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Allocation Of Captive Coal Blocks PMO And Ministers Scuttle Transparency

Updated: May 10, 2014 11:28 am

By the time I took charge of the ministry, the number of applicants for each block had increased considerably although still in single digits. I found a number of applicants fulfilling the criteria specified for allocation for each block on offer. This made objective selection extremely difficult. It was neither practical nor desirable to subdivide blocks into smaller sub-blocks to satisfy all eligible applicants

The process of allocation of coal blocks to the private sector for captive use had started in 1993, through a Screening Committee headed by the Coal Secretary. But information about coal blocks available for captive mining was not widely publicized. Geological reports about the blocks were considered confidential and not shared with the applicants. They had to get this information surreptitiously from the Central Mine Planning and Design Institute Limited (CMPDIL), one of Coal India’s subsidiary companies. Between 1993 and 2002 only 15 blocks were allotted to private parties. This is an average of 1.5 blocks a year. There were a limited number of applicants for most block. As long as an applicant fulfilled the criteria for allocation, selection might not have posed serious problems for the Screening Committee. As the number of applicants per block started increasing, the ministry started to subdivide blocks into smaller sub-blocks. This was done without reference to geological or geographical features unmindful of the loss of coal at the barriers.

By the time I took charge of the ministry, the number of applicants for each block had increased considerably although still in single digits. I found a number of applicants fulfilling the criteria specified for allocation for each block on offer. This made objective selection extremely difficult. It was neither practical nor desirable to subdivide blocks into smaller sub-blocks to satisfy all eligible applicants. It was because of this dilemma that I thought of open bidding as a possible solution. This would eliminate subjective decision-making and also generate additional revenue for the State.


Coal blocks vary widely in geology and quality of coal. The cost of mining could vary from less than RS 300 a tonne in a good open cast mine to more than Rs 2,000 a tonne in a deep underground mine. The quality of coal could vary from A-grade (>6200 K Cal/tonne of UHV) to G-grade (1300 K Cal/tonne of UHV). Apart from useful heat value (UHV), there are other characteristics that decide the commercial value of coal. Because of the large variation in cost and quality in different blocks, discretion in allocation left enormous scope for favouritism and corruption. In a situation as complex as this, it was impossible to take a fair and objective decision through the Screening Committee.

10-05-2014Geological reports with fairly accurate data about the extent of reserves and quality of coal were already available with the government. The CMPDIL had undertaken detailed exploration. I, therefore, thought that open bidding after making geological reports available to all prospective bidders would be a far more rational, objective, equitable and transparent system of allocation of coal blocks. Besides, by tapping part of the windfall profit, the auction method would also be fair to companies who did not get captive blocks and needed to source coal from CIL or imports.

Even before the Prime Minister took charge of the ministry, I had prepared a discussion paper and invited all stakeholders for an open house discussion in June 2004. This included industry associations like the Confederation of Indian Industry (CII), the Federation of Indian Chambers of Commerce and Industry (FICCI), the Federation of Indian Mineral Industries (FIMI), the Associated Chambers of Commerce and Industry of India (ASSOCHAM), etc. I also invited user ministries of the Government of India and representatives of all the companies whose applications were pending in the Ministry of Coal. Not many participants were enthusiastic about open bidding. Their main argument was that the cost of coal to be mined would go up if coal blocks were auctioned. This was irrational. Participants at open auctions are hard-headed businessmen with an acute sense of profitability. They do not make irrationally high bids. The price at which coal from CIL was available would automatically have put a cap on the bid amount. A production sharing arrangement for the entire life of the mine would have ensured that there was no immediate cash outflow. This would ensure that the project cost was not impacted. I think the industry resisted because they didn’t want to pay for something that was hitherto available for free. To an extent, it was a reflection of corporate India’s aversion to transparency.

Despite the reservations expressed at the stakeholders meeting, I prepared a policy note and submitted it to the MoS Mr Dasari Narayana Rao in mid-July.

The Screening Committee had no legal sanction. It was constituted by an administrative order. A change from the Screening Committee to a bidding system could have been implemented through another administrative order. However, to ensure that the proposed system was on sound legal footing, I sought the law department’s advice on the legal framework for implementing open bidding. Simultaneously I asked the CMPDIL to prepare bid documents and evaluation criteria by engaging the services of a reputed international consultant so that the bidding process could start soon after Cabinet approval. To maximise competition, a list of blocks available for captive bidding was uploaded on the ministry’s website and also publicised through newspaper advertisements. I was confident that the new system could be in place well before the end of the calendar year. I kept Screening Committee meetings on hold pending proposed changes in the procedure.

Mr Rao returned the file seeking clarifications. On the 30th July 2004 I replied to his queries and marked the file to the Prime Minister, who had by now taken over as Minister of Coal.


On the 20th August 2004 the Prime Minister approved allocation through open bidding. He wanted a Cabinet Note on this. After the Prime Minister’s approval, we received a note from the Prime Minister’s Office (PMO) enumerating the possible problems in moving to open bidding. It is understood that this note from the PMO was based on an unsigned note given by the MoS to the PMO. Simultaneously, a number of letters started pouring in from Members of Parliament opposing the proposed move towards the bidding system. This included one from Mr Naveen Jindal who had considerable interests in coal mining.


By early September 2004 the law ministry’s opinion suggesting amendment to Section 3A and Section 34 of the Coal Mines Nationalisation Act was received. While submitting the Cabinet Note, I clarified the doubts raised in the PMO. I also suggested an ordinance be issued to make necessary legislative amendments. This would help begin the bidding system immediately and all pending applications could be decided through open bidding.


On the 4th October, while submitting the file to the Prime Minister, the MoS made the following noting:

“It is difficult to agree with the view that Screening Committee cannot ensure transparent decision-making. This alone was not adequate ground for switching over to a new mechanism, particularly when the interests of core infrastructure areas are involved.

Proposal for competitive bidding may not be pursued any further, as it would invite further delay in allocation of blocks and considering that the Coal Mines (Nationalisation) Amendment Bill, envisaging competitive bidding as a selection process for allocation of blocks for commercial mining, was pending in the Rajya Sabha with stiff opposition from trade unions and others concerned.”

This noting is important for two reasons. First, there was not even a remote connection between competitive bidding or allocation of captive blocks and the Coal Mines (Nationalisation) Amendment Bill pending in the Rajya Sabha. The opposition from trade unions was to opening the coal sector for commercial coal mining (by removing restriction of captive use), and not to introduction of open bidding for allocation of coal blocks. The MoS tried to create confusion and delay the process of decision-making by introducing such irrelevant issues. Second, Mr Shibu Soren later used this noting of the MoS to reverse the Prime Minister’s decision to introduce open bidding.

Because of the confusion created by Mr Rao, a meeting was held in the PMO where it was decided that the change in policy should be prospective. All applications received up to the 28th June 2004, when the concept of open bidding was first made public, would be decided through the existing system of the Screening Committee. The PMO returned the file with the direction to amend the Cabinet Note to make the policy prospective. The PMO also wanted clarification on implications of the Coal Mines (Nationalisation) Amendment Bill, on the proposed bidding process. The PMO directed that there was no need to issue an ordinance to amend the CMN Act to give effect to the bidding process. A bill could be introduced in the forthcoming session of the Parliament.

I resubmitted the Cabinet Note with necessary clarifications and amendments to the MoS by December end, who marked it to Mr Shibu Soren who had by now returned as Minister of Coal.

Soon after 1 took charge of the ministry I met the CMDs, to work out a strategy to deal with coal shortage. One of the suggestions was to outsource small and shallow deposits by open bids to private contractors. These are with lifespan of two to five years. Coal India Limited (CIL) had surplus workers but moving them from one area to another was virtually impossible because of trade union pressure. Besides, it was not considered worthwhile for CIL to invest in small equipment for these deposits with limited mine life. Private contractors, on the other hand, would be able to use the equipment in other civil works at the end of the contract period. Accordingly, small areas in Bharat Coking Coal Limited (BCCL) and Central Coalfields Limited (CCL) were given on contract to private agencies.

One morning, soon after the work on these mines started, I got a call from Mr Chandrashekhar Dubey (CS), Congress Member of Parliament from Dhanbad. Mr Dubey was member of the Parliamentary Standing Committee on Coal. Our conversation was somewhat like this (translated from Hindi):

CS: “Mr Secretary, how could you order outsourcing of coal in BCCL without my permission?”

Me: “Mr Dubey, the Board of Directors takes decisions in these matters in the best interests of the company. The ministry has no role.”

CS: “No, I am told it was your decision.”

Me: “No, it was CIL’s decision with which I concurred.”

CS: “But how could they take such a decision without my knowledge. I am the Member of Parliament of the area.”

Me: “Mr Dubey, it is a management decision of the company. Why should they consult the MP of the area? I have also headed public sector companies at the state level. I never consulted the MP or the MLA of the area on how to run my company.”

CS: “That may be so in your Andhra Pradesh. It does not happen in our Jharkhand. I want you to stop this outsourcing immediately. Otherwise I will stop it.”

True to his words, the supporters of Mr Dubey laid siege to the mine the next day and stopped work. Mr Bhattacharya CMD, BCCL called to inform me that Mr Dubey’s supporters were not allowing workers of the contractor to enter the mine. I called the Chief Secretary of Jharkhand Mr Sharma and requested him to direct the District Magistrate to ensure that the contractor is allowed to work. The next day Mr Dubey called me again to say that he had stopped the work and there is no use calling the Chief Secretary in these matters. No Chief Secretary or District Magistrate could remove his protesting workers, he said. Soon enough, I realised that in Jharkhand no civil servant howsoever senior, could take on the coal mafia. Because of Mr Dubey’s intransigence, work at the mine remained suspended for a couple of weeks and a large quantity of coking coal was destroyed in spontaneous fires.

I recalled my days as Collector in Andhra Pradesh. In a similar situation the District Magistrate would have had a free hand to deal with the matter. Here, even the Chief Secretary was not able to ensure that action is taken under the law against a recalcitrant Member of Parliament.

A number of houses belonging to BCCL were in illegal occupation of squatters for a long time. The squatters were not only in illegal occupation of company property, they also enjoyed other perks available to BCCL

employees such as free power, water, etc. The BCCL was not able to evict these squatters due to political patronage and fear of the coal mafia. After Mr Dubey was elected MP, he too wanted a BCCL house to be allotted to him. Mr Bhattacharya declined his request. This infuriated Mr Dubey. He started to insult Mr Bhattacharya and issue statements in the press levelling false allegations against him. Mr Dubey now became the main patron of the squatters. He used his goons and did not allow even enumeration, let alone eviction, of the illegal occupants. The letter the CMD wrote to me about the activities of Mr Dubey and his illegitimate demands indicate now Members of Parliament consider themselves above the law.

The inability of the government to enforce law and order has enabled elected representatives at all levels to meddle in contract management. This is across the board, from the Panchayat level to Parliament. They meddle in work of government, PSEs and even private companies.

They have all become rent-seekers; they contribute significantly to crime and a parallel economy. It is almost impossible for a Collector or Superintendent of Police to survive in Dhanbad without compromising with the coal mafia and its political patrons. After retirement, on one of my visits to Dhanbad in connection with an inquiry into an underground mine accident, I learned that Mr Dubey was on the warpath with the District Magistrate. One day he locked the DM’s office chambers in the collectorate. This was a criminal act for which he should have been prosecuted. Instead, the Collector was transferred. Unlike past chief ministers who stood by officers, one cannot expect the likes of Mr Madhu Koda to stand by the District Magistrate or Superintendent of Police who is willing to take on the coal mafia.

The first successful e-auction of coal in BCCL had rattled the coal mafia. If extended to all coal companies, it had the potential to make a serious dent in the illicit income of the political patrons of the mafia. Soon, efforts started, to move me out of the coal ministry. Mr Dubey fired the first salvo. He was annoyed with me because of my support to the BCCL CMD in his efforts to clean up company operations. In early November, Mr Dubey wrote to the Prime Minister alleging that I had Swiss Bank accounts and had visited Switzerland to update my transactions. Mr Dubey wanted the CBI or a committee of parliament to investigate my alleged misdeeds.

In my response to Mr Dubey’s letter, I requested the Cabinet Secretary

to institute an inquiry through the CBI or any other agency and if the allegations were found false, Mr Dubey should be made to suffer the legal consequences of maligning the reputation of a senior civil servant. I also requested that the conduct of Mr Dubey, in making baseless allegations, should be brought to the notice of the Speaker for such action as deemed fit. Mr Dubey’s letter was followed by a similar letter to the Coal Minister, Mr Soren, by another Member of Parliament, Mr Giridhari Yadav.

Mr Dubey and Mr Giridhari Yadav are not isolated instances of blackmail of civil servants and executives of public sector companies by Members of Parliament. Many MPs make unreasonable demands, and then make false allegations to harass honest officers. Mr Narendra Kumar Kushwaha of the cash-for-query infamy was one such MP. This BSP MP shamelessly demanded money from the then CMD of Northern Coal Fields Limited and when refused complained against him. I wrote to the Cabinet Secretary for suitable action to stop such blackmail. By another letter I also brought this MP’s extortion bid to the notice of the Central Vigilance Commission (CVC) who in response, suggested that the CVC be made the focal point to examine all complaints against officers who come within its purview. No independent action should be initiated against an officer without the CVC first examining the complaint. As advised by the CVC, I wrote to the Cabinet Secretary seeking an institutional mechanism to ensure that Members of Parliament do not misuse their privileged position to blackmail senior officers. I suggested a meeting of the Committee of Secretaries be called to find a solution. However, no such meeting could take place until I retired.

In another instance, Mr Furkan Ansari, Member of Parliament, wanted Mr RP Ritolia, CMD of Central Coalfields Limited (CCL), to hire about 100 Muslims of Jamtara area. When the CMD refused, a false complaint was made to the Prime Minister by Mr Ansari and Mr Dubey. The PMO made discreet enquires and found the complaint to be false. The PMO advised me to inform Mr Ansari suitably.’

It is not just ordinary Members of Parliament who indulge in such reprehensible behaviour. Those entrusted with higher responsibilities such as chairmen of parliamentary committees also at times show scant respect to senior executives of PSEs, and speak to them in intemperate and insulting language. One such instance was that of Mr Ananth Kumar, Chairman of the Standing Committee on Coal and Steel. Without listening to what CIL CMD had to say about a transfer recommended by him, Mr Ananth Kumar snapped at the CMD in the following words:

“Such behaviour from the CIL CMD and MCL CMD will not be tolerated. My party (the BJP) would see to it that the CIL CMD and MCL CMD realise their mistake and understand the value of political leadership. The CMD would regret the day when Mr Saha’s request was not acceded to. In the remaining ten months (of Mr Shashi Kumar’s tenure as CIL CMD), I would teach him a lesson so that he would repent.”

Mr Kumar’s letter to me vividly brings out how senior political leaders seek favours and misbehave with executives of PSEs.

Mr Ananth Kumar, who was a minister in the past, forgot that civil servants and executives of PSEs applying political pressure to further their service interests breach the Conduct Rules. By insisting on retention of Mr Saha at Kolkata he was abating his misconduct. He also forgot that as Chairman of the Parliamentary Standing Committee, the least that was expected of him was civilised and courteous behaviour. He perhaps thought that as Chairman of the Standing Committee, he had a right to order, bully and threaten the CIL CMD with dire consequences if his orders were not complied with. I sent a note to the PM through the MoS Coal, seeking appropriate action against Mr Ananth Kumar. I do not know if the MoS sent the note to the Prime Minister.

Following the second resignation of Mr Soren, e-auction of coal was extended to all coal companies after the Prime Minister’s approval. After e-auction notification was issued in Mahanadi Coalfields Ltd (MCL), Mr Dharmendra Pradhan, BJP MP who represented Talcher area of MCL, approached me for sale of coal to some non-core consumers at notified price. I informed him that no exception could be made once a notification was issued for sale of coal through e-auction. Mr Pradhan was apparently not happy. E-auction had seriously reduced the flow of black money in the coal belt. The MPs targeted the ClL Chairman and me. They used the ministry’s Parliamentary Consultative Committee to vent their anger. At a consultative committee meet in early August, Mr Pradhan got nasty. He made extremely insulting and derogatory remarks against me. The MoS, who presided over the meeting, allowed Pradhan to continue with his tirade, instead of reprimanding him.

After working tirelessly to reform the coal sector in the face of heavy odds and stiff resistance from within and outside, these compliments from a Member of Parliament were too much for me to digest. I decided to quit. The next working day I sent my request for voluntary retirement with immediate effect. In my letter to the Cabinet Secretary Mr BK Chaturvedi I wrote:

“The conduct of Mr Dharmendra Pradhan, Hon’ble Member of Parliament from Orissa at the Consultative Committee meeting of the Ministry of Coal on Friday, 5th August 2005, leaves me in little doubt that we have descended to such low levels of working in our parliamentary democracy that it is becoming increasingly difficult for civil servants to work with self-respect, dignity and professional integrity.

I find it impossible to function in such a vicious environment and would like to be immediately relieved of my responsibilities as Secretary (Coal). This letter may be taken as my request for voluntary retirement. Pending approval of my request, I am proceeding on earned leave with effect from the 9th August 2005.”

On 17th August 2005 I met the Prime Minister for a farewell call. I wanted to express my concern at the insult and humiliation that Members of Parliament heap on civil servants and senior executives of PSUs. I asked the prime Minister if Members of Parliament behaved as they did with Secretaries to the Government of India, what would they behave with young District Collectors. How can officers in districts function in a fair and impartial manner if they are subjected to blackmail and intimidation by elected representatives. The Prime Minister expressed anguish and stated that he faced similar problems every day. But it would not be in the national interest if he was to offer his resignation on every such issue. I do not know if the country would have got a better Prime Minister if Dr Manmohan Singh had resigned, instead of facing the humiliation of his own ministers not implementing or even reversing his decisions. By continuing to head a government in which he had little political authority, his image has been seriously dented by 2G and Coalgate although he has had a spotless record of personal integrity.

While offering no solution, the Prime Minister expressed full confidence in me and assured me of his full support. He advised me not to press for premature retirement and continue in office till the date of my superannuation. At his advice I resumed duty on 22nd August 2005. However, it became clear to me that there was little chance of lasting reform in the coal sector with the limitations within which the Prime Minister functioned.

Soon after the ugly incident in the Consultative Committee meeting, Mr Pradhan wrote to the Prime Minister justifying his misconduct. The Prime Minister’s Office asked for my remarks, which were sent by a coal ministry memorandum. This communication is self-explanatory. It indicates how ignorant, vengeful and intemperate our elected representatives can be. Mr Pradhan found fault with me for not censoring the presentation made by the CIL Chairman. He did not know that a Consultative Committee of Parliament is meant for free and frank deliberations and every officer has full freedom of expression. They need not be constrained by views of a secretary or a minister. In his defence, Mr Pradhan invoked the Nehruvian model of democratic socialism which neither he nor his party (BJP) had anything to do with. He thought that any opinion against this model, which the country has given up long ago, is sacrilegious. On the issue of R&R policy, Mr Pradhan deliberately misinterpreted my statement to justify his outburst. He thought these excuses gave him a license to insult a senior civil servant. MPs and MLAs should understand that the Constitution gives them the privileged position to uphold the dignity of the House. By their misconduct and misbehaviour, they damage their own image and that of the House they represent. (PC Parakh)


On the 17th January 2005 I met the Prime Minister to inform him that important files relating to the coal ministry were being deliberately delayed. I requested that he personally intervene. One of the issues that figured in this discussion was the introduction of competitive bidding for allocation of captive coal blocks. The Prime Minister called his Principal Secretary Mr TKA Nair and requested him to speak to the Minister of Coal. The same evening I sent a note to Mr Nair impressing upon him the urgency of approval of the Cabinet Note in order to bring necessary legislative amendments in the forthcoming budget session of Parliament.


However, despite explaining the hurdles being created by Mr Rao and Mr Soren in my meeting with the Prime Minister, Mr Soren on the 25th February 2005 recorded following noting on the file:

“It is seen that it has been categorically stated that the Prime Minister in his capacity as Minister of Coal and Mines has approved the proposal of the ministry to make allocation of coal blocks for captive mining on the basis of competitive bidding system. A perusal of Prime Minister’s note recorded by Mr KV Pratap, Deputy Secretary, on page 14 N ante does not categorically speak of approval of the proposal. Rather he has directed that the matter be placed before the cabinet for consideration and decision. I have gone through the entire issue. As Minister of Coal, I am in complete agreement with the views expressed by MoS (Coal) in his note dt. the 4th October 2004 and as such, the proposal need not proceed further.”

Mr Rao and Mr Soren joined forces to kill the proposal aimed at creating a transparent and objective method of allocation of coal blocks.


Mr Soren again resigned as Minister of Coal on the 1st March 2005 to take over as the Chief Minister of Jharkhand. The Prime Minister took charge of the ministry again. I revived the proposal and resubmitted the Cabinet Note for his approval on the 7th March clearly indicating that all applications received by the cut-off date of the 28th June 2()()..l would have been disposed of by June 2005. If immediate decision on introduction of the bidding procedure was not taken, pressure would again mount on the government to continue with the current procedure. The PM approved the draft Cabinet Note on the 24th March after which it was circulated to the user ministries and State governments for comments. After incorporating the comments received, the final note was resubmitted to the PM through the MoS on the 21st June for consideration of the Cabinet.

MoS Succeeds in Derailing the Proposal While submitting the file to the Prime Minister, the MoS made the following comments:

“The implications of such a decision by the Cabinet need to be considered in great detail and there was a general reluctance on the part of power utilities to participate in competitive bidding due to cost implications.”

Open bidding would not have an impact on the price of power. It would, on the other hand, provide a level playing field between those who would get coal blocks and those who would have to procure coal from CIL. This was discussed in great detail, time and again. Raising the same issues repeatedly was meant to delay the introduction of the bidding process as much as possible, so that the ole system of discretionary allocation could be continued. Regretfully, the MoS finally succeeded.


The Principal Secretary to the PM Mr Nair held a meeting on 25th July with the chief secretaries of the governments of coal-bearing states and secretaries of the user ministries of the union government. At this meeting I explained that the proposed bidding system is aimed at bringing transparency and objectivity. No change in the role of State governments and central ministries was envisaged. They would continue to provide inputs with regard to the bonafides and technical evaluation of applicants. The revenue generated from the auction was proposed to be put in a special fund to provide for social and physical infrastructure in coal mining areas. This would mitigate the adverse impact of mining on local communities. States should therefore welcome the proposed policy.

It was decided at this meeting that the Cabinet Note should again be amended to incorporate the concerns of the State governments where coal blocks were located. It was further decided that since amendment to the Coal Mines (Nationalisation) Act was likely to take considerable time, the Ministry of Coal would continue to allot coal blocks for captive mining through the Screening Committee until the new competitive bidding procedure became operational.

From this I concluded that there was no political will to proceed with the bidding route and the proposal had been put into cold storage. A bill for amendment to the Coal Mines (Nationalisation) Act to put the bidding system into operation had already been drafted in consultation with the law department. If political will existed, an amendment could have been brought about by issuing an ordinance.


Anyway, as desired by the PMO, the Cabinet Note was again modified incorporating the views expressed by representatives of State governments. The MoS kept the file with him; he was waiting for me to retire in December. Instead of submitting the file to the PM, seeking approval for placing the matter for a decision of the Cabinet, he returned the file on the 12th January 2006 with the following noting:

“PMO had taken the view that the required amendment to CMN Act is a time-consuming exercise and has allowed the department to proceed with allocation of captive coal blocks under the extant mechanism. 20 coal and lignite blocks are already put on offer and are under process and as such there is no immediacy in the matter.”

After I left the ministry, the issue was further deflected by linking the bidding for coal blocks with the bidding process for all minerals by amending the Mines and Minerals (Development and Regulation) Act. Since this amendment was in the domain of another ministry, it ensured that the existing procedure could continue for a few more years.

It is clear from the sequence of events that neither the industry nor the political system wanted a transparent and objective procedure. Every possible effort was made to delay the introduction of open bidding until all the fully explored good blocks had been allocated.

I tried to bring in as much transparency and equity as possible after it was decided that allocation through the Screening Committee should continue within the limitations of a discretionary system. Wide publicity was given about the blocks available for allocation through newspaper advertisements and the ministry website. Complete geological reports were made available to all applicants at nominal printing cost, to enable them to evaluate the property before applying. Successful applicants were encouraged to form joint ventures for coal mining, to be fair to small consumers and accommodate as many eligible applicants as possible. Where it was not possible to form joint ventures, arrangements were made to select a lead partner who would mine and supply coal to associates.

With these changes in policy, it became possible to accommodate almost all eligible applicants. In the absence of open bidding, these were the next best options created so as to be as objective as possible.

(Excerpts from the book Crusader or Conspirator [Manas Publications, New Delhi]. The author is former Coal Secretary, Government of India.)

By PC Parakh

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