Holding

The E‑Auction scheme is unconstitutional and ultra vires as it arbitrarily determines price and allocation of coal, violating Article 14 and the statutory duty to fix a reasonable price for an essential commodity.

Summary

The Supreme Court examined the constitutionality of Coal India Ltd.'s electronic auction (E‑Auction) scheme for allocating coal to non‑core sector consumers. The petitioners argued that coal is an essential commodity and that the scheme's variable pricing, lack of a fixed price, and inclusion of core‑sector entities violated Article 14 and the constitutional mandate of equitable distribution under Article 39(b). The Court held that the methodology of E‑Auction was inequitable, irrational and fortuitous, that the Central Government could not issue directions for disposal of coal under the Colliery Control Order, and that coal companies, as public authorities, have a statutory duty to fix a reasonable price. Consequently, the E‑Auction scheme was declared ultra vires and set aside. The Court dismissed the appeals of the coal companies and allowed the petitioners' relief.

Issues considered

The E‑Auction scheme for coal allocation violates Article 14 of the Constitution.
The Central Government has authority under the Colliery Control Order, 2000 to regulate supply but not price fixation of coal.
Whether coal companies, as public sector monopolies, are constitutionally obligated to fix a reasonable price for coal under the Essential Commodities Act.
Whether a variable, auction‑determined price for an essential commodity is permissible.
Whether the policy decision of introducing E‑Auction is subject to judicial review.
Applicability of doctrines of legitimate expectation, promissory estoppel, and public necessity to the scheme.

Legislation cited

Coal Mines (Nationalisation) Act, 1973
Coking Coal Mines (Nationalisation) Act, 1972
Constitution of Indias. Article 12, s. Article 14, s. Article 19(6), s. Article 298, s. Article 39(b), s. Article 77
Essential Commodities Act, 1955s. 2(ii), s. 3(1), s. 3(2)(c)
Industrial Development and Regulation Act, 1951
Mines and Minerals (Regulation and Development) Act, 1957

Subjects

essential commoditycoalE‑Auctionprice fixationArticle 14Article 39(b)Directive Principlespublic sector monopolyjudicial reviewdual pricinglegitimate expectationpromissory estoppelpublic necessity

Judgment

A M/S ASHOKA SMOKELESS COAL IND. P. LTD. AND ORS.
v.
UNION OF INDIA AND ORS.

DECEMBER 1, 2006

B [S.B. SINHA AND P.P. NAOLEKAR, JJ.]

Coal-Price fi:xation-Of essential commodity (coal)-Coking coal mines
and coal mines subjected to nationalisation-Subsequntly price and distribution
C thereof deregulated by Government-Price fixation left to coal companies-
Introduction of Scheme of £-Auction-Agencies of the Central Government
and the State Governments kept out ofthe purview ofE-Auction-For promotion
ofmanufacture ofspecial smokeless fuel, advertisements inviting entrepreneurs
to manufacture the same, assuring them to provide them coal and the
manufacturing technology-Pursuant thereto, plants for manufacturing
D smokeless coal set up-Validity of the scheme of £-Auction-Held: The
methodology for allocation of coal to a bidder of £-Auction is in equitable,
irrational andfortuitous-Central Government while exercising its power under
Colliery Central Order, could not have issued any direction in the garb of
disposal of coal by wcry of £-Auction-The Coal Companies were under a
E constitutional obligation to fix a reasonable price-While fi:xing a fair and
reasonable price in terms of Essential Commodities Act, it is necessary that
price is actually fixed and not kept viable-Price fixation of an essential
commodity is determined on the touch stone ofpublic interest-While adopting
a policy decision as regards mode of determination of price of coal either
fixed on variable, the coal companies were bound to keep in mind social and .
F economic aspect of the matter-Although a reasonable profit is permissible,
but profiteering would not be-Scheme of£-Auction is also ultra vires Article
14-Central Government in collaboration with the coal companies would be
at liberty to evolve a policy which would meet the requirements of public
interest vis-a-vis the interest of consumers of coal-Central Government also
advised to widen definition of coal so as to include the smokeless coal-
G Colliery Control Order, 1945-Colliery Control Order, 2000-Essential
Commodities Act, 1955-Coking Coal Mines (Nationalization) Act, 1972-
Coal Mines (Nationalization) Act, 1973-Constitution of India, 1950-Part IV
and Articles 14 and I9(6).

H 954
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. 955

Constitution of India, 1950: A
Part JV-Article 39 (b)--Directive Principles-Violation-Effect of--
On price fixation ofessential commodities-Held: Though violation of Directive
Principles would not be ultra vires, but they would from a relevant
consideration for determining a question of price fixation of essential
commodity. B
Directive Principles-Role of-Held: They provide for a guidance to
interpretation of Fundamental Rights of a citizen as also the statut01y rights.
'
Judicial Review-Permissibility of--ln cases of policy decision-Held:
Policy decision is a subject matter ofjudicial review-But such policy on the C
part of executive of Central Government must be strictly construed in terms
of Article 77--C_onstitution of India, 1950-Article 77.

Doctrines:

Doctrine of legitimate expectation-Applicability of D
Doctrine of reasonableness-Applicability of

Doctrine of Promissory Estoppel--Applicability of

Doctrine of public necessity-Applicability of
E
Words and Phrases:

'Business'--Meaning of

Production, distribution, supply and price of coal were controlled
and regulated under the Colliery Control Order, 1945 framed under F
Defence of India Rules. The Order was continued under the Essential
Commodities Act, 1955. Coking Coal Mines and Coal Mines were
subjected to nationalization in terms of Coking Coal Mines
(Nationalization) Act, 1972 and Coal Mines (Nationalization) Act, 1973
with a view to give effect to the provisions of Article 39 (b) of the G
Constitution of India.

After the nationalization, consumers of coal were categorized as Core
Sector and Non-core Sector. Linkage system was evolved initially for Core
Sector and then also for Non-Core consumers. The linkage was to be
determined on the basis of availability of coal, requirements thereof in H
956 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A respect of each industry as certified by the State, and the capacity of the
railways to transport coal. Government issued several Notifications from
time to time leading to deregulation as regard price and distribution of
coal. By Colliery Control Order, 2000, Order of 1945 was repealed and
thereby control and regulation over coal as was prevailing under the 1945
Order, was done away with. By reason of 2000 Order, Central
B Government, 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. Coal India became entitled to determine the
'I
price. Coal India discontinued grant of fresh linkages to Non-core Sector
consumers due to mismatch in respect of demand and availability of coal.
C Thus the consumers having no linkages were constrained to purchase coal
from black market at a higher price. A resolution was passed to remove
the difference between Open Sales Scheme price and the price of the linked
consumers. To prevent misuse of linkage, verification of the units of the
linked consumer was undertaken. The Standing committee on coal and
Steel found that there were bogus companies not using coal and black
D marketing it.

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
E transparent system of distribution of coal. The agencies of the Central
Government and the State Governments were kept out of the purview of
E-Auction. Central Government asked Coal India Ltd. 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 Briquetts in order to ensure availability of
F alternate fuel for domestic consumption. Advertisements were published
inviting entrepreneurs to manufacture special smokeless fuel and assuring
to provide them coal and the manufacturing technology. Pursuant to such
invitation the entrepreneurs set up plants for manufacturing smokeless
coal.

G The scheme of E-Auction was challenged before Guahati and
Madhya Pradesh High Courts. Guahati High Court set aside the scheme
holding that the method adopted for the same was arbitrary in nature;
and that the Chairman of Coal India Ltd. had no authority to issue such
direction or to frame such a Scheme. Madhya Pradesh High Court held
H the Scheme to be valid and legal.
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. 957

Writ Petition was also filed before Calcutta High Court questioning A
the validity of sponsorship Scheme and the same was allowed holding that
mini classification on the basis of sponsorship system was ultra vires the
Constitution of India.

Appeals were filed before this Court against the judgments of the
three High Courts. B
In the meantime several Writ Petitions were filed before different
, 1 High Courts questioning the validity of E-Auction. Those Writ Petitions
were transferred to this Court.

Disposing of the appeals and transferred cases, the Court c
HELD: 1.1. The methodology for allocation of coal to a bidder of
E-Auction is inequitable, irrational and fortuitous. (1010-B-C}

1.2. The coal companies which are public authorities when seeking
to give effect to the constitutional scheme as contained in the preamble of D
the Nationalization Acts of 1972 and 1973 were acting at the behest of the
Central Government and not entirely on their own. In relation to fixation
of price or other related matters, the Central Government, therefore, had
no say. Under the Colliery Control Order 2000, the power of the Central
Government is merely to regulate supply and not to regulate price, the E
price of coal, it will bear to state, having been deregulated. E-Auction is
not related to policy for supply of coal. It is essentially the price therefor.
The Central Government in that view of the matter either directly or
indirectly while purportedly exercising its power under clause 6 read with
clause 9 of the Colliery Control Order could not have issued any direction F
in the garb of disposal of coal by way of E-Auction.
(1020-A-B; G-H; 1021-A-B)
Hindustan Petroleum Corpn. Ltd. v. Darius Shapur Chenai and Ors.,
(2005) 7 SCC 627; Commr. of Police v. Gordhandas Bhanji, (1952) SCR 135
and Mohinder Singh Gill v. Chief Election Commnr., (1978] 1 SCC 405, G
referred to.

1.3. Coal is an essential commodity in terms of Section 3(1) of the
Essential Commodities Act. Colliery Control Order was made, inter alia,
for securing equitable distribution and availability of higher price of
essential commodity. The coal companies as also the Central Government, H
958 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.
,...
A therefore, have a constitutional and statutory obligation to fulfill. Coal
companies exercising monopolistic power, thus, were required to distribute
coal equitably and at a fair price. [1006-F-G)

1.4. By reason of E-Auction no price is fixed as it would vary from
bids to bids. The only price which is fixed for E-Auction is the reserved
.
B price which is 25% above the notified price. [1007-D; Fl

1.5. While fixing a fair and reasonable price in terms of the
provisions of the Essential Commodities Act (although the price is not
dual), it is essential that price is actually fixed. Such price fixation is
necessary in view of the fact that coal is an essential commodity. Fixation
c I
of price of coal is of utmost necessity as it is a mineral of grave national
importance. Non-availability of coal and consequently the other products
may lead to hardship to a section of citizens. It may entail closure of
factories and other industries which in turn would lead to loss to State
exchequer, as they would be deprived of its taxes. It will lead to loss of
D
'· l.
employment of a large number of employees and would be detrimental to
the avowed object of the Central Government to encourage small scale
industries. [1007-F-H)

1.6. E-Auction has effect, both on price of coal as also the availability
thereof to the Non-core Sector consumers. Their availability would depend
E upon successful bids of the consumers. It was introduced for a definite
'
phrpose viz. to confine the same to the Non-core Sector and traders. A
deviation to a great extent has been made therefrom. Even now the core
sectors are taking part in E-Auction, but no step rias been taken in this
behalf. [1008-C-DJ
F '
I. 7. E-Auction is not a mode to fix price. It is only a mode to obtain
maximum price. While doing so State does not have to follow the principles
....
of fi~ation
'1
of price. It is not required to apply its mind as to its. effect. It
treat.s coal ,,
like any other commodity. It treats itself like a private trader.

qi
"( )
A (Jistinction must be borne in mind when a State intends to part with a •
pfWilege or a largess as a competitor in the market and when it is expected
to fulfill its constitutional goal enshrined under Article 39(b) of the
Cons~itution. [1004-D-F]

1~8. 'Business' is a word of wide import. It, in the context of
application of a statute governing a monopoly concern and also with an
H
l ,
• ~ .• ·• {1 !.i' ";

~
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. 959

essential commodity, would indisputably stand on a different footing from A
the business concern or a private person. The Central Government as also
the coal companies having regard to the provisions of the Nationalisation
Acts must be visualized not as profit earning concerns but as an extended
arm of a welfare State. They are expected to harmonize the business
potential of a country to benefit the common man. The power of the B
Central Government to carry on trade on business activities ·emanates
from the constitutional provisions contained in Article 298 of the
Constitution of India. The coal companies, therefore, were under a
constitutional obligation to fix a reasonable price. They must differentiate
themselves from the private sectors which thrive only on a profit motive.
As public sector undertakings, the coal companies, thus, would have a duty C
to fix the price of an essential commodity in such a manner so as to
subserve the common good. Although the provisions of Section 3(2)(c) of
the Essential Commodities Act are not attracted in relation to coal in view
of the deregulation of price by the Central Government under the 2000
Order, the reasonable attributes for the purpose of fixing the price of coal
should be borne in mind. 1996-G-H; 997-A-C) D
Oil and Natural Gas Commission and Anr. v. Association ofNatural Gas

- Consuming Industries ofGujarat and Ors., (1990) Supp. SCC 397; Hindustan
Zinc ltd. etc. v. Andhra Pradesh State Electricity Board and Ors., 11991) 3
SCC 299; Dr. P. Na/la Thampy Thera v. Union of India, (1983) 4 SCC 598 E
and Kera/a State Electricity Board v. Mis S.N. Govinda Prabhu and Bros.
and Ors. etc., 11986) 4 SCC 198, referred to.

1.9. Recourse to E-Auction had been taken primarily by way of a
profit motive. No public opinion was sought for and no expert committee
was appointed. The statutory and constitutional duties had not been kept F
in view. Conveniently, while making the said policy decision, the coal
companies did not remind themselves that as they are instrumentalities.
of the State, they are bound to adhere to the Directive Principles of the
State and the prime object for which the Nationalization Acts were
enacted. Good governance and good corporate governance are distinct and
separate. Whereas good governance would mean protection of the weaker G
sections of the people; so far as good corporate governance is concerned,
the- same may not be of much relevance. The coal companies in taking
recourse to E-Auction did not give effect to the concept of corporate social
responsibility. Although a reasonable profit may be permissible,
profiteering would not be. [1019-B-GI H
;
960 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A T.MA. Pai Foundation v. State ofKarnataka, (2002J 8 SCC 481; Islamic
Academy of Education v. State of Karnataka, 12003) 6 SCC 697 and P.A.
lnamdar v. State of Maharashtra, [20051 6 SCC 537, relied on.

1.10. The State when exercises its power of price fixation in relation
to an essential commodity, has a different role to play. Object of such price
B fixation is to see that the ultimate consumers obtain the essential
commodity at a fair price and for achieving the said purpose the profit
margin of the manufacturer/producer may be kept at a bare minim_um.
The question as to how such fair price is to be determined stricto sensu ,._
does not arise in this case as here the Central Government has not fixed
c any price. It left the matter to the coal companies. The coal companies in
taking recourse to E-Auction also did not fix a price. They only took
recourse to a methodology by which the price of coal became variable.
Its only object was to see that maximum possible price of coal is obtained.
(1003-F-HI
1.11. The modality of price fixation will depend upon the nature of
D 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
E 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.
(994-F-H; 995-AI
F
Union ofIndia and Ors. etc. v. Hindustan Development Corpn. and Ors.,
[199311 SCC 467; Gujarat Ambuja Cement Ltd and Anr. v. Union of India '!---

and Ors., rt99818SCC208 and Kera/a State Electricity Boardv. Mis. S.N.
Govinda Prabhu Bros. and Ors. etc., [19861 4 SCC 198, relied on.
Hindustan Zinc Ltd. etc. v. Andhra Pradesh State Electricity Board and
G
Ors., 11991) 3 SCC 299; Oil and Natural Gas Commission and Anr. v.
Association of Natural Gas Consuming Industries of Gujarat and Ors., (1990)
Supp. SCC 397 and Dr. P. Na/la Thamphy Thera v. Union of India and Ors.,
(1983) 4 sec 598, referred to.

H 1.12. However, dual pricing having regard to a distinct classification
~
...
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. 961

between a core sector and non-core sector is permissible. The State, A
however, while distributing its largess at a price, if involved in distribution
of a commodity, which would attract the provision of Article 39(b) of the
Constitution of India, would stand on a different footing. (996-F-GI

Pallavi Refractories and Ors. v. SCCL and Ors., (20051 2 SCC 227,
relied on. B
1.13. While fixing the price of an essential commodiiy like coal, t.he
capacity to bid of small manufacturers may also be taken into account.
The court exercising a power of judicial review in a given situation may
determine the question on the basis of the material brought on records. C
(996-D-E]
1.14. While adopting a policy decision as regards the mode of
determining the price of coal either fixed or variable, the coal companies
were bound to keep in mind social and economic aspect of the matter. They
could not take any step which would defeat the constitutional goal.
(1012-E-Fl D
Mahabir Auto Stores and Ors, v. Indian Oil Corporation and Ors.,
[19901 3 sec 752, relied on.
Kera/a State Electricity Board v. S.N. Govinda Prabhu Bros. and Ors.
etc. (19861 4 SCC 198 and Oil and Natural Gas Commission and Anr. v. E
Association of Natural Gas Consuming Industries of Gujarat and Ors. [1990}
Sup. SCC 397, referred to.

1.15. Article 39(b) was incorporated in the Constitution to indicate
the necessity for ensuring equitable distribution of resources. Coal, being
such a vital product to the Indian industries and the common man, F
nationalization of coal was necessary for realization of the ideals contained
in Article 39(b) of the Constitution. (999-D; 1000-B-C)

State of Karnataka and Anr. v. Shri Ranganatha Reddy and Anr. (19771
4 SCC 471; Samatha v. State of A. P. (1997) 8 SCC 191; Sanjeev Coke
Manufacturing Company etc. v. Mis Bharat Coking Coal limited and Anr. G
etc. (1983) 1SCC147 and l. Abu Kavur Bai v. State ofT. N., (1984( 1 SCC
515, referred to.

1. 16. Whenever an action is taken by a State in consonance with the
provisions laid down in the Directive Principles of State Policy as envisaged
under Part IV of the Constitution of India, the same is considered to be a H
-..
~

962 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A reasonable action. [1001-C-D)

MR.F Ltd v. Inspector Kera/a Govt. and Ors. (199818 SCC 227, relied
on.

B. P. Sharma v. Union of India (20031 7 SCC 309: AIR (2003) SC
B 3863; State of Punjab v. Devans Modern Breweries Ltd. (20041 11 SCC 26
and State of Gujarat v. Mirzapur Moti Kureshi Kassab Jamat (20051 8 SCC
534, referred to.
,
~

1.17. It may not be correct to say that any action which is l'lot in
consonance with the provisions of Part IV of the Constitution would be
c ultra vires but there cannot be any doubt whatsoever that the principles
contained therein would form a relevant consideration for determining a
question in regard to price fixation of an essential commodity. Directive
Principles of State Policy provides for a guidance to interpretation of
Fundamental Rights of a citizen as also the statutory rights. (1002-C-E)
D Tara Prasad Singh and Ors. v. Union of India and Ors. (1980( 4 SCC
179, referred to.

1. 18. The State or a public sector undertaking plays an important ~

role in the society. It is expected of them that they would act fairly and
reasonably in all fields. (1004-C-D)
E
Baburao Shantaram More v. The Bombay Housing Board and Anr.
[1954) SCR 572; Dwarkadas Marfatia and Sons v. Board of Trustees of the
Port ofBombay (1989) 2 SCR 751 and Pathumma and Ors. v. State ofKera/a
and Ors. (1978) 2 SCR 537, referred to.
F
1.19. Coal companies are monopolies within the meaning <;if the
provisons of the Nationalization Act. They would be deemed to be
monopolies within the provisions of clause (6) of Article 19 of the
Constitution of India. (1004-F-GI

G Akadasi Pradhan v. State of Orissa (19631Supp2 SCR 691; State of
Rajasthan v. Mohan Lal Vyas (19711 3 SCC 705, referred to.

1.20. However, since the coal companies have given a complete go-
bye to the original scheme of E-Auction inasmuch as not only the traders
or the Non-core Sector consumers but also Core Sector consumers had
H also been allowed to participate therein. The Non-core Sector consumers
....
. .J-
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. 963

although as linked consumers form a separate and distinct class vis-a~vis A
the traders, they would not be entitled to the benefit of obtaining coal at
a fixed price. The question as regards the discrimination between two
categories of consumer assumes some importance. (1018-A-DI

1.21. The effect is that today, while the Core Sector (92%) on its own
and Non-core non-linked SSl/Tiny units (through the NCCF/other B
agencies) (l %) are being supplied coal at a fixed price, on the other hand,
the Non-core linked SSiffiny units (4%) are being subjected to differentlal
treatment without any rational classification by supplying the coal to the
latter on the price to be ascertained by the trader-controlled process of
E-Auction and thereby putting the petitioner-units at par with the trader. C
The scheme of E-Auction is, therefore, ultra vires Article 14 of the
Constitution of India. [1018-D-FI

Mohd. Usman v. State of Andhra Prades~ AIR (1971) SC 1801, relied
on.
D
State of Orissa and Ors. v. Hari Narain Jaiswal and Ors. 11972) 2 SCC
36 and Kasturi Lal Lakshmi Reddy, represented by its Partner Shri Kasturi
Lal, Ward No. 4, Palace Bar, Poonch, Jammu and Ors. v. State ofJammu
and Kashmir and Ors. (19801 4 SCC 1, distinguished.

State of Madhya Pradesh v. Nandlal Jaiswal 119861 4 SCC 566; Khoday E
Distilleries Ltd. and Ors. v. State of Karnataka and Ors. (1995]1 SCC 574;
Ramana Dayaram Shetty v. International Airport of India and Ors. 11979] 3
SCC 489; Motor General Traders v. State of Andhra Pradesh 11984] 1 SCC
222; Indra Sawhney-11 v. Union of India, [200011 SCC 168; State of U.P. v.
Johri Mal 12004) 4 SCC 714 and£. V Chinnaiah etc. v. State of A.P. and
Ors. etc. 12005) 1 sec 394, referred to. F
1.22. Coal being a scarce commodity, its utility for the purpose for
which it is needed is essential. Although, technically, in view of the fact
that no price is fixed for coal, there may not be any black marketing in
the technical sense of the term; but this Court cannot also encourage black G
marketing in general sense. Nobody should be allowed to take undue
advantage while dealing with a scarce commodity. (1025-D-F]

2. It cannot be said that the policy decision of a State cannot be the
subject matter of judicial review. E-Auction is not a policy decision of the
Central Government. Such a policy decision on the part of the executive H
'.

_!_
964 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A of the Central Government must be strictly construed in terms of Article
77 of the Constitution of India. Its exercise of such powers has nothing to
do with the price fixation by a policy. The State while exercising its power
under the Essential Commodities Act, fixes the price keeping in mind
several factors, in particular the larger interest of the people. Price fixation
of an essential commodity, therefore, is determined on the touchstone of
B public interest. While doing so the State is expected to follow a rational
and fair procedure and for the said purpose may collect data, obtain public
opinion, and may appoint an expert committee. [1018-F-H; 1019-A)

3.1. Smokeless coal operators had set up their units at the behest of
C the coal companies. Those who had set up their units in the erstwhile State
of Bihar and West Bengal evidently did so at the behest of the companies
having been encouraged therefor. It was done to share the burden of coal
companies to supply soft coke to the small consumers. Doctrine of
promissory estoppel would, !herefore, be applicable. [1021-E-F)

D 3.2. The concerned States also intended to grant incentives to such
industrial units by way of waiver and/ or deferment of payment of sales
tax. Such industrial policies by way of legislation or otherwise, subject of
course to the provisions of the statute have been framed by several other
States. [1021-G-H; 1022-A[

E Mis. Motilal Padampat Sugar Mills Co. Ltd v. State of Uttar Pradesh
and Ors. [1979) 2 SCC 409; Pournami Oil Mills and Ors. v. State of Kera/a
and Anr. (1986) (Supp) SCC 728; Assistant Commissioner of Commercial
Taxes (Asst.) Dharwar and Ors. v. Dharmendra Trading Company and Ors.
[1988) 3 SCC 570; Mangalore Chemicals and Fertilisers Limited v. Deputy
F Commissioner of Commercial Taxes and Ors. [19921Supp1 SCC 21; Pawan
Alloys and Casting Pvt. Ltd, Meerut v. U.P. State Electricity Board and Ors.
[1997) 7 SCC 251 and State of Punjab v. Nestle India Ltd. and Anr. (2004)
6 sec 465, referred to.

4. Principle of natural justice will apply in cases where the_re is some
G right which is likely to be affected by an act of administration. Good
administration, however, demands observance of doctrine of
reasonableness in other situations also where the citizens may legitimately
expect to be treated fairly. Doctrine of legitimate expectation has been
developed in the context of principles of natural justice. (1024-D-E)

H Stretch v. U. K. [2004) 38 EHRR 12 and Rowland v. Environmental

- I_
ASHOKA SMOKELESS COAL IND. P.L TD. v. U.0.1. 965

Agency 12003) EWCA Civ. 1885, referred to. A
5.1. Most of the consumers, with a view to obtain supply of coal had
filed documents to prove their genuineness. The said documents must be
scrutinized by the authorities of the coal companies. In the event, they have
any suspicion, inspection should be carried out by officers appointed by B
the Chairman-cum-Managing Director of the concerned company within
whose jurisdiction the unit is situated. (1025-G-H; 1026-A)

.,.. 5.2. With a view to evolve a viable policy, a committee should be
constituted by the Union of India with the Secretary of Coal being the
Chairman. In such a committee, a technical expert in coal should also be C
associated as most of the projects involve consumers of coal, particularly
manufacturers of hard coke and smokeless fuel. It may not be difficult to
find out, having regard to the technologies used therein as regards the ratio
of the input vis-a-vis the output, with a balance and 10% margin. On the
basis of such finding alone, apart from the requirements of five years,
supply should form the basis of MPQ. Central Government in D
collaboration with the coal companies would be at liberty to evolve a policy
which would meet the requirements of public interest vis-a-vis the interest
of consumers of coal. They would be entitled to lay down such norms as
may be found fit and proper. They would be entitled to fix appropriate
norms therefor. In the event, any industrial unit is found to violate the .E
norms, it should be stringently dealt with. [1026-A-DI

5.3. The Central Government, therefore, may think it fit to widen
the definition of coal so as to include the smokeless coal in exercise of its
power under the Essential Commodities Act. This Court has held that
slurries are a part of coal and is governed by the provisions of the Mines F
and Minerals (Regulation and Development) Act. Such being the wider
.. definition of coal, there is no reason as to why proper measure cannot be
taken by the Union of India to have a complete control thereover. Any
strict mechanism to find out the genuine consumers would go a long way
in taking preventive measures and dealing with coal by unscrupulous G
persons for unauthorized purposes. Those who do so, should be dealt with
stringently but the same would not mean that the genuine consumers
should suffer for want of coal. (1026-D-G)

5.5. Central Government and for that matter the coal companies can H
r c
966 SUPREME COURT REPORTS [2006) SUPP. 9 S.C.R.

A change their policy decision, but thC;refor there should be a public interest
as contra- distinguished from a mere profit motive. Any change in the
policy decision for cogent and valid reasons is acceptable in law, but such .,
a change must take place only when it is necessary, and upon undertaking
of an exercise of separating the genuine consumers of coal from the rest.
B If the coal companies intend to take any measure they may be free to do
so. But the same must satisfy the requirements of constitutional as also
the statutory schemes, even in relation to an existing scheme e.g. Open
Sales Schemes, indisputably the coal companies would be at liberty to
formulate the new policy which would meet the changed situation. E-
advertise1nent or E-tender would be welcome but then therefor a greater
C transparency should be maintained. (1027-A-CJ

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5302 of2006.

f'rom the interim Order dated 13.9.2005 of the High Court of Jharkhand
at Ranchi in W.P. (C) No. 2460/2005.
D
WITH

C.A. Nos. 5329, 5303, 5304, 5305, 5324, 5306, 5307, 5308, 5309,
5310, 5311, 5312, 5313, 5314, 5317, 5315, 5318, 5319, 5320, 5321, 5322,
E 5323 and 5316 of2006, T.C. (Civil) Nos. 89-124, 126-136 of2005 and T.C.
(Civil) Nos. 4-5, 7-45, 75, 125, 137-139 of 2006, C.A. Nos. 5547 of 2004
and 2972-2976 of 2005, W.P. (C) No. 67 of 2005.

Gopal Subramanium, A.S.G., A. Sharan, A.S.G., A.K. Ganguli, Altaf
Ahmad, Jaideep Gupta, Dipankar Gupta, S.K. Bagga, Shanti Bhushan, Bhaskar
F Gupta, Mahabir Singh, K. Radhakrishnan, T.R. Andhyarujina, S.D. Sanjay,
Devashish Bharuka, Pankaj Bhagat, Hansa Bharuka, Dr. Sushil Balwada,
Rana Mukherjee, Siddharth Gautam, Goodwill Indeevar, M.P. Jha, Ram ...
Ekbal Roy, Harshvardhan Jha, Amit Meharia, Mohan Prasad Meharia, Seeraj
Bagga, Sureshta Bagga, Bijan Kumar Ghosh, Sukhendu Sekhar, Rajiv Mehta,
B. Aggarwal, A. Henry, T. Anil Kumar, Manish Shankar Verma, Anupam
G Lal Das, Arjun V. Bobde, Hrishikesh Baruah, Jyoti Mendiratta, Manish Pitale,
Chander Shekhar Ashri, Rajesh Singh, Gouri Karuna Das, Anu Gupta, Kamal
Kant Tripathi, Rudreshwar Singh, Tapesh Kumar Singh, Manish Kumar Saran,
Dr. Meena Agarwal, R.C. Mishra, Anil Kumar Sinha, Gaurav Agrawal, S.
Chandra Shekhar, Kanchan Kaur Dhodi, Manoj Sharma, P.K. Jain, Surya
H Kant, K.S. Bhati, Aishwarya Bhati, Anip Sachthey, Ajit Kumar Sinha, Krishan
,•
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. (S.B. SINHA, J.] 967
Mahajan, Satyakam, Navin Prakash, V.K. Verma, Chetan Sharma, Rajiv A
Nanda, Ramni Taneja, Babu G., Nishant Gupta, Vani Mehta, Vimla Sinha,
Gogpal Singh, Shriniwas R. Khalap, Mohit Paul, C. Mukund, Ashok Kumar
Jain, Animesh Saha, Bijoy Kumar Jain, Pankaj Jain, B.B. Singh, Manik
Karanjawala, N.D.B. Raju, Bharathi R., N. Ganpathy, Guntur Prabhakar and
Rajendra Kumar for the appearing parties.
B
The Judgment of the Court was delivered by

S.B. SINHA, J. Introduction :

Leave granted in all the special leave petitions.

The va_lidity and/or legality of a scheme framed by the Coal India C
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 lhdia Rules. Production, distribution, supply and D
price of coal were controlled and regulated under the Colliery Control Order,
1945 (l 945 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 E
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 F
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 G
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 H
fixed price ofcoal on an all-India basis, as far as practicable had all along
1 '\
968 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A 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
B accepted. The Essential Commodities Act, 1955 was enacted inter alia for
securing equitable qistribution 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
C 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
D 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
E 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 128 and f2E of the 1945 Order were, however, invoked by the
F 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
G 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
H extended to certain other grades of coal on 12.3.1997. A clarification was
ASHOKA SMOKELESS COAL IND. P. LTD. v. U.O.L[S.B. SINHA, J.] 969

issued that the coal companies can determine the price to be charged for the A
coal produced from time to time.

On and from l .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 B
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. C
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 D
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. E
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.
F
"'· 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 G
vested in the Government companies specified therein who are parties herein.

linkage:

After the nationalization of coal, consumers were categorized in two
... -I
main sectors, namely, core sector and non-core sector. ~inkage system H
970 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A 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 thennal
power stations.

Linkage was extended also to cement in the said year in tenns of
Resolution No.Cl-21 (20/73 dated 19.11.1973. The scheme for linkage of coal
B 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
c Committee for the planning of coal supplies to thennal 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 :
D
"( 1) To review from time to time the coal requirements of the
existing thennal power stations and for establishing rational linkages
with collieries for raw coal supplies and with washeries for the supply
of middlings having regard to :

E (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.

F (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 thennal power stations already under
construction and to link them with sources of coal supply;
G (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 ti.me the extent to which the linkages
H already established between the power stations and the sources of
J • ASHOKA SMOKELESS COAL IND. P. LTD. v. U.O.I. [S.B. SINHA, J.) 971

coal supply are being observed and to suggest steps necessary for A
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 B
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 C
Department of Mines will provide the required Secretarial
assistance to the committee."

The coal companies state :

"That after the nationalization, coal consumers were categorized D
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 E
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
F
AUTHORITY LTD. IN 1974-75 AND COAL INDIA LTD. IN 2004-05

PRODUCTION (Figs. in Million tones)
item From CMAL From UL m
in 1974-75 2004-05
Coal Production 78.99 323.88 G
Coal Dispatch 72.83 319.12

H
\. ..
972 SUPREME COURT REPORTS [2006j SUPP. 9 S.C.R.

.A SECTOR-WISE BREAK-UP OFCOAL DISPATCH
Item Quantity %age Quantity % age
y

Power* 20.16 27.66 249.26 78.11
B
Steel CPP 1.22 1.67 6.427 2.01

Steel plants 8.71 11.95 5.654 1.77

c Loco 12.82 17.59 0.00 0.00

Cement 3.48 4.77 I0.043 3.15
(including
Cement CPP)

Fertilizer 0.95 l.30 2.150 0.67
D
Export 0.528 0.72 0.021 0.01

Paper 1.297 l.78 2.016 0.63

Others 23.67 32.55 43.55 13.65
E
Total 72.83 100.00 319.12 100.00

*Excluding Captive Power Plants (CPPs)"
F
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 :
G
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
H appellants are also traders.
ASHOKA SMOKELESS COAL IND. P. LTD. v. U.O.l. [S.B. SINHA, .I.] 973

Having regard to the huge demand of coal by non-core sector, linkage A
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) B
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 :
c
"COAL INDIA LIMITED
MARKETING DIVISION
15, PARK STREET, CALCUTTA-700 016
Ref: No.CIL/C4A/48912/ Dated :
D
To:

Mis (Supply of coal/coke shall be Regulated as per extant
guideline MOC/CIL)

LOCATION/DESTINATION E

Dear Sir(s),

Sub: Linkage Advice Letter

Ref. Your application in the Data-Sheet for Coal/Coke Linkage. F
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 G
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
H
...
974 SUPREME COURT REPORTS (2006] SUPP. 9 S.C.R.

A has been worked out and it has been decided to fix up fina:I linkage
for your unit as per the following :
GRADE
SIZE
MODE OF TRANSPORT
B COAL COMPANY
FIELD
CONTACT OFFICE
MAXIMUM PRERMISSIBLE
f
QUANTITY (MPQ)/MONTH

c 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.
D
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 :
E
"I. "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 cif coal''. Linkage does not
F 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.
G 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.
H
Ir I
ASHOKA SMOKELESS COAL IND. P. LTD. v. U.0.1. [S.B. SINHA, J.] 975

(c) any discrepancy between coal lifted, coal consumed and stock A
of coal is detected.

I 0. 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 B
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 C
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 D
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, E
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, ~ot in dispute that the price of coat to be paid F
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 G
a result, Coal India Ltd. started quantitative assessment through its Technical
Cornmittees 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. H
,,.
976 SUPREME COURT REPORTS [2006) SUPP. 9 S.C.R.

A 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
B 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
c 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
D 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
E
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
F abovementioned facts and circumstances. Thus, since no new linkage could
be granted after 200 I 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
G consumers to unauthorized diversion/sell in the open market after purchasing
it ~t notified price from nationalized coal companies.

On 6th June, 200 I, 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
H ,.
ASHOKA SMOKELESS COAL IND. P.. LTD. v. U.O.I. [S.B. SINHA, J.] 977

price to be charged. It may be noted that on I. 1.2000, coal became a 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 B
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.
c
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 :
D
"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 .E
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 F
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 :
G
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 H
'
978 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A 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
B 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
C 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
D 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
E 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
F 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
G 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
H of units having valid linkage as on date was 4 798 out of which 3317
ASHOKA SMOKELESS COAL IND. P. LTD. v. U.0.1. [S.B. SINHA, J.) 979
units had been verified either by State Government/sponsoring agencies A
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 B
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 C
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 D
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, E
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 F
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."
G
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.
H
,.
980 SUPREME COURT REPORTS (2006) SUPP. 9 S.C.R.

A 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.

B 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
c 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
D
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-
E existent as also by the traders, did not fructify.

£-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
F 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 t
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:

G "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 :

H (a) A consumer having requirement of specified quality of coal from ,_..
ASHOKA SMOKELESS COAL I~D. P. LTD. v. U.0.1. [S.B. SINHA, J.] 981

a particular colliery/source and siding/pilot should have an access A
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." B
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 C
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 D
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 E
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 F
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 :
G
"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 Ale Non-core Sector Consumers through
E-auction on trial basis going by succeeds of this trial. It is being H
.+
982 SUPREME COURT REPORTS [2006] SUPP. 9 S.C;R.

A 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 :
B
Benefits :

(i) Elimination of differences between linked and non-linked
consumers as directed by Calcutta High Court.
xxx xxx' xxx"
c
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.

D As an interim measure, a decision wits 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;
E (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."

F According to the coal companies approximately 26.5 million tonnes of
coal were to be sold at E-Aucticn 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.

G 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
H
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.O.I. [S.B. SINHA, J.] 983

price in a transparent manner. A
In order to accord unifonn 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.
B
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. C
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 D
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 E
' "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 F
should pay one time registration fee of Rs. I 0,000/- 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 : G
"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 H
984 SUPREME COURT REPORTS [2006) SUPP. 9 S.C.R.

A 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-
B 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,
c 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. I 00/- against their per tonne requirement. The bidding is
conducted by the auctioneering agency for specified period which is
D 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 prii::e, etc. to the subsidiary
company for taking further action for release of coal. Simultaneously,
the successful bidders are also informed by the agencies through
E 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
F 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.
G
Exceptions to £-Auction :

On 20.07.2005, the Ministry of Coal by a circular letter stated :

"The total quantity earmarked for State Government agencies may
H be increased by one million ton so as to reserve a total quantity of 3
_..,. ,.
ASHOKA SMOKELESS COAL IND. P. LTD. v. U.0.l. (S.B. SINHA, J.] 985

million tones of coal for the year 2005-6. The State Government A
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-auctio.n price."
B
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 £-Auction. Similar benefit was extended to the agencies of the Central
Government and the State Governments. By a letter dated 08.04.2005, the C
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 £-Auction price. The quantity D
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. potter~, blacksmith, tea stall vendors, E
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 · F
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 : G
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 H
986 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A 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
B 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.

C 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.
D
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
·E 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.

F !'roceedings 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
G 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.
H
ASHOKA SMOKELESS COAL IND. P.L TD. v. U.0.1. [S.B. SINHA, J.] 987

When the scheme of E-Auction was introduced in Western Coal Field A
Limited, its authority was questioned before the Madhya Pradesh High Court
by way ofa 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. B
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.: c
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 D
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 E
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 a/ta 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 F ·
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 G
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 H
988 SUPREME COURT REPORTS [200(:)] SUPP. 9 S.C.R.

A precedent. In view of the decision .in Pallavi Refractories & Ors. v. SCCL &
Ors., [2005] 2 SCC 227, the dual pricing policy adopted co.uld nQt 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 ofE-Auction being a normal facet in commercial transaction
is not bad in faw.
B
Findings of the Calcutta High Court :

The question as to whether a direction can be issued upon the Coal r
India Ltd. to supply coal by road movement and without sponsorship in the
C wake of coal being controlled came up for ~cmsideration 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 ulfra vires the C~nstittition of Ind la. .
D 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
E 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.

F Proceedings before this Court :

Civil Appeal Nos.2972 and 2975 of 2005 arises out of ajudgment of
the Gauhati High Court dated 08.04.2005. Questioning· the judgment and
order of the Madhya Pradesh High Court a?lt~d 29.09.2005; S.L.P. (Civil)
No.24134 of2005 has been filed. ·
G
Coal India Ltd. has filed Civil Appeal No.5547 of 2004 which arises
out of the jµdgment of the Calcutta High Court in BijoyKumar Poddar 's
case .

. In the meantime; writ petitions were filed in several High Court including
H Calcutta High Court, Jharkhanc:I High Court, Allahabad High Court and .4 1
ASHOKA SMOKELESS COAL IND. P.L TD. v. U.0.1. [S.B. SINHA, J.] 989

Madhya Pradesh High Court, questioning the validity of E-Auction. Different A
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 B
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 C
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 :
D
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
E
(ii) Manufacturers of smokeless coal

(iii) Manufacturers of Hard coke
(iv) Traders

(v) Union of India and Coal India Limited F
. (vi) MSTC

General:

The contentions ofthe writ petitioners before the different High Courts,
who are before us, are : G
(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; H
,. ~

990 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A (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.

B (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 r
h~ve been discriminated against in regard to fixation of price of
coal as a result whereof the small scale industries may either
c 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 BlSCAUMAN and Jharkhand State Mineral
Development Corporation also having been brought at par with
D 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
E 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
F 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;
(viii) Fixation of arbitrary price of coal which being a scare commodity
would give rise to unhealthy competition amongst various
G 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;

(ix) The coal companies being 'State' within the meaning of Article
12 of the Constitution oflndia cannot resort to be high profiteering
H
"'· {
ASHOKA SMOKELESS COAL IND. P. LTD. v. U.O.I. [S.B. SINHA, J.] 991
at the cost of common men. A
(x) 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 :
B
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 C
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
permit)ed resort to E-Auction as by reason thereof prices have been shot up
cre<>ting uncertainties besides hardship. It was submitted that in view of Section D
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 E
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 F
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.
G
Hard Coke:

Some of the appellants before us are manufacturers of hard coke. It is
liot in dispute that hard coke although does not come within the purview of
'core sector', for the purpose of distribution of coal, recommendations have
H
992 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A 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
B 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, aU .the I 06 hard coke
C 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
D 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.
E
It was submitted that coal of choice is not a concern of hard coke
owners although they may be relevan~ for traders as linkage still continues,
in view of the letter dated 19.05.2005.

Traders:
F
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 particulaihavlng ·regard'to the fact that from
G each colliery not more 33% per cent could be ·purchased by one trader, now
aU lots having been made open. to all consumers irrespective of the fact as
to whether they belong to the linked core s.ector or linked non-core sector or
others have been allowed to bjdin E-Auction along with traders, as a result
whereof traders are put to a great disadvantage. bi this behalf our attentfon
has beer. drawn to the fact that both manufacturers of core sector and non-
H core sectors have been offering their bid in the auctions which is against the

·"'
ASHOKA SMOKELESS COAL IND. P. LTD. v. U.0.1. [S.B. SINHA, J.] 993

concept of fair distribution of an essential commodity. According to the A
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
B
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 C
scheme as also open. sales scheme, .the coal companies .had to
resort to E~Auction which satisfies the test ofpublic interest;

(ii) Materials have been brought on r~cords to show justification of
E-Auction; the same is sustainable in !aw;
(iii) Taking recourse to E-Auction by way af an experiment was made
o·
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 E
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; F
• (vi) The C~nt~al Government took recourse to the deregulation of
coal as it was found·that by taking recourse to the linkage,
obstritcti6ns have been created to free and fair distribution of coal
. as also the movement thereof. Moreover each consumer must be
given equal access thereto; G
(
(vii) Only because the linked consumers would have to pay a higher
price; the same by .itseff .cannot be said. to be unfair and
. unreasonable in. view ·of the fact. that even.in terms of the.linked
. scheme the price of c.oal was not fixed nor any representation had
been made as regards obligations on th~ p~rt of C~al India Ltd. H
994 SUPREME COURT REPORTS [2006) SUPP. 9 S.C.R.

A 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
B 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
c 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.
D
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 ii) India. The learned counsel
E 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 :
F
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
G 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
,H price is resorted to, the same must be rational. The formula for fixing the
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. [S.B. SINHA, J.] 995
dual price may be reason®le only under certain circumstances. [See Union A
of India and Ors etc. v. Hindustan Development Corpn. and Ors., (1993] l
sec 467].
In Gujarat Ambuja Cement Ltd. and Anr. v. Union of India and Ors.,
( 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, B
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. C
Andhra Pradesh State Electricity Board and Ors., (1991] 3 SCC 299]. It can
neither have a private thrust nor aggrandizement of the wealth at the cost of
the ·common man.

In Kera/a State Electricity Board v. Mis. S.N. Govinda Prabhu Bros.
and Ors. etc., [ 1986] 4 sec 198, the law was laid down in the following D
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; E
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 Board may not and need not earn profits for the
purpose of performing its duties and discharging its obligations under
the statute. It stands to common sense that the Board must manage its
affairs on sound economic principles. Having ventured into the field F
of commerce, no public service under taking can afford to say it will
ignore business principles which are as essential to public service
undertakings as to commercial ventures ... "

It was, however, observed :
G
" ... The Board is not expected to run on a bare year-to-year survival
basis. It must have its feet firmly planted on the earth. It must be able
to pay the interest on the loans taken by it; it must be able to discharge
its debts; it must be able to give efficient and economic service; it
must be able to continue the due performance of its servi~es·'by- H.
996 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A providing for depreciation etc.; it must provide for the expansion of
its services, for no one can pretend the country is already well supplied
with electricity. Sufficient surplus has to be generated for this purpose.
That. we take it is what the Board would necessarily do if it was an
ordinary corrimerCial undertaking properly and prudently managed
on sound commercial lines. Is the position any different because the
B Board is a public .utility undertaking or because of the provisions of
the ElectriCity Supply Act? ... "

[See Oil and Natural Gas Commission and Anr. v. Association ofNatural
Gas Consuming Industries of Gujarat and Ors., [1990] Supp.,SCC 397.]

c In Gujarat Ambuja Cement (supra) the question arose as· to whether
charging of 10% premium over the price given in Table II of the Notification
which was issued under the Colliery Control Order was so unreasonable and
arbitrary so as to attract Article· 14 of the Constitution of India. In that case,
the parties adduced evidences, but the High Court did not consider the same
D in the perspective thereof, and on that premise the matter had been remitted
to the High Court for consideration of the grievances of the petitioner therein
having regard to the materials brought on record. [See also Dr: P. Nalla ·
Thamphy Thero v. Union oflndia and Ors., [1983] 4 SCC 598]

While fixing the price of an essential commodity like coal, the capacity
E to bid of small manufacturers rriay also be taken into account. The• court·
exercising a power of judicial review in a given situation may determine the
question on the basis of the material brought on records. [See Gujarat Ambuja
Cement Ltd (supra)] ·

However, dual pricing having regard to a distinct classification between
F a core sector and non-core sector is permissible._ [See Pal/avi Refractories
(supra)] ·

The State, however, while distributing its largess at a price,- if involved
in distribution of a commodity, which would attract the provision of Article
G 39(b) of the Constitution. of India, would stand on a different footing.

'Business' is a word of wide import. It, in the context of application of
a statute governing a monopoly concern and also with an essential commodity,
would indisputably stand on a different footing from the business concern or
a private person. The Central Government as also the coal companies having
H regard to the provisions of the Nationalisation Acts must be visualized not as
..
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. [S.B. SINHA, J.] 997
profit earning concerns but as an extended arm of a welfare State. They are A
expected to harmonize the business potential of a country to benefit the
common man. The power of the Central Government to carry on trade on
business activities emanates from the constitutional provisions contained in
Article 298 of the Constitution of India. The coal companies, therefore, were
under a constitutional obligation to fix a reasonable price. They must
differentiate themselves from the private sectors which thrive only on a profit B
motive. Afr public sector undertakings, the coal companies, thus, would have
a duty to fix the price of an essential commodity in such a manner so as to
subserve the common good. Although the provisions of Section 3(2)(c) of the
Essential Commodities Act are not attracted in relation to coal in view of the
deregulation of price by the Central Government under the 2000 Order, the C
reasonable attributes for the purpose of fixing the price of coal should be
borne in mind ..

. While fixing such price, ordinarily the State act in the same manner
a
that public utility would conduct itself in this regard. This Court in Oil and
Natural Gas Commission and Anr. v. Association of Natural Gas Consuming D
Industries of Gujarat and Ors. (Supra), opined that the price fixed should be
the minimum possible as the customer or consumer must have the commodity
for his survival and cannot afford more than the minimum. Therein this Court
further noticed :

"34. In another article on "The Public Sector in India", quoted in E
Issues in Public Enterprise by Sri K.R. Gupta, Dr Rao is quoted as
saying (at p. 84):

" ... the pricing policy should be such as to promote the growth of
natiOnal income and the rate of this growth ... public enterprises
must make profits and the larger the share of public enterprises F
in all enterprises, the greater is their need for making profits.
I
Profits constitute the surplus available for savings and investment
on the one hand and contribution to national social welfare
programme on the other; and if public enterprises do not make
profits the national surplus available for stepping up the rate of . G
investinent and the increase of social welfare will suffer ·a
corresponding reduction;.... Hence the need for giving up the
irrational belief that public enterprise should, by definition, be
run on a no-profit basis."

In dealing with the fixation of tariff under the Electricity (Supply) Act, H
•'
998 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A 1948, this Court in Hindustan Zinc Ltd. (supra), opined that the tariff cannot
be fixed in such a mann.er by the Board while acting as a private trader and
shedding its public utility character. It was observed :

" .. .In other words, if the profit is made not merely for the sake of
profit, but for the purpose of better discharge of its obligations by the
B Board, it cannot be said that the public enterprise has acted beyond
its authority ... "

In Dr. P. Nalla Thampy Thera v. Union of India, [1983] 4 SCC 598,
this Court observeJ :

c "25. We have said earlier that the Railways are a public utility
service run on monopoly basis. Since it is a public utility, there is no
justification to run it merely as a commercial venture with a view to
making profits. We do not know - at any rate it does not fall for
consideration • here if a monopoly based public utility should ever be
a commercial venture geared to support the general revenue of the
D State but there is not an iota of hesitation in us to say that the common
man's mode of transport closely connected with the free play of his
fundamental right should not be."

In. Mis S.N. Govinda Prabhu and Bros (supra), this Court observed that
profit is not to be shunned but that service and not profit should inform
E
actions of a Board. It was further observed :

" ... We do not think that either the character of Electricity Board as a
Public Utility Undertaking or the provisions of the Electricity Supply
Act preclude the Board from managing its affairs on sound commercial
F lines though not with a profit-thirst..."

As regard limitation of judicial review of price fixation after referring
to the decision of the Constitution Bench of this Court in Shri Sitaram Sugar
Company Ltd. v. Union of India, [1990] 3 SCC 223, this Court in Oi/ and
Natural Gas Commission and Anr. v. Association of Natural Gas Consuming
G Industries of Gujarat and Ors., [ 1990] Supp SCC 397 observed:

" ... It is, however, not necessary here to enter into a discussion of this
and the earlier cases because those cases were primarily concerned
with the question whether the price fixation had been made in
consonance with the requirements of the relevant legislation fixing
H prices of essential commodities in the interests of the general public
~
...
-.
·- ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. [S.B. SINHA, J.] 999

and also because ONGC does not deny that, as a State instrumentality, A
its price fixation should be based on relevant material and should be
fair and reasonable. None of these decisions hold that the cost plus
method is the only relevant method for fixation of prices. On the
contrary, there are indications in some judgments to indicate that not
a minimum but a reasonable profit margin is permissible. Even in
relation to a public utility undertaking like the State Electricity Boards B
where the duty not to make undue profits by abusing its monopoly
position is clear.... "

The action on the part of the State even in the matter of fixation of
price of an essential commodity, thus, must be viewed from different angles, C
some of which we shall advert to hereinafter.

Article 39(b) - Concept:

Article 39(b) was incorporated in the Constitution to indicate the
necessity for ensuring equitable distribution of resources. D
In State of Karnataka and Anr. v. Shri Ranganatha Reddy and Anr.,
[1977) 4 SCC 471, this Court analyzed the constitutional provisions contained
in Article 39(b) of the Constitution, stating :

" ... The key word is "distribute" and the genius of the Article, if we E
may say so, cannot but be given full play as it fulfils the basic purpose
of restructuring the economic order. Each word in the article has a
strategic role and the whole article a social mission. It embraces the
entire material resources of the community. Its task is to distribute
such resources. Its goal is so to undertake distribution as best to
subserve the common good. lt re-organizes by such distribution the F
ownership and control.
f-

"Resources" is a sweeping expression and covers not only cash
resources but even ability to borrow (credit resources). Its meaning
given in Black's Legal Dictiona1y is:
G
"Money or any property that can be converted into supplies; means
of raising money or supplies; capabilities of raising wealth or to
supply necessary wants; available means or capability of any kind."

And material resources of the community in the context of re-ordering
the national economy embraces all the national wealth, not merely H
\. ..
1000 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A natural resources, all the private and public sources of meeting material
needs, not merely public possessions. Every thing of value or use in
the material world is material resource and the individual being a
member of the community his resources are part of those of the
community ...."

B [Also see Samatha v. State of A. P., [1997] 8 SCC 191]

Coal, being such a vital product to the Indian industries and the common
man, nationalization of coal was necessary for realization of the ideals
contained in Article 39(b) of the Constitution.

c In Sanjeev Coke Manufacturing Company etc. v. Mis Bharat Coking
Coal Limited and Anr. etc., [1983] 1 SCC 147, this Court observed:
.!
" ... Coal is, of course, one of the most important known sources of
energy, and, therefore, a vital national resource. While coal is necessary
as a source of energy for very many industries, coking coal is
D indispensable for the country's crucial iron and steel industry. So,
Parliament gave the first priority to coking coal. First there was
legislation in regard to the coking coal mines and then there was
legislation in regard to all coal mines, coking as well as non-coking. .
By the Coking Coal Mines (Nationalisation) Act all coking coal mines
E known to exist in the country were nationalised. Coke oven plants
which were part of the coking coal mines so nationalised being in or
belonging to the owners of the mines also stood automatically
nationalised. Other coke oven plants which did not belong to the
owners of the mines but which were located near about the nationalised
coking coal mines were also identified and nationalised by express
F provision to that effect. At that stage of the rationalisation and
nationalisation of the coal mining industry, it was apparently thought
necessary and sufficient to nationalise such coke oven plants as were "'
in or belonged to the nationalised coking coal mines or as were
identified as located near the nationalised coking coal mines, !eaving
out all other coke oven plants.
G
The nationalisation of the coking coal mines and the coke oven
plants was "with a view to reorganising and reconstructing such mines
and plants for the purpose of protecting, conserving and promoting
scientific development of the resources of coking coal needed ~o meet
H the growing requirements of the iron and steel industry and for matters
+.., {
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. [S.B. SINHA, J.] 1001

connected therewith or incidental thereto". We do not entertain the A
slightest doubt that the nationalisation of the coking coal mines and
the specified coke oven plants for the above purpose was towards
securing that "the ownership and control of the material resources of
the community are so distributed as best to subserve the common
good"."
B
[Also see l. Abu Kavur Bai - State of T. N., [1984] 1 SCC 515]

Article 3 7 of the Constitution of India provides that the provisions
contained in Part IV of the Constitution of India shall not be enforceable by
any court and it enjoins upon the State to apply the provisions of this Part
in making laws. C
It is of some interest to note that whenever an action is taken by a State
in consonance with the provisions laid down in the Directive Principles of
State Policy as envisaged under Part IV of the Constitution of India, the same
is considered to be a reasonable action.
D
In MR.F. Ltd. v. Inspector Kera/a Govt. and Ors., [1998] 8 SCC 227,
a question arose as to whether the rights of industrial concerns under Article
19(1 )(g) are said to be affected having regard to the provisions of the Kera la
Industrial Establishments (National and Festival Holidays) (Amendment) Act,
1990 whereby the number of national holidays were increased. In view of E
Article 43 of the Constitution of India, the restriction imposed were held to
be reasonable restrictions stating:

"The plea under Article 14 also cannot be entertained. The decision
by legislative amendment to raise the national and festival holidays
is based upon relevant material considered by the Government, F
including the fact that the holidays allowed by the Central Government
and other public sector undertakings were far greater in number than
those prescribed under the Act. As pointed out earlier, the Act is a
social legislation to give effect to the Directive PrirtCiples of State
Policy contained in Article 43 of the Constitution. The law so· made
cannot be said to be arbitrary nor can it be struck down for being G
violative of Article 14 of the Constitution."

Therein it was afso observed :

"In examining the reasonableness of a statutory provision, whether it
is violative of the Fundamental Right guaranteed under Article 19, H
1002 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R. ·"' ':'

A one cannot lose sight of the Directive Principles of State Policy
contained in Chapter IV of the Constitution as was laid down by this
Court in Saghir Ahmad v. State of U.P. as also in Mohd. Hanif
Quareshi v. State of Bihar.

12. This principle was also followed in Laxmi Khandsari case in
B which the reasonableness ofrestrictions imposed upon the Fundamental
Rights available under Article 19 was examined on the grounds,
amongst uthers, that they were not violative of the Directive Principles
of State Policy." .-

[Also see B. P. Sharma v. Union of India, [2003] 7 SCC 309: AIR
c 2003 SC 3863; State of Pur.jab v. Devans Modern Breweries Ltd., (2004] 11
SCC 26; State of Gujarat v. Mirzapur Moti Kureshi Kassab Jamat, [2005] 8
sec 534]
It may not be correct to say that any action which is not in consonance
with the provisions of Part IV of the Constitution would be ultra vires but
D there cannot be any doubt whatsoever that the principles contained therein
would form a relevant consideration for determining a question in regard to
price fixation of an essential commodity. Directive Principles of State Policy
provides for a guidance to interpretation of Fundamental Rights of a citizen
as also the statutory rights.
E
We have noticed hereinbefore that coal was nationalized under Coking
Coal Mines (Nationalization) Act, 1972 and Coal Mines (Nationalization)
Act, 1973. We have also noticed that the said Acts were enacted so as to
fulfill the constitutional object contained in Article 39(b) of the Constitution
of India.
F
In terms of the Nationalization Acts indisputably the coal companies as
/
also the Union of India were bound to take action in furtherance of the task -\

of achieving the purport and object for which the coking coal mines and the
coal mines were nationalized. The Parliament also enacted Coal Mines
(Nationalisation) Amendment Act, 1976. In the year 1976, even mining lease
G of all the coal mines were rescinded. The constitutionality of the 1976
Amendment Act was upheld by this Court in Tara Prasad Singh and Ors. v.
Union of India and Ors., [ 1980) 4 SCC 179 stating that the Nationalization
Act was enacted in furtherance of Article 39(b) in the following t_erms:
.>

"35. The Nationalisation Amendment Act needs no preamble,
H
f-. (

..
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. [S.B. SINHA, J.] l 003

especially when it is backed up by a Statement of Objects and Reasons. A
Generaliy, an Amendment Act is passed in order to advance the
purpose of the parent Act as reflected in the preamble to that Act.
Acquisition of coal mines, be it remembered, is not an end in itself
but is only a means to an end. The fundamental object of the
Nationalisation Act as also of the Nationalisation Amendment Act is B
to bring into existence a state of affairs which will be congenial for
regulating mines and for mineral development. "

It may be true that prices are required to be fixed having regard to the
market forces. Demand and supply is a relevant factor as regards fixation of
the price. In a market governed by free economy where competition is the C
buzzword, producers may fix their own price. It is, however, difficult to give
effect to the constitutional obligations of a State and the principles leading to
a free economy at the same time. A level playing field is the key factor for
invoking the new economy. Such a level playing field can be achieved when
there are a number of suppliers and when there are competitors in the market
enabling the consumer to exercise choices for the purpose of procurement of D
goods. If the policy of the open market is to be achieved the benefit of the
consumer must be kept uppermost in mind by the State.

Can the consumer be expected to derive any such benefit from a
monopoly concern? Would a situation of this nature lead to a hybrid situation
where a coal company is allowed to fix its own price which may not be a fair E
price? These are some of the questions which were required to be kept in
mind by the coal companies before formulating a policy of fixing price of an
essential commodity.

The State when exercises its power of price fixation in relation to an F
essential commodity, has a different role to play. Object of such price fixation
is to see that the ultimate consumers obtain the essential commodity at a fair
price and for achieving the said purpose the profit margin of the manufacturer/
producer may be kept at a bare minimum. The question as to how such fair
price is to be determined stricto. sensu does not arise in this case, as would
appear from the discussions made hereinafter, as here the Central Government G
has not fixed any price. It left the matter to the coal companies. The coal
companies in taking recourse to E-Auction also did not fix a price. They only
took recourse to a methodology by which the price of coal became variable.
Its only object was to see that maximum possible price of coal is obtained.
The Appellants do not question the right of the coal companies to fix the H
1004 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.
-· ""::'.

A price of coal. Such prices had been fixed on earlier occasions also wherefor
legally or otherwise the Central Government used to give its nod of approval.
The process of price fixation by the Central Government in exercise of its
powers under the 1945 Order continued from 1996 to 2004.

Does E-Auction ultimately lead to fixation of a price ? The answer to
B the said question must be rendered is a big emphatic 'No', as by reason
thereof even the coal companies would not know what would be the price of
different varieties of coal. The issue must be determined from the perspective
"{-
as to whether the coal companies can be allowed to say that despite their
monopolistic character and they being a 'State' can fix a price which would
otherwise be unfair or unreasonable.
c
The State or a public sector undertaking plays an important role in the
society. It is expected of them that they would act fairly and reasonably in
all fields; even as a landlord of a tenanted premises or in any any other
capacity. [See Baburao Shantaram More v. The Bombay Housing Board and
D Anr., [1954] SCR 572 at 577, Dwarkadas Marfatia & Sons v. Board of
Trustees_ of the Port of Bombay, [1989] 2 SCR 751 at 760, 762 and Pathumma
and Ors v. State of Kera/a and Ors., [1978] 2 SCR 537 at 545]
~

E-Auction is not a mode to fix price. It is only a mode to obtain
maximum price. In other words, deriving the optimum benefit by sale of coal
E is the goal. While doing so State does not have to follow the principles of
fixation of price. It is not required to apply its mind as to its effect. It treats
coal like any other commodity. It treats itself like a private trader. A distinction
must be borne in mind when a State intends to part with a privilege or a
largess as a competitor in the market and when it is expected to fuifill its
constitutional goal enshrined under Article 39(b) of the Constitution.
F
Monopoly
,,.,
. "

Coal companies are monopolies within the meaning of the provisons of
the Nationalization Act. They would be deemed to be monopolies within the
G provisions of clause (6) of Article 19 of the Constitution of India. Our attention
has been drawn to two decisions of this Court in Akadasi Pradhan v. State
ofOrissa, [1963] Supp 2 SCR 691at715, and State of Rajasthan v. Mohan
Lal Vyas, [1971] 3 SCC 705].

In Akadsi Pradhan (supra), it has been held that when a monopoly is
H created in terms of sub-clause (6) of Article 19, no agency can be appointed
f-. , 1
,.
~
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.O.I. [S.B. SINHA, J.] 1005

who would not answer the description of principal and agent. An agent of a A
monopoly organization, it was held, cannot be appointed or act on its own.

In Mohan Lal Vyas (supra), it was held that there cannot be any law in
violation of the Constitution of India and no monopoly right can be conferred
on a citizen under the Constitution, nor can it be justified thereunder.
B
Constitutionality of £-Auction :

-' Coal is an essential commodity. Coal India Limited and its subsidiary
companies enjoyed the monopoly of production, distribution and sale thereof.
The question which arises for consideration is whether in the aforementioned
situation a State within the meaning of Article 12 of the Constitution of India c
can be permitted to take recourse to E-Auction which is not commensurate
with the constitutional scheme of this country.

Some of the coal companies admittedly were reeling under financial
problems. Three of them became sick industrial undertakings and a reference
was made to BIFR. The Union of India in its counter-affidavit states that a D
decision was taken to take recourse to E-Auction such that sick coal companies
could turn around.

Union of India and the coal companies do not deny that they have a
. monopoly. They do not deny or dispute that they are 'State' within the
E
meaning of Article 12 of the Constitution of India. They have also not raised
any contention that the constitutional obligations in terms of Article 39(b) are
not required to be complied with.

It is not in dispute that approximately 94 to 95% of the coal is made
available to the core sector at a notified price. We have also noticed that F
)..
NCCF as also various Central Government and State Government agencies
were to get coal at the base price + 25% thereof. It is of some significance
r to note by way of an example that whereas the core sector gets coal at a price
of Rs.1155/- per metric tonne, NCCF, BCCL and Jharkhand State Minerals
Development Corporation would get the same at a price of Rs. I 386/- per
metric tonne, but the price payable by other non-core linked consumers and G
traders having regard to the flexibility of the price in E-Auction, would be
a sum of Rs.1660/- to Rs.1900/- per metric tonne.

The linked consumers constitute about I% of the total production. The
linkage system so far as non-core sector consumers are concerned, has been
\ ~ H
1006 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A prevailing since 1973. The beneficiaries of the system primarily are
manufacturers of hard coke, smokeless fuel and other products for which the
coal is essential raw material. The Open Sales Scheme which was meant for
traders, in view of the 1Jriginal policy decision of the coal companies, E-
Auction was to be applied to the traders for whom the Open Sales Scheme
B was applicable. It is, however, not in dispute that having regard to the directions
issued by the Central Government to the coal companies, all consumers
irrespective of the fact that whether they are linked consumers of core sector
or non-core sector, were entitled to take part in E-Auction. Ordinarily traders
who are outside the scheme of linkage are entitled to take part in E-Auction.
E-Auction was resorted to allegedly on the ground that various method tried
C by the coal companies including the Open Sales Schemes and MPQ failed for
one reason or the other. The Central Vigilance Commission also recommended,
having regard to the irregularities committed in the matter of sale of coal
through OSS, that publicity of tender should be done through website, in
terms of the letter dated 18.12.2003 with a view to bring about greater
transparency and to curb malpractice. The coal companies state that such a
D direction was made in terms of Section 8(l)(h) of the CVC Act, 2003. It was
recommended that wherever it is feasible and practical the organization should
eventually switch over to the process of e-procurement/e-sale. It is, however,
found that the directions are general in nature and no particular direction was
issued to the coal companies in terms of Section 8(l)(h) of the CVC 2003
E Act which is otherwise permissible in law.

It may be that the practice ofE-Marketing and/or E-Advertisement and/
or E-Contract is prevailing in various parts of the world but E-Auction,
which has a different concept, cannot be equated therewith.

F Coal is an essential commodity in terms of Section 3( I) of the Essential
Commodities Act. Colliery Control Order was made, inter a/ia, for securing
equitable distribution and availability of higher price of essential commodity.
The coal companies as also the Central Government, therefore, have a
constitutional and statutory obligation to fulfill. Coal companies exercising
monopolistic power, thus, were required to distribute coal equitably and at a
G fair price.

In Tara Prasad Singh (supra), this Court has categorically considered
as to why the Parliament thought it fit to enact the Nationalisation Act i.e. to
distribute the resources vested in the State to subserve the common good.
H The State, it is trite, while fixing the price for the purpose of equitable
..
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. [S.B. SINHA, J.] 1007

distribution or otherwise cannot be actuated purely by a profit motive. It A
should not discharge its functions in such a way as to aspire to earn huge
profit specially at the cost of those who are fully dependent upon them for
supply of a monopoly item like coal. It cannot be the law that the public
sector undertakings while selling essential commodities must suffer loss. It is
also not the law that public sector undertakings must distribute subsidy, but
what is required in terms of the constitutional scheme adumbrated under
B
Article 39(b) and Article 14 of the Constitution of India is to make the said
essential commodity available at a fair price. However, for the purpose of
this case, it may not be necessary for us to dilate on the principle of fixation
of price, of coal as an essential commodity or otherwise.
c
Before us the learned counsel for the parties relied upon various decisions
of this Court as regard the mode and manner in which deliberations were
_, made on fixation of price of essential commodities over which the monopoly
right is exercised. We have also been taken through a recent decision of this
Court in Pallavi Refractories (supra). By reason of E-Auction no price is
fixed as it would vary from bids to bids. The coal is sold through E-Auction D
at least twice a month. There will be various places where E-Auction would
be conducted simultaneously. In E-Auction, the quantity and quality of coal
depending upon its grade, size, colliery from which the same has been
extracted, are specified. In such a situation invariably the price for same
quality of coal would greatly vary as the bidders would bid having regard to
E
their own requirement. By allowing repeated bids, a person who may be
requiring the essential commodity would not be able to prove the same and
its non-availability may result in stoppage of production which would lead to
various complications. He would, therefore, be driven to a desperate situation.
The only price which is fixed for E-Auction is the reserved price which is
25% above the notified price. F
.... While fixing a fair and reasonable price in terms of the provisions of
the Essential Commodities Act (although the price is not dual), it is essential
that price is actually fixed. Such price fixation is necessary in view of the fact
that coal is an essential commodity. It is, therefore, vital that price is actually
fixed and not kept variable. Fixation of price of coal is of utmost necessity G
as it is a mineral of grave national importance. Non-availability of coal and
consequently the other products may lead to hardship to a section of citizens.
It may entail closure of factories and other industries which in tum would
lead to Joss to State exchequer; as they would be deprived of its taxes. It will
lead to loss of employment of a large number of employees and would be H
I....(
1008 SUPREME COURT .REPORTS [2006) SUPP. 9 S.C.R.

A detrimental to the avowed object of the Central Government to encourage
small scale industries.

Coal itself is considered to be a core sector. In terms of the provisions
of the Industrial (Development and Regulation) Act, 1951, the Parliament
requires the Central Government to take such steps which would enable the
B SSl units to maintain their viability and strength so as to be effective in : (i)
promoting. in a harmonious manner the industrial economy of the country
and easing the problem of employment; (ii) securing the ownership and control
of the material resources of the community such that the same are distributed
..
to subserve the common good.
c E-Auction has effect both on price of coal as also the availability thereof
to the non-core sector consumers. Their availability would depend upon
successful bids of the consumers. It was introduced for a definite purpose
viz. to confine the same to the non-core sector and traders. A deviation to a
great extent has been made therefrom. Even now the core sectors are taking
D part in E-Auction, but no step has been taken in this behalf.

The Central Government, however, recently ensured availability of coal
to the linked consumers but they have to pay average weighted price.

By its letter dated 08.04.2005, the Central Government informed the
E Chairman, Coal India Ltd., that supply of coal to non-core sector linked
consumers would continue on the basis of MPQ. However, the price for such
supplies is to be computed on the basis of average E-Auction, stating :

"The coal supplied to non-core linked consumer on the basis of
MPQ would continue. However, the price for such supplies would be
F computed on the basis of average e-auction rate during the month.
Sale of two million tones of coal to small consumers through NCCP
would also continue. However, the price for coal supplies to NCCP
would also be governed on the basis of e-auction prices, as mentioned
above."

G Advantages or Disadvantages of £-Auction :

We may at this juncture notice the purported advantages of E-Auction
as submitted on behalf of the Union of India.

(i) The system of E-Auction is simple, easily accessible, transparent
H also offers equal opportunity to all coal customers/intending buyers.
ASHOKASMOKELESS COAL IND. P.LTD. v. U.0.1. [S.B. SINHA, J.] 1009

(ii) Any citizen of India can participate and purchase coal through A
E-Auction by sitting in his home/office from any part of the country.

(iii) A bidder need not require to meet any formalities such as
obtaining licence/quota/sponsorship/linkage etc. and is not required
to meet any such formalities.
B
(iv) Even a buyer located in the remote part of India without
electridty/computer is free to reach the nearest village/town with a
cyber cafe and can participate in the E-Auction without requiring to
come to the coal company/coalfield as earlier under OSS

(v) A bidder is free to choose the source/quality/quantity and C
purch~se coal at a price determined by him on the basis of demand
and supply.

(vi) To purchase coal the buyer need not depend on intermediaries/
middlemen and can directly purchase through E-Auction. This will
reduce the chances of black marketing, ,if not totally eliminate it. D
(vii) The buyer saves on middleman's commissions and other
incidental charges.

(viii) The incidental benefit is also shared by coal company in the
form of improved returns i.e. by diverting intermediary's share to E
coal companies.

(ix) There are a large number of outlets for small consumers
which enable them to draw their coal supplies from any of the
companies/sources instead of limited outlets/coal companies as was
the case in earlier schemes.
F
(x) The sale on the auction is held even in remote areas therefore
is not subject to any manipulation/influence of antisocial elements.

(xi) The system provides for official channel of supplies to all
categories of buyers without classification who were otherwise
dependent on secondary market (black market) G
(xii) The premium under the old system being appropriated by
unscrupulous elements got checked/restricted.

(xiii) Any buyer of coal under non core-sector including SSI
H
1010 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A units is able to avail of this opportunity by payment of a little more
than the notified price. The system of E-Auction is not aimed at
obtaining higher price but endeavours to create an equal opportunity
amongst the buyers of non core sector.

However, we may notice that the said claim of the Union of India or
B the coal companies is not justified. The aforementioned claim of the Central
Government is refuted by the consumers stating that the figures given by the
Union of India are misleading. Price range of all the subsidiaries have been
taken cumulatively instead of taking subsidiary-wise figures. The consumers
belonging to core sectors, like power, steel, iron and chemical etc. are big
C companies like Grasim, Hindalco, Jindal and Haldia Steel who are taking part
in the E-Auction as a result whereof the price of coal has shot at the cost of
SSI units. Thus, even the linked consumers of core and non-core sectors have
been participating therein. Participation of core sector in E-Auction is
destructive of its own policy as would appear from the letter of the Ministry
of Coal dated 08.04.2005 and, thus, it cannot be justified on the ground of
D profiteering wherewith the survival of SSI units is involved.

Although claim has been made by the companies that more and more
persons are taking part therein, it is difficult for us to accept that out of 16000 (

consumers 12000 have taken part; as E-Auctions are more frequently done,
the possibility of the same persons taking part again and again cannot be
E ruled out.

It is difficult to comprehend the stand of the Union of India that E-
Auction is being taken recourse to by more and more persons and, if that be
so, there was no reason as to why the price of coal by E-Auction has declined.

F Before us a chart has been filed with a view of show that after
introduction of the scheme of E-Auction, supply of coal to many of the coke
ovens has decreased affecting their ultimate production. Apprehensions have
been raised that ultimately many of the units may have to be closed. We
think that the coal companies should see to it that such a situation is avoided.
G However, it is not in dispute that auction price being online, no other
bidder is aware of the contents of the bid submitted by the bidder. No bidder
will have access to the records pertaining to E-Ai.tction so as to ascertain who
is the highest bidder or what is the highest bid price; or no bidder would have
knowledge or access to the various bids submitted by the bidders against the
H Ir- I
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.O.I. [S.B. SINHA, J.] 1011
particular grade of coal so as to arrive at an average E-Auction price of A
particular grade of coal. Only MSTC and MJCPL and the companies who are
conducting the E-Auction, would have access to the details of the bids
submitted by the bidders. No eligibility criteria having been fixed, any person
including traders can participate and bid in the E-Auction. Highest price and
highest quantity are the only factors for sale/allocation of coal to a bidder in B
terms of the said scheme; as E-Auction results in traders buying large quantities
of coal. Consequently, the manufacturers of hard coke and smokeless coal as
also other small units have to buy coal at prohibitive rates from traders . The
methodology for allocation of coal to a bidder of E-Auction is, thus,
inequitable, irrational and fortuitous.

The methodology for allocation of coal at this juncture also may be
c
noticed by us :

Allocation is carried out by E-sale software on the following basis:

a. First preference is given to highest bid price.
D
b. If two or more parties bid the same price, then preference for
allocation is given to party that placed the bid for higher
quantity.
c. In case two or more parties bid the same price and quantity,
then preference is given to the party that placed the bid earlier. E
Since a particular grade is allocated/sold at different prices to different
bidders, E-Auction ultimately leads to sale of a particular grade of coal at
variable prices in the market.

In spite of Government of India's office memorandum promising sale of F
coal to the linked consumers at average E-Auction rate, sale to linked
consumers is being made at the highest bid price and not at the average bid
price.

It is accepted that coal is a scarce commodity and the Government
companies are not in a position to supply coal as per demand of the same, G
which may be enormous, despite the fact that a certain level of import of coal
is also permitted.

However, the advantages of E-Auction per se or disadvantages thereof
may not be decisive as this Court is concerned with the constitutionality
thereof. It has not been denied or disputed that by reason of E-Auction price H
".
t
1012 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

- ··A of coal is not fixed. The .concept of price fixation is that all persons who are
in requirement of.the commodity should know the basis or criteria thereof. If
a price is fixed, they would be. able to lay down their own business policy
in such a manner so that they can have a level playing field in the market of
competition .and such competition is not only between the persons whose
end-project is similar or otherwise based on coal but who produce other
B products not based completely on coal. Variability in the price of coal would
affect all who have to depend on coal e.g. we may notice that hard coke is
considered to be vital in the manufacturing process of steel. If the price of
~
coal is not fixed, the price of·hard coke cannot be fixed, which may give rise
to uncertainty in the price of steel or smokeless coal which caters tO'the needs
c of the small consumer~ both for domestic use also for use in the small hotels
and/or use in rural areas. It was, therefore, necessary :that the price of coal
be made known. The contention of the coal companies is that having regard
is
to the availability of LPG, smokeless coal no longer in use. Ex facie, the
said plea is unacceptable.

D Moreover, even fixation of price of LPG in tum would depend upon the
fixation of oil products in other countries. The Central Government, it is well
known, having regard to the effect that may be caused to the people in
general, takes all precautions before fixing the price thereof. The Central
Government has never increased the LPG price exorbitantly.
E While adopting a policy decision as regards the mode of determining
the price of coal either fixed or variable, the coal companies were bound to
keep in mind social and economic aspect of the matter. They .could not take
any step which would defeat the constitutional goal [See Mahabir Auto
Stores and Ors. v. Indian Oil Corporation and Ors., [1990] 3 SCC 752]
F
Even while fixation of tariff for the supply of electric energy in terms
of the provisions of Section 49 of the Electricity (Supply) Act, l 948, only a
reasonable profit is contemplated and not profiteering [See S.N. Govinda
Prabhu (supra) and ONGC (supra).

G It may be true as has been held in the aforementioned cases that cost
alone did not determine the prices and the same has to be determined upon
taking into consideration many complex factors but no decision of this Court .,
says that any arbitrary fixation of price and arbitrary mode of fixation would
satisfy the test of reasonableness as contained in Article 14 of the Constitution
of India.
H
r-4
. JI

.,
'
•
',
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.O.I. [S.B.SINHA, J.] 1013
The learned Additional Solicitor General placed strong reliance on a A
decision of this Court in State of Orissa and Ors. v. Hari Narain Jaiswal &
Ors., (1972] 2 SCC 36, wherein this Court held :

"Even apart from the power conferred on the Government under
Sections 22 and 29, we fail to see how the power retained by the
Government under clause (6) of its order, dated January 6, 1971, can B
be considered as unconstitutional. As held by this Court in Cooverjee
B. Bharucha case, one of the important purpose of selling the exclusive
right to sell liquor in wholesale or retail is to raise revenue. Excise
revenue forms an important part of every State's revenue. The
Government is the guardian of the finances of the State. It is expected
to protect the financial interest of the State. Hence quite naturally, the
c
Legislature has empowered the Government to see that there is no
leakage in its revenue. It is for the Government to decide whether the
price offered in an auction sale is adequate. While accepting or rejecting
a bid, it is merely performing an executive function. The correctness
of its conclusion is not open to judicial review. We fail to see how the D
plea of contravention of Article 19(1 )(g) or Article 14 can arise in
these cases. The Government's power to sell the exclusive privileges
~ . set out in Section 22 was not denied. It was also not disputed that
those privileges could be sold by public auction. Public auctions are
held to get the best possible price. Once these aspects are recognised,
there appears to be no basis for contending that the owner of the
E
privileges in question who had offered to sell them cannot decline to
accept the highest bid if he thinks that the price offered is inadequate.
There is no concluded contract till the bid is accepted. Before there
was a concluded contract, it was open to the bidders to withdraw their
bids - see Union ofIndia v. Bhimsen Walaiti Ram. By merely giving F
bids, the bidders had not acquired any vested rights. The fact that the
'-• Government was the seller does not change the legal position once
its exclusive right to deal with those privileges is conceded. If the
Government is the exclusive owner of those privileges, reliance on
Article 19( l )(g) or Article 14 becomes irrelevant. Citizens cannot have
any fundamental right to trade or carry on business in the properties G
or rights belonging to the Government-nor can there be any
infringement of Article 14, if the Government tries to get the best
available price for its valuable rights. The High Court was wholly
wrong in thinking that purpose of Sections 22 and 29 of the Act was

-
not to raise revenue. Raising revenue as held by this Court in H
~- -'(
,.
f
1014 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A Cooverjee B. Bharucha case was one of the important purposes of
such provisions. The fact that the price fetched by the sale of country
liquor is an excise revenue does not change the nature of the right.
The sale in question is but a mode of raising revenue. Assuming that
the question of arbitrary or unguided power can arise in a case of this
nature, it should not be forgotten that the power to accept or reject
B the highest bid is given to the highest authority in the State i.e. the
Government which is expected to safeguard the finances of the State.
Such a power cannot be considered as an arbitrary power. If that
y
power is exercised for any collateral purposes, the exercise of the
power will be struck down. It may also be remembered that herein we t
c are not dealing with a delegated power but with' a power conferred by
the Legislature. The High Court erroneously thought that the
Government was bound to satisfy the Court that .there was collusion
between the bidders. The High Court was not sitting on appeal against
the order made by the Government. The inference of the Government
that there was a collusion among the bidders may be right or wrong.
D But that was not open to judicial review so long as it is not proved
that it was a make-believe one. The real opinion formed by the
Government was that the price fetched was not adequate. That
. (
conclusion is taken on the basis of Government expectations. The
conclusion reached by the Government does not affect any one's
E rights. Hence, in our opinion, the High Court misapplied the ratio of
the decision of this Court in Barium Chemicals ltd. v. Company Law
Board and Rohtas Industries Ltd v. S. T Agarwal."

Citizens may not have any fundamental right to carry on trade or
business in a commodity belonging to the Government. But therein, the court
F was concerned with liquor which was considered to be res extra commercium.

We may, however, notice that this Court in State of Madhya Pradesh of
v. Nandlal Jaiswal. (1986) 4 SCC 566, as also Khoday Distilleries ltd and
9rs. v. State of Karnataka and Ors., (1995) I SCC 574, has clearly held that
even in respect of trade of liquor, Article 14 would be applicable.
G
In Ramana Dayaram Shetty v. International Airport of India and Ors
[1979] 3 SCC 489 =AIR (1979) SC 1628, this Court held:

" ... the democratic form of Government demands equality and absence
of arbitrariness and discrimination in such transactions... The activities
H
)" -I

--
r
.J!'
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. [S.B. SINHA, J.] 1015
of the Government have a public element and, therefore, there should A
be fairness and equality. The State need not enter into any contract
with anyone, but if it does so, it must do so fairly without discrimination
and without unfair procedure". This proposition would hold good in
all cases of dealing by the Government with the public, where .the
interest sought to be protected is a privilege. It must, therefore, be
taken to be the law that where the Government is dealing with the
B
public, whether by way of giving jobs or entering into contracts or
... issuing quotas or licences or granting other forms of largesse, the
Government cannot act arbitrarily at its sweet will and, like a private
individual, deal with any person it pleases, but its action must be in
·conformity with standard or nonns which is not arbitrary, irrational or c
irrelevant. ... "

It is furthennore not a case like Kasturi Lal Lakshmi Reddy, represented
by its Partner Shri Kasturi Lal, Ward No. 4, Palace Bar, Poonch, Jammu and
Ors. v. State ofJammu & Kashmir and Ors., [1980] 4 SCC 1, whereupon again
the learned Additional Solicitor General relied that the Government cannot act D
in a manner which would benefit a party but then the said decision would not
apply when the State as a monopoly is dealing with an essential commodity.

A monopoly concern is meant to cater to the need of all sections of the
people. Whereas the demand of the core sector must be given priority, the
Central Government as also the Coal Controller in terms of 1945 Order thought E
of giving some preference to those industries which produce smokeless coal
as well. Smokeless coal producers started manufacture the same on the basis
of invention of new technology invented by the Central Fuel Research Institute,
an unit of Council of Scientific and Industrial Research Institute as also the
Coal Mining and Planning Development of India; which is a subsidiary of F
Coal India Ltd .
...,
We have noticed hereinbefore that when the coal companies themselves
manufactured coke for domestic consumers, the same used to cause health
hazards. They intended to outsource production of manufacturing soft coke;
wherefor they had asked the Governments of Bihar and West Bengal to G
encourage setting up of smokeless coal units assuring supply of coal. Such
'linkage system has, therefore, been developed under which the consumers are
linked to specify mines from which they received specified quantities and
specified grades of coal on a monthly basis.

~ -(
H
.,,
"!:-
1016 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A Coke oven units, in particular, are linked in the W-II, W-III & W-IV of
the non-core sector. The importance of the linkage system despite resort to
E-Auction has since been recognized by the Government of India, as would
appear from its letter dated 19.04.2005. Whereas manufacturers of hard coke
would require coking coal, others would require only non-coking coal.

B The necessity of having a fixed price of coal is supported by sub-
section (3) of Section 9 of the MMRD Act, 1957 wherein it was provided that
the rate of royalty shall not be revised within three years. (See AIR ( 1996) SC
2560). The period of three years has since been altered to a period of four
years. Prior thereto a period of five years was fixed therefor. Even the Central
c Government emphasized the requirement of having a fixed price of coal in a
meeting held on 13.10.2001 and took note of the fact that the price increase
would cause undue hardship which might be suffered by the small scale
industries and which might concern their growth and in that view of the
matter, it was decided that the price increase for the non-core sector should
not be done more than once in a period of one year.
D
The court while considering such a question cannot also lose sight of
the fact that apart from the Essential Commodities Act, 1955, the entire control
and regulation of coal has been taken over by the Central Government in • f

terms of Entry 54 of List I as also Entry 52 of List I of the Seventh Schedule
of the Constitution of India. In exercise of such power, the Parliament enacted
E the Industrial (Development and Regulation) Act, I 951 and Mines and Minerals
(Regulation and Development) Act, 1957. A constantly variable price per se,
therefore, appears to be unreasonable and unfair being . opposed to the
professed policies under the said Act.

We are not suggesting that the linkage system can never be brought
F
to an end but it may not be appreciated as to how while maintaining the
linkage system, they can be deprived indirectly of the benefit therefrom; and
how they should be treated equally with other traders. Traders indisputably
would require coal but not for their own consumption. If they purchase coal
at any price, they would sell the same at a higher price. They would certainly
G mind variability in the price of coal as the price of their end products would
have nexus therewith. Moreover, if the traders would pay higher price for
procuring coal, the general consumers would have to pay more. Those who
are linked consumers or who are small traders, thus, stand on a different
footing. Merely to sell it as a profit to the traders who do not possess the
purchasing capacity is not limited or controlled by the market conditions,
H ~t
....
ASHOKA SMOKELESSCOALIND. P.LTD. v. U.0.1. [S.B. SINHA, J.] 1017

whereas it is so for the linked non-core sector. The traders themselves create A
and control the market conditions.

In Mohd. Usman v. State of Andhra Pradesh AIR (1971) SC 1801, this
Court held :

"The proposition of law that the doctrine of equality is attracted B
not only when equals are treated as unequals but also when unequals
are treated as equals and that Article 14 is offended both by finding
difference when there is none and by making no difference when there
is one is unexceptional. But the rule of equality is intended to advance
justice by avoiding discrimination."
c
[See also Motor General Traders v. State of Andhra Pradesh [1984] l SCC
222, Para l O; Indra Sawhney-II v. Union of India [2000] 1 SCC 168, para 27;
State of U. P. v. Johri Mal - [2004] 4 SCC 714 para 41; and E. V Chinnaiah etc.
v. State of A.P. and Ors etc., [2005] 1 SCC 394 paras 66 to 69].

The coal companies themselves highlighted this distinction in Civil D
Appeal No. 5547 of2004 in Bijoy Kumar Poddar's case. We need not, however,
deal with the said matter separately as the questions raised are interconnected
with the other matters. We may notice at once that the necessity to maintain
supply of coal to the linked sector was highlighted by the coal companies
themselves in their special leave petitions filed before this Court. E
It may be true that the linked consumers get two opportunities to
procure coal; once by way of E-Auction and again by way of paying the
average weighted price; but availability of coal itself is not certain having
regard to the fact that admittedly keeping in view the concept of MPQ, they
would not get the full supply for their demand. Even otherwise, a distinction F
should be made between consumers and traders and thus arises the necessity
of different price regimes for the consumers as a class as against traders as
a different class.

The original scheme of E-Auction was meant to be applied only to the
linked non-core sector consumers and traders. Thus, thereby the policy that G
the linked consumers should form a class by themselves was sought to be
given a go-bye. We have, however, noticed hereinbefore that having regard
to the intervention of the Central Government, the coal companies deviated
from the said scheme and considered even the non-core sector consumers to
be a separate class; as they not only became entitled to take part in the E- H
'r'
~

1018 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A Auction along with traders but also were sought to be assured of supply of
coal having regard to their own requirements as regard both quality and
quantity subject, of course, to their paying the price at the average weighted
price. The stand taken by the coal companies before the Calcutta High Court
as also before this Court assumes significance only in that context. However,
now it appears that the coal companies have given a complete go-bye to the
B original scheme of E-Auction inasmuch as not only the traders or the non-
core sector consumers but also core sector consumers had also been allowed
to participate therein. A consumer of coal falling in any category as also a ...,.
.

person who intends to purchase coal for his personal use would, therefore,
be entitled to take part in E-Auction. Whereas the consumers in the core
c sector would not only be entitled to allotment of coarat a price fixed by the
coal companies but also would be entitled to take part in E-auction. The non-
core sector consumers although as linked consumers form a separate and
distinct class vis-a-vis the traders, they would not be entitled to the benefit
of obtaining coal at a fixed price. The question as regards the discrimination
between two categories of consumer assumes some importance.
D
The effect is that today, while the core sector (92%) on its own and nonf '\,
core non-linked SSI/Tiny units (through the NCCF/other agencies) (I%) ,ate , ~

being supplied coal at a fixed price, on the other hand, the non-core linRed
~
SSl/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
E
ascertained by the trader-controlled process of E-Auction and thereby putting
the petitioner-units at par with the trader. The scheme ofE-Auction is, therefore,
ultra vires Article 14 of the Constitution of India.

Judicial Review:
F
The submission of the learned Additional Solicitor General to the effect
4('
that the policy decision of a State cannot be the subject matter of judicial
review is stated to be rejected.

E-Auction is not a policy decision of the Central Government. Such a
G policy decision on the part of the executive of the Central Government must
be strictly construed in terms of Article 77 of the Constitution of India. Its .
exercise of such powers has nothing to do with the price fixation by a policy.
The State while exercising its power under the Essential Commodities Act,
fixes the price keeping in mind several factors, in partieular the larger interest
of the people. Price fixation of an essential commodity, therefore, is determined
H on the touchstone of public interest. While doing so the State is expected to i--~
"' ASHOKA.SMOKELESS COAL IND. P.LTD. v. U.O.l. [S.B. SINHA, J.] 1019
follow a rational and fair procedure and for the said purpose may collect data, A
obtain public opinion, and may appoint an expert committee.

In the facts and circumstances of the case, however, the approach of
the coal companies, who according to the Union of India had been given a
free hand to determine its price for coal, is only earning profit. It has been
accepted that three subsidiary companies and Coal India Ltd. who were sick B
companies, like Bharat Coking Coal Ltd. (BCCL), have started E-Auction. It
has succeeded in its attempt to a great extent as the said coal companies are
.... no longer sick companies. They have proceeded only to safeguard their own
interests, as dealer and not as a State. Recourse to E-Auction had been taken
primarily by way of a profit motive. No public opinion was sought for and
no expert committee was appointed. The statutory and constitutional duties
c
had not been kept in view. Conveniently, while making the said policy decision,
the coal companies did not remind themselves that as they are instrumentalities
of the State, they are bound to adhere to the Directive Principles of the State
and the prime object for which the Nationalization Acts were enacted.
D
Good governance and good corporate governance are distinct and
separate. Whereas good governance would mean protection of the weaker
sections of the people; so far as good corporate governance is concerned,
t•
the same may not be of much relevance. Even the coal <;ompanies in taking
recourse to E-Auction did not give effect to the concept of corporate social
responsibility. E.

What would be profiteering has been noticed in T.MA. Pai Foundation
v State of Karnataka [2002] 8 SCC 481; Islamic Academy of Education v.
State ofKarnataka [2003] 6 SCC 697 and P.A. Jnamdar v. State of Maharashtra
[2005] 6 SCC 537. In these decisions, it has been held that although education
F
is an industry, and those who impart education do so as a part of their
fundamental right in terms of Article 19(1 )(g) of the Constitution of India,
profiteering should not be taken recourse to.

In fact the decisions of this Court on price fixation also point out that
although a reasonable profit may be permissible, profiteering would not be. G
The coal companies evolve price fixation but admittedly they have been
doing so at the instance of the Central Government. The Central Government
seeks to exercise its statutory power. Such a power, however, is confined to
four-corners of the 2000 Order. When there is no control over price, the
Central Government is forbidden to issue any direction which will have an H
\--<;
'ol ,,
1020 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R. ~

A impact thereover.
The coal companies which are, therefore, public authorities when seeking
to give effect to the constitutional scheme as contained in the preamble of
the Nationalization Acts of I 972 and 1973 were acting at the behest of the
Central Government and not entirely on their own. In Hindustan Petroleum
B Corpn. Ltd. v. Darius Shapur Chenai and Ors., [2005] 7 SCC 627, this Court
noticed with approval the decisions in Commr. of Police v. Gordhandas
Bhanji [I 952] SCR 135 : AIR (1952) SC 16 and Mohinder Singh Gill v. Chief
Election Commnr. [1978] I SCC 405, in the following terms : ·.-
"In Commr. of Police v. Gordhandas Bhanji it is stated:
c
"We are clear that public orders, publicly made in exercise of a
statutory authority cannot be construed in the light of explanations
subsequently given by the officer making the order of what he meant,
or of what was in his mind, or what he intended to do. Public orders
made by public authorities are meant to have public effect and are
D intended to affect the actings and conduct of those to whom they are
addressed and must be construed objectively with reference to the
language used in the order itself."

Yet again in Mohinder Singh Gill this Court observed: "''
E "The second equally relevant matter is that when a statutory
functionary makes an order based on certain grounds, its validity
must be judged by the reasons so mentioned and cannot be
supplemented by fresh reasons in the shape of affidavit or otherwise.
Otherwise, an order bad in the beginning may, by the time it comes
to Court on account of a challenge, get validated by additional grounds
F
later brought out. We may here draw attention to the observations of
Bose, J. in Gordhandas Bhanji:" .,,,
Referring to Gordhandas Bhanji it was further observed:

"Orders are not like old wine becoming better as they grow older.""
G
In relation to fixation of price or other related matters, the Central
Government, therefore, had no say. Under the Colliery Control Order 2000, the
power of the Central Government is merely to regulate supply and not to
regulate price, the price of coal, it will bear to state, having been deregulated.

H Supply and/or disposal of coal which would come within the purview
r-J
" • ASH OKA SMOKELESS COAL IND. P. LTD. v. U.0.1. [S.B. SINHA, .I.] I021

of Colliery Control Order, 2000, would, thus, take within its sweep only : to A
whom the supply would be made, what would be the quantity, the mode,
period or the source of supply. Such a power to issue directions would not
include fixation of price. E-Auction is not related to policy for supply of coal.
It is essentially the price therefor. The Central Government in that view of the
matter either directly or indirectly while purportedly exercising its power under
clause 6 read with clause 9 of the Colliery Control Order could not have
B
issued any direction in the garb of disposal of coal by way of E-Auction. The
Central Government itself says that it allowed the coal companies to fix their
own price; if that be so in terms of the statute it could not issue any direction
which would have direct or indirect impact on price of coal. It, as indicated
hereinbefore, directed that 10 lacs MT coal be sold through E-Auction; but c
while doing so stricto sensu, its power and control to regulate supply of coal
could not be exercised in that sense. Apart from the fact that it also does not
satisfy the attributes of supply, as noticed hereinbefore, the supply of coal
itself has not been brought within the purview thereof. Furthermore no
notification has been issued by the Central Government regulating supply of
coal. D

. By allowing E-Auction in respect of l 0 lacs MT of coal, it merely
quantified the amount of coal which was required to be sold. It did not bring
within its sweep taking recourse to the mode of E-Auction so as to enable
the companies to obtain a valuable price. Clause 6 of the Colliery Control
E
Order does not envisage the same.

Promissory Estoppel :

We have noticed hereinbefore that smokeless coal operators had set up
their units at the behest of the coal companies. Those who had set up their
F
units in the erstwhile State of Bihar and West Bengal evidently did so at the
... behest of the companies having been encouraged therefor. It was done to
share the burden of coal companies to supply soft coke to the small consumers.
Doctrine of promissory estoppel would, therefore, be applicable.

The concerned States also intended to grant incentives to such industrial G
units by way of waiver and/ or deferment of payment of sales tax wherefor
Rule 28A in the Sales Tax Rules was introduced. Sales Tax laws enacted by
the States contain a provision empowering the State to grant such exemption.

The relevant provisions of the Act and the Rules framed thereunder
indisputably were made keeping in view the industrial policy of the State . H
....-.(
1022 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R. • ,,..
A Such industrial policies by way of legislation or otherwise, subject of course
to the provisions of the statute have been framed by several other States.

In Mis. Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar ,.
Pradesh and Ors., [1979] 2 SCC 409, this Court rejected the plea of the State
to the effect that in the absence of any notification issued under Section
B 4-A of the U.P. Sales Tax Act, the State was entitled to enforce the liability
to sales tax imposed on the petitioners thereof under the provisions of the
Sales Tax Act and there could be no promissory estoppel against the State
so as to inhibit it from formulating and implementing its policy in public
interest.
c The question came up for consideration before this Court in Pournami
Oil Mills and Ors. v. State ofKera/a and Anr., [1986] (Supp) SCC 728, wherein
it was held:·

"Under the order dated April 11, 1979, new small scale units were
invited to set up their industries in the State of Kerala and with a view
D
to boosting of industrialisation, exemption from sales tax and purchase
tax for a period of five years was extended as a concession and the
five-year period was to run from the date of commencement of
production. If in response to such an ·order and in consideration of ~

the. concession made available, promoters of any sivall scale concern
E have set up their industries within the State of Kerala, they would
certainly be entitled to plead the rule of estoppel in their favour when
the State ofKerala purports to act differently. Several decisions of this
Court were cited in support of the stand of the appellants that in
similar circumstances the plea of estoppel can be and has been applied
and the leading authority on this point is the case of MP. Sugar
F Mills. On the other hand, reliance has been placed on behalf of the
State on a judgment of this Court in Baku/ Cashew Co. v. STO. In
Baku/ Cashew Co. case this Court found that there was no clear
material to .show any definite or certain promise had been made by the ""
Minister to the concerned persons and there was· no clear material
G also in support of the stand that the parties had altered their position
by acting upon the representations and suffered any prejudice. On
facts, therefore, no case for raising the plea of estoppel was held to
have been made out. This Court proceeded on the footing:that the
notification granting exemption retrospectively was not in accordance
with Section I 0 of the St.ate Sales Tax Act as it then stood, as there
H
H
• ASHOKA SMOKELESS COAL IND. P.L TD. v. U.0.1. [S.B. SINHA, J.] 1023

was no power to grant exemption retrospectively. By an amendment A
that power has been subsequently conferred. In these appeals there
is no question of retrospective exemption. We also find that no
reference was made by the High Court to the decision in MP. Sugar
Mills' case. In our view, to the facts of the present case, the ratio of
MP. Sugar Mills' case directly applies and the plea of estoppel is
unanswerable."
B

Yet again in Assistant Commissioner of Commercial Taxes (Asst.)
,")It Dharwar and Ors. v. Dharmendra Trading Company and Ors., [1988} 3 SCC
570, this Court, on the factual situation obtaining therein, rejected the
contention of the State that any misuse of the concessions granted was
committed by the respondent therein and thus the State cannot go back on
c
its promise.

- It was further observed:

"The next submission of learned counsel for the appellants was that
D
the concessions granted by the said order dated 30-6-1969 were of no
legal effect as there is no statutory provision under which such
concessions could be granted and the order of 30-6-1969 was ultra
~· vires and bad in law. We totally fail to see how an As5istant
Commissioner or Deputy Commissioner of Sales Tax who are
functionaries of a State can say that a concession granted by the E
State itself was beyond the powers of the State or how the State can
say so either. Moreover, if the said argument of learned counsel is
correct, the result would be that even the second order of 12-1-1977
would be equally invalid as it also grants concessions by way of
refunds,· although in a more limited manner and that is not even the
case of the appellants." F

Mangalore Chemicals and Fertilisers Limited v. Deputy Commissioner
of Commercial Taxes and Ors., [1992} Supp 1 SCC 21, is a case where this
Court had the occasion to consider as to whether subsequent change in the
eligibility criteria can undo the eligibility for the condition stipulated in the
G
earlier notification and answered the same in the negative.

This Court reaffirmed the legal position in Pawan Alloys & Casting Pvt.
Ltd., Meerut v. U.P. State Electricity Board and Ors., [1997} 7 SCC 251,
holding:
H
"."-\
1024 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.
..
A "As a result of the aforesaid discussion on these points the conclusion
becomes inevitable that the appellants are entitled to succeed. It must
be held that the impugned notification of 31-7-1986 will have no
adverse effect on the right of the appellant-new industries to get the
development rebate of 10% for the unexpired period of three years
from the respectiYe dates of commencement of electricity supply at
B their units from the Board with effect from l -8-1986 onwards till the
entire three years' period for each of them got exhausted. This result
logically follows for the appellants who have admittedly entered into
supply agreements with the Board as new industries prior to 1-8-
1986."
c The question came up for consideration before this Court recently in
State of Punjab v. Nestle India Ltd. and Anr [2004] 6 SCC 465, wherein this

D
Court surveyed the growth of the said doctrine and held the doctrine to be
applicable to legislative action also.

Legitimate Expectation :
-
Principle of natural justice will apply in cases where there is some right
which is likely to be affected by an act of administration. Good administration,
however, demands observance of doctrine of reasonableness in other situations
also where the citizens may legitimately expect to be treated fairly. Doctrine
E of legitimate expectation has been developed in the context of principles of
natural justice.

Issue arises whether recourse to legitimate expectations can be taken
when the expectation is based on unlawful representation (i.e., most often
something that is ultravires the power of local authority). In Stretch v. U. K.
F [2004] 38 EHRR 12, applicant was granted a lease for 22 yrs. by an authority
that did not have the power to do so. It was only made known to the applicant
at the time of renewal of the lease, when negotiations had already reached ...
an advanced stage. While the court of appeal accepted the argument that the
option to renew the lease could not be exercised (as beyond the local
authority's power), it noticed that it was unjust that such authorities could
G
take advantage of their own wrong. The European Court of Human Rights
however did not accept this argument and awarded damages as it found on
facts that this action did not in any way go against public interest, nor did
it prejudice the statutory duties of the authority.

H We may, however, notice a recent trend where doctrine of balancing has
~1
ASHOKA SMOKELESS COAL fND. P.LTD. v. U.0.1. [S.B. SINHA, J.) 1025

been advocated. A
Rowland v. Environmental Agency [2003] EWCA Civ. (1885) involved
a part of the Thames river, known as 'Hedsor Water', which the relevant
authorities declared open for exercise of public navigation rights. Initially
however, the authorities by regular and consistent practice had accepted that
such rights did not exist. The Court of Appeal said that although the B
expectations were legitimate, the action must fail. According to Peter Gibson
L.J., the action failed as legitimate expectations could only be granted against
lawful claims. Although May L.J., (like Menace L.J.) came to the same
"' conclusion, they refused to accept legal incapacity as an automatic answer
against legitimate expectation (amounting to convention right). They sought
a kind of a balance where while allowing the Hedsor water to be open to rights
c
of navigation, such use would not be actively encouraged by the authority.

It was held that, however, there was no need to restrict such 'balancing'
to cases where the right was one protected under the convention. It could
be extended to all cases where the unlawful action was not adverse to public D
interest.

Conclusion

Coal being a scarce commodity, its utility for the purpose for which it
is needed is essential. Although, technically, in view of the fact that no price E
is fixed for coal, there may not be any black marketing in the technical sense
of the terms; but this Court cannot also encourage black marketing in general
sense. Nobody should be allowed to take undue advantage while dealing with
a scarce commodity. The very fact that despite best efforts of the Central
Government, the coal companies failed to curb the menace of a section of
people and to deal in coal exduding other general people therefrom or the F
linked consumers misusing their position of obtaining allotment of coal either
wholly or in part, it is absolutely necessary that some mechanism should be
found out for plugging the loopholes. The Union of India or the coal companies
appear to have lost confidence in the State Governments. They had carried
out joint inspection and in that process they must have arrived at a satisfaction G
about the genuineness of the claims of industrial units for which the linkage
/
system was meant for.

Before us most of the consumers, with a view to obtain supply of coal
had filed documents to prove their genuineness. The said documents must
be scrutinized by the authorities of the coal companies. In the event, they H
,.-<'.
.(
1026 SUPREME COURT REPORTS (2006] SUPP. 9 S.C.R. c:-
A have any suspicion, inspection should be carried out by officers appointed
by the Chairman-cum-Managing Director of the concerned company within
whose jurisdiction the unit is situated.

With a view to evolve a viable policy, a committee should be constituted
by the Union of India with the Secretary of Coal being the Chairman. In such
.
B a committee, a technical expert in coal should also be associated as most of
the projects involve consumers of coal, particularly manufacturers of hard
coke and smokeless fuel. In our opinion, it may not be difficult to find out,
having regard to the technologies used therein as regards the ratio of the
input vis-a-vis the output, with a balance and 10% margin. On the basis of
...
such finding alone, apart from the requirements of five years, supply should
c form the basis of MPQ. We may, however, hasten to add that the Central
Government in collaboration with the coal companies would be at liberty to
evolve a policy which would meet the requirements of public interest vis-a-
vis the interest of consumers of coal. They would be entitled to lay down
such norms as may be found fit and proper. They would be entitled to fix
D appropriate norms therefor. In the event, any industrial unit is found to violate
the norms, it should be stringently dealt with.

Hard coke plants are also coal mines within the meaning of Colliery
Control Order, 2000. Hard coke is coal within the meaning of the provisions ~

thereof. The Central Government, therefore, may think it fit to widen the
E definition of coal so as to include the smokeless coal in exercise of its power
under the Essential Commodities Act. We may notice in ONGC (supra), this
Court has held that slurries -are a part of coal and_ is governed by the
provisions of the Mines and Minerals (Regulation and Development) Act.
Such being the wider definition of coal, we fail to see any· reason as to why
F proper measure cannot be taken by the Union of India to have a complete
control thereover. Any strict mechanism to find out the genuine consumers
would go a long way in taking preventive measures and dealing with coal by
t-
unscrupulous persons for unauthorized purposes. Those who do so, should
be dealt with stringently but the same would not mean that the genuine
consumers should suffer for want of coal.
G
We, in the peculiar facts and circumstances of this case, are of the
opinion that it may not be difficult to find out as to who the genuine
consumers are. So far as owners of the hard coke ovens are concerned, they
are members of the association _,and their identity can easily be verified.

H However, discussions made hereinbefore should not be taken to lay
H
,,____
ASHOKA SMOKELESS COAL IND. P.LTD. v. U.0.1. (S.B. SINHA, J.] 1027
down a law that the Central Government and for that matter the coal companies A
cannot change their policy decision. They evidently can; but therefor there
should be a public interest as contra distinguished from a mere profit motive.
Any change in the policy decision for cogent and valid reasons is acceptable
in law; but such a change must take place only when it is necessary, and upon
undertaking of an exercise of separating the genuine consumers of coal from B
the rest. If the coal companies intend to take any measure they may be free
to do so. But the same must satisfy the requirements of constitutional as also
.,. the statutory schemes; even in relation to an existing scheme e.g. Open Sales
Schemes, indisputably the coal companies would be at liberty to fonnulate the
new policy which would meet the changed situation. E-advertisement or E-
tender would be welcome but then therefor a greater transparency should be C
maintained.

For the reasons aforementioned, Civil Appeal Nos. 2972 and 2975 of
2005 being devoid of any merits are dismissed. Civil Appeal arising out of
S.L.P. (Civil) No. 24034 of2005 is allowed and the impugned judgment of the
Madhya Pradesh High Court is set aside. No separate order is required to be D
' passed on Civil Appeal No.5547 of2004 arising out of the judgment and order
-,. of the Calcutta High Court as the said case would also be governed by this
judgment. All other appeals and transferred cases are disposed of with the
aforementioned observations and directions.

K.K.T. Appeals Transfer Cases disposed of.