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CASE NO.: Appeal (civil)  109\026125 of 1999

PETITIONER: Pallavi Refractories & Ors. Etc.                 

RESPONDENT: M/s. Singareni Collieries Co. Ltd. Etc.  

DATE OF JUDGMENT: 04/01/2005

BENCH: ASHOK BHAN & A.K. MATHUR  

JUDGMENT: J U D G M E N T With Civil Appeal No.15 of 2005 (arising out of SLP(C) N. 2783 of 1999)

BHAN, J.

       Leave granted in SLP (C) No. 2783 of 1999.

       These appeals by grant of special leave  have been filed by the writ petitioners \026 the  appellants herein, against the common order  passed by the High Court of Andhra Pradesh in  a group of writ petitions.  The High Court in  the impugned judgment has upheld Clause 10 of  the Price Notification No. 3/96-97 dated  14.3.1997 issued by M/s. Singareni Collieries  Co. Ltd. (hereinafter, for short ’the  respondent’).

       Appellants are proprietors of various coal  based small-scale industries who draw ’C’ and  ’D’ grade coal from the respondent.   Respondent is a state owned company in which  51% shares are held by the State of Andhra  Pradesh and 49% shares are held by the  Government of India.

       Government of India has identified 7  core/priority sector industries.  They are: 1)  Exports, 2) Power Utilities, 3) Defence, 4)  Railways (Loco), 5) Fertilizers, 6) Steel  including Sponge Iron and Pig Iron and           7) other metallurgical industries who use  coal/coke for their own use.  Core/priority  sector industries alone consume about 90-95%  of the coal produced and left over 5% plus are  supplied to the non-core/unlinked sector  industries to which the appellants belong.

       The Government of India has been fixing  the grades and prices of the coal produced in  India 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.  It appears that the  company had accumulated heavy losses and was  reeling under financial problems.  The

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Government of India by its notification dated  22.3.1996 issued under clause 3(2) of the  Colliery Control Order, 1945 deregulated the  price and distribution of non-coking coal of  grades ’A’, ’B’ & ’C’.  By a further  notification dated 12.3.1997, decontrol was  extended to some other grades of coal as well.   By a communication dated 13.3.1997 addressed  by the Government of India (Ministry of Coal),  it was clarified that the Board of the  respondent company "will henceforth determine  the economic price to be charged for the coal  produced from time to time."  Soon thereafter,  the respondent issued the Price Notification  No. 3/96-97 dated 14.3.1997.  Clause 10 of the  Price Notification provided that non- core/unlinked sector industries are required  to pay 20% additional price over and above the  notified prices.  Clause 10 reads as follows : "Any linked customers who are drawing B,  C and D grades of coal are required to  pay 20% additional price over and above  the notified prices."

       Being aggrieved with the above stated  clause in the price notification issued by the  respondent, the appellants filed various writ  petitions in the High Court of Andhra Pradesh  challenging the levy of additional price by  the respondent being discriminatory and  violative of Article 14 of the Constitution of  India.  According to them, the classification  of linked and unlinked industries for the  purpose of pricing was irrational and gave  rise to hostile discrimination. It was averred  that the respondent has effected a substantial  price variation under the guise of additional  levy and the same amounts to dual pricing.  It  was also averred that the price fixed was  arbitrary and excessive.

       The respondent in its reply contended that  fixation of price is within its discretion and  coal being not a controlled commodity now, the  respondent could not be precluded from fixing  appropriate prices for its produce including  dual price.  It was averred that the limited  grievance of the appellants was against the  alleged discriminatory treatment between core  sector/linked sector industries and other  industries.  Having regard to the financial  position of the respondent, having accumulated  loss of more than Rs. 1000 crores and  additional cost of production, there was  nothing wrong in charging higher price from  the non-core/unlinked sector customers leaving  a comfortable profit margin to the respondent.   Dual price has been resorted to by the  respondent after taking into consideration the  policy of the Government of India as well as  the cost of production of the coal of  respective grades.  The price was fixed  looking into the various economics of the cost  structure of the production of coal.  It was

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averred that sale price was fixed keeping in  view the respondent’s financial capacity,  operational costs and importance of certain  category of industries in larger national  interest.  It was denied that there was any  arbitrariness or unreasonableness in the price  structure.

       In the High Court the appellants gave up  their challenge to the fixation of the price  being arbitrary or unconscionably high or that  the respondent has fixed the price of 20%  extra according to its whims and fancies  without appraisal of relevant factors.  The  only point argued before the High Court was  with regard to dual pricing. According to the  appellants, the non-core/unlinked sector  customers could not be charged more than what  the respondent was charging from the core  sector/linked sector customers.   

       The High Court dismissed the writ  petitions with costs finding no infirmity in  Clause 10 of the Price Notification.  It was  held that Clause 10 of the Price Notification  did not violate Article 14 of the Constitution  of India.  It was observed that core  sector/linked sector industries had been given  priority from the beginning so as to ensure  regular supplies of coal to them.  This  benefit has been extended to them due to their  intrinsic importance and the role played by  such industries in nation building activities  and the propensities of public utility  possessed by them.  Lesser price was charged  from them because of the same considerations.   Core sector industries, besides playing a  vital role in the economy of the country, were  bulk consumers and coal formed a major input  and hence they cannot be compared with the  non-core sector.  Any substantial increase in  the price of the coal from them would have a  substantial effect on the cost of finished  products and the cost of services to public in  general.  It was observed that any increase in  the price of coal from them shall have a chain  reaction on the budgetary allotments and will  require additional funds.  In the case of non- core sector/unlinked sector industries,  consumption of coal is minimal and the  increase of price of coal from them will not  result in any appreciable increase in the cost  of products manufactured by such industries.   The extent of bulk consumption of coal by core  sector/linked sector industries call for a  special treatment.  It cannot be said that by  evolving dual price policy and charging lesser  price from the core/linked sector industries,  the respondent has treated equals as unequals  or that the classification made was not  rational.

       Being aggrieved by the dismissal of the  writ petitions by the High Court, the present  appeals have been filed.

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       The only point argued before us in these  appeals is whether resort to dual price  fixation classifying its customers into core  sector/linked sector and non-core  sector/unlinked sector by the respondent and  charging different prices for coal from such  customers is discriminatory treating the  equals as unequals and, therefore, violative  of Article 14 of the Constitution of India.                  Essence of the submissions advanced by  Shri T.N. Rao, learned counsel appearing for  the appellants, is that classification of  core/linked sector industries and non- core/unlinked sector industries by the  respondent for the purpose of pricing is  irrational and gives rise to hostile discrimination.   The respondent being the State-controlled company  having monopoly business cannot discriminate between  customers at its whims and apply double standards in  charging the price for coal.  The classification  carved out between core and non-core industries for  the purpose of price fixation is arbitrary and  unreasonable and an instrumentality of State, even  though running a business activity cannot take the  stand that it has unfettered freedom in charging any  prices it deems fit from any customer.  That there  is no reasonable basis for the classification  introduced for the first time and the appellants  cannot be subjected to bear the brunt of much higher  prices.  As against this, Shri Altaf Ahmed, learned  senior counsel appearing for the respondents  submitted that fixation of price is within the  discretion of the company and coal being not a  controlled commodity now, the company cannot be  precluded from fixing appropriate price for the  produce including dual price and no customer has any  say in the matter.  It was submitted that a mandamus  could not be issued to the respondent to charge  lesser price from the appellants or to charge  uniform price from all the customers.  That number  of factors such as financial problems of the  company, operational cost and importance of certain  categories of industries in the larger national  interest can be legitimately taken into account  while fixing the price.  That there was enough  justification for adopting dual pricing having   regard to the financial position of the company and  the additional cost of production peculiar to the  respondent, there was nothing wrong in charging a  higher price from non-core/unlinked sector consumers  which would leave a comfortable margin of profit to  the company.

       This Court in Union of India  v.  Cynamide  India Ltd.          [AIR 1987 SC 1802] has held that  price fixation is generally a legislative activity.  It may occasionally assume an administrative or  quasi-judicial character when it relates to  acquisition or requisition of goods or property from  individuals and it becomes necessary to fix the  price separately in relation to such individuals.   Such situations may arise when the owner of the  goods is compelled to sell goods to the Government

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or its nominee and the price is to be determined  according to the statutory guidelines laid down by  the Legislature.  In such situations, the  determination of price may acquire a quasi judicial  character but, otherwise, price fixation is  generally a legislative activity.  After observing  thus, the Court held that price fixation is neither  the function nor the forte of the Court.  The Court  is neither concerned with the policy nor with the  rates.  But in appropriate proceedings it may  enquire into the question, whether relevant  considerations have gone in and irrelevant  considerations kept out while determining the price.   In case the Legislature has laid down the pricing  policy and prescribed the factors which should guide  the determination of the price then the Court will,  if necessary, enquire into the question whether  policy and factors were present to the mind of the  authorities specifying the price.  The assembling of  raw materials and mechanics of price fixation are  the concern of the Executive and it should be left  to the Executive to do so and the Courts would not  revaluate the consideration even if the prices are  demonstrably injurious to some manufacturers and  producers.  The Court will however examine if there  is any hostile discrimination.  It was observed as  under:-

"We start with the observation, ’Price- fixation is neither the function nor the forte  of the Court’.  We concern ourselves neither  with the policy nor with the rates.  But we do  not totally deny ourselves the jurisdiction to  enquire into the question, in appropriate  proceedings, whether relevant considerations  have gone in and irrelevant considerations  kept out of the determination of the price.   For example, if the Legislature has decreed  the pricing policy and prescribed the factors  which should guide the determination of the  price, we will, if necessary, enquire into the  question whether the policy and the factors  are present to the mind of the authorities  specifying the price.  But our examination  will stop there.  We will go no further.  We  will not deluge ourselves with more facts and  figures.  The assembling of the raw materials  and the mechanics of price fixation are the  concern of the executive and we leave it to  them.  And, we will not revaluate the  considerations even if the prices are  demonstrably injurious to some manufacturers  or producers.  The Court will, of course,  examine if there is any hostile  discrimination.  That is a different ’cup of  tea’ altogether."                                                 [Emphasis supplied]

       A Constitution Bench of this Court in M/s. Shri  SitaRam Sugar Co. Ltd. v. Union of India [AIR 1990  SC 1277] {in paras 57 & 58} has held that in  judicial review the Court is not concerned with the  matters of economic policy.  The Court does not  substitute its judgment for that of the Legislature  or its agent as to the matters within the province

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of either.  The Legislature while delegating the  powers to its agent may empower the agent to make  findings of fact which are conclusive provided, such  findings satisfy the test of reasonableness.  In all  such cases, the judicial enquiry is confined to the  question whether the findings of facts are  reasonably based on evidence and whether such  findings are consistent with the laws of the land.   The Court only examines whether the prices  determined was with due regard to the provisions of  the Statute and whether extraneous matters have been  excluded while making such determination.  It was  further observed that price fixation is not within  the province of the Courts.  Judicial function in  respect of such matters stands exhausted once it is  found that the authority empowered to fix the price  has reached the conclusion on rational basis.

Seven industries, reference to which has  already been made, have been identified as  core sector consumers.  These consumers are  extended inter se priorities in the supply of  coal by granting appropriate linkages.  No  linkage is required for Defence, Railways and  for Exports.  The coal linkages, as far as  these industries are concerned, are monitored  periodically by the Standing Linkage  Committee.  Guidelines for giving linkages are  issued under the provisions of clause 8 of the  Colliery Control Order, 1945 by the Central  Government.  The priority given to the linked  customers in the matter of supply of coal are  not under challenge before us.  The industries  which do not fall in the core sector are  classified as non-core/unlinked sector  industries.

       In the present case admittedly the respondent  is facing heavy financial deficit having accumulated  loss of more than Rs. 1,000 crores.  The decontrol  of prices was done with the predominant object to  enable the respondent and other coal companies which  were in red to wriggle out of the financial  predicament to some extent and to derive returns so  as to prevent or minimise further losses.  An  industrial company completely held by the Government  cannot be denied the right to keep in view the  consideration of commercial expediency while  formulating its policies in the discharge of its  functions.  Though absolute and unfettered freedom  cannot be granted to the State-owned company but a  wide latitude and flexible approach should be  conceded to it especially when the price fixation is  outside the realm of statutory control.

       Core-sector industries are of intrinsic  importance to the economy of the country.  They are  given assured supply of coal by the Standing Linkage  Committee which is a committee formed as per the  guidelines of the Ministry of Coal, Government of  India.  The core sector industries consume nearly  90% of the entire production of the respondent  company.  In fact, the Power Sector consumes nearly  75% and the other industries consume nearly 15% of  the entire production and only 10% or less is being

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drawn by other medium/small-scale industries.  As  per the averments made in the counter affidavit, the  electricity which is being generated by the Power  Sector, the quantity of coal consumed amounts to 75%  of the product cost.  To generate one unit of  electricity, 0.5 kg to 1 kg quantity of coal is  consumed.  In case of cement, steel and fertilizers,  the percentage of cost of coal in the entire cost of  production is ranging from 15% to 25%.   Keeping in  view the several factors, the Board of Directors  after due deliberations felt that the core sector  industries are of intrinsic importance to the  building of the nation and to the common man in  general.  It was thought fit to keep the price  increase at particular levels for the core  industries and charge a bit extra from other  industries.  This was a policy decision taken by the  respondent company with regard to price fixation.    Any increase in prices for the core-sector  industries will automatically affect market economy.   Taking an instance, increase in the price of coal,  to the Electricity Board, will have a serious impact  on every institution or an individual consuming  electricity.  Electricity has become an essential  commodity and is required for running industry,  commercial activity, locomotives, agriculture and  for the domestic use.  Every category of consumer  shall have to pay more resulting in cascading effect  of increasing the price of every commodity.  This is  not the case of industries like Paints, Lime etc.  which are used once in a while.  By any increase in  the price of coal supply to them, the common man  would not be affected much.   Even otherwise, the  increase in the price is passed on the consumers by  the appellants.  Their end product does not have a  national bearing.  The products of these industries  are not of an everyday concern for a common man.

       The primary consideration for placing the seven  industries in the core-sector is of their intrinsic  importance to the economy of the country and the  role which they play in the nation building  activities.  The same consideration will hold good  for charging lesser price from them.  The  requirement of coal in the core-sector is on the  higher side either for captive power generation or  for other uses for the manufacturing operations. Any  substantial increase in the price of coal shall have  a substantial effect on the cost of finished  products of vital importance and the cost of service  to the public.  Counsel for the respondent has  submitted before us that 70% of the cement  manufactured by the country is utilized by the  Central or State Governments for the construction of  projects, bridges, roads etc.  Any increase in the  price of coal supplied to the core industries would  result in the increase of cost of essential  commodities such as electricity, cement, and steel.   The consumption of coal is quite high and is a major  input of these industries.  In the case of non- linked industries the coal consumption is minimal  and the increase in the price will not result any  appreciable increase in the cost of products  manufactured by non-linked sector industries.  

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       Keeping in view the intrinsic importance of the  core-sector consumers and their importance in the  national building activities and the extent of  consumption of coal either for captive power  generation of for use in manufacturing operations  legitimately calls for a special treatment as far as  these industries are concerned.  For charging lesser  prices or evolving a dual price policy, it cannot be  said that equals are treated unequally or that the  classification does not rest on rational basis.  The  objective of dual pricing purportedly is to ensure  that core-sector industries or customers are not  unduly burdened with price increase while at the  same time the respondent gets adequate return for  its products so as to cover the financial deficit.   There is no such law that a particular commodity  cannot have a dual fixation of price.  Dual fixation  of price based on reasonable classification from  different types of customers has met with approval  from the courts.  Monopolistic organizations like  Electricity Boards, Petroleum Corporations are  having dual price fixation.  It is a common feature  that Electricity Boards which generate power sell  the power at different rates to different types of  customers such as domestic, agricultural and  industrial consumers.  Even different types of  industries are charged different rates.   

       Keeping in view the law laid down by this Court  in Union of India  v.  Cynamide India Ltd.(supra)  and M/s. Shri SitaRam Sugar Co. Ltd. v. Union of  India (supra), in our opinion, the High Court did  not fall into an error in upholding Clause 10 of the  Price Notification dated 14.3.1997.  The High Court  rightly came to the conclusion that Clause 10 of the  Price Notification did not violate the equality  clause of Article 14 of the Constitution of India.   By evolving the dual price policy and charging  lesser price from the core-sector industries the  respondent has not treated equals as unequals or  that the classification made was not rational.

       For the reasons stated above, we do not find  any merit in these appeals and dismiss the same.   The parties shall bear their own costs in this  Court.