Coal Indian Competent to frame Coal Policy, fix prices

Supreme Court Upholds duel pricing of coal for core sector and non-core sector, Rejects Claims for Refund of Price Hike

New Delhi, September 12, 2025 - The Supreme Court of India has upheld the validity of the Interim Coal Policy notified by Coal India Limited (CIL) in December 2006, rejecting challenges raised by manufacturers in the non-core sector over a 20% price increase in coal supplied to them. The Court also dismissed demands for refund of the additional amount charged under the policy.

Background

Coal India Limited, a government-owned enterprise, manages the bulk of coal mining and distribution in India. Post nationalization of coal mines in the 1970s, coal consumers were classified into ‘core’ and ‘non-core’ sectors based on their economic importance. Core sectors include power, steel, cement, and other vital industries, while non-core covers smaller industries like manufacturers of smokeless fuel.

Coal prices were traditionally regulated by the Central Government under the Colliery Control Orders. However, with deregulation introduced by the Colliery Control Order, 2000 (CCO, 2000), price fixation authority shifted to coal companies like CIL. In the early 2000s, an e-auction system was introduced to regulate coal prices for non-core consumers but was struck down by the Supreme Court in Ashoka Smokeless Coal India Ltd. v. Union of India (2007) for violating constitutional principles.

To fill the policy vacuum following the e-auction ban and before the New Coal Distribution Policy of 2007 came into effect, CIL issued the Interim Coal Policy on December 15, 2006. This policy increased coal prices for linked consumers in the non-core sector by 20% over the previous notified prices.

Legal Challenge

Respondents - manufacturers of smokeless fuel - challenged the policy before the Calcutta High Court, contending:

• CIL lacked authority to notify the Interim Coal Policy without the expert committee mandated by the Supreme Court in Ashoka Smokeless.
• The 20% price hike was arbitrary, discriminatory, and violated Article 14 of the Constitution (equality before law).
• The increase was motivated by profit rather than public interest, harming small consumers.
• They were entitled to refund the additional amount paid.

The High Court ruled against CIL, ordering refund of the excess price with interest. CIL appealed to the Supreme Court.

Supreme Court’s Analysis

The Supreme Court, comprising Justices J.B. Pardiwala and R. Mahadevan, undertook a thorough examination of the constitutional and statutory framework, prior case law, and economic policy principles. The judgment is notable for its detailed analysis of the balance between state economic policy and constitutional mandates.

Key points from the Court’s reasoning include:

1. Authority to Notify Interim Policy 

The Court held that the Interim Coal Policy was within CIL’s powers under CCO, 2000. The earlier Supreme Court judgment in Ashoka Smokeless did not restrict CIL’s authority to notify interim prices. The expert committee’s role was primarily to recommend a viable supply policy, but price notification remained within CIL’s purview.

2. Constitutionality of the 20% Price Increase 

The Court affirmed that differential pricing between core and non-core sectors is constitutionally permissible. The linkage system was administrative and did not grant equal pricing rights. The 20% hike for linked non-core industries was rationally connected to legitimate objectives: mitigating increased operational costs (23.84%) and ensuring sustainable coal supply and development.

3. Profit Motive vs. Common Good 

While the State and its enterprises cannot be driven solely by profit, reasonable profit to maintain supply does not violate constitutional principles. The Court distinguished the current case from Ashoka Smokeless, where price variability and profit motive were found unconstitutional. Here, the fixed 20% increase was reasonable and sub-served the common good.

4. Refund and Unjust Enrichment 

The Court declined refund claims, emphasizing the doctrine of unjust enrichment. Respondents failed to prove that they bore the increased costs themselves rather than passing them to consumers. Given incomplete and uncertified documentation, the Court held that public funds should not be refunded without clear proof, as monies might have been rightly used for the public good.

5. Judicial Restraint in Economic Policy 

The Court reiterated that economic policy, including price fixation, is primarily the executive’s domain. Judicial review is limited to examining legality, reasonableness, and constitutional compliance, not policy wisdom.

Conclusion

The Supreme Court set aside the Calcutta High Court judgment and upheld the Interim Coal Policy’s validity. The Court ruled that the 20% price increase was a reasonable classification under Article 14 and aligned with the constitutional goal of equitable distribution under Article 39(b). Refund petitions by the respondents were dismissed for lack of convincing evidence.

This judgment clarifies the scope of judicial review over pricing policies of public sector undertakings and underscores the delicate balance between protecting consumer interests and ensuring the financial viability of essential commodity suppliers.

Implications

• The ruling affirms the authority of coal companies to regulate prices within statutory limits.
• It endorses dual pricing as a valid method when justified by economic realities and public interest.
• It sets a high evidentiary bar for refund claims based on alleged unlawful price increases.
• It reiterates judicial deference to executive economic policy decisions unless they are patently arbitrary or unconstitutional.

The decision is expected to impact future disputes involving pricing of essential commodities and the interplay between constitutional guarantees and economic policy.

Coal India Ltd. v. M/s Rahul Industries, (SC) : Law Finder Doc Id # 2777667