COALGATE SCAM IN INDIA

(Assignment towards the fulfilment of assessment in the subject of

Company Law-I)

SUBMITTED BY- SUBMITTED TO-

ANIKET RAJ, ROLL NO. - 1423 MS .

VARENDYAM J. TIWARI

B.A.LLB., 5TH SEMESTER FACULTY OF LAW

NATIONAL LAW UNIVERSITY, JODHPUR

SUMMER SESSION
 (JULY- NOVEMBER 2018)

TABLE OF CONTENTS
ABSTRACT....................................................................................... 3

INRODUCTION................................................................................4

COALGATE SCAM IN INDIA............................................................5

ANALYSIS........................................................................................ 8

RECOMMENDATIONS...................................................................11

CONCLUSION................................................................................13

BIBLIOGRAPHY.............................................................................14

2
 ABSTRACT
India is a land of diversities and cultures. It is a democratic nation and
elects its own Government to rule it and formulate policies and
implement them for the benefit of its people. It also deals with collection,
allocation and disbursement of funds for the purpose of development of
the economy. India being rich in mineral ores, has a huge market for the
same. But in the past few years, many unwanted scams and cheats have
been seen in the economy. One such scam is the ‘Coal Block Allocations’
Scam which involves crores of rupees. It is a political scandal that was
surrounded by the UPA govt. in 2012. The government allocates these
coal blocks to public and private individuals or enterprise for use. The
proper procedure of allocating these blocks is that there must be an
auction held for these coal blocks and the interested enterprises can
participate in those auctions. The highest bidder is given the coal block
for his or his enterprise’s use. This is the legal and correct way to
allocate the coal blocks. . The scam came to light after the Comptroller
and Auditor General of India accused the Government of India for
allocating 194 coal blocks to public and private enterprises for captive
use in a flawed, between 2004 and 2009.

3
 INRODUCTION
India is a country which is facing the problem of corruption since many
decades. And it has also faced many scams and scandals. There are many
scams that occur in the country out of which some are detected and
many are not known to the common public. The coal allocation scam,
popularly known as ‘Coalgate’ in media, is one of the major scam and a
political scandal that was surrounded by the UPA govt. in 2012. As we all
know India is a country rich of minerals, spices, and so does has a huge
deposits of coal. There are many blocks of coal in India which is under
government control. The government allocates these coal blocks to public
and private individuals or enterprise for use. The proper procedure of
allocating these blocks is that there must be an auction held for these
coal blocks and the interested enterprises can participate in those
auctions. The highest bidder is given the coal block for his or his
enterprise’s use. This was the legal and correct way to allocate the coal
blocks. But in this scam the government allocated 194 coal blocks
wrongly to private enterprises for their captive use but the right
procedure was to that the interested private enterprises has to bid in the
auction. It came to light when the Comptroller and Auditor general of
India accused the Government that without being the auctions conducted
the 194 coal blocks were allocated to private individuals/enterprise for
captive use. This scam is considered the biggest scam in India of approx.
INR 1.86 lakh crores and has involvement of many high profile people in
this scam.

4
 COALGATE SCAM IN INDIA
It is all started in the year 1993 when Coal India Limited was unable to
meet the power related requirements of the nation and thus Coal Mines
(Nationalization) Act, 1973 was amended to denationalize the coalmine
operation sector by allowing private sector to participate to meet the
nation demand.1 This allowed the coal block allocation through auctions
made by the Government to the public and private sector companies. In
2010, another amendment to the Mines and Minerals (Development &
Regulation) Act, 1957 was made to introduce the process of competitive
bidding.

The then opposition party BJP’s MP, Hansraj Ahir was the whistle blower
who criticised the coal block allocation and alleged illegality in the
allocations. His claims were later supported by the 2012 report
submitted to the parliament by the Comptroller & Auditor General
stating that there was huge loss to the Government funds as a result of
such allocations between 2010 -2012. 2 It was followed by writ petitions
filed in public interest by one Mr. Manohar Lal Sharma and another by
Common Cause in the Supreme Court with subject matter related to
aforementioned allocations.

The Supreme Court in its decision dated September 24, 2014 held that
the allocations made by the Government were arbitrary, unfair and illegal
and hence quashed 214 of 218 allocations. 3 Before the matter went to
judiciary, media and other economic expert pronounced it as one of the
major fraud and corruption charge involved 1,86,000 crore loss to
exchequer. The allegation was also made against the then Prime Minister
of India, Dr. Manmohan Singh along with other prominent leaders of UPA
Government. The following people other than Dr. Manmohan Singh were
linked with the Coal Block Allocations Scam:

1
Amendment to Section 3(3) of the Coal Mines (Nationalization) Act, 1973.
2
Report No. 7 of 2012-2013, Comptroller & Auditor General (Performance Audit),
Allocation of Coal Blocks and Augmentation of Coal Production.
3
Manohar Lal Sharma v. Principal Secretary, (2014) 9 SCC 516(India).
5
 1. S. Jagathrakshakan, then Minister of State for Information &
Broadcasting alleging that his family was a part of a company
named JR Power Gen Pvt. Ltd. which was awarded a coal block on
Odisha in 2007.4

2. Subodh Kant Sahay, then Tourism Minister in Union Government to

persuade Dr. Manmohan Singh to allocate a coal block to a
company SKS Ispat Power which has Sudhir Sahay, his younger
brother as honorary Executive Director.5

3. Ajay Sancheti, then BJP Rajya Sabha MP get his company SMS
Infrastructure Ltd. a coal block at low rate in Chhattisgarh which
caused a loss of Rs. 10 billion as per COMPTROLLER & AUDITOR
GENERAL’s Report.6

4. Vijay Darda, then Congress MP was alleged to be involved with

three companies, AMR Iron & Steel Pvt. Ltd., JLD Yavatmal Energy
and JAS Infrastructure & Power Ltd. which received coal blocks
illegally by forging financial documents and overriding the legal
tender process.7

5. Premchand Gupta, the leader of Congress’ alliance party Rashtriya

Janta Dal and Minister of Corporate Affairs in UPA Government
helped his sons’ new company to get coal blocks in Maharashtra.8
4
Anurag Dhandha, Coalgate: Now, DMK leader in the dock, ZEE NEWS, 7 September
2012, Accessed on 10 September 2018, http://zeenews.india.com/news/nation/coalgate-
now-dmk-leader-in-the-dock_798230.html.
5
Sanjay Ojha, Sahay accused of helping younger brother get coal block allotment, THE
TIMES OF INDIA, 7 September 2012, Accessed on 10 September 2018,
https://timesofindia.indiatimes.com/city/ranchi/Sahay-accused-of-helping-younger-
brother-get-coal-block-allotment/articleshow/15973115.cms?referral=PM.
6
Siddharth Ranjan Das, Coal scandal: Why the Sancheti deal weakens the BJP's attack,
NDTV, Accessed on 10 September 2018, https://www.ndtv.com/india-news/coal-scandal-
why-the-sancheti-deal-weakens-the-bjps-attack-498668.
7
Neeraj Chauhan, CBI FIR nails Darda bros' role in Coalgate, TIMES OF INDIA, 7
September 2012, Accessed on 10 September 2018,
https://timesofindia.indiatimes.com/india/CBI-FIR-nails-Darda-bros-role-in-
Coalgate/articleshow/16290948.cms.
8
Biswarup Guptoo and M. Rajshekhar, Coalgate: RJD leader PC Gupta's sons won
blocks close to his ministerial tenure, THE ECONOMIC TIMES, INDIA, 7 September 2012,
Accessed on 10 September 2018, http://economictimes.indiatimes.com/news/news-by-
6
 6. Naveen Jindal, then Congress MP got the allocation of coal block
with reserves of 1500 million metric tonnes by refusing to
Government run Navratna Coal India Ltd. His company Jindal Steel
& Power allocated another coal block in Odisha in 2009. Further
he, along with, D.N. Rao, then Minister of State for Coal were
named in 12th FIR filed by CBI in 2013 in the Coal Block Allocations
Scam.9

But only charges were framed against them and nothing can be proved
by the CBI and other investigating agencies yet. The scam concerned the
entire state apparatus starting from the then Prime Minister Manmohan
Singh down to several officials in different ministries in Central and
States Government. One positive thing happened in the favour of the
investigation is the surrender of Mr. Virag Gupta to the CBI special
court.10 He is widely supposed to be an exceptionally honest, humble, and
intelligent civil servant. As secretary of coal to the government of India
during 2006-2008 a period when several of the questioned allocations
took place, he was directly involved in the scandal. He informed a CBI
special court judge that he was reluctant and unable to fight the
numerous cases against him. He spoke of the difficult financial conditions
he was in, refused the help of the court, and declared a willingness to go
to jail.

industry/indl-goods/svs/metals-mining/coalgate-rjd-leader-pc-guptas-sons-won-blocks-
close-to-his-ministerial-tenure/articleshow/16287942.cms.
9
Biswarup Guptoo, Coalgate Scam: CBI files FIR accusing Naveen Jindal and Dasari
Narayan Rao of Fraud, ECONOMIC TIMES. 12 June 2013, Accessed on 10 September
2018, https://economictimes.indiatimes.com/news/politics-and-nation/coalgate-scam-cbi-
files-fir-accusing-naveen-jindal-and-dasari-narayan-rao-of-
fraud/articleshow/20541696.cms.
10
Nayanika Mathur, ‘Coalgate’: Corruption, An Honest Bureaucrat and a Deeper
Malaise in India, THE CONVERSATION, 23 august 2016, Accessed on 10 September, 2018,
http://theconversation.com/coalgate-corruption-an-honest-bureaucrat-and-a-deeper-
malaise-in-india-64209.
7
8
 ANALYSIS
The Coal Block Allocation Scam, unlike others, was not limited to the
investigation and the debates in the Parliament. It united India and
brought common people on the road protesting against Government and
its institutions. The slogans like “India against Corruption” and “Mai Am
Aadmi Hun” (I am a common man) brought common people to marches to
the Prime Minister, Congress and Bharatiya Janata Party’s members’
residence in Delhi in the leadership of social activists like Anna Hazare
and Arvind Kejriwal. These marches were so big and created pressure on
the Politicians so that the police had to use tear gas and water cannons
to prevent crowd entering in the offices and residences of the political
leaders. The protest demanding the appointment of ombudsman and
introduction of Jan Lokpal Bill took another height with protests
changing its way into Anna Hazare’s frequently conducted hunger strike
that led to the promise by government to fulfil his demands.

The then opposition party Bharatiya Janata Party had stated that the
ruling party, the Congress have made irregular distribution allocation of
the coal deposits between the public sector entities and the private
sector companies for the period of 2004 to 2009. This also resulted in a
deadlock in the parliament as a result of which only seven parliament
sessions took place in the month of August instead of the usual twenty.
This pressure made Dr. Manmohan Singh to make a statement in the
Parliament directly instead of first discussing it with Public Accounts
Committee where he addressed the final draft of COMPTROLLER &
AUDITOR GENERAL report. Dr. Manmohan Singh directly refused to
accept the report submitted by COMPTROLLER & AUDITOR GENERAL
on the grounds that the computation of extractable reserves based on
averages would not be correct, the cost of production of coal varies
significantly from mine to mine due to varying geo-mining conditions,
method of extraction, surface features, number of settlements,
availability of infrastructure etc. He also stated that allocation of captive
coal blocks was being done on the basis of recommendations made by an
9
inter-Ministerial Screening Committee which also had representatives of
State governments. Since 1993, after the Coal Mines (Nationalisation)
Act, 1973 was amended, coal blocks were allocated to the private
companies for captive use. This had only one purpose of attracting
private investments in specified end uses. Even the opposition party like
BJP had their government in two major coal mining states like
Chhattisgarh and Rajasthan and even the audit report brought them into
the frame of investigation as they opposed the competitive bidding
process.11

COAL BLOCK ALLOCATION SCAM CASE12

In this case, the judgement came at 2 occasions, first dated August 25,
2014 and latest judgement was delivered on September 24, 2014. The
two questions were raised before the Supreme Court on first occasion
which also formed the basis of final judgement. The following are those
two questions:-

(i) Whether the Central Government was empowered to carry out the
coal block allocations by virtue of the Coal Mines (Nationalization)
Act, 1973 and the Mines and Minerals (Development & Regulation)
Act, 1957.

(ii) Whether the allocations made by it were done by following a legal

process if assuming the answer of first to be positive?

The then Attorney General K.K. Venugopal and other lawyers of Central
Government argued that the Central Government was empowered to
make allocations of coal blocks by virtue of sections 1A 13 and 214 of the
Coal Mines (Nationalization) Act, 1973 and Mines and Minerals

11
Gaurav Arora and Abhinav Mishra, Coal Allocation Scam: An Analysis of Manohar Lal
Sharma v. Principal Secretary, SEBI AND CORPORATE LAWS, December 1-14, 2014,
Accessed on 10 September, 2018, http://www.jsalaw.com/wp-
content/uploads/2015/09/Coal-Allocation-Scam.pdf.
12
Supra footnote 3.
13
Section 1(A) of the Coal Mines (Nationalization) Act, 1973.
14
Section 2 of the Mines and Minerals (Development & Regulation) Act, 1957.
10
(Development & Regulation) Act, 1957.respectively. They contended that
the stated provisions mentioned above give the powers of regulation and
development of coal mines in the Central Government. The Attorney
General further contended that section 1A of the Coal Mines
(Nationalization) Act, 1973 regulates the allocation of coal blocks by
acting as the procedure to be followed under section 3(3) 15 which states
all the types of persons or companies eligible to carry on coal mine
operations in India.

The arguments made in favour of the Government were rebutted by Mr.

Prashant Bhushan, the learned counsel for Common Cause. He argued
that the Coal Mines (Nationalization) Act, 1973 does not vest the power
to the Central Government to call applications, select and allocate coal
blocks and it is the Mines and Minerals (Development & Regulation) Act,
1957 which governed the procedure of coal block allocations. He
supported his argument by stating that the reason why amendment to
section 11A of the Mines and Minerals (Development & Regulation) Act,
1957 was brought in 2010, which provided for allocation of coal blocks
by auction through competitive bidding, was because this Act provides
the procedural regime of coal block allocations.

The Court, in lieu of the arguments made by Mr. Prashant Bhushan, held
that that the power to make coal block allocations did not vest in the
Central Government and that such an administrative route adopted by it
was illegal and the allocations made by the Central Government not only
amounted to largesse, but were also arbitrary, illegal and devoid of
application of mind.

Further, the latest and final pronouncement made by the Supreme Court
on September 24, 2014 was based on the question of whether to cancel
all of the 214 allocations. The Court reinforces the belief of fiat
justitiaruatcaelum to uphold the right of the public towards public
property and protects the public’s money from being pocketed by a few
rich, powerful and shady persons and organizations, held to cancel 214
15
Section 3(3) of the Coal Mines (Nationalization) Act, 1973.
11
out of 218 allocations. 40 coal block out of all 218 blocks were under
production and six were ready to start production. Among these 40
blocks, 37 were cancelled and of the six ready to produce blocks, five
were cancelled. Still, the allocation to Ultra Mega Power Projects, which
was done via competitive bidding for lowest tariffs, was not declared
illegal.16

16
Prachee Mishra, Coal Block Allocation and the 2015 Bill, THE PRS BLOG, Accessed on
10 September, 2018, http://www.prsindia.org/theprsblog/?p=3487.
12
 RECOMMENDATIONS
As to stop illegal allocation of coal blocks in India, a bill related to
allocation was introduced in the Parliament in 2015. The primary
purpose of the bill to re-allocate the coal mines which were declared
illegal by the Supreme Court in its judgement. It consist of details for the
auction process, compensation for the prior allottees, the process for
transfer of mines and details of authorities that would conduct the
auction. It also created 3 categories of mines in the names of Schedule I
consists of all 204 mines that were cancelled by the Supreme Court
which can be allocated by way of either public auction or allocation.
Schedule II consists of under-producing 42 mines and Schedule III
consists of 32 mines that have a specified end-use such as power, iron
and steel, cement and coal washing. Schedule II and Schedule III can be
allocated by way of public auction, and the auctions have to be completed
by March 31, 2015. 17

The only flaw that I could find and which is required to be amended in
this bill is related to the authorities that would conduct the auction and
allotment process. Even though the prior allottees are not eligible to
participate in the auctions but there are chances that they might take
part in auctions with the help of second party or any other sister
companies. Earlier, the authority which used to conduct the auctions and
allocation process was under the Ministry of Coal and currently, the coal
sector is regulated by Coal Controller’s Organization that too working
under the Ministry of Coal. The 2015 Bill is silent on the introduction of
the independent body to ensure a level playing field for both private and
government companies bidding for auction of mines to conduct coal
mining operations. This will also bring fairness in the allocations of coal
blocks. Further, the Bill is also silent or does not talk about any
guidelines on the monitoring of mining activities by the new allottees.
Moreover, there is no specific provisions or guidelines mentioned in the
Bill which ensures equitable distribution of coal blocks among the

17
Ibid.
13
companies and creates a fair, level-playing field for them and the Bill also
does not address the issue related to the functioning of coal mines, which
in past, has been delayed due to delays in land acquisition and
environmental clearances.

These loopholes need to be address in the Bill or a transparent, unbiased

committee should be formed to look into these matters to bring the
working process of allocation on the public platform and ensures its
running in smooth manner and so that the past could not be repeated
again in the future as it may cause another biggest loss to exchequer of
the Government of India. This will not only solve the problem of
allocation of coal blocks in future but also ensures the minimization of
the power shortage in the country.

Talking about the audit institutions, India does have in place well-
conceived processes of accountability. This includes the Comptroller &
Auditor General as well as well as parliamentary forums like the Public
Accounts Committee (PAC). The role of the Comptroller & Auditor
General is analogous to that of an “internal auditor”, because the
Comptroller & Auditor General is a government organization and part of
the “establishment”. However, the Comptroller & Auditor General played
a key role in drawing attention to the process deviations that made the
coal block scam possible. This shows that the audit process itself can and
does work. However, the sustained political attack on the work of the
constitutional audit body has been very hostile. Hence, we need to enact
a legislation that allows the Comptroller & Auditor General to take
retaliatory action against those who try to unfairly attack and undermine
the constitutional authority. This could be along lines similar to the
restraining powers that courts have against “contempt of court”.18

18
Chiranjib Sen, Curbing Crony Capitalism in India, AZIM PREMJI UNIVERSITY WORKING
PAPER, p.23, Accessed on 10 September, 2018,
https://azimpremjiuniversity.edu.in/SitePages/pdf/APU-Working-Paper-Series-5-curbing-
crony-capitalism-in-India.pdf.
14
 CONCLUSION
There are many scams in past that our country has suffered but none was
as big as “Coalgate Scam”, was a very big and huge scam. This scam took
place in 2004-2009, and was of 1.86 lakh crore rupees. This is a very
huge amount. This is also the biggest scam in India till date. During the
research, I found that it should be the prime responsibility of the
Government to keep in check all such records and not act only when the
damage has been done. As we know that for the arbitrary distribution of
coal blocks, a wide band of political and business class is responsible.
The report of Comptroller & Auditor General indicates that the coal block
allotment to private parties leads to a very damaging accusation of
financial loophole. The important issue in this scam was neither that the
prominent allottees were private companies nor because the loss is
incurred by public sector companies due to allotments to the private
companies, but the whole process of auctions and allocations was made
corrupt by the political leaders and their friends. They used their
influence to help their own companies or the companies belongs to family
or the friends’ companies at the very meagre price much less than the
actual cost of the coals to be extract form them. It is with political
connections that certain corporates managed to acquire access to natural
resources. The list of consortium members in blocks makes it clear that
there are many who do not have any ‘business’ to be there. The worst
part is not one of them is convicted in the case of Coal Block Allocation
Scam’s case yet which shows that like most other cases, the litigation
and investigation for “Coalgate” is progressing at a very slow pace and is
highly influenced by the bureaucracy and red tapism prevalent in the
country because of the direct involvement of high class leaders and
politicians in this matter. It will be beneficial for the country that the
truth must be achieved and helps Indian politics to become cleaner and
corruption free for a better India. Talking as a common man of this
nation, the nation was not merely deprived of revenues against allotment
but also of the required coal production, which was the cornerstone of

15
the argument in favour of such ad hoc distribution of assets free of cost
and even we are now paying for imports of coals to meet the power
related demands of the nation.

Talking about the verdict of the Supreme Court in this matter, the
allotment of 214 of 218 coal blocks were cancelled and was ordered to
re-allocate in fair and reasonable manner. But the investigation process
against the people involved in this matter including the then Prime
Minister Dr. Manmohan Singh are not yielding favourable result to
charge them or to keep the litigation process strong against them.

BIBLIOGRAPHY
 STATUTES & REGULATIONS

 Amendment to Section 3(3) of the Coal Mines

(Nationalization) Act, 1973.

 Section 1(A) of the Coal Mines (Nationalization) Act, 1973.

 Section 2 of the Mines and Minerals (Development &

Regulation) Act, 1957.

 Section 3(3) of the Coal Mines (Nationalization) Act, 1973.

 REPORTS

 Report No. 7 of 2012-2013, Comptroller & Auditor General

(Performance Audit), Allocation of Coal Blocks and
Augmentation of Coal Production.

 PAPERS & ARTICLES

 Anurag Dhandha, Coalgate: Now, DMK leader in the

dock, ZEE NEWS, 7 September 2012, Accessed on 10
September 2018,
http://zeenews.india.com/news/nation/coalgate-now-dmk-
leader-in-the-dock_798230.html.

16
 Sanjay Ojha, Sahay accused of helping younger brother get
coal block allotment, THE TIMES OF INDIA, 7 September
2012, Accessed on 10 September 2018,
https://timesofindia.indiatimes.com/city/ranchi/Sahay-
accused-of-helping-younger-brother-get-coal-block-
allotment/articleshow/15973115.cms?referral=PM.

 Siddharth Ranjan Das, Coal scandal: Why the Sancheti deal

weakens the BJP's attack, NDTV, Accessed on 10 September
2018, https://www.ndtv.com/india-news/coal-scandal-why-the-
sancheti-deal-weakens-the-bjps-attack-498668.

 Neeraj Chauhan, CBI FIR nails Darda bros' role in Coalgate,

TIMES OF INDIA, 7 September 2012, Accessed on 10
September 2018,
https://timesofindia.indiatimes.com/india/CBI-FIR-nails-
Darda-bros-role-in-Coalgate/articleshow/16290948.cms.

 Biswarup Guptoo and M. Rajshekhar, Coalgate: RJD leader

PC Gupta's sons won blocks close to his ministerial tenure,
THE ECONOMIC TIMES, INDIA, 7 September 2012,
Accessed on 10 September 2018,
http://economictimes.indiatimes.com/news/news-by-
industry/indl-goods/svs/metals-mining/coalgate-rjd-leader-pc-
guptas-sons-won-blocks-close-to-his-ministerial-
tenure/articleshow/16287942.cms.

 Biswarup Guptoo, Coalgate Scam: CBI files FIR accusing

Naveen Jindal and Dasari Narayan Rao of Fraud, ECONOMIC
TIMES. 12 June 2013, Accessed on 10 September 2018,
https://economictimes.indiatimes.com/news/politics-and-
nation/coalgate-scam-cbi-files-fir-accusing-naveen-jindal-and-
dasari-narayan-rao-of-fraud/articleshow/20541696.cms.

 Nayanika Mathur, ‘Coalgate’: Corruption, An Honest

Bureaucrat and a Deeper Malaise in India, THE
17
 CONVERSATION, 23 august 2016, Accessed on 10 September,
2018, http://theconversation.com/coalgate-corruption-an-
honest-bureaucrat-and-a-deeper-malaise-in-india-64209.

 Gaurav Arora and Abhinav Mishra, Coal Allocation Scam: An

Analysis of Manohar Lal Sharma v. Principal Secretary, SEBI
AND CORPORATE LAWS, December 1-14, 2014, Accessed on 10
September, 2018, http://www.jsalaw.com/wp-
content/uploads/2015/09/Coal-Allocation-Scam.pdf.

 Prachee Mishra, Coal Block Allocation and the 2015 Bill, THE
PRS BLOG, Accessed on 10 September, 2018,
http://www.prsindia.org/theprsblog/?p=3487.

 Chiranjib Sen, Curbing Crony Capitalism in India, AZIM

PREMJI UNIVERSITY WORKING PAPER, p.23, Accessed on 10
September, 2018,
https://azimpremjiuniversity.edu.in/SitePages/pdf/APU-
Working-Paper-Series-5-curbing-crony-capitalism-in-India.pdf.

18