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Updated: Sep 25, 2014 01:38 IST

In a verdict that could lead to a more transparent system of allocating natural resources, the Supreme Court on Wednesday cancelled all but four of the 218 coal blocks that it had, on August 25, said were illegally and arbitrarily allocated.

The court gave the government six months to decide on a new coal block allocation policy. These 218 blocks had been allocated to steel, power and cement companies for their captive use.

Two of the four blocks that have been spared were allocated to public sector companies SAIL and NTPC, both PSUs.

Two others were allocated to Reliance Power’s ultra-mega power project at Sasan in Madhya Pradesh. It had won these blocks through international competitive bidding, so there were no allegations of any arbitrary decision making.

The apex court bench, comprising Chief Justice of India RM Lodha, who retires after two days, and Justices Madan Lokur and Joseph Kurian, granted the holders of 46 blocks time till March 31, 2015 to wind up their businesses. The Centre had sought protection for these blocks as 40 were operational and six were on the verge of starting operations.

However, the 40 companies that have started operations will have to pay a fine of Rs 295 per ton, as calculated by the Comptroller & Auditor General (CAG). Since these companies have mined about 300 million tons of coal, they will have to pay at least Rs 9,000 crore as fines.

Attorney general Mukul Rohatgi had said the NDA government was “desirous to move on” in the wake of any cancellation.

Read: A timeline of India’s troubled coal sector



“The judgment is in accord with the government’s stand. We have already taken a position (on the issue) that we will be happy if all (blocks) are cancelled so that we can make a fresh start…,” law minister Ravi Shankar Prasad told reporters. Coal and power minister Piyush Goyal is expected to brief the media on the judgment on Thursday.

“I am sure the Indian government has a fallback plan to tackle the coal block allocation issue,” said Kumar Mangalam Birla, chairman of Hindalco after the court cancelled its coal blocks in Talabira in Odisha and Mahan in Madhya Pradesh.

“While the judgment may have been intended to bring in transparency, it will… raise questions on sanctity of government policies, impacting the investment climate,” said Ajay Shriram, president of Confederation of Indian Industry (CII).

The stock market steadied after falling 215 points in mid-session following the judgment. It ended the day at 26,744.69, a loss of 31 points. Jindal Steel and Power, in particular, lost 10% and closed at Rs 189.70.



Read: SC ruling on coal blocks likely to hit economy, says India Inc



The cancellation of 214 coal blocks and their auction in future will shore up the government’s revenues and enable it to keep its fiscal deficit under control.



Companies that lose coal blocks will be able to bid for them in the open auctions that will follow. However, the ruling could lead to a rise in bank NPAs as several companies had taken loans worth about Rs 1 lakh crore to set up power plants and other factories on the back of these coal blocks. Banks downplayed the possibility of a rise in bad loans.

Then, power companies that get coal blocks through auctions could demand higher tariffs to offset higher auction prices.

The previous UPA government did not auction the coal blocks on the plea that state governments were opposed to the idea. More than half of India’s power is produced by thermal power plants. A chronic shortage of coal is one of the reasons for frequent power outages and the proliferation of environmentally damaging diesel generators both in residential houses as well as in industrial units.

Read: SC to CBI - Don’t file coal scam closure reports



Read: India's IDBI says has near $328 mln exposure to cos affected by coal ruling



