“”UNVEILING THE COALGATE SCAM: EXAMINING THE LEGALITY OF GOVERNMENT COAL BLOCK ALLOCATION””
Author: SHREE CHITHRA SHAJEEV NAIR,
A Student at D Y PATIL DEEMED TO BE UNIVERSITY, SCHOOL OF LAW
- INTRODUCTION :
The Coalgate Scam came to light following a scathing report by the Comptroller and Auditor General (CAG) regarding the allocation of coal blocks. The report revealed alleged discrepancies in the allocation process, leading to an estimated loss of Rs. 1.86 lakh crore to the exchequer due to non-transparency and discretionary practices. Private entities emerged as the primary beneficiaries, securing valuable natural resources at minimal costs.
Under the Coal Mines Nationalization Act of 1973, coal mining operations were nationalized and placed under state control, restricting coal mining to Government of India undertakings. However, subsequent amendments allowed for the allocation of coal blocks to private companies for captive mining purposes, aimed at boosting production in sectors like power, steel, and cement.
Captive mining mandates that coal extracted from allocated blocks must be utilized for the specified purpose. Despite this intention to enhance coal production and encourage private sector involvement, the allocation process led to unintended consequences. Private companies, obtaining coal blocks at no cost, often delayed mining operations until market conditions favored profitability. Contrastingly, if the blocks were auctioned, companies would have initiated production to recover expenses promptly.
The allocation of coal blocks was overseen by a screening committee chaired by the Secretary of the Coal Ministry and comprising representatives from various ministries. However, during the period under scrutiny (2006-2009), transparency was lacking, ineligible companies received allocations, and the decision-making process remained obscure. The absence of clear criteria and documentation in the committee’s minutes further exacerbated concerns.
The Central Bureau of Investigation (CBI) launched an investigation into coal block allocations made by the screening committee during this period. Between 2006 and 2009, the Government of India allocated 145 coal blocks, with 64 assigned to private entities. This marked a significant increase compared to the earlier years, highlighting the irregularities and lack of oversight during the allocation process.
- TIMELINE OF THE CASE :
In July 1992, the coal ministry established a screening committee to consider proposals from private power companies for captive mining, with guidelines favoring large projects of power and steel companies and allocating blocks on a first-cum-first-served basis. Between 1993 and 2005, 70 coal fields were allocated, followed by 53 in 2006, 52 in 2007, 24 in 2008, 16 in 2009, and one in 2010, totaling 216 blocks by 2010, with 24 later revoked.
In March 2012, a draft CAG report estimated windfall gains to allottees at Rs. 10.7 trillion, later toned down to Rs. 1.76 trillion in the final report in August 2012. The government had legal authority to auction coalfields for captive use from 2006 but didn’t. Allegations surfaced against politicians and industrialists regarding benefiting from coal block allocations from March to October 2012.
On May 31, 2012, the Central Vigilance Commission ordered a CBI probe into allocations. The coal ministry formed an inter-ministerial panel in June 2012 to review the process, resulting in the revocation of about 80 coalfields and forfeiture of bank guarantees in 42 cases. The final CAG report was tabled in Parliament on August 17, 2012.
The Supreme Court began monitoring the CBI probe in September 2012. In March 2013, the court directed the CBI director not to share investigation details with the government. A parliamentary standing committee criticized the allocation process in April 2013, recommending examination of all involved.
CBI director Ranjit Sinha admitted sharing the investigation report with then-law minister Ashwani Kumar on April 26, 2013, leading to Kumar’s resignation on May 10, 2013. The CBI filed its first FIR against Naveen Jindal and Dasari Narayana Rao on June 11, 2013, followed by an FIR against Kumar Mangalam Birla and P.C. Parakh on October 16, 2013.
In April 2014, Parakh claimed in his book that former Prime Minister Manmohan Singh’s authority was undermined by coal ministers Shibu Soren and Dasari Narayan Rao, hindering the adoption of open competitive bidding for coal auction. The Supreme Court set up a special CBI court in July 2014 to try all coal allocation cases. On August 25, 2014, the CBI decided to close its case against Birla, and the Supreme Court declared all coal blocks allocated between 1993 and 2010 illegal.
On September 1, 2014, the apex court reserved its final verdict on the Coalgate scam, with the declaration scheduled for September 9, 2014. On September 9, a bench headed by Chief Justice R M Lodha issued notice to the CBI director on a plea seeking an SIT probe against him for allegedly protecting the accused in Coalgate, postponing further hearing to September 19.
- WHAT IS THE CAG REPORT?
Transparency is the cornerstone of a functioning democracy, as it hinges on the openness of parliamentary representatives. When transparency is compromised, the very foundation of democracy begins to falter. Transparency ensures that the general public remains informed about the government’s actions and possesses the means to challenge them if necessary.
In the case of coal block allocation to public and private enterprises, a fair practice of auction was prescribed to maintain transparency. However, the government failed to adhere to this procedure, opting instead to arbitrarily allocate coal blocks. The Comptroller and Auditor General (CAG) reported staggering losses to the exchequer, initially estimated at approximately Rs. 10.6 lakh crores, though the final figure presented to Parliament stood at Rs. 1.86 lakh crore.
This deviation from established procedures raised serious concerns, with allegations surfacing about certain politicians favoring specific private players. Moreover, the report highlighted instances where companies were allocated more coal blocks than required for their captive operations, leading to the sale of surplus coal in the open market for profit.
In essence, the government’s refusal to uphold the prescribed procedure for coal block allocation not only undermined transparency but also gave rise to allegations of favoritism and exploitation of resources for personal gain.
- COAL ALLOCATION GUIDELINES (2011) :
In 2011, the Ministry of Coal issued guidelines for coal allocation, with a preference given to the power and steel sectors. These guidelines outlined 10 criteria that competing applicants for a captive block were required to meet:
- Net worth of the applicant
- Production capacity as indicated in the application
- Progress and preparedness status of projects
- Maximum recoverable reserve proposed in the application
- Scheduled date for enabling of captive mine proposed in the application
- Technical expertise in coal mining
- Approximate completion date of exploration proposed in the application
- Recommendation from the administrative ministry
- Recommendation from the state government (of the block’s location)
- Assessment of the company’s track record and economic strength
However, the Central Government failed to adhere to these guidelines adequately while allocating coal blocks to both public and private enterprises.
5. LEGAL ANALYSIS :
The Coalgate scandal encompassed several critical legal dimensions that warrant comprehensive examination to grasp its severity and prevent similar occurrences in the future. These legal facets include:
- Ultra Vires : The central government came under scrutiny in the coal allocation case for surpassing its authority as delineated by the statutes regulating coal and natural resource mining in India. The government’s decision to allocate coal blocks without auction was deemed to be beyond the scope of the Mines and Minerals (Development and Regulation) Act, 1957, Mineral Concession Rules, 1960, and the Coal Mines (Nationalisation) Act, 1973. Counsel for the petitioner argued before the Supreme Court that none of these statutes granted the central government the power to allocate coal blocks. The court concurred with this contention, observing that none of the mentioned statutes outlined any procedure for the allocation of blocks.
- Allocation Invalidity and Non-Cancellation : In the Manohar Lal Sharma v. The Principal Secretary & Others case, the Supreme Court ruled in favor of the petitioner, determining that the government’s allocation of coal blocks without auction was biased. The accused faced charges under the Prevention of Corruption Act, 1988. Despite the Court declaring the allocations as unfair and objecting to the government’s favoritism towards certain companies, it encountered difficulties in fully revoking the allocated contracts. Although the allocations were deemed invalid, the Court refrained from complete cancellation due to operational challenges. Some companies had already commenced operations on the blocks, rendering complete cancellation impractical. This decision aimed to mitigate potential losses for companies that had initiated operations, despite the allocations being legally flawed.
- Decision making on administration : Administrative decision-making in India operates within a framework shaped by statutory provisions and judicial precedents. The screening committee, tasked with allocating coal blocks, engaged in an administrative process guided by statutory mandates, notably the Mines and Minerals (Development and Regulation) Act, 1957. However, the absence of specific provisions for competitive bidding raised questions about the adequacy of the legal framework before the 2010 amendment bill. The lack of statutory backing for competitive bidding left administrative decisions susceptible to scrutiny, prompting calls for earlier amendments to prevent potential corruption. Establishing legal obligations through statutory amendments could have compelled administrative authorities to adhere to competitive bidding norms or face consequences. The government’s failure to enact such rules rendered them vulnerable to investigation probes, highlighting the need for proactive measures to safeguard against corrupt practices.
- Administrative Arbitrariness : The coal block allocation saga in India exemplifies governmental arbitrariness, contravening the constitutional mandate of Article 14, which prohibits arbitrary state actions. Despite the absence of specific provisions favoring competitive bidding, arbitrary administrative decisions remain unacceptable under Article 14. Administrative actions are bound by the principles of reasonableness and impartiality, yet political favoritism towards certain private enterprises underscores the arbitrary nature of decision-making processes. Legal precedents, such as Shrilekha Vidyarthi v. State of U.P. and Neelima Misra v. Harinder Kaur Paintal and Ors., emphasize the necessity for administrative actions to comply with statutory provisions and avoid illegality, irrationality, or arbitrariness. However, the Coalgate scandal witnessed administrative committees acting arbitrarily, violating Article 14. In Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir & Anr., the court emphasized that government actions must prioritize public welfare over personal interests, grounding decisions in reasonableness for the common good. The Coalgate scandal’s failure to uphold fairness and transparency in the allocation process highlights the urgent need for adherence to constitutional principles and accountability in governance.
6. CONCLUSION :
The Coalgate scandal tarnished the UPA government’s reputation during its tenure from 2004 to 2014, exposing irregularities in the allocation of coal blocks to competing companies without proper auction procedures. The Comptroller and Auditor General of India highlighted the government’s arbitrariness and questioned its authority in this matter. Legal implications were scrutinized by the Supreme Court, favoring the petitioner and signaling a shift towards fair treatment in government actions.
The amendment to the Coal Mines (Nationalisation) Act, 1973 aimed to address these issues by making competitive bidding mandatory for coal block allocation post-2010. This amendment sought to attract both domestic and international companies to participate in the allocation process, fostering competition and maximizing coal extraction. By introducing auctions, the amended statute aims to eliminate bias and arbitrary actions by administrative authorities. The competitive environment among companies, both domestic and international, would ensure efficient utilization of coal resources and promote market competition, ultimately benefiting the country’s energy sector and consumers.
7. REFERENCES :
Coalgate scam- A legal picture (ipleaders.in)
The Coalgate Scam – LexQuest Foundation
What is coal scam? | What Is News – The Indian Express
Coal Scam One Of India’s Biggest Scams: CBI Seeks Maximum Punishment Convicts (ndtv.com)
Coal-Gate Scam, CBI, Senior Advocate R.S. Cheema and Supreme Court – Law Times Journal
