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Bombay High Court
D.M.REGE,S.P.BHARUCHA
Thana Electric Supply Company Ltd., Bombay - Appellant
Versus
Maharashtra State Electricity Board, Bombay - Respondent
Decided On : 07/20/1984
The Bombay High Court held that the provisions of the Electricity (Maharashtra Amendment) Act, 1976, which reduced the purchase price of electricity undertakings from market value to depreciated book value, were unreasonable and violated the fundamental rights guaranteed by Art.19(1)(f), Art.19(1)(g), and Art.14 of the Indian Constitution. The Court also held that the provisions of the Act which enabled the payment of the purchase price to be deferred and paid in installments were unreasonable and arbitrary, and violated the fundamental rights guaranteed by Arts.19(1)(F), (g), and 14. The Court further held that the provision for payment of interest at a rate approximating the higher commercial rate of interest would have been more appropriate.
Fact of the Case:
The petitioner, an electricity supply company, challenged the constitutional validity of the Electricity (Maharashtra Amendment) Act, 1976, which reduced the purchase price of electricity undertakings from market value to depreciated book value and enabled the payment of the purchase price to be deferred and paid in installments.
Finding of the Court:
The Court held that the provisions of the Act which reduced the purchase price of electricity undertakings from market value to depreciated book value were unreasonable and violated the fundamental rights guaranteed by Art.19(1)(f), Art.19(1)(g), and Art.14 of the Indian Constitution. The Court also held that the provisions of the Act which enabled the payment of the purchase price to be deferred and paid in installments were unreasonable and arbitrary, and violated the fundamental rights guaranteed by Arts.19(1)(F), (g), and 14. The Court further held that the provision for payment of interest at a rate approximating the higher commercial rate of interest would have been more appropriate.
Issues: 1. Whether the provisions of the Electricity (Maharashtra Amendment) Act, 1976, which reduced the purchase price of electricity undertakings from market value to depreciated book value, were unreasonable and violated the fundamental rights guaranteed by Art.19(1)(f), Art.19(1)(g), and Art.14 of the Indian Constitution? 2. Whether the provisions of the Act which enabled the payment of the purchase price to be deferred and paid in installments were unreasonable and arbitrary, and violated the fundamental rights guaranteed by Arts.19(1)(F), (g), and 14? 3. Whether the provision for payment of interest at a rate approximating the higher commercial rate of interest would have been more appropriate?
Ratio Decidendi: 1. The Court held that the provisions of the Act which reduced the purchase price of electricity undertakings from market value to depreciated book value were unreasonable and violated the fundamental rights guaranteed by Art.19(1)(f), Art.19(1)(g), and Art.14 of the Indian Constitution because: * The reduction in the purchase price from market value to depreciated book value was not reasonable in the public interest. * The reduction in the purchase price from market value to depreciated book value affected the licensee's right under Art.19(1)(f). * The reduction in the purchase price from market value to depreciated book value had a direct and proximate effect on the licensee's right to carry on business, thereby violating the guarantee of Art.19(1)(g). 2. The Court held that the provisions of the Act which enabled the payment of the purchase price to be deferred and paid in installments were unreasonable and arbitrary, and violated the fundamental rights guaranteed by Arts.19(1)(F), (g), and 14 because: * The power to fix installments vested in the State Government was not guided or channelised. * The enactment did not even provide an outer time limit for the full payment of the purchase price. * The provision for the fixation of installments was grossly unreasonable and arbitrary. 3. The Court held that the provision for payment of interest at a rate approximating the higher commercial rate of interest would have been more appropriate because: * The payment of interest is no panacea for undue deferment of the payment of the principal amount. * The judgment of the Supreme Court in the Godhra Electricity Company's case (AIR 1975 SC 32) holds that even for the period it takes an arbitrator to determine the purchase price, interest on the purchase price must be paid to the licensee.
Final Decision: The petition was made absolute in terms of prayer (a) to the extent aforestated. The 1st and 2nd respondents were ordered to pay to the petitioners the costs of the petition.
BHARUCHA, J. :- This writ petition, which has been referred for bearing and final disposal to a Division Bench, concerns the compulsory purchase by the Maharashtra State Electricity Board, respondent 1, of the undertaking of the Thana Electric Supply Company Ltd., petitioner 1. Principally, the petition challenges the constitutionality of the Electricity, (Maharashtra Amendment) Act, 44 of 1976.
2. To appreciate the rival contentions a chronology of events needs to be set out.
3. On 14th September 1927 the Government of Bombay by notification issued a licence under the provisions of the Electricity Act 1910, known as the Thana Electric Licence, 1927, to Messrs Phiroze Erachshaw, Behramji Muncherji and Rustomji Pestonji carrying on business in partnership in the name of M/s. P. Patel and Company. Clause 11 of the said licence (which was later renumbered clause 12) read thus:
"Purchase of undertaking 11. (1) The option of purchase given by S.7 of the Act shall first be exercisable on the expiration of 50 years from the commencement of this license and thereafter on the expiration of every subsequent period of twenty years during the subsistence of this license. The value of all lands, building, works materials and plant of the licensees to be paid for in accordance with the said section shall be their fair market value at the time of such purchase, which shall be determined in case of difference or dispute by arbitration, due regard being had to the various matters mentioned in the first proviso to sub-s.(1) of the said S.7 and there shall be added to such value so computed as aforesaid on account of compulsory purchase a sum equivalent to ten per cent, of the amount of such value.
(2) In accordance with S.3, sub-s.(2). cl.(d)(ii) of the Act it is hereby declared that the generating, transforming and distributing stations to be used in connection with the undertaking, shall form part of the undertaking for the purpose of purchase under S.5 or 7 of the Act."
4. On 16th February 1928 petitioner 1 was incorporated as a private limited company under the Companies Act, 1913, with the object of taking over the said licence from M/s. P. Patel and Co. On the same day M/s. P. Patel and Co. requested the Government of Bombay to transfer the said licence to the private limited company. On 11th June 1928 a Memorandum of Consent recorded that the Governor in Council was pleased to consent to the transfer. On 24th January 1936 a notification was issued by the Government of Bombay which inserted a new clause, clause 9, in the said licence and renumbered the subsequent clauses.
5. On 5th September 1959 the Electricity Act, 1910, was amended by the Electricity (Amendment) Act, 32 of 1959 (now called "the Amending Act of 1959"). The amendments which are relevant to this petition are set out later.
6. On 15th January 1965 the private limited company became a public limited company. On 7th September 1973 a special resolution was passed by the company to enable it to diversify its business. On 2nd February, 1974 the amendment was confirmed by this court.
7. On 17th October 1974 the State of Maharashtra, respondent 1, promulgated an ordinance, being Ordinance No.18 of 1974, amending the provisions of the Electricity Act, 1910, in its application to the State of Maharashtra. The provisions of the ordinance were enacted in the Electricity (Maharashtra Amendment and Validation) Act, 1974. (now called "the Amending Act of 1974"). The provisions of the Amending Act of 1974 are set out hereinafter.
8. On 13th July 1976 Bill No.45 of 1976 to amend the Electricity Act, 1910, in its application to the State of Maharashtra was introduced in the State legislature. It was passed as the Electricity (Maharashtra Amendment) Act.44 of 1976. (now called "the Amending Act of 1976".) It received the assent of the President on 2nd September 1970. It was published in the Maharashtra Government Gazette on 11th September 1976. It came into force on 20th September
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