M/s.Associated Cement Companies Limited v. The Chief Engineer/Civil Designs/TNEB & Ors.

For Appellant: Mr. T.R.Andhyarujina, SC for M/s.Sampath Kumar & AssociatesFor Respondents: Mr. P.S.Raman, SC for Mr. N.Muthuswami for RR-1 to 4 Mr. R.Thiagarajan for Mr. G.R.Lakshmanan for R-5JUDGMENTS.J.MUKHOPADHAYA, J.The Chief Engineer, Tamil Nadu State Electricity Board(hereinafter referred to as 'Electricity Board') served the impugnedorder dated 14th July, 2006, on the appellant, M/s.Associated CementCompanies Ltd. (hereinafter referred to as 'ACC') bringing down itsallotment of fly ash from 80% to 40% in Unit-II of Mettur ThermalPower Station (hereinafter referred to as 'MTPS') on the ground thatACC failed to reach its target of lifting 80% of fly ash. Learnedsingle Judge having upheld the order, the present appeal has beenpreferred.

The Ministry of Environment and Forest, Government of India, by its notification dated 14th Sept., 1999, directed all concernsgenerating fly ash, such as coal and lignite based thermal powerplants, to make available fly ash without any cost for atleast10years to manufacturers of ash based products, such as cement, concrete blocks, bricks, etc. Pursuant to the said direction, Electricity Board reached a Memorandum of Understanding (hereinafterreferred to as 'MoU') with ACC on 5th Dec., 2001, as per which 100%fly ash generated has to be collected by ACC and out of the same 20%of the fly ash should be spared for Electricity Board for allottingthe same to other industries. ACC has to pay 80% of the chargestowards water and current consumption since it is allowed only 80%collection. The appellant, pursuant to the MoU, invested more thanRupees Four Crores and put up necessary machinery for collection offly ash. Since then, it continued to collect fly ash, paidproportionate electricity, water and other charges and spared fly ashto others as per the direction of electricity board. After about 4 ½years, the Chief Engineer, Electricity Board, issued the impugnedorder dated 14th July, 2006, bringing down the share of ACC from 80%to 40% in Unit-II of MTPS for the reasons as mentioned above. Stand of Appellant – ACC :

Learned senior counsel for the appellant made the followingsubmissions :-a) The impugned order is violative of terms and conditions ofMoU, as the appellant was promised 80% of the fly ash for a period of9 years.b) The impugned order is a non-speaking order passed in violationof rules of natural justice without notice to the appellant. https://hcservices.ecourts.gov.in/hcservices/ c) The reasons shown in the impugned order that the off-take offly ash by ACC is less than the target is incorrect and not supportedby materials.d) The impugned order is arbitrary, unilateral, passed with malafide motive to accommodate the 5th respondent, M/s.India Cements Ltd.e) The impugned order is hit by principles of promissory estoppeland against the doctrine of legitimate expectation. Case of the respondent before the Court :4. i) The MoU between ACC and Electricity Board is not statutoryand, therefore, breach of MoU is not amenable under writ jurisdiction.ii) ACC's collection of dry fly ash has always been far less thanthat contemplated under the MoU. Owing to non-collection of requiredfly ash, Electricity Board was constrained to make the fly ash intoslurry, which resulted in considerable inconvenience and expenditure, apart from environmental hazard. The average collection of ACC forthe period from October, 2003 to March, 2004, is 45%; ElectricityBoard was constrained to find other takers for collecting the balance35% of the fly ash required to be collected by ACC. ACC hascollected as low as 19% of fly ash in certain months. The averagecollection was only 53% against 80%. ACC even sold a portion of flyash to other companies, which proves that its need is far less thanthe allotted 80%.iii) ACC would be reimbursed the expenditure of operation andmaintenance cost in proportion to the quantity reduced and, thereby, it will not suffer monetarily.iv) The order passed in favour of the 5th respondent, M/s.IndiaCements Ltd., on 14th July, 2006, is to honour the bona fiderequirement of such period and mala fide cannot be alleged.v) There being a civil dispute, it can be determined by a civilcourt of competent jurisdiction; disputed questions of fact cannot bedetermined by this Court under Article 226. Similar stand has been taken by the learned counsel appearing onbehalf of the 5th respondent, M/s.India Cements Ltd.

We have heard the learned counsel for the parties, noticedtheir rival contentions and perused the records. Certain admitted facts :

As per MoU, fly ash collection system was to be installed byACC at their cost, but the machinery will become the property of the Electricity Board and the company will have no right over theelectrical, mechanical and over the civil equipments so installed. https://hcservices.ecourts.gov.in/hcservices/ 100% of the fly ash generated is collected in such system installedby ACC out of which 20% share to be released in favour of the Electricity Board, i.e., to the company, which the Electricity Boardrefers. The relevant portion of the MoU are as follows :-"1) Collection of fly ash system of Unit-II isallotted to M/s.The Associated Cement CompaniesLimited.2) Fly ash collection system to be installed by theallotted cement company at Mettur Thermal PowerStation at their cost will become the property of the Board and company will have no right over allelectrical, mechanical and civil equipments andstructures installed.3) The cement company has to pay the service chargeof fly ash at the rate charged by the Board from timeto time (present rate is Rs.60/= per tonne). Powerand water required during the installation of thesystem will be chargeable basis on prevalentappropriate tariff.4) The cement company should pay security deposit ofrupees FIVE lakhs. The cement company has to depositin advance one month's proceeds of fly ash that willbe issued to them.5) Performance of the cement company in collecting100% of fly ash will be reviewed for a period of oneyear and penalty deemed fit will be imposed for theshort collection of fly ash due to the fault of thecement company after one year of the reviewed period.6) 100% of the fly ash generated should be collectedby the cement company from the allotted unit. Out ofthe above, 20% of fly ash should be spared to TNEBfor allotting the same to other industries. Thecement company has to pay 80% of the charges towardswater and current consumption since they are allottedonly 80% collection. This will come into effect fromthe date of commissioning of the complete system.7) In case the company is not able to life fly ash, the company should give 21 days advance notice toenable Chief Engineer/M.T.P.S. to allot it to others. Two spells of 15 days each in a year will bepermitted on this account. "

In the impugned order dated 14th July, 2006, to bring down theshare of fly ash from 80% to 40%, the Chief Engineer, ElectricityBoard, has shown the following grounds :-a) The off-take of ACC is less than 80%; and https://hcservices.ecourts.gov.in/hcservices/ b) There is demand for dry fly ash from others. Before the Court, apart from the aforesaid grounds, the Electricity Board has taken additional ground that the ElectricityBoard was constrained to make the fly ash into slurry resulting inconsiderable inconvenience and expenditure and environmental hazard, which is not based on documents.

From different communications addressed between ACC and the Electricity Board, the following facts emerge :-i) Electricity Board made low availability of fly ash from the Unit allotted to ACC; andii) Electricity Board allotted fly ash to others more than 20% ofits share, and out of 80% share of ACC.The aforesaid fact could be traced out from the followingdocuments filed on behalf of ACC, which is one of the grounds takenby the appellant.

From the letter of ACC dated 26th Aug., 2004, written by the Senior Vice President of ACC to the Superintending Engineer(Mechanical-II), MTPS, it appears that the availability of fly ashfrom the unit has gone down. ACC was not able to get sufficientquantity of fly ash and, therefore, requested to stop supply toothers till the situation improves. The Manager (Commercial) of ACC,vide letter dated 3rd March, 2005, informed the Chief Engineer, MTPSthat ACC needs more fly ash for cement and, therefore, requested tolift the entire quantity of its share (80%). By another letter dated15th March, 2005, the Manager (Commercial) of ACC informed to the Chief Engineer (Civil Design), Chennai that the fly ash collected in Unit-II of MTPS reduced by 30% due to imported coal having low ash. The Electricity Board was requested to exempt ACC to give fly ash toany other party from its share (80%), other than 20% share of the Electricity Board, from which it is to give others.

Electricity Board allotted the fly ash to other parties, including the 5th respondent, M/s.India Cements Ltd., out of 80% shareof ACC, as evident from Lr. No.SE/MII/MTPS/O&AHS/F.61 ACC/D.2894/03dated 14th Oct., 2003, issued by the Superintending Engineer to the Vice President of ACC, Coimbatore, relevant portion of which reads asfollows :-" ..... ....During September 2003 a total quantity of dry flyash lifted from new silo installed by M/s.ACCL in Unit II is 23,542.240 MT. The details of thecompanies and the split up quantity of dry fly ashissued out of 80% share of M/s.ACCL and out of 20%TNEB share are furnished herewith for information. (Emphasis Supplied) https://hcservices.ecourts.gov.in/hcservices/ Sl.No.Name of CompanyM/s.ACCL share(in M.T)80%TNEB share (inM.T)20%1.M/s.ACCL8,824.390--2.M/s.Grasim971.120--3.M/s.ICL /Dalavoi3,730.210--4.M/s.Visaka1,718.210--5.M/s.ACC (RMC)160.520--6.

The action of the Electricity Board to divert fly ash fromout of the 80% share of ACC was opposed by ACC, which will be evidentfrom ACC's letter dated 30th April, 2005, written to Chief Engineer(Civil Design), Chennai and quoted hereunder :-"THE ASSOCIATED CEMENT COMPANIES LTD., MADUKKARAI CEMENT WORKSMADUKKARAI.II.38FAX NO.OUR REF:MK/LPS/01430.04.05CHIEF ENGINEER-CIVIL DESIGN,III Floor, NPKRR Malligai,800, Anna Salai, Chennai-2.DEAR SIRSUB: FLY ASHThis is further to our letter MK/LPS/264 dated 15.03.05informing the reduced collection of fly ash at MTPS dueto use of imported coal having low ash. The average collection has reduced from more than 850tons per day in the month of January 05 to about 650tons per day. Our requirement of fly ash is going toincrease and we shall be lifting entire collection forour use. Under the circumstances it will not be possiblefor us to spare fly ash for other parties. You aretherefore requested to exempt us from giving fly ashunder free quota of 20%.Thanking youYOURS FAITHFULLYFOR THE ASSOCIATED CEMENT Cos LTD https://hcservices.ecourts.gov.in/hcservices/ (AK SAXENA)VICE PRESIDENT."

The letters of the Vice-President, ACC and the letter of the Manager (Commercial), ACC, dated 24th May, 205 and 1st June, 205 showsthat ACC always requested the Electricity Board to exempt it fromgiving fly ash to other parties from its own share. During the year 2005-2006, ACC lifted 1,41,034 tons of fly ash,i.e., 71.20% of total collection. Less amount was so collected as17,468 tons of fly ash out of the share of ACC was allotted by Electricity Board to others, which constitute 8.8% of the totalcollection. This was also informed by the Vice-President, ACC, videletter dated 13th June, 2006, addressed to the Chief Engineer (CivilDesign), Chennai. The said letter shows that ACC made request toallot the entire 100% collection of fly ash from Unit-II. Theaforesaid facts have not been disputed by the respondents.

A chart prepared by Tamil Nadu Electricity Board, MTPS alsosupports the stand taken by ACC that its share was diverted by Electricity Board to other companies. The chart enclosed for theperiod April, 2005 to June, 2006, is produced hereunder :-ACCL SILOSl.No.MONTHTotalQuantitycollectedfrom Silo(Tonnes)80%(Tonnes)Lifted by SiloCompany (Tonnes)ActualQuantitylifted(Tonnes)Percentage(%)Allotted byTNEB to othercompaniesfrom 80%(Tonnes)PaymentCategoriesQuantity(Tonnes)Percentage (%)REMARKS1Apr-0520315162521450471174892May-051742613940.8132497669143Jun-051403811230.41123380004Jul-051565212521.6122257829625Aug-051531912255.212201805406Sep-05115579245.689817827027Oct-051493811950.4113627658848Nov-0578466276.85102651174159Dec-05153051224491566030882010Jan-061996715973.61294965302415 https://hcservices.ecourts.gov.in/hcservices/ Sl.No.MONTHTotalQuantitycollectedfrom Silo(Tonnes)80%(Tonnes)Lifted by SiloCompany (Tonnes)ActualQuantitylifted(Tonnes)Percentage(%)Allotted byTNEB to othercompaniesfrom 80%(Tonnes)PaymentCategoriesQuantity(Tonnes)Percentage (%)REMARKS11Feb-062272818182.4138236143591912Mar-062302918423.21438862403518Average%719ACCL SILOSl.No.MONTHTotalQuantitycollectedfrom Silo(Tonnes)80%(Tonnes)Lifted by SiloCompany (Tonnes)ActualQuantitylifted Percentage(%)Allotted byTNEB to othercompaniesfrom 80%(Tonnes)PaymentCategoriesQuantity(Tonnes)Percentage (%)REMARKS1Apr-0623116184931572682771122May-06270272162216187605434203Jun-0626082200661786668299912Average%6515The respondent-Electricity Board has not disputed the data shownin the chart, as was prepared by it and produced by the appellant. The aforesaid chart shows that ACC, out of its 80% share, alwaysconsumed more than 65%, but could not consume about 15% as fly ash ofits share was diverted to other companies by the Electricity Board.

A bald allegation has been made by learned senior counselfor the Electricity Board that ACC sold its portion of fly ash to https://hcservices.ecourts.gov.in/hcservices/ other companies. Such allegation is not based on any record. Thedocuments at page Nos.41 and 42 of the typed set, as referred to, arepurchase orders dated 17th May, 2005 and 19th March, 2005, by the 5threspondent, M/s.India Cements Ltd. It has been rightly explainedthat the said documents reflect not any payment for fly ash, buttowards service charge as fly ash is collected by M/s.ACC and as perMoU and direction of the Electricity Board, it is to collect theservice charge at the rate of Rs.60/= per ton. As per agreement, even the 20% fly ash spared for Electricity Board, those who collectit are required to pay the service charge to ACC towards itscollection charges.

In normal course the court do not go into the question offact, but the manner in which the Electricity Board has proceeded, allegation and counter allegation have been made, we only noticed thedocuments to find out the admitted fact. From those documents, thefollowing facts emerge, which has not been disputed by any of theparty. On 22th May, 2006, the 5th respondent, M/s.India Cements Ltd.,requested the Chief Engineer (Civil Design), to allocate fly ash fromMTPS. The said letter reads as follows :-"THE INDIA CEMENTS LIMITEDRegistered Office: 'DHUN BUILDING', 827, ANNA SALAI, CHENNAI-600 002. Phone: 28521526, Fax: 044-28520638/28520702The Chief Engineer (Civil Designs),Tamil Nadu Electricity Board, Chennai. Kind Attn.: Shri. GopalDear Sir, Sub: Allocation of fly ash from Mettur ThermalPower Station (MTPS). As you are aware, we are the largest producer of cementin Tamil Nadu with three plants i.e. Sankarnagar Works, Dalavoi Works and Sankari Works. The total production ofcement of these plants is 2005-06 was 32.54 Lakh Tonnes. Over 90-95% of our production is Portland PozzolonaCement produced by inter grinding clinker with fly ashprocured from Thermal Stations. We have no allocation offly ash from MTPS.We now write to request you to kindly allocate thefollowing from MTPS- 50% of Unit-I- 50% of Unit-IIWe request that 50% allocation of Unit-I and Unit-II maybe made to us, as we are actual users of fly ash with MoU https://hcservices.ecourts.gov.in/hcservices/ for 9 years. Thanking you, Yours faithfully, for THE INDIA CEMENTS LTD.,T.S.RAGHUPATHYSENIOR PRESIDENT."

After the letter aforesaid dated 22nd May, 2005, withoutwaiting for any decision of the Tamil Nadu Electricity Board,M/s.India Cements Ltd., purchased three stamp papers of Rs.50/= eachon 31st May, 2006, for execution of MoU. We have already noticed thatthe MoU between Tamil Nadu Electricity Board and ACC was existingsince 5th Dec., 2001 for a period of nine years. As on May, 2006,there was no allegation made against ACC. As per the MoU,Electricity Board's share was 20% for allocation to other companies, but for reason best known to the respondent-Electricity Board , the Chief Engineer (Civil Design), issued a proceeding “By the Order ofthe Chairman of Electricity Board” for allotting 25% of dry fly ashfrom Unit-I and 25% from Unit-II of MTPS. Therefore, prior to theimpugned order by the aforesaid proceeding, the Electricity Boardallocated 5% excess to its share of 20%. In the said proceeding, itwas ordered to reduce allotment of fly ash of ACC and one M/s.GrasimIndia Ltd., by reducing its share from 80% to 40%. At that time, noallegation was made against ACC, no ground was shown for reducing itshare from 80% to 40% except the ground that the Electricity Boardwanted to allocate 25% fly ash from each unit in favour of the 5threspondent, M/s.India Cements Ltd.

Only after the decision was taken by Electricity Board, nextday, i.e., on 14th July, 2006, the Chief Engineer issued the impugnedorder making certain allegation, for the first time, as evident fromthe letter and quoted hereunder :-"BY RPADTAMIL NADU ELECTRICITY BOARDFromEr.K.GOPAL, M.E., M.I.E.,Chief Engineer/Civil Designs,3rd Floor, NPKRR Maaligai,800, Anna Salai, Chennai-600 002. ToM/s.Associated Cement Companies Ltd, Madukkarai Cement Works,P.O. Madukkarai-641 105. Coimbatore-Dt,Tamilnadu. Lr.No.CE/CD/SE/CD/AEE/FAM/SDM II/F.PDFACS/D.536/dt.14.7.2006. https://hcservices.ecourts.gov.in/hcservices/ Sir, Sub: MTPS-Unit II-PDFACS-M/s.Associated CementCompanies Ltd., Revised allotment Orders – Issued –Regarding. Ref: Lr.No.CE/CD/SE/D&1/E4/A2/F.PDFACS/D.440/dt.22.2.2002.1. M/s.Associated Cement Companies Ltd, had beenissued with orders vide reference cited forinstallation of PDFACS in Unit II of Mettur ThermalPower Station with the provision in the MoU that 80%share of fly ash is allotted to M/s.Associated CementCompanies Ltd.2. As per MOE & F Notification, TNEB has to achieve100% fly ash utilisation. But your off take of fly ashin Unit II of MTPS is less than the target of 80%. Itis pointed out that the demand for the dry fly ash ismore and TNEB is compelled to honour the requirementsof all the needy entrepreneurs in a judicious manner, and as such the allotment already issued toM/s.Associated Cement Companies Ltd., has been revisedfrom 80% to 40% share in Unit II of Mettur ThermalPower Station.3. A committee under the Chairmanship of ChiefEngineer/Mettur Thermal Power Station is formed with arepresentative from M/s.Associated Cement CompaniesLtd., to finalise the operational/Maintenance cost tobe reimbursed to M/s.Associated Cement Companies Ltd.,by the other allottees. In this connection you arerequested to contact the Chief Engineer/Mettur ThermalPower Station.4. Receipt of this letter may be acknowledged. Thanking You, Yours faithfully, CHIEF ENGINEER/CIVIL DESIGNS"

Three days thereafter, a formal letter of allotment wasisued by the Chief Engineer on 17th July, 2006, in favour of the 5threspondent, M/s.India Cements Ltd., gist of which is as follows :-"TAMIL NADU ELECTRICITY BOARDFromEr.K.GOPAL, M.E.,F.I.E.,Chief Engineer/Civil Designs,3rd Floor, NPKRR Maaligai,800, Anna Salai, Chennai-600 002. https://hcservices.ecourts.gov.in/hcservices/ ToM/s,The India Cements Limited, Dhun Building, No.827, Anna Salai, Chennai-600 002. Letter No.CE/CD/SE/CD/AEE-FAM/F.PDFACS/D.538 dated17.07.2006.Sir, Sub: MTPS-Fly Ash Management-Allotment of 25% share of dryfly ash in Unit-I and 25% share in Unit II from the share ofunit allotted companies to M/s.The India Cements Limitedunder service charges payment category – Orders issued. Ref: 1. Your letter dt.22.05.2006 and subsequentcorrespondences. 2. Memorandum of Understanding signed by you on13.7.2006.1. I, acting on behalf of and by the direction of the Chairman/Tamilnadu Electricity Board, accept your request forthe allotment of 25% share of dry fly ash in Unit-I and 25%share in Unit II from the share of unit allotted companies toM/s.The India Cements Limited under service charges paymentcategory as per the terms of Memorandum of Understanding.2. M/s.The India Cements Limited have to reimburse theoperational/maintenance charges incurred by M/s.GrasimIndustries Limited for Unit No.I and to M/s.Associated CementCompanies Limited for Unit No.II. The cost shall be finalizedby TNEB in co-ordination with members from M/s.GrasimIndustries Limited, M/s.Associated Cement Companies Limitedand M/s.The India Cements Limited.3. This order is issued based on the Memorandum of Understanding signed by you with TNEB. A copy of the Memorandum of Understanding is enclosed. As indicated, thevalidity of this allotment is limited to 9 (nine) years fromthe date of allotment order or the validity period of Unitallotted company at MTPS whichever is earlier.4. Receipt of this letter shall be acknowledged. Thanking you, Yours faithfully, CHIEF ENGINEER/CIVIL DESIGNS."

From the aforesaid records and chronological facts, it isclear that there was no allegation against ACC. It is only when the5th respondent requested, with a view to help the said respondent toprovide 50% of fly ash, 25%, each from Unit-I and Unit-II, decisionwas taken to reduce the share of ACC and another and later on whenthe decision was communicated, a ground for reduction was introducedby the Chief Engineer (Civil Design). https://hcservices.ecourts.gov.in/hcservices/

In the case of Shrilekha Vidyarathi (Kumari) - Vs – Stateof U.P. reported in 1991 (1) SCC 212, Supreme Court observed thatnon-arbitrariness is a necessary concomitant of rule of law and is insubstance fair play in action. The Apex Court further held thathowever arbitrary, State action is open to challenge on the ground ofviolation of Article 14 and rule of law. In this regard, it will bedesirable to refer the relevant portion, as quoted hereunder:-"22. .......... However, to the extent, challenge ismade on the ground of violation of Article 14 byalleging that the impugned act is arbitrary, unfairor unreasonable, the fact that the dispute also fallswithin the domain of contractual obligations wouldnot relieve the State of its obligation to complywith the basic requirements of Article 14. To thisextent, the obligation is of a public characterinvariably in every case irrespective of there beingany other right or obligation in addition thereto.

Learned single Judge, though noticed the submission made onbehalf of the respondent-Electricity Board, accepted the same asgospel truth, but failed to notice the rival contention and the basicmaterials on record, which suggests action on the part of the Electricity Board as arbitrary and mala fide in law. For the reason aforesaid, we set aside the impugned judgmentdated 19th April, 2007, passed by learned single Judge, as also theimpugned order dated 14th July, 2006, with direction to the Electricity Board and its authorities to allow the appellant, M/s.ACCto collect its 80% of share of fly ash from Unit-II at MTPS in termswith the MoU dated 5th Dec., 2001.

So far as the 5th respondent, M/s.India Cements Ltd., isconcerned, we are not expressing any opinion with regard to itsallotment from Unit-I nor making any observation whether out of 20%quota of Electricity Board it could allot any share in favour of thesaid respondent.