Holding

The 1976 Amendment Act is protected by Article 31‑C as it has a direct and substantial relationship with the objects of Article 39(b), rendering the challenges under Articles 14, 19 and 31 untenable.

Summary

The Thana Electricity Supply Company held a licence to supply electricity which the Maharashtra State Electricity Board exercised its option to purchase upon expiry. The Indian Electricity (Maharashtra Amendment) Act, 1976 replaced the market‑value basis for the purchase price with a depreciated book‑value amount and allowed payment in instalments, applying even to notices issued before the Act. The company challenged sections 4‑6 of the 1976 Act and section 2 of the 1974 Act as violative of Articles 14, 19(1)(f)&(g) and 31 of the Constitution, while the State argued that the legislation was protected by Article 31‑C because it furthered the Directive Principle in Article 39(b). The Supreme Court held that the amendment has a direct and substantial relationship with Article 39(b) and is therefore shielded by Article 31‑C, causing all challenges under Articles 14, 19 and 31 to fail. The Court allowed the State’s appeals, set aside the High Court’s declaration of unconstitutionality, and dismissed the company’s cross‑appeal.

Issues considered

Whether the Indian Electricity (Maharashtra Amendment) Act, 1976 (and the 1974 Act) is protected by Article 31‑C of the Constitution by having a reasonable and direct nexus with the objects of Article 39(b).
Whether the provisions of the 1976 Amendment Act violate Articles 14, 19(1)(f), 19(1)(g) and 31 of the Constitution.
Whether the power to fix instalments and interest rates under the amendment is unreasonable or arbitrary.
Whether the company’s right to market‑value crystallised into a chose‑in‑action and whether service‑lines and goodwill should be included in the amount payable.

Legislation cited

Constitution of Indias. Article 14, s. Article 19(1)(f), s. Article 19(1)(g), s. Article 31, s. Article 31-C, s. Article 39(b), s. Article 39(c)
Indian Electricity Act, 1910
Indian Electricity (Maharashtra Amendment) Act, 1976s. 4, s. 5, s. 6
Indian Electricity (Maharashtra Amendment and Validation) Act, 1974s. 2

Subjects

Constitutional validityArticle 31-CDirective PrinciplesArticle 39(b)Electricity boardNationalisationMarket value vs book valueCompulsory acquisitionFundamental rightsArticles 14, 19, 31Purchase price

Judgment

MAHARASHTRA STATE ELECTRICITY BOARD
A
v.
THANA ELECTRIC SUPPLY CO. & OTHERS.

APRIL 13, 1989
B
[R.S. PATHAK, CJ, SABYASACHI MUKHARJI,
S.. NATARAJAN, M.N. VENKATACHALJAH AND
S. RANGANATHAN, JJ.]

Indian Eelectricity Maharashtra Amendment) Act, 1976 & Indian
C Electricity (Maharashtra Amendment and Validation) Act, 1974: Sec-
tions 4, 5 and 6/Section 2-Constitutional validity of-Whether pro- _, ·
tected by Article 3 JC of the Constitution.

Constitution of India: Articles 14, 19, 31, 31C, 39(b)-Legisla-
D live enactment challenged as not conforming to Constitutional
mandate-Duty of Court-Nexus between the law and objects of Article
39(b )-Could be shown independently of any declaration of the
legislature-Indian Electricity (Maharashtra Amendment) Act 1976,
Sections 4 to 6 and Indian Electricity (Maharashtra Amendment and ...
Validation) Act 1974 Section 2-Whether constitutionally valid.
E
The respondent-Company took over, with the consent of the State
Government, the licence granted to a private firm under the Indian
Electricity Act, 1910 for supply and distribution of electricity in the
-
areas covered by the licence, and became entitled to the benefits and
f privileges of the licence. Under cl. (11) of th<l licence, Government had
1
the option to purchase the undertaking on the. expiry of the period of
licence. ~

The licence was to expire on 21st September, 1977. The State
Electricity Board, in exercise of its option, issued a notice to the Com-
G pany on 26th August, 1976 and required it to sell and deliver the under-
taking to the Board on the midnight between 2 lst and 22nd September,
....
1977.

Under the provisions of the Indian Electricity Act, 1910, as they
H stood at the time of option, the Company was entitled to be paid the
518
ELECTRICITY BOARD v. ELEC. SUPPLY CO. 519
'
"' market value of the undertaking. But, by the Amending Act, 1976 the
Bill for which had been introduced in the State legislature on 13. 7.1976
A
the principle of market value in the relevant provisions of the 1910 Act was
substituted by the concept of "Amount" legislatively fixed as a sum
equal to the depreciated Book-Value of the assets of the undertaking to
be taken over. The amended provisions were to govern cases where
notices had been issued prior to the amendment. B
+
). The responOeitt-Company filed writ petitions before the High
Court challenging the validity of ss. 4, 5 and 6 of the Indian Electricity
(Maharashtra Amendment) Act, 1976 ands. 2 of the Indian Electricity
(Maharashtra Amendment and Validity) Act, 1974 as violative of Arts.
14, 19(l)(f) and (g) and 31 of the Constitution.
c
t The appellants, the State and the Electricity Board, claimed
protection of Art. 31-C to the Amending Act, 1976 and the consequent
immunity from attack on the ground of violation of Arts. 14, 19 and 31.

The High Court held that in the absence of a declaration in the D
Amending Act of 1976 that.the law was one intended to give effect to the
objects of Art. 39(b) and (c) of the Constitution, the Amending Act
cannot have the protection of Art. 31-C. Declaring s. 4 of the Amending
~ Act as violative of Art. 19(l)(f) and Art. 14, it held that the State could
not unilaterally rednce, even by _legislation, its liability to pay the
purchase price under a consensual transaction and that conferment on E

-
Government of power to fix instalments was grossly unreasonable and
arbitrary and that provision for payment of interest at the Reserve
Bank rate plus one per cent made more nnreasonable the provisions of the
Amending Act .
. The High Court also rejected the respondent-Company's claim as F
't to the Constitutional infirmity attributed to s. 2 of the 1974 Act and ss. 5
and 6 of the Amending Act, 1976. It further rejected the Company's
contention that, upon the service of the notice exercising the option to
purchase, the Company's right to be paid the market value under the
law as it then stood, was crystallised into an "actionable claim" or "A
chose-in-action" and that What was sought to be acquired was not the G
~ undertaking itself but a chose-in-action, and that the law was bad for
excluding the service lines from computation of the amount.

The appellants filed appeal in this Court assailing the correctness
of the High Court's view thats. 4 of the Amending Act was bad. The
respondent-Company, also filed a cross appeal, questioning the correct- H
520 SUPREME COURT REPORTS [1989) 2 S.C.R.

A ness of the judgment on the points held against it.

It was contended on behalf of the appellants that the law was
entitled to the protection of Art. 31C and that the High Court was in
error in postulating that the absence of the express legislative declara-
tion in the law that it was enacted for giving effect to the directive
B principles of State Policy in Art. 39(b) and (c), was itself conclusive
~
against the attraction of Art. 31-C. It was urged that the presence of ,
such a declaration merely furnished evidence of a reasonable and direct I'\
nexus between the legislation and the objects of Art. 39(b) and (c) but
the declaration was by itself not conclusive either way, and the court
was entitled to go behind the facade of the declaration and scrutinise
whether there was really such a direct and reasonable nexus, and that
-
C the absence of such an express declaration did not preclude the State
from showing the existence of the requisite nexus, and that apart ·-\
&ltogether from the protection of Art. 31-C, the Amending Act of 1976
was justifiable as a reasonable restriction on the freedom under
Art. 19(I)(f) and (g).
D
On behalf of the Company, it was contended that any appeal to
and reliance upon Art. 31-C was wholly misplaced, as the option to
purchase the undertaking was in effectuation of a purely consensual
transaction and that the scheme of the Electricity Act, 1910, and the -j.
covenants in the license enabling the Government or the Board, as the
E case may be, to exercise the option to purchase did not amount to a
compulsory acquisition of the undertaking, and that the provisions of
the Amending Act, 1976, which had the effect of bringing down the -
purchase-price payabk under a mutual agreement, could not be
justified on any nexus with or for the effectuation of the objects of
Art. 39(b). __.,
F
The point for consideration was whether Indian Electricity .'< ·
(Maharashtra Amendment) Act, 1976, which statutorily modified the
principles for the determination of the purchase price for the undertak-
ing from the principle of market value contained in the unamended
s. 7 A of 1910 Act to the concept of" Amount" equal to the depreciated
G book-value of the assets under s. 7A as amended the Amending Act of
1976, could be said to be a law enacted for the acquisition of the under-
...
taking with a reasonable and direct nexus with the object of Art. 39(b)
of the Constitution and, therefore, had the protection of Art. 31-C.

Allowing the appeals preferred by the appellants-Maharashtra
H State Electricity Board and dismissing the cross :appeal of the
ELECTRICITY BOARD v. ELEC. SUPPLY CO. 521

4' respondent-Company, this Cpurt, A
HELD: The provisions of the Amending Act of 1976 have a direct
and substantial relationship with the objects of Art. 39(b) and,
therefore, are entitled to the protection of Art. 31-C. Therefore,
all challenge to the law on the ground of violation of Articles 14, 19
and 31 must necessarily fail. That apart, there is no merit in the
grievance that service-lines had been omitted from computation of
the amount. Similarly, there is no merit in the contention that the
value of the "goodwill" has been omitted from computation of the
amount. [542D-F]

The nexus between the law and the objects of Art. 39(b) could be
shown imlepeiidently of an express declaration by the legislature In the c
law that it was enacted for giving effect to the directive principles of
State Policy contained in Art. 39(b).-'.rhe absence of evidence of nexus,
in the form of such an express declaration, was not by itself evidence of
absence of such nexus. [534F-G]
D
State of Maharashtra v. Basantibai, A.LR. 1986 SC 1466 at 1475
and Fazilka Electric Supply Co. Ltd. v. The Commissioner of Income
Tax, Delhi 1962 Supp. 3 S.C.R. 496, referred·to.

The business of an electricity supply undertaking, a public utility
service, in pursuance of a license granted under the Electricity Act, .E
1910 is comprehensively controlled by the terms of that Statute. The
- terms on which a franchi~e is created and conferred are amenable to
unilateral modification by Statute, and include the term pertaining to
the quantification of the price payable for the take-over. The proposi-
+- lion that the right to the _payment of the price gets crystallised into a
'chose-in-action' independently of or even before the actual transfer of F
'j... ownership of the undertaking, cannot be accepted. [539C-D I

Fazilka Electric Supply Company's case, [1962] Supp. 3 S.C.R.
496 and Gujarat Electricity .Board v. Girdharilal Motilal, [1969] l
S.C.R. 589, referred to.
G
Even if the provisions of the Electricity Act, 1910 are held and
understood to provide for take over by the State. of a privately owned
undertaking only by the adoption of the expedient of a consensual sale, '
that circumstance, by itself, would not be __decisive of whether the
amending Act of 1976 had. no direct and reasonable nexus with the
objects of Art 39(b). [539F] H
522 SUPREME COURT REPORTS [1989] 2 S.C.R.

The effect of the relevant provisions of the 1910 Act, as amended
A
by the amending Act of 1976, is the transfer of the ownership and
control of material resources of the community for purposes of ensuring
that they are so distributed as best to subserve the common good. In
effect, the provisions bring about nationalisation in the larger sense of
that term. The Amending Act of 1976 sought to limit the economic
B burden of this reform. [S40C-D I

The expression "nationalisation" means 'the acquisition and con- A
trol of privately owned business by Government.' [5400-E]

The idea of nationalisation of a material resource of the commun-
ity cannot be divorced from the idea of distribution of that resource in
c the community in a manner which advanced common-good. [S40G I

No doubt, the protection of Art. 31-C is accorded only to those
provisions which are basically and essentially necessary for giving effect
to the objects of Art. 39(b). l540HJ
D
But, the High Court, was in error in taking the view that, while
the provision for the take-over in the Principal Act might amount to
a power to acquire, the objects the Amending Act of 1976, which
merely sought to beat down the price, could not be said to be part of -4-
that power and was, therefore, incapable of establishing any nexus with
E Art. 39(b). [541A-B]

The amending Act of 1976, renders the cost of this economic-
reform brought about with the objects of Art. 39(b) in view an afford-
able one in terms of money. This can not be held to have no direct or
-
reasonable nexus with the objects of Act. 39(b)? When a legislative
F enactment is challenged as not conforming to the constitutional
mandate the judicial branch of the Government has only one duty-to
lay the Article of the Constitution which is invoked beside the Statute
which is challenged and to decide whether the latter squares with the
former. [54 lB-C I

G The community's economic burden for social and economic
reforms is an integral part of the exercise involved in social
and economic change in the ushering in of an egalitarian and eclectic
social and economic order in tune with the ethos of the Constitution.
The cost in terms of monetary expenditure of economic change is
a factor integrated with the objects of Art. 39(b). The Court must,
H on matters of economic policy, defer to legislative judgment as con-
ELECTRICITY BOARD v. ELEC. SUPPLY CO. [VENKATACHALIAH, J.] 523

ditioned by time and circumstances. The wisdom of social change, is,
dependant, in some degree, upon trial and error, on the felt ueeds of the A
time. [S42A-C]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4113
of 1985 etc. etc.
.B
From the Judgment and Order dated 20.7.1984 of the Bombay
High Court in Misc. Petition No. 1115 of 1977.

- T.R. Andhyarujina, S.B. Bhasme, R.A. Dada, V.S. Desai,
A.K. Sen, M.L. Dhamuka, M.A. Firoz, A.S. Bhasme, A.M.
Khanwilkar, Harish Salve, R.F. Nariman, J.B. Dadachanji, Mrs.
A.K. Verma, Joel Pares, B.H. Vani, D.N. Misra, Arnn Madan and C
Miss A. Subhashini for the appearing parties.

The Judgment of the Court was delivered by

VENKATACHALIAH, J. These appeals, the first two by the D
State Electricity Board of Maharashtra, by certificate, and the State of
Maharashtra, by special leave, arise out of and are directed against the
same judgment dated 20.7.1984, of the High Court of Judicature at
Bombay made in proceedings under Article 226 of the Constitution in
Misc. Petn. No. 1115 of 1975. The writ-petition before the High Court
was filed by the respondent-The Thana Electricity Supply Company E

- Limited-('company' for short) challenging the constitutional validity
of Sections 4, 5 and 6 of the Indian Electricity (Maharashtra Amend-
ment) Act, 1976, (Maharashtra Act No. XLIV of 1976) ("Amending
Act of 1976", for short) and Sec. 2 of the Indian Electricity
(Maharashtra Amendment and Validation) Act, 1974. Respondent-
Company by its CMP No. 40944 of 1984 (CA No. 243 of 1985) sought F
certain reliefs which had been disallowed by the High Court. That
CMP was treated as a petition for grant of Special Leave and Special
Leave was granted on 11.1.1985. That is how CA 243 of 1985 has come
to be registered.

2. The compass of the controversy before the High Court could G
broadly be indicated.

The "company" became entitled, by transfer, to the benefit and
privileges of the "Thana Electricity Licence 1927" granted on
14.9.1927 by the then-Government of Bombay under the Indian
Electricity Act, 1910, for supply and distribution of electricity in the H
524 SUPREME COURT REPORTS [1989] 2 S.C.R.

A areas covered by the license. The grant was originally in favour of a
firm of partners under the name and style 'Messrs P. Patel & Co.' On
16.2.1928, respondent-Company was formed as a Private Limited
Company with the object of taking over the license from the said firm
Messrs P. Patel & Co. Government, by its order dated 11.6.1928,
consented to the transfer of the license to the said Private Limited
B Company. On 15.1.1965, the Private Limited Company became a
Public Limited Company.

The license was to expire, by efflux of time on the 21st day of
September,. 1977. Clause 11 of the license envisaged the option to the
Government, usual to such grants, to purchase the undertaking on the
C expiration of the period of the license. The Bill for the Amending Act,
-
1976, was introduced in the Legislature on 13. 7.1976. The State
Electricity Board, by notice dated 26th of August 1976 served on the
company, exercised its option to purchase the undertaking on the
expiry of the period of the license and accordingly, required the com-
pany to sell and deliver the undertaking to the Appellant-Board on the
D mid-night between 21st and 22nd day of September, 1977. The provi-
sions of the Electricity Act 1910, as they stood on the day the option
was exercised, would entitle the Company to be paid the "Market-
Value" of the undertaking.

However on 20.9.1976, the Amending Act 1976, pursuant to the
E Bill introduced on 13.7.1976 became law. The Act received the assent
of the President on 2nd September, 1976, and came into force with
effect from 20th September, 1976, within a month of the option to
purchase contained in the notice dated 26.8.1976. By this Amending
Act of 1976 the principle of "Market-Value" in the relevant provisions
-
of the 1910 Act was substituted by the concept of an "Amount" legis-
F latively fixed as a. sum equal to the depreciated Book-Value of the
assets of the "undertaking" to be taken over. The Amended provi-
sions were to govern cases where, as here, notices had been issued
prior to the amendment. The Company and its shareholders challen-
ged the Amending Act of 1976 as violative of Articles 14, 19(1)(f) &
(g) and 31 of the Constitution. The Appellants-State of Maharashtra
G and the State Electricity Board-claimed the protection of Article
31-C to the Amending Act of 1976 and the consequent immunity from
attack on the ground of violation of Articles 14, 19 and 31.

3. While the High· Court rejected the appellants' claim that the
impugned Law had the protection of Article 31-C, it did not also
H accept the contention of the company as to the constitutional infirmity
ELECTRICITY BOARD v. ELEC. SUPPLY CO. [VENKATACHALIAH, J.] 525

attributed to Section 2 of the 1974 Act and Sections 5 and 6 of the
Amending Act of 1976; but the High Court declared that Section 11 A

- of the Amending Act of 1976 was violative of Article 19(1)(f) and
Article 14.

The High Court rejected the contention of the 'Company' that
upon the service of the Notice exercising the option to purchase, the B
company's right to be paid the' market,.value', under the law as it then
stood, was crystallised into an "actionable claim" or a 'chose-in-
action' and that what was sought to be acquired was not the 'under-
taking' itself but a "chose-in-action". While the State and Electricity
Board assail the correctness of the view of the High Court that Section
4 of the Amending Act of 1976 was bad, the Company, in its appeal
No. CA 243of1985 has questioned the correctness of the Judgment on C
the points held against it.

4. The company filed the writ-petition in the High Court on
1.9.1977. On 21.9.1977 the High Court by its interlocutory-order
permitted the take-over of the Hndertaking subject to the Board pay- D
ing tu the company Rupees four crores am,! five lakhs. The Board paid
and took possession on 21/22 September, 1977. On 11.1.1985, in the
appeals of the State and Board, this Court ordered a further payment
of Rupees one crore and sixteen lakhs to the company.

5. We must, here, advert to three legislative events touching the E

- provisions of the 1910 Act in relation to its application to the State of
Maharashtra.

On 27 .10.1974, the Governor of Maharashtra promulgated
Ordinance No. 18 of 1974, which was later replaced by the Indian
Electricity (Maharashtra Amendment and Validation) Act No. LXIII F
. '{_ of 1974. By that Act, inter-alia, Section (1-AA) was inserted in Sec. 3
!
of 1910 Act, which was deemed always to have been inserted, to the
effect to that licence granted shall be published in the Govemment-
Gazette and that, as stipulated in Section 3(2)(cc), the licence shall
commence on the date on which such licence was published in the
Gazette. The 1974 amending Act also substituted Sub-section (6) and G
amended sub-section (7) of Sec. 6 of the 1910 Act. The substituted
Sub-Sec. (6) provided that where notice exercising the option to
purchase had been served, the licensee shall deliver the undertaking
pending determination and payment of the purchase price and in-
terest. This was, apparently, intended to over-come certain judicial
observations touching the legalities of a take-over without the tender H
526 SUPREME COURT REPORTS [1989] 2 S.C.R.
j.. ; ~ ..f,
of the price. The amended Sub-section (7) restricted the interest to
A.
"the Reserve Bank of India rate ruling at the time of the delivery of
the undertaking plus one per centum from the date of delivery of the
undertaking to the date of payment of the purchase price."

The Amending Act of 1976 was, indeed, more far reaching and
B brought about certain fundamental changes in the basis of the payment ---1-
for the take over. The idea of "market value" was done away with and
was substituted by the concept of an 'Amount' which was to be limited
to the 'depreciated book value'. The ~tatement of objects and reasons ""'·
accompanying the Amending Bill sets out its main objects: -
"Section 7A of the Indian Electricity Act, 1910, provides
c for determination of purchase price where any undertaking
of a licensee is sold under sub-section (1) of section 5 or
-t
purchased under section 6 of the Act. The basis for
determining such price is the market value of the under-
taking at the time of purchase or at the time of delivery of
D the undertaking. Having regard to the present trend of
rising prices, the market value of an undertaking would be
much higher than the original purchase price. In such an
event, the purchaser will be required to incur very heavy
expenditure for payment of the purchase price or payment 4'..
'
of compensation in accordance with the existing provisions
E of the Act and will involve the purchaser in heavy financial
commitments. In the interest of the consumer and social
justice, therefore, it is necessary to amend the Act suitably
to provide for payment of an amount equal to the depre-
-
ciated book value of the undertaking either in cash or in
annual instalments. A·
F
The BHI is intended to achieve these objects." ~~.

By the Amending Act of 1976 sub-sec. (2) of sec. 5 of 1910 Act
was substituted. The Sub-sec. (2), as substituted, reads:

G "(2) Where an undertaking is sold under sub-section (1), -~
the purchaser shall pay to the licensee for the undertaking
an amount determined in accordance with the provisions of
sub-sections ( 1) and (2) of section 7A";

In Sub-sec. (3) and Proviso to Section 5 and Section 6 of 1910 Act, the
H words "payment of market-value" were substituted by the words
ELECTRICITY BOARD v. ELEC. SUPPLY CO. [VENKATACHALIAH, J. I 527
Ji: "payment of the amount for the undertaking". Sub-sec. (7) of Sec. 6
A
was substituted. The substituted sub-section provided:

"(7) Where an undertaking is purchased under this
Section, the p\lrchaser shall pay t\> the licensee the amount
determined in accordance with the provisions of Section
-r 7A and interest at the Reserve Bank of India rate ruling at
the time of delivery of the undertaking plus one per centum
B

'~ on the amount payable for the undertaking for the period
from the date of delivery of the undertaking to the date of
- payment of such amount."

Sub-sections (1) and (2) of the new Section 7A of Act said:
c
T
"7A(l) where an undertaking of a licensee is sold under
sub-section (1) of section 5 or purchased under section 6,
the amount payable for the undertaking shall be the book
value of the undertaking at the time of delivery of the
undertaking. D

(2) The book-value of an undertaking for the pur-
poses of sub-section ( 1) shall be deemed to be the de pre-
,;i,. dated book-value as shown in the accounts rendered by the
licensee in accordance with the provisions of section 11 of
all lands, buildings, works, materials and plant of the E
licensee, suitable to, and used for him, for the purpose of
the undertaking other than-

(i) a generating station declared by the licensee not
f. to form part of the undertaking for the purpose of pur-
chase; and F
t- (ii) the service lines or other capital works or any
part thereof, which have been constructed at the expense
of the consumers,-but 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 undertaking or
of any similar consideration.''
G

Sub-sec. (3) the new Sec. 7A envisaged payment of a solatium of ten
per cent of the "book-value" as determined under sub-sec. (1) and (2)
of new Sec. 7A overriding "any stipulation contained in any licence,
instrument, order, or agreement or any law for the time being in force H
528 SUPREME COURT REPORTS [1989] 2 S.C.R.
·'f.
for payment of any additional sum, by whatever name it was called."
A
•
Similarly sub-sec. (4) of the new Sec. 7A sought to give an over-
riding effect to the provisions of the new Sec. 7A and provided that no
provisions of any Act for the time being in force including "the other
provisions of this Act or any rule made thereunder or any licence"
B shall have effect in so far as they are inconsistent with sec. 7A. New
Section 7A(5) enabled the payment of the amount either in lump-sum I
--+
or in instalments, together with the rate of interest stipulated in ?\
Section 6(7) as amended.

Section 5 of the Amending Act, 1976, provided:
-
c "The provisions of section 5, 6 and 7A of the Princi- --t··
pal Act as amended by this Act, shall have effect in relation
to all the licensees in respect of their undertakings, includ-
ing any licensee on whom a notice requiring him to sell the
undertaking has been issued under sub-section (1) of
D section 5, or on whom a notice exercising the option of
purchasing the undertaking has been served under sub-
section (1) of section 6 of the Principal Act before the
commencement of the Indian Electricity IMaharashtra
Amendment) Act, 1976, and the purchase price in respect +
of whose undertaking was not determined before such
E commencement."
(Emphasis Supplied)

Another legislative development was the amending Act, 1981,
-
which occurred during the pendency of the writ petition before the
High Court. The amendment provided that where the amount was _,),
F payable in instalments the interest would be payable from the date of
the delivery of the undertaking to the date of payment of the last '
·--1'
instalment.

6. The effect of the Amending Act of 1976, in substance, was
that the concept of "Market-Value" was substituted by the concept of
G an "amount", which was the book value of the undertaking at the time --'.\-
of its delivery. The "book-value" was deemed to be the "depreciated
book-value" as shown in the accounts rendered by the licensee in
accordance with section 11 of the 1910 Act, of all lands, buildings,
works, materials, plants, etc. The licensee was given a solatium of ten
per cent of such book value. The provisions of the Amending Act of
H 1976 were made applicable to all licensees including a licensee upon
ELECfRJCITYBOARD v. ELEC. SUPPLY CO. [VENKATACHALIAH, J.] 529
-t
whom a notice requiring him to sell the undertaking had been served
A
prior to coming into force of the Amending Act of 1976, but the
purchase price had not been determined before the Amendment of the
Act. The up-shot of the Amending Act of 1976 was that the entitle-
ment of the company for payment for its "undertaking", respecting
which the notice exercising the Board's option to purchase had been
t·· served on 26.8.1976, i.e. prior to the date of coming into force of the B
Amending Act, 1976, also came to be governed by the provisions of
A- the Amending Act, 1976. While on the basis of the provisions as they
then stood the respondent-company was entitled to the payment of the
- "market-value" as determinable under these provisions, now, by
virtue of the Amending Act, of 1976, the respondent-company became
entitled to the payment of an "amount" which was equal to and
represented the "depreciated book value" of all the lands, buildings, c
-+ works etc., instead of the "Market-Value".

7. As stated earlier, the principal controversy before the High-
Court was whether the provisions of the Amendment Act, 1976, which
scaled down, quite drastically, the measure of the recompense for the D
taking-over of the company's undertaking, were violative of Articles
14, 19(1)(f) and (g), and 31 of the Constitution of India, as contended
by. the company, or whether the Amending Act of 1976 had the protec-
-:i: tion of and attracted the provisions of Article 31-C of the Constitution,
rendering the Jaw immune from assailment on the ground of violation

- ,
of fundamental rights. The contentions of the parties would require to
be examined as the provisions of Articles 19(1)(f) and 31 stood at the
relevant time. Articles 19(1)(f) and 31 were deleted later; but that
does not affect the constitutional position with reference to which the
present cases would require to be decided.
E

~-

Some aspects of the contentions bearing on the inter-relation F
·A- between a law of the kind we are concerned with andArticle31-C have
been considered in our judgment in the compani_on matters arising out
of the Assam Legislation in W.P. Nos. 457 and 458 of 1972 rendered
separately today.

-1- The High Court was persuaded to the view that the absence of a G
legislative declaration in the Amending Act of 1976 itself was decisive
against the acceptability of the State's contention that the Jaw was one
for giving effect to the objects of Article 39(b) and (c). The High Court
observed:

"A Division Bench of this court (to which one of us, Rege H
530 SUPREME COURT REPORTS [1989] 2 S.C.R.

J., was a party) has held (in writ petition No. 2401of1983,
A
The Elphinstone Spinning and Weaving Mills Company
Ltd. v. The Union of India) that to bring an enactment
within the protection of Article 31 C so as to bar a challenKe
to it on the ground of infringement of Articles 14 or 19, it
was necessary that the enactment should contain a declara-
B tion manifesting the intention of Parliament or a State Legis-
lature to give effect by that enactment to the directive princi-
ples in Article 39(b) or (c). This could be done either by
specific reference to Article 39(b) or (c) in the enastment
or by incorporating in it the wording of Article 39(b) or (c).
The Amending Act of 1976 does not contain a declaration,
•.
manifesting the State Legislature's intention to give effect
c thereby to the directive principles contained in Article 39
(b) or (c). Having regard to this, counsel for the respon-
dents have not pressed before us the argument based on
Article 31 C but have reserved it, should it be necessary,
for the Supreme Court."
D (Emphasis Supplied)

On this premise, the High Court did not enter into the question
whether the Amending Act of 1976 was really one for giving effect to
the policy in Article 39(b) and (c). With the protection of Article 31C
to the legislation so held unavailable; the High Court proceeded to
E consider whether the provisions of the impugned law including those
that gave power to Government to postpone payment by instalments
and those that limited the rate of interest etc. violated the
fundamental-rights under Articles 14 and 19. Rejecting the contention
-
of the appellants that with the payment of Rs.4,05,00,000, under the
order of the Court, the grievance of the company about the arbitrari-
F ness of the provisions giving power to the Government to decide either
or pay the amount in lump-sum or in instalments, becoming purely
academic, the High Court said:

"It is crystal clear from the orders of the learned Judge that
the payment of Rs.4,05,00,000 was made by the Board to
G the company pursuant to these orders and as a condition of
being allowed to take possession of the company's under,
taking. The company is, therefore, entitled to urge that the
provisions delaying payment of the purchase price and
enabling it to be paid by instalments are unreasonable and
unconstitutional."
H
ELECTRICITY BOARD v. ELEC. SUPPLY CO. [VENKATACHALIAH, J.l 531

8. In the view of the High Court the State Electricity Board, as a
matter of its declared policy, was purchasing the private electricity A
undertakings as and when their licenses expired and that the reduction
in.the measure of payment, sought to be achieved by the Amending
Act of 1976 was violative of Article 19(1)(f). The High Court held:

" . . . . . . . . Electricity undertakings were compul- B
sorily purchased upon payment of their market value until
1976, when the Amending Act of 1976 was mooted. There is
no explanation in the affidavit made on behalf of the respon-
dents as to what it was that made it imperative in the public
interest at that point of time to reduce the purchase price
from market value to depreciated book value. There is no
statement in the affidavits that upon the basis of market c
value _the Board could no longer have effected compulsory
purchase ...... "
(emphasis supplied)

" ....... The obligation to pay market value did not D
deter the State from adopting this po)icy. The affidav :ts on
behalf of the respondents do not aver that after compulsory
purchases in the past the electricity tariff had to be raised;
all that they state is that the expenditure incurred on com-
pulsory purchases had to be taken into account .... "

-
E
" ........ Considering all these factors, the objects
and reasons for the Amending Act of 1976 could only be
thus to reduce the Board's liability on compulsory pur-
chase. Legislation enacted to reduce the State's liability or
augment the State's funds as its only purpose infringes the
fundamental right given by Article 19(1)(f). We have p
·I._ already cited the cases that so hold."
I .

It is to be recalled that the Statement of Objects and Reasons and
the Financial Statement appended to the Bill set-out these considerations
compelling the State to cut-down the compensation. But according to
t!te High Court, the absence of their reiteration in the affidavits would G
assume materiality.

9. The High Court, in substance, also held that the State could
not unilaterally reduce, even by legislation, its liability to pay the
purchase price under a consensual transaction and that such an
attempt would be violative of Article 19(1)(f). We may set out the H
532 SUPREME COURT REPORTS [1989] 2 S.C.R.
-j-
reasoning of the High Court where the inference drawn on the premise
A
appears a non-sequitur:

" ....... Though the purchase is compulsory, though
the terms of the contract are amendable by legislation,
though the electricity franchise and its returns are control-
B led by legislation and though the purchase deals with a
material resource, control over which is a directive princi- i-·
pie, the State as the purchaser under a contrac~ cannot be ~
countenanced to act unilaterally to drastically reduce its
liability in regard to the purchase price. Such a reduction is •
not reasonable, not in the public interest and infringes the
fundamental right under Article 19(1)(f).
c (Emphasis Supplied) ..,
Upholding the company's contention that the reduction in the
quantum of ,the payment brought about by the Amending Act of 1976
violated Article 19( l)(g), the High Court said:
D
"The reduction in the purchase price cannot but have
a direct and proximate effect on the licensee's right to carry
on the business of electricity supply while the licence was
current. Upon compulsory purcha'se of his undertaking the -+-
licensed would do or want fo do other business. The deple-
E tion in his capital of so considerable a nature as that caused
by the reduction of the purchase price of his undertaking
from market value to depreciated book value cannot but
hinder him in doing so. There would, therefore, also be a
transgression of the guarantee of Article 19( l)(g)."
-
_.,'
F Further, the conferment on Government of the power to fix
instalments was held to be "grossly unreasonable and· arbitrary and )<
violative of Article 19(1)(f) and (g) and Article .14~. The provision for
payment of interest at the Reserve Bank rate plus one percent, accord-
ing to the High Court, made "more unreasonable the provisions of the
Amending Act, 1976" and that "A rate approximating, if not equal, to
G the higher commercial rate of interest would have been more
appropriate."
,:,.-
10. The High Court, however, rejected the company's conten-
tion that its right to payment of 'marke.t•vah1e' became crystallised
upon the service on it of the notice exercising the Board's option to
J-1 purchase the undertaking and thai what was sought to be acquired was
ELECTRICITY BOARD dO:LEC. SUPPLY CO. [VENKATACHALIAH, J.] 533
~--
a mere 'chose-in-action' and not the undertaking itself. High Court A
also rejected the contention that the law was bad for excluding the
'service-lines' from the computation of the 'amount'. The correctness
of these rejections is challenged in the company's cross-appeal i.e.
C.A. No. 243 of 1985.

11. We have heard Shri Andhyarujina, learned Senior Advo- B
cate for the State of Maharashtra and the State Electricity Board and
Shri A.K. Sen, learned Senior Advocate for the respondent-company.

The principal contention urged on behalf of the State and the
Electricity Board was that the High Court was in error in denying to
the impugned law the protection of Article 31-C. It was urged that the
High Court fell into a serious error in postulating that the absence of C
an express legislative declaration in"the law that the law was enacted
for giving effect to the principles of State Policy in Article 39(b) and
(c) was itself conclusive against the attraction of Article 31-C. It was
1.lrged that the presence of an express legislative declaration in that
behalf merely furnished evidence of a reasonable and direct nexus D
between the legislation and the objects of Article 39(b) and (c) but
such a declaration was, however, not by itself conclusive either way
and the court was entitled to go behind the facade of. the declaration
where tbere is one and scrutinise whether really there was such a direct
and reasonable nexus and that, as a corollary, it followed that the
absence of such an express declaration did not preclude the State from E
showing the existence of the requisite nexus. The ·impugned law, it
was contended, was one intended to give effect to the directive princi-
ples contained in Article 39(b) and was entitled to the protection of
Article 31-C.

Sri A.K. Sen for the licensee-company contended that any F
appeal to and reliance upon Article 31-C is wholly misplaced inasmuch
as the option to purchase the undertaking was in effectuation of a
purely consensual transaction and that the scheme of the Electricity
Act, 1910, and the covenants in the license enabling the Government
or the Board, as the case may be, to exercise the option to purchase
+ did not amount to a "compulsory" acquisition of ihe undertaking. It G
was urged that the impugned provisions of the Amending Act of 1976,
which had ihe. effect of bringing down the purchase-price payable
under a mutual agreement, could not be justified on any nexus with or
for the effectuation of the objects of Article 39(b).

The point that arises for consideration in these appeals, there- H.
fore, is whether: ·
534 SUPREME COURT REPORTS (1989] 2 S.C.R.

"the Maharashtra Act No. XLIV of 1976, which
A statutorily modifies the principles for the determination of
the purchase price for the undertaking-from the principle
of Market-value contained in the unamended Section 7A of
1910 Act to the concept of an 'amount' equal to the depre-
ciated book-value of the assets under Section 7A as
B amended by Maharashtra Act No. XLIV of 1976-could be
said to be a law enacted for the acquisition of the under-
taking with a reasonable and direct nexus with the object of
Article 39(b) of the Constitution and has, therefore, the
protection of Article 31-C?"

If the contention of the State and the Electricity Board prevails and is
c accepted, all other contentions which, in turn, rest on an alleged
infraction of Articles 14, 19(l)(f) and (g) and 31 do not survive. It is,
however, the contention of Shri Andhyaru jina that the question
whether the power given to the Government to postpone payment of
the price by fixing instahnents and statutory limitations on the rate of
p interest are violative of Article 19(l)(f) and (g) became purely
academic in the present case, as indeed, under the orders of the High
Court Rupees Four Crores and Five Lakhs had been paid even before
possession was taken and that a further sum of Rupees One Crore and
Sixteen Lakhs was paid pursuant to the orders of this Court. Learned
counsel also submitted further that apart altogether from the protec-
E tion of Article 31-C, the Amending Act, of 1976 is justifiable as a
reasonable restriction on the freedom under Article 19(1)(f) and (g). ...
At the outset the misconception that an express legislative decla-
ration in the legislation is condition precedent to the attraction of
Article 31-C would, perhaps, require to be removed. The High Court, ---'
F we say so with respect, was under a clear misconception on the point
that an express incantation was necessary in the law itself. The nexus ~
between the law and the objects of Article 39(b) could be shown
independently of any such declaration by the legislature. The absence
of evidence of nexus, in the form of an express declaration, was not by
itself evidence of absence of such nexus. Indeed in State of Maha-
0 rashtra v. Basantibai, AIR 1986 SC 1466 at 1475 this court, while +
examining the correctness of the view of High Court that Article 31-C
was inapplicable in the absence of such a declaration in the very law
itself, observed:

" First, Art. 3 lC does not say that in an Act there
H should be a declaration by the appropriate legislature to
ELECTRICITYBOARDv. ELEC. SUPPLY CO. [VENKATACHAL!AH,J.] 535

the effect that it is being enacted to achieve the object
A
contained in Art. 39(b). In order to ascertain whether it is
protected by Art. 3 lC, the Court has to satisfy itself about
the character of the legislation by studying all parts of it.
The question whether an Act is intended to secure the
objects contained in Art. 39(b) or not does not depend
upon the declaration by the legislature but depends on its B
contents ...... "

12. We may now tum to the principal contention. Sri Sen, quite
understandably, places considerable reliance on the pronouncement of
this Court in Fazilka Electric Supply Co. Ltd v. .The Comml~sioner of
Income Tax, Delhi, [1962] Supp. (3) SCR 496 which was a decision in C
an income tax case in the context of the question whether the sale of
the electricity undertaking of the company as enabled by the relevant
Section of the 1910 Act could be regarded as a sale within the meaning
of Section 10(2)(vii) of the Income Tax, 1922, and the excess realisa-
tion over the. written down value of the Building, Machinery, Plant
etc. as did not exceed the difference between the original cost and D
the written-down value-a sum of 77, 700 in that case-was to be brought
to tax. The question arose whether the sale pursuant to the opt10n
under the 1910 Act. was a consensual sale in which case Section
10(2)(vii) stood attracted or whether it was a "compulsory acquisition"
or "compulsory-sale". The contention urged by counsel '\'as noticed
by this Court thus: E

- " .... He has argued that on a proper construction of the
provisions of the Electricity Act and the r~les made there-
under, the so-called sale in the present case ,was really a
compulsory acquisition of property and not a sale as legally
understood;" F
(Emphasis Supplied)
(p. 501)

This proposition was not accepted. This Court said:

" ..... If the whole scheme of the Electricity Act and the G
+ rules made thereunder, is kept.in mind, it becomes obvious
that notwithstanding the use of the expression "compulsory
purchase" in the second proviso to sub s.(1) of s. 7, there is
no compulsory purchase or compulsory acquisition in the
sense in which· that expression is ordinarily understood
" H
(p. SOS)
536 SUPREME COURT REPORTS [1989] 2 S.C.R.
..,.._
Placing strong reliance on these observations Sri Sen contended that
A
any proposition of a "compulsory-acquisition" with the cognate impli-
cation of the acquisition seeking to subserve the objects of.· Article
39(b) is alien to the present case which was one of a contractual sale.
Sri Sen also referred to Article 31(2A), as it then stood, which
provided:
B
"(2A) Where a law does not provide for the transfer of the --t
ownership or right to possession of any property to the
State or to any corporation owned or controlled by the
~
State, it shall not be deemed to provide for the compulsory
acquisition or requisitioning of property, notwithstanding
that it deprives any person of his property,"
-
c (Emphasis Supplied)
-T
to contend that where the transfe,r of ownership is not brought about
by the operation of law itself-but, as here, only by a consensual
transaction-there is no idea of a "compulsory-acquisition" in the
D situation which might, in tum, serve the objects of Article 39(b).

13. Sri Sen, also referred to Bihar State Electricity Board and Ors
v. Patna Electricity Supply Co. Ltd. & Anr., AIR 1982 Cal. 74. In that
.case, on 5.1.1973 the State Electricity Board exercised its option-to ~
purchase the licensee's undertaking on the expiry of 5th February
E 1974. On 2nd February 1974, Ordinance 50 of 1974 was promulgated
substituting Section 7A of the 1910 Act so as to reduce the concept of
"market-value" to one of Book-Value. The Ordinance was renewed
try Ordinance 83 of 1974 and the latter by Ordinance 123 of 1974. I
-
Possession of the undertaking was taken 5th/6th February 1974. On
15th January 1975 Bihar Act 15 of 1975 was enacted to replace the last ~
F of:the Ordinances. On 10th January, 1976, Bihar Act 7 of 1976 was
passed making its operation retrospective from 2nd February, 1974, --'\.
when the first Ordinance No. 50 of 1974 had been issued .

.The Division Bench of t)l.e High Court held that as the option to
purchase had been exercised prior to the issue of Ordinance 50 of
1974, the Licensee was entitled to the market-value under the
G
unamended Section 7A. The High Court in effect took the view that +
once the option was exercised and communicated, the option with all
the incidents that go with it including the stipulation as to the particu-
Jar price implicit in the option binds both the parties and that the right

H
to receive the purchase price was crystallised into a 'chose-in-action'.
The reasoning of the High Court is on these lines: "
ELECTRICITYBOARDv. ELEC. SUPPLY CO. [VENKATACHALIAH,J.] 537

" ..... At the time the option was exercised by the appel-
A
lant under s. 7-A of the Act, the respondent company was
entitled to the market value of the undertaking to be
deterro.ined in accordance with the provisions of sub-sec.
(2) of S. 7-A. There was, therefore, an implied contract
between the respondent company -and the appellant that
the appellant would pay to the responaent company the B
market price of the undertaking in the event it purchased
the undertaking. The option of purchase was exercised by
the appellant before the amendment of S. 6 and S. 7A of
- the Act the Bihar Ordinance 50 of 1974. The appellant is,
therefore, liable to pay to the respondent company the
market value of the undertaking in terms of the unamended
provision S. 7A ...... " c
..... In other words, when the option is exercised the
licensee is bound to sell and the concerned authority is
bound to purchase the undertaking. It is difficult to accept
the contention that this binding effect on either party will D
be without the fixation of the purchase price or the consi-
deration for the transaction. As soon as this stage is
reached after the exercise of option to purchase by the
service of a notice as mentioned in S. 6 of the Act, the
concerned authority has to purchase the undertaking on
payment of the market value of the undertaking to be E

- determined in accordance with the provision of S. 7A of the
Act ...... "

"The right to receive the market value of the under-
taking is a debt or a chose in action and is property within
the meaning of Art. 19( l)(f) and Art. 31(2) of the Constitu- F
tion ...... "

It was held in that case the amending-processes were violative
of the Licensees' fundamental rights under Article 31(2) of. the
Constitution.
G
14. What, in the ultimate analysis, underlies, and is indeed, the
emphasis in, Sri Sen's submission is the postulate that in the take-over
by Government of an "undertaking", there is no element of
"nationalisation" of the undertaking and consequently, no question of
effectuation of the objects of Article 39(b) arises. The arguments
addressed in the case are not without their interesting aspects as to H
538 SUPREME COURT REPORTS [1989] 2 S.C.R.

A what, in the last analysis, is and should be, the form a'ld content of a
law which seeks to serve the objects of Article 3~{b). In the decision o(
the Calcutta High Court relied upon by Sri Sen, no appeal was made
by the Electricity Board to the protection of Article 31-C. That apart,
the concept of the licensee's rights crystallising themselves into a
chose-in-action upon the exercise of the option that commended itself
B to the Calcutta High Court did not appeal to the Bombay High Court
in the judgment under appeal.

15. Sri Andhyarujina emphasised the essentially statutory
character of the business of the Electricity Supply Undertaking carried
on pursuant to the License granted under the 1910 Act, and that the
provisions of the said Act and the Electricity Supply Act, 1948, leave
c no doubt that the license and the operations thereunder are totally
controlled by statutory provisions. Section 57 of the latter Act requires -,.·
'
that the charges for consumption of Electricity levied on the consum,
ers shall be in accordance with the financial principles guiding the
matter prescribed in Schedule VI of that Act. That schedule limits the
D profits of the licensee and tells as to how they should be arrived at for
purposes of ensurif!g compliance with the provisions limiting the pro-
fits. Sri Andhyarujina also referred to the decision of this court. in
Gujarat Electricity Board v. Girdharilal Motilal and Anr., [1969] 1
SCR 589 at 592-93.:

E " ..... Iris a. mode of exercising the power conferred on the
State Electricity Board by the exercise of which the property
rights of the licensees can be affected. Section 6(1) confers
power on the State Electricity Board to take away the pro-
-
perty of the licensee. Such a power must be exercised
strictly in accordl)nce with law ..... "
F (Emphasis Supplied)

16 .. Sri Andhyarujina submitted that there was no dispute that
electricity supplied by even a private enterprise was 'material re-
sources of the community' for purposes of Article 39(b) and that the
legislative expedient by which the State seeks to achieve the objective
G of Article 39(b) that the ownership and control of that material re-
source is so distributed as best to subserve the common good, is merely
a matter of form than substance. If the State, instead of resorting to
this particular legislative expedient, had enacted a separate law for the
take-over with the same principles for the determination of the
'amount', that law, says learned counsel, would have been quite un-
H exceptionable from the point of view of its eligibility for protection
ELECTRICITY BOARD v. ELEC. SUPPLY CO. [VENKATACHALIAH, J.) 539
.~·
under Article 31-C. Learned counsel submitted that it should, i,n sub-
A
stance, make no difference if the same result is sought to be achieved
by a more simple legislative expedient of enacting a law, wiih Presi-
,_, dential assent, which, while unaffecting the take over under the 1910
Act, however, made the economic cost of implementing the object of
Article 39(b) less unaffordable by the State. Learned counsel says that
{'" Jhe arguments in the case, accepted by the High Court, laid stress B
).., more on form than on substance of the legislation .
.;
•· 17. The business of an electricity supply undertaking, a public
utility service, in ·pursuance of a license granted under the Electricity
Act, 1910, is comprehensively controlled by the terms of that Statute.
The terms on which a franchise is created and conferred are amenable
to unilateral modification by Statute. The t'!rms which are so amen- c
't able to unilatetal alteration to the. disadvantage of the licensee include
the term pertaining to the quantification of the price payable for the
take-over. It is difficult to accept the proposition that the right to the
payment of the price gets crystallised into a 'chose-in-action' indepen-
1!> dently of or even before the actual transfer of ownership of the under- D
( taking. In Fazilka Electric Supely Company's case [1962] 3 SCR 496 it
was, no doubt, held that the transfer of the ownership of the under-
taking was the result of consensual, bilateral activity. However, in
..+ Gujarat Electricity Board v. Girdharilal Moti/al, [1969] 1 SCR 589
referring to the relevant provisions of the 1910 Act it was held that
they conferred power on the State Electricity Board "to take away the E

- property of the licensee."

18. It appears to us that even if the provisions of the Electricity
Act, 1910, are held and understood to provide for take over by the
State of a privately owned undertaking only by the adoption of the
expedient of a consensual sale, that circumstance, by itself, would not F
be decisive of whether the amending Act of 1976 has no direct and
reasonable nexus with the objects of Article 39(b). The High Court,
itself referring to the object of the relevant provisions of the 1910 Act
enabling a take-over observed:

-+ "The Electricity Act, 1910, as .enacted contemplated
State Control over the material resources of electricity by
providing for compulsory purchase of electricity under-
G

takings."

But so far as the Amending Act was concerned the High Court.
~: H
540 SUPREME COURT REPORTS [1989) 2 S.C,R.
'
A
"This was already the objective of the parent Act. It ca11c ""'
not, therefore, be held to be the object of the Amending
Act of 1976." •
The reasoning of the High Court that the Amending Act, 1976.
which was incorporated into and became part of the principal Act,
B would have no such purpose, does not square with its own view of the
purpose of the principal Act. After having said that the relevant provi-
i
sions of the Amending Act did not share with the principal Act the ·,.\
objective of take-over of an 'undertaking' the High Court on a logical
corollary of that premise, held that the Amending Act had no nexus
with the object of Article 39(b).
c The effect of the relevant provisions of the 1910 Act, as amended
by the amending Act of 1976, is the transfer of the ownership and
-r
control of material resources of the community for purposes of ensur-
ing that they are so distributed as best to subserve the common good.
In effect, the provisions bring about nationalisation in the larger sense
D of that term. The Amending Act of 1976 sought to limit the economic
burden of this reform. 1
The expression "nationalisation" means 'the acquisition and
control of privately owned business by Government' (See Black's Law -+-
Dictionary, 5th Edn., p. 924). In 'A New English Dictionary on
E Historical Principles' by Murray, Vol. VI Page 32 the word 'nationali-
sation' is stated to connote:

"the acquisition and operation by a national govern-
ment of business enterprises formerly owned and operated
,..)._
-
by private individuals or corporations. Most. States have
F nationalised their postal and telegraphic systems, and many
have nationalised railways and other means of transpor-
tation. It ,is the policy of socialism to nationalize all
A\
productive industry."

The idea of nationalisation of a material resource of the commu- ·
G nity cannot be divorced from the idea of distribution of that resource
in the community in a manner which advanced common-good. The +
cognate and sequential question would be whether the provisions of
the amending Act, 1976, had a reasonable and direct nexus with the
objects of Article 39(b). It is true, the protection of Article 31-C is
accorded only to those provisions which are basically and essentially
H necessary for giving effect to the objects of Article 39(b). The High
ELECTRICITY BOARD v•. ELEC. SUPPLY CO. [VENKATACHALIAH, J.) 541

Court, from the trend of its reasoning in the Judgment, appears to take
A
to the view that while the provision for the take-over in the Principal
Act might amount to a power to acquire, however, the objects the
Amending Act of 1976, which merely sought to beat down the price
could not be said to be part of that power and was, therefore; incap-
able of establishing any nexus with Article 39(b). There is, we say so
with respect, a fallacy in this reasoning. B

~. The amending Act of 1976, renders the cost of this economic- ·
reforms brought about with the objects of Article 39(b) in view an
affordable one in terms of mo;iey. Can this be held to have no direct or
reasonable nexus with the objects of Article 39(b )? When a legislative
enactment is challenged as not conforming to the constitutional man-
y·· date "the judicial branch of the Government'' it is said "has only one c
duty-to lay the article of the Constitution which is invoked beside the
Statute which is challenged and to decide whether the latter squares
with the former". (See: United States v. Butler, 297 U.S. 1.)

In the financial memorandum appended to the Amending Act of o
1976.it is, inter alia, stated:

" ..... So far as Maharashtra State is concerned, it is
a matter of policy that Maharashtra State Electricity Board
is purchasing private Electricity Undertakings as and when
their licences expire. This policy will be continued and the E

- Board will take over private undertakings hereafter also as
and when their licence periods expire.

Under Section 7A of the Indian Electricity Act, on
revocation of the licence as well as on the purchase of the
undertaking, the Board or the State Government as the F
case may be has to pay compensation or purchase price at
the market value of the· undertaking. In the normal course
this market value will be very high. Under the amended
Act, the Board or the State Government will be required to
pay as compensation or purchase price the depreciated
+ book-value of the undertaking. This will be less than the
compensation or purchase price to be paid under the pre-
G

sent Act.

Since purchase of an electrical undertaking by the
State Government would be a rare possibility the extent of
expenditure to Government involved can not be foretold H
with any amount of accuracy."
542 SUPREME COURT REPORTS [1989] 2 S.C.R.
·-}-
A 19. The community's economic burden for social and economic
reform is an integral part of· the exercise involved in social and
economic change in the ushering in of an egalitilrian and eclectic social
and economic order in tune with the ethos of the Constitution. The
cost-in terms of monetary expenditure-of economic change is a
B factor integrated with the objects of Article 39(b ). The Court must, on
matters of economic policy, defer to legislative judgment as con di· °'j.
tioned by time and circumstances. The wisdom of social change is,~
dependant, in some degree, upon trial and error, on the felt needs of
the time.

A similar ®ntention was urged in Writ Petition Nos. 457 and 458
c of 1972. We have discussed at para 16 of that judgment the inevitability
'of integrating the costs of social and economic reform-,-in terms of -Y
monetary burden on the State-with the effectuation of the directive
principles.

D 20. We accordingly hold that the provisions of Amending Act of
1976 have a direct and substantial relationship with the objects 'of
Article 39(b) and, therefore, are entitled to the protection of Article
39-C. If the impugned law has such protection, as we indeed hold that
it has, all challenges to it on the ground of violation of Articles 14, 19 -J...
and 31 must necessarily fail. That apart, even on the merits, many of
the contentions are insubstantial. For instance, the grievance that
E
"service-lines" had been omitted from computation of the amount
is witliout merit. That again has been dealt with in para 29 of the
Judgment in Writ Petition Nos. 457 and 458 of 1972. Insubstantial,
likewise, is the oontention that the value of the "goodwill" has been
-
omitted from computation of the amount.
F
21. So far as the company's cross appeal in CA 243 of 1985 in
which the company assails the correctness of the judgment of the High~,
Court to the extent it has gone against the company is concerned, we
approve the reasons of the High Court in coming to such conclusions as
it did on those aspects. Some of those aspects have, again, been dealt
with in our judgments in WP Nos. 457 and 458 of 1972 and Writ
Petition Nos, 5, 14 and 15 of 1974. +
22. In the result, for the foregoing reasons, Civil Appeal
Nos. 4113 of 1985 all!I 344 of 1985 are allowed, the Judgment dated
20. 7 .1984 of the High Court under appeal in so far as it has declared
H certain provisions of the Amending Act, 1976, unconstitutional is set
ELECTRICI1YBOARD v. ELEC. SUPPLYCO. (VENKATACHALIAH,J.) 543

...+- aside, and the civil petition No. 1115 of 1977 before the High Court A
dismissed. C.A. No. 243of1985 preferred by the company fails and is
dismissed. In the circumstances of the cases, we leave the parties
to bear and pay their own costs, both here and below. Ordered
accordingly.

S.K.A. Appeals allowed. B

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