IMPORTANT POINT
The Central Government cannot withhold the release of stowing assistance, which is its statutory obligation to do, for the purpose of satisfying its demand for money under the contractual obligation incurred by the Coal Company.

Headnote:Coal Mines (Conservation and Development) Act, 1974-Sections 3, 4, 5, 9, 10 and 18-Coal Mines (Conservation and Safety) Rules, 1954-Rule 49-Mining lease-Coal Company s liability to pay royalty on account of sand extracted by it for the purpose of carrying out stowing operations in coalfields-Amount of royalty on sand is due and payable by it to the Central Government-Such obligation to pay amount of royalty is contractual-Amount of royalty actually paid is reimbursed by Central Government to the Coal Company as one of the constituents of stowing assistance-Amount of royalty on quantum of sand extracted by Coal Company shall be actually paid by the Coal Company to the Central Government-Arrears of amount of royalty payable by Coal Company-Whether the Central Government can withhold release of stowing assistance for purpose of satisfying its demand for money incurred by Coal Company-(No)-State Government or Central Government is free to recover arrears of royalty by adopting such other method as may be available under the law.
Held : 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. (Para 19)

Judgement Key Points

The provided legal document indicates that the law recognizes the concept of mutual debts existing between a creditor and a debtor, and it acknowledges the right to set-off or netting of such positions. Specifically, it discusses the principle that when both parties owe each other sums of money arising out of the same or connected transactions, they may, under certain circumstances, reduce or extinguish their respective claims against each other.

The document highlights that this right of set-off is applicable when the claims are for ascertained sums of money, legally recoverable, and both parties are in the same character or capacity in respect of their claims. It also emphasizes that such a right is not automatic but is subject to judicial discretion, especially when the purpose of the obligations is for public interest or involves statutory obligations, where courts tend to favor the preservation of such statutory or public purpose over private set-off rights.

Furthermore, the law recognizes that equitable set-off can be invoked when the demands are connected in such a way that allowing them to remain separate would be inequitable. The discretion to permit such netting is exercised by courts based on the facts and circumstances of each case.

In summary, the law does indeed acknowledge the existence of mutual debts and the right to net or set-off those positions, provided certain legal and equitable conditions are satisfied.

JUDGMENT

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 for 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.

2. 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.

3. 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.

4. 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 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.

5. 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

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2004 Supreme(SC) 293

IMPORTANT POINTThe Central Government cannot withhold the release of stowing assistance, which is its statutory obligation to do, for the purpose of satisfying its demand for money under the contractual obligation incurred by the Coal Company.

Cases Referred (3)

IMPORTANT POINT
The Central Government cannot withhold the release of stowing assistance, which is its statutory obligation to do, for the purpose of satisfying its demand for money under the contractual obligation incurred by the Coal Company.