In the previous post, the background, relevant of provisions and the contentions of the Counsels were dealt with. In this part, the judgment of the Court is discussed in six sub- parts or issues.
V. Judgment
Va. Judgment on the issue of Central Government’s Legislative Power to
allocate Coal Blocks
The Court held
that the power in relation to the mines and minerals was accorded to both,
Centre and States. The State Governments in terms of List I Entry 54 and List
II Entry 23 enjoy the power to enact legislation on the topics of “mines and
minerals development”, with the only
fetter imposed on the State Legislatures under Entry 23 is by the latter
part of the said entry which says, “subject
to the provisions of List I with respect to
Regulation and development under the control of the Union”.[1]
Therefore,
the legal regime relating to Regulation of mines and development of minerals
is, thus, guided by the 1957 Act and the 1960 Rules under the power of the
Union. The Court held that in pursuance of the two declarations, i.e., Section
2 of the 1957 Act and Section 1A of the CMN Act, the States have lost their
jurisdiction to legislate to the extent to which the Union had taken over
control, Regulation and development of coal mines.[2]
The Court
held that the purpose of CMN Act is to place an embargo on granting the leases
for winning or mining of coal to persons other than those mentioned in Section
3(3)(a). In other words, with regard to the matters falling under the 1957 Act,
the legal regime in the 1957 Act is made subject to the prescription Under
Section 3(3)(a) and (c) of the CMN Act. For grant of reconnaissance permit,
prospecting licence or mining lease in respect of coal mines, the MMDR regime
has to be mandatorily followed. 1957
Act and so also the 1960 Rules do not provide for allocation of coal blocks nor
they provide any mechanism, mode or manner of such allocation.[3]
The Court further held that the CMN
Act, as amended from time to time, does not have any provision, direct or
indirect, for allocation of coal blocks and there are no rules framed by the Central Government nor is there any
notification issued by it under the CMN Act providing for allocation of coal
blocks by it first and then consideration of an application of such
allottee for grant of prospecting licence or mining lease by the State
Government.[4]
The Court
also held that in its view, the source of power of the Central Government in allocation
of coal blocks is not dependant on the understanding of the State Governments
but it is dependant upon whether such power exists in law or not.[5]
Vb. Judgment on the issue of Right Created
by the Allocation Letter
The Court
held that the allocation letter is not merely an identification exercise as is
sought to be made by the AG, which in its own opinion creates and confers a
very valuable right upon the allottee. According to it, 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.[6]
The Court opined that while it is true that allocation letter by itself does not authorize the allottee to win or mine the coal but nevertheless the allocation letter does confer a very important right upon the allottee to apply for grant of prospecting licence or mining lease.[7]
The allocation of coal block is not simply identification of the coal block or the allocatee but it is in fact selection of beneficiary.[8] The Court rejected the submission of Mr. Salve that the additional declaration Under Section 1A of the CMN Act seeks to do away with any vestige of power in the State in the matter of selection of beneficiaries of the mineral on the ground that had it been so, Rule 35 of the 1960 Rules would not have been amended to provide that where two or more persons have applied for reconnaissance permit or prospecting licence or a mining lease in respect of the same land, the State Government shall, consider the end-use of the mineral by the applicant.
The Court opined that while it is true that allocation letter by itself does not authorize the allottee to win or mine the coal but nevertheless the allocation letter does confer a very important right upon the allottee to apply for grant of prospecting licence or mining lease.[7]
The allocation of coal block is not simply identification of the coal block or the allocatee but it is in fact selection of beneficiary.[8] The Court rejected the submission of Mr. Salve that the additional declaration Under Section 1A of the CMN Act seeks to do away with any vestige of power in the State in the matter of selection of beneficiaries of the mineral on the ground that had it been so, Rule 35 of the 1960 Rules would not have been amended to provide that where two or more persons have applied for reconnaissance permit or prospecting licence or a mining lease in respect of the same land, the State Government shall, consider the end-use of the mineral by the applicant.
The Court alone on the above two issues
could declare that the allocations are bad in law. But treading cautiously, it also
went on to check the Constitutionality of the Allocation process. It is here
that the process of allocation gets murkier and horribly opaque.
Vc. Judgment on the issue as to whether ‘Public
Auction’ is the only Constitutional process.
The Court
while clarifying that the State is duty bound to adopt the method of auction,
was confined to the specific case of spectrum and not for dispensation of all
natural resources, held that there is no constitutional mandate in favour of
auction under Article 14.[9]
It further held that merely because methods other than auction are susceptible
to abuse, such cannot be the basis for striking down the method as ultra vires the Constitution.[10]
Vd. Judgment on the issue as to the Scope
of Court’s interference on the method of distribution adopted.
The Court
held that this Court cannot conduct a comparative study of the various methods
of distribution of natural resources and suggest the most efficacious mode, if
there is one universal efficacious method in the first place and it respects
the mandate and wisdom of the executive for such matters, since they are
matters of economic policy.[11]
It held that it cannot and will not compare which policy is fairer than the
other. However, the Court would interfere when such a policy decision is not
backed by a social or welfare purpose, and precious and scarce natural
resources are alienated for commercial pursuits of profit maximising private
entrepreneurs, adoption of means other than those that are competitive and
maximise revenue may be arbitrary and face the wrath of Article 14 of the
Constitution.
Ve. Judgment on the issue of Constitutionality
of ‘Not using Open Bidding Process’
The
explanation by the Central Government for not adopting the competitive bidding
is that coal is a natural resource used as a raw material in several basic
industries like power generation, iron and steel and cement. The end products
of these basic industries are, in turn, used as inputs in almost all
manufacturing and infrastructure development industries. Therefore, the price of coal occupies a fundamental
place in the growth of the economy and any increase in the input price would
have a cascading effect.
It is
important to note that the Court did not strike the allocations made on the
ground that
“competitive
bidding would have brought in transparency, objectivity and very importantly
given a level playing field to all applicants of coal and lowered the
difference between the market price of coal and the cost of coal for the
allottee by way of premium which would have accrued to the Government.”
The Court held
that
“[it]
cannot conduct a comparative study of various methods of distribution of
natural resources and cannot mandate one method to be followed in all facts and
circumstances, then if the grave situation of shortage of power prevailing
at that time necessitated private participation and the Government felt that it
would have been impractical and unrealistic to allocate coal blocks through
auction and later on in 2004 or so there was serious opposition by many State
Governments to bidding system, and the Government did not pursue competitive
bidding/public auction route, then in our view, the administrative decision
of the Government not to pursue competitive bidding cannot be said to be so
arbitrary or unreasonable warranting judicial interference.”[12]
Vf. Judgment on the issue of
Constitutionality of using Screening Method for Allocation
The Court
categorically stated:
“if
the allocation of subject coal blocks is inconsistent with Article 14 of the
Constitution and the procedure that has been followed in such allocation is
found to be unfair, unreasonable, discriminatory, nontransparent, capricious or
suffers from favoritism or nepotism and violative of the mandate of Article 14
of the Constitution, the consequences of such unconstitutional or illegal
allocation must follow.”[13]
Here, the
Court found that:
(a) the
entire process suffers 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. The determination of the
Screening Committee is apparently subjective as the minutes of the Screening
Committee meetings do not show that selection was made after proper assessment.
(b) By
virtue of the bar contained in Section 3(3) of the CMN Act, between 1976 and
1993, no private company (other than the company engaged in the production of
iron and steel) could have carried out coal mining operations in India.
Section
3(3) of the CMN Act, which was amended on 09.06.1993 permitted private sector
entry in coal mining operations for captive use. The power for grant of captive
coal block is governed by Section 3(3)(a) of the CMN Act, according to which,
only two kind of entities, namely, (a) Central Government or undertakings/corporations
owned by the Central Government; or (b) companies having end-use plants in iron
and steel, power, washing of coal or cement can carry out coal mining
operations.
The prospective engagement by a private
company in the production of steel, power or cement would not entitle such
private company to carry out coal mining operation. Most of the
companies, which have been allocated coal blocks, were not engaged in the production of steel, power or cement at the
time of allocation nor in the applications made by them any disclosure was made
whether or not the power, steel or cement plant was operational. They
only stated that they proposed to set up such plants. Thus, the requirement of
end-use project was not met at the time of allocation.
(c) Moreover,
the recommendation by Screening
Committee of allocating coal blocks to 29 State Government PSUs, while
through the Government dispensation
route, allocation has been recommended for 72 PSUs. The Government
dispensation route is when allocations were made by the Ministry of Coal to the
Government companies. The court held that in light of the provisions of the CMN
Act, as amended in 1976, the State Government or State PSUs are not allowed to
mine coal for commercial use.[14]
(d) Worsening
the situation is when the State PSUs, besides having been allocated coal mines for
commercial purpose, had also been allowed to form joint venture companies,
i.e., 51% shareholding of State PSUs and 49% of private company. However, in
the joint venture agreements between the State PSUs and the private companies,
mining operations have been given to private company, which the Court holds has
“virtually defeated the legislative
policy in the CMN Act and winning and mining of coal mines has resultantly gone
in the hands of private companies for commercial use.”[15]
(e) Many of the companies selected by
the Screening Committee had no
recommendation from the State Government or from the Ministry of Power
and CEA and some of them had no recommendation either from the State Government
or the Ministry of Power and CEA at all. For example, for Durgapur-II/Taraimar,
the selected company Balco had no recommendation at all from the State
Government, Ministry of Power and CEA.[16]
(f) The
Screening Committee did not assess the capacities and coal requirement of the companies,
for instance in 26th meeting, where it decided that detailed
formulation of groups or 'common pool' for allocation of coal/blocks in line
with the dispensation being contemplated in MCL blocks will be worked out by
the Ministry of Coal. The Court held that the expression 'a company' occurring in Section 3(3)(a)(iii) of the CMN
Act does not cover "consortium of companies" or "formulation of
groups" or "common pool". The decision of the Screening
Committee to recommend allocation of coal blocks to consortium of companies or
formulation of groups or common pool is in contravention of Section
3(3)(a)(iii) of the CMN Act.[17]
In
conclusion, the 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.
The
allocation of coal blocks through Government dispensation route, however
laudable the object may be, also is illegal since it is impermissible as per
the scheme of the CMN Act. No State Government or public sector undertakings of
the State Governments are eligible for mining coal for commercial use. Equally,
there is also no question of any consortium/leader/association in allocation.
[1] Monnet Ispat
and Energy Ltd. v. Union of India and Ors. (2012) 11 SCC 1,¶ 130
[2] CoalGate Judgment ¶¶ 50-56; Baijnath
Kadio v. State of Bihar (1969) 3
SCC 838; Hingir-Rampur Coal Co.
Ltd. v. State of Orissa AIR 1961 SC
459; State of Orissa v. M.A.
Tulloch and Co. AIR 1964 SC 1284; Sandur Manganese and Iron Ores Ltd. v. State
of Karnataka (2010) 13 SCC 1,
State of Assam v. Om Prakash Mehta (1973) 1 SCC 584; Monnet Ispat and Energy Ltd. v. Union of India and Ors. (2012) 11 SCC 1,
[9] CoalGate Judgment ¶ 94; Natural Resources Allocation, In Re Special Reference No. 1 of 2012
(2012) 10 SCC 1, ¶¶ 129- 131.
[10] CoalGate Judgment ¶ 95; Natural Resources Allocation, In Re Special Reference No. 1 of 2012
(2012) 10 SCC 1, ¶ 135.
[11] CoalGate Judgment ¶ 96; Natural Resources Allocation, In Re Special Reference No. 1 of 2012
(2012) 10 SCC 1, ¶ 146.
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