All coal blocks during last 17 years since 1993 by various regimes at the Centre have been allocated illegally and arbitrarily, the Supreme Court today held, bringing uncertainty to the fate of 218 block allocations and consequential investments to the tune of around Rs 2 lakh crore.
The apex court, which used almost all terms to condemn the procedures adopted by 36 screening committee meetings since 1993, however, stopped short of cancelling them saying "what should be the consequences, is the issue which remains to be tackled."
The court, which examined the allocation of 218 blocks in pre-auction era till 2010, held that they were done in an illegal manner by an "ad-hoc and casual" approach "without application of mind" and "Common good and public interest have, thus, suffered heavily" due to lack of fair and transparent procedure resulting in "unfair distribution" of the "national wealth" -- coal -- "which is king and paramount Lord of industry."
"To sum up, the entire allocation of coal block as per recommendations made by the Screening Committee from July 14, 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," a bench headed by Chief Justice R M Lodha said in its 163-page verdict.
The bench, also comprising justices M B Lokur and Kurian Joseph, said "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," it said.
Holding that allocation of coal block amounts to grant of largesse to companies, the apex court said procedure for allocation by the Central Government through administrative route is "inconsistent with the law already enacted or the rules framed".
The screening committee was constituted to screen proposals for grant of captive mines to private power generation companies and has six members including Additional Secretary of the Coal Ministry who heads it.
The bench, in its judgement, referred to and analysed the meetings of the screening committees since 1993.
It also said "no State Government or public sector undertakings of the State Governments are eligible for mining coal for commercial use".
The bench also clarified that there was no challenge laid before it for cancellation in respect of blocks where competitive bidding was held for the lowest tariff for power for Ultra Mega Power Projects (UMPPs) in accordance with the opinion given in Natural Resources Allocation Reference.
However, it said "having regard to this, it is directed that the coal blocks allocated for UMPP would only be used for UMPP and no diversion of coal for commercial exploitation would be permitted".
"As we have already found that the allocations made, both under the Screening Committee route and the Government dispensation route, are arbitrary and illegal, what should be the consequences, is the issue which remains to be tackled. We are of the view that, to this limited extent, the matter requires further hearing," the bench said.
It said the entire exercise of allocation through Screening Committee route appears to suffer 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. The project preparedness, track record etc., of the applicant company were not objectively kept in view," the bench said.
After the pronouncement, the bench orally said though the Attorney General had given the figures of coal blocks, they were not verified and even the state governments had raised objections.
These issues have to be gone into, the court said while suggesting that a small committee comprising retired Supreme Court judges can be set up to give its report on the issue in the shortest possible time.
It observed that 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 (Coal Mines Nationalisation) Act.
While holding that State Government or its public sector undertakings are not eligible for mining coal for commercial use, the bench said, "Since allocation of coal is permissible only to those categories under Section 3(3) and (4), the joint venture arrangement with ineligible firms is also impermissible."
"Equally, there is also no question of any consortium/ leader/association in allocation. Only an undertaking satisfying the eligibility criteria referred to in Section 3(3) of the CMN Act, viz., which has a unit engaged in the production of iron and steel and generation of power, washing of coal obtained from mine or production of cement, is entitled to the allocation in addition to Central Government, a Central Government company or a Central Government corporation," the bench added.
The bench said, "By way of footnote, it may be clarified and we do, that no challenge was laid before us in respect of blocks where competitive bidding was held for the lowest tariff for power for Ultra Mega Power Projects (UMPPs)".
The bench noted that Common Cause counsel Prashant Bhushan had submitted that since allocation for UMPPs was in accord with the opinion given in Natural Resources Allocation Reference and the benefit of the coal block is passed on to the public, these allocations may not be cancelled.
It accepted the NGOs submission that there should be an order to restrain in some cases in which the Government has allowed diversion of coal from UMPP to other end uses i.E. For commercial exploitation.
"Having regard to this, it is directed that the coal blocks allocated for UMPP would only be used for UMPP and no diversion of coal for commercial exploitation would be permitted," the bench said.
Emhasising the role of coal in industrial development of a country, the bench observed, "It is no exaggeration that coal is regarded by many as the black diamond".
"Industrial greatness has been built up on coal by many countries. In India, coal is the most important indigenous energy resource and remains the dominant fuel for power generation and many industrial applications," the bench said.
"Coal can help significant economic growth. India’s energy future and prosperity are integrally dependant upon mining and using its most abundant, affordable and dependant energy supply – which is coal. Coal is extremely important element in the industrial life of developing India," it said.
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