Holding

The stock of coal as on 30 April 1972 must be taken into account for determining the amount payable to the owner under s.21(2) of the Coking Coal Mines (Nationalisation) Act, 1971.

Summary

The partnership firm that owned the Tariya coking coal mine had its management taken over by the Central Government in October 1971 under the Emergency Ordinance, later replaced by the Management Act. The Coking Coal Mines (Nationalisation) Act, 1971 extinguished the owners' title effective 1 May 1972 and provided compensation under s.10 and additional amounts for the period of government management under s.21(2). The owner claimed that the stock of coal existing on 30 April 1972 should be credited when calculating the amount payable under s.21(2). The Patna High Court allowed the claim; the government companies appealed. The Supreme Court held that, in the absence of a specific statutory mode, accounts must be prepared according to normal commercial practice, which requires inclusion of stock-in‑trade, and that the statutory statement form expressly mandates taking the stock on 30 April 1972 into account. Consequently, the stock must be considered for determining the compensation, and the appeals were dismissed.

Issues considered

Whether the stock of coking coal existing on 30 April 1972 forms part of the mine for the purpose of compensation under s.21(2) of the Coking Coal Mines (Nationalisation) Act, 1971.
Whether the accounts for the period of government management must include stock‑in‑trade in accordance with normal commercial practice.
Whether the definition of 'mine' in the statutes excludes the stock from the compensation calculation.
Whether the statutory form (Statement 8) requires the inclusion of stock in the balance sheet.

Legislation cited

Coking Coal Mines (Emergency Provisions) Ordinance, 1971
Coking Coal Mines (Nationalisation) Act, 1971s. 10, s. 21(1), s. 21(2), s. 22, s. 4
Coking Coal Mines (Statement of Account) Rules, 1972
Income Tax Act

Subjects

nationalisationcoking coal minescompensationstock‑in‑tradeaccountingstatutory interpretationSection 21(2)balance sheetappointed day

Judgment

618

A

CENTRAL COAL FIELDS LTD. ETC.

v.
B
BHUllANESWAR SINGH & ORS. ..
23rd August, 1984

(P.N. IlHAGWATI, AMARENDRA NATH SEN AND
c RANGANATH MISRA. JJ.]

Coking Coal Mines ~Nationalisation) Act, 197 I-Section 21 (2)-Whether •
value of stock of coking coal on April 30, 1972 should be taking into account for
determining aniount payable to owner under s. 21 (2)-Held: yes.

The management of a coal mine owned by Respondent No. 1, a partner-
D ship firn1, was taken over by the Central Govcrnn1ent with effect from
October 17, 1971 under the Coking Coal Mines (Emergency Provisions) Ordi*
nance of 1971 which was later replaced by a statute. On the passing of the
Coking Coal Mines (Nationalisation) Act, 1971 ('Nationalisation Act' for
short) the right, title and interest of the owner in the mine extinguished and
became vested in the Central Governn1ent with efftct from May 1, 1972.
E Section 21 (2) of the Nationalisation Act provided that in addition to the sum
referred to in sub-s. (1), the Central Government shall pay such a1nount as
may become due to the owner of a coking coal mine---in relation to the
period during which the managetnent of the coking coal mine-- remained
vested in the Central Government. In a writ petition filed before the High
Court it was claimed by the owner that while determining the amount payable
•
to it or recoverable from it in respect of the period when the mine was under
F the management of the Custodian, credit for the value of the stock of coking
coal on April 30, 1972 shown in the account books should have been given to
it. The High Court accepted the claim of the owner. The appel1ants (The •
Government Companies) obt~ined special leave to appeal against the decision
of the High Court.

Dismissing the appeals,
G HELD : The stock of coal had to be taken into account for balancing •
the position. {624HJ
The Nationalisation Act which contemplated the books of account for the
period from October 17, 1971 to April 30, 1972 to be closed and a statement of
account as on Apri I 30, 1972 to be prepared with a view to find out whether the •
Government Company which was in management for the relevant period on
H behalf of the owner was to pay anything to the owner or the Government
COAL FIELDS v. BHUBANBSWAR SINGH (Rangnath Misra, J.) 619

. Company having spent for the owner was entitled to recover any sum
from the owner, also contemplated preparation of a balance-sheet on that date. A
Jn the absence of any particular prescribed mode in the Act or the Coking
Coal Mines (Statement of Account) Rules, 1972 made thereunder, the accounts
and the balance-sheet had to be prepared according to the normal commercial
practice, which necessarily required stock-in-trade to be reflected. [624D-E]

Under the Income-tax Act profits have to be ascertaind for the purposes of B
computing tax liability. For computing true profits the value of the stock-in
trade must be taken into account. [624D] '

Commissioner oflncome-tax-;-Madras v. A. Krishnaswami Mudaliar & Ors.
53 I.T.R. 122 at 130, referred to.

In the instant case, the appellants accepted the position that if the extracted C
coal had been sold before the appointed-day, the owner would have been enti-
tled to the price. The mere fact that the extracted coal remained in stock at
the commencement of the appointed date can make no difference to the
position. [624F-G]

Statement 8 in the prescribed statutory form clearly indicates that the
stock as on April 30, 1972, had to be taken into amount. D

CIVIL APPELLATE JURISDICTION. Civil Appeal Nos.

3374-75 of 1984
E
Appeals by Special leave from the Judgment and Order dated
the 14th. April, 1983 of the Patna High Court in C.W.J.C. No.
1072 of 1982 (R).

L.N. Sinha, A. Sachthey and R.N. Sachthey fo: the Appellant
in C.A. 3374/84.
F
L.N. Sinha, S.C. Malik and M.L. Verma for the Appellant
• in C.A. 3375/84 .
D. Goburdhan for Respondent in C.A.3374 184.
Shanti Bhushan, D.N. Goburdhan and D. Goburdhan for Respon-
.. dent in CA. No. 3375 /84. G
The Judgment of the Court was delivered by

RANGANATH MISRA, J. Special leave granted .
•
Respondent No. I, a partnership firm, held a coking coal mine
known as Tariya Colliery within the State of Bihar the mana~ement If
620 SUPREME COURT REPORTS [1985] ! s.C.R
1
where of was taken over under the Coking Coal Mines (Emergency
A
Provisions) Ordinance of 1971 with effect from October 17,1971,
along with several other coking coal mines and some coke oven
plants. The ordinance was in due course replaced by a statute
bearing the same title (hereinafter referred to as the 'Management •
Act'). Then came the Coking Coal Mines (Nationalisation) Act,
B 1971 ('Nationalisation Act' for short) which received Presidential
assent on August 17, 1982, but under section I, sub-section (2)
there of, the statute was deemed to have come into force with
effect from May !, 1972. Under s. 3; sub-s. (a) of the Nationalisa-
tion Act, May, 1, 1972 was the appointed day .. Under the
provisions of the Ordinance followed by the Management Act,
c ownership of the mines was not disturbed but management was
taken over. Under the Nationalisation Act, the right, title and
interest of the owner in the mines extinguished and became vested •
in the Central Government with effect from May l, 1972. Under the
Management Act, the Custodian carried on the management on
behalf of the owner while under the Nationalisation Act ownership
D was abolished and payment of a sum to the owner by way of
compensation was contemplated. So far as the period between
October 17, 1971 and April 30, 1972 when title in the colliery
continued to vest in the owner but only management had been
taken over under the provisions of the first statute, was concer-
ned, the business was run by the Custodian on account of the
owner. Therefore, the Nationalisation Act provided that upon
accounts being taken, either the owner was to be paid the surplus or
if there had been excess expenditure, the same had to be recovered
from the owner. •
In the instant case there was a stock of 5650 tons of coking
F coal and 602 tons of soft coke when management was taken over on
October 17,1971 and on April 30, 1972 at the end of which ownership •
was extinguished, there was a stock of 30,411 tons of coking coal
and 956 tons of soft coke, A total expenditure of about eight lak
rupees had been incurred for raising the said quantity of coal during
the period of management. This stock was not taken into account
and credit for it was not given to the owner but expenses of extrac-
...
tion amounting to Rs. 7,95,071.94 were raised against the owner.
The owner laid claim to a sum of Rs. 1,01,755.37 as its entitlement
under the Nationalisation Act on the ground that if credit was given •
to the stock in trade on the basis of the closing balance, it would be
ff eqtitled to that amo11n t.
COAL FIELDS v. B!!UBANESWAR siNGH (Rangnath Misra, J.) 621

Claim having been laid for the recovery of the aforesaid
amount from the owner under the Nationalisation Act, that amount A
was certified to be recoverable. The owner Respondent No. 1 challen-
ged the order of the statutory authority by filing a writ petition before
the Patna High Court impleadiug, inter alia, the Central Coal Fields
Ltd. as also M/s. Bharat Coking Coal Ltd. two Government compa-
nies as respondents. The High Court after hearing the parties came to
the conclusion that the owner was entitled to credit for the coal lying B
in stock when the closing balance was drawn up and accordingly
directed the accounts to be recast and payments to be made on the
basis of the recast accounts. Central Coal Fields Ltd. and M/s.
Bharat Coking Coal Ltd. moved this Court under Article 136
of the Constitution separately for leave to appeal against the said
decision of the High Court.
• c
We have heard parties at length and detailed written argu-
ments have been furnished by Mr. Lal Narain Sinha on behalf of
the two appellants. The main plank of Mr. Sinha's argument
against the decision of the High Court is the definition of 'mine'
contained in the two statutes. Admittedly, the definition of 'mine' D
occurring in s. 2 of both the Acts does specifically include all coal in
stock but oevieusly that inclusive definition is for the purpose of either
, take over of management or abolition of right, title and interest for
the purpose of nationalisation. Mr. Shanti Bhushan appearing
for the respondent 1 does not dispute the position that the stock of
coal, at the time when the title was abolished and vesting took place, E
was a part of the mine and that title in the stock got- extinguished
as a result of the nationalisation and vested in the Central
• Government from the appointed day. He concedes that the High
Court was wrong in taking a contrary view.
F
• While there is no dispute that the stock in trade at the
commencement of the appointed day vested in the Central
Govenment as a result of iiationalisation, the question for examina-
tion is whether that stock was liable to be taken into account for the
purpose of determining the amount payable to the owner in respect G
of the period when the mine was under the management of the
Custodian. This necessitates reference to some of the provisions
of the Nationalisation Act and the relevant provisions are
sections 4, 10, 21 and 22. Under section 4 (!), on the appointed
day the right, title and interest of the owner in reJatioµ to the
u
622 SUPREME COURT REPORTS (1985] l S.C.R.

A coking coal mines specified in the First Schedule stood transferred
to, and vested absolutely in the Central Government free from all
encumbrances. Section 10 contemplates that the owner of every
coking coal mine specified in the second column of the First
Schedule, shall be given by the Central Government in cash and
in the manner specified m s. 21, for vesting in it under s. 4,
•
B the right, title and interest of the owner in relation to such coking
coal mine, an amount equal to the amount specified against it in the
corresponding entry in the fifth column of the said Schedule.
Section 21, to which reference has been made in s. 10, makes
provision for payment. The first two sub-sections of this section may
be extracted :
c
"21. (I) The Central Government shall within thirty days
from the specified date. pay, in cash to the •
Commissioner, for payment to the owner of a
coking coal mine ...... a sum equal to the sum
D specified against the coking coal mine ......... in the
First Schedule or the Second Schedule together
•
with the amount and interest, if any, referred to in
s.12".

·'21. (2) In addition to the sum referred to in snb-s. (!),
E
•
the Central Government shall pay, in cash, to the
Commissioner, such amount as may become due
to the owner of a coking coal mine ...... in relation
to· the period during which the management of the
coking coal mine ...... remained vested in the •
Central Government."
F

The present dispute is within the ambit of sub-s. (2) of s. lJ.
Section 22 provides the procedure for the statement of accounts to •
be drawn up in regard to the period of management. Sub-s. (1), so
far as relevant, runs thus :
G
·'22. (!) The Central Government or the Government
company, (the appellants before usJare Government
companies), :as the case may be, shall cause the
boo Ks in relation to each coking coal mine ..... .
the management of which has vested in it under
\he Coking Coal Mines (Emergency Provisions)
H
COAL FIELDS v. BHUBANESWAR SINGH (Ran~nath Misra, J.) 623

Act, 1971, to be closed and balanced as on the A
, 30th day of April, 1972, and shall cause a state-
ment of accounts, as on that day, to be prepared,
within such time, in such from and in such manner
as may be prescribed, in "relation to each such
mine ...... in respect of the transactions effected by B
it during the period for which the management of
such coking coal mine ...... remained vested in
it ... ,,
(underlining ours)

In exercise of the powers conferred by clause (c) of sub-s.12) c
of s.34 of the Nationalisation Act, the Central Government have
• made a set of Rules known as the Coking Coal Mines (Statement
of Account) Rules, 1972. The Rules p rescribe the form in which
the accounts are to be prepared and reference to this form we shall
presently make .
• D
A policy decision to nationalise the coking coal companies
was taken by the Central Government and with a view to facilita-
ting nationalisation, the management was first taken over under
the Management Ordinance followed by the statute with effect
from October 17, 1971. This position continued till the Nationali-
E
sation Act came th to force with effeet from Mayr:' 1972. The
Nationalisation Act contemplated two types of payments to be '·.,
made to the owner-one, a sum of mohey contemplated under s. 10
of the Act for the extinguishment of title, and two-the dues, if any,
• payable in respect of the period of management as contemplated
under s. 21 (2) of the Act and arrived at on the basis of accounts F
prepared in the manner prescribed. The Management Act did not
contemplate any kind of curtailment of the normal incidents of
ownership except the right of management. Very appropriately,
therefore, the Nationalisation Act contemplated the books of
account to be closed and a statement of accounts, as on April 30, G
1972, to be prepared, with a view to determining the final position
for the period of management ;-payment to be made to the owner
if there was a surplus fund and recovery to be made from him in
case of shortfall.
We find force in the submission of Mr. Shanti Bhushao that
the accounting for the period between October 17, 1971 and April
30, 1972, in the absence of any particular prescribed mode in the H
624 SUPREME COURT REP ORTS (1985] l S.C.R.

A
statute or the Rules made thereunder, had to be done according to
the normal commercial practice. Since the statute contemplated
the books to be closed and balanced, a balance sheet according to
the normal commercial practice had to be drawn up. The obser-
vations of this Court in Commissioner of Income tax, Madras v.
A. Krishna Swami Mudaliar & Ors.,(1 ) are worth quoting. Shah, J.
B (as he then was), spoke for the Court thus :

"But whichever method of book-keeping is adopted
in the case of a trading venture, for computing the true
profits of the year the stock-in·trade must be taken
into account. lf the value of stock-in-trade is not taken
c into account, in the ultimate result the profit or loss
resulting from trading is bound to get absorbed or reflec-
ted in the stock-in-trade unless the value of the stock-in-
•
trade remains unchanged at the commencement of the
year and the end of the year."
Under the Inc'ome-tax Act profits have to be ascertained for •
D
the purpose of computing tax liability. Under the Nationalisation
Act the books had to be balanced with .a view to finding out whether
the Government company which was in management for the relevant
period on behalf of the owner was to pay anything to the owner or
the Government company having spent for the owne:r was entitled to
E recover any sum from the owner. Therefore, we ac:cept the submis-
sion of Mr. Shanti Bhushan that the Nationalisation Act contempla-
ted a balance-sheet according. to the commercial procedure to be
drawn up which necessarily required stock in trade to be reflec-
ted.
•
F Admittedly the amount claimed from the , owner represents
the cost of extraction of the coal from the mine. The appel-
lants had conceded before the High Court and Mr. Sinha appearing
for them before us accepted the position that if the extracted coal
had been sold before the appointed day, the owner would have
been entitled to the price. The mere fact that the extracted coal
G remained in stock at the commencement of the appointed date can
make no difference to the position. The expenses were to be set off
against the sale price of the stock to be received at the time of
disposal. Therefore, the stock of coal had to he taken into account
for balancing the position. Reliance on the definition of 'mine'

H (l) 53 I.T.R. 122 at 130.
COAL FIELDS v. BHUBANESWAR SINGH (Rangnath Misra, J.) 625

and S. IO of the Nationalisation Act to counteract this conclusion
A
cannot avail the appellants. Indeed, the submission advanced on
behalf of the appellants is so much opposed to common sense
logic of the matter that in the absence of a legislative mandate we
have no hesitation in rejecting it.

Much of the controversy could have been avoided if reference
had been made to the statutory form. Statement 8 in the prescribed B
form clearly indicates that the .stock as on.April 30, 1972, had to
be· taken into account. We are sorry to observe that the High Court
omitted to make a reference to it: 'and are equally sorry to note that
the Government companies have faile.d. to do their duty as cast on
them by Jaw and driven the owner to unnecessary litigation
•
c
In view of what we have said, there is absolutely no substance
in the stand taken by the appellants before us. Both the appeals fail
• and they ·are dismisse'cl''with costs. Consolidated hearing fee is
assessed at Rs.' 10,000.·
··~
~t~\>
" ~t'\., ~ -,.,
·-'I • .)- - .- ·_I D

H.S.K. ' '
.. Appeal Dismissed.
. /;

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•
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