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The Coal Allocation Mess: What Next?

Published on Sat, Aug 30,2014 | 14:32, Updated at Mon, Sep 01 at 21:23Source : CNBC-TV18 |   Watch Video :

Coal is king and paramount lord of industry’ a judgement that starts on such a note promises nothing less than high drama. And the Supreme Court did not disappoint in its landmark judgment this week. Over 163 pages, it has documented how for over 2 decades the central government allocated 218 coal blocks in violation of law, policy and the Constitution. It’s a long list of violations

The Supreme Court found that
-    Contrary to law, the Center gave States no say when selecting companies for coal block allocations.
-    The Screening Committee had no objective criteria for selection nor did it do any evaluation of applicants.
-    Worse still, Screening Committee meeting minutes have no information on why a particular company was allocated a block.
-    The law did not permit allocations to States or State PSUs, joint ventures with ineligible companies or consortiums and yet allocations to such entities were made.
-    In many cases, selected companies were neither recommended by the State government nor by the administrative ministry nor by the CEA. In other cases, recommended companies did not get any allocations.
-    Certain blocks with coal reserves on the higher side were recommended to the companies with lower requirement.
-    And contrary to the law, most companies that were allocated coal blocks, did not have any steel, power or cement plants at the at the time of allocation nor in the applications.

In the Supreme Court’s words  ‘the entire allocation of coal block…suffers from the vice of arbitrariness and legal flaws….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’.

But the hard hitting judgment stopped short of detailing the consequences. It said that final determination requires further hearings. Those hearings will begin next week. Menaka Doshi gets you a preview of the arguments and the possible outcomes.

For Supreme Court advocate Prashant Bhushan, this is the 2nd big victory after the 2G telecom license decision in 2012. In that judgment the Supreme Court cancelled 122 2G telecom licenses found to be illegal. This time the Supreme Court has not ordered a de-allocation of all blocks. At least not yet. But Bhushan says that’s a logical consequence of the illegality.

Prashant Bhushan, Senior Advocate, Supreme Court
(Filed 2nd PIL after ML Sharma PIL)
“These mines or these leases essentially stand de-allocated. The only question for the court to consider now is what would be the transitory provisions, as to how the transition would be made to fresh lessees, how soon do these people have to clear out with their mining equipment or whatever equipment they have.”

Harish Salve, Senior Advocate, Supreme Court
(Counsel, Sponge Iron & Power companies)
“Unless something is brazenly unconstitutional, every illegality or irregularity, every arbitrary action does not necessarily lead the court to invalidate where invalidation of an individual action will be more productive of public mischief or cause public injury greater than public good. That is a well established principle.”

Dushyant Dave, Senior Advocate, Supreme Court
“There are two things. Mr Prashant is right that the natural corollary is that everything having being declared as arbitrary, illegal and unfair if everything must go. So all allocations from 1993 to 2012 cannot really survive in the eye of law. But Mr Salve has a point- the judges have really not expressly said that there is de-allocation which we are ordering. They have proposed to do so. Now many a times judges adopt this kind of an approach in matters because they might want to mould the relief.”

Debashish Mishra, Senior Director, Deloitte India
“If there is a full scale de-allocation, it creates a lot of complication because if you look at it many of the projects are for power plants which are in the hinterland- western Orissa, Chhattisgarh, Jharkhand. So it is not that simple to say that they will replace this coal with imported coal, because the whole coal importing infrastructure is simply not there and the economics will not work out. The boiler designs were for certain kind of coal which was available in India which is not going to be the same if you import the same coal from Indonesia. So apart from the economic considerations there are all these practical aspects where a blanket de-allocation will create problems for the economy.”

Prashant Bhushan, Senior Advocate, Supreme Court
(Filed 2nd PIL after ML Sharma PIL)
“The argument that these people will be unfairly hit etc is a bogus argument. These people have made unfair gains at the cost of the nation, at the cost of the people of this country and they are now crying wolf.”

So it does seem that Mr Bhushan is going to argue in favour of de-allocations. Will he succeed or will the Supreme Court consider other options? For instance regularising those allocations where mines are operational or work on the end use plant has begun and levying a monetary penalty or disgorgement of gains?

Dushyant Dave, Senior Advocate, Supreme Court
“Moulding of relief in exercise of powers under the Article 32 or 226 is an extremely well accepted principle and judges have been doing it in large number of cases. For example, unauthorised constructions and as the judges rightly said impose some kind of penalty and allow people to carry on with their lives. So that is something which the judges have power to do so, judges have done it in the past and judges perhaps would take that approach to my mind because if they become too harsh it would not really be in the larger national interest; although personally I feel that everybody should be de-allocated. But that is a different issue; I don't think the court might take such a view.

Harish Salve, Senior Advocate, Supreme Court
(Counsel, Sponge Iron & Power companies)
“While there is arbitrariness, there may be beneficiaries of arbitrariness; there have been victims of arbitrariness. Some people who have applied for coal had excellent case for grant of coal but were given a fraction of what they needed. Now it will add insult to injury if you cancel even what they have got. Secondly we have to be alive to certain realities. If somebody has been granted a coal mine maybe there was a better competing interest, nobody has raised the issue so far that coal mine has been operationalised, investments have been made, and third party rights have been created. If life has gone ahead it may lead to a completely different set of consequences.”

Any decision to regularise some of the coal block allocations will need the Supreme Court to do a case-by-case scrutiny because it’s not just the 30 operational blocks that might need saving.

Debashish Mishra, Senior Director, Deloitte India
“Probably 30 blocks with 40 million tonnes is operating but what we were expecting in the next 18 to 24 months is the country would have received something like 100-150 million tonnes of coal from these sources of captive coal blocks. So honorable court should probably look at also those cases where the mine has received all the approvals and are about to start production. Also a very important consideration will be what will be the status of their user industry. If the power plant is up and running and having a tapering linkage from Coal India, expecting that this coal will come and that will replace the leakage from Coal India or the steel project or whatever - that also is a big consideration because millions of dollars have been invested in the user industries.”

A case-by-case scrutiny will also be time consuming!

Dushyant Dave, Senior Advocate, Supreme Court
“I won't be surprised if the judges lay down some kind of guidelines and constitute a committee under its direct supervision to go into this and take a final call on each of the applicants. I would be very surprised if the court were to leave it to the government in the circumstances where it has found that successive governments have acted completely illegally in an arbitrary and non-transparent fashion for almost over two and half decades.

Harish Salve, Senior Advocate, Supreme Court
(Counsel, Sponge Iron & Power companies)
“The court would be relieved if the government can have a hard look at this judgment and come up with a proposal of how you can categories different classes of mines- those where there has been arbitrariness but innocent arbitrariness, where Central Bureau of Investigation (CBI) has not found it appropriate to investigate, those where there has been arbitrariness of a kind which is not corrupt but where there has been downstream effect, mines have been activated, it may find that there are cases of arbitrariness where nothing has happened so far, no problem if you cancel it. There are cases where LOAs have been traded, no problem if you cancel it and so on. So if the government can assist the court in a categorization, it might in fact even obviate and if the government is honest and does an honest job it might even obviate the need for a committee.”

Prashant Bhushan, Senior Advocate, Supreme Court
(Filed 2nd PIL after ML Sharma PIL)
“These are not really issues for the court to decide because these are matters for the government to decide. The court has decided what it needed to decide. The only thing left for the court to determine is the people who are already mining there, how soon they have to clear out and whether they would be entitled to take away with them coal that they have already mined till now. To my mind these are the only two issues for the court to decide, thereafter it is for the government to decide what needs to be done. One, whether they need to handover these leases to Coal India immediately for Coal India to resume the mining operations where mining has already started- as I said mining has already started in a miniscule fraction of those who were given these allocations. So one option for the government would be to hand them over to Coal India or some such public sector corporation. Another alternative option would be to immediately auction these leases and then hand them over to the highest bidder and ask the original people that if they want to match the bid of the highest bidder they can, they would be given the right of first refusal otherwise it would be given to the highest bidder.”

There’s no denying that a large scale de-allocation will hurt dozens of companies, hundreds of thousands of investors and the entire economy. But then regularization is also accompanied with moral hazard. We’ll know which way the Supreme Court rules, in the days to come. Unfortunately, in all this, it does seem that successive governments, responsible for these illegal allocations, will escape unhurt.

Dushyant Dave, Senior Advocate, Supreme Court
“That is true and I wouldn't be surprised if the petitioners before the Supreme Court might bring a second action to take action against the concerned government officials and the politicians and frankly I would definitely agree with you that the Supreme Court should not have fallen short of indicting all such officers and ordering CBI investigation and prosecutions because this is a large scale fraud which has been committed on the nation.”

The absolute last word on this is yet to said as there is also a criminal investigation underway by the CBI and the ED.

 
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