Decided on October 22,1970



- (1.) THE validity of the Madras Electricity Supply undertakings (Acquisition) Act, 1954 (Madras Act XXIX of 1954) is assailed on grounds of legislative competency, repugnancy of its provisions to those of the Indian Electricity Act, 1910 (Central act 32 of 1959), and also as violative of Arts. 14, 19 (1) (f) and 31 (2) of the constitution. Kailasam J. held against the appellants, the Nagapattinam Electric supply Co. Ltd. and the Kumbakonam Electric Supply Corporation Ltd. Both are public limited companies incorporated under the Companies Act 1913 and carried on the business of distributing and supply electrical energy within the limits respectively of Nagapattinam and of the revenue taluks of Kumbakonam. Papanasam and part of Thanjavur taluk. They did so under licences granted by the then Province of Madras under the Indian Electricity Act, 1910. The licence in favour of the first of them was under G. O. Ms. 1822 Works dated 22-8-1933 for a period of 20 years in the first instance. It was renewed for further periods of seven years each as provided in the licence. The current licence is due to expire on 22-81974. The other appellant's licence was under G. O. Ms. 1230 Works dated 15-41971. By G. O. Ms. No. 39 Public Works and by G. O. Ms. 38 Public Works, both dated 12-1-1968, the State Government in exercise of its powers under Section 4 (1) of Madras Act XXIX of 1954 declared that the two Undertakings shall vest in the Government with effect from 15-7-1968 and 16-6-1968 respectively. The appellants then moved, but unsuccessfully, by separate petitions on 21-2-1968 for writs directing the Government to forbear from enforcing its vesting orders, on the ground that they were void and ultra vires of the Central Acts 9 of 1910 and 32 of 1959.
(2.) THE attack on Madras Act XXIX of 1954 as being incompetent is on the two-fold premises that (1) Electricity Undertaking as a going concern is an intangible asset which is not property within the meaning of Entry 42 of the Concurrent List 'acquisition or requisition of the Undertaking could, in any case, be only in terms of the licence, and not merely by statutory compulsion independent of such terms. Entry 9 in List II in the Seventh Schedule to the Government of India Act, 1935 authorised the Provincial Legislature to make a law with respect to compulsory acquisition of land. S. 299 (2) of that Act stated that neither the Provincial nor the federal Legislature had power to make a law authorising compulsory acquisition for public purposes of any land, or commercial or industrial undertaking, or any interest in or in any company owning any commercial or industrial undertaking, unless the law provided for the payment of compensation for the property acquired. Under the scheme of distribution of power within the Federal and provincial Legislature, the British Parliament did not grant to either of them any power to make a law for compulsory acquisition of a commercial or industrial undertaking, but left it to the Governor-General in his discretion to empower either of them to enact such a law. In the absence of such authorisation, Rajahmundry electric Supply Corporation Ltd. v. State of Andhra, Struck down the Madras Electricity Supply Undertakings (Acquisition) Act (43 of 1949) as incompetent for the provincial Legislature to make it. It was held that the acquisition of commercial or industrial undertaking not being the subject-matter of any Entry in any of the three legislative Lists, neither the Federal Legislature not the Provincial Legislature could enact a law with respect to compulsory acquisition of a commercial or industrial undertaking. The Constitution of India provided Entry 33 in List I 'acquisition or requisitioning of property for the purposes of the Union'; entry 36 in List II 'acquisition or requisitioning of property except for the purposes of the Union, subject to the provisions of Entry 42 in List III which was as to principles on which compensation for property acquired requisitioned for the purposes of the Union or of a State or for any other public purpose is to be determined, and the form and the manner in which compensation is to be given. The Constitution (Seventh Amendment) Act 1956 deleted the three Entries and substituted Entry 42 in List III by the existing Entry 'acquisition and requisitioning of property'. In the circumstances, therefore, West Ramnad Electric Distribution co. Ltd. v. State of Madras, upheld the validity of Madras Act xxix of 1954. It went upon the assumption that it was competent for the State legislature to enact it. Unlike Entry 9 in List II of the Government of India Act 1935 which used the language "acquisition or requisitioning of land". Entry 42 in list III after the Seventh Amendment, does not use the word 'land' but 'property'. 'property' was also the word that had been used in Entry 33 in List I, and Entry 36 in List II before the Seventh Amendment and there was no provision in the constitution corresponding to Section 299 (2) of the Government of India Act, 1935. In view of this history, and the deliberate change in language. The word 'property' in Entry 42 of List II as it occurs now, should be given the widest scope. There is no reason why 'property' in Entry 42 is to comprise of only tangibles, and not intangibles. In our view neither Art. 19 (1) (f) nor Art. 31 (2) in which the word 'property' occurs compels us to give Entry 42 in List III a narrower scope excluding intangibles. In fact, in the context of the guarantee by Art. 19 (1), the word 'property' in clause (f) should include all forms of assets, tangible or intangible. So too we think the expression 'property' in Art. 31 (2) as substituted by the constitution (Fourth Amendment) Act, 1955 and even before it, comprehends an undertaking like the Electricity Undertakings in question. Property means a bundle of rights, which need not necessarily be physical assets, but may include also a going concern, or undertaking. Construing this very Entry 42, the majority judgment in R. C. Cooper v. Union of India, held that power to legislate for acquisition of property in that Entry included the power to legislate for acquisition of an undertaking. After pointing out that property meant the highest right a man could have to anything and included not only assets, but the organisation, liabilities and obligations of a going concern as a unit, it was held that an undertaking in Section 4 of Central Act 22 of 1959 meant a going concern with all its rights, liabilities and assets as distinct from various rights and assets which composed it.
(3.) WE are also not impressed by the contention that omission of the word 'compulsory' in Entry 42 in List III of the Constitution made any difference to the power of eminent domain enshrined in that Entry. Acquisition or requisitioning in the nature of things implies and pre-supposes statutory compulsion. While defining the meaning of 'compulsory acquisition' 10 Halsbury's Laws of England, at page 4, points out that "where the acquiring authority has power to acquire only by agreement, this instance is no different from an ordinary purchase and sale. " But where there has been an exercise of compulsory powers in pursuance of a notice to treat, in this case it can be said strictly to have been an exercise of compulsory powers, the service to treat being not in itself an exercise of compulsory powers. In Fazilka Electric Supply Co. Ltd. v. Commr. of Income-tax, Delhi, the view was expressed by the Supreme Court that for purposes of Sec. 10 (2) (vii) of the Indian Income-tax Act 1922, a compulsory purchase mentioned in the second proviso to sub-section (1) of Section 7 of the indian Electricity Act, 1910 was not a compulsory acquisition in the sense that it is without reference to, and independent of any agreement by the licensee. The supreme Court held that Section 7 merely provided for an option of purchase to be exercised on the expiration of certain periods agreed to between the parties, and not for compulsory acquisition. Entry 42 in List III authorises the State Legislature to make a law to acquire or requisition an undertaking compulsorily and independent of any agreement between the parties providing for option of compulsory purchase. We do not think that Gujarat Electricity Board v. Shantilal R. Desai, departed from the view in but only held that a sale compelled by law might also be a sale under the Sale of Goods act, but that did not mean that the right to purchase the undertaking did not vest in the concerned authority by virtue of Section 7. The court further pointed out that the right might accrue either because it was directly conferred by Section 7, or because it was obtained as a result of a contract compelled by that section, and that in either case it was a right obtained by the authority of Section 7. The right to purchase by exercising the option under the provisions of the Indian Electricity act, 1910 is not referable to the power under Entry 42 of List III which is independent of an agreement providing under compulsion of law for an option to purchase. Madras Act XXIX of 1954 which empowered Government to compulsory acquire an electrical undertaking squares with Entry 42 of List III in the Seventh schedule of the Constitution and is within the competence of the State Legislature.;

Click here to view full judgement.
Copyright © Regent Computronics Pvt.Ltd.