2006 (12) TMI 516 - SC - Indian Laws

Supply of coal to coke ovens - Import of coal and opening of private coal mines and to provide pragmatic and transparent system of distribution of coal - Validity and/or legality of a scheme framed by the Coal India Limited for sale of coal by Electronic Auction (E-Auction) - ultra vires Article 14 of the Constitution of India - HELD THAT - 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 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. We have noticed 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- 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 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 sector would not only be entitled to allotment of coal at 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- -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. The effect is that today, while the core sector (92%) on its own and non-core non-linked SSI/Tiny units (through the NCCF/other agencies) (1%) are being supplied coal at a fixed price, on the other hand, the non-core linked SSI/Tiny units (4%) are being subjected to differential treatment without any rational classification by supplying the coal to the latter on the price to be ascertained by the trader-controlled process of E-Auction and thereby putting the petitioner-units at par with the trader. The scheme of E- Auction is, therefore, ultra vires Article 14 of the Constitution of India. Conclusion - 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 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- -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. 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- -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 therefore. 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 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 proper measure cannot be taken by the Union of India to have a complete control there over. Any strict mechanism to find out the genuine consumers would go a long way in taking preventive measures and dealing with coal by 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. We 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. However, discussions made hereinbefore should not be taken to lay down a law that the Central Government and for that matter the coal companies cannot change their policy decision. They evidently can; but therefore 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. 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-advertisement or E-tender would be welcome but then therefore a greater transparency should be maintained. Thus, Civil Appeal being devoid of any merits are dismissed. Civil Appeal arising out of S.L.P. (Civil) is allowed and the impugned judgment of the Madhya Pradesh High Court is set aside. No separate order is required to be passed on Civil Appeal 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, writ petition and transferred cases are disposed of with the aforementioned observations and directions.

Summary

Issues Involved:
1. Validity and legality of the E-Auction scheme for coal sales by Coal India Limited.
2. Alleged misuse of linkage sponsorship and the introduction of a new sales policy.
3. Impact of E-Auction on different categories of coal consumers.
4. Constitutionality of the E-Auction scheme.
5. Application of the doctrine of promissory estoppel and legitimate expectation.

Detailed Analysis:

1. Validity and Legality of the E-Auction Scheme:
The Supreme Court examined the validity and legality of the E-Auction scheme introduced by Coal India Limited for the sale of coal. The scheme aimed to create a transparent and pragmatic system of coal distribution. The Court noted that coal is an essential commodity and its distribution has historically been regulated to ensure equitable access and fair pricing. The E-Auction scheme was introduced to address issues of black marketing and ensure that genuine consumers could purchase coal at market-determined prices.

2. Alleged Misuse of Linkage Sponsorship and New Sales Policy:
The Court reviewed the historical context of coal linkage and sponsorship systems, which were designed to ensure coal supply to core and non-core sectors. Over time, misuse of these systems was observed, leading to the introduction of the E-Auction scheme. The Court noted that the linkage system had led to coal being supplied at subsidized rates to non-genuine consumers, resulting in black marketing. The E-Auction scheme was introduced to curb these malpractices by ensuring that coal was sold at market prices through a transparent bidding process.

3. Impact of E-Auction on Different Categories of Coal Consumers:
The Court considered the impact of the E-Auction scheme on various categories of coal consumers, including non-core linked consumers, manufacturers of smokeless coal, hard coke manufacturers, and traders. The E-Auction scheme was found to create a dual pricing system, where non-core linked consumers had to purchase coal at higher prices compared to core sector consumers and government agencies. This led to grievances among non-core sector consumers, who argued that the scheme was discriminatory and violated their rights under Article 14 of the Constitution.

4. Constitutionality of the E-Auction Scheme:
The Court examined whether the E-Auction scheme was in line with the constitutional principles of equitable distribution of resources under Article 39(b) of the Constitution. It was argued that the scheme led to arbitrary pricing and did not ensure fair access to coal for all consumers. The Court held that while the State has the authority to regulate the sale and distribution of coal, it must do so in a manner that is fair, reasonable, and non-discriminatory. The E-Auction scheme, by creating a dual pricing system, was found to be inconsistent with these principles.

5. Application of the Doctrine of Promissory Estoppel and Legitimate Expectation:
The Court addressed the claims of certain consumers who argued that they had set up their industries based on promises made by Coal India Limited regarding the supply of coal at subsidized rates. The doctrine of promissory estoppel was invoked, which prevents a party from going back on its promises if the other party has relied on them to its detriment. The Court upheld the claims of these consumers, stating that the coal companies were bound by their earlier commitments and could not unilaterally change the terms of coal supply through the E-Auction scheme.

Conclusion:
The Supreme Court concluded that the E-Auction scheme, while introduced with the intent to curb malpractices and ensure transparent coal distribution, led to arbitrary pricing and discrimination against non-core sector consumers. The scheme was found to be inconsistent with the constitutional principles of equitable distribution of resources and violated the doctrine of promissory estoppel. The Court directed the Union of India to constitute a committee to evolve a viable policy for coal distribution that ensures fair access and reasonable pricing for all consumers.