Quarry lease transfer and accounting default rules require strict statutory compliance before cancellation or refusal of sanction.

A quarry lease arrangement was not a transfer, assignment or underletting in law where the lessee merely engaged a contractor to extract limestone and a company to purchase the mineral, because the lessee did not divest his rights. Cancellation and rejection of transfer sanction could not be justified on that basis. The alleged accounting default also could not support determination of the lease because the applicable rule required a written notice calling for cure within 30 days, and no such notice was issued. Refusal of sanction on extraneous grounds was likewise unsustainable. The impugned orders were quashed and the State was directed to decide the transfer application according to law.

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Issues: (i) whether the quarry lease had been validly transferred or assigned by the lessee through the agreements with the contractor and the purchasing company so as to justify cancellation of the lease and rejection of the transfer application; (ii) whether cancellation for alleged failure to maintain accounts was valid without the notice required by the applicable rules and whether the State could refuse sanction on an extraneous basis.

Issue (i): whether the quarry lease had been validly transferred or assigned by the lessee through the agreements with the contractor and the purchasing company so as to justify cancellation of the lease and rejection of the transfer application.

Analysis: Rule 18 of the Madhya Pradesh Minor Mineral Rules, 1961 and condition 9 of the lease contemplated assignment, transfer or subletting only in law and with prior sanction. The agreements merely provided for extraction of limestone by a contractor and sale of the extracted mineral to a company; they did not divest the lessee of his rights or create an assignment or underletting in law. A transaction that is legal in form cannot be treated as a prohibited transfer merely because it may have the practical effect of enabling another to work the leasehold.

Conclusion: No transfer, assignment or underletting in law was established, and the cancellation or rejection could not be sustained on that ground.

Issue (ii): whether cancellation for alleged failure to maintain accounts was valid without the notice required by the applicable rules and whether the State could refuse sanction on an extraneous basis.

Analysis: Rule 25(1)(viii) required correct accounts of mineral extraction and sales, while Rule 25(1)(xvi) mandated a written notice calling upon the lessee to remedy the breach within 30 days before the lease could be determined for such default. No such notice was issued. The cancellation on this ground therefore violated the statutory rule. The refusal of sanction for transfer, based on the supposed impropriety of the transaction rather than a lawful exercise of discretion on relevant grounds, amounted to a failure to exercise discretion according to law.

Conclusion: The cancellation for alleged accounting default was illegal, and the refusal of transfer sanction was unsustainable.

Final Conclusion: The impugned orders could not stand and were quashed, with the State directed to decide the transfer application according to law.

Ratio Decidendi: Where a lease transaction does not amount to an assignment or transfer in law, it cannot be treated as a prohibited transfer merely on its practical effect, and a statutory power to determine a lease for breach of accounting conditions can be exercised only after strict compliance with the prescribed notice requirement.

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