23 October, 2014


Legal News & Analysis – Asia Pacific – India – Dispute Resolution


  • A three judge bench of the Supreme Court (‘SC’) in Manohar Lal Sharma v. The Principal Secretary & Ors. (Writ Petition (CRL.) No. 120 of 2012) examined and addressed a batch of writ petitions challenging the legality and constitutionality of coal block allocations. SC has held that 214 coal block allocations made during the period 1993 to 2010 by the Central Government were illegal and arbitrary, and that the allocation process lacked transparency and objectivity, thereby cancelling all coal block allocations made during this period, except for allocations made for Ultra Mega Power Projects (‘UMPP’) and to Central Government public sector undertakings not having any joint ventures.


The allocation of coal blocks is governed by the provisions of Mines and Minerals (Development and Regulation) Act, 1957, (‘1957 Act’) and Mineral Concession Rules, 1960, (‘1960 Rules’). While the 1960 Rules empowered the concerned State Government to grant or refuse a permit, license or lease in respect of any land in respect of which the minerals vest in the Government. Parliament, by a subsequent enactment i.e. Coal Mines (Nationalisation) Act, 1973, (‘CMN Act’), declared that regulation of mines and development of minerals should, in the public interest, be under the control of the Union, and therefore the power of the State legislature to legislate on the subject covered by 1957 Act, 1960 Rules and CMN Act was excluded.
On inspecting the process of allocation of coal blocks and provisions of the 1957 Act and 1960 Rules, SC held that the 1957 Act provides for persons qualified to carry out coal mining operations and imposes a total embargo on all other persons not meeting the criteria therein from undertaking such activity. Under the 1957 Act, only an undertaking that has a unit engaged in the production of iron and steel, generation of power, washing of coal obtained from mine or production of cement, in addition to the Central Government, a Central Government company or a Central Government corporation, is entitled to the allocation of coal blocks. However, SC found that allottees were not in compliance with the eligibility criteria at the time of allocation.
Even allocations made to the State Government and public sector undertakings, which in many cases formed joint ventures with private companies, were held to be in contravention of the law.


SC held that the exercise undertaken by the Central Government in selecting beneficiaries of coal block allocations was not traceable either to the 1957 Act or to the CMN Act, and no legislative policy on allocation was discernible. The practice and procedure for allocation followed by the Central Government was held to be clearly inconsistent with the extant law.
SC has cancelled all but four allocations on the ground that such allocations were illegal and arbitrary. Where the allocation of coal blocks was based on competitive bidding for the lowest tariff for power for UMPPs, such allocations were not disturbed. However, it directed that diversion of coal for commercial exploitation will be permitted from coal blocks. Further, the coal block allocations of Tasra (to Steel Authority of India Ltd.) and Pakri Barwadih (to National Thermal Power Corporation) were also not cancelled because both beneficiaries were eligible for allocations under the current law.
SC has directed that the cancellation will take effect from March 31, 2015.
v A three judge bench of SC in Oil & Natural Gas Corporation Ltd. v. Western Geco International Ltd. (Civil Appeal No. 3415 of 2007) disposed of a petition under Section 34 of the Arbitration and Conciliation Act, 1996, (‘Arbitration Act’) and in the course of this ruling, attributed a wider meaning to the words “public policy of India” to hold that the award of an arbitration tribunal can be set aside by a court if the award is contrary to the “fundamental policy of Indian Law”, which includes the principles of judicial approach, natural justice and application of mind, and rationality and
reasonableness of judicial decisions.
In determining the jurisdiction of courts to interfere with arbitration awards that were purported to be in conflict with the “public policy of India”, which is a ground recognized under Section 34(2)(b)(ii) of the Arbitration Act, SC referred to a past judgment (ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705) (‘Saw Pipes’) where
SC had held that an award could be set aside if it was contrary to (a) fundamental policy of Indian law, (b) the interest of India, (c) justice or morality, or (d) if it was patently illegal.


Further interpreting the words “fundamental policy of Indian law”, the court held that
the aforesaid must necessarily be understood to include three distinct and fundamental juris tic principles: (i) in every determination whether by a court or other authority that affects the rights of a citizen or leads to any civil consequences, the court or authority concerned is bound to adopt what is in legal parlance called a ‘judicial approach’ in the matter i.e. the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner, and that its decision is not affected by any extraneous consideration; (ii) a court and so also a quasi-judicial authority must, while determining the rights and obligations of parties before it, do so in accordance with the principles of natural justice i.e. hearing both sides and application of its mind, and (iii) a decision that is perverse or so irrational that no reasonable person will have arrived at the same will not be sustained in a court of law.




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