ORIENTAL GAS CO. LTD. & ORS. versus STATE OF WEST BENGAL

Citation: [1979] 1 S.C.R. 617 · Decided: 12-09-1978 · Supreme Court of India · Bench: Y.V. CHANDRACHUD · Disposal: Dismissed

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Judgment (excerpt)

\ 
ORIENTAL GAS CO. LTD. & ORS. 
v. 
STATE OF WEST BENGAL 
September 12, 1978 
617 
[Y. V. CHANDRACHUD, C.J., R. S. SARKARIA, N. L. UNTWALIA, 
0. CHINNAPPA REDDY AND A. P. SEN, JJ.] 
Oriental Gas Company Act, 1970-s. 8(1) (b) Capitalisation of net income 
for determining compensation payable-Validity of-Principles for determining 
compensation payable on acquisition of Public Utility Undertakings discussed. 
In 1958, the Government of West Bengal, being of the view thM the appel· 
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!ant company which enjoyed a monopoly in the supply of gas in Calcutta 
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was negligent in looking after the interest of the consun1ers appointed a 
Committee to enquire into the unsatisfactory condition of supply of gas in 
Calcutta and to suggest remedial measures, including valuation of the Under· 
taking for the purpose of taking it over. The Committee reported that the 
distribution system was in a bad state of disrepair and that the maintenance 
system \Vas in a very poor sta.te. It recommended that the distriblltioa system 
should be taken over immediately under the management of the Government 
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to ensure and maintain supply of gas to consumers in CaJcutta. 
On the basis of this recommendation, the Oriental Gas Company (West 
Bengal Act XV of 1960) was paosed by the State Legislature. Section 3 of 
the Act provided for the taking over for a limited period of the management 
and control and subsequent acquisition of the Undertaking of the Company, 
Section 7 provided for the acquisition of the Undertaking of the Company at 
any time within a period of five years. Section S(l)(b) provided for payment 
of compensation for the acquisition of the Unclertaking of the Company, by 
the method of cost less depreciation or the method of capitalisation whichever 
was less. Section. 9(2) provided that the compensation should be paid in 
bonds carrying interest at 3 % p.a. from the date of issue and payable in 20 
equal annual instalments. The Act wa.s amended in 1968. The amei\ded 
Act provided for the determination of compensation on the basis of full marKet 
value Of the Undertaking and payment of compensation in the shilpe of bonds 
carrying interest from the date of enactment of the 1968 Act. In 1970 the 
Act was aga.in amended. It provided for the determination of compensation 
by the method of oo.pitalisation and payment of compensation in bonds carry· 
ing interest from the date of acquisition. 
Aggrieved by the method of determination of compensation the appellant 
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filed a writ petition under Art. 32 of the Constitution questioning the vires 
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of s. 8(1)(b) and s. 9(2) of the Act. 
The petitioner contended that (1) the principle of capita-Hsing net profit 
as the sole factor for determining compensation payable for the aCqulsitton 
of a public utility undertaking was not a relevant principle because a public 
utility concern was utider an obligation to provide services to the community 
irrespective of whether its activities resulted in profit or loss; (2) the choice 
of the period of five yea.rs immediately preceding the take over Of the manage-
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ment and control of the company for the purpose of calculating the average 
annual income was arbitrary; 
(3) at the time when the Undertaking 
was 
618 
SUPREME COURT REPORTS 
[1979] 1 S.C.R. 
A _ ocquired in 1962 the gilt edged securities were fetching 6% p.a. and therefore 
a higher multiplier than eight should ha.ve been provided and ( 4) the metlic:id 
of payment of compensation in the shape of bonds payable in twenty years 3.t 
3% interest had the effect of reducing the compensation to less 
than half 
of what was determiaed. 
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Dismissing the petition, 
HfilD : (I) (a) The principles specified by the law for determination ot 
compensation are beyond the pale of challenge, if they are relevant to the 
determination of compensation and are recognised principles applicable in the 
determination of compensation for property compulsorily acquired and if the 
principles are appropriate in determining the value of the class of property 
sought to be acquired. The science of valuation of property recognised several 
principles or methocj's for determining the value to be paid as compensation 
to the owner for loss of his property. If an appropriate method or principle 
for determination of compensation was applied, the fact that by the application 
-Of another principle which was also appropriate a different value was reached, 
would not justify the Court in e

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