Delhi HC Refuses To Quash Case Against Aryan Energy, Says Coal Beneficiation Issue Must Go To Trial

On 1 June, the Delhi High Court refused to quash criminal proceedings against Aryan Energy Pvt Ltd., holding that whether coal beneficiation amounts to “manufacturing” under the Companies Act, 2013 requires evidence and cannot be decided at the stage of quashing.

Justice Neena Bansal Krishna held that the company's claims involve disputed questions of fact that must be decided at trial. She observed:

“In light of the aforesaid discussion, it cannot be said that per se Beneficiation of Coal is not a manufacturing process, thereby, entitling the Petitioner Company to quashing of the Criminal Complaint filed under Section 148 of the Companies Act, 2013.”

The Ministry of Corporate Affairs initiated the proceedings against Aryan Energy, a company engaged in coal beneficiation (washing) for subsidiaries of Coal India Ltd., alleging that it failed to comply with statutory cost audit requirements for 2015–16.

Aryan Energy argued that it only provided coal washing services and did not manufacture or produce coal products, and therefore did not fall within the scope of the Companies (Cost Records and Audit) Rules, 2014.

The Registrar of Companies opposed the petition, submitting that Aryan Energy had declared a product code covering mineral fuels, met the prescribed turnover threshold, and therefore remained liable to appoint a cost auditor. It further contended that coal beneficiation enhances the quality and value of coal and forms part of the coal production chain.

The Court relied on the Supreme Court's rulings in Tata Steel Ltd. v. Union of India and Global Coal and Mining Pvt. Ltd. v. Commissioner of Service Tax, and held that coal beneficiation improves the grade, quality, and marketability of raw coal and may result in a commercially distinct product. It observed that whether Aryan Energy's activity amounts to manufacture requires evidence and cannot be decided in quashing proceedings.

The Bench noted that coal beneficiation involves separation of coal from unwanted geological material based on physical and chemical properties, through wet or dry physical processes or chemical treatment. It further observed that such processing may result in a commercially distinct and more valuable product. It held that coal beneficiation cannot be excluded, at this stage, from the ambit of manufacturing activity.

Accordingly, the High Court dismissed the petition and allowed the prosecution under Section 148 of the Companies Act, 2013 to proceed.