W.P.(C) Nos. 7135 of 2008 page 1 of 33 IN THE HIGH COURT OF DELHI AT NEW DELHI W.P.(C) No. 7135 of 2008 & CMs 13784/08, 5035, 13945/2009 Reserved on: 23rd March 2010 Decision on: 18th May, 2010 PRAKASH INDUSTRIES LTD. ..... Petitioners Through: Mr. A. Sharan Sr. Advocate with Mr. B.R. Menon, Mr. Alok Singh, Ms. Divya Kesar and Mr. Ashwini Kumar, Advocates. Versus UNION OF INDIA & ORS. ..... Respondents Through: Ms. Anjana Gosain with Ms. S. Fatima, Advocates for UOI. Mr. Atul Jha, Advocate for Respondent No.3. Mr. Kailash Vasdev, Sr. Advocate with Mr. Manoj Sharma, Mr. Kapil Kaushik and Mr. Sumit Bhardwaj, Advocates for Respondent No.4. Mr. Arvind Nigam, Sr. Advocate with Mr. S.K. Mishra, Mr. Adil Ali and Mr. Ashutosh, Advocates for proposed Respondent No.5. CORAM: JUSTICE S. MURALIDHAR 1. Whether reporters of the local newspapers be allowed to see the Judgment? No 2. To be referred to the Reporter or not? Yes 3. Whether the Judgment should be reported in the Digest? Yes JUDGMENT 18.05.2010 1. The challenge in this petition under Article 226 of the Constitution by Prakash Industries Ltd. (`PIL‟) is to a letter dated 6th February, 2008 issued by the Government of India, Ministry of Coal allocating 73.85 MT of coal reserves to M/s W.P.(C) Nos. 7135 of 2008 page 2 of 33 S.K.S. Ispat & Power Ltd. (`SKS‟), Respondent No.4 herein. The further prayer is for a direction to the Ministry of Coal to allocate the non-coking coal block to both the Petitioner, PIL and Respondent No.4 (on the basis of the capacity of the proposed power plant) as recommended by the Government of Chhattisgarh (Respondent No.3) on 18th June, 2007. Background Facts 2. The background facts are that on 6th November, 2006, Respondent No.1 through Ministry of Coal advertised a list of 38 coal blocks for captive coal mining for allocation to companies engaged in the generation of power, production of iron and steel and production of cement. 15 out of the 38 coal blocks were earmarked for power generation. The remaining 23 blocks were to be made available for other specified end- uses like production of iron and steel and production of cement. 3. PIL states that it was incorporated in the year 1980, and is engaged in the business of manufacturing sponge iron, power co-generation, steel (blooms and billets) etc. PIL states that it has developed a fully integrated Steel Plant at Champa in Chhattisgarh which commenced production in 1993. The original installed capacity was 4 LTPA of sponge iron, 1.6 LTPA of liquid steel, 1.5 LTPA of structural steel along with 12 MW power co-generation. W.P.(C) Nos. 7135 of 2008 page 3 of 33 4. On 7th January, 2005, PIL entered into a Memorandum of Understanding (MOU) with the Government of Chhattisgarh (Respondent No.3) for setting up of a 190 MW coal based captive power plant with a proposed investment of Rs. 1017 crores. 5. Pursuant to an advertisement issued by Respondent No.1, the Petitioner on 12th January 2007 applied for allocation of non-coking coal block for its proposed power plant at Fatehpur, in Chhattisgarh. In its application PIL indicated that the coal was required for meeting its part requirement for the power plant of 625 MW capacity. The power plant project was to be executed in phases. The first phase of 250 MW was to be commissioned in April 2010 and second phase of 250 MW in April 2011. 6. On 12th January, 2007 Respondent No.4 SKS also applied pursuant to the same advertisement dated 6th November 2006 for allocation of a non-coking coal block. It was indicated in the application that the power generation capacity of its proposed power plant was 1000 MW+100 MW, i.e., 1100 MW. 7. PIL planned to expand its facilities in Chhattisgarh where it proposed to set up a coal based thermal power plant having a power generation capacity of 500 MW thus having a combined W.P.(C) Nos. 7135 of 2008 page 4 of 33 capacity of 690 MW at an approximate project cost of Rs. 3,218.75 crores. Accordingly, another MOU was entered into by PIL with Respondent No. 3 on 18th June, 2007 for an integrated steel plant with additional annual capacity/unit of 1.2 mTPA at a cost of Rs. 440 crores and a captive power plant (thermal) of 500 MW at a cost of Rs. 1625 crores. 8. In the meanwhile on 24th January 2007, Respondent No. 4 entered into an MOU with Respondent No. 3 for setting up of a power plant having a capacity of 600 MW. 9. Respondent No.1 appointed a Screening Committee, Respondent No.2 herein, to examine the applications made pursuant to the advertisement dated 6th November 2006. It held meetings between June and September 2007 and considered the applications filed by the both the Petitioner as well as Respondent No.4. On 6th November, 2007 the Respondent No.1 wrote to both the Petitioner as well as Respondent No.4 informing them that the central government was contemplating a joint allocation of the Fatehpur non-coking coal block in Chhattisgarh in favour of both the Petitioner as well as Respondent No.4 for meeting their proportionate requirement of coal. It was stated that based on mineable capacity of the total geological reserves and requirement of coal as assessed by the Central Mine Planning and Design Institute Ltd. W.P.(C) Nos. 7135 of 2008 page 5 of 33 (CMPDIL), the tentative proportionate share of the reserves was as indicated in the form of a table a copy of which read: Blocks Geological Reserve(Mt) Tentative Mine Capacity (Mtpa) Proposed for Company Coal Requirement For 30 yrs (Mt) Proportionate share of reserves of coal MT Fatehpur 120 3/0 M/s SKS Ispat Power Ltd. 4.6x30=138 For 1000 MW (IPP) 73.85 M/s Prakash Industries Ltd. 2.875x30=86.25 for 625 MW (CPP) 46.15 Total 224.25 10. The first option indicated in the said letter was that mining could be carried out: “in consortium of two or more allocattees in any given block by constituting a joint venture/special purpose vehicle company wherein there would be equity stake and management participation from all the consortium partners. The production from the mine could be distributed among the consortium partners in proportion to their assessed requirement at the time of allocation, net of linkages, if any. The equity shares should be held in proportion to the assessed requirement of all the consortium partners.” 11. The second option was that one of the allocattee companies be designated as the leader for the block and the other allocattees be treated as associates. In such event, the mining operation would be carried out by the leader and the production from the mine would be shared between the leader and the associates in the ratio of their respective requirements at the time of allocation. W.P.(C) Nos. 7135 of 2008 page 6 of 33 12. The third option was that for each block, one allocattee was chosen as the leader and other allocattees as associates. The CIL would have to arrange the transfer of coal from the leader to the associates as per the ratio determined at the time of allocation. 13. It was stated in the letter dated 6th November 2007 that the Petitioner and Respondent No. 4 should discuss the modalities mutually acceptable to them and finalise a legally binding and enforceable agreement opting for any one of the three alternatives. It was stated that the agreement was required to be in conformity with the provisions of the Coal Mines (Nationalisation) Act, 1973 [CMNA] and the guidelines issued in this regard. The options were directed to be exercised within thirty days. 14. On 13th November, 2007 PIL wrote to Respondent No.1 drawing the latter‟s attention to the fact that the ratio of share of coal reserves has not been specified by the Screening Committee (Respondent No.2) while deciding the allocation of the Fatehpur coal block. Secondly, PIL had proposed to set up a thermal power Plant of 625 MW capacity whereas Respondent No.4 had proposed to set up a power plant of 600 MW and not 1000 MW. It was stated that coal reserves should be allocated to PIL and the Respondent No.4 in the ratio of the proposed capacity of their respective power plants. It was W.P.(C) Nos. 7135 of 2008 page 7 of 33 pointed out that any allocation of share on the basis of 1000 MW capacity of Respondent No.4 would amount to excess allocation of coal beyond the consumption of 600 MW and, therefore, would also not be in consonance with the policy and purpose of captive mining for which the coal block was being allocated. Reference was also made by the PIL to the correspondence between Chhattisgarh Government and the Chhattisgarh State Electricity Board (CSEB) with Respondent No.4 on 1st April, 2007, 10th July, 2007 and 5th September, 2007 which showed that the power plant of Respondent No.4 as proposed was only of 600 MW capacity. The Petitioner wrote another letter on 15th November, 2007 followed by various personal visits to Respondent No.1. 15. On 22nd January, 2008 Respondent No.1 asked the Petitioner and Respondent No.4 to attend a meeting on 30th January, 2008 in the office of the Joint Secretary, (Coal) “to discuss the issue relating to formation of Joint Venture Agreement and for taking final decision relating to allocation of Coal Block”. Thereafter on 29th January, 2008 the Petitioner and Respondent No.4 entered into a Joint Venture Agreement (JVA) with a view to complying with the directions of Respondent No.1. According to the Petitioner, this was done on the assurance given over to it “that a necessary correction shall be made and proportionate allocation should also be made in favour of the parties on the basis of actual proposed W.P.(C) Nos. 7135 of 2008 page 8 of 33 power generation capacity of their plants.” Thereafter on 6th February 2008, the impugned letter was issued by the Respondent No.1 in the manner indicated hereinbefore. 16. The Petitioner waited for several months and thereafter on 28th August, 2008 wrote to Respondent No.1 seeking redressal of its grievance, for necessary correction to be made and a revised allocation letter to be issued. Thereafter the present petition was filed. On 3rd October 2008, an interim order was passed by this Court to the effect that the “case of the Petitioner pursuant to the communication dated 06.02. 2008 shall not be processed further.” The said interim order has continued since. Applications to implead Respondents 5 and 6 17. CM No.5035 of 2009 was filed by the Petitioner on 15th April 2009 soon after the hearing of the case on 25th March, 2009. PIL by this application sought to amend the writ petition. It was stated in the said application, inter alia, as under: “3. That it has come to the knowledge of the Petitioner that the Respondent No.4 Company is promoted by the family of Sh. Subodh Kant Sahai, Union Minister of State for Food Processing Industries (Independent Charge). 4. It is submitted that the said fact could only be confirmed when the Respondent No.1 filed its Counter Affidavit in another case being CWP W.P.(C) Nos. 7135 of 2008 page 9 of 33 No.6449 of 2008 wherein Sh. Sudhir K. Sahai, brother of said Sh. Subodh Kant Sahai has been shown to attend a meeting of the Screening Committee on 06.02.2008 as a Director of the Respondent No.4 Company. 5. It is submitted that the representatives of the Respondent No.4, with an object to avail favours to the Respondent No.4, have been holding out before the various Governmental authorities that SKS stands for Subodh Kant Sahai. 6. That under the circumstances it is clear that the Respondent No.1 & 2 are acting in a malafide and partisan manner and in collusion with Respondent No.4 allocated the coal blocks to Respondent No.4 under influence of Sh. Subodh Kant Sahai.” 18. The Petitioner sought to insert paras 38a, 38b and 38c in the writ petition and add grounds P and Q which read as under: “P. Because the Respondent Nos.1 & 2 have acted malafide in allocating coal blocks to Respondent No.4, under political influence of Sh. Subodh Kant Sahai, the Union Minister of State for Food Processing Industries (Independent Charge).” Q. Because the Respondent No.4 and proposed Respondent Nos.5 & 6 have created a corporate veil around Respondent No.4 to mislead and defraud the general public and thereby gain an undue and illegal advantage by influencing the Respondent Nos.1 & 2 by not showing in W.P.(C) Nos. 7135 of 2008 page 10 of 33 public documents that the proposed Respondent No.6 is not a director of the company but at the same time before Respondent Nos.1 and 2 holding out that he is a director of Respondent No.4 and as such gain undue and malafide favours from the said respondents.” 19. On the above basis, the Petitioner sought to implead Mr. Subodh Kant Sahai, as Respondent No.5 and his brother Mr.Sudhir Kant Sahai, who is a Director of Respondent No.4, as Respondent No.6. 20. Notice was issued on the above application on 17th April, 2009. Replies have been filed by the proposed Respondent Nos. 5 and 6 to the aforementioned application. 21. CM No. 13945 of 2009 was filed by PIL for taking on record an additional affidavit dated 27th October, 2009 to include a reference to the minutes of the 36th meeting of the Screening Committee held on 7-8th February, 2008 and 3rd July, 2008 which considered the allocation of 23 coal blocks earmarked for the non-power sector. Notice was issued on this application as well on 7th November 2009. Case of the Petitioner 22. Mr. Amarendra Sharan, learned Senior counsel for the Petitioner submits that the central question involved is the W.P.(C) Nos. 7135 of 2008 page 11 of 33 legality of the allocation made by Respondent No. 1 of a larger percentage of the coal block in favour of Respondent No. 4. The petitioner assails the decision, made by the impugned letter dated 6th February 2008, as being discriminatory, arbitrary and vitiated by malice in law and in fact. It is submitted that PIL was compelled by the circumstances into entering into a JVA reflecting the shares of the Petitioner and Respondent No. 4 as 625 MW and 1000 MW. At the time of signing the JVA the petitioner‟s representations dated 13th and 16th November 2007 were pending with Respondent No.1. Therefore the signing of the JVA did not amount to waiver by PIL of its right to challenge the allocation so made. In this connection, reliance was placed on the judgments of Basheshar Nath v. CIT AIR 1959 SC 149; Behram Khurshed Pesikaka v. State of Bombay (1955) 1 SCR 613 and Olga Tellis v. Bombay Municipal Corporation (1985) 3 SCC 545. 23. Mr. Sharan submitted that the allocation is not based on relevant materials. Importantly, it is inconsistent with the recommendation made by State Government on 16th June, 2007 in favour of the Respondent No. 4 for a thermal power plant of 600 MW capacity. It is submitted that in all the documents emanating from Respondent No. 4, the request was for allocation of a coal block for its 600 MW thermal power plant. At the presentation made by Respondent No. 4 before the Screening Committee which met on 20th and 23rd June W.P.(C) Nos. 7135 of 2008 page 12 of 33 2007, the capacity projected of the proposed thermal power plant was of 600 MW only. Both in its letter dated 5th September, 2007 addressed to Respondent No.1 and in the MOU entered into with Respondent No. 3 the projected capacity of the power plant of Respondent No. 4 was only 600 MW. 24. Thirdly, PIL contests the averment in the counter affidavit of Respondent No.1 that by a letter dated 5th September 2007, Respondent No. 3 had “superseded” its earlier recommendation dated 18th June 2007 and indicated the proposed end use plant capacity of Respondent No. 4 as 1000 MW. The petitioner relies on a response dated 22nd November 2008 received by it from Respondent No. 3 pursuant to an application made by PIL under the Right to Information Act, 2005 („RTI Act‟) confirming that it had not made a further recommendation after 18th June 2007. The petitioner PIL states that in response to a query to it by Respondent No. 1 about the status of preparedness of the various projects in the State of Chhattisgarh, Respondent No. 3 had written to Respondent No.1 on 5th September 2007 indicating inter alia the information relating to Respondent No. 4 and stating in the „remarks‟ column that an MOU had been signed by Respondent No. 4 and Respondent No. 3 on 24th January 2001 for a 600 MW power plant. The proceedings of the meeting of the Screening Committee, Respondent No. 2 herein, held on W.P.(C) Nos. 7135 of 2008 page 13 of 33 13th September 2007 did not reflect that any representative of the State of Chhattisgarh was present and in any event a recommendation of such representative could not supersede the MOU signed between Respondent Nos. 3 and 4. It is submitted that by determining the proportionate share of Respondent No. 4 on the basis that the capacity of its thermal power plant was 1000 MW, Respondent No. 1 had committed a manifest error. 25. It is further submitted by Mr. Sharan that the final allocation order issued on 6th February, 2008 made no mention of the objections raised by PIL in its letters of 13th and 16th November 2007. In any event, the said order contained no reasons why the share of PIL was reduced by nearly 13%. Reliance was placed on the decisions in Union of India v. G. Ganayutham (1997) 7 SCC 463 and Common Cause v. Union of India (1996) 6 SCC 530. 26. Mr. Sharan submitted that the JVA has nothing to do with the allocation of the coal block but only extraction of coal. It was in the nature of a quasi-statutory contract. It is submitted that the allocation finally made to Respondent No. 4, was contrary to the recommendations of Respondent No. 3. With Respondent No. 3 confirming that it had not reviewed its recommendation made by its letter of 18th June 2007 the very basis of the allocation made in the impugned letter dated 6th W.P.(C) Nos. 7135 of 2008 page 14 of 33 February 2008 was erroneous. It is submitted that on account of the illegal excess allocation of non-coking coal block by Respondent No. 1 to Respondent No. 4 the rightful share of the petitioner in non-coking coal block has been illegally curtailed. This would result in its power plant not being operated to its optimal capacity and might result in the failure of its project. 27. Lastly, in support of the plea of malafides both in law as well as fact, it is pointed out by Mr. Sharan that Mr. Subodh Kant Sahai (proposed Respondent No. 5), a Union Minister for State in the Ministry of Food Processing Industries (Independent Charge) wrote a letter dated 5th February 2008 to the Prime Minister asking for his personal intervention as regards the application made by Respondent No. 4 for two coal blocks. Immediately on the next day, i.e., 6th February 2008, the Prime Minister‟s Office (PMO) forwarded the said letter to the Respondent No. 1 “for action as appropriate.” It is submitted that the speed with which on 6th February, 2008 itself the final letter of allocation was issued indicated the extent to which Respondent No. 4 could bring influence to have the allocation made in its favour. The Respondent No. 4 admitted that the Minister‟s brother Mr. Sudhir Kant Sahai (proposed Respondent No. 6) was a Director in the company and had in that capacity attended the meeting of the Screening Committee on 7th February 2008. In support of the plea of legal and factual malafides, reliance was placed on the decisions in W.P.(C) Nos. 7135 of 2008 page 15 of 33 Express Newspapers Ltd. v. Union of India 1986 (1) SCC 133, Bahadursingh Lakhubhai Gohil v. Jagdishbhai M. Kamala (2004) 2 SCC 65 and S.P. Kapoor v. State of H.P. (1981) 4 SCC 716. 28. In the additional written submissions of the Petitioner, it is contended that “SKS was imposed upon the Petitioner by the Respondent No.1.” It is also said that “Respondent No.1 threatened the Petitioner that if it did not sign the JVA it will cancel the allocation as such the Petitioner had no choice but to sign the JVA to avail its quota of coal.” It is further submitted as under: “Sh. Sudhir K Sahai who has been designated as a Director of Respondent No.4 though his name does not appear in the returns filed before the ROC, has been holding out to public at large and Government authorities that SKS stands for Subodh Kant Sahai.” 29. The contention of Respondent No. 4 that SKS stands for “Shree Krishna Structures” is dismissed of as “no good inasmuch as that being so there was no need to change the name to SKS in the year 2000. It is apparent that the said change was effected only with a view to avail political benefits by holding out that SKS stands for Subodh Kant Sahai.” W.P.(C) Nos. 7135 of 2008 page 16 of 33 Case of the Respondents 30. On behalf of Respondent No. 4, Mr. Kailash Vasdev, learned Senior counsel submitted that as per the Mega Power Policy of the Ministry of Power, Government of India, any independent power project of 1000 MW and above would be considered for exemption from customs duty. It is with this view that Respondent No. 4 submitted a proposal to Respondent No. 3 Government of Chhatisgarh on 24th October, 2006 for setting up of a thermal power plant of that capacity, much before the advertisement inviting bids for the coal blocks. Reference is made to the proposal dated 24th October, 2006 and the letter dated 11th December, 2006 of the Ministry of Commerce and Industry, Government of India issuing an IEM Code to Respondent No.4 for 1000 MW coal based thermal power plant. On 13th December, 2006 Respondent No. 4 informed the Principal Secretary (Energy) of Respondent No. 3 that it had completed the preparation of the detailed project report for setting up a power plant with a capacity of 500 x 2 MW (i.e 1000 MW). This was acknowledged on 6th January 2007 by Respondent No. 3. 31. Mr. Vasdev referred to the application of Respondent No. 4 in which it was indicated that an extent of 500 MW capacity would be completed in the first phase within 24 months and the remaining 500 MW within 24 months of the commissioning of the first phase. It is pointed out that Clause W.P.(C) Nos. 7135 of 2008 page 17 of 33 27 of the MOU dated 24th January, 2007 entered into between Respondents No. 3 and 4 states: “In the event of any increase in the installed capacity as mentioned above or any expanded capacity to the existing unit(s) under the Project, a fresh MOU shall be signed for such increase in the capacity as per prevailing policies of the Government, at that time.” 32. Further, in a power point representation made on 17th August, 2007 to the Screening Committee, Respondent No. 4 stated that “600 MW IPP shall be expanded to 1100 MW in II Phase.” 33. It is submitted by Mr. Vasdev that the Petitioner had accepted the offer made by Respondent No. 1 in the allocation letter dated 6th February, 2008 and consequent thereto on 19th May, 2008 a Joint Venture Company in the name of Fatehpur Coal Mining Company Ltd. (FCMCL) was incorporated jointly by the Petitioner and the Respondent No.4. Two board meetings of the Directors of FCMCL were held on 28th May and 31st July, 2008. Reference was made to the several steps taken by Respondent No.4 including inviting tenders for