How logically valid is the judgment reached by the three honourable and learned Supreme Court Justices The short answer: not very, because the judgment, in my not-so-learned opinion, is flawed on several important dimensions.
At the Financing for Economic Growth seminar, held at Gandhinagar on September 25, I opened by stating that it was a waste of time by the organisers to invite me and other experts to discuss economic issues. Over the last few years, it has become increasingly clear that the real experts on food policy, human rights, and coal policy (just to name a few) reside neither in the corridors of academia, nor in the corridors of professionals, bureaucrats or politicians. The real decision-makers are those engaged with the law; so, why not learn about optimal, fair, and legal policy by inviting the Supreme Court to send its representatives I hope the organisers will take this serious suggestion seriously.
Some basic questions with regard to the judgment. This is the mother of all retrospective lawsto go all the way back to 1993 takes a lot of confidence, and leaps of law. Does India have no statute of limitations How far back backward can one go The Court states, citing a bad lawthe Coal Mines Nationalization Amendment Act (CMNA), 1976that the provision of a mining lease to any institution which is not Central government, Central government company or Central government corporation is illegal. This despite the fact that in 1993, the CMNA, 1976, was amended to allow for sub-leases to be granted if two conditions are satisfied: (i) the reserves of coal in the area are in isolated small pockets or are not sufficient for scientific and economical development in a coordinated and integrated manner, and (ii) the coal produced by the sub-lessee will not be required to be transported by rail. In other words, if the coal block had junk, it could be sub-leased and that the junk could not blacken our railroads.
There are several debatable aspects of the learned SC ruling. First, what legal basis is there for deciding that all coal allocations since 1993 are illegal If the illegality was of such a magnitude, then how is it possible that no one (including the honourable Supreme Court) noticed it for 20 long years If these actions were illegal, what about the ministers (including prime ministers) and senior bureaucrats who okayed this decision What is the punishment for them And what about all the Justices who implicitly allowed such rampant illegal acts to take place When will they be held accountable Or punished On accountability, can the Court apprise us to the status of Prashant Bhusans corruption case against Chief Justices of the Supreme Court In 2010, Bhushan stated that In my view, out of the last 16 to 17 Chief Justices, half have been corrupt.
There is not only the ignominy of having your licenses cancelled, but also that the firms have to pay a penalty of R295 per tonne of mined coal. The SC takes the easy way out by claiming that they derived this figure from the CAG report which implicitly (in the judges view) did a correct calculation of illegal profits. Of course, it is the same no-number-is-high-enough Vinod Rai, formerly of the CAG, who extravagantly claimed that there had been a loss of R1.86 lakh crore from the coal allocation scam and this yielded an average financial benefit of R295/tonne to the black allottees. As pointed out in several articles in 2012, the CAG report suffered from a terminal error in its estimation of coal benefits. It assumed an interest rate of zero in discounting the stream of future profits! If a discount rate of 10% is assumed, then the lofty scam figure of R1.86 lakh crore is reduced to only R74,000 crore. Even this estimate was in gross error because the price of coal assumed by CAG was the price received by Coal India a much higher grade coal and one that can be transported by railroad.
Forget the time value of money (interest rate)too complicated for Vinod Rais CAG and even more complicated for the Supreme Court. The hard facts that we have at our disposal are the profits obtained by Coal India, one of the
Maharatnas of the public sector and a company which produces the finest and costliest coal in India. The public records of this company reveal, as shown in the accompanying table, an average post-tax profit rate of R239/tonne for the years
2006-2014. From the grades of coal specified, this average approximates the price of Long Flame Grade D coal.
Junk coal blocks (grade F and G) were allocated to the private sector, by design and intent. As a good public-sector monopolist, Coal India did not want to muddy its profits by developing these junk blocks. The average price of this coal is only 39% of Coal Indias price. If the same profit rate as that of Coal India is assumed for the black firms, a very generous assumption in favour of CAG-SC, the quantum of all the illegal profits made by the companies is R67 per tonne. Or instead of R8,900 crore being owed by the illegal coal firms, only R1990 crore is owed.
In shame: homosexuality
And since retrospective acts are in, how about the Supreme Court looking at some of its own questionable judgments of the past For example, in December 2013, it ruled that homosexuality was a crime; what aspect of human rights, or the Constitution for that matter, allowed it to reach that questionable judgment The Supreme Court overruled a 2009 Delhi High Court ruling in favor of decriminalising homosexuality. Another massively regrettable retrospective decision by the court. It had the chance to merely uphold the court ruling but it went out of its way to deem homosexuality a crime. So, zilch to the Supreme Court for its non-understanding of the time-value of money and even less for its non-recognition of human rights.
It is now time for checks and balances to the excessively questionable judgments of the Supreme Court. The honourable justices must realise that they are not infallible; they are human, and can make mistakes. And let us not forget how quickly the Supreme Court found the Emergency imposed by Indira Gandhi to be Constitutional. The time has come for the Modi government to act. It should collect the penalty as ordered by the Supreme Court, but it should only collect R1,990 crores. This money should be re-allocated to the cancelled firms for infrastructure development. And in addition, these firms should be rewarded for extracting coal profitably out of the refuse abandoned by Coal India.
The author is chairman, Oxus Investments, an emerging market
advisory firm, and a senior advisor to Zyfin, a leading financial information company. Twitter: @surjitbhalla