Godhra Electricity Co. Ltd. v. State of Gujarat, AIR 1975 SC 32

A) ABSTRACT / HEADNOTE

This case involved the constitutional validity of certain provisions of the Indian Electricity Act, 1910 which allowed the State Electricity Board to take over an electricity licensee’s undertaking before determining and paying the purchase price.

The Supreme Court held that Section 6(6) of the Act, which required the licensee to deliver the undertaking to the State Electricity Board pending determination and payment of the purchase price, violated the fundamental rights under Articles 19(1)(f) and 19(1)(g).

It was unreasonable to deprive the licensee of the undertaking without payment or interest on the purchase price. Though the Board was liable to pay interest under general law, the arbitrator under Section 7A had no power to award interest. Requiring delivery without compensation was invalid.

A shareholder, whose rights were diminished by the state action, could challenge the constitutional validity even though the company itself had no fundamental rights.

Keywords: Electricity Act, Compulsory Acquisition, Fundamental Rights, Licensee’s Rights, Shareholder’s Rights

B) CASE DETAILS

i) Judgement Cause Title: Godhra Electricity Co. Ltd. & Anr vs The State Of Gujarat And Another

ii) Case Number: Civil Appeal No. 2016 of 1973

iii) Judgement Date: 12 September, 1974

iv) Court: Supreme Court of India

v) Quorum: Kuttyil Kurien Mathew and A.N. Ray, JJ.

vi) Author: Kuttyil Kurien Mathew, J.

vii) Citation: AIR 1975 SC 32

viii) Legal Provisions Involved: Articles 14, 19(1)(f), 19(1)(g) and 31 of the Constitution of India; Sections 6, 7 and 7A of the Indian Electricity Act, 1910

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The case involved the Indian Electricity Act, 1910 which empowered the State Electricity Board to purchase electricity licensees’ undertakings. Section 6 allowed the Board to serve a purchase notice on licensees. Section 6(6) required licensees to deliver undertakings pending determination and payment of price.

The appellants’ license was granted in 1922 for 50 years. In 1971, the Board issued a purchase notice under Section 6(1). The State Government took over the undertaking’s management and handed it to the Board without paying the price.

The appellants challenged the notice and constitutional validity of Sections 6, 7 and 7A as violating fundamental rights under Article 19(1)(f) and (g). The High Court dismissed the petition. The Supreme Court allowed the appeal on limited grounds.

D) FACTS OF THE CASE

  • In 1922, a 50 year license was granted to the appellants’ predecessor to supply electricity.
  • In 1971, the Board issued notice under Section 6(1) to purchase the undertaking on expiry of 50 years, i.e., on 15 November 1972.
  • In 1972, the State Government took over the undertaking’s management and handed it to the Board without paying the price.
  • The appellants filed a writ petition challenging the notice and vires of Sections 6, 7 and 7A.
  • The High Court dismissed the petition.

E) LEGAL ISSUES RAISED

i) Whether the license period expired on 15 November 1972 as per the Board’s notice?

ii) Whether Section 6(6) requiring delivery of undertaking before payment violated fundamental rights under Article 19(1)(f) and (g)?

F) PETITIONER/APPELLANT’S ARGUMENTS

The counsels for the Appellants submitted:

  • The license commenced on 23 November 1922 when notification was published. Hence 50 years did not expire on 15 November 1972. The Board’s notice was illegal.
  • Section 6(6) unreasonably postponed price payment and violated fundamental rights by depriving income without compensation.
  • Though interest liability existed, the arbitrator under Section 7A could not award interest. This was unreasonable.

G) RESPONDENT’S ARGUMENTS

The counsels for the Respondents submitted:

  • The license commenced on 16 November 1922 when it was granted. Date of publication was not relevant. Hence notice was valid.
  • After purchase notice, the licensee had no right to continue business. Hence Section 6(6) did not affect any fundamental right.
  • Obligation to pay interest was implicit. Licensee could claim it separately.

H) RELATED LEGAL PROVISIONS

The Indian Electricity Act, 1910:

  • Section 6(1): Purchase option & notice procedure
  • Section 6(6): Delivery of undertaking before price determination
  • Section 7A: Arbitration for price disputes

I) JUDGEMENT

a) RATIO DECIDENDI

i) Date of commencement was date of granting license on 16 November 1922, not publication. Period expired on 15 November 1972. Notice was valid.

ii) Section 6(6) violated Article 19(1)(f) and (g) by allowing deprivation of property without compensation. Taking over undertaking without paying price or interest was unreasonable.

b) OBITER DICTA

Subsequent conduct may be considered to interpret the document if there is latent ambiguity.

I) CONCLUSION & COMMENTS

The Court upheld the Board’s notice but struck down Section 6(6) as unconstitutional. It balanced the state’s power to nationalize assets with individual rights and compensation. The law was amended accordingly. This case is cited to support shareholders’ rights against state action affecting companies.

J) REFERENCES

a) Important Cases Referred

i) Gujarat Electricity Board v. Shantilal R. Desai, (1959) 1 SCR 580

ii) R.C. Cooper v. Union of India, (1970) 3 SCR 530

iii) Bennett Coleman & Co. v. Union of India, (1973) 2 SCR 757

b) Important Statutes Referred

i) The Constitution of India: Articles 14, 19(1)(f), 19(1)(g) and 31

ii) The Indian Electricity Act, 1910: Sections 6, 7 and 7A