1971 (11) TMI 163 - SC - Indian Laws

Supreme Court affirms reduced royalty rate of 5% for company, clarifies Section 30A interpretation

STATE OF MADHYA PRADESH & ANR. Versus DADABHOY’S NEW CHIRIMIRI PONRI HILL COLLIERY CO. PVT. LTD.

STATE OF MADHYA PRADESH & ANR. Versus DADABHOY’S NEW CHIRIMIRI PONRI HILL COLLIERY CO. PVT. LTD. - 1972 AIR 614, 1972 (2) SCR 609, 1972 (1) SCC 298 Issues Involved:1. Validity and interpretation of the notification dated December 29, 1961.2. Application of Section 30A of the Mines and Minerals (Regulation and Development) Act, 1957.3. Legality of the State Government's order dated October 1, 1965.4. The rate of royalty payable by the respondent-company for the period between December 29, 1961, and December 31, 1965.Issue-wise Detailed Analysis:1. Validity and Interpretation of the Notification Dated December 29, 1961:The notification directed the application of Section 9(1) of the Mines and Minerals (Regulation and Development) Act, 1957, to pre-1949 coal mining leases, subject to the modification that lessees shall pay royalty at the rate specified in the agreements between the lessees and the lessors or at 2-1/2% of the f.o.r. price, whichever is higher. The respondent-company argued that the notification should not be interpreted to mean that lessees with rates higher than 5% should continue to pay those higher rates. The State contended that the notification's language was clear and required payment at the agreed lease rates or 2-1/2%, whichever was higher. The High Court and Supreme Court found that the notification was meant to phase in the rate of 5% and not impose higher rates, thus supporting the respondent-company's interpretation.2. Application of Section 30A of the Mines and Minerals (Regulation and Development) Act, 1957:Section 30A was inserted to suspend the application of Sections 9(1) and 16(1) to pre-1949 coal mining leases and allowed the Central Government to apply these sections with modifications. The purpose was to avoid the sudden increase in royalty rates to 5%, which could unsettle the coal industry and affect the economy. The notification under Section 30A was intended to phase in the rate of 5%, not to impose rates higher than 5%. The Supreme Court held that any modification under Section 30A should not exceed the power conferred by the section and should not result in a rate higher than 5%.3. Legality of the State Government's Order Dated October 1, 1965:The State Government initially directed the recovery of royalty at 5% from July 1, 1958, but later changed its stance and ordered recovery at the rates specified in the lease from December 29, 1961. The High Court and Supreme Court found that the State Government's interpretation of the notification was incorrect and that it could not unilaterally rescind the previous order. The order of October 1, 1965, was quashed as it was inconsistent with the proper interpretation of the notification and Section 30A.4. The Rate of Royalty Payable by the Respondent-Company for the Period Between December 29, 1961, and December 31, 1965:The controversy centered on whether the respondent-company should pay royalty at the rates specified in the lease or at the modified rate of 5% as per the notification. The Supreme Court upheld the High Court's decision that the respondent-company was liable to pay royalty at the reduced rate of 5% from December 29, 1961, to December 31, 1965. The demand notices issued by the Collector for arrears at the lease rates were quashed.Conclusion:The Supreme Court dismissed the appeals, agreeing with the High Court's conclusions that the respondent-company was entitled to pay royalty at the rate of 5% as specified in the Second Schedule from December 29, 1961, and not at the higher rates provided in the original lease. The State Government's orders and demand notices were quashed, and the interpretation of Section 30A and the notification was clarified to avoid imposing higher rates than 5%.