TMI Blog2006 (12) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... and smokeless coal as also other small units have to buy coal at prohibitive rates from traders . The methodology for allocation of coal to a bidder of E-Auction is, thus, inequitable, irrational and fortuitous. We have noticed that having regard to the intervention of the Central Government, the coal companies deviated from the said scheme and considered even the non-core sector consumers to be a separate class; as they not only became entitled to take part in the E- Auction along with traders but also were sought to be assured of supply of coal having regard to their own requirements as regard both quality and quantity subject, of course, to their paying the price at the average weighted price. The stand taken by the coal companies before the Calcutta High Court as also before this Court assumes significance only in that context. However, now it appears that the coal companies have given a complete go- bye to the original scheme of E-Auction inasmuch as not only the traders or the non-core sector consumers but also core sector consumers had also been allowed to participate therein. A consumer of coal falling in any category as also a person who intends to purchase coal for his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of the provisions thereof. The Central Government, therefore, may think it fit to widen the definition of coal so as to include the smokeless coal in exercise of its power under the Essential Commodities Act. We may notice in ONGC (supra), this Court has held that slurries are a part of coal and is governed by the provisions of the Mines and Minerals (Regulation and Development) Act. Such being the wider definition of coal, we fail to see any reason as to why proper measure cannot be taken by the Union of India to have a complete control there over. Any strict mechanism to find out the genuine consumers would go a long way in taking preventive measures and dealing with coal by unscrupulous persons for unauthorized purposes. Those who do so, should be dealt with stringently but the same would not mean that the genuine consumers should suffer for want of coal. We are of the opinion that it may not be difficult to find out as to who the genuine consumers are. So far as owners of the hard coke ovens are concerned, they are members of the association and their identity can easily be verified. However, discussions made hereinbefore should not be taken to lay down a law that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Harshvardhan Jha, Amit Meharia, Mohanprasad Meharia, Seeraj Bagga, Sureshta Bagga, Bijan Kumar Ghosh, Sukhendu Sekhar Ray, Rajiv Mehta, B. Aggarwal, Ahanthem Henry, T. Anil Kumar, Manish Shanker Verma, Anupam Lal Das, Arjun Vinod 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, Meena Agarwal, R.C. Mishra, Anil Kumar Sinha, Gaurav Agarwal, S. Chandra Shekhar, Kanchan Kaur Dhodi, Manoj Sharma, P.K. Jain, Surya Kant, K.S. Bhati, Aishwarya Bhati, Anip Sachthey, Ajit Kumar Sinha, Krishan Mahajan, Satyakam, Navin Prakash, V.K. Verma, Chetan Sharma, Rajiv Nanda, Ramni Taneja, Balu G., Nishant Gupta, Vani Mehta, Vimla Sinha, Gopal 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. Ganapathy, Guntur Prabhakar and Rajender Kumar, Advs. JUDGMENT S.B. SINHA, J. Introduction: 1. Leave granted in all the special leave petitions. 2. The validity and/or legality of a scheme framed by the Coal India Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utes, 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. 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 vested in the Government companies specified therein who are parties herein. Linkage: 7. After the nationalization of coal, consumers were categorized in two main sectors, namely, core sector and non-core sector. Linkage system admittedly at the first stage had been evolved for core sector. In the year 1993, a Standing Linkage Committee was set up for supply of coal to thermal power stations. Linkage was extended also to cement in the said year in terms of Resolution No. CI-21(20/73 dated 19.11.1973. The scheme for linkage of coal started in the year 1973 in terms of the resolution dated 6.1.1973, whereby, inter alia, a Standing Linkage Committee consisting of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 AUTHORITY LTD. IN 1974-75 AND COAL INDIA LTD. IN 2004-05 PRODUCTION (Figs. in Million tones) Item From CMAL in 1974-75 From CIL in 2004-05 Coal Production 78.99 323.88 Coal Dispatch 72.83 319.12 SECTOR-WISE BREAK-UP OF COAL DISPATCH Item Quantity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty 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: COAL INDIA LIMITED MARKETING DIVISION 15, PARK STREET, CALCUTTA-700 016 Ref: NO. CIL/C4A/48912/ Dated: To: M/s________ (Supply of coal/coke shall be Regulated as per extant guideline MOC/CIL) LOCATION/DESTINATION Dear Sir(s), Sub: Linkage Advice Letter Ref. Your application in the Data-Sheet for Coal/Coke Linkage. 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 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 has been worked out and it has been decided to fix up final linkage for your unit as per the following: GRADE SIZE MODE OF TRANSPORT COAL COMPANY FIELD CONTACT OFFICE MAXIMUM PERMISSIBLE QUAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. 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, not in dispute that the price of coat to be paid had never been part of the linkage arrangement. 10. 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 a result, Coal India Ltd. started quantitative assessment through its Technical Committees and started mentioning the quantity of coal requirement for the industry in its linkage advice letter. Thereafter, in absence of any ceiling limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 at notified price from nationalized coal companies. 12. On 6th June, 2001, Coal India Ltd. in the meeting of the Board of Directors effected decentralization and authorized each subsidiary companies to decide their own policies for sale of coal to non-core sector, including the price to be charged. It may be noted that on 1.1.2000, coal became a deregulated commodity, i.e., its price could not be controlled by the Central Government and thenceforth, it was Coal India Ltd. which became entitled to determine its price. It was further decided that no fresh linkages would be issued. The system of sponsorship was also discontinued. It is not in dispute that the linked consumers might not get the entire 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 va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 14. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commend that the Department of Coal should give a fresh look at the whole gamut of coal linkage and come out with a clear cut policy. The Committee would like to be apprised of the action in this regard. According to the coal companies, however despite such stringent steps taken as regard the maladies of demand of coal by the non-existing units and/or demand of coal in excess of the requirement of the linked units and concentration of purchase of coal at the hands of a few traders did not work to their full satisfaction. Open Sales Schemes (OSS): 16. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y every month). With increased availability of coal for non-core sector, the AQ-(MPQ of individual) X total coal availability for a particular month divided by total monthly MPQ. xxx xxx xxx 3.3 Whilst in the case of existing consumers entitlement would be governed by the MPQ (Maximum Permissible Quantity) of the last 7 years, supplies against the requirement of new consumers will depend on the satisfaction of the coal company and availability of coal. 3.4 Around 20% of the total non-core-sector coal available would be made available to official agencies nominated by State/Central Govts. For distribution to the small and tiny consumers. Coal to the State Govts. May be priced at the average cost arrived at the E-auction for that particular grade of coal during that month. Clause 4 provides for E-Auction process whereas Clause 5 provides for terms of payment. The concept of E-Auction is stated to be as under: 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 A/c Non-core Sector Consumers through E-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsumers of BCCL who are already linked as well as new consumers may apply to BCCL in the prescribed form which is available form the website of MSTC Ltd. at http://www.mstcindia.com under the heading BCCL Coal Auction or form the website of BCCL at http://bccl.cmpdi.co.in from where it can be down load. 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 Sales Section), Sales Marketing Divn., BCCL, Koyla Bhawan, P.O. Koyla Nagar, Dhanbad - 826 005 or Shri K.K. Mazumdar, Sales Manager, BCCL 6 Lyons Range (5th Floor), Kolkata -700 001 in duplicate latest by 4th November, 2004. After due verification, BCCL will forward this application to MSTC Ltd... for registration. On being intimated by MSTC, consumers should pay one time registration fee of Rs. 10,000/- by way of DD/PO favouring MSTC Ltd., Kolkata and register themselves on-line at http://www.mstcauction.com. The procedure to be followed for E-Auction, is stated to be in the following terms: Metal Scrap Trading Corporation, hereinafter referred to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. Exceptions to E-Auction: 20. On 20.07.2005, the Ministry of Coal by a circular letter stated: The total quantity earmarked for State Government agencies may be increased by one million ton so as to reserve a total quantity of 3 million tones of coal for the year 2005-6. The State Government agencies who are distributing coal to SSI and tiny units are to be supplied coal by the subsidiary companies of CIL at the floor price (i.e. 20% above the notified price of a price of a particular grade) instead of the weighted average e- auction price in view of the reported high e-auction price. The Central Government, thus, directed the coal companies to supply coal to NCCF and other agencies at 20% above of the notified price instead of weighted average E-Auction price; thereby taking them out of the purview of E-Auction. Similar benefit was extended to the agencies of the Central Government and the State Governments. By a letter dated 08.04.2005, the Ministry of Coal allocated supply of coal of 2 MT each to be supplied to NCCF and the State Governments nominated agencies for the financial year 2005-06. Yet again on 20.07.2005 the Ministry of Coal directed that the price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 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 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. Proceedings before different High Courts: 23. 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 India Limited had no authority to issue such d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stry of Power, BSNL and CIL, which was to be chaired by the Secretary, Ministry of Coal, so as to enable it to take a decision as to how best the said policy decision can be implemented. Findings of the Madhya Pradesh High Court : 25. Linkage is not a matter of right and dependent upon certain conditions precedent. In view of the decision in Pallavi Refractories and Ors. v. SCCL and Ors. AIR2005SC744 , the dual pricing policy adopted could not be found fault with. Even the commercial principles laid down therein pointed out that E-Auction is valid in law. Price fixation by E-Auction is not arbitrary. Change of price by reason of E-Auction being a normal facet in commercial transaction is not bad in law. Findings of the Calcutta High Court : 26. The question as to whether a direction can be issued upon the Coal India Ltd. to supply coal by road movement and without sponsorship in the wake of coal being controlled came up for consideration before the Calcutta High Court. The stand of the coal companies therein was that the consumers of both core and non-core sectors were entitled to equitable distribution of coal. The Calcutta High Court observed that mini classificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the consumers of coal, notice the submissions of the Learned Counsel appearing for the parties in the following seriatim: (i) General (ii) Manufacturers of smokeless coal (iii) Manufacturers of Hard coke (iv) Traders (v) Union of India and Coal India Limited (vi) MSTC General: 30. The contentions of the writ petitioners before the different High Courts, who are before us, are: (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; (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 there over. (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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Coal meets the need of the rural people also and in that view of the matter the Central Government having taken upon itself control of coal, which is an essential commodity in terms of the 2000 Order could not have permitted resort to E-Auction as by reason thereof prices have been shot up creating uncertainties besides hardship. It was submitted that in view of Section 2(ii), Section 3(1) and 3(2)(c) of the Essential Commodities Act, it was incumbent upon the Central Government to fulfill the object thereof, namely, making a scarce commodity available to the people at an affordable price. 32. 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 Maharashtra which is industrial backward region, submitted that they had also been assured supply of coal for meeting the demand of the rural people and in that view of the matter by reason of taking recourse to E- Auction, unreasonable burden had been put on them, which must be held to be bad in law. Mini classification in the non-core sector into tiny and small units and SSI Units and the dual pricing policy within the non-core sector itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the fact that from each colliery not more 33% per cent could be purchased by one trader, now all lots having been made open to all consumers irrespective of the fact as to whether they belong to the linked core sector or linked non-core sector or others have been allowed to bid in E-Auction along with traders, as a result whereof traders are put to a great disadvantage. In this behalf our attention has been drawn to the fact that both manufacturers of core sector and non-core sectors have been offering their bid in the auctions which is against the concept of fair distribution of an essential commodity. According to the Learned Counsel participation of all categories of consumers would be unlawful, being contrary to the professed policy of the coal companies in view of the OSS Scheme. Submissions on behalf of Union of India 36. 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 scheme as also open sales scheme, the coal companies had to resort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manifest error in holding that E- Auction is not possible in North Eastern Region in India. The Learned Counsel submitted that the procedure which is adopted for conducting E- Auction is absolutely transparent and fair. Policy Decision as regards Pricing: Reasonableness of dual pricing: 38. 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 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 price is resorted to, the same must be rational. The formula for fixing the dual price may be reasonable only under certain circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y do if it was an ordinary commercial undertaking properly and prudently managed on sound commercial lines. Is the position any different because the Board is a public utility undertaking or because of the provisions of the Electricity Supply Act?.... [See Oil and Natural Gas Commission and Anr. v. Association of Natural Gas Consuming Industries of Gujarat and Ors. [1990]3SCR157 ]. 41. 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 Thera v. Union of India and Ors. [1984]1SCR709 ] While fixing the price of an essential commodity like coal, the capacity to bid of small manufacturers may also be taken into account. The cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Court further noticed: 34. In another article on The Public Sector in India , quoted in Issues in Public Enterprise by Sri K.R. Gupta, Dr Rao is quoted as saying (at p. 84): ... the pricing policy should be such as to promote the growth of national income and the rate of this growth...public enterprises must make profits and the larger the share of public enterprises in all enterprises, the greater is their need for making profits. Profits constitute the surplus available for savings and investment on the one hand and contribution to national social welfare programme on the other; and if public enterprises do not make profits the national surplus available for stepping up the rate of investment and the increase of social welfare will suffer a corresponding reduction;.... Hence the need for giving up the irrational belief that public enterprise should, by definition, be run on a no-profit basis. 44. In dealing with the fixation of tariff under the Electricity (Supply) Act, 1948, this Court in Hindustan Zinc Ltd. (supra), opined that the tariff cannot be fixed in such a manner by the Board while acting as a private trader and shedding its public utility character. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents to indicate that not a minimum but a reasonable profit margin is permissible. Even in relation to a public utility undertaking like the State Electricity Boards where the duty not to make undue profits by abusing its monopoly position is clear.... The action on the part of the State even in the matter of fixation of price of an essential commodity, thus, must be viewed from different angles, some of which we shall advert to hereinafter. Article 39(b) - Concept : Article 39(b) was incorporated in the Constitution to indicate the necessity for ensuring equitable distribution of resources. 48. In State of Karnataka and Anr. v. Shri Ranganatha Reddy and Anr. [1978]1SCR641 , this Court analyzed the constitutional provisions contained in Article 39(b) of the Constitution, stating: ...The key word is distribute and the genius of the Article, if we may say so, cannot but be given full play as it fulfils the basic purpose of restructuring the economic order. Each word in the article has a strategic role and the whole article a social mission. It embraces the entire material resources of the community. Its task is to distribute such resources. Its goal is so to undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary and sufficient to nationalise such coke oven plants as were in or belonged to the nationalised coking coal mines or as were identified as located near the nationalised coking coal mines, leaving out all other coke oven plants. The nationalisation of the coking coal mines and the coke oven plants was with a view to reorganising and reconstructing such mines and plants for the purpose of protecting, conserving and promoting scientific development of the resources of coking coal needed to meet the growing requirements of the iron and steel industry and for matters connected therewith or incidental thereto . We do not entertain the slightest doubt that the nationalisation of the coking coal mines and the specified coke oven plants for the above purpose was towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good . [Also see L. Abu Kavur Bai v. State of T.N. [1984]1SCR725 ] Article 37 of the Constitution of India provides that the provisions contained in Part IV of the Constitution of India shall not be enforceable by any court and it enjoins upon the State to apply the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is not in consonance with the provisions of Part IV of the Constitution would be ultra vires but there cannot be any doubt whatsoever that the principles contained therein would form a relevant consideration for determining a question in regard to price fixation of an essential commodity. Directive Principles of State Policy provides for a guidance to interpretation of Fundamental Rights of a citizen as also the statutory rights. We have noticed hereinbefore that coal was nationalized under Coking Coal Mines (Nationalization) Act, 1972 and Coal Mines (Nationalization) Act, 1973. We have also noticed that the said Acts were enacted so as to fulfill the constitutional object contained in Article 39(b) of the Constitution of India. 52. In terms of the Nationalization Acts indisputably the coal companies as also the Union of India were bound to take action in furtherance of the task of achieving the purport and object for which the coking coal mines and the coal mines were nationalized. The Parliament also enacted Coal Mines (Nationalisation) Amendment Act, 1976. In the year 1976, even mining lease of all the coal mines were rescinded. The constitutionality of the 1976 Ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be determined stricto sensu does not arise in this case, as would appear from the discussions made hereinafter, as here the Central Government has not fixed any price. It left the matter to the coal companies. The coal companies in taking recourse to E-Auction also did not fix a price. They only took recourse to a methodology by which the price of coal became variable. Its only object was to see that maximum possible price of coal is obtained. The Appellants do not question the right of the coal companies to fix the price of coal. Such prices had been fixed on earlier occasions also where for legally or otherwise the Central Government used to give its nod of approval. The process of price fixation by the Central Government in exercise of its powers under the 1945 Order continued from 1996 to 2004. Does E-Auction ultimately lead to fixation of a price ? The answer to the said question must be rendered is a big emphatic 'No', as by reason thereof even the coal companies would not know what would be the price of different varieties of coal. The issue must be determined from the perspective as to whether the coal companies can be allowed to say that despite their monopoli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion a State within the meaning of Article 12 of the Constitution of India can be permitted to take recourse to E-Auction which is not commensurate with the constitutional scheme of this country. Some of the coal companies admittedly were reeling under financial problems. Three of them became sick industrial undertakings and a reference was made to BIFR. The Union of India in its counter-affidavit states that a decision was taken to take recourse to E-Auction such that sick coal companies could turn around. Union of India and the coal companies do not deny that they have a monopoly. They do not deny or dispute that they are 'State' within the meaning of Article 12 of the Constitution of India. They have also not raised any contention that the constitutional obligations in terms of Article 39(b) are not required to be complied with. It is not in dispute that approximately 94 to 95% of the coal is made available to the core sector at a notified price. We have also noticed that NCCF as also various Central Government and State Government agencies were to get coal at the base price + 25% thereof. It is of some significance to note by way of an example that whereas the core secto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncept, cannot be equated therewith. 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, 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. 58. In Tara Prasad Singh (supra), this Court has categorically considered as to why the Parliament thought it fit to enact the Nationalisation Act i.e. to distribute the resources vested in the State to subserve the common good. The State, it is trite, while fixing the price for the purpose of equitable distribution or otherwise cannot be actuated purely by a profit motive. It should not discharge its functions in such a way as to aspire to earn huge profit specially at the cost of those who are fully dependent upon them for supply of a monopoly item like coal. It cannot be the law that the public sector undertakings while selling essential commodities must suffer loss. It is also not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss of employment of a large number of employees and would be detrimental to the avowed object of the Central Government to encourage small scale industries. Coal itself is considered to be a core sector. In terms of the provisions of the Industrial (Development and Regulation) Act, 1951, the Parliament requires the Central Government to take such steps which would enable the SSI units to maintain their viability and strength so as to be effective in : (i) promoting in a harmonious manner the industrial economy of the country and easing the problem of employment; (ii) securing the ownership and control of the material resources of the community such that the same are distributed to subserve the common good. E-Auction has effect both on price of coal as also the availability thereof to the non-core sector consumers. Their availability would depend upon successful bids of the consumers. It was introduced for a definite purpose viz. to confine the same to the non-core sector and traders. A deviation to a great extent has been made therefrom. Even now the core sectors are taking part in E-Auction, but no step has been taken in this behalf. The Central Government, however, recently ens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstead of limited outlets/coal companies as was the case in earlier schemes. x) The sale on the auction is held even in remote areas therefore is not subject to any manipulation/influence of antisocial elements. xi) The system provides for official channel of supplies to all categories of buyers without classification who were otherwise dependent on secondary market (black market) xii) The premium under the old system being appropriated by unscrupulous elements got checked/restricted. xiii) Any buyer of coal under non core-sector including SSI units is able to avail of this opportunity by payment of a little more than the notified price. The system of E-Auction is not aimed at obtaining higher price but endeavours to create an equal opportunity amongst the buyers of non core sector. However, we may notice that the said claim of the Union of India or the coal companies is not justified. The aforementioned claim of the Central Government is refuted by the consumers stating that the figures given by the Union of India are misleading. Price range of all the subsidiaries have been taken cumulatively instead of taking subsidiary-wise figures. The consumers belonging to cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buying large quantities of coal. Consequently, the manufacturers of hard coke and smokeless coal as also other small units have to buy coal at prohibitive rates from traders . The methodology for allocation of coal to a bidder of E-Auction is, thus, inequitable, irrational and fortuitous. 65. The methodology for allocation of coal at this juncture also may be noticed by us: Allocation is carried out by E-sale software on the following basis: a. First preference is given to highest bid price. b. If two or more parties bid the same price, then preference for allocation is given to party that placed the bid for higher quantity. c. In case two or more parties bid the same price and quantity, then preference is given to the party that placed the bid earlier. Since a particular grade is allocated/sold at different prices to different bidders, E-Auction ultimately leads to sale of a particular grade of coal at variable prices in the market. In spite of Government of India's office memorandum promising sale of coal to the linked consumers at average E-Auction rate, sale to linked consumers is being made at the highest bid price and not at the average bid price. 66. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply of electric energy in terms of the provisions of Section 49 of the Electricity (Supply) Act, 1948, only a reasonable profit is contemplated and not profiteering [See S.N. Govinda Prabhu (supra) and ONGC (supra). It may be true as has been held in the aforementioned cases that cost alone did not determine the prices and the same has to be determined upon taking into consideration many complex factors but no decision of this Court says that any arbitrary fixation of price and arbitrary mode of fixation would satisfy the test of reasonableness as contained in Article 14 of the Constitution of India. 68. The learned Additional Solicitor General placed strong reliance on a decision of this Court in State of Orissa and Ors. v. Hari Narain Jaiswal and Ors. [1972]3SCR784 , wherein this Court held: Even apart from the power conferred on the Government under Sections 22 and 29, we fail to see how the power retained by the Government under Clause (6) of its order, dated January 6, 1971, can be considered as unconstitutional. As held by this Court in Cooverjee B. Bharucha case, one of the important purpose of selling the exclusive right to sell liquor in wholesale or retail is to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of arbitrary or unguided power can arise in a case of this nature, it should not be forgotten that the power to accept or reject the highest bid is given to the highest authority in the State i.e. the Government which is expected to safeguard the finances of the State. Such a power cannot be considered as an arbitrary power. If that power is exercised for any collateral purposes, the exercise of the power will be struck down. It may also be remembered that herein we are not dealing with a delegated power but with a power conferred by the Legislature. The High Court erroneously thought that the Government was bound to satisfy the Court that there was collusion between the bidders. The High Court was not sitting on appeal against the order made by the Government. The inference of the Government that there was a collusion among the bidders may be right or wrong. But that was not open to judicial review so long as it is not proved that it was a make-believe one. The real opinion formed by the Government was that the price fetched was not adequate. That conclusion is taken on the basis of Government expectations. The conclusion reached by the Government does not affect any one's r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Central Government as also the Coal Controller in terms of 1945 Order thought of giving some preference to those industries which produce smokeless coal as well. Smokeless coal producers started manufacture the same on the basis of invention of new technology invented by the Central Fuel Research Institute, an unit of Council of Scientific and Industrial Research Institute as also the Coal Mining and Planning Development of India, which is a subsidiary of Coal India Ltd. 70. We have noticed hereinbefore that when the coal companies themselves manufactured coke for domestic consumers, the same used to cause health hazards. They intended to outsource production of manufacturing soft coke; where for they had asked the Governments of Bihar and West Bengal to encourage setting up of smokeless coal units assuring supply of coal. Such linkage system has, therefore, been developed under which the consumers are linked to specify mines from which they received specified quantities and specified grades of coal on a monthly basis. Coke oven units, in particular, are linked in the W-II, W-III W-IV of the non-core sector. The importance of the linkage system despite resort to E-Auctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd on a different footing. Merely to sell it as a profit to the traders who do not possess the purchasing capacity is not limited or controlled by the market conditions, whereas it is so for the linked non-core sector. The traders themselves create and control the market conditions. 73. In Mohd. Usman v. State of Andhra Pradesh (1971)ILLJ534SC , this Court held: The proposition of law that the doctrine of equality is attracted not only when equals are treated as unequals but also when unequals are treated as equals and that Article 14 is offended both by finding difference when there is none and by making no difference when there is one is unexceptional. But the rule of equality is intended to advance justice by avoiding discrimination. [See also Motor General Traders v. State of Andhra Pradesh [1984]1SCR594 ; Indra Sawhney-II v. Union of India AIR2000SC498 ; State of U.P. v. Johri Mal AIR2004SC3800 ]; and E.V. Chinnaiah etc. v. State of A.P. and Ors. etc. AIR2005SC162 Paras 66 to 69]. The coal companies themselves highlighted this distinction in Civil Appeal No. 5547 of 2004 in Bijoy Kumar Poddar's case. We need not, however, deal with the said matter separately as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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. The effect is that today, while the core sector (92%) on its own and non-core non-linked SSI/Tiny units (through the NCCF/other agencies) (1%) are being supplied coal at a fixed price, on the other hand, the non-core linked SSI/Tiny units (4%) are being subjected to differential treatment without any rational classification by supplying the coal to the latter on the price to be ascertained by the trader-controlled process of E-Auction and thereby putting the petitioner-units at par with the trader. The scheme of E- Auction is, therefore, ultra vires Article 14 of the Constitution of India. Judicial Review: 75. The submission of the learned Additional Solicitor General to the effect that the policy decision of a State cannot be the subject matter of judicial review is stated to be rejected. E-Auction is not a policy decision of the Central Government. Such a policy decision on the part of the executive of the Central Government must be strictly construed in terms of Article 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of Article 19(1)(g) of the Constitution of India, profiteering should not be taken recourse to. In fact the decisions of this Court on price fixation also point out that although a reasonable profit may be permissible, profiteering would not be. The coal companies evolve price fixation but admittedly they have been doing so at the instance of the Central Government. The Central Government seeks to exercise its statutory power. Such a power, however, is confined to four-corners of the 2000 Order. When there is no control over price, the Central Government is forbidden to issue any direction which will have an impact there over. 77. The coal companies which are, therefore, public authorities when seeking to give effect to the constitutional scheme as contained in the preamble of the Nationalization Acts of 1972 and 1973 were acting at the behest of the Central Government and not entirely on their own. In Hindustan Petroleum Corporation Ltd. v. Darius Shapur Chenai and Ors. AIR2005SC3520 , this Court noticed with approval the decisions in Commr. of Police v. Gordhandas Bhanji [1952]1SCR135 and Mohinder Singh Gill v. Chief Election Commnr. [1978]2SCR272 in the following terms: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction which would have direct or indirect impact on price of coal. It, as indicated hereinbefore, directed that 10 lacs MT coal be sold through E-Auction; but while doing so stricto sensu, its power and control to regulate supply of coal could not be exercised in that sense. Apart from the fact that it also does not satisfy the attributes of supply, as noticed hereinbefore, the supply of coal itself has not been brought within the purview thereof. Furthermore no notification has been issued by the Central Government regulating supply of coal. By allowing E-Auction in respect of 10 lacs MT of coal, it merely quantified the amount of coal which was required to be sold. It did not bring within its sweep taking recourse to the mode of E-Auction so as to enable the companies to obtain a valuable price. Clause 6 of the Colliery Control Order does not envisage the same. Promissory Estoppel: 79. We have noticed hereinbefore that smokeless coal operators had set up their units at the behest of the coal companies. Those who had set up their units in the erstwhile State of Bihar and West Bengal evidently did so at the behest of the companies having been encouraged therefore. It was do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of the State on a judgment of this Court in Bakul Cashew Co. v. STO [1986]159ITR565(SC) . In Bakul Cashew Co. case this Court found that there was no clear material to show any definite or certain promise had been made by the Minister to the concerned persons and there was no clear material also in support of the stand that the parties had altered their position by acting upon the representations and suffered any prejudice. On facts, therefore, no case for raising the plea of estoppel was held to have been made out. This Court proceeded on the footing that the notification granting exemption retrospectively was not in accordance with Section 10 of the State Sales Tax Act as it then stood, as there was no power to grant exemption retrospectively. By an amendment that power has been subsequently conferred. In these appeals there is no question of retrospective exemption. We also find that no reference was made by the High Court to the decision in M.P. Sugar Mills' case. In our view, to the facts of the present case, the ratio of M.P. Sugar Mills' case directly applies and the plea of estoppel is unanswerable. Yet again in Assistant Commissioner of Commercial Taxes (Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n before this Court recently in State of Punjab v. Nestle India Ltd. and Anr. [2004]269ITR97(SC) wherein this Court surveyed the growth of the said doctrine and held the doctrine to be applicable to legislative action also. Legitimate Expectation: 82. Principle of natural justice will apply in cases where there is some right which is likely to be affected by an act of administration. Good administration, however, demands observance of doctrine of reasonableness in other situations also where the citizens may legitimately expect to be treated fairly. Doctrine of legitimate expectation has been developed in the context of principles of natural justice. Issue arises whether recourse to legitimate expectations can be taken when the expectation is based on unlawful representation (i.e., most often something that is ultra vires the power of local authority). In Stretch v. U.K. (2004) 38 EHRR 12 applicant was granted a lease for 22 yrs. by an authority that did not have the power to do so. It was only made known to the applicant at the time of renewal of the lease, when negotiations had already reached an advanced stage. While the court of appeal accepted the argument that the opt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olutely necessary that some mechanism should be found out for plugging the loopholes. The Union of India or the coal companies appear to have lost confidence in the State Governments. They had carried out joint inspection and in that process they must have arrived at a satisfaction about the genuineness of the claims of industrial units for which the linkage system was meant for. Before us most of the consumers, with a view to obtain supply of coal had filed documents to prove their genuineness. The said documents must be scrutinized by the authorities of the coal companies. In the event, they have any suspicion, inspection should be carried out by officers appointed by the Chairman-cum-Managing Director of the concerned company within whose jurisdiction the unit is situated. 85. 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. In our opinion, it may not be difficult to find out, having regard to the techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge must take place only when it is necessary, and upon undertaking of an exercise of separating the genuine consumers of coal from the rest. If the coal companies intend to take any measure they may be free to do so. But the same must satisfy the requirements of constitutional as also the statutory schemes; even in relation to an existing scheme e.g. Open Sales Schemes, indisputably the coal companies would be at liberty to formulate the new policy which would meet the changed situation. E-advertisement or E-tender would be welcome but then therefore a greater transparency should be maintained. 88. For the reasons aforementioned, Civil Appeal Nos. 2972 and 2975 of 2005 being devoid of any merits are dismissed. Civil Appeal arising out of S.L.P. (Civil) No. 24034 of 2005 is allowed and the impugned judgment of the Madhya Pradesh High Court is set aside. No separate order is required to be passed on Civil Appeal No. 5547 of 2004 arising out of the judgment and order of the Calcutta High Court as the said case would also be governed by this judgment. All other appeals, writ petition and transferred cases are disposed of with the aforementioned observations and directions. - - T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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