Successful Allottee/ Bidder Free To Decide Whether To Continue Any Existing Contracts In Relation To Coal Mining Operation: SC

The Supreme Court observed that a successful allottee or bidder has complete freedom to decide as to whether he desires to continue or adopt any such existing contracts in relation to coal mining operation.

In the event the successful bidder or allottee elects not to adopt or continue with the existing contracts, all such contracts shall cease to be enforceable against the successful bidder or allottee in relation to Schedule I coal mines, the bench of Justices L. Nageswara Rao, BR Gavai and BV Nagarathna observed.

The court said that only remedy of such contracting parties shall be against the prior allottees.

Punjab State Power Corporation Limited was allotted Captive Coal Mines by the Union of India. On . On 16th February 1999, it issued a tender inviting bids for the purpose of development of Captive Coal Mines. In the said bid, EMTA Coal Ltd., emerged successful. On 25th August 2014, the Supreme Court held that the entire allocation of Coal Blocks made between 1993 and 2011, except those which were made through competitive bidding, were invalid, unfair, arbitrary and violative of Article 14 of the Constitution of India. The Central Government vide Allotment Order dated 31st March 2015, again allocated Pachhwara Captive Coal Block in favour of PSPCL. PSPCL issued a  Request For Proposal (RFP), to invite Global Bids for the selection of Mine Developer­ cum ­Operator for Pachhwara Coal Block through competitive reverse bidding process. This was challenged by EMTA before the Punjab and Haryana High Court. The High Court allowed the writ petition.

Section 11 of the Coal Mines (Special Provisions) Act, 2015 provides that 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. 

Before the Apex Court, PSPCL contended that Section 11 of the said Act clearly provides that it was the discretion of PSPCL to allow a successful allottee to continue or not to continue with the existing contracts, which were in existence prior to the fresh allotment in relation to coal mining operation. On the other hand EMTA contended that legislative intent behind Section 11(1) of the said Act is to permit an existing contractor to continue if his performance is found to be satisfactory, and nothing adverse against EMTA has been found. It was submitted that only when the performance of the existing contractor is found to be unsatisfactory or there is something against him, the allottee would be entitled to take recourse to the competitive bidding.

Interpreting Section 11 of the Act, the bench observed thus:

21. The words "may elect" would clearly show that the legislature has given complete discretion to a successful bidder or allottee to elect. The words "may elect" would also mean a discretion not to elect. Only in the event, a successful bidder or allottee decides to adopt and continue such contract, which may be existing with any of the prior allottees in relation to coal mining operations, the same shall constitute a novation for residual term or residual performance of such contract. In the event, the successful allottee does not elect to adopt or continue such contract, there is no question of novation for residual term or residual performance of such contract. Perusal of subsection (2) of Section 11 of the said Act would also make it clear that, it provides that in the event a successful bidder or allottee elects not to adopt or continue with the existing contract which had been entered into by the prior allottees with third parties, all such contracts which have not been adopted or continued shall cease to be enforceable against the successful bidder or allottee in relation to Schedule I coal mines and the remedy of such contracting parties shall be against the prior allottees. It 17 could thus be seen that on a plain reading of sub­sections (1) and (2) of Section 11 of the said Act, it is clear that the successful allottee or bidder has complete freedom to decide as to whether he desires to continue or adopt any such existing contracts in relation to coal mining operation. Only in the event he elects to adopt or continue with existing contracts, it shall constitute novation for residual term or residual performance of such contracts. In the event the successful bidder or allottee elects not to adopt or continue with the existing contracts, all such contracts shall cease to be enforceable against the successful bidder or allottee in relation to Schedule I coal mines. The only remedy of such contracting parties shall be against the prior allottees.

The court said that if the interpretation as sought to be placed by EMTA is to be accepted, it will do complete violence to the language of Section 11 of the said Act.

"If it is held that under Section 11 of the said Act, a prior contractor is entitled to continue if his performance is found to be satisfactory and if there is nothing against him, then it will be providing something in Section 11 of the said Act which the Statute has not provided for. It will also lead to making the words "may elect, to adopt and continue" redundant and otiose.", the court said.

The court added that when, upon a plain and literal interpretation of the words used in a Statute, the legislative intent could be gathered, it is not permissible to add words to the Statute. Equally, such an interpretation which would make some terms used in a Statute otiose or meaningless, has to be avoided, the court added. (Para 22)

The  bench observed that reasoning given by the High Court that PSPCL was within its right to reject the arrangement if the performance of EMTA was unsatisfactory or if there was any other factor which the Corporation found relevant enough to discard the arrangement altogether,  is totally erroneous.

The court observed that while exercising powers of judicial review, the Court is not concerned with the ultimate decision but the decision-­making process. It said:

"31....The limited areas in which the court can enquire are as to whether a decision-making authority has exceeded its powers, committed an error of law or committed breach of principle of natural justice. It can examine as to whether an authority has reached a decision which no reasonable Tribunal would have reached or has abused its powers. It is not for the court to determine whether a particular policy or a particular decision taken in the fulfilment of that policy is fair. The court will examine as to whether the decision of an authority is vitiated by illegality, irrationality or procedural impropriety. While examining the question of irrationality, the court will be guided by the principle of Wednesbury. While applying the Wednesbury principle, the court will examine as to whether the decision of an authority is 35 such that no authority properly directing itself on the relevant law and acting reasonably could have reached it."

Allowing the appeal, the court said that a policy decision to get the best operator at the best price, cannot be said to be a decision which no reasonable person would take in his affairs.

Click here to Read/Download Judgment