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Supreme Court blocks the great coal rush

It is believed that uncertainty over the coal contracts will add to investors' confusion about doing business in India, one of the world's fastest growing economies.

Harish V Nair   New Delhi     Last Updated: August 26, 2014  | 13:55 IST
Supreme Court blocks the great coal rush
(Photo: Reuters)

The Supreme Court on Monday declared as "illegal and arbitrary" 218 coal block allocations between 1993 and 2009, ruling that the Central government of the day adopted a process which lacked transparency in the absence of competitive bidding.

United Progressive Alliance (UPA) governments bore the brunt of the apex court's order as 155 of the blocks nullified were allotted during their tenure, including 134 allocations made when former prime minister Manmohan Singh handled the coal ministry. The remaining 63 allocations were made by the National Democratic Alliance (NDA) during its rule from 1999 to 2004.

"Entire allocation by Screening Committee from 14.07.1993 in 36 meetings and the allocation through the government dispensation route suffers from arbitrariness and legal flaws. Screening Committee has never been consistent, it has not been transparent, there is no proper application of mind, it has acted on no material in many cases, relevant factors have seldom been its guiding factors, there was no transparency and guidelines have seldom guided it," a three-judge bench headed by Chief Justice RM Lodha said in the 163-page judgement that effectively sounded the death knell for the culture of crony capitalism.

ECHOES OF 2G VERDICT

The order is reminiscent of another judgement by the Supreme Court cancelling all 122 2G spectrum licences in February 2012 on grounds of arbitrariness. This time, however, the court stopped short of quashing the coal block allocations, saying, "What should be the consequences after we declared the allocations illegal is the issue which remains to be tackled. We are of the view that, to this limited extent, the matter requires further hearing."

The bench said there will be a further hearing on this matter on September 1. It is learnt that the court may impose heavy penalties on functional coal blocks whose licences are not cancelled.

"On many occasions, guidelines have been honoured more in their breach. There was no objective criteria, no criteria for evaluation of comparative merits. The approach had been casual. There was no fair and transparent procedure, all resulting in unfair distribution of the national wealth. Common good and public interest have, thus, suffered heavily. Hence, the allocation of coal blocks based on the recommendations made in all the 36 meetings of the Screening Committee is illegal," the order said.

The court said that the system was subverted so that largesse could be distributed (see accompanying report). By questioning the preferential allotment and likening it to redistributing natural resources through an opaque backdoor licence-permit raj, the court challenged the very process, observing that the coal nationalisation act doesn't allow any of this.

'EQUAL TO QUASHING'

After the judgment, PIL petitioner and lawyer Prashant Bhushan said the Supreme Court's order virtually amounted to cancellation of most licences as only a minuscule number of the 218 have signed mining leases and begun mining, while a large number of them were still holding allocation letters which now had no legal effect.

It is believed that uncertainty over the coal contracts will add to investors' confusion about doing business in India, one of the world's fastest growing economies.

The court began scrutinising the allocations following PILs filed by Bhushan and lawyer ML Sharma, who sought their cancellation on the ground that rules were flouted and certain companies were favoured in the process.

Significantly, the court said only a firm satisfying the eligibility criteria which has a unit engaged in the production of iron and steel and generation of power or washing of coal obtained from a mine or production of cement is entitled to an allocation. The bench further said coal blocks allocated for power projects would only be used for power production and no diversion of coal for commercial exploitation would be permitted.

Former attorney general GE Vahanvati had pleaded against the de-allocation of coal blocks, saying companies holding letters of allotment deserved to be shown some mercy after investing more than a thousand crore rupees, but the bench had shot back, "They have done it at their own risk, in anticipation, it has gone down the drain why did they do it in contemplation? Investment per se does not create a right in their favour."

TIMELINE OF EVENTS - COAL GATE

>> JULY 1992
The coal ministry orders a screening committee be set up to vet proposals of private power companies for captive mining on first-cum-firstserved basis. Committee guidelines give preference to large projects.

>> JULY 14, 1992
Several coal blocks not in the production plan of CIL and SCCL identified and a list of 143 prepared.

>> 1993 TO 2010

Seventy coal mines and blocks allocated between 1993 and 2005. 216 blocks allocated by 2010. Twenty-four of these taken away at different points in time, effectively reducing the number of allocated blocks to 194.

>> MARCH 2012

Comptroller and Auditor General (CAG), in a draft report, accuses the government of "inefficient" allocation between 2004 and 2009; estimates windfall gains to allottees at Rs 10.7 lakh crore.

>> MAY 29, 2012
Prime Minister Manmohan Singh, who served as coal minister from 2006 to 2009, offers to resign if found guilty in the scam

>> MAY 31, 2012
Central Vigilance Commission (CVC) directs a CBI inquiry, based on a complaint filed by two Bharatiya Janata Party MPs.

>> JUNE 2012
Coal ministry forms an inter-ministerial panel to review the process of allocation and to decide either on de-allocation or forfeiture of bank guarantees. Since then, the government has taken back about 80 coal fields while bank guarantees have been forfeited in 42 cases.

>> AUGUST 2012
CAG's final report, tabled in Parliament, tones down loss estimate to Rs 1.86 lakh crore.

>> AUGUST 27, 2012
PM Singh says CAG flawed, and its observations "clearly disputable"

>> SEPTEMBER 6, 2012
PIL in SC seeks cancellation of 194 coal block allotments, SC begins monitoring CBI probe.

>> MARCH 2013
The apex court asks CBI not to share probe details with government.

>> APRIL 23, 2013
Standing Committee on Coal and Steel, in a report tabled in Parliament, says allocations between 1993 and 2008 made in an unauthorised manner. Says allotment of mines where production has not begun should be cancelled.

>> APRIL 26, 2013
CBI director Ranjit Sinha submits affidavit saying investigation report shared with the then law minister.

>> JULY 2014
SC sets up special CBI court to try coal allocation cases.

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