JUDGMENT R.M. Sahai, J. - In what an unfortunate moment M/s. Bist Industrial Corporation Ltd. (hereinafter referred to as Company) was formed by D. S. Bist and sons of Nainital in whose favour an industrial licence was granted in 1956 to set up a sugar factory of two thousand tonnes capacity a day at Kichcha on Bareilly- Kathgodam road to meet crying need of the cultivators, of sugar-cane of Haldwani and Phoolbagh in district Nainital, that it did not run even for a day and was ultimately taken over by Government, by an ordinance issued on 12th September, 1970 which was replaced by Bist Industrial Corporation Limited (Acquisition of Undertaking) Act, No. 7 of 1971 (hereinafter referred to as Act). Although the company was formed on 20th March, 1957, after State Government had sanctioned a loan of Rs. 40 lakhs on 19th March, 1957 building was constructed between 1959-60, some machines were imported and for others orders had been placed, but the project came to a standstill as loan of Rs. 80 lakhs sanctioned by Industrial Finance Corporation in 1959 to complete the project, enhanced to Rs. 1 crore under revised agreement entered with Sri W. L. Kohli in 1964 who had purchased majority share capital of the company in 1963, was never released and it was ultimately cancelled in 1968. Efforts to start the company under Government control also did not materialise. Talks for purchase of equity share of company also failed. And in 1969 the Government issued notice for recovery of loan with interest and penal interest. Subsequent to cancellation of loan by Industrial Corporation the under- writers namely Life Insurance Corporation Bombay, the Oriental Fire and Insurance Company Bombay and U. P. State Industrial Development Corporation Lucknow filed suits for recovery of their money. Punjab National Bank, another secured creditor also filed a suit at Delhi and two suits in the Court of Civil Judge Nainital. 2. Placed thus in an impossible situation of facing recovery suits on one hand and taking over of the undertaking for Rs. 1 crores and 31 lakhs reduced by Rs. 40 lakhs principal and Rs. 42 and odd lakhs interest and penal interest of Government although outstanding dues were Rs. 2. Placed thus in an impossible situation of facing recovery suits on one hand and taking over of the undertaking for Rs. 1 crores and 31 lakhs reduced by Rs. 40 lakhs principal and Rs. 42 and odd lakhs interest and penal interest of Government although outstanding dues were Rs. 340.90 lakhs, Sri Kohli approached the Supreme Court under Article 32 of Constitution of India challenging validity of the Act being beyond legislative competence and violative of Articles 14, 19 and 31. Another petition was filed by Punjab National Bank. By the time these petitions matured for hearing, 42nd constitutional amendment had come into force and therefore, these petitions were returned by the Hon'ble Court and they were presented in this Court in 1977. Although principal question in these petitions namely whether determination of compensation was illusory and arbitrary and whether State Government had priority over other debtors are different yet questions relating to invalidity under Articles 14 and 19 and 31 being common both are being disposed of by this order. 3. What and where went wrong in chain of events spreading over nearly thirteen years resulting in takeover of the undertaking is not necessary to be adjudicated upon. Even the attack on legislative competence and violation of Articles 14, 19 and 31 which might have been of consequence in 1971 has lost its thrust as the Supreme Court in Ishwari Khetan Sugar Mills v. State of U. P. AIR 1980 S. C. 1955 : (1980 All. L.J. 950) repelled similar challenge while upholding validity of Act 27 of 1971 by which a number of sick mills had been taken over by the State. Learned counsel also pressed these submissions halfheartedly rather feebly more for purposes of record than any hope of success. 4. Another facet of same attack was lack of public purpose. It was urged that acquisition being with objective of realisation of loan advanced by State Government by depriving other creditiors of their substantial dues, it was mala fide and unreasonable. And the exercise of power being colourable it was vitiated. Reliance was placed on State of Karnataka v. Ranganatha Reddy AIR 1978 S.C. 215 and it was urged that the question whether acquisition was for public purpose or otherwise was justiciable. Needless to say that objective of taking over cannot be decided by picking up one section or the other. And the exercise of power being colourable it was vitiated. Reliance was placed on State of Karnataka v. Ranganatha Reddy AIR 1978 S.C. 215 and it was urged that the question whether acquisition was for public purpose or otherwise was justiciable. Needless to say that objective of taking over cannot be decided by picking up one section or the other. It has to be judged in the background in which it became necessary for Government to intervene,. and the objective it sought to achieve. It will have to be seen if in pith and substance the legislation was to realise Government loan only. The Ordinance was issued to provide for the acquisition of idle plant and other property belonging to or held by the company for purpose of enabling the State Government in public. interest to commission the said plant with a view to bringing to use to the fullest extent possible the surplus sugar-cane grown in and around Tarai area and thereby to help the sugar-cane growers for production of sugar which was essential commodity and for providing employment to a considerable number of people and to manage the undertakings so as to sub-serve the common good. It describes both the background and purpose of acquisition. It cannot be disputed that purpose for which the licence was granted to M/s Bist & sons namely to help the cultivators was being frustrated. The legislation was enacted not to deprive the petitioner of the undertaking or to realise the loan advanced by State Government but for social and general betterment. As mentioned earlier the Industrial Finance Corporation had cancelled the loan and there was no fund with petitioner which he could utilise in making the factory a running concern. The petitioner agreed for Government control. The talks for purchase of equity share failed because of dispute of its valuation. Due to lack of fund factory became stagnant. Petitioner had failed in its effort to accumulate sufficient fund. It cannot, therefore, be said that when the Government intervened after waiting for nearly 14 years it was acting in a mala fide manner or that exercise of power was colourable. In fact there was no option but to take over the undertaking. To argue, therefore, that the undertaking was taken over for paying Government - loan is being uncharitable. 5. Principal attack was on determination of compensation. In fact there was no option but to take over the undertaking. To argue, therefore, that the undertaking was taken over for paying Government - loan is being uncharitable. 5. Principal attack was on determination of compensation. Emphasis was on just equivalent or full indemnification of market value a concept developed by Supreme Court in Bela Banerjee's case (State of West Bengal v. Bela Banerjee, AIR 1954 S.C. 170 ) adhered to in Vajravelu's case (Vajravelu Mudalier v. Spl. Dy. Collector, Madras, AIR 1965 S.C. 1017 ), widened in Metal Corporation (Union of India v. Metal Corpn. of India Ltd., AIR 1967 S.C. 637 ) overruled in Shanti Lal's case (State of Gujarat v. Shanti Lal Mangal Das, AIR 1969 S.C. 634 ), but restored in Bank Nationalisation case (R. C. Cooper v. Union of India, AIR 1970 S.C. 564 , finally explained in Ishwari Khetan Sugar Mill v. State, AIR 1980 S.C. 1955 : (1980 All. L.J. 950). Although interpretation of word `compensation' in Article 31(2) as just equivalent was never accepted by Parliament but it was in 1972 only when this word was substituted by 25th Constitutional Amendment by the word `amount'. But as Act 7 of 1971 was enacted prior to this amendment the determination of compensation has to be examined on the touchstone of law as it stood prior to it. Although till late sixties concept of just equivalent held the field but with growing realisation of superiority of community's interest over individual its applicability was narrowed down and role of judicial review has been confined to ascertaining if compensation awarded was illusory or principle for its determination were irrelevant. In Ishwari Khetan Sugar Mills v. State it has been observed by Supreme Court (Para 33) : "Even as the article stood at the relevant time it was open to the legislature to fix principle for determining compensation and unless it is shown that the principles are irrelevant to the determination of the value of the property or by working out the compensation according to the principles so specified the compensation becomes illusory, the principles themselves are beyond the pale of challenge before a Court of law on the ground that they do not provide adequate compensation." 6. Is the compensation illusory? Is the compensation illusory? At the outset it may be mentioned that adequacy of compensation was never accepted as basis for striking down fixation of compensation even in the sixties. In Vajravelu case it was observed, `It will be noticed that the law of acquisition or requisition is not wholly immune from scrutiny by the Court. But what is excluded from the Court's jurisdiction is that the said law cannot be questioned on the ground that the compensation provided by that law is not adequate.' In Bank Nationalisation case it was observed, `If an appropriate method or principle for determination of compensation is applied, the fact that by application of another principle which is also appropriate, a different value is reached, the Court will not be justified in entertaining the contention that against the two appropriate methods one more genuine method should have been applied by law. Further taking over by Government in welfare state for general and social betterment calls for different consideration than where something is taken over for private use or private purpose. In latter case it may have to be full value. But in the former, social benefit or community benefit may itself be recompense. Unless, as said by late Jawahar Lal Nehru in Constituent Assembly debates its extent was, `a fraud on constitution.' Then the question is what does the word illusory mean or how it has been or should be understood. In Oxford dictionary it is defined as deceptive. That is it must appear something other than what is meant to be. How it has to be understood in relation to fixation of compensation? When it is anything except compensation. That is in appearance and form it may be named or described as compensation but in form and substance it may be just opposite of it. For instance taking something for nothing. Or the amount may be so negligible and shocking that no reasonable person would consider it as recompense. 7. In State of Madh. Pra. v. Ranoji Rao AIR 1968 S.C. 1053 it was said, If for every rupee acquired fifty paise or less is made payable as compensation the violation of Article 31(2) would be patent. But that was a case of taking over of cash grant. 7. In State of Madh. Pra. v. Ranoji Rao AIR 1968 S.C. 1053 it was said, If for every rupee acquired fifty paise or less is made payable as compensation the violation of Article 31(2) would be patent. But that was a case of taking over of cash grant. In fact whether it was State of Madras v. Namasivavy, AIR 1965 S.C. 190 , or Bank Nationalisation case ( AIR 1970 S.C. 564 ) the determination of compensation was struck down not because it was less but because principle for its determination was arbitrary or violative of method of determination of valuation of such article. It is too late in the day, therefore, to urge that amount of Rs. 1 crores 31 lakhs and odd fixed by Legislature as such, is illusory. May be petitioner may not be left with a farthing. But validity is not to be judged from its effect. 8. Various documents were placed to demonstrate that the amount fixed in the Act was much less that what it should have been. For instance reliance was placed on counter- affidavit filed by State in Supreme Court wherein it was averred, `that the total project cost of sugar factory of 2,000 tonnes daily crushing capacity to at kicha is estimated at Rs. 441.70 lakhs including the amount of compensation for acquiring the sugar factory'. It was pointed out that in December 1970 the Sugar and General Engineering Corporation had estimated approximate price of 2000 tonnes sugar plant at Rs. 2,95,00,000. Another document on which reliance was placed was report of evaluation of the machinery lying with the company conducted by National Sugar Institute on 13th September 1968, according to which approximate market value of the machinery was Rs. 1,24,73,180. Even if the argument is accepted as such it results only in establishing that the compensation should have been more may be by a few lakhs. That is if the authority determining compensation would have taken into account these factors the compensation would have been fixed say at 2 or even Rs. 2.50 crores. May be, but that is in realm of adequacy. A domain forbidden. So long as the determination is based on principle which is relevant it is beyond challenge. 9. That is if the authority determining compensation would have taken into account these factors the compensation would have been fixed say at 2 or even Rs. 2.50 crores. May be, but that is in realm of adequacy. A domain forbidden. So long as the determination is based on principle which is relevant it is beyond challenge. 9. Controversy, therefore, that survives for consideration is if the principle for determining compensation was irrelevant or the manner and method of calculating compensation was contrary to accepted norms resulting in rendering the compensation illusory. In Vajravelu's case ( AIR 1965 SC 1017 ) it was said, `If the law says that though a house is acquired it shall be valued as land or that though it is acquired in 1950 its value in 1930 should be given.... the principles do not pertain to the domain of adequacy, but are principles, unconnected to the value of the property acquired'. In Ishwari Khetan Mills it has been observed, `Even as the article stood at the relevant time it was open to the Legislature to fix principle for determining compensation and unless it is shown that the principles are irrelevant to the determination of the value of the property or by working out the compensation by the principles so specified the compensation became illusory, the principles themselves are beyond pale of challenge.' Unlike the Act challenged in Ishwari Khetan Sugar Mill's case (1980 All. L.J. 950) (S.C.), the Act does not disclose any principle by which compensation was determined. In paragraph 31 of the counter- affidavit it was stated that compensation was calculated on the assets taken over. But how calculation was done, was not disclosed. During course of hearing supplementary counter- affidavit was filed. Along with it summary of .assets showing book value and amounts proposed to be given to petitioner has been filed as Annexure-1, which according to paragraph 5 formed basis for determination of compensation. As validity or otherwise of it is decisive the report is extracted below. 1. Milling plant - imported 45,85,700 48,47,215 - indigenous (EOT Crane) 1,28,709 1,39,006 2. Boiling House - imported 5,03,330 5,19,261 - indigenous 11,02,108 13,47,750 3. Boilers & its equipment (Turbo alternators) - imported 10,27,566 10,62,137 - indigenous 16,62,454 26,54,910 4. Workship Machines - imported 1,01,296 1,07,880 - indigenous 12,423 9,500 5. Power House Crane - indigenous 62,846 43,200 6. 1. Milling plant - imported 45,85,700 48,47,215 - indigenous (EOT Crane) 1,28,709 1,39,006 2. Boiling House - imported 5,03,330 5,19,261 - indigenous 11,02,108 13,47,750 3. Boilers & its equipment (Turbo alternators) - imported 10,27,566 10,62,137 - indigenous 16,62,454 26,54,910 4. Workship Machines - imported 1,01,296 1,07,880 - indigenous 12,423 9,500 5. Power House Crane - indigenous 62,846 43,200 6. Stores (including those with Punjab National Bank) 3,07,824 2,46,260 7. Building Excluding Railway Siding 19,29,154 19,55,400 8. Railway Siding as per B/S 1,70,933 1,70,933 9. 68-69 Miscellaneous (as per B/S) 44,170 36,680 10. 68-69 Leasehold land 18,840 18,840 Total 1,16, 57,353 1.31.59,372 How net value was worked out by valuer is disclosed in papers Nos. 1 to 9 attached to this report. According to it the amount mentioned in first column comprised of book or invoice value plus custom duty, freight and other expenses. In respect of imported items solatium of twelve per cent has been added further. From total thus arrived 1 to 2 per cent has been deducted per year for diminution in value either because of long storage or its lying unused. For instance invoice value of item No. 1 Milling plaint (imported) was Rs. 40,90,000. The custom duty, freight and other expenses accounted for Rs. 4,95,700. After adding these two the total came to Rs. 45,85,700. As it was an imported item solatium of 12 per cent amounting to Rs. 4,90,800 was added to it. The total amount thus worked out was 50,76,500. From it 1 per cent per year amounting to Rs. 2,29,285 was deducted on account of diminution in value due to long storage for 5 years. The net value thus arrived at Rs. 48,47,215 has been disclosed in second column of the report. If determination on net valuation of different articles by ignoring price rise and further reducting it by 1 to 2 per cent for non-use of machine even though it was.lying packed or if fixed had not been used by invoking principle of written down value can be sustained as relevant then no exception can be taken to it. In metal corporation case valuation of machinery or other equipment which had not been worked or used and was in good condition was valued at the actual cost incurred. For others written down value determined in accordance with the provisions of Income-tax Act was adopted as basis. It was challenged. In metal corporation case valuation of machinery or other equipment which had not been worked or used and was in good condition was valued at the actual cost incurred. For others written down value determined in accordance with the provisions of Income-tax Act was adopted as basis. It was challenged. The High Court held in respect of first, that is unused machinery etc. that the method was not relevant as it did not take notice of steady price rise. In respect of latter it held that depreciation had no relation to actual value of machinery. It was affirmed by the Supreme Court. For unused machinery it was observed. `the cost price of a machinery purchased about ten years ago is a consideration not relevant for fixing its compensation. The principle must be such as to enable the ascertainment of its price at about the time of its acquisition.' In respect of the used machinery the Hon'ble Court observed, "The artificial role of depreciation evolved for income tax purposes has no relation to the value of the said assets. Although since then much water has flown- yet nothing has been said about correctness or otherwise of these principles though the decision itself had been overruled in Shanti Lal's case ( AIR 1969 SC 634 ) on broad principle that Legislature having laid down principle for determination of compensation in the Act itself it was not open to judicial scrutiny. Whether the decision in Shanti Lal's case itself was overruled or not in Keshvanand Bharti v. State of Kerala, AIR 1973 S.C.1461 (1614) is not very relevant as even accepting that it has been said by Supreme Court in Ishwari Khetan Sugar Mill cases (1980 All. L.J. 955), that the principle of awarding compensation on the basis of written down value for used machinery is a valid principle for determining compensation.' the question is whether determination of compensation on basis of written down value for unused machinery can be accepted as relevant and valid. The principle laid down in Metal Corporation case ( AIR 1967 SC 637 ) that valuation of unused machinery could not be done by applying written down value was neither overruled nor has been watered down. The principle of written down value becomes relevant where machinery is used obviously because by user the machinery depreciates. Depreciation is allowed under Income-tax Act for user. The principle of written down value becomes relevant where machinery is used obviously because by user the machinery depreciates. Depreciation is allowed under Income-tax Act for user. But how can this principle apply where machinery has not been used. According to summary of assets Ito 2 per cent has been deducted either for lying at site or dimension in value due to non-user. No decision has been placed which might have dealt with a similar situation. On 13th September, 1968 a report was submitted by National Sugar Institute, Government of India, Ministry of Food, Agricultural community development and Co-operation, (Department of Food) on basis of visit paid to the factory on 6th May, 1968 at the request of the State Government for evaluating the machinery lying at the company. It reads as under : "It was noticed that considerable civil engineering work like approach road, railway siding and most of the factory building has been completed. Foundations of the mill house and three boilers have been done and the same for the two Turbo-alternators is nearly completed. The valuation of the Civil Engineering, it is understood, is being done by the State Public Works Departments. Summarising, the valuation of the machinery is as follows :- Item Book value Approximate current market value 1. Milling plant 15 rollers 33" X 66" 45,85,700 1,28,709/4714409 70,00,000 2. Boilers 2 nos. 16,62,354 20,00,000 3. Turbo- alternators 2 nos. 7,96,465 17,00,000 4. Boiling House equipment 12,62,500 12,62,500 5. Workshop Machinery 1,41,131 1,43,750 6. Stores 3,66,930 3,66,930 89.03,789 1,24,73,190 Sd/- P. N. Rao, Professor of Sugar Engineering, National Sugar Institute. Kanpur. It obviously does not take into account various items such as land, building, advances with machinery suppliers etc. Valuation by Sugar Institute as compared to valuation done by the valuer and that also after two years when price index had further gone up leaves no room for doubt that net value determined of various items has been grossly undervalued. And the reason for it appears from the covering letter sent along with it which although not filed with any affidavit, was perused when records were produced by learned standing counsel and on direction by the Court has been filed. And the reason for it appears from the covering letter sent along with it which although not filed with any affidavit, was perused when records were produced by learned standing counsel and on direction by the Court has been filed. It reads as under : "As desired by you, I enclose herewith statements showing valuation of certain assets of Ms Bist Industrial Corporation Ltd. based on the indications given to me on July 28, 1970 along with a summary of assets showing their book value, and the value proposed to be given as purchase consideration. Incidentally, I may mention this also that in view of the present state of affairs of the corporation as disclosed from their Balance sheets and the circumstances under which Government are proposing to acquire the Corporation, it may not be reasonable to pay the price based on market price, and I can give a separate note in this connection, in case you so desire. Further, even if my above view is not acceptable, I will stress this at least that we should not treat the plant and equipments lying at site at par with the brand new equipment that we can purchase from the market. Therefore, I suggest that 2% per year (10% in all) be reduced from the market value at present being quoted on account of untended machines, even though never used, are to be purchased by us" A bare perusal indicates that market price has not been taken into account. No consideration has been given to the price rise. The valuation has been done not on the date the undertaking was acquired but the price for which it was purchased years earlier. And then from it 2% per year was reduced. No basis has been disclosed for it. An independent body like Sugar Institute has valued the price of item No. 1 at Rs. 70,000 in 1968. It was aware that plant had been acquired much earlier. For fixing value at figure other than market price there should have been some rationale. If valuation is determined on no principle then it becomes arbitrary. In absence of any reason the method of calculation adopted by the valuer was artificial and arbitrary. Even if it is accepted as argued by learned standing counsel that deduction for arriving at written down value is recognised method it was inapplicable on facts. If valuation is determined on no principle then it becomes arbitrary. In absence of any reason the method of calculation adopted by the valuer was artificial and arbitrary. Even if it is accepted as argued by learned standing counsel that deduction for arriving at written down value is recognised method it was inapplicable on facts. Even in April 1968 the Government had agreed to purchase shares of company at the rate of 43.75 paise in a rupee. It agreed to purchase equity shares of Sri Kohli at 43.75 in a rupee on their paid up value and to make effort for release of personal liability of Sri Kohli in respect of loan with banks, government, and mortgage of Sri Kohli's house at Delhi etc. and yet when undertaking was taken over in 1970 it left Sri Kohli high and dry. It would not have happened if compensation would have been determined by applying relevant principle. It has been said not with a view to show that compensation determined was not adequate but the principle on which it was calculated being irrelevant the compensation determined was rendered illusory. 10. In Challapalli Sugar Ltd. v. I.T. Commr. 98 ITR 167: ( AIR 1975 SC 97 ) it was held that while considering the question of deduction on account of depreciation and development rebate the written down value has to be taken into account. And written down value in its turn depends upon the actual cost of the assets to the assessee. The Hon'ble Court observed that the expression actual cost has not been defined and therefore, it should be construed in the sense which no commercial man would misunderstand. The accepted accountancy rule for determining the cost of the fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition. In case money is borrowed by a newly started company which is in the process of constructing and erecting its 'plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets which have been created as a result of such expenditure. This rule can be adopted for determining the actual cost of the assets in the absence of any statutory definition or other indication to the contrary. Has it been done? This rule can be adopted for determining the actual cost of the assets in the absence of any statutory definition or other indication to the contrary. Has it been done? And the answer has to be in the negative. In supplementary counter- affidavit filed on behalf of petitioner it has been stated that commitment charges of Rs. 2,10,000/- paid to Industrial Financial Corporation for release of one crore loan, Rs. 9,77,568/- advances to the machinery suppliers, interest, guarantee commission etc. Had not been taken into account for determining actual cost of assets taken over. That cannot be disputed. It is clear from the valuer's report itself. 11. Thus the determination of compensation does not appear to be based on relevant principle. The report of valuer which forms foundation of it suffers from the infirmity of ignoring price rise and the prevalent market rate: According to valuer circumstances in which company was being taken over did not justify payment of value on market rate. To say the least it was just the otherwise. He was asked to value the property. For that there could be one and only one method, the price of the article. It could not vary. The circumstance that company was being taken over was wholly irrelevant. It was not a consideration which should have weighed with valuer. And if it did then determination was vitiated. On the top of it he applied written down value which although not applicable but even assuming it to be so was worked out without first determining the actual cost. Judges in this manner it becomes arbitrary as well. And the which cannot withstand the test of reasonableness cannot be accepted in our jurisprudence. 12. Interest charged by Government on loan advanced by it and its deduction from the compensation has been yet another aspect which had been seriously debated. As regards latter, that is primarily a subject matter of the petition filed by Punjab National Bank and shall be adverted later, but so far the former is concerned it is true that no foundation for it was laid in writ petition obviously because the petition presented in Supreme Court was based on constitutionality of the Act. But since it does not involve any investigation of facts the learned counsel for petitioner was permitted to argue it on oral application. But since it does not involve any investigation of facts the learned counsel for petitioner was permitted to argue it on oral application. It was not objected to either by the learned Advocate General or Standing Counsel. In fact at one stage learned Advocate General stated that Government was willing to consider waiver of interest and penal interest if any. But nothing tangible came out of it. It was, however, stated by him that as it shall take some time the Government shall consider it if a representation in this regard is made by petitioner. A very reasonable attitude. Normally this would have been sufficient but since arguments were addressed it appears necessary to highlight certain aspects which may facilitate the State Government in exercising its discretion. 13. Clauses (2) and (3) of the Agreement entered into between company and the Government provide for the rate of interest and its payment. It was agreed that principal amount of Rs. 40,00.000/- shall be repaid with interest at 5 per cent per annum by 31st December, 1968. The interest was to start accruing from the date the money was paid by State Government to the Central Bank of India. The payment was to be made in six monthly equated instalments. The payment of first instalment was to commence from 31/2 years of drawl of each of the instalments. It was also provided that interest accrued on the loan during first 21/2 years was to be added to principal and the equated instalment was to be fixed on that basis. It was further provided in clause (3) that if any instalment of Principal or interest was not paid on due dates then interest was payable at six per cent per annum. In paragraph 9 of the counter-affidavit it is stated that loan was disbursed in two instalments in March, 1957 and March, 1958. According to agreement noticed above the first instalment became due some time in 1961. But no repayment was made. In 1963 fresh agreement for repayment was entered. Its terms are mentioned in the letter sent by Joint Secretary, State Government to the General Manager, Industrial Financial Corporation, relevant extract of it is quoted below : "The State Government agree to receive its existing loan of Rs. But no repayment was made. In 1963 fresh agreement for repayment was entered. Its terms are mentioned in the letter sent by Joint Secretary, State Government to the General Manager, Industrial Financial Corporation, relevant extract of it is quoted below : "The State Government agree to receive its existing loan of Rs. 40 lacs along with all its interest and penal interest in eight years commencing from July, 1965 and ending with July, 1972 in equated annual instalments subject to the condition that during the first two years, namely 1965 and 1966, the amount of the instalment would be only Rs. lacs each and the shortfall of these two years would be realised from the company in the last two years viz. 1971 and 1972. The entire amount due to the State Government would be repaid in full by July, 1972." Original agreement, therefore, stood substituted by new agreement. Payment Schedule was refixed. It was to begin from. 1965 and end in 1972. It was agreed that in first two years only Rs. 7 Lacs shall be paid for each year. The expression during first two years is significant. It indicates realisation of loan was linked with start of factory. But -unfortunately the factory did not start and undertaking was taken over in 1970. The performance of agreement entered in 1963 became impossible to be performed. The impossibility had arisen due to legislative measure. It was never contemplated when agreement was entered. It is doubtful if in these circumstances the agreement could be enforced in a Court of law. 14. But more important than this is that the State's participation in economic arena in present set up is imperative. But in its role with private sector it has to be guided with fairness and impartiality to ensure the maintenance of even balance of rule of law on which the entire structure of democracy is based. The loan was advanced by Government of welfare State for social benefit. The objective was to ameliorate the condition of sugar-cane growers of the locality and to boost production of sugar in national interest. To fulfil the same the petitioner did not flinch or falter and did whatever he could. The loan was advanced by Government of welfare State for social benefit. The objective was to ameliorate the condition of sugar-cane growers of the locality and to boost production of sugar in national interest. To fulfil the same the petitioner did not flinch or falter and did whatever he could. In fact in his effort to have the company Sri Kohli lost all he had, his assets were liquidated, his business in Delhi with name of M/s. Kohli Financiars Private Ltd. crashed and faced winding up petition, his private bungalow stood mortgaged. From his dream of becoming a financial wizard, he had been reduced to near pauperism, and all this because the loan was not released by Industrial Financial Corporation because paid up capital had fallen from 75 lakhs and the company did not re-issue the share capital after it, as according to corporation it stood technically invalidated in 1965. Whether the corporation was justified or not in delaying the release of loan and ultimately cancelling it or it was due to mala fide of certain officers is academic now. But it was a case where resources of the company had not been exploited. The petitioner had not reaped the harvest even in one season. Money advanced for setting up company having been invested for which petitioner was being compensated it had to be deducted. But interest was not taken into account while determining cost of assets and yet it was being deducted. Even a private money lender would have felt hesistant in enforcing the claim so vigorously. After all it was a loan not for private use or personal benefit but with anxiety to facilitate sugar cane cultivators and improve social conditions. For advancing this objective the company or Sri Kohli did not leave any stone unturned. They pooled their own resources along with - Government loan and money advanced by others. If they failed not because they were lacking in spirit or zeal but because their resources were limited and assurance extended to them by such body as Industrial Finance Corporation was not fulfilled then - the Government should have adopted more magnanimous attitude. And then undertaking had been taken over for running it. It was not for auction and sale. Assets are there. Interest could be realised from it. 15. And then undertaking had been taken over for running it. It was not for auction and sale. Assets are there. Interest could be realised from it. 15. In petition of Punjab National Bank effort was concentrated on demonstrating that State Government stood substituted in place of company, therefore, it was liable for money advanced along with interest on it. It was' urged that Section 3 only wiped out the security, as the undertaking vested in the Government free from any debt, mortgage charge or other encumbrance or lien etc. It negatively did not wipe out the debt. It was urged that Section 3 did not in any manner curtail or reduce the debt. Learned counsel urged that the object: of the Act was not like Agricultural Credit Act etc. to provide relief to the debtors but the objective was to bring the undertaking to use by producing sugar for fuller or better utilisation by the Society. Therefore, it should be held that the Government stepped into the shoes of the company and it cannot deny liability of various creditors nor can it confine it to the amount of compensation payable to the petitioner. It was also urged that Section 8(1) in so far as it provides for deduction of entire amount of loan and the interest due to State Government was bad as it did not include claim of petitioner and other creditors. Consequently it was discriminatory and there being no rationale for paying entire debt of State Government and denying it to others Section 8(1) was liable to be struck down. Learned counsel urged that in Bank Nationalisation case ( AIR 1970 SC 564 ), it was observed in paragraphs 40 and 41 that debt was a property and its extinction by legislative method amounted to acquisition, therefore, the petitioner was liable to be compensated under Article 31 of the Constitution of India. 16. Priority of Crown or State debts are so firmly established that it hardly needs any amplification. Argument of discrimination, therefore, does not appear to have any substance. Nor-is there any merit in the submission that debt of petitioner was acquired by legislative method. What was acquired was the undertaking and not the debt. Vesting of undertaking free from any debt could not amount to acquisition of debt. Rather it has been attached to the compensation payable by proviso to Section 3 of the Act. Nor-is there any merit in the submission that debt of petitioner was acquired by legislative method. What was acquired was the undertaking and not the debt. Vesting of undertaking free from any debt could not amount to acquisition of debt. Rather it has been attached to the compensation payable by proviso to Section 3 of the Act. The amount may or may not be sufficient but sufficiency or otherwise could not render it acquisition. 17. Has State Government stepped in shops of company and is liable to pay debts of creditors. It is true that undertaking was taken over for better and fuller utilisation of its resources and not to relieve debtors. But that did not result in substituting State Government in place of company for payment of debts etc. What may have been morally better could not affect construction of Sections 3 and 4 which alone have to be examined to find out if the Legislature intended expressly or impliedly that debts of creditors shall be payable by State Government. Section 3 of the Ordinance vested the undertaking in State Government free from any debt, mortgage charge etc. from the date of commencement of Ordinance. By Section 4 all contracts relating to the undertaking of the company which were subsisting immediately before commencement of the Ordinance ceased to have effect or be enforceable against the company or surety and became enforceable against. State Government. When Ordinance was replaced by Act. Section 3 remained as it was but Section 4 was modified. It was added that contracts other than debt, mortgage, charge etc. referred to in Section 3 shall be enforceable against Government instead of company. According to learned counsel for petitioner agreement to pay loan was nothing but contract, therefore, on the date the Ordinance was issued it became enforceable against State Government. And to that extent there was no clash between Sections 3 and 4. According to learned counsel this effect which was automatic, as a consequence of issuing of Ordinance could not be nullified when Act.was passed on 13th January, 1971 by creating an exception that it did not relate to contracts mortgage or charge etc. Learned counsel urged that while passing the Act it was open to change the procedure but not the liability which had already been wiped off by the Ordinance. Learned counsel urged that while passing the Act it was open to change the procedure but not the liability which had already been wiped off by the Ordinance. Reliance--was placed on State of Orissa v. Bhupendra Kumar, AIR 1962 SC 945 . The argument appears to proceed on misapprehension. An ordinance is issued under Article 123 by the President and under Article 213 by the Governor, where the President or Governor is satisfied that circumstances exist which render it necessary for him to take immediate action. And once it is issued it had the same force and effect as an Act. Therefore, when Ordinance was issued on 12th September, 1970 all contracts including agreement of loan become enforceable against State Government. It did not result in wiping off any liability. Taking to its utmost it gave right to creditors to enforce their claim against State Government. But this was taken away by the Act. And this power the Legislature had. In this view of the matter it is-unnecessary to examine if it was by way of abundant caution that when Act was replaced by Ordinance it was made explicit what was implicit. 18. In the result both writ petitions succeed and are allowed in part. Validity of the Act is upheld but Section 8(1) of the Act is struck down. A direction is issued to State Government to determine compensation again on relevant principles. 19. As regards interest and penal interest no direction is needed as in view of statement of Mr. Advocate General that the Government shall examine and consider if any representation is made to it. 20. Parties shall bear their own costs. 21. After judgment was delivered an oral application was made under Article 134-A of Constitution of India, by learned standing counsel for grant of certificate. Having heard him we are of the opinion that questions decided by us are based on various decisions of the Supreme Court. We do not, therefore, think it is a fit case where we can certify that the point involved is such which needs to be decided by the Supreme Court.