2016 (3) TMI 1423 - HC - Indian Laws

Procurement of coal for the thermal power projects of KPCL in the State of Karnataka - tri-partite agreement - price adjustments - HELD THAT - The fuel supply agreement contemplated for price adjustments based on the variance in the properties of coal supplied compared to the guaranteed values specified in the contract. In other words, price adjustments were to be undertaken based on the variance in cross calorific value, ash content, size, moisture content etc. - there has not been any stipulation either in the joint venture agreement or the fuel supply agreement that deductions could be made based on other activities. In the joint venture agreement and in the fuel supply agreement there has been no indication that ₹ 90/- (Rupees ninety) only per MT could be attributable towards washing charges nor the contracts provided any deductions from the coal price payable on the basis that the coals have not been washed in the washery. The fuel supply agreement does not stipulate a particular process for washing of coal. It was neither suggested that coal washing should be necessarily water-washing nor it was provided that dry-washed coal could not be accepted as washed coal - there are no stipulation in the joint venture agreement or the letter of award, which mandates that coal should, necessarily, be washed through the process of water-washing at washeries. Our understanding of the coal defined in those documents is that the coal would mean washed coal that meets certain stipulated parameters irrespective of the process that may be adopted in mining and washing such coal. It is the settled law that when an action of the State is arbitrary or discriminatory and, thus, is violative of Article 14 of the Constitution of India, a writ petition is certainly maintainable, although ordinarily in the writ jurisdiction the High Court does not enforce the terms of a contract qua contract. The Supreme Court of India in DWARKADAS MARFATIA SONS VERSUS BOARD OF TRUSTEES OF THE PORT OF BOMBAY 1989 (4) TMI 315 - SUPREME COURT held that every action of the authority must be subject to rule of law and must be informed by reason. If the State action, even in contractual matters, fails to satisfy the tests of reasonableness, it would be unconstitutional. The agreement between the KPCL, EMTA and KEMTA is tripartite and an agreement of multiple contracts in the form of the joint venture agreement, the fuel supply agreement and the mining operation agreement - the coal supplied by the writ petitioner to KPCL met the parameters stipulated in the fuel supply agreement and such coal has been utilised in the thermal power stations of KPCL. It was not felt proper for KPCL to unilaterally effect deduction of ₹ 90/- (Rupees ninety) only, per MT towards washing charge against KEMTA. No adjudication has been undertaken by a competent judicial authority. In the absence of adjudication, it is impermissible for KPCL to unilaterally effect such withhold and deductions. The report of CAG cannot be the sole basis for any liability being caused or for that matter the sole basis for the prosecution to be launched. However, mere drawing up of FIR by the CBI against unknown officials of KPCL, EMTA and KEMTA cannot provide legal basis or impetus for unilateral demand by KPCL for recovery of ₹ 52,37,00,000/- only. Such action is arbitrary and unsustainable in law. The communications dated November 23, 2013 (Annexure-A) and January 29, 2014 (Annexure-B) notifying deduction of a sum of ₹ 90/-(Rupees ninety) only, per MT of coal are quashed - Petition allowed.

Summary

Issues Involved:
1. Legality of KPCL's demand for reimbursement of the cost of coal rejects based on the CAG report.
2. Legality of KPCL's unilateral deduction of ?90 per MT towards washing charges from KEMTA's bills.
3. Maintainability of the writ petitions challenging KPCL's actions.

Issue-wise Detailed Analysis:

1. Legality of KPCL's Demand for Reimbursement of the Cost of Coal Rejects Based on the CAG Report:

The writ petitioners challenged KPCL's demand for reimbursement of ?52,37,00,000 based on the CAG report, which quantified coal rejects at 8.28 lakh MTS valued at ?52,37,00,000. KPCL's audit objections argued that the CAG's assessment was erroneous and not based on geological realities, asserting that the rejects were stones and boulders used for levelling within the mines. The court found KPCL's reliance on the CAG report without proper adjudication arbitrary and unsustainable in law. The court noted that the CAG report is subject to parliamentary scrutiny and cannot be the sole basis for liability or prosecution. Consequently, the court quashed KPCL's communications demanding reimbursement and directed KPCL not to initiate recovery based solely on the CAG report.

2. Legality of KPCL's Unilateral Deduction of ?90 per MT Towards Washing Charges from KEMTA's Bills:

KPCL unilaterally deducted ?90 per MT towards washing charges, asserting that the coal supplied was not water-washed as per a third-party memorandum of understanding. The court found no stipulation in the joint venture or fuel supply agreements mandating water-washing. The agreements only required coal to meet specific parameters, irrespective of the washing process used. The court held that KPCL's unilateral deduction was arbitrary and without basis in the contracts. The court quashed KPCL's communications notifying the deductions and directed reimbursement of the deducted amounts to KEMTA.

3. Maintainability of the Writ Petitions Challenging KPCL's Actions:

The respondents challenged the maintainability of the writ petitions. However, the court found that writ petitions against the State or its instrumentalities are maintainable in disputes arising from contractual obligations if the State's actions are arbitrary or discriminatory, violating Article 14 of the Constitution. The court referenced the Supreme Court's decisions in ABL International Limited v. Export Credit Guarantee Corporation of India Limited and other cases, affirming that writ petitions involving consequential monetary claims are maintainable. The court held that KPCL, as a state instrumentality, must act reasonably and not arbitrarily. Consequently, the court found the writ petitions maintainable.

Conclusion:

The court allowed the writ petitions, quashing KPCL's communications demanding reimbursement based on the CAG report and notifying deductions for washing charges. The court directed KPCL not to initiate recovery based solely on the CAG report and ordered reimbursement of the deducted amounts. The court emphasized that KPCL's actions were arbitrary, lacked proper adjudication, and violated contractual terms. The parties were directed to bear their respective costs.