A) ABSTRACT / HEADNOTE

The Supreme Court in The Okara Electric Supply Co. Ltd. and Another v. The State of Punjab and Another, 1960 SCR (2) 239, decisively addressed the scope of government powers under Section 28(1) of the Indian Electricity Act, 1910, particularly in the context of compulsory acquisition of private electricity undertakings through conditional sanctions. The petitioners challenged the vires of Clause 11 of the government notification granting them the right to supply electricity on the condition that the government could acquire the undertaking after a notice period. The primary challenge was mounted under Articles 19(1)(f), 19(1)(g), and Article 31 of the Constitution of India, contending that such acquisition infringed upon their right to property and trade.

The Supreme Court upheld the validity of Clause 11, ruling that such acquisition clauses are well within the ambit of the Indian Electricity Act, 1910, and necessary due to the peculiar nature of electricity supply businesses. The Court reaffirmed that the Act, being pre-constitutional legislation, enjoyed immunity under Article 31(5) and Section 299(4) of the Government of India Act, 1935. It declared the conditions as reasonable restrictions in public interest, thereby conforming to Article 19(5). Thus, the Court validated State control mechanisms in the public utility sector, reinforcing the constitutionality of such regulatory provisions.

Keywords: Electricity Undertaking, Section 28 Indian Electricity Act, Compulsory Acquisition, Article 31, Reasonable Restrictions, Public Utility Regulation, Pre-Constitution Law

B) CASE DETAILS

i) Judgement Cause Title: The Okara Electric Supply Co. Ltd. and Another v. The State of Punjab and Another

ii) Case Number: Petition No. 19 of 1959

iii) Judgement Date: 13th November 1959

iv) Court: Supreme Court of India

v) Quorum: B.P. Sinha C.J., P.B. Gajendragadkar J., K. Subba Rao J., K.C. Das Gupta J., J.C. Shah J.

vi) Author: Justice P.B. Gajendragadkar

vii) Citation: 1960 SCR (2) 239

viii) Legal Provisions Involved:

• Section 28(1) of the Indian Electricity Act, 1910

• Articles 19(1)(f), 19(1)(g), 31, and 32 of the Constitution of India

• Section 299(2), 299(4) of the Government of India Act, 1935

ix) Judgments Overruled: None

x) Related Law Subjects: Constitutional Law, Administrative Law, Public Utilities Law, Property Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The case revolves around the conflict between a private electricity supplier and the State of Punjab over the legality of a condition attached to a statutory sanction permitting power supply. The government imposed Clause 11 in its 1948 notification, reserving its right to acquire the undertaking on providing one year’s notice post-1950. When the State exercised this option in 1958 and took possession in 1959, the petitioner challenged the action on constitutional grounds. This case arises in a broader framework of post-independence India transitioning towards increased State control in essential services, especially in energy. The Supreme Court had to reconcile regulatory authority under a colonial-era legislation with the fundamental rights enshrined in the Constitution.

D) FACTS OF THE CASE

The first petitioner, The Okara Electric Supply Co. Ltd., a joint-stock company, was sanctioned by the State Government under Section 28(1) of the Indian Electricity Act, 1910 to supply energy in Muktsar, Punjab. The sanction was granted through Notification No. 1766-I & O-48/28784 dated 26 May 1948. Clause 11 of this notification empowered the Provincial Government to acquire the undertaking after October 21, 1950, by providing one year’s notice, with compensation based on fair market value. On 3 January 1958, the State issued such a notice, and on 4 January 1959, it took possession of the undertaking. The petitioners then filed a writ under Article 32 before the Supreme Court, challenging Clause 11 as ultra vires Section 28 and asserting infringement of Articles 19(1)(f), 19(1)(g), and 31.

E) LEGAL ISSUES RAISED

i) Whether Clause 11 of the notification permitting compulsory acquisition of the undertaking was ultra vires Section 28(1) of the Indian Electricity Act, 1910?

ii) Whether Section 28 itself was unconstitutional as it allegedly infringed on the petitioners’ fundamental rights under Articles 19(1)(f), 19(1)(g), and 31?

iii) Whether the State’s action in acquiring the electricity undertaking violated the right to property and to carry on trade?

F) PETITIONER / APPELLANT’S ARGUMENTS

i) The counsels for Petitioner / Appellant submitted that Clause 11 of the notification, enabling compulsory acquisition, was outside the permissible scope of Section 28(1) which only authorizes conditions regarding the conduct of the electricity business, not property acquisition.

They argued that “such conditions in this behalf” under Section 28 only cover operational aspects like tariff, area of supply, and quality of service, and not post-operational conditions such as acquisition.

They also contended that even if Section 28 permits such conditions, then Section 28 itself should be struck down for violating Articles 19(1)(f) (right to property), 19(1)(g) (right to trade), and Article 31 (protection against deprivation of property without compensation).

Petitioners challenged the acquisition as an unreasonable restriction and a denial of natural justice, lacking any statutory mechanism for fair compensation.

G) RESPONDENT’S ARGUMENTS

i) The counsels for Respondent submitted that the acquisition was done strictly in accordance with Clause 11, which formed part of a validly issued notification under Section 28(1).

They argued that the clause was neither arbitrary nor beyond the scope of the statute. The nature of electricity supply, being a public utility, required strict State control including acquisition mechanisms.

They pointed out that the Indian Electricity Act, being a pre-constitutional law, was protected by Article 31(5) and Section 299(4) of the Government of India Act, 1935, and hence immune from a challenge under Article 31(2).

Moreover, the respondents asserted that the restrictions imposed by Section 28 were reasonable within the meaning of Article 19(5) and necessary in the interest of public welfare.

They also referred to New Orleans Gas Light Co. v. Louisiana Light and Heat Producing and Manufacturing Co., 115 U.S. 650 as persuasive authority on treating electricity supply as a public franchise.

H) RELATED LEGAL PROVISIONS

i) Section 28(1), Indian Electricity Act, 1910: Allows the State Government to grant sanction to a non-licensee to supply electricity under specified conditions.

ii) Articles 19(1)(f), 19(1)(g), 19(5), and 31, Constitution of India: Concern fundamental rights to property and trade and their permissible restrictions.

iii) Article 31(5), Constitution of India: Protects existing laws from Article 31(2) scrutiny.

iv) Section 299(4), Government of India Act, 1935: Grants immunity to laws in force before the enactment of the Constitution.

I) JUDGEMENT

a. RATIO DECIDENDI

i) The Supreme Court held that Clause 11 of the notification was intra vires Section 28(1). The phrase “such conditions in this behalf” must be read contextually, keeping in mind the peculiarities of the electricity sector.

The Court noted that the business of electricity supply is a public franchise, not a normal trade, and hence justifies the imposition of acquisition clauses to ensure continuity and public welfare.

Further, since the Indian Electricity Act, 1910, was in force before the Constitution and the clause was accepted before 1950, it could not be challenged under Article 31(2) due to Article 31(5) and Section 299(4).

The Court also held the restrictions as reasonable under Article 19(5), citing public interest as a key justification.

b. OBITER DICTA

i) The Court remarked that post-termination consequences of sanction, including compulsory acquisition, are intrinsic to regulatory frameworks governing public utilities, and non-inclusion of such provisions would be detrimental to orderly functioning.

c. GUIDELINES

• Sanctions for electricity supply can validly include acquisition clauses if compensation is fair.

• The phrase “such conditions in this behalf” under Section 28 should be read broadly.

• Existing laws prior to the Constitution are protected under Article 31(5) and Section 299(4).

• Electricity supply is a regulated public franchise, not ordinary commerce.

• Reasonable restrictions under Article 19(5) apply to public utility undertakings.

J) CONCLUSION & COMMENTS

The judgment in Okara Electric Supply Co. reinforces the Indian judiciary’s commitment to upholding state regulation of essential services, particularly when such regulation originates from colonial statutes that continue to serve public interest. It highlights judicial deference to legislative policy in the domain of infrastructure and public utilities. The ruling draws clear lines between private rights and public interest, emphasizing that business ventures in essential sectors operate within regulatory constraints.

By upholding the constitutionality of acquisition clauses, the Court preserved the sanctity of statutory conditions and affirmed the doctrine of reasonable restriction. It also clarified the non-applicability of Article 31(2) to existing laws, thus fortifying regulatory continuity. This decision remains a precedent for State acquisition of private utilities, especially in public interest.

K) REFERENCES

a. Important Cases Referred

i) New Orleans Gas Light Co. v. Louisiana Light and Heat Producing and Manufacturing Co., 115 U.S. 650
ii) Director of Endowments, Government of Hyderabad v. Akram Ali, AIR 1956 SC 60

b. Important Statutes Referred

i) Indian Electricity Act, 1910
ii) Constitution of India, especially Articles 19 and 31
iii) Government of India Act, 1935, especially Section 299