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

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

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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 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 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

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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 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, 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 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 whether the law has relevancy to the distribution of the ownership and

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- 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

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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 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 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

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-+ On the other aspects of the matter, I agree with respect, with the 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 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.

2Copy pinpoint2. 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

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A the expiration of every subsequent decennial period.

3Copy pinpoint3. 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

4Copy pinpoint4. 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

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)..._ 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.

5Copy pinpoint5. 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.

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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

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:)... have come into force on 27.9.1972, which was the date of promulga- A tion of the earlier Ordinance.

6Copy pinpoint6. 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

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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

7Copy pinpoint7. 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;

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(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

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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 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 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).

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(2) Subject to the provisions of this section, the provisions 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 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 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.

8Copy pinpoint8. 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

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.

9Copy pinpoint9. 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 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

p. 570 Copy page pinpoint

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

p. 571 Copy page pinpoint

(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.

10Copy pinpoint10. The contentions noticed at (a), (b) and (c) cover amongst B ·~\ them certain overlapping areas. The central attack, however, remains t- that Assam Act X of 1973 has no reasonable and direct nexus with the effectuation 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.

11Copy pinpoint11. 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 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 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,.

12Copy pinpoint12. 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 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 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 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 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 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

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