# STATE OF MADHYA PRADESH & ANR v. DADABHOY'S NEW CHIRIMIRI fON~ HILL COLLIERY CO. PVT. LTD

- **Citation:** [1972] 2 S.C.R. 609
- **Court:** Supreme Court of India
- **Decided:** 1971-11-29
- **Case number:** Civil Appeals Nos. 167 and Hi8 of 1968
- **Bench:** S. M. Sikri, J. M. Shelat, P. ]Aganmohan Reddy, G. K. Mitter
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-madhya-pradesh-anr-v-dadabhoy-s-new-chirimiri-fon-hill-colliery-co-pvt-5678
- **Pages:** 13

## Headnote

The Mines & Minerals (Regulation and Development) Act 67 of 1957
as amended by Act 15 of 1958, ss. 9(1) and JOA-Notification issued
under Second Part of s. 30A whether can have effect of raising rate of
royalty on coal in respect of pre 1949 mining leases above rate of 5%
provided ins. 9(1) read with Second Schedule.
I.n .1944 the .Ruler of the erstwhile Indian State of Korea granted to D
a mmmg lease in respect of an area of 5.25 sq.
miles in the State.
Accordmg to the terms of the lease the rates of royalty varied from 5 %
to 25 % accotding to the price of the coal per tons extracted from the
leased area, that is to say, from 4 as. per ton if the price was Rs. 51. per
ton to 25% of the price per ton at the pit's head if that price was Rs. 20/-
or more.
On the merger of the Korea State with Madhya Pradesh the
leased area became subject to the provisions of the Mines & Minerals
(Regulation and Development) Act 53 of 1948 and the Mineral Concession Rules, 1949.. In 1952 D assigned the lease and its benefits to the
respondent company. The State of Madhya Pradesh granted its consent
to the assignment for the unexpired period of the lease in consideration
of the respondent-company agreeing to comply with the terms and conditions of the lease including payment of royalties. On December 21!, 1967
Parliament passed the Mines & Minerals (Regulation and Development)
Act 61 of 1957 under its power under Entry 54 of List I of the Seventh
Schedule to the Constitution. The Act as amended by Act 15 of 1958
was brought into force by a notification of the Central Government with
effect from June 1. 1958. Under s. 9(1) of the Act a lessee under a mining lease granted before the commencement of the Act was liable to pay
royalty at the rate for the time being specified in the Second Schedule.
Under item (I) of the Second Schedule royalty payable jn respect of coal
was the same as under r. 41 of the Mineral Concession Rules, 1949, that
is, 5% of the f.o.r. price, subject to a minimum of fifty naye paise per
ton. Under s .. 30A which had been inserted bv Act 15 of 1958 with retrospective effect, the provisions of s. 9(1) and s. 16(1) were not applicable to mining leases granted before 25th October 1949 in respect of coal.
but the Central GoYernment had power if satisfied that it was expedient
to. do so, to direct by notification in the Offi~al Gazette, that all or any
of the said provisions (including rules made under ss. 13 and 18) shall
apply to or in relation to such leases "subject to such exceptions and modifications. if any, as mav be specified in that or in any sul?"equent not!fication". On December 29. 1961 the Central Government issued a nollfica·
tion in exercise of its power under the second part of s. 30A bv which
it directed application of s. 9( !} with immediate effect to or in relation
to the pre-1949 coal mining leases "subiect to the modification that the
lessee shall pay royaltv. at the rate specified in any agreement between the
lessee and the lessor or at n% of f.o.r. price, whichever is higher. in lieu
of the rate of 'royaltv specified in respect of coal in the Second Schedule
to the said Act." The Collector served upon the
r~sp.ondent company
demand notices to pay the arrears of royalty for t~e penod December 29,
1961 to December 31, 1965 at the rates specified m the lease. The com-
610
SUPREME COURT REPORTS
[1972] 2 S.C.R.
pany in a wrh petition before the High Court urged that the exceptions
and mod1ficatWfis under s. JOA had to be and were intended to cusaion or
soften the burden which would otherwise fall on the lessees under s. 9(1)
and the Second Schedule and therefore any modification or exception
which would be specified in such notification was intended to reduce rather
than increase the rate -of royalty payable under s. 9 (I). The State Government contended that the respondent-company was bound to pay royaltv
at the rates provided in its lease, that being higher than the minimum of
2f% provided in the notification.

## Text

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609
STATE OF MADHYA PRADESH & ANR.
v.
DADABHOY'S NEW CHIRIMIRI fON~ HILL COLLIERY
CO. PVT. LTD.
November 29, 1971
[S. M. SIKRI, C.J., J. M. SHELAT, P. ]AGANMOHAN REDDY AND
G. K. MITTER, JJ.]
The Mines & Minerals (Regulation and Development) Act 67 of 1957
as amended by Act 15 of 1958, ss. 9(1) and JOA-Notification issued
under Second Part of s. 30A whether can have effect of raising rate of
royalty on coal in respect of pre 1949 mining leases above rate of 5%
provided ins. 9(1) read with Second Schedule.
I.n .1944 the .Ruler of the erstwhile Indian State of Korea granted to D
a mmmg lease in respect of an area of 5.25 sq.
miles in the State.
Accordmg to the terms of the lease the rates of royalty varied from 5 %
to 25 % accotding to the price of the coal per tons extracted from the
leased area, that is to say, from 4 as. per ton if the price was Rs. 51. per
ton to 25% of the price per ton at the pit's head if that price was Rs. 20/-
or more.
On the merger of the Korea State with Madhya Pradesh the
leased area became subject to the provisions of the Mines & Minerals
(Regulation and Development) Act 53 of 1948 and the Mineral Concession Rules, 1949.. In 1952 D assigned the lease and its benefits to the
respondent company. The State of Madhya Pradesh granted its consent
to the assignment for the unexpired period of the lease in consideration
of the respondent-company agreeing to comply with the terms and conditions of the lease including payment of royalties. On December 21!, 1967
Parliament passed the Mines & Minerals (Regulation and Development)
Act 61 of 1957 under its power under Entry 54 of List I of the Seventh
Schedule to the Constitution. The Act as amended by Act 15 of 1958
was brought into force by a notification of the Central Government with
effect from June 1. 1958. Under s. 9(1) of the Act a lessee under a mining lease granted before the commencement of the Act was liable to pay
royalty at the rate for the time being specified in the Second Schedule.
Under item (I) of the Second Schedule royalty payable jn respect of coal
was the same as under r. 41 of the Mineral Concession Rules, 1949, that
is, 5% of the f.o.r. price, subject to a minimum of fifty naye paise per
ton. Under s .. 30A which had been inserted bv Act 15 of 1958 with retrospective effect, the provisions of s. 9(1) and s. 16(1) were not applicable to mining leases granted before 25th October 1949 in respect of coal.
but the Central GoYernment had power if satisfied that it was expedient
to. do so, to direct by notification in the Offi~al Gazette, that all or any
of the said provisions (including rules made under ss. 13 and 18) shall
apply to or in relation to such leases "subject to such exceptions and modifications. if any, as mav be specified in that or in any sul?"equent not!fication". On December 29. 1961 the Central Government issued a nollfica·
tion in exercise of its power under the second part of s. 30A bv which
it directed application of s. 9( !} with immediate effect to or in relation
to the pre-1949 coal mining leases "subiect to the modification that the
lessee shall pay royaltv. at the rate specified in any agreement between the
lessee and the lessor or at n% of f.o.r. price, whichever is higher. in lieu
of the rate of 'royaltv specified in respect of coal in the Second Schedule
to the said Act." The Collector served upon the
r~sp.ondent company
demand notices to pay the arrears of royalty for t~e penod December 29,
1961 to December 31, 1965 at the rates specified m the lease. The com-
610
SUPREME COURT REPORTS
[1972] 2 S.C.R.
pany in a wrh petition before the High Court urged that the exceptions
and mod1ficatWfis under s. JOA had to be and were intended to cusaion or
soften the burden which would otherwise fall on the lessees under s. 9(1)
and the Second Schedule and therefore any modification or exception
which would be specified in such notification was intended to reduce rather
than increase the rate -of royalty payable under s. 9 (I). The State Government contended that the respondent-company was bound to pay royaltv
at the rates provided in its lease, that being higher than the minimum of
2f% provided in the notification. The High Court rejeeted the contention
raised by the State as being inconsistent with the purpose for which s. 30A
was introduced.
The State appealed.
HELD :
The notification was issued in exercise of the power& con·
fcrrcd by s. 30A. That power was to apply by issuing a notification thereunder, ss. 9(1) and 16(1) and the rules made under ss .. 13 and 18. The
notification in terms directed the application of s. 9 (!) which meant that
on and from December 29, 1961 the company would have to pav royalty
as prescribed under that sub-section read with the Second Schedule. that
is, at 5%. The notification however applied s. 9(1) subject to one modification, namely. that the lessees under the pre-1949· leases were to pay
royalty at the rate provided in their leases or at 2!% whichever was
higher.
The modification was to the rate applicable under s. 9(1) and
the Second Schedule, that is. to the rate of 5%. Considering the object
with which s. 30A was enacted viz. to phase the rare of 5% and not to
impose it at one stroke, the modification could not mean recovery at a
rate inconsistent with s. 9(1) and the Second Schedule, that is, at the
rate higher than 5% provided thereunder. [620 D-F]
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 s. 30A and
also in contravention of the language of s. 9(1) and the Second Schedule.
A literal meaning which the State canvassed for could therefore be
accepted only at the cost of invalidating the notification. Wher.e two constructions are possible the one which sustains the validity of the law must
be preferred. [610 G-iI; 621 A]
On a plain reading of the notification it was clear that what it meant'
,
was that instead of the rate flowing from the application of s. 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+%
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 s. 9(1) and the Second Schedule which provided
5% only. [621 B-Cl
The High Court was therefore justified in quashing the impugned order
as also the demand notices issued in pursuance of that order.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 167 and
Hi8 of 1968.
Appeals from the judgment and orders dated December 20,
1966 of th~ Madhya Pradesh High Court in Misc. Peiition Nos.
139 and 182 of 1966.
T. N. S/zro.ff, for the appellants <in both the ·appeals).
S. V. Gupte, Suresh A. Shrofj, R. ·K. Thakur, Blwvancsh
KHmari. K. S. Cmper. M. K. Cnoprr, 1. B. Dadachanji, 0. C.
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M.P. STATE v. DADABHOY's COLLIERY LTD. (Shelat, J.)
611
Mathur and Ravinder Narain, for respondent No. 1 (in C.A.
No. 167 of 1968).
B. P. Maheshwari. for respondent No. l (in C.A. No. 168 of•••,
1968).
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S. P. Nayar, for respondent No. 2 (iin both the appeals).. .·
The Judgment of the Court was delivered by
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Shelat, J.
By an Indenture of Lease, dated January 12, 1944;: . . · · ·
made between the then Ruler of Korea State of the one
part~ , ·
referred to as the lessor therein, and Sir Maneckji B. Dadabhoy;> , •·
referred to <IS the lessee, of the other part, the lessor granted tq' '· · ·'
the lessee for a term of 30 years, in consideration of payment df
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 cl. (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
Rs. 5 /- per ton to 25 % of the price per ton at the pit's head if
that price was Rs. 20 /- or more.
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 1948 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 respo!!dent-company. Since, under that 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 con- .
sent to the said assignment for the unexpired period of the said
·
lease in consideration of the respondent-company agreeing to
comoly 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
rate1 provided in the orfoinal lease.
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SUPREME COURT REPORTS
(1972] 2 S.C.R.
An unexpected development in the meantime took place. Under
an industrial award, called the Mazumdar 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 14.6.0 and Rs.
15.6.0 to
Rs. 17.6.0 and Rs. 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 slabs varying according to the price of coal at
the pit's head.
The company's 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 tht:
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 r. 41
of 1949
Rules and the First Schedule thereto.
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 s. 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 l, 1958.
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.
Sec. 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.
Secs. 6 and 8
provided for the period and the area in respect of which mining
leases henceforth could be granted.
Sec. 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-sec. 2 provided that a lessee
under a lease granted on or after the commencement of the Act
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M.P. STATE v. DADABHOY'S COLLIERY LTD. (She/at, J.)
613·
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. Subsec. ( 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 pit's head. Under
item ( 1) of the Second Schedule, royalty payable in respect of
coal was the same as under r. 41 of the Mineral Concession Rules
1949, that is, 5% of the f.o.r. price, subject to a ininimum of
fifty naye paise per ton.
The effect of sec. 9 was that the rate of royalty was enhanced
in the case of those lessees, who, under the leases obtained by
them before the commencem;'lnt 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 sec. 9 ( 1) read with the Second Schedule, the respondentcompany 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.
Sec.
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 secs. 13 and 18.
The Amending Act, 15 of 1958, by its sec. 2, inserted into
the Act sec. 30A 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 (l) 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 io 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.'.'
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 satis.
faction that it was expedient to do so, to direct that all or any
of those provisions, including rules made under secs. 13 and 18,
should apply to such leases subject to such exceptions and modi-
614
SUPREME COURT REPORTS
[1972] 2 S.C.R.
fications, if any, as might be specified in that or any subsequent
notification.
The "exceptions and modifications" which might
be ~o specified in the notification would obviously be in regard to
the application, when such application was decided upon, of
secs. 9 (1) and 16 ( 1 ) and the relevant rules.
As a result of the suspension of the operation of sec. 9(1),
and consequently of the Second Schedule, the respondentcompany 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 Schedule.
On December 29, 1961, the Central Government issued a
notification in exercise of its power under the second part of sec.
30A, by which it directed application of sec. 9 ( 1) with immediate effect to or in relation to the 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 l~ssor
or at 21% 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 x:espondent-company would have been,
under this notification, liable to pay royalty at the rate of 5 %
under the Secono Schedule. The question is whether the said
modification made any difference.
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 Government's letter, dated July 4, 1962, by which it informed the company in reply to the company's letter of May 21, 1962 that the
quei;tion 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 company's rep~esentations 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 respondentcompany 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 Rs. 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 lease.
The State Government, however, changed its mind later on,
for, by its order 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 lea<e "in arcordance with the Government of
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M.P. STATE v. DADABHOY's COLLIERY LTD. (She/at, J.)
615
India's notification No. S.O. 30, dated 29th December, 1961".
Representations by the respondent-company to the. State Government to charge royalty at 5 % proved 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, 1965.
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 1966
in the High Court of Madhya Pradesh for · quashing the said
order, dated October 1, 1965, the rejection of its representation by
tb.e State Government, dated November 19, 1965 and the said
demand notices.
The respondent-company urged that the purpose of suspending
operation of s. 9 ( 1), till a notification applying it was issued by
the Central Government, was not to burden lessees under pre-1949
leases with royalty at the Jate of 5 % of the f.o.r. price for the
time being prescribed in the Second Schedule, and that even when
a notification applying sec. 9 was to be issued, the Central Government was empowered to direct that that section, the Second
Schedule and the Rules made under secs. 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 intended to cushion or soften the
burden which would otherwise fall on the lessees under sec. 9(1)
and the Second Schedule, and therefore, any modification or exception which would t:>e specified in such notification was intended to reduce rather than increase the rate of royalty payable
under sec. 9 (1). The contention, therefore, was that the notification, dated December 29, 1961 could not be read t0 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 sec. 9 ( 1). The State
Government, on the other hand, urged that the language of the
notification was clear and provided th'at such lessees were to pay
royalty either at the rate provided in their leases or if the rate
provided therein was less than 2 t % at that rate, whichever was
616
SUPREME COURT REPORTS
[1972] 2 s.c.R.
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 tllan the
minimum of 2t% provided in the notification.
The Hig'1 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 Dece!Tiber 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 in
less than 5 per cent but more than 2t 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 2t per
cent of f.o.r. price per ton, the rate would be 2t per
cent of f.o.r. price per ton from 29th December 1961.
Tt 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 1961 at 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 State's 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 company's liability for
royalty as from December 2 9, 1961 would be at the reduced rate
of 5% of the f.o.r. price and not as provided by the original lease
deed.
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M.P. STATE v. DADABHOY's COLLIERY LTD. (She/at, J.) . 617
As against these conclusions, counsel for the State took us
through •the ·~~rms of the lease and the provisions of the Act, and
in particular secs. 9 and 30A, and formulated three contentions
for consideration.
These were, (1 ) that the High Court erred in
construing the relevant provisions of the Act and parl\icularly sec.
30A, ( 2) •that it also erred in construing the said notification, and
(3) that the order of the State Government of September 23,
1963 was erroneous having regard to the said notification which
fixed the rate of royalty payable by the lessees under the pre-1949
leases, and that that order being inconsistent with the notification
had to be rescinded by its subsequent order of November 19, 1965.
Counsel urged that upon rescision of its order dated September
23, 1963, the State Government was entitled •to recover royalty as
from the date of the said notification at the rate agreed to in the
lease or at U%, whichever was higher. Therefore, the said demand
notices were valid and had to be complied with.
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 rate of royalty under those
leases were inevitably divergent and v.~re often fixed at very low
rates.
The purpose of enacting the 1948 Act was to bring about
unbformity in such leases and with that end that Act had made
provisions for power to modify th•e terms and conditions both in
regard •to the area and 1he 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 Sta'les, a power was carved
out by entry 54 in List I for the exclusive exercise of it by the
Centre.
The consequenoe was the enactment of Act 67 of 1957
which was brought into operation from June J, 1958.
The purpose of passing that Act is clearly seen fr.Jm the declaration required under entry 54, List T, in sec. 2, namely, that it
was necessary for the Union 10 take under rts 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 gran1ed (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 minincr 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 befo@ October 25,
1949 uniformity was sought to be brought about sec. 9 ( 1).
618
SUPREME COURT REPORTS
[1(972] 2 S.C.R.
In the 1948 Act the Central Government had the power tQ
make rctles 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.t. 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 leases.
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 commenccmcnt of the Act became liable to pay royalty at the uniform rate
of 5 % in respect of coal.
Since under 1the 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 J)rescribed the same rate.
But so far as lessees under the pre1949 leases were concerned, the new rate affected them, inasmuch
as those, who, under their leases were paying at a lesser rate be-
. came liable to pay royalty at 5 % , while those who were paying at
a higher rate had to pay a•t the· lower rate of 5% only.
Besides,
·~he change in the rate of royalty under sec. 9, pre-1949 leases
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liable to be modified in respect of the area and the period
under sec. 16 and the rules made under secs. 13 and 18.
Even before the new Act was brought into force, consequences
of enforcing such uniformity and the resuhant automatic spurt in
the rate of royalty, especially in respect of coal, had been realised.
The Central Governrnent, therefore, itself sponsored the insertion
of sec. 30A by sec. 2 of the Amendment Act, 15 of 1958, with
retrospecitive effect.
The consequences flowing from the attempted uniformity were set. out in
th~ Statement . of Objects and
Reasons(') for amendmg the Act.
The statement acknowledged
(l) Gazette of India, Extra .• Part 2, Sec. 2, Jan.-July, 1958, p. 507.
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M.P. STATE v. DA!JABHOY's COLLIERY LTD. (She/at, !.)
619
that coal, as the basic fuel, occupied a unique position in the
country's economy and had always, therefore, been treated differently from other minerals. It also acknowledged that operation
of secs. 9 and 16 would have "numerous desirable consequences"
such as unsettling coal industry as a whole and retarding the
programme of coal production estima'ted 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 ito 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. 90.2 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".
"Ins:ead of giving those
increases automatically pawer will not 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". C).
The mischief which the Amending Act, 1958 sought to avoid was thus to
prevent enhancement of royalty at one stroke to 5%.
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As aforesaid, sec. 30A suspended the application of secs.
9 (I) 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 Sec. 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 mop~ 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).
(1) Rajya Sabha Proceedings, dated November 19, 1957.
'620
SUPREME COURT REPORTS
(1972] 2 S.C.R.
On December 29, 1961, the Central Govrnment ."m exercise
of 'the powers conferred by sec. 30A" issued the notification directing that 1he 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 roya]ity at the rnte specified in the agreements between
the lessees a11d the lessors or at 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".
The argument urged on behalf of the State both before the
:High Cour'\ 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!% whichever was higher.
Since, the agreement in the present case provided for royalty at graded rates
which were higher ithan 2!%, the company had to pay royalty at
such agreed rates.
The ar_gument, in our opini9n,, 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.
The notification was issued, as rt 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 SecGlnd Scheduie,
that is, at 5 % . The notification, however, applied sec. 9 ( 1)
subject to one modification, namely, that lessees under too pre1949 leases were to pay royaJity at the nae provided in their leases
or at 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 ithe rate of 5 % , and not to impose ·it
at one stroke, the modification could not mean recovery a1: a rate
inconsistent _with sec. 9(1) and the Second Schedule, that is, at
the rate higher than 5% provided thereunder.
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 sec. 30A and also in contravention of the language of sec.
9(1) and the Second ScheduJ.e.
A modification, if any, would be
for charging royalty at a raite 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
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of power in excess of that conferred by the section and would
affect the validity of the notification,
A literal meanino- which the
State canvassed for can, therefore, be accepted only at° the cost of
invalidating the notification.
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~l.P. STATE \'. DADABHOY's COLLIERY LTD. (She/at, J.)
321
The ruk of construction that a court construing a provision
nf 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 \he
notification, however, it is clear that what it meant was that instead
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!% 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%
oofy.
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It appears that the State Government itself understood such a
construotion 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 recove«
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 puvious 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.
·
In view Q.f our decision on th·~ question of construction of
the notification and sec. 30A, it becomes unnecessary to consider
-the second contention raised by the company's counsel that the
order of 1963 amounted to a modification of the terms of the Jea>c.
and that therefore, the State Government could not unilarerallv
supersede such modification by issuing a subsequent order i;1
1965. For the reasons aforesaid, we are in agreement with the
High Court's conclusions.
·
Civil App~al No. 168 of 1968 involves the same question and
our decision in that appeal, must, therefore, be governed by the
decision in thi~ appeal.
··
Both 1tl;ie appeals, therefore, fail and ,are dismissed with cost'.
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There will, however, be one set of hearing costs as the argument;
in both the appeals have been common.
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G.C.
Appeals dismissed.
9-L643 Sup Cl/7~