This article about coal mining and it’s regulation in India is written by Vishakha Gupta, a student of NUJS, Kolkata.

Akin to the common law principle that prohibits us from owning unlimited expanse of air above our land, we are also prohibited from de facto owning the minerals stored below our land. The Government by virtue of the doctrine of eminent domain owns all natural resources found in air, water or land. Thus, in case a person discovers valuable minerals below his property, the land belongs to the government. This is expressly laid down in The Mines and Minerals (Development and Regulation) Act, 1957 (hereinafter referred to as the ‘1957 Act’; see the full Act here). By this Act, the Central Government overtook the responsibility of development of mines and mineral operations in pursuance of Entry 54 in List I of the Seventh Schedule of the Constitution. The First Schedule of the Act lists Coal and Lignite as Hydro Carbons/Energy Minerals. Section 4 of this Act prescribes license or lease for all prospecting or mining operations. Further provisions of the Act lay down the conditions on which a lease or license can be granted. By the Coal Mines (Taking over of Management) Act, 1973 [see the full Act here], the Central Government brought management of coal mines under its purview. Soon after, Coal Mines Nationalisation Act, 1973 [hereinafter referred to as the ‘CMN Act’; see the full Act here] was enacted “to provide for the acquisition and transfer of the right, title and interest of the owners in respect of coal mines specified in the Schedule with a view to reorganising and reconstructing any such coal mines so as to ensure the rational, coordinated and scientific development and utilisation of coal resources consistent with the growing requirements of the country, in order that the ownership and control of such resources are vested in the State and thereby so distributed as best to subserve the common good, and for matters connected therewith or incidental thereto.”

How Government acquires the coal bearing land?

The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2013 (which replaces the 1894 Land Acquisition Act), excludes acquisition of coal bearing areas from its purview. [Section 105 read with the IV Schedule; see the full Act here] The acquisition of such areas by the Government is governed by The Coal Bearing Areas (Acquisition and Development) Act, 1957 [See the full Act here]. The following procedure is pursued for acquiring a coal bearing land:

1. The Central Government gives a preliminary notice of its intention by a notification in the Official Gazette, to prospect for coal in any area where coal is likely to be obtained. The notification empowers the Government to enter upon and survey any land in the locality, dig or bore into the sub- soil and do all other acts necessary to prospect for coal in the land. [Section 4]
2. In case of any damage done to the land in pursuance of the above activities, appropriate compensation shall be paid. In case of any dispute with respect to the amount of compensation, the decision of the Central Government shall be final. [Section 6]
3. After inspection, if the Central Government is satisfied that coal is obtainable in the whole or any part of the land notified, it may, within a period of two years from the date of the said notification or within such further period not exceeding one year in the aggregate as the Central Government may specify in this behalf, by notification in the Official Gazette, give notice of its intention to acquire the whole or any part of the land or of any rights in or over such land, as the case may be.” [Section 7]
4. A person interested in the aforementioned land may object to the acquisition within thirty days of the notification. Wanting to undertake mining operations on the land by oneself is not a valid objection. Objection must be made in writing to the competent authority, who after necessary enquiry and hearings will make a report to the Central Government. [Section 8] The Government can exclude the right to raise objection in case of an emergency. [Section 9A]
5. After taking into consideration the report, if any, the Central Government shall make a declaration with respect to acquisition of the land. Such declaration must be made within three years of the notification, and shall be published in the Official Gazette.
6. On publication in the Official Gazette, the land or the rights in or over the land shall vest absolutely in the Central Government, devoid of all encumbrances. [Section 10] The Central Government thereafter can demand possession of such land by a notice in writing. [Section 12]

 Who can engage in coal mining?

The CMN Act provides that where the rights of an owner under any mining lease are granted to the Central Government in relation to a coal mine, by a State Government or any other person, under Section 3, the “Central Government shall, on and from the date of such vesting, be deemed to have become the lessee of the State Government or such other person, as the case may be, in relation to such coal mine as if a mining lease in relation to such coal mine had been granted to the Central Government.”

The CMN Act was amended in 1976, and thereafter no person other than

• Central Government or a Government company or a corporation owned, managed or controlled by the Central Government or
• a person to whom a sub-lease has been granted by any such Government, company or corporation or
• a company engaged in the production of iron and steel,

can carry on coal mining operation, in India in any form. The CMN Act even after 1976 amendment allowed only public sector companies to mine coal. But realizing a resource constraint as the few public sector companies could not cope up with the numerous projects, the Government, by 1993 Amendment Act permitted private players to enter the market. Section 3 of the CMN Act was amended to allow companies engaged in the production of iron and steel,  generation of power, washing of coal obtained from a mine, or such other end use as the Central Government may, by notification, specify, to get a lease from the government for mining coal for captive purposes.  This position has been rendered redundant by the Coal Mines (Special Provisions) Second Ordinance promulgated on December 26, 2014. The Ordinance brings to force the provisions of the pending Coal Mines (Special Provisions) Bill, and enforces the Supreme Court directives under Manohar Lal Sharma v the Principal Secretary [(2014) 9 SCC 516; see the full judgment here]. The Ordinance allows private companies to engage in open sale of coal in the market. Three categories of coal mines have been identified in the Ordinance. The Schedule I mines comprise all the 204 coal mines cancelled by the Supreme Court in August 2014, any land acquired by the prior allottees in or around the coal mines, and mine infrastructure.  Schedule II are the 42 Schedule I mines that are currently under production or about to start production.  Schedule III mines are the 32 Schedule I mines that have been earmarked for a specified end-use. Mines under Schedule II and III are allocated via public auction. Schedule I mines may be allocated by way of either public auction or government allotment. Only government companies are eligible to apply for government allotment. A prior allottee is disqualified form allocation process if he has failed to pay the levy imposed by the Supreme Court in Manohar Lal Sharma v the Principal Secretary. A prior allottee will also not be eligible for compensation for land and mine infrastructure if he has failed to pay the levy. The entire process of allocation and allotment will be regulated by a ‘nominated authority’ appointed by the central government. Once the allotment is completed, following rights and licenses will vest in the allottee:

“(i) all the rights, title and interest of the prior allottee, in Schedule I coal mines,

(ii) a mining lease that will be granted by the state government, and

(iii) any statutory licences, approval or consent required to undertake coal mining operations in Schedule I coal mines, if already issued to the prior allottee.”

Currently the Central Government allocates coal blocks as per the rules laid down in the 1957 Act and one has to apply to the State Government for lease or license, once the allocation is done. Though the 1957 Act confers a statutory obligation upon the State Governments to recommend (or not to recommend) to the Central Government on grant of prospecting licence or mining lease for the coal mines, but once the letter allocating a coal block is issued by the Central Government, the statutory role of the State Government is reduced to completion of procedural formalities only.

Can Central Government allocate coal mines?

Supreme Court in Manohar Lal Sharma v the Principal Secretary [(2014) 9 SCC 516; see the full judgment here] asserted that the power of coal block allocation is not traceable either to the 1957 or the 1973 Act. In pursuance to Article 73 of the Constitution, the executive can extend its power to the areas of legislative competence of the Parliament, and fill the gaps in the statutes, but not to derogation of any law. In 2010, Section 11A was inserted in the 1957 Act, providing for the manner and method of allocation of coal blocks. It prescribed competitive bidding for deciding the allottees. The allocation does not authorize the allottee to mine the coal, but it empowers him/it to apply for a license or lease to the State Government.

The valid/ constitutional method of allocation of coal mines

Article 39(b) of the Constitution provides that natural resources must be allocated in a manner that “best subserves common good”. Before 2010, there was no prescribed method for the same The Supreme Court in a number of cases had looked into the appropriate method by which the Central Government must allot coal blocks, and there has been a cleavage in the opinions on the same. Justice Bhagwati in Kasturi Lal Lakshmi Reddy and Ors. v. State of J and K and Anr [1980 SCR (3)1338; see the full judgment here]., said that the Government has no mandate to advertise allocation of resources. In contrast, the Court in Sachidanand Pandey and Anr. v. State of West Bengal and Ors. [(1987) 2 SCC 295; see the full judgment here] and Haji T.M. Hassan Rawther v. Kerala Financial Corporation [(1988) 1 SCC 166; see the full judgment here] expressed that public auction is the ordinary rule for allocation of natural resources. The latter view has been affirmed by the apex Court in subsequent judgments as well. However, the Court allowed for deviations from this rule in case the reasons for such deviation are rational and are not indicative of discrimination, bias, jobbery or nepotism. Deviations are allowed for promoting domestic development, public good, or fulfillment of a public policy.

In Manohar Lal case, the Supreme Court asserted that there is no one universal efficacious method to allocate. Moreover, mandating a particular method for allocation of all sorts of natural resources defies the economic logic as varied resources have to be treated differently. Therefore, the Courts cannot hold one method to be constitutional and judge other methods against it. Instead, when a particular method is questioned,

“the courts are entitled to analyse the legal validity of different means of distribution and give a constitutional answer as to which methods are ultra vires and intra vires the provisions of the Constitution. Nevertheless, it cannot and will not compare which policy is fairer than the other, but, if a policy or law is patently unfair to the extent that it falls foul of the fairness requirement of Article 14 of the Constitution, the Court would not hesitate in striking it down.” [Manohar Lal v Principal Secretary]

This was reiterated in Natural Resources Allocation, In re, Special Reference No. 1 of 2012 [(2012) 10 SCC 1; see the full judgment here]

“In our opinion, auction despite being a more preferable method of alienation/allotment of natural resources, cannot be held to be a constitutional requirement or limitation for alienation of all natural resources and therefore, every method other than auction cannot be struck down as ultra vires the constitutional mandate.”

In 2010, Section 11A was inserted in the 1957 Act. This decreed the Central Government to allocate only via competitive bidding. However, in Manohar Lal case, the disputed allocations were of the period 1993-2010. The Court scrutinized the procedure in detail and ruled that the allocation procedure was arbitrary and thereby illegal. Consequently, 42 out of 46 coal block allotments were quashed.

Applying for a lease or license of coal mines

As has been stated above, the allocation of a coal block by the Central Government confers the power on the allottee to apply for a lease or license to the State Government. The allottee can apply for any kind of lease or license as provided under the 1957 Act. For instance, a reconnaissance permit is granted for reconnaissance operations, which are “operations undertaken for preliminary prospecting of a mineral through regional, aerial, geophysical or geochemical surveys and geological mapping, but does not include pitting, trenching, drilling (except drilling of bore holes on a grid specified from time to time by the Central Government) or sub-surface excavation;” [Section 3 (ha)] A prospecting license is granted for “operations undertaken for the purpose of exploring, locating or proving mineral deposit”. [Section 3(g) and 3(h)] A mining lease is conferred for “operations undertaken for the purpose of winning any mineral” [Sections 3(c) and 3(d)] The Mines and Minerals (Development and Regulation) Amendment Ordinance, 2015 [see the full Ordinance here], effective immediately inserted another sort of license under Section 3 of the 1957 Act. ‘Prospecting license-cum-mining lease’ is a “two stage-concession for the purpose of undertaking prospecting operations, followed by mining operations.” [Section 3 (ga)]

Duration of lease or license of coal mines

As per Section 7 of the 1957 Act, a reconnaissance permit or prospecting license can be granted for a maximum period of three years.

With respect to a prospecting license, Section 7 (2) provides:

“A prospecting licence shall, if the State Government is satisfied that a longer period is required to enable the licensee to complete prospecting operations be renewed for such period or periods as that Government may specify:

Provided that the total period for which a prospecting licence is granted does not exceed five years;

Provided further that no prospecting licence granted in respect of a mineral included in Part A and Part B to the First Schedule shall be renewed except with the previous approval of the Central Government.” [‘Coal and lignite’ are listed in PartA]

Section 8 of the 1957 Act provides that a mining lease can be granted for a maximum period of thirty years, and a minimum period of twenty years. A mining lease may be renewed for a period not exceeding twenty years with prior approval of the Central Government. This provision was preserved by the 2015 Ordinance.

Procedure to acquire a lease or license of a coal mine

In order to acquire a reconnaissance permit, prospecting license or a mining lease, an allottee needs to apply to the State Government for the same in the prescribed form, with the prescribed fee. The State Government, on receiving the application will notify the applicant of the receipt and thereafter grant or refuse the lease/ license as per rules enacted by the Central Government under the 1957 Act with respect to the same. The 2015 Ordinance allowed the State Government to grant a prospecting license or mining lease with the prior approval of the Central Government. [Section 17A of the 1957 Act]

Commercial use of coal mining by private parties and selling coal in open market

Before the 2014 Ordinance, the private companies were allowed to engage in coal mining only for captive purposes. This means that the extracting companies could have used the coal only for their own use. They were not permitted to sell the fuel directly in the market. The companies had to use whatever quality of coal they mine, which often resulted in great wastage in case the coal is of a higher quality than required by the company. This position has now been modified by the 2014 Ordinance. Private companies are now allowed to sell coal in open market.

Coal Mining is known to cause widespread disturbance among the inhabitants of the coal mining areas. Many are dislocated or suffer health problems due to mining activities. In order to mitigate such aftereffects, the 2015 Ordinance envisages setting up of District Mineral Foundation by every State Government. The District Mineral Foundation will be a non-profit organization that would work towards welfare of those affected by mining related operations. The licensees and lease holders are required to pay a percentage of royalty not exceeding more than one-third of the royalty prescribed by the Central Government. The Ordinance also conceives a National Mineral Exploration Trust that will use the funds for regional and detailed exploration, as prescribed by the Central Government. The licensees and lease holders have to pay two percent of the royalty to the Trust.