W.P. (C) 4723 & 6212 of 2010 Page 1 of 16 IN THE HIGH COURT OF DELHI AT NEW DELHI W. P. (C) 4723/2010 & CM APPL 9368/2010 (for stay) Reserved on: May 24, 2011 Decision on: July 6, 2011 REAL ISPAT & POWER LIMITED ..... Petitioner Through: Mr. Sridhar Potaraju with Mr. Gaichangpou Gangmei and Ms. Tatni Basu, Advocates. versus UNION OF INDIA AND ORS ..... Respondents Through: Mr. Sandeep Sethi, Senior Advocate with Mr. Ajay Bhargava, Mr. Naveen Kumar, Mr. A. S. Mathur and Ms. Shruti Verma, Advocates for SKS Ispat Ltd. Mr. Avi Singh with Mr. Shreya Dharmadhikari, Advocates for Kalindi Ispat Pvt. Ltd. AND W. P. (C) 6212/2010 & CM APPL 12285/2010 (for stay) KALINDI ISPAT PVT LTD ..... Petitioner Through: Mr. Avi Singh with Mr. Shreya Dharmadhikari, Advocates. versus UNION OF INDIA AND ORS ..... Respondents Through: Mr. Ruchir Mishra, Advocate for R-1. Mr. Sandeep Sethi, Senior Advocate with Mr. Ajay Bhargava, Mr. Naveen Kumar, W.P. (C) 4723 & 6212 of 2010 Page 2 of 16 Mr. A. S. Mathur and Ms. Shruti Verma, Advocates for SKS Ispat Ltd. Mr. Sridhar Potaraju with Mr. Gaichangpou Gangmei and Ms. Tatni Basu, Advocates for Mr. Real Ispat Ltd. Mr. Manoj Sharma with Mr. Sumit Bhardwaj, Advocates for R-3. CORAM: JUSTICE S. MURALIDHAR 1. Whether Reporters of local papers may be allowed to see the judgment? No 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in Digest? Yes JUDGMENT 06.07.2011 1. Real Ispat & Power Limited („RIPL‟) challenges, in W.P. (C) 4723 of 2010, an order dated 31st May 2010 passed by the Mines Tribunal setting aside the order dated 7th April 2007 passed by the State of Chhattisgarh („SOC‟) in the Department of Mineral Resources (Respondent No. 2 herein) to the extent that it had recommended the grant of prospecting licence („PL‟) for iron ore in favour of RIPL for an area of 235.03 hectares in part of the forest compartment Nos. 112 and 179 under Core Forest Region situated in Forest Division, Kabirdham, District Kabirdham (Kawardha), Chhattisgarh. 2. Kalindi Ispat Private Limited („KIPL‟) challenges, in W.P. (C) 6212 of 2010, the aforementioned order dated 31st May 2010 to the extent that it maintained the recommendation made by Respondent No. 2 SOC by its order dated 7th April 2007 for grant of PL in favour of M/s. SKS Ispat Private Limited („SIPL‟) [„Respondent No. 3‟] for an extent of 876.71 hectares. The prayer of KIPL is that the entire area applied for by KIPL should have been granted to it. 3. The facts are that in the year 2001 the SOC formulated a mineral policy. It received several applications for grant of PL for iron ore in the area of Forest Compartment Nos. 112, 179, 180, 259, 260 fn 245 (Part) in the Khara Forest Area, Chhattisgarh. Admittedly, the area W.P. (C) 4723 & 6212 of 2010 Page 3 of 16 was a non-notified area. Applications were inter alia made for grant of PL by Chhattisgarh Minerals Development Corporation („CMDC‟) on 1st May 2006 for an area of 2500 hectares, by KIPL on 27th May 2006 for an area of 1300 hectares, by RIPL on 4th July 2006 for an area of 300 hectares in Compartment Nos. 112, 179 and 180 and by SIPL on 26th September 2006 for an area of 1125.68 hectares in the aforementioned compartments as well as Compartment No. 245. The applicants were given a hearing by the SOC on 7th August 2006. During the course of hearing and thereafter, the applicants were asked by the SOC to provide the following information in terms of Section 11 (3) of the Mines and Minerals (Development and Regulation) Act, 1957 [„MMDR Act‟]: “(a) Net worth of the company at the end of Financial Year 2005-2006; (b) Experience in mining and prospecting of iron ore and other minerals; (c) Production capacity and investment of industry based on established iron mineral; (d) Proposed projects and investment for industry based on iron ore, and (e) Effective steps taken for execution of proposed projects.” 4. In its subsequent decision dated 7th April 2007, the SOC recommended to the central government in terms of Section 5 (1) and Section 11 (5) MMDR Act grant of PL in respect of iron ore in favour of KIPL over an area of 196. 84 ha (in Compartments 112 Part and 179 Part), in favour of RIPL over an area of 235.03 ha (in Compartments 112 Part and 179 Part) and in favour of SIPL over an area of 876.71 ha (in Compartments 180,259, 260 and 245 Part) for a period of two years. SOC noted in the aforesaid decision that as regards the CMDC, the grant of PL for iron ore in its favour over an extent of 586.24 ha in District Kanker, 1913 ha in Sehaspur-Lohara forest region took its overall allocation in excess of 2500 ha the maximum permissible under Section 6 (1) (a) MMDR Act. The SOC considered the applications of those applicants who had established a sponge iron factory based on iron ore but had not been sanctioned/recommended mineral concessions of iron ore or where recommendations had been made in respect of an area where availability of mineral was very scarce keeping in view the plant capacity. KIPL had a functioning sponge iron plant of a capacity of 0.30 LTPA. Its net worth was Rs. 9.05 crores for the year ending 31st March 2005 and 31st March 2006 and had made an investment of Rs.28 crores. The net worth of the RIPL for the same period was Rs.21.49 crores. RIPL had a sponge iron plant of 0.60 LTPA capacity and had invested Rs. 70 crores. SIPL‟s net worth was Rs. 198.88 crores for the same W.P. (C) 4723 & 6212 of 2010 Page 4 of 16 period. Its plant capacity was 2.70 LTPA and investment was Rs. 295.47 crores. It was further noticed that on 6th October 2006 the SIPL signed memorandum of understanding („MOU‟) with SOC for investment of Rs. 1470 crores for increasing the capacity of the existing plant. Further, although SIPL had been recommended the grant of PL for an area of 750.30 hectares in Halbibinapal in District Kanker there was no possibility of permission being received for diversion of the land under the Forest (Conservation) Act, 1980. In terms of Section 11 (5) of the MMDR Act keeping in view the above factors the SOC decided to give preference to the above three entities. 5. Aggrieved by the above decision, KIPL filed a revision application No. 12(19)/2007-RC-II before the central government under Section 30 of the MMDR Act. In the said revision application, RIPL and SIPL were impleaded as Respondents 1 and 2 respectively. During the pendency of the revision application before the Mines Tribunal on 25th June 2008 the central government granted provisional approval under Section 5 of the MMDR Act in terms of the recommendation made by the SOC on 7th April 2007. On 8th August 2008 RIPL entered into an MOU with the SOC with proposed investment of Rs. 720 crores. On 16th December 2008 the MOEF, Government of India granted RIPL permission under Section 2 of the Forest Conservation to drill five bores of four inches width. This order was communicated to RIPL by a letter dated 30th April 2009. On 16th February 2009 forest clearance was granted to KIPL subject to the condition of digging 5 bore holes only 4 inches thick for prospecting in terms of the PL granted to it. On 18th November 2009 the KIPL and the State Government entered into PL agreement. Meanwhile, by an order dated 8th May 2009 the High Court of Chhattisgarh directed the Mines Tribunal to dispose of the revision application within eight weeks. 6. By the impugned order dated 31st May 2010 the Mines Tribunal held that the mere comparison of „net worth‟ of the applicants could not furnish the „special reasons‟ or justify the grant of PL in favour of a later applicant in terms of Section 11 (5) of the MMDR Act read with Rule 35 MCR Rules. Further, the SOC had considered the production capacity, status of other pending applications of the parties and the signing of MOUs which were not W.P. (C) 4723 & 6212 of 2010 Page 5 of 16 factors envisaged in either Section 11 of the MMDR Act or Rule 35 MCR. The Mines Tribunal noted that the MMDR Act provided for two distinct concession regimes: one for „non-notified‟ areas where an applicant earlier in point of time would have preference; the second was for „notified‟ areas where the relative merits of the different applicants would determine the manner of equitable distribution of resources. The Mines Tribunal also referred to guidelines issued by the Ministry of Mines („MOM‟) on 24th June 2009 and 9th February 2010. The Mines Tribunal noted that the MOU between the SOC and SIPL was signed on 6th October 2006. SIPL had established its plant and invested Rs. 700 crores as on 7th April 2007. These constituted special reasons in favour of SIPL for the purposes of Section 11 (5) MMDR Act. On the other hand, the MOU with RIPL was entered into after 7th April 2007. In the absence of any special reason, the criteria spelt out in Section 11 (3) of the MMDR Act could not be used to justify the grant of PL in favour of RIPL. Consequently, the Mines Tribunal modified the order dated 7th April 2007 of the SOC only to the extent of recommendation in favour of RIPL. The recommendation for grant of PL in favour of KIPL and SIPL was left undisturbed. A direction was issued by the Mines Tribunal to the SOC to re-examine the issue to the extent of the recommendation made for grant of PL to RIPL with reference to the MOM guidelines dated 9th February 2010. Further the Mines Tribunal directed that while considering the set aside part of impugned order and any balance free area available, the SOC should consider the case of RIPL “keeping in view their claim to installed capacity as 0.60 LTPA instead of 0.30 LTPA before passing a fresh order.” 7. Mr. Sridhar Potaraju, learned counsel appearing for RIPL first submitted that the interpretation placed on Section 11 (2) and Section 11 (3) read with Section 11 (5) of the MMDR Act by the Mines Tribunal was erroneous. Although KIPL which had applied for PL on 27th May 2006 was an earlier applicant within the meaning of Section 11 (2) MMDR Act, KIPL had only the right to be considered for grant of PL. In other words, being an earlier applicant did not give KIPL an indefeasible right to be granted the PL. It still had to satisfy the basic norms for grant of PL which although not spelt out expressly could be inferred from Section 11 (3) of the MMDR Act read with Rule 35 of the MCR. It is submitted that there was a discretion in the SOC not to recommend the grant of PL for the entire area as applied W.P. (C) 4723 & 6212 of 2010 Page 6 of 16 for by KIPL. According to Mr. Potaraju, the special reasons in Section 11 (5) MMDR Act to justify a grant in favour of a later applicant was required to be shown only where the application of an earlier applicant was rejected in its entirety and not where it was accepted in part. In the instant case it was evident from para 12 of the decision dated 7th April 2007 of the SOC that it was only after KIPL‟s application was first considered and recommended in part that the subsequent applicants were considered in the order of their relative seniority. The decision dated 7th April 2007 of the SOC was also consistent with the mineral policy of the SOC announced in 2001 which stipulated that preference would be given in sanction of ML/PL to those who are seriously interested in establishing mineral based industry in the State. Finally it was submitted that the decision dated 7th April 2007 was also consistent with the MOM guidelines dated 24th June 2009 and 9th February 2010 which envisage that the special reasons to be adduced by the state government to justify the recommendation of the PL in favour of a later applicant in terms of Section 11 (5) of the MMDR Act should be in public interest for economic development. The criteria of investments already made, the net worth of the applicant and the capacity of the functioning sponge iron plants were „special reasons‟ for the purposes of Section 11 (5) MMDR Act. It is submitted that in any event the MOM guidelines were prospective and could not be invoked to invalidate the impugned decision dated 7th April 2007 of the SOC. On equities it is submitted that RIPL had already completed its prospecting work in four out of the five permitted holes permitted to be drilled and it had incurred an expenditure of Rs. 9.2 lakhs. Therefore, this area was no longer available for prospecting and no purpose would be served by remitting the matter back to the SOC. Lastly it is submitted that the decision dated 7th April 2007 of the SOC ought not to have been interfered with by the Mines Tribunal in exercise of its revisional jurisdiction merely because two reasonable views were possible. 8. Mr. Avi Singh, learned counsel appearing for the KIPL submitted that there were no special reasons given by the SOC in its decision dated 7th April 2007 for recommending the grant of PL in favour of SIPL. According to him, the reasons that weighed with the Mines Tribunal for setting aside the recommendation in favour of RIPL equally applied to SIPL. It is submitted that the observations in the impugned decision dated 7th April 2007 of the SOC that forest clearance may not be able to be obtained in regard to the PL granted in favour of W.P. (C) 4723 & 6212 of 2010 Page 7 of 16 SIPL over an area of 752.32 hectares in Halbibinapal of District Kanker was based on surmises and conjectures. In any event, that would not constitute the special reasons for the purpose of Section 11 (5) of the MMDR Act. The criteria of Section 11 (3) of the MMDR Act applied only to notified areas and could not be extended to non-notified areas. As long as KIPL was the first in order of seniority after CMDC, its indefeasible right for the grant of PL for the entire area applied for could not be taken away. Mr. Singh pointed out that KIPL had initially applied for a PL over an area of 7000 ha which was later reduced to 1300 ha. Referring to the proviso to Section 6 (c) of the MMDR Act, it is submitted that no PL can be granted in favour of SIPL in respect of an area which was “not compact or contiguous”. Referring to para 8.17 of the MOM government guidelines Mr. Singh submitted that the central government would not grant prior approval to proposals for accommodating “multiple applicants at the cost of the „first-in-time principle‟ or the „capacity and capability‟ principle as the case may be.” The „special reasons‟ for the purposes of Section 11 (5) MMDR Act had to be something more than the matters referred to in Section 11 (3) of the MMDR Act. He pointed out that there was no basis for restricting the PL to an area far less than what was applied for and this rendered the decision arbitrary. Mr. Singh placed reliance on the observations of the Supreme Court in Sandur Manganese and Iron Ores Limited v. State of Karnataka (2011) 13 SCC 1. 9. Appearing for the SIPL, Mr. Sandeep Sethi, learned Senior counsel first submitted that prior applicant did not have any indefeasible right for the grant of PL for the entire area applied for. It is submitted that the SOC was within its rights, consistent with its obligation under Article 39 (b) (c) of the Constitution of India, to exercise its discretion under Section 11 (2) of the MMDR Act and not grant PL to the prior applicant in respect of the entire area applied for. In particular, he placed reliance upon the observations of the Supreme Court in Indian Metals and Ferro Alloys Ltd. v. Union of India 1992 Supp 1 SCC 91 and Dharambir Singh v. Union of India (1996) 6 SCC 702 and of this Court in Prism Cements Limited v. Union of India 2010 (9) AD (Delhi) 88. Those who did not have established steel plants were adversely affected by the policy of the SOC as revealed in its decision dated 7th April 2007 and yet none of them had challenged the said decision. The parties before the W.P. (C) 4723 & 6212 of 2010 Page 8 of 16 Mines Tribunal knew of the policy priorities of the SOC and information was also sought from each of them on that basis. On merits it is submitted that the decision to recommend grant of PL in favour of the SIPL was just and equitable although it was not for the entire area applied for. Although the basis for restricting the grant of PL to areas less than what was applied for was not spelt out in the impugned decision dated 7th April 2007, a broad correlation could be drawn between the area available for allocation for PL and the respective plant capacities of the applicants eligible for such grant. Mr. Sethi also referred to para 2 of the impugned decision order dated 7th April 2007 of the SOC which noted that the Directorate of Geology and Mining, SOC had carried out a geological survey confirming the formation containing iron ore in the area but that the detailed prospecting work for computation of stock of iron ore was yet to be conducted. This meant that KIPL could seek the grant of ML in respect of an area notwithstanding that it had not been granted PL in that area. 10. The first issue concerns the interpretation of Section 11 (2) of the MMDR Act which reads as under: “11(2). Subject to the provisions of sub-section (1), where the State Government has not notified in the Official Gazette the area for grant of reconnaissance permit or prospecting licence or mining lease, as the case may be, and two or more persons have applied for a reconnaissance permit, prospecting licence or a mining lease in respect of any land in such area, the applicant whose application was received earlier, shall have the preferential right to be considered for grant of reconnaissance permit, prospecting licence or mining lease, as the case may be, over the applicant whose application was received later. Provided that where an area is available for grant of reconnaissance permit, prospecting licence or mining lease, as the case may be, and the State Government has invited applications by notification in the Official Gazette for grant of such permit, licence or lease, all the applications received during the period specified in such notification and the applications which had been received prior to the publication of such notification in respect of the lands within such area and had not been disposed of, shall be deemed to have been received on the same day for the purposes of assigning priority under this sub-section: W.P. (C) 4723 & 6212 of 2010 Page 9 of 16 Provided further that where any such applications are received on the same day, the State Government, after taking into consideration the matter specified in sub-section (3), may grant the reconnaissance permit, prospecting licence of mining lease; as the case may be, to such one of the applicants as it may deem fit.” 11. There are two distinct parts to Section 11 (2) MMDR Act. The substantive part applies to non-notified areas. It states that where two or more persons have applied for a reconnaissance permit („RP‟), PL or ML in respect of a non-notified area, the earlier applicant will have a preferential right over the later applicant. Where the area is notified and the state government invites applications for RP, PL or ML all the applications received during the period specified in such notification as well as the applications received prior to the publication of such notification shall be deemed to have been received on the same date. The second proviso to Section 11 (2) states that “where any such applications are received on the same day” meaning application that has been made under Section 11 (2) in respect of non-notified area and applications received on the same day in respect of notified area (in terms of first proviso), then the State Government shall grant a PL or ML, “to such one of the applicants” as it may deem fit. This it will do “after taking into consideration the matter specified in sub- section (3).” Thus the factors listed out in Section 11 (3) of the MMDR Act would have to be taken into account by the State Government in respect of a non-notified area only where all the applications for grant of PL in respect of such non-notified area “are received on the same day”. This has to be read along with Rule 35 of the MCR, which reads as under: “35. Preferential rights of certain persons – Where two or more persons have applied for a reconnaissance permit or a prospecting licence or a mining lease in respect of the same land, the State Government shall, for the purpose of sub-section (2) of Section 11, consider besides the matters mentioned in clauses (a) to (d) of sub-section (3) of Section 11, the end use of the mineral by the applicant.” 12. Rule 35 refers to a situation where the State Government has to account for the factors in Section 11 (3). It requires the State Government to take into account another factor in addition to the factors enumerated in clauses (a) to (d) of sub-section (30 of Section 11 MMDR Act. This is the “end use of the mineral by the applicant.” However, this again W.P. (C) 4723 & 6212 of 2010 Page 10 of 16 would apply where two or more applicants have in respect of a non-notified area applied on the same day. 13. The resultant position on a collective reading of Section 11 (2), its second proviso and Section 11 (3) of the MMDR Act along with Rule 35 MCR in respect of non-notified areas is that the priority accorded to an applicant who applies first-in-time remains undisturbed. The only exception is envisaged by sub-section (5) of Section 11 of the MMDR Act. A departure from the first-in-time principle is possible where the State Government records in writing special reasons under Section 11 (5) of the MMDR Act. As regards the case on hand, the area was a non-notified area and after the elimination of the CMDC, KIPL was the first- in-time applicant. Subject to satisfying the basic eligibility conditions, KIPL‟s right to be considered for grant of PL as a first-in-time applicant could be overlooked only if the SOC was able to record special reasons for not according to KIPL that priority. 14. Unlike a notified area where the departure from the first-in-time principle as envisaged in the first proviso to Section 11 (2) read with the second proviso is made conditional upon the State Government having to account for the factors spelt out in clauses (a) to (d) of Section 11 (3), in respect of a non-notified area, there is no such requirement. The discretion vested in the State Government under Section 11 (5) MMDR Act to depart from the first-in- time principle appears prima facie to be a wide one, not controlled by any other provision of the MMDR Act. However, from a legal and constitutional perspective the discretion is not unfettered. The requirement that