Case: State of Madhya Pradesh &amp; Others Vs. Dadabhoy's New Chirimiri Ponri Hill Colliery Company Private Limited &amp; Others

(1), lessees under pre-1949 leases were relegated to the original position under which they were liable to pay royalty at rates agreed to in those leases whether the rate was over or below 5% provided by sec. 9 (1). As and when the Central Government issued the notification envisaged by the second part, such lessees would be obliged to pay royalty at the rate of 5% as prescribed for the time being in the Second Schedule, and even if the Government were, in the meantime, to enhance the rate as authorised by sec. 9 (3) upto the maximum rate of 20% at such rate but never more than 20%. The second part thus contemplated payment of royalty, on sec. 9 (1) being made applicable, at the most at the rate of 5% only, as no increase had till then been made under sec. 9 (3). 22. On December 29, 1961, the Central Government "in exercise of the powers conferred by sec. 30A" issued the notification directing that the provisions of sub-sec. (1) of sec. 9 of the said Act shall apply with immediate effect to or in relation to pre-1949 coal mining leases, subject to the modification that such lessees shall pay royalty at the rate specified in the agreements between the lessees and the lessors or at 2 1/2 % of F. O. R. price, whichever was higher, "in lieu of the rate of royalty specified in respect of coal in the Second Schedule to the said Act." 23. The argument urged on behalf of the State both before the High Court and before us was that the notification clearly envisaged payment of royalty at the rate agreed to between the lessor and the lessee or at 2 1/2% whichever was higher. Since, the agreement in the present case provided for royalty at graded rates which were higher than 2 1/2%, the company had to pay royalty at such agreed rates. The argument, in our opinion, is untenable as it is not borne out by the language of the notification itself and of sec. 30A and was therefore rightly repelled by the High Court. 24. The notification was issued, as it recites, in exercise of the powers conferred by sec. 30A. That power was to apply, by issuing a notification thereunder, secs. 9 (1) and 16 (1) and the rules made under secs. 13 and 18. The notification in terms directed the application of sec. 9 (1) which meant that on and from December 29, 1961 the company would have to pay royalty as prescribed under that sub-section read with the Second Schedule, that is, at 5% . The notification, however, applied sec. 9 (1) subject to one modification, namely, that lessees under the pre-1949 leases were to pay royalty at the rate provided in their leases or at 2 1/2% whichever was higher. The modification was to the rate applicable under sec. 9 (1) and the Second Schedule, that is, to the rate of 5% . Considering the object with which sec. 30A was enacted, viz., to phase the rate of 5% , and not to impose it at one stroke, the modification could not mean recovery at a rate inconsistent with sec. 9 (1) and the Second Schedule, that is, at the rate higher than 5% provided thereunder. 25.Such a modification, if it were to be construed as meaning payment at a rate higher than 5% would be in excess of the power under section 30A and also in contravention of the language of sec. 9 (1) and the Second Schedule. A modification, if any, would be for charging royalty at a rate lesser than the one provided under sec. 9 (1) and the Second Schedule, and not at a rate higher than such rate. A construction to the contrary would mean exercise of power in excess of that conferred by the section and would affect the validity of the notification. A literal meaning which the State canvassed for can, therefore, be accepted only at the cost of invalidating the notification. 26. The rule of construction that a court construing a provision of law must presume that the intention of the authority making it was not to exceed its power and to enact it validly is well-settled. Where, therefore, two constructions are possible, the one which sustains its validity must be preferred. On a plain reading of the notification, however, it is clear that what it meant was thatinstead of the rate flowing from the application of sec. 9(1) and the Second Schedule a modified rate should be applied, that is, "in lieu of the rate of royalty" specified in the Second Schedule, royalty at the agreed rate should be charged if it was lower than 5% , or at 2 1/2% minimum, whichever was higher. The notification, thus, did not empower the State Government to recover royalty at a rate higher than 5% in lieu of the rate chargeable under sec. 9 (1) and the Second Schedule which provided 5% only. 27. It appears that the State Government itself understood such a construction as proper, for, if it had understood otherwise, it would not have issued its order dated September 23, 1963 directing the Collector to recover royalty at 5% pursuant to the correspondence which had ensued between the company, the Central Government and the State Government. If it had understood the notification in the manner now urged by its counsel, it would have at once pointed out both to the company and the Central Government in that correspondence that it was entitled to recover royalty at the rates agreed to in the lease instead of at 5%. It was only in 1965 that it changed its mind and cancelled its previous order. On the construction placed by us on sec. 30A and the said notification, it was not entitled so to do. The High Court, in our view, was right in quashing that order as also the demand notices issued in pursuance of that order.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]16. It is well-known that prior to the enactment of the 1948 Act, leases of mining areas had been granted by diverse authorities on different terms and conditions. The rates of royalty under those leases were inevitably divergent and were often fixed at very low rates. The purpose of enacting the 1948 Act was to bring about uniformity in such leases and with that end that Act had made provisions for power to modify the terms and conditions both in regard to the area and the period under such leases. The object of such provisions was to regulate in a systematic and scientific manner development of mining and minerals. Though under the Constitution that subject was left to the States, a power was carved out by entry 54 in List I for the exclusive exercise of it by the Centre. The consequence was the enactment of Act 67 of 1957 which was brought into operation from June 1, 195817. The purpose of passing that Act is clearly seen from the declaration required under entry 54, List I, in sec. 2, namely, that it was necessary for the Union to take under its control regulation of mines and the development of minerals. In pursuance of that object the Act made provisions with regard to the persons to whom prospecting licences and mining leases should be granted (Ss. 4 and 5), the maximum area for which such licences and leases should be granted (S. 6), and the period for which a mining lease should be granted (S. 8). In order that uniformity in leases granted before and after the commencement of the Act could be attained, power was also conferred to bring all mining leases granted before October 25, 1949 into conformity with the provisions of the Act and the Rules made thereunder. (Ss. 16, 17 and 18). As regards royalty payable by the lessees under diverse kinds of leases for different minerals granted before October 25, 1949 uniformity was sought to be brought about by sec. 9 (1)18. In the 1948 Act the Central Government had the power to make rules for regulating the grant of mining leases, or for prohibiting the grant of such leases in respect of any mineral including the power to make rules as regards the terms upon which and the conditions subject to which such leases would be granted. (S. 5) Under sec. 7 of that Act, the Central Government also could make rules for modifying or altering the terms and conditions of leases granted before the commencement of that Act, that is, before October 25, 1949. In pursuance of the power under sec. 5. The Central Government framed the Mineral Concession Rules, 1949 and provided by R. 41 thereof read with the First Schedule thereto that the rate of royalty chargeable under a lease in respect of coal would be 5% of the F. O. R. price per ton. No rules, however, were made under Sec. 7, and therefore, the rate of royalty provided by R. 41 did not govern pre-1949 leases, with the result that the lessees thereunder continued to pay royalty provided in their respective leases19. Such diversity in the rates of royalty was sought to be done away with by prescribing uniform rates of royalty in respect of each mineral through sec. 9. Item 1 in the Second Schedule prescribed, in respect of coal, the rate of royalty at 5% of the F. O. R. price subject to a minimum of fifty naye paise per ton. The result of S. 9 and item 1 in the Second Schedule was that all lessees whether their leases were granted before or after the commencement of the Act became liable to pay royalty at the uniform rate of 5% in respect of coal. Since under the 1948 Act the lessees, whose leases were granted on and after the commencement of that Act, were liable to pay royalty at 5% under R. 41 of the 1949 Concession Rules, sec. 9 did not make any difference to them as it prescribed the same rate. But so far as lessees under the pre-1949 leases were concerned, the new rate affected them, inasmuch as those who under their leases were paying at a lesser rate became, liable to pay royalty at 5% while those who were paying at a higher rate had to pay at the lower rate of 5% only. Besides, the change in the rate of royalty under Sec. 9, pre- 1949 leases were liable to be modified in respect of the area and the period under sec. 16 and the rules made under secs. 13 and 1820. Even before the new Act was brought into force, consequences of enforcing such uniformity and the resultant automatic spurt in the rate of royalty, especially in respect of coal, had been realised. The Central Government, therefore, itself sponsored the insertion of section 30A by section 2 of the Amendment Act, 15 of 1958, with retrospective effect. The consequences flowing from the attempted uniformity were set out in the Statement of Objects and Reasons (Gazette of India, Extra., Part 2, Sec. 2, Jan. -July 1958, p. 507.) for amending the Act. The statement acknowledged that coal, as the basic fuel, occupied a unique position in the countrys economy and had always, therefore, been treated differently from other minerals. It also acknowledged that operation of secs. 9 and 16 would have "numerous undesirable consequences" such as unsettling coal industry as a whole and retarding the programme of coal production estimated in the Second Five Year Plan on account of the sudden and automatic rise in the royalty payable by lessees, who under their leases granted before October 25, 1949 generally had to pay royalty "much below the rate" prescribed under the Second Schedule. A similar anxiety was also expressed during the passage of the Amendment Bill by the concerned Minister stating that if the automatic enhancement under sec. 9 (1) in the rate of royalty at 5% were to be implemented, the results would be unfortunate. For, besides affecting the rate of production of coal, it would also adversely affect the price structure in other industries, such as cement, steel and other similar industries, and that for that reason "by this Amending Bill that mistake is sought to be rectified." "Instead of giving those increases automatically power will now be taken to phase them in such a way that the upward revision is not pushed up to the maximum limit (i.e. five per cent.) with one jerk, but it is so phased that it does not cause any upset in the coal production programme and in the economy of the country as a whole" (Rajya Sabha Proceedings, dated November 19, 1957). The mischief which the Amending Act, 1958 sought to avoid was thus to prevent enhancement of royalty at one stroke to 5%21. As aforesaid, sec. 30 A suspended the application of secs. 9 (1) and 16 (1) in relation to pre-1949 leases and authorised the Central Government to direct that all or any of the said provisions (including rules made under secs. 13 and 18) shall apply to or in relation to such leases subject to such exceptions and modifications, if any, as may be specified in a notification. As a result of the suspension of Section 9 (1), lessees under pre-1949 leases were relegated to the original position under which they were liable to pay royalty at rates agreed to in those leases whether the rate was over or below 5% provided by sec. 9 (1). As and when the Central Government issued the notification envisaged by the second part, such lessees would be obliged to pay royalty at the rate of 5% as prescribed for the time being in the Second Schedule, and even if the Government were, in the meantime, to enhance the rate as authorised by sec. 9 (3) upto the maximum rate of 20% at such rate but never more than 20%. The second part thus contemplated payment of royalty, on sec. 9 (1) being made applicable, at the most at the rate of 5% only, as no increase had till then been made under sec. 9 (3)24. The notification was issued, as it recites, in exercise of the powers conferred by sec. 30A. That power was to apply, by issuing a notification thereunder, secs. 9 (1) and 16 (1) and the rules made under secs. 13 and 18. The notification in terms directed the application of sec. 9 (1) which meant that on and from December 29, 1961 the company would have to pay royalty as prescribed under that sub-section read with the Second Schedule, that is, at 5% . The notification, however, applied sec. 9 (1) subject to one modification, namely, that lessees under the pre-1949 leases were to pay royalty at the rate provided in their leases or at 2 1/2% whichever was higher. The modification was to the rate applicable under sec. 9 (1) and the Second Schedule, that is, to the rate of 5% . Considering the object with which sec. 30A was enacted, viz., to phase the rate of 5% , and not to impose it at one stroke, the modification could not mean recovery at a rate inconsistent with sec. 9 (1) and the Second Schedule, that is, at the rate higher than 5% provided thereunder25.Such a modification, if it were to be construed as meaning payment at a rate higher than 5% would be in excess of the power under section 30A and also in contravention of the language of sec. 9 (1) and the Second Schedule. A modification, if any, would be for charging royalty at a rate lesser than the one provided under sec. 9 (1) and the Second Schedule, and not at a rate higher than such rate. A construction to the contrary would mean exercise of power in excess of that conferred by the section and would affect the validity of the notification. A literal meaning which the State canvassed for can, therefore, be accepted only at the cost of invalidating the notification26. The rule of construction that a court construing a provision of law must presume that the intention of the authority making it was not to exceed its power and to enact it validly is well-settled. Where, therefore, two constructions are possible, the one which sustains its validity must be preferred. On a plain reading of the notification, however, it is clear that what it meant was thatinstead of the rate flowing from the application of sec. 9(1) and the Second Schedule a modified rate should be applied, that is, "in lieu of the rate of royalty" specified in the Second Schedule, royalty at the agreed rate should be charged if it was lower than 5% , or at 2 1/2% minimum, whichever was higher. The notification, thus, did not empower the State Government to recover royalty at a rate higher than 5% in lieu of the rate chargeable under sec. 9 (1) and the Second Schedule which provided 5% only27. It appears that the State Government itself understood such a construction as proper, for, if it had understood otherwise, it would not have issued its order dated September 23, 1963 directing the Collector to recover royalty at 5% pursuant to the correspondence which had ensued between the company, the Central Government and the State Government. If it had understood the notification in the manner now urged by its counsel, it would have at once pointed out both to the company and the Central Government in that correspondence that it was entitled to recover royalty at the rates agreed to in the lease instead of at 5%. It was only in 1965 that it changed its mind and cancelled its previous order. On the construction placed by us on sec. 30A and the said notification, it was not entitled so to do. The High Court, in our view, was right in quashing that order as also the demand notices issued in pursuance of that order.