Supreme Court of India
SOUTH EASTERN COALFIELDS LTD.versusSTATE OF M.P. AND ORS.
- Citation
- 2003 INSC 542
- Decided
- 13 October 2003
- Disposal
- Dismissed
- Bench
- R C LAHOTI
Holding
The Coalfields must pay interest on delayed royalty as per Rule 64A and may recover the same from consumers, but the interest rate is limited to 12% per annum as a fact‑specific concession.
Summary
The State of Madhya Pradesh enhanced the royalty payable on coal and sought recovery of the differential amount from South Eastern Coalfields Ltd. (the Coalfields) and the ultimate consumers. The Coalfields, bound by their mining lease and Mineral Concession Rules, were required to pay simple interest of 24% on delayed royalty, and they in turn demanded the same interest from consumers. The High Court reduced the interest rate to 12% and held that interim orders restraining royalty recovery did not extinguish liability for interest. On appeal, the Supreme Court examined whether Rule 64A of the Mineral Concession Rules could validly impose interest, whether the Sale of Goods Act allowed interest on unpaid royalty, and whether restitution principles applied to interest during the period of interim orders. The Court held that the rules were a valid exercise of delegated legislation, that interest could be awarded under the Sale of Goods Act and equity, and that restitution required compensation for the period of interim orders. However, it upheld the High Court’s reduced interest rate of 12% as a fact‑specific concession and dismissed all appeals.
Issues considered
- The validity of Rule 64A of the Mineral Concession Rules, 1960 to impose interest on delayed royalty payments.
- Whether the Coalfields are contractually and statutorily liable to pay interest to the State Government.
- Whether consumers/purchasers are liable to pay interest to the Coalfields for unpaid enhanced royalty.
- The effect of interim court orders on the liability to pay interest and the applicability of restitution.
- The appropriate rate of interest (24% vs. 12%) to be awarded.
Legislation cited
- Code of Civil Procedure, 1908s. 144
- Mineral Concession Rules, 1960s. Rule 31, s. Rule 64A
- Mines and Minerals (Regulation and Development) Act, 1957s. 13, s. 31, s. 4, s. 9
- Sale of Goods Act, 1930s. 61
Subjects
interestmineral leaseroyaltydelegated legislationrestorationrestitutionsale of goodsinterim orderenhanced royaltyRule 64A
Judgment
SOUTH EASTERN COALFIELDS LTD. A
v.
STATE OF M.P. AND ORS.
OCTOBER 13, 2003
[R.C. LAHOTI AND ASHOK BHAN, JJ.]
B
Mineral Concession Rules, 1960-Rule 64 A and 31-lnterest-
Grant of-Mining lease to C-Lease deed stipulating payment of interest at
the rate of 24% in event of delay in payment of dues-Enhanced royalty
not paid by C to Government due to interim ordres passed by High Court C
prohibiting charge of enhanced royalty from consumers-Held, C is
obliged by terms of lease deed and the rules to pay interest.
Administrative Law-Delegated legislation-Ambit of-Act not
providing for charge of interest on delayed payment-Rules framed under D
the Act providing for charge of interest on delayed payment-Held, Rules
can provide for interest-Mines and Minerals (Regulation and development)
Act, 1957-Section 13-Mineral Concession Rules, 1960-Rule 64 A.
Sale of Goods Act, 1930-Section 61-Jnterest-Grant of- E
Incorporates a rule of equity, justice and sound logic-C selling coal to
consumers-C entitled to include royalty paid for mining in the price of
coal-Royalty payable enhanced-Enhanced royalty not paid by C under
stay order of court-C not collecting enhanced royalty from consumers-
Validity of enhanced royalty upheld by the final judgment of the court-
C paying enhanced royalty to State with interest-Held, C can recover
F
interest from consumers-Mines and Minerals (Regulation and
Development) Act, 1957-Section 9.
Words and Phrases-Restitution-Meaning of
G
Code ofCivil Procedure, 1908-Section 144-Restitution-Benefit of
interim order passed by court to purchasers of coal-Litigation finally
decided against the purchasers of coal-Held, the seller has a right to be
restituted by payment of interest by purchasers even in respect ofthe period
of subsistence of stay order by the court. H
651
652 SUPREME COURT REPORTS [~3] SUPP. 4 S.C.R.
A The State Government had granted mining leases to the appellant
Coalfields for extraction of coal under the provisions of the Mines and
Minerals (Regulation and Development) Act, 1957. The prevailing rate
of royalty payable on coal was Rs. 6.50 per ton. The Union of India
enhanced the royalty payable on coal to Rs.120 per ton. The State
B Government, thereafter, took steps to recover enhanced royalty from
the Coalfiel51s. As under the Act, the Coalfields were entitled to pass
on the _burden of royalty to the consumers/purchasers, the Coalfields
proposed to enhance the price of coal. Several writ petitions were filed
by ·the purchasers/consumers challenging the validity of enhancerr.ent
C ofroyalty. The High Court, by interim orders, prohibited the Coalfields
from recovering the enhanced royalty from the writ petitioners.
Ultimately, the High Court quashed the enhancement of royalty on the
ground that it was arbitrary and lacking in bona fides.
D The State Government challenged the judgment and order of the
High Court. before the Court. By an interim order, the Court stayed
the operation of the judgment of the High Court. After passing of the
stay order; the Coalfields issued notices to the consumers/purchasers
demanding payment of the differential royalty and realised it by
E invoking the bank guarantees furnished by the consumers/purchasers.
The appeals filed by the State Government were ultimately allowed by
the Court and the writ petitions filed by the consumers/purchasers
were dismissed.
Rule 64 of the Mineral Concession Rules, 1960 framed under the
F provisions of the Mines and Minerals (Regulation and Development)
Act, 1957 entitles the State Government to charge simple interest at
the rate of 24% per annum on any rent, royalty, fee or sum due to it
from the sixtieth day of the expiry of the date fixed for payment of such
rent, royalty, fee or sum due. The agreement between the State
G Government and lessees for grant of mining lease also includes a term
entitling the State Government to recover simple interest at the rate
of 24% per annum on any rent, royalty, fee or sum due to it and not
paid within the prescribed time.
H The State Government issued letters to the Coalfields demanding
SOUTH EASTERN COALFIELDS LTD. v. ST ATE 653
payment of interest at the rate of 24% per annum for the period for A
which the payment of the enhanced royalty to the State Government
was delayed. The Coalfields, in turn, issued notices to the consumers/
purchasers demanding payment of similar interest from them.
Several consumers/purchasers as well as the Coalfields filed writ B
petitions before the High Court seeking quashing of the demand
raised on account of interest. The High Court disposed of the writ
petition.s holding that the State Government was entitled to recover
interest from the Coalfields, which in turn could recover the same from
the consumers/purchasers. However, in the facts and circumstances, C
the High Court directed that if paid within a month, interest would be
at the rate of 12% per annum only. If the concerned party failed to
pay interest within a month, the rate of interest would be 24% per
annum.
The consumers/purchasers and the Coalfields filed appeals before D
the Court challenging their liability to pay interest. The Coalfields
contended inter alia that as the Mines and Minerals (Regulation and
Development) Act, 1957 did not provide for charging of interest, the
Rules framed thereunder in exercise of delegated power could not have
provided for imposition of interest. The State Government also filed E
appeal claiming that it was entitled to recover interest at the rate 24%
per annum and not at the rate of 12% per annum as directed by the
High Court.
Dismissing the appeals, the Court F
HELD : I. Liability of the Coalfields to pay interest to the State.
1.1. The Coalfields are bound to pay interest as per the terms
of the mining leases incorporating the clause for payment of
interest consistently with Rule 64 A of the Mineral Concession Rules, G
1960. (667-FJ
1.2. The Central Government can, in exercise of delegated power
of legislation, make provisions for payment of interest on the amount
of royalty for tile period of delay in payment. The terms for payment H
654 SUPREME COURT REPORTS (2003] SUPP. 4 S.C.R.
A of royalty, and for payment of interest for the period of delay, are
authorised by the power to make rules for regulating the grant of
mining lease. Rule 64 A of the Mineral Concession Rules, 1960 has been
validly enacted. That apart, interest is included within the expression
'other charges'-the phrase as employed in clause (i) of sub-section (2)
B of Section 13 of the Mines and Minerals (Regulation and Development)
Act, 1957. [667-C, 663-B-C]
India Carbon Ltd. and Ors. v. State of Assam, [1997J 6 SCC 479;
V. V.S. Sugar v. Government of A.P. and Ors., [1999) 4 SCC 192 and
Vikrant Tyres Ltd. v. First Income Tax Officer, Mysore, [2001) 3 SCC 76,
C distinguished.
Suvarna Cements Ltd & Anr. v. Union of India & Ors., AIR (2002)
A.P. 244, referred to.
D l.3. The lease deed executed by the Coalfields incorporates a recital
for the payment of interest. The Coalfields, having entered into mining
lease contracts with full knowledge of terms and conditions thereof and
having taken advantage thereunder of operating the mines, they cannot
be subsequently allowed to wriggle out of the contractual obligations
incurred by then, including the one for payment of interest. :[667-D)
E
Har Shankar & Ors. •v. Dy. Excise and Taxation Commissioner &
Ors., (1975] 1 SCC 757 and State of Haryana & Ors. v. Lal Chand &
Ors., [1984] 3 SCC 634, referred to.
F 2. Liability of the consumers/purchasers to pay interest to the
Coalfields for the periodfor which there was no restraint order on recove1y
of royalty.
2.1. Section 61 of the Sale of Goods Act, 1930, providing for
interest by way of damages and special damages, incorporates a rule
G of equity, justice and sound logic. The buyer should not unduly benefit
by holding the goods bought in one hand and yet retaining in the other
hand the goods legitimately due for delivery to the buyer. The sale of
mineral by Coalfields to the consumers/purchasers is a sale of goods.
Section 61 of the Sale of Goods Act, 1930 is attracted in the present
H case. (667-H, 668-A, E-G]
SOUTH EASTERN COALFIELDS LTD. v. STATE 655
2.2. Interest is also payable in equity in certain circumstances. The A
rule in equity is that interest is payable even in the absence of any
agreement or a custom to that effect though subject, of course, to a
contrary agreement. Interest in equity has been held to be payable on
a market rate even though the deed contains no mention of interest.
Applicability of the rule to award interest in equity is attracted on the B
existence of a state of circumstances being established which justify the
exercise of such equitable jurisdiction and such circumstances can be
many. [669-D-E]
Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa & C
Ors. v. N.C. Budharaj (Deceased) by Lrs. & Ors., [2001) 2 SCC 721,
referred to.
2.3. In the absence of there being a prohibition either in law or
in the contract entered into between the two parties, there is no reason D
why the Coalfields should not be compensated by payment of interest
for the period for which the consumers/purchasers did not pay the
amount of enhanced royaity which is a constituent part of the price
of the mineral for the period for which it remained unpaid. The
justification for award of interest stands fortified by the weighty factor E
that the Coalfields themselves are obliged to pay interest to the
State on such amount. It will be a travesty of justice to hold that
though the Coalfields themselves are obliged to pay the amount of
interest to the State but the consumers/purchasers in whose hands the
money was actually withheld be exonerated from liability to pay the F
interest. [670-D-F]
3. Liability of the consumers/purchasers to pay interest to the
Coalfields for the period for which the restraint order passed by the
Court remained in operation.
G
3.1. The word 'restitution' in its etymological sense means restoring
a party on the modification, variation or reversal of a decree or order,
what has been lost to him in execution or decree of the Court or in
direct consequence of a decree or order. In law, the term 'restitution'
is used in three senses: (i) retl!rn or restoration of some specific thing H
656 SUPREME COURT REPORTS (2003] SUPP. 4 S.C.R.
A to its rightful owner or status; (ii) compensation for benefits derived
from a wrong done to another; (iii) compensation or reparation for the
loss caused to another. [671-D-E]
Zafar Khan & Ors. ·v. Board of Revenue, U.P. & Ors., AIR (1985)
B SC 39; Black's Law Dictionary, 7th Edition at p. 1315 and Law of
Contracts by John D. Calamari & Joseph M Perillo;.referred to.
3.2. The interim order passed by the Court merges into the final
decision. The validity of an interim order, passed in favour of a party,
stands reversed in the event of final decision going against the party
C successful at the interim stage. Unless other-Wise ordered by the Court,
the successful party at the end would be justified with all expediency
in demanding. compensation and .being placed in the same situation in
which it would have been in if the interim order would not have been
D passed against it. The successful party can demand (a) the delivery of
benefit earned by the opposite party under the interim order of the
court, or (b) to make restitution for what it has lost; and it is the duty
of the Court to do so unless it feels that in the facts and on the
circumsta!lces of the case, ·the restitution would far _from meeting the
ends .of justice, would rather defeat the same. {672-A-C)
E
3.3. That no one shall suffer by an ad of the Court is not a rule
confined to an erroneous act of the Court; the 'act of the Court'
embraces within its sweep all such acts as to which the Court may form
an opinion in any legal proceedings that the Court would not have so
F acted had it been correctly appraised of the facts and the law. The
factor attracting applicability of restitution is not the act of the Court
being wrongful or a mistake or error committed by the Court; the test
is whether on account of an act of the party persuading.the Court to
pass an order held at the end as not sustainable, has resulted in one
G party gaining an advantage which it would not have otherwise earned,
or the other party has suffered an impoverishment which it would not
have suffered but for the order of the Court and the act of such party.
The quantum of restitution, depending on the facts and circumstances
of a given case, may take into consideration not only what the party
H excluded would have made but also what the party under obligation
t
SOUTH EASTERN COALFIELDS LTD. v. ST ATE 657
has or might reasonably have made. There is nothing wrnng in the A
parties demanding being placed in the same position in which they
would have been had the Court not intervened by its interim order
when at the end of the proceedings the Court pronounces its judicial
verdict which does not match with and countenance its own interim
verdict. Whenever called upon to adjudicate, the Court would act in B
conjunction with what is the real and substantial justice. The injury,
if any, caused by the act of the Court shall be undone and the gain
which the party would have earned unless it was interdicted by the
order of the Court would be restored to or conferred un the party by
suitably commanding the party liable to so. [673-C-G] C
3.4. The principle of restitution has been statutory recognised in
Section 144 of the Code of Civil Procedure, 1908. But Section 144 of
the Code of Civil Procedure is not the fountain source of restitution;
it is rather a statutory recognition of a pre-existing rule of justice, D
equity and fair play. That is why it is often held that even away from
Section 144 of the Code of Civil Procedure, 1908 the Court has
inherent jurisdiction to order restitution so as to do complete justice
between the parties. [671-G, 672-E]
Jai Berham v. Kedar Nath Marwari, (1922) 49 I. A. 351; Rodger v. E
Comptoir d' Escompte de Paris, (1871) L.R. 3 P.C. and A.A. Nadar v.
S. P. Rathinasami, (1971) 1 MLJ 220; referred to.
3.5. Once the doctrine of restitution is attracted, the interest is
often a normal relief given in restitution. Such interest is not controlled F
by the provisions of the Interest Act of 1839 or 1978. The successful
party finally held entitled to a relief assessable in terms of money at
the end of the litigation, is entitled to be compensated by award of
interest at a suitable reasonable _rate for the period for which the
interim order of the Court withholding the release of money had G
remained in operation. [674-D, 674-B-C]
4. Entitlement of the State Government to charge interest@24% p.a.
4.1. The prayer of State Government seeking substitution of rate
of interest by 24% per annum in place of 12% per annum is not H
658 SUPREME COURT REPORTS.[2003] SUPP. 4 S.C.R.
. A granted in exercise of discretionary jurisdiction under Artide 136 of
the Constitution oflndia. The High Court has, rightly (and reasonably)
opined that upholding entitlement to payment. of interest at the rate
of 24% per annum would be excessive and it .would.meet the ends of
justice if the rate of interest is reduced from 24%. per annum to 12%
B per annum on the facts and in the. circumstances :of the case. The
litigation has lasted for. long period. of time. Multiple commercial
transactions have taken place and much time has been lost in between.
The commercial rates of interest (including bank rates) have undergon~
substantial variations and for quite sometime the bank rate ofinterest
C has been below 12%. {674-D-F]
4.2. This concession is confined to the facts of the case. and to the
parties herein and shall not be construed as precedent for overriding
Rule 64 A of the Mineral Concession Rules, 1960. (674-G]
D
State of MP. v. Mahalaxmi Fabric Mills Ltd & Ors., [1995] Supp.
1 SCC 642 and Gursharan Singh and Ors. v. New Delhi Municipal
Committee and Ors., (1996) 2 SCC 459, also referred to.
E CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5282 of
2002.
From the Judgment and Order dated 3.9.98 of the Madhya Pradesh
High Court in W.P. No. 2033 of 1998.
F WITH
C.A. Nos. 5283-5287, 5288-5301, 5321,. 5353, 5355, 5357,
~359, 5362, 5419, 5434, 5435, 5436, 5437, 5459,.5460, 5513 and 5532
of 2002.
G
Mukul Rohtagi, Additional Solicitor General, R.F. Nariman, P.K.
Jaiswal, A.K. Chitale, S. Ganesh, Ajit Kumar.Sinha, Shriniwas R. Khalap,
E. Venu Kumar, A. K. Sanghi, Anip Sachthey, P.K. Maheshwari, T.N.
Singh, Niraj Sharma, Jai Mangalwadi, Mrs. Prachi Khare, Satish K.
H Agnihotri, Anil K. Pandey, W.A. Nomani, Sakesh Kumar, Rohit K. Singh,
SOUTH EASTERN COALFIELDS LTD. v. STATE [LAHOTI, J.] 659
U.A. Rana, Gaurav Sinha, Ashok Bhan, Satbir Pillania, Ms. Sunita Shanna, A
Ajay Shanna, Ms. Rekha Pandey, D.S. Mahra, R.K. Maheshwari, T.N.
Singh for the appearing parties.
The Judgment of the Court was delivered by
B
R.C. LAHOTI, .J. : Mis. South Eastern Coalfields Ltd.and M/s.
Western Coalfield Ltd. are Government Compai:iies operating various coal
mines in the State of Madhya Pradesh, holding mining leases granted to
them by the State Government under the provisions of the Mines and
Minerals (Regulation and Development) Act, 1957, hereinafter 'the Act', C
for short. Coal is a major mineral and the said companies, hereinafter
collectively called as 'coalfields', have the exclusive right for extractbn
of coal under the lease deeds held by them.
Sub-Section (3) of Section 9 of the Act empowers the Central
Government to enhance or reduce the rate at which royalty shall be payable D
in respect of any mineral including coal w .e.f. such date as may be specified
in the notification published in the official gazette in that behalf. In exercise
of the power so conferred, the Union oflndia enhanced the royalty payable
on coal to Rs. 120 per ton from Rs. 6.50 per ton, which was the rate
prevailing till then. So far as the State Government is concerned, it is E
entitled to collect the royalty including the enhanced {O_yalty from the
lessees, i.e. the coalfields, and the coalfields can, in law, pass-on the burden
of royalty to the purchasers/consumers of coal by including the amount
equivalent to royalty in the price of the coal. Coal is a controlled
commodity and governed by the provisions of the Essential Commodities F
Act, 1956 and the Coal Control Order issued thereunder. Inasmuch as the
State Government took steps for recovering the royalty on coal at the
enhanced rates from the lessees and the lessees in their tum proposed to
enhance the rate at which the coal was supplied to the purchasers/
consumers, about 60 writ petitions came to be filed in the High Court of G
Madhya Pradesh by different consumers who were to bear the burden of
enhancement ultimately. In the writ petitions, the enhancement of royalty
on coal wiis sought to be impugned on two grounds: firstly, that Section
9(3) of the Act itself was ultra vires the Constitution; and secondly,
that the notification dated lst August, 1991 issued by the Central H
660 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A Government under Section 9(3) of the Act was unconstitutional being
arbitrary, unreasonable and lacking in b~na fides. The High Court of
Madhya Pradesh by its decision dated 17.12.1993 upheld the vires of
Section 9(3) of the Act but quashed the notification dated 1.8.1991
enhancing the rate of royalty on the ground that it was arbitrary and lacking
B in bona fides.
It is pertinent to note that the coalfields did not lay any challenge to
the enhancement. All the writ petitions in the High Court were filed by the
consumers/purchasers. The coalfields were impl_eaded as respondents.
C When the State of Madhya Pradesh filed appeals by special leave in this
court impugning the judgment of the High Court, the coalfields joined as
appellants with the State of Madhya Pradesh. A batch of appeals was
decided by this Court on February l, 1995 (decision reported as State of
MP. v. Mahalaxmi Fabric Mills Ltd & Ors., [1995] Supp. l SCC 642.
·D This Court allowed the appeals, set aside the decision of the High Court
of Madhya Pradesh and directed the writ petitions filed in the High Court
to be dismissed.
The writ petitions in the High Court were filed on different dates. The
E High Court had, on a prayer made_ by the respective writ petitioners, passed
orders protecting the writ petitioners from the recovery of enhanced
royalty. Chronologically, the first of the interim orders which has been
brought to our notice is dated 28.8.1992 passed in CWP No. 3239 of 1992.
The order is so worded :
F
·~ ....... .It is directed that the respondents shall not charge royalty
on coal from the petitioners at the enhanced rate but the old rate
as it was prevalent before 01.08.1991 until further orders."
G Several interim orders so made remained in operation during the
pendency of the writ petitions in the High Court. On special leave petitions
being filed in this Court against the final judgments of the High Court dated
17.12.1993, this Court, vide order dated 6. l.1994 directed the operation
of the judgment of the High Court to remain stayed. The result of the
H interim stay granted by this Court was that the notification dated 1.8.1991
SOUTH EASTERN COALFIELDS LTD.'" STATE [LAHOTI, J.] 661
became operative and the enhancement in rate of royalty made thereby A
became operational and the enhanced royalty became recoverable.
It seems that at some stage of the proceedings, under orders of the
court, the consumers had furnished bank guarantees for payment of
differential amount of royalty in the event of their liability being upheld B
by the Court. On the operation of the judgment of the High Court having
been stayed by the Supreme Court, the Coalfields issued notices demanding _
payment of differential royalty and on account of the bank guarantees
being available, the differential amount of royalty was paid in full and the
bank guarantees furnished by the parties were released.
c
1 In the year 1997 the Director, Mines and Geology, Government of
··-:; Madhya Pradesh, issued letters to the Coalfields demanding payment of
interest at the rate of 24% per annum for the period for which the payment
of the enhanced amount of royalty was delayed. The Coalfields in their tum
raised bills on their consumers/buyers demanding payment or similar D
interest from them for the period for which they had delayed the payment
of amount equivalent to differential royalty to the Coalfields. At this point
of time the several consumers as also the Coalfields filed several writ
petitions seeking quashing of the demand raised on account of interest. A
batch of writ petitions was disposed of by a Division Bench of the High E
Couit of Madhya Pradesh on 3.9.1998 by allowing relief in part to the
several writ-petitioners. The High Court has directed interest to be paid at
the rate of 12% per annum intsead of24% per annum if paid within a month
of the date of the order failing which the lilability to pay interest at the
rate of24% per annum shall stand. The reasoning which has prevailed with F
the High Court is that it was on account of the various interim orders passed
by the High Court restraining the recovery of royalty at the enhanced rate
that the Coaltields were prevented from recovering the royalty at the
enhanced rate from the consumers, and as they could not collect the amount
of royalty they in their tum could not pass on the amount of royalty to the G
State. The interim orders of the Court cannot be construed as wiping out
the liability to pay, even temporarily, for the period for which the interim
order of the Court remained in operation, so as to permit a plea being raised
that where there be no demand there can be no liability to pay interest. The
demand was there; the liability too was there; only its enforcement was H
662 SUPREME COURT REPORTS'[2003] SUPP. 4 S.C.R.
A suspended. The interim orders of the Court can neither prejudice the right
of the State to recover interest from the Coalfields nor the right of the
Coalfields to recover interest from the consumers/buyers. However, placing
reliance on Gursharan Singh and Ors. v. New Delhi Mun1cipal Committee
and Ors., [1996] 2 SCC 459 the High Court held that levy of interest at
B the rate of 24% per annum would be too harsh and the interest of justice
demanded· the rate of interest being reduced to 12% per annum whiclr it
did. So far as the State is concerned the High Court held that it was entitled
to recovery from the Coalfields which could, in their tum, recover the
amount of interest from the consumers either by filing suits or by stopping
C their supplies for the future unless the dues were paid. The consumers and
Coalfields have come up in appeal by special leave disputing their liability
to pay interest. The State of Madhya Pradesh and Chhattisgarh has also
come up in appeal by special leave staking its claim for recovery of interest
at the rate of 24% per annum in place of 12% per annum as directed by
, D the High Court.
We have heard S/Shri R.F. Nariman, P.K. Jaiswal, A.K. Chitale and
S. Ganesh, Senior Advocates for the consumers; S/Shri Ajit Kumar Sinha
and Anip Sachethey, Advocates for the Coalfields and Shri Satish Kumar
Agnihotri, Advocate for the Stii'te of Madhya Pradesh. We have also heard
E Shri Mukul Rohtagi, the learned Additional Solicitor General for the Union
of India. '
The questions arising for decision in this batch of appeals may, for
facilitating discussion, be grouped into two, as under :
F (i) The liability of Coalfields to pay interest to the State
Government;
and
(ii) The liability of the consumers/purchasers to pay interest
G
to the Coalfields
(a) for the period for which there was no restraint order on
recovery passed by the Court,
H and
SOUTH EASTERN COALFIELDS LTD. v. STATE [LAHOTI, J.J 663
(b) for the period for which the restraint order passed by the A
Court remained in operation.
Liability of Coalfields to pay interest to the State
It is not disputed that the mining rights have been leased to the B
Coalfields by the State Government under the provisions of the Mines and
Minerals (Development and Regulation) Act, 1957. Under Section 4 of the
Act no mining operation in any area shalL be undertaken except under
and in accordance with the terms and conditions of a mining lease
granted under the Act and the rules made thereunder. Rule making C
power has been conferred on the Central Government by Section 13 of the
Act. The relevant part of Section 13 is extracted and reproduced
hereunder:
I J Power of Central Gqvernment to make rules in D
respeat of minerals.-
(1) The Central Government may, by notification in the
Official Gazette, make rules for regulating the grant of
(reconnaissance permits, prospecting license.s and mining
leases) in respect of minerals and for purposes connected E
therewith
(2) In particular, and without prejudice to the generality of
the foregoing power, such rules may provide for all of any
of the following matters, namely : F
(a) to (f) xxx xxx xxx
(g) the terms on which, and the conditions subject to
which, any other (reconnaissance permit, prospecting G
licences or mining leases) may be granted or renewed;
(h) xxx xxx xxx
(i) the fixing and collection of fees for (reconnaissance H
664 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A pennits, prospecting licences or mining leases) surface
rent, security deposit, fines, other fees or charges and
the time within which and the manner in which the
dead rent to royalty shall be payable;)
U) to ( qq) xxx xxx xxx
B
(r) any other matter which is to be, or may be, prescribed
under this Act.
In exercise of the powers conferred by the abovesaid Section 13, The
C Mineral Concession Rules, 1960 have been framed. Once an application
for the grant of a mining lease has been sanctioned by.an order for the grant
of such lease, a lease deed in Fonn 'K' appended to the said Rules is
required to be executed under Rule 31. The following two clauses of the
lease deed are relevant and hence are reproduced hereunder :
D Part V - Rents and Royalties reserved by this lease
Clause 3. Subject to the provisions of clause 1 of this Part, the
les!:)ee/lessees shall during the subsistence of this lease pay to the
State Government at such times and in such manner as the State
E Government may prescribe royalty in respect of any mineral/
minerals removed by him/them from the leased area at the rate
for the time.being specified in the Second Schedule to the Mines
and Minerals (Regulation and D~velopment) Act, 1957.
F Part VI - Provisions relating to the rents and royalties
Clause 3. Should any rent, royalty or other sums due to the State
Government under the terms and conditions of these presents be
not paid by the lessee/lessees within the prescribed time, (the
same, (together with simple interest due thereon at the rate of
G (twenty four pef cent) per annqm) may be recovered) on a
certificate of such officer as may be specified by the State
Government by general or special order, in the same manner as
an arrear of land revenue.
H ·Rule 64A provides as under :
SOUTH EASTERN COALFIELDS LTD. v. STATE [LAHOTI, J.] 665
64A. The State Government may, without prejudice to the A
provisions contained in the Act or any other rule in these rules,
charge simple interest at the rate of (twenty-four per cent) per
annum on any rent, royalty or fee (other than the fee payable under
sub-rule (1) of Rule 54) or other sum due to that Government
under the Act or these rules or under the terms and conditions of B
any prospecting licence or mining lease from the sixtieth day of
the expiry of the date fixed by that Government for payment of
such royalty, rent, fee or other sum and until payment of such
royalty, rent fee or other sum is made.
It is not disputed that the Coalfields have executed lease deeds in
c
Form 'K' wherein the abovesaid two clauses, i.e., Part V Clause 3 and Part
VI Clause 3 are both incorporated. There is the statutory rule providing
for payment of simple interest at the rate of 24% per annum on the amount
of any royalty or other sum which remains unpaid. Also, the contract in D
the statutory form entered into between the parties contains a recital
consistent with Rule 64A obliging the Coalfields to pay such interest. Thus,
the liability of the Coalfields to pay interest to the State is statutory as well
as contractual.
Shri S. Ganesh, the learned senior counsel made an ingenious E
submission that the liability to pay interest on the amount of royalty to be
statutory should have been provided for by the Act itself, and as the Act
does not make any provision for payment of interest the Central Government
could not have, in exercise of delegated power of legislation, made
provision for interest on overdue royalty. He further submitted that the F
liability to pay interest or the right to levy interest can be brought into being
only by a substantive provision of law; liability to pay interest cannot be
left to be created by procedural law. Even ifthe constitutional validity of
Rule 64A has not been put in issue, yet the consumers, upon whom the
burden of paying the amount of interest would ultimately be passed on, G
are entitled to dispute the levy of interest on the ground that the same is
not supported by the provisions of the Act. He further submitted that there
being no provision in the Act for payment of interest, a mere incorporation
of a term to that effect in the lease deed executed by the Coalfields in favour
of the State Government, in the pro-forma appended to the Rules, creating H
666 SUPREME COURT REPORTS {2003] SUPP. 4 S.C.R.
A a liability in excess of those created by the Act itself, cannot be relied on •
by the State Government to support its claim for interest. Reliance was
placed on the decisions of this Court in India Carbon Ltd and Ors. v. State
of Assam, [1997] 6 SCC 479, V. V.S. Sugars v. Govt. of A.P. and Ors.,
[1999] 4 SCC 192 and Vikrant Tyres Ltd. v. First Income Tax Officer,
B Mysore, [2001] 3 sec 76.
We have carefully perused all the three decisions. All these decisions
relate to tax recovery of tax whereon interest was sought to be levied for
delayed payment. The Court chose to assign a literal meaning to the
C provisions of the substantive law as opposed to a liberaljnterpretation, and
held that to empower levy of interest for delayed payment of tax there must
be a substantive provision in the taxing statute. All the cases relied on by
Shri S. Ganesh, the learned senior counsel, are such cases wherein the levy
of interest was sought to be justified by reference to some provison made
D in the rules, which provision was held to be beyond the rule making power
as delegated by the parent statute and the statute itself did not make a
provision for payment of interest. The levy of such interest was held to
be ultra vires the power of the authority levying the interest. Such is not
the case before us. Here it is clear from the several provisions of the Act
E and the rules quoted hereinabove, no mining operation is permissible
except in accordance with the terms and conditions of a mining lease and ..
the rules made under the Act. The rules clearly provide for payment of
interest. The lease deed executed. by the Coalfields incorporates a recital
for the payment of interest. It is one of the terms and conditions of
F obtaining a mining lease that any delay in payment of royalty, referable
.to a perio~ beyond the sixtieth day of the expiry of the date fixed by the
Government for payment of such royalty, shall carry a liability to pay
simple interest calculated .at the rate of 24% per annl!m on such amount
of royalty. Rule 64A has been framed in exercise of the powers conferred
G on the Central Government ·by Section 13 of .the Act. The terms for
payment of royalty, and for payment of interest for the period of delay,
are authorized by the power to make rules for regulating the grant of
mining lease. That apart, interest is included within the expression 'oth~r
charges' - the phrase as employed in clause (i) of sub-Section (2) of
H Section 13 of the Act. A decision by a Division Bench of Andhra Pradesh
SOUTH EASTERN COALFIELDS LTD. v. STATE [LAHOTI, J.] 667
in Suvarna Coments Ltd. & Anr v. Union ofIndia & Ors., AIR (2002) A.P. A
244 has been brought to our notice. The Division Bench has held - "It
cannot be said tbat the tenn 'charges' occurring in S. 13(2)(i) does not
include 'interest'. Undoubtedly, interest payable by a lessee for delayed
payment is a financial liability on the Jessee and, therefore, a debt. It may
also be construed as a cost or price or compensation payable to the B
contracting State authority for delay in payment of dues such as cess,
royalty, etc.". We find ourselves in respectful agreement with the view of
the Jaw so taken by the High Court.
The Central Government can, in exercise of delegated power of C
legislation, make provisions for payment of interest on the amount of
royalty for the period of delay in payment. Rule 64A has been validly
enacted. The mining lessees, that is the Coalfields, having entered into
mining lease contracts with full knowledge oftenns and conditions thereof
and having taken advantage thereunder of operating the mines, they cannot D .
be subsequently allowed to wriggle out of the contractual obligations
incurred by them, including the one for payment of interest, by executing
the mining leases. The proposition is so well-settled that it hardly needs
any authority in support thereof. Yet, reference may be had to Har Shankar
& Ors. v. Dy. Excise and Taxation Commissioner & Ors., [1975] l SCC E
757 and State of Haryana & Ors. v. Lal Chand & Ors., [1984] 3 SCC
634, and the several decisions cited therein.
In sum, we are of the opinion that the Coalfields, i.e., the mining
lessees, are bound to pay interest as per the tenns of mining leases
incorporating the clause for payment of interest consistently with Rule 64A F
of the Mineral Concession Rules, 1960.
Liability of the consumers/purchasers to pay interest to the Coalfields :
(a) (for the period for which there was no restraint order on recovery G
passed by the Court)
It cannot be denied that the sale of minerals by Coalfields to the
consumers/purchasers is a sale of goods. Section 61 of the Sale of Goods,
I 930 provides as under : H
668 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A '"61. Interest by way of damages and special damages.-
(1) Nothing in this Act shall affect the right of the seller or the
bu)'.er to recove: interest of special damages in any case where by
law interest or special damages maY. be recoverable, or to recover
B the money paid where the consideration for the payment of it has
failed.
(2) In the absence of a contract to the contrary, the Court may
award interest at such rate as it thinks fit on the amount of the
C price.
(a) to the seller in a suit by him for the amount of the
price - from the date of the tender of the goods or from the
date on which the price was payable;
.. D (c) to the buyer in a suit by him for the refund of the
price in a case of breach of the contract on the part of
the seller - from the date on which the payment was
made.
E What Section 61 incorporates is a rule of equity, justice and sound
logic. The buyer should not unduly benefit by holding the goods bought
in one hand and yet retaining in the other hand the money equivalent to
the price of goods due and payable by him to the seller. Similarly, the seller
should not unjustly enrich by retaining the money received in advance as
F price in full or part of the goods forming subject matter of the contract,
and retaining in the other hand the goods legitimately due for delivery to
the buyer. It was submitted on behalf of the consumers/purchasers that
Secti~n 61 does not create any right in the seller (that is, the Coalfields)
by itself; it only confers power on the Court to award interest at such rate
G as it thinks ~t. In the present case, the Coalfields are demanding interest
without having recourse to any court for recovery and that too in the
absence of a contract in that regard. We are not impressed by the
submission. Though, Section 61 may not in terms apply yet the principle
underlyi:ig the provision can very well be relied on for the purpose of
H settling the rights of the parties in a just manner.
SOUTH EASTERN COALFIELDS LTD. v. STA TE [LAHOTI, J.] 669
It was submitted that the royalty as payable is not a constituent of A
price agreed upon between the lessee and the consumer. A few decisions
were cited in support of such submission but they are in a different context
and do not have any applicability to the issue arising for resolution before
us. The royalty is paid as royalty by the mining lessee to the State.
However, the burden of royalty is specifically allowed to be passed on by B
the mining lessee to the consumer/purchaser of the mining products. The
amount which is recovered by the mining lessee from the buyer is
obviously a part of the price agreed upon in the sense that the amount is
incurred as a cost towards recovering the minerals offered for sale. In any
case, the amount of royalty is recovered by the seller and paid by the buyer C
along with and as part of the price of the mineral. In either case, it would
attract and applicability of Section 61 of the Sale of Goods Act.
Interest is also payable in equity in certain circumstances. The rule
in equity is that interest is payable even in the absence of any agreement D
of custom to that effect though subject, or course, to a contrary agreement
(See: Chitty on Contracts, Edition 1999, Vol. II, Part 38-248 at page 712).
Interest in equity has been held to be payable on a market rate even though
the deed contains no mention of interest. Applicability of the rule to award
interest in equity is attracted on the existence of a state of circumstances E
being established which justify the exercise of such equitable jurisdiction
and such circumstances can be many.
We may refer to the decision of this Court in Executive Engineer,
Dhenkanal Minor Irrigation Division, Orissa & Ors. v. NC. Budharaj
(Deceased) by Lrs. & Ors., [2001] 2 sec 721, wherein the controversy F
relating to the power of an arbitrator (under the Arbitration Act, 1940) to
award interest for pre-reference period has been settled at rest by the
Constitution Bench. The majority speaking through Doraiswamy Raju, J.,
has opined that the basic proposition of law that a person deprived of the
use of money to which he is legitimately entitled has a right to be G
compensated for the deprivation by whatever name it may be called, viz.,
interest, compensation or damages and this proposition is unmistakable and
valid; the efficacy and binding nature of such law cannot be either
diminished or whittled down. It was held that in the absence of anything
in the arbitration agreement, excluding the jurisdiction of the arbitrator to H
670 SUPREME COURT REPORTS [2003) SUPP. 4 S.C.R.
A award interest on the amount due under the contract, and in the absence
of any other prohibition, the arbitrator can award interest.
Under the English Law, generally speaking, a seller cannot recover
interest when the buyer is in default of paying the price, nor can the buyer·
B recover it when claiming a refund of the purchase price. Yet special
damages have been held permissible to be awarded in respect of interest
paid by the plaintiff as due to the defendant's breach subject to the rule
of remoteness. The English Law caused considerable debate in India as
well, but the matter was set at rest by the enactment of Section 6 i of the
C Sale of Goods Act, 1930. Recovery of interest by way of damages i~
permissible under sub-section (2) of Section 61 (See Mulla on Sale Goods
Act, Sixth Edition, pp.61-62). Power to award interest by way of damages
at a reasonable rate if there' be no contract rate specified, or at tlie contract
rate as specified, flows from Section 61 of the Act.
D We are, therefore, of the opinion that in the absence of there being
a prohibition either in law or in the contract entered into between the two
parties, there is no reason why the Coalfields should not be compensated
by payment ?f interest for the period for which the consumers/purchasers
did not pay the amount of enhanced royalty which is a constituent part of
E the price of the mineral for the period for which it remained unpaid. The
justification for award of interest stands fortified by the weighty factor that
the Coalfields themselves are obliged to pay interest to the State on such
amount. It will be a travesty of justice to hold that though the Coalfields
must pay the amount of interest to the State but the consumers/purchasers
F in whose hands the money was actually withheld be exonerated from
liability to pay the interest.
Liability of the consumers/purchasers to pay interest to the Coa/ifields :
G (b) (for the period for which the restraint order passed by the Court
remained in operation)
On the principle which we have upheld just hereinabove, it would not
have been necessary to enter into this aspect of the issue; however, it
H becomes .necessary to deal ·therewith inasmuch as it was submitted on
SOUTH EASTERN COALFIELDS LTD. v. ST ATE [LAHOTI, J .] 671
behalf of the consumers/purchasers that thefr non-payment of enhanced A
amount of royalty was protected by judicial orders, though of interim
nature, passed by the Courts and therefore they should not be held liable
for payment of interest so long as the money was withheld under the
protective umbrella of the court order. Merely because the writ
petitions were finally held liable to be dismissed, it cannot be urged that B
the interim orders passed by the Courts were erroneous. Soon on dismissal
of their writ petitions, the payment of the enhanced amount of royalty
which was disputed earlier was promptly cleared by the writ petitioners
and, therefore, their act was bona fide. We find no merit in this submission
either. c
In our opinion, the principle ofrestitution takes care of this submission.
The word 'restitution' in its etymological sense means restoring to a party
on the modification, variation or reversal of a decree or order, what has
been Jost to him in execution or decree or order of the Court or in direct D
consequence of a decree or order (See : Zafar Khan & Ors. v. Board of
Revenue, U.P. & Ors., AIR (1985) SC 39. In law, the term 'restitution'
is used in three senses : (i) return or restoration of some specific thing to
its rightful owner or status; (ii) compensation for benefits derived from a
wrong done to another; (iii) compensation or reparation for the loss caused
to another. (See Black's Law Dictionary, Seventh Edition, p.1315). The E·
Law of Contracts by John D. Calamari & Joseph M. Perillo has been quoted
by Black to say that "restitution" is an ambig~ous term, sometimes
referring to the disgorging of something which has been taken and at times
referring to compensation for injury done. "Often, the result in either
meaning of the term would be the same .......... Unjust impoverishment as F
well as unjust enrichment is a ground for restitution. It the defendant is
guilty of a non-tortious misrepresentation, the measure of recovery is not
rigid but, as in other cases of restitution, such factors as relative fault, the
agreed upon risks, and the fairness of alternative risk allocations not agreed
upon and not attributable to the fault of either party need to be weighed." G
The principle of restitution has been statutorily recognized in Section 144
of the Code of Civil Procedure, l 908. Section 144 of the C.P.C. speaks
not only of a decree being varied, reversed, set aside or modified but also
includes an order on par with a decree. The scope of the provision is wide
enough so as to include therein almost all the kinds of variation, reversal, H
672 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A setting aside or modification of a decree or order. The interim order passed ·-
by the Court merges into a final decision. The validity of an interim order,
passed in favour of a party, stands reversed in the event of final decision
going against the party successful at the interim stage. Unless otherwise
ordered by the Court, the successful party at the end would b.e justified with
B all expediency in demanding compensation and being placed in the same
situation in which it would have been if the interim order would not have
b~en passed against it. The successful party can demand (a) the delivery
of benefit earned by the opposite party. under the interim order of the Court,
or (b) to make restitution for what it has lost; and it is the duty of the court
C to do so unless it feels that in the facts and on: the circumstances of the
case, the restitution would far from meeting the ends of justice, would
rather defeat the same. Undoing the effect of an interim order by resorting
to principles of restitution is an obligation of the party, who has gained
by the interim order of the Court, so as to wipe out the effect of the interim
D order passed which, in view of the reasoning adopted by the court at the
stage of final decision, the Court earlier would not or ought not to have
passed .. There is nothing wrong in an effort being made to restore the
parties to the same position in which they would have bee~ if the interim
order would not have existed.
E Section 144 of the C.P.C. is not the fountain source of restitution; it
is rather a statutory recognition of a pre-existing rule of justice, equity and
fair play. That is why it is often held that even away from Section 144 the
Court has inherent jurisdiction to order restitution so as to do complete
justice between the parties. In Jai Berham v. Kedar Nath Marwari, [1922]
F 49 I.A. 351, their lordships of the Privy council said : "It is the duty of
the Court under Sec. 144 of the Civil Procedure Code t~ place the parties
in the position which they would have occupied but for such decree or such
part thereof as has been varied of reversed. Nor indeed does this duty or
jurisdiction arise merely under the said section. It is inherent in the general
G jurisdiction of the Court to act rightly and fairly according to the
circumstances towards all parties involved. Cairns, L.C. said in Rodger v.
Comptoir d'Escompte de Paris, (1871) L.R. 3 P.C.: "One of the fast and
highest duties of all Courts is to take care that the act of the Court does
no injury to any of the suitors and when the expression, the act of the Court
H is used, it does not mean merely the act of the primary Court, or of any
SOUTH EASTERN COALFIELDS LTD. v. ST A TE [LAHOTI, J.] 673
intennediate Court of appeal, but the act of the Court as a whole from the A
lowest Court which entertains jurisdiction over the matter up to the highest
Court which finally disposes of the case". This is also on the principle that
a wrong order should not be· perpetuated by keeping it alive and
respecting it, A.A. Nadar v. S.P. Rathinasami, (1971) l MLJ 220. In the
exercise of such inherent power the Courts have applied the principles of B
restitution to myriad situations not strictly failing within the tenns of
Section 144.
That no one shall suffer by an act of the court is not a rule confined
to an erroneous act of the court; the 'act of the court' embraces within its C
sweep all such acts as to which the court may fonn an opinion in any legal
proceedings that the court would not have so acted had it been correctly
apprised of the facts and the law. The factor attracting applicability of
restitution is not the act of the Court being wrongful or a mi~take or error
committed by the Court; the test is whether on account of an act of the D
party persuading th~ Court to pass an order held at the end as not
sustainable, has resulted in one party gaining an advantage which it would
not have otherwise earned, or the other party has suffered an impoverishment
which it would not have suffered but for the order of the Court and the
act of such party. The quantum of restitution, depending on the facts and E
circumstances of a given case, may take into consideration not only what
the party excluded would have made but also what the party under
obligation has or might reasonably have made. There is nothing wrong in
the parties demanding being placed in the same position in which they
would have been had the court not intervened by its interim order when
at the end of the proceedings the court pronounces its judicial verdict which F
does not match with and countenance its own interim verdict. Whenever
called upon to adjudicate, the court would act in conjunction with what is
the real and substantial justice. The injury, if any, caused by the act of the
court shall be undone and the gain which the party would have earned
unless it was interdicted by the order of the court would be restored to or G
conferred on the party by suitably commanding the party liable to do so.
Any opinien to the contrary would lead to unjust if not disastrous
consequences. Litigation may tum into a fruitful industry. Though litigation
is not gambling yet there is an element of chance in every litigation.
Unscrupulous litigants may feel encouraged to approach the Courts, H
674 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A persuading the court to pass .interlocutory orders favourable to them· by
making out a prima facie case when the issues are yet to be heard and
determined on merits and if the concept of restitution is excluded from
application to interim orders, then· the litigant would stand to gain by
swallowing the benefits yielding out of the interim order even though the
B battle has been lost at the end. This cannot be countenanced. We are,
therefore, of the opinion that the successful party finally held entitled to
a relief assessable in terms of money at the end of the litigation, is entitled
to be compensated by award of interest at a suitable reasonable rate for
the period for which the interim order of the court withholding the release
C of money had remained in operation.
Once the doctrine of restitution is attracted, the interest .is often a
normal relief given in restitution. Such interest is not controlled by the
provisions of the Interest Act of 1839 or 1978.
D So far as the appeal filed by the State of Madhya Pradesh seeking
substitution of rate of interest by 24% per annum in place of 12% per
annum as awarded by the High Court is. concerned, we are not inclined
to grant that relief in exercise of our discretionary jurisdiction underArticle
136 of the Constitution especially in view of the opinion formed by the
E High Court in the impugned decision. The litigation has lasted for a fong
period of time. Multiple commercial transactions have taken place and
much time has been lost in between. The commercial rates of interest
(including bank rates) have undergone substantial variations and for quite
sometime the bank rate of interest has been below 12%. The High Court
F has, therefore, rightly (and reasonably) opined that upholding entitlement
to payment of interest at the rate of 24% per annum would be excessive
and it would meet the ends or justice if the rate of interest is reduced from
24% per annum to 12% per annum on the facts and in the circumstances
of the case. We are not inclined to interfere with that view of the High Court
G but make it clear that this concession is confined to the facts of this case
and to the parties herein and shall not be construed as a precedent for
overriding Rule 64A of the Mineral Concession Rules, 1960. It is also
clarified that the payment of dues should be cleared within six weeks from
today (if not already cleared) to get the benefit of reduced rate of interest
H of 12%; failing the payment in six weeks from today the liability to pay
SOUTH EASTERN COALFIELDS LTD. v. STATE [LAHOTI, J.] 675
interest @24% per annum shall stand .. A
For the forgoing reasons, all the appeals are held liable to be
dismissed and they are dismissed accordingly. Needless to say the interest
shall be calculated for the period commencing from the sixtieth day of the
expiry of the date fixed by the State Government for payment of such B
royalty consistently with Rule 64A till date of actual payment. The
demands shall be worked out accordingly. No order as to the costs.
B.K.M. Appeals dismissed.
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