whether the appellants were required to pay the price of coal consumed in their manufacturing process at a preferential rate, known in the trade parlance as “linked price”, or the price under a Liberalised Sales Scheme (LSS).

(Non-Reportable)
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8153 OF 2009
M/s. S.K.J. Coke Industries Ltd.& Anr. ..….Appellants
Versus
Coal India Ltd. & Ors. …..Respondents
J U D G M E N T
ANIRUDDHA BOSE, J.
The core dispute in this appeal involves the question as to
whether the appellants were required to pay the price of coal
consumed in their manufacturing process at a preferential rate, known
in the trade parlance as “linked price”, or the price under a Liberalised
Sales Scheme (LSS). The latter pricing mechanism is similar to open
market price of coal. The predecessor in title of the first appellant
were a firm under the trade name Mahabir Coke Industries. At the
material time, they were engaged in production of low ash
metallurgical coal at a location close to Guwahati. They wanted to be
under the preferential pricing regime on the strength of an
Page 1 of 19
arrangement with the respondent coal companies agreed upon in the
year 1989. Under such arrangement Mahabir Coke Industries were
permitted to lift 4000 metric tonnes of coal per month. Traditionally,
the coal industry has been deeply regulated by the Government of
India. The Colliery Control Order, 1945 was one of such regulating
instruments. This Control Order has been replaced by Colliery
Control Order, 2000 with effect from 1st January, 2000 but that factor
is not of much significance so far as the present appeal is concerned.
The basic coal mining industry is nationalised and largely controlled
by the Coal India Ltd., a public sector undertaking. The appellants
were approved linkage of said 4000 metric tonnes of low ash coal
from Tirup and Tikak mines of North Eastern Coalfields (NEC). The
said coal company is a subsidiary of Coal India Limited (CIL). The
linking order was issued on 20th September, 1989. The respondent
coal companies in course of hearing before us have sought to
distinguish between “linkage” and “allocation”. Their stand is that in
the case of the appellants, there was monthly allocation of the said
quantity of coal only for which they cannot claim preferential price.
As cokeries, they were allocated coal suitable for use in steel plants
Page 2 of 19
subject to availability. The respondents’ case is that linkage at
preferential price is given to the industries or thermal plants out of
coal not suitable for use in steel plants. For that reason, according to
the respondent coal companies, appellants were not given linkage but
allocated specified quantity. Clause 3 of the 1945 Control Order
empowered categorisation and gradation of coal by the Central
Government. Clause 4 thereof authorised the Central Government to
fix different prices of coal for different classes, grades, sizes of coal as
also prices of different collieries.

  1. On 16th June 1994, a notification was issued by the Central
    Government in pursuance of the aforesaid two Clauses of the 1945
    Control Order stipulating the classes and grades in which coal and
    coke were to be categorised. That notification also stipulated the sale
    prices for such coal, at which they could be sold by the colliery owner
    at pitheads. Table I thereof provided gradation with grade
    specifications of different types of coal. There was no such grading in
    respect of coal produced in the State of Assam and certain other states
    in the North Eastern Region in that Table. We shall henceforth refer to
    Page 3 of 19
    coal lifted by the appellants as “Assam coal”. The second Table (Table
    II) to this notification dealt with sale prices of different types of coal
    mainly on the basis of “Useful heat value in kilo calories per
    kilogram”. For coal from Assam and that region, price for ungraded
    coal with ash content not exceeding 25% was specified to be “not
    exceeding Rs.741.00 p.” NEC made provisional declaration of grade
    of Assam coal under Clause 3A(1) of the 1945 Control Order on 11th
    June 1997. By a further notification dated 26th August 1997 the
    revised prices thereof were notified. Thereafter, by another
    notification dated 24th February 1999, the gradation formalities for
    coal produced in Assam and other States in the said region was
    completed by effecting suitable amendments to the notification dated
    16th June 1994. In Clause 9 (ii) of the 1994 notification, there was
    stipulation to the following effect for computing the price of coal
    depending upon their ash content:-
    “9. (i)…………………..
    (ii) In case of coal produced in the State of
    Assam, Arunachal Pradesh, Meghalaya
    and Nagaland the price payable shall be
    increased at the rate of Rs.1/- per tonne for
    each percentage of ash by which the ash
    Page 4 of 19
    content falls below 22 per cent. Similarly
    when ash content exceeds 25 per cent, the
    price shall be reduced at the same rate of
    Rs. 11 per tonne per cent of ash by which
    the ash content exceeds 25 per cent.”
  2. The first appellant, whose predecessors were the petitioners
    before the First Court continued with receiving coal in terms of the
    notification dated 16th June, 1994 at the price stipulated therein till
    18th January 1996. Admitted position is that coal lifted by the
    appellants had ash content below 25%. From 19th January 1996, the
    price NEC was charging the appellants stood substantially enhanced.
    The reason for this, according to the respondent companies, was that a
    Liberalised Sales Scheme (LSS) was implemented by the CIL under
    authorisation of the Central Government to that effect. The LSS
    under which price was enhanced was on the basis of a notification
    dated 9th January, 1996. That notification was followed by another
    notification dated 11th March, 1996. On the latter date, a Liberalised
    Sales Scheme (Modified) was introduced. The notification of 9th
    January, 1996 reads:-
    “S.O. 21(E). In pursuance of the provisions of
    clause 18 of the Colliery Control Order, 1945,
    as continued in force by section 16 of the
    Essential Commodities Act, 1995 (10 of 1955),
    Page 5 of 19
    the Central Government, having regard to the
    stock position of coal, hereby exempts the Coal
    India Ltd., Subsidiaries of Coal India Limited
    and the Singareni Collieries Company Limited
    in respect of coal sold by them under any
    Liberalized sale Scheme (LSS) of the
    Government of India from the provisions of
    clauses 4, 4A and 4B of the said order.
    This notification shall remain in force on
    and from the date of its publication in the
    official Gazette and until the 31st day of March,
    1996.”
  3. As pleaded in paragraph 22 of the appellant’s writ petition,
    clause 2.3 of that Scheme specified that the declaration of source
    under “LSS” was not to affect rail loading for linked/sponsored
    consumers or coal supplies to road linked/sponsored consumers. The
    appellants continued to lift coal under protest on payment of such
    higher price. Subsequently on 16th November 1996, the linkage
    committee of the Coal India Limited in its 85th meeting took the
    following decision under agenda item nos. 23 and 24:
    “23. ‘Linkage’ of coal to SSF units & cokery
    units –
    The Committee deliberated on the agenda
    items and decided that SSF units and cokery
    units which have been allocated coal by Coal
    India Ltd., should be treated as ‘linked unit’, in
    Page 6 of 19
    the same manner as other linked industrial units
    in the non-core sector. The committee also
    decided that-
    (a) Coal Clearance Letter/Coal Allocation
    Letters issued to SSF units and Cokery units
    should be treated as ‘Linkage Advice Letters’
    which are issued to other non-core sector units;
    (b) The present system of capacity
    assessment for SSF units by CMPOI and cokery
    units by a joint team of officers from Coal
    Co/CMPOI/CIL, should continue;
    (c) All cokery units should be required to
    obtain sponsorship/recommendation letters from
    the concerned State Govts., in the same manner
    as sponsorship/recommendation is required for
    other non-core sector units.
  4. Case of M/s Mahabir Coke Industries,
    Guwahati, AssamThe agenda item was discussed by the
    Committee. As already decided in the previous
    agenda item (i.e. item No.23), all cokery units
    and SSF units who have been allocated coal by
    CIL, should be treated as ‘linked’ units.
    Regarding the ‘price’ to be charged for supply
    of low ash coal to M/s. Mahabir Coke
    Industries, Guwahati, this matter should be
    decided by NEC-Assam as prevalent at any
    point of time.”
  5. On 12th March, 1997, a notification was issued by the Central
    Government in substance deleting clause 4 of the Control Order of
    Page 7 of 19
    1945 from the notification dated 16th June 1994. The relevant
    portion of the notification dated 12th March 1997 stipulated:-
    “S.O. 190 (E). – In pursuance of clauses 3 and 4
    of the Colliery Control Order, 1945, as
    continued in force by Section 16 of the Essential
    Commodities Act, 1955 (10 of 1955), the
    Central Government hereby makes the
    following further amendments to the
    notification of the Government of India in the
    Ministry of Coal No.S.O.- -453(E) dated the 16th
    June, 1994 on and from the date of publication
    of this notification in the Official Gazette,
    namely:-
    In the said Notification:-
    (a) in the preamble:-
    (i) for the words and figures “clauses 3
    and 4”, the word and figure “clause 3”
    shall be substituted,
    (ii) the words and figures “and fixes in
    Tables II, V and VI below the sale price
    at which coal or coke may be sold by
    the colliery owners at pit-heads” shall
    be omitted.
    (b) Table II relating to non-cooking coal, Table
    V relating to hard coke, Table VI relating to soft
    coke and the Notes and the Annexure thereunder
    shall be omitted.”
  6. The appellants founded their writ petition projecting them as
    “linked consumer” and contended that they were to pay the price of
    Page 8 of 19
    coal not beyond that notified on 16th June 1994. The reliefs asked for
    in their petition included a prayer for writ in the nature of mandamus
    commanding CIL and NEC to charge the appellants notified price as
    applicable to linked or sponsored units. Prayer was also made for
    refund of excess sum realised from them as LSS price.
  7. Before the First Court, the respondents had run a case that till
    12th March, 1997, price for NEC coal was fixed by the Government of
    India for linked consumers. It has been submitted before us on behalf
    of the coal companies that till 18th January 1996, prices for the linked
    consumers and for the consumers lifting coal on allocation had
    remained the same. For those other than linked consumers, price was
    fixed by the CIL with effect from 19th January, 1996 in accordance
    with the LSS as from that point of time, these coal companies were
    exempted from Clause 4 of the 1945 Control Order.
  8. The main point argued on behalf of the appellants before the
    First Court was that in not charging the appellants coal price as
    applicable to a linked unit, the authorities had ignored the resolution
    adopted in the 85th meeting of the Linkage Committee for non-core
    sector consumers. As a corollary, the appellants contended that they
    Page 9 of 19
    were not obliged to pay the LSS price as enhanced from 19th January,
  9. The First Court, however, rejected such plea referring to the
    second part of the aforesaid resolution of the Linkage Committee.
    Under that part, the appellants were required to pay the “price
    prevalent at any point of time”. The case of the appellants that “price”
    referred to in that part was “linkage price” was not accepted by the
    First Court. The reasoning of the First Court would appear from the
    following passage of the judgment:-
    “After taking into consideration all relevant
    facts and circumstances and having regard to the
    submission made by learned counsel for the
    parties, this Court, however, finds it difficult to
    appreciate the grievance raised herein on behalf
    of the writ petitioner. The very basis of the
    claim of the writ petitioner, as referred to earlier,
    is the resolution adopted in the 85th meeting. It
    was specifically mentioned that while the
    petitioner could be treated as a linked unit, the
    price was to be charged as decided by the NEC,
    Assam as prevalent at any point of time.”
  10. The stand of the appellants before the Division Bench was that
    since Assam coal remained ungraded under the 16th June 1994
    notification and the relevant entry in the Table I was removed only on
    24th February 1999, the coal companies did not have authority to
    Page 10 of 19
    grade the coal prior to that date. Before the Division Bench,
    appellants’ case was that since there was no specification as regards
    gradation under Clause 3 by the Central Government, the coal
    companies could not have had exercised their power for such
    gradation as also price specification in terms of Clause 3A thereof.
    The authority cited before the Division Bench of the High Court was
    the case of Ashoka Smokeless Coal India Pvt. Ltd. vs. Union of
    India [(2007) 2 SCC 640]. This judgment has been referred to before
    us also in support of the argument of the appellants that there could be
    no pricing discrimination in respect of two sets of non-core
    consumers. This was a case where constitutionality of e-auction
    system was challenged and that was the focus of that decision.
    Paragraph 161 of the said report was relied upon before us in which it
    has been held and observed:
    “161. The effect is that today, while the core
    sector (92%) on its own and non-core nonlinked SSI/tiny units (through NCCF/other
    agencies) (1%) are being supplied coal at a fixed
    price, on the other hand, the non-core linked
    SSI/tiny units (4%) are being subjected to
    differential treatment, without any rational
    classification, by supplying the coal to the latter
    on the price to be ascertained by the traderPage 11 of 19
    controlled process of e-auction and thereby
    putting the petitioner units on a par with the
    trader. The scheme of e-auction is, therefore,
    ultra vires Article 14 of the Constitution of
    India.”
  11. The Division Bench of the High Court in appeal instituted by
    the appellants found that the said decision did not have any impact so
    far as appellant’s claim was concerned once the dual system of pricing
    was found to be acceptable. This is the judgment which is under
    appeal before us. We also confirm this view of the Appellate Bench as
    we find such view to be the correct view so far as applicability of the
    ratio of the case of Ashoka Smokeless Coal India (supra) is
    concerned.
  12. It has also been urged before us on behalf of the appellants that
    in the Resolution of 16th November 1996, the appellants had been
    specifically referred to as “linked consumer” and in that context the
    expression “price” as contained in the second part of the Resolution
    ought to imply the price for linked consumers only. The case of CCT,
    Ranchi and Another Vs. Swarn Rekha Cokes and Coals (P) Ltd.
    and Others [(2004) 6 SCC 689] was relied upon by the learned
    Page 12 of 19
    counsel for the appellants mainly for interpretation of the aforesaid
    Resolution (agenda item no.24). The appellants seek to contend that
    while interpreting a provision by which a legal fiction is created, the
    Court must ascertain the purpose for which the fiction was created
    and having done so, Court should assume those facts and
    consequences exist, which are incidental to and inevitable corollaries
    for giving effect to such fiction. The rationale behind the appellants’
    citing this decision is the wording of the aforesaid Resolution of 16th
    November 1996. It has been specified in agenda items 23 and 24 of
    that Resolution that all cokery units which have been allocated coal
    by CIL ought to be treated as linked units. The appellants have argued
    that once they were treated as a linked unit, the price benefit attached
    to a linked unit should automatically follow. From the said
    Resolution, however, we find a specific agenda item concerning the
    first appellant, and the Resolution as adopted specifically stipulates
    that the price to be charged from the appellants was to be decided by
    the NEC Assam as prevalent at any point of time. In view of this
    specific treatment of pricing along with reference to the first appellant
    as a linked unit, in our opinion, said Resolution has to be construed to
    Page 13 of 19
    mean that treatment of the appellant as a linked unit was for the
    purpose of regular supply of coal and the pricing factor was separated
    from such deemed linking. This would be apparent from the decision
    taken against agenda item no.23, in which reference has been made to
    SSF units and cokery units which had been allocated (emphasis
    supplied) coal, and it was these units which were to be treated as
    linked units. The distinction between “allocation” and “linking”
    clearly emerges from the said decision of the linking committee. It is
    a fact that the first appellant’s treatment as a linked unit was a fiction.
    But such fiction was replaced by reality on the basis of a specific
    provision in the Resolution (agenda item no.24) so far as pricing is
    concerned. As the Resolution dealt with “linking” and “pricing”
    separately, the fictional linking could not be extended to actual
    pricing. The respondents have taken consistent plea that the
    expression “linked” has been loosely used and for non-core sector
    units, it meant allocation of specified quantity of coal only. In
    paragraphs 16 and 17 of NEC’s affidavit-in-opposition to the writ
    petition, it has been stated:-
    Page 14 of 19
    “16. At the said meeting, the decision was
    taken to treat SSF and cokery units including
    Mahabir Coke as a “linked units”. Such
    treatment as a linked unit do not mean grant of
    actual linkage. So, Mahabir Coke cannot claim
    to be a linked unit. The advantage of being
    treated as a linked unit was that Mahabir Coke
    will be assured for monthly supply of 4000 MT
    coal per month by NEC. The said
    resolution/decision also provides that the price
    to be charged for supply of low ash coal to
    Mahabir Coke will be decided by NEC on the
    basis of price prevalent at any point of time i.e.
    current price prevailing at the time of supply.
  13. There are nearly 200 Cokery units, in India
    out of them only three cokery unit, including
    cokery unit of Mahabir Coke, are located at
    Assam. Mahabir Coke, along with other two
    cokery units have been getting low ash Assam
    coal which is of superior grade than what the
    other cookeries of all over India have been
    getting from their respective coal companies.
    Normally all other cookeries are getting the
    higher ash content coal. The other cookeries
    located outside Assam get coal having ash
    content of 25 – 30%, whereas the cookeries
    located in Assam are getting low ash coal of
    NEC having ash content of only 7%. The other
    cookeries located outside Assam take supply of
    low ash coal from NEC, under LSS for blending
    the same with higher ash content coal which
    they have been getting from other coal
    companies. All other cookeries including three
    cookeries of Assam, who are buying the same
    low ash coal as supplied to Mahabir Coke, have
    been paying the LSS price as notified from time
    to time.”
    Page 15 of 19
  14. Learned counsel for the appellants has brought to our notice the
    following observations of the Division Bench in different parts of the
    judgment:-
    “At the time the Linkage Committee stipulated
    that the price payable by the appellant company
    would be as per the prevailing rate to be decided
    by the fifth Respondent, no coal company had
    any authority to supersede the price fixed by the
    Central Government by a notification issued
    under the Colliery Control Order, 1945. At the
    highest, such conditional treatment of the
    appellant company as a linked unit, could come
    into play only if the price of coal was
    deregulated by the Central Government; ipso
    facto by reason of the Linkage Committee
    decision of November 16, 1995 the appellant
    company could not be charged at a rate in
    derogation of what the Central Government
    notified.”
    xx xx xx xx xx xx
    “The price of Assam coal at Rs. 741/- per MT
    (subject to the variation on account of ash
    content) became inoperative upon the
    notification of March 12, 1997.”
    xx xx xx xx xx xx
    “The appellants remain liable to pay the
    difference in price on the basis of price fixed by
    the respondents subsequent to the notification of
    March 12, 1997.”
    Page 16 of 19
  15. In our opinion, the exemption granted by the Central
    Government by the notification dated 9th January, 1996 to Coal India
    and their subsidiaries from the provisions of Clauses 4, 4A and 4B of
    the 1945 Control Order in respect of sale of coal under LSS, the fetter
    imposed by the aforesaid notification of June 1994 got effectively
    removed. Specific stand taken by the respondents is that the linking
    of the first appellant was only in respect of the quantum of coal to be
    obtained by them and they were not entitled to price benefits of linked
    consumers. For the appellants, it was only a case of allocation. Thus,
    the point of time from when the appellants became liable to pay LSS
    rate would be the time when LSS price was raised after 9th January
  16. Prior to that date, we have already reproduced the coal
    companies’ submission that the linked price and non-linked price had
    remained the same. So far as the aforesaid observations in the
    impugned judgment is concerned, such reasoning does not appear to
    us to be correct. But our views on this point would not advance the
    case of the appellants. That is so because in our opinion, it was within
    the power of the NEC to enhance the price for LSS consumers upon
    Page 17 of 19
    CIL and their subsidiaries being exempted from Clause 4 of the 1945
    Control Order on and from 9th January 1996.
  17. It appears that a liberalised pricing system has been prevailing
    since the year 1993. We find no reason to disbelieve the coal
    companies when they assert that there was only allocation of coal in
    favour of the first appellant. Thus the appellants did not have vested
    legal right to preferential pricing as linked consumers. The 9th
    January 1996 notification empowered Coal India Ltd. and their
    subsidiaries to charge price to consumers beyond that notified on 16th
    June 1994 in respect of Assam coal. The appellants were in the noncore sector. Around that point of time only parity between LSS price
    and linked price was broken and the first appellant was required to
    pay the LSS price. So far as allocation is concerned, the agenda 24 of
    the 85th meeting of the linkage committee retained the supply volume.
    But that Resolution is in tune with the NEC’s stand taken before us
    that LSS price ought to be charged to the appellants. The factual
    argument of the appellants that the two other cokery units in Assam
    were not linked, are of no relevance. The appellants have not been
    able to sustain a case before us that their linking agreement covered
    Page 18 of 19
    both allocation and pricing as is the case of other linked consumers.
    So far as the other cokery units are concerned, it has been clarified by
    the learned counsel for the coal companies that they lift coal of high
    ash content between 25-30% which would automatically take them
    out of the price advantage specified in Table II of the 1994
    notification. We accordingly do not find any reason to set aside the
    judgment of the Division Bench.
  18. The appeal is accordingly dismissed. No order as to costs. The
    interim orders, if any, shall stand dissolved.
    …………….………..…..J.
    (Deepak Gupta)
    ………………………….J.
    (Aniruddha Bose)
    New Delhi,
    Dated: 7th February, 2020.
    Page 19 of 19