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Dismissing the appeals, the Court HELD: 1. The FIR lodged by the CBI contained allegations of mis-utilization of and sale of the allotted coal by the appellants in the open market. As a matter of fact, in the charge sheet which was filed after investigation in the Court of Special Judge, CBI Cases, it was stated that a search was conducted at the plant premises of the appellants in June 2009 by the CBI officials in the presence of independent witnesses during which the plants of the appellants were found to be non-functional and the names of employees/workers as per the Attendance Register as well as other documents relating to sale of finished goods as produced by the appellants were found to be fake and fabricated as full particulars, addresses etc. were not provided in the records in respect of such employees/workers engaged and the purchasers of finished goods and thus the quantity of coal issued to the appellants-companies was not utilized in their plants but sold in the black-market. It was thus clear that there were materials with the CBI in support of the allegations made in the FIR against the appellants that they were not utilizing the allotted coal in their plants but were selling the same in black-market, but these materials could not be placed before the Court because the CBI was not impleaded as a respondent in the writ petitions filed by the appellants. The Coal India Ltd. and respondent no.1 are Government Companies and are bound by the policy decisions of the Government of India, Ministry of Coal, and since under the new Coal Distribution Policy formulated pursuant to the observations of the Supreme Court in *Ashoka Smokeless Coal India (P) Ltd., mis-utilization of allotted coal and black-marketing of such coal by the appellants was to be checked, the Coal India Limited and respondent no.1 did not act arbitrarily or unreasonably to suspend the supplies of coal under FSA to the appellants, if they entertained a serious doubt on the basis of the FIR lodged by the CBI that the supplies of coal, if made, to the appellants may be mis- utilized by the appellants and may be sold in the open market. [Paras 11-12] [529-B-F; 530-B-D] *Ashoka Smokeless Coal India (P) Ltd. & Ors. v. Union of India & Ors. (2007) 2 SCC 640, relied on. 2. It is settled law that even in the domain of contractual matters, the High Court can entertain a writ petition on the ground of violation of Article 14 of the Constitution when the impugned act of the State or its instrumentality is arbitrary, unfair or unreasonable or in breach of obligations under public law. However, the public authorities are essentially different from private persons. Even while taking decision in respect of commercial transactions, a public authority must be guided by relevant considerations and not by irrelevant ones. [Para 13] [530-E-G] Sterling Computers Ltd. v. M/s M & N Publications Limited and Others (1993) 1 SCC 445, relied on. Kumari Shrilekha Vidyarthi v. State of U.P. (1991) 1 SCC 537; ABL International Ltd. & Anr. v. Export Credit Guarantee Corporation of India Ltd. & Ors. (2004) 3 SCC 553; Noble Resources Ltd. v. State of Orissa & Anr. (2006) 10 SCC 236, referred to. 3. It is true, as was held by the single judge of the High Court, that Clause 13(1) of FSA provides that in the event the appellants fail to pay any amount including any interest due to respondent no.1 under FSA within a period of 30 days of the same falling due, respondent no.1 shall have the right to suspend supplies of coal to the appellants, but Clause 13(1) does not stipulate that in no other contingency the respondent no.1 can suspend supplies of coal under FSA to the appellants. Moreover, Clause 13(1) of FSA enumerates the three options available to respondent no.1 in case the dues towards the price of coal and interest is not paid by the appellants and it does not provide for the different contingencies in which respondent no.1 can suspend the supplies of coal to the appellants. Respondent no.1 will also have the right to suspend supplies of coal to the appellants where it has doubts that the appellants may mis-utilize the allotted coal and divert or sell the same in open market because, as would be clear from Clause 4.4 of the FSA and the new Coal Distribution Policy decision dated 18.10.2007, the very object of FSA as well as policy decision of the Government is to allot coal to the appellants for utilization in their plants and not for any other purpose. Therefore, if the FIR lodged by the CBI, which is a premier investigation agency of the Central Government, created serious doubts that the allotted coal may be diverted or sold in the open market instead of being utilized in the plants of the appellants, respondent no.1 would be within its rights to suspend the supplies of coal to the appellants till the doubts are cleared in appropriate proceedings. The Division Bench of the High Court was, therefore, right in setting aside the judgment and order of the single judge quashing the order of respondent no.1 suspending supplies of coal to the appellants. [Paras 14, 15] [531-B- H; 532-A] Case Law Reference: (2004) 3 SCC 553 referred to Para 6 (2006) 10 SCC 236 referred to Para 6 (2007) 2 SCC 640 referred to Para 10 (1991) 1 SCC 537 relied on Para 13 (1993) 1 SCC 445 relied on Para 13 CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 8037-38 of 2010. From the Judgment & Order dated 27.10.2009 of the High Court of Judicature at Patna in LPA Nos. 1265 & 1266 of 2009. Jaideep Gupta, M.L. Varma, S.B. Upadhyay, Anupam Lal Das, Abhishek Kumar, Gaurav Agrawal, Manish Kumar Saran, Rajendra Krishna, Ratan Kumar Chaudhary, Santosh Mishra, Dharmendra Kumar Sinha for the appearing parties.

DP Kohli the founder Director of CBI

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 IN THE SUPREME COURT OF INDIA

 CIVIL APPELLATE JURISDICTION

 CIVIL APPEAL NOs._8037-38_ of 2010

 (Arising out of S.L.P. (C) Nos. 30344-30345 of 2009)

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

 Versus

Bharat Coking Coal Ltd. & Ors. ...... Respondents

 J U D G M E N T

A. K. PATNAIK, J.

 Leave granted.

2. These appeals are against the common judgment and 

order dated 27.10.2009 passed by the Division Bench of the 

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

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

advertisements issued by Coal India Limited (respondent No.2 

herein) calling upon entrepreneurs to establish coal based 

 2

industries on the basis of technology developed by the Central 

Mines, Planning and Design Institute Ltd., the appellants 

purchased the technology and established plants for 

manufacturing special smokeless fuel during 1990-1991. The 

subsidiary of Coal India Limited, Bharat Coking Coal Limited 

(for short `BCCL'), the respondent No.1 herein, recommended 

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

appellants and Coal India Limited granted coal linkage to the 

appellants and the appellants continued to run their 

respective plants and manufacture special smokeless fuel by 

processing the coal supplied by BCCL to them. On 

18.10.2007, the Government of India, Ministry of Coal 

discontinued the traditional linkage system and in its place 

adopted a new coal distribution policy under which coal was to 

be supplied to different consumers through a Fuel Supply 

Agreement (for short `FSA') at notified prices to be fixed and 

declared by Coal India Limited. In accordance with this new 

policy, BCCL entered into FSA with the two appellants for 

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

quantity of coal supplied to the appellants under the 

 3

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

the appellants shall not sell or divert or transfer the coal for 

any purpose whatsoever and in the event they engage or plan 

to engage into any such re-sale or trade, the BCCL shall 

terminate the FSA forthwith without any liabilities or damages 

whatsoever payable to the appellants. On 07.06.2009, the 

Central Bureau of Investigation (for short the `CBI') registered 

First Information Report (FIR) against 10 consumers including 

the appellants alleging inter alia that the ten consumers 

entered into a criminal conspiracy with Shri Udayan 

Bhattacharya, the then General Manager (S&M) of BCCL and 

in furtherance thereof, lifted 11,94,940 tonnes of coal and 

instead of utilizing the same in their respective plants, sold the 

same in the open market at higher prices and as a result 

BCCL has suffered a loss of Rs.4,36,15,300/- approximately 

and the accused have made corresponding wrongful gain to 

themselves. In the FIR, the CBI further stated that the facts 

disclosed the commission of offences punishable under 

Section 120-B read with Sections 420, 467, 471 of the Indian 

Penal Code (for short `IPC') and Section 13(2) read with Section 

 4

13(d) of the Prevention of Corruption Act, 1988 by Shri 

Udayan Bhattacharya and the proprietors of different 

consumer firms and therefore a criminal case be registered 

and the investigation be taken up. The Chairman of the Coal 

India Limited thereafter advised the Chairman-cum-Managing 

Director of BCCL to suspend supply of coal to the firms named 

in the FIR including the appellants and accordingly BCCL 

suspended supply of coal to the appellants by a wireless 

message dated 13.06.2009. BCCL also issued notices to them 

to explain why FSA executed in favour of the appellants 

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

CBI containing the allegations that the appellants were 

involved in a criminal conspiracy leading to the breach of 

terms and conditions of FSA.

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

2009 and 8311 of 2009 before the Patna High Court 

challenging the suspension of supply of coal by BCCL to the 

appellants by the Wireless Message dated 13.06.2009 and the 

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

common judgment and order dated 26.08.2009 that clause 13 

 5

of the FSA was the only clause which provided for suspension 

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

provided that suspension shall be permissible when the 

appellants failed to pay any amount towards purchase price or 

interest thereon and there was no provision in the FSA for 

suspension of supply of coal to the appellants on the ground 

that a criminal case has been instituted regarding misuse of 

the coal. The Learned Single Judge further held that misuse 

of coal by the appellants was however germane as per clause 

15 of FSA for termination of the agreement and the General 

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

show cause to the appellants for termination of the agreement 

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

learned Single Judge, therefore, quashed the order directing 

suspension of supply of coal to the appellants and allowed the 

writ petitions.

5. The respondents then challenged the common judgment 

and order dated 26.08.2009 before the Division Bench of the 

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

the common judgment and order dated 27.10.2009, the 

 6

Division Bench placed reliance on a judgment of the Division 

Bench of the Patna High Court dated 05.07.2002 passed in 

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

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

resumption of supply of coal cannot be directed by the court 

so long as the respondents do not consider the explanation of 

the appellants in response to the show cause notice issued by 

the respondents and allowed the appeals but directed the 

appellants to take a final decision pursuant to the show cause 

notice dated 16.07.2009 at an early date. 

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

submitted that the reasons given by the Division Bench of the 

High Court in reversing the order passed by the learned Single 

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

appellants, admittedly, were manufacturing smokeless fuel 

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

the appellants was to provide coal for the plants of the 

appellants manufacturing smokeless fuel and, therefore, 

suspension of supplies of coal by BCCL without terminating 

the agreement (FSA) is unreasonable and arbitrary and 

 7

violative of Article 14 of the Constitution and for this reason 

the learned Single Judge had quashed the suspension of 

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

submitted that the BCCL suspended supplies of coal to the 

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

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

have sufficient materials in its possession, the suspension of 

supplies of coal to the appellants was arbitrary and 

unreasonable and violative of Article 14 of the Constitution. 

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

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

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

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

petition was maintainable against the State and its 

instrumentalities and functionaries even in contractual 

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

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

vitiated by mala fides or ulterior motives. 

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

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

 8

FSA, suspension of coal supply is permitted only on the 

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

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

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

BCCL could not suspend the supply of coal to the appellants 

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

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

the Division Bench of the High Court, the appellants 

submitted their explanation in reply to the show-cause notice 

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

orders on 03.02.2010 holding that the appellants have failed 

to submit substantial proof regarding end use of the coal in 

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

hence resumption of supply of coal to the appellants cannot be 

agreed to. He submitted that since the respondents have not 

terminated FSA for supply of coal to the appellants this Court 

should direct the respondents to resume supply of coal to the 

appellants.

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

submitted that the FIR lodged by a premier investigating 

 9

agency like the CBI and the chequered history of the 

appellants before the FIR were sufficient for the BCCL to 

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

submitted that in any case investigation into the allegations 

made in the FIR has already been completed by the CBI and 

charge sheet has been filed against the appellants which 

vindicate the stand taken by the respondents that the 

appellants were diverting coal meant for their plants for sale in 

the open market.

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

Patna High Court has rightly held that in larger public interest 

resumption of supply of coal could not be ordered. He 

submitted that in the orders dated 03.02.2010 the BCCL have 

taken view that the documents submitted on behalf of the 

appellants only prove payment of sales tax and the appellants 

have failed to submit substantial proof regarding the end use 

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

FSA and hence the resumption of supply of coal to the 

appellants cannot be agreed to. 

 10

10. Mr. Das cited the observations of this Court in Ashoka 

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

[(2007) 2 SCC 640] in Para 188 at Page 703 on the need to 

control black marketing and mis-utilization of coal. He 

submitted that it is pursuant to these observations of this 

Court that the new Coal Distribution Policy has been framed 

to discontinue the Linkage System which could not check the 

menace of black marketing and diversion of coal to the open 

market and supply of coal on strict terms and conditions 

stipulated in FSA to the consumers has been contemplated to 

ensure proper utilization of the coal in the plants. He 

submitted that this is why in Clause 4.4 of the FSA it is clearly 

provided that the total quantity of coal supplied to the 

appellants under the agreement is meant for use in the plants 

of the appellants and the appellants shall not sell/divert 

and/or transfer the coal for any purpose whatsoever and in 

the event they engage or plans to engage into any such resale 

or trade, the BCCL shall terminate the FSA forthwith without 

any liabilities and damages whatsoever payable to the 

appellants. He submitted that therefore the BCCL can 

 11

suspend supply of coal to the appellants if the appellants have 

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

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

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

appellants fail to pay any amount including any interest due 

to the BCCL towards purchase price of the coal the BCCL can 

suspend supply of coal to the appellants, is not exhaustive of 

the contingencies in which the BCCL can suspend supply of 

coal to the appellants.

11. We have considered the submissions of the learned 

counsel for the parties and we are unable to accept the 

contention of the appellants that the Division Bench of the 

High Court should have sustained the judgment and order of 

the learned Single Judge of the High Court quashing the order 

suspending the supplies of coal to the appellants under FSA. 

The learned Single Judge of the High Court had held that 

BCCL could not suspend the supplies of coal to the appellants 

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

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

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

 12

by the appellants in the open market. As a matter of fact, in 

the charge sheet which has been filed after investigation in the 

Court of Special Judge, CBI Cases, Dhanbad, it is stated that 

a search was conducted at the plant premises of the 

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

independent witnesses during which the plants of the 

appellants were found to be non-functional and the names of 

employees/workers as per the Attendance Register as well as 

other documents relating to sale of finished goods as produced 

by the appellants were found to be fake and fabricated as full 

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

respect of such employees/workers engaged and purchasers of 

finished goods and thus the quantity of coal issued to the 

appellants-companies was not utilized in their plants but sold 

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

materials with the CBI in support of the allegations made in 

the FIR against the appellants that they were not utilizing the 

allotted coal in their plants but were selling the same in black-

market, but these materials could not be placed before the 

Court because the CBI was not impleaded as a respondent in 

 13

the writ petitions filed by the appellants.

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

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

Coal India Limited and BCCL have pleaded that under Clause 

4.4 of FSA the appellants were required to utilize the entire 

quantity of coal allotted to them in their respective plants and 

had undertaken not to sell/divert/transfer the coal for any 

purpose whatsoever and as the FIR lodged by the CBI 

disclosed breach of this clause of FSA, Coal India Limited and 

BCCL had to suspend the supplies of coal to prevent further 

diversion of coal by the appellants and this decision was taken 

pending a final decision regarding termination of FSA in terms 

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

before the High Court was that suspension of supply of coal 

has been ordered to prevent further diversion of coal by the 

appellants. The Coal India Limited and BCCL are Government 

Companies of the Government of India and are bound by the 

policy decisions of the Government of India, Ministry of Coal, 

and since under the new Coal Distribution Policy formulated 

pursuant to the observations of this Court in Ashoka 

 14

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

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

such coal by the appellants was to be checked, the Coal India 

Limited and BCCL did not act arbitrarily or unreasonably to 

suspend the supplies of coal under FSA to the appellants, if 

they entertained a serious doubt on the basis of the FIR lodged 

by the CBI that the supplies of coal, if made, to the appellants 

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

open market. 

13. It is settled by a series of decisions of this Court starting 

from Kumari Shrilekha Vidyarthi v. State of U.P. [(1991) 1 SCC 

537] that even in the domain of contractual matters, the High 

Court can entertain a writ petition on the ground of violation 

of Article 14 of the Constitution when the impugned act of the 

State or its instrumentality is arbitrary, unfair or 

unreasonable or in breach of obligations under public law. In 

Sterling Computers Ltd. v. M/s M & N Publications Limited and 

Others [(1993) 1 SCC 445] in para 28, however, this Court 

held: 

 15

 "Public authorities are essentially different from 

 those of private persons. Even while taking decision 

 in respect of commercial transactions a public 

 authority must be guided by relevant considerations 

 and not by irrelevant ones."

Obviously, one such relevant consideration which the Coal 

India Limited and BCCL as public authorities have to consider 

is whether continuation of supply of coal to the appellants 

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

by the appellants which are prohibited under FSA and the 

policy decision of the Government considering the allegations 

made by the CBI in the FIR on the basis of the reliable 

information received. 

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

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

event the appellants fail to pay any amount including any 

interest due to BCCL under FSA within a period of 30 days of 

the same falling due, BCCL shall have the right to suspend 

supplies of coal to the appellants, but Clause 13(1) does not 

stipulate that in no other contingency the BCCL can suspend 

supplies of coal under FSA to the appellants. Moreover, 

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

 16

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

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

different contingencies in which BCCL can suspend the 

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

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

to the appellants where it has doubts that the appellants may 

mis-utilize the allotted coal and divert or sell the same in open 

market because, as would be clear from Clause 4.4 of the FSA 

and the new Coal Distribution Policy decision dated 

18.10.2007, the very object of FSA as well as policy decision of 

the Government is to allot coal to the appellants for utilization 

in their plants and not for any other purpose. Therefore, if the 

FIR lodged by the CBI, which is a premier investigation agency 

of the Central Government, created serious doubts that the 

allotted coal may be diverted or sold in the open market 

instead of being utilized in the plants of the appellants, the 

BCCL would be within its rights to suspend the supplies of 

coal to the appellants till the doubts are cleared in appropriate 

proceedings.

 17

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

right in setting aside the judgment and order of the learned 

Single Judge quashing the order of the BCCL suspending 

supplies of coal to the appellants. We accordingly dismiss 

these appeals with liberty to the appellants to challenge the 

orders dated 03.02.2010 in which the BCCL has held that the 

appellants have failed to submit substantial proof regarding 

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

 ..........................J.

 (Altamas Kabir)

 ..........................J.

 (A. K. Patnaik)

New Delhi,September 15, 2010. 

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