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Issues: (i) whether the principle of capitalising net income was a relevant principle for determining compensation for acquisition of a public utility undertaking under Article 31(2) of the Constitution of India; (ii) whether the selection of the five-year period immediately preceding takeover for computing average net income was arbitrary; (iii) whether the multiplier of eight adopted for capitalisation was invalid; and (iv) whether the provision for payment of compensation in bonds carrying 3% interest over twenty years offended Article 31(2).
Issue (i): whether the principle of capitalising net income was a relevant principle for determining compensation for acquisition of a public utility undertaking under Article 31(2) of the Constitution of India.
Analysis: The compensation scheme had to specify principles relevant to the determination of compensation, though the adequacy of the resulting amount was not open to challenge. Capitalisation of net income is a recognised method of valuation for undertakings acquired as a going concern, and the undertaking was to be valued as an integrated whole rather than by isolating tangible and intangible assets. The fact that a different valuation method might have produced a larger amount did not make the chosen principle irrelevant.
Conclusion: The principle of capitalising net income was held to be relevant and the challenge on that ground failed.
Issue (ii): whether the selection of the five-year period immediately preceding takeover for computing average net income was arbitrary.
Analysis: The Legislature was concerned with the value of the undertaking at or about the date of acquisition. The selected five-year period was a fair and reasonable basis for arriving at the average income and did not ignore any legally relevant factor. The contention that the years were specially lean years did not establish arbitrariness or irrelevance in the statutory formula.
Conclusion: The choice of the five-year period was upheld as valid.
Issue (iii): whether the multiplier of eight adopted for capitalisation was invalid.
Analysis: The appropriate multiplier depended on the nature of the property, expected return, the capital market, and similar relevant circumstances. There was no rule that the return from gilt-edged securities must invariably control the multiplier in every case. The adoption of eight as the multiplier did not disclose the use of any irrelevant principle.
Conclusion: The multiplier of eight was held not to be invalid.
Issue (iv): whether the provision for payment of compensation in bonds carrying 3% interest over twenty years offended Article 31(2).
Analysis: A scheme providing compensation by bonds is permissible if the present value of what is given reasonably approximates the compensation determined. Here, the long deferral and low interest rate had force as a constitutional objection. However, Section 9(2) was found to be severable from the rest of the Act, and the appellant did not press for striking it down once severability was accepted.
Conclusion: The severability objection was rejected and no wider invalidation followed on this ground.
Final Conclusion: The statutory method of determining compensation under the amended provision was sustained, and the writ petition challenging the vires of the compensation provisions failed.
Ratio Decidendi: For acquisition of an undertaking, the Legislature may choose any recognised and relevant valuation principle, and the selected method will not be invalid merely because another method might yield a higher compensation; only principles that are irrelevant, arbitrary, or illusory can be struck down.
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