Union of India Vs. Karam Chand Thapar & Brs. (Coal Sales) Ltd. &
Ors [2004] Insc 152 (10
March 2004)
R.C.
Lahoti & Ashok Bhan. R.C. Lahoti, J.
Just
bare essential facts, as ascertainable on retrieval from a jumble of facts, are
set out hereinafter, as those would suffice, in our opinion, to appreciate the
crux of controversy arising for decision in this appeal. The controversy and
the consequent litigation have spread over nearly four decades. In between, the
parties have changed their identities by succession, amalgamation or supersession.
The
Coal Board, a statutory body has been dissolved and taken over by Union of
India. What was M/s.Bhulanbaree Coal Co. Ltd. has taken shape as Oriental Coal
Co. Ltd., and then the respondent No.1 hereinafter. We would refer to the
present parties only and that reference would include their respective
predecessor legal entities.
The
Oriental Coal Co. Ltd. shall be referred to as 'Coal Company' for short.
The
Coal Company owns and possesses certain coal mines in the State of Bihar. The Coal Board was constituted
under the provisions of the Coal Mines (Conservation and Development) Act,
1974, hereinafter 'the Act' for short. However, the said Coal Board was
dissolved with effect from April 1, 1975
and all rights, privileges, liabilities and obligations of the Board have come
to vest in the Central Government.
There
are cross-demands between the parties. It is not necessary to set out the
details and particulars of the demands. It would suffice for our purpose to
notice that the Coal Company is liable to pay royalty on account of sand
extracted by it for the purpose of carrying out stowing operations in the
coalfields. We would not enter into yet another controversy which we will
briefly set out hereinafter at an appropriate place as to whether it is the
Central Government as successor of the Coal Board or the State of Bihar which is entitled to recover the
royalty. For the purpose of the present appeal we proceed on an assumption that
the amount of royalty on the sand extracted by the Coal Company is due and
payable by it to the Central Government.
The
fact remains that such obligation to pay the amount of royalty is contractual
inasmuch as there is a contract i.e. a mining lease entered into by the Coal
Company whereby it has earned the privilege of extracting sand from Damodar
River-bed and an obligation to pay royalty on account of sand extracted,
calculated at the rate appointed by the mining contract. So far as the
quantified amount of royalty on sand is concerned the Coal Company is a debtor
and the Union of India is creditor.
The
Coal Mines (Conservation & Development) Act, 1974 came into force on and
from April 1, 1975. Clause (j) of Section 3 defines
"stowing" to mean as the operation of filling, with sand or any other
material, or with both, spaces left underground in a coal mine by the
extraction of coal. Sub-section (2) of Section 4 specifically empowers the
Central Government to make order in writing addressed to the owner, agent or
manager of a coal mine, requiring him to take such measures as it may think
necessary for the purpose of conservation of coal or for development of coal
mines including in any coal mine, stowing for safety. Sub-section (2) of
Section 5 specifically obliges the owner of a coal mine to:-
(i)
execute such stowing and other operations as may be necessary to be taken in
furtherance of the objects of this Act in so far as such objects relate to the
conservation of coal or development of the coal mine or the utilization of coal
obtained from the coal mine;
(ii)
acquire such stowing and other materials as may be necessary for ensuring the
conservation of coal, and safety in, the coal mine;
(iii) undertake
such other activity as the Central Government may, for the furtherance of the
objects of this Act, direct; and so on.
Out of
the net proceeds of excise and customs duties on coal, the Central Government
is obliged to disburse a certain amount inter alia for the purpose of grant of
stowing materials and other assistance for stowing operations and execution of
stowing and other operations for the safety of coal mines or conservation of
coal. The amount released by the Central Government under Section 9 of the Act
to the owner of every coal mine, is required to be credited into the Coal Mine Conservation
and Development Account under Section 10 of the Act.
The
money standing to the credit of the Account shall be applied by the owner of
the coal mine only for the purposes specified in sub- section (2) of Section 10
of the Act including, inter alia, the acquisition of stowing and other
materials needed for stowing operations in coal mines and the execution of
stowing and other operations in furtherance of the objects of the Act amongst
others. Under Section 18 the Central Government is empowered to make rules.
In
exercise of the power, conferred by the Coal Mines (Conservation and Safety)
Act, 1952 on the Central Government, the Central Government has framed the Coal
Mines (Conservations and Safety) Rules 1954. Rule 49 provides as under:
"49.
Purposes for which assistance may be granted
(1)
The Board may grant assistance from the Fund to any owner, agent or manager of
coal mine
(a)
for stowing or other protective measures which are required to be undertaken by
an order issued under sub-section (3) of Section 13 or sub-rule (2) of Rule 35
or sub-rule (3) of Rule 40;
(b)
for any measures which in the opinion of the Board are essential for the
effective prevention of the spread of fire to or the inundation by water of any
coal mine from an area adjacent to it;
(c) for
stowing for conservation of coal or washing coal which is required to be
undertaken by an order under Rule 36 or 37;
(d) for
the following measures voluntarily undertaken by the owner agent, or manager of
the coal mine :
(i) stowing
operations in the interests of safety or conservation of coal,
(ii) any
process of washing or cleaning coal which reduces its ash content and also
improves its qualities or,
(iii) any
other measures for safety in coal mines or for conservation of coal;
(e) for
any other measures undertaken by the owner, agent or manager of a coal mine
under the order of the Board to ensure conservation of coal.
(2)
The Board may grant assistance to owner of any steel work, blast furnace or
coke plant for blending of coal undertaken under the orders of the Board.
(3)
The Board may grant assistance to the owner, agent, or manager of a coal mine
which is specially handicapped by adverse factors rendering its working
uneconomic, but which, in the opinion of the Central Government, should be
maintained in production for the purpose of ensuring the conservation of coal.
In such cases assistance shall be granted by the Board
(i) with
due regard to the circumstances of each case;
(ii)
only in respect of such adverse factors as may, from time to time, be specified
by the Central Government as entitling a coal mine to receive assistance, and
published by the Board in the Official Gazette for general information; and
(iii) in
accordance with such procedure as may be determined, and not exceeding such
rates as may be fixed, by the central Government, from time to time :
Provided
that the existence or otherwise of adverse factors in any coal mine, the extent
to which such adverse factors render the working of the coal mine uneconomic,
and the amount of assistance, if any, to be granted to the coal mine, shall be
determined by the central Government." Coal Board Manual is a compilation
of the rules and instructions issued by the Coal Board/Central Government from
time to time.
Some
of them are statutory and some are executive. However, it is not disputed that
whatever is contained in the Coal Board Manual is binding on the Coal
Board/Central Government and the coal companies. Vide para 34 of the Manual it
is provided that the stowing assistance granted by the Central Government to
the Coal Company includes amongst other items, the actual amount of royalty
paid for stowing material excavated and transported. Other charges included in
the amount of stowing assistance are wages of labour employed in and associated
with stowing charges, certain charges related to sand pumps and so on, as
stated in the Rules. Thus, it appears that while the Coal Company has to pay
royalty on the amount of sand extracted by it for the purpose of carrying out
stowing operations, the amount of royalty actually paid is reimbursed by the
Central Government to the Coal Company as one of the constituents of the
stowing assistance.
So far
as the current amount of royalty is concerned there cannot possibly be any
dispute as to adjustment or set off inasmuch as the amount of royalty on the
quantum of sand extracted by the Coal Company for carrying out stowing
operations, shall be actually paid by the Coal Company to the Central
Government or anyone else entitled and it is only on such actual payment that
the Coal Company would be entitled to be reimbursed for the amount as a
constituent of the stowing assistance. So long as the Coal Company does not
actually pay the amount or royalty, the question of its being reimbursed would
not arise. If the amount of royalty is payable by the Coal Company to the
Central Government by way of any arrangement arrived at with the State
Government or otherwise the adjustment or reimbursement would pose no problem;
for the Coal Company has first to pay the amount of royalty and then seek
reimbursement of the amount of royalty included by way of an ingredient in the
amount of stowing assistance released by the Central Government to it.
The
controversy, however, arose because there were certain arrears of the amount of
royalty payable by the Coal Company to the Central Government and the Central
Government sought to enforce recovery of the amount of royalty due and payable
on account of sand already extracted and utilized in its stowing operations by
the Coal Company by making an adjustment from out of the amount payable by the
Central Government to the Coal Company as stowing assistance consisting of
wages and transportation charges etc. incurred by the Coal Company for carrying
out the stowing operations. The Central Government sent a few communications to
the Coal Company whereby the Central Government made it clear that the payment
of stowing assistance was being withheld and the amount appropriated by the
Central Government towards satisfying its demand outstanding against the Coal
Company on account of royalty due and payable by the Coal Company to the
Central Government on the sand extracted from the river-bed and utilized by it
in stowing.
The
Coal Company filed a civil writ petition in the High Court of Calcutta. A
learned Single Judge held that it was not open for the Central Government to
make an adjustment of cross demands and satisfy its contractual demand by
making an adjustment out of the amount due and payable on account of its
statutory obligation. The learned Single Judge directed the communications to
the contrary made by the Central Government to be quashed. The Union of India
preferred an intra-court appeal which has been dismissed by the Division Bench.
The Division Bench has not only upheld the view taken by the learned Single
Judge but it has also proceeded further to opine that under the law it was the
State Government which was entitled to recover the amount of royalty on sand,
and therefore, there was no question of Central Government raising a demand on
account of royalty and withholding the release of stowing assistance pursuant
to its statutory obligation.
The
question which arises for decision is: whether the Central Government can
withhold the release of stowing assistance, which is its statutory obligation
to do, for the purpose of satisfying its demand of money arising under the
contractual obligation (i.e. in mining lease) incurred by the Coal Company qua
it? Though Shri N.N. Goswami, the learned Senior Counsel for Union of India,
has urged that the Coal Company had entered into a contract by correspondence
with the Central Government, supported by company resolutions, whereby the Coal
Company had agreed for such satisfaction of cross demands but we are not
satisfied if such a plea can be successfully urged by the Union of India from
the documents and materials available on record. We cannot hold that the Coal
Company had agreed to its demand of stowing assistance being set-off against
the demand by the Central Government on account of royalty.
No
statutory provision has been brought to our notice at the Bar to sustain the
claim of the Central Government for such adjustment and satisfaction of
cross-demands. We are called upon to decide if such an adjustment is
permissible in equity. Shri Goswami, the learned Senior Counsel, has vehemently
urged that the right of the creditor to withhold money due and payable by it to
its debtor for the purpose of satisfying by appropriation the demand which the
creditor legitimately has outstanding against the debtor, ought to be
recognized and upheld as a principle of equity emanating from what is just,
fair and convenient. The learned Senior Counsel submitted that it would be
unfair and iniquitous if the Central Government was compelled to part with the
money already available in its hands and left free or compelled to enforce its
right of recovery wherein it may fail and consequently left high and dry.
On
general principles supported by rationality and reasonability, it appears to be
a sound proposition that a person who is obliged to pay a sum of money to
another person and also has in his hands an amount of money which that another
person is entitled to claim from him then instead of physically entering into
two transactions by exchanging money twice that person may utilize the money
available in his hands to satisfy the claim due and legally recoverable from
such other person to him. However, this equitable principle is not one of
universal application and has its own limitations.
"Set-off"
is defined in Black's Law Dictionary (7th Edn., 1999) inter alia as a debtor's
right to reduce the amount of a debtor by any sum the creditor owes the debtor;
the counterbalancing sum owed by the creditor. The dictionary quotes Thomas W.
Waterman from 'A Treatise on the Law of Set-Off, Recoupment, and Counter Claim'
as stating, "Set-off signifies the subtraction or taking away of one
demand from another opposite or cross demand, so as to distinguish the smaller
demand and reduce the greater by the amount of the less;
or, if
the opposite demands are equal, to extinguish both. It was also, formerly,
sometimes called stoppage, because the amount to be set- off was stopped or
deducted from the cross-demand." The writ petition filed by the
respondent-Coal Company sought for quashing of the communication made by the
appellant-Union of India informing it of its action to
withhold the amount of stowing assistance against its claim for arrears of
royalty. In effect, the Coal Company was seeking a relief for release of
stowing allowance by compelling the Central Government to discharge its such
statutory obligation. A debtor making an adjustment or set-off, may have done
so in its own volition, nevertheless, the validity of such action shall be called
in question and decided by a Court of law wherein the creditor would seek
enforcement of his claim while the debtor would raise in defence the plea of
adjustment or set-off. Though there is no specific provision of law or settled
rule of procedure governing decision of such dispute arising for adjudication
in exercise of writ jurisdiction, yet being a money-claim, there is nothing
wrong in borrowing the principles underlying Order 8 Rule 6 of the Code of
Civil Procedure and applying the same as governing the discretion of the writ
Court.
Sub-rule
(1) of Rule 6 of Order 8 of the CPC provides as under :
"6.
Particulars of set-off to be given in written statement. (1) Where in a suit
for the recovery of money the defendant claims to set-off against the
plaintiff's demand any ascertained sum of money legally recoverable by him from
the plaintiff, not exceeding the pecuniary limits of the jurisdiction of the
Court, and both parties fill the same character as they fill in the plaintiff's
suit, the defendant may, at the first hearing of the suit, but not afterwards
unless permitted by the Court, present a written statement containing the
particulars of the debt sought to be set-off." What the rule deals with is
legal set-off. The claim sought to be set-off must be for an ascertained sum of
money and legally recoverable by the claimant. What is more significant is that
both the parties must fill the same character in respect of the two claims
sought to be set-off or adjusted. Apart from the rule enacted in Rule 6 abovesaid
there exists a right to set-off, called equitable, independently of the
provisions of the Code. Such mutual debts and credits or cross-demands, to be
available for extinction by way of equitable set-off, must have arisen out of
the same transaction or ought to be so connected in their nature and
circumstances as to make it inequitable for the Court to allow the claim before
it and leave the defendant high and dry for the present unless he files a
cross-suit of his own. When a plea in the nature of equitable set-off is raised
it is not done as of right and the discretion lies with the Court to entertain
and allow such plea or not to do so. and Ors. AIR 1952 SC 201, this Court
ruled that a plea in the nature of equitable set-off is not available when the
cross-demands do not arise out of the same transaction. A wrong-doer who has
wrongfully withheld monies belonging to another cannot invoke any principle of
equity in his favour and seek to deduct therefrom the amounts which may have
fallen due to him. There would be nothing improper or unjust in telling the
wrong-doer to undo his wrong and not to take advantage of it.
In the
present case, what the Coal Company has sought to enforce is a statutory
obligation of the appellant-Union of India. The Coal Mines (Conservation and
Development) Act, 1974 has a public purpose and a beneficial object to achieve.
The stowing assistance is released to the Coal Company in the interest of
securing safety at the coal mines and the development thereof. In the absence
of stowing, there may be accidents, casualties and difficulties of operation.
Non- payment of stowing allowance may discourage the coal mines from carrying
out the stowing operations which would be detrimental to the interest of the
workers. It would not be sound exercise of discretion on the part of the Court
to permit set-off or recognize an adjustment made out-of-Court which would have
the effect of withholding the release of stowing assistance and appropriating
the amount thereof for the recovery of dues not arising out of the same
transaction.
Shri Jaideep
Gupta, the learned senior counsel for the Coal Company, has rightly relied on
the decision of Calcutta High Court in Ward, Companies District II, Calcutta,
and Ors. (1972) 85 ITR 347, wherein a garnishee order was quashed. It was held
that the money which is payable by the Coal Board to a Coal Company as and by
way of stowing assistance was not available to be paid by the Coal Board to
Income-tax Department for recovery of income-tax dues as that would result in
breach of statutory obligation of the Board with regard to the utilization of
its fund as laid down in Section 12 of the Act as also in breach of statutory
obligation of the Coal Company attaching to the grant of assistance from the Coal
Board. Rule 49 referred to hereinabove came up for the consideration of this
Court in Ors. (1980) 4 SCC 341, in some other context. Vide para 32, this
Court observed that if the subsidy receivable from the Coal Board (succeeded by
the Central Government) was by way of assistance, the grant being conditional,
the recipient thereof would be bound to apply the same for the purposes for
which it was granted viz. for the purpose of stowing or other safety operations
and conservation of coal mines. In our opinion, in the facts and circumstances
of the present case it would not make any difference whether the amount
withheld by the Central Government is on account of assistance or
reimbursement;
in
either case the Could would not hold in favour of adjustment being made by the
Central Government by setting off the outstanding credit referable to stowing
assistance as against the outstanding demand of arrears of royalty.
In our
opinion, the High Court has not erred in allowing the writ petition filed by
the respondent-Coal Company.
So far
as the finding recorded in its appellate judgment by the Division Bench that
the Central Government is not entitled to recover the royalty and it is the
State of Bihar which only is entitled to demand and recover the royalty from
the respondent-Coal Company is concerned, we set-aside that finding but without
recording any opinion of ours on that aspect for the short reason that such
issue is not required to be adjudicated upon in the present case in view of the
finding arrived at hereinabove. We hasten to add that requisite pleadings and
necessary material are also not available on record to arrive at a definite
finding in that regard.
Before
parting we make it clear that the appellant or the State of Bihar, as the case
may be, is free to recover arrears of royalty by adopting such other method as
may be available under the law.
The
appeal is dismissed. No order as to the costs.
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