The Rajahmundry Electric Supply Corporation Ltd. vs The State of Andhra

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 72 of 1952

Decision Date: 10 February 1954

Coram: Mehar Chand Mahajan, B.K. Mukherjea, Vivian Bose, Ghulam Hasan

In the case titled The Rajahmundry Electric Supply Corporation Ltd. versus The State of Andhra, the Supreme Court of India issued its judgment on 10 February 1954. The bench that heard the matter consisted of Justices Mehar Chand Mahajan, B.K. Mukherjea, Vivian Bose and Ghulam Hasan. The petitioner was the Rajahmundry Electric Supply Corporation Limited and the respondent was the State of Andhra. The decision was reported in the All India Reporter at page 251 of the 1954 volume and also in the Supreme Court Reports at page 779 of the same year. Subsequent citations of the decision appear in later reports, including the 1962, 1968, 1970, 1977, 1980 and 1980 reports of the Supreme Court. The central issue concerned the validity of the Madras Electricity Supply Undertakings (Acquisition) Act, identified as Madras Act XLIII of 1949. The headnote explains that the Act was beyond the legislative competence of the Madras Legislature because the Seventh Schedule of the Government of India Act 1935 contained no entry in any of its three lists permitting compulsory acquisition of a commercial or industrial undertaking, despite section 299(2) of that Act authorising such acquisition for public purposes. The judgment referred to the earlier decision of the State of Bihar v. Maharajadhiraja Sir Kameshwar Singh, reported in the 1952 Supreme Court Reports at page 889, to illustrate the principle applied.

The appeal, recorded as Civil Appeal No. 72 of 1952, was filed under articles 132(1) and 133(1)(b) of the Constitution of India against the judgment and order dated 27 April 1951 of the Madras High Court, which had been delivered by Chief Justice Rajamannar and Justice Satyanarayana Rao in Civil Miscellaneous Petition No. 4697 of 1951. Counsel for the appellant appeared as the representative of the corporation, while counsel for the respondent represented the State. The Advocate-General of Madras, together with two additional counsel, appeared on behalf of the intervenor, identified as the State of Madras. The Supreme Court’s opinion was delivered by Justice Das. The appeal arose from the High Court’s order that had been sought to be set aside through a writ petition filed under article 226 of the Constitution, requesting a writ of certiorari or any other appropriate writ to obtain the records and to quash the government order made under section 4(1) of the Madras Act XLIII of 1949, which declared that the corporation’s undertaking should vest in the Government. The corporation had been incorporated under the Companies Act of 1924 with the purpose of generating and supplying electrical energy to the public in Rajahmundry. In 1949 the Madras Legislature enacted the Electricity Supply Undertakings (Acquisition) Act. The Governor-General gave assent on 18 January 1950 and the Act was published in the Official Gazette on 24 January 1950. When the Constitution of India came into force on 26 January 1950, the Act was forwarded to the President for certification.

In this case, the President issued a certification on 12 April 1950 stating that the Madras Electricity Supply Undertakings (Acquisition) Act could not be challenged in any court because it violated clause (2) of article 31 and sub-section (2) of section 299 of the Government of India Act, 1935. Subsequently, on 2 September 1950, the Government of Madras, exercising the authority granted by section 4(1) of that Act, issued a written order declaring that the undertaking of the appellant company should vest in the Government on the date specified in the order. The proviso to section 4(1) permitted the Government to postpone the vesting date, and the final extension fixed the vesting for 2 April 1951. On 29 March 1951, the appellant company filed Civil Miscellaneous Petition No. 4697 of 1951 under article 226 of the Constitution, seeking a writ of certiorari to set aside the Government’s order.

The appellant’s contentions before the Madras High Court were threefold: first, that the Act was ultra vires because the Madras Legislature lacked the constitutional competence to enact it; second, that the Act was not enacted for any public purpose; and third, that the compensation provided under the Act was illusory. The High Court rejected each of these contentions. It held that the subject matter of the Act fell within entry 31 of the Concurrent List in the Seventh Schedule of the Government of India Act, 1935, which deals with electricity, and not within entry 33 of List I, which deals with corporations. Consequently, the Court concluded that the Madras Legislature was competent to enact the legislation.

Further, the High Court observed that because the Act had obtained the President’s certificate, any challenge based on the alleged lack of public purpose or the illusory nature of compensation was barred and could not be raised. However, the Court did find that certain provisions of the Act and rule 19(2) of the Rules made under the Act were invalid, and on that basis it dismissed the appellant’s petition. The Court nevertheless granted the appellant leave to appeal to this Court.

At the present stage, counsel for the appellant has not renewed the arguments concerning the absence of public purpose or the illusory compensation; he has confined his submissions to the question of whether the Madras Legislature possessed the legislative competence to enact the Act. The earlier dispute in the High Court centered on whether the Act was a law concerning electricity under entry 31 of the Concurrent List or a law concerning corporations under entry 33 of List I. The High Court had decided that, in substance, the Act was a law concerning electricity and therefore fell within the legislative competence of the Provincial Legislature. In his arguments before us, counsel reiterated this position.

The appellant’s counsel argued that the legislation was, in its substance and effect, a law for acquiring an electrical undertaking and therefore exceeded the authority of the legislature. He advanced two specific grounds. First, he maintained that the acquisition of an electrical undertaking was not listed as a legislative matter in any of the three categories of the Seventh Schedule to the Government of India Act, 1935. Second, he contended that, insofar as the legislation dealt with the acquisition of a corporation’s electrical undertaking, it fell under the heading of corporations in entry 33 of List I. In the view of the Court, the appeal could be disposed of on the basis of the first ground alone, without needing to consider the second argument.

The Act in question bears the long title “An Act to make provision for the acquisition of undertakings in the Province of Madras supplying electricity.” Its preamble underscores the necessity of making provision for acquiring undertakings in the Province of Madras that are engaged in supplying electricity. Section 1 confers upon the Act its short title, defines its territorial extent, and stipulates its commencement date. Section 2 contains definitions of terms used throughout the legislation. Section 3 declares that the Act shall apply to all undertakings of licensees, expressly including certain specified undertakings. Under Section 4 the Government is empowered to take over any undertaking by issuing a written order that declares the undertaking shall vest in the Government on a date that the order specifies. Section 5 deals with compensation payable to a licensee who is not a local authority, offering the licensee a choice among three specified bases for claiming compensation. Section 6 provides the rules for compensation when the licensee is a local authority. Section 7 enumerates the properties or assets that will vest, depending on which compensation basis is selected. Section 8 authorises the appointment of a sole representative who will act as the exclusive accredited agent of the licensee in matters relating to the hand-over of the undertaking and in performing the functions described therein. The selection of the compensation basis must be made within one month under Section 9, and once communicated to the Government, that choice cannot be altered except with the Government’s consent. Section 10 permits the Government, where the licensee has disposed of assets in a manner that is not part of the ordinary course of business and thereby causes loss to the Government as the succeeding owner, to deduct from the compensation an amount it deems to represent that loss. Section 11 sets out the various deductions that the Government may lawfully make from the compensation payable under the Act. The method of payment or deposit of compensation is outlined in Section 12. Section 13 allows the Government to repay any loans, debentures, mortgages, or similar obligations that are outstanding on the vesting date at any time before the stipulated repayment date. Section 14 provides for arbitration, while Section 15 contains provisions for the termination of the managing agency.

Section 16 of the Act gave the Government authority to dismiss the services of any person who was employed on the staff of the licensee immediately before the vesting date. Section 17 obliged every licensee to prepare and deliver to the Government a complete inventory of all its assets. Under Section 18 the Government, or any officer authorized by it, was empowered to enter any land or premises that were in the possession of the licensee. Section 19 prescribed penalties for the various defaults that were specified in the Act. Section 20 made certain officers of a company liable for offences committed by the company. Section 21 provided protection against suit or prosecution for any act done in good faith under any rule or order made pursuant to the Act. Section 22 vested in the Government the power to make rules. Section 23 declared that any provisions of other Acts which were inconsistent with the provisions of this Act would have no effect. Section 24 authorised the Government to do anything it deemed necessary for the purpose of removing any difficulty that might arise in the execution of the Act. From this summary it was evident that the Act did not contain any provision for granting licences, maintaining works for the generation or transmission of energy, or supplying electrical energy, which would be expected in a statute dealing with electricity. Nor did the Act contain any provision for the incorporation, regulation or winding-up of trading corporations. On the contrary, the long title, the preamble and the operative sections clearly indicated that, in substance, the Act was solely intended to provide for the acquisition of electrical undertakings. Section 299(2) of the Government of India Act, 1935, stipulated that neither the Federal nor any Provincial Legislature could enact a law authorising compulsory acquisition for public purposes of land or of a commercial or industrial undertaking, or any interest therein, unless the law provided for payment of compensation for the property acquired. While compulsory acquisition of property is an important sovereign power of the State, that power must be exercised under a valid law. The legislative authority of the State was divided by Sections 99 and 100 between the Federal Legislature and the Provincial Legislatures in accordance with the entries in the Seventh Schedule of the 1935 Act. Section 100, read with entry 9 in List II, authorised a Provincial Legislature to make a law concerning compulsory acquisition of land. However, none of the three lists contained an entry relating to compulsory acquisition of any commercial or industrial undertaking, even though Section 299(2) contemplated such an acquisition. Because the acquisition of a commercial or industrial undertaking was not covered by any entry in the legislative lists, neither the Federal Legislature nor a Provincial Legislature possessed the competence to enact a law concerning its compulsory acquisition.

The Court observed that under section 104 of the Government of India Act, 1935, the Governor-General possessed the individual discretion to issue a public notification that would empower either the Federal Legislature or a Provincial Legislature to legislate on any matter that was not specifically listed in any of the entries contained in the Seventh Schedule. The Court noted that Parliament had expressly conferred upon the Provincial Legislatures the authority to enact laws concerning the compulsory acquisition of land, but it had not simultaneously granted an automatic power to either the Federal or the Provincial Legislatures to make laws concerning the compulsory acquisition of a commercial or industrial undertaking. Instead, Parliament had left that authority to the discretionary judgment of the Governor-General, who could, if he so decided, enable the appropriate legislature to pass such a law. The Court found that there was no evidence or suggestion that the Governor-General had, in the exercise of his discretion under section 104, authorised the Madras Legislature to pass the impugned Act. Consequently, the Court concluded that, on its face, the Act was beyond the legislative competence of the Madras Legislature.

In response, the learned Advocate-General of Madras contended that every entry in the legislative lists of the Seventh Schedule inherently included a power to legislate on matters ancillary or incidental to the subject matter of that entry. He argued that each entry therefore carried an implied authority to provide for the compulsory acquisition of any property, whether land or a commercial or industrial undertaking, while legislating under that entry. The Court acknowledged that the powers granted to each Legislature to make laws on the subjects assigned to them were intended to be wide, plenary, and to cover matters that were incidental or ancillary to those subjects. Nevertheless, the Court emphasized that the provisions of the Act made it clear that the power to enact a law for compulsory acquisition was, under entry 9 of List II, assigned solely to Provincial Legislatures and that this power was expressly limited to the compulsory acquisition of land only. The Court further explained that, unless the Governor-General issued an order under section 104, Provincial Legislatures possessed no authority to enact a law for the compulsory acquisition of any property other than land, and that the Federal Legislature possessed no authority at all to enact any law concerning the compulsory acquisition of any property. The Court observed that if the Advocate-General’s interpretation were correct, entry 9 of List II would have been unnecessary because entry 21 of List II already enabled Provincial Legislatures to make laws for the compulsory acquisition of land. The Court referred to the earlier decision in State of Bihar v. Maharajadhiraja Sir Kameshwar Singh, where a similar argument was rejected. Finally, the Court affirmed that the provisions of section 127 of the Act left no doubt that the arguments advanced by the Advocate-General could not be sustained, thereby reinforcing the conclusion that the Madras Legislature lacked the competence to enact the challenged legislation.

The Court observed that Section 127 of the Government of India Act, 1935, provided that the Federal Government might, if it deemed it necessary, acquire any land situated in a Province for any purpose connected with a matter over which the Federal Legislature had the authority to make laws, and could require the Province to acquire that land on behalf of and at the expense of the Federation. The Court noted that if the Federal Legislature possessed an inherent power to make a law for the acquisition of any property for any purpose connected with a matter within its legislative competence, then Section 127 would have been unnecessary. The Court further pointed out that there was no entry in the distribution of powers that empowered any Legislature to make laws regarding the compulsory acquisition of a commercial or industrial undertaking. The provisions of Section 127, as just referenced, therefore made it abundantly clear that the arguments advanced by the Advocate-General could not be sustained. Consequently, the Court held that the Madras Legislature lacked the legislative competence to enact the impugned law. This conclusion was sufficient to dispose of the appeal, and the Court saw no need to express any opinion on the other points raised by the lower court. Accordingly, the appeal was allowed, and costs were awarded both in the High Court and in this Court. The appeal was allowed. Agent for the appellant was M.S.K. Aiyangar. Agent for the respondent and for the intervener was R.H. Dhebar.