Smokeless Coal Ind. P. Ltd. & Ors Vs. Union of India & Ors  Insc
888 (1 December 2006)
Sinha & P.P. Naolekar
out of S.L.P. (Civil) No. 20471 of 2005] WITH
CIVIL APPEAL NOS. 5329, 5303,5304,5305,5324,5306,5307,5308,5309,5310,5311,
5312, 5313, 5314, 5317, 5315, 5318, 5319, 5320, 5321, 5322, 5323, 5316 OF 2006
[Arising out of S.L.P. (Civil) Nos. 4300, 20541-42, 21792, 22596, 23302, 23305,
23323-23327, 23345, 23374, 24403, 24034, 25059, 25131, 25140, 25149-50, 25192
OF 2005 & 899 OF 2006] WITH
T.C. (CIVIL) NOS. 89-124, 126-136 OF 2005 AND T.C. (CIVIL) NOS. 4-5, 7-45, 75,
125, 137-139 OF 2006 WITH
CIVIL APPEAL NOS. 5547 OF 2004 & 2972-2976 OF 2005 AND WRIT PETITION
(CIVIL) NO. 67 OF 2005 S.B. SINHA, J :
granted in all the special leave petitions.
validity and/or legality of a scheme framed by the Coal India Limited for sale
of coal by Electronic Auction (E-Auction) is in question in these appeals and
indisputably plays an important role in the development of economy of the
country. It had been the subject-matter of regulatory measures even under the Defence
of India Rules. Production, distribution, supply and price of coal were
controlled and regulated under the Colliery Control Order, 1945 (1945 Order)
framed under the said Rules. The said Order was continued under the Essential
Commodities Act, 1955. Under the Colliery Control Order, the Coal Controller
was even authorised to allot quotas of coal to the Central Government as well
as the State Governments;
the said procedure is now not in vogue in view of decontrolling notifications
issued thereunder by the Central Government from time to time. The quality as
well as quantity of coal required by all consumers used to be regulated by the
Coal Controller. Coal was the only mineral which was subjected to nationalisation,
in terms of the Coking Coal Mines (Nationalisation) Act, 1972 and the Coal
Mines (Nationalisation) Act, 1973.
coal-mining leases granted to the lessees stood terminated by reason of Section
4-A of the Mines and Minerals (Regulation and Development) Act, 1957 in the
is used as a primary raw material in many core sectors which are vital for the
economy of the country e.g. power, steel, oil etc. Fixation of price of coal by
the Central Government, regarding the quality thereof, had all along been
subjected to statutory orders. The gradation of coal dependent upon the quality
thereof was to be determined by the "Coal Board" constituted under
the Coal Mines (Conservation and Development) Act.
of coal may depend not only on the location of the coal mines but also on the
particular seams wherefrom it is extracted. Requirement of maintenance of fixed
price of coal on an all-India basis, as far as practicable had all along been
considered to be imperative in the economic and industrial development of the
over coal :
indisputably is an essential commodity. Its importance is widely accepted. The
Essential Commodities Act, 1955 was enacted inter alia for securing equitable
distribution and availability of essential commodities at fair price. Coal
despite partial deregulation having regard to Colliery Control Order, 2000
(2000 Order) is still a regulated commodity.
Order made provisions for regulating production, supply and distribution of
coal. It dealt with class of coal, grade of coal, size of coal and price of
coal. Clause (3) empowered the Central Government to prescribe classes, sizes,
grades, etc. into which coal may be categorized as also the specifications
thereof on the said basis.
coking coal having inherent property of swelling on heating is essentially used
for metallurgical purposes in the steel plant for production of steel; all
other categories of coal are non-coking coals. Non-coking coal is used as a raw
material in manufacturing processes such as cement, graphite, soft coke,
domestic fuel and for production of various products such as glass, food
processing, ceramics, chemicals, re-rolling mills, salt glazed stoneware pipes,
refractory used for steel making etc. The different sizes of the coal are inter
alia known as 'Run of the Mine', 'Steam' and 'Slack'. The price of coal depends
not only with reference to the grade but size as also the seams situated in the
coking coal mines or coal mines, as the case may be.
12B and 12E of the 1945 Order were, however, invoked by the Central Government
from time to time by issuing notifications as a result whereof controls over
price and distribution of coal were withdrawn.
complete regulation over coking coal used for metallurgical industries was
notifications leading to deregulation as regard price and distribution of coal
had been issued from time to time. Distribution and pricing of coal came to be
controlled in a phased manner. A circular was issued on 5.1.1991 that Coal
India could issue coal clearance/ linkages upto 5,000 metric ton per month. By
a notification dated 23.2.1996, price, distribution of some grades of coal were
deregulated whereas the same was extended to certain other grades of coal on
12.3.1997. A clarification was issued that the coal companies can determine the
price to be charged for the coal produced from time to time.
from 1.1.2000, the 1945 Order was repealed and replaced by the Colliery Control
Order, 2000 (2000 Order); in terms whereof control and regulation over coal, as
was prevailing under the 1945 Order, was done away with. In terms of the said
order, the functions as regards categorization of coal, disposal of coal, stock
vested in the Central Government, whereas the Coal Controller was conferred
with the power of surveillance over quality. By reason of the said Order, the
Central Government, however, apart from certain other statutory functions to be
performed by coal controller retained the power to issue directions for
regulating disposal of stocks of coal.
of coal :
coking coal mines and coal mines were subjected to nationalization in terms of
Coking Coal Mines (Nationalization) Act, 1972 (for short, 'the 1972 Act) and
the Coal Mines (Nationalization) Act, 1973 (for short, 'the 1973 Act'). The
said Acts, as would appear from Section 2 thereof, were enacted with a view to
give effect to the provisions of Article 39(b) of the Constitution of India.
Under the said Acts, both Coking Coal Mines and Coal Mines vested in the
Central Government under the said Acts.
preamble of both the Nationalisation Acts are in the same vein.
Preamble of the 1973 Act states that "control of such resources are vested
in the State and thereby so distributed as best to subserve the common
good." By reason of the said statutes, the coal companies had not only
acquired coking coal mines and coal mines but also have been carrying on
business in coal. Indisputably, they enjoy a monopoly character.
also not in dispute that there had been huge demand of coal both from the core
sector as also non-core sector consumers.
Central Government, however, issued appropriate notifications whereby and whereunder
the said coal mines both in terms of the 1972 Act as also the 1973 Act instead
of continuing to vest in the Central Government vested in the Government
companies specified therein who are parties herein.
the nationalization of coal, consumers were categorized in two main sectors,
namely, core sector and non-core sector. Linkage system admittedly at the first
stage had been evolved for core sector. In the year 1993, a Standing Linkage
Committee was set up for supply of coal to thermal power stations.
was extended also to cement in the said year in terms of Resolution
No.CI-21(20/73 dated 19.11.1973. The scheme for linkage of coal started in the
year 1973 in terms of the resolution dated 6.1.1973, whereby, inter alia, a
Standing Linkage Committee consisting of the members specified therein, was set
up, the relevant provision whereof reads as under :
The Government of India have been considering for some time past the question
of constituting a Standing Linkage Committee for the planning of coal supplies
to thermal power stations in view of the need to supply fuel of appropriate
quantity to the various power stations and at the same time to make the most
economic use of the available capacity for the production and transport of coal"
The terms of reference of the Committee were as under :
To review from time to time the coal requirements of the existing thermal power
stations and for establishing rational linkages with collieries for raw coal
supplies and with washeries for the supply of middlings having regard to :
capacity of coal production, available as well as planned from the nearest
source which would avoid or minimize the rail transport.
quality of coal required by the power stations.
availability of rail and other means of transport and
pattern of consumption of coal;
plan supplies of coal for thermal power stations already under construction and
to link them with sources of coal supply;
advise from time to time regarding the planning and development of the
additional capacity for coal production which should be developed in each
coalfield having regard to the future thermal power development programmes in
the various regions;
examine from time to time the extent to which the linkages already established
between the power stations and the sources of coal supply are being observed
and to suggest steps necessary for ensuring their proper observance;
advise the Government on the feasibility of locating new thermal power plants
having regard to the possibility of economic supply of coal; and
examine all matters that may be referred to the Committee by the Department of
Mines, Ministry of Irrigation and Power, Ministry of Railways or the Planning
Commission regarding the changes in the linkages of power stations with
coalfields and to advise the Government suitably in such matters.
Committee should normally meet once in three months. The Department of Mines
will provide the required Secretarial assistance to the committee." The
coal companies state :
after the nationalization, coal consumers were categorized into two main
sectors, namely, core sector and non-core sector. The core sector consumers
include the vital sectors of national economy related to infrastructural
development as for example, power, steel, cement, defence, fertilizer,
railways, paper, aluminium, export, central public sector undertaking etc. All
other remaining industries/consumers constituted non-core sector. A table
showing comparison in growth in production and dispatches to different
industrial sectors which shows a phenomenal growth in production of coal and
also commensurate growth in coal dispatch particularly in the power sector is
as under :
COAL DISPATCHES FROM COAL MINES AUTHORITY LTD. IN 1974-75 AND COAL INDIA LTD.
IN 2004-05 PRODUCTION (Figs. in Million tones) Item From CMAL in 1974-75 From
CIL in 2004-05 Coal Production 78.99 323.88 Coal Dispatch 72.83 319.12
SECTOR-WISE BREAK-UP OF COAL DISPATCH Item Quantit %age Quantit y % age Power*
20.16 27.66 249.26 78.11 Steel CPP 1.22 1.67 6.427 2.01 Steel plants 8.71 11.95
5.654 1.77 Loco 12.82 17.59 0.00 0.00 Cement (including Cement CPP) 3.48 4.77 10.043
3.15 Fertilizer 0.95 1.30 2.150 0.67 Export 0.528 0.72 0.021 0.01 Paper 1.297
1.78 2.016 0.63 Others 23.67 32.55 43.55 13.65 Total 72.83 100.00 319.12 100.00
*Excluding Captive Power Plants (CPPs)" The linkage scheme applied both to
core and non-core sector.
of coal by the core sector comprises of about 94.61% where as non-core sector
consumes about 5.4 % of total production of coal.
of non-core sector :
non-core sector, the purchasers can be divided in three categories, namely,
those who manufacture smokeless fuel or briquette, those who manufacture
commodities like glass etc. to which reference has been made heretobefore, and
those who manufacture hard coke. Before us, some of the appellants are also
regard to the huge demand of coal by non-core sector, linkage system was
introduced for non-core sector consumers also. Coal India Limited evolved such
a system in November 1978 keeping in view several factors including logistics
of coal movement as also the quality of coal required by the concerned
said linkage of coal was to be determined on the basis of :
thereof in respect of each industry as certified by the State; and
capacity of the railways to transport coal.
an allotment was made, the quantity and quality of coal as also the collieries
from which the same could be lifted used to be mentioned in the Linkage Advice
Letter, a sample copy whereof is as under :
INDIA LIMITED MARKETING DIVISION 15, PARK STREET, CALCUTTA-700 016 Ref:
No.CIL/C4A/48912/ Dated :
(Supply of coal/coke shall be Regulated as per extant guideline MOC/CIL)
LOCATION/DESTINATION Dear Sir(s), Sub: Linkage Advice Letter Ref. Your application
in the Data-Sheet for Coal/Coke Linkage.
refer to your application in Data-Sheet for grant of linkage of coal/coke.
application for issue of "Final Linkage Advice Letter" has been
received in CIL. The details of your installed unit indicating the nos.,
dimensions, specifications, capacity etc., of the burning equipment/oven/plan
and machinery have been received.
basis of relevant information, the maximum permissible quantity (MPQ) of coal
which can be consumed by your unit/plant has been worked out and it has been
decided to fix up final linkage for your unit as per the following :
SIZE MODE OF TRANSPORT COAL COMPANY FIELD
PRERMISSIBLE QUANTITY (MPQ)/MONTH
coal will be supplied by the Linked Coal Company on the basis of annual
sponsorship/recommendation from the concerned sponsoring authority.
linkage of coal will be subject to the conditions as mentioned below/overleaf.
faithfully, Dy. Chief Sales Manager (Linkage), Coal India Ltd. (HQ)" Some
of the conditions of such linkage which are relevant for our purpose are as under
"Linkage" is a clearance to the linked coal company for supplying
coal to the unit, subject to "availability" and in accordance with
the "directives", if any from time to time, of the appropriate
competent authority regulating "disposal of stock of coal". Linkage
does not establish any right for the linked unit to claim coal from any
particular coal company/coalfield/source/grade etc.
Coal allotted against the linkage is for actual consumption in the linked unit
and cannot be delivered or sold to others except with prior written consent of
Government of India/Coal India Limited.
"Linkage" is subject to cancellation in case of :-
Any violation of the terms and conditions contained herein.
Data furnished in the Data Sheet are found to be incorrect/suppressed.
discrepancy between coal lifted, coal consumed and stock of coal is detected.
The conditions of "Linkage" may undergo change(s) as may be decided
by the Competent Authority from time to time." The consumers drawing coal
prior to introduction of non-core sector linkages from Coal India Ltd. were
categorized as traditionally linked consumers and were allowed to draw coal
from subsidiary companies thereof based on the past trend and treated at par
with newly linked consumers in post 1978 period. However, conditions of
linkages were made equally applicable to them. In 1982, non-core Linkage
Committee was constituted by Coal India Ltd. as a part of the process of
simplification of procedures for distribution of coal.
quantity of supply of coal initially used to be dependent on the sponsorship by
the sponsoring authorities. Sponsorship was mandatory for the movement of coal
by rail. Preferential Traffic Schedule provided the list of the
authorities/agencies who were authorized to sponsor. Sponsoring agencies used
to recommend the quantity of coal depending upon the requirements of the
consumer as also the size thereof and mode of supply.
on such sponsorship and considering other factors including the availability of
coal, the quantity of coal required to be supplied to a particular non-core
sector consumer used to be determined. Even after the sponsorship, and link
capacity of the consumer, railway had its own ceiling limits which were made
with a view to provide sufficient checks and balances in the determination of
the quantity of coal supply. The same system of sponsorship was adopted for
determination of quantity of coal supply through road and other modes. It is,
however, not in dispute that the price of coat to be paid had never been part
of the linkage arrangement.
1998 State authorities were asked by Coal India Ltd. to assess the quantity of
coal required by individual units whose case used to be sponsored by them. But
it appeared that there were cases where such assessments were not made or even
if, they were made, the same was done perfunctorily. As a result, Coal India
Ltd. started quantitative assessment through its Technical Committees and
started mentioning the quantity of coal requirement for the industry in its
linkage advice letter. Thereafter, in absence of any ceiling limit imposed by
the railways for movement, a tendency was noticed on the part of the State
sponsoring authorities to issue sponsorship indiscriminately without due regard
to availability of coal, transport capacity and actual consumption. In view
thereof as also due to insufficient attention to details, linkages used to be
granted indiscriminately with total linked quantity being several times higher
than the actual availability. In order to minimize the mismatch between the
linked demand and availability of coal, steps were taken in terms of the
Linkage Conditions and the linked quantity was reduced in respect of the linked
non-core sector consumers who were not drawing full linked quantity of coal.
Since quantity commitments were subject to availability of the total quantity
for which linkages got granted, it exceeded the availability manifold. For
example, during the year 2000, total sponsorship received for industries alone
worked out to be about 6000 wagons per day of which the share of UP alone was
about 5300 wagons per day. On the other hand, the total wagon loading for non core
sector by Coal India Ltd. was for about 1300 wagons per day. To balance such
unrealistic grant of linkage the concept of MPQ (Maximum Permissible Quantity),
which is defined as maximum valid order booking by a linked consumer in any of
the three preceding calendar year was introduced. Besides, there were other
conditions under which the linkages could get lapsed or snapped, being
dependent upon the period of non-drawal or diversion/misuse of coal. That
despite healthy growth rate of coal, demand for core sector, particularly power
sector grew at a stupendous rate. At the other end, the total quantity for
which linkages were granted had far exceeded the availability.
system of linkage in its present form led to a situation where quantitative
demand in respect of non-core sector linkage consumers exceeded the coal
availability in the subsidiary companies. Allegedly, owing to this mismatch in
respect of demand and availability of coal, Coal India discontinued grant of fresh linkages to non-core sector consumers.
revival of snapped/lapsed linkages were also discontinued in the light of the
abovementioned facts and circumstances. Thus, since no new linkage could be
granted after 2001 for non-core sector consumers, the consumers having no
linkage were constrained to purchase coal from black market at a higher price.
Even consumers having linkage had to depend on secondary market if they wanted
enhancement in supply of quantity of coal.
existence of high premium price in secondary market tempted the linked non-core
sector consumers to unauthorized diversion/sell in the open market after
purchasing it at notified price from nationalized coal companies.
On 6th June, 2001, Coal India Ltd. in the meeting of
the Board of Directors effected decentralization and authorized each subsidiary
companies to decide their own policies for sale of coal to non-core sector,
including the price to be charged. It may be noted that on 1.1.2000, coal
became a deregulated commodity, i.e., its price could not be controlled by the
Central Government and thenceforth, it was Coal India Ltd. which became
entitled to determine its price. It was further decided that no fresh linkages
would be issued. The system of sponsorship was also discontinued.
not in dispute that the linked consumers might not get the entire amount of
coal which was required by them.
the introduction of MPQ system, the total quantity of coal offered to non-core
sector remained variable and supply of coal was within the range of 45% to 75%
of the demand made by the concerned industries.
allotment of coal used to be monthwise.
the said linkage system was necessarily dependent upon the sponsorship by the
sponsoring authorities. In para 27 of its counter affidavit the Union of India states :
the quantity of coal supply was, initially, determined based on the sponsorship
by the sponsoring authorities. Sponsorship was mandatory for the movement of
coal by Rail. The Preferential Traffic Schedule provided the list of the authorities/agencies
who were authorized to sponsor.
said sponsoring agency would recommend the quantity requirement of the consumer
and also the size of coal and mode of supply. Based on such sponsorship and
considering other factors including the availability of coal, the quantity of
coal to be supplied to a particular non-core sector consumer was determined.
Even after the sponsorship, and link capacity of the consumer, railway had its
own ceiling limits which were with a view to provide sufficient checks and
balances in the determination of the quantity of coal supply. The same system
of sponsorship was adopted for determination of quantity of coal supply through
road and other modes" Alleged Misuse of Linkaged sponsorship and New Sales
and sponsorship although had come into being, a notification was issued by the
Central Government on 25.6.1992 under the Colliery Control Order purported to
be keeping in view the misuse of the said system of linkage.
linkage system continued so far as the industries who had been granted the said
benefit are concerned. Need, however, was again felt for genuineness or
otherwise of the existing linked consumers wherefor a verification process was
not in dispute that a decision was taken on 13.10.2001 by the coal industries
themselves that the price increase in the non-core sector may not be carried
out more than once in a period of one year.
sales policy for non-core sector was introduced in terms whereof it was noted
that long term commitment by way of fresh linkages may not be advisable. In
principle, a decision was taken that existing linkages would not be snapped.
However, a verification was to be carried out for the purpose of finding out
genuine consumers restricting only to the level of MPQ as it then stood.
However, on 28.01.2003, a decision had also been taken that Open Sales Scheme
would not affect the supply to core sector as also linked/ sponsored consumers.
However, an exception was made in respect of the Central Government Agencies
and the State Government Agencies pursuant whereto or in furtherance whereof
apart from NCCF, State Government and Central Government like BISCOMAUN and Jharkhand
State Mineral Development Corporation were directed to be entitled to supply
coal at 20% above the notified price.
about 23.08.2001, a resolution was passed, inter alia, for removing the
difference between OSS price and the price of the linked
consumers. It was recommended that the coal companies should expand trends
channel network scheme so as to achieve the twin objective of market friendly
and at the same time ensure their best fiscal interest.
prevent misuse of linkage, verification of the units of the linked consumers
was undertaken. As a result of such verification it was allegedly found as
would appear from the following statement made in the counter affidavit :
a copy of the minutes of the meeting taken by the Minister for Coal and Mines
on 21.3.2002 regarding new coal sale policy of Coal India Ltd. was forwarded,
amongst others, to the Chairman-cum- Managing Director of the subsidiary
companies of Coal India Ltd. along with the Director (Marketing), Coal India
Ltd. It was noted in the minutes that the total number of linked units were
7015 out of which linkage of 2217 had been snapped. That the total number of
units having valid linkage as on date was 4798 out of which 3317 units had been
verified either by State Government/sponsoring agencies or by internal
vigilance units of coal companies. While 3064 were reported to be existing, 253
units were found to be either non-existing or non-operating. It was further
noticed that during coal company wise review, it was noted that in cases where
vigilance departments of coal companies had verified the units, about 40-50% of
the units were found to be either non-existing or non-operational. On the other
hand, the State Government/sponsoring agencies had reported more than 90% of
the verified units to be in existence.
coal companies were advised to get the verification done through vigilance."
With a view to consider the matter afresh, a meeting of the Standing Committee
on Coal and Steel (2004-2005) took place wherein it was resolved :
The Committee also note that as admitted by Secretary, Department of Coal,
there are 4000 odd industries in the business out of which there might be some
bogus companies not using coal and black marketing it. The Committee feel that
thee is a wide spread apprehension that bogus companies are operating in the
transportation and black marketing of coal thereby causing immense loss to the
coal sector ultimately affecting the economy of the country. The Committee
further note that quality of coal is closely linked to effective
materialization of linkage. The Committee are dismayed to note that out of
8,000 odd industries getting coal quota, 4,000 such industries, who were
reported to be bogus, had been eliminated after inspection carried out by the
Department of Coal. The Committee, therefore, strongly recommend that the
Department of Coal should take a pro-active and corrective decision in the
award of coal transportation contract. The Department should also undertake an
exercise to identify and weed out the bogus companies which are in the business
of black marketing of coal. The Committee further recommend that the Department
of Coal should give a fresh look at the whole gamut of coal linkage and come
out with a clear cut policy. The Committee would like to be apprised of the
action in this regard." According to the coal companies, however despite
such stringent steps taken as regard the maladies of demand of coal by the
non-existing units and/or demand of coal in excess of the requirement of the
linked units and concentration of purchase of coal at the hands of a few
traders did not work to their full satisfaction.
Sales Schemes (OSS):
about 03.11.1998 Open Sales Schemes (OSS Scheme) was introduced as a result
whereof some amount of coal was to be supplied to the traders directly
wherewith the linkage system has nothing to do.
clarified that the OSS in no way affect despatches to
linked/sponsored consumers. In terms of 1945 Order, however, the Government of
India used to fix and notify prices of various grades of coal on the basis
whereof the Coal India Ltd. and its subsidiaries used to sell coal to all
classes of consumers. The said scheme was also subjected to certain
restrictions, in terms whereof, it was impermissible for one purchaser to
purchase coal for more than 33% from each colliery. The linked consumers or the
sponsored consumers, were not entitled to take part in such open sales schemes.
coal companies contend that the schemes of linkage, sponsorship or OSS were
part of the policy decisions which were taken by them from time to time with a
view to meet the exigencies of the situation which were prevailing then.
Keeping in view, however, the fact that the supply could not meet the demand
which to a great extent was artificial and man-made, a new policy decision was
required to be evolved so as to meet the new situation; particularly when
measures taken to prevent black marketing of coal by procuring coal in excess
of their requirements and/or the units being non-existent as also by the
traders, did not fructify.
scheme known as E-Auction was made purportedly to meet the liberalization
policy of the Central Government in regard to import of coal and opening of
private coal mines and to provide pragmatic and transparent system of
distribution of coal. 4.8 million tones of coal were offered to the non-core
sector in 2003-04. The quantity earmarked for non-core sector was restricted to
933 validly linked consumers. The objectives of the said scheme are stated to
be as under :
present system of sale of coal to non-core sector consumers needs to be made
more pragmatic and transparent by accommodating the following changes :
consumer having requirement of specified quality of coal from a particular
colliery/source and siding/pilot should have an access to buy coal by paying
the market determined price for the same.
This approach would enable the non-core sector consumers to receive coal of
their choice, on payment of market price, determined through Auction confined
to non-core sector consumers." Clause 3 thereof provides for methodology
of offer and sell of coal under E-Auction, in the following terms :
pro-rata basis the availability of coal is roughly 45% of the entitled quantity
of the linked non- core consumers of coal and that is also subject to availability.
The quantity so arrived at will be called allocable quantity (AQ) and shall be
worked out for each non-core-sector consumers annually (for the sake of proper
distribution, this will be every month and bidding will be restricted to such
prorated quantity every month).
increased availability of coal for non-core sector, the AQ-(MPQ of individual)
X total coal availability for a particular month divided by total monthly MPQ.
Whilst in the case of existing consumers entitlement would be governed by the
MPQ (Maximum Permissible Quantity) of the last 7 years, supplies against the
requirement of new consumers will depend on the satisfaction of the coal
company and availability of coal.
Around 20% of the total non-core-sector coal available would be made available
to official agencies nominated by State/Central Govts. For distribution to the
small and tiny consumers. Coal to the State Govts. May be priced at the average
cost arrived at the E-auction for that particular grade of coal during that
month." Clause 4 provides for E-Auction process whereas clause 5 provides
for terms of payment. The concept of E-Auction is stated to be as under :
order to bring about some transparency in marketing of coal by the Non-core
Sector consumers. An initiative was taken recently by Bharat Coking Coal Ltd.
(BCCL), a SUBSIDIARY OF Coal India Limited (CIL) for sale of coal A/c Non-core
Sector Consumers through E-auction on trial basis going by succeeds of this
trial. It is being considered to extend this scheme in other coal companies of
CIL also. In a phased manner, to cover all the consumers of non-core Sector,
including non- consumers/traders.
broad benefits and modalities for subsequent trial run for sale of coal though
E-auction are as under :
Elimination of differences between linked and non-linked consumers as directed
by Calcutta High Court.
xxx" The concept of sale of coal through E-Auction was introduced on trial
basis by BCCL in October 2004.
was also introduced by North Eastern Coal Limited.
interim measure, a decision was taken to sell about ten millions tones of coal
through E-Auction in 2005-06, in various subsidiaries of Coal India Limited.
The quantity which was to be put on E-Auction and the price thereof was to be
in the following order :
10 million tones only released through e-auction;
About 12 million tones released to linked consumers of non-core sector through
MPQ concept at e-auction price;
million tones to NCCF, 0.5 million tones to Govt. of UP both at average
to the coal companies approximately 26.5 million tonnes of coal were to be sold
at E-Auction price as a result whereof the share of non- core sector in
dispatches would be enhanced roughly to the extent of 8% against the present
share of about 5.4%. No details in respect thereof, however, have been
of the notices issued on 21.10.2004 for sale of coal to non-core sector through
E-Auction, it has, inter alia, been stated :
is in the process of reformulating its sale and distribution policy with a view
to enable genuine and bona fide non-core consumers to purchase coal of their
choice subject to availability at fair market price in a transparent manner.
order to accord uniform opportunity to all such consumers, it has been decided
to sell 1.6 lakhs tones of coal through e-auction in November, 2004, to be
conducted by MSTC Ltd., a Govt. of India enterprise, purely on a trial basis.
Sale of coal to such non-core sector
will be made only through e-auction to be held on 17.11.04, 22.11.04, 25.11.04
and 29.11.04 respectively.
month of December, 2004, coal sold only through e-auction will be delivered.
on-line registration, genuine consumers of BCCL who are already linked as well
as new consumers may apply to BCCL in the prescribed form which is available
form the website of MSTC Ltd. at http://www.mstcindia.com under the heading
BCCL Coal Auction or form the website of BCCL at http://bccl.cmpdi.co.in from
where it can be down load.
application forms may also be obtained from the Office of BCCL Dhanbad, BCCL, Kolkata,
MSTC, Kolkata or MSTC, Delhi.
forms completed in all respects should reach to Shri S. Mallick, Sales Manager
(Road Salews Section), Sales & Marketing Divn., BCCL, Koyla Bhawan, P.O. Koyla
Nagar, Dhanbad 826 005 or Shri K.K. Mazumdar, Sales Manager, BCCL 6 Lyons
Range (5th Floor), Kolkata -700 001 in duplicate latest by 4th November, 2004.
due verification, BCCL will forward this application to MSTC Ltd.. for
registration. On being intimated by MSTC, consumers should pay one time
registration fee of Rs.10,000/- by way of DD/PO favouring MSTC Ltd., Kolkata
and register themselves on-line at http://www.mstcauction.com." The
procedure to be followed for E-Auction, is stated to be in the following terms
Scrap Trading Corporation, hereinafter referred to as MSTC (a Government of
India Undertaking) and M/s Metal Junction Services (a joint venture of Steel Authority
of India Ltd. and Tata Iron & Steel Co. Ltd.), specialized in conducting
electronic auction have been engaged to conduct sale of coal through e-auction
by the subsidiary producing companies of Coal India Ltd. Under the scheme, the
interested buyers are required to initially register themselves with the abovesaid
auctioneering agencies and are also published for information to all concerned,
well in advance. The information displayed in advance about an auction includes
details of the source, quantity, grade, size, mode of transport as well as the
floor price. E- auctions are conducted for each of the Subsidiary Companies
separately under the scheme. Each subsidiary company conducts on an average
four auctions every month except NCL which conducts at least two auctions in a
month. A chart setting out details of e- auction conducted in the month of
January, 2006 would show that till 19th of January, 2006, 26 auctions have
already been conducted. The buyers are required to deposit requisite Earnest Money
Deposit (hereinafter referred to as EMD) for coal they desire to bid with the
auctioneering agencies. At present, the participants are required to deposit an
EMD of Rs.100/- against their per tonne requirement. The bidding is conducted
by the auctioneering agency for specified period which is extended subject to
the status of the bidding. On conclusion of the electronic bidding, the
agencies forward a list of successful bidders along with EMD, the allotted
quantity, bid price, etc. to the subsidiary company for taking further action
for release of coal.
the successful bidders are also informed by the agencies through electronic
mail. The successful bidders are required to deposit full value of coal within
eight working days from the date of completion the bidding at the headquarter
sales department of the concerned subsidiary company of Coal India Ltd. along
with relevant documents for obtaining the release order and subsequently are
required to arrange for movement of coal from the respective projects/mines of
the concerned subsidiary company within a validity period of 45 days." The
Central Government, however, by a letter dated 08.04.2005 addressed to the Coal
India Limited, kept the linkage system alive despite introduction of E-Auction.
to E-Auction :
20.07.2005, the Ministry of Coal by a circular letter stated :
total quantity earmarked for State Government agencies may be increased by one
million ton so as to reserve a total quantity of 3 million tones of coal for
the year 2005-6. The State Government agencies who are distributing coal to SSI
and tiny units are to be supplied coal by the subsidiary companies of CIL at
the floor price (i.e. 20% above the notified price of a price of a particular
grade) instead of the weighted average e- auction price in view of the reported
high e-auction price." The Central Government, thus, directed the coal
companies to supply coal to NCCF and other agencies at 20% above of the
notified price instead of weighted average E-Auction price; thereby taking them
out of the purview of E-Auction. Similar benefit was extended to the agencies
of the Central Government and the State Governments. By a letter dated
08.04.2005, the Ministry of Coal allocated supply of coal of 2 MT each to be supplied
to NCCF and the State Governments nominated agencies for the financial year
2005-06. Yet again on 20.07.2005 the Ministry of Coal directed that the price
to be charged for supply of coal to NCCF and the State Government nominated
agencies to be at a floor price i.e. 20% above the fixed notified price of a
particular grade instead of weighted average E- Auction price. The quantity of
supply of coal to the State Government nominated agencies was further increased
by one MT for 2005-06. This Court's attention has, however, been drawn to
various cash memos. issued by the NCCF, from a perusal whereof it would appear
that the NCCF instead of supplying coal only to a cross-section of tiny and
small consumers e.g.
blacksmith, tea stall vendors, who require a very small quantity of coal for
running their business, had been selling coal even to linked consumers. The
Chairman of Coal India Ltd., however, vide letter dated 30.09.2005 addressed to
the Chief Secretaries of various State Governments sought to define the tiny
and small consumers stating that those whose consumption was less than 500 tonnes
per year would come within the purview thereof. Admittedly, small consumers
were to be charged not exceeding 105% of the base price at which coal had been received
from Coal India Ltd and its subsidiaries. By the said letter, it was directed
that the coal bill to the tiny/small consumers shall separately include base
price and other charges like transportation, royalty, taxes, etc.
to set up smokeless fuel units :
coal companies themselves used to produce soft coke and other derivatives of
coal for use as alternate fuel for domestic consumption.
Government of India, Ministry of Coal, by way of a letter dated 27.03.1997,
addressed to the Chairman, Coal India Ltd., Calcutta, asked him to take urgent
necessary actions to popularize the technology given by CFRI by giving more
linkages to the intending entrepreneurs and also encourage stepping up of
production of, SSR and Briquettes in order to ensure availability of alternate
fuel for domestic consumption.
about 07.05.1989, advertisements had been published in many leading newspapers
including 'The Statesman', wherein it was stated :
smokeless fuel is a popular product suitable for cooking by millions of houses,
canteen kitchens, hostels bit and small etc. in part of States of Northern,
Western, Eastern, Central and South India.
long the new technology was reserved for Coal Producing Companies due to a
restriction on coal linkage.
you can also make it. Coal India assures
to provide both coal and the manufacturing technology if it is not available
with enthusiastic entrepreneurs etc.
be manufactured by State Undertaking/Corporations, Joint Sector Enterprise and
also by Private Entrepreneurs etc." The entrepreneurs some of whom are
Appellants before us are small scale industries. They are registered with the
Directorate of Industries of the respective States. They are also linked
industries for the purpose of obtaining supply of coal from the coal companies
herein. The entrepreneurs some of whom are Appellants before us having been so
invited, pursuant to or in furtherance of the promises made by them allegedly
set up plants for manufacturing smokeless coal.
before different High Courts :
traders filed a writ petition before the Gauhati High Court. By a judgment and
order dated 08.04.2005 the Gauhati High Court set aside the E-Auction scheme,
inter alia, holding the method adopted for the said purpose to be arbitrary in
nature. In any event, it was held that the Chairman of Coal India Limited had
no authority to issue such direction or to frame such a scheme. For the purpose
of working out the feasibility of sale of coal at E-Auction, a committee was
directed to be constituted. Civil Appeal Nos.2972 to 2974 of 2005 have been
filed by Coal India Limited against the said judgment.
the scheme of E-Auction was introduced in Western Coal Field Limited, its
authority was questioned before the Madhya Pradesh High Court by way of a writ
petition. By a judgment and order dated 29.09.2005 the said High Court,
however, held the said scheme to be legal and valid.
Leave Petition (Civil) No.24034 of 2005 has been filed thereagainst.
the Calcutta High Court, one Bijoy Kumar Poddar filed a writ petition
questioning the validity of the sponsorship scheme. The said writ petition has
of the Gauhati High Court. :
the Gauhati High Court, as noticed hereinbefore, the traders filed a writ
petition. Five writ petitions were filed by traders and SSI owners, inter alia,
questioning a notice of E-Auction which was for sale of coal loaded in rakes.
One rake consists of 41 wagons having about 60 MT of coal in each wagon. By
reason of the said notice, it was directed that if the bid was for one rake
only, floor price thereof would be about Rs.49 lacs.
High Court held that the petitioner therein had the locus standi to challenge
the impugned notices and the Chairman, Coal India Ltd. was not competent to
take any policy decision as regard sale of coal by E-Auction. It was observed
that by reason of the said policy decision all other modes of sale of coal
having been superseded, the same was not valid. Having regard to the state of
affairs prevailing in the North Eastern States, the process of tender was held
to be not safe as inter alia it was noticed that no-one from Arunachal Pradesh
had registered for purchase of coal through E-Auction. It was further held that
the criteria laid down therein did not take into account the situation
prevailing in the North Eastern States and, thus, violative of Article 14 of
the Constitution of India. It was found that as in the North Eastern Region,
there was shortage of electricity, the traders and linked consumers would find
it difficult to bid through E-Auction. The learned judges directed constitution
of a committee comprising of the representatives from the Ministry of
Information and Technology, Ministry of Power, BSNL and CIL, which was to be
chaired by the Secretary, Ministry of Coal, so as to enable it to take a
decision as to how best the said policy decision can be implemented.
of the Madhya Pradesh High Court:
is not a matter of right and dependent upon certain conditions precedent. In
view of the decision in Pallavi Refractories & Ors.v. SCCL & Ors.
[(2005) 2 SCC 227], the dual pricing policy adopted could not be found fault
with. Even the commercial principles laid down therein pointed out that
E-Auction is valid in law. Price fixation by E-Auction is not arbitrary.
of price by reason of E-Auction being a normal facet in commercial transaction
is not bad in law.
of the Calcutta High Court:
question as to whether a direction can be issued upon the Coal India Ltd. to
supply coal by road movement and without sponsorship in the wake of coal being
controlled came up for consideration before the Calcutta High Court. The stand
of the coal companies therein was that the consumers of both core and non-core
sectors were entitled to equitable distribution of coal. The Calcutta High
Court observed that mini classification on the basis of sponsorship system is
ultra vires the Constitution of India.
India Limited filed a SLP before this Court on 30th July, 2004 (Civil Appeal No.5547 of 2004) inter alia taking a
categorical stand before this Court that the linked consumers form a separate
class. On the said averments, it obtained an order of stay of the operation of
the judgment of the Calcutta High Court on 8.10.2004. However, despite the
same, they implemented the judgment of the Calcutta High Court by taking a
conscious decision in that behalf within a short span of time.
India Limited and other coal companies have filed several transfer applications
which having been allowed, the writ petitions have been transferred to this
before this Court :
Appeal Nos.2972 and 2975 of 2005 arises out of a judgment of the Gauhati High
Court dated 08.04.2005. Questioning the judgment and order of the Madhya
Pradesh High Court dated 29.09.2005, S.L.P. (Civil) No.24134 of 2005 has been
India Ltd. has filed Civil Appeal No.5547 of 2004 which arises out of the
judgment of the Calcutta High Court in Bijoy Kumar Poddar's case.
meantime, writ petitions were filed in several High Court including Calcutta
High Court, Jharkhand High Court, Allahabad High Court and Madhya Pradesh High
Court, questioning the validity of E- Auction. Different interim orders were
passed by the said High Courts.
special leave petitions were filed thereagainst by the parties. Coal India
Limited filed a large number of transfer applications which were allowed. All
the transfer applications and the appeals against the judgments of the Gauhati
High Court, Madhya Pradesh High Court and the Calcutta High Court and other
High Courts were taken up for hearing together.
of the matters before us:
are four categories of consumers who are aggrieved by introduction of the
scheme of E-Auction :
linked consumers who are manufacturers of smokeless coal;
sector consumers who are manufacturers of various products wherein coal is raw
coke owners although a non-core linked category but had been recommended for
being included in core category; and
would, for better appreciation of the contentions raised on behalf of different
categories of the consumers of coal, notice the submissions of the learned
counsel appearing for the parties in the following seriatim :
Manufacturers of smokeless coal
Manufacturers of Hard coke
Union of India and Coal India Limited
MSTC General :
contentions of the writ petitioners before the different High Courts, who are
before us, are :
Nationalization Acts having been enacted for giving effect to the
constitutional goal enshrined under Article 39(b) of the Constitution, the coal
companies are bound to implement the same and in that view of the matter they
cannot fix arbitrary price of coal which is a national resource;
Coal is not only an essential commodity but also being raw material used by a
large number of manufacturing industries is required to be distributed at a
fair and reasonable price; particularly in view of the fact that the coal
companies have been exercising monopoly power thereover.
As NCCF is supplied coal without taking recourse to the E- Auction scheme,
there is no reason why non-core sector linked industries shall not be treated
alike; NCCF having been belonging to the category of trader as that of the writ
petitioners, they could not have been discriminated against in regard to
fixation of price of coal as a result whereof the small scale industries may
either purchase coal through E-Auction or purchase coal from NCCF, which would
give rise to dual pricing and, thus, the same is unreasonable;
The State agencies like BISCAUMAN and Jharkhand State Mineral Development
Corporation also having been brought at par with the linked consumers could not
have been given priority for the purpose of trading in coal;
The power to fix prices for the essential commodities must maintain an inbuilt
character having regard to the fact that the coal companies have been given the
monopoly status in terms of clause 6 of Article 19 of the Constitution of
The price through E-Auction being artificially inflated one, the same has
caused uncertainty as a result whereof the manufacturers cannot fix price for
The Central Government and/or coal companies having themselves made a policy
decision that the price of coal should not be varied at least for one year, the
scheme of E-Auction being inconsistent therewith, must be held to be
Fixation of arbitrary price of coal which being a scare commodity would give
rise to unhealthy competition amongst various manufacturers, which would not
only be contrary to the object and spirit of Article 39(b) of the Constitution
but also thereby millions of people who use it as a fuel would be highly
The coal companies being 'State' within the meaning of Article 12 of the
Constitution of India cannot resort to be high profiteering at the cost of
The Government companies cannot be permitted to forsake its public duty, its
dealings with the consumers must be fair and non-discriminatory.
of Smokeless Fuel and Briquettes:
submitted that having regard to the fact that several small scale industries
were established, (which were manufacturing smokeless coal and briquette)
pursuant to or in furtherance of the promises made by the coal companies in
their advertisements, its product being meant for consumption of rural people
etc. and also being an environmental friendly fuel, the scheme must be held to
be opposed to the doctrine of promissory estoppel.
Smokeless Coal meets the need of the rural people also and in that view of the
matter the Central Government having taken upon itself control of coal, which
is an essential commodity in terms of the 2000 Order could not have permitted
resort to E-Auction as by reason thereof prices have been shot up creating
uncertainties besides hardship. It was submitted that in view of Section 2(ii),
Section 3(1) and 3(2)(c) of the Essential Commodities Act, it was incumbent
upon the Central Government to fulfill the object thereof, namely, making a
scarce commodity available to the people at an affordable price.
V.A. Bobde, the learned Senior Counsel appearing on behalf of the sixteen
petitioners who have set up their industries in the Vidarbha region of Maharashtra
which is industrial backward region, submitted that they had also been assured
supply of coal for meeting the demand of the rural people and in that view of
the matter by reason of taking recourse to E- Auction, unreasonable burden had
been put on them, which must be held to be bad in law. Mini classification in
the non-core sector into tiny and small units and SSI Units and the dual
pricing policy within the non-core sector itself, so far as the same relates to
small and genuine coal units, is plainly arbitrary, unfair and inequitable and
only because some units are not genuine consumers, the same would not mean that
all the consumers would be deprived of a valuable national assets.
of the appellants before us are manufacturers of hard coke. It is not in
dispute that hard coke although does not come within the purview of 'core
sector', for the purpose of distribution of coal, recommendations have been
made by the Ministry of Steel that it should be included in the said category.
The said move, however, has been opposed by the Ministry of Coal and Energy. We
would, therefore, proceed on the basis that hard coke comes within the purview
of non-core sector.
Gupta, the learned Senior Counsel appearing on behalf of the Hard Coke Oven
Plants, submitted :
that as the hard coke manufactured by the hard coke owners having been
recommended to be brought within the purview of core sector by the Ministry of
Steel, certain attributes to their being belonging to a special category within
the non-core sector must be held to have been made out and, thus, all the 106
hard coke ovens manufacturing hard coke form a special class and in that view
of the matter their right to obtain coal of a particular grade cannot be denied
as linkage system continues to be operative despite the introduction of the
scheme of E-Auction;
hard coke manufacturing units could not, thus, have been clubbed together with
the traders as a result whereof unequals are being treated on equal footing,
which is ultra vires Article 14 of the Constitution of India Drawing our
attention to a chart showing supply of coal to the hard coke manufacturers
before and after introduction of the scheme for E- Auction, it was contended
that for a few months in a year, there had been no supply of coal at all.
submitted that coal of choice is not a concern of hard coke owners although
they may be relevant for traders as linkage still continues, in view of the
letter dated 19.05.2005.
Ahmad, the learned Senior Counsel appearing on behalf of the traders, drew our
attention to various clauses of the E-Auction scheme and submitted that whereas
under the Open Sales Scheme (OSS) rights of the traders were safeguarded and in
particular having regard to the fact that from each colliery not more 33% per
cent could be purchased by one trader, now all lots having been made open to
all consumers irrespective of the fact as to whether they belong to the linked
core sector or linked non-core sector or others have been allowed to bid in
E-Auction along with traders, as a result whereof traders are put to a great
disadvantage. In this behalf our attention has been drawn to the fact that both
manufacturers of core sector and non-core sectors have been offering their bid
in the auctions which is against the concept of fair distribution of an
to the learned counsel participation of all categories of consumers would be
unlawful, being contrary to the professed policy of the coal companies in view
of the OSS Scheme.
on behalf of Union of India Mr. Gopal Subramanyam, the learned Additional Solicitor
General appearing on behalf of the Union of India, would raise the following contentions
Keeping in view the fact situation that it was found that there had been gross
abuse of the process both in respect of the linkage scheme as also open sales
scheme, the coal companies had to resort to E-Auction which satisfies the test
of public interest;
Materials have been brought on records to show justification of E-Auction; the
same is sustainable in law;
Taking recourse to E-Auction by way of an experiment was made to overcome a
As there had been no complaint about functioning of the said scheme in view of
the fact that 12000 out 16000 non-consumers are satisfied therewith; no
grievance can be raised that by reason thereof the coal companies had taken
recourse to any arbitrary measure;
E-Auction had to be introduced in view of the fact that linkage and sponsorship
as also open sales schemes were found to be defective and furthermore in view
of the fact that both linkage and sponsorship schemes had come to an end;
Central Government took recourse to the deregulation of coal as it was found
that by taking recourse to the linkage, obstructions have been created to free
and fair distribution of coal as also the movement thereof. Moreover each
consumer must be given equal access thereto;
Only because the linked consumers would have to pay a higher price, the same by
itself cannot be said to be unfair and unreasonable in view of the fact that
even in terms of the linked scheme the price of coal was not fixed nor any
representation had been made as regards obligations on the part of Coal India
Ltd. to supply coal of a specified quantity at a specified price.
Linkage system came into being merely out of a practice and by reason thereof
the linked consumers have not derived any vested right either in law or under
The concept of E-Auction was visualized by the coal companies who were even
otherwise free to take such a decision and it received the imprimatur of the
Central Government which would be deemed to be a direction in terms of clause 6
of the Colliery Control Order;
Classification between core and non-core sector being valid, dual pricing is
permissible in law;
Although the coal companies are monopolies, the demand and supply situation as
also the market forces should be given a free play, which, thus, would not come
within the purview of clause 6 of Article 19 of the Constitution of India.
on behalf MSTC:
T.R. Adhiyarjuna, the learned Senior counsel would submit that the Gauhati High
Court has committed a manifest error in holding that E- Auction is not possible
in North Eastern Region in India. The
learned counsel submitted that the procedure which is adopted for conducting E-
Auction is absolutely transparent and fair.
Decision as regards Pricing:
of dual pricing:
fixation has a direct relationship with the fiscal health of the country.
Finance is one of the most important catalysts. The modality of price fixation
will depend upon the nature of the commodity, the provisions of the concerned
statute governing the same and other relevant factors.
price is fixed in terms of the provisions of the Essential Commodities Act, the
State would be governed by the doctrine of public necessity. It may in terms of
its statutory power and having regard to the penal provisions engrafted therein
compel a manufacturer or a dealer of an essential commodity to sell it to the
public at a reasonable price or at no profit. Price fixation by the State for
its own benefit, however, have an element of profit.
a dual price is resorted to, the same must be rational. The formula for fixing
the dual price may be reasonable only under certain circumstances. [See Union of India and
Others etc. v. Hindustan Development Corpn. and Others
[(1993) 1 SCC 467].
Gujarat Ambuja Cement Ltd. and Another v. Union of India and Others [(1998) 8
SCC 208], this Court had the occasion to consider the matter relating to
fixation of price of coal wherein in terms of the Colliery Control Order, 1945,
the quotas thereof were allotted by the Central Government to the consumers.
Government company having regard to the constitutional scheme, therefore,
cannot forsake its public duty [See Hindustan Zinc Ltd. etc. v. Andhra Pradesh State Electricity Board and Others (1991)
3 SCC 299]. It can neither have a private thrust nor aggrandizement of the
wealth at the cost of the common man.
In Kerala State Electricity Board v. M/s. S.N. Govinda Prabhu Bros. and
Others etc., [(1986) 4 SCC 198], the law was laid down in the following terms :
is a public utility monopoly undertaking which may not be driven by pure profit
motive not that profit is to be shunned but that service and not profit should
inform its actions. It is not the function of the Board to so manage its
affairs as to earn the maximum profit; even as a private corporate body may be
inspired to earn huge profits with a view to paying large dividends to its shareholders.
But it does not follow that the Board may not and need not earn profits for the
purpose of performing its duties and discharging its obligations under the
statute. It stands to common sense that the Board must manage its affairs on
sound economic principles. Having ventured into the field of commerce, no
public service under taking can afford to say it will ignore business
principles which are as essential to public service undertakings as to
commercial ventures" It was, however, observed :
Board is not expected to run on a bare year- to-year survival basis. It must
have its feet firmly planted on the earth. It must be able to pay the interest
on the loans taken by it; it must be able to discharge its debts; it must be
able to give efficient and economic service; it must be able to continue the
due performance of its services by providing for depreciation etc.; it must
provide for the expansion of its services, for no one can pretend the country
is already well supplied with electricity. Sufficient surplus has to be
generated for this purpose. That we take it is what the Board would necessarily
do if it was an ordinary commercial undertaking properly and prudently managed
on sound commercial lines. Is the position any different because the Board is a
public utility undertaking or because of the provisions of the Electricity
Supply Act?" [See Oil and Natural Gas Commission and Anr. v. Association
of Natural Gas Consuming Industries of Gujarat and Ors. [(1990) Supp. SCC 397]].
Gujarat Ambuja Cement (supra) the question arose as to whether charging of 10%
premium over the price given in Table II of the Notification which was issued
under the Colliery Control Order was so unreasonable and arbitrary so as to
attract Article 14 of the Constitution of India. In that case, the parties
adduced evidences, but the High Court did not consider the same in the
perspective thereof, and on that premise the matter had been remitted to the
High Court for consideration of the grievances of the petitioner therein having
regard to the materials brought on record. [See also Dr. P. Nalla Thamphy Thera
v. Union of India and Others (1983) 4 SCC 598] While fixing the price of an
essential commodity like coal, the capacity to bid of small manufacturers may
also be taken into account. The court exercising a power of judicial review in
a given situation may determine the question on the basis of the material
brought on records. [See Gujarat Ambuja Cement Ltd. (supra)] However, dual
pricing having regard to a distinct classification between a core sector and
non-core sector is permissible. [See Pallavi Refractories (supra)] The State,
however, while distributing its largess at a price, if involved in distribution
of a commodity, which would attract the provision of Article 39(b) of the
Constitution of India, would stand on a different footing.
is a word of wide import. It, in the context of application of a statute
governing a monopoly concern and also with an essential commodity, would
indisputably stand on a different footing from the business concern or a
private person. The Central Government as also the coal companies having regard
to the provisions of the Nationalisation Acts must be visualized not as profit
earning concerns but as an extended arm of a welfare State. They are expected
to harmonize the business potential of a country to benefit the common man. The
power of the Central Government to carry on trade on business activities
emanates from the constitutional provisions contained in Article 298 of the
Constitution of India. The coal companies, therefore, were under a
constitutional obligation to fix a reasonable price. They must differentiate
themselves from the private sectors which thrive only on a profit motive. As
public sector undertakings, the coal companies, thus, would have a duty to fix
the price of an essential commodity in such a manner so as to subserve the
common good. Although the provisions of Section 3(2)(c) of the Essential
Commodities Act are not attracted in relation to coal in view of the
deregulation of price by the Central Government under the 2000 Order, the
reasonable attributes for the purpose of fixing the price of coal should be
borne in mind.
fixing such price, ordinarily the State act in the same manner that a public
utility would conduct itself in this regard. This Court in Oil and Natural Gas
Commission and Anr. v. Association of Natural Gas Consuming Industries of Gujarat and Ors. [Supra], opined that the
price fixed should be the minimum possible as the customer or consumer must
have the commodity for his survival and cannot afford more than the minimum.
Therein this Court further noticed :
In another article on "The Public Sector in India", quoted in Issues
in Public Enterprise by Sri K.R. Gupta, Dr Rao is quoted as saying (at p. 84):
the pricing policy should be such as to promote the growth of national income
and the rate of this growth ... public enterprises must make profits and the
larger the share of public enterprises in all enterprises, the greater is their
need for making profits. Profits constitute the surplus available for savings
and investment on the one hand and contribution to national social welfare programme
on the other; and if public enterprises do not make profits the national surplus
available for stepping up the rate of investment and the increase of social
welfare will suffer a corresponding reduction;.... Hence the need for giving up
the irrational belief that public enterprise should, by definition, be run on a
no-profit basis." In dealing with the fixation of tariff under the
Electricity (Supply) Act, 1948, this Court in Hindustan Zinc Ltd. (supra),
opined that the tariff cannot be fixed in such a manner by the Board while
acting as a private trader and shedding its public utility character. It was observed
other words, if the profit is made not merely for the sake of profit, but for
the purpose of better discharge of its obligations by the Board, it cannot be
said that the public enterprise has acted beyond its authority" In Dr. P. Nalla
Thampy Thera v. Union of India [(1983) 4 SCC 598], this Court observed :
We have said earlier that the Railways are a public utility service run on
monopoly basis. Since it is a public utility, there is no justification to run
it merely as a commercial venture with a view to making profits. We do not know
at any rate it does not fall for consideration here if a monopoly based
public utility should ever be a commercial venture geared to support the
general revenue of the State but there is not an iota of hesitation in us to
say that the common man's mode of transport closely connected with the free
play of his fundamental right should not be." In. M/s S.N. Govinda Prabhu
and Bros (supra), this Court observed that profit is not to be shunned but that
service and not profit should inform actions of a Board. It was further observed
do not think that either the character of Electricity Board as a Public Utility
Undertaking or the provisions of the Electricity Supply Act preclude the Board
from managing its affairs on sound commercial lines though not with a
profit-thirst" As regard limitation of judicial review of price fixation
after referring to the decision of the Constitution Bench of this Court in Shri
Sitaram Sugar Company Ltd. v. Union of India [(1990) 3 SCC 223], this Court in
Oil and Natural Gas Commission and Another v. Association of Natural Gas
Consuming Industries of Gujarat and Others [1990 Supp SCC 397] observed :
is, however, not necessary here to enter into a discussion of this and the
earlier cases because those cases were primarily concerned with the question
whether the price fixation had been made in consonance with the requirements of
the relevant legislation fixing prices of essential commodities in the
interests of the general public and also because ONGC does not deny that, as a
State instrumentality, its price fixation should be based on relevant material
and should be fair and reasonable. None of these decisions hold that the cost
plus method is the only relevant method for fixation of prices. On the
contrary, there are indications in some judgments to indicate that not a
minimum but a reasonable profit margin is permissible. Even in relation to a
public utility undertaking like the State Electricity Boards where the duty not
to make undue profits by abusing its monopoly position is clear" The
action on the part of the State even in the matter of fixation of price of an
essential commodity, thus, must be viewed from different angles, some of which
we shall advert to hereinafter.
39(b) Concept :
39(b) was incorporated in the Constitution to indicate the necessity for
ensuring equitable distribution of resources.
State of Karnataka and Anr. v. Shri Ranganatha Reddy
and Anr. [(1977) 4 SCC 471], this Court analyzed the constitutional provisions
contained in Article 39(b) of the Constitution, stating :
key word is "distribute" and the genius of the Article, if we may say
so, cannot but be given full play as it fulfils the basic purpose of
restructuring the economic order. Each word in the article has a strategic role
and the whole article a social mission. It embraces the entire material
resources of the community. Its task is to distribute such resources. Its goal
is so to undertake distribution as best to subserve the common good. It re-
organizes by such distribution the ownership and control.
is a sweeping expression and covers not only cash resources but even ability to
borrow (credit resources). Its meaning given in Black's Legal Dictionary is:
or any property that can be converted into supplies; means of raising money or
supplies; capabilities of raising wealth or to supply necessary wants;
available means or capability of any kind." And material resources of the
community in the context of re-ordering the national economy embraces all the
national wealth, not merely natural resources, all the private and public
sources of meeting material needs, not merely public possessions. Every thing
of value or use in the material world is material resource and the individual
being a member of the community his resources are part of those of the
community" [Also see Samatha v. State of A. P., (1997) 8 SCC 191] Coal,
being such a vital product to the Indian industries and the common man,
nationalization of coal was necessary for realization of the ideals contained
in Article 39(b) of the Constitution.
Coke Manufacturing Company etc. v. M/s Bharat Coking Coal Limited and Anr. etc.
[(1983) 1 SCC 147], this Court observed:
is, of course, one of the most important known sources of energy, and,
therefore, a vital national resource. While coal is necessary as a source of
energy for very many industries, coking coal is indispensable for the country's
crucial iron and steel industry. So, Parliament gave the first priority to
coking coal. First there was legislation in regard to the coking coal mines and
then there was legislation in regard to all coal mines, coking as well as
non-coking. By the Coking Coal Mines (Nationalisation) Act all coking coal
mines known to exist in the country were nationalised. Coke oven plants which
were part of the coking coal mines so nationalised being in or belonging to the
owners of the mines also stood automatically nationalised. Other coke oven
plants which did not belong to the owners of the mines but which were located
near about the nationalised coking coal mines were also identified and nationalised
by express provision to that effect. At that stage of the rationalisation and nationalisation
of the coal mining industry, it was apparently thought necessary and sufficient
to nationalise such coke oven plants as were in or belonged to the nationalised
coking coal mines or as were identified as located near the nationalised coking
coal mines, leaving out all other coke oven plants.
of the coking coal mines and the coke oven plants was "with a view to reorganising
and reconstructing such mines and plants for the purpose of protecting,
conserving and promoting scientific development of the resources of coking coal
needed to meet the growing requirements of the iron and steel industry and for
matters connected therewith or incidental thereto". We do not entertain
the slightest doubt that the nationalisation of the coking coal mines and the
specified coke oven plants for the above purpose was towards securing that
"the ownership and control of the material resources of the community are
so distributed as best to subserve the common good"." [Also see L.
Abu Kavur Bai - State of T.
N., (1984) 1 SCC 515]
Article 37 of the Constitution of India provides that the provisions contained
in Part IV of the Constitution of India shall not be enforceable by any court
and it enjoins upon the State to apply the provisions of this Part in making
of some interest to note that whenever an action is taken by a State in
consonance with the provisions laid down in the Directive Principles of State
Policy as envisaged under Part IV of the Constitution of India, the same is
considered to be a reasonable action.
M.R.F. Ltd. v. Inspector Kerala Govt. and Others [(1998) 8 SCC 227], a question
arose as to whether the rights of industrial concerns under Article 19(1)(g)
are said to be affected having regard to the provisions of the Kerala
Industrial Establishments (National and Festival Holidays) (Amendment) Act,
1990 whereby the number of national holidays were increased. In view of Article
43 of the Constitution of India, the restriction imposed were held to be
reasonable restrictions stating:
plea under Article 14 also cannot be entertained.
decision by legislative amendment to raise the national and festival holidays
is based upon relevant material considered by the Government, including the
fact that the holidays allowed by the Central Government and other public
sector undertakings were far greater in number than those prescribed under the
Act. As pointed out earlier, the Act is a social legislation to give effect to
the Directive Principles of State Policy contained in Article 43 of the
Constitution. The law so made cannot be said to be arbitrary nor can it be
struck down for being violative of Article 14 of the Constitution."
Therein it was also observed :
examining the reasonableness of a statutory provision, whether it is violative
of the Fundamental Right guaranteed under Article 19, one cannot lose sight of
the Directive Principles of State Policy contained in Chapter IV of the
Constitution as was laid down by this Court in Saghir Ahmad v. State of U.P. as also in Mohd. Hanif Quareshi v. State of Bihar.
This principle was also followed in Laxmi Khandsari case in which the
reasonableness of restrictions imposed upon the Fundamental Rights available
under Article 19 was examined on the grounds, amongst others, that they were
not violative of the Directive Principles of State Policy." [Also see B.
P. Sharma v. Union of India, (2003) 7 SCC 309: AIR 2003 SC 3863; State of Punjab v. Devans Modern Breweries Ltd.,
(2004) 11 SCC 26; State of Gujarat v. Mirzapur
Moti Kureshi Kassab Jamat, (2005) 8 SCC 534] It may not be correct to say that
any action which is not in consonance with the provisions of Part IV of the
Constitution would be ultra vires but there cannot be any doubt whatsoever that
the principles contained therein would form a relevant consideration for
determining a question in regard to price fixation of an essential commodity.
Directive Principles of State Policy provides for a guidance to interpretation
of Fundamental Rights of a citizen as also the statutory rights.
have noticed hereinbefore that coal was nationalized under Coking Coal Mines
(Nationalization) Act, 1972 and Coal Mines (Nationalization) Act, 1973. We have
also noticed that the said Acts were enacted so as to fulfill the constitutional
object contained in Article 39(b) of the Constitution of India.
terms of the Nationalization Acts indisputably the coal companies as also the
Union of India were bound to take action in furtherance of the task of
achieving the purport and object for which the coking coal mines and the coal
mines were nationalized. The Parliament also enacted Coal Mines (Nationalisation)
Amendment Act, 1976 . In the year 1976, even mining lease of all the coal mines
were rescinded. The constitutionality of the 1976 Amendment Act was upheld by
this Court in Tara Prasad Singh and Others v. Union of India and Others [(1980)
4 SCC 179] stating that the Nationalization Act was enacted in furtherance of
Article 39(b) in the following terms:
The Nationalisation Amendment Act needs no preamble, especially when it is
backed up by a Statement of Objects and Reasons. Generally, an Amendment Act is
passed in order to advance the purpose of the parent Act as reflected in the
preamble to that Act. Acquisition of coal mines, be it remembered, is not an
end in itself but is only a means to an end. The fundamental object of the Nationalisation
Act as also of the Nationalisation Amendment Act is to bring into existence a
state of affairs which will be congenial for regulating mines and for mineral
development. "It may be true that prices are required to be fixed having
regard to the market forces. Demand and supply is a relevant factor as regards
fixation of the price. In a market governed by free economy where competition
is the buzzword, producers may fix their own price. It is, however, difficult
to give effect to the constitutional obligations of a State and the principles
leading to a free economy at the same time. A level playing field is the key
factor for invoking the new economy. Such a level playing field can be achieved
when there are a number of suppliers and when there are competitors in the
market enabling the consumer to exercise choices for the purpose of procurement
of goods. If the policy of the open market is to be achieved the benefit of the
consumer must be kept uppermost in mind by the State.
the consumer be expected to derive any such benefit from a monopoly concern?
Would a situation of this nature lead to a hybrid situation where a coal
company is allowed to fix its own price which may not be a fair price? These
are some of the questions which were required to be kept in mind by the coal
companies before formulating a policy of fixing price of an essential
State when exercises its power of price fixation in relation to an essential
commodity, has a different role to play. Object of such price fixation is to
see that the ultimate consumers obtain the essential commodity at a fair price
and for achieving the said purpose the profit margin of the
manufacturer/producer may be kept at a bare minimum. The question as to how
such fair price is to be determined stricto sensu does not arise in this case,
as would appear from the discussions made hereinafter, as here the Central
Government has not fixed any price. It left the matter to the coal companies.
The coal companies in taking recourse to E-Auction also did not fix a price.
They only took recourse to a methodology by which the price of coal became
variable. Its only object was to see that maximum possible price of coal is
obtained. The Appellants do not question the right of the coal companies to fix
the price of coal. Such prices had been fixed on earlier occasions also wherefor
legally or otherwise the Central Government used to give its nod of approval.
The process of price fixation by the Central Government in exercise of its
powers under the 1945 Order continued from 1996 to 2004.
E-Auction ultimately lead to fixation of a price? The answer to the said
question must be rendered is a big emphatic 'No', as by reason thereof even the
coal companies would not know what would be the price of different varieties of
coal. The issue must be determined from the perspective as to whether the coal
companies can be allowed to say that despite their monopolistic character and
they being a 'State' can fix a price which would otherwise be unfair or
State or a public sector undertaking plays an important role in the society. It
is expected of them that they would act fairly and reasonably in all fields;
even as a landlord of a tenanted premises or in any any other capacity. [See Baburao
Shantaram More v. The Bombay Housing Board and Another , 1954 SCR 572 at 577, Dwarkadas
Marfatia & Sons v. Board of Trustees of the Port of Bombay, (1989) 2 SCR
751 at 760, 762 and Pathumma and Others v. State of Kerala and Others (1978) 2
SCR 537 at 545] E-Auction is not a mode to fix price. It is only a mode to
obtain maximum price. In other words, deriving the optimum benefit by sale of
coal is the goal. While doing so State does not have to follow the principles
of fixation of price. It is not required to apply its mind as to its effect. It
treats coal like any other commodity. It treats itself like a private trader. A
distinction must be borne in mind when a State intends to part with a privilege
or a largess as a competitor in the market and when it is expected to fulfill
its constitutional goal enshrined under Article 39(b) of the Constitution.
Coal companies are monopolies within the meaning of the provisons of the
Nationalization Act. They would be deemed to be monopolies within the
provisions of clause (6) of Article 19 of the Constitution of India. Our
attention has been drawn to two decisions of this Court in Akadasi Pradhan v.
State of Orissa [1963 (Supp) 2 SCR 691 at 715], and
State of Rajasthan v. Mohan Lal Vyas [(1971) 3 SCC
Pradhan (supra), it has been held that when a monopoly is created in terms of
sub-clause (6) of Article 19, no agency can be appointed who would not answer
the description of principal and agent. An agent of a monopoly organization, it
was held, cannot be appointed or act on its own.
Mohan Lal Vyas (supra), it was held that there cannot be any law in violation
of the Constitution of India and no monopoly right can be conferred on a
citizen under the Constitution, nor can it be justified thereunder.
of E-Auction :
is an essential commodity. Coal India Limited and its subsidiary companies
enjoyed the monopoly of production, distribution and sale thereof. The question
which arises for consideration is whether in the aforementioned situation a
State within the meaning of Article 12 of the Constitution of India can be
permitted to take recourse to E-Auction which is not commensurate with the
constitutional scheme of this country.
of the coal companies admittedly were reeling under financial problems. Three
of them became sick industrial undertakings and a reference was made to BIFR.
The Union of India in its counter-affidavit states that a decision was taken to
take recourse to E-Auction such that sick coal companies could turn around.
of India and the coal companies do not deny that they have a monopoly. They do
not deny or dispute that they are 'State' within the meaning of Article 12 of
the Constitution of India. They have also not raised any contention that the
constitutional obligations in terms of Article 39(b) are not required to be
not in dispute that approximately 94 to 95% of the coal is made available to
the core sector at a notified price. We have also noticed that NCCF as also
various Central Government and State Government agencies were to get coal at
the base price + 25% thereof. It is of some significance to note by way of an
example that whereas the core sector gets coal at a price of Rs.1155/- per
metric tonne, NCCF, BCCL and Jharkhand State Minerals Development Corporation
would get the same at a price of Rs.1386/- per metric tonne, but the price
payable by other non-core linked consumers and traders having regard to the
flexibility of the price in E- Auction, would be a sum of Rs.1660/- to
Rs.1900/- per metric tonne.
linked consumers constitute about 1% of the total production.
linkage system so far as non-core sector consumers are concerned, has been
prevailing since 1973. The beneficiaries of the system primarily are
manufacturers of hard coke, smokeless fuel and other products for which the
coal is essential raw material. The Open Sales Scheme which was meant for
traders, in view of the original policy decision of the coal companies, E-
Auction was to be applied to the traders for whom the Open Sales Scheme was
applicable. It is, however, not in dispute that having regard to the directions
issued by the Central Government to the coal companies, all consumers
irrespective of the fact that whether they are linked consumers of core sector
or non-core sector, were entitled to take part in E-Auction.
traders who are outside the scheme of linkage are entitled to take part in
E-Auction. E-Auction was resorted to allegedly on the ground that various
method tried by the coal companies including the Open Sales Schemes and MPQ
failed for one reason or the other. The Central Vigilance Commission also
recommended, having regard to the irregularities committed in the matter of
sale of coal through OSS, that publicity of tender should be done through
website, in terms of the letter dated 18.12.2003 with a view to bring about
greater transparency and to curb malpractice. The coal companies state that
such a direction was made in terms of Section 8(1)(h) of the CVC Act, 2003. It
was recommended that wherever it is feasible and practical the organization
should eventually switch over to the process of e-procurement/e-sale. It is,
however, found that the directions are general in nature and no particular
direction was issued to the coal companies in terms of Section 8(1)(h) of the
CVC 2003 Act which is otherwise permissible in law.
be that the practice of E-Marketing and/or E-Advertisement and/or E-Contract is
prevailing in various parts of the world but E-Auction, which has a different
concept, cannot be equated therewith.
is an essential commodity in terms of Section 3(1) of the Essential Commodities
Act. Colliery Control Order was made, inter alia, for securing equitable
distribution and availability of higher price of essential commodity. The coal
companies as also the Central Government, therefore, have a constitutional and
statutory obligation to fulfill. Coal companies exercising monopolistic power,
thus, were required to distribute coal equitably and at a fair price.
Tara Prasad Singh (supra), this Court has categorically considered as to why
the Parliament thought it fit to enact the Nationalisation Act i.e. to
distribute the resources vested in the State to subserve the common good.
State, it is trite, while fixing the price for the purpose of equitable
distribution or otherwise cannot be actuated purely by a profit motive. It
should not discharge its functions in such a way as to aspire to earn huge
profit specially at the cost of those who are fully dependent upon them for
supply of a monopoly item like coal. It cannot be the law that the public
sector undertakings while selling essential commodities must suffer loss. It is
also not the law that public sector undertakings must distribute subsidy, but
what is required in terms of the constitutional scheme adumbrated under Article
39(b) and Article 14 of the Constitution of India is to make the said essential
commodity available at a fair price. However, for the purpose of this case, it
may not be necessary for us to dilate on the principle of fixation of price, of
coal as an essential commodity or otherwise.
us the learned counsel for the parties relied upon various decisions of this
Court as regard the mode and manner in which deliberations were made on
fixation of price of essential commodities over which the monopoly right is
exercised. We have also been taken through a recent decision of this Court in Pallavi
Refractories (supra). By reason of E- Auction no price is fixed as it would
vary from bids to bids. The coal is sold through E-Auction at least twice a
month. There will be various places where E-Auction would be conducted
simultaneously. In E-Auction, the quantity and quality of coal depending upon
its grade, size, colliery from which the same has been extracted, are
specified. In such a situation invariably the price for same quality of coal
would greatly vary as the bidders would bid having regard to their own
requirement. By allowing repeated bids, a person who may be requiring the
essential commodity would not be able to prove the same and its
non-availability may result in stoppage of production which would lead to
various complications. He would, therefore, be driven to a desperate situation.
The only price which is fixed for E-Auction is the reserved price which is 25%
above the notified price.
fixing a fair and reasonable price in terms of the provisions of the Essential
Commodities Act (although the price is not dual), it is essential that price is
actually fixed. Such price fixation is necessary in view of the fact that coal
is an essential commodity. It is, therefore, vital that price is actually fixed
and not kept variable. Fixation of price of coal is of utmost necessity as it
is a mineral of grave national importance. Non-availability of coal and
consequently the other products may lead to hardship to a section of citizens.
It may entail closure of factories and other industries which in turn would
lead to loss to State exchequer; as they would be deprived of its taxes.
will lead to loss of employment of a large number of employees and would be
detrimental to the avowed object of the Central Government to encourage small
itself is considered to be a core sector. In terms of the provisions of the
Industrial (Development and Regulation) Act, 1951, the Parliament requires the
Central Government to take such steps which would enable the SSI units to
maintain their viability and strength so as to be effective in :
in a harmonious manner the industrial economy of the country and easing the
problem of employment;
the ownership and control of the material resources of the community such that
the same are distributed to subserve the common good.
has effect both on price of coal as also the availability thereof to the
non-core sector consumers. Their availability would depend upon successful bids
of the consumers. It was introduced for a definite purpose viz. to confine the
same to the non-core sector and traders. A deviation to a great extent has been
made therefrom. Even now the core sectors are taking part in E-Auction, but no
step has been taken in this behalf.
Central Government, however, recently ensured availability of coal to the
linked consumers but they have to pay average weighted price.
letter dated 08.04.2005, the Central Government informed the Chairman, Coal
India Ltd., that supply of coal to non-core sector linked consumers would
continue on the basis of MPQ. However, the price for such supplies is to be
computed on the basis of average E-Auction, stating :
coal supplied to non-core linked consumer on the basis of MPQ would continue.
However, the price for such supplies would be computed on the basis of average
e-auction rate during the month. Sale
of two million tones of coal to small consumers through NCCP would also
continue. However, the price for coal supplies to NCCP would also be governed
on the basis of e-auction prices, as mentioned above." Advantages or
Disadvantages of E-Auction :
at this juncture notice the purported advantages of E- Auction as submitted on
behalf of the Union of India.
system of E-Auction is simple, easily accessible, transparent also offers equal
opportunity to all coal customers/intending buyers.
Any citizen of India can participate and purchase coal
through E-Auction by sitting in his home/office from any part of the country.
bidder need not require to meet any formalities such as obtaining licence/quota/sponsorship/linkage
etc. and is not required to meet any such formalities.
Even a buyer located in the remote part of India without electricity/computer
is free to reach the nearest village/town with a cyber cafi and can participate
in the E-Auction without requiring to come to the coal company/coalfield as
earlier under OSS v) A bidder is free to choose the source/quality/quantity and
purchase coal at a price determined by him on the basis of demand and supply.
purchase coal the buyer need not depend on intermediaries/middlemen and can
directly purchase through E-Auction.
will reduce the chances of black marketing, if not totally eliminate it.
The buyer saves on middleman's commissions and other incidental charges.
The incidental benefit is also shared by coal company in the form of improved
returns i.e. by diverting intermediary's share to coal companies.
There are a large number of outlets for small consumers which enable them to
draw their coal supplies from any of the companies/sources instead of limited
outlets/coal companies as was the case in earlier schemes.
sale on the auction is held even in remote areas therefore is not subject to
any manipulation/influence of antisocial elements.
The system provides for official channel of supplies to all categories of
buyers without classification who were otherwise dependent on secondary market
(black market) xii) The premium under the old system being appropriated by
unscrupulous elements got checked/restricted.
Any buyer of coal under non core-sector including SSI units is able to avail of
this opportunity by payment of a little more than the notified price. The
system of E-Auction is not aimed at obtaining higher price but endeavours to
create an equal opportunity amongst the buyers of non core sector.
we may notice that the said claim of the Union of India or the coal companies
is not justified. The aforementioned claim of the Central Government is refuted
by the consumers stating that the figures given by the Union of India are
misleading. Price range of all the subsidiaries have been taken cumulatively
instead of taking subsidiary-wise figures. The consumers belonging to core
sectors, like power, steel, iron and chemical etc. are big companies like Grasim,
Hindalco, Jindal and Haldia Steel who are taking part in the E-Auction as a
result whereof the price of coal has shot at the cost of SSI units. Thus, even
the linked consumers of core and non- core sectors have been participating
therein. Participation of core sector in E-Auction is destructive of its own
policy as would appear from the letter of the Ministry of Coal dated 08.04.2005
and, thus, it cannot be justified on the ground of profiteering wherewith the
survival of SSI units is involved.
claim has been made by the companies that more and more persons are taking part
therein, it is difficult for us to accept that out of 16000 consumers 12000
have taken part; as E-Auctions are more frequently done, the possibility of the
same persons taking part again and again cannot be ruled out.
difficult to comprehend the stand of the Union of India that E- Auction is
being taken recourse to by more and more persons and, if that be so, there was
no reason as to why the price of coal by E-Auction has declined.
us a chart has been filed with a view of show that after introduction of the
scheme of E-Auction, supply of coal to many of the coke ovens has decreased
affecting their ultimate production. Apprehensions have been raised that
ultimately many of the units may have to be closed.
think that the coal companies should see to it that such a situation is
it is not in dispute that auction price being online, no other bidder is aware
of the contents of the bid submitted by the bidder. No bidder will have access
to the records pertaining to E-Auction so as to ascertain who is the highest
bidder or what is the highest bid price; or no bidder would have knowledge or
access to the various bids submitted by the bidders against the particular
grade of coal so as to arrive at an average E-Auction price of particular grade
of coal. Only MSTC and MJCPL and the companies who are conducting the
E-Auction, would have access to the details of the bids submitted by the
bidders. No eligibility criteria having been fixed, any person including
traders can participate and bid in the E- Auction. Highest price and highest
quantity are the only factors for sale/allocation of coal to a bidder in terms
of the said scheme; as E-Auction results in traders buying large quantities of
coal. Consequently, the manufacturers of hard coke and smokeless coal as also
other small units have to buy coal at prohibitive rates from traders . The
methodology for allocation of coal to a bidder of E-Auction is, thus,
inequitable, irrational and fortuitous.
methodology for allocation of coal at this juncture also may be noticed by us :
is carried out by E-sale software on the following basis:
First preference is given to highest bid price.
two or more parties bid the same price, then preference for allocation is given
to party that placed the bid for higher quantity.
case two or more parties bid the same price and quantity, then preference is
given to the party that placed the bid earlier.
a particular grade is allocated/sold at different prices to different bidders,
E-Auction ultimately leads to sale of a particular grade of coal at variable
prices in the market.
spite of Government of India's office memorandum promising sale of coal to the
linked consumers at average E-Auction rate, sale to linked consumers is being
made at the highest bid price and not at the average bid price.
accepted that coal is a scarce commodity and the Government companies are not
in a position to supply coal as per demand of the same, which may be enormous,
despite the fact that a certain level of import of coal is also permitted.
the advantages of E-Auction per se or disadvantages thereof may not be decisive
as this Court is concerned with the constitutionality thereof. It has not been
denied or disputed that by reason of E-Auction price of coal is not fixed. The
concept of price fixation is that all persons who are in requirement of the
commodity should know the basis or criteria thereof. If a price is fixed, they
would be able to lay down their own business policy in such a manner so that
they can have a level playing field in the market of competition and such
competition is not only between the persons whose end-project is similar or
otherwise based on coal but who produce other products not based completely on
coal. Variability in the price of coal would affect all who have to depend on coal
e.g. we may notice that hard coke is considered to be vital in the
manufacturing process of steel.
price of coal is not fixed, the price of hard coke cannot be fixed, which may
give rise to uncertainty in the price of steel or smokeless coal which caters
to the needs of the small consumers both for domestic use also for use in the
small hotels and/or use in rural areas. It was, therefore, necessary that the
price of coal be made known. The contention of the coal companies is that
having regard to the availability of LPG, smokeless coal is no longer in use.
Ex facie, the said plea is unacceptable.
even fixation of price of LPG in turn would depend upon the fixation of oil
products in other countries. The Central Government, it is well known, having
regard to the effect that may be caused to the people in general, takes all
precautions before fixing the price thereof. The Central Government has never
increased the LPG price exorbitantly.
adopting a policy decision as regards the mode of determining the price of coal
either fixed or variable, the coal companies were bound to keep in mind social
and economic aspect of the matter. They could not take any step which would
defeat the constitutional goal [See Mahabir Auto Stores and Others v. Indian
Oil Corporation and Others. (1990) 3 SCC 752] Even while fixation of tariff for
the supply of electric energy in terms of the provisions of Section 49 of the Electricity
(Supply) Act, 1948, only a reasonable profit is contemplated and not profiteering
[See S.N. Govinda Prabhu (supra) and ONGC (supra).
be true as has been held in the aforementioned cases that cost alone did not
determine the prices and the same has to be determined upon taking into
consideration many complex factors but no decision of this Court says that any
arbitrary fixation of price and arbitrary mode of fixation would satisfy the
test of reasonableness as contained in Article 14 of the Constitution of India.
learned Additional Solicitor General placed strong reliance on a decision of
this Court in State of Orissa and Others v. Hari Narain Jaiswal
& Ors. [(1972) 2 SCC 36], wherein this Court held :
apart from the power conferred on the Government under Sections 22 and 29, we
fail to see how the power retained by the Government under clause (6) of its
order, dated January 6, 1971, can be considered as unconstitutional. As held by
this Court in Cooverjee B. Bharucha case, one of the important purpose of
selling the exclusive right to sell liquor in wholesale or retail is to raise
revenue. Excise revenue forms an important part of every State's revenue. The
Government is the guardian of the finances of the State. It is expected to
protect the financial interest of the State. Hence quite naturally, the
Legislature has empowered the Government to see that there is no leakage in its
revenue. It is for the Government to decide whether the price offered in an
auction sale is adequate. While accepting or rejecting a bid, it is merely
performing an executive function. The correctness of its conclusion is not open
to judicial review. We fail to see how the plea of contravention of Article
19(1)(g) or Article 14 can arise in these cases.
Government's power to sell the exclusive privileges set out in Section 22 was
not denied. It was also not disputed that those privileges could be sold by
public auction. Public auctions are held to get the best possible price. Once
these aspects are recognised, there appears to be no basis for contending that
the owner of the privileges in question who had offered to sell them cannot
decline to accept the highest bid if he thinks that the price offered is
inadequate. There is no concluded contract till the bid is accepted. Before
there was a concluded contract, it was open to the bidders to withdraw their
bids see Union of India v. Bhimsen Walaiti Ram. By merely giving bids, the
bidders had not acquired any vested rights. The fact that the Government was
the seller does not change the legal position once its exclusive right to deal
with those privileges is conceded.
Government is the exclusive owner of those privileges, reliance on Article 19(1)(g)
or Article 14 becomes irrelevant. Citizens cannot have any fundamental right to
trade or carry on business in the properties or rights belonging to the
Governmentnor can there be any infringement of Article 14, if the Government
tries to get the best available price for its valuable rights. The High Court
was wholly wrong in thinking that purpose of Sections 22 and 29 of the Act was
not to raise revenue. Raising revenue as held by this Court in Cooverjee B. Bharucha
case was one of the important purposes of such provisions. The fact that the
price fetched by the sale of country liquor is an excise revenue does not
change the nature of the right. The sale in question is but a mode of raising
revenue. Assuming that the question of arbitrary or unguided power can arise in
a case of this nature, it should not be forgotten that the power to accept or
reject the highest bid is given to the highest authority in the State i.e. the
Government which is expected to safeguard the finances of the State. Such a
power cannot be considered as an arbitrary power. If that power is exercised
for any collateral purposes, the exercise of the power will be struck down. It
may also be remembered that herein we are not dealing with a delegated power
but with a power conferred by the Legislature. The High Court erroneously
thought that the Government was bound to satisfy the Court that there was
collusion between the bidders. The High Court was not sitting on appeal against
the order made by the Government. The inference of the Government that there
was a collusion among the bidders may be right or wrong. But that was not open
to judicial review so long as it is not proved that it was a make-believe one.
The real opinion formed by the Government was that the price fetched was not
adequate. That conclusion is taken on the basis of Government expectations. The
conclusion reached by the Government does not affect any one's rights. Hence,
in our opinion, the High Court misapplied the ratio of the decision of this
Court in Barium Chemicals Ltd. v. Company Law Board and Rohtas Industries Ltd.
v. S.T. Agarwal." Citizens may not have any fundamental right to carry on
trade or business in a commodity belonging to the Government. But therein, the
court was concerned with liquor which was considered to be res extra commercium.
may, however, notice that this Court in State of Madhya Pradesh v. Nandlal Jaiswal [(1986) 4 SCC 566] as also Khoday
Distilleries Ltd. and Others v. State of Karnataka and Others (1995) 1 SCC 574] has clearly held that even in respect of
trade of liquor, Article 14 would be applicable.
Dayaram Shetty v. International Airport of India and Others [(1979) 3 SCC 489 =
AIR 1979 SC 1628], this Court held :
democratic form of Government demands equality and absence of arbitrariness and
discrimination in such transactions. . . The activities of the Government have
a public element and, therefore, there should be fairness and equality. The
State need not enter into any contract with anyone, but if it does so, it must
do so fairly without discrimination and without unfair procedure".
proposition would hold good in all cases of dealing by the Government with the
public, where the interest sought to be protected is a privilege. It must,
therefore, be taken to be the law that where the Government is dealing with the
public, whether by way of giving jobs or entering into contracts or issuing
quotas or licences or granting other forms of largesse, the Government cannot
act arbitrarily at its sweet will and, like a private individual, deal with any
person it pleases, but its action must be in conformity with standard or norms
which is not arbitrary, irrational or irrelevant" It is furthermore not a
case like Kasturi Lal Lakshmi Reddy, represented by its Partner Shri Kasturi Lal,
Ward No. 4, Palace Bar, Poonch, Jammu and Others v. State of Jammu &
Kashmir and Others [(1980) 4 SCC 1], whereupon again the learned Additional
Solicitor General relied that the Government cannot act in a manner which would
benefit a party but then the said decision would not apply when the State as a
monopoly is dealing with an essential commodity.
monopoly concern is meant to cater to the need of all sections of the people.
Whereas the demand of the core sector must be given priority, the Central
Government as also the Coal Controller in terms of 1945 Order thought of giving
some preference to those industries which produce smokeless coal as well.
Smokeless coal producers started manufacture the same on the basis of invention
of new technology invented by the Central Fuel Research Institute, an unit of
Council of Scientific and Industrial Research Institute as also the Coal Mining
and Planning Development of India, which is a subsidiary of Coal India Ltd.
have noticed hereinbefore that when the coal companies themselves manufactured
coke for domestic consumers, the same used to cause health hazards. They
intended to outsource production of manufacturing soft coke; wherefor they had
asked the Governments of Bihar and West Bengal to encourage setting up of
smokeless coal units assuring supply of coal. Such linkage system has,
therefore, been developed under which the consumers are linked to specify mines
from which they received specified quantities and specified grades of coal on a
oven units, in particular, are linked in the W-II, W-III & W-IV of the
non-core sector. The importance of the linkage system despite resort to
E-Auction has since been recognized by the Government of India, as would appear
from its letter dated 19.04.2005. Whereas manufacturers of hard coke would
require coking coal, others would require only non-coking coal.
necessity of having a fixed price of coal is supported by sub- section (3) of
Section 9 of the MMRD Act, 1957 wherein it was provided that the rate of
royalty shall not be revised within three years. [See AIR 1996 SC 2560]. The
period of three years has since been altered to a period of four years. Prior
thereto a period of five years was fixed therefor. Even the Central Government
emphasized the requirement of having a fixed price of coal in a meeting held on
13.10.2001 and took note of the fact that the price increase would cause undue
hardship which might be suffered by the small scale industries and which might
concern their growth and in that view of the matter, it was decided that the
price increase for the non-core sector should not be done more than once in a period
of one year.
court while considering such a question cannot also lose sight of the fact that
apart from the Essential Commodities Act, 1955, the entire control and
regulation of coal has been taken over by the Central Government in terms of
Entry 54 of List I as also Entry 52 of List I of the Seventh Schedule of the
Constitution of India. In exercise of such power, the Parliament enacted the
Industrial (Development and Regulation) Act, 1951 and Mines and Minerals
(Regulation and Development) Act, 1957. A constantly variable price per se,
therefore, appears to be unreasonable and unfair being opposed to the professed
policies under the said Act.
not suggesting that the linkage system can never be brought to an end but it
may not be appreciated as to how while maintaining the linkage system, they can
be deprived indirectly of the benefit therefrom; and how they should be treated
equally with other traders. Traders indisputably would require coal but not for
their own consumption. If they purchase coal at any price, they would sell the
same at a higher price. They would certainly mind variability in the price of
coal as the price of their end products would have nexus therewith. Moreover,
if the traders would pay higher price for procuring coal, the general consumers
would have to pay more. Those who are linked consumers or who are small
traders, thus, stand on a different footing. Merely to sell it as a profit to
the traders who do not possess the purchasing capacity is not limited or
controlled by the market conditions, whereas it is so for the linked non-core
sector. The traders themselves create and control the market conditions.
Usman v. State of Andhra
Pradesh [AIR 1971 SC
1801], this Court held:
proposition of law that the doctrine of equality is attracted not only when
equals are treated as unequals but also when unequals are treated as equals and
that Article 14 is offended both by finding difference when there is none and
by making no difference when there is one is unexceptional. But the rule of
equality is intended to advance justice by avoiding discrimination." [See
also Motor General Traders v. State of Andhra Pradesh 1984 (1) SCC 222 Para 10; Indra Sawhney-II v. Union of
India (2000) 1 SCC 168, para 27; State of U.P. v. Johri Mal - 2004 (4) SCC 714 para
41]; and E.V Chinnaiah etc. v. State of A.P.
and Others etc. [(2005) 1 SCC 394 paras 66 to 69].
coal companies themselves highlighted this distinction in Civil Appeal No. 5547
of 2004 in Bijoy Kumar Poddar's case. We need not, however, deal with the said
matter separately as the questions raised are interconnected with the other
matters. We may notice at once that the necessity to maintain supply of coal to
the linked sector was highlighted by the coal companies themselves in their
special leave petitions filed before this Court.
be true that the linked consumers get two opportunities to procure coal; once
by way of E-Auction and again by way of paying the average weighted price; but
availability of coal itself is not certain having regard to the fact that
admittedly keeping in view the concept of MPQ, they would not get the full
supply for their demand. Even otherwise, a distinction should be made between
consumers and traders and thus arises the necessity of different price regimes
for the consumers as a class as against traders as a different class.
original scheme of E-Auction was meant to be applied only to the linked
non-core sector consumers and traders. Thus, thereby the policy that the linked
consumers should form a class by themselves was sought to be given a go-bye. We
have, however, noticed hereinbefore that having regard to the intervention of
the Central Government, the coal companies deviated from the said scheme and
considered even the non-core sector consumers to be a separate class; as they
not only became entitled to take part in the E- Auction along with traders but
also were sought to be assured of supply of coal having regard to their own
requirements as regard both quality and quantity subject, of course, to their
paying the price at the average weighted price. The stand taken by the coal
companies before the Calcutta High Court as also before this Court assumes
significance only in that context.
now it appears that the coal companies have given a complete go- bye to the
original scheme of E-Auction inasmuch as not only the traders or the non-core
sector consumers but also core sector consumers had also been allowed to
participate therein. A consumer of coal falling in any category as also a
person who intends to purchase coal for his personal use would, therefore, be
entitled to take part in E-Auction. Whereas the consumers in the core sector
would not only be entitled to allotment of coal at a price fixed by the coal companies
but also would be entitled to take part in E-auction.
non-core sector consumers although as linked consumers form a separate and
distinct class vis-`-vis the traders, they would not be entitled to the benefit
of obtaining coal at a fixed price. The question as regards the discrimination
between two categories of consumer assumes some importance.
effect is that today, while the core sector (92%) on its own and non-core
non-linked SSI/Tiny units (through the NCCF/other agencies) (1%) are being
supplied coal at a fixed price, on the other hand, the non-core linked SSI/Tiny
units (4%) are being subjected to differential treatment without any rational
classification by supplying the coal to the latter on the price to be
ascertained by the trader-controlled process of E-Auction and thereby putting
the petitioner-units at par with the trader. The scheme of E- Auction is,
therefore, ultra vires Article 14 of the Constitution of India.
submission of the learned Additional Solicitor General to the effect that the
policy decision of a State cannot be the subject matter of judicial review is
stated to be rejected.
is not a policy decision of the Central Government. Such a policy decision on
the part of the executive of the Central Government must be strictly construed
in terms of Article 77 of the Constitution of India. Its exercise of such
powers has nothing to do with the price fixation by a policy. The State while
exercising its power under the Essential Commodities Act, fixes the price
keeping in mind several factors, in particular the larger interest of the
people. Price fixation of an essential commodity, therefore, is determined on
the touchstone of public interest.
doing so the State is expected to follow a rational and fair procedure and for
the said purpose may collect data, obtain public opinion, and may appoint an
facts and circumstances of the case, however, the approach of the coal
companies, who according to the Union of India had been given a free hand to
determine its price for coal, is only earning profit. It has been accepted that
three subsidiary companies and Coal India Ltd. who were sick companies, like Bharat
Coking Coal Ltd. (BCCL), have started E-Auction.
succeeded in its attempt to a great extent as the said coal companies are no
longer sick companies. They have proceeded only to safeguard their own
interests, as dealer and not as a State. Recourse to E-Auction had been taken
primarily by way of a profit motive. No public opinion was sought for and no
expert committee was appointed. The statutory and constitutional duties had not
been kept in view. Conveniently, while making the said policy decision, the
coal companies did not remind themselves that as they are instrumentalities of
the State, they are bound to adhere to the Directive Principles of the State
and the prime object for which the Nationalization Acts were enacted.
governance and good corporate governance are distinct and separate. Whereas
good governance would mean protection of the weaker sections of the people; so
far as good corporate governance is concerned, the same may not be of much
relevance. Even the coal companies in taking recourse to E-Auction did not give
effect to the concept of corporate social responsibility.
would be profiteering has been noticed in T.M.A. Pai Foundation v State of Karnataka [(2002) 8 SCC 481]; Islamic Academy
of Education v. State of Karnataka [(2003) 6 SCC 697] and P.A. Inamdar
v. State of Maharashtra [(2005) 6 SCC 537]. In these
decisions, it has been held that although education is an industry, and those
who impart education do so as a part of their fundamental right in terms of
Article 19(1)(g) of the Constitution of India, profiteering should not be taken
fact the decisions of this Court on price fixation also point out that although
a reasonable profit may be permissible, profiteering would not be.
coal companies evolve price fixation but admittedly they have been doing so at
the instance of the Central Government. The Central Government seeks to
exercise its statutory power. Such a power, however, is confined to
four-corners of the 2000 Order. When there is no control over price, the
Central Government is forbidden to issue any direction which will have an
coal companies which are, therefore, public authorities when seeking to give
effect to the constitutional scheme as contained in the preamble of the
Nationalization Acts of 1972 and 1973 were acting at the behest of the Central
Government and not entirely on their own. In Hindustan Petroleum Corpn. Ltd. v. Darius Shapur Chenai and Others (2005)
7 SCC 627], this Court noticed with approval the decisions in Commr. of Police
v. Gordhandas Bhanji [1952 SCR 135 : AIR 1952 SC 16] and Mohinder Singh Gill v.
Chief Election Commnr. (1978) 1 SCC 405] in the following terms :
Commr. of Police v. Gordhandas Bhanji it is stated:
are clear that public orders, publicly made in exercise of a statutory
authority cannot be construed in the light of explanations subsequently given
by the officer making the order of what he meant, or of what was in his mind,
or what he intended to do. Public orders made by public authorities are meant
to have public effect and are intended to affect the actings and conduct of
those to whom they are addressed and must be construed objectively with
reference to the language used in the order itself." Yet again in Mohinder
Singh Gill this Court observed:
second equally relevant matter is that when a statutory functionary makes an
order based on certain grounds, its validity must be judged by the reasons so
mentioned and cannot be supplemented by fresh reasons in the shape of affidavit
or otherwise. Otherwise, an order bad in the beginning may, by the time it
comes to Court on account of a challenge, get validated by additional grounds
later brought out. We may here draw attention to the observations of Bose, J.
in Gordhandas Bhanji:" Referring to Gordhandas Bhanji it was further observed:
are not like old wine becoming better as they grow older."" In
relation to fixation of price or other related matters, the Central Government,
therefore, had no say. Under the Colliery Control Order 2000, the power of the
Central Government is merely to regulate supply and not to regulate price, the
price of coal, it will bear to state, having been deregulated.
and/or disposal of coal which would come within the purview of Colliery Control
Order, 2000, would, thus, take within its sweep only : to whom the supply would
be made, what would be the quantity, the mode, period or the source of supply.
Such a power to issue directions would not include fixation of price. E-Auction
is not related to policy for supply of coal. It is essentially the price therefor.
The Central Government in that view of the matter either directly or indirectly
while purportedly exercising its power under clause 6 read with clause 9 of the
Colliery Control Order could not have issued any direction in the garb of disposal
of coal by way of E-Auction. The Central Government itself says that it allowed
the coal companies to fix their own price; if that be so in terms of the
statute it could not issue any direction which would have direct or indirect
impact on price of coal. It, as indicated hereinbefore, directed that 10 lacs
MT coal be sold through E-Auction; but while doing so stricto sensu, its power
and control to regulate supply of coal could not be exercised in that sense.
Apart from the fact that it also does not satisfy the attributes of supply, as
noticed hereinbefore, the supply of coal itself has not been brought within the
purview thereof. Furthermore no notification has been issued by the Central
Government regulating supply of coal.
allowing E-Auction in respect of 10 lacs MT of coal, it merely quantified the
amount of coal which was required to be sold. It did not bring within its sweep
taking recourse to the mode of E-Auction so as to enable the companies to
obtain a valuable price. Clause 6 of the Colliery Control Order does not
envisage the same.
have noticed hereinbefore that smokeless coal operators had set up their units
at the behest of the coal companies. Those who had set up their units in the
erstwhile State of Bihar and West Bengal evidently did so at the behest of the companies having been
encouraged therefor. It was done to share the burden of coal companies to
supply soft coke to the small consumers. Doctrine of promissory estoppel would,
therefore, be applicable.
concerned States also intended to grant incentives to such industrial units by
way of waiver and/ or deferment of payment of sales tax wherefor Rule 28A in
the Sales Tax Rules was introduced. Sales Tax laws enacted by the States
contain a provision empowering the State to grant such exemption.
relevant provisions of the Act and the Rules framed thereunder indisputably
were made keeping in view the industrial policy of the State.
industrial policies by way of legislation or otherwise, subject of course to
the provisions of the statute have been framed by several other States.
M/s. Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh and Others
[(1979) 2 SCC 409] this Court rejected the plea of the State to the effect that
in the absence of any notification issued under Section 4-A of the U.P. Sales
Tax Act, the State was entitled to enforce the liability to sales tax imposed
on the petitioners thereof under the provisions of the Sales Tax Act and there
could be no promissory estoppel against the State so as to inhibit it from
formulating and implementing its policy in public interest.
question came up for consideration before this Court in Pournami Oil Mills and
Others v. State of Kerala and Another [1986 (Supp) SCC 728] wherein it was
the order dated April 11, 1979, new small scale units were invited to set up
their industries in the State of Kerala and with a view to boosting of industrialisation,
exemption from sales tax and purchase tax for a period of five years was
extended as a concession and the five-year period was to run from the date of
commencement of production. If in response to such an order and in
consideration of the concession made available, promoters of any small scale
concern have set up their industries within the State of Kerala, they would certainly be entitled
to plead the rule of estoppel in their favour when the State of Kerala purports to act differently.
decisions of this Court were cited in support of the stand of the appellants
that in similar circumstances the plea of estoppel can be and has been applied
and the leading authority on this point is the case of M.P. Sugar Mills. On the
other hand, reliance has been placed on behalf of the State on a judgment of
this Court in Bakul Cashew Co. v. STO. In Bakul Cashew Co. case this Court
found that there was no clear material to show any definite or certain promise
had been made by the Minister to the concerned persons and there was no clear
material also in support of the stand that the parties had altered their
position by acting upon the representations and suffered any prejudice. On
facts, therefore, no case for raising the plea of estoppel was held to have
been made out. This Court proceeded on the footing that the notification granting
exemption retrospectively was not in accordance with Section 10 of the State
Sales Tax Act as it then stood, as there was no power to grant exemption
retrospectively. By an amendment that power has been subsequently conferred. In
these appeals there is no question of retrospective exemption. We also find
that no reference was made by the High Court to the decision in M.P. Sugar
Mills' case. In our view, to the facts of the present case, the ratio of M.P.
Sugar Mills' case directly applies and the plea of estoppel is
unanswerable." Yet again in Assistant Commissioner of Commercial Taxes
(Asst.) Dharwar and Others v. Dharmendra Trading Company and Others [(1988) 3
SCC 570], this Court, on the factual situation obtaining therein, rejected the
contention of the State that any misuse of the concessions granted was
committed by the respondent therein and thus the State cannot go back on its
was further observed:
next submission of learned counsel for the appellants was that the concessions
granted by the said order dated 30-6-1969 were of no legal effect as there is no statutory provision under which
such concessions could be granted and the order of 30-6-1969 was ultra vires and bad in law. We totally fail to see how
an Assistant Commissioner or Deputy Commissioner of Sales Tax who are
functionaries of a State can say that a concession granted by the State itself
was beyond the powers of the State or how the State can say so either.
if the said argument of learned counsel is correct, the result would be that
even the second order of 12-1-1977 would be equally invalid as it also
grants concessions by way of refunds, although in a more limited manner and
that is not even the case of the appellants." Mangalore Chemicals and Fertilisers
Limited v. Deputy Commissioner of Commercial Taxes and Others [1992 Supp (1)
SCC 21] is a case where this Court had the occasion to consider as to whether
subsequent change in the eligibility criteria can undo the eligibility for the
condition stipulated in the earlier notification and answered the same in the
Court reaffirmed the legal position in Pawan Alloys & Casting Pvt. Ltd., Meerut
v. U.P. State Electricity Board and Others [(1997) 7 SCC 251] holding:
a result of the aforesaid discussion on these points the conclusion becomes
inevitable that the appellants are entitled to succeed. It must be held that
the impugned notification of 31-7-1986 will have no adverse effect on the right
of the appellant-new industries to get the development rebate of 10% for the
unexpired period of three years from the respective dates of commencement of
electricity supply at their units from the Board with effect from 1-8-1986
onwards till the entire three years' period for each of them got exhausted.
This result logically follows for the appellants who have admittedly entered
into supply agreements with the Board as new industries prior to 1-8-1986." The question came up for consideration before
this Court recently in State of Punjab v. Nestle India Ltd. and Another [(2004)
6 SCC 465] wherein this Court surveyed the growth of the said doctrine and held
the doctrine to be applicable to legislative action also.
of natural justice will apply in cases where there is some right which is
likely to be affected by an act of administration. Good administration,
however, demands observance of doctrine of reasonableness in other situations
also where the citizens may legitimately expect to be treated fairly. Doctrine
of legitimate expectation has been developed in the context of principles of
arises whether recourse to legitimate expectations can be taken when the
expectation is based on unlawful representation (i.e., most often something
that is ultravires the power of local authority). In Stretch v. U. K. [(2004)
38 EHRR 12] applicant was granted a lease for 22 yrs. by an authority that did
not have the power to do so. It was only made known to the applicant at the
time of renewal of the lease, when negotiations had already reached an advanced
stage. While the court of appeal accepted the argument that the option to renew
the lease could not be exercised (as beyond the local authority's power), it
noticed that it was unjust that such authorities could take advantage of their
own wrong. The European Court of Human Rights however did not accept this
argument and awarded damages as it found on facts that this action did not in
any way go against public interest, nor did it prejudice the statutory duties
of the authority.
may, however, notice a recent trend where doctrine of balancing has been
v. Environmental Agency [(2003) EWCA Civ. 1885] involved a part of the Thames river, known as 'Hedsor Water',
which the relevant authorities declared open for exercise of public navigation
however, the authorities by regular and consistent practice had accepted that
such rights did not exist. The Court of Appeal said that although the
expectations were legitimate, the action must fail. According to Peter Gibson
L.J., the action failed as legitimate expectations could only be granted
against lawful claims. Although May L.J., (like Menace L.J.) came to the same
conclusion, they refused to accept legal incapacity as an automatic answer
against legitimate expectation (amounting to convention right). They sought a
kind of a balance where while allowing the Hedsor water to be open to rights of
navigation, such use would not be actively encouraged by the authority.
held that, however, there was no need to restrict such 'balancing' to cases
where the right was one protected under the convention.
could be extended to all cases where the unlawful action was not adverse to
being a scarce commodity, its utility for the purpose for which it is needed is
essential. Although, technically, in view of the fact that no price is fixed
for coal, there may not be any black marketing in the technical sense of the
terms; but this Court cannot also encourage black marketing in general sense.
Nobody should be allowed to take undue advantage while dealing with a scarce
commodity. The very fact that despite best efforts of the Central Government,
the coal companies failed to curb the menace of a section of people and to deal
in coal excluding other general people therefrom or the linked consumers
misusing their position of obtaining allotment of coal either wholly or in
part, it is absolutely necessary that some mechanism should be found out for
plugging the loopholes. The Union of India or the coal companies appear to have
lost confidence in the State Governments. They had carried out joint inspection
and in that process they must have arrived at a satisfaction about the
genuineness of the claims of industrial units for which the linkage system was
us most of the consumers, with a view to obtain supply of coal had filed
documents to prove their genuineness. The said documents must be scrutinized by
the authorities of the coal companies. In the event, they have any suspicion,
inspection should be carried out by officers appointed by the
Chairman-cum-Managing Director of the concerned company within whose
jurisdiction the unit is situated.
view to evolve a viable policy, a committee should be constituted by the Union
of India with the Secretary of Coal being the Chairman. In such a committee, a
technical expert in coal should also be associated as most of the projects
involve consumers of coal, particularly manufacturers of hard coke and smokeless
fuel. In our opinion, it may not be difficult to find out, having regard to the
technologies used therein as regards the ratio of the input vis-`-vis the
output, with a balance and 10% margin. On the basis of such finding alone,
apart from the requirements of five years, supply should form the basis of MPQ.
We may, however, hasten to add that the Central Government in collaboration
with the coal companies would be at liberty to evolve a policy which would meet
the requirements of public interest vis-`-vis the interest of consumers of
coal. They would be entitled to lay down such norms as may be found fit and
proper. They would be entitled to fix appropriate norms therefor. In the event,
any industrial unit is found to violate the norms, it should be stringently
coke plants are also coal mines within the meaning of Colliery Control Order,
2000. Hard coke is coal within the meaning of the provisions thereof. The
Central Government, therefore, may think it fit to widen the definition of coal
so as to include the smokeless coal in exercise of its power under the Essential
Commodities Act. We may notice in ONGC (supra), this Court has held that
slurries are a part of coal and is governed by the provisions of the Mines and
Minerals (Regulation and Development) Act.
being the wider definition of coal, we fail to see any reason as to why proper
measure cannot be taken by the Union of India to have a complete control thereover.
Any strict mechanism to find out the genuine consumers would go a long way in
taking preventive measures and dealing with coal by unscrupulous persons for
unauthorized purposes. Those who do so, should be dealt with stringently but
the same would not mean that the genuine consumers should suffer for want of
the peculiar facts and circumstances of this case, are of the opinion that it
may not be difficult to find out as to who the genuine consumers are. So far as
owners of the hard coke ovens are concerned, they are members of the
association and their identity can easily be verified.
discussions made hereinbefore should not be taken to lay down a law that the
Central Government and for that matter the coal companies cannot change their
policy decision. They evidently can; but therefor there should be a public
interest as contra distinguished from a mere profit motive. Any change in the
policy decision for cogent and valid reasons is acceptable in law; but such a
change must take place only when it is necessary, and upon undertaking of an
exercise of separating the genuine consumers of coal from the rest. If the coal
companies intend to take any measure they may be free to do so. But the same
must satisfy the requirements of constitutional as also the statutory schemes;
even in relation to an existing scheme e.g. Open Sales Schemes, indisputably
the coal companies would be at liberty to formulate the new policy which would
meet the changed situation. E-advertisement or E-tender would be welcome but
then therefor a greater transparency should be maintained.