2016 (2) TMI 537 - SC - Indian Laws

Invalid Mining Lease Transfer; State Justified in Cancellation

STATE OF RAJASTHAN AND ORS Versus GOTAN LIME STONE KHANJI UDYOG PVT. LTD. AND ANR. JUDGMENT

STATE OF RAJASTHAN AND ORS Versus GOTAN LIME STONE KHANJI UDYOG PVT. LTD. AND ANR. JUDGMENT - 2016 AIR 510, 2016 (1) SCR 216, 2016 (4) SCC 469, 2016 (1) ... Issues Involved:1. Legality of the transfer of mining lease.2. Validity of the transformation of a partnership into a company and subsequent transfer of lease rights.3. Justification for the State's cancellation of the lease.4. Application of the doctrine of lifting the corporate veil.5. Compliance with Rule 15 of the Rajasthan Minor Mineral Concession Rules, 1986.Issue-wise Detailed Analysis:1. Legality of the transfer of mining lease:The State of Rajasthan challenged the High Court's quashing of its order canceling the mining lease transfer. The core question was whether the transaction involved an illegal transfer of mining lease. The partnership firm GLKU held the mining lease and applied for its transfer to GLKUPL, a newly formed private limited company. The State argued that the subsequent sale of GLKUPL's entire shareholding to UTCL for Rs. 160 crores constituted an unauthorized transfer of the mining lease.2. Validity of the transformation of a partnership into a company and subsequent transfer of lease rights:GLKU claimed that the transfer was merely a change in business form, as the partners of the firm became the directors of the company, with no illegal benefit or premium involved. However, after the transfer, GLKUPL sold its entire shareholding to UTCL, which the State argued was a disguised sale of the mining lease. The High Court initially found no violation of Rule 15(1)(b) of the Rajasthan Minor Mineral Concession Rules, 1986, as the company, despite becoming a subsidiary of UTCL, remained a distinct legal entity.3. Justification for the State's cancellation of the lease:The State issued a show cause notice and subsequently canceled the transfer order, arguing that the change in directors and shareholding amounted to an indirect transfer of the mining lease, violating Rule 15. The High Court, however, ruled that the mere change in shareholding did not constitute a transfer of the lease. The Division Bench upheld this view, emphasizing that the assets and properties of the company, including the mining lease, belonged to the company and not its shareholders.4. Application of the doctrine of lifting the corporate veil:The Supreme Court found that the transaction was a device to circumvent the legal requirement for transferring the mining lease. The Court emphasized the principle of lifting the corporate veil to reveal the true nature of the transaction, which was an unauthorized sale of the mining lease. The Court cited precedents where lifting the veil was necessary to prevent fraud or improper conduct.5. Compliance with Rule 15 of the Rajasthan Minor Mineral Concession Rules, 1986:The Supreme Court concluded that the transfer of the mining lease without the competent authority's consent was void under Rule 15. The original lessee's declaration that no consideration was involved was found to be false, as the subsequent sale of shares was integral to the transfer of the lease. The Court held that the lessee could not trade mining rights for private profit, and the State was justified in canceling the lease.Conclusion:The Supreme Court allowed the appeal, set aside the High Court's judgment, and directed the State of Rajasthan to frame and notify its policy regarding the transfer of mining leases. The State was instructed to pass an appropriate order concerning the mining lease in question, maintaining the status quo until a decision was made. The Court underscored the necessity of transparency and adherence to the doctrine of public trust in managing mining rights.