M/S Coal India Limited & Ors vs Alok Fuels(P) Ltd.Tr.Dir

M/s Coal India Limited & Ors., Etc. Etc. ...... Appellants

Versus

Alok Fuels (P) Ltd., Th. Director, Etc. Etc Respondents ...... WITH CIVIL APPEAL NO._8035___ of 2010 (Arising out of S.L.P. (C) No. 26612 of 2010) [CC No.5452 of 2010]

CIVIL APPEAL NO._8036____ of 2010 (Arising out of S.L.P. (C) No. 26615 of 2010) [CC No.5459 of 2010]

CIVIL APPEAL NO._8040__ of 2010 (Arising out of S.L.P. (C) No.11307 of 2010)

CIVIL APPEAL NO._8041_ of 2010 (Arising out of S.L.P. (C) No.11311 of 2010)

CIVIL APPEAL NO.__8042___ of 2010 (Arising out of S.L.P. (C) No.11343 of 2010)

AND

CIVIL APPEAL NO.__8039____ of 2010 (Arising out of S.L.P. (C) No.11349 of 2010)

JUDGMENT

2

A. K. PATNAIK, J.

Delay in filing Special Leave Petitions arising out of CC

Nos. 5440, 5452 and 5459 of 2010 is condoned.

2. Leave granted.

3. These appeals are against the interim orders dated

06.10.2009 passed by the learned Single Judge of the High

Court of Jharkhand in W.P.(C) Nos.2948 of 2009, 3536 of

2009 and 3080 of 2009 and the final order dated 07.01.2010

of the Division Bench of the Jharkhand High Court in L.P.A

Nos. 484 of 2009, 485 of 2009, 486 of 2009 and 523 of 2009.

Since common issues of fact and law arise for decision in this

batch of cases, we are disposing of these appeals by this

common judgment.

4. The relevant facts very briefly are that the respondents

were granted linkage of different quantities of coal for

utilization in the manufacture of smokeless fuel in their

plants. On 18.10.2007, the Government of India, Ministry of

Coal discontinued the traditional linkage system and in its 3

place adopted a new coal distribution policy under which coal

was to be supplied to different consumers through a Fuel

Supply Agreement (for short `FSA') at notified prices to be fixed

and declared by Coal India Limited. In accordance with this

new policy, Bharat Coking Coal Limited (for short the `BCCL'),

a subsidiary of Coal India Limited, entered into FSA with the

respondents for supply of coal. Clause 4.4 of FSA provided

that the total quantity of coal supplied to the respondents

under the agreement is meant for use in the plant of the

respondents and the respondents shall not sell or divert or

transfer the coal for any purpose whatsoever and in the event

they engage or plan to engage into any such re-sale or trade,

BCCL shall terminate the FSA forthwith without any liabilities

or damages whatsoever payable to the respondents. On

07.06.2009, the Central Bureau of Investigation (for short the

`CBI') registered First Information Report (FIR) against 10

consumers including the respondents alleging inter alia that

the 10 consumers entered into a criminal conspiracy with Shri

Udayan Bhattacharya, the then General Manager (S&M) of

BCCL and in furtherance thereof, lifted 11,94,940 tonnes of 4

coal and instead of utilizing the same in their respective

plants, sold the same in the open market at higher prices and

as a result BCCL has suffered a loss of Rs.4,36,15,300/-

approximately and the accused have made corresponding

wrongful gain to themselves. In the FIR, the CBI further

stated that the facts disclosed the commission of offences

punishable under Section 120-B read with Sections 420, 467,

471 of the Indian Penal Code (for short `IPC') and Section 13(2)

read with Section 13(d) of the Prevention of Corruption Act,

1988 by Shri Udayan Bhattacharya and the proprietors of

different consumer firms and, therefore, a criminal case be

registered and the investigation be taken up. The Chairman of

the Coal India Limited thereafter advised the Chairman-cum-

Managing Director of BCCL to suspend supply of coal to the

firms named in the FIR including the respondents and

accordingly BCCL suspended supply of coal to the

respondents by a wireless message dated 13.06.2009.

5. Aggrieved, the respondents filed the Writ Petitions in the

High Court of Jharkhand at Ranchi praying for quashing the 5

communications suspending the supply of coal to the

respondents under FSA and also praying for interim orders

directing BCCL to resume supply of coal. On 06.10.2009, the

learned Single Judge of the Jharkhand High Court passed the

impugned interim orders directing resumption of supply of

coal to the respondents on the ground that there was no

material placed by the BCCL to show that there was any kind

of black marketing done by the respondents or any kind of

mis-utilization of the allotted coal by them. The appellants

herein challenged the interim orders dated 06.10.2009 of the

learned Single Judge before the Division Bench in the LPAs.

By order dated 07.01.2010 the Division Bench dismissed the

LPAs with the liberty to the appellants to file applications for

vacating the interim orders as soon as the appellants are able

to procure adverse material against the respondents and in

the alternative passed orders terminating FSA with the

respondents.

6. Mr. Anupam Lal Das, learned Counsel for the appellants,

submitted that the learned Single Judge of the High Court by

directing resumption of supply of coal to the respondents had 6

granted a final relief to the respondents by interlocutory orders

and this was not permissible in law. He further submitted

that the only reason given by the learned Single Judge for

passing the interlocutory order directing resumption of supply

of coal was that there were no materials other than the FIR

lodged by the CBI to show that any kind of black marketing

was done or any kind of mis-utilization of allotted coal was

made by the respondents. He submitted that the FIR lodged

by a premier investigating agency like the CBI and the

chequered history of the respondents before the FIR were

sufficient materials to suspend the supply of coal to the

respondents. He further submitted that in any case

investigation into the allegations made in the FIR has already

been completed by the CBI and charge sheet has been filed

against the respondents which vindicate the stand taken by

the appellants that the respondents were diverting coal meant

for their plants for sale in the open market.

7. Mr. Das further submitted that two of the consumers to

whom the supply of coal was similarly suspended, namely,

M/s Sushila Chemicals Pvt. Ltd. and M/s Magadh Smokeless 7

Fuel Co. moved the Patna High Court in two separate Writ

Petitions and the learned Single Judge of the Patna High Court

passed a common order dated 26.08.2009 allowing the Writ

Petitions with a finding that the investigation of criminal case

or allegations of misuse of coal is no ground for suspension of

coal supply under FSA, but the appellants filed LPA Nos.

1265 of 2009 and 1266 of 2009 before the Division Bench of

the Patna High Court and the Division Bench held that in

larger public interest resumption of supply of coal could not be

ordered so long as the appellants do not consider the show

cause of the Writ Petitioners and taken a final view on merits.

He submitted that similarly some other consumers, namely,

M/s Pratap Fuel Industries and M/s National Fuels Industry

moved the Allahabad High Court in Civil Miscellaneous Writ

Petition Nos. 33576 of 2009 and 36430 of 2009 against the

suspension of supply of coal under FSA and the Division

Bench of the Allahabad High Court held that the order

suspending the supply of coal to the two consumers passed by

the appellants herein needed no interference by the Court in

its extraordinary jurisdiction and instead directed the 8

appellants herein to consider the explanations of the two

consumers furnished in reply to show cause notices dated

16.07.2008 and take a final decision in the matter. He

submitted that although the orders passed by the Patna High

Court and the Allahabad High Court were cited before the

Division Bench of the Jharkhand High Court, the same had

not been referred to or dealt with in the impugned orders

passed by the Division Bench of the Jharkhand High Court in

the LPAs. He submitted that an anomalous situation now

prevails with regard to supply of coal to the 10 consumers

against whom the CBI has lodged the FIR. Those consumers

who moved the Patna High Court and the Allahabad High

Court are not getting the supply of coal under FSA, whereas

those consumers who moved the Jharkhand High Court and

in whose favour the Jharkhand High Court has passed orders

would be entitled to supply of coal under FSA, though the two

classes of consumers are similarly situated.

8. Mr. Das cited the observations of this Court in Ashoka

Smokeless Coal India (P) Ltd. & Ors. Vs. Union of India & Ors.

[(2007) 2 SCC 640] in Para 188 at Page 703 on the need to 9

control black marketing and mis-utilization of coal. He

submitted that it is pursuant to these observations of this

Court that the new coal distribution policy has been framed to

discontinue the Linkage System which could not check the

menace of black marketing and diversion of coal to the open

market and supply of coal on strict terms and conditions

stipulated in FSA to the consumers has been contemplated to

ensure proper utilization of the coal in the plants. He

submitted that this is why in Clause 4.4 of the FSA it is clearly

provided that the total quantity of coal supplied to the

respondents under the agreement is meant for use in the

plants of the respondents and the respondents shall not

sell/divert and/or transfer the coal for any purpose

whatsoever and in the event they engage or plans to engage

into any such resale or trade, the BCCL shall terminate the

FSA forthwith without any liabilities and damages whatsoever

payable to the respondents. He submitted that therefore the

BCCL can suspend supply of coal to the respondents if the

respondents have not been able to establish that the coal

already supplied to the respondents has been used in the 10

plants of the respondents. He submitted that Clause 13 of

FSA, which provides that if the respondents fail to pay any

amount including any interest due to the BCCL towards

purchase price of the coal the BCCL can suspend supply of

coal to the respondents, is not exhaustive of the contingencies

in which the BCCL can suspend supply of coal to the

respondents. He submitted that the learned Single Judge and

the Division Bench of the Jharkhand High Court have lost

sight of these provisions of FSA made in the public interest

while passing the impugned orders.

9. Mr. M.L. Varma, learned Senior Counsel appearing for

the respondent M/s Alok Fuels (P) Ltd. submitted that the

case of the respondent before the High Court was that

supplies of coal to the respondent was suspended arbitrarily

and in violation of Article 14. He submitted that the industry

of the respondent was functional as would be evident from the

report of the General Manager, District Industry Centre before

the Punjab & Haryana High Court in Civil Writ Petition No.

9863 of 2008. He further submitted that no materials were

produced by the appellants before the learned Single Judge or 11

the Division Bench despite opportunity being given to the

appellants to produce materials against the respondent. He

further submitted that no opportunity has been given to the

respondent to explain and rebut the materials now found and

filed alongwith the charge sheet against the respondents by

the CBI.

10. Mr. Ranjeet Kumar, learned Senior Counsel, appearing for

the respondent M/s Faridabad Industries, on the other hand,

supported the impugned orders passed by the learned Single

Judge and the Division Bench of the High Court and

submitted that besides the FIR lodged by the CBI, no other

material whatsoever was placed by the appellants before the

High Court to show that the respondents M/s Faridabad

Industries diverted coal from its plant and sold the same in

the open market. He submitted that due opportunity was

given by the learned Single Judge of the High Court by the

order dated 15.07.2009 to the appellants about materials

which were in their possession on the date on which supply

was directed to be suspended but despite such opportunity,

the appellants did not produce any material whatsoever before 12

the High Court to show that the respondent M/s Faridabad

Industries has resorted to any black marketing or sale in the

open market or had diverted coal from its plant. He submitted

that supply of coal to the respondent M/s Faridabad

Industries was very essential for its industry and business and

suspension of supply of coal to the industry of the respondent

could not be allowed by the Court for an indefinite period of

time and therefore the learned Single Judge of the High Court

had rightly passed the interlocutory order directing the

appellants to resume supply of coal to the respondents.

11. Mr. U.U. Lalit, learned Senior Counsel appearing for the

respondent M/s Ajay & Company Fuel Product adopted the

submissions of Mr. Ranjeet Kumar and further submitted that

it will be clear from Para 2 of the Additional Affidavit filed on

behalf of the appellant on 10.05.2010 in SLP (C) No. 11307 of

2010 that prior to the new coal distribution policy introduced

w.e.f. 18.10.2007, there were 230 national consumers and 94

Cokeries and Cokery-cum-Washery units drawing coal from

BCCL, but after introduction of this new policy on 18.10.2007,

only five consumers other than private cokery units were 13

found suitable for execution of FSA under the new coal

distribution policy. He submitted that the respondent M/s

Ajay & Company Fuel Product was one of these five consumers

found suitable for execution of FSA and at this stage a stand

cannot be taken by the appellants that M/s Ajay & Company

Fuel Product was not suitable for supply of coal under FSA.

12. Mr. S.B. Upadhyay, learned Senior Counsel, appearing for

the respondent M/s M.G.M. Contrade Pvt. Ltd. adopted the

arguments of Mr. Ranjit Kumar and further submitted that

Clause 13 of the FSA executed by BCCL in favour of M/s.

M.G.M. Contrade Pvt. Ltd., stipulated that BCCL could

suspend supplies of coal to the respondent if the respondent

fails to pay any amount including any interest to BCCL under

FSA. He submitted that the supply of coal to the respondent

therefore could not be suspended on any ground other than

the failure on the part of the respondent to pay any amount or

interest due to the BCCL under FSA. He submitted that

suspension of supply of coal by the petitioner to the

respondent pursuant to the FIR lodged by the CBI is,

therefore, in breach of Clause 13 of the FSA. He referred to 14

the observations of this Court in Para 189 in the case Ashoka

Smokeless Coal India (P) Ltd. & Ors. Vs. Union of India & Ors.

(Supra) that inspection should be carried out by the officers

appointed by the Chairman cum Managing Director of the

company concerned within whose jurisdiction the unit is

located before entering into any agreement for supply of coal to

ensure the genuineness of the unit. According to Mr.

Upadhyay, since FSA has been executed in favour of the

respondent after all such inspection and scrutiny, the

appellants cannot at this stage take the stand that the unit of

the respondent is not genuine.

13. We have considered the submissions of learned counsel

for the parties and we find that the only reason why the

learned Single Judge of the High Court has by the impugned

interim orders directed the appellants to resume supplies of

coal under FSA to the respondents is that BCCL has not

placed any material before the Court to show that there was

any kind of black-marketing of coal done by the respondents

or any kind of mis-utilization of the allotted coal by them and

this is also the reason given by the Division Bench of the High 15

Court for dismissing the LPAs filed by the appellants against

the impugned interim orders passed by the learned Single

Judge. What the learned Single Judge and the Division Bench

of the High Court failed to appreciate is that the FIR

containing the allegations of mis-utilization of the allotted coal

and sale of the allocated coal by the respondents in the open

market was lodged by the CBI and therefore the CBI and not

the BCCL was in possession of information or materials with

regard to such mis-utilization of the allotted coal or sale of the

coal in the open market by the respondents. As a matter of

fact in the charge-sheet which has been filed after

investigation in the Court of Special Judge, CBI cases,

Dhanbad, it is stated that a search was conducted at the plant

premises of the respondents in June 2009 by the CBI officials

in presence of independent witnesses during which the plants

of the respondents were found to be non-functional and the

names of employees / workers as per the Attendance Register

as well as other documents relating to sale of finished goods as

produced by the respondents were found to be fake and

fabricated as full particulars, addresses etc. were not provided 16

in the records in respect of such employees / workers engaged

and purchasers of finished goods and thus the quantity of coal

issued to the respondent-companies were not utilized in their

plants but sold in black-market. It was thus clear that there

were materials with the CBI in support of the allegations made

in the FIR against the respondents that they were not utilizing

the allotted coal in their plants but were selling the same in

black-market, but these materials could not be placed before

the Court because the CBI was not impleaded as a respondent

in the writ petitions filed by the respondents.

14. We further find that in the counter-affidavit filed in the

High Court in reply to the writ petitions filed by the

respondents, Coal India Limited and BCCL have pleaded that

under Clause 4.4 of FSA the respondents were required to

utilize the entire quantity of coal allotted to them in their

respective plants and had undertaken not to sell / divert /

transfer the coal for any purpose whatsoever and as the FIR

lodged by the CBI disclosed breach of this clause of FSA, Coal

India Limited and BCCL had to suspend the supplies of coal to

prevent further diversion of coal by the respondents and this 17

decision was taken pending a final decision regarding

termination of FSA in terms of Clause 15 thereof. Thus the

case of the appellants herein before the High Court was that

suspension of supply of coal has been ordered to prevent

further diversion of coal by the respondents. The Coal India

Limited and BCCL are Government Companies of the

Government of India and are bound by the policy decisions of

the Government of India, Ministry of Coal, and since under the

New Coal Distribution Policy formulated pursuant to the

observations of this Court in Ashoka Smokeless Coal India (P)

Ltd. & Ors. Vs. Union of India & Ors. (Supra), mis-utilization of

allotted coal and black-marketing of such coal by the

respondents was to be checked, the Coal India Limited and

BCCL did not act arbitrarily or unreasonably to suspend the

supplies of coal under FSA to the respondents, if they

entertained a serious doubt on the basis of the FIR lodged by

the CBI that the supplies of coal, if made to the respondents,

may be mis-utilized by the respondents and may be sold in the

open market.

18

15. It is settled by a series of decisions of this Court starting

from Kumari Shrilekha Vidyarthi v. State of U.P. [(1991) 1 SCC

537] that even in the domain of contractual matters, the High

Court can entertain a writ petition on the ground of violation

of Article 14 of the Constitution when the impugned act of the

State or its instrumentality is arbitrary, unfair or

unreasonable or in breach of obligations under public law. In

Sterling Computers Ltd. v. M/s M & N Publications Limited and

Others [(1993) 1 SCC 445] in para 28, however, this Court

held:

"Public authorities are essentially different from those of private persons. Even while taking decision in respect of commercial transactions a public authority must be guided by relevant considerations and not by irrelevant ones."

Obviously, one such relevant consideration which the Coal

India Limited and BCCL as public authorities have to consider

is whether continuation of supply of coal to the respondents

may not lead to mis-utilization or black-marketing of the coal

by the respondents which are prohibited under FSA and the

policy decision of the Government considering the allegations

made by the CBI in the FIR on the basis of the reliable 19

information received. This relevant aspect has not been

considered by either the learned Single Judge or the High

Court while passing the impugned interim orders or by the

Division Bench of the High Court while dismissing the LPAs

against the impugned interim orders of the learned Single

Judge.

16. It is true as has been contended on behalf of the

respondents that Clause 13(1) of FSA provides that in the

event respondents fail to pay any amount including any

interest due to BCCL under FSA within a period of 30 days of

the same falling due, BCCL shall have the right to suspend

supplies of coal to the respondents, but Clause 13(1) does not

stipulate that in no other contingency BCCL can suspend

supplies of coal under FSA to the respondents. Moreover,

Clause 13(1) of FSA enumerates the three options available to

BCCL in case the dues towards the price of coal and interest is

not paid by the respondents and it does not provide for the

different contingencies in which BCCL can suspend the

supplies of coal to the respondents. In our considered opinion

BCCL will also have the right to suspend supplies of coal to 20

the respondents where it has doubts that the respondents may

mis-utilize the allotted coal and divert or sell the same in open

market because, as would be clear from Clause 4.4 of the FSA

and the new Coal Distribution Policy decision dated

18.10.2007, the very object of FSA as well as policy of the

Government is to allot coal to respondents for utilization in

their plants and not for any other purpose. Therefore, if the

FIR lodged by the CBI, which is a premier investigation agency

of the Central Government, created serious doubts that the

allotted coal may be diverted or sold in the open market

instead of being utilized in the plants of respondents, BCCL

would be within its rights to suspend the supplies of coal to

the respondents till the doubts are cleared in appropriate

proceedings.

17. We, however, find that BCCL has initiated such

proceedings by issuing show cause notices dated 16.07.2009

to the respondents to explain why FSA executed in favour of

the respondents should not be cancelled on the basis of the

FIR lodged by the CBI containing the allegations that the

respondents were involved in a criminal conspiracy leading to 21

the breach of terms and conditions of FSA. If the respondents

have furnished their explanations, BCCL may consider the

same and take a decision whether or not to resume supplies of

coal in accordance with law.

18. We, therefore, hold that the learned Single Judge and the

Division Bench of the High Court were therefore not right in

directing BCCL to resume the supplies of coal to the

respondents and accordingly set-aside the impugned orders

dated 06.10.2009 of the learned Single Judge and dated

07.01.2010 of the Division Bench of the High Court and allow

these appeals with no order as to costs.

..........................J. (Altamas Kabir)

..........................J. (A. K. Patnaik) New Delhi, September 15, 2010.

22