How SC addresses coal deallocation is important
With the Supreme Court (SC) readying to address the issue of how to deal with the 216 coal blocks it has said were allocated illegally since 1993, India is in a sense back to where it was at the time of then finance minister Pranab Mukherjee’s retrospective amendment as well as when the SC cancelled the 2G licences issued by A Raja. We’re back to Pranab Mukherjee in the sense that any law/decision can be changed retrospectively, and the question that arises in investors’ minds is how far back can cases be reopened? And we’re back to the Raja cancellations since the obvious question is that if a decision has been made by the government, are investors to be compensated for their losses when the SC rules the allocations illegal? While there is little doubt that Raja violated the law by allocating licences without auctions which were the way telecom licences were given out in the past, with the government signing off on the process, how were those buying into the licences—and the bankers who lent to them—to imagine the process was illegal?
The related question that ought to be frightening bureaucrats and politicians is whether action will now be taken against them in the coal case. If, as the SC says, the allocation process was opaque and illegal, it is only logical that some consequences will have to follow. In which case, how do you get bureaucrats to take decisions in good faith? While the CBI has just closed its case against then coal secretary PC Parakh for allocating part of a block to the Aditya Birla group and now saying this was in the national interest, would it have to reopen this following the SC ruling? Indeed, the CBI has just started an inquiry into then disinvestment secretary Pradip Baijal for allegedly selling an Udaipur hotel at much below value in 2002 even though there was an independent evaluation of its value and the hotel was sold through an open bid. At some point, the government will have to address this question satisfactorily—the SC has struck down the protection given to senior bureaucrats, the one that required the CBI to get prior sanction before investigations, and the government will need to come up with a reasonable defence to get the SC to reconsider its ruling.
Even if the SC decides not to proceed on criminal grounds, the issue is what criterion will be used to determine if mines should be cancelled or not. In the 2G case, the government allowed firms whose licences were cancelled to participate in the auctions to win back their spectrum, so that could be a precedent. Whatever else, it is vital the mines not be given back to Coal India as is being proposed, since that is where the problem began—had Coal India been able to mine enough, and efficiently, no private power/steel producer would have wanted captive mines in the first place.