Orissa High Court stops successful bidders of iron ore blocks from mining

Essar Steel, Bhushan Steel & Bhushan Power & Steel were preferred bidders

Progress on three iron ore blocks auctioned in Odisha has hit a wall, with the Orissa High Court stalling the process. The court, in an interim order, has instructed the state government to restrain the successful bidders from carrying out mining activities.

The order is in response to a public interest litigation (PIL) filed last month by Chitta Ranjan Sahu. The petitioner had sought a stay on the bid process and outcome, with respect to the three blocks, alleging it contravened provisions of the Mines and Minerals — Development & Regulation (MMDR) Act, Mineral Auction Rules 2015, and Article 14 of the Constitution. 

The petitioner had further pleaded to the court to direct the three successful bidders — Essar Steel, Bhushan Steel (BSL) and Bhushan Power & Steel (BPSL) — to produce all documents pertaining to the proceedings conducted by the Delhi bench of the National Company Law Tribunal (NCLT). Besides, the PIL had appealed for an interim order to carry out investigation and enquiry into financial statements and submissions, made on behalf of the bidders, by a committee of experts.

“We are aware of the High Court order and will be filing a counter-affidavit on September 1,” said a state government official. The court had earlier observed that despite a stay order dated July 18, no counter-affidavit was filed.

The three steel firms, before bidding for the iron ore blocks, had defaulted on bank credit as they grappled with wrecked finances. While BSL has overcome insolvency woes after the acquisition of 72.65 per cent stake by Bamnipal Steel, a wholly-owned subsidiary of Tata Steel, the other two firms are still in the process of resolution. 

The Ghoraburhani-Sagasahi iron ore block, with 99.54 million tonnes deposit, was the first to be put under electronic auctions by Odisha. Essar emerged as the preferred bidder and after the results of the online auction the state government issued a Letter of Intent (LoI) to the stressed steel company on March 28, 2016. The steel maker has an accumulated debt of Rs450 billion. 

The PIL alleged that despite deteriorating finances, the firm was allowed to participate in the auctions and went on bag the LoI. Quoting Clause 5 (b) of the tender document Ghoraburhani-Sagasahi iron ore block dated December 23, 2015, the petition stated the net worth of the bidder should exceed Rs7.40 billion to meet eligibility terms of the e-auctions. 

For the other two blocks — Kalamanga West and Netrabandha Pahad — LoIs had been awarded to BSL and BPSL, respectively, on June 24, 2017. The NCLT orders for inclusion of insolvency professional and moratorium were delivered on July 26, 2017.

The petitioner said there had been gross violation of the provisions of law on part of the state government and its agencies, while allocating iron ore to entities whose financial viability was put to question. 

“These instances are happening on the teeth of directions being passed by the Supreme Court, cautioning state governments to adopt mechanism of utmost transparency and integrity, while dealing with distribution of natural resources. The balance of convenience is against the respondents and in favour of public interest involved behind such arbitrary and illegal allocation of mines,” the PIL stated.