M J Antony: Glitches in coal e-auction

OUT OF COURT

The Supreme Court called the methodology for allocation inequitable, irrational and fortuitous.

Much of business in the world has gone electronic. There is e-marketing, e-advertisements and e-contracts. However, if the new high-tech system is not used in a fair and judicious manner, it could lead to intense discord and debilitating litigation. The coal industry is still trying to find its feet following such a vicious bout leading to a judgement of the Supreme Court delivered last week in Ashoka Smokeless Coal Ind Ltd vs Union of India.

The legality of a scheme framed by Coal India Ltd for the sale of coal by e-auction was the key question involved in the dispute. There were differences among the high courts on the issue whether the monopoly government undertaking was acting transparently in this matter. The Gauhati High Court, for instance, found the e-auction scheme arbitrary and unconstitutional. The Madhya Pradesh High Court did not find much wrong in it. Several other high courts were still grappling with the multifarious facets of the problem when the cases were transferred to the Supreme Court for a final decision. The apex court has approved the view of the Gauhati High Court and disagreed with the Madhya Pradesh High Court.

The advantages of e-auction are numerous, according to the government. It is simple and easily accessible. A bidder need not meet any formalities such as obtaining licence, quota or sponsorship. Sitting at home at any remote place in the country, he can choose the source, quality and quantity and buy coal at a price determined by him on the basis of demand and supply. Middlemen and their cuts are abolished. The premium appropriated by unscrupulous elements under the old system was restricted. The system of e-auction was aimed not at obtaining a higher price but to create an equal opportunity among the buyers from the non-core sector.

But while working the system, it was found that the old problems had not been wiped out and new evils had developed. Though the new experiment was meant to benefit small-scale industries or non-core sector, in practice, big companies such as Grasim, Hindalco and Jindal crashed into this scheme. The entry of these coal guzzlers in the core sector like power, steel and chemicals boosted the price of coal, endangered the existence of small players.

Approximately 95 per cent of coal, which is a scarce commodity, is made available to the core sector, that too, at a lesser price. For instance, the price for coal is Rs 1,155 per metric tonne for the core sector, which includes state agencies. But the price payable by the non-core linked consumers and traders in e-auction would be Rs 1,660 to Rs 1,900 per metric tonne, according to the court.

The data produced by the monopoly coal companies claimed that more and more people were taking part in e-auction. However, the Supreme Court suspected the figures. "The possibility of the same persons taking part again and again cannot be ruled out," the judgement said and added that if the claim was true, there was no reason why the price of coal by e-auction had not declined. Moreover, bidders from north-east complained that due to frequent power cuts, they could not compete with their competitors from the rest of the country.

Since the auction is online, no bidder will know what is the highest price offered. No eligibility criteria has been fixed. The highest price and the highest quantity are the only factors. The court pointed out that this resulted in traders buying large quantities of coal. Small units have to pay prohibitive prices to the traders to survive. "The methodology for allocation of coal to a bidder of e-auction is thus inequitable, irrational and fortuitous," according to the judgement.

Another serious flaw in the system is that since a particular grade of coal is allocated at different prices to different bidders, e-auction ultimately led to the sale of a particular grade at variable prices in the market. The price of coal is not fixed in e-auction. The concept of price fixation is that all people who need coal would know the criteria. They can lay down their business policy according to it and expect a level playing field. Variability in the price would affect all those who depend upon coal. Therefore, it was imperative that the price of coal was made known.

Further, the Supreme Court remarked that while adopting the policy decision as regards the mode of determining the price of coal either fixed or variable, the coal companies were bound to keep in mind the social and economic aspects. They could not take any step which would defeat the constitutional goal. On this count also, the "trader-controlled process of e-auction" was unconstitutional. The coal distribution system has seen several twists and turns since the Colliery Control Order of 1945. It appears that even after more than half a century and the advent of the cyber era, the coal trade is still on a slippery slope.