Courts Must Exercise Restraint In Adjudicating Economic Policy Decisions Of Government; Scope Limited To Examining Its Legality: Supreme Court

The Court was hearing appeals filed by Coal India Ltd. and its subsidiaries assailing a judgment of the Calcutta High Court, which had set aside the Interim Coal Policy of 2006 on the ground of arbitrariness and discrimination in the classification of coal consumers.

A Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan, while deciding the matter, observed that “The brightline rule as regards the adjudicating of a policy decision by the Government, especially an economic one, is that the courts must exercise judicial restraint and only consider the legality of the decision-making process in terms of the provisions of the Constitution and relevant statutes. In respect of price fixation of a natural resource, coal in the case on hand, the courts must confine themselves to the question whether the basis adopted for reaching a particular price is reasonable or not.”

Advocate Kedar Nath Tripathy appeared for Coal India Ltd. and its subsidiaries. Advocate Ravi Bharuka appeared for the respondent industries.

Background

The matter arose out of the Interim Coal Policy of 2006, framed by Coal India Ltd. (CIL) and its subsidiaries. Under the policy, coal consumers were classified into different categories, with differential pricing introduced for core and non-core sectors. Certain industries challenged the policy before the Calcutta High Court on the ground that the price fixation was arbitrary, discriminatory, and violative of Article 14.

A Single Judge of the Calcutta High Court and then a Division Bench had set aside the decision to introduce differential pricing as arbitrary, holding that the appellant herein had no authority to frame and notify the Interim Coal Policy and directed reconsideration. Aggrieved, Coal India Ltd. and its subsidiaries approached the Supreme Court.

Court’s Observations

Judicial Review In Economic Policy And Price Fixation

Upon hearing the matter, the Apex Court held that judicial review of economic policy is limited. Citing several precedents, it was held that courts should not interfere with matters of economic regulation unless the policy is patently arbitrary, discriminatory, or violative of constitutional provisions.

While referring to Union of India v. Cynamide India Ltd. (1987) in which it was ruled that “price fixation is neither the function nor the forte of courts and that the courts should not be concerned with pricing policy and rates fixed”, the Bench reaffirmed that price fixation is essentially a domain of the executive and not amenable to judicial review except on grounds of illegality or manifest arbitrariness.

Reiterating that judicial interference in matters of economic policy, particularly those concerning price fixation is not warranted, the Court Observed that “…the matters of economic policy and price fixation are in the domain of executive action and the courts ought not to interfere in such decision-making unless it is shown that such policy does not conform to pre-existing legislative mandate or causes hostile discrimination.”

The Bench also drew upon the principle laid down in the Natural Resources Allocation Reference (2012), holding that while natural resources belong to the people, the State has the authority to regulate and price them in the public interest.

Reaffirming this principle, the Bench held that “This Court in Natural Resources Allocation (supra), observed that the alienation of natural resources is the prerogative of the executive as it involves making intricate economic choices for which the courts do not have the necessary expertise. Therefore, the courts should not endeavour to determine whether an instance of distribution of natural resources is economically or factually reasonable. The domain of the courts is limited to adjudging the reasonability of an economic policy decision to situations when such action is patently unreasonable in terms of the Constitution and/or the statute or regulations that are enacted to guide executive action in that regard.”

Classification Between Core and Non-Core Industries in Coal Pricing

The respondents had also assailed the Interim Coal Policy on the ground that it violated Article 14 by creating a discriminatory classification between core and non-core sector industries. It was contended that coal, being a natural resource, must be supplied equitably and that preferential treatment in pricing and allocation to select industries amounted to hostile discrimination.

The Court, while rejecting this contention, reiterated that economic policies often involve classifications and that such classifications are permissible so long as they rest on a rational basis and have a nexus with the object sought to be achieved. The Court held that the prioritisation of industries such as power and steel in coal pricing was a conscious policy choice aimed at securing larger public interest, and therefore could not be termed arbitrary.

Furthermore, taking note of the absence of any substantive explanation on the argument that linked industries of both sectors should be treated alike, the Bench observed that “The aforesaid submission is not appealing to us for the reason that the respondents have not clarified the modalities of how the linked consumers of the core and non-core sectors can be treated on the same footing. Except for the solitary ground that the notified prices for the two classes of industries have ordinarily remained the same, no other submission was canvassed in this regard.”

Emphasising that the linkage system itself had no constitutional or statutory basis and was purely administrative in nature, the Bench explained, “‘Linkage’ acted only as a clearance to the linked coal company (either the appellant or one of its subsidiaries) to supply coal to a unit, subject to the availability of the commodity as well as regulatory directives given in respect of such unit or linked coal mine”, stressing that linkage vested no enforceable right in any industry to receive a particular quantity of coal, and being a matter of administrative convenience, it was subject to change or withdrawal by the Government.

Relying on its decision in Pallavi Refractories v. Singareni Collieries Co. Ltd. (2005), the Bench Concluded that “On a plain reading of the observations of this Court in Pallavi Refractories (supra), it is limpid that the classification of the consumer base of the appellant company herein, into core and non-core sector industries, was not an instance of treating equals unequally. Therefore, the plea of hostile discrimination by the petitioners therein was of no avail to them.”

Conclusion

Allowing the appeals, the Supreme Court set aside the judgment of the Calcutta High Court Division Bench. It held that the classification and price fixation undertaken by Coal India Ltd. were policy decisions backed by rational basis and public interest considerations, and hence not open to interference.

Cause Title: Coal India Ltd Vs Ms Rahul Industries & Ors (Neutral Citation: 2025 INSC 1103)

Appearances

Appellants: Senior Advocate Chinmoy Pradip Sharma, Advocates Kedar Nath Tripathy AOR, Aditya Narayan Tripathy, Amit Meharia, Tannishtha Singh and others.

Respondents: Advocates Ravi Bharuka, AOR, Aishwarya Bhati, A.S.G, Gp. Capt. Karan Singh Bhati, AOR, Chitrangda Rastravara, Hemendra Sharma and others.

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