R.N. Biswal, J.
1. As per the writ petition, petitioner No. 1 was incorporated in 1985 under the Companies Act, 1956. In the year 1997 it took over a sick cement unit established at Teleghana in the district of Sundargarh which was being run earlier by IPI-SP Cement Company Limited, a joint sector unit under the State Government. To run the cement unit, petitioner No. 1 applied to opp. party No. 4 for supply of coal by way of coal linkage, in response to which the General Manager (Marketing) of the said opp. party intimated vide letter dated 22.7.1988 (Annexure-1) that it was decided to fix up final linkage for the petitioner No. 1's unit at maximum permissible quantity of 2500 M.T. coal per month and that opp. party No. 1 would supply it coal on the basis of annual recommendation of concerned sponsoring authority i.e. Director, Industry of Orissa. Accordingly, on basis of the recommendation of the Sponsoring Authority, coal was being supplied to the petitioner by opp. party No. 1 from time to time within the maximum permissible quantity of 2500 M.T., per month.
2. Opp. party No. 4 has got a comprehensive policy of coal marketing system supply plan (Annexure-2) in terms of which, it classifies consumers of coal into two categories namely 'Core Sector Consumers' and 'Non-Core Sector Consumer'. Cement industry is covered under the category of Core Sector Consumers. Despite the fact that cement industries come under the category of Core Sector Consumers, treating it as a Non-Core Sector Consumer, opp. party No. 3 vide letter dated 26.9.2001 (Annexure-3) sent a proposal to petitioner No. 1 to enter into an agreement with it so as to ensure uninterrupted supply of coal. At that time the petitioners had no idea that cement industries were covered under Core Sector Consumers. So, petitioner No. 1 entered into an agreement (Annexure-4) with opp. party No. 4 on 7.1.2004 which was described as Coal Supply Agreement to be linked as Non-Core Sector Consumer, Clause 5 of which reads as follows:
5. Price of Coal.
5.1. The delivered price of coal shall be the sum of the Base price, sizing charges, Transportation charges, Rapid loading charges, Statutory charges, and any other Charges as may be applicable from time to time as are declared by CIL and/or the Seller and/or Statutory Authorities and shall be effective from the date they are declared to be effective.
5.2. The Base Price of Coal shall be the price as declared by the Seller from time to time. Royalties, taxes, cesses, any other charges etc. shall be payable by the purchaser based on declared grade from the dates they are made applicable.
3. So as per Clause 5.2 of the agreement, the base price of coal was agreed to be the price as would be declared/notified by opp. party No. 1 from time to time. During the month of April 2005, the base price of coal was fixed at Rs. 530/- per MT, as would be evident from the copy of the road delivery order dated 8.4.2005 (Annexure-5).
4. On 25.4.2005, opp. party No. 2 vide letter Annexure-6 intimated petitioner No. 1 that a new scheme for sale of coal to Non-Core Sector through Electronic Auction (E-Auction in short) had been introduced from April 2005. In that system coal price is to be determined by bidding and not by price notification system. As such, the existing coal supply agreement (Annexure-4) stood modified in respect of coal price, even though there was no such clause for modification. Admittedly the petitioners did not take part in the E- Auction, but from reliable sources they came to know that E-Auction price in respect of the coal used by petitioner No. 1 came up to Rs. 1823/- per MT. Petitioner No. 1 made a representation before opp. party No. 1 on 25.4.2005 (Annexure-7) stating that the E-Auction system of sale of coal would not be applicable to it, since it falls within the category of 'Core Sector Consumer' and in view of the agreement (Annexure-4) and requested to continue coal supply to it as per the system of price notification to Core Sector Consumers, but, there was no response. According to the petitioners, the documents under Annexures-1, 3, 4 and 6 are to be treated as illegal, since the same were products of misrepresentation of facts and unfair conduct of opposite parties 1 to 3. Otherwise also, when the agreement (Annexure-4) is in force, opposite parties 1 to 3 are estopped to adopt the new system of determining the base price of coal in respect of petitioner No. 1 unit, particularly when the agreement does not contain any clause enabling either of the parties to change the terms and conditions. Hence, the writ petition, to declare petitioner No. 1 as a Core-Sector Consumer, to quash Annexures-3, 4 and 6 and to direct opposite parties to continue coal supply to petitioner No. 1 as per the system of price notification at the price which is being paid by O.C.L. (India) Ltd., (Cement Division), Rajgangpur A.C.C. Cement Ltd. Bargarh etc.
5. In the counter affidavit, opposite parties 1 to 3 averred that as per the guidelines dated 30.10.1996 issued by the Government of India, Ministry of Coal, the cement plants having requirement of more than 5000 M.T. of Coal per month are categorized as Core Sector Consumers and Coal linkage are granted to those plants by Standing Linkage Committee (long term), set up under the Ministry of Coal. On the other hand, cement plants having monthly requirement of less than 5000 MT of coal are considered as Non-Core Sector Consumers and the coal linkages are granted to these plants by the Non-core Linkage Committee (NCLC) functioning under the Coal India Limited-O.P. No. 1. At present, as per the guidelines issued by the Ministry of Coal and the Coal India Limited, coal is being supplied to the Non-Core Sector Consumers on the basis of the weighted Average E-Auction price obtained through the process of E-Auction in order to have a transparent and equitable policy. The Government of India, Ministry of Coal vide letter dated 23.3.2005 to the CMD, CIL requested to advise all coal producing subsidiaries to make necessary preparatory work and work out the modalities for conducting E-Auction, pending approval of the Government of actual E-Auction on basis Of the finding of Indian Institute of Management (IIM), Kolkata. The Board of Directors of opp. party No. 1 in its 74th meeting held on 30.3.2005 has approved in principle, the proposal to try E-auction. It is the specific case of these opp. parties that petitioner No. 1 is a Non-Core Sector and not a Core Sector Consumer and as such it has been issued with coal linkage by the Coal India Limited. Since petitioner No. 1 Company comes within the category of Non-Core Sector Consumer, opp. party No. 1 requested it to enter into an agreement for uninterrupted supply of coal and accordingly the agreement was entered into on 7.1.2004. Clause 5.2 of the said agreement stipulates that the base price of coal shall be the price as declared by the seller (MCL) from time to time. After introduction of E-auction system for sale of coal to Non-Core Sector Consumers, sale price of coal has been determined on the basis of weighted average E-auction. As per the guidelines of the Ministry of Coal/Coal India Limited, the system of supply of coal on notified price against linkage/MPQ quantity is no more available. Under these grounds the opp. parties 1 to 3 pressed to dismiss the writ petition.
6. Opp. party No. 4 did not contest. A separate counter affidavit has been filed on behalf of opp. party No. 5 stating that the Government of India, Ministry of Coal classified the consumers of coal into two broad categories, such as Core Sector and Non-Core Sector Consumers. The Core Sector Consumers include Power (Utilities including IPPs) Power (Captive), Defence, Railways (Loco), Fertilizer, Steel (including sponge iron and Pig iron), Cement, Aluminium, Paper and Central PSUs for own end use and Export of coal to the neighbouring countries. The consumers of coal, who are not covered under the Core Sector have been classified as Non-Core Sector. As per the Govt. guidelines for supply of coal to Core Sector Consumers a Standing Linkage Committee (Long term) has been set up under the Ministry of Coal to decide coal linkages. Till 2001 coal linkage to the Non-Core Sector Consumers was being decided by a Non-Core Linkage Committee set up under the Coal India Limited, Calcutta. In the year 1998 the petitioner submitted his application for grant of coal linkage to Coal India Limited, which considers the applications of Non-Core Sector Consumers and accordingly permitted it to draw coal from MCL- (opp. party No. 1). Since the petitioner No. 1, Company did not apply for coal linkage under Core Sector category to the Ministry of Coal as per the procedure laid down, the question of treating it as Core Sector Consumer does not arise. Accordingly, opp. party No. 5 prayed for dismissal of the writ petition.
7. At the outset learned Counsel for the opp. parties submits that since the writ petitioners have also prayed to quash Annexure-4, which is a pure and simple contract, the writ petition is not maintainable. In support of his submission he relies upon the decision in Radhakrishna Agrawal and Ors. v. State of Bihar and Ors. : [1977]3SCR249 . As against this, learned Counsel appearing for the opp. parties submits that the petitioners do not only challenge the terms of contract under Annexure-4, but also the very execution of the contract itself, so the decision relied on behalf of the opp.parties cannot be applicable to the present case. In support of his submission he relies on the decision in Kumari Shrilekha Vidyarthi etc. v. State of U.P. and Ors. : 1991CriLJ453 and LIC of India and Anr. v. Consumer Education and Research Centre and Ors. : AIR1995SC1811 .
8. In the decision of M/s. Radhakrishna Agarwal and others (supra) the apex Court held;
At this stage, no doubt, the State Act purely in its executive capacity and is bound by the obligations which dealings of the State with the individual citizens import into every transaction entered into in exercise of its constitutional powers. But, after the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the constitutional provisions but by the legally valid contract, which determines rights and obligations of the parties inter se. No question arises of violation of Article 14 or any other constitutional provision when the State; or its agents purporting to act within this field, perform any act.
So, as per this decision, before entering into a contract with individual citizens the State or its instrumentalities are bound by the Constitutional obligation, but after the contract is executed the parties are bound to abide by the contract. In the case at hand the very entering into contract by the opp.party No. 1 with petitioner No. 1 has been challenged, besides the terms of the contract. In the decision Kumari Shrilekha Vidyarthi (supra) the Apex Court held;
In our opinion, it would be alien to the Constitutional Scheme to accept the argument of exclusion of Article 14 in contractual matters. The scope and permissible grounds of judicial review in such matters and the relief, which may be available are different matters but that does not justify the view of its total exclusion. This is more so when the modern trend is also to examine the unreasonableness of a term in such contracts where the bargaining power is unequal so that these are not negotiable contracts but standard from contracts between unequals
In the case at hand, it is the case of the petitioners that since MCL (O.P. No. 1) is a mighty monopolistic organization vis-a-vis petitioner No. 1, the latter was compelled to enter into an unreasonable contract with it, it cannot be denied that opp. party No. 1 has much more bargaining power than the petitioners. So as per the above decision of the apex Court the said contract can be challenged under Article 14 of the Constitution before this Court in a writ forum. In the case of LIC of India and Anr. (supra) the Apex Court also held:
The actions of the State, its instrumentality, any public authority or person whose actions bear insignia of public law element or public character are amenable to judicial review and the validity of such an action would be tested on the anvil of Article 14. While exercising the power under Article 226 the Court would be circumspect to adjudicate the disputes arising out of the contract depending on the facts and circumstances in a given case. The distinction between the public law remedy and private law field cannot be demarcated with precision. Each case has to be examined on its own facts and circumstances to find out the nature of the activity or scope and nature of the controversy. The distinction between public law and private law remedy is now narrowed down. The actions of the appellants bear public character with an imprint of public interest element in their offers with terms and conditions mentioned in the appropriate table inviting the public to enter into contract of life insurance. It is not a pure and simple private law dispute without any insignia of public element. Therefore, we have no hesitation to hold that the writ petition is maintainable to test the validity of the conditions laid in Table 58 term policy and the party need not be relegated to a civil action.
Again in the decision in New Horizons Limited and Anr. v. Union of India and Ors. : (1995)1SCC478 the Hon'ble Supreme Court held:
At the outset we may indicate that in the matter of entering into a contract, the State does not stand on the same footing as a private person who is free to enter into a contract with any person he likes. The State in exercise of its various functions, is governed by the mandate of Article 14 of the Constitution, which excludes arbitrariness in State action and requires the State to act fairly and reasonably.
As stated earlier, in the case at hand, the petitioners challenge Annexure-3, 4 and 6 on the ground of violation of Article 14 of the Constitution and Section 23 of the Indian Contract Act. As it appears since cement is vitally essential to the public it has been categorized as Core Sector under Annexure-2 by opp. party Nos. 4 and 5. So, opp. party No. 1 ought not have persuaded/insisted upon the petitioner No. 1 to enter into a contract with it against the policy decision of opp. party Nos. 4 and 5. Under such premises we are of the considered opinion that the writ petition is maintainable.
9. Learned Counsel for the petitioners further submits that even though cement comes under the category of Core Sector as per Annexure-2, relying on a draft guideline dated 30.8.1996 under Annexure-F/1, opp. parties treat petitioner No. 1 as a Non-Core Sector Consumer on the ground that it requires less than 5000 M.T. of coal per month, despite the fact that the said document (Annexure-F/1) nowhere stipulates as such. Moreover, since the notification under Annexure-F/1 is only a draft it cannot be said to have any binding force. He further submits that there is no nexus between the basis of classification and the object to be achieved thereby. Because of the arbitrary and irrational classification, the comparatively smaller cement plants like petitioner No. 1 are being compelled to purchase coal at a much higher price than the bigger ones. So the action of the opp.parties violates the provision enshrined under Article 14 of the Constitution. There is also an element of compulsion under Annexure-3, since it stipulates that in case petitioner No. 1 is not interested to enter into contract, then coal would be offered to it, only if the same was available after meeting the requirement under contractual mechanism. So, according to the learned Counsel for the petitioner, Annexures-3, 4 and 6 being product of unfair conduct of opp. parties 1 to 3 and being opposed to public policy the same ought to be declared void ab initio and opp. parties 1 to 3 should be directed to refund Rs. 35.31 lakh of excess payment towards purchase of coal, to the petitioners. Per contra, learned Counsels appearing for the opp. party Nos. 1 to 3 and 5 submits that 95 cement plants established at different parts of India, having requirement of less than 5000 M.T. of coal per month are being treated as Non-Core Sector Consumers. It is not that petitioner No. 1 alone has been treated as such. So there is no question of discrimination or compulsion. They further submit that petitioner No. 1 ought to have applied for the linkage to Ministry of Coal, Govt. of India which grants linkage to Core Sector Consumers. When it itself applied for linkage to Coal India Limited which grants linkage in favour of Non-Core Sector Consumers only, the opp. parties in no way can be held responsible for treating it as Non-Core Sector consumer. Hence, they pressed to dismiss the writ.
10. Paragraph-6 of the forwarding letter to the guidelines dated 30th August 1996 issued by the Government of India, Ministry of Coal reads as follows:
I am enclosing along with a copy of the draft guidelines which have been formulated by the Ministry in consultation with the coal companies. It is proposed to convene a meeting to deliberate upon these proposed guidelines on 25.9.96. at 11.00 A.M. at Banquest hall of Hotel Kanishka, Ashoka Road, New Delhi.
There is nothing in the record to show whether any such deliberation was made on the date fixed or in any subsequent date and the draft guidelines were made final. So the guidelines under Annexure-F/1 have no legal force. This Court vide order No. 23 dated 27.2.2006 directed opp. parties 1 to 3 file an affidavit disclosing and annexing thereto the guidelines or rules on the basis of which they have been treating the petitioner No. 1 as a Non-Core Sector Consumer and whether this practice is followed throughout the country and the industries, if any, which are being treated as such. Pursuant to such direction opp. parties 1 to 3 filed an additional affidavit indicating the names of 89 cement industries, which have been treated as Non-Core Sector Consumers since their consumption of coal is less than 5000 M.T. per month. They could not file any other guideline or rule under which they have been treating petitioner No. 1 as Non-Core Sector Consumer. In absence of any such guideline, rule, or notification petitioner No. 1 cannot be treated as a Non-Core Sector consumer, only because some other cement plants are being treated as such. Now for academic discussion even if it is presumed that Annexure-F/1 has legal force still then it cannot be said that cement falls under the category of Non-Core Sector, since nowhere it stipulates as such. On the other hand it shows that cement comes under the category of Core Sector. Of course, it further reveals that cement plants requiring more than 5000 MT of cement per month are required to apply to standing Linkage Committee (long term) set up under Ministry of Coal for linkage, but not to Coal India Ltd. It appears that in pursuant to this notification under a wrong notion petition No. 1-company applied for linkage to Coal India Limited. Coal India Limited being a public sector corporation ought to have fairly instructed it to apply in the proper forum, instead, it allowed linkage and permitted it to draw coal from M.C.L. (opp. party No. 1) causing colossal loss to the petitioners.
11. As stated earlier it appears that since cement is vitally essential for the public, it was brought under 'Core Sector'. On the basis of more or less consumption of coal, cement plants again cannot be classified into Core and Non-Core Sector Consumers. There is no reasonable nexus between the basis and the object to be achieved. Moreover, when opp. party Nos. 4 and 5 vide Annexure-2 categorizes cement as 'Core Sector' the same cannot be treated as 'Non-Core Sector' by any of the opp. parties 1 to 3. By doing so Article 14 of the Constitution is violated. This being against the public policy, also went against the provision contained under Section 23 of the Indian Contract Act. As averred in the writ petition because of the arbitrariness of opp. parties while three other cement plants in Orissa namely M/s ACC Cement, Bargarh, L & T Cement Rajgangpur and OCL India Limited (Cement wing) being treated as Core Sector consumers, get coal @ of Rs. 530/- per tonne, the petitioner has to pay Rs. 1823/- for the same quantity of coal. Of course in the Counter Affidavit opp. parties 1 to 3 contended that L & T was not availing coal from MCL, but could not deny about the rate at which the other two cement plants were purchasing coal from MCL.
12. The guidelines under Annexure-F/1 issued by the Government of India, Ministry of Coal nowhere stipulates that cement plants having monthly requirement of less than 5000 M.T. of coal would be treated as Non-Core Sector Consumer. On the other hand it appears that since it was felt that cement is vitally essential for the public it was categorized under Core-Sector. Annexure-2 clearly shows that cement falls under Core Sector. Opp. party No. 1 being a Public Sector Corporation ought not to have written the letter under Annexure-3 to petitioner No. 1 for execution of the contract, fully knowing that cement comes under Core Sector. Since there was an element of threat that unless petitioner No. 1 enters into the contract, cement would be supplied to it only if the same would be available after meeting the demands of the parties entering into such contract, as appears it entered into the contract. Under such premises the contract under Annexure-4 deserves to be quashed. Since petitioner No. 1-Company is held to be a Core-Sector Consumer, Annexure-3 would not be applicable to it. Annexure-6 was issued to petitioner No. 1-Company by the Mahanadi Coalfield Ltd. (opp. party No. 1) treating it as a Non-Core Sector Consumer. Since was held it to be Core-Sector Consumer, it would also not be applicable to it.
13. Therefore, under such premises Annexure-4 is hereby quashed and it is ordered that Annexures-3 and 6 shall have no application to petitioner No. 1-Company. Opp. party No. 1 shall supply coal to petitioner No. 1-Company at the same rate in which it would supply to the O.C.L. (India) Ltd., Cement Division, Rajgangpur and A.C.C. Cement Ltd., Baragarh. However, in the peculiar facts and circumstances of the case, the petitioner shall not be entitled to refund of the amount said to have been paid in excess.
The writ application is allowed accordingly.
P.K. Mohanty, J.
14. I agree.