Open Access Research Article
CHANGING PARADIGM OF COAL BLOCK ALLOCATION: A STEP TOWARDS COOPERATIVE FEDERALISM
Published Paper
Article Details
AUTHORED BY - SHIVAM AGRAWAL
Abstract:
Despite the call for renewable energy sources,
India heavily depends on its coal reserves. The Union and the States are
coordinating in effectively regulating coal mines and the country's scientific
development of coal resources. A perusal of this paper would dictate that India
can optimally utilize its natural resources through the spirit of cooperative
federalism. The existing regulatory and institutional framework regarding the
allocation of coal blocks suggests that India has come a long way from a
preferential licensing regime. Before 2010-12, the allocation of coal blocks
was happening through recommendations of the Screening Committee, which the
Supreme Court in 2014 declared arbitrary and illegal; consequently, such
allocations suffered cancellation. In 2015, the Coal Mines (Special Provisions)
Act ensured continuousness in coal mining operations. The Act 2015 and the
existing MMDR Act 1957 form the basis of the existing policy of coal block
allocation through auction by competitive bidding. By adopting a fair and
transparent approach in allocating coal blocks of the country to private and government
entities, India has taken another step towards the boon of cooperative
federalism.
Key
Words: Allocation of Coal
Blocks, Preferential Licensing Regime, Competitive Bidding, MMDR Act, 1957,
Cooperative Federalism
Introduction
Coal is an essential source of energy in
India. Because of its abundance, availability, and affordability, coal
contributes up to 55% in meeting the country's energy requirements.[2]
Despite the call for renewable sources, coal as an energy source will stay
relevant for at least a few more decades in the Indian context. Concerning the
legal framework which regulates the utilization of coal reserves of the
country, it is primarily The Mines and Mineral (Development and Regulation)
Act, 1957 (hereinafter, MMDR Act), which forms the picture. As per Schedule One
of the MMDR Act, coal is a 'mineral.' After the passing of the Coal Mining
Nationalization Act 1973 (hereinafter, CMN Act), only the public sector could
undertake coal mining operations, and the burden of supply of coal shifted onto
public sector companies. Because of the booming demand for coal as an energy
source, it became essential to enable private participation in this field. It
is vital to pinpoint here that the Central Government is responsible for
controlling the regulation of mines and developing mineral sources.
Notwithstanding, the State Governments work with their union counterparts to
facilitate the functioning of mines and the development of minerals. Only
through the cooperation of the Union and the States can the development and
effective utilization of coal resources be done.
Axiomatically, the allocation of coal blocks
of the country to different entities is of grave importance for the optimal
utilization of coal reserves. The procedure for allocating coal blocks is
another crucial aspect. Before the Coal-Gate Scam (2012), it was through the
preferential licensing policy that coal block allocations were happening in
India. The preferential licensee had the right to obtain a license under the
mining law regime.[3]
Around 1992-93, the Central Government felt the need for a Screening Committee
to scrutinize proposals/applications from private and government entities
applying for ownership and operation of captive coal mines. In its 36 Meetings
held from 1993-2008, the Screening Committee (first constituted on 14/07/1992[4])
made allocations of coal blocks without following the rule of law. The draft
report of the Comptroller and Auditor General of India (CAG) also highlighted
the infirmities and flaws in the process of coal block allocations.[5]
Later, in the case of ML Sharma v. The Principal Secretary[6],
wherein the constitutionality of the allocation of coal blocks was in question,
the court held that allocations made by the Screening Committee were arbitrary
and illegal. Post this judgment - more focus has been on the allocation of coal
blocks through auction by competitive bidding to submit to the mandate of
Articles 14 and 39(b) of the Constitution of India, 1950. The preferential
licensing policy is no longer in operation because of several loopholes and
systemic deficiencies in its functioning.
Statement of Problem
In India, the trend concerning the allocation
of coal blocks has shifted from a preferential licensing policy to an
auction-based process involving competitive bidding. It is a positive change in
the direction of ensuring a fair and transparent approach with respect to the
allocation of coal blocks. It is crucial here to understand how this shift
indicates India's move along the lines of cooperative federalism.
Research Objectives
This project aims to understand how the Union
and State Governments are expected to work in unison to ensure optimal
utilization of the coal reserves of the county. The material resources of the
county must be optimally utilized to subserve to the common good. And for this,
the only possible solution is to embrace the spirit of cooperative federalism.
Furthermore, one must know how and why the Indian regime has shifted from a
preferential licensing policy to an auction-based process involving competitive
bidding for allocating coal blocks.
Research Questions
This project seeks to answer the following
questions:
1.
Why has
the Indian regime shifted from a preferential licensing policy to an
auction-based process involving competitive bidding for allocating coal blocks?
2.
How, by
taking the recourse of the process involving auction through competitive
bidding for the allocation of coal blocks, has the government taken a further
step towards the boon of cooperative federalism?
Research Design
This paper is the result of an analysis of various journals,
articles, and books. Reliance is placed on secondary sources of literature.
Various legislation and court cases have come in handy during the preparation
of this research paper. In essence, this paper is an out-product of doctrinal
research methodology.
Hypothesis
By taking the recourse of the process
involving auction through competitive bidding for the allocation of coal
blocks, the government has taken a further step towards the boon of cooperative
federalism.
Regulatory Framework WRT Coal Blocks Allocation
Entry 54 of the Union List reads - "Regulation
of mines and mineral development to the extent to which such regulation and
development under the control of the Union is declared by Parliament by law to
be expedient in the public interest." It is Section 2 of the
MMDR Act, 1957 which declares that "it is expedient in the public
interest that the Union should take under its control the regulation of mines
and the development of minerals." Furthermore, the First Schedule of
the MMDR Act indicates that 'coal' is one of the minerals specified therein.[7]
"Coal' is a mineral, the responsibility of the regulation and development
of which primarily lies in the Union.
The MMDR Act, the Mines Act 1952, and the
Rules made under these two enactments form the body of laws governing coal
mining in India.[8]
Environmental laws & regulations also affect the functioning of the coal
sector.[9]
The Coal Bearing Areas (Acquisition and Development) Act, 1957, provides for
"greater public control over the coal mining industry and its
development by providing for the acquisition by the State of unworked land
containing or likely to contain coal deposits…."[10]
In 1973, the Coal Mines (Nationalisation) Act 1973 (hereinafter, the CMN) came,
and the ownership and control of the country's coal resources were vested in
the state. In 1993, the CMN Amendment Act came, and private sector
participation was allowed in coal mining for captive use for power generation
and other captive end uses. The private sector was further allowed to set up
coal washeries. It ensured the rational, coordinated, and scientific
development of coal mines and the country's optimal utilization of coal
resources. The CMN Act is no longer in operation.[11]
Although multiple Rules exist under the MMDR
Act & the Mines Act, which govern the regulation of coal mines and the
development of coal reserves, the Auction by Competitive Bidding of Coal Mines
Rules, 2012 (hereinafter, 2012 Rules) holds special significance in the context
of this paper. In ML Sharma[12],
the Supreme Court stumbled upon this aspect. The court noted that although
competitive bidding was introduced in 2004, several State Governments had
expressed their reservations owing to diverse concerns. In ML Sharma (Supra),
the Central Government explained the reasons for not introducing competitive
bidding for the allocation of coal blocks since 1992-93. In 2006, the Central
Government initiated measures to amend the MMDR Act (1957) to address
competitive bidding.
Consequently, the Parliament passed the MMDR
Amendment Bill of 2008 in 2010. This amendment introduced Section 11A in the
MMDR Act, which provided for the allocation of coal blocks through competitive
bidding. Then on 02/02/2012, the 2012 Rules were notified.[13]
After the Supreme Court in ML Sharma (Supra)
held allocations of coal blocks through the Screening Committee route to be
arbitrary and illegal, the court, vide its order dated September 24, 2014, cancelled
such allocations and issued directions concerning such coal blocks. In
pursuance of the said order, the Central Government brought the Coal Mines
(Special Provisions) Act, 2015 (hereinafter, 2015 Act) to allocate coal blocks
to ensure continuousness in coal mining operations.[14]
The 2015 Act, inter alia, re-introduced Section 11A of the MMDR Act.[15]
Sector 11A of the MMDR Act, 1957, after going through a couple of more
amendments, is currently titled "Granting of mineral concession or
composite license in respect of coal or lignite."[16]
Inter alia, Section 11A of the MMDR Act provides for allocating coal
blocks through auction by competitive bidding. Provisions of Section 11A of the
MMDR Act are there (discussed) in the latter part of this paper.
The Central Government notified 2012 Rules in
the exercise of the powers conferred by Section 13(2) (d) of the MMDR Act for
specifying the auction process by competitive bidding for the company selection
under Section 11A of the MMDR Act. However, the 2015 Act has amended Sections
11A & 13(2) (d) of the MMDR Act, necessitating amendments in the 2012
Rules. Thus, in the exercise of powers conferred by Sections 13(1) & 13(2)
(d) of the MMDR Act, the Central Government, on July 13, 2017, notified the
Coal Blocks Allocation Rules, 2017.[17]
Coal Blocks Allocation Rules (2017) provide an inclusive definition of
"coal" - "coal includes anthracite, bituminous, lignite,
peat, coking coal, coke, and any other form of carbonaceous matter sold or
marketed as coal."[18]
These Rules (2017) have further been amended in 2020.[19]
Legislative powers of State Governments concerning
the Coal Sector
Entry 23 of the State List reads: "Regulation
of mines and mineral development subject to the provisions of List I with
respect to regulation and development under the control of the Union."
This power of federating units is subject to the provisions of the Union List.
The declaration in Section 2 of the MMDR Act, 1957 dictates that the Union
should take control of the regulation of mines and the development of minerals.
Thus, one can deduce that the State Governments have lost their legislative
power to the extent to which the Union has taken over control and regulation of
coal resources.[20]
In other words, the power of the Union vide the declaration under the MMDR Act
is extracted from the competence of State Legislatures.[21]
In effect, the afore-stated declaration has taken out "regulation of coal
mines and development of coal" from Entry 23 of the State List. However,
the word 'regulation' occurring in the declaration of Section 2 of the MMDR
Act, although it should receive wide interpretation but the extent of control
of the Union as directed by the MMDR Act has to be construed strictly.[22]
It means that the declaration of Section 2 of the MMDR Act erodes the
legislative power of states only to the extent to which the Union assumes
control.[23]
The State Legislatures are competent to enact
laws concerning regulating coal mines and developing coal resources under Entry
23 of the State List. But this power is subject to the declaration of Section 2
of the MMDR Act. In effect, the matters referred to in the declaration stand
extracted from the State List, and those become matters of the Union List.[24]
It is well within the authority of State Governments to make a reservation of a
mining area within the territory of respective states for their use. This
authority is the offspring of ownership and is inseparable from states unless
denied expressly by law. The MMDR Act does not affect this inherent right/power
of State Governments. Setting aside land owned by a State Government for its
exclusive use is an incident of ownership and sovereignty.[25]
It is justified if a State Government reserves an area in respect of minerals
lying within its territory for exclusive use and exploitation by the public
sector.[26]
Institutional Framework behind the Coal Sector in
India
The institutional structure in this regard
comprises institutions at various levels. At the central level, (a) The
Ministry of Coal along with; (b) the Ministry of Environment, Forest and
Climate Change; (c) The Ministry of Mines; and (d) The Ministry of Labour and
Employment; form the body of institutions involved in the management of the
coal sector. At the state level, the institutions, including the (a) Mining
Department; (b) Forest Department; (c) Department of Environment; and (d) State
Pollution Control Boards (SPCBs), form the institutional framework committed to
the regulation and development of coal resources. At the local level,
Panchayats and Municipalities play an important part in managing environmental
concerns, e.g., land improvement and soil conservation, inter alia. At
this level, institutions such as the District Magistrate, Department for
Collecting Taxes, and Department for issuing Licenses for Mining Operations,
also perform indirect regulatory functions.[27]
In addition to the institutions involved in
managing the coal sector in India, trade unions of diverse magnitudes have also
started playing a significant role. Over several decades, these trade unions,
among other informal institutions, have achieved noteworthy representation and
acquired an influential political voice.[28]
Allocation of Natural Resources
vis-à-vis Coal Blocks
Two Supreme Court decisions viz. 2G Case[29]
& Natural Resources Allocation Case[30]
directly deals with the aspect of the auction as a mode for
alienation/allocation of natural resources. In the 2G Case, the court said that
an auction conducted impartially and in adherence to the rule of law is perhaps
the best-suited method for alienating natural resources. While disposing of
natural resources, the state is duty-bound to submit to the mandate of Articles
14 and 39(b) of the Constitution of India.
The overhead view of the court necessitated
the reference by the President of India to the Supreme Court under Article
143(1) of the Constitution, i.e., the Natural Resources Allocation Case. The
primary question at the core of the above reference was whether the conduct of
auctions should always do disposal/alienation of natural resources. The Constitution
Bench, which handled the reference, observed that the court's view in the 2G
Case was confined to the specific case of the spectrum and not to the
alienation of all natural resources. The court stated that the state, while
allocating natural resources to entities, should primarily ensure two things,
viz. (a) the process of allocation/alienation should not be arbitrary and
rather should conform to the mandate of the equality clause, i.e., Article 14
of the Constitution;[31]
and, (b) material resources of the community should be distributed to subserve
the common good.[32]
The court acknowledged that there could be legitimate deviations from the mode
of the auction for alienating/allocating natural resources.[33]
However, in essence, the court stated that the auction, although a preferable
mode of alienation/allocation of natural resources, cannot be held to be a
constitutional mandate.
View of the Court embedded in the decisions of
the 2G Case & the Natural Resources Allocation Case concerning the desirability/preferable-ness
of the mode of the auction for the allocation of natural resources, i.e., coal
was reiterated by the court in ML Sharma (Supra).
Cooperation between the Union and the States w.r.t.
regulation and development of
the Coal Sector
A study of the regulatory framework w.r.t.
coal blocks allocation and analysis of the institutional framework behind the
running of the coal sector of India suggests that it is both the Central
Government and State Governments whose coordinated efforts contribute to the
regulation of coal mines and development of the coal resources of the country.
Section 11A of the MMDR Act, 1957 can be
illustratively analyzed to understand how the allocation of coal blocks is
achieved through the cooperative approach of the Union and the Federating
Units. Section 11A provides that to grant mineral concession[34]
or composite license[35]
in respect of coal resources, the Central Government may select any companies
listed therein through auction by competitive bidding. However, the State
Government has been trusted to grant such mineral concession or composite
license in respect of an area containing coal reserves to such company as
selected by the Central Government.[36]
Similarly, the scheme of the Coal Blocks
Allocation Rules, 2017 indicates how the Central Government and the State
Governments are expected to collaborate to effectively achieve the intended
purpose, i.e., allocating coal blocks. It is noteworthy that the term
"allocation" implies allotment and auction referred together.[37]
CBA Rules, 2017 provides for the allocation process; block dossier; auction;
allotment; allotment based on tariff-based competitive bidding for power
projects; procedure after the declaration of the successful bidder/successful
allottee; re-auction and re-allotment; and other miscellaneous provisions.
In Goa Foundation v. Union of India[38],
it has been acknowledged by the court that, as a matter of policy, it is for
the State Government to decide how mining leases are to be granted. However,
the constitutionality of the decision of the State Government can be judged
through the judicial review process. It has been held time and again that the
ownership of all the mines and minerals within a state's territory lies with
such a state. Furthermore, minerals vest with the state.[39]
Conclusion
Regarding rational and scientific regulation
of coal mines and optimum utilization of coal resources, it can be achieved
only through coordinated efforts of the Centre and the Federating Units. It
should be the joint endeavor of the Union and the States to work together to
develop coal resources in the country. The spirit of cooperative federalism has
the welfare and efficient development of coal blocks in its womb. To achieve
this coordination, the Union and the States must embrace a cooperative federal
design. In the words of BN Srikrishna, "federalism can only work when
there is a strong sense of unity underlying the diverse constituents."[40]
A perusal of this paper would dictate that
India has come a long way regarding allocating coal blocks. From the
preferential licensing regime to the current mode of allocation through auction
by competitive bidding, the evil of arbitrariness has been successfully
tackled. There is no doubt that the current regime regarding the allocation of
coal blocks aligns with the mandate of Articles 14 & 39(b) of the
Constitution of India. The more transparent and fairer the allocation process
of coal blocks, the better it is for the optimum utilization of the coal
reserves.
It can further be stated that by adopting the
framework in which coal blocks are being fairly allocated, India has taken
another step towards the boon of cooperative federalism. Currently, the Union
and the States are working along the lines of cooperative federalism to ensure
effective regulation of coal mines and scientific development of coal
resources.
[1] By – Shivam Agrawal, B.A.LL.B.
(Hons.), Hidayatullah National Law University, Raipur; LL.M., The West Bengal
National University of Juridical Sciences, Kolkata.
[2] COAL – INDIAN ENERGY CHOICE, available at
https://coal.nic.in/en/major-statistics/coal-indian-energy-choice (Last visited
on October 25, 2022).
[3] Chengappa, M. M. (2017). The Move
from Preferential License/Lease Regime to Competitive Bidding through Auction:
An Examination of Law Relating to Coal Block Allocation in India. Indian Journal of Law and Justice, 8(2),
46-58, 46.
[4] Ministry of Coal, Office Memorandum,
No. 13011/3/92-CA (July 14, 1992).
[5] The Comptroller and Auditor General (CAG), Report No. 7
of 2012-13 – Performance Audit of Allocation of Coal Blocks and Augmentation of
Coal Production, Ministry of Coal, 22, available at
https://cag.gov.in/en/audit-report/details/1837 (Last visited on October 25,
2022).
[6] Manohar Lal Sharma v. The
Principal Secretary, (2014) 9 SCC 516.
[7] The Mines and Minerals
(Development and Regulation) Act, 1957, Schedule I, Part A, Item 1.
[8] Arpita Asha Khanna, Governance in Coal Mining: Issues and
Challenges, August 2013, 8-9, available at
https://www.teriin.org/projects/nfa/2008-2013/pdf/nfa-WkP9-coal-governance.pdf
(Last visited on October 25, 2022).
[9] See The Forest (Conservation) Act, 1980; and The Environment
(Protection) Act, 1986.
[10] The Coal Bearing Areas
(Acquisition and Development) Act, 1957, The Long Title.
[11] Coal Mines (Nationalisation) Act,
1973 [Repealed], available at https://www.scconline.com/Members/BrowseResult.aspx
(Last visited on October 25, 2022).
[12] Manohar Lal Sharma v. The
Principal Secretary, (2014) 9 SCC 516.
[13] The Auction by Competitive Bidding
of Coal Mines Rules, 2012.
[14] The Coal Mines (Special Provisions) Act, 2015,
The Long Title.
[15] The Coal Mines (Special Provisions) Act, 2015,
Schedule IV, Part B, Item 1.
[16] See The Mineral Laws (Amendment) Act, 2020; and The Mines and
Minerals (Development and Regulation)
Amendment Act, 2021.
[17] The Coal Blocks Allocation Rules,
2017, The Long Title.
[18] The Coal Blocks Allocation Rules,
2017, Rule 2(1) (k).
[19] See The Coal Blocks Allocation (Amendment) Rules, 2020.
[20] Baijnath Kadio v. State of Bihar,
(1969) 3 SCC 838. See also
Hingir-Rampur Coal Co. Ltd. v. State of Orrissa, (1961) 2 SCR 537; State of
Orissa v. M.A. Tulloch and Co., (1964) 4 SCR 461.
[21] Sandur Manganese and Iron Ores
Ltd. v. State of Karnataka, (2010) 13 SCC 1.
[22] Monnet Ispat and Energy Ltd. v.
Union of India, (2012) 11 SCC 1.
[23] Orissa Cement Ltd. v. State of
Orissa, 1991 Supp. (1) SCC 430.
[24] Bharat Coking Coal Ltd. v. State
of Bihar, (1990) 4 SCC 557.
[25] Monnet Ispat and Energy Ltd. v.
Union of India, (2012) 11 SCC 1.
[26] Amritlal Nathubhai Shah v. Union
of India, (1976) 4 SCC 108.
[27] Supra note 8, 9-11.
[28] Id.
[29] Centre for Public Interest
Litigation v. Union of India, (2012) 3 SCC 1.
[30] In Re: Special Reference No. 1 of
2012, (2012) 10 SCC 1.
[31] E.P. Royappa v. State of Tamil
Nadu, (1974) 4 SCC 3.
[32] State of Tamil Nadu v. L. Abu
Kavur Bai, (1984) 1 SCC 515.
[33] See M/s Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir,
(1980) 4 SCC 1; M.P. Oil Extraction v. State of M.P., (1997) 7 SCC 592 inter alia.
[34] The Mines and Mineral (Development
and Regulation) Act, 1957, §3(ae). It reads: “mineral concession” means either a reconnaissance permit, prospecting
licence, mining lease, composite licence or a combination of any of these and
the expression “concession” shall be construed accordingly.
[35] The Mines and Mineral (Development
and Regulation) Act, 1957, §3(a). It reads: “composite
licence” means the prospecting licence-cum-mining lease which is a two stage
concession granted for the purpose of undertaking prospecting operations
followed by mining operations in a seamless manner.
[36] The Mines and Mineral (Development
and Regulation) Act, 1957, §11A.
[37] The Coal Blocks Allocation Rules,
2017, Rule 2(1) (c).
[38] Goa Foundation v. Union of India,
(2014) 6 SCC 590.
[39] State of Orrisa v. Union of India,
(2001) 1 SCC 429. See also Amritlal Nathubhai Shah v. Union of India, (1976) 4
SCC 108.
[40] Srikrishna, B. N. (2011). Beyond Federalism. India International
Centre Quarterly, 38(3/4), 386–407, 407.
Article Information
CHANGING PARADIGM OF COAL BLOCK ALLOCATION: A STEP TOWARDS COOPERATIVE FEDERALISM
Authors: SHIVAM AGRAWAL
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/03/15
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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