Guest Post: The Supreme Court’s “Coalgate” Judgment – I

(In this two-part series, Manish examines the recent judgment of the Supreme Court in the coal blocks allocation scam, popularly known as “Coalgate”. In the first post, Manish examines the factual background and history of the case, and in the second post, the core constitutional arguments)

On August 25, in M.L. Sharma v. Principal Secretary, the Supreme Court disposed of a group of public interest litigations challenging the allocation of coal blocks by the Government since 1993. The petitioners alleged that the allocation was a scam of epic proportions – popularly known in the media as ‘coalgate’ since news of it broke in 2012 – that had been carried out in violation of statutory norms and involved large-scale corruption, and sought two-fold relief from the court in cancelling the impugned allocations and initiating a criminal investigation against those involved. In Tuesday’s judgment, the Court dealt with the first prayer, declaring all the allocations illegal but stopping short of cancelling them en masse.

The statutory framework surrounding ownership and exploitation of coal resources is complex, and a brief historical perspective is necessary to understand it in full (dealt with in detail in paras 12-41 of the judgment). Coal mining in India has been carried out for over two centuries by private as well as public enterprises. Coal, being a natural resource (like other minerals), is licensed by the government for exploitation under section 4 read with section 10 of the Mines and Minerals (Development and Regulation) Act, 1957 (“1957 Act”) and Rule 22 of the Mineral Concession Rules, 1960 (“1960 Rules”). All private coal mines in the country were nationalised by the Central Government between 1971 and 1973 through a series of legislative and executive measures that culminated in the Coal Mines (Nationalisation) Act, 1973 (“1973 Act”), creating a government monopoly in respect of coal mining. Section 3 of the 1973 Act originally restricted coal mining to the Central Government, companies owned or managed by it, or companies engaged in iron and steel production. This was being carried out by Coal India Limited (CIL), a Government company that was set up in 1975, and its subsidiaries.

After the liberalisation of the Indian economy in 1991, the Planning Commission suggested that private participation in coal mining be permitted for power projects to overcome the electricity crisis in the country. Accordingly, section 3 of the 1973 Act was amended in 1993 to include companies engaged in other notified end-uses of coal, including power generation, cement production and production of gas. Once private players had been allowed into the field again, the question that arose was how to identify and allocate coal blocks (which were till then under the control of CIL) to these private parties. The procedure that was followed involved the Central Government preparing a list (“booklet”) of available coal blocks and inviting applications for mining leases from private parties. These applications were then processed by a Screening Committee that was constituted (and later reconstituted) by an executive order, and the Central Government then issued letters of allocation based on the recommendations of the Screening Committee. This process continued from 1993 till 2010 when the 1957 Act was amended to insert section 11A, providing for allocation of coal blocks by competitive bidding.

Both the power of the Central Government to allocate coal blocks, as well as the procedure therefor, came to be questioned by the petitioners in the instant case. The preliminary argument advanced on behalf of the petitioners was that the Central Government had no power to allocate coal blocks either under the 1957 Act read with the 1960 Rules, or under the 1973 Act. The Court accepts this submission, observing that neither of the Acts provided any procedure for grant or allocation of coal blocks:

First, although the Central Government has pre-eminent role under the 1957 Act (…) but that pre-eminent role does not clothe the Central Government with the power to act in a manner in derogation to or inconsistent with the provisions contained in the 1957 Act. Second, the CMN Act, as amended from time to time, does not have any provision, direct or indirect, for allocation of coal blocks. Third, 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. Fourth, except providing for the persons who could carry out coal mining operations and total embargo on all other persons undertaking such activity, no procedure or mode or manner for winning or mining of coal mines is provided in the CMN Act or the 1960 Rules or by way of any notification. (…) [paras 58-59]

The Court observes that the issuance of an allocation letter to an entity by the Union Government is not merely an exercise in identification, but rather amounts to a selection of a beneficiary and the grant of a right to the allottee. This is significant and based on section 11(1) of the 1957 Act, which reads as follows:

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…

The Court effectively equates the issuance of the allocation letter with that of the issue of a permit, mining lease or license under section 11. There is one crucial factor, however, that plays an important part in the Court’s subsequent determinations. The issue of a mining lease under section 11 of the 1957 Act is carried out by the State Government. The Court observes that since the allocation letter itself were to amount to the grant of a right, then the State Government’s role under section 11 would be reduced to a mere formality. (A number of attempts were made to suggest that this was in violation of the State Government’s executive power, but this was rejected by the court and in any case is not germane to the analysis being attempted here.) The court eventually concludes that:

…the exercise undertaken by the Central Government in allocating the coal blocks or, in other words, the selection of beneficiaries, is not traceable either to the 1957 Act or the CMN Act. No such legislative policy (allocation of coal blocks by the Central Government) is discernible from these two enactments.     [para 65]

(Part II will examine the constitutional issues)