THE OKARA ELECTRIC SUPPLY CO. LTD., AND ANOTHER versus THE STATE OF PUNJAB AND ANOTHER

GAJENDRAGADKAR J.-The Okara Electric Supply Co. Ltd., which is a Joint Stock Company and Shrimati V. V. Oberoi, one of the principal shareholders of the said company (hereinafter called petitioners I and 2 respectively) have filed the present petition against the State of Punjab and the Punjab State Electricity Board (hereinafter called respondents 1 and 2 respectively) in which tiley have claimed

pp. 240–241

't d d' t' · t f t' · d a wri , or er or irec 10n in respec o a no ice issue by respondent 1 on January 3, 1958. The petition was presented on January 3, 1959 and it claimed an order or writ restraining the respondents from giving effect to the said notice. It appears that on January'4,

p. 241

. f th 'd . d · t' th 1959 , m pursuance o e sa1 impugne no we e respondents took possession of the petitioners' property in question, and so, by an order passed by the learned Chamber Judge the petitioners were allowed -to make an additional claim for a writ or order or direction in the nature of mandamus directing the respondents to hand over to the petltioners the said property in question. This petition is made on the ground that the impugned notice and action taken by the respondents in pursuance of it are illegal and unauthorised and they affect the petitioners' fundamental rights under Arts. 19 and 31 of the Constitution.

p. 241, margin C

The first petitioner was granted sanction undel' s. 28 of the Indian Electricity Act, 1910 (9 of 1910) (hereinafter called the Act) authorising it to engage in the business of supplying energy at Muktsar by Government Notification No. 1766-I & 0-48/28784 published on May 26, 1948. By virtue of the said sanction the first petitioner has ever since been engaged in the business of supplying electric energy at the said place and for the purpose of its business it has set up an electricity undertaking at considerable cost. On January 3, 1958, the Secretary to respondent 1, P. W. D., Irrigation and Electricity Branches, Ohandigarh, issued notice against the first petitioner purport· ing to exercise the option given to respondent 1 by cl. 11 of the said notification. By this notice the first ,petitioner was told that respondent 1 had exercised its option under the said clause, and that on the expiry of the period of one year after the receipt of-the notice by the first petitioner its undertaking shall vest in and become the absolute property of respondent 1.

p. 241, margin C

The first petitioner has been having bulk supply from P. W. D. El~ctricity brainch of respondent 1, and, according to the petition, respondent 1 could not and will not take over the plant and yet has ordered the fi t t "t' h t · t ]j J • rs pe. i 10ner t a it canno se ~ 1e p without pern11ss10n of respondent 1. The impos1t1on of this condition is wholly illegal and it amounts to an unreasonable restriction on the petitioners' right to carry on business and to hold and dispose of its property. .

pp. 241–242, margin C

The petition alleges that cl. 11 of the notification on which the impugned notice is founded is ultra vires s. 28 of the Act, and that alternatively, if the inclusion of the said clause in the notification is justified by s. 28 of the Act, s. 28 itself is ultra vires since it offends against Arts. 19 and 31 of the Constitution. It is on these allegations that originally the petition claimed an order against the enforcement of the notice and subsequently added the prayer for a writ of mandamus directfog respondent 1 to restore to the petitioners possession of the property which has been taken over by respondent 1 after the filing of the present petition.

p. 242

The claim thus made is denied by both the respondents. It is urged that the petitioners cannot challenge the validity of cl. 11 which was accepted by them before the Constitution came into force. It is further urged that the said clanse is justified by the provisions of s. 28 of the Act and that both the said clause and s. 28 are intra vires and valid. The respondents further alleged that after possession was taken of the property of the first petitioner in exercise of the option under cl. 11 the first petitioner had been repeatedly called upon by the respondents to assist them in making a proper valuation of the assets of the first petitioner taken over by the respondents. In fact an amount of Rs. 60,000 has been paid to the first petitioner in part payment by way of compensation and it has been accepted by it though under protest; but the work of completing the valuation of the total assets has been delayed and hampered by the non-cooperative attitude of the first petitioner.

p. 242

Thus the first question which falls to be decided on this petition is whether cl. 11 of the notification i& s.c.k. justified by s. 28 of the Act. The notification consists of 14 clauses and it sets out exhaustively the terms_ and conditions on which sanction had been granted to the first petitioner under s. 28 of the Act. For the purpose of the present petition it would be enough to refer to cl. 11 only. This clause provides that the Provincial Government shall have the option· to acquire the undertaking at any time after October 21, 1950, provided firstly that not less than one years' notice in writing of the election to acquire shall be served upon the supplier by the Provincial Government ; provided secondly that the generating station shall not form part of the undertaking for the purpose of acquisition if the undertaking is acquired after grid supply from the East Punjab Public vVorks Department, Electricity Branch, has reached Muktsar; pro- • vided thirdly that the price to be paid to the supplier for such lands, buildings, works, materials and plant as may be acquired by the Provincial Government under this clause will be the fair market value at the time of purchase (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 updertaking) such value to be in case of difference or dispute determined by arbitration in the manner prescribed in s. 52 of the Act ; provided fourthly tha.t the Provincial Government shall pay the price of the property acquired under this clause within a period of six months after the price has been determined." Mr. Veda Vyas, for the petitioners, contends that the condition which gives respondent 1 the option to acquire the property of the petitioners is ultra vires.

pp. 242–243

We are concerned withs. 28 as it stood prior to its amendment by Act 32 of 1959. Section 28(1) reads thus:

p. 243

"No person, other· than a license-e, shaTI engage in the business of supplying energy except vdth the ·previous sanction of the State Government and in accordance with such conditions as the State Government may fix in this behalf, and any agreement to the contrary shall be void,"

p. 243

The Act which was passed in 1910, to amend the law relating to the supply and use of electrical energy was

p. 244

t d d t 'd d 1 1 1 f m en e o pro~1 e. •Or an regu ate t rn ~upp y ? energy by grantmg licences and so the prov1s10ns m respect of licences are dealt with by ss. 3 to 27 in Part IL Part III in which s. 28 occurs deals with the supply of energv by non-licensees. It appears ·that the Legislature ii; tended to adopt the course of sanctioning the supply of energy by non-licensees as a temporary measure and in areas wherever it was expedient to do so. A person pther than a licensee cannot engage in the business of supplying energy except with the previous sanction of the State Govern-' merit and s. 28(1) authorises the State Government to impose conditions subject to which it proposes to grant sanction. This position is not disputed ; but the argument is that the conditions which can be · legitimately imposed in granting sanction must be such as would relate to or have bearing on the business of supplying energy. Such conditions "in this behalf", it is urged, cannot include any conditions as to compulsory acquisition of the property of the person to whom sanction is intended to be given. The acquisition of such property does not relate ao.d has no bearing on the business of supplying energy and is in no manner connected with it. It would be competent to the State Government to provide for the area of supply, the aerial lines, the nature of the supply, the limitation of prices to be charged for the supply of energy and the purchase of energy in bulk. These and other similar conditions can be properly regarded as conditions" in behalf of" the business of supplying energy ; bnt the condition of compulsory acquisition of the supplier's property cannot be treated as falling under s. 28(1).

p. 244

In support of this construction reliance is placed on the provisions o~ ss. 5 and 6 which specifically deal with the question· about the acquisition of the under. ta.king. Section 3 of the Act provides for the granting of licences and s. 4 for the revocation and amendment of licences. Having provided for the grant, revocation and amendment of the licences s. 5 deals inter s.o.ft. stl:PREME codR± REPORTS alia with the question of paying compensation to the licensee whose licence has been revoked. Similary,

pp. 244–245

. . . t' s. 6 ma k es appropriate prov1s10ns 1or compensa 10n where the licence of a local authority has been revoked. Section 7 makes a provision for the purchase of an undertaking and lays down the procedure for determining the value of the properties. The petitioners urge that where the Legislature. thought it necessary to acquire properties of the licensees either on the revocation or the cancellation of the licences it has made express provisions in that behalf; a similar provision would have been made in respect of persons other than licensees to whom sanction is granted under s. 28 if it was in the contemplation of the Legislature that the properties of such persons may be acquired. Thus presented, ·the argument no doubt appears to be plausible. Prima facie there is some force in the contention that conditions " in this behalf" in the context should mean conditions which are relevant to or connected with the business of supplying energy, In deciding this question, however, it is essential to bear. in mind the special nature of the article, viz., energy for the supply of which sanction is granted, and to take into account the scheme of the Act in regard to the conditions which are intended to be imposed on the business of its supply.

p. 245

In this connection it would not be unreasonable to ascertain how the supply of energy is regulated in England and America. It is clear that the Act is based on the provisions of the English law and it would be useful to inquire whether conditions for the acquisition of the supplier's property were treated as a part of the conditions on which the supplier was allowed to carry on the business of supplying electricity. This aspect is considered by Halsb'ury under the heading " Acquisition of undertaking by Local Authority ". "In Local Authority", it is observed, "within whose jurisdiction the area of supply or any part of it is situated may within six months after the expiration of 42 years or any shorter period specified in the special order from the coming to force of the said ·Order ... by a notice in \Vriting require the undertakers to sell (and thereupon the undertakers must

pp. 245–246

JI th h · d k" h f · se to em t e1r un erta mg or so muc o it as within its jurisdiction) upon terms of paying the then value of all lands, buildings, works, materials and plant of the undertakers suitable to and used by them for the purpose of the undertaking within such jurisdict" ion sue h va 1 ue o e t b d t e ermme · d b y ar b't rat10n m ' · · case of difference ( It would thus appear that where sanction was given to a person for carrying on the business of supplying electricity under a special order, a condition was introduced in the said order itself for the compulsory acquisition of the undertaking on payment of adequate compensation to the person concerned.

p. 246

Subsequently, after the pa.ssing of the Electric Lighting Act, 1909, powers to supply electricity were not granted by provisional orders but a large number of such orders still remained in force; and, as Hals bury has observed, "many of these orders are in a standard form but a number contain special clauses of which the most common is a clause gh·ing special purchase rights to local Authorities. These special orders were confirmed by Acts and contained special clauses for the protection of county bridges, for the breaking up of streets, for the connection of the generating stations and systems of different undertakings and the use of such generating stations in common for the purpose of such undertakings" ('). It is thus clear that where a licence was given to a person to supply electricity it generally included the right of the licensing authority to acquire t.he licensee's property on terms and conditions included in the licence by the provisional order.

p. 246, margin C

The American lawyers describe the right or privilege to supply electricity as a franchise. This right falls under a class of rights · " in public streets which are granted for furtherance of public purposes but which involving as they do the right to use the streets in various ways, give rise to a series . of questions as between the grantee of the right on the one hand and the municipality or abutting owners on the other" ( Dillon in " Muncipal Corporations " further observes that "for convenience these rights are described as franchises to use the public streets and highways, and whether correctly or incorrectly denominated franchises, they answer in essential respects to the definition and elements of a franchise from the State".· " The. business of furnishing water and light '', ·observes the author, "when carried on by a corporation or individual, of necessity involves the use of streets. and highways of the municipality ; and the right to lay pipes, mains and conduits, and to erect poles and stretch wires therein and to maintain, operate and use them, is a franchise vested in the State, and it can only be exercised by a corporation or ·individual pursuant to

pp. 246–247, margin C

"(2)~ the authority granted by the State

p. 247

The. question of the purchase of works of ,com~ panies by municipality is also considered by ·Dillon·: "Where a municipal corporation has granted a franchise to a water or gas company to construct its plant, to use the city streets for pipes and mains, . and to furnish water or light to the city and its inhabitants, it has been held that the legislature under special constitutional restrictions was without authority to compel the city to purchase the property or plant of the company if it desired to acquire or construct works of its own ; but in the absence of constitutional limitations statutes may be enacted and contracts made which in their effect prevent municipalities from establishing water works of their own until they have at least offered to purchase the works of corporations organised and· existing within their limits " ( The learned author also says that "If a municipality stipulates in a contract with a water or other public service company that it shall have the right to .purchase the works of the company at a time and in a

p. 247

III, 218~, manner specified, and if such stipulation in and becomes a part of a grant of the th t t d bl" ] f h

pp. 247–248

s ree s an pu p ac~s o t e _mummpa the purpose of laymg mams and pipes, ation is estopped to deny the authority of pality to make and enforce the stipulation"

p. 248, margin E

In New Orleans Gas Light Go. v. Louisiana Light nd H p d . d ,; · G a eat ro ucing an ManuJ acturing ~een held by the Supreme Court of the United of America that "the manufacture and of gas by means of pipes, mains and. conduits plac.ed under legislative authority in the public municipality, is not an ordinary business everyone may enga.ge as of common right of equality; but is a franchise, relating to which the public may assume control and, forbidden by the organic law of the State, granted by the Legislature as a means of ing public objects to whomsoever, and terms, it pleases". In that case the question arose for decision of the court related to of the constitutional prohibition upon impairing the obligation of contracts but aspect of the matter we are not concerned present appeal. It thus appears that lawyers describe the business of supplying energy well as the bus~ness of supplying w'.Lter an~ franchise, and it also appears th<tt m grantmg or sanction to a person to engage in such business, condition is usually imposed for the compulsory acquisition of the business when the licence or comes to an end.

p. 248, margin E

Let us look at this question from a practical of view. If a person is granted sanction the business of supplying energy it is not s. 28(1) would justify the imposition of a the grant of sanction. If sanction is granted ·specified number of years, and it· comes to would happen to the constructions made .supplier for the purpose of supplying cannot dismantle them because thereby he would cause damage to public property such as streets, and so he cannot take them away. In such a case the Legislature may well provide for the acquisition of such constructions in order to safeguard the interest of the person to whom temporary sanction is granted. Such a provision also serves another public purpose. guarantees the availability of suitable constructions and works which may be used for the continuance of the supply of electricity by another agency. In other words, the statutory provision which deals with the grant of sanction to a person to engage in the business of supplying energy must, having regard to the special features of the business, necessarily deal with the position which would arise on the termination of the sanction; and· so it would not be unreasonable to assume that the statutory provisions which deals with this question would think of making adequate provision empowering the State Government to provide for the compulsory acquisition of the assets of the supplier on payment of proper compensation. It is in the light of this special feature of the business of supplying energy that we must construes. 28(1) of the Act.

pp. 248–249, margin A

Besides, the provisions of ss. 5, 6 and 7 also afford assistance in the matter. They clearly show that in the case of a licence specific provisions have been made for the acquisition of the undertaking in cases of revocation or cancellation of licences. The reason for thus providing for compulsory acquisition of licensee's undertaking is equally relevant in the case of the sanction with which s. 28(1) deals. It is true that s. 28 does not specifically and expressly provide for compensation as the other sections do ; but that must be because recourse to the provisions of Pt. III was intended not to be the rule but only as a temporary measure wherever it was deemed necessary to do so; and so the Legislature left it to the State Government to provide for compulsory acquisition in the light of the guidance given by the provisions contained in ss. 5, 6 and 7.

p. 249

Let us then look at s. 28(1) in the light of these considerations. It authorises the State Government to aa give sanction to a person to engage in the business supplyi~1g ~~ergy on co.n~itio1rn in . that beh~lf: express10n such cond1t10ns m this behalf context should take in conditions dealing position which would inevitably arise when ness comes to an end. There is no doubt grant of sanction contemplated by s. 28

pp. 249–250

I l b d b permanent. t was a ways oun to e temporary, issued on an ad hoc basis according to the requirement of each case, and when grant.ing sanction for a specified number of years it is in the interest of the himself that some provision should be payment of compensation to him in respect investment made by him in carrying out the of supplying energy when otherwise it would be difficult for him to collect his assets in that behalf. why we think that the relevant words should given a narrow and limited construction for which petitioners contend. In our opinion, the context that the said words should receive a wider and construction. A condition for the acquisition property of the petitioners, like cl. 11 would, therefore, fall within the scope of s. 28(1). The challenge validity of this condition on the ground that ultra vires s. 28(1) must accordingly fail.

p. 250

Ifs. 28 permits the imposition of such a condition does it violate Art. 19 or Art. 31 of the Constitution? That is the next question which must be considered. It is not seriously disputed that Art. 31(2) reliance is placed by the petitioners cannot much help to them for Art. 31(5) provides that nothing in cl. (2) shall affect the provisions exi~ting law other than the law to which the sions of cl. (6) applies. It is conceded that cl. not apply to the Act, so that it follows that cannot be invoked to challenge the validity of Mr. Veda Vyas attempted to contend that the the Act could be challenged if not under Art. least under s. 299(2) of the Government of India 1935; but he realised that he was up against difficulty created by the provisions of s. 299(4) says that nothing in s. 299 shall affect the provisions of any law in force at the date of the passing of the Act; and he conceded that in 1910 when the Act was. passed the Legislature was competent to pass it and it then suffered from no infirmity. That is why though an attempt was made to press -into service Art. 31(2) it was ultimately given up. We need not, therefore, discuss this point any further.

pp. 250–251

In regard to the attack on 8. 28 on the ground that it offends Art. 19(f) or (g) the answer is obvious. The limitations imposed by s. 28 quite clearly are reasonable restrictions and have been imposed in the interests of the general public within the meaning of Art 19(5) of the Constitution. As we have already seen such limitations are g~ner.ally imposed on the business of supplying energy and their reasonableness cannot be and has in fact not been seriously challenged. Therefore, we have no hesitation in holding that the vires of s. 28 cannot be successfully challenged.

p. 251

Incidentally we may observe that on the day when the Constitution came into force what vested in the petitioners was the property subject to the liability imposec;l on it by cl. 11 of the notification ; and so, when the Constitution came into force the only rights which the petitioners had in their property in question were rights of a limited character which were subject to the exercise by the State of its election to acquire the said property. In this connection the respondents rely on the decision of this Court in Director of Endowments, Government of Hyderabad v. Akram Ali( and seek to urge that the exercise of the option given to respondent 1 by cl. 11 of the notification cannot be successfully challenged as ultra vires under Art. 19 of the Constitution ; we do not, however, think it necessary to decide this point because it was fairly conceded before us that if s. 28 is valid and is construed to include a condition like cl. 11 of the notification no other point would survive.

p. 251

There is one more minor point to which reference may be made. In the petition the validity of the notice given by respondent 1 to the petitioners prohibiting them from dealing with the property was s.c.

p. 251

challenged; but that is no longer a matter in dispute - between the parties since respondent 1 has in substance

p. 252

hd h "d · Th" f t h ld wit rawn t e sa1 not1~e. ac , owever, wou be relevant on the quest10n of costs.

p. 252

The result is the petition fails but in the oircum-

p. 252

stances Of this case there would be no order as to d-- costs.

p. 252

Petition dismissed.

p. 252

..

p. 252

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p. 252