Karnataka High Court
Emta Coal Limited vs Karnataka Power Corporation Limited on 8 December, 2015
Author: Anand Byrareddy
Bench: Anand Byrareddy
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 08TH DAY OF DECEMBER 2015
BEFORE:
THE HON'BLE MR. JUSTICE ANAND BYRAREDDY
WRIT PETITION Nos.45102-45103 OF 2015 (GM-TEN)
BETWEEN:
1. EMTA Coal Limited,
5B, Nandalal Basu Sarani,
Kolkata 700 71,
Through its constituted attorney
Mr. C.P.Somnath Panth.
2. Karnataka EMTA Coal Mines
Limited, 104,
Marielle Apartments,
#3 Magrath Road,
Bangalore 560 025,
Through its Managing Director,
Mr. Ujjal Kumar Upadhaya.
...PETITIONERS
(By Shri Uday Holla, Senior Advocate for Shri Reuben Jacob,
Advocate)
2
AND:
1. Karnataka Power Corporation Limited,
A Government Company under the
Provisions of Companies Act, 1956,
Having its registered office at
Shakthi Bhavan, #82,
Race Course Road,
Bangalore 560 001,
Represented by its
Managing Director.
2. State of Karnataka,
Represented by Principal Secretary
To Government, Department of Energy,
Vikasa Soudha,
Dr. Ambedkar Veedhi,
Bengaluru 560 001.
[respondent no.2 impleaded
Vide court order dated 18.11.2015]
... RESPONDENTS
(By Shri Jayakumar S Patil, Senior Advocate for Shri Ajay J
Nandalike, Advocate for Respondent No.1;
Shri Vijaykumar A Patil, Additional Government Advocate for
Respondent No.2)
These Writ Petitions filed under Article 226 of the
Constitution of India, praying to quash and set asides the
impugned NIT dated 5.8.2015 (Annexure-A) issued by KPCL and
to direct in the nature of mandamus to the respondent to consider
novating the contract in favour of the petitioner no.2 consequent to
Section 11 of the Coal Mines (Special Provisions) Act, 2015.
Alternatively, direct KPCL to provide petitioner no.1 and/or
3
petitioner no.2, a right to match the lowest BID that the
respondent may receive in a tender process conducted pursuant to
the NIT, in the light of the fact that petitioner No.1/petitioner no.2
has developed the coal block from which the coal is intended to be
supplied.
These Writ Petitions having been heard and reserved on
03.12.2015 and coming on for pronouncement of Orders this day,
the Court delivered the following:-
ORDER
The facts of the case are as follows:
Petitioner no.1 is a company incorporated under the Companies Act, 1956, namely, EMTA Coal Limited, (Hereinafter referred to as the 'ECL', for brevity). It is engaged in the business of excavation and mining of coal. Petitioner no.2, Karnataka EMTA Coal Mines Limited (Hereinafter referred to as the 'KECML', for brevity) is a joint venture company, formed by petitioner no.1 and the respondent, Karnataka Power Corporation Limited, (Hereinafter referred to as the 'KPCL', for brevity) The respondent - KPCL is a State government undertaking, involved in generation of power in the State of Karnataka. KPCL 4 was allocated captive coal blocks at Baranj I to IV, Manora Deep and Kiloni, located at Chandrapur District, Maharashtra State, by the Ministry of Coal, Government of India, as on 10.11.2003. The said allotment was made to meet the coal requirement of the 1000 Mega Watt Thermal Power Project at Bellary, Karnataka State, that was proposed to be established by KPCL.
The allocation was subject to several conditions, apart from the following. The coal mined, was to be exclusively used for the above said project. The project was to be commissioned by December 2006, before coal production could be started.
Petitioner no.2, the joint venture company was formed for the purposes of facilitating the mining of coal from the aforesaid coal blocks. Petitioner no.1 held 74% shares in the said company and KPCL , the respondent, held 26% shares thereof.
The compulsion to have formed the joint venture company was said to be in the following background:
State owned Power utilities came to be allocated coal mines to enable them to develop and mine the coal for exclusive 5 use for their power generating plants. The mines identified for such allocation were generally said to be mine heads abandoned by Coal India Limited, a government of India undertaking and its subsidiaries. It was hence found that it was economically unviable for the State owned utilities to make financial investments in mining the coal. It was also the view that engagement of private contractors to mine the coal and the removal of the overburden would be in contravention of the Contract Labour (Regulation and Abolition) Act, 1970, as such operation was of a permanent and a perennial nature. Hence, formation of a special purpose joint venture company, with the dedicated object of the entire coal extracted from the mines being exclusively supplied to the thermal power station of the respondent, as being a practical and prudent alternative, the petitioner was identified as being a suitable partner, by the respondent, after inviting tenders and going through a selection process, in a completely transparent manner.
On 8.7.2002, KPCL had selected petitioner no.1 as a partner for the development and operation of the captive coal blocks was 6 done specifically with the objective that the respondent would receive coal at rates lesser than the prevalent rates of Coal India Limited. The pricing was arrived at on an assumption that the project life would extend to a 30 year period, correspondingly the profit margin to enure to the benefit of Petitioner no.1 was also nominal, as it was spread over a period of three decades.
The joint venture agreement to incorporate petitioner no.2 was executed on 13.9.2002, which was for a term of 25 years. In terms of the agreement, KPCL had no financial liability towards the petitioners. In that, all expenses involved in the development of the coal blocks were to be incurred by petitioner no.1. The following were some of the obligations cast on Petitioner no.1, in developing the coal blocks :
For achieving the above main object, EMTA on behalf of the KPCL was required to, inter-alia, take up the following activities with regard to the coal blocks:
a) survey and preparation of plans for mining;
b) drilling and prospecting;7
c) mining either in open cast process or underground or both;
d) assessment of reserves both Open Cast and Underground;
e) raising coal and stacking the same on surface;
f) sizing of coal into the required size;
g) Establishing coal-washery of adequate capacity at the pit head and the supply of coal of the required specification to the power plant of KPCL by Rail mode;
h) compliance with all applicable laws including the Mines Act and Safety Rules & Regulations thereof;
i) collection and analysis of geological or any other relevant data in respect of Blocks offered and other available block with Ministry of Coal, Coal India Limited, CMPDIL, Geological Survey of India, Railways, State Government and other agencies;
j) land acquisition and related issues of ownership and associated risks, if any;
k) exploration, if required;
l) obtaining Mining Lease for the blocks;8
m) preparation of plans, obtaining of approval of Site clearance from the Ministry of Environment and Forest, Government of India;
n) preparation of Mining Plan and its approval from the Ministry of Coal, Government of India;
o) preparation of Environment Management Plan and its approval from the Ministry of Environment and Forest, Government of India;
p) obtaining of Industrial License and all other permissions or approvals required as per applicable laws;
q) obtention of opening permission from Director General of Mine Safety and Coal Controller;
r) arrangement of approval for coal linkage from KPCL Coal Mines to the power stations of KPCL;
s) arrangement of railway siding nearest to the KPCL Coal Mines, and 9
t) arrangement for power supply, water supply and all other infrastructural facilities for the mines development not specifically mentioned hereinabove.
u) undertake all other allied jobs for coal mining and washery operations.
From the above, it is evident that the petitioners were required to invest substantial sums of money much earlier to the actual production of coal, just to develop the coal blocks.
KPCL had intimated the Union of India as on, 19.11.2003, as regards the formation of a joint venture company as aforesaid and had requested that the said arrangement be notified in the Gazette of India and had also requested that the mining lease be granted in favour of Petitioner no.2.
Petitioner no.2 company is said to have submitted the mining plan, in respect of the six coal blocks, in July 2004 , to the Union of India. The Ministry of Coal is said to have granted approval of the mining plan as on 8.12.2004. An application having been made through the Government of Maharashtra State, 10 to the Union of India, site clearance was said to have been accorded by the Ministry of Environment and Forest. On 31.1.2006, the Union of India is said to have accorded previous approval, under Section 5(1) of the Mines and Minerals (Development and Regulation) Act, 1957 (Hereinafter referred to as the 'MMDR Act', for brevity) in favour of Petitioner no.2. Pursuant to the above, a mining lease was said to have been executed in favour of Petitioner no.2, by the State of Maharashtra to enable mining of coal from the non-forest area of the coal blocks.
Petitioner no.2 is said to have initiated action to undertake mining activities immediately after the monsoon, in September, 2007. It is stated that the petitioners had to undertake various measures before the actual commencement of mining operations. The following were said to be some instances.
a) A State Highway no.264 was found running between two coal blocks, the same had to be diverted and shifted outside the mining 11 area. This required the petitioners to purchase land to accommodate the said re-aligned highway.
b) Villages and other habitation within the coal blocks had to be evacuated and the displaced were to be rehabilitated. This entailed purchase of land and payment of compensation.
c) About 6 high tension power lines, one 400 KV power line and five other overhead lines had to be shifted outside the mining area.
This had again entailed purchase of land for the purpose of shifting and re-locating the same.
d) A private railway siding was constructed for the purpose of transporting the mined coal to the power station of KPCL. Land was purchased for this purpose as well.
The coal mines, which became operational in the year 2008, had successfully supplied the requisite coal for the power station of KPCL at Bellary for almost four years. Thereafter, KPCL required that the petitioners expand the capacity of the mines from an annual production of 2.5 million tonnes to 5 million tonnes, in 12 order to meet the coal requirement of a second unit at its power station. Accordingly the mining plan is said to have been revised and duly approved by the competent authority, as on 24.8.2011. The increase in production of the coal to 5 million tonnes required the petitioners to incur further expenditure towards the enhancement of capacity of the railway siding, by constructing a second loop line, for payment of compensation and re-habilitation of villagers affected by the commissioning of the additional coal block, for investment in Heavy earth moving machinery, etc. The petitioners are said to have thus made investments in excess of Rs.634.78 crores for the development of the coal blocks. This was clearly in the expectation that such amount would be amortized over a period of 25 years, which was the estimated life of the project, or the exhaustion of the coal deposits in the coal blocks.
In the above background, the allocation of coal blocks by the Union of India during the period 1993 to 2010 was alleged to be illegal and unconstitutional, in writ petitions in the nature of public interest litigation, before the Supreme Court of India 13 (Manohar Lal Sharma v. The Principal Secretary & others, (2014)9 SCC 516 ), on the following grounds :
"2.1 Non-compliance with the mandatory legal procedure under the Mines and Minerals (Development and Regulation) Act, 1957 2.2. Breach of Section 3(3)(a)(iii) of the Coal Mines (Nationalisation) Act, 1973 2.3 Violation of the principle of trusteeship of natural resources by gifting away precious resources as largesse.
2.4 Arbitrariness, lack of transparency, lack of objectivity and non-application of mind.
2.5 Allotment tainted with mala fides and corruption and made in favour of ineligible companies tainted with mala fides and corruption."
The Supreme Court while allowing the petitions held thus :
'163. 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 14 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.
164. The allocation of coal blocks through Government dispensation route, however laudable the object may be, also is illegal since it is impermissible as per the scheme of the CMN Act. No State Government or public sector undertakings of the State Governments are eligible for mining coal for commercial use. Since allocation of coal is permissible only to those categories under Section 3(3) and (4), the joint venture arrangement with ineligible firms is also impermissible. Equally, there is also no question of any consortium / leader / association in allocation. Only an undertaking satisfying the eligibility criteria referred to in Section 3(3) of the CMN Act, viz., which has a unit engaged in the production of iron and steel and generation of power, washing of coal obtained from mine or production of cement, is entitled to the allocation in addition to Central Government, a Central 15 Government company or a Central Government corporation."
In so far as allocations made to State public sector undertakings, such as the respondent, the mischief, that the Court found prevalent was expressed thus:-
"Moreover, the State PSUs, besides having been allocated coal mines for commercial purpose, have also been allowed to form joint venture companies, i.e., 51% shareholding of State PSUs and 49% of private company. However, in the joint venture agreements between the State PSUs and the private companies, mining operations have been given to private company. For example, the notice inviting offer dated 02.07.2008 issued by Chhattisgarh Mineral Development Corporation (CMDC) for selection of partner for formation of a joint venture company for exploration, development, mining and marketing of coal from coal blocks 159 provided that the Joint Venture Company (JVC) to be formed by CMDC and the selected offerers / bidder will explore, develop and operate such coal deposits and the coal produced by JVC will be sold commercially to various consumers in the open market. CMDC was allocated Sondiha coal block and coal blocks Bhatgaon-II and Bhatgaon-II (Extension). Similarly, the Joint Venture Agreement between the Madhya Pradesh 16 State Mining Corporation Limited and Monnet Ispat and Energy Limited reveals that Joint Venture Company has been further allowed to enter into Mine Development Operation Agreements with other private partner or sister concern. This modus operandi has virtually defeated the legislative policy in the CMN Act and winning and mining of coal mines has resultantly gone in the hands of private companies for commercial use. "
The above decision was rendered on 25.8.2014 and it was followed by a further order, dated 24.9.2014, (Manohar Lal Sharma v. Principal Secretary, (2014) 9 SCC 614) wherein the court spelt out the consequences of the cancellation of the allotment of the coal blocks.
"31. There are two categories of coal block allotments: the first category being allotments other than those mentioned in Annexure 1 and Annexure 2; the second category being the 46 coal blocks mentioned in Annexure 1 and Annexure 2 that could possibly be "saved" from cancellation on certain terms and conditions, as submitted by the learned Attorney General.
32. 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 17 "save" them from cancellation. 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% ready or 92% ready or 90% ready for production (as argued by some learned counsel) is wholly irrelevant. Their allocation was illegal and arbitrary, as already held, and therefore we quash all these allotments."
xxx "37. In view of the submissions made, although we have quashed the allotment of 42 out of these 46 coal blocks, we make it clear that the cancellation will take effect only after six months from today, which is with effect from 31st March, 2015. This period of six months is being given since the learned Attorney General submitted that the Central Government and CIL would need some time to adjust to the changed situation and move forward. This period will also give adequate time to the coal block allottees to adjust and manage their affairs. That the CIL is inefficient and incapable of accepting the challenge, as submitted by learned counsel, is not an issue at all. The Central Government is confident, as submitted by the learned Attorney General, that the CIL can fill the void and take things forward."
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Incidentally, KPCL, was one of the allocatees in Annexure-I, referred to by the Supreme Court in the above paragraphs.
The Union of India immediately promulgated the Coal Mines (Special Provisions) Ordinance, 2014, to implement the aforesaid orders of the Supreme Court, as on 21.10.2014. It was intended to re-auction and re-allot the coal mines. On 11.12.2014, the Ministry of Coal had notified the Coal Mines (Special Provisions) Rules, 2014. On 26.12.2014, the Coal Mines (Special Provisions) Second Ordinance, 2014, was promulgated and thereafter the Coal Mines (Special Provisions) Act, 2015 (Hereinafter referred to as the '2015 Act', for brevity) has been passed, which is substantially the same as the Second Ordinance.
Pursuant to the above decision and the legislation coming into force, the Central Government had reallocated the captive coal blocks and KPCL has been allocated the same coal blocks, as per allotment order dated 31.3.2015. KPCL had then issued a notice inviting tenders for the selection of a mine operator for 19 development and operation of the coal blocks, as per notice dated 5.8.2015.
It is the said action on the part of the respondent that is sought to be challenged in the above petition.
2. The learned Senior Advocate, Shri Udaya Holla, appearing for the counsel for the petitioners would contend that the issuance of the notice inviting tenders by KPCL is unjust and indicates a total non-application of mind in so far as the interest of the petitioner was concerned.
It is contended that the respondent, which is an instrumentality of State was expected to conduct itself in a transparent and fair manner and in accordance with the statutory provisions. In that, subsequent to the re-allotment of the captive coal blocks, KPCL has been reinstated as an allottee of the said coal blocks. Petitioner no.2, the erstwhile mine operator of KPCL, having made huge investments in terms of the contract, which did not provide for any commercial exploitation by the 20 petitioners - as it was not even contemplated that they would sell the coal to any third party, ought to have been given the benefit of Section 11 of the 2015 Act, which envisages adoption of the earlier contract, albeit on such modified terms in conformity with the law- for the residual term or residual performance. This avoidance of its responsibility by KPCL, in addressing the modality by which the contractual relationship between the petitioners and itself could be novated and in having proceeded to invite tenders is blatantly arbitrary and ought to be quashed on the said ground alone.
It is contended that the conduct of the respondent in ruthlessly disowning the petitioners while citing the Orders of the Supreme Court referred to hereinabove, is nothing short of blatant and unholy unjust enrichment, at the cost of the petitioners. It is contended that the respondent should not be permitted to penalise the petitioner without any just cause nor should the respondent be permitted to profiteer from the misfortune of the petitioners. The action of the respondents to oust the petitioners 21 and the issuance of a fresh notice inviting tenders, is in utter disregard of the provisions of the 2015 Act.
It is contended that the present position is such that on the invitation for bids, third party bidders would not be required to make any investment for operationalising the coal blocks, which has been substantially developed and was being operated for almost four years to the entire satisfaction of the respondent and had achieved record production. The unceremonious termination of the contractual relationship has been construed by KPCL as requiring it to engage a third party notwithstanding that Section 11 of the Act requires the allottee to adopt the previous contract, albeit on modified terms.
The injustice that results in the respondents having taken the present stand is sought to be highlighted while drawing attention to the circumstance that the first petitioner in making investments to commence development of the coal blocks has borrowed heavily from banks and financial institutions against securities provided by the petitioner and its promoters, 22 independently, as neither the land nor the infrastructure at the mine head could be offered as security. If the petitioners are now shut out, the petitioners would suffer a double jeopardy, in not only not being able to salvage the investment already made, but also being faced with the prospect of losing the securities offered to secure the borrowings.
The learned Senior Advocate would point out that though the Supreme Court had found that allocation of coal blocks in many cases, were fraught with illegality and that in so far as the State Public Sector Undertakings having bartered away coal blocks to private parties for their private benefit being the primary ground in the Court declaring that all the allocations, irrespective of the degree of illegality, were illegal and had thought it fit to set at naught all allocations; The Supreme Court had not chosen to examine or observe that the petitioners and the respondent had committed any illegality. There was hence no reason to treat the petitioners as being tainted with any illegal action or being ineligible to continue as a mine operator on behalf of KPCL. 23
It is pointed out that the petitioners are not seeking that any unusual favour be shown in their favour to the detriment of public interest, and such re-engagement of an erstwhile partner, to continue the mining activity as mine operator, which was in any case the earlier role as well. Except that the mining lease executed by the State of Maharashtra was in the name of the second petitioner, and this was on a conscious and mutual understanding of the respondent and the petitioners. It is pointed out that in a similar circumstance, the Rajasthan Rajya Vidyut Nigam Limited, a State government Public Sector Undertaking, which also had a coal block allotted to it, which after its cancellation had been subsequently re-allocated to it. Its previous contract for development and operation of its coal blocks stood novated invoking Section 11 of the Act, and there is no impediment to adopt a similar procedure in the present situation.
3. On the other hand, the learned Senior Advocate, Shri Jayakumar S. Patil, appearing for the counsel for the 24 respondent, contends that the crux of the petitioner's case is that the petitioner no.2 was the Joint Venture Company, which was conducting mining operations prior to the judgment of the Supreme Court, which cancelled the allotment in favour of the petitioner no.2. The petitioner has made investments to the tune of Rs.634.78 Crore for development of the mine block and it cannot be left without a remedy and the respondent cannot attempt to profiteer by virtue of the order of the Supreme Court and oust the petitioners.
It is contended that the Supreme Court's order at para 153 and 154 clearly states that any kind of joint venture arrangement is ultra-vires the Coal Mines (Nationalization) Act,1973 (Hereinafter referred to as the CMN Act', for brevity),and has therefore specifically outlawed the allotment in favour of the petitioner. It is contended that the Supreme Court had directed that the 'prior allottee' would have to pay an additional levy of Rs.295/- per MT for every metric ton of coal mined. All the allotments under the previous dispensation of laws were held as invalid and non-est and 25 all the mines stood vested in the Central Government. In view of the observations of the Supreme Court, the Central Government was required to frame a new appropriate legislation to provide for allocation of coal mines and vesting of right, title and interest in and over the land and mine infrastructure together with mining leases to successful bidders and allottees with a view to ensure continuity in utilization of coal resources consistent with the requirement of the country in national interest.
It was pursuant to the direction of the Supreme Court that the Central Government had passed the 2015 Act. The new Act framed detailed regulations for allotment of mines. The respondent was eligible for seeking allotment of captive coal blocks for specified end use purposes, i.e., in the present case for generation of power, under Section 5 of the 2015 Act. However, joint ventures were specifically prohibited from applying and no allotment would be made unless the allottee has made payment of additional levy. The respondent made an application under Section 5 and consequently was allotted the coal mine by the 26 Nominated authority as per the Allotment Agreement dated 26.3.2015 and Allotment order dated 31.03.2015.
The 2015 Act provided for a completely different scheme of allotment of captive coal blocks and the respondent applied for allotment of coal blocks under Section 5 of the Act. Section 8 of the 2015 Act provided that if the respondent was allotted any coal block, the allotment agreement would be made in its favour by the Nominated Authority under the 2015 Act and pursuant to which a mining license would be granted to the respondent by the respective State Government under the MMDR Act.
Section 10 provides for utilization of movable property such as machinery and fixtures by entering into commercial arrangements with the prior allottee. Therefore, the petitioners have the option to negotiate with the respondent for sale of such movable properties.
Section 16 provides for compensation for any investments in land and mine infrastructure which is payable to the petitioner. Hence, it is wholly incorrect and misleading to state that the 27 respondent is profiteering from the allotment inasmuch as the Central Government has framed detailed regulations to protect the interests of the prior allottees such as petitioner no.2. The Central Government has framed the Coal Mines (Special Provisions) Rules, 2014 in this regard.
Section 11 provides an option to the respondent to 'adopt and continue such contracts which may be existing with any of the prior allottees'. Therefore, the respondent would be required to continue the same commercial arrangement as was existing previously between the parties. It is submitted that under the previous arrangement, the allotment of the coal block was in the name of petitioner no.2 would 'sell' coal to the respondent at agreed prices. The petitioner no.2 had entered into a back to back agreement with petitioner no.1 for doing the mining operations. The entire consideration as received by petitioner no.2 from the respondent would be transferred to the petitioner no.1. Therefore, under the JV arrangement, the petitioner no.1 was the beneficiary. 28 The petitioner no.1 is a private entity and keeping in mind these specific facts, the Supreme Court deemed such joint venture arrangements as illegal.
It is contended that under the present dispensation, the coal block allotments stand in the name of the respondent. The respondent, having no experience in mining operations, would call for tenders for appointment of a Mine Operator for Development and Operation of the coal mine ('MDO'). The MDO would be paid on cost incurred basis based on competitive bidding viz. the agency which quotes the lowest for the MDO operations would be selected. Hence, the commercial understanding is totally different.
It is contended that the price fixation under the previous commercial arrangement between the petitioner no.2 and the respondent was based on Coal India prices. Clause 12.4.2 of the Allotment Agreement (produced by the petitioner as Annexure-R) would prohibit such arrangements. In such a situation, the 29 novation of any contract with the petitioner no.2 on the same commercial understanding would not be permissible under the existing laws.
It is contended that the petitioner has come to the court with unclean hands. It is submitted that the Supreme Court judgment and thereafter the 2015 Act clearly state that the petitioner no.2 is required to pay the additional levy as the mining lease was in favour of the petitioner no.2 and it has derived the benefit of the coal mining activity. The petitioner no.2, in order to be eligible for compensation under Section 16 of the Act would have to pay the additional levy which it has not done till date. The respondent being a 26% shareholder of the petitioner no.2 has deposited 26% of the total amount payable by the petitioner no.2 to the Central Government without prejudice to its contentions to recover the same from the petitioner no.2.
In fact, even the C&AG report in this regard, on the basis of which the Supreme Court judgment came to be passed, has 30 clearly stated that the private party was the sole beneficiary in joint venture arrangements, as it was paid the price of coal almost equivalent to the market price. The C&AG report clearly states that the financing cost for a private party may be a maximum of Rs.150/- per MT over and above the average cost price of Coal India Limited price i.e. 583.01 plus Rs.150/- viz. 733/- per MT whereas the petitioner no.2 was paid a sum of 1367/- per MT as of 31.3.2015. It is pertinent to note that the Coal India Price as on 31.3.2015 was 1510/- per MT. Hence, to say that the petitioner has lost any investment is without basis.
It is contended that the petitioner has earned Rs.3600,83,00,000/- [Rupees Three Thousand Six Hundred Crores Eighty Three Lakh only) as revenue from the respondent even as per the petitioner's own statement in a suit filed against respondent for various claims under the joint venture arrangement. Furthermore, under the provisions of the 2015 Act, the petitioner is entitled for compensation under Section 16 of the said Act for any improvements in the mine.
31
Under the 2015 Act, Section 4 makes it clear that if the prior allottee does not pay the additional levy of Rs.295/- per MT, it is not eligible for being considered for allotment. Therefore, the petitioner no.2 being the prior allottee and having not paid the additional levy to the Central Government is not capable of being considered for allotment of coal block.
It is contended that calling of tenders for appointment of an MDO is mandatory under law. The Auction by Competitive Bidding of Coal Mines Rules, 2012 (as amended by the Notification dated 27.12.2012) make it mandatory to call for competitive bidding for appointment of MDO. In fact, Clause 12.4.1 of the Allotment Agreement also makes it mandatory to call for competitive bidding for a long term appointment of MDO. The Allotment Agreement also refers to the Competitive Bidding Rules and mandates that appointment of any contractor has to be by competitive bidding. If there is any non-compliance of the provisions of the Allotment Agreement, the Central Government 32 is entitled to cancel the allotment in favour of the respondent. Furthermore, even the Karnataka Transparency in Public Procurements Act, 1999 (Hereinafter referred to as the 'KTPP Act', for brevity) would also make it mandatory to call for tenders.
It is contended that the respondent has already made a commencement application to the Central Government pursuant to the allotment, in which the respondent has elected not to exercise the option under Section 11 of the 2015 Act. It is contended that there is no provision under the 2015 Act to withdraw the application and make another application for exercising the power under Section 11. It is contended that in view of the fact that the respondent has already made an application, the relief (ii) in the present writ petition is incapable of consideration.
It is contended that this is a matter which is entirely at the discretion of the respondent and keeping in mind the totality of the situation as stated above, the respondent has taken a considered decision. It is contended that these are matters of policy and no entity could be compelled to take a decision inasmuch as the same 33 is discretionary. No writ of mandamus would lie against the respondent for compelling the respondent to make any commercial decision in the matter. Furthermore, in view of the fact that the respondent has already made an application wherein it has specifically stated that it does not intend to novate the contract in favour of the petitioner, that the present relief is incapable of consideration.
It is contended that the petitioner no.1 was provisionally appointed on a short-term basis as an MDO till end of December 2015 or till the completion of the tender process whichever was earlier to ensure continuity in the supply of coal to the respondent. However, the mining lease by the State Government was not granted and thereafter the District Collector, Chandapur issued an order prohibiting any activity in the mine. In light of these developments, the respondent has been unable to carry on any mining operations.
34
Furthermore, the Nominated Authority also objected to the same and issued a show-cause notice to the petitioner, in respect of the short-term appointment made by it.
In such a situation, the respondent has rightly called for tenders for appointment of the MDO in accordance with the directions of the Nominated Authority. It is contended that if there is any divergence from the tender process, inasmuch as, if any right of first refusal is granted to the petitioners, the Nominated Authority would take adverse action including cancellation of the allotment in favour of the respondent. It is contended that the allotment of coal blocks to the respondent is crucial for the generation of power and ensuring sufficient power for the State of Karnataka. Therefore, public interest would demand that this Court ought not to exercise its discretion in granting the reliefs in the present petition.
It is contended that without making the Central Government and Nominated Authority as parties to the present writ petition, the petitioner is surreptitiously attempting to efface its non- 35 compliance with the directions under the 2015 Act. When a writ petition filed by the petitioners pertaining to challenge to one of the provisions of the Act which was not beneficial to the petitioner is pending, the petitioner would be estopped from claiming benefit under any other provision of the same Act.
It is contended that the relief of a right to match the lowest bid cannot be granted for the reasons that it would be in violation of the bidding guidelines. It is contended that the petitioners have no vested legal right to be allotted the mine. The right to match the lowest bid is a process which is totally contrary and alien to the provisions of the Karnataka Transparency in Public Procurement Act, 1999, Auction by Competitive Bidding Rules, 2012 and other provisions of law. It is therefore, contended that the prayer would be contrary to existing law and hence cannot be granted.
It is contended that by calling for tenders for appointment of an MDO, the State of Karnataka will benefit inasmuch as the coal prices will be substantially reduced. This is because the 36 commercial arrangement existing under the earlier dispensation was linked to Coal India prices whereas the present tender would ensure that the MDO is compensated on cost incurred basis and no windfall profits will accrue to the entities.
There is no discrimination as against the petitioner inasmuch as the petitioner is entitled to participate in the tender and quote the lowest price to bag the tender. The benefit that would accrue to the respondent would be tremendous if tenders are called. Hence, the calling of tender is in public interest and exercised after due application of mind. In fact, the State of Karnataka will benefit by almost Rs.300 Crore a year in coal costs if the mines allotted to the respondents are utilized for the purpose of generation of power. If the tender process is stalled, the Central Government may take steps to cancel the allotment of coalmine in favour of the respondent which would cause grave hardship to the respondent and the State of Karnataka.
Hence, the learned Senior Advocate Shri Patil seeks dismissal of the petition.
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4. By way of reply, Shri Holla, contends that the respondent no.1 (KPCL) sought to contend that the Supreme Court in its judgment and order dated 25.8.2014 has held that any kind of joint venture arrangement being ultra-vires the Coal Mines (Nationalisation) Act and has consequently, outlawed the allotment made in favour of the petitioners. This is without basis and reflects a gross misreading of the judgment and order of the Supreme Court of India dated 25.8.2014 since, (i) the Supreme Court of India in the judgment and order dated 25.08.2014 (including the paragraphs extracted by the respondent (KPCL) in Annexure-R1) has only discussed illegality in the commercial exploitation of coal, sale in open market by Public Sector Undertakings in whose favour the coal blocks were allotted and not others; and (ii) there were no coal blocks allotted in favour of the petitioners, either as alleged or at all. Needless to state that neither of the petitioners find mention in either the judgment and order of the Supreme Court 38 of India dated 25.08.2014 or the order 24.09.2014, which sets out the list of allottees. Consequently, the entire case sought to be built by the respondent (KPCL) on the basis that the allotments made and the Joint Venture agreements executed in favour of the petitioner were illegal, is grossly erroneous and misleading. It is pertinent to state at this juncture that what was frowned upon by the Supreme Court was the commercial exploitation of the coal by the State or the State Public Sector undertakings. On the other hand, the Agreements entered into inter se between the petitioners and respondent no.1 was solely for the purpose of meeting the requirement of KPCL for the proposed thermal power project at Bellary. That apart, the development and operation of the coal blocks has been undertaken by the petitioners and respondents in accordance with and after duly following the procedure prescribed under the CMN Act and the mining plan has been approved by the Central Government as per the provisions of MMDR Act. 39
It is further contended that the additional levy of Rs.295/- per metric tonne of coal extracted imposed by the Supreme Court by way of its order dated 24.9.2014 imposes the compensatory levy only on the prior allottees, viz., those mentioned in the order dated 24.9.2014 and not the petitioners herein. The vires of the legislative action in attempting to expand the scope of the definition of 'prior allotte' under the 2015 Act, so as to include third party mining lease holders such as petitioner no.2 herein, within the definition, to shift the burden of the liability to pay Rs.295/- per metric tonne of coal extracted onto petitioner no.2 and the executive actions that followed in seeking payment of the additional levy from the petitioners herein, are already under challenge in certain writ proceedings in WP 19823-823/2015, which are pending. It is contended that the phrase "additional levy" has been defined in the 2015 Act, to mean the additional levy as determined by the Supreme Court in WP(Cri) No.120/2012, as Rs.295/- per metric tonne of coal extracted. Admittedly, the petitioners are 40 not parties before the Supreme Court. Further, the Supreme Court at para 38 of the judgment and order dated 24.9.2014 has specifically held that the allottees of the coal blocks must pay the "additional levy". The names of the allottees are shown in Annexure I to the judgment and order of the Supreme Court dated 24.9.2014, wherein, at serial numbers 7 to 12, KPCL is shown as the allottee company. Under the circumstances, the liability to pay the additional levy was solely upon respondent no.1. In fact to overcome the rigours of the aforesaid order of the Supreme Court, respondent no.1 herein had approached the Supreme Court by filing an application in Crl.M.P.No.24134/2014 seeking clarifications and specifically seeking to avoid its liability as imposed thereunder. The said application has been dismissed by the Supreme Court by its order dated December 08, 2014. The aforesaid order has become final and binding on KPCL.
It is the case of the petitioners that KPCL has arbitrarily chosen to float the tender in the NIT without properly 41 exercising the right of novation available to it under Section 11 of the 2015 Act. The impropriety bears significance in view of the fact KPCL is a public sector undertaking, its actions ought to be fair and reasonable and being 'State' under Article 12 of the Constitution of India, it ought to have evaluated its statutory rights weighing public interest over administrative discretion.
It is contended that the petitioner has already expended Rs.239.35 crores in making the coal blocks, allotted to KPCL, ready for mining coal and in all, spent approximately Rs.634.78 crore to develop the coal blocks allotted to the respondent. The regular mining activity of the petitioners under the Joint venture Agreement at the coal blocks has added tremendous value to the subject coal blocks and accordingly, benefited KPCL in ensuring hassle-free mining. However, by inviting tenders for a bid to appoint MDO despite there being an option to novate that agreement under the statute, KPCL has acted in a grossly arbitrary manner and has issued the NIT only to frustrate the bona fide investments made by the petitioners herein. Further, 42 it is clarified that the compensation that may be petitioners' entitlement under Sections 10 and 16 of the Act, as claimed by KPCL does not take into consideration various substantial investments and incidental expenditures incurred by the petitioners. Consequently, compensation if any under Sections 10 and 16 of the Act would not be to the advantage of the petitioners and cannot be taken as a ground to evade novation.
The arbitrariness in exercise of KPCL's discretion under Section 11 of the Act is abundantly clear in the respondent seeking to baselessly distinguish the terms of engagement of the proposed mine development operator and that of the petitioners. This is particularly supported by the fact that but for the nomenclature, the scope of activity between the proposed mine development operator and the earlier arrangements with the petitioners are largely the same, as the core activity remains unaltered.
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5. In the light of the above contentions, having regard to the fact that the parties had proceeded on the basis that there was a valid and legitimate contractual relationship, extending from the year 2002 to 2014, without any aberration, till the Orders passed by the Supreme court, dated 25.8.2014 and 24.9.2014 passed in Manohar Lal Sharma's case, supra, as well as the subsequent legislation that followed. The question that arises is, what is the effect and consequence of the nullification of the contractual relationship. Whether the actions of the respondent are justified. If not, what is the appropriate course of action.
In the first Order dated 25.8.2014, the Supreme Court concerned itself with the prayer of the petitioners before it, for quashing the allocation of coal blocks to private companies made by the Central Government between the period 1993 and 2012. The State of Maharashtra, which had granted the mining lease in the present case on hand, along with six other States was called upon to state their views on the following :
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"(i) How did the State Government understand the allocation of coal blocks by the Central Government?
(ii) What was the role of the State Government in the allocation of coal blocks?
(iii) What was the role of the State Government in the subsequent steps having regard to the provisions of the 1957 Act?
(iv) The details of the agreements entered into by the State Public sector Undertakings which were allotted coal blocks, with private parties for the coal blocks located in the State."
The said States had presented their arguments before the court.
On a detailed consideration of the arguments canvassed and taking stock of the law applicable, the court has dealt with the coal allocations made, to private companies as well as government companies, for captive purpose through the medium of a Screening Committee. The decisions taken by the Screening Committee at its meetings from the year 1993 through to the year 2007 were scrutinized and the Supreme Court has expressed as follows:
45
"The entire exercise of allocation through Screening Committee route thus appears to suffer from the vice of arbitrariness and not following any objective criteria in determining as to who is to be selected or who is not to be selected. There is no evaluation of merit and no inter se comparison of the applicants. No chart of evaluation was prepared. The determination of the Screening Committee is apparently subjective as the minutes of the Screening Committee meetings do not show that selection was made after proper assessment. ..." The only reference, in the body of the Order, to the stand of the State of Maharashtra is found at paragraph no.161, it reads as follows :
"It is pertinent to note here the stand of Maharashtra. According to Maharashtra, the allocation of coal blocks by the Screening Committee meant that the benefits of the differential in price of coal, as the case may be, would accrue to the allottee of the coal block. The differential in price would not necessarily be passed to the public as the price of the final product of the company is determined by import parity price in case of steel companies competitive market price in case of cement companies (many may not have access to captive coal) and the price of power on an exchange or in bids by the State 46 Utilities irrespective of source of fuel. No material has been placed by the Central Government which may rebut Maharshtra's stand.
It was then opined by the Supreme Court that in the light of the provisions of the Coal Mines (Nationalization) Act,1973 as amended in 1976, did not allow the State Government or State public sector undertakings to mine coal for commercial use. It was in the year 2001 that the Central Government had reviewed its earlier policy and had allowed the State Government companies or undertakings to do mining of coking and non-coking coal or lignite reserves either by opencast or underground methods, anywhere in the country. Under the revised policy, the State Government companies or undertakings were permitted to mine non-coking coal reserves or lignite by opencast or underground methods without restriction. This the Supreme court held was impermissible and held as follows :
".... The recommendation for allocation by the Screening Committee to the State PSUs and also the allocation made to the State PSUs through Government 47 Dispensation Route are, therefore, in violation of the provisions of the CMN Act, as amended from time to time."
The further fact that the State PSUs having been allocated coal mines for commercial purposes, as pointed out with reference to particular instances at paragraph 162.10, was an additional circumstance in the Court forming an opinion that all allocation of coal blocks be cancelled, except coal blocks where competitive bidding was held for the lowest tariff for power for Ultra Mega Power Projects, in respect of which no challenge was in fact laid in the petitions.
It is evident that though the petitioners in this case were not in fact, mining the coal blocks for commercial exploitation, but only for the exclusive supply to the respondent, only on account of the fact that a joint venture company had been formed by the Respondent, a State government undertaking and the petitioners, who were private parties, to work the mines. And the mining lease agreement having been executed by the Maharashtra State government in favour of petitioner no.2, even though the allottee 48 of the coal blocks was the respondent, the transaction between the parties stood nullified as a fall out of the above order of the supreme court. This was in spite of the development and operation of the coal blocks having been undertaken by the petitioners and respondents in accordance with and after duly following the procedure under the CMN Act and the mining plan having been approved by the Central Government as per the provisions of the MMDR Act.
The second order of the Supreme Court dated 24.9.2014, having further clarified the resultant position of its first order, the Central Government thereafter framed the 2015 Act, which governed the allotment of the cancelled coal blocks, payment of compensation to prior allottees and all other ancillary issues which were not covered under the judgment of the Apex Court. The Nominated Authority constituted under the Act monitors the entire process KPCL had made an application under Section 5 of the 2015 Act, which provided for allotment of coal blocks to government 49 companies or corporations. On 24.3.2015, KPCL had been allotted the very same coal mines allotted to it earlier. The respondent had then intimated the Nominated Authority in terms of Schedule -C, that it was not desirous of adopting any contract under Section 11 of the 2015 Act. This is said to have been decided at a Board meeting of KPCL, dated 26.3.2015, where the respondent's Board of Directors had mulled over the prospect of continuing the services of the petitioners in operating the mines and it is claimed that an informed decision was taken on the basis of economic and other considerations, not to continue the relationship, in any capacity. It is the further case of KPCL that in view of the Proviso to Section 5, a joint venture company cannot continue to carry on mining activities and further that it has been bound by Clause 12 of the Allotment Agreement, dated 26.3.2015, executed between the Nominated Authority and KPCL - which requires the coal mines to be developed through contractors, selected through competitive bidding and hence it was not 50 possible to exercise the option under Section 11 of the Act in favour of the petitioners.
The interpretation sought to be afforded to the legal position that emanates from the provisions of the 2015 Act as regards the allotment agreement entered into pursuant to an application under Section 5 and the need for appointment of a contractor only by invitation of bids from prospective contractors and hence KPCL being precluded from accommodating the petitioner no.1 by recourse to Section 11, is on the basis of the following actions said to have been taken by KPCL.
On 24.3.2015, KPCL having been allotted the very coal mines a Board Meeting is held on 26.3.2015, the consensus was as follows :
"With a view to safeguard the public interest particularly when the State is facing severe power crisis, the only option appears to be to ensure uninterrupted supply of coal from the captive mines. As provided in the ordinance, KPCL may have to avail the services of the existing mining operator, M/s EMTA for a period of 9 51 months or till finalization of the new MDO through tender whichever is earlier."
And it was resolved as under :
"Resolved (i) to authorise the Managing Director to invite fresh tender for selection and appointment of MDO, duly utilizing the services of M/s SBI Caps Limited at a cost of 40 lakhs plus applicable taxes with the approval of the Government of Karnataka;
(ii) to seek the orders of the Government on the following:-
a) to continue the services of the M/s EMTA as the MDO for a period of 9 months from 1.4.2015 or till appointment of the next MDO whichever is earlier at the negotiated rates with reference to the existing FSA (Fuel Supply Agreement) KPCL to make necessary changes in the contract conditions to reflect the decision.
or
b) to close existing mining operations of the captive mines till arrangements are made after selection of a new MDO with the possibility of non-availability of 500 MW of power from BTPS."
However, the allotment order made by the Government of India dated 31.3.2015, produced along with the Statement of Objections filed by KPCL, as Annexure R-5, dated 31.3.2015, 52 refers to the intention of KPCL not to adopt and continue any of the contracts of the prior allottee. (Annexure-5 thereto at page 80) It also refers to the Allotment Agreement dated 26.3.2015 entered into between the Government of India and KPCL re-allocation of the captive coal blocks. It is therefore clear that there was no contemplation by KPCL as to whether the Petitioner no.1 could be considered for being appointed as the mine operator, which option was available under Section 11 of the 2015 Act, and which was legally permissible. The discussion at the Board of Directors meeting of 26.3.2015 - was only to consider the continuation of the petitioner till the selection of another operator, after invitation of bids from prospective contractors.
It would be unfair and unjust to canvas that there was no legal compulsion to adopt the contract with the petitioners on such suitable terms as were warranted in the changed circumstances. It is not in serious dispute that the petitioners had invested over Rs.600 crore by way of capital investment in the development of the coal blocks. The petitioner has furnished details of other 53 expenses towards railway freight, labour charges, expenses towards washing of coal etc., which exceeds a sum of Rs.3700 crore. Therefore, even if the petitioner has been paid a sum of Rs.3600 crore for the 15 million metric tonnes of coal mined thus far, the petitioner is still to recover over Rs.95 crore. This is not including interest on borrowings, which the petitioner claims at over Rs.400 crore.
KPCL is also not justified in claiming that it has been chastised by the Government of India in seeking to appoint the petitioner temporarily to carry on the mining activity till the appointment of a newly chosen contractor, after inviting bids. The situation was forced by KPCL, either by design or sheer non- application of mind to the sad plight of the petitioner. The petitioner is not shown to have committed any wrong at any point of time. It was a business partner, which partnership may have been set at naught for reasons, which again cannot be attributed to the petitioner.
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It is however, to be also kept in view that notwithstanding the innocent contractual relationship between the parties which is sought to be salvaged, being free of any commercial exploitation, it is on a principle, the Apex Court held that the law did not permit a joint venture by a State government with a private party, in mining coal and the contract was deemed to have been set at naught. And therefore any further mining activity by the engagement of an agent or a mining development operator, to be undertaken by KPCL, should be at the best and lowest price payable, by recourse to invitation for bids from prospective contractors. However, the tenor of material documents produced, would indicate that the petitioner no.1 is not even perceived as a prospective bidder at such an exercise.
Therefore, to achieve the twin objectives of arriving at the lowest price for the services to be rendered by the contractor to be engaged and also to ensure that the petitioner no.1 is accommodated in terms of Section 11 of the 2015 Act, it would be necessary for KPCL to extend the last date for submission of bids 55 against its notice dated 5.8.2015, as this court had restrained KPCL from taking any further steps pursuant to the same. Secondly, petitioner no.1 shall be permitted to make a bid against the said notification. KPCL may issue an addendum to the bid conditions that the petitioner would be permitted to match the lowest bid, in which event the petitioner would be the successful bidder. Petitioner no.1 however, would not seek the benefit of any term or condition accrued or vested in it under the erstwhile contractual relationship.
Insofar as the contention that KPCL had already committed itself to a position, in its application for re-allotment, not to adopt or renew any earlier contracts, the position being irreversible is also not correct. As seen from Annexure R-5, to the statement of objections, which is the Allotment Order dated 31.3.2015, issued by the Government of India - Paragraph 2 of the said Order (Page 75 of the Statement of Objections), it is provided as follows:
"2. The Allottee may seek any change in the terms and conditions attached to such licence, permit, 56 permission, approval or consent by making an application in accordance with applicable Laws."
Hence, in the circumstances of the case, the Nominated Authority is bound to take into account the injustice that would be caused to petitioner No.1 if the benefit of Section 11 is not afforded to it, in application made by KPCL to proceed in terms as above.
Accordingly, the petitions are allowed in terms as above. Annexure-A to the petition is quashed.
The respondent KPCL is directed to re-issue the notice inviting bids for the selection of a Mine Operator of the subject coal blocks. The respondent shall permit the petitioner no.1 to make a bid for the same.
KPCL shall issue an addendum to the terms and conditions of the bid to the effect that the petitioner no.1 shall have the option 57 of matching the lowest bidder and in such an event, KPCL shall award the contract in its favour.
Sd/-
JUDGE nv*