M/S. Skj Coke Industries Ltd. vs Coal India Ltd And Ors. on 7 February, 2020


Supreme Court of India

M/S. Skj Coke Industries Ltd. vs Coal India Ltd And Ors. on 7 February, 2020

Author: Deepak Gupta

Bench: Deepak Gupta, Aniruddha Bose

                                                 (Non-Reportable)
               IN THE SUPREME COURT OF INDIA
                CIVIL APPELLATE JURISDICTION
                 CIVIL APPEAL NO. 8153 OF 2009
M/s. S.K.J. Coke Industries Ltd.& Anr.             ..….Appellants
                             Versus
Coal India Ltd. & Ors.                             …..Respondents


                          JUDGMENT

ANIRUDDHA BOSE, J.

The core dispute in this appeal involves the question as to

whether the appellants were required to pay the price of coal

consumed in their manufacturing process at a preferential rate, known

in the trade parlance as “linked price”, or the price under a Liberalised

Sales Scheme (LSS). The latter pricing mechanism is similar to open

market price of coal. The predecessor in title of the first appellant

were a firm under the trade name Mahabir Coke Industries. At the

material time, they were engaged in production of low ash

metallurgical coal at a location close to Guwahati. They wanted to be

under the preferential pricing regime on the strength of an

Page 1 of 19
arrangement with the respondent coal companies agreed upon in the

year 1989. Under such arrangement Mahabir Coke Industries were

permitted to lift 4000 metric tonnes of coal per month. Traditionally,

the coal industry has been deeply regulated by the Government of

India. The Colliery Control Order, 1945 was one of such regulating

instruments. This Control Order has been replaced by Colliery

Control Order, 2000 with effect from 1st January, 2000 but that factor

is not of much significance so far as the present appeal is concerned.

The basic coal mining industry is nationalised and largely controlled

by the Coal India Ltd., a public sector undertaking. The appellants

were approved linkage of said 4000 metric tonnes of low ash coal

from Tirup and Tikak mines of North Eastern Coalfields (NEC). The

said coal company is a subsidiary of Coal India Limited (CIL). The

linking order was issued on 20th September, 1989. The respondent

coal companies in course of hearing before us have sought to

distinguish between “linkage” and “allocation”. Their stand is that in

the case of the appellants, there was monthly allocation of the said

quantity of coal only for which they cannot claim preferential price.

As cokeries, they were allocated coal suitable for use in steel plants

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subject to availability. The respondents’ case is that linkage at

preferential price is given to the industries or thermal plants out of

coal not suitable for use in steel plants. For that reason, according to

the respondent coal companies, appellants were not given linkage but

allocated specified quantity. Clause 3 of the 1945 Control Order

empowered categorisation and gradation of coal by the Central

Government. Clause 4 thereof authorised the Central Government to

fix different prices of coal for different classes, grades, sizes of coal as

also prices of different collieries.

2. On 16th June 1994, a notification was issued by the Central

Government in pursuance of the aforesaid two Clauses of the 1945

Control Order stipulating the classes and grades in which coal and

coke were to be categorised. That notification also stipulated the sale

prices for such coal, at which they could be sold by the colliery owner

at pitheads. Table I thereof provided gradation with grade

specifications of different types of coal. There was no such grading in

respect of coal produced in the State of Assam and certain other states

in the North Eastern Region in that Table. We shall henceforth refer to

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coal lifted by the appellants as “Assam coal”. The second Table (Table

II) to this notification dealt with sale prices of different types of coal

mainly on the basis of “Useful heat value in kilo calories per

kilogram”. For coal from Assam and that region, price for ungraded

coal with ash content not exceeding 25% was specified to be “not

exceeding Rs.741.00 p.” NEC made provisional declaration of grade

of Assam coal under Clause 3A(1) of the 1945 Control Order on 11 th

June 1997. By a further notification dated 26 th August 1997 the

revised prices thereof were notified. Thereafter, by another

notification dated 24th February 1999, the gradation formalities for

coal produced in Assam and other States in the said region was

completed by effecting suitable amendments to the notification dated

16th June 1994. In Clause 9 (ii) of the 1994 notification, there was

stipulation to the following effect for computing the price of coal

depending upon their ash content:-

“9. (i)…………………..

(ii) In case of coal produced in the State of
Assam, Arunachal Pradesh, Meghalaya
and Nagaland the price payable shall be
increased at the rate of Rs.1/- per tonne for
each percentage of ash by which the ash
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content falls below 22 per cent. Similarly
when ash content exceeds 25 per cent, the
price shall be reduced at the same rate of
Rs. 11 per tonne per cent of ash by which
the ash content exceeds 25 per cent.”

3. The first appellant, whose predecessors were the petitioners

before the First Court continued with receiving coal in terms of the

notification dated 16th June, 1994 at the price stipulated therein till

18th January 1996. Admitted position is that coal lifted by the

appellants had ash content below 25%. From 19 th January 1996, the

price NEC was charging the appellants stood substantially enhanced.

The reason for this, according to the respondent companies, was that a

Liberalised Sales Scheme (LSS) was implemented by the CIL under

authorisation of the Central Government to that effect. The LSS

under which price was enhanced was on the basis of a notification

dated 9th January, 1996. That notification was followed by another

notification dated 11th March, 1996. On the latter date, a Liberalised

Sales Scheme (Modified) was introduced. The notification of 9 th

January, 1996 reads:-

“S.O. 21(E). In pursuance of the provisions of
clause 18 of the Colliery Control Order, 1945,
as continued in force by section 16 of the
Essential Commodities Act, 1995 (10 of 1955),
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the Central Government, having regard to the
stock position of coal, hereby exempts the Coal
India Ltd., Subsidiaries of Coal India Limited
and the Singareni Collieries Company Limited
in respect of coal sold by them under any
Liberalized sale Scheme (LSS) of the
Government of India from the provisions of
clauses 4, 4A and 4B of the said order.

This notification shall remain in force on
and from the date of its publication in the
official Gazette and until the 31st day of March,
1996.”

4. As pleaded in paragraph 22 of the appellant’s writ petition,

clause 2.3 of that Scheme specified that the declaration of source

under “LSS” was not to affect rail loading for linked/sponsored

consumers or coal supplies to road linked/sponsored consumers. The

appellants continued to lift coal under protest on payment of such

higher price. Subsequently on 16th November 1996, the linkage

committee of the Coal India Limited in its 85th meeting took the

following decision under agenda item nos. 23 and 24:

“23. ‘Linkage’ of coal to SSF units & cokery
units –
The Committee deliberated on the agenda
items and decided that SSF units and cokery
units which have been allocated coal by Coal
India Ltd., should be treated as ‘linked unit’, in

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the same manner as other linked industrial units
in the non-core sector. The committee also
decided that-

(a) Coal Clearance Letter/Coal Allocation
Letters issued to SSF units and Cokery units
should be treated as ‘Linkage Advice Letters’
which are issued to other non-core sector units;

(b) The present system of capacity
assessment for SSF units by CMPOI and cokery
units by a joint team of officers from Coal
Co/CMPOI/CIL, should continue;

(c) All cokery units should be required to
obtain sponsorship/recommendation letters from
the concerned State Govts., in the same manner
as sponsorship/recommendation is required for
other non-core sector units.

24. Case of M/s Mahabir Coke Industries,
Guwahati, Assam-

The agenda item was discussed by the
Committee. As already decided in the previous
agenda item (i.e. item No.23), all cokery units
and SSF units who have been allocated coal by
CIL, should be treated as ‘linked’ units.
Regarding the ‘price’ to be charged for supply
of low ash coal to M/s. Mahabir Coke
Industries, Guwahati, this matter should be
decided by NEC-Assam as prevalent at any
point of time.”

5. On 12th March, 1997, a notification was issued by the Central

Government in substance deleting clause 4 of the Control Order of

Page 7 of 19
1945 from the notification dated 16th June 1994. The relevant

portion of the notification dated 12th March 1997 stipulated:-

“S.O. 190 (E). – In pursuance of clauses 3 and 4
of the Colliery Control Order, 1945, as
continued in force by Section 16 of the Essential
Commodities Act, 1955 (10 of 1955), the
Central Government hereby makes the
following further amendments to the
notification of the Government of India in the
Ministry of Coal No.S.O.- -453(E) dated the 16th
June, 1994 on and from the date of publication
of this notification in the Official Gazette,
namely:-

In the said Notification:-

(a) in the preamble:-

(i) for the words and figures “clauses 3
and 4”, the word and figure “clause 3”
shall be substituted,

(ii) the words and figures “and fixes in
Tables II, V and VI below the sale price
at which coal or coke may be sold by
the colliery owners at pit-heads” shall
be omitted.

(b) Table II relating to non-cooking coal, Table
V relating to hard coke, Table VI relating to soft
coke and the Notes and the Annexure thereunder
shall be omitted.”

6. The appellants founded their writ petition projecting them as

“linked consumer” and contended that they were to pay the price of

Page 8 of 19
coal not beyond that notified on 16 th June 1994. The reliefs asked for

in their petition included a prayer for writ in the nature of mandamus

commanding CIL and NEC to charge the appellants notified price as

applicable to linked or sponsored units. Prayer was also made for

refund of excess sum realised from them as LSS price.

7. Before the First Court, the respondents had run a case that till

12th March, 1997, price for NEC coal was fixed by the Government of

India for linked consumers. It has been submitted before us on behalf

of the coal companies that till 18th January 1996, prices for the linked

consumers and for the consumers lifting coal on allocation had

remained the same. For those other than linked consumers, price was

fixed by the CIL with effect from 19th January, 1996 in accordance

with the LSS as from that point of time, these coal companies were

exempted from Clause 4 of the 1945 Control Order.

8. The main point argued on behalf of the appellants before the

First Court was that in not charging the appellants coal price as

applicable to a linked unit, the authorities had ignored the resolution

adopted in the 85th meeting of the Linkage Committee for non-core

sector consumers. As a corollary, the appellants contended that they
Page 9 of 19
were not obliged to pay the LSS price as enhanced from 19 th January,

1996. The First Court, however, rejected such plea referring to the

second part of the aforesaid resolution of the Linkage Committee.

Under that part, the appellants were required to pay the “price

prevalent at any point of time”. The case of the appellants that “price”

referred to in that part was “linkage price” was not accepted by the

First Court. The reasoning of the First Court would appear from the

following passage of the judgment:-

“After taking into consideration all relevant
facts and circumstances and having regard to the
submission made by learned counsel for the
parties, this Court, however, finds it difficult to
appreciate the grievance raised herein on behalf
of the writ petitioner. The very basis of the
claim of the writ petitioner, as referred to earlier,
is the resolution adopted in the 85th meeting. It
was specifically mentioned that while the
petitioner could be treated as a linked unit, the
price was to be charged as decided by the NEC,
Assam as prevalent at any point of time.”

9. The stand of the appellants before the Division Bench was that

since Assam coal remained ungraded under the 16th June 1994

notification and the relevant entry in the Table I was removed only on

24th February 1999, the coal companies did not have authority to

Page 10 of 19
grade the coal prior to that date. Before the Division Bench,

appellants’ case was that since there was no specification as regards

gradation under Clause 3 by the Central Government, the coal

companies could not have had exercised their power for such

gradation as also price specification in terms of Clause 3A thereof.

The authority cited before the Division Bench of the High Court was

the case of Ashoka Smokeless Coal India Pvt. Ltd. vs. Union of

India [(2007) 2 SCC 640]. This judgment has been referred to before

us also in support of the argument of the appellants that there could be

no pricing discrimination in respect of two sets of non-core

consumers. This was a case where constitutionality of e-auction

system was challenged and that was the focus of that decision.

Paragraph 161 of the said report was relied upon before us in which it

has been held and observed:

“161. The effect is that today, while the core
sector (92%) on its own and non-core non-
linked SSI/tiny units (through NCCF/other
agencies) (1%) are being supplied coal at a fixed
price, on the other hand, the non-core linked
SSI/tiny units (4%) are being subjected to
differential treatment, without any rational
classification, by supplying the coal to the latter
on the price to be ascertained by the trader-

Page 11 of 19

controlled process of e-auction and thereby
putting the petitioner units on a par with the
trader. The scheme of e-auction is, therefore,
ultra vires Article 14 of the Constitution of
India.”

10. The Division Bench of the High Court in appeal instituted by

the appellants found that the said decision did not have any impact so

far as appellant’s claim was concerned once the dual system of pricing

was found to be acceptable. This is the judgment which is under

appeal before us. We also confirm this view of the Appellate Bench as

we find such view to be the correct view so far as applicability of the

ratio of the case of Ashoka Smokeless Coal India (supra) is

concerned.

11. It has also been urged before us on behalf of the appellants that

in the Resolution of 16th November 1996, the appellants had been

specifically referred to as “linked consumer” and in that context the

expression “price” as contained in the second part of the Resolution

ought to imply the price for linked consumers only. The case of CCT,

Ranchi and Another Vs. Swarn Rekha Cokes and Coals (P) Ltd.

and Others [(2004) 6 SCC 689] was relied upon by the learned

Page 12 of 19
counsel for the appellants mainly for interpretation of the aforesaid

Resolution (agenda item no.24). The appellants seek to contend that

while interpreting a provision by which a legal fiction is created, the

Court must ascertain the purpose for which the fiction was created

and having done so, Court should assume those facts and

consequences exist, which are incidental to and inevitable corollaries

for giving effect to such fiction. The rationale behind the appellants’

citing this decision is the wording of the aforesaid Resolution of 16 th

November 1996. It has been specified in agenda items 23 and 24 of

that Resolution that all cokery units which have been allocated coal

by CIL ought to be treated as linked units. The appellants have argued

that once they were treated as a linked unit, the price benefit attached

to a linked unit should automatically follow. From the said

Resolution, however, we find a specific agenda item concerning the

first appellant, and the Resolution as adopted specifically stipulates

that the price to be charged from the appellants was to be decided by

the NEC Assam as prevalent at any point of time. In view of this

specific treatment of pricing along with reference to the first appellant

as a linked unit, in our opinion, said Resolution has to be construed to

Page 13 of 19
mean that treatment of the appellant as a linked unit was for the

purpose of regular supply of coal and the pricing factor was separated

from such deemed linking. This would be apparent from the decision

taken against agenda item no.23, in which reference has been made to

SSF units and cokery units which had been allocated (emphasis

supplied) coal, and it was these units which were to be treated as

linked units. The distinction between “allocation” and “linking”

clearly emerges from the said decision of the linking committee. It is

a fact that the first appellant’s treatment as a linked unit was a fiction.

But such fiction was replaced by reality on the basis of a specific

provision in the Resolution (agenda item no.24) so far as pricing is

concerned. As the Resolution dealt with “linking” and “pricing”

separately, the fictional linking could not be extended to actual

pricing. The respondents have taken consistent plea that the

expression “linked” has been loosely used and for non-core sector

units, it meant allocation of specified quantity of coal only. In

paragraphs 16 and 17 of NEC’s affidavit-in-opposition to the writ

petition, it has been stated:-

Page 14 of 19
“16. At the said meeting, the decision was
taken to treat SSF and cokery units including
Mahabir Coke as a “linked units”. Such
treatment as a linked unit do not mean grant of
actual linkage. So, Mahabir Coke cannot claim
to be a linked unit. The advantage of being
treated as a linked unit was that Mahabir Coke
will be assured for monthly supply of 4000 MT
coal per month by NEC. The said
resolution/decision also provides that the price
to be charged for supply of low ash coal to
Mahabir Coke will be decided by NEC on the
basis of price prevalent at any point of time i.e.
current price prevailing at the time of supply.

17. There are nearly 200 Cokery units, in India
out of them only three cokery unit, including
cokery unit of Mahabir Coke, are located at
Assam. Mahabir Coke, along with other two
cokery units have been getting low ash Assam
coal which is of superior grade than what the
other cookeries of all over India have been
getting from their respective coal companies.
Normally all other cookeries are getting the
higher ash content coal. The other cookeries
located outside Assam get coal having ash
content of 25 – 30%, whereas the cookeries
located in Assam are getting low ash coal of
NEC having ash content of only 7%. The other
cookeries located outside Assam take supply of
low ash coal from NEC, under LSS for blending
the same with higher ash content coal which
they have been getting from other coal
companies. All other cookeries including three
cookeries of Assam, who are buying the same
low ash coal as supplied to Mahabir Coke, have
been paying the LSS price as notified from time
to time.”

Page 15 of 19

12. Learned counsel for the appellants has brought to our notice the

following observations of the Division Bench in different parts of the

judgment:-

“At the time the Linkage Committee stipulated
that the price payable by the appellant company
would be as per the prevailing rate to be decided
by the fifth Respondent, no coal company had
any authority to supersede the price fixed by the
Central Government by a notification issued
under the Colliery Control Order, 1945. At the
highest, such conditional treatment of the
appellant company as a linked unit, could come
into play only if the price of coal was
deregulated by the Central Government; ipso
facto by reason of the Linkage Committee
decision of November 16, 1995 the appellant
company could not be charged at a rate in
derogation of what the Central Government
notified.”
xx xx xx xx xx xx
“The price of Assam coal at Rs. 741/- per MT
(subject to the variation on account of ash
content) became inoperative upon the
notification of March 12, 1997.”
xx xx xx xx xx xx
“The appellants remain liable to pay the
difference in price on the basis of price fixed by
the respondents subsequent to the notification of
March 12, 1997.”

Page 16 of 19

13. In our opinion, the exemption granted by the Central

Government by the notification dated 9th January, 1996 to Coal India

and their subsidiaries from the provisions of Clauses 4, 4A and 4B of

the 1945 Control Order in respect of sale of coal under LSS, the fetter

imposed by the aforesaid notification of June 1994 got effectively

removed. Specific stand taken by the respondents is that the linking

of the first appellant was only in respect of the quantum of coal to be

obtained by them and they were not entitled to price benefits of linked

consumers. For the appellants, it was only a case of allocation. Thus,

the point of time from when the appellants became liable to pay LSS

rate would be the time when LSS price was raised after 9 th January

1996. Prior to that date, we have already reproduced the coal

companies’ submission that the linked price and non-linked price had

remained the same. So far as the aforesaid observations in the

impugned judgment is concerned, such reasoning does not appear to

us to be correct. But our views on this point would not advance the

case of the appellants. That is so because in our opinion, it was within

the power of the NEC to enhance the price for LSS consumers upon

Page 17 of 19
CIL and their subsidiaries being exempted from Clause 4 of the 1945

Control Order on and from 9th January 1996.

14. It appears that a liberalised pricing system has been prevailing

since the year 1993. We find no reason to disbelieve the coal

companies when they assert that there was only allocation of coal in

favour of the first appellant. Thus the appellants did not have vested

legal right to preferential pricing as linked consumers. The 9 th

January 1996 notification empowered Coal India Ltd. and their

subsidiaries to charge price to consumers beyond that notified on 16 th

June 1994 in respect of Assam coal. The appellants were in the non-

core sector. Around that point of time only parity between LSS price

and linked price was broken and the first appellant was required to

pay the LSS price. So far as allocation is concerned, the agenda 24 of

the 85th meeting of the linkage committee retained the supply volume.

But that Resolution is in tune with the NEC’s stand taken before us

that LSS price ought to be charged to the appellants. The factual

argument of the appellants that the two other cokery units in Assam

were not linked, are of no relevance. The appellants have not been

able to sustain a case before us that their linking agreement covered

Page 18 of 19
both allocation and pricing as is the case of other linked consumers.

So far as the other cokery units are concerned, it has been clarified by

the learned counsel for the coal companies that they lift coal of high

ash content between 25-30% which would automatically take them

out of the price advantage specified in Table II of the 1994

notification. We accordingly do not find any reason to set aside the

judgment of the Division Bench.

15. The appeal is accordingly dismissed. No order as to costs. The

interim orders, if any, shall stand dissolved.

…………….………..…..J.

(Deepak Gupta)

………………………….J.

(Aniruddha Bose)
New Delhi,
Dated: 7th February, 2020.

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