Additional Levy On Coal Mining: K’taka HC Judges Differ In Views, One Orders Inquiry Into Scam Involving KPCL [Read Order]

The division bench of Karnataka High Court has differed in its views on a plea made by a Kolkata-based mining company against the recovery of nearly Rs 300 crore additional levy on coal block allotment with one member of the bench ordering inquiry into the “unholy nexus” between the state-owned Karnataka Power Corporation Ltd (KPCL) and the mining company.

The bench comprising Chief Justice Subhro Kamal Mukherjee (now retired) and Justice Dinesh Kumar differed in their views on a petition moved by Kolkata-based Eastern Mineral and Trading Agency (EMTA) and Karnataka EMTA Coal Mines Limited (KECML), its joint venture with KPCL.

The petitioners had sought a declaration that the respondents (Centre, KPCL and others) are not entitled to recover the additional levy from any person other than the original allottees and restraining the respondents to recover the additional levy amount from them.

While Justice Mukherjee held KECML and EMTA were not liable to pay additional levy and quashed various demand notices raised by the government, Justice Kumar held it liable and ordered an inquiry into the joint venture and how KPCL nominees in the joint venture could allow the instant petitions to come up against KPCL.

Justice Mukherjee observed, “The mining lease that was granted in favour of KECML was clearly at the instance of KPCL and was clearly granted to facilitate the mining of coal through KECML. KECML was, as such, only a device to achieve the aforestated object. Inasmuch as neither the mines nor the coal mined from the mines were, at any point of time, the property of KECML, there can be no question of KECML being the prior allottee of the same, either for the purposes of Section 11 of the Act or otherwise, particularly as KECML derived no benefit from the operation of the mines or supply of coal therefrom, except the payment of the agreed mining charges to it.”

However, Justice Dinesh noted that the entire joint venture appeared to be a scam in itself and observed against the KPCL nominees allowing the petitions to come up in the first place.

“Prima facie, they have acted adverse to the interest of KPCL, of which they are the nominees. Such conduct on the part of the Chairman and Nominee Directors is regrettably reprehensible,” said Justice Kumar.

He also imposed a cost of Rs 10,000 on EMTA payable towards Prime Minister’s National Relief Fund.

“The conspectus of mutual attitude between KPCL and KECML, speaks volumes about their unholy nexus. This, prima facie, appears to be a scam by itself. It is time, the State Government took appropriate action in the matter… Conspicuously, the stand taken by the KPCL, if implemented, would bleed KPCL by another 74%, resulting in the entire additional levy to be borne by the State owned Public Sector Unit, obviously, from out of public funds, which is directly contrary to the judgment of the Hon’ble Supreme Court in 1st ML Sharma’s case,” Justice Kumar observed.

In the instant case, KPCL, which has its thermal plants, required a steady source of supply of coal for its intended Thermal Power Station (‘TPS’ in short) in Bellary. It applied for allotment of a coal block for the specified end use in Bellary TPS in 2003 and was allotted the coal blocks at Manoradeep, Kiloni and Baranj I to IV, all situated in Maharashtra, with a rider that the blocks must be utilized only for Bellary TPS.

Since KPCL did not have any expertise in mining matters, it called for open tenders, in which EMTA was selected for developing and operating coal blocks on behalf of KPCL. They formed a joint venture KECML.

However, in 2014, the Supreme Court in case titled ML Sharma vs Principal Secretary declared allotment of 42 coal blocks illegal which included the one made in favour of KPCL and ordered recovery of an additional levy of Rs 295 per tonne from the allottees. Pursuant to this, the Centre enacted the Coal Mines Act, 2015, allowing recovery of this additional levy.

Following this, Maharashtra raised a demand of Rs 417.95 crore as additional levy from KECML. KECML refused to pay, saying the allotments were made in the name of KPCL, which on the other hand contended that it was liable to pay only Rs 110 crore since it held 26 per cent share in KEMCL.

This led to the present petition wherein KECML and EMC moved the high court seeking a direction to restrain the Centre and the state from recovering additional levy from it.