The Supreme Court on Thursday (June 4) held that royalty on minerals under the Mines and Minerals (Development and Regulation) Act, 1957 must be paid at the rate prevailing on the date of their actual dispatch or removal from the mine, irrespective of the rate contemplated under the parties' contract.
“…the payment is to be made on the date of the movement of the minerals. If the date of the movement is after the enhancement in royalty, a contract entered into prior to the statutory change cannot be limiting its impact.”, observed a bench of Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh.
The Court said that if, before the entire quantity of iron ore could be removed from the stockyard of the mine, the rate of royalty increased by way of an amendment to the Schedule under the MMDR Act would be made applicable, despite the rate agreed under the contract.
Background
The controversy arose from the sale of iron ore stocks through e-auctions conducted by a Monitoring Committee constituted pursuant to Supreme Court orders following the suspension of mining operations in Karnataka's Bellary region.
M/s BMM Ispat Ltd. emerged as the successful bidder in an auction conducted in June 2014, when royalty on iron ore stood at 10% under the Second Schedule of the MMDR Act. The company paid the auction price along with royalty calculated at the then-prevailing rate.
However, before the entire quantity of iron ore could be removed from the stockyard, the Central Government amended the Second Schedule with effect from September 1, 2014, increasing royalty on iron ore from 10% to 15%.
The State subsequently demanded the differential royalty for the quantity removed after the amendment and adjusted more than ₹2 crores from the company's security deposit. The company challenged the demand, arguing that its liability stood crystallized when the bid was accepted and payment made before the amendment.
Aggrieved by the Karnataka High Court's decision directing the refund of the adjusted amount towards the higher royalty amount to the Respondent-assessee, the state government moved to the Supreme Court.
Issue
Before the Court, the issue was whether the applicable royalty rate should be determined with reference to the date of auction and payment or the date on which the mineral was actually removed from the leased area.
Decision
Setting aside the impugned order, the judgment authored by Justice Karol observed that Section 9 of the MMDR Act clearly links royalty liability to the removal or consumption of minerals and not to the date of auction or contract formation.
The Court said that since the rate of royalty was increased before the removal of the iron ore by the Respondent, the agreed rate of royalty would be overridden by the statutorily determined royalty rate.
The Court effectively said that the respondent, if it wanted to escape from the liability of higher royalty liability, then it could have removed the iron ore before the rate of enhancement. Their failure to do so would not be countenanced by affording them the benefit under the contractually agreed royalty rate, which was overridden by the amended rate of royalty under the MMDR Act.
“In other words, the appellant was correct in deducting the additional 5% royalty from the security deposit of the respondent. It would have been entirely open to the respondents to remove the iron ore from the site at one go or at any date prior to the amendment, which they chose not to do. It is they who either adopted the piecemeal approach in moving the mineral or moved the entire quantity after the date of the amendment. As such, they cannot escape payment of enhanced royalty.”, the court observed.
In terms of the aforesaid, the appeal was allowed.
Cause Title: THE DIRECTOR OF MINES AND GEOLOGY VERSUS M/s BMM ISPAT LTD & ANR.
Citation : 2026 LiveLaw (SC) 600
Click here to download judgment
Appearance:
For Petitioner(s) : Mr. Devadatt Kamat, Sr. Adv. Mr. Nishanth Patil, A.A.G. Mr. Sanchit Garga, AOR Mr. Revanta Solanki, Adv. Mr. Ajay Desai, Adv.
For Respondent(s) : Ms. Kiran Suri, Sr. Adv. Ms. Aishwarya Kumar, Adv. Ms. Vrinda Bhandari, AOR