Holding

The amendment substituting book value for market value in the nationalisation of electric undertakings is a constitutionally valid exercise of legislative power and the chosen valuation method cannot be challenged.

Summary

The Uttar Pradesh State Electricity Board served notice to Upper Jamuna Valley Electricity Supply Co. Ltd. to purchase its electricity undertaking after a 35‑year licence expired. The State later amended the Indian Electricity Act, 1910 by the 1975 Ordinance and the 1976 Act, replacing the market‑value purchase price with the book value of the undertaking. The company challenged the amendment as unconstitutional, arguing that its right to market‑value compensation had crystallised at the time of takeover and that the amendment amounted to a colourable acquisition of a chose‑in‑action violating Articles 19(1)(f) and 31. The Supreme Court held that the amendment was a valid part of the nationalisation scheme, that the undertaking, not a debt, could be valued on any recognised principle such as book value, and that courts could not question the Parliament’s choice of valuation method. Consequently, the appeal was allowed and the lower courts’ judgments upholding the challenge were set aside.

Issues considered

Whether the amendment of the Indian Electricity Act to replace market value with book value for compensation violates Articles 19(1)(f) and 31 of the Constitution.
Whether the right to compensation crystallised at the time of takeover, rendering a retrospective amendment invalid.
Whether the acquisition pertains to a chose‑in‑action/debt or to an undertaking that is a material resource of the community.
Whether the Parliament may select any recognised valuation principle for compensation without judicial interference.
Whether the amendment constitutes colourable legislation lacking a nexus to public purpose.

Legislation cited

Constitution (44th Amendment) Act, 1978
Constitution of Indias. 14, s. 19(1)(f), s. 31(2), s. 31(c), s. 39(b)
Electricity Act, 1910s. 6, s. 7, s. 7A

Subjects

nationalisationcompensationvaluationbook valueconstitutional validityArticle 19(1)(f)Article 31public purposecolourable legislationelectricity act

Judgment

U.P. STATE ELECTRICITY BOARD A
v.
UPPER JAMUNA VALLEY ELECTRICITY
SUPPLY CO. LTD.

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

Indian Electricity Act, 1910-Section 6, 7, 7A-Amend'11ent in, by Indian
Electricity (UP. Amendment and Validation) Ordinance No. 7of1975/Indian
Electricity (U.P. Amendment and Validation) Act, 1976-Policy of C
nationalisation of electric companies-Amendment envisaging the book value
of the undertaking as the purchase price instead of its market value for the
purpose of acquiring the undertaking-Constitutional validity of the
Amending Act/Ordinance challenged on the ground that such amendment
extinguished the right which had accrued in the electric companies, to get D
the market price-Held, the provisions for payment of amount to the
undertaking, by reducing the market value to book value. formed an integral
part of the nationalisation scheme and that economic consideration for
nationalisation was not justifiable-Concept of book value being an accepted
accountancy concept, cannot be held to be illusory-Contention that
respondent was entitled to receive market value of the property as rights of E
the respondent had crystallised on the date of take-over, negatived-
Constitution of India, 1950-Articles I9(I)(f),31,32,39.(b).

Compensation-Determination of-Method/principle-Application of-
Held, if several principles are appropriate and one is selected for F
determination of the value of the property to be acquired, selection of that
principle to the exclusion of other principles is not open to challenge-In
the present case, the only right accruing to the undertaking was a right to
receive compensation which was to be worked out on certain principles-
The Amending Act merely changed the method or principle on the basis of
which the compensation was to be worked out and it would not be open to G
the Court to question the valuation.

The 1st respondent obtained, by way of transfer, a licence for supply of
electric energy. One of the terms of the licence was that at the end of the
licence period the Government had a right to purchase the undertaking. The H
411
412 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A licence was for a period of 35 years. Some time before the expiry of licence,
tlie appellant served a notice on the 1st respondent under Section 6(1) of the
Indian Electricity Act calling lljij)n the 1st respondent to sell the undertaking
to the appellant on the expiry of the period of 35 years from the commencement

B
of the licence. In pursuance to the policy of nationalisation of electric
companies by the Union of India, an Ordinance was passed which was later on
replaced by an Act, namely, Indian Electricity (U.P. Amendment and validation)
-
Act, 1976. Both the Ordinance as well as the Act amended certain provisions
of the Indian Electricity Act, 1910, including Sections 6 and 7A dealing with
provisions regarding purchase of undertakings and determination of purchase
price respectively. The amendment which was carried out was that under
C Section 7A instead of purchase price being the market value, the amount
payable for the undertaking would be the book value of the undertaking.

The 1st respondent challenged the constitutional validity of the
amending Act/Ordinance on the ground that the rights under Article 19(1 )(f)
and Article 31(2) of the Constitution were being violated. A Single Judge of
D the High Court upheld the challenge of the 1st respondent The appeal against
the said judgement was dismissed by a Division Bench of High Court Hence
the present appeal.

On behalf of the respondent, it was contended that the Amending Act/
E Ordinance was invalid as it had no reasonable direct nexus to the principles
under Article 39(b) of the Constitution; that in effect and substance, the law
was not one for acquisition of electrical undertakings but was one to acquire
a chose in action and to extinguish rights, which had accrued in the Electric
Companies, to get the market price; that the right to get compensation accrued
on the day the notice was given; that what was being acquired was the difference
F between the market price which the State was obliged to pay and the book
value to which the liability was now sought to be limited; that the provisions
in the impugned law in relation to the determination of the amount do not
attract Article 31(c); that in all the matters the purchase price should be the
market value; that the provisions of the Constitution and the law which must
G apply, are those which were prevalent at the time when the undertaking was
taken over; that since in the present case the Ordinance came almost 11 years
after the take-over of the undertaking by the Government, the present case
was not governed by the judgements of this Court which upheld the validity of
the Act/Ordinance as in all those cases the Ordinance/Act was prior to or on
the same day that the respectiVI! undertakings was taken over; that when the
H undertaking was taken over, Sections 6, 7 and 7A of the Indian Electricity
U.P. ST ATE ELECTRICITY BOARD v. UPPER JAMUNA VALLEY ELECTRICITY SUPPLY CO. LTD. 413

Act, 1910, as they then stood, provided for payment of market value; that on A
the date of take over the rights of the lst respondent had crystallised and
therefore, the 1st respondent became entitled to receive the market value of
the property; that as the amount payable had already got crystallised, a
subsequent acquisition could only be acquisition of money; that there could
be no public purpose in acquisition of money and that such acquisition would B
amount to a forced loan.

Allowing the appeal, this Court

HELD: 1.1. What has been acquired, is not a chose-in action or a debt.
What has been acquired, is the undertaking which dealt with material resource
of the Country. There was no crystallisation of any amount. The only right C
was a right to receive compensation which was to be worked out on certain
principles. All that the Amending Act has done is to change the method or
principle on the basis of which the compensation, was to be worked out. The
legislation is not a piece of colourable legislation. The provisions for
quantification of the amount payable to the undertaking form an integral and D
inseparable part of the nationalisation and do not admit of being considered
as district provisions independent of each other. The economic costs of
nationalisation was not justifiable. [427-F-H[

1.2. Undoubtedly, the law which is to prevail, is the law which was
prevailing on the date of take over. It is also clear that on that day the E
Constitution (fwenty-fifth Amendment) Act had not been enacted and Article
3l(c) was not there. However, ifthe law pertains to change in the principles
of the method of determination of compensation and the method is a recognised
principle applicable in the determination of compensation and the principle
is appropriate in determining the value of the property, then it would not be
open to the Citbrts to question the valuation. If several principles are F
appropriate and one is selected for determination of the value of the property
to be acquired, selection of that principle to the exclusion of other principles
is not open to challenge, for the selection must be left to the wisdom of the
Parliament. Of course, the principles specified must be appropriate to the
determination of compensation for an appropriate class of property sought to G
be acquired. (423-H; 424-A-CJ

Tinsukhia Electric Supply Co. ltd. v. State of Assam. (1989( 3 SCC 709;
Maharashtra State Electricity Board v. Thana EL.:tric Supply Co. & Ors.,
[1989[ 3 SCC 616 and Ve/lore Electric Corporation Ltd. v. State of Tamil
Nadu, (1989[ 4 sec 138, applied. H
414 SUPREME COURT REPORTS [2000) SUPP. I S.C.R.

A Gavasjee Cooper and Ors. v. Union of India, (1970( 1 SCC 248, relied
On.

Waman Rao v. Union of India, (1981( 2 SCC 362 and lshwari Khetan
Sugar Mills (P) Ltd. v. State of U.P., (1980( 4 SCC 136, referred to.

B Madan Mohan Pathak v. Union of India, (1978( 2 SCC 50, held
inapplicable.

State of Bihar v. Maharajadhiraja Sir Kameshwar Singh of Darb hanga,
(1952( SCR 889, cited.

C CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3658 of 1993.

From the Judgment and Order dated 17.9.87 of the Calcutta High Court
in Appeal from Original Order No. 6 of 1983 (Matter No. 1681 of 1981 ).

B. Sen, Dr. B.S. Chauhan, R.B. Misra, Pradeep Misra and T. Mahipal for
D t~e Appellant.
Dr. A.M. Singhvi, Meera Mathur, D.N. Mishra and C.S.S. Rao for M/s
J.B.D. & Co. for the Respondents/Applicant.

The Judgment of the Court was delivered by
E
S.N. V ARIA VA, J. 1. This Civil Appeal is against the Judgment dated
17th September, 1987 delivered by a Division Bench of the Calcutta High
Court. By this Judgment the Division Bench dismissed the Appeal filed by
the Appellant against a Judgment of a learned single Judge of the Calcutta
High Court which upheld the challenge of the 1st Respondent to Ordinances
F and Amendment Act set out hereinafter.

2. Briefly stated the facts are as follows:

On 28th June, 1929 the Government of Uttar Pradesh granted to one
G Mis Martin & Co. a licence for supply of electric energy. This licence was
subsequently transferred to the I st Respondent. One of the terms of the
licence was that at the end of the licence period the Government had a right
to purchase the undertaking. The licence was for a period of 35 years. The
35 years period would thus end on 27th June, 1964. On 30th November, 1962
the Appellant served a notice on the I st Respondent, under Section 6(1) of
H the Indian Electricity Act, 1910 (hereinafter called the said Act). By this the
U.P. STATE ELECTRICITY BOARD"· UPPER JAMUNA VALLEY ELECTRICITY SUPPLY CO. LTD. (S.N. VARIAVA, J.I 415
Appellants called upon the I st Respondent to sell the undertaking to the A
Appellant on the expiry of the period of 35 years from the commencement of
the licence, i.e., at 12 O'clock in the night between the 27th and 28th June,
1964.

3. On February 4, 1975, Indian Electricity (U.P. Amendment and Validation)
Ordinance No. 7 of 1975 was passed. This Ordinance amended certain B
provisions of the Indian Electricity Act. Subsequently this Ordinance was
replaced by an Act namely Indian Electricity (U.P. Amendment and Validation)
Act, 1976. The Ordinance and the Act amended amongst others Sections 6
and 7-A of the Indian Electricity Act.

4. At this stage it is necessary to see what the unamended Sections 6
c
and 7-A provided for. They read as follows:

"6. Purchase of undertakings.-{ I) Where licence has been granted
to any person, not being a local authority, the State Electricity Board

·~- D
(a) in the case of a licence granted before the commencement of the
Indian Electricity (Amendment) Act, 1959 (32 of 1959), on the
expiration of each such period as is specified in the licence; and
(b) in the case of a licence granted on or after the commencement
of the said Act, on the expiration of such period not exceeding E
thirty years and of every such subsequent period, not exceeding
twenty years, as shall be specified in this behalf in the licence;

have the option of purchasing the undertaking and such option shall
be exercised by the State Electricity Board serving upon the licensee
a notice in writing of not less than one year requiring the licensee to F
sell the undertaking to it at the expiry of the relevant period referred
to in this sub-section.
(2) Where a State Electricity Board has not been constituted, or
if constituted, does not elect to purchase the undertaking, the State
Government shall have the like option to be exercised in the like G
manner of purchasing the undertaking.
(3) Where neither the State Electricity Board nor the State
Government elects to purchase the undertaking, any local authority
constituted for an area within which the whole of the area of supply
is included, shall have the like option to be exercised in the like H
416 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A manner of purchasing the undertaking.

(4) If the State Electricity Board intends to exercise the option of
purchasing the undertaking under this section, it shall send an

B
intimation in writing of such intention to the State Government at least
eighteen months before the expiry of the relevant period referred to
in sub-section (1) and if no such intimation, as aforesaid, is received
by the State Government, the State Electricity Board shall be deemed
-
to have elected not to purchase the undertaking.

(5) If the State Government intends to exercise the option of
purchasing the undertaking under this section, it shall send an
C intimation in writing of such intention to the local authority, if any,
referred to in sub- section (3) at least fifteen months before the expiry
of the relevant period referred to in sub-section (I) and if no such
intimation, as aforesaid, is received by the local authority, the State
Government shall be deemed to have elected not to purchase the
D undertaking.

(6) Where a notice exercising the option of purchasing the
undertaking has been served upon the licensee under this section, the
licensee shall deliver the undertaking to the State Electricity Board,
the State Government or the local authority, as the case may be, on
E the expiration of the relevant period referred to in sub-section ( 1)
pending the determination and payment of the purchase price.

(7) Where an undertaking is purchased under this section, the
purchaser shall pay to the licensee the purchase price determined in
accordance with the provisions of sub-section (4) of Section 7-A."
F 5. Thus, under Section 6 the compensation, i.e. the purchase price was
to be determined in accordance with the provisions of sub-section (4) of
Section 7-A.

6. Section 7-A, as it originally stood, reads as follows:
G "7-A Determination ofpurchase price.-{!) Where an undertaking of
a licensee, not being a local authority, is sold under sub-section ( 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 has been delivered before the purchase under sub- section
H (3) of that section, at the time of the delivery of the undertaking and
U.P. STATE ELECTRICITY BOARD v. UPPER JAMUNA VALLEY ELECTRICITY SUPPLY CO. LTD. (S.N. VARIAVA. J.) 417

if there is any difference or.dispute regarding such purchase price, the A
same shall be determined by arbitration.

(2) The market value of an undertaking for the purpose of sub-
section ( 1) shall be deemed to be the value of all lands, buildings,
works, materials and plant of the licensee suitable to, and used by
him, for the purpose of the undertaking, other than; (i) a generating B
station declared by the licence not to form part of the undertaking for
the purpose of purchase, and (ii) service lines or other capital works
or any part thereof which have been constructed at the expense of
consumers, due regard being had to be nature and condition for the
time being of such land, buildings, works, materials and plant and the C
state of repair thereof and to the circumstance that they are in such
position as to be ready for immediate working and to the suitability
of the same for the purpose of the undertaking, but without any
addition in respect of compulsory purchase or of goodwill or of any
profits which may be or might have been made from the undertaking
or of any similar consideration. D

(3) Where an undertaking of a licensee, being a local authority, is
sold under sub-section (I) of Section 5, purchase price of the
undertaking shall be such as the State Government, having regard to
the market value of the undertaking at the date of delivery of the E
undertaking, may determine.

(4) Where an undertaking of a licensee is purchased under Section
6, the purchase price shall be the value thereof as determined in
accordance with the provisions of sub-sections (I) and (2):
F
Provided that there shall be added to such value percentage, if
any not exceeding twenty per centum of that value as may be specified
in the licence on account of compulsory purchase."

Section 7 is also relevant. It reads as follows:
G
"7. Vesting of the undertaking in the purchaser.-Where an
undertaking is sold under Section 5 or Section 6, then upon the
completion of the sale or on the date on which the undertaking is
delivered to the intending purchaser under sub-section (3) of Section
5 or under sub-section (6) of Section 6, as the case may be, whichever H
418 SUPREME COURT REPORTS (2000] SUPP..1 S.C.R.

A is earlier -

(i) the undertaking shall vest in the purchaser or the intending
purchaser, as the case may be, free from any debt, mortgage or
similar obligation of the licensee or attaching to the undertaking:

B Provided that any such debt, mortgage or similar obligation
shall attach to the purchase money in substitution for the
undertaking;

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

Provided that where the undertaking is sold or delivered to
a State Electricity Board or the State Government, the licence
shall cease to have further operation."

D 7. By the abovementioned Ordinance and the Act, the amendment
which was carried out, was that under Section 7-A instead of purchase price
being the market value, it was now provided that the amount payable for the
undertaking would be the book value of the undertaking. Thus, instead of
computing the market value, there had to be computation on the book value.

E 8. It must be mentioned that the abovementioned Ordinances and
Amendment Act were part of the policy of nationalisation of electric companies
by the Union of India. Similar amendments were made by many states. Electric
companies, all over India, were sought to be so purchased. Like the 1st
Respondent, a number of other electric companies challenged the constitutional
validity of the amending Act/Ordinance. The challenge was, inter a/ia, on the
F ground that the rights under Article 19( I)(t) and Article 31 (2) were being
violated. It was also claimed that the amending Act/Ordinance was invalid as
it had no reasonable direct nexus to the principles under Article 39(b) of the
Constitution. It was also claimed that, in effect and substance, the law was
not one for acquisition of electrical undertakings but was one to acquire a
G chose in action and to extinguish rights, which had accrued in the electric
companies, to get the market price. It was contended that the right to get
compensation accrued on the day the notice was given. It was contended that
what was being acquired, was the difference between the market price which
the State was obliged to pay and the book value to which the liability was
now sought to be limited. It was claimed that as the Act was merely a clock
H which the law was made to wear, to undo the obligations arising out of
U.P. STATE ELECTRICITY BOARD v UPPER JAMUNA VALLEY ELECTRICITY SUPPLY CO. LTD. (S.N. VARIAVA. J.] 419

intended statutory sale, Article 3 l(c) was not attracted. It was also claimed A
that in any case, every provision of a statute was not entitled to protection
of Article 31 (c) but only those which are necessary for giving effect to the
principles in Article 39(b) and accordingly the provision in the impugned law
in relation to the determination of the amount do not attract Article 3l(c). In
all the matters it was claimed that the purchase price should be the market B
value.

9. A Constitution Bench of this Court in the case of Tinsukhia Electric
Supply Co. Ltd. v. State of Assam, reported in (1989] 3 SCC 709, upheld the
validity of the Act/Ordinance. This Court held that the Act had nexus with
the principles in Article 39(b) and was therefore protected by Article 3 l(c). C
It was held that the Act was not a piece of colourable legislation. It was held
that electric energy generated and distributed was a "material resource of the
community" for the purpose and within the meaning of Article 39(b). It was
held that the idea of distribution of natural resources in Article 39(b) envisages
nationalisation. It was held that on an examination of the scheme of the
impugned law the inescapable conclusion was that the legislature measure D
was one of nationalisation of the undertaking and this law was eligible for,
and entitled to, protection of Article 3 l(c). It was held that it was not possible
to divorce the economic consideration or component from the scheme of
nationalisation with which the former are inextricably integrated. It was held
that the financial cost of a scheme lies at its very heart and cannot be isolated.
It was held that with the provisions relating to vestiture of the undertaking E
in the State and those pertaining to the quantification of the amount are
integral and inseparable parts of the scheme of nationalisation and do not
admit of being considered as distinct provisions independent of each other.
It was held that the provisions for payment of amount to the undertaking, by
reducing the market value to book value, formed an integral part of the p
nationalisation scheme and that economic consideration for nationalisation
was not justiciable. It was held that what was being acquired, was the material
resources of the community. The contention that immediately upon giving of
the notice, the rights got crystallised, was negatived. It was held that the
exercise of the option did not affect licensee's right to carry on business. It
was held that the licensee's rights would be affected only when the undertaking G
was actually taken over. Similar view was taken in the cases of Maharashtra
State Electricity Board v. Thana Electric Supply Co. & Ors., reported in
(1989) 3 SCC 616 and Ve/lore Electric Corporation Ltd. v. State of Tamil
Nadu, reported in [1989) 4 SCC 138.
IO. Dr. Singhvi submitted that the present case would not be covered H
420 SUPREME COURT REPORTS (2000) SUPP. I S.C.R.

A by the aforementioned Judgments because in all those cases the Ordinance/
Act was prior to or on the same day that the respective undertakings were
taken over. Dr. Singhvi submitted that in this case the Ordinance came on 4th
February, 1975, i.e., almost I 1 years after the takeover of the undertaking by
the Government. He submitted that on 28th June, 1964 when the undertaking
B was taken over, Sections 6, 7 and 7-A, as they then stood, provided for
payment of market value. He submitted that in 1962 Article 19(1)(f) and
Articles 31(1) and 31(2) of the Constitution were there. He submitted that on
that day there was no Article 3 l(c) in the Constitution of India. He submitted
that the law on the subject was very clear. He submitted that the provisions
of the Constitution and the law which must apply, are those which were
C prevalent at that time in 1962.
11. In support of this submission he relied upon the authority in the
case of Waman Rao v. Union of India, reported in (198 l] 2 SCC 362. In this
case the validity of the Maharashtra Agricultural Land (Ceiling and Holdings)
Act 27of1961 and the subsequent amendment by Acts 21 of 1975, 47of1975
D and 2 of 1976 were challenged. While considering this challenge this Court,
inter alia, held as follows:

"11. By Section 7 of the Constitution (Forty-fourth Amendment) Act,
1978, the reference to Article 31 was deleted from the concluding
portion of Article 31-A( I) with effect from June 20, 1979, as a
E consequence of the deletion, by Section 2 of the 44th Amendment, of
clause (f) of Article 19(1) which gave to the citizens the right to
acquire, hold and dispose of property. The deletion of the right to
property from the array of fundamental rights will not deprive the
petitioners of the arguments which were available to them prior to the
F coming into force of the 44th Amendment, since the impugned Acts
were passed before June 20, 1979 on which date Article 19( I )(f) was
deleted."
12. He also relied upon Paragraph 15 of the Judgment in Thana Electric
Supply Company's case (supra), wherein this Court has held that the
G contentions of the parties would require to be examined in the light of Articles
19(1)(f) and 31 as they stood at the relevant time. It was held that Articles
19( I)(f) and 31 were deleted later, but that such deletion did not affect the
Constitutional position with reference to which the present case would require
to be decided.

H 13. Dr. Singhvi also relied upon !shwari Khetan Sugar Mills (P) Ltd.
t
u_p_ STATE ELECTRICITY BOARD 1• UPPER JAMUNA VALLEY ELECTRICITY SUPPLY CO. LTD. IS.N. VARIAVA. J.j 421

v. State ofU.P., reported in [1980] 4 sec 136. In this case the challenge was A
under the U.P. Sugar Undertakings (Acquisition) Act 23 of 1971. While
considering this challenge the Constitution Bench of this Court held that as
the legislation was put on the Statute Book on 27th August, 1971, the Court
would have to consider it in the light of Article 31 (2) as it stood on the
relevant date. It was held that Article 31 (2) as amended by the 25th B
Constitutional Amendment, Act would not be attracted.

14. Dr. Singhvi submitted that the principles governing grant of
compensation would, therefore, be those which are laid down by 11 Judge
Bench of this Court in the case of R. Gavasjee Cooper and Ors. v. Union of
India, reported in [1970] I SCC 248. In this case the vires of the Banking C
Companies (Acquisition and Transfer of Undertakings) Ordin;iTJce 8 of 1969
and the Banking Companies (Acquisition and Transfer of Undertakings) Act
22 of 1969 was challenged. The challenge to the takeover of the banks was
on the basis of Articles 14, 19 and 3 I of the Constitution. This Court, inter
alia, held that prior to the amendment of Article 31 (2), the term "compensation"
had been interpreted to mean "full indemnification". It was held that the law D
was that the expropriated owner was on that account entitled to market value
of the property on the date of the deprivation of the property. It was held that
even though Article 31 (2) was amended with effect from 27th April, 1955 by
the Constitution (Fourth Amendment Act, 1955), the expression
"compensation" continued to mean "just equivalent" or "full indemnification". E
It was held that there was no dispute that Article 31 (2) before and after
amendment guaranted a right to compensation for compulsory acquisition of
the property and that by giving to the owner, for compulsory acquisition of
his property, compensation which was illusory, or determined by the
application of principles which were irrelevant, the constitutional guarantee
of compensation was not complied with. It was, however, noted that after the F
amendment of the Article 31 (2), it was not open to the courts to call in
question the law providing for compensation on the ground that it is
inadequate. It was noted that there was a line of thought that a reasonable
interpretation of this provision was that neither the principles prescribing the
'1ust equivalent" nor the "just equivalent" could be questioned in Court on G
the ground of inadequacy of the compensation fixed or arrived at by the
working of the principles. It was held that this meant that there could be many
methods of valuation and that the application of different principles of valuation
may lead to different results. The adoption of one principle may give a higher
value and the adoption of another principle may give a lessor value, but
nonetheless they were all principles on which compensation could be H
422 SUPREME COURT REPORTS [2000) Sl}PP. I S.C.R.

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

"94. The important methods of determination of compensation are: (i)
E
market value determined from sales of comparable properties, proximate
in time to the date of acquisition, similarly situate, and possessing the
same or similar advantages and subject to the same or similar
disadvantages. Market value is the price the property may fetch in the
open market if sold by a willing seller unaffected by the special needs
F of a particular purchase; (ii) capitalization of the net annual profit out
of the property at a rate equal in normal cases to the return from gilt-
edged securities. Ordinarily value of the property may be determined
by capitalizing the net annual value obtainable in the market at the
date of the notice of acquisition; (iii) where the property is a ·house,
expenditure likely to be incurred for constructing a similar house, and
G reduced by the depreciation for the number of years since it was
constructed; (iv) principle of reinstatement, where it is satisfactorily
established that reinstatement in some other place is bona fide intended,
there being no general market for the property for the purpose for
which it is devoted (the purpose being a public purpose) and would
H have continued to be devoted, but for compulsory acquisition. Here
U.P. STATE ELECTRICITY BOARD 1· UPPER JAMUNA VALLEY ELECTRICITY SUPPLY CO. LTD. ISX VARIAVA. J.I 423

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

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

It is to be noted that the Court itself laid down that these were not the
only methods of valuation.

15. Based upon the above authority Dr. Singhvi submitted that even E
after the amendment of Article 31 (2) the principle remained "just equivalent"
meaning "full indemnification". He submitted that in this case in 1962, i.e. the
unamended Sections 6, 7 and 7-A of the Indian Electricity Act, 1910 also
provided for payment of market value. He submitted that, therefore, the
principle laid down in Tinsukhia 's case, Thana Electric Supply Company's
case and Ve/lore Electric Corporation's case did not apply to this case. He F
submitted that all those cases were based upon Article 3 l(c) which did not
stand on the Statute Book at the time when this undertaking was taken over
by the Government. He submitted that in this case the market value would
have to be paid.
G
16. We have considered the submissions of Dr. Singhvi. Undoubtedly,
the law which is to prevail is the law which was prevailing on the date of take
over, i.e., 28th of June, 1964. It is also clear that on that day the Constitution
(Twenty-fifth Amendment) Act had not been enacted and Article 3 l(c) was
not there. Undoubtedly, in Cooper's case it has been held that even after
amendment of Article 3 l(c) the term "compensation" meant "just equivalent" H
424 SUPREME COURT REPORTS (2000) SUPP. I S.C.R.

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

"96. Even if the impugned law did not have the protection of Article
D
31-C, a hypothesis on which contention (c) is based, the adequacy 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 Kesavananda case (SCC p. 889, para 1751) :
" ... the word 'amount' conveys no idea of any norm. It supplies
E
no yardstick. 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' in the sub-article unless it be to deprive
the court of any yardstick or norm for determining the adequacy
F of the amount and the relevancy of the principle fixed by law."
97. Referring to what might, yet to open to judicial scrutiny, under
Article 3 l(b), Shela! and Grover, JJ. Observed in the Kesavananda
case: (SCC p.457, para 591)
"But still on the learned Solicitor General's argument, the right to
G receive the 'amount' continues to be a fundamental right. That
cannot be denuded of its identity. The obligation to act on some
principle while fixing the amount arises both from Article 31 (2)
and from the nature of the legislative power. For, there can be no
power which permits in a democratic system an arbitrary use of
H power.... But the norm or the principles of fixing or determining the
U.P. STATE ELECTRICITY BOARD v. UPPER JAMUNA VALLEY ELECTRICITY SUPPLY CO. LTD (S.N. VARIAVA, J.f 425

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

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

"The specific obligation to pay an 'amount' and in the alternative
the use of the word 'principles' for determination of that amount C
must mean that the amount fixed or determined to be paid cannot
be illusory. If the right to property still finds a 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'."

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

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

18. Further, in Thana Electric Supply Company's case it has been held
as :

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

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

Thus, in this case this Court proceeded on the basis that Articles 19(1)(f) and
31 applied to the facts of that -;ase. The Court still set aside the Judgment
of the High Court, which had upheld the challenge. This Court still held that
the challenge on grounds of violation of Articles 14, 19 and 31 fails. The
B contention that compensation was not adequate and/or illusory was not
accepted. In Ve/lore Electric Corporation's case also this Court considered
the challenge to the change in the method of valuation from market value to
book value on the basis of Articles 19(1)(g) and 31. In this case also it was
held that such a contention was not available, as it had been negatived in
C Tinsukhia 's case.
19. In our view, the authorities in Tinsukhia's case, Thana Electric
Supply Company's case and Ve/lore Electric Corporation's case fully cover
the point urged by Dr. Singhvi. Even ifthe principles laid down in Cooper's
case (supra) are applicable, still it has been held by this Court, in the above,
D mentioned three cases ihat principle of valuation on book value is ~ well
known concept of valuation and that the amvunt is not illusory. We, therefore,
see no substance in this challenge.

20. Dr. Singhvi, however, submitted that the notice to take over the
undertaking was given on November 30, 1962 and the undertaking was taken
E over on June 28, 1964. He submitted that on the date of takeover the rights
of the 1st Respondent had crystallised. He submitted that the 1st Respondent,
therefore, became entitled to receive the market value of the property. He
submitted that as the amount payable had already got crystallised, a
subsequent acquisition could only be acquisition of money. He submitted
F that on June 28, 1964 the vesting took place. He submitted that thereafter
nothing more than payment of money was to be done. He submitted that by
a retrospective amendment, made in 1975, money could not be compulsorily
acquired. He submitted that there could be no public purpose in acquisition
of money and that such acquisition would amount to a forced loan. He
submitted that the restrictions laid down by the retrospective amendment
G were not reasonable. He submitted that no reasons for such restrictions were
given or could exist. He submitted that by the amendment the crystallised
right to money was being taken away.

21. In support of his submission Dr. Singhvi relied upon the case of
Madan Mohan Pathak v. Union of India, reported in (1978] 2 SCC 50. In that
H case there was a settlement between the management and the labour under

r
U.P STATE ELECTRICITY BOARD I'. UPPER JAMUNA VALLEY ELECTRICITY SUPPLY co_ LTD. (S.N. VARIAVA. J.J 427

which an annual cash bonus was to be paid to Class III and Class IV A
employees. By the Life Insurance Corporation (Modification of Settlement)
Act, 1976 Class Ill and Class IV employees were sought to be deprived of
the annual cash bonus that they are entitled to receive under the settlement.
This Court held that the term 'Property' under Articles I 9(1)(f), 31(1) and 31(2)
had to be given the widest interpretation and refers to property of every kind,
tangible or intangible, debts and chose-in action. It was held that the chose- B
in action could be compulsorily acquired under Article 31 (2). It was held that
the right to receive the annual cash settlement was a right to property within
the meaning of Article 31 (2). It was held that extinguishments of the debt of
a creditor with the corresponding benefit to the State or State owned/controlled
Corporation would be transfer of ownership to the State and would amount C
to compulsory acquisition under Article 31 (2). It was held that acquisition of
money, debt and/or chose in action must be made to serve a public purpose.
It was held that the impugned Act was a pure and simple case of deprivation
of the rights of the Class II and Class IV employees without any apparent
nexus with any public interest. It was held that an acquisition of a chose-in
action could not be for the purpose of augmenting the revenues of the State D
or reducing State expenditure as that would not be a public purpose and
would be violative of the constitutional guarantee embodied in Article 31 (2).
It was held that an acquisition of th is nature amounted to a forced loan. Dr.
Singhvi also relied upon the case of State of Bihar v. Maharajadhiraja Sir
Kameshwar Singh of Darbhanga reported in [1952] S.C.R. 889. E
22. We are unable to accept the submission. As has been held in
Tinsukhia's case, Thana Electric Supply Company's case and Ve/lore Electric
Corporation's case what has been acquired is not a chose-in action or a debt.
What been acquired is the undertaking which dealt with material resource of
the country. There was no crystallisation of any amount. The only right was F
a right to receive compensation which was to be worked out on certain
principles. All that the amending Act has done is to change the method or
principle on the basis of which the compensation was to be worked out. It
has b1;:en held that the legislation is not a piece of colourable legislation. It
has also been held, in the above mentioned cases, that the provisions for G
quantification of the amour.I payable to the undertaking form an integral and
inseparable part of the nationalisation and do not admit of being considered
as distinct provisions independent of each other. It has been held that the
economic costs of nationalisation was not justiciable. In our view this case
is fully covered by the judgments in Tinsukhia 's case, Thana Electric Supply
Company's case and Ve/lore Electric Corporation's case. H
428 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A 23. In this view of the matter, the Appeal is allowed. The Judgment of
the Division Bench dated September 17th 1989 as well as the Judgment of the
learned single Judge dated July 19, 1982 are set aside. The Writ Petition filed
by the I st Respondent stands dismi'lsed. There shall be no order as to costs.

M.P. Appeal allowed.