Coal Block Allocation: Delhi HC Sets Aside MoC's Invocation Of Bank Guarantees Given By Tata Sponge Iron Ltd; Asks Ministry To Reconsider [Read Order]

The Delhi High Court has set aside the orders passed by the Ministry of Coal in 2012 and 2015 whereby the Ministry had decided to invoke the bank guarantees given by Tata Sponge Iron Pvt Ltd.

While setting aside the orders passed by the MoC on the recommendation of the Inter Ministerial Group (IMG), the Single Bench of Justice Vibhu Bakhru has remanded the matter back to the MoC to decide it afresh, take an informed decision and pass a speaking order, after providing an opportunity of hearing to TSIL.

The court said:

'MoC shall provide TSIL the comments received from the concerned State Government(s) on the aspect whether the delay in achieving the milestones is attributable to TSIL. The concerned authority shall afford TSIL an opportunity to be heard; it would take an informed decision and pass a speaking order. In the meanwhile, TSIL shall ensure that the bank guarantee furnished by it is kept alive till the said decision is rendered by the MoC.'

In 2006, the Ministry of Coal had allocated land to the Petitioner under a Letter of Allocation, as per which, the Petitioner was supposed to start production within 42 months and furnish a bank guarantee of around ₹32 crore.

On 23/11/12, Ministry of Coal had directed for the invocation of the bank guarantee furnished by the Petitioner on the account of not meeting the targets set out in the Letter of Allocation.

The Petitioner challenged the said decision of the MoC before the High Court by arguing that the delay in achieving the milestones was not attributable to the Petitioner but to Central Government, State Government and other Government agencies.

The petitioner also pointed out that the Supreme Court in Manohar Lal Sharma v. Principal Secretary: (2014) 9 SCC 51 had cancelled the allocation of coal blocks as per the recommendations made by the Screening Committee in 36 meetings from 04.07.1993.

TSIL contended that that following the ML Sharma decision of the SC, the allocation itself had become void abinitio, and therefore the bank guarantee could not have been invoked.

However, the bench did not agree with this contention.

Firstly, it noted that the coal block  llocated to TSIL was not one of the subject coal blocks that were considered by the Supreme Court in Manohar Lal Sharma. This was for the reason that the MoC had already taken a decision to cancel the said allocation.

Secondly, in M/s Strategic Energy Technology Systems Pvt. Ltd. v. Union of India and Ors.: LPA 255/2016, a Division Bench of Delhi HC had rejected the contention that in Manohar Lal Sharma's case the Supreme Court had declared the allocation of coal blocks void ab initio.

"The decision of the Division Bench in M/s Strategic Energy Technology Systems Pvt. Ltd. (supra) is binding on this Court. And, in view of the above, the contention that the Allocation Letter issued to TSIL had been declared void ab initio has to be rejected. Consequently, the bank guarantee furnished by TSIL, which was invoked earlier, cannot be interdicted on the ground that the allocation was rendered void ab initio", the bench observed. 

Now, the only issue that remained to be considered was whether there was any requirement to issue show-cause notice to TSIL before invocation of the bank guarantee. This was in the context of the claims that delay in achieving the specified milestones for development of the coal blocks was for reasons attributable to the Central Government, State Government and/or their agencies.

After getting a nod from the Inter Ministerial Group, MoC decided, by orders dated 23/11/12 and 28/12/15, to encash the bank guarantees provided by the Petitioner. MoC had reasoned that since the decision regarding de-allocation was already taken prior to the Supreme Court judgement in Manohar Lal Sharma, there was no need to serve fresh show cause notice to the Petitioner.

The Court observed that the failure to provide reasons for invocation of the bank guarantee amounted to arbitrariness.

"...it is undeniable that TSIL is justified in insisting that its explanation for the delay ought to have considered by the concerned authority before deciding to invoke the bank guarantee. Failure to do so vitiates the entire action as arbitrary and unreasonable and falls foul of Article 14 of the Constitution of India". 

'Providing a hearing cannot be a mere formality. It is an opportunity for a party to present its explanation and it must necessarily follow that the said explanation must be considered. If the explanations are found to be unmerited, the reasons for finding so must be communicated', the court observed.  

The court observed that the question whether the bank guarantee furnished by the TSIL could be invoked on account of delay in development of the coal mine (and not on account of any deficiency in production) is also required to be considered by the MoC.

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