Author: Mansi R. Jadhav, Shahaji Law College, Kolhapur
CITATION: (2014) 9 SCC 516
BENCH: Madan B. Lokur, R.M. Lodha
PETITION: Public Interest Litigation
JUDGEMENT: 25th August, 2014
INTRODUCTION
The judgment of Manohar Lal Sharma v. Principal Secretary & Others, (2014) 9 SCC 516, delivered on 25th August 2014 by the Hon’ble Supreme Court of India, stands as a significant ruling concerning the improper allocation of managing natural resources and ensuring the executive acts responsibly.
This matter arose from Public Interest Litigations (PILs) filed by Advocate Manohar Lal Sharma and Common Cause, questioning the legality of coal block allocations made by the Central Government between 1993 and 2011.
The petitioners alleged that the allocation process was completely arbitrary, lacked transparency, and violated constitutional and statutory provisions. This controversy gained national attention following the 2012 report of the Comptroller and Auditor General (CAG) of India, which pointed out substantial financial loss to the public exchequer due to the non-auction-based allocation of coal blocks. The revelations in the report intensified public scrutiny and led to the filing of PILs invoking the public trust doctrine asserting that the government had failed to act as a responsible trustee of natural resources.
In its historic ruling, the Supreme Court held that all coal block allocations made during the relevant period except those done through competitive bidding were illegal, arbitrary, and violative of Article 14 of the Constitution. It struck down 214 coal block allocations and reinforced that natural resources are public assets, and must be distributed fairly, transparently, and in accordance with the law.
This case served as a major shift in India’s legal approach to the management and distribution of resources. It underlined that any exercise of public power must be accountable and rooted in constitutional values.
FACTS
Between 1993 and 2011, the Central Government allocated many coal blocks for captive use to private companies and public sector undertakings.
A Public Interest Litigation (PIL) was filed by Advocate Manohar Lal Sharma and by Common Cause, challenging the legality, fairness, and transparency of these allocations.
The petitioners argued that the coal block allocations were inconsistent with the legal framework laid down under the Mines and Minerals (Development and Regulation) Act, 1957, and the Coal Mines (Nationalization) Act, 1973, especially violating Section 3(3)(a)(iii), which limits coal mining rights to the government and certain categories of companies.
These allocations were made without any competitive bidding or auction process. Instead, the government followed an administrative procedure through a Screening Committee.
The allocation was challenged as arbitrary, non-transparent, discriminatory, and in violation of the constitutional guarantee of equality under Article 14.
Under the MMDR Act
Section 11 provides preferential rights to applicants who have conducted prior exploration.
Section 13 empowers the Central Government to frame rules for regulating mineral development.
Section 17 authorizes the Central Government to directly carry out mining operations for mineral development.
The Mineral Concession Rules, 1960, framed under the MMDR Act, guide the process of granting mining leases. Rule 26 allows the State Government to refuse lease applications, and Rule 34 deals with the exercise of preferential rights.
The CMN Act and its amendments limit coal mining to government entities, with limited exceptions for captive use in industries like power and steel. Section 5(2) and Section 3(3)(c) reinforce these restrictions.
Despite this framework, letters of allocation were issued by the Central Government that enabled companies to directly obtain mining leases from states, bypassing the intended legal process.
The role of State Governments was reduced to mere formality, which was inconsistent with the federal structure laid out in the MMDR Act.
Seven State Governments were asked to respond regarding their role in the coal block allocation process.
The petitioners invoked the public trust doctrine, asserting that natural resources like coal belong to the people, and the State is only a trustee that must ensure their fair and legal distribution.
ARGUMENT PRESENTED BY THE PARTIES:
The Attorney General, Mr. Goolam E. Vahanvati, in defended of the coal block allocations by stating that the Central Government was legally empowered to make such allocations and had done so keeping national interest in mind. He based his argument on Sections 1A and 3(3) of the Coal Mines (nationalization) Act, 1973, stating that these provisions, read with Entry 54 of the Union List, empowered the Centre to regulate coal mining operations. According to him, the role of the Central Government was not only appropriate but necessary, considering that most coal reserves lie in seven major states and uniform decision-making was essential. These states, he claimed, had consistently participated in the allocation process without ever disputing the Centre’s power.
He clarified that the allocation letter issued by the Central Government was not a mining lease in itself. It merely enabled the allocatee to approach the respective State Government for necessary clearances under the Mines and Minerals (Development and Regulation) Act, 1957, and the Mineral Concession Rules, 1960. It was further submitted that the process did not secondary position to state governments but, in fact, involved them through the Screening Committee, where both central and state representatives had the opportunity to raise concerns or objections.
The Attorney General also defended the Screening Committee’s method of selection, arguing that the Committee took into account the technical suitability, financial capacity, and end-use plans of applicants. He admitted that while the minutes of later meetings may not have recorded every detail, the evaluations were still conducted thoroughly by the concerned administrative ministries. Moreover, he maintained that just because there was no public auction did not automatically make the process unconstitutional. In his view, the absence of auction did not mean the absence of fairness.
On the opposite side, the petitioners, Mr. Manohar Lal Sharma and Mr. Prashant Bhushan (for Common Cause), strongly challenged the constitutional and legal validity of the entire allocation process. They argued that the Central Government had no legal authority to allocate coal blocks and that the power to grant mining leases lay strictly with the State Governments under the MMDR Act, 1957. Section 3 of the CMN Act, according to them, only outlines which entities are eligible to mine coal; it does not authorize the Centre to bypass the lease-granting process altogether.
They criticized the Screening Committee as a body that lacked transparency, objectivity, or any consistent selection method. The petitioners pointed out that many coal blocks were handed over to companies that were not even engaged in the required end-use sectors at the time of application, which was in direct violation of Section 3(3)(a)(iii) of the CMN Act. They further alleged that the system became even more relaxed after 2006, allowing allocation to entities who planned to transfer coal to others, weakening the legal purpose behind captive mining.
The focus of their argument was that the entire allocation process amounted to granting state largesse to private entities without any fair or competitive process. They alleged that the continuation of the Screening Committee model despite internal government recommendations to adopt auction since 2004 was a deliberate choice that resulted in enormous private gain and corresponding public loss and not only unfair and but also unconstitutional.
The Central Government’s stand was further supported by several industries. Senior counsels like Mr. Harish Salve (Sponge Iron & Power Producers Associations) and Mr. K.K. Venugopal (Coal Producers Association) argued that the declarations under the MMDR Act and CMN Act gave the Centre enough constitutional and legislative backing to allocate coal blocks. They maintained that the allocation process, while administrative in form, still allowed the State Government to exercise its discretion in granting leases. They also insisted that the process had led to massive investments, job creation, and industrial growth proof, in their eyes, of its practical success and legal validity.
ISSUES
1. Whether the Central Government had the legal authority to allocate coal blocks?
2. Whether the coal block allocation through the Screening Committee and government route was arbitrary and violated Article 14 of the Constitution?
3. Whether the allocation of coal blocks without public auction amounted to an unconstitutional and unfair distribution of natural resources?
JUDGEMENT
In this case, the Supreme Court held that the Central Government did not have the legal authority under existing laws- the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) and the Coal Mines (Nationalization) Act, 1973, to distribute coal blocks to entities using the method followed from 1993 onwards. The Court clarified that neither of these statutes conferred the power to allocate coal blocks upon the Central Government, and the process followed was inconsistent with the statutory framework.
The Court observed that while the Central Government plays an important role in mining regulation, particularly by giving prior approval under the MMDR Act, this does not give it the power to bypass the legally prescribed process. Particularly, the allocation letters issued by the Central Government were found to bypass the role of State Governments, reducing them to mere formalities, though they were legally empowered to take decisions as per Sections 10 and 11 of the MMDR Act.
Further, the Court emphasized that there was no statutory or constitutional basis for the Screening Committee system or the government dispensation route used to select beneficiaries. The process lacked transparency, objectivity, and accountability, and hence was contrary to Article 14 of the Constitution, which guarantees the right to equality.
Also, Court rejected the argument that such allocations were merely “initial steps” without conferring legal rights. It held that allocation letters, in practice, conferred valuable rights and led directly to mining leases, thereby qualifying as grant of largesse.
The Court considered the claim that conducting a public auction was a compulsory requirement for allocating natural resources. It clarified that although auction is a more transparent and preferable method, it is not a constitutional requirement. However, when a process is arbitrary and opaque, even non-auction-based methods can violate constitutional principles, especially Article 14.
The Court underlined that the interpretation of legal provisions by government agencies cannot override clear statutory mandates. The Court noted that the insertion of Section 11A into the MMDR Act in 2010, which introduced a statutory framework for coal block allocation, clearly indicated that the earlier allocations had no legal foundation under the existing law.
IMPLICATIONS OF THIS CASE
The Supreme Court’s decision in this case had a transformative impact on the legal framework governing the allocation of natural resources in India. By declaring the coal block allocations made between 1993 and 2010 as illegal and unconstitutional, the Court reasserted that no executive action can bypass the procedures laid down by law. The Court conducted that the Central Government could not allocate coal blocks independently, as neither the MMDR Act nor the CMN Act conferred such power upon it.
The judgment clarified that the Central Government could not independently allocate coal blocks, as neither the MMDR Act nor the CMN Act granted it such power. This not only restored the statutory role of the State Governments in the lease-granting process but also reaffirmed the federal character of mineral regulation.
Beyond the immediate fallout such as the cancellation of 214 coal block allocations the case set a powerful precedent for how public resources must be governed. It emphasized that natural resources belong to the people and the State must manage them responsibly, ensuring their allocation is fair, lawful, and free from arbitrariness. While the Court did not mandate auction as the only permissible method, it laid down that any alternative process must still satisfy the standards of fairness and equality under Article 14. As a result, competitive bidding became the norm for future allocations, and executive discretion in such matters came under strict judicial scrutiny.
CONCLUSION
The Supreme Court’s decision in this case rightly exposed the flaws in the coal block allocation process and made it clear that the government cannot act beyond what the law permits. It reminded both the executive and the public that natural resources belong to the people and must be handled in a fair, legal, and transparent manner. The ruling not only put an end to years of irregular allocations but also pushed for accountability in decisions involving public assets. More than just cancelling illegal allocations, the judgment set a clear standard: policies and procedures must follow the law, not convenience or discretion. This case has become an important milestone in ensuring that power is exercised with responsibility and within the limits of the Constitution.
FAQS
1. Why was the coal block allocation made between 1993 and 2010 challenged before the Supreme Court?
It was challenged on the grounds that the allocation process was arbitrary, lacked transparency, violated statutory provisions under the MMDR Act, 1957 and the CMN Act, 1973, and amounted to unfair distribution of valuable natural resources without following a fair or legal method.
2. Why did the Court declare the coal block allocations illegal?
The Court held that the allocation process was not supported by any law, lacked transparency, and bypassed the role of State Governments. It also violated Article 14 due to arbitrariness and absence of fair procedure.
3. Did the Court rule that auction is the only valid method for future allocations?
No, the Court did not declare auction as a constitutional requirement. However, it stated that any allocation process must be fair, reasonable, and in line with Article 14 of the Constitution.
4. What was the outcome of this judgment?
The judgment resulted in the cancellation of all coal block allocations and led to major changes in resource allocation policies, including the introduction of competitive bidding as a standard practice.
