UNION OF INDIA versus THE METAL CORPORATION OF INDIA LTD. & ANR.

Citation: [1967] 1 S.C.R. 255 · Decided: 05-09-1966 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

Cited by 7 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
c 
D 
G 
H 
UNION OF INDIA 
v. 
THE METAL CORPORATION OF INDIA LTD. & ANR. 
September 5, 1966. 
[K. SUBBA RAO, C.J. AND J. M. SHELAT, J.] 
Constitution of India, 1950, Art. 31(2)-Law for compulsory acqulrl-
lion laying down print:ip/es of compensation-Test for corutltutlorral v•/1-
dity-Metal Corporation of India (Acquislt(On of Undertaking) Act (44 of 
1965)-If ultra vires. 
The Metal Corporation of India (Acquisition of Undertaking) 
Act, 
1965, was enacted for acquiring in the public interest, the undertaking of the 
Metal Corporation of India. 
The Act provided that the Corporation 
was to vest in the Central Government on the commencement of the Act; 
and that in the absence of an a~ent between the Governmenl and the 
Corporation, the compensation payable to the Corporation was to be an 
amount equal to the sum total of the value of the properties and asaets of 
the Corporation on the date of the commencement of the Act calculated in 
accordance with the provisions of Paragraph II of, the Schedule to the Act, 
less the liabilities on the said date, calculated in accordance ·with the provi-
sions of Paragraph III of the Schedule. One of the clauses laying down 
principles of compensation, viz., clause (b) of para JI is in two parts. 
The first p~rt provides for the valuation of plant, machinery or other 
equipment which has not been worked or used and is in good condition, 
and the second part provides for the valuation of any other plant, machi- · 
nery or equipment. The former have to be valued at the actual cost in-
curred by the Corporation in acquiring them and the latter, at the written-
down value determined in accordance with the provisions of the Income· 
tax Act, 1961. On the question of the constitutional validity of the Act. 
HELD: The Act contravened Art. 31(2) of the Constitution and was 
therefore void. [265 CJ 
Under Art. 31(2), no property shall be compulsorily acquired except 
under a law which provides for compensation and either fix°' the amount 
of compensation or specifies the princil,lles on which and the manner in 
which the compensation is to be determined and given. If the compensa-
tion is illusory or if the principles prescribed are irrelevant to the value of 
the p~ 
at or about the time of its acquisition, the law is bad. The 
law, to justify itself, has to provide for the payment of a "just equivalent" 
to the property acquired, or Jay down principles which are not arbitrary 
but which are relevant to the fixation of compensation. It is only when 
ihe principJes stand this test, that the adequacy of the resultant compen-
satiQn falls' outside judicial scrutiny uncler the second limb of Art. 31(2). 
In the instant case, the two principles laid down in cl. (b) of Para II 
of the Schedule are irrelevant to the fixation of the value of the macbinery 
as on the date of acquisition. In the case of unused machinery, if it was 
purchased in 1950 for Rs. 100 and, for oome reason. had not been med 
in the working of the Undertaking but had been maintained in good con-
dition, it may cost Rs. 1000 in 1965. A compensation of Ro. 100 for 
that machinery could not be said to be ·a "just equivalent" of it. Similarly, 
in the ca.e of used machinery, if it was purchased in 1950 for Rs. 1000, 
256 
SUPllEMB COUllT REPOllTS 
[1967) I S.C.R. 
the aggregato of all the depreciation allowances made year a(ter year may 
chaust the •wn o( Rs. 1000 in ten years, with the result that, under the 
Incom~ Act, the ~ 
will not be entitled to any depr&-
ciation after the tenth year. 
It oould not, however, be wd that 
after the tenth year, the machinery had no value and that the owner wu not 
to be given any compensation. 
Indeed, 
such a machinery, 
because o( 
subsequent rise in prices, may be sold in 1965 for Rs. 10,000. Further, 
the constitutional invalidity of cl. (b) of Para II of the Schedule alfects 
the totality of the compensation payable; for, machinery is the major part 
of the undertaking, the entire Undertakio~ is acquired as a unit, and, in 
the context of compensation for tho enure Undertaking. the clauses of 
Para II of the Schedule to the Act are not severable. 
Therefore, 
the 
mere fact that in regard to some parts o( the Undeni.: '11g, the principles 
laid down in Para II provide for compensation does no. 1ffect the ques-
tion, 
especially when it has not been shown that the working out of 
any one or more of the principles woutd give a higher compensation to 
some parts o( the Undertak

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