The Supreme Court has pronounced the terms under which coal blocks were allocated post 1993 as illegal but stopped short of deallocating the blocks. The conseqence of illegality will be determined on September 1, 2014. The apex court observed that the issue of de-allocation will need further hearing, but barred UMPPs from exploiting captive mines.
In its verdict, the court said that no objective criteria were followed and guidelines were breached in these allocations. Not only that the apex court also observed that no common good or public interest was seen in these allocations.
The verdict was passed after A bench headed by the Chief Justice of India, RM Lodha, scrutinised allottment around 194 coal blocks in Jharkhand, Chhattisgarh, Maharashtra, West Bengal, Odisha and Madhya Pradesh to private parties and government-run PSUs during the UPA and NDA regimes since 1993 till 2009.
The hearing itself went on for one-and-half years, during the course of which then Union Law Minister Ashwin Kumar was forced to resign. In its verdict today, the Supreme Court noted that guidelines were breached during allocation.
CNBC-TV18 learns that the Coal Minister Piyush Goyal will decide the government’s next move on this issue, in consultation with seniors. The ministry is planning to present its case in the apex court, pressing on the SC to study the impact of de-allocation. Since hearings on coal allocation matter happened before the NDA government took over; the ministry now plans to file new set of lawyers to present its case.
Coal blocks heading the 2G way?
Rakesh Arora of Macquarie says that uncertainty will rule and stocks will be under pressure because one doesn’t know the terms of deallocation. He expects negative reaction on Hindalco, JSPL and Sesa Sterlite.
“SC may not deallocate things which have been working from 1992. Logically, it makes sense. But logic has not prevailed in the case of Goa iron ore mining ban and cancellation of 2G licenses. So you may not expect court to go fully by business logic. If they think that the system was not followed, even if the coal mine has been operating for long time they can go and cancel it. Now while the probability might be less, but the probability is still there,” he told CNBC-TV18 in an interview.
He further added that this government is proactive and one can hope that they will come out with rules that could sort things faster. “There could be little bit of penalties here and there, but there is a chance that a quick solution is found to this whole mess. Let us wait and see, September 1 may not be the last hearing, it may be the first hearing probably,” he said.
However, Giriraj Daga, senior research analyst, Nirmal Bang highlights that the SC order refers to coal blocks allocated post 2004 and majority of blocks that are currently operational have been allocated prior to that period, which can be seen as a bit of relief for existing producers like Hindalco and JSPL, which started before 2004.
“Also, post 2004, the SC has not set a blanket for de-allocation, so it is more on a case-by-case basis. I believe it will look at the legality prospects in each of the coal block and then give a verdict,” he added.
Meanwhile, GD Mundra, director, Sarda Energy & Minerals said that the company was allotted one coal mine before 2000 and another post 2004. “We are mining in the mine which was allocated pre 2000 and post 2004 mine is a joint venture, which was deallocated by the Government of India,” he said. Shares of Sarda Energy and Minerals fell Rs 67.10, or 18.32 percent to close at Rs 299.25.
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