Abstract
Any law student or professional interested in mining laws would tell you all about the coal scam decision of the Hon’ble Supreme Court in 2014 and how it changed the legal landscape in India and ushered in much necessary changes. However, dig slightly deeper, and one would realise that the matter is still pending before the SC and periodic orders are still issued by the Hon’ble puisne justices from time to time.
This paper intends to explore the changes made by the Indian legislature as a consequence of the judgement of August 25, 2014, and whether these new laws and amendments serve the purpose or is a legislative tool to circumvent the decision of the court.
History/Background
In the early 1990s, the government decided to allocate such coal blocks to private companies that were not part of the production plans of the two Public Sector Undertakings (“PSU”),namely Coal India limited and Singareni Collieries Company Limited (“SCCL”). Initially, a list of143 coal blocks was prepared, which was later expanded to 216. There were no concrete guidelines for allocation of blocks at the time because coal mining was largely limited to PSUs and many geographic locations were deemed unsuitable for profitable mining. However, fluid guidelines were notified and revised on a regular basis throughout 1993, 1998, and 2003. In 2012, the then-Comptroller and Auditor General (“CAG”) levelledallegations against the government over the allocation of the 216 coal blocks to both public and private firms. The CAG study addressed concerns about arbitrary administrative decisions made while awarding coal blocks that did not follow the specific protocol of competitive bidding. Furthermore, certain politicians were accused of favouring certain private players over others. In addition, thestudy stated that numerous private players received more coal blocks than expected. TheCAG claimed that the exchequer incurred a loss of about Rs. 10.6 lakh crores due to non-adherence to guidelines and to arbitrariness, although the final report presented before the Parliament stated a loss of Rs. 1.86 lakh crore to the exchequer.
In light of the same, Public Interest Litigations were filed byManohar Lal Sharma and Common Cause challenging the allocation of coal blocks from 1993 to 2010 as it was claimed to have inter alia breached theMines and Minerals (Development and Regulation) Act, 1957 (“MMDR Act”) and theCoal Mines (Nationalisation) Act, 1973 (“CMN Act”), along with the entire process being arbitrary, lacking any transparency and objectivity.
The Supreme Court has heard the matter in tranches, and a review of the cause list on the website of the Supreme Court shows that the matter is still pending before the Hon’ble Court as the investigative agencies are still looking into the matter. However, one of the most important days was August 25, 2014, when the Hon’ble Court determined whether the allocation of coal blocks, by the Central Government to private companies between 1993 and 2010, was to be quashed.
The Hon’ble Court heard arguments and looked into the history of the MMDR Act and the CMN Act, and thereafter inter alia determined that (a) the exercise undertaken for allocation of coal blocks could not be traced back to either law; (b) no legislative policy was discernible; and (c) the practice and procedure for allocation of coal blocks through the administrative route wasinconsistent with the laws enacted and the rules made thereunder.
The Hon’ble Court also looked into the procedure adopted by the screening committee to allocate the coal blocks, and not pursue the route of competitive bidding. The Court also noted that the guidelines framed for the initial 21 meetings of the screening committee did not provide for inter se priority between applications made for the same block or any objective criteria for determining the merits of the applicants. Furthermore, there was no application of uniform norms or the adoption of a method for the allocation of blocks based on the end-use project requiring coal. There was also alack of uniform guidelines and applications were not invited through advertisements.
Further, the Hon’ble Court, with respect to the next 9 meetings of the screening committee again noted that there are no objective criteria for selecting applicants, and a policy of pick and choose was adoptedwithout regard to application of any uniform or consistent consideration. Finally, the last few meetings also suffered from similar vices of arbitrariness and failure in following any objective or uniform criteria.
Thus, the Hon’ble Court held that the allocation of all the coal blocks made in the 36 meetings of the screening committee suffered from arbitrariness and were legally flawed, noting the inconsistencies in approving applications, and thus,declared such allocations to be illegal. The government route for allocation of coal mines (i.e. the government dispensation route)was also held to be illegal. However, the coal blocks allocated by competitive bidding for ultra-mega power projects was held to be in consonance with existing laws, and was upheld, subject to such coalnot being permitted for any diversion for commercial exploitation.
Thereafter, on September 24, 2014, theApex Court passed another order with respect to the consequences of the declarations made by its earlier judgement of August 25, 2014.The Court clarified that for certain blocks, the cancellation would be effective from March 31, 2015 only, and that mines (unless exempted) were also required to pay an additional levy of INR 295 per tonne of coal to the government, and this number was arrived at by the assessment of the CAG.
Immediate Reaction of the Government
While there was a lot of political discourse as a result of the cancellation of the 216 coal blocks allotted, the government moved swiftly, introducing theCoal Mines (Special Provisions) Ordinance, 2014 {and thereafter codified as theCoal Mines (Special Provisions) Act, 2015 (“CMSP Act”)}, theCoal Mines (Special Provisions) Rules, 2014 and also accelerated the amendments to the MMDR Act, notification of new rules under the MMDR Act, and amendment of certain existing rules.
The CMSP Act and the rules inter alia provided that thecoal mines cancelled would either be allotted to private and public firms through competitive bidding, and would only be made for specified end-use purposes, orthrough direct allotment to public-sector companies. However, the CMSP Act, provided for something peculiar. The legislations provided that the new allottees would be required to pay certain amounts for obtaining the license, and the same would be used for compensative purposes, mainly – payment of secured creditors of prior allottees whose allocations had been cancelled, also topay compensation to such prior allottees andalso pay to third party contractors who had supplied movable property which was sold.
The methodology for payment of calculation of such compensation was provided further inSection 16 of the CMSP Act read withRule 14 of the CMSP Rules. This was in addition to provisions which permitted for a seamless transition of the coal blocks from the prior allottees to the new allottees, by permitting for continuation of contracts and permits and approvals obtained for operating the mines (theCMSP Act providing for a period of two years for the new allottees to obtain new permits and approvals, including environmental consents).
At this juncture, it would also be relevant to mention that the amendment to the MMDR Act and the new rules and regulations, shifting towards a competitive allocation process for major minerals, does not apply to coal (as clarified inSection 1 of the MMDR Act and in the first few provisions of these newer rules).
What is the Current Status of the Case?
The case has now been pending before the Hon’ble Court for 10 years, with investigation into the wrong doings still being in place. Whilst the special courts are still hearing the specific criminal cases, the Court recently approved the change in the additional judge hearing the same, and alsoordered the Enforcement Directorate to provide an update on the status of the investigation on July 15, 2022.
Auctioning of Coal: The Current Tender Process
The Government has held multiple rounds of action of coal blocks over the last 7 years, with some being more successful than the others, and has allocated certain blocks to PSUs. In case of allotment of the blocks, the Government usually floats a tender inviting response, and also listing the coal mines available for auction. Interested participants are subject to a two-step selection process. In the first round, the technical soundness and financial bids are evaluated, and only a fraction of the applicants are chosen for the second round. In the second round, the short-listed allottees are permitted to auction live on the portal, with the highest bidder is selected. Thereafter, the Central Government is required to approve such selection, and grant a vesting order, and based on the vesting order, the relevant State Government issues the appropriate lease (which could be a reconnaissance permit, a prospective-cum-mining lease (a composite lease), or a mining lease).
Till 2020, the allottees had to evidence their experience in mining, and also evidence the end-use for the coal mined. However, pursuant to theamendment to the CMSP Act in 2020, firms having no prior experience were also permitted to bid for coal mines, and the requirement for having an end-use was retired. The process for commercial mining was permitted for exploitation of coal bed methane, and provided for incentives for the early production and gasification or liquefaction of coal.
For ensuring a successful launch of the commercial coal mining process, and in anticipation of the proposed amendments, the then extant FDI Policy was also amended on September 18, 2019 by way of thePress Note 4 of 2019, whereby 100% FDI under the automatic route was permitted for mining of coal and lignite for captive consumption by power projects, iron, steel and cement units, setting up coal processing plans like washeries, and for sale of coal, coal mining activities, including associated processing infrastructure.
All these amendments were undertaken to permit new players into the market, and also signify to the world that India was loosening its strings for foreign investment in this sector. However, the response was lackadaisical, with no foreign firms participating in the tender process. This was due to a few different reasons, with one of them beingpledges undertaken by some of the world’s biggest coal mining companies that they would stop investing in any new coal projects and shift to cleaner energy sources (often undertaking these pledges due to global investors and significant financial institutions). This is also in line with the Paris Agreement which requires OECD member countries to stop unabated thermal coal use by 2020, China by 2040 and globally by 2050.
Analysis
The compensation aspects enshrined in the CMSP Act and the rules were challenged shortly after the laws came into effect. The Delhi High Court, in the matter ofGVK Power (Goindwal Sahib) Limited v. Union of India looked into the constitutional validity of Section 16 of the CMSP Act and Rule 14 of the CMSP Rules, as being violative of Articles 14, 19 and 300A of the Indian Constitution. The primary argument of the petitioners was that the compensation awarded was inadequate and the new allotees would benefit in detriment to the prior allottees. The Delhi HC observed that the law could not make any provision which would enrich the new allottee at the expense of the prior allottee and the twelve percent simple interest may operate unfairly against the prior allottee vis-à-vis the monies paid by the prior allotee to procure land necessary for undertaking mining activities. These provisions were thus thereafter struck down and the petitioners were ordered to raise individual disputes regarding the quantum of compensation before the tribunal constituted under the CMSP Act.
The Apex Court inPunjab State Power Corporation Limited v. EMTA Coal, (“PSPCL v EMTA Coal”) was asked to interpret Section 11 of the CMSP pertaining to continuation of contracts. The Hon’ble Court noted that Section 11 of the CMSP had given discretionary powers to the new allottee to select whether they would like to continue with existing contracts, and the same would constitute a novation of the residual term and performance, andthere was no question of completing any term or performance if the contract was not to be continued with.
Further, there have been reports of the new allottees circumventing the intent of the CMSP Act and the decision of the Hon’ble Supreme Court. Many firms – public, private, and PSUs,have been sub-contracting the mines to third parties under Mine Developer cum Operators agreements (or MDOs), who actually undertake the coal mining process. The process for sub-contracting by MDO was also observed in PSPCL v. EMTA Coal, but the Hon’ble Court had not looked into the legality of such sub-contracting mechanisms. As these contracts are private arrangements, the commercials are hidden and there is no regulatory oversight on the same. It may be noted that the CMSP Act or the rules are silent on such MDOs, and thus, are not governed. While the law recognises the concept of mining contractors, their role is only limited to actions such as development of the mine and transportation of the coal and not undertaking the “key process” of operating the mine.
Thus, it can be stated that whilst the Government has tried to afford sanctity to the decision of the Hon’ble Court, lacunae exist both statutorily and in enforcement of the law.
About the Author
Ms. Meghmala Mukherjee is an incoming student, BCL, University of Oxford.
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Preferred Method of Citation
Meghmala Mukherjee, “Coal Block Scam: The Legacy Continues” (IJPIEL, 18 July 2022)
<https://ijpiel.com/index.php/2022/07/18/coal-block-scam-the-legacy-continues/>
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