Cascading Impact Of Royalty On Royalty: Supreme Court Grants Last Chance To Union To Furnish Proposal As Per 'Kirloskar' Decision

The Supreme Court recently granted one final opportunity to the Cabinet Secretariat to prepare a proposal in terms of its directions in Kirloskar Ferrous Industries Limited v. Union of India and place it before the Union Cabinet.

In the said decision, the Court had asked the Union to consider the cascading impact of royalty on royalty in the calculation of “average sale price” by virtue of Explanation(s) to Rule 38 of the Mineral (Other than Atomic and Hydrocarbons Energy Minerals) Concession Rules, 2016 (MCR, 2016) and Rule 45 of the Mineral Conservation and Development Rules, 2017 (MCDR, 2017).

"We propose to grant one last opportunity to the Cabinet Secretariat to prepare the appropriate proposal and place it before the Union Cabinet...We direct the Cabinet Secretariat to prepare the proposal within a period of four weeks from today and place it before the Union Cabinet to enable it to take an appropriate decision on the same", a bench of Justices JB Pardiwala and R Mahadevan ordered.

The Court made it clear that if the Cabinet Secretariat fails to prepare and forward the proposal to the Union Cabinet, it shall proceed with the matter accordingly. 

To recap, the petitioner in the case approached the Court challenging legality and fairness of royalty calculations for mineral extraction under MCR, 2016 and MCDR, 2017. In 2024, the Supreme Court disposed of the petition, noting that computation of royalty on minerals is purely a policy decision within the executive's domain. It was opined that unless a policymaking authority has overstepped its limits, such decisions cannot be challenged, as they require specialized expertise which judges do not possess.

Acknowledging however that the legislature itself recognized the anomaly in the provisions regarding the compounding of royalty for calculating the average sale price, the Court granted the Union 2 months' time to review the computation mechanism for determining royalty rates for all other minerals under the contested provisions. It was made clear that royalty on royalty had a cascading effect and the Union must take it into consideration seriously. 

Subsequently, the Union sought extension of time (by 2 months) to comply with the Court's directions, saying that the process was ongoing and a decision shall be taken at the earliest. In February this year, the Court took note of the Union's submission that the process of public consultation was complete and the proposal had reached the Cabinet Secretariat. 

Though some mineral-rich states and the Ministry of Finance were reported to have rejected the proposal, the Court was assured on behalf of the Union that the issue was under active consideration in light of the judgment. As serious financial implications were involved, the Court granted 5 weeks' further time to the Union to place before it the final decision.

When the matter was taken up recently, the Court lamented that the Cabinet Secretariat had not taken any final decision in the matter. After it was informed that the Cabinet Secretariat was to place an appropriate proposal before the Union Cabinet, the Court passed its order in the above-mentioned terms.

Case Title: KIRLOSKAR FERROUS INDUSTRIES LIMITED VERSUS UNION OF INDIA, WRIT PETITION (C) NO. 715 OF 2024

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