MMDR Act | Govt Can Revise Royalty Rate Though Lease Deed Was Silent About Royalty Revision : Supreme Court

The Supreme Court on Monday (July 13) held that a mere silence in the lease deed with regard to the revision of royalty on mining of minerals would not take away the government's power to revise the rate of royalty at a periodic interval under the Mines and Minerals (Development and Regulation) Act, 1957.

“While a mining lease is a statutory grant, royalty is a statutory levy. Power to revise royalty at periodic intervals flows from section 15 of the MMDR Act and the rules framed thereunder [in particular, proviso to Rule 21(1)(i)(a) of the 1964 Rules]. Mere silence in the lease deed with regard to revision of royalty cannot denude the State of a statutory power and/or operate as a bar to the exercise of power under section 15 of the MMDR Act and the rules framed thereunder; hence, a lessee cannot claim any vested right to static royalty for the entire lease period.”, observed a bench of Justice Dipankar Datta and Justice Augustine George Masih.

The Haryana Government auctioned mining leases for minor minerals in 2001, and the successful bidders, including Respondent, were granted seven-year mining leases. In 2005, the State issued a notification increasing the rates of royalty and dead rent payable under the leases.

The lessees challenged the notification before the Punjab and Haryana High Court, contending that their lease deeds did not permit revision of royalty or dead rent during the lease period, the enhancement was arbitrary, and it violated the State's Rules of Business. The High Court accepted these contentions and quashed the notification.

The State of Haryana appealed to the Supreme Court, arguing that it could revise royalty and dead rent during the subsistence of a mining lease despite the absence of an express clause permitting such revision in the lease deed.

Finding force in the State's argument, the judgment authored by Justice Datta set aside the impugned decision, stating that mining leases are statutory grants executed under the MMDR Act and the rules framed thereunder, making statutory provisions an implied part of every lease.

While the State may enter into contracts, it cannot bargain away statutory powers conferred upon it in public interest, the Court asserted, stating that “a contract cannot foreclose the Government from exercising a statutory power is the settled law.”

Mathematical Precision Not Required To Form Basis For Enhancement in Royalty Rates

The Court also rejected the High Court's finding that the enhancement was arbitrary for want of empirical material.

The Bench noted that the State had considered royalty rates prevailing in neighbouring States and that the previous revision had taken place in September 1999, while the impugned notification was issued only in June 2005, well beyond the statutory three-year restriction under Section 15 of the MMDR Act.

Refusing to scrutinise the quantum of enhancement, the Court observed that judicial review of fiscal policy is limited.

“It is not the law that the State is required to demonstrate, with mathematical precision, the exact basis for fixing the increase at 50%. This is for the reason that it is not the Court's role to sit in appeal over a policy decision and inquire whether a 40% or a 60% increase would have been better. In matters of fiscal and economic policy, the Government machinery would not work if it were not allowed some free play in its joints. Ergo, the Court is not to examine if a lesser increase would have sufficed. Judicial review does not extend to the wisdom of the rate. The test is Wednesbury unreasonableness. The limited inquiry is to examine whether the decision is so unreasonable, disproportionate, or extraneous that no reasonable authority could have arrived at it.”, the Court observed.

“In the present case, the enhancement cannot be said to be unreasonable or disproportionate. The earlier revision had taken place in September 1999. The impugned revision was made only in June 2005, after a lapse of about five and a half years. Unlike dead rent, which can be increased 36 by a maximum of 50% after every three years, there is no maximum cap for royalty. Proviso to Rule 21(1)(i)(a) only provides that royalty is to be paid at “such revised rates as may be specified from time to time”. Therefore, an enhancement after more than five years, and that too by 50% (which is within the ceiling contemplated for dead rent, if used as a comparable benchmark) cannot be characterised as excessive or arbitrary.”, the Court added.

Resultantly, the Court restored the enhancement notification and held that the High Court had erred in treating the mining lease as a purely contractual arrangement divorced from the governing statutory framework.

The appeal was allowed.

Headnote

Mines and Minerals (Development and Regulation) Act, 1957 – Section 15(1), 15(3) — Punjab Minor Mineral Concession Rules, 1964 – Rules 10 and 21 — Power of State to Revise Royalty and Dead Rent — Implied Conditions in Statutory Leases - The lack of an express provision in a mining lease deed for fluctuating or revised rates of royalty and dead rent does not preclude the State Government from increasing these rates during the subsistence of the lease - A mining lease is a statutory grant, and the liability to pay royalty and dead rent remains dynamic and subject to revisions validly made under the statutory rules - The requirement to comply with the statutory regime constitutes an implied condition inherent in the lease deed. [Paras 24 – 30, 42-50]

Administrative Law — Rules of Business under Article 166 of the Constitution — Financial Implication and Deemed Consent - A delegated legislation/notification enhancing royalty rates approved by the Chief Minister (who is also the Minister-in Charge of Mining) cannot be invalidated for want of explicit approval from the Council of Ministers or formal concurrence from the Finance Department, especially when there is no evidence of disagreement by the Finance Minister - In matters involving the collective responsibility of the Council, where a decision is taken by the Chief Minister at the helm, a deemed consent of the Finance Minister can be inferred under the peculiar facts and circumstances. [Paras 51-63]

Judicial Review — Fiscal and Economic Policy — Test of Arbitrariness - Enhancement of the rate of royalty and dead rent cannot be termed arbitrary or suffering from non-application of mind if it is based on comparative materials, such as rates prevailing in neighbouring States - Courts will not sit in appeal over fiscal policies or mathematically scrutinise the exact quantum of increase, provided it satisfies the test of Wednesbury unreasonableness and does not breach statutory intervals. [Paras 39-41]

Key Legal Principles Established Or Reiterated - statutory trumps contractual silence – i. terms of a mining lease must yield to the statutory rules governing the lease - omission of a statutory rule's text within a lease deed does not efface its binding authority; ii. constitutional trust over minerals - minerals are held by the state in trust for the people - the state is obligated to ensure that their exploitation subserves the public interest, including securing appropriate revenue for the public exchequer; iv. significance of the chief minister's imprimatur - financial decisions impacting the state must have the involvement, approval, or at least the knowledge of the chief minister to reflect collective responsibility and maintain the constitutional scheme under articles 154 and 163. [Relied on State of Rajasthan v. J.K. Synthetics Ltd., (2011) 12 SCC 518; MRF Limited v. Manohar Parrikar, (2010) 11 SCC 374; D.K. Trivedi & Sons v. State of Gujarat, 1986 Supp SCC 20]

Cause Title: THE STATE OF HARYANA & ORS. VERSUS M/S FARIDABAD GURGAON MINERALS & ANR. (with connected case)

Citation : 2026 LiveLaw (SC) 673

Click here to download judgment

Appearance:

For Petitioner(s) :Mr. Balbir Singh, Sr. Adv. Mr. Lokesh Sinhal, Sr. A.A.G. Mr. Samar Vijay Singh, AOR Mr. Madhav Sinhal, Adv. Mr. Nikunj Gupta, Adv. Ms. Sabarni Som, Adv. Mr. Aman Dev Sharma, Adv. Ms. Yuvika Sharma, Adv. Mr. Shivansh Pundir, Adv. Mr. Yashvir Singh Hooda, Adv.

For Respondent(s) :Mr. Yashraj Singh Deora, Sr. Adv. Mr. Dhurv Mehta, Sr. Adv. Mr. Yashraj Singh Deora, Sr. Adv. Mr. Sameer Abhyankar, AOR Ms. Yachna Sharma, Adv. Ms. Arushi Chopra, Adv. Ms. Anupama Dhurve, Adv. Mr. Priyesh Mohan Srivastava, Adv. Mr. Sriram Krishna, Adv. Mr. Keith Varghese, Adv. M/S. Mitter & Mitter Co., AOR