The top court said that the Centre cannot undermine the Mines and Minerals Act which has given no power to it to allocate coal block to companies.
A bench of justices R M Lodha and J Chelameswar asked the government to go through other legislations particularly the Coal Mines (Nationalisation) Act, to find out whether it is empowered to allocate the resources.
"There is absolutely no power given to the Centre under the Mines and Minerals (Development and Regulation) ACT, 1957. There is no provision overriding the Act. You require to give a lot of legal explanation," the bench said.
"The question is does the Centre have power under the Act and does it have the power to undermine the entire statutory mechanism. Can you override the statutory provision of the Act... It is very doubtful, legally perhaps," it said.
The Attorney General G E Vahanvati said he does not want to give an out of cuff answers to these questions and sought time to go into these issues.
The bench granted six weeks' time to the Centre to respond.
"From your affidavit itself it appears that minerals and mining lease has to be executed by the state and not by the Centre. It strikes at the root of all the allocation," the bench said.
The bench was hearing a Public Interest Litigation (PIL) filed by advocate M L Sharma and various members of civil society including former Chief Elections Commissioner (CEC) N Gopalaswami, ex-Navy chief L Ramdas and former Cabinet Secretary T S R Subramanian, seeking a Special Investigation Team (SIT) probe into the coal block allocation scam.
Section 10(1) of MMDR Act provides that an application for a mining lease in respect of any land in which the minerals vest in the Government shall be made to the State Government and shall be accompanied by the prescribed fee.
Sub-clause (3) provides that on receipt of an application under section 10, the State may, having regard to the provisions of the Act and any rules made thereunder, grant or refuse to grant the lease.
The Supreme Court also questioned the government on how coal block allocation was decided by screening committee as alleged in the affidavit filed by coal secretary.
"In the affidavit of coal secretary you say allocation was done sometime by screening committee. This seems to be extra-legal," the bench said.
The allocation of coal blocks is done through mechanism of an inter-ministerial inter-governmental body called screening committee which is chaired by the Coal Secretary. It includes secretary of nine ministries having interests in coal, besides heads of various Public Sector Undertakings (PSUs), and Chief Secretaries of coal supplying states are also part of it.
The top court also asked the Attorney General to place before the bench its judgement in petrol pump allocation scam in which it had appointed a committee headed by a retired judge to look into all allocations.