While interpreting Section 11 of the Coal Mines (Special Provisions) Act, 2015, a Bench of the Supreme Court has held 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."

The Bench further ruled that, "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 section 11 of the Coal Mines (Special Provisions) Act defines "Discharge or adoption of third party contracts with prior allottees."

As per sub-section (1), notwithstanding anything contained in any other law for the time being in force, 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: Provided that in such an event, the successful bidder or allottee or the prior allottee shall notify the nominated authority to include the vesting of any contracts adopted by the successful bidder.

As per sub-section (2), in the event that a successful bidder or allottee elects not to adopt or continue with existing contracts which had been entered into by the prior allottees with third parties, in that case, all such contracts which have not been adopted or continued shall cease to be enforceable against the successful bidder or allottee in relation to the Schedule I coal mine and the remedy of such contracting parties shall be against the prior allottees.

Facts of the Case

The Punjab State Power Corporation Limited (PSPCL), which was formerly known as Punjab State Electricity Board (PSEB), had entered into an agreement with EMTA Coal Limited after it was successful in the bidding process for the development of captive coal mines in 2000. The Union of India had allocated two coal blocks to the PSPCL and one of them was in Jharkhand. Meanwhile, the Supreme Court passed a judgment in 2014 and held that the entire allocation of Coal Blocks made between 1993 and 2011, except those which were made through competitive bidding, was invalid, unfair, arbitrary and violative of Article 14 of the Constitution of India. The Court subsequently had quashed all allocations done by the Union of India. The Union of India again allocated coal black to PSPCL in 2015 and it had issued a global tender inviting bids for mine developer cum operator. This was challenged by EMTA before the High Court of Punjab and Haryana, which ruled in its favor. Therefore PSPCL filed an appeal before the Supreme Court.

The Bench comprising Justice L. Nageswara Rao, Justice BR Gavai and Justice BV Nagarathna held that, "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 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."

The Bench further ruled that the successful bidder has complete freedom to decide

"It 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."

The Bench rejected arguments tendered by EMTA that a prior contractor is entitled to continue if his performance is found to be satisfactory and if there is nothing against him

"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. It is a settled principle of law 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 Bench observed that the Court is concerned with the decision making process not the ultimate decision,

"It could thus be seen that while exercising powers of judicial review, the Court is not concerned with the ultimate decision but the decision making process. 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 fulfillment 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."

The Court set aside the Judgment of the High Court of Punjab and Haryana.





Supreme CourtSection 11 of Coal Mines Act

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