THE STAIN OF COAL BLOCK ALLOCATIONS

The Apex Court pronounced its much awaited verdict on a bunch of public interest petitions on the patent illegalities in the allocation of coal blocks for captive mining, popularly referred to as Coalgate, on August 25, 2014.

The machinations leading to this scam of epic proportions were exposed in a writ petition filed by Common Cause and six distinguished former public servants in October 2012. Our petition, extracted in the January-March 2013 issue of this journal, highlighted the brazenness with which successive Central governments during the period from 1993 to 2010 went about allocating precious reserves of coal to a privileged group of private entities in an arbitrary and opaque manner.

The allocation procedure, adopted on the pretext of meeting the critical needs of the power sector and other infrastructure industries, was in complete disregard of the provisions of the Coal Mines (Nationalisation) Act, 1973 and the Mines & Minerals (Development & Regulation) Act, 1957. This largesse occasioned a staggering loss to the public exchequer. The Comptroller & Auditor General of India has arguably estimated it at Rs. 1.86 trillion. It will be much more difficult to quantify the far graver loss of public confidence in the capacity of the governance system in place to husband the nation's resource endowments in its best interest.

Our petition showed how the Central government scuttled its policy of 2004 vintage to adopt a transparent system of competitive bidding for attribution of captive coal blocks to core industries, and how it proceeded at breakneck speed to allocate them to a motley group of influential rent seekers, many of whom had no real need of coal.

Under the circumstance, the Court was requested to cancel the allocations made during the period from 1993 to 2010, and order a thorough, Court-monitored investigation into the scam by a special investigation team. This course of action became necessary since the suo motu action initiated by the Central government against some of the allottees for violation of the terms of allocation, as well as the investigation being carried out by the Central Bureau of Investigation at the instance of the Central Vigilance Commission did not inspire confidence.

Certain acts of commission and omission intervening during the conduct of investigations by the premier anti-corruption agency came under a close scrutiny of the apex court and afforded it an opportunity to focus its attention on systemic issues of great import, such as the limits of functional autonomy and government control of the CBI and the nature of the CVC's superintendence over it. Of late, the issues of propriety and institutional integrity have taken centre stage and the Court has been called upon to pronounce on the suitability of the Director of the agency to lead the investigation in the criminal cases arising from the illegalities in the allocation of coal blocks.

It is gratifying that the Court readily accepted the contention of the petitioners that the allocation of captive coal blocks by the Central government was in contravention of the relevant statutes. The Court also undertook a judicial review of the entire process of allocation and concluded that the allocations made on the recommendations of the Screening Committee as well as the allocations made through the Government Dispensation Route between 1993 and 2009 suffered from the vice of arbitrariness and violated the constitutional principle of equity. Accordingly, the allocations made during the period under reference have been held to be illegal.

In contrast to the 2G Spectrum allocation case, the Court refrained from ordering a wholesale cancellation of allocations and decided to hold further hearings to determine the consequences flowing from its verdict. At the outset, it was clarified that the coal blocks where competitive bidding was held for the lowest power tariff for Ultra Mega Power Projects (UMPPs) would not be affected, but no diversion of coal for commercial exploitation will be permitted from the blocks allocated for UMPPs.

The tenor of the verdict left little doubt as to the direction of the final outcome. While there was a great deal of breast beating in the industry circles and a sense of alarm in the financial institutions that had taken a heavy exposure in the misadventure, the Central government accepted the inevitability of cancellation of the illegal allocations. However, it tried to minimise the resultant pain by seeking an exemption for 46 allocations, where the appropriate state governments had granted the mining leases, and/or the industrial plants based on the output of the mines were ready to be commissioned.

The denouement came on September 24. The apex court, after hearing the representatives of the affected parties, proceeded to cancel 214 of the 218 allocations to private entities and joint ventures made during the period in question, as these failed to satisfy the test of equity and reasonableness and suffered from the vice of arbitrariness and legal flaws. The Court also imposed a penalty of Rs. 295 per tonne on the coal extracted by the beneficiaries of the illegal allocations with a view to paring the windfall gains made by them. The cancellations take effect after a grace period of six months, which should permit the government to clean up its act and put in place a fair and robust regime of allocation of this vital natural resource.

Some analysts have critiqued the order for not adopting a more nuanced and differentiated approach in view of the economic repercussions, and treating genuine end users and rent seekers alike. It is an unfair reproach, since the Court, which is called upon to examine the constitutionality and legality of government actions, cannot be expected to assume the responsibility for devising a scheme to nullify the noxious consequences flowing from these actions. Admittedly, the Supreme Court order will have an adverse impact on the infrastructure sectors in the immediate term, but the long term benefits accruing from an overdue streamlining of the system of allocation of the nation's natural resources will far outweigh the costs.

We have reasons to hope that these landmark orders will have an enduring impact on the functioning of all the structures of governance across our polity and induce them to put in place robust institutional mechanisms to minimise the possibility of abuse of the discretionary powers vested in them. Only then can the establishment rid itself of the stain of Coalgate and disprove the Hindi adage: ^dks;ys dh nykyh esa gkFk dkys*- A coal-broker cannot avoid blackening his hands.

- Kamal Kant Jaswal

July September 2014