On 18 March 2008, I, along with my colleague Utpal Bhaskar, wrote the first ever report exposing the gross irregularities in United Progressive Alliance (UPA) government’s coalfield allocation process. The sum and substance of the story was that the screening committee, which was supposed to allocate coal blocks to private firms for captive use, had not followed its own procedures and played favourites with several firms that were undeserving.

What made this error egregious was the fact that the committee had representation from all possible quarters—the coal ministry, the power ministry, officials from the states concerned, and several other coal and mining-related expert organizations.

In our view, ad-hocism and favouritism by a body this plural pointed to a deep rot. But perhaps the most disheartening bit about the expose was the fact that then Prime Minister Manmohan Singh was also in charge of the coal ministry, and regardless of his perceived honesty, massive irregularities were taking place right under his nose. However, Singh enjoyed great public confidence in 2008 and the story received little attention. But, as it turns out, the coal allocation scam is perhaps the biggest of all the scams that were unearthed in Singh’s second tenure between 2009 and 2014. By 2012, reports by the Comptroller and Auditor General (CAG) had raised a lot of red flags.

The verdict of the Supreme Court (SC) on Tuesday vindicated the Mint story. Reiterating what we had stated in 2008, the SC on page 139 of its verdict notes: “Many of the companies selected by the Screening Committee had no recommendation from the State Government or from the ministry of power and CEA (Central Electricity Authority) and some of them had no recommendation either from the State government or the ministry of power and CEA at all." On page 141, the court details the names of the same companies that Mint highlighted to have received out-of-turn contracts and reasserts that the reasons for selecting the said companies, which were dropped during the shortlisting process “are neither disclosed nor discernible".

However, while the Mint story made the limited point that the screening committee did not follow its own procedure, the SC has declared all coalfields allocated between 1993 and 2010 as illegal for a far more fundamental reason. While accepting that the government resorted to ad-hocism, the SC has ruled that the Union government had no legal power to allocate coal blocks to begin with.

On page 32, SC notes: “It shall have been noticed that the thrust of the arguments of the learned Attorney General (representing the Union government) and so also Mr. Harish N. Salve (representing the Sponge Iron Manufacturers Association and Independent Power Producers Association of India) and Mr. K.K. Venugopal (representing the Coal Producers Association) hinges around the premise that sections 1A and 3(3) of the CMN Act, [Coal Mines (Nationalisation) Act, 1973] clothe the Central government with power to allocate the coal blocks or, in other words, select the allottees for coal blocks. Is it so?"… (and on page 39) 1957 Act [Mines and Minerals (Development and Regulation) Act, 1957] and so also the 1960 Rules do not provide for allocation of coal blocks nor they provide any mechanism, mode or manner of such allocation."

A little further on page 41, the SC writes one of the most fascinating bits of the judgement to remove all doubts about the issue. “Indisputably, power to regulate assumes the continued existence of that which is to be regulated and it includes the authority to do all things which are necessary for the doing of that which is authorized including whatever is necessarily incidental to and consequential upon it but the question is, can this incidental power be read to empower the Central government to allocate the coal blocks which is neither contemplated by the CMN Act nor by the 1957 Act? In our opinion, the answer has to be in the negative. It is so because where a statute requires to do a certain thing in a certain way, the thing must be done in that way or not at all. Other methods of performance are necessarily forbidden. This is uncontroverted legal principle."

In short, while the laws of the land allow Union government to regulate the sector, that power cannot be used by the central government to take over the process of allocation.

What made the Union government’s case weaker was the response by the various resource-rich state governments in this regard. “The submission of the learned Attorney General that the 7 States—Maharashtra, Madhya Pradesh, Chhattisgarh, Odisha, Jharkhand, Andhra Pradesh and West Bengal—which have coal deposits, have accepted and acknowledged the source of power of the Central government with regard to allocation of coal blocks is not fully correct."

By the looks of the verdict, it appears that there was a minor revolt by the states against the high-handedness of the central behaviour. “West Bengal has stated that in some cases, they had knowledge of such applications and in some cases the State Government had no such knowledge. Then once allocation letter has been issued by the Central government, virtually no power remains with the State government in objectively considering the application for reconnaissance permit, prospecting licence or mining lease."

Maharashtra said: “...the role of the State Government is limited in the case of coal mines as the discretion to reject once the Central government has issued an allocation letter is virtually non-existent..." Odisha said: “...Once the beneficiary has been identified by the Central government by making the allocation of coal block, there was nothing left out for the State government to decide..."

The SC follows up by asserting that “(i)t must be noted without an iota of hesitation that the process for allocation of coal blocks for captive use has rendered the role of the State government only mechanical…"

There are several issues that this verdict and the one in September, where the SC will decide whether the illegal blocks need to be deallocated or not, will throw up.

The obvious one is about the method of allocating coal blocks. Should India opt for auctions or go for a more nuanced evaluation but with much greater transparency.

However, the verdict raises an equally important question about who has the authority to allocate blocks. And, in that regard, what is the role of the resource-rich states vis-à-vis the Union government.

Policy Puddle runs each Thursday and comments on public policy developments

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