On a petition that questioned disinvestment of 10 per cent equity of Coal India Ltd (CIL) in 2010, the Supreme Court has sought explanation from the government on the legal tenability of its action and on the IPO's valuation, which allegedly caused a loss of Rs 1.75 lakh crore to the national exchequer.

Entertaining the PIL by Captain Ehsan Khalid, a Bench headed by Chief Justice of India P Sathasivam noted that "the averments made in the writ petition deserve to be looked into" and asked Additional Solicitor General Sidharth Luthra to come back to court with necessary clarifications.

If the apex court decides to issue a formal notice to the Centre and the CIL on the next date of hearing, the issue is bound to swell into another major controversy over the distribution of rights of coal reserves to private entities.

While the Comptroller and Auditor General (CAG) had pegged the loss at Rs 1.89 lakh crore for the contentious allocation of coal blocks, Khalid's petition estimates the loss in this case to be another Rs 1.75 lakh crore, based on the same CAG norms of coal valuation. The CAG had, conservatively, estimated the value of coal blocks given to private parties on the basis of the difference between the cost of production (including financing costs) and selling price of CIL, which translated into a gain of Rs 295.41 per tonne.

Citing the same calculation, Khalid, a retired Squadron Leader of the Indian Air Force, questioned CIL's decision to raise a meagre Rs 15,200 crore from divesting 10 per cent equity through IPO when the value of only 10 per cent coal reserves of CIL, after discounting its all other assets and goodwill, would be more than Rs 1.89 lakh crore.

Buttressing his arguments that the IPO was grossly undervalued, Khalid pointed out that CIL was listed on the Sensex on November 4, 2010 at Rs 291 and closed at Rs 341 on the same day, making it to be Rs 8012 crore in windfall for the investors.

The PIL asserted that this case was more serious than the allocation scam since here the ownership rights, not just confined to specific coal blocks, were given to private parties without a necessity to make any downstream investment in the targeted infrastructure development.

Also questioning the CAG's role in validating this "broad daylight robbery of Indian wealth" in its 2010-11 report, the PIL referred to the 2G Presidential Reference and contended that allocation of natural resources for commercial gains, below the market price, was a breach of "public trust doctrine", hence liable to be cancelled.

The petition demanded quashing the entire equity disinvestment or to recover the real valuation of shares from shareholders. It has also sought a fresh CAG audit of the disinvestment and to ask the Centre to recover punitive damages from the financial agencies that had grossly undervalued the shares. The PIL also seeks a court-monitored investigation into the disinvestment.