IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.___8034______________ of 2010 (Arising out of S.L.P. (C) No. 26608 of 2010)

[CC No.5440 of 2010]

M/s Coal India Limited & Ors., Etc. Etc.     …… Appellants

Versus

Alok Fuels (P) Ltd., Th. Director, Etc. Etc            Respondents  …… WITH

CIVIL APPEAL NO._8035___ of 2010  (Arising out of S.L.P. (C) No. 26612 of 2010)

[CC No.5452 of 2010]

CIVIL APPEAL NO._8036____ of 2010  (Arising out of S.L.P. (C) No. 26615 of 2010)

[CC No.5459 of 2010]

CIVIL APPEAL NO._8040__ of 2010  (Arising out of S.L.P. (C) No.11307 of 2010)

CIVIL APPEAL NO._8041_ of 2010  (Arising out of S.L.P. (C) No.11311 of 2010)

CIVIL APPEAL NO.__8042___ of 2010  (Arising out of S.L.P. (C) No.11343 of 2010)

AND

CIVIL APPEAL NO.__8039____ of 2010  (Arising out of S.L.P. (C) No.11349 of 2010)

J U D G M E N T

A. K. PATNAIK, J.

Delay in filing Special Leave Petitions arising out of CC  

Nos. 5440, 5452 and 5459 of 2010 is condoned.

2. Leave granted.

3. These  appeals  are  against  the  interim  orders  dated  

06.10.2009 passed by the learned Single Judge of  the High  

Court  of  Jharkhand  in  W.P.(C)  Nos.2948  of  2009,  3536  of  

2009 and 3080 of 2009 and the final order dated 07.01.2010  

of the Division Bench of the Jharkhand High Court in L.P.A  

Nos. 484 of 2009, 485 of 2009, 486 of 2009 and 523 of 2009.  

Since common issues of fact and law arise for decision in this  

batch  of  cases,  we  are  disposing  of  these  appeals  by  this  

common judgment.

4. The relevant facts very briefly are that the respondents  

were  granted  linkage  of  different  quantities  of  coal  for  

utilization  in  the  manufacture  of  smokeless  fuel  in  their  

plants.  On 18.10.2007, the Government of India, Ministry of  

Coal  discontinued  the  traditional  linkage  system and in  its  

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place adopted a new coal distribution policy under which coal  

was  to  be  supplied  to  different  consumers  through  a  Fuel  

Supply Agreement (for short ‘FSA’) at notified prices to be fixed  

and declared by Coal India Limited.  In accordance with this  

new policy, Bharat Coking Coal Limited (for short the ‘BCCL’),  

a subsidiary of Coal India Limited, entered into FSA with the  

respondents for supply of coal.  Clause 4.4 of FSA provided  

that  the  total  quantity  of  coal  supplied  to  the  respondents  

under  the  agreement  is  meant  for  use  in  the  plant  of  the  

respondents  and the respondents  shall  not  sell  or  divert  or  

transfer the coal for any purpose whatsoever and in the event  

they engage or plan to engage into any such re-sale or trade,  

BCCL shall terminate the FSA forthwith without any liabilities  

or  damages  whatsoever  payable  to  the  respondents.   On  

07.06.2009, the Central Bureau of Investigation (for short the  

‘CBI’)  registered  First  Information  Report  (FIR)  against  10  

consumers including the respondents alleging  inter  alia that  

the 10 consumers entered into a criminal conspiracy with Shri  

Udayan  Bhattacharya,  the  then  General  Manager  (S&M)  of  

BCCL and in furtherance thereof,  lifted 11,94,940 tonnes of  

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coal  and  instead  of  utilizing  the  same  in  their  respective  

plants, sold the same in the open market at higher prices and  

as  a  result  BCCL  has  suffered  a  loss  of  Rs.4,36,15,300/-  

approximately  and  the  accused  have  made  corresponding  

wrongful  gain  to  themselves.   In  the  FIR,  the  CBI  further  

stated  that  the  facts  disclosed  the  commission  of  offences  

punishable under Section 120-B read with Sections 420, 467,  

471 of the Indian Penal Code (for short ‘IPC’) and Section 13(2)  

read with Section 13(d) of the Prevention of Corruption Act,  

1988  by  Shri  Udayan  Bhattacharya  and  the  proprietors  of  

different  consumer  firms and,  therefore,  a  criminal  case  be  

registered and the investigation be taken up.  The Chairman of  

the Coal India Limited thereafter advised the Chairman-cum-

Managing Director of BCCL to suspend supply of coal to the  

firms  named  in  the  FIR  including  the  respondents  and  

accordingly  BCCL  suspended  supply  of  coal  to  the  

respondents by a wireless message dated 13.06.2009.   

5.  Aggrieved, the respondents filed the Writ  Petitions in the  

High Court of Jharkhand at Ranchi praying for quashing the  

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communications  suspending  the  supply  of  coal  to  the  

respondents  under  FSA and also praying for  interim orders  

directing BCCL to resume supply of coal.  On 06.10.2009, the  

learned Single Judge of the Jharkhand High Court passed the  

impugned  interim  orders  directing  resumption  of  supply  of  

coal  to  the  respondents  on  the  ground  that  there  was  no  

material placed by the BCCL to show that there was any kind  

of black marketing done by the respondents or any kind of  

mis-utilization of  the allotted coal  by them.  The appellants  

herein challenged the interim orders dated 06.10.2009 of the  

learned Single Judge before the Division Bench in the LPAs.  

By order dated 07.01.2010 the Division Bench dismissed the  

LPAs with the liberty to the appellants to file applications for  

vacating the interim orders as soon as the appellants are able  

to procure adverse material  against the respondents and in  

the  alternative  passed  orders  terminating  FSA  with  the  

respondents.  

6.  Mr. Anupam Lal Das, learned Counsel for the appellants,  

submitted that the learned Single Judge of the High Court by  

directing resumption of supply of coal to the respondents had  

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granted a final relief to the respondents by interlocutory orders  

and this was not permissible in law.  He further submitted  

that  the  only  reason given  by  the learned  Single  Judge  for  

passing the interlocutory order directing resumption of supply  

of coal was that there were no materials other than the FIR  

lodged by the CBI to show that any kind of black marketing  

was done or any kind of mis-utilization of allotted coal was  

made by the respondents.  He submitted that the FIR lodged  

by  a  premier  investigating  agency  like  the  CBI  and  the  

chequered  history  of  the  respondents  before  the  FIR  were  

sufficient  materials  to  suspend  the  supply  of  coal  to  the  

respondents.   He  further  submitted  that  in  any  case  

investigation into the allegations made in the FIR has already  

been completed by the CBI and charge sheet has been filed  

against the respondents which vindicate the stand taken by  

the appellants that the respondents were diverting coal meant  

for their plants for sale in the open market.   

7.  Mr. Das further submitted that two of the consumers to  

whom the  supply  of  coal  was  similarly  suspended,  namely,  

M/s Sushila Chemicals Pvt. Ltd. and M/s Magadh Smokeless  

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Fuel  Co.  moved the Patna High Court  in two separate  Writ  

Petitions and the learned Single Judge of the Patna High Court  

passed a common order dated 26.08.2009 allowing the Writ  

Petitions with a finding that the investigation of criminal case  

or allegations of misuse of coal is no ground for suspension of  

coal  supply  under   FSA,  but  the  appellants  filed  LPA Nos.  

1265 of 2009 and 1266 of 2009 before the Division Bench of  

the  Patna High Court  and the  Division  Bench held  that  in  

larger public interest resumption of supply of coal could not be  

ordered so long as the appellants do not consider the show  

cause of the Writ Petitioners and taken a final view on merits.  

He submitted that similarly some other consumers, namely,  

M/s Pratap Fuel Industries and M/s National Fuels Industry  

moved the Allahabad High Court in Civil Miscellaneous Writ  

Petition Nos. 33576 of 2009 and 36430 of 2009 against the  

suspension  of  supply  of  coal  under  FSA  and  the  Division  

Bench  of  the  Allahabad  High  Court  held  that  the  order  

suspending the supply of coal to the two consumers passed by  

the appellants herein needed no interference by the Court in  

its  extraordinary  jurisdiction  and  instead  directed  the  

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appellants  herein  to  consider  the  explanations  of  the  two  

consumers  furnished  in  reply  to  show cause  notices  dated  

16.07.2008  and  take  a  final  decision  in  the  matter.   He  

submitted that although the orders passed by the Patna High  

Court  and  the  Allahabad  High  Court  were  cited  before  the  

Division Bench of the Jharkhand High Court, the same had  

not  been  referred  to  or  dealt  with  in  the  impugned  orders  

passed by the Division Bench of the Jharkhand High Court in  

the  LPAs.   He  submitted  that  an anomalous  situation  now  

prevails  with regard to  supply  of  coal  to  the 10 consumers  

against whom the CBI has lodged the FIR.  Those consumers  

who  moved  the  Patna  High  Court  and  the  Allahabad  High  

Court are not getting the supply of coal under FSA, whereas  

those consumers who moved the Jharkhand High Court and  

in whose favour the Jharkhand High Court has passed orders  

would be entitled to supply of coal under FSA, though the two  

classes of consumers are similarly situated.   

8.   Mr.  Das cited the observations of  this Court  in  Ashoka  

Smokeless Coal India (P) Ltd. & Ors. Vs. Union of India & Ors.   

[(2007) 2 SCC 640] in Para 188 at Page 703 on the need to  

8

control  black  marketing  and  mis-utilization  of  coal.   He  

submitted  that  it  is  pursuant  to  these  observations  of  this  

Court that the new coal distribution policy has been framed to  

discontinue  the  Linkage  System which could  not  check the  

menace of black marketing and diversion of coal to the open  

market  and  supply  of  coal  on  strict  terms  and  conditions  

stipulated in FSA to the consumers has been contemplated to  

ensure  proper  utilization  of  the  coal  in  the  plants.  He  

submitted that this is why in Clause 4.4 of the FSA it is clearly  

provided  that  the  total  quantity  of  coal  supplied  to  the  

respondents  under  the  agreement  is  meant  for  use  in  the  

plants  of  the  respondents  and  the  respondents  shall  not  

sell/divert  and/or  transfer  the  coal  for  any  purpose  

whatsoever and in the event they engage or plans to engage  

into any such resale or trade, the BCCL shall terminate the  

FSA forthwith without any liabilities and damages whatsoever  

payable to the respondents.  He submitted that therefore the  

BCCL can suspend supply of coal to the respondents if  the  

respondents  have  not  been  able  to  establish  that  the  coal  

already  supplied  to  the  respondents  has  been  used  in  the  

9

plants of the respondents.  He submitted that Clause 13 of  

FSA, which provides that if  the respondents fail  to pay any  

amount  including  any  interest  due  to  the  BCCL  towards  

purchase price of the coal the BCCL can suspend supply of  

coal to the respondents, is not exhaustive of the contingencies  

in  which  the  BCCL  can  suspend  supply  of  coal  to  the  

respondents.  He submitted that the learned Single Judge and  

the  Division Bench of  the  Jharkhand High Court  have  lost  

sight of these provisions of FSA made in the public interest  

while passing the impugned orders.   

9. Mr.  M.L.  Varma,  learned Senior  Counsel  appearing for  

the  respondent  M/s Alok  Fuels  (P)  Ltd.  submitted  that  the  

case  of  the  respondent  before  the  High  Court  was  that  

supplies of coal to the respondent was suspended arbitrarily  

and in violation of Article 14.  He submitted that the industry  

of the respondent was functional as would be evident from the  

report of the General Manager, District Industry Centre before  

the Punjab & Haryana High Court in Civil  Writ  Petition No.  

9863 of 2008.  He further submitted that no materials were  

produced by the appellants before the learned Single Judge or  

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the  Division  Bench  despite  opportunity  being  given  to  the  

appellants to produce materials against the respondent.  He  

further submitted that no opportunity has been given to the  

respondent to explain and rebut the materials now found and  

filed alongwith the charge sheet against the respondents by  

the CBI.  

10.  Mr. Ranjeet Kumar, learned Senior Counsel, appearing for  

the respondent M/s Faridabad Industries, on the other hand,  

supported the impugned orders passed by the learned Single  

Judge  and  the  Division  Bench  of  the  High  Court  and  

submitted that besides the FIR lodged by the CBI, no other  

material whatsoever was placed by the appellants before the  

High  Court  to  show  that  the  respondents  M/s  Faridabad  

Industries diverted coal from its plant and sold the same in  

the  open  market.   He  submitted  that  due  opportunity  was  

given by the learned Single Judge of the High Court by the  

order  dated  15.07.2009  to  the  appellants  about  materials  

which were in their possession on the date on which supply  

was directed to be suspended but despite such opportunity,  

the appellants did not produce any material whatsoever before  

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the High Court to show that the respondent M/s Faridabad  

Industries has resorted to any black marketing or sale in the  

open market or had diverted coal from its plant.  He submitted  

that  supply  of  coal  to  the  respondent  M/s  Faridabad  

Industries was very essential for its industry and business and  

suspension of supply of coal to the industry of the respondent  

could not be allowed by the Court for an indefinite period of  

time and therefore the learned Single Judge of the High Court  

had  rightly  passed  the  interlocutory  order  directing  the  

appellants to resume supply of coal to the respondents.  

11.  Mr. U.U. Lalit, learned Senior Counsel appearing for the  

respondent M/s Ajay & Company Fuel  Product adopted the  

submissions of Mr. Ranjeet Kumar and further submitted that  

it will be clear from Para 2 of the Additional Affidavit filed on  

behalf of the appellant on 10.05.2010 in SLP (C) No. 11307 of  

2010 that prior to the new coal distribution policy introduced  

w.e.f. 18.10.2007, there were 230 national consumers and 94  

Cokeries  and Cokery-cum-Washery units drawing coal from  

BCCL, but after introduction of this new policy on 18.10.2007,  

only  five  consumers  other  than  private  cokery  units  were  

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found  suitable  for  execution  of  FSA  under  the  new  coal  

distribution policy.   He submitted that the respondent M/s  

Ajay & Company Fuel Product was one of these five consumers  

found suitable for execution of FSA and at this stage a stand  

cannot be taken by the appellants that M/s Ajay & Company  

Fuel Product was not suitable for supply of coal under FSA.  

12.  Mr. S.B. Upadhyay, learned Senior Counsel, appearing for  

the respondent M/s M.G.M. Contrade Pvt.  Ltd.  adopted the  

arguments of  Mr.  Ranjit  Kumar and further  submitted that  

Clause  13 of  the  FSA executed by BCCL in favour of  M/s.  

M.G.M.  Contrade  Pvt.  Ltd.,  stipulated  that  BCCL  could  

suspend supplies of coal to the respondent if the respondent  

fails to pay any amount including any interest to BCCL under  

FSA.  He submitted that the supply of coal to the respondent  

therefore could not be suspended on any ground other than  

the failure on the part of the respondent to pay any amount or  

interest  due  to  the  BCCL under  FSA.    He  submitted  that  

suspension  of  supply  of  coal  by  the  petitioner  to  the  

respondent  pursuant  to  the  FIR  lodged  by  the  CBI  is,  

therefore, in breach of Clause 13 of the FSA.  He referred to  

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the observations of this Court in Para 189 in the case Ashoka  

Smokeless Coal India (P) Ltd. & Ors. Vs. Union of India & Ors.   

(Supra) that inspection should be carried out by the officers  

appointed  by  the  Chairman  cum  Managing  Director  of  the  

company  concerned  within  whose  jurisdiction  the  unit  is  

located before entering into any agreement for supply of coal to  

ensure  the  genuineness  of  the  unit.  According  to  Mr.  

Upadhyay,  since  FSA  has  been  executed  in  favour  of  the  

respondent  after  all  such  inspection  and  scrutiny,  the  

appellants cannot at this stage take the stand that the unit of  

the respondent is not genuine.  

13. We have considered the submissions of learned counsel  

for  the  parties  and  we  find  that  the  only  reason  why  the  

learned Single Judge of the High Court has by the impugned  

interim orders directed the appellants to resume supplies of  

coal  under  FSA  to  the  respondents  is  that  BCCL  has  not  

placed any material before the Court to show that there was  

any kind of black-marketing of coal done by the respondents  

or any kind of mis-utilization of the allotted coal by them and  

this is also the reason given by the Division Bench of the High  

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Court for dismissing the LPAs filed by the appellants against  

the  impugned  interim  orders  passed  by  the  learned  Single  

Judge.  What the learned Single Judge and the Division Bench  

of  the  High  Court  failed  to  appreciate  is  that  the  FIR  

containing the allegations of mis-utilization of the allotted coal  

and sale of the allocated coal by the respondents in the open  

market was lodged by the CBI and therefore the CBI and not  

the BCCL was in possession of information or materials with  

regard to such mis-utilization of the allotted coal or sale of the  

coal in the open market by the respondents.  As a matter of  

fact  in  the  charge-sheet  which  has  been  filed  after  

investigation  in  the  Court  of  Special  Judge,  CBI  cases,  

Dhanbad, it is stated that a search was conducted at the plant  

premises of the respondents in June 2009 by the CBI officials  

in presence of independent witnesses during which the plants  

of the respondents were found to be non-functional and the  

names of employees / workers as per the Attendance Register  

as well as other documents relating to sale of finished goods as  

produced  by  the  respondents  were  found  to  be  fake  and  

fabricated as full particulars, addresses etc. were not provided  

15

in the records in respect of such employees / workers engaged  

and purchasers of finished goods and thus the quantity of coal  

issued to the respondent-companies were not utilized in their  

plants but sold in black-market.  It was thus clear that there  

were materials with the CBI in support of the allegations made  

in the FIR against the respondents that they were not utilizing  

the allotted coal in their plants but were selling the same in  

black-market, but these materials could not be placed before  

the Court because the CBI was not impleaded as a respondent  

in the writ petitions filed by the respondents.

14. We further find that in the counter-affidavit filed in the  

High  Court  in  reply  to  the  writ  petitions  filed  by  the  

respondents, Coal India Limited and BCCL have pleaded that  

under  Clause  4.4  of  FSA the  respondents  were  required to  

utilize  the  entire  quantity  of  coal  allotted  to  them  in  their  

respective plants and had undertaken not to sell  / divert  /  

transfer the coal for any purpose whatsoever and as the FIR  

lodged by the CBI disclosed breach of this clause of FSA, Coal  

India Limited and BCCL had to suspend the supplies of coal to  

prevent further diversion of coal by the respondents and this  

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decision  was  taken  pending  a  final  decision  regarding  

termination of FSA in terms of Clause 15 thereof.  Thus the  

case of the appellants herein before the High Court was that  

suspension  of  supply  of  coal  has  been  ordered  to  prevent  

further diversion of coal by the respondents.  The Coal India  

Limited  and  BCCL  are  Government  Companies  of  the  

Government of India and are bound by the policy decisions of  

the Government of India, Ministry of Coal, and since under the  

New  Coal  Distribution  Policy  formulated  pursuant  to  the  

observations of this Court in Ashoka Smokeless Coal India (P)   

Ltd. & Ors. Vs. Union of India & Ors. (Supra), mis-utilization of  

allotted  coal  and  black-marketing  of  such  coal  by  the  

respondents was to be checked, the Coal India Limited and  

BCCL did not act arbitrarily or unreasonably to suspend the  

supplies  of  coal  under  FSA  to  the  respondents,  if  they  

entertained a serious doubt on the basis of the FIR lodged by  

the CBI that the supplies of coal, if made to the respondents,  

may be mis-utilized by the respondents and may be sold in the  

open market.  

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15. It is settled by a series of decisions of this Court starting  

from Kumari Shrilekha Vidyarthi v. State of U.P. [(1991) 1 SCC  

537] that even in the domain of contractual matters, the High  

Court can entertain a writ petition on the ground of violation  

of Article 14 of the Constitution when the impugned act of the  

State  or  its  instrumentality  is  arbitrary,  unfair  or  

unreasonable or in breach of obligations under public law.  In  

Sterling Computers Ltd. v. M/s M & N Publications Limited and  

Others [(1993)  1 SCC 445]  in  para 28,  however,  this  Court  

held:  

“Public  authorities  are  essentially  different  from  those of private persons.  Even while taking decision  in  respect  of  commercial  transactions  a  public  authority must be guided by relevant considerations  and not by irrelevant ones.”

Obviously,  one  such  relevant  consideration  which  the  Coal  

India Limited and BCCL as public authorities have to consider  

is whether continuation of supply of coal to the respondents  

may not lead to mis-utilization or black-marketing of the coal  

by the respondents which are prohibited under FSA and the  

policy decision of the Government considering the allegations  

made  by  the  CBI  in  the  FIR  on  the  basis  of  the  reliable  

18

information  received.  This  relevant  aspect  has  not  been  

considered  by  either  the  learned  Single  Judge  or  the  High  

Court  while passing the impugned interim orders or by the  

Division Bench of the High Court while dismissing the LPAs  

against  the  impugned  interim  orders  of  the  learned  Single  

Judge.

16. It  is  true  as  has  been  contended  on  behalf  of  the  

respondents  that  Clause  13(1)  of  FSA  provides  that  in  the  

event  respondents  fail  to  pay  any  amount  including  any  

interest due to BCCL under FSA within a period of 30 days of  

the same falling due, BCCL shall have the right to suspend  

supplies of coal to the respondents, but Clause 13(1) does not  

stipulate  that  in  no  other  contingency  BCCL  can  suspend  

supplies  of  coal  under  FSA to  the  respondents.   Moreover,  

Clause 13(1) of FSA enumerates the three options available to  

BCCL in case the dues towards the price of coal and interest is  

not paid by the respondents and it does not provide for the  

different  contingencies  in  which  BCCL  can  suspend  the  

supplies of coal to the respondents. In our considered opinion  

BCCL will also have the right to suspend supplies of coal to  

19

the respondents where it has doubts that the respondents may  

mis-utilize the allotted coal and divert or sell the same in open  

market because, as would be clear from Clause 4.4 of the FSA  

and  the  new  Coal  Distribution  Policy  decision  dated  

18.10.2007,  the  very object  of  FSA as  well  as  policy  of  the  

Government is to allot coal to respondents for utilization in  

their plants and not for any other purpose.  Therefore, if the  

FIR lodged by the CBI, which is a premier investigation agency  

of  the Central  Government,  created serious doubts that the  

allotted  coal  may  be  diverted  or  sold  in  the  open  market  

instead of being utilized in the plants of respondents, BCCL  

would be within its rights to suspend the supplies of coal to  

the  respondents  till  the  doubts  are  cleared  in  appropriate  

proceedings.

17.   We,  however,  find  that  BCCL  has  initiated  such  

proceedings by issuing show cause notices dated 16.07.2009  

to the respondents to explain why FSA executed in favour of  

the respondents should not be cancelled on the basis of the  

FIR  lodged  by  the  CBI  containing  the  allegations  that  the  

respondents were involved in a criminal conspiracy leading to  

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the breach of terms and conditions of FSA.  If the respondents  

have  furnished  their  explanations,  BCCL  may  consider  the  

same and take a decision whether or not to resume supplies of  

coal in accordance with law.  

18. We, therefore, hold that the learned Single Judge and the  

Division Bench of the High Court were therefore not right in  

directing  BCCL  to  resume  the  supplies  of  coal  to  the  

respondents  and accordingly  set-aside  the  impugned  orders  

dated  06.10.2009  of  the  learned  Single  Judge  and  dated  

07.01.2010 of the Division Bench of the High Court and allow  

these appeals with no order as to costs.

……………………..J.                                                                   (Altamas Kabir)

……………………..J.                                                                   (A. K. Patnaik) New Delhi, September 15, 2010.    

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