Coal Pricing Dispute: Supreme Court Rules on Preferential Pricing vs. Market Pricing

The case of M/s. S.K.J. Coke Industries Ltd. & Anr. vs. Coal India Ltd. & Ors. deals with a crucial commercial dispute over the pricing mechanism of coal under the Liberalised Sales Scheme (LSS) and preferential linkage pricing. The Supreme Court ruled that the appellants were not entitled to purchase coal at a preferential rate and upheld Coal India Ltd.’s decision to charge the open market price under LSS.

Background of the Case

The appellants, M/s. S.K.J. Coke Industries Ltd., were engaged in the production of low ash metallurgical coal in Assam. They originally operated under the trade name Mahabir Coke Industries and had an agreement with Coal India Ltd. (CIL) and its subsidiary, North Eastern Coalfields (NEC), which allowed them to lift 4000 metric tonnes of coal per month from the Tirup and Tikak mines.

The dispute arose when the appellants claimed that they were entitled to purchase coal at a preferential “linked price” as per an earlier arrangement. However, CIL argued that the appellants were merely allocated coal under the Liberalised Sales Scheme (LSS), which follows open market pricing rather than preferential pricing.

On June 16, 1994, the Government of India issued a notification under the Colliery Control Order, 1945, fixing the prices of various grades of coal. The notification included ungraded coal from Assam, capping its price at Rs. 741 per metric tonne, subject to variations based on ash content.

However, in 1996, the government introduced the Liberalised Sales Scheme (LSS), which exempted CIL and its subsidiaries from following the earlier fixed prices. As a result, the price of Assam coal rose significantly. The appellants challenged this change, arguing that they were entitled to continue purchasing coal at the previously fixed rate.

Arguments of the Petitioner (M/s. S.K.J. Coke Industries Ltd.)

• The appellants claimed that their 1989 agreement with CIL entitled them to purchase coal at the preferential “linked price.”
• They argued that since Assam coal remained ungraded until 1999, the 1996 LSS pricing should not apply to them.
• The appellants contended that coal companies could not unilaterally increase prices without prior government approval.
• They relied on the Supreme Court’s ruling in Ashoka Smokeless Coal India Pvt. Ltd. vs. Union of India (2007), which held that pricing discrimination among non-core sector consumers was unconstitutional.

Arguments of the Respondent (Coal India Ltd. & Ors.)

• The respondents argued that the appellants were never granted “linkage” but were only allocated coal under the LSS framework, which follows market-driven pricing.
• They contended that CIL was legally authorized to charge LSS prices after the government issued a notification on January 9, 1996, exempting CIL from fixed-price regulations.
• They also pointed out that the appellants had continued purchasing coal at the higher LSS price, which implied their acceptance of the revised pricing.
• The respondents stated that the government’s decision to switch to open market pricing was a policy decision aimed at improving efficiency in coal allocation.

Supreme Court’s Judgment

A bench comprising Justice Deepak Gupta and Justice Aniruddha Bose ruled in favor of the respondents, dismissing the appellants’ claims. The Court made the following key observations:

“The linkage granted to the appellants was in terms of coal allocation and not pricing. The appellants were never given the status of a linked consumer for preferential pricing purposes.”

The Court rejected the appellants’ argument that they were entitled to pay the 1994 notified price, stating:

“Once the Government of India issued the notification dated January 9, 1996, exempting CIL from price control mechanisms, coal companies were free to charge market prices.”

The Court also clarified that the notification of March 12, 1997, which removed price controls, was applicable to all coal consumers, including the appellants.

Regarding the appellants’ reliance on the Ashoka Smokeless Coal judgment, the Court distinguished the facts and held:

“The issue in Ashoka Smokeless Coal was about e-auctions and discriminatory pricing. In this case, all LSS consumers were charged the same price, and no discrimination was made between similarly placed consumers.”

Key Takeaways from the Judgment

• Market-based pricing is valid: The Court upheld the government’s decision to allow coal companies to sell at LSS prices rather than regulated prices.
• Allocation does not imply preferential pricing: The Court clarified that being allocated a fixed quantity of coal does not automatically entitle a consumer to discounted pricing.
• Government notifications prevail over previous agreements: The Court ruled that once the government issued a policy change, earlier arrangements became inapplicable.
• Judicial restraint in commercial policy decisions: The ruling reinforces the principle that courts should not interfere in government pricing policies unless they violate constitutional protections.

Impact of the Judgment

The judgment has significant implications for coal-based industries and government pricing policies. It affirms that:

• Government agencies have the right to revise pricing mechanisms in line with market realities.
• Consumers cannot claim preferential pricing unless specifically granted under a legal framework.
• Policy decisions that introduce market-based pricing are legally valid and enforceable.

The ruling also ensures that coal pricing remains flexible and competitive, preventing undue financial burdens on coal companies.

Conclusion

The Supreme Court’s decision in M/s. S.K.J. Coke Industries Ltd. & Anr. vs. Coal India Ltd. & Ors. clarifies that pricing under the Liberalised Sales Scheme is legally valid and enforceable. By upholding market-driven pricing, the Court has reinforced the principle that government policy changes supersede previous pricing arrangements. The ruling will serve as a precedent for future disputes involving pricing policies in regulated industries.

Petitioner Name: M/s. S.K.J. Coke Industries Ltd. & Anr..
Respondent Name: Coal India Ltd. & Ors..
Judgment By: Justice Deepak Gupta, Justice Aniruddha Bose.
Place Of Incident: Assam.
Judgment Date: 07-02-2020.

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