Analyzing the CoalGate Judgment: Part 1

On 24th September, the allocation to 214 Coal Blocks out of the illegal 218 blocks are cancelled by the Hon'ble Supreme Court here. By the judgment dt. 25th August 2014, it had struck down the allocation process on grounds of (i) illegality and (ii) unconstitutionality. While the illegality part is technical in nature, it is unconstitutionality part that poses serious questions of integrity, ethics, fairness and honesty of the actors involved in the whole process (rather swindle).

The judgment is wrought with a quagmire of dates of meetings of the screening committee, names of the applicant companies involved (whether allotted or not), provisions of the statute involved, but the post attempts to be as brief as possible, and at the same not to lose any major strand of arguments that culminated into the striking down of the whole allocation process.

Part I will discuss the background of the case, relevant provisions and the issues involved. One needs to only gloss over the relevant provisions first, then proceed with reading the Contentions, after that re- read the provisions carefully.

Manohar Lal Sharma v. The Principal Secretary, 2014 (9) SCALE 693

I. Facts of the Case

The present writ petitions were filed in the nature of Public Interest Litigation, challenging the legality and constitutionality of the allocation of coal blocks made by the Central Government for the period 1993 to 2010. The judgment is presently considering the matter w.r.t. quashing the allocation of coal blocks to private companies made by the Central Government between the said period.

II. Relevant Provisions

IIa. Mines and Minerals (Development and Regulation) Act, 1957

The Introduction of the Act states that in the Seventh Schedule of the Constitution in Union List entry 54 provides for Regulation of mines and minerals development to the extent to which such Regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest. On account of this provision it became imperative to have a separate legislation. In order to provide for the Regulation of mines and the development of minerals, the Mines and Minerals (Regulation and Development) Bill was introduced in the Parliament.

Section 2- Declaration as to the expediency of Union Control- It is hereby declared that it is expedient in the public interest that the Union should take under its control the Regulation of mines and the development of minerals to the extent hereinafter provided.

Section 4 mandates that prospecting or mining operations shall be under licence or lease. Sub-section (2) provides that no reconnaissance permit, prospecting licence or mining lease shall be granted otherwise than in accordance with the provisions of the Act and the rules made thereunder.

Section 5 mandates that in respect of any mineral specified in the First Schedule, no reconnaissance permit, prospecting licence or mining lease shall be granted except with the previous approval of the Central Government. Coal and Lignite are at item No. 1 in Part A under the title "Hydro Carbons/Energy Minerals" in the First Schedule appended to the 1957 Act.

Section 10- Application for prospecting licences or mining leases (1) An application for a reconnaissance permit, prospecting licence or mining lease in respect of any land in which the minerals vest in the Government shall be made to the State Government concerned in the prescribed form and shall be accompanied by the prescribed fee.

Section 11- Preferential right of certain persons:

(1) Where a reconnaissance permit or prospecting licence has been granted in respect of any land, the permit holder or the licensee shall have a preferential right for obtaining a prospecting licence or mining lease, as the case may be, in respect of that land over any other person;

Provided that the State Government is satisfied that the permit holder or the licensee, as the case may be…

(2) Subject to the provisions of sub-section (1), where the State Government has not notified in the Official Gazette the area for grant of reconnaissance permit or prospecting licence or mining lease, as the case may be, and two or more persons have applied for a reconnaissance permit, prospecting licence or a mining lease in respect of any land in such area, the applicant whose application was received earlier, shall have the preferential right to be considered for grant of reconnaissance permit, prospecting licence or mining lease, as the case may be, over the applicant whose application was received later:

Section 13 empowers the Central Government to make rules in respect of minerals. By virtue of the power conferred upon the Central Government Under Section 13(2), the 1960 Rules have been framed for regulating the grant of, inter alia, mining leases in respect of minerals and for purposes connected therewith.

Section 19 provides that any prospecting licences and mining leases granted, renewed or acquired in contravention of the 1957 Act or any rules or orders made thereunder shall be void and of no effect.

It is important to note that the legislature inserted by the Mines and Minerals (Development and Regulation) Amendment Act 2010, Section 11A- Procedure in respect of coal or lignite- The Central Government may, for the purpose of granting reconnaissance permit, prospecting licence or mining lease in respect of an area containing coal or lignite, select, through auction by competitive bidding on such terms and conditions as may be prescribed, a company engaged in… and the State Government shall grant such reconnaissance permit, prospecting licence or mining lease in respect of coal or lignite to such company as selected through auction by competitive bidding under this section.

By exercising power u/s 13, the 1960 Rules were framed by the Central Government.

Chapter IV of 1960 Rules deals with grant of mining leases in respect of land in which the minerals vest in the Government.

Sub-rule (1) of Rule 22 provides that an application for the grant of a mining lease in respect of land in which the minerals vest in the Government shall be made to the State Government in Form I through such officer or authority as the State Government may specify in this behalf.

Rule 35 provides that where two or more persons have applied for a reconnaissance permit or a prospecting licence or a mining lease in respect of the same land, the State Government shall, for the purpose of Sub-section (2) of Section 11, consider besides the matters mentioned in Clauses (a) to (d) of Sub-section (3) of Section 11, the end use of the mineral by the applicant.

IIb. Coal Mines (Nationalisation) Act 1973

This Act was enacted to provide for the acquisition and transfer of the right, title and interest of the owners in respect of coal mines specified in the Schedule with a view to reorganizing and reconstructing any such coal mines so as to ensure the rational, coordinated and scientific development and utilisation of coal resources consistent with the growing requirements of the country, in order that the ownership and control of such resources are vested in the State and thereby so distributed as best to subserve the common good, and for matters connected therewith or incidental thereto.

Under the Coal Mines (Nationalisation) Act, 1973, coal mining is exclusively reserved for the public sector, except in case of companies engaged in the production of iron and steel, and mining in isolated small pockets not amenable to economical development and not requiring rail transport.

Section 3(1) provides that on the appointed day (i.e., 01.05.1973) the right, title and interest of the owners in relation to the coal mines specified in the Schedule shall stand transferred to, and shall vest absolutely in the Central Government free from all encumbrances.

Section 1-A was introduced when this Act was amended by Coal Mines (Nationalisation) Amendment Act 1976 by which it was declared that it was expedient in the public interest that the Union should take under its control the Regulation and development of coal mines to the extent provided in Sub-sections (3) and (4) of Section 3 and Sub-section (2) of Section 30 of the CMN Act.

Section 1-A (2)- The declaration contained in Sub-section (1) was to be in addition to and not in derogation of the declaration contained in Section 2 of the 1957 Act.

Section 3 (3) (a)- no person other than:

(i)             Central Government or a Government company or a corporation owned, managed or controlled by the Central Government, or

(ii)           a person to whom a sub-lease, referred to in the proviso to Clause (c) has been granted by any such Government, company or corporation, or

(iii)          a company engaged in the production of iron and steel,

shall carry on coal mining operation, in India in any form.

Section 3 (3) (c)- no lease for winning or mining coal shall be granted in favour of any person other than the Government, company or corporation, referred to in clause (a)…

Later, the CMN Act was further amended in 1993, considering the need to augment power generation and to create additional capacity during the eighth plan, since the Government have taken decision to allow private sector participation in the power sector. Consequently, it had become necessary to provide for coal linkages to power generating units coming up in the private sector. Therefore, in order to allow private sector participation in coal mining for captive use for purpose of power generation as well as for other captive end uses to be notified from time to time and to allow the private sector to set up coal washeries.

Therefore, in Section 3 (3) (a) (iii)- a company engaged in- (1) the production of iron and steel,

(2) generation of power, (3) washing of coal obtained from a mine, or (4) such other end use as the Central Government may, by notification, specify.

By Notifications dt. 15.03.1996 and 12.07.2007, the Central Government specified production of cement and syn-gas obtained through coal gasification (underground and surface) and coal liquefaction to be an end-use for the purposes of the CMN Act.

III. Contentions defending the Allocations

(i) Ld. Attorney General submitted that in light of the power under Entry 54, List I, Schedule 7, sections 1A and 3(3) of the CMN Act and the declaration contained in Section 2 of the 1957 Act, the Central Government is empowered to allocate coal blocks.

(ii) Moreover, after allocation, the allocatee has to make an application for grant of mining lease or prospecting licence to the State Government in accordance with the 1957 Act and the 1960 Rules. It is for these reasons, he submits, that none of the States or any private person ever challenged the grant of allocation by the Central Government on the ground that the Central Government was not empowered to allocate the coal blocks.

(iii) According to the AG, the allocation letter does not by itself confer the right to work mines and the identification of the coal block does not impinge upon the rights of the State Government under the 1957 Act.

(iv) Ld. Counsel Harish Salve, submitted that section 1A(2) of the CMN Act makes the declaration in addition to the existing declaration in Section 2 of the 1957 Act, thus doing away with any vestige of power in the State in the matter of selection of beneficiaries of the mineral.

(v) Further, that the allocation letter issued by the Central Government is the procedure which regulates the exercise Under Rule 22 of the 1960 Rules (and Section 10(3) of the 1957 Act) by the State Government and that procedure is to ensure that a lease is granted to a company engaged in stipulated permissible activities by making it a two step process, viz., the issue of letter of allotment conditional upon the end-use plant, followed by grant of a lease once end usage is achieved.

IV. Contentions against the Allocations

(i) That CMN Act does not, in any way, give the power of calling applications, selection and allocation of coal blocks to the Central Government and Section 3 of the CMN Act only provides eligibility criteria for allocation of coal mines.

(ii) The minutes of the Screening Committee meetings do not show that selection was made after proper assessment. There is no evaluation of merit and no inter se comparison of the applicants. No chart of evaluation was prepared. The determination of the Screening Committee is apparently subjective.