With the intent to try and prevent any chance of cartelisation or collusion among bidders during the forthcoming round of captive coal block auctions in August, the government is mulling tightening the definition of what constitutes a group company.
A person aware of the matter said that the government is contemplating making the definition “more stringent” than the present one, which has been taken from the foreign direct investment (FDI) policy. This person said that the government is looking at defining a group company on the basis of “ownership” and “control”, but did not elaborate.
This internal discussion comes following the rejection by the government of bids for four blocks for which Jindal Steel and Power Ltd (JSPL) and Bharat Aluminium Company (Balco) had emerged as the successful bidders.
Following this, both companies had moved the Delhi high court challenging the rejection of their bids. The court later said it had found “no evidence” of collusion in at least three of the four cases.
To be sure, this is as yet a matter of debate within the government and no final call has been taken. “There are a number of aspects you continue to discuss, some of them fructify, some don’t,” another person aware of the discussions said.
According to a press note on FDI, two or more entities are considered “group companies” if they can, directly or indirectly, exercise 26% or more of voting rights in each other, or if they can appoint more than half the directors on each other’s boards.
Already, the government has said that multiple bids from one company for a particular block will be treated as one bid. For the purposes of auction, the government already defines an “associate company” on the basis of control of at least 20% of share capital or of business decisions.
The government began auctioning coal fields for captive use in February this year following a Supreme Court judgement that had quashed the allotment of 204 blocks between 1993 and 2008 without an auction.