Manohar Lal Sharma v. The Principal Secretary & Ors.

These PILs challenged the allocation of coal blocks by the Central Government during 1993-2010. The allocation was done through a Screening Committee route and government dispensation route, without competitive bidding. Coal mining was nationalized in 1973, with private participation permitted only for captive use from 1993 onwards under the Coal Mines (Nationalisation) Act. The Central Government allocated coal blocks to private companies and state PSUs through an administrative process. Petitioners alleged the allocations were illegal, arbitrary, non-transparent, and made without following mandatory procedures under the Mines and Minerals (Development and Regulation) Act, 1957 and the CMN Act. They contended that the allocations resulted in windfall gains to allottees and huge losses to the public exchequer. The Central Government justified the allocations on the basis of power shortages, need to encourage private investment, and its purported authority under Sections 1A and 3(3) of the CMN Act.

• Whether the Central Government had the power to allocate coal blocks under the CMN Act and MMDR Act
• Whether allocation of coal blocks should have been done only by public auction
• Whether the allocation process through Screening Committee route was arbitrary, non-transparent and violated Article 14
• Whether allocations to State PSUs for commercial mining were permissible under the CMN Act
• Whether the allocations made through government dispensation route were legal
• Whether consortium/leader-associate arrangements in allocations were permissible under Section 3(3) of the CMN Act

The Court declared all coal block allocations made during 1993-2010 through Screening Committee route and government dispensation route as illegal, arbitrary and unconstitutional. The matter was kept pending for further hearing on the question of consequences of such illegal allocations. Ultra Mega Power Projects (UMPPs) allocated through competitive bidding were upheld, with a direction that coal from UMPP blocks cannot be diverted for commercial exploitation.

The binding legal principles established are: (1) The power to allocate coal blocks cannot be assumed by the Central Government without express statutory authority - neither the CMN Act nor the MMDR Act conferred such power on the Central Government; (2) Where a statute requires something to be done in a certain way, it must be done in that way or not at all - other methods are forbidden; (3) Section 3(3) of the CMN Act prescribes eligibility criteria for entities permitted to conduct coal mining, but does not empower the Central Government to allocate coal blocks; (4) State Government PSUs are not eligible for commercial coal mining under the CMN Act - only Central Government/Central PSUs and companies engaged in specified end-uses can mine coal; (5) Consortium/leader-associate arrangements in coal block allocations are impermissible under Section 3(3) of the CMN Act which refers to 'a company' engaged in specified end-uses; (6) Administrative decisions allocating natural resources must satisfy Article 14's requirement of fairness, transparency, non-arbitrariness and objective criteria; (7) The allocation process must ensure inter se priority is determined through objective, transparent criteria with proper comparative evaluation of competing applicants; (8) Executive instructions cannot be in derogation of statutory provisions even to fill gaps not covered by statute.

The Court made several important observations: (1) Following Natural Resources Allocation Reference, auction is not constitutionally mandated for disposal of all natural resources, but remains a preferred method especially for revenue maximization; (2) Coal is an extremely important natural resource regarded as 'black diamond' and its allocation must subserve the common good under Article 39(b); (3) The declaration under Section 1A of the CMN Act did not denude States of power under Section 10(3) of the MMDR Act - it was in addition to, not in derogation of, the declaration in Section 2 of the MMDR Act; (4) The allocation letter from Central Government created valuable rights and was 'bankable' despite government's claims to the contrary; (5) The principle of contemporanea expositio (interpretation by contemporary authority) is not binding on courts if such interpretation is clearly wrong; (6) Non-adoption of competitive bidding may be justified in certain circumstances based on policy considerations, but this does not validate an arbitrary allocation process; (7) The concerns expressed by State Governments about competitive bidding affecting developmental goals and regional balance were legitimate policy considerations, though they did not justify the flawed process actually adopted. The Court emphasized that while it respected economic policy choices of the executive, such choices must be exercised through fair, transparent and non-arbitrary processes that satisfy constitutional standards.

This landmark judgment, popularly known as the 'Coal Scam' or 'Coalgate' case, exposed massive irregularities in allocation of natural resources. It reinforced that: (1) Distribution of natural resources must be fair, transparent and non-arbitrary, serving the common good under Article 39(b); (2) While auction is not constitutionally mandated for all resources, the process adopted must satisfy constitutional standards under Article 14; (3) Executive actions in allocating scarce natural resources are subject to rigorous judicial scrutiny; (4) Ad-hoc, non-transparent allocation processes violate constitutional principles even if not statutorily prescribed; (5) Legislative schemes must be strictly construed and followed, especially where they involve distribution of valuable national assets. The judgment led to cancellation of numerous coal block allocations and emphasized the need for transparent, objective criteria in resource allocation. It strengthened jurisprudence on natural resources as public trust and reinforced that procedural fairness and substantive rationality are essential in administrative decision-making involving national wealth.