Mines of scam

The Supreme Court’s landmark judgment on coal mines has led to the demand for the withdrawal of illegal allocations to private companies. It is pointed out that they have already made huge profits from their initial investment in the blocks.

Workers loading coal onto a truck at Dhanbad Coal Mines. A file photograph.

in NEW DELHIIN another decisive blow to arbitrary and capricious allocation of natural resources by corrupt governments, the Supreme Court on August 25 declared 194 coal block allocations made between 1993 and 2009 illegal. A three-judge Bench comprising Chief Justice R.M. Lodha, Justice Madan B. Lokur and Justice Kurian Joseph ruled that the route of allocating the coal mines through the screening committee and the government dispensation suffered from the flaw of arbitrariness. The judgment comes in response to public interest litigations (PILs) filed by Advocate Manohar Lal Sharma and Common Cause, a non-governmental organisation. An intervention application filed by advocate and activist Sudip Shrivastava had also pointed out significant irregularities in the functioning of the screening committee mechanism and illegal commercial sale of coal by State public sector units (PSUs).

The coal allocation scam took centre stage in 2012 when a report of the Comptroller and Auditor General of India highlighted the arbitrary and non-transparent allocation of coal mines leading to huge losses to the public exchequer. Former Prime Minister Manmohan Singh held the Portfolio of Coal between 2006 and 2009. This, along with the 2G telecom spectrum allocation scam, became a symbol of the United Progressive Alliance (UPA) government’s promotion of crony capitalism and pandering to private interests in the distribution of precious natural resources. The judgment in Manoharlal Sharma vs Principal Secretary and Ors refers to judgments of the Supreme Court in Centre for Public Interest Litigation vs Union of India & Ors (2012) and Natural Resources Allocation, Special Reference No. 1 of 2012 to contend that allocation of coal blocks was inconsistent with and violative of Article 14 of the Constitution (equality before the law).

The screening committee method was used from 1993 to 2001. In this method, a committee comprising representatives of the Ministries of Coal and Railways and relevant State government and the administrative Ministry concerned (such as the Ministry of Power) and the public sector Coal India considered applications by private companies for coal blocks. From 2001 onwards, allocations were made directly through the screening committee and the Ministry of Coal. The allocations made directly through the Ministry of Coal were referred to as ones made by the government dispensation route.

The Supreme Court observed, “The entire exercise of allocation through Screening Committee route thus appears to suffer from the vice of arbitrariness and not following any objective criteria in determining as to who is to be selected or who is not to be selected. There is no evaluation of merit and no inter se comparison of the applicants. No chart of evaluation was prepared.”

It further held that the commercial mining of coal by State PSUs was in clear violation of the Coal Mines Nationalisation Act, 1973. In an article, Frontline (“For private interests”, February 7) had highlighted how private companies were entering into illegal joint ventures with State government PSUs. The mining operations were taken over by the private entities in these ventures, making substantial gains. A written submission by Sudip Shrivastava, an intervener in the case, had pointed this out. Along with the arbitrary allocation of coal blocks, this phenomenon of illegal commercial mining defeated the purpose of the nationalisation of coal mines for larger public interest by allowing private companies to make substantial benefits through the sale of coal. The purpose of making cheap coal available to end-use power projects was defeated.

The Supreme Court observed, “The Coal Mine Nationalisation Act and further amendments therein carried out in 1976 do not allow State government or State PSUs to mine coal for commercial use. This modus operandi has virtually defeated the legislative policy in the Act and winning and mining of coal mines has resultantly gone to the hands of private companies for commercial use.”

It refuted the contention of the then Attorney General Goolam E. Vahanvati that the allocation of a coal block to individuals or companies does not bestow any rights on them. It also emphasised that the Centre’s letters awarding allocation curtailed the role of the State governments as underlined by the Mines and Minerals (Development and Regulation) Act, 1957, and reduced their role to fulfilling mere formalities. The court observed: “As a matter of fact, the allocation letter by the Central government leaves practically or apparently nothing for the State government to decide save and except to carry out the formality of processing the application and for execution of the lease deed with the beneficiary selected by the Central government.”

It further said: “The practice and procedure for allocation of coal blocks by the Central government through the administrative route is clearly inconsistent with the law already enacted or the rules framed.” Interestingly, the government of Odisha had objected to this procedure of allotment. In its January 24 issue, Frontline (“Vassal States?”) had highlighted this anomaly by analysing the affidavits filed by the respective State governments.

Future of allocations

Though the court declared the allocations of coal blocks illegal, it has not yet clarified what will happen to the allocations made through the procedures it found arbitrary. A hearing posted for September 1 will determine that aspect.

Senior lawyer Prashant Bhushan, who argued for Common Cause, said: “The court has carried out its duty in striking down arbitrary executive action, which is in violation of the provisions of the Constitution. At present, either all the allocations can be cancelled and the coal blocks can be put up for auction again by the government or the coal blocks can be all awarded to the public sector entity Coal India Limited. The only issue for consideration is whether any transition time is required to take away mine materials from the companies, which are already engaged in mining in the coal blocks.”

Bhushan also rejected the contention of sections of the industry that de-allocation of coal blocks will destabilise the economy. He said: “This is the standard response of the apologists for crony capitalism, including those in the financial media. The reality is that a number of coal blocks are lying unexplored because they were allocated to companies that did not have any expertise in mining. A fair and transparent auction of coal blocks will only enrich the public exchequer and serve the larger public interest.”

Advocate Sanjay Parikh, who had argued on behalf of Sudip Shrivastava, is in favour of awarding the coal blocks to Coal India. He said: “According to Article 39 of the Constitution, the government is the custodian of natural resources, and as a trustee it is supposed to facilitate the utilisation of natural resources in the best possible manner in larger public interest and not just to enrich private companies. In my view, the unjust enrichment of private companies who have benefitted from the arbitrary allocations has to be remedied. This can only be done by cancelling the allocations. In order to ensure uninterrupted supply for power plants which are dependent on coal, the best move in this scenario would be to award the coal blocks to Coal India Limited. The companies who were found to be benefitting from capricious allocations should be barred from bidding if there is a new round of auctions.”

Sudip Shrivatsava, who is a lawyer, argued that even mines that have started production should be de-allocated. He highlighted the significant commercial gains made by some of the companies involved, “The companies which were awarded coal blocks illegally have already made significant gains on their investment through the extraction of coal. Therefore, there is no reason to not de-allocate these blocks. For instance, the Gare Palma IV/ 2 and IV/ 3 coal blocks in Chhattisgarh were allocated to Jindal Steel and Power Limited in 2007. According to the government’s own affidavit, the company had an initial investment of Rs.303.84 crore with a production capacity of 5 million tonnes per annum. Even if one makes an estimate using the notified price of F-grade coal sold by Coal India Limited, the company would have made about Rs.2,400 crore through the sale of coal.

The same company had invested Rs.300 crore in Gare Palma IV/1 which has been producing coal since 2002. It would have sold coal worth Rs.3,500 crore. Similarly, Hindalco made an initial investment of Rs.40.62 crore in the Talabira I coal block in Odisha. The coal mine has been producing coal from 2007 with a production capacity of 10 million tonnes per annum. It would have sold coal worth Rs.800 crore. So the argument that the companies are going to suffer if their allocations are cancelled is completely flawed. In the interest of fairness and public interest, all these allocations should be cancelled.”