Supreme Court Clarifies “Overcharge” vs. “Illegal Charge” in Railway Freight: Union of India vs. Indian Oil Corporation Ltd. (21 March 2024)

Date of the Judgment: 21 March 2024
Citation: 2024 INSC 243
Judges: J.B. Pardiwala, J., Sandeep Mehta, J.
Can a railway administration charge freight based on a distance that is later found to be incorrect? The Supreme Court of India recently addressed this question, clarifying the difference between an “overcharge” and an “illegal charge” in railway freight cases. This judgment, delivered by a two-judge bench, is crucial for understanding the rights of consignors and the responsibilities of railway administrations. The court’s analysis provides clarity on the application of Section 106 of the Railways Act, 1989, particularly regarding the time limits for claiming refunds.

Case Background

Between 2002 and 2005, Indian Oil Corporation Ltd. (IOCL) booked multiple consignments of furnace oil via railway from Baad to Hisar. The freight was calculated by the Union of India (Railways) based on a chargeable distance of 444 km, as per the then-prevailing distance table. On April 7, 2004, the Ministry of Railways decided to rationalize the method for calculating chargeable distance, rounding off the aggregate of actual engineering distances to the next higher kilometer only once at the end. This new methodology was to be implemented from June 1, 2004, but was later postponed to January 1, 2005, due to delays in printing revised distance tables.

On July 5, 2005, the North Central Railway Zone communicated that the chargeable distance from Baad to Hisar should be 334 km as per the new junction table. Upon learning this, IOCL discovered that the actual distance was 333.18 km, yet the Railways had been charging them for 444 km. Consequently, IOCL sent a notice of claim on November 7, 2005, demanding a refund for the excess freight charges. The Railways rejected the claim.

Timeline

Course of Proceedings

Aggrieved by the Railways’ rejection, IOCL filed 122 claim applications before the Railway Claims Tribunal (RCT), Ghaziabad. The RCT dismissed 77 of these applications as time-barred, stating that the claim was for an “overcharge” and the notice was not served within the prescribed 6-month period under Section 106(3) of the Railways Act, 1989. The RCT observed that though the chargeable distance was only 334 km, freight charges had been levied for 444 km, and that this was a case of excess payment of freight.

IOCL then appealed to the High Court of Judicature at Allahabad, which allowed the appeals, relying on the Supreme Court’s decision in Hindustan Petroleum Corp. Ltd. v. Union of India [(2018) 17 SCC 729]. The High Court held that the case was one of “illegal charge” and not “overcharge,” as the freight was paid as per the notified distance, which was later found to be incorrect. The High Court further held that no notice was required to be issued in case of an illegal charge.

The Union of India challenged the High Court’s decision in a Special Leave Petition (SLP), which was dismissed by the Supreme Court on March 4, 2021, due to the low claim amount, but the question of law was kept open. The present appeals are against the High Court orders in the other 75 appeals.

Legal Framework

The case revolves around the interpretation of Section 106 of the Railways Act, 1989, which deals with claims for compensation and refund of overcharges.

Section 106(1) of the Railways Act, 1989 states:
“A person shall not be entitled to claim compensation against a railway administration for the loss, destruction, damage, deterioration or non-delivery of goods carried by railway, unless a notice thereof is served by him or on his behalf… within a period of six months from the date of entrustment of the goods.”

Section 106(3) of the Railways Act, 1989 states:
“A person shall not be entitled to a refund of an overcharge in respect of goods carried by railway unless a notice therefor has been served by him or on his behalf to the railway administration to which the overcharge has been paid within six months from the date of such payment or the date of delivery of such goods at the destination station, whichever is later.”

The Railways Act, 1989, replaced the Indian Railways Act, 1890, consolidating and amending the legislation related to railways. The Railway Claims Tribunal Act, 1987, established the Railway Claims Tribunal to adjudicate claims against railway administrations. Section 13 of the Railway Claims Tribunal Act, 1987, specifies that the Tribunal has jurisdiction over claims for compensation and refunds of freight. Section 17(2) of the Railway Claims Tribunal Act, 1987 states that no claim for compensation or refund from the railway administration shall be entertained by the tribunal, until the expiry of three-months from the date on which the notice of claim was made in accordance with Section 106 of the Railways Act, 1989.

Arguments

Appellant (Union of India) Submissions:

• The change in distance was due to a rationalization of distances to ensure uniformity, not an error in the existing notified freight charge.
• Section 106 of the Railways Act, 1989, does not apply as this is not a case of overcharging but a change in methodology applied prospectively.
• The circulars of April 7, 2004, and September 24, 2004, specified that no undercharges would be raised, nor refunds given for past cases.
• Even if it were an overcharge, the claim is time-barred under Section 106 of the Railways Act, 1989.
• Relied on Birla Cement Works v. G.M., Western Railways [(1995) 2 SCC 493], where a belated claim for excess freight was held to be time-barred.
• Distinguished Union of India v. West Coast Paper Mills [(2004) 3 SCC 458], arguing that the respondent was charged notified rates.
• Distinguished Hindustan Petroleum Corporation Limited v. Union of India [(2018) 17 SCC 729], stating that the present case involves a prospective change in methodology.

Respondent (Indian Oil Corporation Ltd.) Submissions:

• This is a case of ‘illegal charge’ due to a change in the notified distance, not an ‘overcharge.’
• An ‘overcharge’ is an excess amount paid due to a mistake of fact, whereas an ‘illegal charge’ is due to a change in notified distance or rates.
• The cause of action arose on July 5, 2005, when the corrected distance was notified.
• Relied on Hindustan Petroleum Corporation Limited v. Union of India [(2018) 17 SCC 729], where a similar claim was allowed.
• Section 106 of the Railways Act, 1989, does not require notice for claims of ‘illegal charge.’
• Distinguished Birla Cement Works v. G.M., Western Railways [(1995) 2 SCC 493], stating it pertains to ‘overcharge,’ not ‘illegal charge.’
• The revision of freight charges was due to a correction of the distance, not a new methodology, and the railways had lapsed in not using the revised distance tables.

Issues Framed by the Supreme Court

1. What is the scope of Section 106(3) of the Railways Act, 1989, and what constitutes an “overcharge”? What is the difference between an “Overcharge” and an “Illegal Charge”?
2. Is the claim for a refund of the difference of 110 km in freight charges covered by Section 106(3) of the Railways Act, 1989? Is the claim for a refund of an “overcharge”?
3. Is the difference of 110 km in freight liable to be refunded? Was the notified chargeable distance of 444 km an illegal charge?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered various authorities to distinguish between an “overcharge” and an “illegal charge”:

Judgment

The Supreme Court analyzed the submissions and authorities, concluding that:

How each authority was viewed by the Court:

• Shah Raichand Amulakh v. Union of India & Ors. [(1971) 12 GLR 93]* – The Court relied on this case to understand that an “overcharge” is any charge in excess of what is prescribed by law.
• Union of India v. Mansukhlal Jethalal [(1974) SCC OnLine Guj 12]* – The Court used this case to distinguish between an “overcharge” and an “illegal charge,” noting that new charges not in excess of prescribed charges are not “overcharges.”
• Birla Cement Works v. G.M., Western Railways & Anr. [(1995) 2 SCC 493]* – The Court distinguished this case, noting that it was about a mistake in calculation, not an incorrect notified distance.
• Union of India & Ors. v. Steel Authority of India Ltd. [(1996) SCC OnLine Ori 60]* – The Court used this case to clarify the meaning of “overcharge” as anything charged in excess of what should have been charged.
• Rajasthan State Electricity Board v. Union of India [AIR 2001 Bom 310]* – The Court noted that this case was initially viewed as an overcharge but was later set aside by the Supreme Court.
• Rajasthan State Electricity Board v. Union of India [(2008) 5 SCC 632]* – The Court referenced this case to highlight that refunds can be directed even if a claim is time-barred.
• Union of India & Ors. v. West Coast Paper Mills Ltd. & Anr. [(2004) 3 SCC 458]* – The Court relied on this case to distinguish between “overcharge” and “illegal charge,” stating that a claim for refund of an illegal charge does not attract Section 78B of the Railways Act, 1890 (pari materia to Section 106 of the Railways Act, 1989).
• J.K. Lakshmi Cement Ltd. v. General Manager & Anr. [(2014) SCC OnLine Raj 2340]* – The Court distinguished this case, noting it was about a mistake in calculation, not an incorrect notified distance.
• Hindustan Petroleum Corporation Limited v. Union of India [(2018) 17 SCC 729]* – The Court heavily relied on this case, stating that the present case was similar, and the charge was an “illegal charge.”
• Union of India v. Mineral Enterprises [(2019) SCC OnLine Kar 1971]* – The Court distinguished this case, noting it was about a mistake in calculation, not an incorrect notified distance.
• M/s National Aluminium Co. Ltd. v. Union of India (FAO No. 306 of 2022)* – The Court used this case to highlight that a refund due to goods being dispatched on a shorter route than booked is not an “overcharge.”
• Suresh Kumar v. Board of Trustees for the Port of Calcutta [(1988) SCC OnLine Cal 420]* – The Court used this case to emphasize that an “overcharge” must exist at the time of payment.
• Mafatlal Industries Ltd. & Ors. v. Union of India [(1997) 5 SCC 536]* – The Court used this case to categorize refund claims into unconstitutional levies, misinterpretations of law, and mistakes of law.

The Court emphasized that an “overcharge” is a sum paid in excess of what was legally due because of a mistake, while an “illegal charge” is a sum that was not payable under the law. The Court found that the 444 km distance was an “illegal charge” as it was not based on the correct calculation methodology. The Court noted that the Railways failed to provide a proper explanation for the 444 km distance and that the subsequent reduction to 334 km was a correction, not a new methodology.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The lack of a reasonable explanation by the Railways for the initial chargeable distance of 444 km.
• The fact that the subsequent reduction to 334 km was described as a “correction,” indicating an error in the original distance.
• The absence of any change in the physical route or track length that could justify a 110 km difference in chargeable distance.
• The Railways’ own action of granting refunds in some cases, despite their stance that no refund was due.
• The concurrent findings of the Railway Claims Tribunal and the High Court on the actual distance being 333.18 km.

The Court reasoned that the Railways had failed to justify the initial 444 km distance, which was not a result of a new methodology but a correction of an error in the old distance table. The Court also noted that the Railways themselves had granted refunds in some cases, which further undermined their argument that the 444 km distance was valid.

The Court rejected the argument that the claim was time-barred, as Section 106(3) of the Railways Act, 1989, only applies to “overcharges” and not to “illegal charges.” The Court emphasized that an “overcharge” is a sum paid in excess due to a mistake, while an “illegal charge” is a sum that was not payable under the law.

The Court concluded that the chargeable distance of 444 km was illegal, as it was not based on the correct calculation methodology. The Court emphasized that the Railways failed to provide a proper explanation for this distance and that the subsequent reduction to 334 km was a correction, not a new methodology.

The court quoted the following from the judgment:

“Thus, for an excess sum to be an “overcharge” the sum paid must partake the same character as the basic charge, or must belong to the same genus of charge which was payable or required to be paid by law. Whereas, for an illegal charge, the sum must not have been payable by law.”

“The true purport of Section 106(3) of the Act, 1989 is by no stretch to render even those claims of refunds as time-barred which despite the best of efforts and diligence could not have been discovered by the claimants on their own accord.”

“We are of the considered opinion, that the chargeable distance of 444 km was illegal”

The Supreme Court did not have a dissenting opinion in this case.

Key Takeaways

• Section 106(3) of the Railways Act, 1989, applies only to claims for refund of “overcharges” and not “illegal charges.”
• An “overcharge” is a sum paid in excess due to a mistake or miscalculation, while an “illegal charge” is a sum that was not payable under the law.
• Railway administrations must ensure that notified chargeable distances are correct and based on proper methodology.
• Consignors have a right to claim refunds for “illegal charges” without being bound by the 6-month limitation period under Section 106(3) of the Railways Act, 1989.

Development of Law

The ratio decidendi of this case is that Section 106(3) of the Railways Act, 1989, applies only to “overcharges” and not to “illegal charges.” This judgment clarifies the distinction between these two types of charges and provides guidance on the applicability of the limitation period for claiming refunds. This is a departure from previous positions of law where claims for refunds of excess freight charges were often treated as overcharges, regardless of the nature of the error.

Conclusion

The Supreme Court dismissed the appeals filed by the Union of India, upholding the High Court’s decision that the chargeable distance of 444 km was an “illegal charge.” The Court clarified that Section 106(3) of the Railways Act, 1989, does not apply to claims for “illegal charges,” thus removing the time limitation for such claims. This judgment provides significant relief to consignors who have been charged based on incorrect or illegal distance calculations and reinforces the responsibility of railway administrations to ensure the accuracy of notified rates.

Category

Parent Category: Railways Act, 1989
Child Categories: Section 106, Railways Act, 1989, Overcharge, Illegal Charge, Freight Charges, Railway Claims Tribunal, Limitation, Refund

Parent Category: Indian Contract Act, 1872
Child Categories: Section 72, Indian Contract Act, 1872

FAQ

Q: What is the difference between an “overcharge” and an “illegal charge” in railway freight?
A: An “overcharge” is when you pay more than what you should have due to a mistake, like a miscalculation. An “illegal charge” is when the charge itself is not valid under the law, such as when a railway charges you based on an incorrect distance.

Q: Does Section 106(3) of the Railways Act, 1989, apply to claims for “illegal charges”?
A: No, Section 106(3) only applies to “overcharges.” Claims for “illegal charges” are not bound by the 6-month limitation period.

Q: What should I do if I believe I have been charged an “illegal charge” by the railways?
A: You can claim a refund for an “illegal charge” without being bound by the 6-month limitation period. You should send a notice to the railway administration and, if necessary, approach the Railway Claims Tribunal.

Q: What was the main issue in the caseof Union of India vs. Indian Oil Corporation Ltd.?
A: The main issue was whether the excess freight charged by the railways due to an incorrect distance was an “overcharge” or an “illegal charge,” and whether the claim was time-barred under Section 106(3) of the Railways Act, 1989.

Q: What did the Supreme Court decide in this case?
A: The Supreme Court held that the excess freight charged was an “illegal charge,” not an “overcharge,” and that the claim was not time-barred. The Court ordered the railways to refund the excess charges.