Supreme Court Upholds Differential Pricing for Coal: S.K.J. Coke Industries vs. Coal India Ltd. (7 February 2020)

Introduction

Date of the Judgment: 7 February 2020

Citation: (2020) INSC 123

Judges: Deepak Gupta, J., Aniruddha Bose, J.

Can a company that has been allocated a specific quantity of coal claim a preferential price, or must it pay the market rate? The Supreme Court of India recently addressed this question in a dispute between M/s. S.K.J. Coke Industries Ltd. and Coal India Ltd. The core issue was whether the appellant company was required to pay the “linked price” for coal, which is a preferential rate, or the higher price under the Liberalised Sales Scheme (LSS). This case revolves around the interpretation of coal allocation policies and pricing mechanisms in India. The judgment was delivered by a two-judge bench comprising Justice Deepak Gupta and Justice Aniruddha Bose, with the opinion authored by Justice Aniruddha Bose.

Case Background

The predecessor of the first appellant, Mahabir Coke Industries, was engaged in the production of low ash metallurgical coal near Guwahati. In 1989, they entered into an arrangement with the respondent coal companies to lift 4000 metric tonnes of coal per month at a preferential rate, known as the “linked price.” This arrangement was made under the then-prevailing regulatory framework, primarily the Colliery Control Order, 1945, which was later replaced by the Colliery Control Order, 2000. The coal industry in India is largely controlled by Coal India Ltd. (CIL), a public sector undertaking. The appellants were allocated coal from the Tirup and Tikak mines of North Eastern Coalfields (NEC), a subsidiary of CIL.

Initially, the appellants received coal at the prices stipulated in a notification dated 16th June 1994. However, from 19th January 1996, the price charged by NEC was substantially increased. This increase was due to the implementation of the Liberalised Sales Scheme (LSS) by CIL, authorized by the Central Government. The LSS was introduced through notifications dated 9th January 1996 and 11th March 1996. The respondent coal companies argued that the preferential “linked price” was meant for industries using coal not suitable for steel plants, and the appellants were only allocated, not linked, to a specific quantity of coal.

Timeline

Course of Proceedings

The appellants filed a writ petition before the First Court, arguing that they were “linked consumers” and should be charged the price notified on 16th June 1994, not the higher LSS price. They sought a writ of mandamus to compel CIL and NEC to charge them the notified price applicable to linked units and a refund of the excess amount realized from them as LSS price.

The First Court rejected the appellants’ plea, referring to the second part of the Linkage Committee’s resolution, which stated that the price was to be charged as decided by NEC, Assam, “as prevalent at any point of time.” The court did not accept the appellants’ argument that “price” in this context meant “linkage price.”

The appellants then appealed to the Division Bench of the High Court, arguing that since Assam coal remained ungraded under the 16th June 1994 notification until 24th February 1999, the coal companies had no authority to grade the coal or specify prices before that date. The Division Bench upheld the First Court’s decision, finding that the dual system of pricing was acceptable and that the decision in Ashoka Smokeless Coal India Pvt. Ltd. vs. Union of India [(2007) 2 SCC 640] did not apply to the appellants’ claim.

Legal Framework

The case is primarily governed by the following legal provisions:

• The Colliery Control Order, 1945: This order regulated the coal industry, including the categorization, gradation, and pricing of coal. Clause 3 empowered the Central Government to categorize and grade coal, while Clause 4 authorized the Central Government to fix different prices for different classes, grades, and sizes of coal.
  
  “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.”
• Notification dated 16th June 1994: This notification, issued under the Colliery Control Order, 1945, categorized coal and coke and stipulated sale prices. It included specifications for different types of coal but did not initially specify grading for coal produced in Assam and other North Eastern states.
• Notification dated 9th January 1996: This notification exempted Coal India Ltd. and its subsidiaries from clauses 4, 4A, and 4B of the Colliery Control Order, 1945, for coal sold under the Liberalised Sales Scheme (LSS).
  
  “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), 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.”
• Notification dated 12th March 1997: This notification amended the 16th June 1994 notification, deleting clause 4 of the Colliery Control Order, 1945, from it.
  
  “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.”
• Essential Commodities Act, 1955: Section 16 of this Act continued the Colliery Control Order, 1945, in force.

Arguments

Appellants’ Arguments:

• The appellants argued that they were “linked consumers” and were entitled to the preferential “linked price” for coal as per the notification dated 16th June 1994.
• They contended that the resolution adopted in the 85th meeting of the Linkage Committee for non-core sector consumers, specifically agenda item nos. 23 and 24, recognized them as a “linked unit.”
  
  “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 the same manner as other linked industrial units in the non-core sector.”
  
  “24. Case of M/s Mahabir Coke Industries, Guwahati, Assam – The 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.”
• They argued that the term “price” in the resolution meant “linkage price” and not the higher LSS price.
• They submitted that since Assam coal remained ungraded until 24th February 1999, the coal companies could not have exercised their power for such gradation and price specification before that date.
• They relied on the case of Ashoka Smokeless Coal India Pvt. Ltd. vs. Union of India [(2007) 2 SCC 640] to argue that there could be no pricing discrimination between two sets of non-core consumers.
  
  “161. The effect is that today, while the core sector (92%) on its own and non-core non-linked 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 trader-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.”
• They relied on the case of CCT, Ranchi and Another Vs. Swarn Rekha Cokes and Coals (P) Ltd. and Others [(2004) 6 SCC 689] to argue that once they were treated as a linked unit, the price benefit attached to a linked unit should automatically follow.

Respondents’ Arguments:

• The respondent coal companies argued that there is a distinction between “linkage” and “allocation.” They contended that the appellants were only allocated a specific quantity of coal and were not entitled to the preferential “linked price.”
• They submitted that the “linked price” was meant for industries using coal not suitable for steel plants, whereas the appellants used coal suitable for steel plants.
• They stated that the resolution of the Linkage Committee, while treating the appellants as a “linked unit,” specified that the price would be decided by NEC, Assam, “as prevalent at any point of time,” which meant the prevailing LSS price.
• They argued that the exemption granted by the Central Government on 9th January 1996, allowed them to charge LSS prices.
• They argued that the term “linked” was loosely used and for non-core sector units, it meant allocation of specified quantity of coal only.
• They submitted that the other cokery units in Assam were also paying the LSS price for low ash coal.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court addressed the following key issue:

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

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Ashoka Smokeless Coal India Pvt. Ltd. vs. Union of India [(2007) 2 SCC 640]*: The Supreme Court distinguished this case, stating that it did not apply to the appellants’ claim once the dual pricing system was found acceptable.
• CCT, Ranchi and Another Vs. Swarn Rekha Cokes and Coals (P) Ltd. and Others [(2004) 6 SCC 689]*: The Supreme Court distinguished this case, holding that the fictional linking could not be extended to actual pricing.
• The Supreme Court interpreted the Colliery Control Order, 1945, and related notifications to conclude that the exemption granted on 9th January 1996, allowed the coal companies to charge LSS prices.

What weighed in the mind of the Court?

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

• The distinction between “linkage” and “allocation” was a key factor. The court emphasized that the appellants were allocated a specific quantity of coal, but were not entitled to the preferential “linked price.”
• The court interpreted the resolution of the Linkage Committee to mean that while the appellants were treated as a “linked unit” for supply purposes, the price was to be determined by NEC, Assam, as prevalent at any point of time, which was the LSS price.
• The court held that the exemption granted by the Central Government on 9th January 1996, effectively removed the fetter imposed by the notification of June 1994, allowing the coal companies to charge LSS prices.
• The court found that the appellants did not have a vested legal right to preferential pricing as linked consumers, and the 9th January 1996 notification empowered Coal India Ltd. and their subsidiaries to charge prices beyond those notified on 16th June 1994.
• The court observed that the appellants were in the non-core sector and the parity between LSS price and linked price was broken around that time, requiring the appellants to pay the LSS price.

Sentiment Analysis of Reasons Given by the Supreme Court

Fact:Law Ratio

Logical Reasoning:

The Court considered the appellants’ arguments and the relevant legal provisions. The Court interpreted the Linkage Committee’s resolution and the notifications related to the Colliery Control Order, 1945. The Court also considered the factual matrix of the case, including the distinction between “linkage” and “allocation”. The court rejected the arguments of the appellants and upheld the decision of the Division Bench.

Key Takeaways

• The Supreme Court clarified the distinction between “linkage” and “allocation” in the context of coal pricing.
• The judgment confirms that a company allocated a specific quantity of coal is not automatically entitled to the preferential “linked price.”
• The decision reinforces the authority of coal companies to charge prices under the Liberalised Sales Scheme (LSS) once exempted from the relevant provisions of the Colliery Control Order, 1945.
• The judgment highlights the importance of specific wording in resolutions and notifications when determining pricing policies.
• This case sets a precedent for how similar disputes regarding coal pricing should be interpreted in the future.

Directions

The Supreme Court did not issue any specific directions other than dismissing the appeal and dissolving any interim orders.

Development of Law

The ratio decidendi of this case is that the allocation of coalof coal to a consumer does not automatically entitle them to the preferential “linked price,” and that the pricing mechanism is separate from the allocation process. The court also made it clear that once the government has exempted coal companies from the provisions of the Colliery Control Order, 1945 for the sale of coal under LSS, they are free to charge prices as per the LSS.

Changes in Legal Positions:

• The judgment clarified that the term “linked” in the context of coal allocation does not necessarily imply entitlement to a preferential “linked price.”
• It established that the exemption granted to coal companies under the LSS allows them to charge prices different from those stipulated under the Colliery Control Order, 1945 and the notifications issued thereunder.
• It reinforced that the interpretation of notifications and resolutions must be based on the specific wording used, rather than assumptions or implied meanings.