The High Court of Jharkhand dismissed a writ petition seeking to quash the office order in which the respondent reiterated their decision to terminate the Fuel Supply Agreement and also forfeit the security deposit. The court ruled that Clause 4.4 of the FSA does not mandate physical verification of the factory, emphasizing that satisfaction can be derived from inspecting documents or physically verifying the end use of coal, and the seller (CCL) has the discretion to choose either method.
Brief Facts:
The petitioner, engaged in manufacturing Special Smokeless Fuel, relies on coal supplied by Central Coal Fields Limited (CCL) under a Fuel Supply Agreement (FSA). An Income Tax Act survey alleged the petitioner's limited capacity to process coal, prompting CCL to suspend supply due to FSA violation. The petitioner clarified to the Income Tax Department that they did not order the halt. Despite resumed supply, a Regional Economic Intelligence Council resolution led to a subsequent suspension. The Income Tax Department then directed CCL to suspend coal supply, terminating the FSA. Legal challenges ensued, with a writ petition leading to an independent inquiry, but the rejection of the petitioner's claim and FSA termination. A second writ petition allowed CCL to issue a fresh notice, leading to a renewed inquiry and, ultimately, the rejection of the petitioner's claim in the impugned order and forfeiting the security deposit. Thus, the present writ petition is filed.
Contentions of the Petitioner:
The learned counsel appearing on behalf of the petitioner contended that the action of the respondent is not only arbitrary but is mala fide and has not only ignored the conditions laid down in the FSA but has also ignored the direction passed by the learned single judge in earlier two rounds of litigations and without making any physical inspection of the petitioner’s unit, the respondent could not have arrived at the conclusion that the coal, which was supplied to the petitioner under the FSA, was diverted by the petitioner.
Contentions of the Respondent:
The learned counsel appearing on behalf of the Respondent contended that due to the scarcity of coal, the Fuel Supply Agreement (FSA) includes a clause allowing the coal company to cancel the agreement if coal is diverted and used for a purpose other than for which the coal has been given. It is further contended that an independent inquiry concluded the petitioner was diverting coal, justifying the agreement's cancellation and the forfeiture of the earnest money deposit. It is argued that satisfaction with coal diversion can be based on documents alone, and Clause 4.4 of the FSA doesn't mandate a physical visit to the premises. They pointed out discrepancies in electricity consumption, the absence of GST numbers for finished product purchasers, and vehicle verification indicating two-wheelers and cars, suggesting coal diversion.
Observations of the court:
The court observed that the simple reading of Clause 4.4 of the FSA does not, in any manner, suggest that physical verification of the factory is mandatory and the only requirement is that there should be satisfaction, from the inspection of the documents or from the physical verification of end use of coal, to conclude that the coal is being diverted and The clause grants the seller (CCL) the right to verify the end use of coal through inspection of documents or physical verification, but it does not impose a compulsory inspection of the factory.
The court emphasised that the word 'and' in the clause does not necessarily conjoin the two verification modes i.e. the right to inspect /call for any document from the purchaser and physically verify the end use of coal; rather, they are illustrative and not exhaustive. The judgment highlighted that the functioning of a unit does not guarantee non-diversion of coal, and verification can be found out from the ancillary records and documents like GST challans, electricity bills, and other relevant documents. The court concluded that physical verification is optional, and the right to verify is at the discretion of CCL.
The court held that the court evaluated the impugned order and found it well-reasoned, stating that the respondent-CCL had provided a reasonable opportunity for the petitioner to be heard, and the decision to cancel the agreement and forfeit the security deposit was backed by analyzed documents. The court noted discrepancies in invoices, electricity consumption, and engagement of workers, supporting the conclusion that the coal was being diverted.
The decision of the Court:
The court dismissed the petition.
Case Title: Gautam Coal Works Private Limited vs. Central Coalfields Limited & Ors.
Coram: Hon’ble Mr. Justice Sanjaya Kumar Mishra, Hon’ble Mr. Justice Ananda Sen
Case No.: W.P.(C) No. 2818 of 2022
Advocate for the Petitioner: Mr. Vimal Kirti Singh
Advocate for the Respondent: Mr. Amit Kumar Das
Read Judgment @LatestLaws.com
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