Supreme Court Clarifies Rights Under Section 11 of Coal Mines Act: Punjab State Power Corporation Ltd. vs. EMTA Coal Ltd. (21 September 2021)

Date of the Judgment: 21 September 2021
Citation: 2021 INSC 677
Judges: L. Nageswara Rao, J., B.R. Gavai, J., B.V. Nagarathna, J.
Can a successful bidder of a coal mine be forced to continue with contracts of prior allottees? The Supreme Court recently addressed this crucial question, interpreting Section 11 of the Coal Mines (Special Provisions) Act, 2015. This judgment clarifies the rights of prior allottees and the discretion of new allottees regarding existing contracts. The bench comprised Justices L. Nageswara Rao, B.R. Gavai, and B.V. Nagarathna, with the majority opinion authored by Justice B.R. Gavai.

Case Background

The Punjab State Electricity Board (PSEB), now known as Punjab State Power Corporation Limited (PSPCL), was to be allotted Captive Coal Mines by the Union of India. On 16th February 1999, PSEB issued a tender for the development of these mines. EMTA Coal Limited (EMTA) was the successful bidder, and an agreement was formed on 5th May 2000, creating a Joint Venture Company called Panem Coal Mines Limited (Panem). This agreement gave Panem the exclusive rights to mine and deliver coal to PSEB.

A follow-up agreement was made on 21st March 2001, between PSEB, EMTA, and EMTA’s partners, maintaining the same terms. The Union of India allotted the Pachhwara (Central Block) Coal Mine to PSEB on 26th December 2001. On 22nd February 2002, the Union notified that Panem would exclusively supply coal from Pachhwara to PSEB’s power stations. A Mining Lease was executed between the Government of Jharkhand and Panem on 25th November 2004, for non-forest areas, and on 6th January 2007, for forest areas of the coal block.

However, on 25th August 2014, the Supreme Court in Manohar Lal Sharma v. Principal Secretary and Others [(2014) 9 SCC 516], declared all coal block allocations made between 1993 and 2011, except those through competitive bidding, as invalid. Consequently, on 24th September 2014, all coal block allocations were quashed. The Coal Mines (Special Provisions) Ordinance, 2014, was promulgated on 21st October 2014, followed by a second ordinance on 26th December 2014, and finally, the Coal Mines (Special Provisions) Act, 2015, was notified on 30th March 2015.

The Central Government re-allocated the Pachhwara Coal Block to PSPCL on 31st March 2015. PSPCL entered into a Transitory Agreement with EMTA on 30th June 2015, for nine months or until a Mine Developer-cum-Operator was appointed through competitive bidding. PSPCL then issued a Notice Inviting Global Tender (NIT) on 31st August 2015.

EMTA challenged the NIT in the High Court of Punjab and Haryana, which was later withdrawn on 1st February 2018, after PSPCL agreed to consider EMTA’s claims. EMTA’s representation was rejected on 6th April 2018. PSPCL issued a fresh Request For Proposal (RFP) on 30th April 2018, leading to DBL-VPR Consortium being awarded the contract on 11th September 2018. EMTA then challenged this in the High Court, which ruled in favor of EMTA, leading to the present appeals before the Supreme Court.

Timeline

Course of Proceedings

EMTA filed a civil writ petition (CWP No. 26180 of 2015) in the High Court of Punjab and Haryana, challenging the NIT issued by PSPCL. The High Court initially restrained PSPCL from opening the financial bids. This petition was later withdrawn on 1st February 2018, after PSPCL stated it would consider EMTA’s representation. However, PSPCL rejected EMTA’s representation on 6th April 2018, leading EMTA to file another civil writ petition (CWP No. 10055 of 2018).

During the pendency of CWP No. 10055 of 2018, PSPCL issued a fresh Request For Proposal (RFP) on 30th April 2018, which EMTA challenged through CWP No. 16245 of 2018. The High Court allowed EMTA’s petitions, holding that EMTA had the first right of refusal in the matter of lending the Mining Lease. Aggrieved by this decision, PSPCL and DBL-VPR Consortium appealed to the Supreme Court.

Legal Framework

The core legal provision at the heart of this case is Section 11 of the Coal Mines (Special Provisions) Act, 2015. This section deals with the discharge or adoption of third-party contracts with prior allottees. Specifically:

“11. Discharge or adoption of third party contracts with prior allottees.—(1) Notwithstanding anything contained in any other law for the time being in force, a successful bidder or allottee, as the case may be, in respect of Schedule I coal mines, may elect, to adopt and continue such contracts which may be existing with any of the prior allottees in relation to coal mining operations and the same shall constitute a novation for the residual term or residual performance of such contract:
Provided that in such an event, the successful bidder or allottee or the prior allottee shall notify the nominated authority to include the vesting of any contracts adopted by the successful bidder.
(2) In the event that a successful bidder or allottee elects not to adopt or continue with existing contracts which had been entered into by the prior allottees with third parties, in that case all such contracts which have not been adopted or continued shall cease to be enforceable against the successful bidder or allottee in relation to the Schedule I coal mine and the remedy of such contracting parties shall be against the prior allottees.”

This provision allows a successful bidder or allottee to choose whether to continue with existing contracts of prior allottees. If they choose to continue, it constitutes a novation of the contract. If they choose not to, the contracts cease to be enforceable against the new allottee, and the remedy lies against the prior allottees.

Arguments

Arguments by PSPCL (Appellant):

• PSPCL argued that the High Court erred in granting EMTA a first right of refusal.
  
• They contended that Section 11 of the Coal Mines Act gives them the discretion to continue or not with existing contracts.
  
• PSPCL submitted that only when the allottee decides to continue with the old contracts, the question of novation for the residual term would arise.
  
• They argued that if a new allottee chooses not to continue with prior contracts, those contracts are not enforceable against them, and the remedy lies against the prior allottees.
  
• PSPCL highlighted that EMTA failed to pay Rs. 1400 crore as additional levy as directed by the Supreme Court, causing a loss to the public exchequer.
  
• They submitted that the concept of legitimate expectation cannot be applied against a statute, and PSPCL has taken a policy decision to appoint a Mine Developer through competitive bidding.
  
• PSPCL relied on Clause 12.4 of the Allotment Agreement, which mandates appointment of a Mine Developer through competitive bidding.
  

Arguments by DBL-VPR Consortium (Appellant):

• DBL-VPR Consortium supported PSPCL’s arguments, stating they were the lowest bidder in the global tender.
  
• They argued that EMTA could not claim a right of first refusal after the bidding process was complete.
  

Arguments by EMTA (Respondent):

• EMTA argued that they made significant investments in specialized machinery and infrastructure for mining.
  
• They claimed a legitimate expectation to continue for the 30-year contract period.
  
• EMTA contended that Section 11(1) of the Coal Mines Act intends to permit existing contractors to continue if their performance is satisfactory.
  
• EMTA submitted that PSPCL acted arbitrarily in denying their claim, and competitive bidding should only be used if the existing contractor’s performance is unsatisfactory.
  
• EMTA relied on a judgment of the Karnataka High Court in KPCL v. EMTA Coal Limited and Others [ILR 2016 Kar 4301], where a similar view was taken.
  
• They argued that the Union of India also believes that Section 11 prevails over Clause 12 of the Allotment Agreement.
  
• EMTA submitted that the High Court’s judgment does not prejudice PSPCL, as EMTA would continue at the same rate, and that the price is now known.
  
• EMTA argued that PSPCL’s rejection of their representation was perfunctory and without valid reasons.
  

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Interpretation of Section 11 of the Coal Mines (Special Provisions) Act, 2015.
2. Scope of judicial review of an administrative action of the State Authority.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Manohar Lal Sharma v. Principal Secretary and Others [(2014) 9 SCC 516] – Supreme Court of India: This case declared coal block allocations between 1993 and 2011 as invalid.
  
• Manohar Lal Sharma v. Principal Secretary and Others [(2014) 9 SCC 614] – Supreme Court of India: This case quashed all coal block allocations made by the Central Government between 1993 and 2011.
  
• Kerala State Beverages (M and M) Corporation Limited v. P.P. Suresh and Others [(2019) 9 SCC 710] – Supreme Court of India: This case discussed the principle of legitimate expectation.
  
• KPCL v. EMTA Coal Limited and Others [ILR 2016 Kar 4301] – Karnataka High Court: This case was relied on by EMTA, where a similar view was taken.
  
• EMTA Coal Limited and Another v. West Bengal Power Development Corporation [(2016) 2 Cal LJ 424] – Calcutta High Court: This case was cited by the appellant.
  
• Jugalkishore Saraf v. Raw Cotton Company Limited [1955] 1 SCR 1369 – Supreme Court of India: This case discussed the principle of literal interpretation of statutes.
  
• Ajit Mohan and Others v. Legislative Assembly National Capital Territory of Delhi and Others [2021 SCC OnLine SC 456] – Supreme Court of India: This case discussed the need for precedents.
  
• Tata Cellular v. Union of India [(1994) 6 SCC 651] – Supreme Court of India: This case outlined the scope of judicial review of administrative action.
  
• Rashmi Metaliks Limited and Another v. Kolkata Metropolitan Development Authority and Others [(2013) 10 SCC 95] – Supreme Court of India: This case reiterated the importance of following the precedent set in Tata Cellular.
  

Legal Provisions:

• Section 11 of the Coal Mines (Special Provisions) Act, 2015: Deals with the discharge or adoption of third-party contracts with prior allottees.
  
• Section 62 of the Contract Act, 1872: Pertains to novation, rescission, and alteration of contracts.
  
• Article 14 of the Constitution of India: Ensures equality before the law.
  

Judgment

The Supreme Court, after considering the arguments and legal provisions, held that the High Court’s judgment was unsustainable. The Court emphasized that Section 11 of the Coal Mines (Special Provisions) Act, 2015, gives complete discretion to the successful bidder or allottee to decide whether to continue with existing contracts.

The Court rejected the High Court’s view that EMTA had a legitimate expectation to continue the contract, stating that legitimate expectation cannot override statutory provisions. The Court also held that PSPCL’s decision to go for competitive bidding was a valid policy decision.

The Court reiterated the principles of judicial review, emphasizing that the court is concerned with the decision-making process, not the merits of the decision. It found no illegality, irrationality, or procedural impropriety in PSPCL’s decision.

Ratio Decidendi

The core legal principle (ratio decidendi) established by this judgment is that Section 11 of the Coal Mines (Special Provisions) Act, 2015, grants complete discretion to the successful bidder or allottee of a coal mine to decide whether to adopt or continue with existing contracts of prior allottees. If the new allottee chooses not to adopt such contracts, those contracts cease to be enforceable against the new allottee, and the remedy lies against the prior allottees.

Decision

The Supreme Court allowed the appeals filed by PSPCL and DBL-VPR Consortium and set aside the judgment of the High Court. The Court held that PSPCL was within its rights to invite fresh bids for the operation of the coal mine and was not bound to continue with EMTA’s contract.

Implications

This judgment has significant implications for the coal mining industry. It clarifies that new allottees of coal mines have the discretion to choose whether to continue with prior contracts, providing them with the flexibility to select the most suitable partners for their operations. It also underscores the importance of statutory interpretation, emphasizing that legitimate expectations cannot override explicit statutory provisions.

The judgment reinforces the principle that when a statute gives discretion, it must be respected, and courts should not interfere unless there is a clear case of illegality, irrationality, or procedural impropriety in the decision-making process. This decision also provides clarity on the rights and obligations of prior allottees and new allottees under the Coal Mines (Special Provisions) Act, 2015.

Flowchart of the Decision Process