(In this second, and concluding part, Manish examines the constitutional issues that arose in the Supreme Court’s “Coalgate” judgment)

The main argument advanced on behalf of the petitioners, challenging the allocation, was that the allocations made on the recommendations of the Screening Committee were illegal and ultra vires both the provisions of the 1957 and 1973 Acts, as well as Article 14 of the Constitution. It was argued that the Screening Committee failed to adhere to any consistent criteria while processing the applications, as a result of which coal blocks were allocated even to companies that were not engaged in any of the end-uses notified under section 3 of the 1973 Act. It was alleged, relying on the CAG report,  that some of these companies further sold the coal to government entities that were engaged in the notified end-uses, thus reaping “windfall profits” at the expense of the exchequer.

The Supreme Court accepts this argument after a long and detailed review of the Screening Committee’s work. It is unclear why the court chose to get into the substantive aspect of this argument – having declared that the issuance of allocation letters by the Central Government was in excess of its powers under the 1957 Act as well as the 1973 Act, the entire proceedings could have been quashed on that ground alone. Perhaps, the court was conscious of the fact that there was a major natural resource at stake here and that its order could have large economic impacts (the judgment opens with the lines “Coal is king and paramount Lord of industry”), therefore justifying greater substantive reasoning. As we will see, this consciousness permeates through to the final order as well. The Court merely begins the next part of its reasoning in para 69 with “Assuming that the Central Government has competence to make allocation of coal blocks…”, and then holds that the issuance of the allocation letter amounts to a grant of largesse by the State – thereby subjecting it to judicial review in light of the test of non-arbitrariness, as explained in Ramana Dayaram Shetty v. International Airports Authority and other cases. In para 82, it formulates three questions to be addressed in this regard:

(i) Whether the allocation of coal blocks ought to have been done only by public auction?

(ii) Whether the allocation of coal blocks made on the basis of recommendations of the Screening Committee suffer from any constitutional vice and legal infirmity?

(iii) Whether the allocation of coal blocks made by way of Government dispensation route (Ministry of Coal) is consistent with the constitutional principles and the fundamentals of the equality clause enshrined in the Constitution?

The first question is easily answered in the negative by the Court, relying on its opinion in the 2012 Presidential Reference Re: Natural Resources Allocation as well as earlier cases on the allocation of natural resources by the State. The Court recognises that in order to fulfill the mandate of Article 39(b) of the Constitution (distribution of material resources to serve the common good), auction may not necessarily be the best available method, and this would ordinarily be a matter of executive privilege. In para 105, the Bench observes that despite the fact that competitive bidding would have ensured “transparency, objectivity and very importantly given a level playing field to all applicants…”, it was not the prerogative of the Court to examine or evaluate the various methods available. The court in this respect defers to the Government’s stance that there was a grave shortage of power in the country at that time and hence auctioning, which would have driven prices higher, could not have been the best method to be adopted in the circumstances, holding that “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.”

In respect of the second and third questions, though, the Court is less circumspect:

However, 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, non-transparent, 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.

The Screening Committee constituted by the Central Government held 36 meetings between 1993 and 2010. The Supreme Court goes into a detailed review of each of these meetings (paras 108-149) and points out several infirmities in the procedure adopted by the Committee (para 150). First, there was no objective criteria for the selection of applicants laid down by either the Central Government or by the Committee itself. The court observes that the Committee only laid down vague guidelines at its first meeting which it kept varying subsequently, and blindly relied on the information provided by the applicants without verifying them. Further, the Committee functioned in a wholly non-transparent manner, with no advertisements released inviting applications, and allocations being recommended in favour of parties without considering their requirements, location or capacity, in breach of the Committee’s own guidelines. The norms for inter se priority allocation to two or more equally qualified applicants for the same block were not laid down until 2003, and even then the Court found serious problems with the application of these norms to selected parties. Thus, the entire proceedings of the Screening Committee were found to be tainted with manifest arbitrariness. It should be noted that besides a few passing references, the Court does not really engage with the question of arbitrariness vis-a-vis fairness in respect of grant of largesse or allocation of natural resources by the State. it seems to presume a settled position in this regard and largely focuses on establishing whether the facts at hand supported the petitioners’ position.

A peripheral point was also raised about the allocation of blocks by the Central Government to public sector undertakings (PSUs) run by the States, in furtherance a 2001 circular that permitted state PSUs to engage in coal mining. The Court quashed the circular as being ultra vires the legislative scheme of the 1973 Act which only permitted commercial mining by the Central Government or its companies, or companies engaged in notified end-uses. It held that the allocation of coal blocks to the state PSUs for engaging in commercial mining were also illegal, observing (para 153) that these blocks had, in many cases, been further handed over to private companies through joint ventures, thereby defeating the entire legislative object and scheme of the 1973 Act.

In its conclusion, the Court is scathing in its indictment of the Screening Committee:

To sum up, the entire allocation of coal block as per recommendations made by the Screening Committee from 14.07.1993 in 36 meetings and the allocation through the Government dispensation route suffers from the vice of arbitrariness and legal flaws. 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. On many occasions, guidelines have been honoured more in their breach. There was no objective criteria, nay, no criteria for evaluation of comparative merits. The approach had been ad-hoc and casual. There was no fair and transparent procedure, all resulting in unfair distribution of the national wealth. Common good and public interest have, thus, suffered heavily. Hence, the allocation of coal blocks based on the recommendations made in all the 36 meetings of the Screening Committee is illegal. (emphasis supplied) [para 154]

The allocation having been declared illegal, the next question that arises is to the fate of the coal blocks that have already been allocated. The logical conclusion might be to assume that all these allocations would stand cancelled, or be expressly quashed by the Court as it did in the 2G Spectrum judgment. However, the Court, seemingly conscious of the criticism of its decision in that case, as well as the wide-ranging consequences of cancelling all coal block allocations since 1993 – many of which were made to currently functioning power plants and other infrastructure projects – chooses to tread cautiously, merely stating that “to this limited extent, the matter requires further hearing.” While this manner of splitting the verdict and the consequences seems to be drawn from criminal procedure (where separate hearings are held to determine guilt and sentence), it is seemingly unprecedented in a writ petition. The “further hearing” is scheduled for September 1, and all eyes will be on the Court to see how it deals with the matter.