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Iron ore mines going for Rs 1 lakh in Chhattisgarh? by Supriya Sharma

There's not much you can buy in terms of assets for Rs 1 lakh. But two Delhi businessmen gained access to a multi-crore iron ore mine in Chhattisgarh for just this much. On June 2, 2004, two brothers, Atul Jain and Sanjay Jain, pooled together Rs 1 lakh in Delhi to set up a company, Pushp Steel and Mines Ltd. The same day, the company applied for a prospecting licence for an iron ore mine in Chhattisgarh, more than 1,000km away.

The company had zero experience and almost no capital - both pre-requisites for a licence. But the state government granted it not just a prospecting licence (PL) but also a mining lease. This meant it could not just look for ore, it could start extracting it straight away.

On the state government's recommendation, the Centre approved the grant. And when a rival company challenged the grant in the mines tribunal, it was dismissed on technical grounds. Finally, it took an order by Delhi High Court, five years later, to hold the grant to Pushp Ltd as "unsustainable in law".

In a detailed order, on July 20, 2010, Justice S Muralidhar made strong observations: "It beats imagination how a company incorporated in New Delhi on June 2, 2004, could have on that very day submitted an application in Chhattisgarh for grant of PL. Second, it is inconceivable how such a company could be considered for grant of PL when the criteria laid down indicates that the applicant should have some prior experience in mining."

The court said, "In the original application, the date itself was left blank, and affidavits of income tax returns had not been filed. It is inconceivable that a company which came into existence that very morning could furnish any information about its income tax returns or its experience."

Allegations of corrupt mining deals have dogged the Raman Singh government for years. The case of Pushp Steel and Mines, in particular, has been raised by the state opposition several times. But this is perhaps the first time an HC has set aside a decision of the state government.

Sign an MoU, get a mine, make windfall profits

Experts say the case of Pushp is symptomatic of the way dubious mining companies have been given away precious mines through the MoU route in Chhattisgarh, which has one-fifth of the country's iron ore reserves.

Six months after it applied for a prospecting licence (PL), on January 7, 2005, the company that began with just Rs 1 lakh signed an MoU with the state government to set up a sponge iron plant in Durg with the proposed investment of Rs 380 crore. Within two days, on January 9, Chhattisgarh State Industrial Development Corporation (CSIDC) provided it with 29 acres of land in an industrial estate in Durg district.

Five months later, on May 5, among 26 applicants for a PL in iron ore bearing compartments in Michagoan-Lohatar forest range in Kanker, the government gave the unknown company preference, granting it licence to explore 705ha.

This startled rival industry players, but what shocked them was that the state government additionally gave the company a mining lease for 215ha in the same range, stating that the company had taken effective steps for setting up a plant. The government policy gives preference in mineral concessions to those companies that have either already set up an iron ore-based plant in the state or those who had taken effective steps towards setting up one.

But the court questioned: does simply the purchase of 29 acres constitute effective steps for setting up a plant? The petitioner in the case, Sarawangi and Co Ltd, a business rival, pointed out that until the Centre's approval on October 19, 2005, Pushp Ltd's paid up capital had remained just Rs 1 lakh. Subsequently, once the approval came through, the company sold its shares at a high premium.

The rival company also challenged the fairness of announcing a policy change on the day of the grant, alleging it was done to favour Pushp Ltd. The court upheld the argument. "It's like setting the rules of the game after the game has commenced," it said. These questions do not have convincing answers; explanation offered does not satisfy the judicial conscience. It does not lend the needed assurance that the decision dated May 5, 2005, of the State government was taken in a just and fair manner.

The court has cancelled the grant of prospecting licence to Pushp Ltd and asked the government to carry out a fresh round of applications. But since the rival company, Sarawangi and Co Ltd, challenged the grant over just 354ha that it was vying for, the court's order will apply to just this portion. This leaves the remaining 351ha granted to Pushp Steel for prospecting, as well as the 215ha for mining, untouched.

But opposition parties say the entire allocation to the company should be cancelled. "There's direct involvement of higher levels of the government in the case," said Chhattisgarh's former CM Ajit Jogi. Government spokesperson N Baijendra Kumar said, "We will take appropriate legal steps and seek advice for our lawyers." The company, with an office in Delhi's Ajmeri Gate area, could not be contacted, despite repeated attempts.

BOX

The case of Pushp Steel and Mines, say experts, is symptomatic of how state governments in mineral rich states are misusing their powers:

* Float a company with minimum investment
* Apply for a mining lease
* Sign an MoU with the state government
* MoU ensures mining lease is granted
* The valuation of the company goes up
* Sell either the company or its shares for high price