M/S Sushila Chemicals P.Ltd.& Anr vs Bharat Coking Coal Ltd.& Ors

M/s Sushila Chemicals Pvt. Ltd. & Anr. ...... Appellants

Versus

Bharat Coking Coal Ltd. & Ors. ...... Respondents

J U D G M E N T

A. K. PATNAIK, J.

Leave granted.

2. These appeals are against the common judgment and

order dated 27.10.2009 passed by the Division Bench of the

Patna High Court in L.P.A Nos.1265 and 1266 of 2009.

3. The relevant facts very briefly are that pursuant to public

advertisements issued by Coal India Limited (respondent No.2

herein) calling upon entrepreneurs to establish coal based

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industries on the basis of technology developed by the Central

Mines, Planning and Design Institute Ltd., the appellants

purchased the technology and established plants for

manufacturing special smokeless fuel during 1990-1991. The

subsidiary of Coal India Limited, Bharat Coking Coal Limited

(for short `BCCL'), the respondent No.1 herein, recommended

grant of linkage of 5,000 MT of coal to the plants of the

appellants and Coal India Limited granted coal linkage to the

appellants and the appellants continued to run their

respective plants and manufacture special smokeless fuel by

processing the coal supplied by BCCL to them. On

18.10.2007, the Government of India, Ministry of Coal

discontinued the traditional linkage system and in its 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, BCCL entered into FSA with the two appellants for

supply of coal. Clause 4.4 of FSA provided that the total

quantity of coal supplied to the appellants under the

3

agreement is meant for use in the plants of the appellants and

the appellants 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, the BCCL shall

terminate the FSA forthwith without any liabilities or damages

whatsoever payable to the appellants. On 07.06.2009, the

Central Bureau of Investigation (for short the `CBI') registered

First Information Report (FIR) against 10 consumers including

the appellants alleging inter alia that the ten 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 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

4 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 appellants and accordingly BCCL

suspended supply of coal to the appellants by a wireless

message dated 13.06.2009. BCCL also issued notices to them

to explain why FSA executed in favour of the appellants

should not be cancelled on the basis of the FIR lodged by the

CBI containing the allegations that the appellants were

involved in a criminal conspiracy leading to the breach of

terms and conditions of FSA.

4. Aggrieved, the appellants filed writ petitions Nos. 8144 of

2009 and 8311 of 2009 before the Patna High Court

challenging the suspension of supply of coal by BCCL to the

appellants by the Wireless Message dated 13.06.2009 and the

learned Single Judge, who heard the writ petitions, held in his

common judgment and order dated 26.08.2009 that clause 13

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of the FSA was the only clause which provided for suspension

of supply of coal to the units of the appellants and this clause

provided that suspension shall be permissible when the

appellants failed to pay any amount towards purchase price or

interest thereon and there was no provision in the FSA for

suspension of supply of coal to the appellants on the ground

that a criminal case has been instituted regarding misuse of

the coal. The Learned Single Judge further held that misuse

of coal by the appellants was however germane as per clause

15 of FSA for termination of the agreement and the General

Manager (S&M) vide his letter dated 16.07.2009 has issued a

show cause to the appellants for termination of the agreement

on the ground of misuse of coal and institution of FIR. The

learned Single Judge, therefore, quashed the order directing

suspension of supply of coal to the appellants and allowed the

writ petitions.

5. The respondents then challenged the common judgment

and order dated 26.08.2009 before the Division Bench of the

Patna High Court in L.P.A. Nos. 1265 and 1266 of 2009 and in

the common judgment and order dated 27.10.2009, the

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Division Bench placed reliance on a judgment of the Division

Bench of the Patna High Court dated 05.07.2002 passed in

M/s. Central Coal Field Limited vs. M/s, Aman Lime Works

(LPA No.701 of 2002) and held that in the larger interest,

resumption of supply of coal cannot be directed by the court

so long as the respondents do not consider the explanation of

the appellants in response to the show cause notice issued by

the respondents and allowed the appeals but directed the

appellants to take a final decision pursuant to the show cause

notice dated 16.07.2009 at an early date.

6. Mr. Jaideep Gupta, learned counsel for the appellants,

submitted that the reasons given by the Division Bench of the

High Court in reversing the order passed by the learned Single

Judge are not correct. He submitted that the plants of the

appellants, admittedly, were manufacturing smokeless fuel

and the object of the FSA executed by the BCCL in favour of

the appellants was to provide coal for the plants of the

appellants manufacturing smokeless fuel and, therefore,

suspension of supplies of coal by BCCL without terminating

the agreement (FSA) is unreasonable and arbitrary and

7

violative of Article 14 of the Constitution and for this reason

the learned Single Judge had quashed the suspension of

supplies of coal by the BCCL to the appellants. He further

submitted that the BCCL suspended supplies of coal to the

plants of the appellants only on the basis of the allegations in

the FIR lodged by the CBI. He argued that as BCCL did not

have sufficient materials in its possession, the suspension of

supplies of coal to the appellants was arbitrary and

unreasonable and violative of Article 14 of the Constitution.

He cited the decisions of this Court in ABL International Ltd. &

Anr. v. Export Credit Guarantee Corporation of India Ltd. & Ors.

[(2004) 3 SCC 553] and Noble Resources Ltd. v. State of Orissa

& Anr. [(2006) 10 SCC 236] for the proposition that a writ

petition was maintainable against the State and its

instrumentalities and functionaries even in contractual

matters of the State if their action is found to be violative of

Article 14 of the Constitution or in the breach of public law or

vitiated by mala fides or ulterior motives.

7. Mr. Gupta next submitted that the learned Single Judge

of the High Court had rightly held that under Clause 13.1 of

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FSA, suspension of coal supply is permitted only on the

limited ground of non-payment of the dues by the appellants

to the BCCL towards amount of the price of the coal and any

interest thereon and not on any other ground and, therefore,

BCCL could not suspend the supply of coal to the appellants

on the mere institution of the criminal case by the FIR lodged

by the CBI. He submitted that after the judgment and order of

the Division Bench of the High Court, the appellants

submitted their explanation in reply to the show-cause notice

dated 16.07.2009 of the BCCL, but the BCCL has passed the

orders on 03.02.2010 holding that the appellants have failed

to submit substantial proof regarding end use of the coal in

their plants for which the coal was delivered as per FSA and

hence resumption of supply of coal to the appellants cannot be

agreed to. He submitted that since the respondents have not

terminated FSA for supply of coal to the appellants this Court

should direct the respondents to resume supply of coal to the

appellants.

8. Mr. Anupam Das, learned counsel for the respondents,

submitted that the FIR lodged by a premier investigating

9

agency like the CBI and the chequered history of the

appellants before the FIR were sufficient for the BCCL to

suspend the supply of coal to the appellants under FSA. He

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 appellants which

vindicate the stand taken by the respondents that the

appellants were diverting coal meant for their plants for sale in

the open market.

9. Mr. Das further submitted that the Division Bench of the

Patna High Court has rightly held that in larger public interest

resumption of supply of coal could not be ordered. He

submitted that in the orders dated 03.02.2010 the BCCL have

taken view that the documents submitted on behalf of the

appellants only prove payment of sales tax and the appellants

have failed to submit substantial proof regarding the end use

of the coal in the plants for which coal was delivered as per

FSA and hence the resumption of supply of coal to the

appellants cannot be agreed to.

10 10. 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

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

appellants under the agreement is meant for use in the plants

of the appellants and the appellants 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

appellants. He submitted that therefore the BCCL can

11

suspend supply of coal to the appellants if the appellants have

not been able to establish that the coal already supplied to the

appellants has been used in the plants of the appellants. He

submitted that Clause 13 of FSA, which provides that if the

appellants 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 appellants, is not exhaustive of

the contingencies in which the BCCL can suspend supply of

coal to the appellants.

11. We have considered the submissions of the learned

counsel for the parties and we are unable to accept the

contention of the appellants that the Division Bench of the

High Court should have sustained the judgment and order of

the learned Single Judge of the High Court quashing the order

suspending the supplies of coal to the appellants under FSA.

The learned Single Judge of the High Court had held that

BCCL could not suspend the supplies of coal to the appellants

on the mere institution of a criminal case by the FIR lodged by

the CBI. The FIR lodged by the CBI contained allegations of

mis-utilization of the allotted coal and sale of the allotted coal

12

by the appellants in the open market. 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

appellants in June 2009 by the CBI officials in the presence of

independent witnesses during which the plants of the

appellants 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 appellants were found to be fake and fabricated as full

particulars, addresses etc. were not provided in the records in

respect of such employees/workers engaged and purchasers of

finished goods and thus the quantity of coal issued to the

appellants-companies was not utilized in their plants but sold

in the black-market. It was thus clear that there were

materials with the CBI in support of the allegations made in

the FIR against the appellants 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

13

the writ petitions filed by the appellants.

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

High Court in reply to the writ petitions filed by the appellants,

Coal India Limited and BCCL have pleaded that under Clause

4.4 of FSA the appellants 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 appellants and this decision was taken

pending a final decision regarding termination of FSA in terms

of Clause 15 thereof. Thus, the case of the respondents herein

before the High Court was that suspension of supply of coal

has been ordered to prevent further diversion of coal by the

appellants. 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

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

(supra) mis-utilization of allotted coal and black-marketing of

such coal by the appellants 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 appellants, 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 appellants

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

open market.

13. 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:

15 "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 appellants

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

by the appellants 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

information received.

14. It is true as has been held by the learned Single Judge of

the High Court that Clause 13(1) of FSA provides that in the

event the appellants 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 appellants, but Clause 13(1) does not

stipulate that in no other contingency the BCCL can suspend

supplies of coal under FSA to the appellants. Moreover,

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

16

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

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

different contingencies in which BCCL can suspend the

supplies of coal to the appellants. In our considered opinion,

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

to the appellants where it has doubts that the appellants 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 decision of

the Government is to allot coal to the appellants 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 the appellants, the

BCCL would be within its rights to suspend the supplies of

coal to the appellants till the doubts are cleared in appropriate

proceedings.

17 15. The Division Bench of the High Court was, therefore,

right in setting aside the judgment and order of the learned

Single Judge quashing the order of the BCCL suspending

supplies of coal to the appellants. We accordingly dismiss

these appeals with liberty to the appellants to challenge the

orders dated 03.02.2010 in which the BCCL has held that the

appellants have failed to submit substantial proof regarding

the end use of the coal in their plants. No costs.

..........................J.

(Altamas Kabir)

..........................J.

(A. K. Patnaik)

New Delhi,

September 15, 2010.