Supreme Court: States can revise mining royalty even if lease deed is silent, rules under MMDR Act prevail
THE JHARKHAND STORY NETWORK New Delhi, July 15: The Supreme Court has ruled that State governments retain the statutory power to revise…
THE JHARKHAND STORY NETWORK
New Delhi, July 15: The Supreme Court has ruled that State governments retain the statutory power to revise royalty on mining of minerals under the Mines and Minerals (Development and Regulation) (MMDR) Act, 1957, even if a mining lease deed does not contain any clause permitting such revision.
A Bench comprising Justices Dipankar Datta and Augustine George Masih held on July 13 that royalty is a statutory levy and not merely a contractual obligation, and that a lease deed’s silence on royalty revision cannot override powers conferred on the State under the MMDR Act and the rules framed under it.
“While a mining lease is a statutory grant, royalty is a statutory levy. Mere silence in the lease deed with regard to revision of royalty cannot denude the State of a statutory power… a lessee cannot claim any vested right to static royalty for the entire lease period,” the Bench observed.
The case arose from mining leases for minor minerals auctioned by the Haryana government in 2001. Successful bidders, including M/s Faridabad Gurgaon Minerals, were granted seven-year leases.
In 2005, the State issued a notification increasing royalty and dead rent payable under the leases.
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The lessees challenged the notification before the Punjab and Haryana High Court, arguing that their lease deeds did not permit revision of royalty or dead rent during the lease period. They also contended that the increase was arbitrary and violated the State’s Rules of Business.
The High Court accepted the challenge and quashed the notification.
The Haryana government appealed before the Supreme Court, contending that its statutory powers under the MMDR Act permitted revision of royalty and dead rent during the subsistence of mining leases irrespective of the contractual terms.
Allowing the appeal, the Supreme Court restored the 2005 notification and set aside the High Court’s judgment.
Mining leases are statutory grants, not purely contractual
Writing the judgment, Justice Dipankar Datta observed that mining leases are statutory grants executed under the MMDR Act and the rules framed under it. Consequently, the statutory framework forms an implied part of every mining lease.
The Court reiterated that governments cannot contract away statutory powers exercised in public interest.
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“A contract cannot foreclose the Government from exercising a statutory power is the settled law,” the Bench said.
The Court held that lessees cannot claim a vested right to unchanged royalty rates throughout the lease period merely because the lease deed does not expressly provide for revision.
Court declines to interfere with fiscal policy
The Supreme Court also rejected the High Court’s finding that the 50 per cent increase in royalty was arbitrary due to the absence of empirical data.
The Bench noted that Haryana had considered royalty rates prevailing in neighbouring States before issuing the notification. It also pointed out that the previous revision had taken place in September 1999, while the next revision was introduced only in June 2005—well beyond the three-year interval prescribed under Section 15 of the MMDR Act.
Emphasising the limited scope of judicial review in fiscal matters, the Court said judges are not expected to determine whether a lower or higher rate of increase would have been more appropriate.
“It is not the Court’s role to sit in appeal over a policy decision and inquire whether a 40% or a 60% increase would have been better… Judicial review does not extend to the wisdom of the rate. The test is Wednesbury unreasonableness,” the Bench observed.
The Court further held that a 50 per cent enhancement after more than five years could not be regarded as excessive or arbitrary, particularly when the rules impose no maximum ceiling on royalty revisions.
Key takeaway from the judgment
The ruling reinforces that statutory provisions under the MMDR Act override contractual silence in mining lease agreements. It also reiterates that courts will exercise restraint while reviewing government decisions involving fiscal and economic policy unless such decisions are patently unreasonable or arbitrary.
