IN THE HIGH COURT OF KARNATAKA AT BENGALURU Dated this the 12th day of April, 2016 R PRESENT: THE HON’BLE MR SUBHRO KAMAL MUKHERJEE, CHIEF JUSTICE AND THE HON’BLE MR JUSTICE RAVI MALIMATH WRIT APPEAL Nos.92 & 281 OF2016(GM-TEN) C/w WRIT APPEAL Nos.183-184 OF2016(GM-TEN) & WRIT APPEAL Nos.275 & 291 OF2016(GM-TEN) Writ Appeal Nos. 92 & 281 of 2016 BETWEEN: Karnataka Power Corporation Limited, A Government Company under the Provision of Companies Act, 1956, having its Registered office at Shakthi Bhavan # 82, Race Course Road, Bangalore-560 001, Represented by its Asst. General Manager (Law) Mr. R.Murthy ..... APPELLANT (By Sri Jayakumar S.Patil, Sr.Adv. with Mr.Ajay J.Nandalike) AND:
1. EMTA Coal Limited, 5B, Nandalal Basu Sarani, 2 Kolkata 70071 Through its constituted attorney Mr.C.P.Somnath Panth. Karnataka EMTA Coal Mines Limited, 104, Marielle Apartments, #3 Magrath Road, Bangalore-560 025, Through its Managing Director Mr. Ujjal Kumar Upadhaya. State of Karnataka, Represented by the Principal Secretary to Government, Department of Energy, Vikas Soudha, Dr.Ambedkar Veedhi, Bangalore-560 001. ..... RESPONDENTS (By Sri D.N.Nanjunda Reddy, Sr.Adv. with Mr.Bharadwaj.R, Adv, Anandaram.K, Adv. for M/s.Poovayya & Co., Advocates, for R1 & R2; Sri Madhusudan R.Naik, Advocate General with Sri D.Nagaraj, AGA for R-3) 2.
3. These writ appeals are filed u/s. 4 of the Karnataka High Court Act praying to set aside the order passed in Writ Petition Nos.45102-45103/2015 dated 08/12/2015. Writ Appeal Nos.183-184 of 2016 BETWEEN:
1. EMTA Coal Limited 5B, Nandalal Basu Sarani, Kolkata-700 071 Through its constituted attorney Mr.C.P.Somnath Panth 2. Karnataka EMTA Coal Mines Limited, 104, Marielle Apartments, 3 #3 Magrath Road, Bangalore-560 025, Through its Managing Director Mr. Ujjal Kumar Upadhaya. .... APPELLANTS (By Sri Sajan Poovayya, Sr.Adv. with Mrs.Nalina Mayegowda, Advocate) AND:
1. Karnataka Power Corporation Limited, A Government Company under the Provision of Companies Act, 1956, having its Registered office at Shakthi Bhavan # 82, Race Course Road, Bangalore-560 001, Represented by its Managing Director.
2. State of Karnataka, Department of Energy, Vikas Soudha, Ambedkar Veedhi, Bangalore-560 001 Represented by Principal Secretary to Government. .... RESPONDENTS (By Sri Jayakumar S.Patil, Sr.Adv. with Sri Ajay J.Nandalike, Adv. for R-1; Sri Madhusudan R.Naik, Advocate General with Sri D.Nagaraj, AGA for R-2) These writ appeals are filed u/s. 4 of the Karnataka High Court Act praying to set aside the order passed in Writ Petition Nos.45102-45103/2015 dated 08/12/2015. Writ Appeal Nos. 275 & 291 of 2016 BETWEEN: State of Karnataka, Department of Energy, Vikas Soudha, 4 Ambedkar Veedhi, Bangalore-560 001 Represented by its Secretary ...... APPELLANT (By Sri Madhusudan R.Naik, Advocate General with Sri D.Nagaraj, AGA) AND:
1. EMTA Coal Limited 5B, Nandalal Basu Sarani, Kolkata-700 071 Through its constituted attorney Mr.C.P.Somnath Panth 2.
3. Karnataka EMTA Coal Mines Limited, 104, Marielle Apartments, #3 Magrath Road, Bangalore-560 025, Through its Managing Director Mr. Ujjal Kumar Upadhaya. Karnataka Power Corporation Limited, A Government Company under the Provision of Companies Act, 1956, having its Registered office at Shakthi Bhavan # 82, Race Course Road Bangalore-560 001, Represented by its Managing Director. .... RESPONDENTS (By Sri D.N.Nanjunda Reddy, Sr. Adv. with Ms Nalina Maye Gowda, Adv., Sri Bharadwaj.R, Adv., Sri Anandram K. Adv. for M/s. Poovayya & Co., for R-1 and R-2; Sri Jayakumar S.Patil, Sr. Adv. with Sri Ajay J.Nandalike for R-3) 5 These writ appeals are filed u/s. 4 of the Karnataka High Court Act praying to set aside the order passed in Writ Petition Nos.45102-45103/2015 dated 08/12/2015. These writ appeals having been heard and reserved for judgment, coming on for pronouncement of judgment this day, Chief Justice pronounced the following:
JUDGMENTThese writ appeals arise from the judgment and order dated December 08, 2015 in W.P.Nos.45102-103 of 2015 filed by EMTA Coal Limited (“EMTA”) and Karnataka EMTA Coal Mines Limited (“KECML”), the writ petitioners, against Karnataka Power Corporation Limited (“KPCL”) and the State of Karnataka, the respondents.
2. Separate writ appeals challenging the order of the Hon’ble Single Judge have been filed by EMTA, KECML, KPCL and the State of Karnataka. Given the commonality of the questions involved, with the consent of the learned advocates appearing for the parties, the writ appeals have been heard together and are disposed of by this common order. 6 3. KPCL was allotted certain coal mines by the Union of India for captive consumption of coal in its thermal power projects in Karnataka. Through a lawful process, in the year 2002, KPCL selected EMTA for the formation of a joint venture for the development of the captive mines and for the exclusive supply of coal to its thermal power stations in the State. A Joint Venture Agreement was executed between KPCL and EMTA on September 13, 2002, pursuant to which a special purpose vehicle for mining of coal from the coal mines was established, that is, KECML.
4. It appears from the materials on record that six captive coal blocks were allotted by the Government of India to KPCL on November 10, 2003. On November 19, 2003, KPCL addressed a letter to the Ministry of Coal, Government of India, intimating the latter of the formation of the joint venture company, that is, KECML and intimating that KECML would be undertaking coal mining operations to produce coal and supply it exclusively to the thermal power plants of KPCL. By the said letter, KPCL, also, requested the Government of India to issue a 7 notification under Section 3(3)(a)(iii)(4) of the Coal Mines (Nationalisation)Act, 1973, specifying the end-use as supply of coal exclusively to KPCL. A Notification to that effect was published in the gazette on July 16, 2004 by the Government of India.
5. Pursuant to the request of KPCL, on September 25, 2006, a mining lease was executed between Government of Maharashtra and KECML for mining coal from the captive coal blocks of KPCL for exclusive supply to the thermal power stations of KPCL. This was followed by a Fuel Supply Agreement between KECML and KPCL, which specifically provided for supply and delivery of coal by KECML from the captive coal blocks to the power stations of KPCL for a period of 25 (twenty five) years. KPCL amended the contractual arrangement and obtain approval from the Ministry of Coal, Government of India, to increase the annual supply of coal by KECML from 2.5 Million MTs to 5.0 Million MTs per annum.
6. It is stated that EMTA and KECML made investments to the tune of approximately Rupees six hundred thirtyfour 8 Crore for the development of the captive coal blocks allotted to KPCL so as to bring them to such a stage that coal can be mined from them and supplied to KPCL. The various developmental activities undertaken by EMTA and KECML by expending such large quantum of monies to make the captive coal blocks ready for mining operations have been detailed in the order impugned. However, the same has not been a question before us, we do not wish to further dwell on the matter.
7. The coal blocks became operational in the year 2008 and EMTA and KECML successfully supplied requisite coal therefrom to the power stations of KPCL. Such supplies have not been disputed by KPCL.
8. On August 25, 2014 the Supreme Court rendered its decision in Manohar Lal Sharma v. Principal Secretary and Others reported in (2014) 9 SCC516 declaring as illegal certain allocations of coal blocks made by the Central Government between the years 1993 and 2011. The Apex Court considered the provisions of the Coal Mines (Nationalisation) Act, 1973, and found that 9 allotment of coal blocks to State Governments or State Public Sector Undertakings to mine coal for commercial use was not permissible. The Apex Court, also, found that coal could not be extracted through joint venture companies in order to be sold commercially to various consumers in the open market. The entirety of the issues that fell for consideration before the Apex Court pertained to the nature and methodology adopted by the Central Government for allotment of coal blocks to certain allottees.
9. By a subsequent order dated September 24, 2014 passed in the case of Manohar Lal Sharma v. Principal Secretary and Others reported in (2014) 9 SCC614 the Supreme Court of India cancelled the allotment of 42 (forty two) coal blocks and indicated that such cancellation would take effect from March 31, 2015. In the said order dated September 24, 2014, the Supreme Court of India detailed the names of the allottees whose coal block allotments were cancelled. KPCL was specifically named as the allottee of the coal block at serial numbers 7 – 12 in 10 such list. The Supreme Court of India, also, directed the allottees of such coal blocks to pay an amount of ` 295 (Rupees two hundred ninetyfive) only per MT of coal extracted, as an additional levy. This additional levy of ` 295 (Rupees two hundred ninetyfive) only per MT, to be paid by the allottees of coal blocks, was based on an assessment made by the Comptroller & Auditor General (CAG). As a consequence, the coal blocks that were allotted to KPCL and which were developed by EMTA/KECML, also, stood cancelled.
10. On October 21, 2014, the Union Government promulgated the Coal Mines (Special Provisions) Ordinance, 2014 (Ordinance 5 of 2014), to implement the judgment of the Supreme Court of India in its entirety. The preamble to the ordinance, inter alia, records thus: “Whereas the Supreme Court of India vide judgment dated 25th August 2014 read with its order dated 24th September 2014 has cancelled the allocation of coal blocks and issued directions with regard to such coal blocks and in pursuance of the said directions has to take immediate action to implement the said order. the Central Government 11 And whereas it is expedient in public interest for the Central Government to take immediate action to allocate coal mines to successful bidders and allottees keeping in view the energy security of the country and to minimize any impact on core sectors such as steel, cement and power utilities, which are vital for the development of the nation.” Ordinance 5 of 2014 was, therefore, promulgated to take immediate action to implement the judgment and orders of the Supreme Court of India. Section 3(1)(a) of Ordinance 5 of 2014 defined Additional Levy as follows: “additional levy” shall mean the additional levy as determined by the Supreme Court in Writ Petition (Criminal) No.120 of 2012 as two hundred and ninety five rupees per metric tonne of coal extracted. Section 3(1)(n) of Ordinance 5 of 2014 defined Prior Allottee as follows: “prior allottee” means prior allottee of Schedule I Coal Mines as listed therein who has been allotted Coal Mines between 1993 and 31st day of March 2011, whose allotments have been cancelled pursuant to the judgment of the Supreme Court dated the 25th August 2014 and its order dated 24th September 2014, including those allotments which may have been de-allocated prior to and during the pendency of the Writ Petition (Criminal) No.120 of 2012”. 12 11. By virtue of the above, KPCL undoubtedly was the prior allottee and was liable to pay the additional levy. Section 4 of Ordinance 5 of 2014, which provided for auction and allotment, however specifically provided in Section 4(4) that a prior allottee would be eligible to participate in the auction process only subject to payment of additional levies within such period as may be prescribed. The said section provided that in the event of the prior allottee failing to pay such levy, the prior allottee or its promoter would not be eligible to bid either by itself or by way of joint venture.
12. The Supreme Court of India in the order dated September 24, 2014, had clearly recorded KPCL to be the prior allottee of the coal blocks in question and had levied on it the additional penalty of ` 295 (Rupees two hundred ninetyfive) only per MT of coal extracted. Section 4(4) of Ordinance 5 of 2014, mandated that a prior allottee would not be eligible to participate except upon payment of the additional levy that is, the penalty, KPCL filed an application before the Hon’ble Supreme Court on 13 December 04, 2014 being Criminal M.P.No.24143 of 2014 seeking clarification of the order dated September 24, 2014.
13. In the said application, KPCL sought a clarification to the effect that it should not be held liable to pay the additional levy and penalty of ` 295 (Rupees two hundred ninetyfive) only per MT as there had been no commercial exploitation of the captive coal blocks and as KPCL had not profited therefrom. KPCL averred in the said application that as it was EMTA, which had mined coal from the captive blocks, the additional levy and penalty of ` 295 (Rupees two hundred ninetyfive) only per MT should be imposed upon EMTA and not on KPCL. A, further, direction was sought on the Union of India to permit KPCL to participate in the fresh auction/allotment process for allotment of coal blocks without insisting upon the payment of additional levy and penalties.
14. The said application of KPCL in Criminal M.P.No.24134 of 2014 was dismissed by the Hon’ble Apex Court by the order dated December 08, 2014 confirming 14 KPCL as the prior allottee and confirming its liability to pay the additional levy. Consequently, KPCL could not have participated in the fresh allotment or auction process without first paying the additional levy and penalty of ` 295 (Rupees two hundred ninetyfive) only per MT imposed by the Supreme Court of India by the order dated September 24, 2014. Possibly to overcome such a situation, the Union Government promulgated the Coal Mines (Special Provisions) Second Ordinance, 2014, (Ordinance 7 of 2014) when a deeming provision was introduced to the definition of Prior Allottee in Section 3(1)(n), by including an Explanation as follows: “prior allottee” means prior allottee of Schedule I Coal Mines as listed therein who had been allotted Coal Mines between 1993 and 31st day of March 2011, whose allotments have been cancelled pursuant to the judgment of the Supreme Court dated the 25th August 2014 and its order dated 24th September 2014, including those allotments which may have been de-allocated prior to and during the pendency of the Writ Petition (Criminal) No.120 of 2012. Explanation – In case a mining lease has been executed in favour of a third party, subsequent to such allocation of Schedule I coal mines, then, the third party shall be deemed to be the prior allottee.” (Emphasis supplied) 15 15. Such deeming provision ensured that KPCL would be entitled to participate in the re-allotment/auction process without having to pay the additional levy of ` 295 (Rupees two hundred ninetyfive) only per MT. KPCL, thereafter, successfully participated in the allotment process. The very coal blocks that had been developed by EMTA/KECML that is, Baranj I-IV, Manoradeep and Kiloni, were re-allotted to KPCL on March 26, 2015 with allotment agreements being executed on the same date.
16. The Coal Mines (Special Provisions) Act, 2015 (the 2015 Act) was, subsequently, enacted and notified in the gazette on March 30, 2015, replacing the Ordinance 7 of 2014. The Central Government issued allotment orders of reallocation of the very coal blocks that were developed by EMTA and KECML to KPCL on March 31, 2015.
17. Section 11 of the 2015 Act, as extracted below, provides for discharge or adoption of third party contracts with prior allottees. A plain reading clearly reveals that the Legislature intended to protect the rights of mine operators, who had existing contracts with prior allottees. 16 11. (1) Notwithstanding anything contained in any other law for the time being in force, successful bidder or allottee, as the case may be, in respect of Schedule I coal mines, may elect, to adopt and continue such contracts which may be existing with any of the prior allottees in relation to coal mining operations and the same shall constitute a novation for the residual term or residual performance of such contract: Provided that in such an event, the successful bidder or allottee or the prior allottee shall notify the nominated authority to include the vesting of any contracts adopted by the successful bidder. (2) In the event that a successful bidder or allottee elects not to adopt or continue with existing contracts which had been entered into by the prior allottees with third parties, in that case all such contracts which have not been adopted or continued shall cease to be enforceable against the successful bidder or allottee in relation to the Schedule I coal mine and the remedy of such contracting parties shall be against the prior allottees.
18. EMTA/KECML contended, as has, also, been recorded in the impugned order that KPCL did not apply its mind to the matter of electing to adopt or continue or novate the contracts, which were hitherto executed with EMTA/KECML with regard to supply of coal to the power stations of KPCL for a period of 25 (twenty five) years. 17 Without proper consideration of the facts, without adequate application of mind and without arriving at a decision on the adoption, novation or continuation of such contracts, KPCL proceeded to issue a Notice Inviting Tender on August 05, 2015, for receiving bids for the appointment of a mine operator for development and operation of Baranj I-IV, Manoradeep and Kiloni coal blocks.
19. EMTA/KECML has, rightly, contended that Section 11(1) of the 2015 Act protects the rights of mine operators, who had existing contracts with prior allottees inasmuch as it imposes an obligation on an instrumentality of a State to consider, based on relevant material, the aspect of electing to adopt or continue such contracts. In terms of Section 11(1) of the said 2015 Act, the authority concerned must elect to adopt or continue the prior contracts, unless there are legally valid and justifiable reasons for not adopting or continuing such contracts.
20. KPCL sought to dispel the notion that KPCL had not applied its mind to the matter of electing to adopt and 18 continue the contracts of EMTA/KECML by drawing reference to the extracts of the minutes of the 245th meeting of the Board of Directors of KPCL held on March 26, 2015.
21. We have closely examined the said minutes and they, unfortunately, do not lend any support to the contentions of KPCL, and as rightly pointed out by the Hon’ble Single Judge, in the impugned order, did not touch upon the aspect of adoption, continuation or novation of contract under Section 11 of the said 2015 Act.
22. On examination of the entirety of the minute of the meeting held on March 26, 2015, it is found that the Board of KPCL only considered the aspect of appointing a Mine Development Operator through a tender process to exploit the captive coal blocks that have been re-allotted to KPCL. Insofar as it relates to EMTA/KECML, the only aspect that was considered during the said meeting was the proposed temporary continuation of the services of EMTA as the MDO for the interregnum period of nine months from April 01, 2015 or till the appointment of the next MDO through 19 a tender process, whichever is earlier, at the negotiated rates with reference to the existing Fuel Supply Agreement. It is, also,pertinent to note that by March 26, 2015, that is, the date of the Board meeting, KPCL had, also, executed an allotment agreement with the Union of India regarding the re-allocation of the coal blocks. The said agreement was executed in New Delhi on March 26, 2015, and pursuant to the said agreement, on May 31, 2015, KPCL specifically communicated to the Ministry of Coal, Government of India that it, as an allottee, did not intend to adopt and continue any of the contracts that hitherto existed. No material whatsoever is available to show that KPCL indeed applied its mind to the aspect of continuation of contract under Section 11 of the 2015 Act and then arrived at a decision not to continue or novate the existing contracts.
23. It was contended on behalf of KPCL that a continuation of the contracts was not possible as the pricing in those contracts were linked to Coal India Limited (CIL) prices and it is the specific policy of the Union of 20 India, post the Apex Court’s judgment in Manohar Lal Sharma (supra), not to link prices to those of CIL.
24. We do not see merit in that argument. In view of Section 11 of the 2015 Act, KPCL was obliged to apply its mind and arrive at a reasonable and non-arbitrary decision regarding the adoption or continuation of the existing contracts. When arriving at such a decision, to adopt or continue the existing contracts, it would not be necessary that the same pricing mechanism contained in those contracts ought to be continued. The pricing mechanism can certainly depend on the prevalent facts and circumstances including the prevalent law, regulations and market norms. KPCL can arrive at a fair pricing mechanism delinked to CIL prices and in fact did so, when KPCL at its Board meeting held on March 26, 2015, decided upon the temporary continuation of the services of EMTA as the MDO for the interregnum period at certain negotiated rates.
25. A pricing mechanism was, therefore, arrived at by KPCL, for the interim arrangement, which was not linked 21 to CIL prices. In any event, EMTA has clearly expressed that it would be open to negotiating a cost plus mechanism for the development and operation of the mines and for the supply of coal based on the present scope of the work.
26. We are unable to find any fault with the order impugned in which the Hon’ble Single Judge observed that there was no contemplation at all by KPCL as to whether EMTA can be considered for being appointed as an MDO by novating the existing contracts pursuant to Section 11 of the said 2015 Act.
27. We are, also, unable to find any fault with the findings of the Hon’ble Single Judge, in the impugned order, that it would be unfair and unjust to canvass that KPCL had no legal compulsion to adopt the contract with EMTA on such suitable terms as were warranted in the changed circumstances. Whether or not EMTA is entitled to a novation under Section 11 of the said 2015 Act should have been considered by KPCL upon due application of mind and upon due consideration of relevant materials, particularly when it is not in dispute that EMTA/KECML22have invested over Rupees six hundred thirtyfour crore to develop captive coal blocks and make them capable of being mined, and it is those ready to mine coal blocks that have been reallocated to KPCL.
28. The learned Advocate General invited our attention to the agenda items that were circulated to the participants prior to the meeting of the Board of Directors of KPCL held on March 26, 2015. The agenda items were not produced by the State before the Hon’ble Single Judge and have been sought to be produced for the first time in the writ appeal. Serious objections were raised by EMTA/KECML on the maintainability of the writ appeal filed by the State on the ground that the State is not an aggrieved party. We do not wish to delve into that aspect and in the interest of justice, we have examined the agenda items in detail. Although the agenda includes consideration of the continuance of contracts of EMTA under Section 11, this was clearly not deliberated upon by the Board of KPCL, as is found in the minutes of the 245th meeting of the Board of Directors of KPCL held on March 26, 2015. 23 29. The mere inclusion of the subject matter in the agenda certainly does not lend credence to the averment that the matter was deliberated and upon due deliberation of the matter a considered decision was arrived at the said Board meeting. As we have observed earlier, the minutes of the Board meeting clearly demonstrate that the aspect of continuance or novation of contracts under Section 11 of the said 2015 Act was not deliberated upon or discussed at the same, and, consequently, no decision was arrived at in relation to such issue.
30. The learned Advocate General, also, sought to produce a copy of an FIR registered by the Central Bureau of Investigation (CBI) against certain unknown officials of KPCL, unknown officials of KECML, EMTA, and Gupta Coalfields and Washeries Limited, a washery that was involved in washing certain coal that was extracted from the captive coal mines. The learned advocate general submits that in the light of the FIR, KPCL could not have considered the continuation or novation of the contracts with EMTA. We are unable to agree with such 24 contentions. The mere fact of an FIR being registered by the CBI does not in any manner impinge upon the requirement for a due, deliberate and effective consideration regarding the continuation or novation of contract under Section 11 of the said 2015 Act. In our view, the investigation that may be undertaken by the CBI does not have any bearing on the obligation of KPCL to undertake an effective consideration regarding continuation of the contracts under Section 11 of the said 2015 Act. The mere registration of an FIR does not impinge upon any of the legal rights of the parties and in the present case, it is abundantly clear that KPCL did not apply its mind at all to the aspect of novation of contract under Section 11 of the said 2015 Act and straight away proceeded to issue Notice inviting tender dated August 05, 2015, for receiving bids for the appointment of a mine operator for supply of coal for a period of 25 (twenty five) years. Further, it has never been disputed by KPCL that the captive mines were operated by EMTA/KECML and the entirety of the coal extracted was supplied to the thermal power plants of KPCL. KPCL has, also, further categorically 25 admitted in the application for clarification filed before the Apex Court in Criminal M.P.No.24134 of 2014, that the entirety of the coal extracted by EMTA/KECML from the captive coal blocks was supplied exclusively to the thermal power stations of KPCL in the State of Karnataka in a cost efficient manner and the benefits of such cost efficiencies had been passed on to the consumers of power in the State of Karnataka.
31. KPCL is an instrumentality of the State. Every action of an instrumentality of a State must be subject to rule of law and must be informed by reason. The activity of the public authority should meet the test of non-arbitrariness.
32. Supreme Court of India in Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay reported in (1989) 3 SCC293 holds that if governmental action even in contractual matters fails to satisfy the test of reasonableness, it would be illegal and unconstitutional. Post the decision of the Supreme Court of India in Mahaveer Auto Stores and Others V. Indian Oil Corporation and Others reported in (1990) 3 SCC742 it 26 is well settled that every action of the State or an instrumentality of the State, any exercise of its executive power must be informed by reason. Actions uninformed by reason can be questioned as arbitrary in proceedings. Article 14 of the Constitution of India would be applicable to exercise of executive power even in entering or not entering into contracts. In a situation of this nature, the activities of KPCL, an instrumentality of the State under Article 12 of the Constitution of India, in entering or not entering into contract must be reasonable and must be taken only upon lawful and relevant considerations.
33. This assumes greater significance in the light of the statutory prescription under Section 11 of the said 2015 Act, which specifically provides for the election to adopt or continue the contracts that may be existing with the prior allottees. Adoption or continuation of an existing contract is not unknown, as our attention has been specifically drawn to a case where another state has considered the matter and novated the contracts of the existing mine operator, pursuant to Section 11 of the said 2015 Act. 27 Non-arbitrariness would entitle EMTA, also, to receive a similar treatment at the hands of KPCL, an instrumentality of the State.
34. In this context it is relevant to note that the said 2015 Act is clearly subsequent to the judgment of the Supreme Court in the case Manohar Lal Sharma (supra) and as such is presumed to have been legislated keeping the said judgment in mind. Section 11(1) of the said 2015 Act unmistakably seeks to protect the right of mining operators, who had subsisting contracts at the time of passing of the judgment of the Supreme Court of India. Consequently, in so far as EMTA is concerned, it can certainly insist on a continuation of its contracts and thereby require a due, deliberate and effective consideration by KPCL, such that its rights under the existing contracts are protected. This is further buttressed by the fact that the subject matter of the new tender that was floated by KPCL was essentially the subject matter of the contract awarded by KPCL to EMTA/KECML, notwithstanding the change in nomenclature. Sub- 28 section (2) of Section 11 of the said Act of 2015 cannot in manner derogate the rights of EMTA/KECML under sub- section (1) of Section 11 of the said Act of 2015. Even in the event of there being good and justifiable reason for the authority concerned not to elect to adopt or continue the existing contract entered into with the mine operator, it would still give the mine operator the remedy of seeking damages.
35. In the course of interpreting sub-section (2) of Section 11 of the 2015 Act, out attention was invited to the use of the expression “prior allottee” therein. It was contended on behalf of EMTA/KECML that the said expression in Section 11 could not have and had no nexus with the definition of “prior allottee” in Section 3(1)(n) of Ordinance 7 of 2014 and later in the said 2015 Act, particularly as such an interpretation would amount to the section requiring the mine operator to seek damages from itself. We have, already, observed that the import of the deeming provision in Section 3(1)(n) was, only, to the effect that prior allottees like KPCL would be entitled to participate in the re- 29 allotment or auction without having to make payment of the additional levy of ` 295 (Rupees two hundred ninetyfive) only per MT, as otherwise it would be prevented from participating in the re-allotment or auction process pursuant to Section 5(2) of the 2015 Act. We are unable to attribute a larger meaning to the deeming provision contained in Explanation to Section 3(1)(n), as doing so will render the said 2015 Act unworkable.
36. Legislature is quite competent to create a legal fiction, in other words, to enact a deeming provision for the purpose of assuming existence of a fact, which does not really exist. However, in construing the legal fiction, it is not to be extended beyond the purpose for which it is created.
37. The legal fiction should be interpreted narrowly to make the statute workable. If citations are necessary for such well established proposition, reference may be made to the decisions of the Apex Court in State of Bombay v. Pandurang Vinayak and others reported in AIR1953SC244 State of Travancore-Cochin and others v. 30 Shanmuga Vilas Cashewnut Factory reported in AIR1953SC333 Nandkishore Ganesh Joshi v. Commissioner, Municipal Corporation of Kalyan and Dombivali and others reported in (2004) 11 SCC417 Ali M.K. and others v. State of Kerala and others reported in (2003) 11 SCC632 and Sudha Rani Garg v. Jagdishkumar (dead) and others reported in (2004) 8 SCC329 38. We do not see as to how this is in any event of any significance in view of the fact that the coal mines were admittedly allotted to KPCL and KPCL entered into the agreement with EMTA only for exploitation of the said mines for its own captive use. The joint venture agreement that was entered into for the purpose, which led to the formation of KECML, was only to facilitate such mining of coal from mines allotted to KPCL for exclusive supply to the thermal power plant of KPCL. The mining lease that was granted in favour of KECML was clearly at the instance of KPCL and was clearly granted to facilitate the mining of coal through KECML. KECML was as such 31 only a device to achieve the aforestated object. Inasmuch as neither the mines nor the coal mined from the mines were at any point of time the property of KECML, there can be no question of KECML being the prior allottee of the same, either for the purposes of Section 11 of the said 2015 Act or otherwise, particularly as KECML derived no benefit from the operation of the mines or supply of coal therefrom, except the payment of the agreed mining charges to it. It is, further, pertinent to note that under Section 3(3)(a)(iii) of The Coal Mines (Nationalisation) Act, 1973, KECML would not be entitled to an allotment of a coal mine, as it is not a company engaged in any of the activities specified in the said section. KECML did not have an end-use of captive consumption regarding any of the activities specified in the said section. We, accordingly, see no reason to interpret section 11 of the said 2015 Act in the manner suggested by KPCL.
39. As observed by the Apex Court in Food Corporation of India v. Kamdhenu Cattle Feed Industries reported in (1993) 1 SCC71 in contractual sphere, as in all other 32 State actions, the State and all its instrumentalities, have to conform to Article 14 of the Constitution of which non- arbitrariness is a significant facet. This imposes a duty to act fairly and to adopt a procedure which has ‘fairplay’ in action. In Kumari Shrikekha Vidyarthi and others. V. State of U.P. and others reported in (1991) 1 SCC212 the Supreme Court of India holds that the applicability of Article 14 to all executive actions of the State is settled and for the same reason its applicability at the threshold, to the making of a contract in exercise of the executive power is also beyond dispute. It cannot be said that the State or its instrumentality can exercise unbridled power, unfettered by the requirements of Article 14 in the sphere of contractual matters.
40. This brings us to the question as to what would be relevant consideration for novating the contract that had been entered into by KPCL with EMTA/KECML. As indicated above, the actions of KPCL, as an instrumentality of the State, must, always, be informed by reason and should, always, meet the test of non-arbitrariness. Its 33 decision, therefore, should be based on relevant considerations and should be informed by reason. Such relevant consideration shall be those that reflect on the past performance of the mine operator and its present ability to discharge its contractual obligations under the novated contract. In the event a mine operator has competently discharged its obligations under the prior contract and has the necessary wherewithal to continue to do so, it would be unfair to import an extraneous consideration to refuse to novate the contract in its favour.
41. We find no substance in the contention of KPCL that a fresh allotment agreement regarding the captive blocks has, now, been executed between itself and the Union of India, which precludes KPCL from exercising the option to elect to adopt or continue the existing contract with the EMTA/KECML, particularly as such a contract can never override the provisions of the statute. We, similarly, find no substance in the argument that all joint venture companies have been frowned upon by the Supreme Court of India, particularly as it is evident that the Supreme 34 Court of India commented on commercial exploitation of coal blocks by joint venture companies and not otherwise. In the instant case, it is not in dispute that the entirety of the coal mined was supplied exclusively to the power stations of KPCL.
42. The overwhelming material placed before us unequivocally point to the entitlement of EMTA/KECML to obtain continuation of their contracts. This is, further, buttressed by the fact that large quanta of monies have been invested by EMTA/KECML in the development of coal blocks and as admitted by KPCL, coal has been efficiently supplied to the thermal power stations of KPCL. Further, the developed coal blocks have been re-allotted to it. KPCL, as an instrumentality of the State, should therefore arrive at a decision regarding continuation of contracts, in a fair, reasonable and non-arbitrary manner by taking into consideration our observations and all relevant material that may be necessary for arriving at an informed decision in that regard. 35 43. We are unable to agree with the Hon’ble Single Judge to the extent that having found in favour of EMTA/KECML in all of the aspects and having quashed the Notice Inviting Tender dated August 05, 2015, the Hon’ble Single Judge failed to consider the specific prayer in the writ petition with regard to a direction to KPCL to consider continuing or novating the existing contracts in favour of EMTA/KECML. It is incumbent upon KPCL to apply its mind on an effective consideration of all relevant material and in the light of our observations arrive at a considered decision on novating the existing contracts.
44. Accordingly, the impugned order dated December 08, 2015, in W.P.Nos.45102-45103 of 2015 is set aside. The Notice Inviting Tender dated August 05, 2015 (Annexure ‘A’ to the writ petition) is quashed.
45. We, however, direct KPCL to consider the right of EMTA/KECML to novation of their contract under Section 11 of the Coal Mines (Special Provisions) 2015, forthwith, in the light of the observations above. We make it clear 36 that such consideration must be preceded by the grant of an opportunity of being heard to EMTA/KECML.
46. Writ Appeal Nos.92 & 281 of 2016, Writ Appeal Nos.183-184 of 2016 and Writ Appeal Nos.275 & 291 of 2016 are disposed of accordingly.
47. We make no order as to costs. Sd/- CHIEF JUSTICE Sd/- JUDGE Snb/pjk