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CASE NO.:

Appeal (civil) 2509 of 1997

PETITIONER:

Union of India

RESPONDENT:

Karam Chand Thapar & Brs. (Coal Sales) Ltd. & Ors.

DATE OF JUDGMENT: 10/03/2004

BENCH:

R.C. LAHOTI & ASHOK BHAN.

JUDGMENT:

J U D G M E N T

R.C. Lahoti, J.

Just bare essential facts, as ascertainable on retrieval from a

jumble of facts, are set out hereinafter, as those would suffice, in our

opinion, to appreciate the crux of controversy arising for decision in

this appeal. The controversy and the consequent litigation have

spread over nearly four decades. In between, the parties have

changed their identities by succession, amalgamation or supersession.

The Coal Board, a statutory body has been dissolved and taken over

by Union of India. What was M/s.Bhulanbaree Coal Co. Ltd. has taken

shape as Oriental Coal Co. Ltd., and then the respondent No.1

hereinafter. We would refer to the present parties only and that

reference would include their respective predecessor legal entities.

The Oriental Coal Co. Ltd. shall be referred to as 'Coal Company' for

short.

The Coal Company owns and possesses certain coal mines in the

State of Bihar. The Coal Board was constituted under the provisions of

the Coal Mines (Conservation and Development) Act, 1974, hereinafter

'the Act' for short. However, the said Coal Board was dissolved with

effect from April 1, 1975 and all rights, privileges, liabilities and

obligations of the Board have come to vest in the Central Government.

There are cross-demands between the parties. It is not

necessary to set out the details and particulars of the demands. It

would suffice for our purpose to notice that the Coal Company is liable

to pay royalty on account of sand extracted by it for the purpose of

carrying out stowing operations in the coalfields. We would not enter

into yet another controversy which we will briefly set out hereinafter at

an appropriate place as to whether it is the Central Government as

successor of the Coal Board or the State of Bihar which is entitled to

recover the royalty. For the purpose of the present appeal we proceed

on an assumption that the amount of royalty on the sand extracted by

the Coal Company is due and payable by it to the Central Government.

The fact remains that such obligation to pay the amount of royalty is

contractual inasmuch as there is a contract i.e. a mining lease entered

into by the Coal Company whereby it has earned the privilege of

extracting sand from Damodar River-bed and an obligation to pay

royalty on account of sand extracted, calculated at the rate appointed

by the mining contract. So far as the quantified amount of royalty on

sand is concerned the Coal Company is a debtor and the Union of India

is creditor.

The Coal Mines (Conservation & Development) Act, 1974 came

into force on and from April 1, 1975. Clause (j) of Section 3 defines

"stowing" to mean as the operation of filling, with sand or any other

material, or with both, spaces left underground in a coal mine by the

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extraction of coal. Sub-section (2) of Section 4 specifically empowers

the Central Government to make order in writing addressed to the

owner, agent or manager of a coal mine, requiring him to take such

measures as it may think necessary for the purpose of conservation of

coal or for development of coal mines including in any coal mine,

stowing for safety. Sub-section (2) of Section 5 specifically obliges the

owner of a coal mine to:- (i) execute such stowing and other

operations as may be necessary to be taken in furtherance of the

objects of this Act in so far as such objects relate to the conservation

of coal or development of the coal mine or the utilization of coal

obtained from the coal mine; (ii) acquire such stowing and other

materials as may be necessary for ensuring the conservation of coal,

and safety in, the coal mine; (iii) undertake such other activity as the

Central Government may, for the furtherance of the objects of this Act,

direct; and so on.

Out of the net proceeds of excise and customs duties on coal,

the Central Government is obliged to disburse a certain amount inter

alia for the purpose of grant of stowing materials and other assistance

for stowing operations and execution of stowing and other operations

for the safety of coal mines or conservation of coal. The amount

released by the Central Government under Section 9 of the Act to the

owner of every coal mine, is required to be credited into the Coal Mine

Conservation and Development Account under Section 10 of the Act.

The money standing to the credit of the Account shall be applied by

the owner of the coal mine only for the purposes specified in sub-

section (2) of Section 10 of the Act including, inter alia, the acquisition

of stowing and other materials needed for stowing operations in coal

mines and the execution of stowing and other operations in

furtherance of the objects of the Act amongst others. Under Section

18 the Central Government is empowered to make rules.

In exercise of the power, conferred by the Coal Mines

(Conservation and Safety) Act, 1952 on the Central Government, the

Central Government has framed the Coal Mines (Conservations and

Safety) Rules 1954. Rule 49 provides as under:

"49. Purposes for which assistance may be granted \026

(1) The Board may grant assistance from the Fund to

any owner, agent or manager of coal mine \026

(a) for stowing or other protective measures

which are required to be undertaken by an

order issued under sub-section (3) of Section

13 or sub-rule (2) of Rule 35 or sub-rule (3)

of Rule 40;

(b) for any measures which in the opinion of the

Board are essential for the effective

prevention of the spread of fire to or the

inundation by water of any coal mine from

an area adjacent to it;

(c) for stowing for conservation of coal or

washing coal which is required to be

undertaken by an order under Rule 36 or 37;

(d) for the following measures voluntarily

undertaken by the owner agent, or manager

of the coal mine : \026

(i) stowing operations in the interests of

safety or conservation of coal,

(ii) any process of washing or cleaning

coal which reduces its ash content and

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also improves its qualities or,

(iii) any other measures for safety in coal

mines or for conservation of coal;

(e) for any other measures undertaken by the

owner, agent or manager of a coal mine

under the order of the Board to ensure

conservation of coal.

(2) The Board may grant assistance to owner of any

steel work, blast furnace or coke plant for blending

of coal undertaken under the orders of the Board.

(3) The Board may grant assistance to the owner,

agent, or manager of a coal mine which is specially

handicapped by adverse factors rendering its

working uneconomic, but which, in the opinion of

the Central Government, should be maintained in

production for the purpose of ensuring the

conservation of coal. In such cases assistance shall

be granted by the Board \026

(i) with due regard to the circumstances of each

case;

(ii) only in respect of such adverse factors as

may, from time to time, be specified by the

Central Government as entitling a coal mine

to receive assistance, and published by the

Board in the Official Gazette for general

information; and

(iii) in accordance with such procedure as may be

determined, and not exceeding such rates as

may be fixed, by the central Government,

from time to time :

Provided that the existence or otherwise of

adverse factors in any coal mine, the extent to which

such adverse factors render the working of the coal mine

uneconomic, and the amount of assistance, if any, to be

granted to the coal mine, shall be determined by the

central Government."

Coal Board Manual is a compilation of the rules and instructions

issued by the Coal Board/Central Government from time to time.

Some of them are statutory and some are executive. However, it is

not disputed that whatever is contained in the Coal Board Manual is

binding on the Coal Board/Central Government and the coal

companies. Vide para 34 of the Manual it is provided that the stowing

assistance granted by the Central Government to the Coal Company

includes amongst other items, the actual amount of royalty paid for

stowing material excavated and transported. Other charges included

in the amount of stowing assistance are wages of labour employed in

and associated with stowing charges, certain charges related to sand

pumps and so on, as stated in the Rules. Thus, it appears that while

the Coal Company has to pay royalty on the amount of sand extracted

by it for the purpose of carrying out stowing operations, the amount of

royalty actually paid is reimbursed by the Central Government to the

Coal Company as one of the constituents of the stowing assistance.

So far as the current amount of royalty is concerned there

cannot possibly be any dispute as to adjustment or set off inasmuch as

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the amount of royalty on the quantum of sand extracted by the Coal

Company for carrying out stowing operations, shall be actually paid by

the Coal Company to the Central Government or anyone else entitled

and it is only on such actual payment that the Coal Company would be

entitled to be reimbursed for the amount as a constituent of the

stowing assistance. So long as the Coal Company does not actually

pay the amount or royalty, the question of its being reimbursed would

not arise. If the amount of royalty is payable by the Coal Company to

the Central Government by way of any arrangement arrived at with

the State Government or otherwise the adjustment or reimbursement

would pose no problem; for the Coal Company has first to pay the

amount of royalty and then seek reimbursement of the amount of

royalty included by way of an ingredient in the amount of stowing

assistance released by the Central Government to it.

The controversy, however, arose because there were certain

arrears of the amount of royalty payable by the Coal Company to the

Central Government and the Central Government sought to enforce

recovery of the amount of royalty due and payable on account of sand

already extracted and utilized in its stowing operations by the Coal

Company by making an adjustment from out of the amount payable by

the Central Government to the Coal Company as stowing assistance

consisting of wages and transportation charges etc. incurred by the

Coal Company for carrying out the stowing operations. The Central

Government sent a few communications to the Coal Company whereby

the Central Government made it clear that the payment of stowing

assistance was being withheld and the amount appropriated by the

Central Government towards satisfying its demand outstanding against

the Coal Company on account of royalty due and payable by the Coal

Company to the Central Government on the sand extracted from the

river-bed and utilized by it in stowing.

The Coal Company filed a civil writ petition in the High Court of

Calcutta. A learned Single Judge held that it was not open for the

Central Government to make an adjustment of cross demands and

satisfy its contractual demand by making an adjustment out of the

amount due and payable on account of its statutory obligation. The

learned Single Judge directed the communications to the contrary

made by the Central Government to be quashed. The Union of India

preferred an intra-court appeal which has been dismissed by the

Division Bench. The Division Bench has not only upheld the view

taken by the learned Single Judge but it has also proceeded further to

opine that under the law it was the State Government which was

entitled to recover the amount of royalty on sand, and therefore, there

was no question of Central Government raising a demand on account

of royalty and withholding the release of stowing assistance pursuant

to its statutory obligation.

The question which arises for decision is: whether the Central

Government can withhold the release of stowing assistance, which is

its statutory obligation to do, for the purpose of satisfying its demand

of money arising under the contractual obligation (i.e. in mining lease)

incurred by the Coal Company qua it?

Though Shri N.N. Goswami, the learned Senior Counsel for

Union of India, has urged that the Coal Company had entered into a

contract by correspondence with the Central Government, supported

by company resolutions, whereby the Coal Company had agreed for

such satisfaction of cross demands but we are not satisfied if such a

plea can be successfully urged by the Union of India from the

documents and materials available on record. We cannot hold that the

Coal Company had agreed to its demand of stowing assistance being

set-off against the demand by the Central Government on account of

royalty.

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No statutory provision has been brought to our notice at the Bar

to sustain the claim of the Central Government for such adjustment

and satisfaction of cross-demands. We are called upon to decide if

such an adjustment is permissible in equity. Shri Goswami, the

learned Senior Counsel, has vehemently urged that the right of the

creditor to withhold money due and payable by it to its debtor for the

purpose of satisfying by appropriation the demand which the creditor

legitimately has outstanding against the debtor, ought to be

recognized and upheld as a principle of equity emanating from what is

just, fair and convenient. The learned Senior Counsel submitted that it

would be unfair and iniquitous if the Central Government was

compelled to part with the money already available in its hands and

left free or compelled to enforce its right of recovery wherein it may

fail and consequently left high and dry.

On general principles supported by rationality and reasonability,

it appears to be a sound proposition that a person who is obliged to

pay a sum of money to another person and also has in his hands an

amount of money which that another person is entitled to claim from

him then instead of physically entering into two transactions by

exchanging money twice that person may utilize the money available

in his hands to satisfy the claim due and legally recoverable from such

other person to him. However, this equitable principle is not one of

universal application and has its own limitations.

"Set-off" is defined in Black's Law Dictionary (7th Edn., 1999)

inter alia as a debtor's right to reduce the amount of a debtor by any

sum the creditor owes the debtor; the counterbalancing sum owed by

the creditor. The dictionary quotes Thomas W. Waterman from 'A

Treatise on the Law of Set-Off, Recoupment, and Counter Claim' as

stating, "Set-off signifies the subtraction or taking away of one

demand from another opposite or cross demand, so as to distinguish

the smaller demand and reduce the greater by the amount of the less;

or, if the opposite demands are equal, to extinguish both. It was also,

formerly, sometimes called stoppage, because the amount to be set-

off was stopped or deducted from the cross-demand."

The writ petition filed by the respondent-Coal Company sought

for quashing of the communication made by the appellant-Union of

India informing it of its action to withhold the amount of stowing

assistance against its claim for arrears of royalty. In effect, the Coal

Company was seeking a relief for release of stowing allowance by

compelling the Central Government to discharge its such statutory

obligation. A debtor making an adjustment or set-off, may have done

so in its own volition, nevertheless, the validity of such action shall be

called in question and decided by a Court of law wherein the creditor

would seek enforcement of his claim while the debtor would raise in

defence the plea of adjustment or set-off. Though there is no specific

provision of law or settled rule of procedure governing decision of such

dispute arising for adjudication in exercise of writ jurisdiction, yet

being a money-claim, there is nothing wrong in borrowing the

principles underlying Order 8 Rule 6 of the Code of Civil Procedure

and applying the same as governing the discretion of the writ Court.

Sub-rule (1) of Rule 6 of Order 8 of the CPC provides as under :

"6. Particulars of set-off to be

given in written statement. \026 (1) Where

in a suit for the recovery of money the

defendant claims to set-off against the

plaintiff's demand any ascertained sum of

money legally recoverable by him from the

plaintiff, not exceeding the pecuniary limits

of the jurisdiction of the Court, and both

parties fill the same character as they fill in

the plaintiff's suit, the defendant may, at the

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first hearing of the suit, but not afterwards

unless permitted by the Court, present a

written statement containing the particulars

of the debt sought to be set-off."

What the rule deals with is legal set-off. The claim sought to be

set-off must be for an ascertained sum of money and legally

recoverable by the claimant. What is more significant is that both the

parties must fill the same character in respect of the two claims sought

to be set-off or adjusted. Apart from the rule enacted in Rule 6

abovesaid there exists a right to set-off, called equitable,

independently of the provisions of the Code. Such mutual debts and

credits or cross-demands, to be available for extinction by way of

equitable set-off, must have arisen out of the same transaction or

ought to be so connected in their nature and circumstances as to make

it inequitable for the Court to allow the claim before it and leave the

defendant high and dry for the present unless he files a cross-suit of

his own. When a plea in the nature of equitable set-off is raised it is

not done as of right and the discretion lies with the Court to entertain

and allow such plea or not to do so.

In Bhupendra Narain Singha Bahadur Vs. Bahadur Singh

and Ors. \026 AIR 1952 SC 201, this Court ruled that a plea in the nature

of equitable set-off is not available when the cross-demands do not

arise out of the same transaction. A wrong-doer who has wrongfully

withheld monies belonging to another cannot invoke any principle of

equity in his favour and seek to deduct therefrom the amounts which

may have fallen due to him. There would be nothing improper or

unjust in telling the wrong-doer to undo his wrong and not to take

advantage of it.

In the present case, what the Coal Company has sought to

enforce is a statutory obligation of the appellant-Union of India. The

Coal Mines (Conservation and Development) Act, 1974 has a public

purpose and a beneficial object to achieve. The stowing assistance is

released to the Coal Company in the interest of securing safety at the

coal mines and the development thereof. In the absence of stowing,

there may be accidents, casualties and difficulties of operation. Non-

payment of stowing allowance may discourage the coal mines from

carrying out the stowing operations which would be detrimental to the

interest of the workers. It would not be sound exercise of discretion

on the part of the Court to permit set-off or recognize an adjustment

made out-of-Court which would have the effect of withholding the

release of stowing assistance and appropriating the amount thereof

for the recovery of dues not arising out of the same transaction.

Shri Jaideep Gupta, the learned senior counsel for the Coal

Company, has rightly relied on the decision of Calcutta High Court in

Coal Products Pvt. Ltd. and Anr. Vs. Income-Tax Officer, "M"

Ward, Companies District II, Calcutta, and Ors. \026 (1972) 85 ITR

347, wherein a garnishee order was quashed. It was held that the

money which is payable by the Coal Board to a Coal Company as and

by way of stowing assistance was not available to be paid by the Coal

Board to Income-tax Department for recovery of income-tax dues as

that would result in breach of statutory obligation of the Board with

regard to the utilization of its fund as laid down in Section 12 of the

Act as also in breach of statutory obligation of the Coal Company

attaching to the grant of assistance from the Coal Board. Rule 49

referred to hereinabove came up for the consideration of this Court in

Industrial Supplies Pvt. Ltd. and Anr. Vs. Union of India and

Ors. \026 (1980) 4 SCC 341, in some other context. Vide para 32, this

Court observed that if the subsidy receivable from the Coal Board

(succeeded by the Central Government) was by way of assistance, the

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grant being conditional, the recipient thereof would be bound to apply

the same for the purposes for which it was granted viz. for the

purpose of stowing or other safety operations and conservation of coal

mines. In our opinion, in the facts and circumstances of the present

case it would not make any difference whether the amount withheld by

the Central Government is on account of assistance or reimbursement;

in either case the Could would not hold in favour of adjustment being

made by the Central Government by setting off the outstanding credit

referable to stowing assistance as against the outstanding demand of

arrears of royalty.

In our opinion, the High Court has not erred in allowing the writ

petition filed by the respondent-Coal Company.

So far as the finding recorded in its appellate judgment by the

Division Bench that the Central Government is not entitled to recover

the royalty and it is the State of Bihar which only is entitled to demand

and recover the royalty from the respondent-Coal Company is

concerned, we set-aside that finding but without recording any opinion

of ours on that aspect for the short reason that such issue is not

required to be adjudicated upon in the present case in view of the

finding arrived at hereinabove. We hasten to add that requisite

pleadings and necessary material are also not available on record to

arrive at a definite finding in that regard.

Before parting we make it clear that the appellant or the State

of Bihar, as the case may be, is free to recover arrears of royalty by

adopting such other method as may be available under the law.

The appeal is dismissed. No order as to the costs.