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PETITIONER:

PILIBHIT ELECTRIC SUPPLY CO.(P) LTD. & ANR.

Vs.

RESPONDENT:

SPECIAL OFFICER (ELECTRICITY) & ANR.

DATE OF JUDGMENT: 09/10/1996

BENCH:

N.P SINGH, S.B. MAJMUDAR

ACT:

HEADNOTE:

JUDGMENT:

J U D G M E N T

S.B. Majmudar, J.

The appellant Electric Supply Co. has brought in

challenge the judgment and award dated 31st March 1980

rendered by Special Officer under Section 7-A as substituted

in the Indian Electricity Act, 1910 (hereinafter referred to

as 'the Act') by U.P. Act 14 of 1976. The appellant,

original licensee, under the Act had sought appropriate

compensation under the aforesaid provision from the Special

Officer entrusted with the task of determining the purchase

price of the appellant's Undertaking acquired under Section

6-A as inserted by the very same Act of the U.P.

Legislature. This appeal by grant of special leave under

Article 136 of the Constitution of India was pressed at the

time of final hearing by their learned senior counsel Shri

Salve and learned counsel Shri Gupta on the following

grounds:

1. In the impugned award the Special Officer had

erroneously excluded supervision charges actually incurred

by the appellant from the book value of the assets as

defined by the Explanation to Section 7-A(2).

2. The Special Officer had erroneously deducted from

the book value of the assets of the appellant an amount of

Rs.2,48,718/- being the purported depreciation on works paid

for by the consumers.

3. The Special Officer had erroneously deducted an

amount of Rs.2,67,622/- pertaining to variations in the

energy bill raised by the Board which were seriously

disputed by the appellant. In the aforesaid item ultimately

the claim was reduced to Rs.60.603.78.

4. The Special Officer had erroneously deducted from

the amount payable to the appellant an amount of Rs.

92,727/- on account of the purported balance in the Consumer

Rebate Reserve Account and an amount of Rs.46,826/- on

account of the purported balance in the Tariffs and

Dividends Control Reserve Account. So far as this item of

claim is concerned ultimately the learned counsel for the

appellant confined the claim to the total amount of

Rs.76,423/- being the purported inflated balance in the

Tariffs and Dividends Control Reserve Account and

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Rs.38,211/- being such balance in the Consumer Rebate

Reserve Account.

In the special Leave petitions originally two

additional claims were also put forward as item no.2

consisting of Rs.35.483/-and item no.5 consisting of

Rs.1,15,111/- but at the time of hearing of this appeal

these two claims were not pressed. We are, therefore,

concerned with the aforesaid four claims surviving for

consideration.

Backdrop facts

Before we deal with these claims. It will be necessary

to note a few relevant background facts. The appellant-

licensee was functioning under the provisions of the Indian

Electricity Act, 1910 having licence to generate electrical

energy for being supplied to consumers in Pilibhit town of

Uttar Pradesh. It was a purchaser of the licensee rights

from the earlier licensee named M/s Champion Electrical

Engineering works. The said license had got its licence

form 1935. On 1st April 1954 M/s Champion Electrical

Engineering Works transferred to the appellant its licence

to generate electricity in Pilibhit town. Thus the

appellant became a transfere-licensee and held Pilibhit

Electric Licence, 1935 from first April 1954. The said

licence was revoked as per the provisions of clause (3) of

U.P. Ordinance 1937 of 1975 in exercise if the powers vested

in the U.P State under Section 6-A of the Indian Electricity

Act, 1910 as inserted in the aforesaid Act by the said

Ordinance Pursuant to the said revocation of the appellant's

licence and acquisition of its assets, the U.P. State

Electricity Board took over the electrical under taking of

the appellant at 00.00 Hrs. On 1st December 1975. On such

acquisition of the assets of the appellant and the taking

over of the electrical undertaking of the appellant by the

U.P. State Electricity Board and as the Undertaking of the

appellant-licensee stood statutorily acquired for the

purpose of State Electricity Board under Section 6-A of the

Act, the question arose regarding determination of

appropriate compensation to be paid to the erstwhile

Licensee for acquisition of its assets under the Act. The

determination of the amount was to be made under Section 7-

A as substituted by the U.P. Amending Act. That task was

statutorily assigned to a Special Officer. The Special

Officer after hearing the appellants representative on

diverse claims put forward under the said provision for

determination of appropriate amount of compensation passed

the impugned award 31st March 1980.

The aforesaid award is brought in challenge by the

appellant ex-licensee by filing this appeal in quest of

additional compensation. At this stage it may be stated

that direct writ petitions under Article 32 of the

Constitution of India Challenging the constitutional

validity of section 7-A of the parent Act were pending in

this Court since 1972. Consequently the appellant

challenged the impugned award directly in this Court after

obtaining special leave as stated above. A constitution

Bench of this Court in the case of Tinsukjia Electric Supply

Co. Ltd. v. state of Assam and Ors. 1989 (2) SCR 544 upheld

three vires of the said provision. Consequently this appeal

survived for consideration of the payment of proper

compensation to the appellant ex-licensee whose licence was

also revoked and whose undertaking got acquired under the

said Section 7-A as substituted in the state of U.P by

Amending Act 14 of 1976.

Statutory background

Before adverting to the aforesaid four claims for

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compensation it will be necessary to note the relevant

statutory provisions. The Indian Electricity Act, 1910

deals with supply of energy and licences 1) connection

therewith. As per section 3 of the said Act the state

Government said on application made in the prescribed form

and on payment of the prescribed fees, if any grant after

consulting the state Electricity Board, Licence to any

person to supply energy in any specified area, and also to

lay down or place electric supply-lines for the conveyance

and transmission of energy 'State Electricity Board' as

defined by Section 2(11) of the Act, in relation too any

state means the state Electricity Board, if any, constituted

for the state under Section 5 of the Electricity (Supply)

Act, 1948 (54 of 1948), and includes any Board which

function in that state under sections 6 and 7 of the said

Act. The appellant was the transferee-licensee functioning

under the said Act and was entrusted with the right to

generate electricity through its undertaking functioning at

Pilibhit in U.P. State. It is this undertaking of the

appellant which came to be acquired under Section 6-A of the

Act as inserted by Section 3 of the U.P. Act 14 of 1976.

Said Section 6-A dealing with 'Revocation of licences and

acquisition of undertaking' along with its relevant sub-

sections reads as under:

"6-A Revocation of licences and

acquisition of undertaking.-(1) In

this section 'appointed day' means

in relation to licensees other than

local authorities, December 1, 1975

and in relation to local

authorities being licensees, such

date as may be specified by the

State Government by notification in

that behalf, and different dates

may be specified for different such

undertakings.

(2) Notwithstanding anything

contained in Sections 4, 4-A, 5 and

6, the licence of every

undertaking, unless revoked before

the commencement of the Indian

Electricity (Uttar Pradesh Second

Amendment) Ordinance, 1975, shall

stand revoked with effect form the

appointed day.

(3) On revocation of the licence

under sub-section (2), the

following provisions shall have

effect, namely:-

(a) every undertaking the licence

in respect of which stands revoked

shall by virtue of this section

stand and be deemed to have stood

transferred to and vest and be

deemed to have vested in the State

Electricity Board, hereinafter in

this section called "the Board"

free from any debt, Mortgage or

similar obligation of the licensee

attaching to the undertaking:

Provided that any such debt,

mortgage or similar obligation

shall attach to the amount payable

for the undertaking as mentioned in

clause (h):

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(b)... ... ... ...

(c)... ... ...

(d)... ... ...

(e)... .. ...

(f)... ... ...

(g)... ... ...

(h) the Board shall pay to the

licensee an amount determined in

accordance with the provisions of

Section 7-A:

Provided that the licensee shall be

in addition to the said, be

entitled to interest thereon at the

Reserve Bank rate ruling at the

appointed day plus one per centum

for the period from the appointed

day to the date of payment of the

said amount."

It is not in dispute between the parties that pursuant

to the said provisions the appellant's undertaking stood

statutorily acquired by the respondent- Bard with effect

from the appointed day, that is, 1.12.1975. So far as form

the question of compensation to be paid to the appellant-

licensee for the aforesaid acquisition of its undertaking is

concerned, Section 7-A is required to be noted. The

relevant provisions of the said Section 7-A in the light of

which the controversy in the present case will have to be

resolved read as under:

"7-A. Determination of amount.-(1)

Where an undertaking of a licensee

had been purchased by the Stare

Electricity Board in consequence of

revocation of his licence under

sub-section (20 of Section 4 or is

sold under sub-section 5 or is

purchased under Section 6 or

acquired under Section 6-A the

amount payable therefore shall

determined as hereinafter provided.

(2) The gross amount payable to

such licensee shall be the

aggregate value of the amounts

specified below-

(1) the book value of all completed

works in beneficial use pertaining

to the undertaking and taken over

by the State Electricity Board the

State Government or local

authority, as the case may be

(excluding works constructed at the

cost of local bodies for street

lighting and works paid for by

consumers), less depreciation

calculated in accordance with the

Sixth Schedule read with the

Seventh Schedule the Electricity

(Supply) Act, 1948:

ii) the book value of all works in

progress taken over, excluding

works paid for by the consumers or

prospective consumers:

(iii) the book value of all stores

including spare parts

taken over, and in the case of

used stores and spare parts, if

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taken over, such sum as may be

decided upon by the Special Officer

referred to in sub-section (6)

(hereinafter referred to as the

Special Officer):

(iv) the book value of all other

fixed assets in use on the date of

vesting under Section 6-A or

Section 7, hereinafter referred to

as the vesting date, and taken

over, less depreciation calculated

in accordance with the said

Schedules:

(v) the book value of all plants

and equipments existing on the

vesting date, if taken over but no

longer in use owing to wear and

tear or to obsolescence, to the

extent such value has not been

written of in the books of the

licensee, less depreciation

calculated in accordance with the

said Schedules:

Explanation- The book value any

fixed asset means its original

cost, and shall comprise-

(1) the purchase price paid by the

licensee for the asset, including

the cost of delivery and all

charges properly incurred in

erecting and bringing the asset in

to beneficial use as shown in the

books of the undertaking;;

(ii) the cost of supervision

actually incurred, but not

exceeding fifteen percent of the

amount referred to in paragraph(1):

Provided that before deciding the

amount under this section, the

licensee shall be given an

opportunity by the Special Officer

of being heard, after giving him a

notice of at least 15 days

therefor.

(3)... ... ...

(4)... ... ...

(5) The purchaser shall be

entitled to deduct the following

sums form the gross amount payable

under the foregoing sub-section to

a licensee-

(a) the amount, if any, already

paid in advance:

(b) where the purchaser is the

State Electricity Board the amount

due, if any, including interest

thereon, from the licensee to the

Board, for energy supplied by the

Board before the vesting date:

(c)... ... ...

(d)... ... ...

(e)... ... ...

(f)... ... ...

(g).. ... ...

(h) the amounts remaining in

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Tariffs and Dividends Control

Reserve, Contingencies Reserve and

the Development Reserve, insofar as

such amounts have not been paid

over by the licensee to the

purchaser.

(i)... ... ... ...

(6) The State Government shall

appoint, by order in writing , a

person having adequate knowledge

and experience in matter relating

to accounts, to be Special Officer

to assess the net amount payable

under this section to the licensee,

after making the deductions

mentioned in this section.

(7) (a) The Special Officer may

call for the assistance of such

officers and staff of the State

Government or the State Electricity

Board or the licensee as he may dem

it in assessing the net amount

payable.

(b) The Special Officer shall have

the same powers as are vested in a

Civil Court under the Code of Civil

Procedure, 1908. (Act V of 1908)

when trying a suit, in respect of

the following matters-

(i) enforcing the attendance of any

person and examining him on oath:

(ii) compelling the production of

documents; and

(iii) issued commissions for the

examination of witnesses.

The Special Officer shall also have

such further powers as may be

specified by the State Government

by notification in the Gazette."

The other relevant statutory provisions which are

required to be noted are found in Electricity Supply Act,

1948. [hereinafter referred to as the Supply Act'] which is

an Act to provide for the rationalisation of the production

and supply of electricity, and generally for taking measures

conducive to electrical development. U.P. State Electricity

Board is constituted under Section 5 of the Supply Act. The

State Electricity Board is enjoined by Section 18 of the

Supply Act to arrange in co-ordination with the Generating

Company or Generating companies, if any operating in the

State for the supply of the electricity that may be required

within the state and for the transmission and distribution

of the same, in the most efficient and economical manner.

As per Section 2 sub-section(6) of the Supply Act 'licensee'

means a person licensed. Section 57 of the Supply Act deals

with 'licensee's charges to consumers' and it provides that

the provisions of the Sixth Schedule shall be deemed to be

incorporated in the licence of every licensee, not being a

local authority and the licensee is required to comply with

the provisions of the said schedule. The Sixth Schedule to

the Supply Act as it stood on the appointed day when the

appellant's undertaking was acquired will be referred to by

us at an appropriate stage while we will consider the

aforesaid four claims for additional compensation as put

forward by the learned senior counsel for the appellant .

In the background of the aforesaid statutory provisions

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we now proceed to consider the four claims for additional

compensation pressed for our consideration.

Claim No. 1

This claim is based on Section 7-A sub-section (2)

Explanation (ii) extracted earlier. The appellant contends

that as per the aforesaid provision the gross amount of

compensation payable to the appellant-licensee has to be the

aggregate value of the amount specified in section 7-A (2)

and which would include book value of all completed works in

beneficial use pertaining to the undertaking and taken over

by the state Government as in the present case. As per the

Explanation the book value of any fixed asset means its

original costs and shall also comprise of the cost of

supervision actually incurred but not exceeding the amount

referred to in paragraph (i) of the said Explanation. The

appellant submits that it had incurred form year to year

larges amounts of supervision charges paid to the staff

engaged for having supervision over these fixed assets and

the said claim was wrongly disallowed by the Special

Officer, even though the appellant was entitled to at least

15%/ of the cost of supervision actually incurred by the

appellant as permissible under Explanation (ii) to section

7-A(2). A look at the relevant part of the Award on this

aspect shows that according to the appellant the salary and

wages paid to the officers and supervisory staff of the

undertaking were debited to the Revenue Account and the cost

of the assets amounting to Rs.25,58,581/- as shown in the

audited Balance Sheet was required to be raised by

Rs.3,82,737/- being the supervision charges at the rate of

15%/ of the total supervision charges actually incurred for

supervising and maintaining these assets. This claim was

rejected by the Special Officer on two counts:(i) that as

per the provisions of the Sixth Schedule to the Supply Act

these supervision charges had to be capitalised by the

appellant forum year to year when they were incurred and as

that was not done these supervision charges could not be

awarded: and (ii) in any case there was no clear evidence

led by the appellant in respect of the said claim. Learned

senior counsel appearing for the appellant vehemently

submitted that both these reasons given by the Special

Officer were erroneous. In that connection it was submitted

that Section 7-A sub-section (20 Explanation (ii) nowhere

laid down that the costs of supervision actually incurred

should be capitalised the licensee form year to year.

Reference to the Sixth Schedule to the Supply Act showed

that 'original cost' of the asset was defined as per

paragraph XVII clause (6) to mean in respect of any asset

the cost of the assets to the licensee to which a proper

addition on account of supervision cost not exceeding 15/ of

the cost of referred to in sub-para (a) was to be made.

That this original cost of the asset was meant to be

calculated in connection with the operation of the Sixth

Schedule which operated of its own even independently of the

acquisition proceeding and prior thereto and had a direct

linkage with paragraph I of the Sixth Schedule as applicable

at the relevant time which clearly laid down that

notwithstanding anything containing in the Indian

Electricity Act, 1910 and the provisions in the licence of a

licensee, the licensee shall so adjust by enhancing or

reducing them that his clear profit in any year of account

shall not, as far as possible, exceed the amount of

reasonable return and that for deciding whether the rates of

electricity charged by the licensee resulted in his clear

profit in any year if account exceeding the amount of

reasonable return or not. The concept of clear profit has

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to be kept in view of ascertaining the lightly of tariff

charges. That the concept of reasonable return is defined

in sub-para (9) of paragraph XVII of Sixth Schedule. It

encompassed in respect of any year of account, the sum of

the amounts mentioned in clauses (a) to (e) thereof. For

finding out whether clear profit in a given accounting year

exceeded reasonable return as laid down in paragraph I of

Sixth Schedule reasonable return had to be calculated for

the year. For determining reasonable return capital base

has to be ascertained as required by clause XVII(9) (a).

For finding out the capital base, original cost of fixed

assets was required to be computed as per clause XVII (i)

(a) and for that purpose original cost was to be ascertained

as per clauses XVII(6) (a) and (c). Thus definition of

original cost of fixed assets for the purpose I of Sixth

Schedule had an entirely different purpose to achieve and

had nothing to do with Explanation (ii) to Section 7-A (2)

of the Act. We find considerable force in this contention.

The aspect of original cost which may include proper

addition on account of supervision not exceeding 15/ of the

cost referred to in sub-para (a) of clause (b) of definition

paragraph XVII of the Sixth Schedule had nothing to do with

the computation of proper compensation payable to the

licensee as per Section 7-A sub-section (2) Explanation

(ii). It is also pertinent to note that the scheme of

compensation reflected by the aforesaid provisions indicated

that cost of supervision actually incurred up to the ceiling

of 15/ of the amount referred to in paragraph (i) of the

Explanation to Section 7-A (2) had to be straightway added

to the book value of fixed assets which was to be paid for

by the acquiring authority. On the other hand the provision

of computation of original cost as found in paragraph XVII

clause (6) of the Sixth Schedule referred to 'proper

addition on account of supervision' which left a discretion

regarding computation of the amount of supervision and the

said provision did not contain phraseology like 'cost of

supervision actually incurred' as found in the aforesaid

Explanation to Section 7-A(2). It was, therefore, rightly

contended that concept of capitalization of the cost of

supervision for computing the original cost of the asset for

the purpose of paragraph of the Sixth Schedule had nothing

to do with the cost of supervision actually incurred which

had to be considered as an addition to the book value of the

acquired fixed assets for computing compensation under

Section 7-A sub-section (2).

Learned senior counsel Shri Sen for the respondent

vehemently submitted that the cost of supervision mentioned

in the Explanation to Section 7-A (2) has necessarily a

linkage with the Sixth Schedule and Section 57 of the Supply

Act as the Sixth Schedule becomes a part and parcel of the

very licence issued to the licensee and that is why the

Special Officer was justified in insisting that in absence

of capitalization of costs of supervision from year to year

by the appellant the claim was not maintainable for addition

of supervision charges. It is not possible to accept the

aforesaid contention of the learned senior counsel Shri Sen.

In our view the provisions of Sixth Schedule to the Supply

Act are general provisions which were enacted to lay down

guidelines for fixation of licensee's charges to consumers

as provided in Section 57 of the Supply Act and also for

supplying guidelines to the Rating Committee under Section

57-A and for that purpose various paragraphs of Schedule 6

have been enacted and are made a part and parcel of the

terms and conditions of the licence. But so far as the

question of compensation is concerned, Section 7-A of the

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Act represents a complete circle. When we turn to the

Explanation to Section 7-A(2) for computing the book value

of any fixed asset, it original cost has to comprise of two

ingredients the purchase paid by the licensee for the asset

and secondly 15 % addition to the said purchase price by way

of cost of supervision actually incurred on such an asset.

It is almost analogous to solatium to be paid for

acquisition of land under Land Acquisition Act. No question

of capitalization of such supervision charges from year to

year is contemplated by the said Explanation. All that is

required to be shown by the licensee is whether it had

actually incurred the supervision costs in connection with

the staff engaged for supervision the concerned fixed assets

which were sought to be acquired form the licensee.

Consequently the first ground put forward by the Special

Officer for rejecting this claim cannot be sustained.

However, learned senior counsel for the respondents was

on a firmer ground when he submitted that even on the second

ground also the Special Officer was justified in rejecting

the claim. The special Officer had taken the view that there

was no clear evidence led by the appellant to sustain this

claim on merits. A mere look at the explanation (ii) to

section 7-A(2) shows that before claiming permissible

supervision costs not exceeding 15% of the purchase price of

the asset it has to be shown by the appellant that it had

actually incurred supervision costs by engaging staff for

supervising these fixed assets. In this connection learned

senior counsel for the appellant submitted that all the

relevant documents were in the custody of the Board which

could have been easily called for by the Special Officer for

his scrutiny. Even that apart the balance sheets which were

available on the record of the Special Officer showed that

the appellant had bifurcated various casts incurred on the

staff and one of the specified items was the cost of the

specified items was the cost of supervisory staff incurred

by the appellant during the year. A mere look at a specimen

of one such balance sheet shown to us indicated that a lump

sum figure was shown in the balance sheet as the amount

spent on supervisory staff. It is difficult to appreciate

how this lump sum amount could be treated as the cost of

supervision actually incurred by the appellant by way of

meeting the wages of the staff engaged for supervising the

concerned fixed assets which were subject-matter of

acquisition. It is easy to visualise that supervisory staff

may be engaged by the licensee not only for supervising the

fixed assets but also the office staff. Even that apart

there would be a watchman kept for supervising not only the

factory premises consisting of the relevant fixed assets but

also for supervising the cash room, compound and other

properties of the licensee. Unless clear evidence was

available on record pointing to the actual amount of cost

incurred by the licensee form year to year for meeting the

wage bill of supervisory staff which was entrusted with the

sole duty of supervising over the concerned fixed assets

which ultimately vested in the State and Electricity Board,

it could not be said that the appellant had made out a case

for grant of costs of supervision actually incurred by it in

maintaining these fixed assets and that it had satisfied the

requirements of the Explanation (ii) to Section 7-A(2).

Therefore the second ground on which the Special Officer

rejected the claim cannot be found fault with. Consequently

the first claim for additional compensation is found to be

devoid of any substance and is, therefore, rejected.

That takes us to the consideration of claim No.2.

Claim No.2

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So far as this claim is concerned that appellant

contended that as per Section 7-A(i) the book value of all

completed works in beneficial use pertaining to the

undertaking and taken over by the State Government or local

authority, as the case may be, had to be computed but that

computation must exclude the words constructed at the cost

of the works paid for by the consumers. Thus the works for

which payment emanated from the consumers were not to be

taken into consideration while computing the book value of

the completed works which were taken over from the licensee

by the acquiring authority. Having computed the same, the

question of deduction from the said computation would fall

for consideration as per Section 7-A(2)(i) which provided

that from this total amount of book value of the assets so

computed depreciation calculated in accordance with the

Sixth and Seventh Schedules to the Electricity (Supply) Act,

1948 had to be deducted. That would necessarily mean

depreciation on the computed book value of the acquired

assets which have entered the computation of the book value

as per the first part of Section 7-A(2)(i). What the

Special Officer has done is that while computing the

depreciation on fixed assets for deducting it from the book

value of all completed works as per Section 7A(2)(i) the

depreciation claimed by the assessee on works paid for by

the consumers has also been deducted. That this is contrary

to the express language of Section 7-(2)(i). On the other

hand learned senior counsel for the respondents submitted

that when the legislature has clearly provided for deduction

of depreciation from the book value of all completed works

as per the Sixth Schedule read with the Seventh Schedule as

applicable in 1975 when the appellant's undertaking was

acquired would also be relevant. The entire paragraph XII of

the Sixth Schedule along with the proviso had to be kept in

view and was rightly kept in view.

In order to appreciate the rival contentions on this

claim it is necessary to refer to the relevant provisions of

the Sixth Schedule that applied in 1975 when the appellant's

undertaking was acquired with effect from 1st December 1975.

The relevant provisions for depreciation are found in

paragraphs VI to XII of the Sixth Schedule as applicable at

the relevant time.

They read as under:

"VI. (i) There shall be allowed in

each year in respect of

depreciation of fixed assets

employed in the business of

electricity supply such an amount

as would, if set aside annually

throughout the prescribed period

and accumulated at compound

interest at 4 per centum per annum,

produce by the end of the

prescribed period an amount equal

to 90 per cent of the original cast

of the asset after taking into

account the sums already written

off or set aside in the books of

the undertaking. Annual interest on

the accumulated balance will be

allowed as an expense from revenue

as well as the annual incremental

deposit:

Provided that, within 3 months from

the date upon which these

principles are enacted, a licensee

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may elect to adopt the straight

line method of depreciation

accounting in lieu of the compound

interest method above prescribed.

Straight-line method of

depreciation accounting means the

method whereby an allowance is made

in each year in respect of

depreciation of fixed assets

employed in the business of such an

amount as is arrived at by dividing

ninety percent of the original cost

of the asset by the prescribed

method in respect of such asset.'

(2) The year in which any asset

becomes available for use in the

business and the relative cost

thereof shall, in the absence of

satisfactory record, be determined

by the State Government. All sums

credited to depreciation account

shall be invested only in the

business of electricity supply of

the undertaking or where it is not

practicable to so invest them in

investments approved by the State

Government.

(3) Any sums invested in

investments approved by the State

Government under sub-paragraph (2)

shall, as soon as practicable, be

utilized in the business of

electricity supply of the

undertaking and if such sums are

not so utilized they shall not form

part of the capital base under

clause (d) of sub-paragraph (1) of

paragraph XVII.

VII. (1) Where any fixed asset

ceases to be available for use

through obsolescence, inadequacy,

superfluity or for any other

reason, it shall be described in

the books of the licensee as no

longer in use and no further

depreciation in respect thereof

shall be allowed as a charge

against revenue.

(2) The written down cost of such

fixed asset shall be charged

against the Contingencies Reserve :

Provided that where the

accumulations in the Contingencies

Reserve are not sufficient to

permit the charging of the entire

written down cost of the asset, the

excess amount may, be included in

the capital base for the purpose of

clause (a) of sub-paragraph (1) of

paragraph XVII.

(3) The amount for which any such

fixed asset is sold or the amount

of its scrap value when actually

realised shall be credited to the

Contingencies Reserve.

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VIII. When any asset has been

written down in the books of the

undertaking to 10 percent, or less

of its original cost, no further

depreciation shall be allowed in

respect of that asset.

IX. When any fixed asset is sold

for an amount exceeding its written

down cost the excess after

deducting all taxes payable thereon

shall be credited to the

Contingencies Reserve.

X. Except with the previous consent

of the State Government, no sums

shall be carried forward to a

reserve and no dividends in excess

of 3 percent shall be paid on share

capital and no other distribution

of profits shall be made to the

shareholders in respect of any year

of account so long as any of the

following sums remain to be written

off in the books of the

undertaking, namely:-

(i) normal depreciation due for

that year of account calculated in

accordance with the provisions of

paragraph VI;

(ii) equated instalment in respect

of arrears of depreciation,

computed in accordance with the

provisions of paragraph XI, for

that year of account;

(iii) arrears, if any, in respect

of normal depreciation referred to

in clause (i), accumulated after

the date of application of the

provisions of the Sixth Schedule to

the licensee;

(iv) arrears, if any, in respect of

equated instalments

referred to in clause (ii).

XI. Arrears of depreciation

calculated in accordance with

paragraph VI may be written off by

equated payments over the remainder

of the prescribed period and the

amount so set aside in the books of

the undertaking may be taken into

account in any year as a special

appropriation for purposes of

assessing the clear profit.

XII. Where contributions are made

by consumers towards the cost of

construction of service lines

constructed after the date on which

this Act comes into force only the

net cost of such service lines

after deducting such contributions

shall be included in the cost of

fixed assets for the purposes of

arriving at the capital base :

Provided that for the purposes of

depreciation under paragraph VI,

the total original cost of

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construction of the service lines

shall be taken into account."

It is, of course, true that as mentioned in paragraph

XII of the Sixth Schedules while considering the question of

total capital base which includes the assets consisting of

service lines for installation of which contributions are

made by consumer towards the construction of such service

lines, the net cost of such service lines after deducting

such contributions has to be included in the costs of such

fixed assets. It i also true that, however, for computing

the depreciation as per paragraph VI on such assets, wherein

consumers have contributed towards their acquisition, the

total original cost of construction of the service lines had

to be taken into account. The Special Officer has applied

paragraph XII whole had while deducting the depreciation

from the book value of all completed works which are

acquired from the licensee as per Section 7-A(2) (i). In our

view the said approach of the Special Officer is ex facie

unjustified. The reasons are obvious. Paragraph XII of the

Sixth Schedule to the Supply Act deals with a special type

of asset, namely, service lines which are installed by the

licensee wherein the consumers have contributed towards the

cost of construction of such service lines. For this type of

assets, in computing the capital base of the licensee, the

contribution by the consumers has to be excluded but for

computing depreciation under paragraph VI for such assets,

namely, the service lines, the total original cost of

construction of service lines has to be taken into account

which may include the cost of construction of service lines

incurred by the licensee as well as the other part of the

component of the cost of construction of service lines which

has come from the pockets of the consumers. But entire

paragraph XII deals with only one type of assets, namely,

service lines construction cost of which is wholly or

partially borne by the consumers. Paragraph VI of Schedule

VI, however, is general in nature and covers all types of

fixed assets and the method of computation of depreciation

on these fixed assets. It is axiomatic that fixed assets

employed in the business of electricity supply may consist

of those assets which are wholly acquired at the cost of the

licensee and may also include assets like service lines

which may partly be acquired and installed at the cost of

the licensee and partly out of contribution of the consumers

who would be interested in getting electrical supply at

their own premises and for that purpose they may be willing

and may be made to pay contribution towards extension of

service lines to their premises. Therefore, reference to

service lines in paragraph XII of Schedule VI is with a view

to finding out as to how depreciation has to be computed for

such a special type of asset, namely service lines wherein

consumers have also contributed towards their installation.

Consequently on a conjoint reading of paragraph VI and

paragraph XII of Sixth Schedule the depreciation on such

service lines installed by drawing upon the contributions

from the consumers is required to include the total original

cost of construction of such service lines and that would

necessarily include the component of the amount of cost

contributed by the consumers. However that has nothing to do

with the computation of depreciation on the assets which are

acquired by the acquiring authority under Section 6-A read

with Section 7-A(2)(i). It is now well settled that service

lines whose installation had been paid for by the consumers

are not to be compensated for and they vest in the acquiring

authority under Section 6-A read with Section 7-A free of

cost of payment of compensation to the licensee. The logic

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underlying this settled legal position is that as the

licensee had not spent from his pocket for installing such

an asset, he was not required to be compensated for that

part of the asset which was paid for by consumers. A mere

look at Section 7-A(2)(i) shows that the gross amount

payable to such licensee for acquiring his assets amongst

others has to consist of an amount of the book value of all

completed works in the beneficial use pertaining to the

undertaking. While computing such book value of acquired

assets the works paid for by the consumers have to be

ignored and omitted from consideration. Therefore, the

amount of book value computed as per Section 7-A(2)(i) will

consist of only those works which are for beneficial use of

the undertaking which was installed and acquired by the

licensee at its own cost. Having computed this amount the

next question survives about deducting the depreciation on

such acquired assets. That would naturally imply deduction

of depreciation on such assets from the amount so computed

being the book value of the completed works installed and

acquired at the cost of the licensee. If these are the

assets whose book value has to be computed as per Section 7-

A(2)(i) the question of deduction from that amount would

necessarily imply deduction of depreciation on these very

assets. In other words the field is clearly earmarked both

for computation of the book value of the concerned assets as

also fro deduction of depreciation on such assets as

enjoined by the second part of Section 7-A(2)(i) itself. It

is axiomatic that before any depreciation is deducted from

the computed book value of an asset it should be for the

same asset whose book value has been ascertained and from

that value depreciation is to be deducted. It cannot be that

for computing the book value of licensee's assets only self-

financed assets are to be taken into consideration and not

the works paid for by the consumers but while deducting from

this very amount of book value the depreciation is to be

deducted qua not only the assets whose book value is

computed but also qua the assets belonging to somebody else

like the consumers who have paid for the works. This would

on the face of it be very anomalous and unfair. It is also

pertinent to note that from the book value of the assets

which were financed by the licensee as computed as per

Section 7-A(2)(i) when a question arises about deducting the

depreciation, only the calculation of such depreciation on

the concerned asset is to be done in accordance with Sixth

Schedule because the words advisedly used by the Legislature

in Section 7-A(2)(i) in this connection are less

depreciation calculated in accordance with the Sixth

Schedule read with the Seventh Schedule. Therefore, only the

method of calculation of depreciation has to be applied by

way of reference to the Sixth Schedule. But the type of

asset for which depreciation has to be computed is not to be

gathered from the Sixth Schedule. It has to be gathered from

the very first part of Section 7-A(2)(i), namely, only self-

financed fixed assets whose book value is to be computed by

the Special Officer for payment to the licensee and from

that amount depreciation is to be deducted which would

necessarily mean depreciation on the very same asset which

has undergone the book valuation as per Section 7-A(2)(i).

If for calculating the book value of such assets the works

paid for by the consumers are to be excluded they

necessarily cannot be included for the purpose of

ascertaining deductible depreciation on such assets.

Consequently reference to paragraph XII Schedule VI would be

totally out of picture and redundant so far as the scheme of

Section 7-A sub-section (2)(i) is concerned. It may be that

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the licensee might have obtained benefit of such

depreciation on consumer paid assets under Income Tax Act or

any other statutory provision but that is totally irrelevant

for deciding the question whether the deduction of

depreciation on the concerned assets whose book value is to

be computed as per Section 7-A(2)(i), paragraph XII of Sixth

Schedule could at all be pressed in service. It is,

therefore, not possible to agree with the submission of

learned senior counsel for the respondents and also the

learned counsel who appeared for the State of U.P. that for

the purpose of deducting the depreciation the assets which

are not included in computing the book value as per Section

7-A(2)(i), namely, the consumer-financed assets also could

be taken into consideration. In our view the Special Officer

was patently in error when he computed the depreciation on

the assets under Section 7-A(2)(i) by adding the amount of

depreciation on the service lines which were paid for by the

consumers. Reference to paragraph XII of Sixth Schedule in

this connection was wrongly made and the said paragraph was

wrongly pressed in service by the Special Officer. In this

connection it has also to be kept in view that the amount of

Rs.2,48,718/- being the depreciation amount on the works

constructed at the cost of consumers was not disputed by the

Board and the only contention of the Board before Special

Officer was that as per paragraph XII of Sixth Schedule the

said amount of depreciation was also to be deducted from the

book value of the assets acquired by the Board under Section

6-A read with Section 7-A. As the reliance placed on

paragraph XII of Sixth Schedule by the Special Officer is

found by us to be unjustified and as the amount of

depreciation deducted from the book value on this score is

undisputedly Rs.2,48,718,81 this amount of depreciation

deducted from the book value on this score is undisputedly

Rs.2,48,718.81 this amount must be treated to have been

wrongly deducted from the book value by way of depreciation

on consumer-financed assets, namely, service lines.

Before parting with the discussion on this claim we may

mention one impermissible exercise undertaken by the Special

Officer. At page 40 of the impugned Award it has been

mentioned that the Special Officer having found that as the

matter was of considerable judicial importance it was

considered prudent to take legal advice from Legal

Remembrance to U.P. Government and as the legal Remembrance

opined that clauses XI and XII of the Sixth Schedule to the

Electricity (Supply) Act would seem to provide an answer to

the question raised they had to be kept in view and that

Special Officer agreed with the said opinion of the Legal

Remembrance. It has to be kept in view that the Special

Officer exercising quasi-judicial functions under Section 7-

A of the Act who has the same powers as are vested in a

Civil Court under the Code of Civil Procedure, 1908 when

trying a suit, in respect of the matters enumerated in

Section 7-A sub-section 7(7)(b) could not have called for

such an opinion of Legal Remembrance and even though Section

7-A clause (7)(a) permits the Special Officer to have the

assistance of such officers and staff of the State

Government or the State Electricity Board or the licensee as

he may deem fit in assessing the net amount payable, it had

to be done in presence of the licensee and an opportunity

should have been given to the licensee to meet such an

opinion. As that has not been done in the present case such

an exercise on the part of the Special Officer and the

reliance placed by him on the opinion of the Legal

Remembrance obtained behind the back of the licensee must be

treated to be totally an incompetent and uncalled for

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exercise and such an opinion should have been completely

ignored by the Special Officer. The second claim has,

therefore, got to be accepted. We accordingly hold that the

Special Officer has wrongly deducted from the book value of

the assets as computed under Section 7-A(2)(i) an amount of

Rs.2.48,718.81 and that amount is required to be added back

to the book value of the assets which is to be made payable

to the appellant-licensee by way of additional compensation.

Claim No.3

So far as this claim is concerned, as noted earlier,

the appellant ultimately confined the claim on this head to

Rs.60,603,78. This claim refers to the electricity dues on

the electricity supplied by the Board to the licensee during

the period prior to the appointed day. The fuel escalation

clause binding on the licensee entitled the Board to claim

this amount. These amounts pertain to the period from

October 1972 to November 1975. It is true that in connection

with these amounts of claim various bills were issued by the

Electricity Board to the appellant. At page 69 of the

impugned Award the entire table has been extracted by the

Special Officer. The said table shows that at serial nos. 1

to 8 different bills were issued by the Board to the

appellant between 25th July 1974 and 12th November 1975. But

there are last two bills dated 24th March 1976 and 2nd

September 1976 which were obviously issued after the

appointed day. It was, therefore, contended by the learned

senior counsel for the appellant that for at least the

amounts covered by these two bills which consisted of Rs.

51,286,70 and 9,317.08 respectively totalling to

Rs.60,603,78 the appellant could not have been made

responsible as the bills were issued after the take-over.

Learned senior counsel for the respondent-Board on the other

hand submitted that these two bills referred to the period

prior to the take-over, namely, bill dated 24.3.1976 was for

a period form October 1974 to November 1975 and bill dated

2.9.1976 was for October and November 1975. In this

connection he invited our attention to Section 7-A(5)(b)

which in terms provided that from the amount of compensation

payable to the licensee the Special Officer was entitled to

deduct the amount due to the State Electricity Board which

was predecessor of the undertaking for energy supplied by

the Board to the licensee before the vesting date. That as

this energy was admittedly supplied to the licensee by the

Board which was the predecessor of this undertaking before

the vesting date, that is, 1.12.1975 the predecessor Board

was entitled to deduct the said sum from the amount payable

to the licensee for such acquisition and purchase as

computed under Section 7-A(1) read with sub section (2). In

our view the aforesaid contention of learned senior counsel

for the respondent is well sustained on the statutory scheme

of Section 7-A(5)(b). The Special Officer was certainly

entitled to deduct from the amount payable to the licensee

for the acquisition of his undertaking the amount due to the

Board by way of supply of energy to the licensee. Even

though the bill might have been issued after the acquisition

and the appointed day as the bills referred to the period

prior to the appointed day in connection with the

electricity admittedly supplied by the Board to the

licensee, the licensee was statutorily bound to reimburse

the Board to the extent of these bills and that amount could

be legitimately deducted from the computed amount of

compensation by the Special Officer as enjoined by Section

7-A sub-section (5)(b). Consequently learned senior counsel

for the appellant was not justified in submitting that in

such a case the Board should have been asked to file a

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separate suit and as such suit was not filed the Board could

not have deducted this amount from the amount payable to the

licensee under Section 7-A(2)(i). This claim, therefore, is

found to have been rightly refused by the Special Officer

and accordingly it stands rejected. That takes us to the

consideration of the last claim.

Claim No.4

As noted earlier this claim now is confined to

Rs.76,423/-. It consists of deduction of Rs.38,212/- by way

of Tariffs & Dividends Control Reserve. This deduction is

effected by the Special Officer as per Section 7-A sub-

section (5)(h). A mere look at the said provision shows that

from the amount of compensation payable to the purchaser to

Special Officer can deduct the amounts remaining in Tariffs

and Dividends Control Reserve. Contingencies Reserve and the

Development Reserve, insofar as such amounts have not been

paid over by the licensee to the purchaser. It is obvious

that these are trust amounts in the hands of the licensee

which are ultimately to be paid over to the consumers and at

the time of acquisition of its undertaking the said Reserves

have to be handed over to the purchaser, namely, the Board.

But what is to be handed over to the Board by the licensee

is the amount remaining in the Tariffs and Dividends Control

Reserve. So far as the figures of the outstanding amounts in

these reserves were concerned they were supplied by the

licensee to the Special Officer. Accordingly an amount of

Rs.8,615/- stood credited to the Tariffs and Dividends

Control Reserve while an amount of Rs.54,560/- stood in the

Consumer Rebate Reserve which was also part and parcel of

Tariffs and Dividends Control Reserve. However by a very

curious piece of reasoning the Special Officer artificially

inflated the balances of these reserves and held that

Tariffs and Dividends Control Reserve should be treated to

be showing the balance of Rs.46,826/- instead of Rs.8,615/-

while the Consumer Rebate Reserve balance should be inflated

to Rs.97,727/- instead of Rs.54,560/-. The process by which

this inflation was done for the purpose of deduction under

Section 7-A(5)(h) also makes an interesting reading. The

Special Officer agreed with the appellant that for the

purpose of computing depreciation of assets financed by the

appellant which had to be deducted from the book value of

these assets as per Section 7-A(2)(i) extra depreciation

charged by the licensee on these assets and which was

effectively got considered by the Income Tax authorities

could not be taken into consideration for the purpose of

Section 7-A(2)(i) as such excess depreciation was not

contemplated or covered by the Sixth or the Seventh

Schedule. Having accepted this contention, the Special

Officer reduced the figure of deductible depreciation on

these self-financed assets under Section 7-A(2)(i) and to

that extent the book value of the self-financed assets got

inflated and that benefit became available to the appellant.

But the Special Officer thereafter proceeded to hold that

because the appellant had obtained this excess depreciation

from the Income Tax authorities that would have got added to

its revenue in the relevant years and this additional

benefit would have got added to its reserves and, therefore,

the amount of excess depreciation which was not deducted

from the book value of the acquired assets as per Section 7-

A(2)(i) had to be added back to the concerned Tariffs and

Dividends Control Reserve and Consumer Rebate Reserve and

that is how he ploughed back these extra depreciation

amounts which could not be deducted under Section 7-A(5)(h).

In our view on the clear language of Section 7-A(5)(h) such

an exercise is not contemplated. While deducting the

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depreciation from the book value of the concerned assets as

per Section 7-(2)(i) the amount of extra depreciation which

is de hors the permissible scheme of the Sixth Schedule read

with Seventh Schedule of the Supply Act has to be ignored.

Once that is done Section 7-A(2)(i) gets completely

exhausted and complied with. Upto that stage the Special

Officer was with the appellant, but then he thought that

this extra benefit of additional depreciation which was

already earned by the appellant from the Income Tax

Department must be deducted from the purchase price as per

Section 7-A(5)(h) by artificially inflating the balance of

the concerned Reserves. So far as this exercise, undertaken

by the Special Officer, is concerned it is not permissible

on the express language of Section 7-A(5)(h). The said

provision clearly indicates that whatever amounts have

remained in the concerned Reserve Accounts with the licensee

on the date of acquisition have to be paid over to the

purchaser. Thus actual balances of these Reserves as

reflected from the books of accounts of the licensee, had to

be handed over to the Board. The said provision nowhere

permits an exercise of artificially inflating the balances

of these Reserves which are not reflected by the books of

accounts of the licensee, on the supposition that these

extra depreciations which the licensee must have earned from

year to year on these assets and which is not covered by the

Sixth or Seventh Schedule of the Supply Act must have

swelled the revenues of the licensee under Income Tax Act

and, therefore, must necessarily have gone to the concerned

Reserve Accounts. Before that stage is reached it is just

possible that the license might have utilized the extra

depreciation earned according to the Income Tax Act

provisions for swelling its own profits while might not have

been diverted to Reserves but might have been utilized for

other purposes including giving dividends to its

shareholders or in purchasing other assets which would

naturally get accounted for under Section 7-A(2)(i) itself.

There are number of contingencies contemplated in the

accounting practices followed by the licensee in connection

with its business activities which might have utilized in

diverse ways extra depreciation amounts earned by the

licensee from Income Tax authorities. Therefore, it was not

permissible for the Special Officer to conclude that

necessarily these extra depreciations earned by the licensee

must have been utilized for swelling the balances of the

concerned Reserves and, therefore, the actual balances did

not reflect the real balances. It is also to be kept in view

that balances in these concerned Reserves would rise over

number of years during which the licensee carries on its

business and they are not necessarily confined to only one

year or the last year when the acquisition takes place. They

are a product of working of the concern over years and also

get reflected by the accounting practices and the business

practices resorted to and adopted by the licensee over

years. Consequently there was no material with the Special

Officer to come to a definite conclusion that the extra

depreciations earned by the licensee over years from the

Income Tax Department must have got channelised into these

Reserves and, therefore, the apparent balances in these

Reserves were not the real balances and had to be inflated

accordingly with a view to seeing that what goes out from

the deductible depreciation under Section 7-A(2)(i) must

necessarily get deducted under Section 7-A(5)(h). In our

view, therefore, the Special Officer was clearly in error in

deducting the total amount of Rs. 76,423/- consisting of the

artificially inflated balances in the aforesaid two Reserves

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from the amount of compensation payable to the licensee as

per Section 7-A(5)(h). The fourth claim, therefore, is found

to be well sustained and must be accepted by holding that

the appellant was entitled to an additional compensation of

Rs.76,423/- on this count.

In view of the aforesaid discussion on the main claims

for additional compensation as canvassed before us it must

be held that the appellant would be entitled to additional

compensation on Claim no.2 amounting to Rs.2,48,718/- and

Claim No.4 amounting to Rs.76,423/-. The total of these two

figures works out to Rs.3,25,141/-. We are informed by the

learned senior counsel for the appellant that even the

awarded amount has still not been paid by the respondents.

To recapitulate the award was passed as early as on 31st

March 1980. As per Section 6-A sub-section (3)(h) of the

Act, the Electricity Board is enjoined to pay the licensee

an amount determined in accordance with the provisions of

Section 7-A and as per the proviso to that Section the

licensee shall in addition to the said amount, be entitled

to interest thereon at the Reserve Bank rate ruling at the

appointed day plus one per centum for the period from the

appointed day to the date of payment of the said amount. As

even the awarded amount as per the Award of 31st March 1980

is still not paid to the appellant the Board has to be

directed to pay up to the appellant the amount as awarded by

the Special Officer by his Award with interest thereon at

the relevant Reserve Bank rate ruling at the appointed day,

that is, 1.12.1975 plus one percent for the period from the

date of award to the date of actual payment to the

appellant--licensee. In addition thereto the additional

amount awarded by our present order, namely, Rs.3,25,141/-

will also have to be paid by the respondent-Board to the

appellant-licensee with interest thereon at the Reserve Bank

rate also from the appointed date, that is, 1.12.1975 plus

one percent interest on the said amount for the period from

1.12.1975 till the date of actual payment of this additional

amount of Rs.3,25,141/-. All the aforesaid amounts with

interest as directed hereinabove shall be paid by the

respondent-Board to the appellant-licensee on or before 31st

March 1997. The demand for additional amount as reflected by

claims nos. 1 and 3 stand rejected. The appeal is

accordingly allowed to the aforesaid extent. As cut of the

four claims for additional compensation as pressed for in

this appeal two are granted by us and two are rejected and

as the success is equally shared by both the sides there

will be no order as to costs

.