Supreme Court quashes allocation of 214 coal blocks
The Supreme Court quashed the allocation of 214 out of 218 coal blocks allotted by the Central Government between 1993 and 2011, holding the allocation process arbitrary and illegal
Four blocks were exempted from cancellation: one each allotted to the National Thermal Power Corporation (NTPC) and Steel Authority of India Limited (SAIL), and two allotted to Ultra Mega Power Projects (UMPPs)
Operational blocks were permitted to continue mining for a limited winding-up period before being required to cease production
Allottees whose blocks were quashed, as well as several other allottees, were directed to pay an additional levy per tonne of coal extracted to compensate for the loss to the exchequer
Article 14 and Executive Discretion in Natural Resource Allocation
Article 14 of the Constitution guarantees equality before law and equal protection of laws, and has been interpreted by courts to prohibit arbitrary state action ("non-arbitrariness" as a facet of Article 14, per E.P. Royappa v. State of Tamil Nadu, 1974). Allocation of scarce natural resources by the state must follow a fair, transparent, and non-discriminatory procedure; the absence of objective criteria in the coal block allocation process was held to violate this standard.
Key Details
- The Screening Committee mechanism, used from 1993 onward, lacked defined objective criteria for selecting applicants among competing claimants
- The Court found the same standards were not applied uniformly to similarly placed applicants, and allocations sometimes deviated from the governing statutory scheme
- This case is distinct from, but conceptually linked to, the earlier 2G spectrum case (Centre for PIL v. Union of India, 2012), where the Court held that natural resources should ordinarily be allocated through auction to maximise revenue and ensure fairness, though it later clarified (in a Presidential Reference opinion, 2012) that auction is not the only constitutionally mandated method for all resources
The coal block case reaffirmed that discretionary, non-transparent allocation of natural resources is constitutionally suspect, reinforcing a shift toward competitive bidding for resource allocation in India.
Coal Mines (Nationalisation) Act, 1973 — Statutory Basis for Allocation
Coal mining in India was nationalised in two stages (coking coal in 1972, non-coking coal in 1973) primarily to curb unscientific mining and worker exploitation. Section 3(3)(a)(iii) of the Coal Mines (Nationalisation) Act, 1973 is the provision under which the Central Government could allot coal blocks to private companies for "specified end uses" (such as captive power, steel, and cement production), rather than commercial mining, which otherwise remained a state monopoly.
Key Details
- The Act reserved coal mining to the public sector (mainly Coal India Limited) except for specified captive purposes carved out under Section 3(3)(a)(iii)
- The Court held that this narrow statutory exception could not be expanded through administrative discretion, consortium arrangements, or the inclusion of entities not contemplated by the provision
- The judgment (delivered in two parts — the merits order and a follow-up order on relief) is popularly referred to in commentary as the "Coalgate" judgment
The cancellation flowed directly from the finding that allocations exceeded what Section 3(3)(a)(iii) permitted, making the allotments ultra vires the parent statute in addition to being arbitrary.
Judicial Remedy and Transitional Relief
Courts exercising writ jurisdiction can craft transitional arrangements to prevent an otherwise-valid quashing order from causing disproportionate economic disruption — commonly done through a phased winding-down period rather than immediate cancellation.
Key Details
- Cancelled operational blocks were permitted to continue production for a limited period before mining was required to stop, to allow orderly transition
- An additional levy (compensatory in nature, distinct from statutory royalty) was imposed per tonne of coal extracted, based on loss estimates highlighted in a Comptroller and Auditor General (CAG) report on coal block allocation
- The episode subsequently led to a new statutory framework — the Coal Mines (Special Provisions) Act, 2015 — enabling auction-based allocation and providing for re-allotment of cancelled blocks, including to end-use plants that had already invested in cancelled blocks
This illustrates the shift in India's natural resource allocation policy — from committee-based discretionary allotment to competitive auction, now the default method under the amended Mines and Minerals (Development and Regulation) Act framework as well.
- Total coal blocks under review: 218, allocated between 1993 and 2011 (some accounts cite up to 2010/2011 as the terminal allocation year)
- Blocks quashed: 214; blocks exempted: 4 (NTPC — 1, SAIL — 1, UMPPs — 2)
- Additional levy imposed: Rs 295 per metric tonne of coal extracted
- Legal basis for arbitrariness finding: Article 14 of the Constitution
- Statutory provision at issue: Section 3(3)(a)(iii), Coal Mines (Nationalisation) Act, 1973
- Follow-on legislation: Coal Mines (Special Provisions) Act, 2015, enabling auction and allotment of the cancelled coal blocks