M/S ASHOKA SMOKELESS COAL IND. P. LTD. AND ORS. v. UNION OF INDIA AND ORS.

A

DECEMBER 1, 2006

B

H 954

ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. 955

Doctrines:

Doctrine of legitimate expectation-Applicability of D Doctrine of reasonableness-Applicability of

Doctrine of Promissory Estoppel--Applicability of

Doctrine of public necessity-Applicability of E Words and Phrases:

'Business'--Meaning of

Production, distribution, supply and price of coal were controlled and regulated under the Colliery Control Order, 1945 framed under F Defence of India Rules. The Order was continued under the Essential Commodities Act, 1955. Coking Coal Mines and Coal Mines were subjected to nationalization in terms of Coking Coal Mines (Nationalization) Act, 1972 and Coal Mines (Nationalization) Act, 1973 with a view to give effect to the provisions of Article 39 (b) of the G Constitution of India.

After the nationalization, consumers of coal were categorized as Core Sector and Non-core Sector. Linkage system was evolved initially for Core Sector and then also for Non-Core consumers. The linkage was to be determined on the basis of availability of coal, requirements thereof in H

p. 956

A respect of each industry as certified by the State, and the capacity of the railways to transport coal. Government issued several Notifications from time to time leading to deregulation as regard price and distribution of coal. By Colliery Control Order, 2000, Order of 1945 was repealed and thereby control and regulation over coal as was prevailing under the 1945 Order, was done away with. By reason of 2000 Order, Central B Government, 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. Coal India became entitled to determine the 'I price. Coal India discontinued grant of fresh linkages to Non-core Sector consumers due to mismatch in respect of demand and availability of coal. C Thus the consumers having no linkages were constrained to purchase coal from black market at a higher price. A resolution was passed to remove the difference between Open Sales Scheme price and the price of the linked consumers. To prevent misuse of linkage, verification of the units of the linked consumer was undertaken. The Standing committee on coal and Steel found that there were bogus companies not using coal and black marketing it.

A new 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. The agencies of the Central Government and the State Governments were kept out of the purview of E-Auction. Central Government asked Coal India Ltd. 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 Briquetts in order to ensure availability of alternate fuel for domestic consumption. Advertisements were published inviting entrepreneurs to manufacture special smokeless fuel and assuring to provide them coal and the manufacturing technology. Pursuant to such invitation the entrepreneurs set up plants for manufacturing smokeless coal.

G The scheme of E-Auction was challenged before Guahati and Madhya Pradesh High Courts. Guahati High Court set aside the scheme holding that the method adopted for the same was arbitrary in nature; and that the Chairman of Coal India Ltd. had no authority to issue such direction or to frame such a Scheme. Madhya Pradesh High Court held the Scheme to be valid and legal.

ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. 957

Writ Petition was also filed before Calcutta High Court questioning the validity of sponsorship Scheme and the same was allowed holding that mini classification on the basis of sponsorship system was ultra vires the Constitution of India.

Appeals were filed before this Court against the judgments of the three High Courts. B In the meantime several Writ Petitions were filed before different , 1 High Courts questioning the validity of E-Auction. Those Writ Petitions were transferred to this Court.

1.2. The coal companies which are 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 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. 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. (1020-A-B; G-H; 1021-A-B) Hindustan Petroleum Corpn. Ltd. v. Darius Shapur Chenai and Ors., (2005) 7 SCC 627; Commr. of Police v. Gordhandas Bhanji, (1952) SCR 135 and Mohinder Singh Gill v. Chief Election Commnr., (1978] 1 SCC 405, G referred to.

1.3. Coal 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, H

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,... A 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. [1006-F-G)

1.4. By reason of E-Auction no price is fixed as it would vary from bids to bids. The only price which is fixed for E-Auction is the reserved . B price which is 25% above the notified price. [1007-D; Fl

1.5. While 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. Fixation c I 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. It will lead to loss of D '· l. employment of a large number of employees and would be detrimental to the avowed object of the Central Government to encourage small scale industries. [1007-F-H)

1.6. E-Auction has effect, both on price of coal as also the availability thereof to the Non-core Sector consumers. Their availability would depend E upon successful bids of the consumers. It was introduced for a definite ' phrpose 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 rias been taken in this behalf. [1008-C-DJ F ' I. 7. E-Auction is not a mode to fix price. It is only a mode to obtain maximum price. While doing so State does not have to follow the principles .... of fi~ation '1 of price. It is not required to apply its mind as to its. effect. It treat.s coal ,, like any other commodity. It treats itself like a private trader.

qi "( ) A (Jistinction must be borne in mind when a State intends to part with a • pfWilege 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 Cons~itution. [1004-D-F]

1~8. 'Business' is a word of wide import. It, in the context of application of a statute governing a monopoly concern and also with an H l , • ~ .• ·• {1 !.i' ";

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ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. 959

essential commodity, would indisputably stand on a different footing from A 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 B 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 C 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. 1996-G-H; 997-A-C) D Oil and Natural Gas Commission and Anr. v. Association ofNatural Gas

- Consuming Industries ofGujarat and Ors., (1990) Supp. SCC 397; Hindustan Zinc ltd. etc. v. Andhra Pradesh State Electricity Board and Ors., 11991) 3 SCC 299; Dr. P. Na/la Thampy Thera v. Union of India, (1983) 4 SCC 598 E and Kera/a State Electricity Board v. Mis S.N. Govinda Prabhu and Bros. and Ors. etc., 11986) 4 SCC 198, referred to.

1.9. 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. Good 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. The coal companies in taking recourse to E-Auction did not give effect to the concept of corporate social responsibility. Although a reasonable profit may be permissible, profiteering would not be. [1019-B-GI H

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A T.MA. Pai Foundation v. State ofKarnataka, (2002J 8 SCC 481; Islamic Academy of Education v. State of Karnataka, 12003) 6 SCC 697 and P.A. lnamdar v. State of Maharashtra, [20051 6 SCC 537, relied on.

1.10. The State when exercises its power of price fixation in relation to an essential commodity, has a different role to play. Object of such price B 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 minim_um. The question as to how such fair price is to be determined stricto sensu ,._ does not arise in this case as here the Central Government has not fixed c 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. (1003-F-HI 1.11. The modality of price fixation will depend upon the nature of D the commodity, the provisions of the concerned statute governing the same and other relevant factors. When 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 E 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. Whenever 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. (994-F-H; 995-AI F Union ofIndia and Ors. etc. v. Hindustan Development Corpn. and Ors., [199311 SCC 467; Gujarat Ambuja Cement Ltd and Anr. v. Union of India '!---

and Ors., rt99818SCC208 and Kera/a State Electricity Boardv. Mis. S.N. Govinda Prabhu Bros. and Ors. etc., [19861 4 SCC 198, relied on. Hindustan Zinc Ltd. etc. v. Andhra Pradesh State Electricity Board and G Ors., 11991) 3 SCC 299; Oil and Natural Gas Commission and Anr. v. Association of Natural Gas Consuming Industries of Gujarat and Ors., (1990) Supp. SCC 397 and Dr. P. Na/la Thamphy Thera v. Union of India and Ors., (1983) 4 sec 598, referred to. H 1.12. However, dual pricing having regard to a distinct classification ~ ...

ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. 961

between a core sector and non-core sector is permissible. The State, A 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. (996-F-GI

Pallavi Refractories and Ors. v. SCCL and Ors., (20051 2 SCC 227, relied on. B 1.13. While fixing the price of an essential commodiiy like coal, t.he 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. C (996-D-E] 1.14. While 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. (1012-E-Fl D Mahabir Auto Stores and Ors, v. Indian Oil Corporation and Ors., [19901 3 sec 752, relied on. Kera/a State Electricity Board v. S.N. Govinda Prabhu Bros. and Ors. etc. (19861 4 SCC 198 and Oil and Natural Gas Commission and Anr. v. E Association of Natural Gas Consuming Industries of Gujarat and Ors. [1990} Sup. SCC 397, referred to.

1.15. Article 39(b) was incorporated in the Constitution to indicate the necessity for ensuring equitable distribution of resources. Coal, being such a vital product to the Indian industries and the common man, F nationalization of coal was necessary for realization of the ideals contained in Article 39(b) of the Constitution. (999-D; 1000-B-C)

State of Karnataka and Anr. v. Shri Ranganatha Reddy and Anr. (19771 4 SCC 471; Samatha v. State of A. P. (1997) 8 SCC 191; Sanjeev Coke Manufacturing Company etc. v. Mis Bharat Coking Coal limited and Anr. G etc. (1983) 1SCC147 and l. Abu Kavur Bai v. State ofT. N., (1984( 1 SCC 515, referred to.

1. 16. 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 H -..

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A reasonable action. [1001-C-D)

MR.F Ltd v. Inspector Kera/a Govt. and Ors. (199818 SCC 227, relied on.

B. P. Sharma v. Union of India (20031 7 SCC 309: AIR (2003) SC B 3863; State of Punjab v. Devans Modern Breweries Ltd. (20041 11 SCC 26 and State of Gujarat v. Mirzapur Moti Kureshi Kassab Jamat (20051 8 SCC 534, referred to. , ~

1.17. It may not be correct to say that any action which is l'lot in consonance with the provisions of Part IV of the Constitution would be c 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. (1002-C-E) D Tara Prasad Singh and Ors. v. Union of India and Ors. (1980( 4 SCC 179, referred to.

1Copy pinpoint1. 18. The 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. (1004-C-D) E Baburao Shantaram More v. The Bombay Housing Board and Anr. [1954) SCR 572; Dwarkadas Marfatia and Sons v. Board of Trustees of the Port ofBombay (1989) 2 SCR 751 and Pathumma and Ors. v. State ofKera/a and Ors. (1978) 2 SCR 537, referred to. F 1.19. Coal companies are monopolies within the meaning <;if 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. (1004-F-GI

G Akadasi Pradhan v. State of Orissa (19631Supp2 SCR 691; State of Rajasthan v. Mohan Lal Vyas (19711 3 SCC 705, referred to.

1.20. However, since 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. The Non-core Sector consumers .... . .J-

ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. 963

although as linked consumers form a separate and distinct class vis-a~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. (1018-A-DI

1.21. The effect is that today, while the Core Sector (92%) on its own and Non-core non-linked SSl/Tiny units (through the NCCF/other agencies) (l %) are being supplied coal at a fixed price, on the other hand, the Non-core linked SSiffiny units (4%) are being subjected to differentlal 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. C The scheme of E-Auction is, therefore, ultra vires Article 14 of the Constitution of India. [1018-D-FI

Mohd. Usman v. State of Andhra Prades~ AIR (1971) SC 1801, relied on. D State of Orissa and Ors. v. Hari Narain Jaiswal and Ors. 11972) 2 SCC 36 and Kasturi Lal Lakshmi Reddy, represented by its Partner Shri Kasturi Lal, Ward No. 4, Palace Bar, Poonch, Jammu and Ors. v. State ofJammu and Kashmir and Ors. (19801 4 SCC 1, distinguished.

State of Madhya Pradesh v. Nandlal Jaiswal 119861 4 SCC 566; Khoday E Distilleries Ltd. and Ors. v. State of Karnataka and Ors. (1995]1 SCC 574; Ramana Dayaram Shetty v. International Airport of India and Ors. 11979] 3 SCC 489; Motor General Traders v. State of Andhra Pradesh 11984] 1 SCC 222; Indra Sawhney-11 v. Union of India, [200011 SCC 168; State of U.P. v. Johri Mal 12004) 4 SCC 714 and£. V Chinnaiah etc. v. State of A.P. and Ors. etc. 12005) 1 sec 394, referred to. F 1.22. Coal 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 term; but this Court cannot also encourage black G marketing in general sense. Nobody should be allowed to take undue advantage while dealing with a scarce commodity. (1025-D-F]

2Copy pinpoint2. It cannot be said that the policy decision of a State cannot be the subject matter of judicial review. E-Auction is not a policy decision of the Central Government. Such a policy decision on the part of the executive H '.

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A 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. While 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 expert committee. [1018-F-H; 1019-A)

3.1. 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, !herefore, be applicable. [1021-E-F)

D 3.2. The concerned States also intended to grant incentives to such industrial units by way of waiver and/ or deferment of payment of sales tax. Such industrial policies by way of legislation or otherwise, subject of course to the provisions of the statute have been framed by several other States. [1021-G-H; 1022-A[

E Mis. Motilal Padampat Sugar Mills Co. Ltd v. State of Uttar Pradesh and Ors. [1979) 2 SCC 409; Pournami Oil Mills and Ors. v. State of Kera/a and Anr. (1986) (Supp) SCC 728; Assistant Commissioner of Commercial Taxes (Asst.) Dharwar and Ors. v. Dharmendra Trading Company and Ors. [1988) 3 SCC 570; Mangalore Chemicals and Fertilisers Limited v. Deputy F Commissioner of Commercial Taxes and Ors. [19921Supp1 SCC 21; Pawan Alloys and Casting Pvt. Ltd, Meerut v. U.P. State Electricity Board and Ors. [1997) 7 SCC 251 and State of Punjab v. Nestle India Ltd. and Anr. (2004) 6 sec 465, referred to.

4. Principle of natural justice will apply in cases where the_re is some G 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 natural justice. (1024-D-E)

H Stretch v. U. K. [2004) 38 EHRR 12 and Rowland v. Environmental

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ASHOKA SMOKELESS COAL IND. P.L TD. v. U.0.1. 965

Agency 12003) EWCA Civ. 1885, referred to. A 5.1. 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. (1025-G-H; 1026-A)

.,.. 5.2. With a 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. It may not be difficult to find out, having regard to the technologies used therein as regards the ratio of the input vis-a-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. 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-a-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 .E norms, it should be stringently dealt with. [1026-A-DI

5.3. 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. This Court has held that slurries are a part of coal and is governed by the provisions of the Mines F and Minerals (Regulation and Development) Act. Such being the wider .. definition of coal, there is no 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 G 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 coal. (1026-D-G)

5.5. Central Government and for that matter the coal companies can H

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A change their policy decision, but thC;refor 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. B 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- advertise1nent or E-tender would be welcome but then therefor a greater transparency should be maintained. (1027-A-CJ

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5302 of2006.

f'rom the interim Order dated 13.9.2005 of the High Court of Jharkhand at Ranchi in W.P. (C) No. 2460/2005. D WITH

C.A. Nos. 5329, 5303, 5304, 5305, 5324, 5306, 5307, 5308, 5309, 5310, 5311, 5312, 5313, 5314, 5317, 5315, 5318, 5319, 5320, 5321, 5322, E 5323 and 5316 of2006, T.C. (Civil) Nos. 89-124, 126-136 of2005 and T.C. (Civil) Nos. 4-5, 7-45, 75, 125, 137-139 of 2006, C.A. Nos. 5547 of 2004 and 2972-2976 of 2005, W.P. (C) No. 67 of 2005.

Gopal Subramanium, A.S.G., A. Sharan, A.S.G., A.K. Ganguli, Altaf Ahmad, Jaideep Gupta, Dipankar Gupta, S.K. Bagga, Shanti Bhushan, Bhaskar F Gupta, Mahabir Singh, K. Radhakrishnan, T.R. Andhyarujina, S.D. Sanjay, Devashish Bharuka, Pankaj Bhagat, Hansa Bharuka, Dr. Sushil Balwada, Rana Mukherjee, Siddharth Gautam, Goodwill Indeevar, M.P. Jha, Ram ... Ekbal Roy, Harshvardhan Jha, Amit Meharia, Mohan Prasad Meharia, Seeraj Bagga, Sureshta Bagga, Bijan Kumar Ghosh, Sukhendu Sekhar, Rajiv Mehta, B. Aggarwal, A. Henry, T. Anil Kumar, Manish Shankar Verma, Anupam G Lal Das, Arjun V. Bobde, Hrishikesh Baruah, Jyoti Mendiratta, Manish Pitale, Chander Shekhar Ashri, Rajesh Singh, Gouri Karuna Das, Anu Gupta, Kamal Kant Tripathi, Rudreshwar Singh, Tapesh Kumar Singh, Manish Kumar Saran, Dr. Meena Agarwal, R.C. Mishra, Anil Kumar Sinha, Gaurav Agrawal, S. Chandra Shekhar, Kanchan Kaur Dhodi, Manoj Sharma, P.K. Jain, Surya H Kant, K.S. Bhati, Aishwarya Bhati, Anip Sachthey, Ajit Kumar Sinha, Krishan ,•

ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. (S.B. SINHA, J.] 967 Mahajan, Satyakam, Navin Prakash, V.K. Verma, Chetan Sharma, Rajiv A Nanda, Ramni Taneja, Babu G., Nishant Gupta, Vani Mehta, Vimla Sinha, Gogpal Singh, Shriniwas R. Khalap, Mohit Paul, C. Mukund, Ashok Kumar Jain, Animesh Saha, Bijoy Kumar Jain, Pankaj Jain, B.B. Singh, Manik Karanjawala, N.D.B. Raju, Bharathi R., N. Ganpathy, Guntur Prabhakar and Rajendra Kumar for the appearing parties. B The Judgment of the Court was delivered by

S.B. SINHA, J. Introduction :

Leave granted in all the special leave petitions.

The va_lidity and/or legality of a scheme framed by the Coal India C Limited for sale of coal by Electronic Auction (E-Auction) is in question in these appeals and transferred applications.

"Coal" 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 lhdia Rules. Production, distribution, supply and price of coal were controlled and regulated under the Colliery Control Order, 1945 (l 945 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; although 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. Even 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 year 1976.

Coal 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. Quality 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 ofcoal on an all-India basis, as far as practicable had all along

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A been considered to be imperative in the economic and industrial development of the country.

Control over coal :

Coal indisputably is an essential commodity. Its importance is widely accepted. The Essential Commodities Act, 1955 was enacted inter alia for securing equitable qistribution 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.

1945 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.

Whereas 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.

Clauses 128 and f2E of the 1945 Order were, however, invoked by the F Central Government from time to time by issuing notifications as a result whereof controls over price and distribution of coal were withdrawn. However, complete regulation over coking coal used for metallurgical industries was retained.

Several 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

ASHOKA SMOKELESS COAL IND. P. LTD. v. U.O.L[S.B. SINHA, J.] 969

issued that the coal companies can determine the price to be charged for the coal produced from time to time.

On and from l .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. C Nationalisation of coal :

Both 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 D 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.

The preamble of both the Nationalisation Acts are in the same vein. E The 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. F "'· It is also not in dispute that there had been huge demand of coal both from the core sector as also non-core sector consumers.

The 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 G vested in the Government companies specified therein who are parties herein.

linkage:

After the nationalization of coal, consumers were categorized in two ... -I main sectors, namely, core sector and non-core sector. ~inkage system H

p. 970

A 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 thennal power stations.

Linkage was extended also to cement in the said year in tenns of Resolution No.Cl-21 (20/73 dated 19.11.1973. The scheme for linkage of coal B 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 : • "No.CI-21 (2)/72 - The Government of India have been considering for some time past the question of constituting a Standing Linkage c Committee for the planning of coal supplies to thennal 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 : D "( 1) To review from time to time the coal requirements of the existing thennal power stations and for establishing rational linkages with collieries for raw coal supplies and with washeries for the supply of middlings having regard to :

E (a) the capacity of coal production, available as well as planned from the nearest source which would avoid or minimize the rail transport.

(b) the quality of coal required by the power stations.

F (c) the availability of rail and other means of transport and

(d) the pattern of consumption of coal;

(2) To plan supplies of coal for thennal power stations already under construction and to link them with sources of coal supply; G (3) To 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;

(4) To examine from time to ti.me the extent to which the linkages already established between the power stations and the sources of

J • ASHOKA SMOKELESS COAL IND. P. LTD. v. U.O.I. [S.B. SINHA, J.) 971

coal supply are being observed and to suggest steps necessary for ensuring their proper observance;

(5) To advise the Government on the feasibility of locating new thermal power plants having regard to the possibility of economic supply of coal; and (6) To 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.

3. The Committee should normally meet once in three months. The C Department of Mines will provide the required Secretarial assistance to the committee."

The coal companies state :

"That 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:

COMPARATIVE COAL DISPATCHES FROM COAL MINES F AUTHORITY LTD. IN 1974-75 AND COAL INDIA LTD. IN 2004-05

PRODUCTION (Figs. in Million tones) item From CMAL From UL m in 1974-75 2004-05 Coal Production 78.99 323.88 G Coal Dispatch 72.83 319.12

H \. ..

972 SUPREME COURT REPORTS [2006j SUPP. 9 S.C.R.

.A SECTOR-WISE BREAK-UP OFCOAL DISPATCH Item Quantity %age Quantity % age y

Power* 20.16 27.66 249.26 78.11 B 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 c Cement 3.48 4.77 I0.043 3.15 (including Cement CPP)

Fertilizer 0.95 l.30 2.150 0.67 D Export 0.528 0.72 0.021 0.01

Paper 1.297 l.78 2.016 0.63

Others 23.67 32.55 43.55 13.65 E Total 72.83 100.00 319.12 100.00

*Excluding Captive Power Plants (CPPs)" F The linkage scheme applied both to core and non-core sector. Consumption 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.

Linkage of non-core sector : G In the 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 traders.

ASHOKA SMOKELESS COAL IND. P. LTD. v. U.O.l. [S.B. SINHA, .I.] 973

Having 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 industries.

The said linkage of coal was to be determined on the basis of : (i) B availability of coal; (ii) requirements thereof in respect of each industry as certified by the State; and (iii) the capacity of the railways to transport coal.

Whenever 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 : c "COAL INDIA LIMITED MARKETING DIVISION 15, PARK STREET, CALCUTTA-700 016 Ref: No.CIL/C4A/48912/ Dated : D To:

Mis (Supply of coal/coke shall be Regulated as per extant guideline MOC/CIL)

LOCATION/DESTINATION E

Dear Sir(s),

Sub: Linkage Advice Letter

Ref. Your application in the Data-Sheet for Coal/Coke Linkage. F Please refer to your application in Data-Sheet for grant of linkage of coal/coke.

Your application for issue of "Final Linkage Advice Letter" has been received in CIL. The details of your installed unit indicating the G nos., dimensions, specifications, capacity etc., of the burning equipment/oven/plan and machinery have been received.

On the basis of relevant information, the maximum permissible quantity (MPQ) of coal which can be consumed by your unit/plant H

...

p. 974

A has been worked out and it has been decided to fix up fina:I linkage for your unit as per the following : GRADE SIZE MODE OF TRANSPORT B COAL COMPANY FIELD CONTACT OFFICE MAXIMUM PRERMISSIBLE f QUANTITY (MPQ)/MONTH

c However, coal will be supplied by the Linked Coal.Company on the basis of annual sponsorship/recommendation from the concerned sponsoring authority. The linkage of coal will be subject to the conditions as mentioned below/overleaf. D Yours 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 : E "I. "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 cif coal''. Linkage does not F establish any right for the linked unit to claim coal from any particular coal company/coalfield/source/grade etc. ,...

4. 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. G 9. "Linkage" is subject to cancellation in case of :-

(a) Any violation of the terms and conditions contained herein.

(b) Data furnished in the Data Sheet are found to be incorrect/ suppressed. H Ir I

ASHOKA SMOKELESS COAL IND. P. LTD. v. U.0.1. [S.B. SINHA, J.] 975

(c) any discrepancy between coal lifted, coal consumed and stock of coal is detected.

I 0. 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.

- The 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. Based 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, ~ot in dispute that the price of coat to be paid had never been part of the linkage arrangement.

Till 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 G a result, Coal India Ltd. started quantitative assessment through its Technical Cornmittees 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. H

,,.

p. 976

A 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 B 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 c 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.

The 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. Similarly, 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 200 I 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. The 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 ~t notified price from nationalized coal companies.

On 6th June, 200 I, 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 H ,.

ASHOKA SMOKELESS COAL IND. P.. LTD. v. U.O.I. [S.B. SINHA, J.] 977

price to be charged. It may be noted that on I. 1.2000, coal became a 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.

It is not in dispute that the linked consumers might not get the entire B amount of coal which was required by them.

After 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. c Such allotment of coal used to be monthwise.

However, 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 : D "That 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. The said sponsoring agency would recommend .E 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 F 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 Policy : G Linkage 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.

However, linkage system continued so far as the industries who had H '

p. 978

A 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 started.

It is 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.

A new 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.

On or 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.

To 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 :

"That 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 G 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 4 798 out of which 3317

ASHOKA SMOKELESS COAL IND. P. LTD. v. U.0.1. [S.B. SINHA, J.) 979 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. The coal companies were advised to get the verification done through vigilance ...... "

With a view to consider the matter afresh, a meeting of the Standing C Committee on Coal and Steel (2004-2005) took place wherein it was resolved:

"6.5 ... 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." G 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. H

,.

p. 980

A Open Sales Schemes (OSS) :

On or 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.

B It was 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 c more than 33% from each colliery. The linked consumers or the sponsored consumers, were not entitled to take part in such open sales schemes.

The 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 D 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- E existent as also by the traders, did not fructify.

£-Auction:

A new scheme known as E-Auction was made purportedly to meet the liberalization policy of the Central Government in regard to import of coal F 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 t 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:

G "OBJECTIVES :

The present system of sale of coal to non-core sector consumers needs to be made more pragmatic and transparent by accommodating the following changes :

H (a) A consumer having requirement of specified quality of coal from ,_..

ASHOKA SMOKELESS COAL I~D. P. LTD. v. U.0.1. [S.B. SINHA, J.] 981

a particular colliery/source and siding/pilot should have an access A to buy coal by paying the market determined price for the same.

(b) 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." B Clause 3 thereof provides for methodology of offer and sell of coal under E-Auction, in the following terms :

"On 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 C 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). With increased availability of coal for non- core sector, the AQ-(MPQ of individual) X total coal availability for D a particular month divided by total monthly MPQ.

xxx xxx xxx 3.3 Whilst in the case of existing consumers entitlement would be governed by the MPQ (Maximum Permissible Quantity) of the E last 7 years, supplies against the requirement of new consumers will depend on the satisfaction of the coal company and availability of coal.

3.4 Around 20% of the total non-core-sector coal available would be made available to official agencies nominated by State/Central F 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 : G "In 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 Ale Non-core Sector Consumers through E-auction on trial basis going by succeeds of this trial. It is being H .+

982 SUPREME COURT REPORTS [2006] SUPP. 9 S.C;R.

A 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.

The broad benefits and modalities for subsequent trial run for sale of coal though E-auction are as under : B Benefits :

(i) Elimination of differences between linked and non-linked consumers as directed by Calcutta High Court. xxx xxx' xxx" c The concept of sale of coal through E-Auction was introduced on trial basis by BCCL in October 2004.

E-Auction was also introduced by North Eastern Coal Limited.

D As an interim measure, a decision wits 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 :

"(a) 10 million tones only released through e-auction; E (b) About 12 million tones released to linked consumers of non-core sector through MPQ concept at e-auction price; (c) 2 million tones to NCCF, 0.5 million tones to Govt. of UP both at average e-auction price."

F According to the coal companies approximately 26.5 million tonnes of coal were to be sold at E-Aucticn 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 furnished.

G In one 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 :

"BCCL 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 H

ASHOKA SMOKELESS COAL IND. P.LTD. v. U.O.I. [S.B. SINHA, J.] 983

price in a transparent manner. A In order to accord unifonn 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. B 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.

In the month of December, 2004, coal sold only through e-auction will be delivered. C For 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 D can be down load. Such application forms may also be obtained from the Office of BCCL Dhanbad, BCCL, Kolkata, MSTC, Kolkata or MSTC, Delhi.

Applications forms completed in all respects should reach to Shri S. Mallick, Sales Manager (Road Salews Section), Sales & Marketing E ' "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.

After due verification, BCCL will forward this application to MSTC Ltd .. for registration. On being intimated by MSTC, consumers F should pay one time registration fee of Rs. I 0,000/- 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 : G "Metal 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 H

p. 984

A 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- B 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, c 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. I 00/- 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 prii::e, etc. to the subsidiary company for taking further action for release of coal. Simultaneously, 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. G Exceptions to £-Auction :

On 20.07.2005, the Ministry of Coal by a circular letter stated :

"The total quantity earmarked for State Government agencies may H be increased by one million ton so as to reserve a total quantity of 3 _..,. ,.

ASHOKA SMOKELESS COAL IND. P. LTD. v. U.0.l. (S.B. SINHA, J.] 985

million tones of coal for the year 2005-6. The State Government A 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-auctio.n price." B 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 £-Auction. Similar benefit was extended to the agencies of the Central Government and the State Governments. By a letter dated 08.04.2005, the C 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 £-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. potter~, 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 · F 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.

Representations to set up smokeless fuel units : G The coal companies themselves used to produce soft coke and other derivatives of coal for use as alternate fuel for domestic consumption.

The 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 H

p. 986

A 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.

On or about 07 .05.1989, advertisements had been published in many B leading newspapers including 'The Statesman', wherein it was stated :

· "Special 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.

C So long the new technology was reserved for Coal Producing Companies due to a restriction on coal linkage.

Now 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. D It can 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 ·E 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.

F !'roceedings before different High Courts:

Some 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 G 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. H

ASHOKA SMOKELESS COAL IND. P.L TD. v. U.0.1. [S.B. SINHA, J.] 987

When the scheme of E-Auction was introduced in Western Coal Field A Limited, its authority was questioned before the Madhya Pradesh High Court by way ofa 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.

Special Leave Petition (Civil) No.24034 of 2005 has been filed thereagainst. B Before the Calcutta High Court, one Bijoy Kumar Poddar filed a writ petition questioning the validity of the sponsorship scheme. The said writ petition has been allowed.

Findings of the Gauhati High Court.: c Before 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. The 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 a/ta 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 F· 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 G 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.

Findings of the Madhya Pradesh High Court :

Linkage is not a matter of right and dependent upon certain conditions H

988 SUPREME COURT REPORTS [200(:)] SUPP. 9 S.C.R.

A precedent. In view of the decision .in Pallavi Refractories & Ors. v. SCCL & Ors., [2005] 2 SCC 227, the dual pricing policy adopted co.uld nQt 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. Change of price by reason ofE-Auction being a normal facet in commercial transaction is not bad in faw. B Findings of the Calcutta High Court :

The question as to whether a direction can be issued upon the Coal r India Ltd. to supply coal by road movement and without sponsorship in the C wake of coal being controlled came up for ~cmsideration 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 ulfra vires the C~nstittition of Ind la. . D Coal 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 E decision in that behalf within a short span of time.

Coal India Limited and other coal companies have filed several transfer applications which having been allowed, the: writ petitions have been transferred to this Court.

F Proceedings before this Court :

Civil Appeal Nos.2972 and 2975 of 2005 arises out of ajudgment of the Gauhati High Court dated 08.04.2005. Questioning· the judgment and order of the Madhya Pradesh High Court a?lt~d 29.09.2005; S.L.P. (Civil) No.24134 of2005 has been filed. · G Coal India Ltd. has filed Civil Appeal No.5547 of 2004 which arises out of the jµdgment of the Calcutta High Court in BijoyKumar Poddar 's case .

. In the meantime; writ petitions were filed in several High Court including H Calcutta High Court, Jharkhanc:I High Court, Allahabad High Court and .4 1

ASHOKA SMOKELESS COAL IND. P.L TD. v. U.0.1. [S.B. SINHA, J.] 989

Madhya Pradesh High Court, questioning the validity of E-Auction. Different A interim orders were passed by the said High Courts. Several 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 B Courts were taken up for hearing together.

Categories of the matters before us : ·. There are four categories of consumers who are aggrieved by introduction of the scheme of E-Auction : (i) non-core linked consumers who C are manufacturers of smokeless coal; (ii) non-core sector consumers who are manufacturers of various products wherein coal is raw material; (iii) hard coke owners although a non-core linked category but had been recommended for being included in core category; and (iv) traders.

Submissions : D We 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 :

(i) General E (ii) Manufacturers of smokeless coal

(iii) Manufacturers of Hard coke (iv) Traders

(v) Union of India and Coal India Limited F . (vi) MSTC

General:

The contentions ofthe writ petitioners before the different High Courts, who are before us, are : G (i) 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; H

,. ~

p. 990

A (ii) 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.

B (iii) 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 r h~ve been discriminated against in regard to fixation of price of coal as a result whereof the small scale industries may either c purchase coal through E-Auction or purchase coal from NCCF, which would give rise to dual pricing and, thus, the same is unreasonable; (iv) The State agencies like BlSCAUMAN 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; (v) 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 India; (vi) The price through E-Auction being artificially inflated one, the same has caused uncertainty as a result whereof the manufacturers cannot fix price for their products; (vii) 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 unreasonable; (viii) 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 prejudiced;

(ix) The coal companies being 'State' within the meaning of Article 12 of the Constitution oflndia cannot resort to be high profiteering H "'· {

ASHOKA SMOKELESS COAL IND. P. LTD. v. U.O.I. [S.B. SINHA, J.] 991 at the cost of common men. A (x) The Government companies cannot be permitted to forsake its public duty, its dealings with the consumers must be fair and non-discriminatory.

Manufacturers of Smokeless Fuel and Briquettes : B It was 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 C must be held to be opposed to the doctrine of promissory estoppel. The 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 permit)ed resort to E-Auction as by reason thereof prices have been shot up cre<>ting uncertainties besides hardship. It was submitted that in view of Section D 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.

Mr. 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 E 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 F 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. G Hard Coke:

Some of the appellants before us are manufacturers of hard coke. It is liot in dispute that hard coke although does not come within the purview of 'core sector', for the purpose of distribution of coal, recommendations have H

p. 992

A 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.

Mr. Dipankar Gupta, the learned Senior Counsel appearing on behalf of the Hard Coke Oven Plants, submitted : (i) 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, aU .the I 06 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; (ii) 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 D 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. E It was submitted that coal of choice is not a concern of hard coke owners although they may be relevan~ for traders as linkage still continues, in view of the letter dated 19.05.2005.

Traders: F Mr. Altaf 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 particulaihavlng ·regard'to the fact that from G each colliery not more 33% per cent could be ·purchased by one trader, now aU lots having been made open. to all consumers irrespective of the fact as to whether they belong to the linked core s.ector or linked non-core sector or others have been allowed to bjdin E-Auction along with traders, as a result whereof traders are put to a great disadvantage. bi this behalf our attentfon has beer. drawn to the fact that both manufacturers of core sector and non- H core sectors have been offering their bid in the auctions which is against the

·"'

ASHOKA SMOKELESS COAL IND. P. LTD. v. U.0.1. [S.B. SINHA, J.] 993

concept of fair distribution of an essential commodity. According to the A 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. Submissions on behalf of Union of India B Mr. Gopal Subramanyam, the learned Additional Solicitor General appearing on behalf of the Union of India, would raise the following contentions :

(i) 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 C scheme as also open. sales scheme, .the coal companies .had to resort to E~Auction which satisfies the test ofpublic interest;

(ii) Materials have been brought on r~cords to show justification of E-Auction; the same is sustainable in !aw; (iii) Taking recourse to E-Auction by way af an experiment was made o· to overcome a difficult situation; (iv) 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 E measure;

(v) 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; F • (vi) The C~nt~al Government took recourse to the deregulation of coal as it was found·that by taking recourse to the linkage, obstritcti6ns have been created to free and fair distribution of coal . as also the movement thereof. Moreover each consumer must be given equal access thereto; G ( (vii) Only because the linked consumers would have to pay a higher price; the same by .itseff .cannot be said. to be unfair and . unreasonable in. view ·of the fact. that even.in terms of the.linked . scheme the price of c.oal was not fixed nor any representation had been made as regards obligations on th~ p~rt of C~al India Ltd. H

p. 994

A to supply coal of a specified quantity at a specified price. (viii) 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 contract; (ix) The concept of E-Auction was visualized by the coal companies B 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; (x) Classification between core and non-core sector being valid, dual c pricing is permissible in law;

(xi) 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. D Submissions on behalf MSTC :

Mr. 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 ii) India. The learned counsel E submitted that the procedure which is adopted for conducting E-Auction is absolutely transparent and fair.

Policy Decision as regards Pricing :

Reasonableness of dual pricing : F Price 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. When price is fixed in terms of the provisions of the Essential Commodities Act, the G 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. Whenever a dual ,H price is resorted to, the same must be rational. The formula for fixing the

ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. [S.B. SINHA, J.] 995 dual price may be reason®le only under certain circumstances. [See Union A of India and Ors etc. v. Hindustan Development Corpn. and Ors., (1993] l sec 467]. In Gujarat Ambuja Cement Ltd. and Anr. v. Union of India and Ors., ( 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, B 1945, the quotas thereof were allotted by the Central Government to the consumers.

A Government company having regard to the constitutional scheme, therefore, cannot forsake its public duty [See Hindustan Zinc Ltd. etc. v. C Andhra Pradesh State Electricity Board and Ors., (1991] 3 SCC 299]. It can neither have a private thrust nor aggrandizement of the wealth at the cost of the ·common man.

In Kera/a State Electricity Board v. Mis. S.N. Govinda Prabhu Bros. and Ors. etc., [ 1986] 4 sec 198, the law was laid down in the following terms:

" .. .It 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 : G " ... The 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 servi~es·'by- H.

p. 996

A 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 corrimerCial undertaking properly and prudently managed on sound commercial lines. Is the position any different because the B 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 ofNatural Gas Consuming Industries of Gujarat and Ors., [1990] Supp.,SCC 397.]

c In 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 Thero v. Union oflndia and Ors., [1983] 4 SCC 598]

While fixing the price of an essential commodity like coal, the capacity to bid of small manufacturers rriay 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 F a core sector and non-core sector is permissible._ [See Pal/avi 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 G 39(b) of the Constitution. of India, would stand on a different footing.

'Business' 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

.. ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. [S.B. SINHA, J.] 997 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. Afr 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 ..

. While fixing such price, ordinarily the State act in the same manner a that public utility would conduct itself in this regard. This Court in Oil and Natural Gas Commission and Anr. v. Association of Natural Gas Consuming D 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 :

"34. In another article on "The Public Sector in India", quoted in E 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 F in all enterprises, the greater is their need for making profits. I 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 . G investinent 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, H

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