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CASE NO.: Appeal (civil)  3249-3250 of 2002

PETITIONER: Nagrik Uphhokta M. Manch etc.

RESPONDENT: Union of India & Ors. etc.

DATE OF JUDGMENT: 20/04/2004

BENCH: R.C. LAHOTI & ASHOK BHAN.

JUDGMENT: J U D G M E N T

I.A. Nos. 4-15

R.C. Lahoti, J.

       In the States of Madhya Pradesh, kerosene was being  distributed and made available for sale to consumers through public  distribution system and by appointing fair price shops and retailers.   By executive instructions, the State of Madhya Pradesh evolved a  system called rounding off of the price in the name of securing  distribution of kerosene at uniform prices.  The effect of the system  was that the prices for sale by the wholesalers and the retailers were  so strategically appointed as to generate a margin which was collected  by Collectors in several districts and the Director of Civil Supplies at  the State level.  Such fixation of prices, based on rounding off, was  challenged by filing writ petitions in the High Court which were  dismissed.  The matter came up in appeals by special leave before this  Court.  This Court allowed the appeals.  The judgment of the High  Court was set aside and the system of rounding off of the prices so as  to build up funds available with the Director and the Collectors was  directed to be quashed being ultra vires of Article 265 of the  Constitution and Section 3 of the Essential Commodities Act 1955 and  para 2(d) of the Kerosene (Restriction on Use and Fixation of Ceiling  Price) Order, 1993.

       During the pendency of the writ petition and the appeals, the  State of Madhya Pradesh was reorganized into two States by carving  out the State of Chhattisgarh separately from out of the State of  Madhya Pradesh.  The State of Chhattisgarh was joined as party to the  appeals in this Court.  Huge funds, running into crores of rupees, were  found to have been collected by the two States the figures whereof  were brought to the notice of this Court.  However, the collection had  continued during the pendency of the appeals.  Vide its judgment  dated May 2, 2002 (reported as (2002) 5 SCC 466) apart from striking  down the system of rounding off, the Court made the following further  directions:-         "However, on the facts brought to the notice  of this Court, the matter cannot be left at that  alone.  We have the figures of the collection and  utilization of the fund up to 31-7-2001 brought to  our notice.  During the pendency of these appeals,  further amount must have been collected and also  spent. Some directions would be required to be  made for utilizing the fund so available with the  officers of the State Government.  This Court would  also like to know how and for what purpose the  fund has been utilized and whether timely audits of  the fund were carried out.  For this purpose we

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request the Accountant-General of Madhya Pradesh  to carry out the audit of the fund as available with  the Director and the Collectors of the districts in  the States of Madhya Pradesh and Chhattisgarh,  the latter State having been carved out and formed  during the pendency of these special leave  petitions.  Apart from carrying out the usual audit,  we request the Accountant-General of Madhya  Pradesh to compile the expenditure under different  heads and sub-heads so as to clearly indicate for  what purpose the fund has been utilized.  We hope  the audit will be completed in a period of 4 months  from the date of communication of this order to the  Accountant-General of Madhya Pradesh.  On receipt  of the report of the Accountant-General, the same  shall be laid before the Court soliciting further  directions.  Till then, the amount collected in the  said fund by the Director of Food and Civil Supplies  and the Collectors of the districts shall stand  frozen."

       The Principal Accountant-General of Madhya Pradesh has carried  out the audit in terms of the directions made by this Court. It was a  voluminous task and could not be completed within the appointed  period of four months and, therefore, the time was extended.  In  February, 2003, the report has been filed on behalf of the Principal  Accountant-General (Audit)-I of Madhya Pradesh, Gwalior after  carrying out the audit of funds available with the two Directorates of  Food and Civil Supplies and with the Collectors of 61 districts in the  States of Chhattisgarh and Madhya Pradesh.  We record our  appreciation of the commendable work done by the office of the  Principal Accountant-General (Audit)-I abovesaid within a reasonable  time and very expeditiously.  The report satisfies the directions made  by this Court.

       The States of Madhya Pradesh and Chhattisgarh, on having  been furnished with the copies of the audit reports, have filed  responses.  They took time for completing the process of  reconciliation, recovery and adjustments in the light of the audit report  and to carry out the directions made by this Court.  On 10.11.2003,  after hearing the Advocates General for the States of Madhya Pradesh  and Chhattisgarh, the Court made the following directions:-         "There is substantial amount collected and  lying unspent the recovery whereof by the  Directorate and Collectors of several Districts has  been held to be illegal. Such amount must be  available to be utilized consistently with the  directions to be made by this Court. For this  purpose before passing further orders, we would  like to have the following information filed in a  tabulated form, supported by affidavit within three  weeks:-

(i)     The total amount collected by way of  rounding up charges;

(ii)    The amount spent out of it (Districtwise);  and

(iii)   The amount as to which recovery is yet to be  made by the Directorate/Collectors of  Districts.

       We would also like to know if the audit is  complete or something yet remains to be done for

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want of information made available by the Districts.

I.A. No. 14-15/2003 (filed by the State of  Chhattisgarh)

       The State Government shall take steps for  recovery of rounding off charges lying deposited  with the wholesalers so as to bring them into the  funds available for utilization in accordance with  the orders passed by this Court."  

       Compliance has been made and reported.

       The question that remains to be decided is as to the utilization  of the crores of rupees lying available with the two States consisting of  the principal, the interest and the recoveries effected consequent upon  the directions made by this Court.

       The two States have submitted that the funds which have been  frozen under the orders of this Court may be released respectively to  them for the purpose of utilization by them to strengthen the public  distribution systems in the two States.  The traders (wholesalers and  retailers) have desired that the amount be refunded to them as it was  contributed by them.

       On 25.3.2004, an affidavit sworn in by Shri P.G. George, Under  Secretary in the Ministry of Petroleum and Natural Gas, New Delhi, has  been filed wherein it is stated, inter alia, as under:- "5.     That the Central Government vide resolution  No. PPD/OPC/IR/75 dated 14.7.1975 had decided  to setup Oil Coordination Committee for  administering the Pool Account, deciding on  allocation of crude oil and monthly production  patterns; and coordinating transportation  arrangements for crude oil imports and coastal  movements.  Secretary, Ministry of Petroleum and  Natural Gas, Government of India, was the  Chairman of the OCC.

       The subsidy on Public Distribution system of  Kerosene was borne by the Oil Pool Account till  31.3.2002.  The subsidy on Public Distribution  System on Kerosene was funded by way of  cross  subsidy on Petrol and Aviation Turbine Fuel and  surcharges on petroleum products.  The Central  Government vide resolution No. P-20029/22/2001- PP dated 28.3.2002 had decided to dismantle Oil  Coordination Committee w.e.f. 1.4.2002 and Oil  Pool Accounts have been wound up.  The Central  Government has also decided that the outstandings  of the Oil Companies from the Oil Pool Account  would be taken over by it.  The liability of Oil  companies would be discharged through issue of  Special Government Bonds.  The Oil Companies  have already been issued Special Government  Bonds for Rs.9000/- crores and balance  outstandings would be liquidated after the  completion of CAG’s Audit which is in progress.

       Thereafter the Central Government, has also  decided vide resolution number No.P- 20029/18/2001-PP dated 28.1.2003 that subsidy  on Public Distribution System Kerosene and

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domestic LPC effective 1.4.2002 would be borne by  fiscal budget.  The budgetary allocation for the  subsidy on Public Distribution System Kerosene and  Domestic LPG is as follows:

                                      Rs./Crores                 2002-03         4,495.80                 2003-04         6,300.00

6.      That from the resume of the facts, it would  be in the interest of justice that the State  Governments, that is, Madhya Pradesh and  Chhattisgarh are directed to deposit all this amount  in the General Receipts of the Central Government  as kerosene subsidy is being funded by the Central  Government."

       We have heard the learned Addl. Solicitor General appearing for  the Union of India, Advocates General/Standing Counsel for the States  of Madhya Pradesh and Chhattisgarh and the learned counsel  appearing for the several interveners.  We do not find any merit in the  claim of the traders.  Whatever amount they have contributed to the  funds generated by the State Governments in the name of rounding  off, the burden thereof has been passed on to the hundreds and  thousands of consumers.  A refund to them would amount to their  unjust enrichment and would not reach the ultimate consumers who  have really parted with the amount.

       We do not also see any merit in the claims of the two State  Governments.  Firstly, they were responsible for illegally collecting the  fund.  The information made available by the two State Governments  and the facts collected by the report of the Principal Accountant- General reveal misutilisation of the funds and several irregularities ___  some of them termed serious.  To a large extent recoveries have been  effected  which would not have been possible but for the Court’s  intervention.  Substantial amounts have ceased to be recoverable.   Apart from suggesting that the amount of the fund would be utilized  for strengthening the public distribution system, the State  Governments have not come out with any concrete plan suggesting  utilization of funds.  We do not think the claims of the State  Governments can be countenanced.   

       We do find merit in the submission made on behalf of the  Central Government.  The most appropriate thing to do, in our opinion,  is to direct the funds lying with the two State Governments to be made  over to the Central Government so that the same can be utilised by  way of general receipts of the Central Government as the Central  Government is funding the kerosene subsidy.

       The States of Madhya Pradesh and Chhattisgarh are directed to  makeover the amount of fund lying frozen with them, including the  principal and interest, alongwith such recoveries as have been effected  or may be effected hereafter to the Ministry of Petroleum and Natural  Gas, New Delhi to be utilized for the purpose of funding kerosene  subsidy by the Central Government.  Funds available at hand shall be  handed over in six weeks.  Amounts, which are in the process of being  recovered, shall be so recovered and handed over to the Central  Government in 4 months from today.

       The matters stand disposed of.

       All the pending intervention applications be treated as  dismissed.

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