Judgment

BEG, J. :- This is a defendants appeal by special leave against the judgment of the High Court of Andhra Pradesh decreeing, with costs, the claim of the plaintiffs respondents, the Andhra Pradesh State Electricity Board and the Andhra Pradesh State Government for Rupees 3,34,443.77 as arrears of electricity charges said to be due from the Vijayawada Municipal Council in respect of amounts which were shown in its books as payable to it by consumers of electricity.

2. The plaintiffs claim flowed from the terms of the Andhra Pradesh (Andhra Area) Electricity Supply Undertaking (Acquisition) Act 15 of 1954 (hereinafter referred to as the Act), the provisions of which were applied to the electricity undertaking of the appellant Municipal Council with effect from 22nd December 1961, by the Government of Andhra Pradesh. The rights of the State were transferred to the Andhra Pradesh Electricity Board the co-plaintiff respondent. The amounts claimed were shown in the books of the Councils electricity undertaking on the date of its acquisition as due to it from direct consumers of electricity to whom it used to sell electricity supplied to it in bulk.

3. The "Electricity Undertaking" was taken over by the Government by an order under Sec. 4 (1) of the Act. This section provided :

"4. Power of Government to take over any undertaking :-

(1) The Government may, in respect of any undertaking not taken over by them before the commencement of this Act, by order in writing, declare that it shall vest in them on the date specified therein, such date not being earlier than four months from the date of the declaration."

4. The Municipal Council was the licensee from whom the "under taking", as a commercial concern, was taken over. A licensee is defined by Section 2 (j) to mean :

".... A person licensed under part II of the Electricity Act to supply electricity energy, or a person who has obtained sanction under Section 28 of the Act to engage in the business of supplying electricity and in relation to an undertaking taken over or an undertaking which has vested in the Government under Section 4 the person, who was the licensee at the time the undertaking was taken over or vested in the Government, as the case may be, and includes the successor-in-interest of any such person;"

5. The State Electricity Board stepped into the shoes of the licensee on behalf of the State, to discharge all the existing obligations of the licensee, arising out of past transactions, and, for this reason, became entitled to the benefits of all contracts, whether they had accured in the past or were to arise in future which existed at the time of the taking over of the undertaking.

6. The effect of the "taking over" of an undertaking and the vesting of the rights and liabilities of the former licensee in the State, by operation of law, was indicated by Sections 5 and 6 of the Act.

7. Section 5 provided for compensation to be paid on one of three alternative bases specified in this provision. The licensee could opt for one of the three bases.

8. The provisions of Section 6 (2) of the Act give the consequences of vesting. Section 6 (2) of the Act enacts :

"6. (2) (a) If compensation is payable in respect of an undertaking under Basis C, only the property, rights liabilities and obligations specified herein shall vest or be deemed to have vested in the Government on the vesting date -

(i) all the fixed assets of the licensee and all the documents relating to the undertaking :

(ii) all the rights, liabilities and obligations of the licensee under hire-purchase agreements, if any, for the supply of materials 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 vesting date, not being a contract relating to the borrowing or lending for money.

(b) All the assets specified in clause (a) (i) shall vest or shall be deemed to have vested in the Government free from