Starting today the Supreme Court will hear arguments on what the consequences should be of 20 years of illegal coal block allocations. That decision will be a far tougher one to make than finding the allocations to be illegal?large-scale violations made the first conclusion easier.
Here, in short, is why the apex court found 218 coal block allocations, made by successive governments between 1993 and 2012, illegal.
Two decades of fraud?
First, the SC found that the allocations were made by the central government whereas the law provided for states to do so.
??the exercise undertaken by the Central Government in allocating the coal blocks or, in other words, the selection of beneficiaries, is not traceable either to the 1957 Act or the CMN Act?
The court then went on to examine the process of allocation, only to find that the guidelines used by the Screening Committee did not include any objective criteria for selection of companies. The Committee did not do any evaluation of applicants or any competitive evaluation to decide why one company deserved a coal block and the other did not.
??The Screening Committee simply relied upon the information supplied by the applicants without laying down any method to verify applicant?s experience in the end-use project for which allocation of coal block was sought?
In many cases companies not recommended by either the state government, or administrative ministry, or CEA, were allocated blocks. Those with recommendations were often denied allocations. The Screening Committee minutes include no explanation as to why. The arbitrariness of allocation was compounded by the lack of scrutiny on how much coal the company actually needed.
??Certain blocks with coal reserves on the higher side were recommended to the companies with lower requirement?
Though the law clearly stated that only iron & steel, cement and power companies having end-use plants could be allocated coal blocks, yet?
?Most of the companies, which have been allocated coal blocks, were not engaged in the production of steel, power or cement at the time of allocation?
Contrary to law, allocations were also made to states and state PSUs, joint ventures with ineligible companies and consortia. The Supreme Court is scathing in its criticism?
?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?
Consequences?
Having found the allocations illegal, the SC has left the consequences open. Starting today it will hear arguments on the fate of the allocations. Prashant Bhushan, one of the lawyers who won the case, says deallocation is but a logical consequence of the illegalities.
One might argue that a nation shocked by these large-scale illegalities would applaud the efforts of those who fought hard to uncover them and also insist the illegally granted mines be taken back. After all, by CAG estimates, India lost R1.8 lakh crore just between 2004 and 2011, by not auctioning coal. The number may seem exaggerated and auctions are not always the most desirable method of allocation, but assuming the loss to the nation is half that number, even that is substantial! Add to that the immeasurable loss in terms of public morality and fair policy implementation. And the lost opportunity for honest companies that deserved allocations but did not get any.
Yet many senior counsels will argue on Monday that the deallocation of all illegally granted coal blocks could cost the economy more. Hence some of these allocations, the ?genuine? ones, should be legitimised or ?regularised?. Harish Salve, counsel for sponge iron and power producers, says it is a well established principle that ?every illegality or every irregularity, every arbitrary action does not necessarily lead the court to invalidate, where invalidation of an individual action will be more productive of public mischief or cause public injury, rather than public good.? But regularisation too is beset with problems.
Regularisation?
The first one is a practical one. Should the SC now embark on a case-by-case scrutiny of the allocations to determine which ones were ?genuine? and hence deserve to be regularised? What parameters would it use to do so? Would it consider only the 30-40 operational coal mines as genuine allocations? What about those companies in the process of getting approvals to begin mining operations. Should the SC snatch their coal blocks away? Or should it sit in judgment of which ones may get approvals and hence need regularisation? Some companies may be genuine allottees but may have not begun work on the mines on account of financial stress due to the recent economic slowdown. Others may have gotten more coal than they needed.
For instance, Raipur Alloys & Steel was given the Gare Palma IV/7 coal block with reserves of 156 million tonnes, far in excess of what the company needed for its proposed capacity of 3 lakh tonnes and an 18 MW power plant. What should be done in the Jindal Strips case? The company was allocated Utkal D block with a reserve of 190 million tonnes, whereas the 30-year requirement of the project was 90 million tonnes. Can such allocations be justified and regularised, even if the mines and end-use plants are up and running?
Does the SC have the time or expertise to determine this? Will it delegate to a committee? Or will it trust the government to devise fair solutions? Any of them will face the same challenges as well as determination of penalties/disgorgement.
The practical issues are just one hurdle, complex, but maybe over time, surmountable. What about legal issues? Could companies that are denied regularisation argue that they must not be punished for poor policy implementation by governments? Unlike the 2G order, the coal order does not find bias or favour.
The 2G judgment observed that ?this arbitrary action of the Minister of C&IT though appears to be innocuous was actually intended to benefit some of the real estate companies who did not have any experience in dealing with telecom services?.
In the coal order there is no such explicit mention of mala fide motive. Yet how else can one describe what went on for over 20 years? Even Harish Salve described the process as ?sickening?!
But sans any specific charge of corruption (unless the CBI/ED investigation finds any) in the allocations, it might be difficult to justify why all or most allocations should not be regularised. Especially if companies claim to be ?genuine? allottees and are desirous of setting up steel, cement or power plants.
The other legal challenge could emanate from those companies who were denied coal block allocations by the Committee. For instance, in its 35th meeting, the Screening Committee allocated coal blocks to eight companies that were not recommended by the power ministry and ignored eight companies that had recommendations! No reasons were recorded. What if a ?genuine? company was denied coal in this arbitrary process? Now it has grounds to sue? Especially if some blocks are regularised despite the arbitrariness of process.
And then there?s the moral hazard accompanying regularisations? Which is not to say that regularisations have not been ordered before ? but at such a large scale? For over 20 years of violations? What message does it send out? That if the economic costs of restitution are high, the SC will have no choice but to regularise the theft? That?s handing politicians and bureaucrats a license to indulge in more such arbitrary allocations. Maybe not in coal because of the recent adoption of the auction route, but there are dozens of other such policy implementations that can go arbitrary and claim the ?cost? defence!
Look at what the promise of regularising slums has done to Mumbai. Half the city is a slum, forcing the poor to live in unsanitary, inhuman conditions. Worse still, Maharashtra?s politicians know that every five years they can dangle the bait of regularisation to fish for votes.
Justice vs commerce
The Supreme Court has the difficult job of balancing interests?of justice and commerce ? though I can?t quite reconcile why the two should get equal footing.
To go back to what Harish Salve said about illegality versus public good, I suppose the SC will have to decide where that public good lies. In considering economic costs and regularising the illegalities that took place over two decades or in sending out a strong message that deters any such illegal policy implementation here onwards. Think of what solution would appeal to you were you the owner of those coal mines that were handed out without due process. Because you are the owner of those coal mines. All of us are.
Menaka Doshi is executive editor at CNBC TV18. Views are personal
Equal & Opposite is a column that explores business practices prompted by legal & regulatory action and vice-versa
