2014 (9) TMI 992 - SC - Indian Laws

Allotment of coal blocks made by the Screening Committee of the Government of India - whether the allotments made through the Government dispensation route are arbitrary and illegal? - Held that - As far as the first category of coal block allotments is concerned, they must be cancelled (except those mentioned in the judgment). There is no reason to save them from cancellation. The allocations are illegal and arbitrary; the allottees have not yet entered into any mining lease and they have not yet commenced production. Whether they are 95% ready or 92% ready or 90% ready for production (as argued by some learned counsel) is wholly irrelevant. Their allocation was illegal and arbitrary, as already held, and therefore we quash all these allotments. The allocation of the Pakri Barwadih coal block (allotted to National Thermal Power Corporation (NTPC), being a Central Government public sector undertaking not having any joint venture) is not liable to be cancelled. Except the above two allocations made to the UMPP and the two allocations made to the Central Government public sector undertaking not having any joint venture mentioned above, all other allocations mentioned in Annexure 1 and Annexure 2 are cancelled. In view of the submissions made, although we have quashed the allotment of 42 out of these 46 coal blocks, we make it clear that the cancellation will take effect only after six months from today, which is with effect from 31st March, 2015. This period of six months is being given since the learned Attorney General submitted that the Central Government and CIL would need some time to adjust to the changed situation and move forward. This period will also give adequate time to the coal block allottees to adjust and manage their affairs. That the CIL is inefficient and incapable of accepting the challenge, as submitted by learned counsel, is not an issue at all. The Central Government is confident, as submitted by the learned Attorney General, that the CIL can fill the void and take things forward. In addition to the request for deferment of cancellation, we also accept the submission of the learned Attorney General that the allottees of the coal blocks other than those covered by the judgment and the four coal blocks covered by this order must pay an amount of ₹ 295/- per metric ton of coal extracted as an additional levy. This compensatory amount is based on the assessment made by the CAG. It may well be that the cost of extraction of coal from an underground mine has not been taken into consideration by the CAG, but in matters of this nature it is difficult to arrive at any mathematically acceptable figure quantifying the loss sustained. The estimated loss of ₹ 295/- per metric ton of coal is, therefore, accepted for the purposes of these cases. The compensatory payment on this basis should be made within a period of three months and in any case on or before 31st December, 2014. The coal extracted hereafter till 31st March, 2015 will also attract the additional levy of ₹ 295/- per metric ton. It is made clear that the scrutiny by the CBI in respect of the allotment of 12 coal blocks out of 46 identified by the learned Attorney General (and for that matter against any other allottee) will continue and be taken to its logical conclusion

Summary

Issues Involved:
1. Legality of coal block allotments by the Screening Committee and Government dispensation route.
2. Consequences of the declaration of illegality in coal block allotments.
3. Economic and social impact of coal block cancellations.
4. Applicability of the principles of natural justice.
5. Additional levy on coal extracted from the allotted blocks.

Detailed Analysis:

1. Legality of Coal Block Allotments:
The judgment declared that the allotment of coal blocks by the Screening Committee and through the Government dispensation route was "arbitrary and illegal." It was noted that the allocations did not comply with the Coal Mines (Nationalization) Act (CMN Act), which restricts coal mining to specific categories, including Central Government entities and companies engaged in iron, steel, power, or cement production. The introduction of Section 11-A in the Mines and Minerals (Development and Regulation) Act, 1957, mandated competitive bidding for coal block allocation, further invalidating the previous allotments.

2. Consequences of the Declaration of Illegality:
The judgment left open the question of the consequences of the declaration of illegality for further hearing. The Union of India proposed two options: cancel all allotments except those mentioned in the judgment or allow continued extraction from 46 coal blocks under certain conditions. The Attorney General suggested that Coal India Limited (CIL) could take over these blocks to ensure continued coal production. Additionally, an additional levy of Rs. 295 per metric ton of coal extracted was proposed, based on the Comptroller and Auditor General's (CAG) report on financial loss.

3. Economic and Social Impact:
Senior Advocate Mr. Venugopal argued that cancellation of coal blocks would have severe economic repercussions, including power outages, loss of employment, and significant financial losses for banks and public sector corporations. It was also highlighted that the allottees had invested heavily in infrastructure and social development in the coal block areas. The potential delay in the auction and operationalization of new coal blocks was estimated to set back coal production by 7-8 years.

4. Applicability of the Principles of Natural Justice:
The contention was raised that the allottees were entitled to a hearing before cancellation of their coal blocks. However, the judgment noted that associations representing the allottees had been heard during the proceedings, fulfilling the principles of natural justice. The Court rejected the proposal to appoint a committee to examine individual allotments, emphasizing that the judgment addressed the flawed process of allotment, not individual cases.

5. Additional Levy on Coal Extracted:
The Court accepted the Attorney General's proposal for an additional levy of Rs. 295 per metric ton of coal extracted, based on the CAG's assessment. This levy was deemed compensatory for the financial loss caused by the illegal allotments. The allottees were directed to pay this levy within three months, with the coal extracted until 31st March 2015 also subject to the levy.

Final Orders:
- All coal block allotments, except those mentioned in the judgment, were cancelled.
- The cancellation of 42 out of 46 coal blocks would take effect from 31st March 2015, giving CIL and allottees time to adjust.
- The additional levy of Rs. 295 per metric ton was to be paid by 31st December 2014.
- The CBI's scrutiny of certain allotments would continue independently of the judgment.

The judgment emphasized corrective measures to prevent future arbitrary allocations and ensure fair utilization of natural resources.