IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs._8037-38_ of 2010 (Arising out of S.L.P. (C) Nos. 30344-30345 of 2009)

M/s Sushila Chemicals Pvt. Ltd. & Anr.         …… Appellants

Versus

Bharat Coking Coal Ltd. & Ors.                     …… Respondents

J U D G M E N T

A. K. PATNAIK, J.

Leave granted.

2. These  appeals  are  against  the  common  judgment  and  

order dated 27.10.2009 passed by the Division Bench of the  

Patna High Court in L.P.A Nos.1265 and 1266 of 2009.

3. The relevant facts very briefly are that pursuant to public  

advertisements issued by Coal India Limited (respondent No.2  

herein)  calling  upon  entrepreneurs  to  establish  coal  based

industries on the basis of technology developed by the Central  

Mines,  Planning  and  Design  Institute  Ltd.,  the  appellants  

purchased  the  technology  and  established  plants  for  

manufacturing special smokeless fuel during 1990-1991.  The  

subsidiary of Coal India Limited, Bharat Coking Coal Limited  

(for short ‘BCCL’), the respondent No.1 herein, recommended  

grant  of  linkage  of  5,000  MT  of  coal  to  the  plants  of  the  

appellants and Coal India Limited granted coal linkage to the  

appellants  and  the  appellants  continued  to  run  their  

respective plants and manufacture special smokeless fuel by  

processing  the  coal  supplied  by  BCCL  to  them.  On  

18.10.2007,  the  Government  of  India,  Ministry  of  Coal  

discontinued the traditional  linkage system and in its 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,  BCCL  entered  into  FSA  with  the  two  appellants  for  

supply  of  coal.   Clause  4.4  of  FSA provided  that  the  total  

quantity  of  coal  supplied  to  the  appellants  under  the  

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agreement is meant for use in the plants of the appellants and  

the appellants 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,  the  BCCL  shall  

terminate the FSA forthwith without any liabilities or damages  

whatsoever  payable  to  the  appellants.   On 07.06.2009,  the  

Central Bureau of Investigation (for short the ‘CBI’) registered  

First Information Report (FIR) against 10 consumers including  

the  appellants  alleging  inter  alia that  the  ten  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  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  

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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  appellants  and  accordingly  BCCL  

suspended  supply  of  coal  to  the  appellants  by  a  wireless  

message dated 13.06.2009.  BCCL also issued notices to them  

to  explain  why  FSA  executed  in  favour  of  the  appellants  

should not be cancelled on the basis of the FIR lodged by the  

CBI  containing  the  allegations  that  the  appellants  were  

involved  in  a  criminal  conspiracy  leading  to  the  breach  of  

terms and conditions of FSA.

4. Aggrieved, the appellants filed writ petitions Nos. 8144 of  

2009  and  8311  of  2009  before  the  Patna  High  Court  

challenging the suspension of supply of coal by BCCL to the  

appellants by the Wireless Message dated 13.06.2009 and the  

learned Single Judge, who heard the writ petitions, held in his  

common judgment and order dated 26.08.2009 that clause 13  

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of the FSA was the only clause which provided for suspension  

of supply of coal to the units of the appellants and this clause  

provided  that  suspension  shall  be  permissible  when  the  

appellants failed to pay any amount towards purchase price or  

interest  thereon and there was no provision in the  FSA for  

suspension of supply of coal to the appellants on the ground  

that a criminal case has been instituted regarding misuse of  

the coal.  The Learned Single Judge further held that misuse  

of coal by the appellants was however germane as per clause  

15 of FSA for termination of the agreement and the General  

Manager (S&M) vide his letter dated 16.07.2009 has issued a  

show cause to the appellants for termination of the agreement  

on the ground of misuse of coal and institution of FIR.  The  

learned Single Judge, therefore, quashed the order directing  

suspension of supply of coal to the appellants and allowed the  

writ petitions.

5. The respondents then challenged the common judgment  

and order dated 26.08.2009 before the Division Bench of the  

Patna High Court in L.P.A. Nos. 1265 and 1266 of 2009 and in  

the  common  judgment  and  order  dated  27.10.2009,  the  

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Division Bench placed reliance on a judgment of the Division  

Bench of the Patna High Court dated 05.07.2002 passed in  

M/s. Central Coal Field Limited vs. M/s, Aman Lime Works  

(LPA  No.701  of  2002)  and  held  that  in  the  larger  interest,  

resumption of supply of coal cannot be directed by the court  

so long as the respondents do not consider the explanation of  

the appellants in response to the show cause notice issued by  

the  respondents  and  allowed  the  appeals  but  directed  the  

appellants to take a final decision pursuant to the show cause  

notice dated 16.07.2009 at an early date.   

6. Mr. Jaideep Gupta,  learned counsel  for the appellants,  

submitted that the reasons given by the Division Bench of the  

High Court in reversing the order passed by the learned Single  

Judge are not correct.  He submitted that the plants of the  

appellants,  admittedly,  were  manufacturing  smokeless  fuel  

and the object of the FSA executed by the BCCL in favour of  

the  appellants  was  to  provide  coal  for  the  plants  of  the  

appellants  manufacturing  smokeless  fuel  and,  therefore,  

suspension of supplies of coal by BCCL without terminating  

the  agreement  (FSA)  is  unreasonable  and  arbitrary  and  

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violative of Article 14 of the Constitution and for this reason  

the  learned  Single  Judge  had  quashed  the  suspension  of  

supplies of coal by the BCCL to the appellants.   He further  

submitted that the BCCL suspended supplies of  coal  to the  

plants of the appellants only on the basis of the allegations in  

the FIR lodged by the CBI.  He argued that as BCCL did not  

have sufficient materials in its possession, the suspension of  

supplies  of  coal  to  the  appellants  was  arbitrary  and  

unreasonable and violative of Article 14 of the Constitution.  

He cited the decisions of this Court in ABL International Ltd. &  

Anr. v. Export Credit Guarantee Corporation of India Ltd. & Ors.  

[(2004) 3 SCC 553] and Noble Resources Ltd. v. State of Orissa  

& Anr.  [(2006)  10 SCC 236]  for  the  proposition that  a  writ  

petition  was  maintainable  against  the  State  and  its  

instrumentalities  and  functionaries  even  in  contractual  

matters of the State if their action is found to be violative of  

Article 14 of the Constitution or in the breach of public law or  

vitiated by mala fides or ulterior motives.   

7. Mr. Gupta next submitted that the learned Single Judge  

of the High Court had rightly held that under Clause 13.1 of  

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FSA,  suspension  of  coal  supply  is  permitted  only  on  the  

limited ground of non-payment of the dues by the appellants  

to the BCCL towards amount of the price of the coal and any  

interest thereon and not on any other ground and, therefore,  

BCCL could not suspend the supply of coal to the appellants  

on the mere institution of the criminal case by the FIR lodged  

by the CBI.  He submitted that after the judgment and order of  

the  Division  Bench  of  the  High  Court,  the  appellants  

submitted their explanation in reply to the show-cause notice  

dated 16.07.2009 of the BCCL, but the BCCL has passed the  

orders on 03.02.2010 holding that the appellants have failed  

to submit substantial proof regarding end use of the coal in  

their plants for which the coal was delivered as per FSA and  

hence resumption of supply of coal to the appellants cannot be  

agreed to.  He submitted that since the respondents have not  

terminated FSA for supply of coal to the appellants this Court  

should direct the respondents to resume supply of coal to the  

appellants.

8. Mr. Anupam Das, learned counsel for the respondents,  

submitted  that  the  FIR  lodged  by  a  premier  investigating  

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agency  like  the  CBI  and  the  chequered  history  of  the  

appellants  before  the  FIR  were  sufficient  for  the  BCCL  to  

suspend the supply of coal to the appellants under FSA.  He  

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  appellants  which  

vindicate  the  stand  taken  by  the  respondents  that  the  

appellants were diverting coal meant for their plants for sale in  

the open market.

9. Mr. Das further submitted that the Division Bench of the  

Patna High Court has rightly held that in larger public interest  

resumption  of  supply  of  coal  could  not  be  ordered.  He  

submitted that in the orders dated 03.02.2010 the BCCL have  

taken  view  that  the  documents  submitted  on  behalf  of  the  

appellants only prove payment of sales tax and the appellants  

have failed to submit substantial proof regarding the end use  

of the coal in the plants for which coal was delivered as per  

FSA  and  hence  the  resumption  of  supply  of  coal  to  the  

appellants cannot be agreed to.   

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10.    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  

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  

appellants under the agreement is meant for use in the plants  

of  the  appellants  and  the  appellants  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  

appellants.   He  submitted  that  therefore  the  BCCL  can  

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suspend supply of coal to the appellants if the appellants have  

not been able to establish that the coal already supplied to the  

appellants has been used in the plants of the appellants.  He  

submitted that Clause 13 of FSA, which provides that if the  

appellants 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 appellants, is not exhaustive of  

the contingencies in which the BCCL can suspend supply of  

coal to the appellants.

11.  We  have  considered  the  submissions  of  the  learned  

counsel  for  the  parties  and  we  are  unable  to  accept  the  

contention of  the appellants  that  the  Division Bench of  the  

High Court should have sustained the judgment and order of  

the learned Single Judge of the High Court quashing the order  

suspending the supplies of coal to the appellants under FSA.  

The  learned  Single  Judge  of  the  High  Court  had  held  that  

BCCL could not suspend the supplies of coal to the appellants  

on the mere institution of a criminal case by the FIR lodged by  

the CBI.  The FIR lodged by the CBI contained allegations of  

mis-utilization of the allotted coal and sale of the allotted coal  

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by the appellants in the open market.  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  

appellants  in June 2009 by the CBI officials in the presence of  

independent  witnesses  during  which  the  plants  of  the  

appellants 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 appellants were found to be fake and fabricated as full  

particulars, addresses etc. were not provided in the records in  

respect of such employees/workers engaged and purchasers of  

finished  goods and thus the  quantity  of  coal  issued  to  the  

appellants-companies was not utilized in their plants but sold  

in  the  black-market.   It  was  thus  clear  that  there  were  

materials with the CBI in support of the allegations made in  

the FIR against the appellants 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  

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the writ petitions filed by the appellants.

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

High Court in reply to the writ petitions filed by the appellants,  

Coal India Limited and BCCL have pleaded that under Clause  

4.4 of FSA the appellants 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 appellants and this decision was taken  

pending a final decision regarding termination of FSA in terms  

of Clause 15 thereof.  Thus, the case of the respondents herein  

before the High Court was that suspension of supply of coal  

has been ordered to prevent further diversion of coal by the  

appellants.  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  

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

(supra) mis-utilization of allotted coal and black-marketing of  

such coal by the appellants 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 appellants, 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 appellants  

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

open market.  

13. 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:  

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“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  appellants  

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

by  the  appellants  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  

information received.  

14. It is true as has been held by the learned Single Judge of  

the High Court that Clause 13(1) of FSA provides that in the  

event  the  appellants  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 appellants, but Clause 13(1) does not  

stipulate that in no other contingency the BCCL can suspend  

supplies  of  coal  under  FSA  to  the  appellants.   Moreover,  

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

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

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

different  contingencies  in  which  BCCL  can  suspend  the  

supplies of coal to the appellants.  In our considered opinion,  

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

to the appellants where it has doubts that the appellants 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 decision of  

the Government is to allot coal to the appellants 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 the appellants, the  

BCCL would be within its rights to suspend the supplies of  

coal to the appellants till the doubts are cleared in appropriate  

proceedings.

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15. The  Division  Bench  of  the  High  Court  was,  therefore,  

right in setting aside the judgment and order of the learned  

Single  Judge  quashing  the  order  of  the  BCCL  suspending  

supplies  of  coal  to  the  appellants.   We  accordingly  dismiss  

these appeals with liberty to the appellants to challenge the  

orders dated 03.02.2010 in which the BCCL has held that the  

appellants have failed to submit substantial  proof  regarding  

the end use of the coal in their plants.  No costs.  

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

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

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