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PETITIONER: CENTRAL COAL FIELDS LTD. ETC.

       Vs.

RESPONDENT: BHUBANESWAR SINGH  & ORS.

DATE OF JUDGMENT23/08/1984

BENCH: MISRA RANGNATH BENCH: MISRA RANGNATH BHAGWATI, P.N. SEN, AMARENDRA NATH (J)

CITATION:  1984 AIR 1733            1985 SCR  (1) 618  1984 SCC  (4) 429        1984 SCALE  (2)299  CITATOR INFO :  RF         1986 SC2123  (5)

ACT:      Coking Coal  Mines (Nationalisation)  Act, 1971-Section 21 (2)-Whether  value of  stock of  coking coal on April 30, 1972 should  be taking  into account  for determining amount payable to owner under s. 21 (2) Held: yes.

HEADNOTE:      The management  of a  coal mine owned by Respondent No. 1, a  partnership  firm,  was  taken  over  by  the  Central Government with  effect from  October  17,  1971  under  the Coking Coal  Mines (Emergency  Provisions) Ordnance  of 1971 which was  later replaced by a statue. On the passing of the Coking   Coal    Mines   (Nationalisation)   Act,   1971   ( Nationalisation  Act’   for  short)  the  right,  title  and interest of  the owner  in the  mine extinguished and became vested in  the  Central  Government  with  effect  from  May 1,1972. Section  21 (2)  of the  Nationlisation Act provided that in  addition to  the sum referred to in sub-s. (1), the Central Government  shall pay  such amount as may become due to the  owner of  a coking  coal mine--in  relation  to  the period during  which the management of the coking coal mine- remained  vested  in  the  Central  Government.  In  a  writ petition filed  before the  High Court it was claimed by the owner that  while determining  the amount  payable to  it or recoverable from  it in  respect of the period when the mine was under  the management  of the  Custodian, credit for the value of the stock of coking coal on April 30, 1972 shown in the account  books should  have been  given to  it. The High Court accepted  the claim  of the owner. The appellants (The Government  Companies)  obtained  special  leave  to  appeal against the decision of the High Court.      Dismissing the appeals, ^      HELD: The  stock of  coal had  to be taken into account for balancing the position.[624H]      The Nationalisation Act which contemplated the books of account for  the period  from October  17, 1971 to April 30, 1972 to be closed and a statement of account as on April 30, 1972 to  be prepared  with a  view to  find out  whether the

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Government Company  which was in management for the relevant period on  behalf of  the owner  was to  pay anything to the owner or the Government 619 Company having  spent for  the owner was entitled to recover any sum  from the  owner, also contemplated preparation of a balance-sheet on that date. In the absence of any particular prescribed  mode  in  the  Act  or  the  Coking  Coal  Mines (Statement of  Account) Rules,  1972  made  thereunder,  the accounts and  the balance-sheet had to be prepared according to  the   normal  commercial   practice,  which  necessarily required stock-in-trade to be reflected. [624D-E]      Under the Income-tax Act profits have to be ascertained for the  purposes of  computing tax liability. For computing true profits  the value  of the stock-in trade must be taken into account. [624D]      Commissioner of  Income-tax, Madras  v. A. Krishnaswami Mudaliar & Ors. 53 I.T.R. 122 at 130, referred to.      In  the  instant  case,  the  appellants  accepted  the position that if the extracted coal had been sold before the appointed day,  the owner  would have  been entitled  to the price. The  mere fact  that the  extracted coal  remained in stock at  the commencement of the appointed date can make no difference to the position. [624F-G]      Statement 8  in the  prescribed statutory  form clearly indicates that  the stock  as on  April 30,  1972, had to be taken into amount.

JUDGMENT:       CIVIL APPELLATE JURISDICTION. Civil Appeal Nos.                       3374-75 of 1984      Appeals by  Special leave  from the  Judgment and Order dated the  14th. April,  1983 of  the Patna  High  Court  in C.W.J.C. No. 1072 of 1982 (R).      L.N. Sinha,  A. Sachthey  and  R.N.  Sachthey  for  the Appellant in C.A. 3374/84.      L.N. Sinha, S.C. Malik and M.L. Verma for the Appellant in C.A. 3375/84.      D. Goburdhan for Respondent in C.A. 3374/84.      Shanti Bhushan,  D.N. Goburdhan  and D.  Goburdhan  for Respondent in CA. No.3374/84.      The Judgment of the Court was delivered by      RANGANATH MISRA, J. Special leave granted.      Respondent No.  1, a  partnership firm,  held a  coking coal mine known as Tariya Colliery within the State of Bihar the management 620 where  of  was  taken  over  under  the  Coking  Coal  Mines (Emergency Provisions)  Ordinance of  1971 with  effect from October 17,1971,  along with several other coking coal mines and some  coke oven  plants. The ordinance was in due course replaced by  a statute  bearing the  same title (hereinafter referred to  as the  ’Management Act’). Then came the Coking Coal Mines  (Nationalisation)  Act,  1971  (’Nationalisation Act’ for short) which received Presidential assent on August 17, 1982, but under section 1, sub-section (2) there of, the statute was  deemed to have come into force with effect from May 1,  1972. Under  s. 3; sub-s. (a) of the Nationalisation Act,  May,   1,  1972  was  the  appointed  day.  Under  the provisions of  the Ordinance followed by the Management Act, ownership of  the mines was not disturbed but management was taken over.  Under the Nationalisation Act, the right, title and interest  of the  owner in  the mines  extinguished  and

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became vested in the Central Government with effect from May 1,1972. Under  the Management  Act, the Custodian carried on the management  on behalf  of  the  owner  while  under  the Nationalisation Act ownership was abolished and payment of a sum to the owner by way of compensation was contemplated. So far as  the period  between October  17, 1971  and April 30, 1972 when  title in  the colliery  continued to  vest in the owner but  only management  had been  taken over  under  the provisions of the first statute, was concerned, the business was run by the Custodian on account of the owner. Therefore, the Nationalisation  Act provided  that upon  accounts being taken, either  the owner  was to  be paid  the surplus or if there had  been excess  expenditure,  the  same  had  to  be recovered from the owner.      In the  instant case  there was a stock of 5650 tons of coking coal  and 602  tons of  soft coke when management was taken over  on October  17,1971 and on April 30, 1972 at the end of  which ownership  was extinguished, there was a stock of 30,411  tons of  coking coal and 956 tons of soft coke. A total  expenditure  of  about  eight  lak  rupees  had  been incurred for  raising the  said quantity  of coal during the period of  management. This stock was not taken into account and credit for it was not given to the owner but expenses of extraction amounting  to Rs. 7,95,071.94 were raised against the owner.  The owner laid claim to a sum of Rs. 1,01,755.37 as its  entitlement under  the Nationalisation  Act  on  the ground that if credit was given to the stock in trade on the basis of  the closing  balance, it would be entitled to that amount. 621      Claim  having   been  laid  for  the  recovery  of  the aforesaid amount  from the  owner under  the Nationalisation Act, that  amount was certified to be recoverable. The owner Respondent No.  1 challenged  the  order  of  the  statutory authority by  filing a  writ petition  before the Patna High Court impleading,  inter alia,  the Central Coal Fields Ltd. as  also   M/s.  Bharat  Coking  Coal  Ltd.  two  Government companies as  respondents. The  High Court after hearing the parties came  to the  conclusion that the owner was entitled to credit  for the  coal lying  in stock  when  the  closing balance was  drawn up  and accordingly directed the accounts to be  recast and  payments to  be made  on the basis of the recast accounts.  Central Coal  Fields Ltd.  and M/s. Bharat Coking Coal  Ltd. moved  this Court under Article 136 of the Constitution separately for leave to appeal against the said decision of the High Court.      We have  heard parties  at length  and detailed written arguments have  been furnished  by Mr.  Lal Narain  Sinha on behalf of  the two appellants. The main plank of Mr. Sinha’s argument against  the decision  of the  High  Court  is  the definition  of   ’mine’  contained   in  the  two  statutes. Admittedly, the  definition of  ’mine’ occurring  in s. 2 of both the  Acts does  specifically include  all coal in stock but obviously  that inclusive  definition is for the purpose of either  take over  of management  or abolition  of right, title and  interest for  the purpose of nationalisation. Mr. Shanti Bhushan  appearing for  the  respondent  1  does  not dispute the  position that  the stock  of coal,  at the time when the  title was  abolished and vesting took place, was a part  of   the  mine   and  that  title  in  the  stock  got extinguished as  a result  of the nationalisation and vested in  the  Central  Government  from  the  appointed  day.  He concedes that  the High Court was wrong in taking a contrary view.      While there  is no  dispute that  the stock in trade at

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the commencement  of the appointed day vested in the Central Government as  a result of nationalisation, the question for examination is  whether that  stock was  liable to  be taken into account  for the  purpose  of  determining  the  amount payable to  the owner in respect of the period when the mine was under the management of the Custodian. This necessitates reference to  some of  the provisions of the Nationalisation Act and  the relevant  provisions are sections 4, 10, 21 and 22. Under  section 4  (1), on  the appointed  day the right, title and interest of the owner in relation to the 622 coking coal  mines specified  in the  First  Schedule  stood transferred  to,   and  vested  absolutely  in  the  Central Government  free   from   all   encumbrances.   Section   10 contemplates that  the  owner  of  every  coking  coal  mine specified in  the second column of the First Schedule, shall be given by the Central Government in cash and in the manner specified in s. 21, for vesting in it under s. 4, the right, title and  interest of  the owner in relation to such coking coal mine,  an amount  equal to the amount specified against it in  the corresponding  entry in  the fifth  column of the said Schedule.  Section 21, to which reference has been made in s.  10, makes  provision for  payment. The first two sub- sections of this section may be extracted:      "21. (1)  The Central  Government shall  within  thirty                days from the specified date. pay, in cash to                the Commissioner, for payment to the owner of                a coking  coal mine......a  sum equal  to the                sum  specified   against  the   coking   coal                mine......in the First Schedule or the Second                Schedule  together   with  the   amount   and                interest, if any, referred to in s. 12".      "21. (2)  In addition  to the sum referred to in sub-s.                (1), the  Central Government  shall  pay,  in                cash, to the Commissioner, such amount as may                become due  to the  owner of  a  coking  coal                mine...... in  relation to  the period during                which  the  management  of  the  coking  coal                mine.....remained  vested   in  the   Central                Government."      The present  dispute is  within the ambit of sub-s. (2) of  s.  21.  Section  22  provides  the  procedure  for  the statement of accounts to be drawn up in regard to the period of management Sub-s. (1), so far as relevant, runs thus:      "22. (1)  The  Central  Government  or  the  Government                company,  (the   appellants  before   us  are                Government companies),  as the  case may  be,                shall cause  the books  in relation  to  each                coking  coal  mine......  the  management  of                which has  vested in it under the Coking Coal                Mines (Emergency Provisions) 623                Act, 1971,  to be  closed and  balanced as on                the 30th  day of April, 1972, and shall cause                a statement  of accounts,  as on that day, to                be prepared,  within such  time, in such from                and in  such manner  as may be prescribed, in                relation to each such mine......in respect of                the transactions  effected by  it during  the                period  for  which  the  management  of  such                coking coal  mine.............remained vested                in it..." (underlining ours)      In exercise  of the  powers conferred  by clause (e) of sub-s. 12)  of s.34  of the Nationalisation Act, the Central

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Government have made a set of Rules known as the Coking Coal Mines  (Statement   of  Account)   Rules,  1972.  The  Rules prescribe the  form in which the accounts are to be prepared and reference to this form we shall presently make.      A  policy  decision  to  nationalise  the  coking  coal companies was  taken by  the Central  Government and  with a view to  facilitating nationalisation,  the  management  was first taken  over under the Management Ordinance followed by the statute with effect from October 17, 1971. This position continued till  the Nationalisation Act came into force with effect from May 1,1972. The Nationalisation Act contemplated two types  of payments to be made to the owner-one, a sum of money  contemplated   under  s.   10  of  the  Act  for  the extinguishment of  title, and  two-the dues, if any, payable in respect of the period of management as contemplated under s. 21 (2) of the Act and arrived at on the basis of accounts prepared in  the manner  prescribed. The  Management Act did not contemplate  any  kind  of  curtailment  of  the  normal incidents of  ownership except the right of management. Very appropriately,   therefore,    the    Nationalisation    Act contemplated the  books  of  account  to  be  closed  and  a statement of accounts, as on April 30, 1972, to be prepared, with a view to determining the final position for the period of management;-payment  to be made to the owner if there was a surplus  fund and  recovery to be made from him in case of shortfall.      We find  force in  the submission of Mr. Shanti Bhushan that the  accounting for the period between October 17, 1971 and April  30,  1972,  in  the  absence  of  any  particular prescribed mode in the 624 statute or  the  Rules  made  thereunder,  had  to  be  done according to  the  normal  commercial  practice.  Since  the statute contemplated  the books to be closed and balanced, a balance sheet  according to  the normal  commercial practice had to  be drawn  up. The  observations  of  this  Court  in Commissioner of  Income tax,  Madras  v.  A.  Krishna  Swami Mudaliar &  Ors., are  worth quoting.  Shah, J.  (as he then was), spoke for the Court thus:           "But whichever  method of  book-keeping is adopted      in the  case of  a trading  venture, for  computing the      true profits  of the  year the  stock-in-trade must  be      taken into  account. If  the value of stock-in-trade is      not taken  into account,  in the  ultimate  result  the      profit or  loss resulting  from trading is bound to get      absorbed or  reflected in the stock-in-trade unless the      value of  the stock-in-trade  remains unchanged  at the      commencement of the year and the end of the year."      Under the Income-tax Act profits have to be ascertained for the  purpose  of  computing  tax  liability.  Under  the Nationalisation Act the books had to be balanced with a view to finding  out whether  the Government company which was in management for  the relevant  period on  behalf of the owner was to  pay anything  to the owner or the Government company having spent  for the  owner was entitled to recover any sum from the  owner. Therefore,  we accept the submission of Mr. Shanti Bhushan  that the  Nationalisation Act contemplated a balance-sheet according  to the  commercial procedure  to be drawn up  which necessarily  required stock  in trade  to be reflected.      Admittedly the amount claimed from the owner represents the cost  of extraction  of the  coal  from  the  mine.  The appellants had  conceded before the High Court and Mr. Sinha appearing for  them before  us accepted the position that if the extracted  coal had  been sold before the appointed day,

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the owner  would have  been entitled  to the price. The mere fact that  the extracted  coal  remained  in  stock  at  the commencement of the appointed date can make no difference to the position.  The expenses  were to  be set off against the sale price  of the  stock to  be received  at  the  time  of disposal. Therefore,  the stock of coal had to be taken into account  for   balancing  the   position.  Reliance  on  the definition of ’mine’ 625 and S.  10 of  the Nationalisation  Act to  counteract  this conclusion  cannot   avail  the   appellants.  Indeed,   the submission advanced  on behalf  of the appellants is so much opposed to  common sense  logic of  the matter  that in  the absence of  a legislative  mandate we  have no hesitation in rejecting it.      Much of  the controversy  could have  been  avoided  if reference had  been made  to the statutory form. Statement 8 in the  prescribed form  clearly indicates that the stock as on April  30, 1972,  had to  be taken  into account.  We are sorry to  observe that  the High  Court omitted  to  make  a reference to  it, and  are equally  sorry to  note that  the Government companies have failed to do their duty as cast on them by law and driven the owner to unnecessary litigation      In view  of what  we have  said, there is absolutely no substance in  the stand  taken by  the appellants before us. Both the  appeals fail  and they  are dismissed  with costs. Consolidated hearing fee is assessed at Rs. 10,000. H.S.K.    Appeal Dismissed. 626