THE HON’BLE Ms. JUSTICE G.ROHINI WRIT PETITION No.10767 OF 2011 Dated: 21.06.2011 Between : Sri Nokambika Ceramics, Thummapa, Anakapalli, Visakhapatnam district, Rep. by its Proprietor V.B. Madhusudana Rao, and others. .. Petitioners And The Singareni Collieries Company Limited, Kothagudem, rep. by its Chairman-cum-Managing Director and another. .. Respondents THE HON’BLE Ms. JUSTICE G.ROHINI WRIT PETITION No.10767 OF 2011 ORDER : The petitioners, 20 in number, are the purchasers of coal from the 1st respondent – Singareni Collieries Company Limited. It is not in dispute that the petitioners are the successful bidders in the E-auction conducted by the respondent company in the year 2007 and the entire Invoice value of the purchases was paid before taking deliveries from time to time. It is also not in dispute that the invoice amounts included the basic price, royalty, excise duty, VAT and etc. While so, by notice dated 1.3.2011 issued by the 2nd respondent, the petitioners herein were called upon to pay the amounts shown in the statement annexed to the said notice towards deficit royalty stating that the royalty on E-auction premium had been raised by 5%. It was also stated that pursuant to the Notification, dated 1.8.2007 issued by the Ministry of Coal, Government of India revising the royalty rates from August, 2007, the Director of Mines & Geology issued a demand notice insisting the respondent company to pay royalty on E-auction premium immediately failing which the mining leases would be stopped. Thus all the petitioners were directed to pay the difference of amounts as shown in the annexed debit note towards the deficit royalty on E-auction premium from January, 2008 to January, 2009. Aggrieved by the said notice, dated 1.3.2011, the present writ petition is filed contending inter alia that the sale transactions were concluded as soon as the petitioners had paid the invoice amount and lifted the stocks and therefore it is not open to the respondents now to unilaterally claim excess amounts on any ground whatsoever. It is also alleged by the petitioners that in fact the respondent company had collected higher amount of royalty than what was prescribed by the Government of India and therefore the impugned demand was illegal and arbitrary. In the counter-affidavit filed on behalf of the respondents, it is stated that the 1st respondent company which is a Government Company within the meaning of Section 617 of the Indian Companies Act, 1956, carries out the activity of Exploration, and Extraction of coal as per the terms and conditions laid down in the Mining Lease granted by the Central Government under provisions of the Mines and Minerals (Development and Regulation) Act, 1957 (for short, ‘the Act’) read with Mineral Concession Rules, 1960. While stating that as per Section 9 of the Act, the royalty in respect of any mineral removed or consumed shall be paid at the rates specified in the second Schedule, it is contended that the petitioners are bound by law to pay royalty legitimately due to the Government. It is also contended that the respondents are mere collection agents to collect the royalty amount and deposit the same with the Government. It is also explained that the Mines & Geology Department has been insisting payment of royalty on E-auction procurement by interpreting the price of the coal as the price reflected in the invoice and that the notification dated 1.8.2007 clearly states that the price means the price of Run of Mine (ROM) Coal as reflected in the invoice. Since the respondents had collected less royalty by not collecting the same on the invoice price, it is now open to the respondents to collect the deficit amount and therefore the impugned notice has been rightly issued. Sri V. Srinivas, the learned counsel for the petitioners, while submitting that a seller cannot demand the buyer to pay any amount after the entire sale got concluded and the goods were delivered to the buyer except on the ground of any fraud being committed by the buyer, vehemently contended that it is not open to the respondents to demand the alleged deficit royalty in respect of the sale transactions which were concluded long back. On the other hand, Sri Nandigam Krishnarao, the learned counsel appearing for the respondents, contended that the petitioners are bound to pay the royalty at the revised rates as per the Government of India Notification, dated 1.8.2007, and having failed to challenge the said notification, they are estopped from seeking a Mandamus restraining the enforcement of the consequential demand made by the respondents. Admittedly the 1st respondent company is holding a mining lease granted by the Central Government for extraction of coal as per the provisions of the Mines & Minerals (Development & Regulation) Act, 1957 and the Rules made thereunder. Being the lessee, the 1st respondent company is bound to comply with all the statutory requirements in terms of the conditions of lease. So far as the petitioners are concerned, though they are not bound by the conditions of lease granted to the 1st respondent company, it is not disputed before this Court that the invoice price included royalty and the petitioners paid the same before taking delivery of the coal purchased by them. Under the impugned notice, the respondents now proposed to collect additional amounts in respect of sale transactions already held towards the deficit royalty. As noticed above, the petitioners are disputing their liability to pay the deficit royalty primarily on the ground that the respondents have no power or authority to make any demand towards deficit royalty since the transactions were already concluded. The claim of the respondent company is also assailed on the ground that the royalty already collected by the respondents on E-auction price of coal is much higher than the basic pit head price of coal. Admittedly there is no privity of contract between the petitioners and the Department of Mines & Geology. It is also not disputed before this Court that the petitioners have paid the invoice amount for the transactions already concluded and that the invoices raised by the respondents included the royalty. It is also the specific case of the petitioners that there is no running account between the petitioners and the respondents and each sale against an invoice is a separate transaction. In the facts and circumstances of the case, the respondents cannot unilaterally conclude that the petitioners are liable to pay the deficit royalty pursuant to the proceedings issued by the Director of Mines & Geology. The 1st respondent company, which is a Government of India Undertaking being an instrumentality of the State, is bound to act in a fair and reasonable manner even while acting under a contract. Therefore, the doctrine of fairness requires providing an opportunity to the petitioners to make their representation before calling upon them to pay the amounts towards the alleged deficit royalty. Such an opportunity is essential since the very power and authority of the respondents to pass on its statutory liability to the petitioners is in dispute. Since the impugned notice dated 1.3.2011 was admittedly issued without providing an opportunity to the petitioners to make their representation against the proposed action, the same being arbitrary and unreasonable, is liable to be set aside on that ground alone. Accordingly, the impugned notice is hereby set aside and the Writ Petition is disposed of leaving it open to the respondents to take appropriate action in accordance with law after giving due opportunity to the petitioners to raise their objections against the proposed action. Writ Petition is accordingly disposed of. No costs. _____________ G. ROHINI, J. Dt. 21.06.2011 gbs