MIS. PILIBHIT ELECTRIC SUPPLY CO. (P) LTD. AND ANR. versus SPECIAL OFFICER (ELECTRICITY) AND ANR.

Citation: [1996] SUPP. 7 S.C.R. 324 · Decided: 09-10-1996 · Supreme Court of India · Bench: N.P. SINGH · Disposal: Appeal(s) allowed

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Judgment (excerpt)

A 
MIS. PILIBHIT ELECTRIC SUPPLY CO. (P) LTD. AND ANR. 
B 
v. 
SPECIAL OFFICER (ELECTRICITY) AND ANR. 
OCTOBER 9, 1996 
[N.P. SINGH AND S.B. MAJMUDAR, JJ.] 
Electricity Act, 191(}-Sections 6A & 7A as substituted by U.P. Act 14 
of 1976-Compensation-Detemiination of-Revocation of licences and ac-
C quisition of undertaking-Cost of supervision actually incun-ed-lt has to be 
considered as an addition to book value of acquired asset~onstrnction of 
service line~ontributions made by consumer~omputation of capital 
base of licensee. 
I 
The appellant licensee functioning under the provisions of the In-
D dian Electricity Act, 1910 having licence to generate electrical energy for 
being supplied to consumers in Pillibhit town of Uttar Pradesh, was a 
purchaser of the licensee rights !from the earlier licensee and held Pillibhit 
Electric Licence, 1935 from 1.4.ll954. The said licence was revoked as per 
the provisions of clause (3) of U.P. Ordinance 1937 of 1975 in exercise of 
the powers vested in the U.P. State u/s. 6A of the Indian Electricity Act. 
E The U.P. State Electricity Board took over the electrical undertaking of the 
appellant on 1.12.1975. The Special Officer passed the award of compen-
sation u/s. 7 A of the Indian Eledricity Act, 1910, as substituted by the U.P. 
Act 14 of 1976. 
F 
The appellant ex-licensee challenged the award by filing this appeal 
in quest of additional compensation. It was alleged that 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). The appellant contended that 
the gross amount of compensation payable to the appellant licensee had 
G to be the aggregate value of the amount specified in Section 7-A(2) which 
would include book value of all c:ompleted works in beneficial use pertain-
ing to the undertaking and taken over by the State Government; that it 
had incurred from )ear to year large amounts of supervision charges paid 
to the staff engaged for having st:pervision over these fixed assets and the 
H appellant was entitled to at least 15% of the cost of supervision actually 
324 
. 
I 
PILIBHITELECIRICSUPPLY CO. (P) LTD. v. SPL OFRCER(ELECIRICITY) 325 
incurred as permissible under Explanation (ii) to Section 7-A(2); that A 
Section 7·A(2)(ii) nowhere laid down that the costs of supervision actually 
incurred should be capitalised by the licensee from year to year; 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 inde-
pendently of the acquisition proceeding and prior thereto and had a direct B 
linkage with paragraph I of the Sixth Schedule as applicable at the relevant 
time and had an entirely different purpose to achieve and had nothing to 
do with Explanation (ii) to Section 7-A(2) of the Act; that the concept .of 
clear profit has to be kept in view for ascertaining the legality of tariff 
charges; that the concept of reasonable return defined in sub-para (9) of 
paragraph XVII of Sixth Schedule, encompassed in respect of any year of C 
account, the sum of the amounts mentioned in clauses (a) to (e) thereof 
and for finding out whether clear profit in a given accounting year exceeded 
reasonable return, reasonable return had to be calculated for the year and 
for determining reasonable return capital base has to be ascertained as 
required by clause XVIl(9)(a) and for finding out capital base, original D 
cost of fixed assets was required to be computed as per clause XVIl(l)(a) 
and for that purpose original cost was to be ascertained as per clauses 
XVll(6)(a) and (c); that as per Section 7-A(2)(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, had to be computed but 
that computation must exclude the works constructed at the cost of and E 
the works paid for by the consumers and 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. From this total amount 
of book value of the assets so computed depreciation calculated in accord-
ance with the Sixth and Seventh Schedules to the Electricity (Supply) Act, 
1948 had to be deducted and that would necess

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