Central Coal Fields Ltd. Vs.
Bhubaneswar Singh & Ors  INSC 152 (23 August 1984)
MISRA RANGNATH MISRA RANGNATH BHAGWATI, P.N.
SEN, AMARENDRA NATH (J)
CITATION: 1984 AIR 1733 1985 SCR (1) 618 1984
SCC (4) 429 1984 SCALE (2)299
CITATOR INFO :
RF 1986 SC2123 (5)
Coking Coal Mines (Nationalisation) Act,
1971-Section 21 (2)-Whether value of stock of coking coal on April 30, 1972
should be taking into account for determining amount payable to owner under s.
21 (2) Held: yes.
The management of a coal mine owned by
Respondent No.1, a partnership firm, was taken over by the Central Government
with effect from October 17, 1971 under the Coking Coal Mines (Emergency
Provisions) Ordnance of 1971 which was later replaced by a statue. On the passing
of the Coking Coal Mines (Nationalisation) Act, 1971 ( Nationalisation Act' for
short) the right, title and interest of the owner in the mine extinguished and
became vested in the Central Government with effect from May 1,1972. Section 21
(2) of the Nationlisation Act provided that in addition to the sum referred to
in sub-s. (1), the Central Government shall pay such amount as may become due
to the owner of a coking coal mine--in relation to the period during which the
management of the coking coal mine- remained vested in the Central Government.
In a writ petition filed before the High Court it was claimed by the owner that
while determining the amount payable to it or recoverable from it in respect of
the period when the mine was under the management of the Custodian, credit for
the value of the stock of coking coal on April 30, 1972 shown in the account
books should have been given to it. The High Court accepted the claim of the
owner. The appellants (The Government Companies) obtained special leave to
appeal against the decision of the High Court.
Dismissing the appeals,
HELD: The stock of coal had to be taken into
account for balancing the position.[624H] The Nationalisation Act which
contemplated the books of account for the period from October 17, 1971 to April
30, 1972 to be closed and a statement of account as on April 30, 1972 to be
prepared with a view to find out whether the Government Company which was in
management for the relevant period on behalf of the owner was to pay anything to
the owner or the Government 619 Company having spent for the owner was entitled
to recover any sum from the owner, also contemplated preparation of a
balance-sheet on that date. In the absence of any particular prescribed mode in
the Act or the Coking Coal Mines (Statement of Account) Rules, 1972 made
thereunder, the accounts and the balance-sheet had to be prepared according to
the normal commercial practice, which necessarily required stock-in-trade to be
reflected. [624D-E] Under the Income-tax Act profits have to be ascertained for
the purposes of computing tax liability. For computing true profits the value
of the stock-in trade must be taken into account. [624D] Commissioner of
Income-tax, Madras v. A. Krishnaswami Mudaliar & Ors. 53 I.T.R. 122 at 130,
In the instant case, the appellants accepted
the position that if the extracted coal had been sold before the appointed day,
the owner would have been entitled to the price. The mere fact that the
extracted coal remained in stock at the commencement of the appointed date can
make no difference to the position. [624F-G] Statement 8 in the prescribed
statutory form clearly indicates that the stock as on April 30, 1972, had to be
taken into amount.
CIVIL APPELLATE JURISDICTION. Civil Appeal
Nos. 3374-75 of 1984 Appeals by Special leave from the Judgment and Order dated
the 14th. April, 1983 of the Patna High Court in C.W.J.C. No. 1072 of 1982 (R).
L.N. Sinha, A. Sachthey and R.N. Sachthey for
the Appellant in C.A. 3374/84.
L.N. Sinha, S.C. Malik and M.L. Verma for the
Appellant in C.A. 3375/84.
D. Goburdhan for Respondent in C.A. 3374/84.
Shanti Bhushan, D.N. Goburdhan and D.
Goburdhan for Respondent in CA. No.3374/84.
The Judgment of the Court was delivered by
RANGANATH MISRA, J. Special leave granted.
Respondent No. 1, a partnership firm, held a
coking coal mine known as Tariya Colliery within the State of Bihar the
management 620 where of was taken over under the Coking Coal Mines (Emergency
Provisions) Ordinance of 1971 with effect from October 17,1971, along with
several other coking coal mines and some coke oven plants. The ordinance was in
due course replaced by a statute bearing the same title (hereinafter referred
to as the 'Management Act'). Then came the Coking Coal Mines (Nationalisation)
Act, 1971 ('Nationalisation Act' for short) which received Presidential assent
on August 17, 1982, but under section 1, sub-section (2) thereof, the statute
was deemed to have come into force with effect from May 1, 1972. Under s. 3;
sub-s. (a) of the Nationalisation Act, May, 1, 1972 was the appointed day.
Under the provisions of the Ordinance followed by the Management Act, ownership
of the mines was not disturbed but management was taken over. Under the
Nationalisation Act, the right, title and interest of the owner in the mines
extinguished and became vested in the Central Government with effect from May
1,1972. Under the Management Act, the Custodian carried on the management on
behalf of the owner while under the Nationalisation Act ownership was abolished
and payment of a sum to the owner by way of compensation was contemplated. So
far as the period between October 17, 1971 and April 30, 1972 when title in the
colliery continued to vest in the owner but only management had been taken over
under the provisions of the first statute, was concerned, the business was run
by the Custodian on account of the owner. Therefore, the Nationalisation Act
provided that upon accounts being taken, either the owner was to be paid the
surplus or if there had been excess expenditure, the same had to be recovered
from the owner.
In the instant case there was a stock of 5650
tons of coking coal and 602 tons of soft coke when management was taken over on
October 17,1971 and on April 30, 1972 at the end of which ownership was
extinguished, there was a stock of 30,411 tons of coking coal and 956 tons of
soft coke. A total expenditure of about eight lak rupees had been incurred for
raising the said quantity of coal during the period of management. This stock
was not taken into account and credit for it was not given to the owner but
expenses of extraction amounting to Rs. 7,95,071.94 were raised against the
owner. The owner laid claim to a sum of Rs. 1,01,755.37 as its entitlement
under the Nationalisation Act on the ground that if credit was given to the
stock in trade on the basis of the closing balance, it would be entitled to
621 Claim having been laid for the recovery
of the aforesaid amount from the owner under the Nationalisation Act, that
amount was certified to be recoverable. The owner Respondent No. 1 challenged
the order of the statutory authority by filing a writ petition before the Patna
High Court impleading, inter alia, the Central Coal Fields Ltd.
as also M/s. Bharat Coking Coal Ltd. two Government
companies as respondents. The High Court after hearing the parties came to the
conclusion that the owner was entitled to credit for the coal lying in stock
when the closing balance was drawn up and accordingly directed the accounts to
be recast and payments to be made on the basis of the recast accounts. Central
Coal Fields Ltd. and M/s. Bharat Coking Coal Ltd. moved this Court under
Article 136 of the Constitution separately for leave to appeal against the said
decision of the High Court.
We have heard parties at length and detailed
written arguments have been furnished by Mr. Lal Narain Sinha on behalf of the
two appellants. The main plank of Mr. Sinha's argument against the decision of
the High Court is the definition of 'mine' contained in the two statutes.
Admittedly, the definition of 'mine'
occurring in s. 2 of both the Acts does specifically include all coal in stock
but obviously that inclusive definition is for the purpose of either take over
of management or abolition of right, title and interest for the purpose of
nationalisation. Mr. Shanti Bhushan appearing for the respondent 1 does not
dispute the position that the stock of coal, at the time when the title was
abolished and vesting took place, was a part of the mine and that title in the
stock got extinguished as a result of the nationalisation and vested in the
Central Government from the appointed day. He concedes that the High Court was
wrong in taking a contrary view.
While there is no dispute that the stock in
trade at the commencement of the appointed day vested in the Central Government
as a result of nationalisation, the question for examination is whether that
stock was liable to be taken into account for the purpose of determining the
amount payable to the owner in respect of the period when the mine was under
the management of the Custodian. This necessitates reference to some of the
provisions of the Nationalisation Act and the relevant provisions are sections
4, 10, 21 and
22. Under section 4 (1), on the appointed day
the right, title and interest of the owner in relation to the 622 coking coal
mines specified in the First Schedule stood transferred to, and vested
absolutely in the Central Government free from all encumbrances. Section 10
contemplates that the owner of every coking coal mine specified in the second
column of the First Schedule, shall be given by the Central Government in cash
and in the manner specified in s. 21, for vesting in it under s. 4, the right,
title and interest of the owner in relation to such coking coal mine, an amount
equal to the amount specified against it in the corresponding entry in the
fifth column of the said Schedule. Section 21, to which reference has been made
in s. 10, makes provision for payment. The first two sub- sections of this
section may be extracted:
"21. (1) The Central Government shall
within thirty days from the specified date. pay, in cash to the Commissioner,
for payment to the owner of a coking coal mine......a sum equal to the sum
specified against the coking coal mine......in the First Schedule or the Second
Schedule together with the amount and interest, if any, referred to in s.
"21. (2) In addition to the sum referred
to in sub-s.
(1), the Central Government shall pay, in
cash, to the Commissioner, such amount as may become due to the owner of a
coking coal mine...... in relation to the period during which the management of
the coking coal mine.....remained vested in the Central Government." The
present dispute is within the ambit of sub-s. (2) of s. 21. Section 22 provides
the procedure for the statement of accounts to be drawn up in regard to the
period of management Sub-s. (1), so far as relevant, runs thus:
"22. (1) The Central Government or the
Government company, (the appellants before us are Government companies), as the
case may be, shall cause the books in relation to each coking coal mine......
the management of which has vested in it under the Coking Coal Mines (Emergency
Provisions) 623 Act, 1971, to be closed and balanced as on the 30th day of April,
1972, and shall cause a statement of accounts, as on that day, to be prepared,
within such time, in such from and in such manner as may be prescribed, in
relation to each such mine......in respect of the transactions effected by it
during the period for which the management of such coking coal
mine.............remained vested in it..." (underlining ours) In exercise
of the powers conferred by clause (e) of sub-s. 12) of s.34 of the
Nationalisation Act, the Central Government have made a set of Rules known as
the Coking Coal Mines (Statement of Account) Rules, 1972. The Rules prescribe
the form in which the accounts are to be prepared and reference to this form we
shall presently make.
A policy decision to nationalise the coking
coal companies was taken by the Central Government and with a view to
facilitating nationalisation, the management was first taken over under the
Management Ordinance followed by the statute with effect from October 17, 1971.
This position continued till the Nationalisation Act came into force with
effect from May 1,1972. The Nationalisation Act contemplated two types of
payments to be made to the owner-one, a sum of money contemplated under s. 10
of the Act for the extinguishment of title, and two-the dues, if any, payable
in respect of the period of management as contemplated under s. 21 (2) of the
Act and arrived at on the basis of accounts prepared in the manner prescribed.
The Management Act did not contemplate any kind of curtailment of the normal
incidents of ownership except the right of management. Very appropriately,
therefore, the Nationalisation Act contemplated the books of account to be
closed and a statement of accounts, as on April 30, 1972, to be prepared, with
a view to determining the final position for the period of management;-payment
to be made to the owner if there was a surplus fund and recovery to be made
from him in case of shortfall.
We find force in the submission of Mr. Shanti
Bhushan that the accounting for the period between October 17, 1971 and April 30,
1972, in the absence of any particular prescribed mode in the 624 statute or
the Rules made thereunder, had to be done according to the normal commercial
practice. Since the statute contemplated the books to be closed and balanced, a
balance sheet according to the normal commercial practice had to be drawn up.
The observations of this Court in Commissioner of Income tax, Madras v. A.
Krishna Swami Mudaliar & Ors., are worth quoting. Shah, J. (as he then
was), spoke for the Court thus:
"But whichever method of book-keeping is
adopted in the case of a trading venture, for computing the true profits of the
year the stock-in-trade must be taken into account. If the value of
stock-in-trade is not taken into account, in the ultimate result the profit or
loss resulting from trading is bound to get absorbed or reflected in the
stock-in-trade unless the value of the stock-in-trade remains unchanged at the
commencement of the year and the end of the year." Under the Income-tax
Act profits have to be ascertained for the purpose of computing tax liability.
Under the Nationalisation Act the books had to be balanced with a view to
finding out whether the Government company which was in management for the
relevant period on behalf of the owner was to pay anything to the owner or the
Government company having spent for the owner was entitled to recover any sum
from the owner. Therefore, we accept the submission of Mr. Shanti Bhushan that
the Nationalisation Act contemplated a balance-sheet according to the
commercial procedure to be drawn up which necessarily required stock in trade
to be reflected.
Admittedly the amount claimed from the owner
represents the cost of extraction of the coal from the mine. The appellants had
conceded before the High Court and Mr. Sinha appearing for them before us
accepted the position that if the extracted coal had been sold before the
appointed day, the owner would have been entitled to the price. The mere fact
that the extracted coal remained in stock at the commencement of the appointed
date can make no difference to the position. The expenses were to be set off
against the sale price of the stock to be received at the time of disposal.
Therefore, the stock of coal had to be taken into account for balancing the
position. Reliance on the definition of 'mine' 625 and S. 10 of the
Nationalisation Act to counteract this conclusion cannot avail the appellants.
Indeed, the submission advanced on behalf of the appellants is so much opposed
to common sense logic of the matter that in the absence of a legislative
mandate we have no hesitation in rejecting it.
Much of the controversy could have been
avoided if reference had been made to the statutory form. Statement 8 in the
prescribed form clearly indicates that the stock as on April 30, 1972, had to
be taken into account. We are sorry to observe that the High Court omitted to
make a reference to it, and are equally sorry to note that the Government
companies have failed to do their duty as cast on them by law and driven the
owner to unnecessary litigation In view of what we have said, there is
absolutely no substance in the stand taken by the appellants before us.
Both the appeals fail and they are dismissed
Consolidated hearing fee is assessed at Rs.
H.S.K. Appeal Dismissed.