1995 (9) TMI 317 - SC - Indian Laws

Mining rights assignment deed creates valid sale under Section 54 despite using term 'royalty' for periodic payments

The SC held that the term 'royalty' in a mining rights assignment deed between private parties was used misdescriptively to secure periodic payments, not ... Payment of royalty - Meaning of the term 'royalty' - deed of assignment of mining rights between two beings, both devoid of regalia - suit filled against the three assignees for recovery of the sums of royalty then fallen due, together with interest upto a certain period - HELD THAT:- If intelligence and responsibility is to be attributed to the draftsman and the contracting parties for using the word 'royalty' in that technical sense, then it cannot be imagined that they would have overlooked the status of the contracting parties inter se. We cannot thus assume that they were well versed in one aspect and not in the other. Strictly speaking, had the draftsman and the signatories to the deed meant 'royalty' as such, then they could not have omitted to identify who had the sovereign prerogative or the State part to play. The word 'royalty' thus, in the deed was used in a loose sense so as to convey liability to make periodic payments to the assignor for the period during which the lease would subsist; payments dependent on the coal gotten and extracted in quantities or on despatch. We have therefore to construe document Ex.D-5 on its own terms and not barely on the label or description given to the stipulated payments. Conceivably this arrangement could well have been given a shape by using another word. The word 'royalty' was perhaps more handy for the authors to be employed for an arrangement like this, so as to ensure periodic payments. In no event could the parties be put to blame for using the word 'royalty' as if arrogating to themselves the royal or sovereign right of the State and then make redundant the rights and obligations created by the deed. Thus in sum and substance when the contracting parties and the draftsman are assumed to have known that the word 'royalty' is meant to be employed to secure for the State something out of what the State conveys, their employment of that word for private ensuring was not intended to confer on the assignor the status of the sovereign or the State, and on that basis have the document voided. Therefore, we are of the view that the word 'royalty' was used in the deed misdescriptively and was really meant to cover an important item of the consideration due for future payments. Section 54 of the Transfer of Property Act clearly postulates that sale is a transfer of ownership in exchange for a price paid or promised to be paid or part paid and part promised. In either situation title to the property would get transferred. This, in our view, demolishes the first two reasons. On the third reason about the endorsement of the deed showing consideration of Rs. 30,000/- only which was part of the consideration covered in the deed, the endorsement itself is the answer. The endorsement per se thus cannot be so read so as to rule that Rs.30,000/- was the total consideration. It was plainly a part payment and the balance consideration was meant to be periodically paid in the sum and manner stipulated in the deed. A fortiori on such analysis the fourth reason also fails because when in the deed the words 'consideration' and 'royalty' have been employed to convey a meaning, the same has been used in the plaint to convey the same meaning as originally conceived of by the contracting parties. Therefore, in our view, the well reasoned judgment of the trial court was erroneously upset by the High Court in depriving the plaintiffs-appellants of their rightful dues. As a result, we allow this appeal, set aside the impugned judgment and decree of the High Court and restore that of the trial court, with costs. The core legal questions considered by the Court revolve around the interpretation of the term 'royalty' as used in a deed of assignment of mining rights between private parties, the validity and nature of the payment obligations arising therefrom, and the applicability of statutory provisions such as Section 11 of the Transfer of Property Act to the transaction. Specifically, the issues include:1. What is the proper legal meaning of the word 'royalty' in the context of the assignment deed executed between private parties, both lacking sovereign authorityRs.2. Whether the payment described as 'royalty' in the deed is a sovereign prerogative right or a contractual consideration payable to the assignor as part of the sale priceRs.3. Whether the obligation to pay such 'royalty' is valid and enforceable, or whether it is void under Section 11 of the Transfer of Property Act as an impermissible restraint or encumbrance on the enjoyment of absolute property rightsRs.4. The effect of the endorsement on the deed indicating consideration of Rs. 30,000/- and whether this amount represents the full or part consideration, vis-`a-vis the periodic payments labeled as royalty.5. The correctness of the High Court's interpretation that the payments were royalty in the strict mining sense and thus not payable to the assignor personally, and whether the trial court's decree in favor of the plaintiffs was sustainable.Issue-wise Detailed Analysis1. Legal Meaning of 'Royalty' in the Assignment DeedThe Court began by distinguishing the primary and secondary legal senses of 'royalty.' Primarily, 'royalty' denotes jura regalia or sovereign rights over minerals, a prerogative of the State. Secondarily, in mining leases, 'royalty' may refer to a payment reserved by the grantor as part of the lease or assignment, often variable and payable in cash or kind, reflecting the State's share in extracted minerals.The Court emphasized that the parties to the deed were private individuals without sovereign authority, and thus the word 'royalty' could not be taken in its primary sovereign sense. Instead, the term was used in a secondary, contractual sense, denoting a periodic payment obligation from the assignees to the assignor as part of the consideration for the transfer of mining rights.The Court rejected the argument that the word 'royalty' must be interpreted strictly as understood in the mining business to mean a sovereign right payment. It held that the term was used loosely or mis-descriptively in the deed to secure periodic payments to the assignor over the lease term, effectively constituting deferred consideration.Precedent and statutory framework such as Section 54 of the Transfer of Property Act, which defines sale as a transfer of ownership for a price paid or promised, supported this interpretation. The Court reasoned that the parties intended to create a contractual obligation for future payments, not to confer sovereign rights or obligations.2. Nature and Validity of the Payment ObligationThe deed stipulated a series of payments described as 'royalty or rent' payable by the vendee company to the vendor, including minimum guaranteed payments irrespective of coal extraction. The obligation was to be binding on successors, transferees, and assigns, ensuring continuity of payment obligations.The Court found that this arrangement was an important element of the sale consideration, structured to provide the assignor with ongoing remuneration for the transfer of mining rights. The use of the term 'royalty' was a convenient label rather than an assertion of sovereign prerogative.The Court rejected the High Court's reasoning that the payments were 'royalty' in the strict mining sense and thus not payable to the assignor as an individual. It held that the payments were contractual and enforceable as consideration under the sale agreement.Regarding the defendants' contention that such payments were prohibited by law at the time of suit and that past payments were made mistakenly, the Court did not accept this as a valid defense, given the clear contractual obligation and the history of payments made for approximately twenty years.3. Applicability of Section 11 of the Transfer of Property ActThe High Court had entertained the proposition that the payment obligation might be void under Section 11 of the Transfer of Property Act, which prohibits conditions that absolutely restrain the transferee's enjoyment of the property. However, the High Court ultimately clarified that this provision was not the basis of its decision.The Supreme Court accepted this clarification and did not delve into the applicability of Section 11, focusing instead on the contractual interpretation of the deed and the nature of the payment obligation as part of the consideration for sale.4. Effect of the Registration Endorsement on ConsiderationThe defendants argued that the endorsement on the deed indicating consideration of Rs. 30,000/- represented the full consideration, thereby excluding any additional 'royalty' payments.The Court examined the endorsement carefully and noted that the registrar had not cancelled the alternative wording indicating whether Rs. 30,000/- was full or part consideration. The endorsement thus did not conclusively establish that Rs. 30,000/- was the entire consideration.The Court held that the Rs. 30,000/- was clearly part payment, and the balance consideration was to be paid periodically as stipulated in the deed. This interpretation aligned with the deed's express terms and the parties' intentions.5. Treatment of Competing Arguments and Final Application of LawThe Court rejected the High Court's reliance on the technical meaning of 'royalty' in mining leases and the notion that the payments were not part of the sale consideration. It emphasized substance over form, stating that the document must be interpreted in light of the parties' intentions and the context.The Court also dismissed the argument that the use of the term 'royalty' was improper or that the assignor was arrogating sovereign status. It held that the parties used the term loosely to denote periodic payments, which were valid and enforceable contractual obligations.Applying the law to the facts, the Court restored the trial court's decree in favor of the plaintiffs, affirming their right to recover the unpaid sums described as royalty under the assignment deed.Significant Holdings'In sum and substance when the contracting parties and the draftsman are assumed to have known that the word 'royalty' is meant to be employed to secure for the State something out of what the State conveys, their employment of that word for private ensuring was not intended to confer on the assignor the status of the sovereign or the State, and on that basis have the document voided.''The word 'royalty' was used in the deed mis-descriptively and was really meant to cover an important item of the consideration due for future payments.''Section 54 of the Transfer of Property Act clearly postulates that sale is a transfer of ownership in exchange for a price paid or promised to be paid or part paid and part promised. In either situation title to the property would get transferred.''The document is weighed by its content, not the title. One needs to go to the value, not the glitter.'The Court conclusively held that the payments labeled as 'royalty' in the assignment deed constituted a valid and enforceable part of the consideration for the transfer of mining rights between private parties, and were not sovereign rights or prerogatives. The High Court's judgment dismissing the suit was set aside, and the trial court's decree in favor of the plaintiffs was restored with costs.