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SC cancels all but 4 of 218 illegal coal licences: Sensex, Twitter, industry & Katju react [READ JUDGMENT]

The Supreme Court has cancelled all 214 coal blocks that it declared illegal last month, leaving only four standing, after having ruled they had been awarded in an illegal, arbitrary and non-transparent manner for the last 20 years.

[Download judgment here]

IANS reported:

The Supreme Court Wednesday cancelled 214 coal blocks allocated from 1993 to 2011, except four vested with the NTPC, SAIL and Sasan Ultra Mega Power Project (UMPP).

The court also imposed an additional levy of Rs.295 per tonne of coal extracted from exempted or operational mines.

The four coal blocks that escaped the axe were the three in Annexure 1 - Moher and Moher Amroli Extension allocated to Sasan Power Ltd. and Tasra, allotted to Steel Authority of India Ltd. (SAIL), a central government public sector undertaking not having any joint venture.

Cancelling 214 coal blocks, a bench of Chief Justice R.M. Lodha, Justice Madan B. Lokur and Justice Kurian Joseph put them in two categories - coal blocks which have not commenced operation notwithstanding the stage of their development, and 46 others of which 40 were operational and six that can start operation virtually anytime.

"As far as the first category of coal block allotments is concerned, they must be cancelled (except those mentioned in the judgment). There is no reason to save them from cancellation," the bench said.

The "allocations are illegal and arbitrary; the allottees have not yet entered into any mining lease and they have not yet commenced production.

"Whether they are 95 percent ready or 92 percent ready or 90 percent ready for production (as argued by some learned counsel) is wholly irrelevant," it said.

On the 46 coal blocks that were sought to be saved by the Centre from the guillotine, as 40 have commenced production and six were on the verge of commencing production, the court said: "As these allocations are also illegal and arbitrary, they are also liable to be cancelled."

"As far the six coal blocks are concerned, the allocatees have not yet commenced production. They do not stand on a different or better footing as far the consequences are concerned. These allotments are also liable to be cancelled," it said.

However, the court made an exception for four coal blocks and said they will not be cancelled.

In the remaining 42 coal clocks, the court noted that the central government needed some time before the management of the operational coal blocks, now cancelled, is taken over by Coal India Limited.

The court said: "Although we have quashed the allotment of 42 of these 46 coal blocks, we make it clear that the cancellation will take effect only after six months from today (Wednesday) -- with effect from March 31, 2015.

"This period of six months is being given since the central government and Coal India would need some time to adjust to the changed situation and move forward," the order said.

The court said the allottees of the coal blocks other than those covered by the judgment and the four coal blocks exempted by it "must pay an amount of Rs.295 per tonne of coal extracted as an additional levy. This compensatory amount is based on the assessment made by the CAG".

The court rejected the contention of the allottees that it should appoint a committee to consider each individual case to determine whether the coal block allotments should be cancelled or not and the principle of natural justice demands that they should be heard before the coal blocks allocated to them are cancelled.

Rejecting the contention of the allottees, the court said: "It dealt only with the process of allotment of coal blocks and found it to be illegal and arbitrary. The process of allotment cannot be reopened collaterally through the appointment of a committee."

"This would virtually amount to nullifying the judgment. The process is a continuous thread that runs through all the allotments. Since it was fatally flawed, the beneficiaries of the flawed process must suffer the consequences thereof and the appointment of a committee would really amount to permitting a body to examine the correctness of the judgment. This is clearly impermissible," it said.

On the contention that the allottees should be heard before the coal blocks allocated to them are cancelled, the court said that in the course of the hearing of the PILs seeking cancellation of coal blocks they had heard the Coal Producers Association, the Sponge Iron Manufacturers Association and the Independent Power Producers Association of India.

"Therefore, it is incorrect to say that these associations which represented the bulk (if not all) the allottees or beneficiaries of coal blocks were not heard. They presented their point of view, like any other party, and it was only then that judgment was delivered."

The Sensex has plunged 215 points after the decision, reported PTI.

The Hindu has a detailed chronology of the case, and reported that:

Acting on the Central government's assurance that it is “fully prepared” to face the cancellation of the coal block allocations and will not have any difficulty to take the coal industry forward [the bench opted found] that the "natural consequence" of its August 25 judgment declaring the allocations [illegal] would be to cancel them.

Twitter reactions:

Supreme Court allows Coal India, NTPC JV & SAIL mine permits to continue… Even operational coal blocks have been cancelled by SC, says Attorney General by @FirstPostBiz

SC SAYS ALL COAL BLOCKS TO BE AUCTIONED… the question now is what happens to banks who has exposure on these coal blocks… by @PriyalGuliani

SC grants six months "breathing time" to companies whose blocks were cancelled to wind up business… The observations and findings of this court on the issue will have no bearing on the CBI probe into Coalgate: SC. by @Pti_News

SC does the right thing: 214 "Coalgate" coal blocks cancelled as allotted arbitrarily without auction, public interest suffered heavily. by @karunanundy

"Let heavens fall though justice may be done". What "heavens" have fallen? Corrupt practices for extra-legal natural resource allocations? On the opposite side are legal commentators who call for compassion in law. Make arguments on coal shortages, losses by companies etc. Is this the job of the court? Policy rather than provisions of a statute? Acquiesce to illegality for purported welfare of corporates? by @aparatbar

Markandey Katju also gave his two cents on his blog:

I think the Supreme Court gave a good and legally correct decision in cancelling the coal block allocations.

The law on this point is very simple. So far as one's private property is concerned, one can deal with it in any manner ( provided no law is broken). Hence one can give away his private property to any one he likes, or deal with it in any manner.

The position, however, is very different in the case of public property or property belonging to the state. Here Article 14 of the Constitution, which guarantees equality, applies. Hence to give away public or state property ordinarily requires open public auction or public tender after advertising it in well known newspapers having wide circulation, so that everyone can apply, and it should be given to the highest bidder. This alone ensures transparency and fairness, and compliance with Article 14.

The coal blocks in question were given away surreptitiously without complying with the above procedure, causing heavy loss to the public exchequer, apart from violation of Article 14 of the Constitution. Hence the Supreme Court was perfectly correct in cancelling the shady deals.

IANS report on industry reactions to the judgment:

India could face power disruptions even as Rs.4 trillion ($66 billion) worth of investments hang in balance with the Supreme Court wednesday cancelling 214 coal blocks alloted since 1993 which it had declared illegal, stakeholders said.

They, howvever, hope the verdict will end uncertainties in the economy and the government will put in place a prudent policy environment to usher in transparency in the system.

State Bank of India chairperson, Arundhati Bhattacharya said the bank looks forward to a "swift and transparent" bidding process of the coal blocks cancelled by the Supreme Court. "We believe that uncertainty is possibly the worst enemy of growth. We are glad that this is over with the SC verdict on coal blocks allocation," Bhattacharya said in a statement. "We now look forward for a quick plan of action for ensuring that coal supplies are not disrupted and thereafter a swift and transparent bidding process for reallocation."

The court has also said that companies that have been mining coal have to pay for all the coal that they have mined or used until 31 March 2015.

Jayaswal Neco, one of the firms affected by the judgement, said the company had long mined the coal from the mine allocated to it and had already passed on the benefits to the consumers.

Giving an estimate of the economic impact of the deallocations, Naveen Jindal, chairman of another affected company Jindal Steel and Power (JSPL) said earlier this month that about Rs.400,000 crore of investment made to develop coal mines would be in jeopardy if the blocks were to be de-allocated: "If we term the government's coal allocation policy as faulty and illegal, then the effort put in by the investors to revive the discarded mines of Coal India, the entire Rs.4 lakh crore investment would be in jeopardy."

Describing the deallocations of so many blocks as "harsh", industry chamber Assocham said: "Our main concern is on the kind of negative impact on the economy which has just been showing signs of recovery after over two years of slowdown."

"Being largely dependent on the thermal power, it is the coal which fires the economic growth, which will be halted, besides, the dependence on coal imports will increase," said Assocham president Rana Kapoor. Coal based power constitutes 60 percent of India's installed capacity, followed by hydroelectric generation at 16 percent.

Former coal secretary PC Parakh said the impact on the economy would depend on the speed of the government reaction to the verdict: “Impact depends on how quickly the government responds to the Supreme Court verdict and how the procedure for reallocation of coal block is followed.”

The Confederation of Indian Industry (CII) said the court verdict is likely to adversely impact domestic coal supplies and will erode investor confidence. “The court decision has created uncertainty and is likely to impact key sectors including power, steel and mining. In particular, given that the power sector is the largest consumer of coal in India this development is likely to exacerbate the shortage of fuel for the power sector,” CII said in a statement here.

Acute fuel shortages are already impacting the power sector and currently close to 80 million tonnes of coal are being imported to meet demand. Another sector that will be impacted by this ruling is the financial sector as banks account for over 60 percent of the overall investments in these blocks, CII said. “CII would like to reiterate that while it respects the judgement of the apex court decisions, taken retrospectively could impede future investment flow into the country,” it added.

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