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

1. By an Indenture of Lease, dated January 12, 1944 made between the then Ruler or Korea State of the one part referred to as the lessor therein, and Sir Maneckji B. Dadabhoy referred to as the lessee, of the other part, the lessor granted to the lessee for a term of 30 years, in consideration of payment of rents and royalties therein mentioned, a mining lease of an area measuring 5.25 sq. miles delineated on the plan annexed thereto, with liberties, powers and privileges and on terms and conditions therein set out. By Clause (2) of that Indenture, the lessee agreed to pay during the subsistence of the lease royalties at the rates and on dates set out therein. The rates of royalty varied from 5% to 25% according to the price of coal per ton extracted from the leased area, that is to say, from 4 ans. per ton if the price was Rupees 5/- per ton to 25% of the price per ton at the pits head if that price was Rupees 20/- or more2. On the merger of the Korea State with Madhya Pradesh, into the events of which it is not necessary for the purposes of this appeal to go, the leased area became subject to the provisions of the Mines and Minerals (Regulation and Development) Act, 53 of 12948 and the Mineral Concession Rules made thereunder on October 25, 1949. In 1952, Sir Maneckji agreed to assign the said lease and the benefits, powers and privileges thereunder provided to the respondent-company. Since, under the lease, such assignment could not be made without the previous consent of the lessor and since, by that time, owing to the merger of the Korea State with Madhya Pradesh, the State of Madhya Pradesh had acquired the said area and the rights in respect of it under the said lease, an agreement was made between the State of Madhya Pradesh and the respondent-company on November 6, 1952 under which the State of Madhya Pradesh granted its consent to the said assignment for the unexpired period of the said lease in consideration of the respondent-company agreeing to comply with the terms and conditions of the said lease including payment of royalties to the State Government as provided therein. That meant that the respondent-company had to pay henceforth royalty to the State of Madhya Pradesh as the lessor at the rates provided in the original lease3. An unexpected development in the meantime took place Under an Industrial award, called the Muzumdar Award, published on May 25, 1956, increased wages were awarded to colliery workers. To meet the consequent increased expenditure which the collieries had to incur, the Government of India proportionately increased the controlled coal price. A representation made by the respondent-company to the Government of India, dated October 5, 1956 shows that the increase in respect of the coal extracted by the respondent-company was from Rs. 14.6.0 and Rs. 15.6.0 to Rupees 17.6.0 and Rupees 18.6.0 per ton. That increase, however, resulted in the respondent-company having to pay royalty at an increased rate since the rate of royalty payable by the company was on graded slab varying according to the price of coal at the pits head. The companys representation, therefore, was that the royalty payable by it should be modified so as to bring it in consonance with that payable under the 1948 Act read with the Mineral Concession Rules. 1949 and the First Schedule thereto, namely, at a fixed rate of 5% of the f. o. r. price subject to the minimum of 8 ans. per ton. (Rule 41 (1) (a)). The Government of India referred the respondent-company to the State Government and advised it to make a similar representation to that Government. Thereafter correspondence went on between the Government of Madhya Pradesh and the respondent-company for a considerable time. The State Government, however, was not agreeable to modify the terms of the said lease and to bring the royalty payable thereunder in consonance with Rule 41 of 1949 Rules and the First Schedule thereto4. On December 28, 1957. Parliament passed the Mines and Minerals (Regulation and Development) Act, 67 of 1957 under its power under Entry 54 of List I of the Seventh Schedule to the Constitution. Before the Act was brought into force by a notification as provided by Section 1 (3) thereof, an amending Act, being Act 15 of 1958, was passed on May 15, 1958. By a notification dated May 29, 1958, the Central Government brought into force the Act with effect from June 1, 19585. As its long title recites, the Act was passed to provide for the regulation of mines and the development of minerals under the control of the Union. Section 2 declared that it was in the public interest that the Union should take under its control the regulation of mines and the development of minerals. Sections 6 and 8 provided for the period and the area in respect of which mining leases henceforth could be granted. Section 9 (1) provided that a lessee under a mining lease granted before the commencement of the Act shall pay royalty at the rate for the time being specified in the Second Schedule. Its sub-section (2) provided that a lessee under a lease granted on or after the commencement of the Act shall likewise pay royalty in respect of any mineral removed by him from the area leased to him at the rate for the time being specified in the Second Schedule in respect of that mineral. Sub-section (3) authorised the Central Government to amend the rates of royalty specified in the Second Schedule, but not so as to exceed twenty per cent of the sale price at the pits head. Under Item (1) of the Second Schedule, royalty payable in respect of coal was the same as under Rule 41 of the Mineral Concession Rules 1949, that is, 5% of the f. o. r. price subject to a minimum of fifty naya paise per ton6. The effect of Section 9 was that the rate of royalty was enhanced in the case of those lessees, who, under the leases obtained by them before the commencement of the Act, were paying at a rate lesser than 5% while the royalty payable by lessees similarly placed was reduced if they were paying royalty at a higher rate. Under Section 9 (1) read with the Second Schedule, the respondent-company would have been required to pay royalty at the reduced rate of 5% instead of at the rates varying from 5% to 25% according as the price fluctuated from time to time. Section 16 provided that all mining leases granted before October 25, 1949 should, as soon as may be, after the commencement of the Act, be brought into conformity with the provisions of the Act and the Rules made under Sections 13 and 187. The Amending , Act, 15 of 1958, by its Section 2, inserted into the Act Section 30-A with retrospective effect. That section reads as under :-"Notwithstanding anything contained in this Act, the provisions of sub-section (1) of Section 9 and of sub-section (1) of Section 16, shall not apply to or in relation to mining leases granted before the 25th day of October, 1949, in respect of coal, but the Central Government, if it is satisfied that it is expedient so to do, may, by notification in the Official Gazette, direct that all or any of the said provisions (including any rules made under Sections 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 that or in any subsequent notification."8. The section falls into two parts. Under the first part, the operation of Sections 9 (1) and 16 (1) was suspended as far as pre - 1949 mining leases for coal were concerned. The second part, however, empowered the Central Government on its satisfaction that it was expedient to do so, to direct that all or any of those provisions including rules made under Sections 13 and 18,should apply to such leases subject to such exceptions and modifications, if any any, as might be specified in that or any subsequent notification. The "exceptions and modifications" which might be so specified in the notification would obviously be in regard to the application, when such application was decided upon, of Sections 9 (1) and 16 (1) and the relevant rules9. As a result of the suspension of the operation of Section 9 (1), and consequently of the Second Schedule, the respondent-company remained liable to pay under its lease royalty at the graded rates provided therein which, in consequence of the increase in the controlled price of coal, came to more than 5% prescribed by the Second Schedule10. On December 29, 1961, the Central Government issued a notification in exercise of its power under the second part of Section 30-A, by which it directed application of Section 9 (1) with immediate effect to or in relation to pre-1949 coal mining leases "subject to the modification that the lessee shall pay royalty at the rate specified in any agreement between the lessee and lessor or at 21/2% of f. o. r. price, whichever is higher, in lieu of the rate of royalty specified in respect of coal in the Second Schedule to the said Act." The respondent -company would have been, under this notification, liable to pay royalty at the rate of 5% under the second Schedule. The question is whether the said modification made any different11. It appears that the respondent-company continued to press the Central Government to modify and reduce the royalty payable by it under its lease. This is seen from the Central Governments letter, dated July 4, 1962, by which it informed the company in reply to the companys letter of May 21, 1962 that the question of the rate of royalty payable by the colliery was, in consultation with the State Government, under consideration and that action in that connection would shortly be taken. It would seem that as a result of the companys representations and consultation by the Central Government with the State Government, the latter issued an order, dated September 23, 1963 to the Collector, Surguja, directing him to recover from the respondent-company royalty at the rate of 5% with effect from July 1, 1958 subject to the condition that the royalty amount should not be less than Rupees 2,47,000/- per year. The government, however, directed the collector to recover the outstanding royalty due for the period prior to July 1, 1958 at the old rates, that is, as provided by the lease12. The State Government, however, changed its mind later on, for, by its dated October 1, 1965. It partially suspended its order of September 23, 1963 and directed the Collector to recover royalty as from December 29, 1961 at the rates prescribed under the lease "in accordance with the Government of Indias notification No. S. O. 30, dated 29th December, 1961". Representations by the respondent-company to the State Government to charge royalty at 5% provide futile, however, on January 1, 1966, the Central Government issued a notification under which it directed the lessees of pre- 1949 leases to pay royalty at 5% of the f. o. r. price. Thereupon, by its order, dated February 11, 1966, the State Government issued instructions to the Collector to charge royalty at that rate with effect from 1st of January, 1966.The controversy between the parties, therefore, is confined to the rate of royalty at which the company was liable to pay royalty for the period between December 29, 1961 and December 31, 196513. On January 25, 1966, the Collector served upon the respondent - company demand notices to pay the arrears of royalty for the aforesaid period at the rates provided in the lease. The company thereupon filed a revision before the Central Government under the Mineral Concession Rules 1960.That revision was pending when the company filed a writ petition in March 1966in the High Court of Madhya Pradesh for quashing the said order, dated October 1, 1965, the rejection of its representation by the State Government, dated November 19, 1965 and the said demand notices14. The respondent-company urged that the purpose of suspending operation of Section 9 (1), till a notification applying it was issued by the Ceneral Government, was not to burden lessees under pre-1949 leases with royalty at the rate of 5% of the f. o. r. price for the time being prescribed in the Second Schedule, and that even when a notification applying Section 9 was to be issued, the Central Government was empowered to direct that that section, the Second Schedule and the Rules made under Sections 13 and 18 would apply with such exceptions and modifications as may be specified in such or any subsequent notification. Such exceptions and modifications had to be and were in tended to cushion or soften the burden which would otherwise fall on the lessees under Section 9 (1) and the Second Schedule, and therefore, any modification or exception which would be specified in such notification was in tended to reduce rather than increase the rate of royalty payable under Section 9 (1). The contention, therefore, was that the notification, dated December 29, 1961 could not be read to mean that lessees, such as the respondent-company, whose leases provided for royalty at a rate higher than 5% were to pay royalty at a rate higher than the one provided under Section 9 (1). The State Government, on the other hand, urged that the language of the notification was clear and provided that such lessees were to pay royalty either at the rate provided in their leases or if the rate provided therein was less than 21/2 % at that rate, whichever was higher. Therefore, on a plain construction of the words of the notification, the respondent-company was bound to pay royalty at the rates provided in its lease, that being higher than the minimum of 2 1/2% provided in the notification. The High Court rejected the contention raised by the State as being inconsistent with the purpose for which sec. 30A was introduced. The High Court observed:"In our view, the true construction and effect of the notification dated 29th December 1961 is that in regard to coal mining leases granted before 25th October 1949 if the rate of royalty stipulated in the lease was higher than 5% of F. O. R. price per ton, then the royalty payable from 29th December 1961 in respect of coal removed from the leased area after that date would be the one specified on that date in the Second Schedule, namely, 5 per cent of F. O. R. price per ton; in relation to leases where the rate of royalty stipulated is less than 5 per cent but more than 21/2 per cent of F. O. R. price per ton, the rate of royalty would be the one specified in the lease agreement; and in respect of leases where the rate of royalty specified was less than 21/2 per cent of F.O.R. price per ton the rate would be 21/2 per cent of F.O.R. price per ton from 29th December 1961. It follows from this that the petitioner-company which was, under the terms of its lease liable to pay royalty at a rate higher than 5 per cent of F. O. R. price per ton for the period from 29th December 1961, is rightly entitled to claim that under the notification dated 29th December 1961, it cannot be called upon to pay royalty from 29th September 1961at the rate stipulated in the lease granted to it but only at the rate of 5 per cent of F.O. R. price per ton specified in the Second Schedule." The High Court also rejected the States contention as regards its order dated September 23, 1963 that once the said notification was issued, the State Government could not charge royalty at a rate lower than the one prescribed in the said notification, and that therefore, the State acted properly in rescinding its said order. The High Court held that that order amounted to a modification of the terms of the lease in consideration of the lessee guaranteeing payment of the minimum amount of Rs. 2,47,000/- a year, which the State Government was competent to make, and that therefore, it had no right to rescind it unilaterally. On this view, it held that the companys liability for royalty as from December 29, 1961 would be at the reduced rate of 5% of the F. O. R. price and not as provided by the original lease deed.

Court's reasoning:
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.