In a landmark judgment the Supreme Court of India on 25th August had ruled that the allocations made, both under the Screening Committee route and the government dispensation route, were arbitrary and illegal. Exactly one month after that it cancelled all but four of the 218 coal blocks that were illegally and arbitrarily allocated. It has in a way endorsed CAG’s argument that the government had the authority to allocate coal blocks by a process of competitive bidding, but chose not to do so. Since these allottees paid less than what they should have otherwise, the CAG had estimated the “windfall gain” by these companies to be about Rs 1856 billion at about Rs 295 per ton of coal. The Centre had sought protection for 40 blocks which were operational and six were on the verge of starting operations. The 40 companies that have started operations will now have to pay a fine of Rs 9,000 crore for about 300 million tons of coal in the next three months. The court granted the holders of 46 blocks time till 31 March 2015 to wind up their businesses. The Supreme Court said that these allocations were “fatally flawed” and the beneficiaries must suffer the consequences. The apex court expected that the government will not deal with the natural resources that belong to the country as if they belong to a few individuals who can fritter them away at their sweet will and expected that the exchequer may be compensated for the loss caused to it.
While this judgment is intended to bring in transparency in allocation, it may however jeopardise investments made in the sector in the last two decades. The 20 year old issue is getting settled now when a lot of investment has gone into these blocks and industries are dependent on the coal. The ruling would lead to a rise in bank non-performing assets (NPAs) as several companies had taken loans worth about Rs 1 lakh crore to set up power plants and other factories using these coal blocks. The lender banks have to now worry that the decision would result in an increase in their NPAs.
The beneficiaries of these 214 blocks have invested crores on these mines. The court has given the government six months to decide on a new coal block allocation policy. Currently, about 42 blocks are producing coal to the tune of 53 million tons and account for 10 per cent of the total coal supplied in the country. The government officials will have to quickly auction the blocks to ensure smooth supplies. The verdict would certainly lead to a more transparent system of allocating natural resources in future but is likely to adversely impact the domestic coal supplies in the country today and may erode investor confidence.