Full Judgement
M/S Ashoka Smokeless Coal Ind. P. Ltd. & Ors Vs. Union of India & Ors [2006] Insc 888 (1 December 2006)
S.B. Sinha & P.P. Naolekar
[Arising out of S.L.P. (Civil) No. 20471 of 2005] WITH CIVIL APPEAL NOS. 5329, 5303,5304,5305,5324,5306,5307,5308,5309,5310,5311, 5312, 5313, 5314, 5317, 5315, 5318, 5319, 5320, 5321, 5322, 5323, 5316 OF 2006 [Arising out of S.L.P. (Civil) Nos. 4300, 20541-42, 21792, 22596, 23302, 23305, 23323-23327, 23345, 23374, 24403, 24034, 25059, 25131, 25140, 25149-50, 25192 OF 2005 & 899 OF 2006] WITH T.C. (CIVIL) NOS. 89-124, 126-136 OF 2005 AND T.C. (CIVIL) NOS. 4-5, 7-45, 75, 125, 137-139 OF 2006 WITH CIVIL APPEAL NOS. 5547 OF 2004 & 2972-2976 OF 2005 AND WRIT PETITION (CIVIL) NO. 67 OF 2005 S.B. SINHA, J :
Introduction :
Leave granted in all the special leave petitions.
The validity and/or legality of a scheme framed by the Coal India Limited for sale of coal by Electronic Auction (E-Auction) is in question in these appeals and 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 India Rules. Production, distribution, supply and price of coal were controlled and regulated under the Colliery Control Order, 1945 (1945 Order) framed under the said Rules. The said Order was continued under the Essential Commodities Act, 1955. Under the Colliery Control Order, the Coal Controller was even authorised to allot quotas of coal to the Central Government as well as the State Governments;
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 of coal on an all-India basis, as far as practicable had all along been considered to be imperative in the economic and industrial development of the 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 distribution and availability of essential commodities at fair price. Coal despite partial deregulation having regard to Colliery Control Order, 2000 (2000 Order) is still a regulated commodity.
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 12B and 12E of the 1945 Order were, however, invoked by the Central Government from time to time by issuing notifications as a result whereof controls over price and distribution of coal were withdrawn.
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 issued that the coal companies can determine the price to be charged for the coal produced from time to time.
On and from 1.1.2000, the 1945 Order was repealed and replaced by the Colliery Control Order, 2000 (2000 Order); in terms whereof control and regulation over coal, as was prevailing under the 1945 Order, was done away with. In terms of the said order, the functions as regards categorization of coal, disposal of coal, stock vested in the Central Government, whereas the Coal Controller was conferred with the power of surveillance over quality. By reason of the said Order, the Central Government, however, apart from certain other statutory functions to be performed by coal controller retained the power to issue directions for regulating disposal of stocks of coal.
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 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.
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.
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 :
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 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 Committee for the planning of coal supplies to thermal power stations in view of the need to supply fuel of appropriate quantity to the various power stations and at the same time to make the most economic use of the available capacity for the production and transport of coal" The terms of reference of the Committee were as under :
"(1) To review from time to time the coal requirements of the existing thermal power stations and for establishing rational linkages with collieries for raw coal supplies and with washeries for the supply of middlings having regard to :
(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.
(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 thermal power stations already under construction and to link them with sources of coal supply;
(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 time the extent to which the linkages already established between the power stations and the sources of coal supply are being observed and to suggest steps necessary for ensuring their proper observance;
(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 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 AUTHORITY LTD. IN 1974-75 AND COAL INDIA LTD. IN 2004-05 PRODUCTION (Figs. in Million tones) Item From CMAL in 1974-75 From CIL in 2004-05 Coal Production 78.99 323.88 Coal Dispatch 72.83 319.12 SECTOR-WISE BREAK-UP OF COAL DISPATCH Item Quantit %age Quantit y % age Power* 20.16 27.66 249.26 78.11 Steel CPP 1.22 1.67 6.427 2.01 Steel plants 8.71 11.95 5.654 1.77 Loco 12.82 17.59 0.00 0.00 Cement (including Cement CPP) 3.48 4.77 10.043 3.15 Fertilizer 0.95 1.30 2.150 0.67 Export 0.528 0.72 0.021 0.01 Paper 1.297 1.78 2.016 0.63 Others 23.67 32.55 43.55 13.65 Total 72.83 100.00 319.12 100.00 *Excluding Captive Power Plants (CPPs)" The linkage scheme applied both to core and non-core sector.
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 :
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.
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) 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 :
"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 PRERMISSIBLE QUANTITY (MPQ)/MONTH
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.
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 :
"1. "Linkage" is a clearance to the linked coal company for supplying coal to the unit, subject to "availability" and in accordance with the "directives", if any from time to time, of the appropriate competent authority regulating "disposal of stock of coal". Linkage does not establish any right for the linked unit to claim coal from any particular coal company/coalfield/source/grade etc.
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.
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.
(c) any discrepancy between coal lifted, coal consumed and stock of coal is detected.
10. 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, not 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 a result, Coal India Ltd. started quantitative assessment through its Technical Committees and started mentioning the quantity of coal requirement for the industry in its linkage advice letter. Thereafter, in absence of any ceiling limit imposed by the railways for movement, a tendency was noticed on the part of the State sponsoring authorities to issue sponsorship indiscriminately without due regard to availability of coal, transport capacity and actual consumption. In view thereof as also due to insufficient attention to details, linkages used to be granted indiscriminately with total linked quantity being several times higher than the actual availability. In order to minimize the mismatch between the linked demand and availability of coal, steps were taken in terms of the Linkage Conditions and the linked quantity was reduced in respect of the linked non-core sector consumers who were not drawing full linked quantity of coal. Since quantity commitments were subject to availability of the total quantity for which linkages got granted, it exceeded the availability manifold. For example, during the year 2000, total sponsorship received for industries alone worked out to be about 6000 wagons per day of which the share of UP alone was about 5300 wagons per day. On the other hand, the total wagon loading for non core sector by Coal India Ltd. was for about 1300 wagons per day. To balance such unrealistic grant of linkage the concept of MPQ (Maximum Permissible Quantity), which is defined as maximum valid order booking by a linked consumer in any of the three preceding calendar year was introduced. Besides, there were other conditions under which the linkages could get lapsed or snapped, being dependent upon the period of non-drawal or diversion/misuse of coal. That despite healthy growth rate of coal, demand for core sector, particularly power sector grew at a stupendous rate. At the other end, the total quantity for which linkages were granted had far exceeded the availability.
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 2001 for non-core sector consumers, the consumers having no linkage were constrained to purchase coal from black market at a higher price. Even consumers having linkage had to depend on secondary market if they wanted enhancement in supply of quantity of coal.
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.
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 variable and supply of coal was within the range of 45% to 75% of the demand made by the concerned industries.
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 :
"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 the quantity requirement of the consumer and also the size of coal and mode of supply. Based on such sponsorship and considering other factors including the availability of coal, the quantity of coal to be supplied to a particular non-core sector consumer was determined. Even after the sponsorship, and link capacity of the consumer, railway had its own ceiling limits which were with a view to provide sufficient checks and balances in the determination of the quantity of coal supply. The same system of sponsorship was adopted for determination of quantity of coal supply through road and other modes" Alleged Misuse of Linkaged sponsorship and New Sales Policy :
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 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 Coal India Ltd. was forwarded, amongst others, to the Chairman-cum- Managing Director of the subsidiary companies of Coal India Ltd. along with the Director (Marketing), Coal India Ltd. It was noted in the minutes that the total number of linked units were 7015 out of which linkage of 2217 had been snapped. That the total number of units having valid linkage as on date was 4798 out of which 3317 units had been verified either by State Government/sponsoring agencies or by internal vigilance units of coal companies. While 3064 were reported to be existing, 253 units were found to be either non-existing or non-operating. It was further noticed that during coal company wise review, it was noted that in cases where vigilance departments of coal companies had verified the units, about 40-50% of the units were found to be either non-existing or non-operational. On the other hand, the State Government/sponsoring agencies had reported more than 90% of the verified units to be in existence.
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 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." 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):
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 purchase coal for more than 33% from each colliery. The linked consumers or the sponsored consumers, were not entitled to take part in such open sales schemes.
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 prevailing then. Keeping in view, however, the fact that the supply could not meet the demand which to a great extent was artificial and man-made, a new policy decision was required to be evolved so as to meet the new situation; particularly when measures taken to prevent black marketing of coal by procuring coal in excess of their requirements and/or the units being non-existent as also by the traders, did not fructify.
E-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 and opening of private coal mines and to provide pragmatic and transparent system of distribution of coal. 4.8 million tones of coal were offered to the non-core sector in 2003-04. The quantity earmarked for non-core sector was restricted to 933 validly linked consumers. The objectives of the said scheme are stated to be as under :
"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 :
a) A consumer having requirement of specified quality of coal from a particular colliery/source and siding/pilot should have an access to buy coal by paying the market determined price for the same.
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." 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 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 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-auction on trial basis going by succeeds of this trial. It is being considered to extend this scheme in other coal companies of CIL also. In a phased manner, to cover all the consumers of non-core Sector, including non- consumers/traders.
The broad benefits and modalities for subsequent trial run for sale of coal though E-auction are as under :
Benefits :
i) Elimination of differences between linked and non-linked consumers as directed by Calcutta High Court.
xxx xxx xxx" 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.
As an interim measure, a decision was taken to sell about ten millions tones of coal through E-Auction in 2005-06, in various subsidiaries of Coal India Limited. The quantity which was to be put on E-Auction and the price thereof was to be in the following order :
"a) 10 million tones only released through e-auction;
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."
According to the coal companies approximately 26.5 million tonnes of coal were to be sold at E-Auction price as a result whereof the share of non- core sector in dispatches would be enhanced roughly to the extent of 8% against the present share of about 5.4%. No details in respect thereof, however, have been furnished.
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 price in a transparent manner.
In order to accord uniform opportunity to all such consumers, it has been decided to sell 1.6 lakhs tones of coal through e-auction in November, 2004, to be conducted by MSTC Ltd., a Govt. of India enterprise, purely on a trial basis.
Sale of coal to such non-core sector will be made only through e-auction to be held on 17.11.04, 22.11.04, 25.11.04 and 29.11.04 respectively.
In the month of December, 2004, coal sold only through e-auction will be delivered.
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 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 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 MSTC (a Government of India Undertaking) and M/s Metal Junction Services (a joint venture of Steel Authority of India Ltd. and Tata Iron & Steel Co. Ltd.), specialized in conducting electronic auction have been engaged to conduct sale of coal through e-auction by the subsidiary producing companies of Coal India Ltd. Under the scheme, the interested buyers are required to initially register themselves with the abovesaid auctioneering agencies and are also published for information to all concerned, well in advance. The information displayed in advance about an auction includes details of the source, quantity, grade, size, mode of transport as well as the floor price. E- auctions are conducted for each of the Subsidiary Companies separately under the scheme. Each subsidiary company conducts on an average four auctions every month except NCL which conducts at least two auctions in a month. A chart setting out details of e- auction conducted in the month of January, 2006 would show that till 19th of January, 2006, 26 auctions have already been conducted. The buyers are required to deposit requisite Earnest Money Deposit (hereinafter referred to as EMD) for coal they desire to bid with the auctioneering agencies. At present, the participants are required to deposit an EMD of Rs.100/- against their per tonne requirement. The bidding is conducted by the auctioneering agency for specified period which is extended subject to the status of the bidding. On conclusion of the electronic bidding, the agencies forward a list of successful bidders along with EMD, the allotted quantity, bid price, etc. to the subsidiary company for taking further action for release of coal.
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.
Exceptions to E-Auction :
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 to be charged for supply of coal to NCCF and the State Government nominated agencies to be at a floor price i.e. 20% above the fixed notified price of a particular grade instead of weighted average E- Auction price. The quantity of supply of coal to the State Government nominated agencies was further increased by one MT for 2005-06. This Court's attention has, however, been drawn to various cash memos. issued by the NCCF, from a perusal whereof it would appear that the NCCF instead of supplying coal only to a cross-section of tiny and small consumers e.g.
potters, blacksmith, tea stall vendors, who require a very small quantity of coal for running their business, had been selling coal even to linked consumers. The Chairman of Coal India Ltd., however, vide letter dated 30.09.2005 addressed to the Chief Secretaries of various State Governments sought to define the tiny and small consumers stating that those whose consumption was less than 500 tonnes per year would come within the purview thereof. Admittedly, small consumers were to be charged not exceeding 105% of the base price at which coal had been received from Coal India Ltd and its subsidiaries. By the said letter, it was directed that the coal bill to the tiny/small consumers shall separately include base price and other charges like transportation, royalty, taxes, etc.
Representations to set up smokeless fuel units :
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 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 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.
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.
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 :
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 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.
When the scheme of E-Auction was introduced in Western Coal Field Limited, its authority was questioned before the Madhya Pradesh High Court by way of a writ petition. By a judgment and order dated 29.09.2005 the said High Court, however, held the said scheme to be legal and valid.
Special Leave Petition (Civil) No.24034 of 2005 has been filed thereagainst.
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. :
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 alia it was noticed that no-one from Arunachal Pradesh had registered for purchase of coal through E-Auction. It was further held that the criteria laid down therein did not take into account the situation prevailing in the North Eastern States and, thus, violative of Article 14 of the Constitution of India. It was found that as in the North Eastern Region, there was shortage of electricity, the traders and linked consumers would find it difficult to bid through E-Auction. The learned judges directed constitution of a committee comprising of the representatives from the Ministry of Information and Technology, Ministry of Power, BSNL and CIL, which was to be chaired by the Secretary, Ministry of Coal, so as to enable it to take a decision as to how best the said policy decision can be implemented.
Findings of the Madhya Pradesh High Court:
Linkage is not a matter of right and dependent upon certain conditions precedent. In view of the decision in Pallavi Refractories & Ors.v. SCCL & Ors. [(2005) 2 SCC 227], the dual pricing policy adopted could not be found fault with. Even the commercial principles laid down therein pointed out that E-Auction is valid in law. Price fixation by E-Auction is not arbitrary.
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:
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 classification on the basis of sponsorship system is ultra vires the Constitution of India.
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 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.
Proceedings before this Court :
Civil Appeal Nos.2972 and 2975 of 2005 arises out of a judgment of the Gauhati High Court dated 08.04.2005. Questioning the judgment and order of the Madhya Pradesh High Court dated 29.09.2005, S.L.P. (Civil) No.24134 of 2005 has been filed.
Coal India Ltd. has filed Civil Appeal No.5547 of 2004 which arises out of the judgment of the Calcutta High Court in Bijoy Kumar Poddar's case.
In the meantime, writ petitions were filed in several High Court including Calcutta High Court, Jharkhand High Court, Allahabad High Court and Madhya Pradesh High Court, questioning the validity of E- Auction. Different interim orders were passed by the said High Courts.
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 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 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 :
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
(ii) Manufacturers of smokeless coal
(iii) Manufacturers of Hard coke
(iv) Traders
(v) Union of India and Coal India Limited
(vi) MSTC General :
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 thereover.
(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 have been discriminated against in regard to fixation of price of coal as a result whereof the small scale industries may either purchase coal through E-Auction or purchase coal from NCCF, which would give rise to dual pricing and, thus, the same is unreasonable;
(iv) The State agencies like BISCAUMAN and Jharkhand State Mineral Development Corporation also having been brought at par with the linked consumers could not have been given priority for the purpose of trading in coal;
(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;
(vii) 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;
(viii) The coal companies being 'State' within the meaning of Article 12 of the Constitution of India cannot resort to be high profiteering at the cost of common men.
(ix) 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:
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 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 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.
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, 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.
Hard Coke:
Some of the appellants before us are manufacturers of hard coke. It is not in dispute that hard coke although does not come within the purview of 'core sector', for the purpose of distribution of coal, recommendations have been made by the Ministry of Steel that it should be included in the said category. The said move, however, has been opposed by the Ministry of Coal and Energy. We would, therefore, proceed on the basis that hard coke comes within the purview of non-core sector.
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, all the 106 hard coke ovens manufacturing hard coke form a special class and in that view of the matter their right to obtain coal of a particular grade cannot be denied as linkage system continues to be operative despite the introduction of the scheme of E-Auction;
(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 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.
It was submitted that coal of choice is not a concern of hard coke owners although they may be relevant for traders as linkage still continues, in view of the letter dated 19.05.2005.
Traders:
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 particular having regard to the fact that from each colliery not more 33% per cent could be purchased by one trader, now all lots having been made open to all consumers irrespective of the fact as to whether they belong to the linked core sector or linked non-core sector or others have been allowed to bid in E-Auction along with traders, as a result whereof traders are put to a great disadvantage. In this behalf our attention has been drawn to the fact that both manufacturers of core sector and non-core sectors have been offering their bid in the auctions which is against the concept of fair distribution of an 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 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 to E-Auction which satisfies the test of public interest;
(ii) Materials have been brought on records to show justification of E-Auction; the same is sustainable in law;
(iii) Taking recourse to E-Auction by way of an experiment was made 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 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;
(vi)The Central Government took recourse to the deregulation of coal as it was found that by taking recourse to the linkage, obstructions have been created to free and fair distribution of coal as also the movement thereof. Moreover each consumer must be given equal access thereto;
(vii) Only because the linked consumers would have to pay a higher price, the same by itself cannot be said to be unfair and unreasonable in view of the fact that even in terms of the linked scheme the price of coal was not fixed nor any representation had been made as regards obligations on the part of Coal India Ltd. to supply coal of a specified quantity at a specified price.
(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 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 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.
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 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:
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 circumstances. [See Union of India and Others etc. v. Hindustan Development Corpn. and Others [(1993) 1 SCC 467].
In Gujarat Ambuja Cement Ltd. and Another v. Union of India and Others [(1998) 8 SCC 208], this Court had the occasion to consider the matter relating to fixation of price of coal wherein in terms of the Colliery Control Order, 1945, the quotas thereof were allotted by the Central Government to the consumers.
A Government company having regard to the constitutional scheme, therefore, cannot forsake its public duty [See Hindustan Zinc Ltd. etc. v. Andhra Pradesh State Electricity Board and Others (1991) 3 SCC 299]. It can neither have a private thrust nor aggrandizement of the wealth at the cost of the common man.
In Kerala State Electricity Board v. M/s. S.N. Govinda Prabhu Bros. and Others etc., [(1986) 4 SCC 198], the law was laid down in the following terms :
"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
