The Supreme Court on Monday declared allocation of all the 218 coal blocks made since 1993 as “illegal and arbitrary” while also holding that the central government had no power of allocation under the relevant laws.
However, the consequences of this declaration, particularly whether such allocations will be scrapped or not, will be considered on September 1 after further hearing by the court.
In what is bound to overhaul the entire process of mining of the mineral, which the court described as “black diamond” and “extremely important element in the industrial life of developing India”, a three-judge bench ruled that the whimsical and non-transparent procedure of allocation had resulted in “unfair distribution of the national wealth in the hands of few private companies”.
It also said the prevailing practice of the Centre issuing allocation letters after selecting the private companies reversed the legal procedure stipulating that the states should take such decisions.
The bench, led by Chief Justice R M Lodha, said the entire allocation of coal blocks, on recommendations made by the screening committee in 36 meetings and through the government dispensation route, suffered from the “vice of arbitrariness and legal flaws”.
The allocations relate to the period from 1993 to 2011, during the regimes of both the NDA and UPA governments. However, over 190 of these allocations were done during the tenure of the UPA government, which had defended these allocations in January, when the court reserved its order.
The allocations were done on the recommendations of the screening committee, set up in 1992, for scrutinising applications from private power generating companies for ownership and operation of captive coal mines. The second route was through the government dispensation quota, wherein the allocations were made by the Coal Ministry to the government companies.
The bench clarified that it was not for the court to evaluate the advantages of competitive bidding over other methods of disposal of natural resources, but it was surely the court’s duty to examine whether such disbursal did not trample upon constitutional mandates.
While maintaining that the “common good and public interest have suffered heavily”, the bench said the screening committee was not consistent or transparent, and whatever guidelines were framed were not followed. “There was no objective criteria, nay, no criteria for evaluation of comparative merits. The approach had been ad hoc and casual,” it said.
Indicting the authorities for a policy of “pick and choose”, the bench, also comprising Justices Kurian Joseph and Madan B Lokur, said: “No applications were invited through advertisement and thus the exercise of allocation denied a level playing field, healthy competition and equitable treatment. There were no steps or measures taken to prevent possible misuse of end-use project of private companies.”
It also noted that several companies which have been allocated coal blocks were not engaged in the production of steel, power or cement at the time of allocation — a necessary condition to be fulfilled for allocation — but they were still given the blocks. Similarly, though allocation could be done only to individual entities and not to a consortium of companies, coal blocks were allocated to such consortium by tweaking the norms.
The bench termed the allocations through the government dispensation route as “illegal” since it was not permissible as per the Coal Mines (Nationalisation) Act, 1973, according to which no state government or public sector undertakings of the state governments are eligible for mining coal for commercial uses. Yet, such entities were allocated coal blocks.
The court, adjudicating on PILs filed by advocate M L Sharma and NGO Common Cause, also junked the Centre’s argument that it was the appropriate authority empowered to allocate blocks by issuing letters of allocation and that the states could subsequently execute the leases with the selected companies.
It underlined that such a practice was violative of the CMN Act as well as the Mines and Minerals (Development and Regulation) (MMDR) Act and it also rendered the role of the state governments “only mechanical.”
“Though the legal regime under the MMDR Act imposes responsibility and statutory obligation upon the state government to recommend or not to recommend to the central government grant of prospecting licence or mining lease for the coal mines, but once the letter allocating a coal block is issued by the central government,
the statutory role of the state government is reduced to completion of procedural formalities only,” said the bench, adding that the Centre reversed the scheme as stipulated under the law.
It also restrained diversion of coal meant for Ultra Mega Power Projects (UMPPs) for any other purposes of commercial exploitation.