India: ‘Fair And Reasonable' Compensation Under The Coal Mines (Special Provisions) Act, 2015

Last Updated: 17 March 2017
Article by Sanjeev Kapoor, Saman Ahsan and Raghav Bajaj

The Hon'ble Delhi High Court (Court) on 9 March 2017 pronounced its much-awaited judgment in connected writ petitions challenging, inter alia, the validity of Section 16 of the Coal Mines (Special Provisions) Second Ordinance, 2014 (Ordinance) and Rule 14 of the Coal Mines (Special Provision) Rules, 2015 (Rules).

Background

Pursuant to the cancellation of allocation of coal blocks by the Supreme Court vide its judgement in (Manohar Lal Sharma v Union of India; Manohar Lal Sharma v. Principal Secretary (2014) 9 SCC 516), the Ordinance and the Rules came to be enacted to inter alia determine the manner in which the de-allocated coal blocks were to be auctioned. The Act and the Rules also provided for manner and quantum for determination of compensation payable to the prior allottee of the cancelled coal blocks.

Various writ petitions were filed before the Court challenging the vires of Section 16 read with Section 3(1)(j) of the Ordinance, which dealt with the valuation of compensation to be made to the prior allottee by a successful in respect of the land and mine infrastructure.

Main arguments of the Writ Petitioners

  • Section 16(1) of the Ordinance provided for quantum of compensation for land based on the registered sale deeds together with 12% simple interest from the date of possession or acquisition till the date of execution of the vesting order or the allotment order. This was argued to be unjust and unfair and not as per the current market value.

    Further, Section 16(1) of the Ordinance did not provide for any compensation with regard to leasehold land or land in respect of which surface right had been acquired.
  • Section 16(2) of the Ordinance stated that quantum of compensation for mining infrastructure, is to be determined with respect to the value given in statutorily audited balance sheet of the previous financial year instead of on the basis of value of the mine infrastructure, as on the date of vesting order.
  • Furthermore, the Ordinance did not provide for compensation for all rights, assets, approvals etc., and hence such compensation was argued to be unfair and unjust compensation.
  • It was argued that limiting the cut-off date for computation of compensation for mine infrastructure would be illusionary and expropriatory and thereby violative of Article 14, 19 and 300 A of the Constitution and contrary to the Manohar Lal Sharma judgment, in which case, the Supreme Court had held that the cancellation of the operational mines was to take effect from 1 April 2015. Apart from this, compensation for various permissions and approvals was also not provided in the Ordinance.
  • The Ordinance was also alleged to be violative of Article 14 of the Constitution as it prescribed different procedures for determining compensation for transfer from prior allottee to a successful bidder under Section 16 of the Ordinance and for those lands being acquired by fresh acquisition under Section 21 of the Ordinance for which the compensation was to be determined on the basis of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.
  • It was argued that another criticism of the Ordinance was that since it did not prescribe any timeline for payment of the compensation to the prior allottee, it was an arbitrary and whimsical decision. Thus, it was argued that the act of divestment of leasehold rights in the Central Government ought to be simultaneous to the act of payment of compensation to the prior allottee and in case payment of compensation is left indefinitely, the same would amount to gross expropriation and would be clearly violative of Article 14 and Article 19(1)(g) as well as Article 300A of the Constitution.
  • It was lastly alleged that this was a case wherein the transfer of right, title and interest is taking place from one private entity to another and there can be no discrimination between them.

Main arguments of the Union of India

  • The competent authority for the instant dispute is the adjudicatory tribunal constituted under Section 27 of the Ordinance as the major issue pertains to the quantum of compensation.
  • While following due process of law all tangible assets were taken into consideration for determining the quantum of the compensation.
  • Choosing the cut-off date of 31 March 2014 for computation of compensation was with the concern that the prior allottee might manipulate the balance sheets to inflate their claims. Additionally, the cut-off date was 31 March 2014 because the audited balance sheet was available for the financial year 2013-14 (which was a statutory document) and may be beneficial to the prior allottee.
  • Section 16 of the Ordinance is not violative of Article 300A of the Constitution as compensation was being calculated and granted by an authority of law, and was hence, fair and reasonable.
  • The Ordinance fell under Entry 54 of List I of the Seventh Schedule to the Constitution and was for the purpose of giving effect to the policy of the State to secure the Directive Principle of the Constitution under Article 39(b) of the Constitution. Hence, it is immune from challenge on grounds of Articles 14 and 19.

Decision of the Court

  • The definition of 'mine infrastructure' as provided under Section 3(1)(j) of the Ordinance is an inclusive definition and is not close ended.
  • Section 16(1) of the Ordinance and Rule 14(2) of the Rules appear to have a circular reference leading to nowhere, it is actually a case of unhappy drafting.
  • The legislature cannot be expected to make a provision designed to enrich the successful bidder at the cost of the prior allottee. Such an enrichment is violative of Article 14 of the Constitution.
  • Fixing of a rigid formula of the value of land as per the historical value given in the sale deeds together with 12% simple interest may operate unfairly against the prior allottee and to the benefit of the successful bidder.
  • It was ruled that arguments regarding arbitrariness and discrimination of Section 16 of the Ordinance can be put aside if Section 16 of the Ordinance is interpreted as follows:

    • Quantum of compensation of land in relation to Schedule-I based on the registered sale deeds together with 12% simple interest, is only a benchmark. If the prior allottee is able to produce tangible evidence before a nominated authority that the fair market value of land on the date of execution of the vesting order is more than the said benchmark, then the prior allottee would be entitled to the same;
    • Quantum of compensation for mine infrastructure is to be calculated while keeping in mind that the definition of 'mine infrastructure' is an inclusive one and if certain items have not been mentioned in the said definition, it will always be open to the prior allottee to raise an issue with regard to the same and get it adjudicated by the tribunal under Section 27 of the Ordinance.

      Importantly, the Court has held that leasehold rights in land and/or surface rights qua the land may have a value and could possibly be included in mine infrastructure.
    • Compensation for mine infrastructure has to be determined on the basis of a written down value as reflected in the statutory audited balance sheets of the previous financial year i.e. 31 March 2014, which will only be a benchmark.
    • The valuation of the mine infrastructure should be done as on the date of execution of vesting order or the allotment order, as the case may be.
    • Therefore, only considering figures as of 31 March 2014 and stopping at that would run the risk of being declared as discriminatory and arbitrary.
  • Hence, Section 16 of the said Ordinance and Rule 14 of the Rules have been read down by the Court, and accordingly held to not be violative of Articles 14, 19(1)(g) and 300A of the Constitution.
  • It has been left open to the individual petitioners to raise disputes with regard to the quantum of compensation before the Tribunal under Section 27 of the Ordinance.

It is relevant to note that the Court did not make any observations on the argument of the petitioners that the Ordinance was also bad since it did not prescribe any timeline for payment of the compensation to the prior allottee.

Khaitan Comment

The above judgment rendered by the Court, has been treated as a welcome move by the industry, as the judgement is likely to significantly enhance the quantum of compensation that would be dispensed to the prior allottees. Although the judgment interprets and resolves the larger disputes regarding the compensation of land and mine infrastructure, no immediate relief has been provided to the petitioners. The petitioners, while using the guidelines set down by the Court in the judgment, will have to claim the compensation from the Government and if necessitated, approach the tribunal under the Ordinance in relation to the quantum of the compensation.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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