1966 (9) TMI 167 - SC - Indian Laws

Summary

Issues Involved:
1. Constitutional validity of the Metal Corporation of India (Acquisition of Undertaking) Act, 1965.
2. Compensation principles for acquisition under the Act.
3. Relevance of the principles to the determination of "just equivalent" compensation.
4. Judicial scrutiny of the adequacy of compensation.

Issue-Wise Detailed Analysis:

1. Constitutional Validity of the Metal Corporation of India (Acquisition of Undertaking) Act, 1965:
The appeal questioned the constitutional validity of the Metal Corporation of India (Acquisition of Undertaking) Act, 1965. The Act was challenged under Article 31 of the Constitution, which pertains to the right to property and compensation for compulsory acquisition. The High Court had previously declared the Act void, citing that it contravened the provisions of Article 31.

2. Compensation Principles for Acquisition under the Act:
The Act provided for the acquisition of the undertaking of the Metal Corporation of India Limited by the Central Government. Section 10 of the Act mandated that compensation be paid to the company, determined according to principles specified in the Schedule. The Schedule outlined the method for calculating the value of properties and assets, including land, buildings, machinery, and other tangible assets, as well as the liabilities and obligations of the company.

3. Relevance of the Principles to the Determination of "Just Equivalent" Compensation:
The High Court found that the principles laid down in clause (b) of para II of the Schedule for valuing machinery were not relevant to determining "just equivalent" compensation. The principles in question were:
- Valuation of unused machinery at its original cost.
- Valuation of used machinery at its written-down value as per the Income-tax Act, 1961.

The High Court held that these principles did not account for the rise in prices over time and did not reflect the actual value of the machinery at the time of acquisition. This was deemed arbitrary and not a fair method for determining compensation.

4. Judicial Scrutiny of the Adequacy of Compensation:
The Supreme Court upheld the High Court's reasoning, stating that the principles for determining compensation must be relevant to the value of the property at the time of acquisition. The Court emphasized that compensation should be a "just equivalent" for the property acquired. The principles in the Act failed this test as they were arbitrary and did not reflect the current market value of the machinery.

The Court referenced previous decisions, such as The State of West Bengal v. Mrs. Bela Banerjee and State of Madras v. D. Namasivaya Mudaliar, which established that compensation must be based on the value at the time of acquisition, not an anterior date. The Court reiterated that the adequacy of compensation is beyond judicial scrutiny if the principles are relevant and not arbitrary. However, in this case, the principles were found to be irrelevant and arbitrary.

Conclusion:
The Supreme Court concluded that the Act did not provide for "compensation" as required under Article 31(2) of the Constitution. The principles for determining compensation were not relevant to the value of the property at the time of acquisition, rendering the Act unconstitutional. The appeal was dismissed, and the High Court's judgment was upheld. The Act was declared void, and the respondents were awarded costs.