K. Jayaraj Ballal, And Others v. State Of Karnataka And Others

Govinda Bhat, C.J:—

1. This is a batch of 374 writ petitions preferred under Article 226 of the Constitution of India against the State of Karnataka (hereinafter called the State) and the Karnataka State Road Transport Corporation (hereinafter called the Corporation), challenging the constitutional validity of the Karnataka Contract Carriages (Acquisition) Act (hereinafter called the Act) which replaced the Karnataka Contract Carriages (Acquisition) Ordinance, 1976 (hereinafter called the Ordinance). The writ petitions have been preferred by Contract Carriage Operators-Inter-State as well as Intra-State and by a few Financial Institutions which, under Hire-Purchase Agreements, had hired the vehicles to the Operators.

2. Though several grounds have been raised in the writ petitions, at the final hearing of these cases before us, Sri A.K Sen of the Supreme Court Bar, urged only four grounds. They are:

I. The acquisition of contract carriages with Inter-State permits etc., is beyond the legislative competence of the State Legislature.

II. Art. 31-C does not bar challenge to the Act on ground No. III as there is no reasonable and substantial nexus between the purpose of the acquisition and securing the principles specified in clauses (b) and (c) of Art. 39.

III. The Act is violative of Art. 31(2) of the Constitution as the acquisition is not for a public purpose and compensation for the acquisition is illusory.

IV. The Act is violative of Articles 301 and 304 of the Constitution.

3. In addition to the above grounds, Sri K.K Venugopal of the Madras Bar, who appeared in 16 cases, urged that the Act is bad on the ground of repugnancy under Article 254(1) of the Constitution, but Sri S.P Shankar, Junior Counsel, at a later stage, filed a Memo submitting that he does not press that ground.

4. On the arguments presented before us on both sides, the points for decision in these matters are:—

I. Whether the Act in so far as it provides for acquisition of contract carriages with Inter-State permits, is ultra vices being beyond the legislative competence of the State?

II. Whether challenge on the ground that the Act violates Art. 31(2), is barred by Art. 31-C of the Constitution?

III. Whether the Act is violative of the fundamental right guaranteed under Art. 31(2) of the Constitution?

IV. If the Act is otherwise valid, does it violate the freedom of trade and commerce guaranteed under Articles 301 and 304 of the Constitution?

5. In order to appreciate the arguments addressed by learned counsel on both sides, it is necessary to set the material facts which are not in dispute. Stated briefly, they are:

6. The Corporation published in the Karnataka Gazette dated 16th May, 1974, a draft scheme for nationalization of Contract Carriages in the State under Chapter IV-A of the Motor Vehicles Act, 1939 (hereinafter called the M.V Act) inviting objections. Some of the writ petitioners preferred their objections within the time allowed. The objections were posted for hearing before the State Government which is the authority to approve the Scheme; but each time the matter came up, hearing was adjourned suo motu and finally, the hearing was fixed for 27th January, 1976. Without assigning any reason, hearing fixed on that date was cancelled.

7. On 30th January, 1976, the Ordinance was promulgated by the Governor of Karnataka and the same was published in the Karnataka Gazette Extra-ordinary providing for acquisition of contract carriages as defined in the Ordinance. The State issued a Notification No. H.D 4 TMI 76 dated 30th January, 1976, in exercise of the powers conferred by sub-section (1) of Section 4 of the Ordinance, specifying 30th day of January, 1976, as the date on which the contract carriages and the permits specified in the said Notification shall vest in the State. On January 31, 1976, the State, in the exercise of its powers under sub-section (1) of Section 20 of the Ordinance, transferred the said contract carriages with their relative permits to the Corporation.

8. The Officers of the Corporation seized the vehicles and the relative permits pursuant to the aforesaid Notifications except six vehicles operated under Inter-State permits belonging to the petitioners in W.Ps Nos. 900, 1263 and 1639 of 1976. The seizure of the said six vehicles was stayed by the order made by this Court on 5th April, 1976. The notification dated 30th January, 1976 issued under Section 4 of the Ordinance did not cover all the stage carriage operators in the State. Therefore, it was followed by five more notifications. It is not necessary for the purpose of these cases to give the particulars of the said notifications. The Ordinance as also the notifications issued thereunder were challenged before this Court by a large number of operators. Venkataramiah, J., before whom the matters came up for preliminary hearing issued rule nisi. In one set of cases (W.Ps Nos. 853 and 1554 of 1976 decided on 26th February, 1976 which is reported in 1976 (1) Karnataka Law Journal 373), the learned Judge held that the Ordinance did not empower the acquisition of vehicles not covered by valid contract permits and consequently quashed some of the notifications. Following the said decision, the same learned Judge allowed a large number of writ petitions on 3rd March, 1976.

9. The Ordinance with some changes was replaced by the Act which received the assent of the President on 11th March, 1976 and was published in the Karnataka Gazette dated 12th March, 1976.

10. The Act which replaced the Ordinance made provision to acquire motor vehicles registered as contract carriages in the concerned certificates of registration but not covered by permits. This was done to overcome the decision in W.P 853 of 1976 and connected matters. Therefore, in supersession of the Notification No. HD. 4 TMI. 76(2) dated 10th February, 1976 and three other Notifications, a fresh Notification bearing No. HD. 4 TMI 76(2) dated 16th March, 1976 was issued acquiring 278 vehicles specified in the said Notification. Corresponding Notifications were issued under Section 19 of the Act transferring the vehicles acquired to the Corporation.

11. The operators who had succeeded in getting the Notifications pertaining to their vehicles quashed by this Court, again approached this Court or relief under Article 226 of the Constitution. Venkataramiah, J., referred 374 writ petitions to a Division Bench in view of the important constitutional issues involved therein.

12. After the conclusion of the hearing, we directed the learned High Court Government Advocate who appeared for the Corporation, to file a statement containing particulars of the operators and the contract carriages acquired under the Act. Accordingly, he has filed a statement. According to the said statement, the total number of operators whose vehicles were acquired under the Act is 498; the total number of vehicles acquired is 782. Out of the said 498 operators, 381 are single vehicle operators, that is, each owns only one vehicle; the number of operators who owned vehicles numbering between 2 to 5 is 105: the number of operators owning six vehicles and more is 12; the maximum number of vehicles operated by a single operator does not exceed 18.

13. Now I will briefly refer to the material provisions of the Act.

The title of the Act is “The Karnataka Contract Carriages (Acquisition) Act, 1976; it extends to the whole of the State of Karnataka and it shall be deemed to have come into force on 30th January, 1976. (Vide Sec. 1).

Section 2 contains a declaration that the Act is to give effect to the Policy of the State towards securing the principles specified in clauses (b) and (c) of Article 39 of the Constitution.

Section 3 is the definition section; clause (g) defines the term ‘contract carriage’. Clause (i) defines ‘Corporation’ to mean the Karnataka State Road Transport Corporation established under the Road Transport Corporation Act, 1950 (Central Act LXIV of 1950); ‘Notified date’ has been defined in clause (k) to mean the date specified in the Notification under Section 4(1) in respect of any contract carriage operator. Clause (1) defines ‘Operator’ to mean a contract carriage operator; clause (n) defines ‘person interested’ in relation to any acquired property to include a contract carriage operator, and any secured creditor or financier under a hire purchase agreement, who has a charge, lien, or any interest in the acquired property and any other person who is affected by the vesting of the property and claiming or entitled to claim an interest in the amount.

sub-section (1) of Section 4 provides for vesting in the State of contract carriages with the relative permits, on the issue of a Notification by the State, free from all encumbrances; Sub-section (2) provides for vesting of lands, buildings, workshops and other places and all stores, instruments, machinery, tools etc., and all account books, registers and records relating to the contract carriages vesting in the State under sub-section (1); Sub-section (3) states that the contract carriages and other property vested in the State under sub-sections (1) and (2) shall be deemed to have been acquired for a public purpose.

Section 14 prohibits issue of fresh contract carriage permits for renewal of such permits to any person.

Section 19 provides for transfer of the acquired property to the Corporation.

Section 20 confers on the Corporation the exclusive privilege of running contract carriages.

Sections 6 and 8 to 11 and the Schedule, make provision for payment for the property acquired under Section 4.

I will now proceed to deal with the grounds of challenge under the relevant heads.

14. Re: Point No. 1: Whether the imputed Act, in so far as it provides for acquisition of contract carriages with Inter-State permits, is ultra vices being beyond the legislative competence of the State?

15. The contract carriages (Acquisition) Ordinance, 1976 promulgated by the Government on January 30, 1976 stated that it shall apply to all contract carriages operating in the State of Karnataka. (Vide Section 1(3) of the Ordinance). The Notification issued under Section 4 of the Ordinance, however, purported to vest 23 carriages with Inter-State permits belonging to 9 operators. Of the said 23 carriages, 17 were seized but the seizure of the remaining 6 was stayed by an interim order made by this Court on April 5, 1976, subject to the terms and conditions stipulated thereunder.

16. In the writ petitions filed by the Inter-State operators, the said Notification was challenged as unauthorised by law. The Ordinance was replaced by the Act, wherein Section 1(3) of the Ordinance has been omitted. Section 31 of the Act which repeals the Ordinance, states that notwithstanding such repeal anything done or any action taken under the said Ordinance, shall be deemed to have been done or taken under the corresponding provisions of the Act. By sub-section (3) of Section 1, the Act is deemed to have come into force on the 30th day of January, 1976, which is the date of promulgation of the Ordinance by the Governor.

17. Sri Venugopal, who commenced the arguments, urged that on a proper reading of the entire provisions of the Act, it is possible to construe that it is operative only in respect of contract carriages with Intra-State permits and relied on the principle in Macleod v. Attorney-General for New South Wales(1). Which was applied by the Federal Court of India In re the Hindu Women's Rights to Property Act,(2). Wherein Gwyer C.J said that when a legislature with limited and restricted power used a word of such wide and general import as “property,” the presumption must be that it was using that word with reference to that kind of property with respect to which it was competent to legistate and to no other and that unless, therefore, the Act was to be regarded as wholly meaningless and ineffective, the word “property” must be considered as “property other than agricultural property.” Applying the said principle, Sri Venugopal submitted that if the Act is construed as one for acquiring contract carriage operating on Inter-State permits also, the Act will be rendered unconstitutional being beyond the legislative competence of the State and, therefore, we should read down the definition of the term ‘contract carriage’ in Section 3(g) as limiting it to contract carriages operating on Intra-State permits only.

18. The learned Advocate General, appearing for the State, took the definite stand that the Act is intended to be operative with respect to Inter-State carriages also, that there is no want of legislative competence in the Act as there is sufficient nexus to confer jurisdiction on the State to acquire contract carriages where ‘the primary permits’ were issued by authorities in the State of Karnataka.

19. Sri A.K Sen, who appeared for some of the Inter-State operators, did not advance the argument that the Act is restricted in its operation to Inter-State carriages. At a later stage, all counsel were agreed that the Act operated on contract carriages with Inter-State permits also. The submission of Sri Sen was that an Act of the State Legislature cannot operate outside the territory of the State and acquisition of a transport vehicle with an Inter-State permit, cannot be done by either State but only by law enacted by the Union Parliament.

20. The argument of the learned Advocate-General, stated in brief, was that the vehicles acquired were owned and operated by persons permanently residing in the State of Karnataka, that the said vehicles were being operated under ‘primary permits’ issued by authorities in the State of Karnataka and the obtaining of countersignature of authorities in the other States is merely in the nature of consent for operating the vehicles in the other States, that the cancellation of the ‘primary permit by the authorities in the State of Karnataka will automatically result in the extinction of the operation of the counter-signature and that the legislature of the State is competent to acquire movable properties of persons whose domicile is in the State of Karnataka and whose vehicles are operated by permits issued by the State authorities and that the issue of ‘primary permits’ by authorities of the State of Karnataka constitutes sufficient and valid nexus to confer jurisdiction on this State to acquire the contract carriages operated under Inter-State permits.

21. The theory of nexus on which legislative competence depends, has relation to the subject matter of legislation. In the matter of levy of estate duty on movables situated outside the taxing State, the domicile of the deceased is held to constitute sufficient nexus; but mere domicile of the owner of a chattel does not confer jurisdiction on the State of domicile, to acquire his chattels permanently kept outside the State.

22. The principles governing the jurisdiction of the State to appropriate movable property, has been clearly stated in ‘Nichols on Eminent Domain,’ (Vol. I) at page 115, para 2, thus:

“Property situated in another State:

There is one limitation upon the power of eminent domain which depends upon no express constitutional provision. The powers of a sovereign State, however vast in their character and searching in their extent, are inherently limited to subjects within the jurisdiction of the State, and any attempt to exercise governmental powers in another State is necessarily void. A state, therefore cannot take or authorise the taking of property or rights in property situated in another State, and conversely, each State holds all the property within its limits free from the eminent domain of any other State and cannot be compelled to surrender such property to another State in any way.”

“Rule as to personal property: (page 119)

In all the cases involving the taking of property in another State which have arisen the subject matter of the taking was real property, and there is no question that real property is within the jurisdiction of the State in which it is stated, regardless of the domicile of the owner. Serious complications might arise if a State attempted to take the personal property of non-residents found within its limits, or of its own residents kept outside the State. It is safe to assume that in such a case all the modern modifications of the doctrine that MOBILLA SEQUENTER PERSONAM would be held applicable, and property permanently kept in one State would be held to be within the jurisdiction of such State and of no other, but whether property of non-resides temporarily within a State could be taken by eminent domain, just as it may be attached on mesne process, is open to greater doubt.”

23. A contract carriage or any other transport vehicle operated on Inter-State permit issued under the authority of law made by the Parliament, is an instrument of Inter-State trade and commerce. The power to legislate over Inter-State trade and commerce is vested exclusively in the Union Parliament under Entry 42 of List I,—Union List—of the Seventh Schedule read with Article 246 of the Constitution. The State Legislature has no power to legislate over Inter-State trade and commerce or over the instrumentalities by which such trade and commerce may be conducted. In Southern Railway Company v. United States(3) and George M. Napier v. Atlantic Coast line Rail-Road Company(4). The Supreme Court of the United States of America held that the power of the Congress over Inter-State commerce embraces all the instrumentalities by which such commerce may be conducted and that among the instruments and agents to which the power extends are the trains, locomotives and cars, etc., which are employed in Inter-State transportation.

24. Under our Constitution, the subject of ‘Inter-State trade and commerce’ being exclusively a Central subject, the State Legislature cannot make any law directly interfering with Inter-State trade and commerce. It also cannot make any law which directly affects the instrumentalities of Inter-State transportation which, in the instant cases, are contract carriages with Inter-State permits. A contract carriage or any other transport vehicle operated under a permit issued by two or more States, cannot be said to be property permanently kept in the State of domicile of the operator or the place of registration of the vehicle or the place of the authority issuing the ‘primary permit’. It is significant to note that what has been acquired is not merely the vehicles, but the vehicles with their relative permits. A permit is also property and the Act provides for payment of some compensation for the permits acquired.

25. The petitioner in W.P 1263 of 1976 is an operator who held eight permanent permits and one temporary permit for the Inter-State route from Mangalore in Karnataka to Bombay in Maharashtra. The distance between Mangalore and Bombay is over 400 miles. The vehicles keep moving between Mangalore and Bombay and vice versa. They are not permanently kept within the jurisdiction of any one State. Similarly, there are other Inter-State operators operating between Bangalore and some cities in Kelrala or between Bangalore and Madras in Tamilnadu. The learned Advocate General was unable to produce any precedent of one of the States acquiring transport vehicles operated under Inter-State permits.

26. Let me now apply the theory of nexus propounded by the learned Advocate General and his colleague Sri K.S Puttaswamy, learned High Court Government Advocate, to various situations. Let me suppose that a transport vehicle was registered in Bombay in Maharashtra State and was transferred to an operator in the State of Karnataka, and the operator applies for an Inter-State permit to perate on the route from Bangalore in Karnatka to Madras in Tamilnadu. The ‘primary permit’ is issued by the authorities in Karnataka and counter signature is granted by the concerned authority in Tamilnadu. Now, on the theory of nexus propounded by the learned counsel for the respondents, all the three States, viz., Karnataka, Maharashtra and Tamilnadu, are competent to enact a law acquiring the same vehicle. If the State wherein the authority issuing the ‘primary permit’, as it is called, is competent to enact a law for acquisition of Inter-State transport vehicles on the theory of nexus, on the same theory of nexus the State which has granted counter-signature to the permit is equally competent to enact a legislation for acquisition of the same vehicles. Similar situations arose when each State levied sales tax on Inter-State sales invoking the theory of nexus and ultimately the Union Parliament had to intervene and amend the Constitution and further enact the Central Sales Tax Act to resolve the confusion; the law made by the Parliament now says as to which State shall levy sales tax in the case of Inter-State sales.

27. The Motor Vehicles Act, 1939, is an Act enacted by the Parliament; because it is a law made by the Parliament, issue of Inter-State permits has been made possible thereunder. In the absence of a law made by Parliament, no State Legislature could have made a law for grant of Inter-State permits. The law made by the State Legislature could have provided only for grant of intra-state permits.

By Section 4(1) of the Act, inter-state contract carriage vehicles along with their relative permits stand vested in the State of Karnataka and the State, in its turn, has transferred the whole of the property acquired under Section 4 (vehicles with relative permits, workshops, tools, lands, buildings, and account books) to the Karnataka State Road Transport Corporation. Sub-section (2) of Section 19 of the Act further states that where in pursuance of sub-section (1) any contract carriage is transferred to the said Corporation, the permit, if any, in respect of such contract carriage shall, notwithstanding anything in the Motor Vehicles Act, be deemed to have been transferred in favour of the Corporation and such permits shall be valid for the unexpired period thereof and that after expiry of the period, the Corporation shall be exclusively entitled to the renewal of the permits. Not only the transport vehicles, but also the relative permits with all lands, buildings, workshops and all instruments, machinery, tools, plants, apparatus and other equipments for the maintenance and repair of, or otherwise in connection with the service of the contract carriages as the State Government may by order, specify in this behalf, and all account-books, registers, records and all other documents of whatever nature relating to the contract carriages vested in the State Government under sub-section (1) or other property specified by the State Government under clause (1) of sub-section (2) of Section 4, shall vest in the State Government, absolutely free from all encumbrances.

28. The States of Maharashtra, Kerala and Tamil Nadu have made Rules under the Motor Vehicles Act, which they are competent to make, providing for the renewal or/and transfer of counter-signatures. Rule 205 of the Kerala Motor Vehicles Rules states:

“Renewal of permits.—(1) Every application for renewal of a permit or of its countersignature shall be made to the Transport Authority which issued the permit or countersigned it, as the case may be.

*****”

Rule 211 which provides for transfer of permit by one person to another by sub-rule (5) provides as to how the transfer, has to be endorsed. In the case of transfer of an Inter-State permit, application has to be made for necessary endorsement to the authority which has granted countersignature.

Rules 94 of the Bombay Motor Vehicles Rules, 1959, provides for renewal of countersignature of permits, sub-rule (1) of Rule 94 states:

“Subject to the provisions of rule 95, an application for the renewal of a countersignature on a permit shall be made in writing to the Regional Transport Authority concerned and shall, subject to the provisions of sub-rule (2), be accompanied by Part A of the permit. The application shall set forth the period for which the renewal of the countersignature is required.”

In Tamilnadu also, there are corresponding Rules (Vide Rules 152 and 153-A of the Tamil Nadu Motor Vehicles Rules, 1940).

29. I am referring to these rules only to counter the argument of the learned Advocate-General and the learned High Court Government Advocate that on the mere endorsement of transfer by the authority which has issued the ‘primary permit’ no endorsement of counter-signature is necessary to make such transfer valid and operative.

30. The law is that in the case of Inter-State permits the transfer has to be endorsed or granted not merely by the authority which has issued the ‘primary permit’ in one State, but also by the corresponding authority in the other State which has granted counter-signature.

31. Now the effect of Section 19(2) of the Act is that without recourse to any such application to the countersigning authorities in the States of Maharashtra, Kerala and Tamil Nadu, the Inter-State permits held by the operators shall be deemed to have been transferred to the Corporation. It requires no authority to say that the Legislature of the State of Karnataka cannot make any law giving it extraterritorial operation. The Legislature has, therefore, no jurisdiction to make a law either to vest or transfer Inter-State permits of the operators in the State of Karnataka to the Corporation.

32. Sri K.S Puttaswamy, learned High Court Government Advocate, relying on the decision in Gajalakshmi Ammal Manonmaniammal Bus Service v. State Transport Appellate Tribunal, Madras(5). (Paras 3 and 4), submitted that an Inter-State permit, though it requires counter-signature by the authorities of another State, is one and indivisible permit.

33. Sri A.K Sen, learned counsel for some of the writ petitioners, submitted on the authority of two decisions of the Supreme Court that an Inter-State permit is, in substance, two permits rolled up into one and therefore, Sri Puttaswamy's contention is not right.

34. The decision of the Supreme Court in Messrs Bundelkhand Motor Transport Co. v. Behari Lal Chaurasia(6), is clear authority for the proposition that an Inter-State permit is not one and indivisible permit, but is really two permits rolled into one. That was a case of an inter-regional permit. In 1957 the Regional Transport Authority, Jabalpur, granted to Messrs Bundelkand Motor Transport Company, Nowgaon, the appellant before the Supreme Court, a permit under the Motor Vehicles Act, 1939, to ply stage carriages on an inter-regional route—Jabalpur to Chattarpur in the State of Madhya Pradesh, and the permit was countersigned by the Regional Transport Authority, Rewa, within whose jurisdiction a part of the route lay. The permit was renewed in 1960 for a period of three years expiring on August 9, 1963 by the Regional Transport Authority, Jabalpur, and it was counter-signed by the Regional Transport Authority, Rewa. On June 7, 1963 the appellant applied to the Regional Transport Authority, Jabalpur, for renewal of the permit, and by order, dated December 6, 1963, the permit was renewed for the period ending February 9, 1966. By its application dated December 7, 1963 the appellant requested the Regional Transport Authority, Rewa, to countersign the permit so renewed. This application was published as required by Section 57 read with Section 63 of 3.) of the Act on January 2, 1964. Three motor transport operators, amongst whom was the first respondent Behari Lal Chaurasia, objected to the grant of counter-signature to the permit, inter alia, on the ground that the application was barred by the law of limitation prescribed by Section 58(2), proviso one, and the Regional Transport Authority, Rewa, had no power to grant counter-signature of renewal after the expiry of that period. The Regional Transport Authority, Rewa, overruled the objection, and by order dated March 17, 1964 granted counter-signature of the permit. The first respondent approached the High Court of Madhya Pradesh to quash the counter-signature granted by the Regional Transport Authority, Rewa, and that writ petition was allowed. On appeal, the Supreme Court confirmed the order of the High Court holding that on refusal to grant counter-signature by the Regional Transport Authority, Jabalpur, in so far as it related to the Rewa Region, the permit became a purely regional permit valid for the area of the Regional Transport Authority, Jabalpur only and the Regional Transport Authority, Rewa, had no power thereafter to grant counter-signature. The ratio of that decision has been stated in para 9 of the judgment thus:

“The result, therefore, is that an application was made under Section 63 read with Section 58(2) to the Regional Transport Authority, Jabalpur, for renewal of the permit and also for countersignature of the renewal of the permit. The Regional Transport Authority, Jabalpur, granted renewal of the permit, but declined to grant countersignature of the permit, in so far as it related to the Rewa Region. Under Section 63 a permit granted by the Regional Transport Authority of one region is not valid in any other region, unless the permit has been countersigned by the Regional Transport Authority of that other Region. The clearest implication of this provision is had even an inter-regional permit when grunted is valid for the region over which the Authority granting the permit has jurisdiction, and when it is countersigned by the Regional Transport, Authority of the other region, the permit becomes valid for the entire route.”

(Underlining is by me).

The Supreme Court confirmed the order of the High Court quashing part of the permit in so far as it was operative within the area of the Regional Transport Authority, Rewa, This decision was followed in Punjab Sikh Regular Motor Service, Moudhapara. Raipur v. Regional Transport Authority, Raipur(7), and it was pointed out in para 6 of the judgment that the ratio of the decision in Bundelkhand Motor Transport Company's case is that an inter-regional permit, when granted, is valid for the region over which the authority granting the permit has jurisdiction even though it is not countersigned by the proper Regional Transport Authority with regard to the portion of the route outside that region.

35. On the ratio of the aforesaid decisions it follows that an inter-State permit, comprises of two permits rolled into one. If it is held that the State of Karnataka has acquired a portion of the permit within its jurisdiction, all the Inter-State permits get converted into Inter-State permits operative in the State of Maharashtra, Kerala and Tamil Nadu, as the case may be. In order to avoid such consequences the Union Parliament has enacted the Road Transport Corporations Act, 1950, providing for extension of the operation of the road transport service of a Corporation of one State to areas within another State.

36. It was argued by the learned Advocate-General that the power of acquisition of property is in Entry 42 of List III Concurrent List, and the subject of mechanically-propelled vehicles is found in Entry 35 of the said List and, therefore, the Act is within the legislative competence of the State.

37. We are not concerned here with the question of competence of the State Legislature to acquire property within its jurisdiction. But the State Legislature cannot make any law which directly conflicts with the law made by the Parliament with regard to Road Transport Corporations and which law is within the exclusive legislative competence of the Union Parliament.

38. It is necessary to refer to the relevant provisions of the Motor Vehicles Act, 1939, for the purpose of determination of the question in issue. Section 63(1) states that except as may be otherwise prescribed, a permit granted by the Regional Transport Authority of any one region shall not be valid in any other region, unless the permit has been countersigned by the Regional Transport Authority of that other region, and a permit granted in any one State shall not be valid in any other State unless countersigned by the State Transport Authority of that other State or by the Regional Transport Authority concerned. One exception is provided by the second proviso to sub-section (1) of Section 63 where both the starting point and the terminal point of a route are situate within the same State, but part of such route lies in any other States and the length of such part does not exceed sixteen kilometers. In such a case, the permit shall be valid in the other State in respect of that part of the route which is in that other State notwithstanding that such permit has not been countersigned by the State Transport Authority or the Regional Transport Authority of that other State. Sub-section (3) of Section 63 states that the provisions of Chapter IV relating to the grant, revocation and suspension of permits shall apply to the grant, revocation and suspension of counter-signatures of permits. Section 57 provides for the procedure in applying for and granting permits. The procedure for grant of contract carriage permit has to be followed for grant of countersignature as well. Section 58 provides for the duration and renewal of permits, and the said section applies to countersignatures as well. Section 61 provides for transfer of permits on the death of the holders. Stated briefly, for grant of countersignature, practically the procedure is the same as the procedure for grant of a permit or renewal of a permit. Having regard to the scheme of the M.V Act, it is not possible to construe an Inter-State permit as one permit.

39. Inter-State transport vehicles can be compared to inter-State rivers. An inter-State river is one which flows through more than one State. Has the State where the river has its source, jurisdiction to alter the inter-State character of the river into an inter-State river by total stoppage of its flow from that State to the adjoining State? On parity of reasoning, the situs of an inter-State transport vehicle with its relative permit cannot be said to be within the exclusive jurisdiction of any one State. The State which issues the so-called ‘primary permit’ cannot convert the Inter-State character of the permit into an Inter-State permit. An inter-State transport vehicle may be in one State on one day and move to another State next day. Its situs not being in any one State exclusively, no State can acquire an Inter-State transport vehicle operated under an Inter-State permit except under the authority of law made by the nion Parliament. The presence of the vehicle in any one of the States or the issue of the ‘primary permit’ by one of the States cannot confer jurisdiction to that State to appropriate the property in exercise of its power of Eminent Domain. Therefore, I am of the clear opinion that the impugned Act, in so far as it provides for acquisition of contract carriage vehicles with Inter-State permits is ultra vitra of the Legislative powers of the State.

40. Re. Point No. II.—Whether the challenge to the impugned Act on the ground of violation of Article 31(2) is barred by Article 31-C of the Constitution?

Section 2 of the Act reads:

“2. Declaration.—It is hereby declared that this Act is for, giving effect to the policy of the State towards securing the principles specified in clauses (b) and (e) of Article 39 of the Constitution of India and the acquisition therefor of the contract carriages and other property referred to in section 4.”

The declaration is to the effect that the acquision of contract carriages and other property referred to in Section 4 is for giving effect to the policy of the State towards securing the principles specified in clauses (b) and (c) of Article 39. If the purpose of the acquisitions under Section 4 is effectuation of the policy contained in clauses (b) and (c) of Article 39, the Act is immune from challenge on the ground of violation of Article 31(2).

41. The true constitutional position as to the effect of declaration by the Legislature that the acquisition is for securing the principles specified in clauses (b) and (c) of Article 39 is settled by the decision of the Supreme Court in Keshavananda Bharathi v. State of Kerala(8). The Supreme Court struck down the clause reading “and no law containing a declaration that it is for giving effect to such policy shall be called in question in any court on the ground that it does not give effect to such policy” in Article 31-C, and held that it is open to the Court to pierce the veil and examine whether there is reasonable and substantial relation or nexus between the apparent object of the acquisition and effectuation of the Directive principles.

42. The first part of Article 31-C has been declared valid in Keshavananda Bharathi's case. If the acquisition of property is by law for giving effect to the Directive Principles specified in clause (b) or clause (c) of Article 39, such acquisition shall be deemed to be for a public purpose. While the declaration of the Legislature must be treated with the consideration due to a co-ordinate Department of the State, such declaration is not binding upon the Court and if the Court, after giving due weight to the declaration of the Legislature, considers that the purpose for which the taking of property has been authorised has no real and substantial relation towards securing the principles specified in clause (b) or clause (c) of Article 39, it is the duty of the Court to intervene and declare the Act authorising the taking, as unconstitutional.

43. The principles for the guidance of Courts for deciding whether the acquisition is for a public purpose, when the Act authorising the taking of property is challenged on the ground that no such public purpose exists, have been stated by Nichols on Eminent Domain (Volume 2, at pages 470 to 472) thus:

“7.4(1) Effect of Declaration by Legislative.—

The presumption is that a use is public if the legislature has declared it to be such, and the decision of the legislature must be treated with the consideration due to a co-ordinate department of the government of the State. However, such declaration is not binding upon the courts. It the court, after giving due weight to the declaration of the legislature, considers that the purpose for which the taking of property has been authorised is obviously unreasonable or has no real and substantial relation to the public use, it is its duty to declare the act authorizing the taking to be unconstitutional.”

The statement of law in American Jurisprudence (2d) Volume 26, page 688, is also to the same effect:

“Generally; Public use as Legislative or Judicial question.—

Primarily, the right to declare what shall be deemed a public use is vested in the legislature; consequently, when the public nature of a use for which a taking has been authorized by law is disputed, the question as it presents itself to the courts is whether the legislature might reasonably have considered the use public, not whether the use is public. The presumption is that a use is public if he legislature has declared it to be such, and the decision of the legislature must be treated with the consideration due to a co-ordinate department of the government of the state. *** *** ***

The mere declaration by the legislature of a purpose for which property may be taken for a public use is not conclusive, and does not preclude the land owner from showing that the use contemplated is a private one.

Ultimately, the question whether the constitutional provisions against the taking of property for private use have been violated is, like all constitutional questions, for the courts; and if a court can clearly see that a particular undertaking which it is proposed to clothe with the power of eminent de main has no real and substantial relation to the public use it is the duty of the court to intervene. Or, as this rule is commonly expressed by the courts, the nature of a use, whether public or private, within the power of eminent domain, is ultimately a judicial question. This rule is especially applicable to private ways. The question of public use in the taking by a municipality or public body of the property or plant of a public service company for public utility purposes is commonly regarded as one for the courts.

Of course, the legislature cannot, by its mere fiat, make any use of property a public use; and if it attempts to do so arbitrarily, the courts have the power to declare the enactment invalid. *** **”

44. The argument of Sri A.K Sen and Sri K.K Venugopal, on behalf of he petitioner, was that the purpose of the acquisition under the Act does not come within the scope of clause (b) or (c) of Article 39. Article 39 reads:

“39. The State shall, in particular, direct its policy towards securing—

(a) (Omitted as not necessary).

(b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good;

(c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment:”

[(d) to (f) omitted as not necessary] According to Sri Venugopal, the expression ‘material resources of the community’ in clause (b) means natural resources such as land, minerals, forests, natural gas, water, oil, etc. In support of that submission the invited our attention to the materials referred to in the judgment of the Madras High Court in Kannappa Chetty v. State of Tamil Nadu(9). Sri Sen submitted that importance has to be given to the words “material resources of the community” and “distributed as best to subserve the common good.” He submitted that among the assets of the operators taken over are contract car rages permits; that the right to operate contract carriages is a statutory right and not a common law right or a natural right. Section 4 which is the section under which acquisition is made, takes over not only contract carriage vehicles but also the permits owned by the operators, their account books, tools, workshops, etc., which are transferred to the Corporation; that the permits and account books, by any stretch of imagination cannot be construed as coming within the expression “material resources”.

54. The contention of the learned Advocate General was that clause (b) of Article 39 should be interpreted in the total context of Part IV of the Constitution containing the Directive Principles of State Policy and so interpreted, the expression “material resources of the community” should be given its ordinary meaning in its widest amplitude. So interpreted, “material resources of the community” include all resources which are non-spiritual and which are necessary to sustain the community-whether they be in the form of means of production or finished goods capable of satisfying human needs; that the mandate of clause (b) is that the Legislature, in making its laws, on an examination of all the circumstances of the case, should determine the particular kind of resources in respect of which ownership and control should be distributed as best to subserve the common good; that this distribution of ownership and control of material resources of the community as conceived by the Constitution could take various forms; for instance, the distribution of ownership and control of material resources could take the form of breaking up of ownership of a person or group of persons over material resources and distributing them to individuals, or the Legislature, in its wisdom, may, by law, provide for the ownership and control of material resources in the hands of several persons to be brought under the control of the State itself or assign it to a Corporation or other Agency controlled by it, in order to sub-serve common good; that he law providing for ownership and control of transport vehicles owned and operated by several individuals should be taken over by the State itself and assigned to a Corporation controlled by the State is a law that furthers the directive of Article 39(b); that ownership, control and operation of these public transport vehicles by private operators introduce several social evils resulting in common detriment and the law provides that they should be taken over and their ownership and control should vest in the Corporation controlled by the State to subserve the common good.

46. In regard to clause (c), the argument of Sri Sen was that it speaks of concentration of wealth and means of production; that there is no case pleaded or made out that in the instant case there is any concentration of wealth and means of production in the hands of a few contract carriages operators. He submitted that factually there is no such concentration; that 782 vehicles acquired under the Act were owned by 498 operators of whom 381 owned only one vehicle each; further, the contract carriages were invariably acquired under hire-purchase agreements entered into with the financiers and if due allowance is made for the liabilities incurred in connection with the business of contract carriage operators, it is evident and cannot be disputed that there is no concentration of wealth and the means of production in the hands of the operators in this State. He invited our attention to the averments made in the pleadings stating that invariably all the operators have acquired the vehicles under hire-purchase agreements with financiers at heavy rates of interest, ranging between 18 and 30 per cent, which have not been denied in the pleadings filed on behalf of the State. Therefore, it was argued that factually there is no concentration of wealth and means of production made out, and therefore, the case does not fall under clause (c).

47. This argument was met by the learned Advocate-General which I shall put in his own words, thus:

“The mandate of Article 39(c) is that operation of economic system does not result in the concentration of wealth and means of production to the common detriment. The economic system, which the present law seeks to introduce, is a system, that seeks to prevent concentration of public transport vehicles in private hands who operate them purely for private gain and not essentially in public interest, and in the process introduce several undesirable social evils, the eradication of which is necessary to prevent common detriment. That the system that is sought to be altered is a system in which public transport vehicles are owned and controlled by private citizens for private gain resulting in common detriment. The impugned Act, therefore, it a law that seeks to carry out the directives contained in Article 39(c) of the Constitution.”

The Court is called upon to interpret an important provision in Part IV of the Constitution. When the Court interprets a Constitution, it has to remember the words of Chief Justice Marshal which have become classical. Chief Justice Marshal always said:

“We should not forget that we are expounding a Constitution.” The principle embodied in those words a has been accepted by our Courts whenever the question of interpretation of our Constitution arose.

48. Interpretation of a Constitution is not like interpreting an ordinary statute. The Constitution is the corner-stone of a nation. No doubt, the Constitution cannot create a new society, but it sheds its light over the path in that direction. Therefore, a Judge, who interprets an important provision in the Constitution has to take a spacious and liberal view of the Constitution; for which he must know the historical background under which the Constitution was framed; the principles and ideals of the makers of the Constitution. What is the direction in which the Constitution makers directed the march of the nation? The essence of the Directive Principles lies in Article 38, which, echoing the Preamble, reads:

“…… the State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic, and political, shall inform all the institutions of the national life.”

To achieve the goal stated in Article 38, the rest of the provisions of Part IV exhort the State to ensure that citizens have adequate means of livelihood, that the operation of the economic system and the ownership and control of the material resources of the community subserve the common good, that the health of workers, including children, is not abused, and that special consideration be given to pregnant women. Workers, both agricultural and industrial, are to have a standard of living that allows them to enjoy leisure and social and cultural opportunities, etc.

49. What is the true meaning of the Directive Principles contained in clauses (b) and (c) of Article 39? To know what the said principles mean, one should study the historical background leading to the freedom of the country; setting up of the Constituent Assembly and the legal philosophies of the makers of the Constitution.

50. The Constituent Assembly summoned to frame India's Constitution, consisted of persons of different ideals and different ideologies. Eminent jurists, political thinkers, economists and administrators who did not belong to any political party were members of the Constituent Assembly and they contributed much in making the Constitution of India. In the Draft prepared by the Constitutional Adviser Sir B.N Rau and placed before the Drafting Committee, there was no provision corresponding to clauses (b) and (c) of Article 39. The Articles now contained in Parts III and IV of the Constitution were placed by the Constitutional Adviser under the heading “Fundamental Rights” because in his view both rights are fundamental. It was at a later stage that the Drafting Committee separated the Directive Principles from the Fundamental Rights Chapter because the former are not made justiciable while the Fundamental Rights are justiciable. Fundamental Rights of the Constitution are, in general, those rights of citizens or negative obligations of the State not to encroach on individual liberty, that have become well known since the late 18th Century and since the drafting of the Bill of Rights of the American Constitution, because our national leaders had become heirs to the liberal traditions of the West.

51. Sir Isaiah Berlian in his “Two Concepts of Liberty” calls the concept of Fundamental Rights as the notion of “negative freedom” and what we call Directive Principles of State Policy as the notion of “positive freedom”. Both the aspects of the concept of liberty are necessary to preserve individual liberty; one is an injunction against the State not to encroach on individual liberty while another, which is not justiciable is the directive to the State how to foster the goal stated in the Directive Principles. Fundamental Rights and Directive Principles of State Policy together constitute the conscience of the Constitution.

52. The genesis of the Directive Principles of State Policy under our Constitution has been traced in a “Study of Framing of India's Constitution” by the Project Committee under the Chairmanship of late Sri B. Shiva Rao. The subject has been dealt with between pages 319 and 333 of the said Study. It is seen therefrom that clauses (b) and (c) of Art. 39 came to be incorporated at a late stage in the proceedings of the Draft Committee under the Chairmanship of Nehru. The Draft Constitution was introduced in the Constituent Assembly on November 4th, 1948. Dr. Ambedkar, introducing the Draft Constitution, stated that he was not prepared to admit that the Directive Principles had no sort of binding force, nor was he prepared to concede that they were useless simple because they had no binding force in law. Proceeding further he said:

“The inclusion of such instructions in a Constitution such as is proposed in the Draft becomes justifiable for another reason. The Draft Constitution as framed only provides a machinery for the government of the country. It is not a contrivance to instal any particular party in power as has been done in some countries. Who should be in power is left to be determined by the people, as it must be, if the system is to satisfy the tests of democracy. But whoever captures power will not be free to be what he likes with it. In the exercise of it, he will have to respect these Instruments of Instructions which are called Directive Principles. He cannot ignore them. He may not have to answer for their breach in a court of law. But he will certainly have to answer, for them before the electorate at election time. What great value these directive principles possess will be realised better when the forces of right contrive to capture power.”

There were number of amendments designed to modify one or the other directive as formulated in the Draft Constitution. Damodar Swarup Seth suggested the imposition on the State of an obligation to promote the welfare of the people by establishing and maintaining a democratic socialist order. Again, in the Article which imposed a duty on the State to secure the distribution of the ownership and control of material resources of the community so as to subserve best the common good, K.T Shah sought the insertion of a clause vesting ownership, control and management of all natural resources of the country in the Government. Ambedkar, opposing these suggestions, said that the main object of incorporating the directive principles in the Constitution was to lay down that future governments should strive for the achievement of the ideal of economic democracy, but not to prescribe any particular or rigid method or way, whether individualist, socialist, or communist to achieve it. All the amendments were ultimately lost and the Draft as proposed by Dr. Ambedkar was adopted by the Constituent Assembly.

This is the genesis of clauses (b) and (c) of Art. 39.

53. The degree of public control over private property to meet the social obligation of an individual to the society depends largely on the stringency of economic conditions. Increasing prosperity and availability of consumer goods has led to drastic reduction of economic controls, and a trend away from socialism in Europe. But in the developing countries such as India, poor in capital and developed resources, public planning and control over resources are regarded as essential. The Constitution of the West German Republic of 1949, which reflects a blend of American, British and post-war German ideas on the economic aspects of democracy, lays down that land, minerals and means of production may be socialized or subjected to other forms of public control by a statute which also regulates compensation. Such compensation must balance the interests of the community and those of the individual. The recognition of social control over private property reflects the modern revolution of democratic ideas.

54. What is the meaning of clause (b) of Article 39? It speaks of ‘material resources of the community’ which, in my opinion, means vital or important means of support of the public. The word ‘material’ is an adjective to the word ‘resources’ which means, vital or important in the context. ‘Resources’ means, means of livelihood or support. ‘Community’ means the public at large or the society. Therefore, what clause (b) directs is that the ownership and control of vital means of support of the public at large shall be so distributed as to subserve the common good. This policy is directed not in respect of all property but only in respect of property which constitutes a vital or important means of support of the public or the society. Agricultural lands constitute the largest means of support of the public. Therefore, Land Reform Laws have been enacted and enforced imposing ceiling on agricultural holdings, taking over the surplus lands in order to distribute the excess taken over to the landless laborers and the insufficient holders. The Land Reform Laws effectuate the policy of the State under clause (b) of Article 39.

55. Industries and commercial enterprises are also important means of support of the public. The ownership of industries and commercial enterprises, however, cannot be distributed; they could be controlled by a system of permits and licenses. Take the case of Transport business enterprises. The law may impose ceiling on the number of permits issued to an operator. The idea of distribution of industries and commercial undertakings is beyond comprehension. The concept of distribution of important means of support of the public is the central idea behind clause (b).

56. Clause (c) of Article 39 directs the State policy to contain concentration of economic power by the State controlling the means of production subject to the needs of the community. This clause is mainly intended to deal with the problems of the abuses of economic power by private individuals engaged in commercial enterprises. The Monopolies and Restrictive Trade Practice Act, 1969 which seeks to check monopolies is one pursuant to the policy contained in clause (c). In England, there is the Restrictive Trade Practices Act, 1956, intended to control excessive concentration of economic power. The reform by the English Patent Law by an Act of 1949 which confers power on the Comptroller of Patents who may grant licences, in extreme cases to revoke a patent where patent rights are abused or insufficiently used, is one for checking the abuse and concentration of economic power.

57. An alternative way of countering the abuses of economic power is the transfer of certain basic industries into public ownership through the legal device of public Corporation. Its most important aspect is the unification and monopolization of the basic public utilities under public ownership and management, which has to operate under rules of the common law, subject to the accountability and full legal liability, while responsible to the Parliament. Vide “Legal Theory” by Friedmann (5th Edition), page 411.

58. Public Transport Service is a public utility service. The national policy with respect to Public Transport Services is laid down in the Road Transport Corporations Act of 1950, which is an Act of the Cental Legislature. That Act has been enacted to effectuate the Directive Principles of State Policy contained in clause (c) of Article 39. In enacting the said Act the national Government has chosen the alternative way of countering the abuse of economic power by transfer of the Road Transport Services into public ownership through the legal device of statutory Corporations as the alternative way referred to by Friedmann.

59. The Road Transport Corporations Act, 1950. (hereinafter-called the Corporation Act) provides for the creation of statutory Corporations by State Governments. The Corporation is one created and established by the State Government under the powers derived from the Corporations Act. Section 22 of the Corporations Act states that it shall be the general principles of the Corporations that the carrying on of its undertakings shall be done on business principles. Section 19 contains the powers of the Corporations, clause (c) of sub-section (2) of Section 19, which is relevant, reads:

“19. (2) Subject to the provisions of this Act, the powers conferred by sub-section (1) shall include power—

(a)****

(b)****

(c) to prepare schemes for the acquisition of, and to acquire, either by agreement or compulsorily in accordance with the law of acquisition for the time being in force in the State concerned and with such procedure as may be prescribed, whether absolutely or for any period, the whole or any part of any undertaking or any other person to the extent to which the activities thereof consists of the operation of road transport services in that State or in any extended area;

******”

Section 40 states that compensation for acquisition of Road Transport Undertakings should be given. Thus, the corporations Act provides for nationalisation and monopolisation of Road Transport Services. In order to secure monopoly in the business, the Corporation has to prepare Schemes and get them approved or sanctioned under the provisions of the Motor Vehicles Act. The Corporation may acquire the whole or part of an undertaking if it is necessary to effectuate its Scheme. It does not contemplate the taking over of the trading assets of the business undertakings without taking over the liabilities.

60. The Act does not show that for the purpose of the business of the Corporation as provided under the Corporations Act, it is necessary to acquire the trading assets of Transport Undertakings without acquiring the Undertakings as such. The pleadings filed on behalf of the State also do not show that to carry out the provisions of the Corporations Act, it is necessary for the State to acquire the trading assets of the Transport. Undertakings when the said Act under which the Corporation has been established provides expressly that the whole or part of an undertaking of private operators may be acquired and further lays down that the business of the Corporation should be carried on according to business principles and that payment of compensation should be made for the acquisition of the undertakings.

61. In the preamble to the judgment I have state that on 30th January, 1976, there were 498 contract carriage operators in the State, of whom 381 were single vehicle operators, 105 operators owned vehicles ranging between 2 to 5 and that only 12 operators had vehicles numbering 6 and more. The specific pleadings of the writ petitioners that the vehicles were obtained on hire-purchase agreements and that the operators have to pay heavy rates of interest ranging from 18 to 30 per cent to the financiers, have not been shown to be either incorrect or false. Apart from the general denial of the facts alleged, there is no specific denial that these statements are incorrect. On these undisputed facts, it is not possible to uphold the contention that there is concentration of wealth in individual hands.

62. The State has failed to establish what is sought to be achieved by the Act is an essential and integral part of the policy to give effect to the Directive Principles contained in clauses (b) and (c) of Article 39. I will show, when I deal with point No. III, that if the Act is sustained, all these operators will be wholly pauperized, making it practically impossible,—though theoretically possible,—for them to carry on any trade in the State. Such action on the part of the State cannot be supported on the ground that the purpose of the acquisition is to carry out the Directive principles of State Policy contained in clauses (b) and (c) of Article 39. In interpreting clauses (b) and (c) of Article 39, the Court has to take note of Aritcle 38 since the essence of the Directive Principles is contained in that Article. Therefore, I am clearly of the opinion that the plea of the bar of Article 31-C is unsustainable.

63. Re: Point No. III—Whether the Act is violative of Article 31(2)?

The content of the fundamental right guaranteed under Article 31(2) after the twenty fifth Amendment of the Constitution as expounded in Cooper's case(10) is:—

“Existence of a public purpose, and provision for giving compensation for compulsory acquisition of property of an individual are conditions of the exercise of the power to acquire private property. If either condition be absent, the guarantee under Art. 31(2) is impaired, and the law providing for acquisition will be invalid. But the jurisdiction of the Court to question the law on the ground that compensation provided thereby is not adequate is expressly excluded.

(Para 88).

“The law providing for acquisition must again either fix the amount of compensation or specify the principles on which, and the manner in which, the compensation is to be determined and given. The law which does not ensure the gurantee, will, except where the grievance only is that the compensation provided by the law is inadequate, be declared void.”

(Para 90)

“If the law for the compulsory acquisition of property gives compensation which is illusory or the amount of compensation is determined by the application of principles which were irrelevant, the Constitutional guarantee of compensation is not complied with.

(Para 90).

“The principle specified by the law for determination of compensation is beyond the pale of challenge, if it is relevant to the determination of compensation and is a recognised principle applicable in the determination of compensation for property compulsorily acquired and the principle is appropriate in determining the value of the class of property sought to be acquired.

(Para 100).”

The sole dissenting Judge Mr. Justice Ray, as he then was, also does not take the view that the existence of a public purpose for taking private property is not a prerequisite condition and if that condition is not satisfied, the law is valid.

64. Sri A.K Sen and Sri K.K Venugopal have urged before us that the Act enacted for acquisition of contract carriages with their permits and all rights, title and interest of the contract carriage operators in or over such lands, buildings, workshops and other places and all stores, instruments, machineries, tools, plants, apparatus and other equipments used for the maintenances, repair of, or otherwise in connection with the service of the contract carriages as the State Government may by order, specify in this behalf, does not pass the test of two prerequisite conditions, laid down by Article 31(2), viz., (1) the existence of the public purpose and (2) payment of compensation in the manner guaranteed. It was argued that for compulsory taking over of the vehicles with permits and other effects of the contract carriage operators, there was no necessity or need or, in other words, there was no nexus between the public purpose and the taking over of the particular property. Their further submission was that Section 6 of the Act read with the Schedule has omitted to take into consideration relevant principles, and the amount determined under Section 6 is made payable under Section 11 in ten yearly installments with interest at 6 per cent per annum ignoring the fact that the properties acquired are the trading assets of the operators who have acquired the vehicles under hire-purchase agreements agreeing to pay interest at rate ranging from 18 to 30 per cent per annum and also the fact that even after the entire amount receivable from the State is paid to the financiers, the operators will be left with very heavy debts reducing them to penury, and that therefore Section 11 results in rendering the compensation wholly illusory.

65. It was not contested before us by any of the learned counsel for the petitioners that if the State acquires any property which is needed for the purposes of the State Road Transport Corporation, the acquisition cannot be challenged on the ground that it is not for a public purpose. What constitutes ‘public purpose’ is the subject-matter of a large number of decisions by the Supreme Court. In order to constitute public purpose, it is not necessary that property should be acquired only for purposes of the State. It has been held that lands acquired for providing house sites for the weaker sections of the community constitutes a public purpose. Whatever furthers the general interest of the community as opposed to the particular interests of the individual must; be regarded as a public purpose. Broadly stated, the expression ‘public purpose’ is comprehensive enough to take in every purpose in which the public or section of the public is interested or any purpose useful to the public or for the promotion of public good in the widest sense of the term. A State does not ordinarily acquire and cannot be presumed to acquire for a purpose other than public. Purpose of acquisition which is to effectuate the Directive Principles of the State Policy contained in Part IV of the Constitution, has been held to satisfy the requirement of ‘public purpose’ under Article 31(2) of the Constitution. If the purpose of acquisition is shown to have a nexus with the effectuation or carrying out the Directive Principles of State Policy and that is established, then, it is not open to contend that acquisition is not for a ‘public purpose’.

66. The existence of ‘public purpose’ is however justiciable notwithstanding any declaration by the Legislature to the effect that the acquisition is for a ‘public purpose’ or that the Act has been enacted to give effect to the Policy of the State towards securing the principles specified in clauses (b) and (c) of Article 39 of the Constitution.

67. As any law for acquisition of property has to satisfy the constitutional guarantee of the pre-existence of public purpose, for taking the property of a citizen, any declaration by the Legislature that the compulsory taking is for a ‘public purpose’ or ‘shall be deemed to be for a public purpose’ or that the Act is for giving effect to the Policy of the State towards securing the principles specified in clauses (b) and (c) of Article 39, does not bar the Court from considering the question whether the acquisition is for a ‘public purpose’. Stated briefly, the scope of judicial review of an Act of Legislature acquiring or authorising the acquisition of private property, in order to pass the test of constitutionality under Article 31, has to be examined, by lifting the veil, if any, to find out whether there is a real or reasonable nexus between the taking of the property of the citizen and the purposes for the compulsory purchase; secondly, whether the law which provides for the acquisition of property provides for the amount to be fixed, or which may be determined in accordance with such principles and given in such manner as may be specified in such law. Adequacy of compensation is not open to judicial review.

68. The object of the Act is for the acquisition of contract carriages. The title of the Act is “The Karnataka Contract Carriages (Acquisition) Act, 1976”. The preamble of the Act reads:—

“An act to provide for the acquisition of contract carriages and for matters incidental, ancillary or subservient thereto.”

Section 2, which I have set out earlier, declares that the acquisitions made under the Act are to effectuate the principles specified in clauses (b) and (c) of Article 39. sub-section (3) of Section 4 reads.—

The contract carriage and other property vesting in the State Government under sub-section (1) and sub-section (2) shall, with effect on and from the notified date, be deemed to have been acquired for a public purpose.

(Underlining is Mine)

The preamble of the Act states the reasons for enacting the Act. It reads:—

“Whereas contract carriages and certain other categories of public service vehicles are being operated in the State in a manner highly detrimental and prejudicial to public interest;

And whereas with a view to prevent such misuse and also to provide better facilities “for the transport of passengers by road and to give effect to the policy of the State towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good and that the operation of the economic system does not result, in the concentration of wealth and means of production to the common detriment;

And whereas for the aforesaid purposes it is considered necessary to pro-vide for the acquisition of contract carriages and certain other categories of public service vehicles in the State and for matters incidental, ancillary or subservient thereto;”

According to the declaration contained in Section 2, the purpose of the acquisition is for securing the principles specified in clauses (b) and (c) of Article 39. The purpose as explained in the preamble amounts to the same. Under the head Point No. II, dealing with the bar of Article 31-C, I have held that the purpose of the acquisition is not for securing the purposes specified in clauses (b) and (c) of Article 39, and that should be in my opinion sufficient to dispose of the said question under Article 31(2) that the acquisition is not for a public purpose.

69. The learned Advocate General, however, contended that even if the Act is not protected by Article 31-C. It is a law that provides for acquisition of property referred to in Section 4 for a public purpose and that public purpose, according to him, is the necessity to confer monopoly of the business of contract carriage operation on the Corporation, that the Corporation needs vehicles immediately for operation and, therefore the acquisition is a necessity for which the State has enacted the Act.

70. This submission of the learned Advocate-General in my opinion, is clearly untenable; under Point No. II, I have held that the Corporation being a statutory body established under the Road Transport Corporations Act of 1950, acquisition of the trading assets of transport operators without acquiring the undertakings as such, is not one of the matters contemplated under the Corporations Act, and that in carrying on its undertaking, the Corporation shall act on business principles, and that the R.T.C Act provides only for acquisition of undertakings for which compensation has to be paid in the manner provided in Section 40 therein. Unless it is shown that the necessity to acquire the trading assets of the operators is a necessity under the Corporations Act, in order to enable it to carry on its undertaking in accordance with business principles, the requirement of the Corporation of Vehicles, which are freely available with the Manufacturers for sale at market places, is not, in my opinion, sufficient to make it a State necessity in order to exert its power of Eminent Domain.

71. State necessity or need for taking the particular property of a citizen is the very foundation for the exertion of the power of Eminent Domain. If there is no State necessity or need for the particular property, then, in my opinion, the power of Eminent Domain cannot be exerted. Let me assume that the law provides for paying just compensation for taking the property of a citizen but there is no State necessity for taking over that property. In such an event, the property cannot be taken in a exertion of the power of Eminent Domain. The ambit of legislative power conferred by Entry 42 of List II of the Seventh Schedule, ‘Acquisition or requisitioning of property’, in my opinion, cannot comprehend the taking of private property by the State even on payment of just compensation if there is no State necessity. If there is no nexus between the taking over of private property and State necessity, such a power cannot be exerted. I am of opinion that even if Article 31 is deleted from Part III of the Constitution, the State cannot acquire property of a citizen or make a law for acquisition of private property if the taking over has no relation to State necessity. Such a legislation will be ultra vires of the powers of the State Legislature.

72. In the instant case, there is no nexus for taking the private property of the contract carriage operators and the needs of the Corporation.

73. There is material in the Act itself to show that the Legislature was conscious of the fact that the acquisition under Section 4 is not for a public purpose so as to satisfy the requirements of Article 31(2). In sub-section (3) of Section 4 provision is made under the Act stating that “the contract carriage and other property vesting in the State Government under sub-section (1) and sub-section (2) shall be deemed to have been acquired for a public purpose”. The purpose for which the acquisition is made is deemed to be a public purpose. When the purpose of the acquisition is ‘deemed’ to be a public purpose, the only meaning possible is that whereas the purpose of the acquisition is not in reality a public purpose, the State Legislature requires the purpose to be treated as if it were a public purpose. It is rather an admission on the part of the Legislature that the purpose of the acquisition is not a public purpose. In R.V Norkfolk County Council(11), Cave J., stated.

“Generally speaking, when you talk of a thing being deemed to be something you do not mean to say that it is that which it is to be. It is rather an admission that it is not what it is to be deemed to be, and that, not withstanding it is not that particular thing, nevertheless …. it is to be deemed to be that thing.”

(Underlining is mine)

In view of Section 4(3) of the Act, the Court will be justified in drawing the conclusion that the Legislature itself was highly doubtful regarding the acquisition being for a public purpose.

74. It has to be noticed that the Act is virtually a copy of the Tamil Nadu State Carriages (Acquisition) Act, which was struck down by the High Court of Madras as being unconstitutional in Kannappa Cletty v. State of Tamil Nadu long before the Ordinance was promulgated. The Legislature functioning under the Constitution cannot introduce a ‘deeming provision’ as to alter or amend a provision in the Constitution itself. By introducing sub-section (3) of Section 4 in the Act, the Legislature wants that the acquisition under the Act should be deemed to be an acquisition for a public purpose notwithstanding anything contained in Article 31(2). It needs no further argument to say that sub-section (3) of Section 4 is unconstitutional.

75. The next submission of Sri A.K Sen was that the Act is also violative of the second limb of Article 31(2) as the provisions made in Section 6 read with the Schedule to the Act for determination of the amount to be paid for the property acquired are no ‘principles’ and the scheme for payment in ten yearly instalments carrying interest at 6 per cent per annum under Section 11 when the operators have to pay interest to their financiers at 18 per cent per annum or more renders the compensation provision illusory. His argument was that the law laid down by the Supreme Court in Cooper's case is valid notwithstanding the substitution of the word ‘amount’ for the word ‘compensation’ in Article 31(2) by the Constitution 25th Amendment made in 1972. Therefore, he argued that the amount payable for the acquisition is justiciable notwithstanding the 25th Amendment. The answer of the learned Advocate-General was that the Constitution as it now stands does not admit of any challenge being made to the relevance of the principles providing for compensation. The Act does not fix the amount payable for the properties acquired under Section 4(1) and (2) of the Act; Section 6 lays down the formula for the determination of such amount by an Arbitrator appointed by the Government in the event of the parties failing to come to an agreement. The ‘amount’ under Section 6 has to be determined in the manner set out and specified in the Schedule to the Act. It is necessary to set out Para 1 of the Schedule. It reads.—

“Principles for Determination of the Amount.—

1. (1) In respect of any contract carriage taken over by the State Government, there shall be first determined the acquisition cost of such contract carriage and for any contract carriage registered within the period mentioned in column (1) of the Table below prior to the notified date the amount to be paid shall be the percentage mentioned in the corresponding entry in column (2) of that Table, of the acquisition cost:—

Period Percentage 1. Not more than six months prior to the notified to date .. 85 2. More than six months prior to the notified date but not exceeding one year. .. 75 3. More than one year but not exceeding two years .. 70 4. More than two years but not exceeding three years .. 68 5. More than three years but not exceeding four years .. 67 6. More than four years but not exceeding five years .. 66, 2/3 7. More than five years but not exceeding six years .. 59 8. More than six years but not exceeding seven years .. 41 9. More than seven years but not exceeding eight years .. 29 10. More than eight years but not exceeding nine years .. 21 11. More than nine years but not exceeding ten years .. 14 12. More than ten years but not exceeding eleven years .. 10 13. More than eleven years but not exceeding twelve years .. 7 14. More than twelve years but not exceeding thirteen years 5 15. More than thirteen years .. 4

Explanation.—For the purpose of this paragraph ‘acquisition cost’ shall be the aggregate cost of the chassis as well as the body of the contract carriage as charged by the manufacturer of the chassis and by the body builder.

The basis for determination of the amount payable in respect of contract carriages taken over under Section 4(1) is the ‘acquisition cost’ of the vehicles, which, according to the Explanation, means the aggregate cost of the chassis as well as the body of the contract carriage as charged by the manufacturer of the chassis and by the body builder. The percentage mentioned in the corresponding entry in Column No. 2 of the Table and the acquisition cost as per the Explanation, is the amount payable in respect of the contract carriage acquired. The percentage of the acquisition cost depends upon the age of the vehicle. In respect of other assets, except permits, the market value of the assets are payable. For every permit acquired under the Act the Sums mentioned in Paragraph 7 of the Schedule are payable. Section 11 which provides for the manner of payment for the acquired property reads:

“11. Manner of payment of amount for the acquired property.—(1) The amount determined under Section 6 shall, after deduction, if any, made under this Act, be given in cash by the State Government to the person interested.

(a) in one lumpsum where the amount does not exceed ten thousand rupees; and

(b) in ten equal annual instalment in other cases, the amount of each instalment carrying interest at the rate of six per cent per annum from the notified date.

(2) The first of the annual instalments referred to in clause (b) of sub-section (1) shall be paid within sixty days from the date of the agreement or award, as the case may be, referred to in Section 6.”

76. According to the said section, the amount determined under section 6 shall be given in cash by the State Government to the person interested in one lumpsum where the amount does not exceed Rs. 10,000; in other cases the amount shall be payable in ten equal annual instalments carrying interest at the rate of 6 per cent per annum from the notified date. It will be noticed that payment of interest annually is not on the entire amount payable but on the instalments payable annually.

77. While acquiring contract carriage vehicles, etc., belonging to the operators, the State has not taken over the trading liabilities of the operators. Most of the operators have purchased their vehicles under agreements of hire-purchase providing for payment of interest ranging between 24 per cent and 30 per cent per annum. Among the financiers are the Scheduled Banks and nationalised Banks who charge interest at 18 per cent per annum, but payable quarterly. Under the provisions of the Act the financier under the hire-purchase agreement is entitled to be paid in the first instance and the surplus, if any, left alone is payable to the operators. The number of contract carriage operators whose vehicles have been taken over by the State under the Act is 498; the total number of vehicles taken over is 782; out of the said operators, 381 are single vehicle operators. Substantial portion of the finance for purchasing their vehicles has come from Nationalised Banks, Scheduled Banks and other financial institutions. W.P No. 2414 of 1976 is one of the typical cases. In para 2 of the petition, the petitioner has stated that he was the owner of two vehicles, that he purchased the vehicles to augment his income for his maintenance with heavy borrowings from the Karnataka Bank Ltd., Srirangapatna, in addition to investment of personal funds and borrowing from private financiers under hire-purchase agreements with interest payable upto 4 per cent per month and that he is repaying the Bank's advance in installments with interest at 18½ per cent per annum compounded quarterly. This fact has not been denied by the respondents. In paras 11 and 12 of I.A.IV, which is an additional statement of facts, he has given the amounts liable to be paid in respect of the two vehicles in accordance with the provisions of Section 6 read with the Schedule to the Act. He has also given the liabilities incurred on account of the borrowings from the Bank to purchase the vehicles as on 1st April, 1976. If the entire amount payable by the State is paid over to the Bank and the financiers, at the end of 10 years, he will be left with a liability of Rs. 1,97,762. Other operators have filed statements supported by affidavits which go to show that at the end of 10 years, most of them will be debtors to a large extent with heavy liabilities. I will refer to a few typical cases when I come to the illusory character of the compensation provisions.

78. I will first deal with the question whether the principles for determination of the amount payable and the manner of payment provided in Section 6 are open to challange or not after the 25th Amendment of the Constitution.

79. The scope of Article 31 after the Fourth Amendment was considered in Cooper's case by a Bench consisting of 11 Judges. All the Judges except Mr. Justice Ray (as he then was) agreed with Mr. Justice Shah (as he then was), who delivered the opinion of the majority. The opinion of the 10 Judges was: (1) If there is no public purpose to sustain compulsory acquisition, the law violates Article 31(2). (2) Article 31(2) requires that property must be acquired under a law with characteristics set out in the said sub-Article. (3) Formal compliance with the conditions under Article 31(2) is not sufficient to negative the protection of the guarantee of the right to property. (4) Existence of public purpose and provision for giving compensation for compulsory acquisition of property of an individual are conditions for the exercise of the power to acquire private property; if either condition is absent, the guarantee under Article 31(2) is impaired, and the law providing for acquisition will be invalid. But the jurisdiction of the Court to question the law on the ground that compensation provided thereby is not adequate is expressly excluded. (5) The law providing for acquisition must either fix the amount of compensation or specify the principles on which, and the manner in which, the compensation is to be determined and given. (6) The law which does not ensure the guarantee will, except where the only grievance is that the compensation provided by the law is inadequate, be declared void. (7) Article 31(2) before and after it was amended guaranteed a right to compensation for compulsory acquisition of property and, by giving to the owner, for compulsory acquisition of his property, compensation which is illusory, or determined by the application of principles which were irrelevant, the constitutional guarantee of compensation was not complied with. (8) The principle specified by the law for determination of compensation is beyond the pale of challenge, if it is relevant to the determination of compensation and is a recognized principle in the determination of compensation for property compulsorily acquired and the principle is appropriate in determining the value of the class of property sought to be acquired.

80. The learned Advocate-General contended that after the amendment of Article 31 by the 25th Amendment, the law laid down in Keshavananda Bharathi's case, is that the principles laid down by law for quantification of the amount whether relevant or irrelevant cannot be called in question in any court. In support of that contention, he relied on Sri Seervai's Commentary on the Constitutional Law of India, Volume I, page 702. According to the learned Author, the view of the majority of Judges constituting the Bench in Keshavananda Bharathi's case has the effect of nullifying the law laid down in Cooper's case. Sri A.K Sen, however, submitted that the said statement with due respect is not accurate.

81. We have carefully gone through the opinions rendered by all the 13 Judges who constituted the Bench in Keshavananda Bharathi's Case. Chief Justice S.M Sikri, Justice Shelat, Justice K.S Hegde, Justice A.N Grover, Justice P. Jaganmohan Reddy and Justice Mukherjea have expressed definite views that judicial review is not barred if the so-called principles have no relation to the property acquired, or are arbitrary, or the amount fixed is illusory. Justice Khanna did not hold that if the principles laid down by the Legislature are irrational and have no relation to the value of the property acquired, the question is not open to challenge. (Vide para 1523). Justice Chandrachud also did not hold that the principles evolved by the Legislature for determination of the ‘amount cannot be questioned. (Vide paras 2135, 2136 and 2137). The learned Judge stated in paras 2135 and 2136 as follows:

“2135. ** ** The obligation to pay an ‘amount’ does not connote the power not to pay any amount at all. The alternative obligation to evolve principles for determining the amount also shows that there is no choice not to pay. The choice open to the Legislature is that the amount may directly be fixed by and under the law itself or alternatively, the law may fix principles in accordance with which the amount will be determined. The amount may, of course, be paid in cash or otherwise.

2136. The specific obligation to pay an ‘amount’ and in the alternative the use of the word ‘principles’ for determination of that amount must mean that the amount fixed or determined to be paid cannot be illusory. If the right to property still finds a place in the Constitution, you “cannot mock at the man and ridicule his right. You cannot tell him: ‘I will take your fortune for a farthing’.”

Palekar, J. has not expressed any definite view. According to the learned Judge, whether a particular law fixed an amount which is illusory or is otherwise a fraud on power denying the fundamental right to receive an amount specifically conferred by clause (2), will depend upon the law when made and is tested on the basis of clause (2). The remaining 4 Judges alone have taken a contrary view.

82. On a careful reading of the several opinions of the learned Judges in Keshavananda Bharathi's case, I am of the clear opinion that the law laid down in Cooper's case holds good.

83. There is no one single principle of valuation. The principles of valuation vary with the subject matter of valuation. The principles of valuation of agricultural lands are different from the principles of valuation of urban lands. The principles of valuation of chattels are different from the principles of valuation of immovable properties. The principles of valuation of commercial undertakings are different from the principles of valuation of chattels. If the so-called principles evolved by the Legislature are ‘no principle’ of valuation at all, in the context of the subject matter of acquisition, can it be said that the formula evolved by the Legislature is conclusive and binding on the Courts and not open to challenge? If the formula evolved by the Legislature is made in utter disregard of the essential principles of valuation of the particular subject matter, then what the Legislature has evolved is ‘no principle’ for determination of the amount payable for acquisition.

84. In the instant case, the formula evolved by the Legislature for determining the amount payable for the vehicles, is the ‘acquisition cost’, which, according to the Explanation to Para 1 of the Schedule, shall be the aggregate cost of the chassis as well as the body of the contract carriage as charged by the manufacturer of the chassis and by the body builder. It is common knowledge that as between the purchasers of vehicles and the manufacturers, there are dealers intervening and purchases are made by the operators from the dealers transport vehicles. Dealer's price is much higher than the price charged by the manufacturer to the dealer. Then the dealers add to the manufacturer's cost their own profits or commission as the case may be, and sales-tax on the sale or purchase from the manufacturer to the dealers. The difference is not small. The cost of acquisition so far as the contract carriages are concerned, is the cost charged by the dealer from whom the contract carriage operator makes the purchase. That cost of acquisition, which is the actual cost, is altogether ignored although it is one of the essential constituents in the matter of valuation of vehicles. Secondly, in the matter of valuation of transport vehicles, it has to be noticed that the manufacturer's cost of vehicles has been increasing from year to year. Therefore for the purpose of valuation of transport vehicles, the consideration ought to be the dealer's cost in the year of acquisition.

85. When a used vehicle is bought or sold, apart from the year of manufacture or registration, the condition of the vehicle is also an important factor for determination of its value. As between two vehicles purchased in the same year, if one is badly handled and used on bad roads while the other is maintained well and used on good roads, the latter will definitely fetch a hivher price.

86. Gulanikar's Commentary on Gift and Wealth Tax Act, contains a useful chapter on Principles of Valuation. In Chapter XIV, dealing with Valuation of Assets of Business, at page 718, the learned author states:

“Plant and, Machinery.—

The valuation of plant and machinery is a specialised activity. It requires a good deal of expertence and a constant touch with the market, which fluctuates considerably from time to time. A non-specialist can approach the valuation from the point of view of inventory with cross-reference and an analysis into categories of whole plant and machinery so that he can apply the general principles of valuation and leave the more difficult problems, with minimum of trouble, to the specialist, in a particular field.”

Then he quotes the following observations of the Supreme Court in Union of India v. Metal Corporation of India Ltd.(12).

“It is common knowledge that I here has been an upward spiral in prices of machinery in recent years. The cost of machinery purchased about 10 years before is a consideration not relevant for fixing compensation for its acquisition in 1965. The principle must be such as to enable the ascertainment of its price at or about the time of acquisition. Nor the doctrine of written down value, accepted in the income-tax can afford any guide for ascertaining the compensation for the used machinery acquired. Under the general scheme……..the artificial rule of depreciation evolved in income-tax purposes has no relation to the value of the assets viz., machinery, building plant etc.,…………. The worth of he article (asset) depends upon the market condition obtainable at the time of acquisition. It is impossible to predict irrespective of such condition that a particular machinery has a fixed value for all times.”

(Underlining by me)

87. Challenge is made to the Act on the ground that the compensation provision is illusory which has been brought about by Section 11. To demonstrate the effect of Section 11, I will take up a few typical cases: The petitioner in W.P 2775 of 1976 is the owner of a single vehicle. He has filed a statement certified by a Chartered Accountant showing his actual cost of acquisition in the year 1974 as Rs. 2,00,000, of which Rs. 1,40,000 was advanced by the Karnataka Bank, Ltd., a Scheduled Bank, under a hire-purchase agreement. He has to pay interest at 18 per cent per annum with quarterly interests on the said amount. Besides, he has borrowed a sum of Rs. 60,000 from financial corporations. Thus, he had a debt of Rs. 2,00,000. The compensation payable under Section 6 works out to Rs. 1,50,000. The said amount being payable in ten annual instalments, each year's instalment is Rs. 15,000. The first instalment of Rs. 15,000 with interest thereon alone is payable under Section 11(1)(b). Interest on the second instalment of Rs. 15,000 is payable for two years and for the third instalment for three years. The amount payable for the acquisition of his single vehicle has to be paid over to the Karnataka Bank Ltd. Even after the entire amount payable by the Government is paid over to the said Bank, he ends up with a not liability of Rs. 5,27,126 at the end of 10 years.

88. The petitioner in W.P 2414 of 1976 is an operator having two vehicles which have been acquired. In the earlier part of this judgment I have referred to his pleadings. He ends up with a not liability of Rs. 1,97,762.

89. The petitioner in W.P 850 of 1976 is one of the biggest operators who had 15 vehicles. He has filed a statement certified by a Chartered Accountant and supported by the report of an Actuary. The Actuary has demonstrated the financial implications of the Act on the said petitioner thus:

“The following is a summary of the result shown in the note:

Rs. Outstanding loan on 30th January, 1976 .. 15,05,073 Interest payable during the ten years after paying the full amounts paid by Government as and when paid by them .. 18,30,757 Total dues to the Banks .. .. 33,35,830 Amounts payable by Government during the period of ten years .. .. 29,70,340 Balance of liability still outstanding on 30th January, 1976 .. 3,65,490 The above calculations have assumed that every year interest up to 30th January will be added to the loan and payments by Government adjusted, and interest for next two months calculated on this balance. This compounding on an intermediate date of the quarter is not the practice, as I understand, and the excess interest included in the above on this account is .. .. 11,364

Balance of liability on 30th January, 1986 taking 16½ per cent as the interest payable throughout .. .. 3,54,126 To this must be added the liability on 30th January, 1986 on account of the higher rate of interest charged upto 15th March, 1976. Please see (i) on page 1 .. .. 12,736 Total liability outstanding on 30th January, 1986 .. 3,66,862

As shown in para (4) of the note Sri K. Jayaraj a Ballal had on 30th January, 1976, a sum of Rs. 7,28,267, in excess of his liability on that date, which could be employed by him fruitfully. This sum is entirely used up during the period of ten years over which the payment of the amount due is spread by the Government and he ends with a liability to the Banks of the sum of Rs. 3,66,862”.

90. An opportunity was afforded by the Court to the learned Advocate General to verify and submit whether the demonstration of the effect of Section 11 as per the figures furnished in the statements filed as per our directions in W.P 2775 of 1976, W.P 850 of 1976 and W.P 1263 of 1976 referred to above could be accepted as correct. When the matter was posted on 15th September, 1976 for being spoken to for that purpose, the learned Advocate General submitted that the State was not in a position to admit or deny the correctness of the said figures.

91. We got prepared by the Senior Statistical Assistant of the High Court, two examples: In one example, the amount outstanding as on 30th January, 1976 is taken as Rs. 2,00,000 and the amount payable under Section 6 is also assumed as Rs. 2,00,000. It is assumed for the purpose of the case that full market value is provided as compensation. Interest payable to the financiers is taken as 16½ per cent per annum which is the current lending rate by the Nationalised Banks on commercial transactions. If interest is paid by the Government as per Section 11 on each instalment as and when it falls due, the operator ends up with a not liability of Rs. 4,30,773. In the same illustration, if interest is paid annually on the entire balance amount, the operator ends up with a not liability of Rs. 3,60,173. The effect of the Act now becomes quite clear. Such a law of acquisition does not only take away the property of the operators, but renders them paupers with heavy liabilities. In other words, not only is the property of the operator taken over and made over to the Corporation, but he is forced to raise finances from other sources to sub-sidise the business of the Corporation. Nothing more is necessary, in my opinion, to demonstrate that the scheme of compensation evolved by the Legislature is wholly illusory and it constitutes a fraud on the Constitution.

92. In my judgment, the acquisition is not for a public purpose and the scheme for payment for the property acquired under the Act is wholly illusory and therefore the Act violates the fundamental rights of the petitioners secured under Article 31(2). From what I have stated about Section 4(3), I am also of the opinion that, the transgression of fundamental constitutional limitations in the ins rant case is a conscious violation of Article 31(2).

93. Re: Point No. IV: Whether the Act is violative of Articles 301 and 304 of the Constitution.

94. Sri A.K Sen's argument was that notwithstanding the President's order made under Article 359 and the consequent disability of the petitioners for the duration of the period of emergency declared, to move any Court for the enforcement of the rights conferred by Articles 14 and 19 of the Constitution, it is yet open to them to challenge the impugned Act on the ground that it imposes unreasonable restrictions on the freedom of trade and commerce—Inter-State as well as Intrastate—guaranteed by Articles 301 and 304 of the Constitution, and that any restriction on the freedom of trade and commerce imposed under the Act in order to pass the test of constitutionality must be reasonable and must serve a public purpose. He argued that assuming, without admitting, that there was need for taking over the contract carriage vehicles with their relative permits, there was no necessity whatever to acquire the workshops, tools, lands and buildings of the hundreds of small operators when the Corporation did already possess its own workshops and establishments more than adequate to meet the needs of the said Corporation for its monopoly business. While Sri Sen conceded that exclusion of the contract carriage operators from the contract carriage trade cannot be challenged on the ground of violation of Articles 301 and 304 in view of the bar under Article 305, he submitted that as a result of the acquisition of all the trading assets leaving the operators with the burden of heavy liabilities incurred in connection with the acquiring of their trading assets, the carrying on, of any other trade or profession has been rendered though theoretically possible, but practically impossible and in such a case the principle laid down in para 70 of the judgment in Cooper's case that it constitutes an unreasonable restriction within the meaning of the first limb of Article 19(6), can be invoked as the test of reasonableness of restrictions, whether for the purpose of Article 19(6) or Article 304, is the same.

95. In R.C Cooper's case, the named banks were declared entitled to engage in business other than banking; but they were left with no assets with which that business could be carried on. It was held that a business organization deprived of its entire assets and undertaking, its managerial and other staff, its premises, and even its name, even if it has a theoretical right to carry on non-banking business, would not be able to do so, especially when even the fraction of the value of its undertaking made payable to it as compensation, is not made immediately payable to it. It was further held that if the compensation paid is in such a form that it is not immediately available for re-starting any business, declaration of the right to carry on business other than banking becomes an empty formality, when the entire undertaking of the named banks is transferred to and vests in the new banks together with the premises and the names of the banks, and the named banks are deprived of the services of its administrative and other staff. It was also held that the restriction imposed upon the rights of the named banks to carry on “non-banking” business, was plainly unreasonable and that no attempt was made to support the Act impugned in that case which while theoretically declaring the right of the named banks to carry on “non-banking” business makes it impossible in a commercial sense for the banks to carry on any business. (Vide paras 65, 66, 67, 76 and 77).

96. In brief, the argument of Sri Sen was that all the trading assets of the contract carriage operators having been taken over and the payment of compensation having been spread over a period of ten years, during which time the liabilities of the operators mount up enormously, though theoretically the petitioners have a right to carry on any trade or business other than contract carriage business in the State of Karnataka, the Act makes it impossible in a commercial sense for them to carry on any business. In Cooper's case the question whether such result would constitute a violation of the rights under Articles 301 and 304 was left open. The ground of violation of the fundamental right guaranteed under Article 19(1)(g) cannot be urged during the continuance of emergency. Sri Sen invited our attention to the observations in para 70 of the judgment in Cooper's case to the effect that by virtue of new clause (6) of Article 19, the validity of a law creating a State monopoly which indirectly impinges on any other right cannot be challenged on the ground that it imposes restrictions which are not reasonable restrictions in the interests of the general public; but if the law contains ‘other incidental provisions which do not constitute an essential and integral part of the monopoly created by it, the validity of those provisions is liable to be tested under the first part of Article 19(6) and that if they directly impair any other fundamental right guaranteed by Article 19(1), the validity of those provisions will be tested by reference to the corresponding clauses of Article 19. This observation was relied on to support the argument, that though the creation of State monopoly in transport trade cannot be challenged, as the Act contains provisions which do not constitute an essential or integral part of the monopoly created by it, the validity of those provisions is liable to be tested in the same manner as a complaint against violation of the fundamental right guaranteed under Article 19(1)(g).

97. The decision in Cooper's case is an authority for the proposition that the basis and essential provision of a law which are integrally and essentially connected with the monopoly of the trade by the State or by a Corporation created by the State, cannot be challenged on the ground that they impair the right guaranteed under Article 19(1)(g); but if the law creating monopoly imposes restrictions which are unessential for the creation of State monopoly in the trade, that law is unreasonable. The Act is not a law for the creation of State monopoly in contract carriage business. That monopoly has to be created in accordance with the provisions of the Road Transport Corporations Act and Section 68(c) of the Motor Vehicles Act. The Act is one for acquisition of contract carriage vehicles and other assets for the purpose of the business of the Corporation. The pith and substance of the Act is that it is a law for acquisition of contract carriages and other assets of the operators. An enactment for the compulsory acquisition of property, if it is valid, not being violative of Article 31 or any other Article in Part III of the Constitution, cannot be challenged on the ground that it is violative of the freedom of trade and commerce guaranteed under Articles 301 and 304. Challenge on the ground of violation of Articles 14 and 19 cannot be made for the duration of the emergency declared. The only Article available is Article 31. If the law passes the test of constitutionality under Article 31(1) and (2) and legislative competence, whatever its ultimate impact on the petitioners, they cannot challenge that law on the ground that it imposes unreasonable restrictions to carry on trade or business. In that view, this contention of Sri Sen fails and is rejected.

98. From the foregoing discussions, the conclusions reached are:

(1) The acquisition of contract carriages with Inter-State permits and other assets pertaining such operators under the Act is ultra vires of the Legislative power of the State.

(2) Article 31-C does not bar the challenge that the Act is violative of Article 31(2) of the Constitution as there is no reasonable and substantial nexus between the purpose of the acquisitions and securing the principles specified in clauses (b) and (c) of Article 39.

(3) The Act is violative of Article 31(2) and is a fraud on the Constitution. Therefore, it has to be struck down as unconstitutional and declared null and void.

(4) The Act is not violative of Articles 301 and 304, if it is otherwise a valid law.

(5) The Notifications issued under Sections 4(1) and 19 of the Act are liable to be quashed.

(6) The petitioners are entitled to restoration of all vehicles with permits and other assets taken over from them.

(7) The vehicles of the petitioners have been seized by the officers of the respondents, and for over 8 months, the Corporation has been operating the said vehicles. The trade and business of the petitioners have consequently been closed. The petitioners are therefore entitled to be compensated for loss of business and loss and/or damage to their property. The State is liable to compensate them for the entire loss suffered. I am of the opinion that the petitioners should not be driven to separate proceedings for recovery of loss and/or damage; it should be done in these proceedings. The petitioners may make appropriate applications in these petitions setting out the particulars of damages claimed.

99. For the reasons stated above, I make an order—

I. (a) striking down the Karnataka Contract Carriages (Acquisition) Act, 1976, as unconstitutional and declaring it null and void;

(b) quashing the Notifications issued under Sections 4 and 19 of the Act;

(c) directing the respondents to restore the vehicles with the relative permits and all other assets, to the operators from whom they were taken over, and further directing the Karnataka State Road Transport Corporation to withdraw from operation the said vehicles by 23rd September, 1976.

II. Petitioners shall be entitled to retain the sums, if any, received by them from the respondents pursuant to the interim order dated February 11th 1970, made by Venkataramiah, J., and the same shall be adjusted against the compensation for damages to be assessed hereafter.

III. Petitioners are entitled to their costs. Advocates' fee will be fixed by separate orders on 22nd September, 1976.

Rule made absolute.

For appropriate orders and directions fixing the date and place of delivery and for getting the vehicles surveyed before delivery, let these matters be brought up for further orders on 22nd September, 1976.

Tewatia, J.

I agree.