section 20 provides: E
- 20. Arbitration. (1) Where any dispute arises in respect of
any of the matters specified below, it shall be determined by an
arbitrator appointed by the Government, who shall be a sitting
or retired District or High Court Judge- ·
F
(a) whether any property belonging, or any right, liability
or obligation attaching to the undertaking, vests in the
Government;

(b) whether any fixed asset forms part of the undertaking;
G
(c) whether any contract or hire-purchase agreement or
other contract referred to in SEC. 7(1)(ii) or (iii) has been en-
tered into bona fide or not;

( d) whether any agreement to supply electricity entered
into by the licensee prior to the vesting date is of the nature H
referred to in proviso to S. 7(3).
568 SUPREME COURT REPORTS [1989] 2 S.C.R.

(2) Subject to the provisions of this section, the provisions
A
of the Arbitration Act, 1940 (Central Act 10 of 1940) shall supply
to all arbitrations under this Act.

Section 23 of the Act incorporates a declaration to the effect that
the legislation is for giving effect to the policy of the State to secure the
B principle of State Policy contained in Article 39(b) of the Constitution
oflndia.

7 ._ The two legislations, one amending the provisions of Sections
5(2) 6(7) and 7-A of the Indian Electricity Act, 1910, and the other
providing for the' acquisition of the two undertakings are challenged by
the petitioner on several grounds, the principal attack, however, being
c that the legislations, brought forth, as they were, in the wake of the ~
private-negotiations and the exercise of the option to purchase, are not
bona fide, but constitute a mere colourable exercise of the legislative
power and that, at all events the real objects of the two legislations
have no direct and reasonable nexus to the objects envisaged in clause
D (b) of Article 39 of the Constitution and that a -i:areful and critical
discernment of the context in which the legislation was brought forth
would lay bare before the judicial eye that what was sought to be
acquired was not the "undertakings" of the two companies but really .~.
the difference between the "market-value" of the undertakings which
the State has agreed, under the private treaties, to pay and what, in
E any event, the State was obliged to pay under the provisions of Section
7A, ·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 applied to Article 31(2) as it then ---"'
F stood. The validity of some of the specific provisions of the acquisition ~
law_which excluded certain items from valuation and envisaged and - ,
authorised certain deductions in the amount are also assailed.

8. These writ petitions were heard along with a batch of writ-
petitions, viz, WP Nos. 5, 14, and 15 of 1974, where the constitu-
G tionality of an analogous statute of the State of Tamil Nadu was ¥-
assailed by the companies whose undertakings were similarly sought to
be acquired and civil appeal No. 243 of 1985, C.A. 344 of '1985 and
C.A. 4113 of 1985 arising out of the Judgment, dated 20.7.1984, of the
High Court of Bombay striking down certain amendments to the
Indian Electricity Act, 1910, made by the Maharashtra State Legis-
H lature in the matter of statutory purchase of some of t!'e private
'
i

TINSUKHIAELECI'RICSUPPLYCO. v. STATE (VENKATACHALIAH,J.] 569

electricity supply undertakings in the State of Maharashtra.
A
The three batches of cases arising from Assam, Tamil Nadu and
Maharashtra were heard together as there were certain aspects
common to them. However, in view of the distinctiveness and
particularities of the facts of the cases and the situational variations
- \ even in respect of the legal context in which questions arise for deci- B
. sion, the three batches of cases are disposed of by separate Judgments.
,). ·The present Judgment disposes of the challenge made to the Assam
Legislation.

9. We have heard Shri Soli J. Sorabji, learned Senior Advocate,
and Shri Harish Salve, learned Advocate, for the petitioner in W.P.
457 of 1972 and Sri Rangarajan, learned Senior Advocate for the
c
petitioner in W.P. 458 of 1972 and Dr. Shankar Ghosh, learned Senior
Advocate, for the State of Assam and Sri G.L. Sanghi, learned Senior
Advocate for the Assam State Electricity Ji!oard and its authorities. On
the contentions urged at the hearing, the p<;>ints that fall for.considera-
tion in the writ-petitions admit of being formulated thus: D

(a) That the declaration in Sec. 23 of Assam Act X 1973 is
invalid as the impugned Act has no reasonable and direct nexus
'
.~ to the principles in Article 39(b) of the Constitution and is
merely a cloak which the law is made to wear to undo the legiti-
mate obligations arising out of the-iiitended statuiory-sale of the · E

- undertakings and, accordfogly, Article 31-C is no!attracted. -

That, at all events, not every provision of-.r statute is entitled to
the protection of Article 31-C but only those provisions which
are basically and essentially necessary for giving effect to the
principle in Article 39(b) and that, accordingly, the provisions in F
the impugned law relating to the determination of the amount do
not attract Article 31-C.

(b) That in effect and substance the law is not one for the
acquisition electricity undertakings but is merely one to acquire a
'chose-in-action' and to extinguish the legal rights of the G
Tinsukhia Co. for the difference between the "market-price" of
the unde'rtakings which the State was obliged to pay under the
intended statutory-purchase and the "Book-Value" to which the
liability is sought to be limited under the impugned legislations.

(c) That, if the immunity under Article ~1-C for_the legis- H
570 SUPREME COURT REPORTS [1989] 2 S.C.R.

lations is not available, the 'amount' payable in accordance with
the provision of the acquiring law is wholly "illusory" and is an
attempt to take away a 'fortune for a farthing'.

And accordingly, the law is ultra-vires and violative of Arti-
cle 31(2) of the Constitution (as it then stood). Payment of
B "Book-Value" of the assets acquired irrespective of their
'market-value' renders the 'amount' unreal and illusory.

(d) That the exclusion of "service-lines", which are part of
the assets of the licensee as from valuation, renders the law •
unconstitutional and ultra-vires.
c (e) That the provision of Section 9(i) for the deduction of ...J,
the 'Reserves' from the "Amount'', in addition to the taking- '
over of the same in the form of 'fixed assets' and the omission to
value the unexpired period of licence are unreasonable and
arbitrary.
D
(f) That the continued liability of the petitioner-licensee
under Section 11(3) for payment to employees retrenched by
Government after the vesting-date' and the provision for deduc-
tion of such sums from the "Amount" payable for the acquisition
are arbitrary and unreasonable.
E
(g) That while Section 7(5) 'makes all the liabilities of the j
licensee, other than those specifically referred to and expressly
taken over by Government under the Act, as the continuing
liabilities of the licensee, yet some of those liabilities referred to
in clauses (c) (d) and (f) of Section 9, are yet made deductible __X:
F from the "Amount", without the corresponding express obliga-
tion on the part of the Government-to hold the sums so deducted.~
in trust for, and for benefit of the concerned creditors and with-
out statutory discharged to the petitioner in that behalf. This is
unjust enrichment. ·

G (h) That there is no machinery envisaged by and set-up •
under the 'Act' \o adjudicate upon and determine either the
amounts deductible under clauses (c) ( d) and (e) of Section 9 •
or the "loss" deductible under ·section 8'. This renders the
provisions of the 'Act' intractable and liable to be declared
unworkable.
H
TINSUKHIAELECTRICSUPPLYCO. v. STATE [VENKATACHALIAH.J.] 571

(i) That Section 20 limits arbitrability only to matters
A
enumerated in clauses (a) to (d) of that section, leaving many
other disputes arising under the 'Act' between the Government
and the licensee without any machinery for their resolution, also
rendering the 'Act' unworkable.

10. The contentions noticed at (a), (b) and (c) cover amongst B
·~\ them certain overlapping areas. The central attack, however, remains
t- effectuation
that Assam Act X of 1973 has no reasonable and direct nexus with the
of the principles envisaged in clause (b) of Article 39 of
the Constitution and that the relationship of the impugned legislation
to the objects of Article 39(b ), being merely remote and tenuous, the
legislation is a colourable legislation. The contentions are, however,
\. . noticed distinctively to make due acknowledgement for the shifts of c
I emphasis in the course of the arguments.

In this case the legal and constitutional position has to be ex-
amined with reference to the provisions of the Constitution as they
stood as in 1972. Article 3 lC was inserted by the 25th Amendment D
with effect from 20.4.1972 prior to its more comprehensive expansion
to extend its protection to the laws giving effect to "All or any of the
provisions laid down in Part IV' brought about by the Constitution
..-1.., (Fortysecond Amendment) 1976. Article 31C gave protection in
respect of a law giving effect to the policy of the State towards securing
the principles specified in clause (b) or clause (c) of Article 39. Then E
again, though Article 31 had not, by then, been deleted, its content
had been cut-down so much, so that even under a law providing for
acquisition of property which did not have the protection of 3 IC the
adequacy of the "Amount" determined was not justiciable and all that
{ was necessary was that it should not be unreal or illusory. By then the
I~
Constitution had done away with the idea of a Just-equivalent or full F
~-idemnification principle and substituted therefore the idea of an
· "Amount" and rendered the question of the adequacy or the inade-
quacy of the amount non-justiciable.

The Indian Constitutional experiments with the 'right to pro·
perty' offer an interesting illustration of how differences in the G •
interpretation of the fundamental law sometimes conceal-or, per-
haps, expose-conflicts of economic idealogies and philosophies. With
the right to property conceived of as a fundamental right at the
inception of the Constitution, it found so strong an entrenchment that
in its pristine vigour it tended to be overly demanding and sought the
sacrifice of too many sorial and economic goals at its alter and made H
572 SUPREME COIJRT REPORTS [1989] 2 S.C.R.

the economic cost of social and economic change unaffordably pro-
A
hibitive and the fulfilment of the constitutional ethos of the promise of
an egalitarian social order difficult. Inevitably the constitutional pro-
cess of de-escalation of this right in the constitutional scale of values
commenced culminating, ultimately, in the deletion of this right from
the fundamental-rights part. Articles 31-A and 31-C were significant
B Constitutional milestones in the harnessing and socialisation of the
cortcept of the right to property which, in its laissez-faire trappings,
became an unruly horse. Article 31-C in effect and Sllbstance is to
urban property what Article 31-A is to agricultural-property.

11. The arguments in this case in regard to what, if at all,
survives for judicial scrutiny in the matter of the Constitutional-tests of
c the validity, under Article 31(2) of the 'amount' if the law has the .
protection of Article 31C, were marked by a forensic resourcefulness ~
aimed at a resuscitation and re-kindling of the relics and embers of old
and hard fought-but lost-legal battles. Sri Rangarajan, learned
Senior Advocate, relying upon the construction suggested by him of
D certain observations of Chandrachud, J. in the Keshavananda case
( 1973 SCR Suppl 1) and certain observations of Faz! Ali J. in State of
Tamil Nadu v. Abu Kavur Bai, AIR 1984 SC 326 strenuously, and
quite seriously, attempted the exercise that even if a law had the
protection of Artide 3 lC, yet the court would be required-when the ,.>....
provision is challenged-to go into the question of the "Amount"
E being illusory or the principles for its determination being arbitrary.
Learned Counsel further propounded that despite Article 31-C, the
burden of proving that the amount is not illusory and principles for its •
determination not arbitrary is on the State. We may excerpt the sub-
stance of the contention from the written-submissions filed by Sri
Rangarajan: ,_,.I.
F
" ..... Therefore, where the law provides for com- .. ~
pensation, 1in spite of the same being protected by Article
31-C the Court can go into the question of the amount
being illusory or the principles being arbitrary. Not merely
that, the burden of providing that the amount is not illusory
G and the principles are not arbitrary, is on the State." ),.

We shall later examine how far this contention is at all available
in the light of the authoritative pronouncements of this Court on the
effect of Article 3 lC and whether if a law has such protection, the
plenitude of its constitutional immunity would not extend to all attacks
H based on Articles 14, 19 and 31 (as it then stood).
TINSUKHIAELECTRJCSUPPLYCO. v. STATE [VENKATACHALIAH,J.) 573

We may now examine the contentions seriatim. Contentions (a)
A
and (b) admit of being dealt with together,.

12. Re: Contentions (a) and (b):

Shri Soli J Sorabjee submitted that in the present case, notwith-
standing the legislative declaration in Sec. 23 of Assam Act X of 1973, B
·"( the question whether there is any reai nexus between the legislation
~· and the principles envisaged in Article 39(b) is justiciable and indeed
the existence of such nexus or connection is a condition-precedent for

- the attraction and applicability of Article 31-C. Learned Counsel sub-
mitted 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 C
legislation and if upon such scrutiny it appears that there is no nexus
between the legislation and the principles in Article 39(b) the legisla-
tion must be held to fall outside the protection of Article 31-C. Shri
Sorabjee said, stripped of its veils and vestments, the law, would show
its real nature as one whose avowed nexus to Article 39(b) is merely a
pretence and that its purpose is other than the objects envisaged D
in Article 39(b). The validity of the legislation, learned counsel
says, would have to be examined independently of the immunity under
Article 31C.

The proposition that the legislative declaration of the nexus bet-
ween the law and the principles in Article 39 is in-conclusive and E
justiciable is well settled. Indeed that part of Article 31-C which
- sought to impart a Constitutional sanctity, conclusiveness and non-
justiciability to such legislative declarations was struck-down in the
Keshavanada case. The sequintor is that whenever any immunity is
claimed for a law under Article 31-C, the Court has the power to
examine whether the provisions of the law are basically and essentially F
necessary for the effectuation of the principles envisaged in Article
~.. 39(b) and (c). The observations of Mathew, J. in Keshvananda case
( 1973 SCR Supp 1) may be recalled:

" ..... Whenever a questiion is raised that the Parlia-
ment or State Legislatures have abused their power and G
inserted a declarat;on in a Jaw not for giving effect to the
State Policy towards Securing the directive principles
specified in Article .39-B or 39-C, the Court must neces-
sarily go into that question and decide it ..... "
(P. 855)
H
574 SUPREME COURT REPORTS [1989] 2 S.C.R.

" ..... If the Court comes to the conclusion that the
A declaration was merely a pretence and that the real
purpose of the law is the accomplishment of some object
other than to give effect to the poliy of the State towards
securing the directive principles in Article 39(b) and (c) the
declaration would not be a bar to the court from striking
B down any provision therein which violates Article 14, 19 or
31. In other words, if a law passed ostensibly to give effect
to the policy of the State is, in truth and substance, one for

-
accomplishing an anauthorised object, the court would be
entitled to tear the veil created by the declaration and
decide according to the real nature of the law ...... "
(P. 855-56)
c
Chandrachud, J. observed in the Keshavananda case:

" 'Laws passed under Article 31-C can, in my opinion,
be upheld only, and mly if, there is a direct and reasonable
D nexus between the law and the directive policy of the State
expressed in Article 39-B or C."
(P. 996)

To the same effect are the observations of the learned Chief ~-
Justice in Minerva Mills Ltd. v. VO!,' (1981] 1SCR206:
E
" ..... the Courts can, under Article 31-C, satisfy
themselves as to the identity of the law in the sense whether
it bears direct and reasonable nexus with a directive
-
principle."

F "The only question open to judicial review under the
unamended A'ticle 31-C was whether there is a direct and
reasonable nexus between the impugned law and the provi-
sions of Article 39(b) and (c).'' (P. 261)
(Emphasis Supplied)

G In the same case, Bhagwati, J. observed:

" ..... The point that I wish to emphasis is that the
amended Article 31-C does not give protection to a law
which has merely some remote or tenuous connection with
a directive principle."
H
TINSUKHIAELECTRICSUPPLYCO. v. STATE [VENKATACHALJAH,J.l 575

" ..... Even where the dominant object of a law is to A
give effect to a directive principle it is not every provision
of the law which is entitled to claim protection ...... "
(P. 338)

" ..... it is not every provision of a statute which has
been enacted with the dominant object of giving effect to a B
directve principle, that it entitled to protection, but only
those provisions of the statute'which are basically and
essentially necessary for giving effect to the directive
principles are protected under the amended Article 31-C
" (P. 339)
(Emphasis Supplied)
c
13. The proposition of Sri Sorabjee, in principle, is, therefore,
unexceptionable; but the question remains whether, upon the applica-
tion of the appropriate tests, the impugned statute fails to measure-up
to the requirements of the Constitution to earn the protection under
Article 31-C. Learned counsel sought to contend that the Assam State D
Electricity Board having exercised the option of purchasing the under-
taking of the Tinsukia Co., under Sectioin 6(1) of 1910 Act by the
statutory notice dated 23.5.1972 requiring the company to sell the
_,l_, undertaking to the Board on the expiration of the period of the
licence, the question of any further need to acquire the undertaking
for the purpose of effectuating the objects envisaged in Art. 39(b) of E

- the Constitution by the expedience of a separate and independent
legislation was, indeed, unreal or non-existent. The real object, there-
fore, of the en~ctment of Assam Act X of 1973 it was urged, was not to
enact a law for purposes of effectuating the objects envisaged by Arti-
..... cle 39(b) of the Constitution which had already been accomplished by
the exercise of the option to purchase; but was only to deprive the F
.;._petitioner of its legitimate entitlements under the statutory-sale. What
was sought to be acquired by the impugned law, it is contended, was
not the undertaking but the difference between the 'Market-price' and
the 'Book-value' which the impugned legislation envisaged. It is urged
that the purpose of theimpugned law is, therefore, something other
__; than the effectuation of principles in Article 39(b). It is also urged that G
'""\ with the exercise of the option to purchase what remained to· be
acquired-and what really was sought to be acquired-was a mere
actionable-claim or a chose-in-action. It is further urged that, at all
events, since not all the provisions of a legislative enactment need
necessarily qualify for protection of Article 31-C but only those provi-
sions that have a direct nexus with the principles of Article 39(b), the H
576 SU,PREME COURT REPORTS [1989] 2 S.C.R.
).._
A provisions in the impugned legislation touching the determination of
the quantum of the "Amount" are not so protected as they are
intended merely to inter-diet and extinguish the vested rights of the
Tinsukhia Co. under the intended statutory-sale. The object of the
legislation, it was urged, was not the legitimate one of securing the
objects envisaged in Article 39(b) but a less honourable and less
B sanctimonious one of depriving the petitioner of the benefit of the }-
statutory-contract for the sale of the undertaking pursuant to and in 1
terms of the statutory notice dated 23.5.1972. The court, so goes the ~
argument, is entitled to pierce the apparent veil under which the
acquiring legislation masquerades as one for securing the object of
Article 39(b ).
c Dr. Shankar Ghosh and Sri G.L. Sanghi for the State of Assam
and the Assam State Electricity Board, the cont~sting-Respondents,
however, say that the Assam Act X, 1973, is entitled to tpe protection
of Article 31-C as, indisputably, Electrical energy is a material
resource of the community and any legislative measure to nationalise
D the undertaking falls squarely within the ambit of Article 39(b). Any
appeal by the petitioner to the doctrine of colourable legislation, they
say, is wholly inapposite as, indeed, where, as here, legislative compe-
tence is undisputed, any speculation as to the motives of the legislative
is impermissible. No malafides could be attributed to the Legislature.
Respondents further submit that on the question of even the possible
E 'illusory' nature, let alone the adequacy, of the "Amount" could not
be agitated if the law has the protection of Article 31-C. They, how-
ever, assert that 'Book-value' is a well accepted accountancy concept ...
of value and could never be characterised as illusory, even if the law
did not come under Article 31-C.
,J,
F The questions that arise for consideration are, sequentially, .
whether the electrical-energy generated and supplied by the peti-.~
tioner-companies is a "material resource of the community" within the '
meaning of Article 39(b); whether the impugned legislation has a
reasonable and direct nexus to the objective of distributing this
materials resource so as to subserve the common good and what are
G the appropriate tests to ascertain this nexus. The incidental questions ~
that arise on certain specific comentions centre around the effect of
the option to purchase the undertaking exercised by the Assam State
Electricity Board in the case ofTinsukia Co. and whether immediately
upon the exercise of the option the proprietory rights respecting the
undertaking of the company get transformed into a mere "actionable-
H claim" or "chose in action", as contended for by the petitioners.
TINSUKHIA ELECTRIC SUPPLY CO. v. STATE [VENKATACHALIAH, J.) 577

-~ Apropos of the contention that, at all events, the provisions pertaining A
to the "amount" could have no reasonable or direct nexus to the
principles envisaged in Article 39(b), but are merely intended to extin-
guish the legitimate rights of the petitioner-company to receive the
price of the undertaking under the 1910 Act, as the law then stood,
pursuant to the option exercised by the 'Board', it would, perhaps, be
necessary to ascertain the composite-elements that make for a law of B
··( nationalisation and whether provisions touching the quantification of
~ the "amount" payable for the acquisition are not an essential ana
integral part of such law.

On the contention urged by Shri Rangarajan as to what could be
said to survive for consideration under Article 31(2), (as it then stood),
if the law has the protection of Article 31-C the question that arises is c
whether anything at all survives for consideration under Article 31.
The contention indeed, runs in the teeth of several pronouncements of
this Court which lay down that when Article 31-C comes-in, Articles 14,
19 and 31 (the last mentioned article as it then stood) go out. This we
will consider under point (c). D

14. It is not disputed that the electricity generated and distri-
buted by the undertakings of the petitioner-companies constitute
"material resources of the community" for the purpose and within the
meaning of Article 39(b).
E
In Sanjeev Coke Manufacturing Company v. Bharat Coking Coal
-- Ltd., [ 1983] 1 SCR 1000 this Court, referring to what constitute
"material resources of the community" and whether resources
produced by, or at the command of, private, as distinguished from the
State agencies, constitute such resources as the resources of the com-
munity, noticed the contention urged in that case thus: F

" ..... The submission of Shri A.K. Sen was that
neither a coal mine nor a coke oven plant owned by private
parties was a 'material resources of the community'.
According to the learned counsel they woud become mate-
rial resources of the community only after they were G
acquired by the State and not until then. In order to qualify
as material resources of the community the ownership of
the resources must vest in the community i.e. the State
. . . . . A law providing for acquisition was not a law for
distribution ...... "
(P. 1022) H
578 SUPREME COURT REPORTS [1989] 2 S.C.R.

Repelling this argument which suggested a limited concept of "Mate- J..
A
rial resources of the Community" the Court observed:

" ..... We are unable to appreciate the submission of
Shri Sen'. The expression 'material resources of the com-
munity' means all things which are capable of producing
B wealth for the community. There is no warrant for inter-
preting the expression in so narrow a fashion as suggested }-
by Shri Sen and confine it to public-owned material~
resources, and exclude private-owned material resources.

c
The expression involves no dichotomy ...... "
(P. 1022 & 23)

It can, therefore, hardly be gain-said that the electrical energy
-
generated and distributed by the undertakings of the petitioner consti- -~
lutes "material resources of the community".

15. This takes us to the question whether the provisions of the
D impugned Assam Act X 1973 have any reasonable and direct nexus to
the principles in Article 39(b) of the Constitution. It is true that if such
a relationship is merely remote and tenuous the protection under Arti-
cle 31-C may not be available. The idea of distribution of the material
resources of the community in Article 39(b) is not necessarily limited J._
to the idea of what is taken over for distribution amongst the intended
E beneficiaries. That is one of the modes of "distribution". Nationalisa-
tion is another mode. In State of Tamil Nadu v. L. Abu Kavur Bai,
AIR 1984 SC 326 this Court had occasion to refer to this aspect. It was -
held:

"In other words, the word 'distribution' does not ~
F merely mean that property of one should be taken over and
distributed to others like land reforms where the lands
from the big landlords are taken away and given to landless --;-
labourers ..... That is only one of the modes of distribu- '
tion but notthe only mode ...... "

G "By nationalising the transport as also the units the \.._
vehicles would be able to go the farthest comer of the State /
and penetrate ilS deep as possible ...... "

"This would undoubtedly be a distributi0n for the
common good of the people and would be clearly covered
H by clause (b) of Article 39.''
TINSUKHIA ELECTRIC SUPPLY CO. v. STAIB [VENKATACHALIAH, ).] 579

On an examination of the scheme of the impugned law the con-
A
clusion 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.

16. It was then contended that not all the provisions of a law can
and need b~ eligible for the protection of Article 31-C and that accord- B
' ingly, in the present case the provisions as to the quantification of the
Ja.- "amount", which were meant to achieve an oblique motiv:e of inter-
dicting and extinguishing the vested rights of the petitioner-company
to receive payment in accordance with the provisions of the 1910 Act,
as they then stood, should not have the. protection of Article 31-C. We
are afraid this contention proceeds on an impermissible dichotomy of
the components integral to the idea of nationalisation. The economic
c
cost of social and economic reform is, perhaps, amongst the most
vexed problems of social and economic change and constitute the core
element in Nationalisation. The need for constitutional immunities for
such legislative efforts at social and economic change recognise the
otherwise unaffordable economic burden of reforms. The observations D
of Mathew J. in Keshavananda case on the point are worth recalling:

"If full compensation has to be paid, concentration of
wealth in the form of immovable or movable property will
be tral)sformed into concentration of wealth in the form of
money and how is th.e objective underlined in Article 39(b) E
and (c) achieved by the transformation? And will there be
enough money in the coffers of the State to pay full
compensation?"

" ..... I am unable to understand the purpose of sub-
stituting the word 'amount' for the word 'compensation' in F
the sub-Article unless it be to deprive the Court of any
yard-stick or norm for determining the adequacy of the
amount and the relevancy of the principles fixed by law. I
should have thought that this coupled with the express pro-
vision precluding the Court from going into the adequacy
of the amount fixed or determined should put it beyond any G
doubt that fixation of the amount or determination of the
principle for fixing it is a matter for the Parliament alone
and that the Court has no say in the matter." (1973 Supp.
SCR 1 at page 846)

It is, therefore, not possible to divorce the economic considera- H
580 SUPREME COURT REPORTS [1989] 2 S.C.R.
J.
tions or components from the scheme of nationalisation with which the .
A
former are inextricably integrated. The financial cost of a scheme of
nationalisation lies at its very heart and can not be isolated. Both the
provisions relating to the vestiture of the undertakings in the State and
those pertaining to the quantification of the "Amount" are integral
and inseparable parts of the integral scheme of nationalisation and do
B not admit of being considered as distinct provisions independent of '.>--
each other. .J._

17. The memorandum of ihe writ petition contains averments as
to the efficiency and public-utility of the services rendered by the
undertakings and that on the date of the take-over the market va!Ue of
the Tinsukhia and Dibrugarh undertakings were Rs.55 lakhs and Rs.35
C lakhs respectively and that the undertakings were discharging their
obligations to the consumers efficiently and satisfactorily. The case of
the petitioners is that there was no justification at all for the nationali-
sation as the undertakings were efficient and fully catered to the needs
of the <:onsumers. It was also averred that it was the Government and
D the Board the had come in the way of the expansion envisaged by the
undertakings by withholding the requisite permission for the installa-
tion of additional capacity for generation of electricity. The Respon-
dents have sought elaborately to traverse these grounds and to justify
the measure for nationalisation.

E We are afraid, the debate whether nationalisation is by itself to
be considered as fulfilling a public-purpose or whether the nationalisa-
tion should be shown to be justified by the actual effectuation of the
avowed objectives of such nationalisation-the choice between the
pragmatic and the doctrinaire approaches-is concluded and no longer
available. In Akadasi Padhan v. State of Orissa and Ors., AIR 1963 SC
F 1047 this debate on the philosophy of nationalisation is concluded. ·rt
was held:

" ..... Broadly speaking, this discussion discloses a
difference in approach. To the socialist, nationalisation or
State ownership is a matter of principle and its justification
G is the general notion of social welfare. To the rationalist, ·),.
nationalisation or State ownership is a matter of expe-
diency dominated by considerations of economic efficiency
and increased output of production ..... ".

" ...... The amendment made by the Legislature in
H Art. 19(6) shows that according to the Legislature, a law
TINSUKHIA ELECTRIC SUPPLY CO. v. STATE [VENKATACHALIAH, J.] 581

), relating to the creation of State monopoly should be pre- A
sumed to be in the interests of the general public ...... "

" ..... In other words, the theory underlying the
amendment in so far as it relates to the concept of State
monopoly, does not appear to be based on the pragmatic
approach, but on the doctrinaire approach which socialism B
accepts ..... ".

Indeed, in the United States of America after the hey-days of the
substantive due process, the Supreme Court in 1963 in Ferguson v.
Skrupa, 372 US 726 said:

"We refuse to sit as a 'superlegislature to weigh the
c
wisdom of legislation', and we emphatically refuse to go
back to the time when courts used the Due Process Clause 'to
strike down state laws, regulatory of business and industrial
conditions, because they may be unwise, improvident, or
nut of harmony with a particular school of thought' . . . . . D
Whether the legislature takes for its textbook Adam Smith,
Herbert Spencer, Lord Keynes, or some other is no con-
cern of ours."
(Emphasis Supplied)

18. Equally untenable is the contention based on the assumption E
that immediately upon the exercise of the option to purchase, the
proprietory-rights of the Tinsukhia Company in relation to the under-
taking stood transformed into, and was crystalised in the form of, a
mere actionable-claim or a "chose-in-action" and that, therefore, what
was sought to be acquired. by the present legislative-measure was
merely a "chose-in-action". It was contended that no pulilic purpose is F
achieved by the acquisition of a "chose'in-action". This needs exami-
nation of the legal character and incidents of the consequences that
flow from the exercise of the option to purchase under the 1910 Act.
The contention presupposes that contemporaneous with the service of
the notice on the licensee, the proprietory-rights of the licensee in
relation to the undertaking, proprio-vigore, get transformed into a G
mere "chose-in-action". This consequence does not flow from the pro:
visions of 1910 Act. In Fazilka Electric Supply Company Limited v.
The Commissioner of Income-Tax, Delhi, [1962] Snpp. 3 SCR 496 this
court, referring to the nature of the transaction emerging from the
exercise of the option, said:
H
582 SUPREME COURT REPORTS [1989) 2 S.C.R.

"It merely provides for an option of purchase to be
A
exercised on the expiration of certain periods agreed to
between the parties, and section 10 further provides that in
an appropriate case Government may even forego the
option. This section does not provide for a compulsory
purchase or compulsoJ'y acquisition without reference to
B and independently of any agreement by the licencee." (See·
Page 505).
(Emphasis Supplied)

In Gujarat Electricity Board v. Shanti/al, (1969) 1SCR580 refer-
ring to the legal consequences that ensue by a mere exercise of the
C option, it was held:

" .... that the right to purchase the undertaking ~
accrues only at the expiration of the period of licence but for
exercising that right, the authority must make its election
within the period prescribed in sec. 7(4) and i:;sue a notice
D as required by that sub-section ..... "
(Emphasis Supplied)

That the right, title and interest of the licensee in the under-
taking does not get transferred to the Board or the State, as the case _,l
may be, immediately upon the mere exercise of the option .to purchase
E is further clear from what is implicit in the observations of this Court in
Godra Electricity Company Limited and another v. The State of
Gujarat and another, (1975) 2 SCR 42 at _page 54. The proposition
contended for by the Learned Additional Solicitor General in that case
was noticed thus:

F "In support of the contention that when once the
notice exercising the opti;m to purchase the undertaking
has been served, the licensee has no further right to carry
on the business, the learned Additional Solicitor General
placed reliance on the decision of this Court in Kalyan
Singh v. State of V.P . ....... "
G
This Court held that the exercise of the option would have no
such effect on the licensee's right to carry on his business until the
undertaking was actually taken over and paid-for. It was held:

"A licensee cannot be told that he has no right to
H carry on the business unless a valid purchase is made at the
expiry of the period ..... "
TINSUKHIAELECfRICSUPPLYCO. v. STATE IVENKATACHALIAH, l.] 583

" ...... Admittedly, the undertaking belonged to the
A
licencee and if delivery of the undertaking is to be taken by
the State Electricity Board, the purchase price must be
paid before the delivery or, there must be a provision for
payment of interest on the purchase price for the period
during which payment is withheld. Otherwise, the licence
will not cease to have operation and the licensee will be B
entitled lo carry on the business." (See Page 54).

The contentions that immediately upon the exercise of the
option, ipso-facto, the relationship between the parties get trans-
formed into one as between a Debtor and a Creditor and that the
interest of the licensee in the undertaking becomes an "actionable-
right", or a "chose-in-action" and that no public-purpose could be said c
to be served by the acquisition of a "chose-in-action" are all out of
place in this case.

19. It is not necessary, therefore, to go into the question
whether a "chose-in action" can at all be acquired. Certain observa- D
tions of this Court in Madan Mohan Pathak v. Union of India and
Ors., [1978] 3 SCR 334 do suggest that "chose-in-action" could also be
acquired. It will also not be necessary to go into the legal concept of a
"chose-in-action" in Indian law and its distinctiveness from the princi-
ples in English law.
E
Williams on "Personal-property" refers to "chose-in-action"
thus:

" ............ another important distinction exists among
personal things. Such things are said to be in possession or
in action; or they are called, in law French, choses in F
possession or choses in action. Choses in possession are
movable goods, of which their owner has actual possession
and enjoyment, and which he can deliver over to another
upon a gift or sale; tangible things, as cattle, clothes, furni-
ture, or the like .... "
G
"The term choses in action appears to have been
applied to things, to recover or realise which, if wrongfully
withheld, an action must have been brought; things, in
respect of which a man had no actual possession or enjoy-
ment, but a mere right enforceable by action. The most
important personal things recoverable by action only were H
584 SUPREME COURT REPORTS [1989] 2 S.C.R.

money due from another, !hi' benefit of a contract and ,.\_
A
compensation for a wrong; and .these have always been the
most prominent choses in action, though not the only
things to whici>the term has been applied ..... "(see page
29 and30)

B Indeed, in English law the difficulties in the precise definition of
chose-in-action arise out of the fact that the meaning attributed to the )
expression has been expanded from time to time by judicial decisions ~
and the principles pertaining to the concept did not develop on any
logical or scientific basis.

W.S. Holdsworth also refers to this difficulty in apprehending
c the precise incidents of the concept of a "chose-in-action":

"It is sometimes difficult to ascertain the sense in
which the legislature has used the term 'chose-in-action' -
we have seen that Bankruptcy Act affords one illustration,
D and, as we can see from the case of Edwards v. Dicard the
modifications introduced by the Courts have some times
occasioned a similar difficulty. Some of these difficulties
might be perhaps mitigated by a codifying Act, for which
there is plenty of material. But, it is probable that a branch )
of the law which comes at the meeting place of the law of
E property and the law of obligation can never be anything but
difficult to formulate and apply."
(Emphasis Supplied)

(See: "The History of the treatment of chose-in-
action by the common law":- Vol. 33-Harvard Law
Review 997 at 1030).

·~
F

20. Petitioners, however, placed strong reliance upon a decision
of the Calcutta High Court in Bihar State Electricity Board v. Patna
Electricity Supply Co. Ltd., AIR 1982 Cal. 74 and in particular on
the following observations of the Division Bench of the High Court in
G para22:

" ...... The purported acquisition of part of the debt
or chose in action by Sections 2(ii) and 3 of the Bihar Act 7
of 1976 with retrospective effect is, therefore, without any
public purpose. Sections 2(ii) and 3 also do not provide for
H payment of compensation. In the circumstances, it must be
TINSUKHIAELECTRIC SUPPLY CO. v. STATE [VENKATACHALIAH, J.I 585

.. ), held that Sections 2(ii) and 3 of the Bihar Act 7 of 1976 are A
ultra vires Art. 31(2) of the Constitution."

It is not necessary to consider the correctness of this pronounce-
ment in view of the circumstance that even to the extent the decision
goes it is distinguishable. On 5.1.1973, the Electricity Board exercised
its option to purchase the undertaking. On 2.2.1974, the Board paid a B
-~ sum of Rs.36,00,000 "on-account" to the licensee. On o.2.1974, posses-
sion was taken. On 2.2.1974, Ordinance 50 of 1974 was promulgated
)..
amending Section 7A of the 1910 Act reducing the price payable under
Section 7A to the book-value of the assets. This Ordinance was re-
newed by two successive ordinances No. 83 of 1974 and 123 of 1974,
The last ordinance was replace by Bihar Act 15 of 1975. On 10.2.1976,
the Indian 'E1ectricity (Bihar Amendment) Act 7 of 1976 was brought
c
'!-· Biharforce
into validating the substitution of Section 6 and 7A, made by
Act 15 of 1975 with retrospective effect from 2.2.1974. The
Validating Act sought to affect the rights and obligations of the parties
retrospectively. The High Court was .persuaded to the view that the
purported acquisition, virtually, pertained to the debt or "chose-in- D
action" and not the undertaking itself. It is, therefore, not necessary to
consider the submissions of the learned counsel for the respondent
that it does not lay down the law correctly in as much as the arguments
,_)_ based on Article 31-C were neither advanced nor considered in that
case.
E
It requires, therefore, to be held that the impugned legislation

- viz., Assam Act X, 1973, was broughtforth for securing the principles
contained in Article 39(b) of the Constitution and is protected under
Article 31-C. The amendment made to the provisions of the Indian
Electricity Act, 1910, by Assam Act IX of 1973, amending the basis for
~- quantification of the amount payable in the case of a statutory pur- F
chase pursuant to the exercise of the option in terms of the licence
t would apply to and govern cases of statutory-sales and would not
assume any immateriality in this case as the Assam Act X of 1973 is
itself-as we have held-a valid piece of legislation.

22. We find, therefore, no substance in the contentions (a) and G
-4\ (b) urged by the petitioner.

23. Re..contention (C):,

This pertains to the question whether the principles laid down in
the Act for determination of the "amount" payable for the acquisition H
586 SUPREME COURT REPORTS [1989] 2 S.C.R.

A are so arbitrary as to render the "amount" unreal and merely illusory. ).
'This contention would not, in law, be available to the petitioners
inasmuch as the law providing for the acquisition has the protection
of Article 31-C of the Constitution. The arguments of Shri Soli J.
Sorabjee in regard to the alleged "illusory" nature of the "amount"
presupposes and proceeds on the premise that the impugned law does
B not have the\ protection of Article 31-C. Now that we have held that
Article 31-C is attracted, the argument in regard to the alleged illusory ~
nature of the amount does not survive at all. .....

24. Shri Rangarajan, however, contended that notwithstanding
that a law has the protection of Article 31-C, the question would yet be
C justiciable under Article 31(2), as it then stood, if the "amount" is
illusory or the principles for its determination arbitrary. To support
this, somewh.at difficult, proposition Shri Rangarajan relied upon ---1'
certain observations of Chandrachud, J. in the Keshavananda case;
whose import and importance, according to the learned counsel, has
not been fully and properly comprehended in subsequent cases. The
D passages relied upon are:

" . . . . But to say that an amount does not bear
reasonable relationship with the market value is a different
thing from saying that it bears no such relationship at all, )-__
none whatsoever. In the later case the payment becomes
E illusory and may come within the ambit of permissible
challenge." (See para 2137 at page 2051 of AIR 1973).

" . . . . . Courts would have the powers to question
such a law if an amount fixed thereunder is illusory; if the
-
principles, if any are stated, for determining the amount __ ,.l.
F are wholly irrelevant for fixation of the amount; if the
power of compulsory acquisition or requisition is exercised
for a collateral purpose; if the law offends Constitutional ~
safeguards other than the one contained in Article 19(1)(f);
or if the law is in the nature of a fraud on the Constitution".
(See: para 2138 at page 2051 of AIR 1973).
G
'These observations, Sri Rangarajan says, were intended to
govern even a law which had the protection of Article 31-C. Shri
Rangarajan also relied upon certain observati,ms of Fazal Ali, J. in
State of Tamil Nadu v. L. Abu Kaur Bai AIR 1984 SC 326 which say:

H "87. Thus. so far as this aspect of the matter is con-
TINSUKHJA ELECTRIC SUPPLY CO. v. STATE [VENKATACHALIAH, J.l 587

cerned, two conclusions broadly emerge:
A
(1) that in view of the express provisions of Article
31-C which excludes Art. 31(2) also where a property is
acquired in public interest for the avowed purpose of giving
effect to the principles enshrined in Art. 39(b) and (c), no
compensation is necessary and Art. 31(2) is out of the B
harm's way, and

(2) that even if the law provides for compensation,

- the courts cannot go into the details or adequacy of the
compensation and it is sufficient for the State to prove thiit
the compensation was reasonable and not monstrous or
illusory so as to shock the conscience of the court."
c
(Emphasis of counsel}

Sri Rangarajan would say that the observations emphasised
would show that even if Article 31-C was attracted yet the State should
show that compensation was reasonable and not illusory. D

We are afraid, these passages are quoted out of context and, if

.. .-(__
properly understood, were not intended to support .the proposition
now propounded by Shri Rangarajan. Indeed in the Keshavananda
case itself Chandrachud J. referring to the .effect of Article 31-C
observed: E

- " ... In fact article 3 lC is a logical extension of the
principles underlying article 31(4) and (6) and article 31A .
. . . . . . . . . . . . . The true nature and character of article 3 lC
is that it identifies a class of legislation and exempts it from
the operation of articles 14, 19 and 31 ........ " F
(1973 supp. SCR 1at995)

Khanna J. observed in that case:

Both articles 3 lA and 3 lC deal with right to pro-
perty. Article 31-A deals with certain kinds of property G
and its effect is, broadly speaking, to take those kinds of
. property from the persons who have rights in the said pro-
perty. The objective of article 31C is to prevent concentra-
tion of wealth and means of production and to ensure the
distribution of ownership and control of the material ·re-
sources of the community for the common good. Article H
588 SUPREME COURT REPORTS [1989] 2 S.C.R.

A
3 lC is thus essentially an extension of the principle which ~
was accepted in article 3 lA ...... "(page 743)

Beg, J said:

"Article 3 lC has two parts. The first part is directed
B at removing laws passed for giving effect to the policy of
the State towards securing the principles specified in clause
(b) or clause (c) of Article 39 of the Constitution from the
vice of invalidity on the ground that any such law "is incon-
sistent with or takes away or abridges any of the rights
conferred by Articles 14, 19 and 31 of the Constitution."
...... the effect of invalidity for alleged violations of Arti-
c cles 14 or 19 or 31 would vanish so long as the law was
really meant to give effect to the principles of Article 39(b)
and (c) ...... "

In State of Kamataka v. Ranganath Reddy, (1978] 1SCR641 this
D Court had occasion to observe:

" ..... For the purpose of deciding the point which
falls for consideration in these appeals, it will suffice to say
that still the over-whelming view of the majority a/judges in
Kesavandanda Bharati's case is that the amount payable for
E the acquired property either fixed by the legislature or deter-
mined on the basis of the principles engrafted in the law of
acquisition cannot be wholly arbitrary and illusory. When •
we say so we are not taking into account the effect of Article
31-C inserted in the Constitution by the 25th Amendment
(leaving out the invalid part as declared by the majority)."
F (p. 653)
(Emphasis Supplied}
-~
In Sanjeev Coke Manufacturing Co. v. Bharat Coking Coal Com- '
pany Lt., [1983] 1SCR1000 this Court said:

G " ..... To accept the submission of Shri Sen that a
law founded on discrimination is not entitled to the protec- )....
tion of Article 31-C, as such a law can never be said to be to
further the Directive Principle affirmed in Art. 39(b},
would indeed, be, to use a hackneyed phrase, to put the
cart before the horse. If the law made to further the Direc-
H tive Principle is necessarily non-discriminatory or is based
TINSUKHIAELECTRICSUPPLYCO. v. STATE [VENKATACHALIAH, J.] 589

on a reasonable classification, then such law does not need A
any protection such as that afforded by Art. 31-C. Such law
would be valid on its own strength; with no aid from Art.
31-C~ To make it a condition precedent that a law seeking
the haven of Art. 31-C must be non-discriminatory or
based on reasonabfo classification is to make Art. 31-C
meaningless ....... " B
(p. 1019)

"We are firmly of the opinion that where Art. 31-C

- comes in Art. 14 goes out .... "
(p. 1021)
c
What applies to Article 14 would equally apply to Article 31 (as
it then stood before its deletion by the Constitution Fortysecond
(Amendment) Act, 1978).

In State of Tamil Nadu v. L. Abu Kavur Bai, AIR 1984 SC 326 on
which Shri Rangarajan relied, Fazal Ali J. categorily said: D

"It is manifest from a bare reading of the newly
added Art. 31-C that any law effectuating the policy of the
State in order to secure or comply with the directive princi-
ples specified in clauses (b) and (c) of Art. 39 would not be
·deemed to be void even if it is inconsistent with or violates E
Articles 14, 19 or 31 ..... "
- In the same case Fazal Ali J. further said:
(P. 332)

" .... If, once the conditions mentioned in Article 3 lC are F
fulfilled by the law, no question of compensation arises
because the said Article expressly excludes not only Articles
14, and 19 but also Ji which, by virtue of the 25th amend-
ment, had replaced the word 'amount' for the word 'com-
pensation' in Article 31(2) ..... "
(p. 334) G
(Emphasis supplied)

Sri Rangarajan cannot, therefore, draw any sustenance from
Fazal Ali J. for his argument.

Sri Rangarajan then placed reliance on the following observa- H
590 SUPREME COURT REPORTS [1989] 2 S.C.R.

lions of Krishna Iyer J. in Gwalior Rayon v. UOI, [1974] SCR 1671.
A
" . . . . the legislature is expected except in excep-
tional socio-historical setting, to provide just payment for
the deprived persons. To exclude judicial review is not to
block out the beneficient provisions of Articles 14, 19 and
B 31."
(p. 695)

But we see nothing in these observations which can lend support

c
to justiciability of an alleged violation of Article 31 by a law protecteo
under Article 31-C. Ideally, perhaps, it may not be just to deprive a
recompence that is just and fair, in all cases. But that is not to say that
even under a law which has the protection of 31-A or 31-C, the adequ-
-
acy, or justness or fairness of the compensation would, yet, be --+
justiciable.

The contention of Shri Rangarajan in our opinion, is wholly
D unsupportable. Indeed, the purpose of Article 31-C is, amongst
others, to exclude Article 31, as it then stood. The effect of accepting
Sri Rangarajan's contention would be to let in Article 31 by the back-
door, frustrating the very object of Article 31-C and to unsettle the law
laid down in a series of authoritative ptonouncements of this Court. ).....
The contention really, is not available to the petitioners at all.
E
26. Even if the impugned law did not have the protection of
Article 31-C, a hypothesis on which contention (c) is based, the adequ-
acy or 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 Keshavananda case:
F
" . . . . the word 'amount' conveys no idea of any
norm. It supplies no yard-stick. It furnishes no measuring
rod. The neutral word 'amount' was deliberately chosen for
the purpose. I am unable to understand the purpose in
substituting the word 'amount' for the word 'compensation'
G in the sub-article unless it be to deprive the Court of any
yard stick or norm for determining the adequacy of the
amount and the relevancy of the principles fixed by law
,,
(para 1765)

H Referring to what might, yet, be open to judicial scrutiny, under
TINSUKHIA ELECTRIC SUPPLY CO. v. STATE IVENKATACHALIAH, J.I 591

.J.-.. Article 31(b), Shela! and Grower, JJ observed in the Keshavananda
A
case:

"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 B
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 principle of fixing or determin-
ing the 'amount' will have to be disclosed to the Court.
It will have to be satisfied that the 'amount' has reasonable
c
+- relationship with the value of the property acquired or re-
quisitioned and one or more of the relevant principles have
been applied and further that the 'amount' is neither illus-
ory nor it has been fixed arbitrarily, nor at such a figure
that it means virtual deprivation of the right under Article D
31(2). The question of adequacy or inadequacy, however,
cannot be gone into."

, .J.. Justice Chandrachud observed:

"The specific obligation to pay an 'amount' and in the E

- alternative the use of the word 'principles' for determina-
tion of that amount must mean that the amount fixed or
determined to be paid cannot be illusory. If the right to
.property still finds a place 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'." F

27. All the same, the concept of "Book-Value" is an accepted
accountancy concept of value. It cannot be held to be illusory.

In Eswari Khetan Sugar Mills v. State of U.P., [1980] 3 SCR 331
' at page 359 it has been held that even the concept of "written down G
--1 value" which is more disadvantageous to the owner than the "Book-
value" is not irrelevant:

" . . . . . . . . This Court has in. terms accepted that
payment of compensation on the basis of written down
value calculated according to the income-tax law for used H
592 SUPREME COURT REPORTS [1989] 2 S.C.R.

machinery is not irrelevant as a· principle for determining
A
compensation. That principle appears to have been
-adopted for valuing used machinery though the legislation
fixes compensation payable to each undertaking in round
sum ... ,".

B 28. Accordingly, even if the impugned law had no protection of
Article 31-C and tests appropriate to and available are applied, in the
circumstances of this case, it cannot be said that the principles en-
visaged in the impugned law lead to an "amount" which can be called
unreal or illusory. Contention (c) is accordingly held and answered
against the petitioners. -
c 29. Re: Contention (d):

This point is again, available only if the impugned law is outside
Article 31-C. The contention that "Service Lines" which are expressly
excluded from the valuation do constitute the property of the licensee
D and their exclusion from valuation would make the principles for
determination of the 'amount' arbitrary does not have much to com-
mend it. Learned-counsel for the petitioner placed reliance on the
definition of 'works' in Section 2(n) of the 1910 Act and on the pro- -
nouncement of this Court in Calcutta Electric Supply Corporation v.
Commissioner of Wealth-tax, [1972] 1 SCR 159. The question in that
E case was whether in the computation of net wealth of the licensee, the
"Service-lines" should be included. That was a converse case where
the licensee relying upon the statutory provisions of the Electricity Act
contended that "Service-lines" were not a part of his wealth. This
-
Court negatived that contention for purposes of assessment to wealth-
tax. Learned counsel placed some store by this pronouncement to
F contend that the exclusion of this 'wealth' from valuation is arbitrary.

But, in our opinion, the pronouncement relied upon does not
advance petitioners' case on the point. While it is true that the expres-
sion 'works' in Section 2(n) of the 1910 Act includes 'Service-lines', the
reason why 'Service-lines' could justifiably be excluded from valuation
G for purposes of determination of the 'amount' is indicated in page 166 }-
of the report:

"It is true that in view of Sec. 7(A)(2) of the Electri-
city Act, in computing the market value of the undertaking
sold under sub-section ( 1) of section 5 of that Act the value
H of service lines which had been constructed at the expense
TINSUKHIA ELECTRIC SUPPLY CO. v. STATE [VENKATACHALIAH, J.] 593

of the consumers will not be taken into consideration. The
A
reason for this provision is obvious. It will be the duty of
the new licensee to not only maintain and repair those lines
but also to replace them when they become unservice
able."

Under the law when a requisition is made by an intending- B
consumer for electrical-energy, the licensee has an obligation tci lay
down Service-lines. But, according to the provisions the entire cost of

- service-line is not required to be borne by the licensee. The licensee is
entitled to call upon the consumer to pay part of the cost of service-
line-which may in a given case amount to a substantial part-in
accordance with the provisions in the Schedule to the Electricity
Supply Act. c
Oealing with a similar prov1S1on the Gujarat High Court in
Dakor-Umreth Electricity Company Ltd. v. State of Gujarat,
( 13 Gujarat Law Reporter 88 at page 106) held:

" ...... The question is whether the exclusion of
such service lines from the valuation can be said to have
rendered the principle of compensation irrelevant or in-
appropriate. We do not think so ....... The petitioner is
not constituted the owner of these service lines for all
purposes. More-over, even after the purchase, these E

- service lines would continue to be utilised for supplying
electrical energy to the consumers who paid for them. It
would be most inequitable in these circumstances to pro-
vide for payment of compensation to the petitioner for
these service lines. There is no reason in logic or principle
why the petitioner should be allowed to make unjust and F
undeserved profit from transfer of these service lines for
which it has paid nothing and which are not the product of
its own labour ..... "

This reasoning, if we may say so with respect, is sound and should
·--' be accepted. Contention (d) is, therefore, insubstantial and is G
answered against the petitioners.

30. Re: Contention (e):

The apprehensions of the petitioners on this point is that while
under Section 9(1)(i) of the impugned Act X of 1973, Government H
594 ~UPREME COURT REPORTS [1989] 2 S.C.R.

A would be entitled to deduct from the 'amount' such sums as remain in
the "Tariffs and Devidend Control Reserve"; "Continency-Reserve"
and the "Development Reserve", in so far as such amounts have not
been paid over by the licensees to the Government, the provision,
however, does not take into account and provide for cases where such
reserves are invested in 'fixed assets' and as such "fiRed assets" vest in
B the Government under the Acquisition. There would, <herefore, it is
urged be, a duplication of the liability of the licensee on this score, in
the sense that while the "Reserves" in the form of fixed-assets vest in
the Government, the licensee is still exposed to the liability for the
deduction of the amount shown in the accounts. Section 9(1)(i)
provides.:
-
c "Deductions from the Gross amount: The Govern-
ment shall be entitled to deduct the following sums from
the gross amount payable under this Act to the licensee.

(a)
D (to)
(h) Omitted as unnecessary

(i) The amounts remaining in tariffs and dividends
control reserve, contingencies reserve and development re-
serve, in so far as such amounts have not been paid over by.
E licensee to the Government;

(j)
(k) Omitted as unnecessary
-
On a reasonable construction, the expressions 'amounts remain- _j..
F ing' and 'in so far as such amounts have not been paid over' necessarily
exclude any such duplication of the accountability of the licensee for ~
these 'Reserves'. If any part of the reserves is invested in "fixed
assets" and the reserves in the form of such "fixed assets" are taken-
over by the Government pursuant to the acquisition, what remains to
be accounted for by the licensee is only the 'amounts remaining' in the
G pertinent accounts. The liability of the licensee for deduction of the ~
'Reserves' from the 'amount' would arise only if the balance remaining
in those accounts are not paid. Indeed, Dr. Shankar Ghosh, learned
counsel for the State of Assam, submitted that this is the correct
interpretation to be placed on Section 9(1)(i) of the Act. With this
construction of the provision, the contention of the petitioner-
H company on this point, does not survive.
TINSUKHIAELECTRICSUPPLYCO. v. STATE [VENKATACHALIAH,l.] 595

31. The other contention raised under this point is that the pro-
A
""' perty of the licensees represented by the unexpired portion of the
licence has not been taken into account in computing the amount
payable for the acquisition. As already indicated, the law having the
protection of Article 31C the contention is not available at all.

Section 7(3) of the impugned Act provides: B
.;>{
'
~ "In the case of an undertaking which vests in the
Government under this Act, the licence granted to it

- under Part II of the Electricity Act shall be deemed to have
been terminated on the vesting date and all the rights,
liabilities and obligations of the licensee under any agree-
ment to supply electricity entered into before that date c
+ shall devolve or shall be deemed to have devolved on the
Government:

Provided that where any such agreement is not in
conformity with the rates and conditions of supply appro- D
ved by the Government and in force on the vesting date,
the agreement shall be voidable at the option of the
Government."
_l,_.
This provision is a part of a scheme of nationalisation and is
protected by Article 3 lC. E

- 32. Contention (e) is accordingly held and answered against the
petitioners.

33. Re: Contention (f): ,
·~
F
This contention pertains to the liability of the licensee under
'f· Section 11(3) of the Act in respect of the amounts payable to emp-
loyees retrenched by the. Government or the 'Board' as the case may
be, within one year from the vesting-dare after the take-over. Section
11(3) provides that if the Board or the Government, as the case may
be, retrenches any employee within a period of one year from the G
.-.1, vesting-date, the liability for the amounts payable to the retrenched
employee shall be deducted from the 'amount'. This provision, it is
contended, imposes a liability which is arbitrary. Dr. Shankar Ghosh
submitted that this point is purely academic inasmuch as there has
been no such case of retrenchment. Dr. Ghosh further submitted that
the provision is not unreasonable because in the case of employees so H

,1•,
596 SUPREME COURT REPORTS [1989] 2 S.C.R.

A retrenched, the amounts payable would substantially relate to the '~
period during which the employment subsisted under the licensee and
that it is not unreasonable to take this circumstances into account in
continuing the licensee's liability which would, even otherwise, be
substantially be that of the.licensee. On a consideration of the matter,
we are inclined to the view-even if this question is justiciable-that
B the provision is not unreasonable or arbitrary as it envisages the con- )ic
tinuance of a liability which was, otherwise, substantially that of the ,
licensee. There is no merit in this contention (f) either. ~

34. Re: Contention (g):

The grievance of the petitioners on this aspect, we are afraid,
-
c proceeds on a total misconception of the effect of the statutory provi-
sions. The contention, in substance, is that while certain liabilities of -+
the licensee arising out of its Quondam business-operations are not
expressly taken-over by the Government and are declared to be ,he
subsisting and continuing liabilities of the licensee, however, Section
D 9(7) authorises the deduction of some of those very liabilities from the
'amount' without a corresponding statutory obligation on the part of
the Government, in turn, to pay the same to the creditors on whose
account and for whose benefit the deductions are made and without
providing an express statutory discharge to the petitioners in that
behalf.
E
There is no substance in this contention. The legislative intention
is plain and manifest. Though some of the liabilities arising out of the
conduct of the licensees' business prior to vesting are not taken over by
-
Government, some of those liabilities are, yet, authorised to be
deducted from the amount. The purpose of this provision is too obvi- .Ji-
F ous to require any statutory declaration of the obligations that arise in
Jaw and are attendant upon these sums coming to the hands of and ~
retained by the Government. Quite obviously, the provision is not '
. intended for an unjust enrichment in the hands of Government. The
purpose is obviously to facilitate· recovery of certain types of debts
owing to public institutions etc., and the deduction is for the benefit of
G those creditor-institutions. Government would, plainly, be under a ~
legal obligation to pay the sums. so deducted to the concerned •
creditors. The provisions of the Statute must be read along, and in
consonance, with the general principles of law which import such obli-
gations on the part of the Government and an implied corresponding
discharge to the petitioners to the extent of such deductions in their
H liabilities. There is a resulting, statutory-trust in the hands of the Gov-
TINSUKHIA ELECTRIC SUPPLY CO. v. STATE [VENKATACHALIAH, J.I 597

ernment to pay the sums so deducted to the respective creditors, even
in the absence of express provisions in this behalf in the Statute the A
general principles of law operate. As a matter of construction it re-
quires to be held that these obligations and consequences follow.
There is really no justifiable grievance on this score. Contention (g) is,
accordingly, held and answered against the petitioners.
B
35. Re: Contentions (h) and (i):

··~ These two contentions pertain to the machinery envisaged by
and set up under the impugned law for 'resolution of disputes on ques-
tions essential for the determination of the amount in accordance with
the provisions of the Act. The contention of the petitioners, in sub-
c
+ stance, is that there is.no machinery set up under the Act to determine
the amounts under Section 9(c), (d) and (e) and to assess the loss
referred to in Section 8.

The other contention on the point is that the arbitration clause is
a limited one and is confined only to d\sputes in four areas specifically D
enumerated in clauses (a) to (d) of sub-section (1) of Section 20 of the
Act.

Tues~ lacunae in the Statute, it is contended, render-the scheme
of the Act for the determination of the 'Amount' unreasonable and the

-
scheme of the 'Act' in relation to the determination of the 'Gross E
Amount', the deductions to be made therefrom and the assessment of
the 'amount' payable for the acquisition, unworkable.

36. The Courts strongly lean against any construction which
tends to reduce a Statute to a futility. The provision of a Statute must
be so c@nstrued as to make it effective and operative, on the principle \ F
"ut res majis valeat quam periat". It is, no doubt, true that if a Statute
is absolutely vague and its language wholly intractable and absolutely
meaningless, the Statute could be declared void for vagueness. This is
not in judicial-review by testing the law for arbitrariness or unreason-
ableness under Article 14; but what a Court of construction, dealing
with the language of a Statute, does in order to ascertain from, and. G
accord to, the Statute the meaning and purpose which the legislature
intended for it. In Manchester Ship Canal Co. v. Manchester
Racecourse Co., [1904] 2 Ch. 352 Farwell J. said:

"Unless the words were so absolutely senseless that I
could do nothing at all with them, I should be bound to find H

...;Ji
598 SUPREME COURT REPORTS [1989] 2 S.C.R.

some meaning and not to declare them void for uncer-
A
tainty." (See page 360 and 361)

In Fawcett Properties v. Buckingham Country Council, [1960] 3
All ER 503 Lord Denning approving the dictum of Farwell, J. said:

B "But when a Statute has some meaning, even though f-
it is obscure, or several meanings, even though it is little to t
choose between them, the Courts have to say what mean-·~
ing the Statute to bear rather than reject it as a nullity." >-
(Vi de page 516)

It is, therefore, the Court's duty to make what it can of the
c Statute, knowing that the Statutes are meant to be operative and not
inept and that nothing short of impossibility should allow a Court to +
declare a Statute unworkable. In Whitney v. Inland Revenue Commis-
sioner, [1926] AC 37 Lord Dunedin said:

D "A Statute is designed to be workable, and the
interpretation thereof by il, Court should be to secure that
object, unless crucial· omission or clear direction makes
that end unattainable." (vide page 52)

37. On consideration of the Statute on hand, it is not possible to
E subscribe to the view that the impugned law has not envisaged any
machinery for the due ascertainment of the sums referred to in clauses
(c), (d) and (e) of Section 9 which require, on such ascertainment and
quantification, to be deducted from the gross amount. Section 10
en joins upon the Government to appoint a person having adequate
-
knowledge and experience in matters reling to accounts "to assess the
F net amount payable under this Act by the Government to the licensee
after making the deductions mentioned in Sectfon 9". Sub-Section (2)
of Section 10 provides that the Special Officer may call for the assis-
tance of such Officer and staff of the Government or the Board or the
undertaking as he may deem fit "in assessing the net amount payable".
These provisions, contemplate the determination by the Special
G Officer, who is constituted as a statutory authority under the Act, of .;.,..
the net amount payable. The functions of the Special Officer include
an examination of the correctness of all the determinations made by
the Government in the matter of the deductions, except where
Government is statutorily specially constituted as an appellate autho-
rity in respect of certain matters under the Act.
H
The Proviso to Sections 8 and 9 envisages prior notice to be
TINSUKHIAELECfRICSUPPLYCO. v. STATE [VENKATACHALIAH,J.] 599
_,J issued to the licensee by the Government to show cause against any A
deduction proposed to be made under Section 8 or 9, as the case may
be, within the period specified in the Provisos. Even after the Govern-
ment so makes such determination of the amounts which, according to
it, are deductible from the gross amount, such determination would
not be final. The assessment of the net amount payable to the licensee
will have to be made by the "Special Officer". It is reasonable to B
.). construe that the decision of the Government both under Sections 8
\, and 9 arrived at, even after giving an opportunity to the licensee of
).being heard, would not be final, but the final determination will have
to be made by the "Special-Officer" appointed under Section 10 of the
Act. Section 10(1) and (2) of the Act must be so construed as to enable
the "Special-Officer" to take into account the determinations respect-
ing the deduction under Section 9 and 10 of the Act made by the
c
+ Government and take a decision of his own in the matter. The power
to "assess" the net amount by necessary implication takes within its
sweep the power to examine the validity of the determination made by
the Government in the matter of deductions from the gross amount.
This power to determine and assess the 'net-amount' payable by neces- D
sary implication cover matters envisaged in Sections 8 and 9. Though
only Section 9 is specifically referred to in sub-section (1) of section 10,
the language of sub-section. (1) and (2) which enable the Special
' Officer to "assess" the net ar~ount payale would, by necessary impli-
_,.,(,_ cation, attract the power to decide as to the validity and correctness of
the deduction to be made under Section 8 as well. So construed, the E
provisions of Section 10 would furnish a reasonably adequate machin-
ery for the assessment of the "net-amount" payable to licensee.

38. So far as Arbitration is concerned, even after the decision of
the "Special-Officer", there is the further Arbitral forum to decide
...l.. disputes in respect of the specific areas in which disputes are rendered F
arbitrable under Section 20.
+ In view of these circumstances, we think the grievance of the
petitioners on these points questions are not substantial. The points
(h) and (i) are also, accordingly, held and answered against the
petitioners.
G
39. In the result, for the foregoing reasons all the contentions
urged by the petitioners in support of their challenge to the impugned
legislations fail. The Writ petitions are, accordingly, dismissed; but in
the circumstances, there will be no order as to costs.
H
G.N. Petitions dismissed.