Quarry lease cancellation and transfer refusal fail where statutory notice, proper grounds and lawful discretion are missing.

A quarry lease could not be cancelled for alleged unauthorised transfer where the lessee's agreements did not divest his leasehold rights and therefore did not amount to assignment, transfer or subletting. Cancellation for improper accounts also failed because the governing rules required a written notice and 30 days to remedy the default before determination of the lease and forfeiture of security, and no such notice was given. Refusal of sanction for transfer was likewise unsustainable because it rested on the mistaken assumption that the agreements themselves were a prohibited transfer. Both impugned orders were quashed and the transfer request had to be reconsidered in accordance with law.

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Issues: (i) whether the quarry lease could be cancelled on the grounds of alleged transfer without prior sanction and failure to maintain proper accounts, and (ii) whether rejection of the request for transfer of the lease on the stated ground was lawful.

Issue (i): Whether the quarry lease could be cancelled on the grounds of alleged transfer without prior sanction and failure to maintain proper accounts.

Analysis: Rule 18 of the Madhya Pradesh Minor Mineral Rules, 1961 and condition 9 of the lease contemplated assignment, transfer or subletting in law and did not prohibit lawful contracts for extraction or sale which did not amount to such transfer. The two agreements executed by the lessee did not divest him of his rights under the lease, and therefore did not constitute an assignment, transfer or underletting. As to accounts, Rule 25(1)(viii) and Rule 25(1)(xvi) required proper accounts to be maintained and, on breach, a written notice to remedy the default within 30 days before determination of the lease and forfeiture of security could follow. No such notice was given, so cancellation on that ground was contrary to the statutory rule. Any lease condition inconsistent with the statutory rule was ineffective to that extent.

Conclusion: The cancellation of the lease was illegal and could not stand.

Issue (ii): Whether rejection of the request for transfer of the lease on the stated ground was lawful.

Analysis: Rule 18 allowed transfer only with previous sanction, and the lessor's discretion had to be exercised on relevant considerations and not arbitrarily. The stated reason for refusal, namely that there were strong speculations in the proposed transaction, was treated as resting on the mistaken view that the agreements themselves amounted to a prohibited transfer. Since that premise was incorrect, the authority failed to exercise its discretion according to law. The refusal therefore could not be sustained, and the application for sanction remained to be decided afresh in accordance with law.

Conclusion: The rejection of the transfer request was unlawful.

Final Conclusion: Both impugned orders were quashed, and the matter of sanction for transfer was directed to be reconsidered according to law.

Ratio Decidendi: A statutory power to cancel a lease for breach or to withhold sanction for transfer must be exercised strictly in accordance with the governing rules and on relevant grounds; where the statute prescribes notice and opportunity before cancellation, or where refusal of sanction rests on an erroneous view that lawful transactions amount to a prohibited transfer, the resulting order is ultra vires and liable to be quashed under Article 226 of the Constitution of India.

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