It made news last year when the Supreme Court of India “de-allocated” 214 coal blocks. The process of the allocation, the Court held, was illegal and arbitrary. Not all of them were operational, but where they were, the owners had to stop operations. While 42 of them got a six-month reprieve and four were “saved”, the remainder had to halt any mining operations with immediate effect.
All but 4 of the de-allocated ones have, as on April 1, 2015, entered into a process of auctions where either the current lease holders or someone else could emerge the highest bidder. Following the passing of the Coal Mines (Special Provisions) Act, 2015 in March 2015, the Ministry of Coal had published the details of the auction process. All these coal blocks may soon have new owners.
Given the changed circumstances, there is doubt among communities and activists about what is likely to happen next and how they should prepare for it. For example, for those who had prepared a legal challenge on environmental irregularities, where do remedies now lie? How should they prepare? To the affected communities, the impacts, unresolved illegalities, and the environmental and social liabilities of the coal blocks that are up for auction remain just as relevant.
Questions asked about clearances to coal blocks
Many of these coal blocks, whether or not they had started operations, had received “clearances” from the Ministry of Environment, Forests and Climate Change (“MoEFCC”) after completing the necessary procedures. These approvals were challenged in courts, on the streets, and through petitions before the executive. For instance, when the Supreme Court delivered its judgment, a challenge to the forest clearance granted to the Mahan coal block in Madhya Pradesh was pending before the National Green Tribunal.
Similarly, the public hearing of the Parsa coal block in Chhattisgarh had been completed in the face of stiff opposition. Questions had also been raised about whether due process had been followed for impact assessment and public hearings. The NGT had quashed the approval for forest diversion given to the the neighbouring coal bloc in Parsa East Kanta Besan and had sent the matter back to the MoEFCC for re-examination. The stay on the mining and transportation of the already dug up area was lifted by the Supreme Court soon after.
The affected villagers and campaign groups had also pointed out that the presence of an elephant habitat near the mining site was not disclosed and that the mandatory site inspection was done in a casual manner. Questions were also raised about the circumstances under which the environment ministry had, under directions from the empowered group of ministers, approved the project.
What happens to the matters before the Green Tribunal?
Mahan and a few other coal blocks, whose environment or forest diversion approvals had been challenged before the National Green Tribunal (“NGT”), were included in the Supreme Court’s de-allocation list. What did this mean? Did the appeals become infructuous? The NGT on September 26, 2014, while hearing the two cases filed against the Mahan coal block (Appeal No.18 of 2014 and Appeal No.34 of 2014) and also the PEKB coal block, held “the cause of action raised by the Appellant does not subsist any longer.” They also held that that the rights and contentions in relation to the “forest clearance” would be transferred to the third party who would get the coal block.
While dismissing another case challenging the environment clearance given to a BALCO coal block (Appeal No. 46 of 2012), on October 9, 2014, the NGT upheld the right of appeal in accordance with law. This meant that if the environmental clearance is transferred to another allottee, it does not take away the right of a legal challenge both on procedural lacunae and on the merits of assessment. This is yet to be tested before the tribunal but the order is in place.
Both the EIA Notification and the process laid out under the Forest Conservation Act, 1980 for forest diversion allow for transferring the approval to another project authority, during the course of assessment or even after approvals are granted. For instance Section 11 of the EIA notification says, “A prior environmental clearance granted for a specific project or activity to an applicant may be transferred during its validity to another legal person entitled to undertake the project or activity on application by the transferor, or by the transferee with a written “no objection” by the transferor, to, and by the regulatory authority concerned, on the same terms and conditions under which the prior environmental clearance was initially granted, and for the same validity period. No reference to the Expert Appraisal Committee or State Level Expert Appraisal Committee concerned is necessary in such cases.”
On March 23, 2015, there was an additional clarification to Section 11 of EIA notification through an amendment. This allowed for the transfer of environment clearance on the terms above, in case “an allocation of coal block is cancelled in any legal proceeding; or by the Government in accordance with law”.
As on date, the environment clearances of 29 coal blocks have been transferred. Some of these are for approvals granted as far back as in 2000. The approval for the captive underground coalmine village of Milupara Kondkel in Raigarh, Chhattisgarh is one such. It now stands transferred from Monnet Ispat to Hindalco. The most recently granted environmental approval that has been transferred is for the Ganeshpur Opencase mine in Latehar in Jharkhand. Here, the transfer is from Tata Steel to GMR Chhatisgarh Energy Ltd. Tata Steel had received the approval in January 2014, about seven months before the Supreme Court ruling.
For any affected community and for any of us working on the environment or the social and environmental impacts of coal blocks, this is an important space to watch. Many coal blocks where approvals are pending or where mining operations have not been initiated, are not yet on the radar of re-allocations and other revised regulatory approvals. A lot is likely to be tested in and outside of courts where communities and community-based organisations are involved in legal action.
Kanchi Kohli is a researcher working on law, environment justice, and community empowerment.
In a landmark judgment last week, the Supreme Court held that the central government’s allocation of coal blocks to public and private companies during the seventeen years between 1993 and 2010 was illegal and ultra vires the Constitution. The coal block allocation scam, popularly known as “Coalgate”, came to the forefront of the political and legal landscape when a 2012 report by the Comptroller and Auditor General (“CAG”) accused the government of causing huge losses (Rs. 1.86 lakh crore) to the public exchequer in its coal allocations. The same year, M.L. Sharma and Common Cause separately filed petitions before the Supreme Court, challenging the allocation. The petitions were clubbed together and heard jointly by the Court, which delivered its judgment last Tuesday. The political and economic ramifications of Manohar Lal Sharma v. The Principal Secretary (“Coalgate”) are already being felt. The judgment is also of great interest because of its significant contribution to one of the most important constitutional issues in contemporary India: the judicial review of the government’s distribution of natural resources.
The Spectrum Cases – the Supreme Court’s scrutiny of process and policy
In a previous post here, I had discussed the Supreme Court’s opinions in the “2G Spectrum Cases”. In the First Spectrum Case, the Court invoked the principle of equality under Article 14, the common law doctrine of “public trust” (that is, the government acts as a trustee of the people in its ownership and distribution of natural resources), and the requirement of managing natural resources in order to serve the common good (drawn from the Directive Principles of State Policy) to hold that a public auction was the only acceptable way of distributing natural resources to private parties for exploitation. In other words, the Court not only scrutinised – and invalidated – the process by which distribution took place, but also the policy. The Court’s judgment (I argued) conflated two separate issues: the government’s obligations under the Directive Principles and the public trust doctrine, and the Court’s power (or lack thereof) to enforce those obligations. In deciding not only upon the process, but also the policy of allocation, the Court overstepped its authority in entering a field that was both beyond its competence and its legitimacy.
After the First Spectrum Case, the Court embarked upon a process of self-correction. In the Second Spectrum Case(a Presidential reference), the Court limited the holding of the First Spectrum Case only to spectrum allocation, and held that it did not lay down a requirement for public auctions being the only legitimate methods of distribution in all cases. The Second Spectrum Case left open the question, however, of the extent to which the Supreme Court could substitute its own opinions about legitimate policy for that of the government, and various observations in that case point in different directions. In Coalgate, the Supreme Court has gone a long way towards answering that question.
Before the Court, the petitioners contended that the coal block allocation violated statutory requirements under the Mines and Minerals (Regulation and Development) Act, 1957 and the Coal Mines (Conservation and Development) Act, 1974 as well as the public trust doctrine, and Article 14. In paragraphs 12 through 73, the Court examined the statutory question (see an analysis here), and found that the allocation was illegal. Ordinarily, this would preclude any need to examine the constitutional question. However, perhaps in view of the government’s history of amending laws retrospectively to get around court decisions, the Court then proceeded to consider the constitutional questions as well.
The Supreme Court’s refusal to second-guess government policy
The process of allocation was done by a Screening Committee constituted by the Ministry of Coal. In paragraph 82 of its judgment, the Court framed the three constitutional issues that arise for its consideration: first, whether the allocation of coal blocks ought to have been done via public auction; secondly, whether the allocations based on the Screening Committee’s recommendations were unconstitutional; and thirdly, whether the allocations made via government “dispensation” (through the Ministry of Coal) were unconstitutional. The Court settled the third question on the basis of statutory violations (paragraph 153). Therefore, we shall focus here on the first two questions. Notice that while the first question pertains to the policy of allocation (public auction versus all other methods), the second question is about the process of allocation.
The Court correctly noted that the first question required it to consider the two spectrum cases discussed above. Affirming the Constitution Bench’s opinion in the Second Spectrum Case, it noted the Central Government’s contention that the increase in input price (due to a public auction) would have a “cascading effect” upon the economy (paragraph 100), the detailed objections of the state governments (such as, for example, that auctions would lead to the concentration of industries) (paragraph 100), and the supply-demand mismatch in 1993 (paragraph 102). On the basis of these considerations, the Court held:
“[We] cannot conduct a comparative study of various methods of distribution of natural resources and cannot mandate one method to be followed in all facts and circumstances, then if the grave situation of shortage of power prevailing at that time necessitated private participation and the Government felt that it would have been impractical and unrealistic to allocate coal blocks through auction and later on in 2004 or so there was serious opposition by many State Governments to bidding system, and the Government did not pursue competitive bidding/public auction route, then in our view, the administrative decision of the Government not to pursue competitive bidding cannot be said to be so arbitrary or unreasonable warranting judicial interference. It is not the domain of the Court to evaluate the advantages of competitive bidding vis-à-vis other methods of distribution / disposal of natural resources.”
This is consistent with the opinion in the Presidential Reference Case, namely that an auction is required only when the aim of an allocation is to maximise revenue (because clearly, under Article 14, an auction is the only method that bears a rational nexus with an objective of revenue maximisation), but that it is open to the government to have objective other than revenue maximisation, which are also consistent with the public trust doctrine and Article 39. In this case, the Court examined the material on record, which clearly indicated that the government’s objectives went beyond direct revenue maximisation, and refused to substitute its own opinion of which policy would be most consistent with public trust and the Directive Principles. This is exactly how it should be.
Absence of relevant guidelines: Constitutional infirmity in the procedural lapses
The Court then examined the process of allocation, via the Screening Committee. In Paragraphs 109 through 151, it examined the minutes of the 36 meetings of the Screening Committee between 1993 and 2005. The Court found that in its first seventeen meetings, the Screening Committee, at no point, examined the inter se merits of the various applicant companies (paragraph 128). Even when, in its eighteenth meeting the Steering Committee did raise the question of framing guidelines for making that determination, no guidelines were actually framed (paragraph 132). And even when guidelines were framed, the Court found that they “did not lay down any criterion for evaluating the comparative merits of the applicants.” (paragraph 134) The Court noted that in its subsequent meetings, the Screening Committee made its allocations without a discussion about the inter se merits of the applicant companies (see, for example, paragraph 135, 137, 138, and 139 for specific instances), and even changed its own guidelines repeatedly (paragraph 136). In 2005, for the first time, the Screening Committee advertised for applications, but yet again, its allocations demonstrated no comparative assessment or evaluation of the applicants (see, for example, paragraphs 143, 146.1, and 148 for specific instances).
On the basis of these findings, in paragraph 150, the Supreme Court listed twenty-two procedural flaws with the allocation process, most of which had to do with the absence of any considerations about the inter-se merit between the applicant companies, the lack of any objective criteria for making that determination, and the constant changes in the norms and guidelines. Thus, in paragraph 154, the Court held:
“To sum up, the entire allocation of coal block as per recommendations made by the Screening Committee from 14.07.1993 in 36 meetings and the allocation through the Government dispensation route suffers from the vice of arbitrariness and legal flaws. The Screening Committee has never been consistent, it has not been transparent, there is no proper application of mind, it has acted on no material in many cases, relevant factors have seldom been its guiding factors, there was no transparency and guidelines have seldom guided it. On many occasions, guidelines have been honoured more in their breach. There was no objective criteria, nay, no criteria for evaluation of comparative merits. The approach had been ad-hoc and casual. There was no fair and transparent procedure, all resulting in unfair distribution of the national wealth. Common good and public interest have, thus, suffered heavily. Hence, the allocation of coal blocks based on the recommendations made in all the 36 meetings of the Screening Committee is illegal.”
It is crucial to note the Court’s assessment of the policy vis-à-vis the process. The Court upheld the non-use of a public auction as a method of distribution because, on a prima facie perusal of the material placed on record by the government, there were evident purposes behind the allocation that went beyond revenue maximisation. The Court did not substitute its own opinion of the legitimacy and validity of the purposes. On the other hand, while holding the process illegal, the Court did so on the basis that the government had placed no material to demonstrate how the allocations were made in a fair and non-arbitrary way. Therefore, much like its holding on the issue of auction, once again, the Court did not go into the question of whether the outcome of the government’s decision on allocation was valid or not, or into the merits of the guidelines; it restricted itself to the question of whether, in the process of allocation, the guidelines included essential considerations of merit and competence for deciding between applicant companies or not. It was the absence of relevant guidelines that constituted the basis of the Court’s decision, holding that the allocation was illegal.
Coalgate, therefore, represents an advance upon the route first marked out by the Court in the Second Spectrum Case. The Court will examine, for legality, the process of distributing natural resources. It will examine whether, during the process, the government has taken into account relevant considerations to ensure transparency and fairness. It will not, however – keeping in mind considerations of institutional competence and legitimacy – question the outcome of the process, or the policy behind the process.
The Court’s judgment is pragmatic and wise, and deserves to be lauded. One question remains open, however: what if the Screening Committee had prescribed guidelines for deciding inter-se merit between applicants, but the petitioners argued that the Committee’s allocation was contrary to its own guidelines? In other words, what degree of scrutiny will the Court apply to the government’s implementation of its own procedures, when disputed factual issues arise? Unlike an auction, where a violation of the results of the auction can be objectively determined, that enquiry is much harder to undertake when standards are at least partly subjective. Will the Court apply a hands-off test, taking the government’s determinations at face value, and insisting only upon the presence of guidelines (as it does, for instance, under Article 356) or a proportionality test, drawn from administrative law? Or, keeping in mind the principles of public trust and Article 39, will it subject them to a more rigorous scrutiny? Perhaps we need another Constitution bench to decide that question.