Jurisdiction - India
Reports and Analysis
India – Infrastructure Update.

9 February, 2015

 

 
The SC, by its judgment dated August 25, 2014 in the landmark case of Manohar Lal Sharma v. The Principal Secretary and Others1 , held that the allocation of coal blocks by the Government of India (‘GoI’) to various allocatees from the period 1993 to 2010 was arbitrary and illegal. The two main observations of the SC were:
 
i. As regards the allocation of coal blocks made on the basis of recommendations from the screening committee, the SC held the screening committee’s approach and procedure as being ad-hoc, casual, lacking a proper application of mind and neither consistent nor transparent. The SC also held that the purported guidelines, on the basis of which the screening committee was acting, had been ‘honored more in their breach’ due to the absence of objective criteria for evaluation of applicants on comparative merits; and
 
ii. As regards the allocation of coal blocks made through the government dispensation route (coal blocks allocated to public sector corporations and undertakings), the SC held that the Coal Mines (Nationalization) Act, 1973 clearly provided for eligibility criteria for allocation of coal that stated that State Governments, State Government public sector undertakings and joint ventures between ineligible firms did not fall within such eligibility criteria. These allocations were, therefore, held to be impermissible as per the Coal Mines Nationalization Act, 1973.
 
Upon declaring these allocations to be illegal, the SC, by its order dated September 24, 2014, cancelled allocation of all but four of the coal blocks. Of the four allocations that were not cancelled, two were allocations made to Ultra Mega Power Projects (‘UMPP’) and two were allocations made to GoI’s public sector undertakings not having any joint venture. The cancelled coal blocks included mines where coal production had already begun or where coal production was ready to begin but as regards their cancellation, the SC has held that the same will come into effect from March 31, 2015 so as to (i) give the GoI and Coal India Limited time to adjust to the changed situation and move forward; and (ii) to give adequate time to the allottees of these coal blocks to adjust and manage their affairs.
 
The Coal Mines (Special Provisions) Ordinance, 2014 (the ‘Coal Ordinance’) was promulgated on October 21, 2014 in the wake of the aforementioned SC order dated September 24, 2014. The Coal Mines (Special Provisions) Rules, 2014, to govern the actual process and procedure for auction and allotment of coal blocks in accordance with the Coal Ordinance, were notified on December 11, 2014. The Coal Mines (Special Provisions) Bill, 2014 (the ‘Coal Bill’), which upon enactment would have replaced the Coal Ordinance, had been passed by the Lok Sabha (lower house of the Parliament of India) on December 12, 2014. However, the Coal Bill did not receive the approval of the Rajya Sabha (upper house of the Parliament of India) during the last session of Parliament and lapsed. Thereafter, the Coal Mines (Special Provisions) Second Ordinance, 2014 (the ‘Coal Second Ordinance’) has been promulgated by the President of India on December 26, 2014. The provisions of the Coal Second Ordinance are almost identical to the provisions of the Coal Bill.
 
The Coal Second Ordinance amends the Coal Mines (Nationalization) Act, 1973 and the Mines and Minerals (Development and Regulation) Act, 1957. The Coal Second Ordinance provides for the manner in which cancelled coal blocks will be auctioned and also provides for a mechanism for allotment of coal mines to Government companies or corporations or joint venture government companies (in each of which, non-Government companies should not hold more than 26% of paid up share capital) or to companies that have been awarded a power project on the basis of competitive bids for tariff (including UMPPs). It is pertinent to note that the Coal Ordinance allows auctioning/ allocation of coal blocks not only for the purposes of captive consumption of coal raised but also for sale of coal produced or for any other purpose as may be specified in the relevant permit/ license/ lease by the Central Government. As per the existing regulatory regime (prior to the promulgation of the Coal Second Ordinance), only Government companies were permitted to sell domestic coal in India.
 
End Notes:
 
1 Criminal Writ Petition 120 of 2012 (Supreme Court of India)
 
AZB 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com

Shuva Mandal, AZB & Partners 
shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com

Percy Billimoria, AZB & Partners 
percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

 

AZB & Partners Energy & Project Finance Practice Profile in India

 

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