The Allahabad High Court has held that where a mining lessee defaults in paying royalty and thereby gives the State ground to terminate the lease, the State's unexplained delay in exercising its power to determine the lease under Rule 58 of the U.P. Minor Minerals (Concession) Rules, 1963 amounts to arbitrary action.

It held that the lessee cannot be forced to pay the installments that fell due only because of delay on part of the State.

Rule 58(1) of the Rules, 1963 empowers the State Government or an authorised officer to determine (terminate) a mining lease after giving the lessee thirty days' notice to pay any amount due, including royalty.

The bench of Justice Saral Srivastava and Justice Sudhanshu Chauhan held,

“The inaction or delay on the part of the authority in not invoking power under Rule 58 of Rules, 1963 despite existence of conditions contemplated under such rule to invoke power of determination of lease deed results in causing serious prejudice to the lessee as on the one hand, he cannot exit from the lease deed, and on the other hand, his liability continues to soar for no fault of his. Therefore, delay in invoking power under Rule 58 of Rules, 1963 to determine lease without informing or disclosing reason for delay in exercise of such power entails element of arbitrariness on the part of authority.”

Petitioner firm was granted a five-year lease in November 2018 to mine sand/moram over about 40 hectares in Village Kurra Kanak, District Fatehpur, depositing security and the first royalty installment upfront. After mining began, the District President of the Bharatiya Janata Party complained of illegal mining. On inspection, the District Magistrate and a State team found no illegal mining in petitioner's area.

Petitioner then made various applications claiming that part of the leased land had submerged or fallen across the river within District Banda. Since the river had changed its course, mining had become impossible. Petitioner sought a reduction of the mineral quantity. Three successive surveys conducted at petitioner's own request found no overlapping between the boundaries of Village Kurra Kanak, where the lease fell, and Village Jauharpur in District Banda, and no reduction in the leased area.

Meanwhile, petitioner did not deposit the second and third royalty installments due on 01.01.2019 and 01.04.2019. Thereafter, repeated demands and show-cause notices followed. The District Magistrate ultimately terminated the lease and blacklisted the firm for two years by order dated 01.01.2020.

Petitioner then approached the High Court.

Rejecting the petitioner's case that mining had been impossible, the Court observed that the respondents had never obstructed the operation and that the successive survey applications were only a “Peshbandi to wriggle out of his liability to pay royalty.”

The Court noted that neither the Rules nor the statutory lease deed executed in Form MM-6 gives the lessee any corresponding right to walk away from the lease if he is unable to mine.

“To this extent, Rules 1963 as well as lease deed are lopsided inasmuch as on the one hand Rules, 1963 as well as lease deed permit the State Government to determine the lease deed, but on the other hand, the lessee has no recourse to exit from the lease deed.”

It further held,

“In such circumstances, the lessee has no bargaining power to exit from the lease even if he is not able to do mining and his liability to pay royalty soars. The lessee has no option but to succumb to the terms and conditions of the lease deed and has to wait till the authority invokes power under Rule 58 of Rules, 1963 to determine the lease deed.”

The Court observed that the State ought to have invoked Rule 58 promptly instead of protracting the proceedings and inflating petitioner's liability. It held that since one party to the lease is the State, its action had to conform to Article 14 of the Constitution and be free from arbitrariness.

Relying on Supreme Court decisions in Kumari Shrilekha Vidyarthi v. State of U.P. and M.P. Power Management Company Limited v. Sky Power Southeast Solar India, the Court observed that where a statute confers a power to be exercised within a prescribed time frame and there is no impediment to doing so, unexplained delay causing injury to an individual may itself attract the vice of arbitrariness.

Referring to the power of the State Authorities to determine the lease after 15 days after non-payment, despite notice, the Court held,

“…if there is delay in exercise of such power, the authority must inform or disclose the reason for delay in invoking such power so that it can be ascertained whether the delay in exercising such power is bonafide or it is malicious. If it is found that the action of the authority in not invoking power within the period prescribed in Rule 58 of Rules, 1963 is malicious, the delay in invoking such power to determine the lease is nothing but an abuse of power and falls within the ambit of arbitrary action as the delay in exercise of such power causes significant injury to the lessee. Therefore, the action of the State in determining the lease deed must conform to spirit of Rule 58 of Rules, 1963 and should not reflect malice.”

The Court observed that the respondents had nowhere disclosed why they did not invoke Rule 58 immediately after the petitioner failed to comply with the notices. It held that since the respondent could determine the lease and there was no exit-way for the petitioner, the authority was expected to act diligently.

“The respondents are under an obligation to explain the reason for the delay in invoking power of determination of lease so as to find out whether the delay in determining the lease is bonafide and genuine. Non-disclosure of reason for delay in not determining the lease of the petitioner would definitely be an arbitrary exercise of power and is against the spirit of Rules, 1963. Therefore, the petitioner cannot be forced to pay installments demanded by the respondent, which he otherwise would not have been liable to pay if, the respondent-authority had acted promptly and invoked the power under Rule 58 of Rules, 1963 to determine the lease immediately after the petitioner failed to comply with the demand made by the respondents under the notice dated 21.05.2019.”

Holding that a prompt exercise of the power would have terminated the lease before 01.07.2019, the Court set aside the recovery to the extent it demanded the installments due on 01.07.2019 and 01.10.2019, and directed that Rs. 70 lakhs already deposited by the petitioner be adjusted towards the installments due on 01.01.2019 and 01.04.2019.

The Court did not quash the order determining the lease itself, holding that the petitioner had made out no case against it. It also held that since the two-year blacklisting had already run its course, it should not stand in the way of the firm's participation in future auctions if the firm is otherwise eligible.

Case Title: Jai Shakti Realcon v. State of U.P. and 3 others 2026 LiveLaw (AB) 438

Case Citation: 2026 LiveLaw (AB) 438

Click Here To Read/Download Order