2014 (8) TMI 1170 - SC - Indian Laws

Coal block allocations from 1993-2010 declared illegal for violating Mines and Minerals Act procedures

Manohar Lal Sharma Versus The Principal Secretary

The SC held that coal block allocations from 1993-2010 were illegal due to non-compliance with mandatory procedures under the Mines and Minerals Act, 1957 ... Allocation of coal blocks for the period 1993 to 2010 - Non-compliance of the mandatory legal procedure under the Mines and Minerals (Development and Regulation) Act, 1957 - Breach of Section 3(3)(a)(iii) of the Coal Mines (Nationalisation) Act, 1973 - Violation of the principle of Trusteeship of natural resources by gifting away precious resources as largesse - Arbitrariness, lack of transparency, lack of objectivity and non-application of mind - Allotment tainted with mala fides and corruption and made in favour of ineligible companies tainted with mala fides and corruption. Held that:- 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. 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 Act. No State Government or public sector undertakings of the State Governments are eligible for mining coal for commercial use. S It is worthwhile to note that the 1957 Act has been amended introducing Section 11-A w.e.f. 13.02.2012. As per the said amendment, the grant of reconnaissance permit or prospecting licence or mining lease in respect of an area containing coal or lignite can be made only through selection through auction by competitive bidding even among the eligible entities Under Section 3(3)(a)(iii), referred to above. However, Government companies, Government corporations or companies or corporations, which have been awarded power projects on the basis of competitive bids for tariff (including Ultra Mega Power Projects) have been exempted of allocation in favour of them is not meant to be through the competitive bidding process. As it is 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. To this limited extent, the matter requires further hearing. Issues Involved:1. Non-compliance with mandatory legal procedures under the Mines and Minerals (Development and Regulation) Act, 1957.2. Breach of Section 3(3)(a)(iii) of the Coal Mines (Nationalisation) Act, 1973.3. Violation of the principle of Trusteeship of natural resources.4. Arbitrariness, lack of transparency, lack of objectivity, and non-application of mind.5. Allotment tainted with mala fides and corruption.Detailed Analysis:1. Non-compliance with mandatory legal procedures under the Mines and Minerals (Development and Regulation) Act, 1957:The Court highlighted that the 1957 Act provides for general restrictions on undertaking prospecting and mining operations, the procedure for obtaining prospecting licenses or mining leases, and the rule-making power for regulating the grant of such licenses and leases. The Court found that the allocation of coal blocks by the Central Government did not adhere to the procedures and mandates of the 1957 Act. It was noted that the Central Government's role is preeminent in the 1957 Act, but this does not give it the authority to act inconsistently with the Act's provisions. The Central Government's allocation process lacked statutory backing and was not in line with the legal regime established by the 1957 Act.2. Breach of Section 3(3)(a)(iii) of the Coal Mines (Nationalisation) Act, 1973:The Court observed that Section 3(3)(a)(iii) of the CMN Act restricts coal mining operations to the Central Government, its companies, and corporations, and companies engaged in specific end-uses like iron and steel production, power generation, and cement production. The Court found that many private companies allocated coal blocks were not engaged in these specified end-uses at the time of allocation, thus violating the CMN Act. Additionally, the Court found that the allocation process allowed State PSUs to mine coal for commercial purposes, which is not permitted under the CMN Act.3. Violation of the principle of Trusteeship of natural resources:The Court emphasized that natural resources are held by the State in trust for the people and must be allocated in a manner that subserves the common good. The Court found that the allocation process did not meet this principle. The process was arbitrary, lacked transparency, and did not ensure that the benefits of coal resources were distributed equitably. The Court noted that the allocation process led to windfall gains for private companies at the expense of the public exchequer.4. Arbitrariness, lack of transparency, lack of objectivity, and non-application of mind:The Court found that the Screening Committee's process for allocating coal blocks was arbitrary and lacked transparency and objectivity. The guidelines for allocation were inconsistent and varied from meeting to meeting. There was no proper evaluation of the merits of the applicants, and the process was subjective. The Screening Committee's decisions were often based on incomplete or incorrect information, and there was no consistent application of criteria for evaluating the applicants. The Court also noted that the allocation process did not involve any competitive bidding, which could have ensured transparency and fairness.5. Allotment tainted with mala fides and corruption:The Court found that the allocation process was tainted with mala fides and corruption. The Screening Committee's recommendations often favored certain companies without any objective basis. The process allowed for the allocation of coal blocks to companies that were not eligible under the CMN Act, and there were instances of misrepresentation and manipulation by the applicants. The Court noted that the allocation process led to significant losses to the public exchequer and benefited a few private companies unfairly.Conclusion:The Court held that the entire allocation of coal blocks from 1993 to 2010 was illegal and unconstitutional. The process was arbitrary, lacked transparency, and violated statutory provisions. The Court directed that the allocations made through the Screening Committee route and the Government dispensation route be quashed. The Court also emphasized that the allocation of coal blocks should be done through a fair, transparent, and competitive process to ensure that the benefits of natural resources are distributed equitably and in the public interest.