Coal news and updates

Court keeps alive BG issue for further 3 months

January 21: In a bid to temporarily resolve the sticky issue of bank guarantees (BG), the Delhi High Court has decided to allow prior coal block allottees whose BGs had been invoked/deducted, to “keep alive” the same “for a further period of three months”, a recent Ministry of Coal release has said.

Furthermore, according to the release, the Inter-Ministerial Group (IMG) has recommended issue of fresh show-cause notices to the allottees, asking why the BGs should not be deducted for delay in developing the blocks awarded.

It may be mentioned that several petitions had been filed praying for the cancellation of the de-allocation of the coal blocks which had been allocated to the petitioners. The Delhi High Court, in the Manohar Lal Sharma vs The Principle Secretary and Others, decided on September 24, 2014 that “no relief for cancelling the de-allocation of the coal blocks can be granted”.

It also said the only issue that remains is with regard to the invocation of the bank guarantees which were furnished by the petitioners for allocation of the coal blocks.

The petitioners contended that the delay in achieving the specified milestones in development of the coal blocks were for reasons beyond their control and mostly on account of delays on the part of their respondents and/or their agencies. Hence, they wanted the BGs furnished be released. They also felt the BGs were in the nature of performance guarantees and in view of the de-allocation, their invocation would not be justified.

The BG issue is currently under consideration of the Ministry of Coal. Hence, the court deemed it appropriate that “the petitioners would keep alive all bank guarantees that are currently alive in favour of the respondents, for a further period of three months.”

Under IMG scanner

Subsequent to a similar recent judgment in the High Court of Madhya Pradesh in Jabalpur, the MoC in consultation with the Ministry of Law & Justice, decided to place the matter before the IMG.

Consequently, the IMG, at its last meeting, on December 30, 2014, held that the subsequent annulment of blocks cannot exempt the prior allottees of the cancelled blocks from invocation/deduction of the BGs even if the block is de-allocated subsequently.

This is because, as per the terms and conditions of the allocation letter, allocatees were bound to develop the blocks within a stipulated time period and they were liable to pay the consequences, including damages.

The IMG also held that the delays could have been caused due to delay on the part of the central or state agencies, apart from the lapses on the part of the allottees themselves.

Consequently, it has sought fresh issuance of show-cause notices to the allottees as to why the BG submitted with the government should not be deducted for delay in development of the said block and for not adhering to milestones prescribed by the government for block development.

The recommendations of the IMG have been accepted by the government.

These prior allottees have to respond within three weeks from the date of issue of the show cause notice, failing which the course of action “would be decided against the company”.