State’s Statutory Power To Revise Royalty Under MMDR Act Survives Even In Absence Of Express Enhancement Clause In Mining Lease: Supreme Court

The Court was hearing appeals filed by the State of Haryana against the judgment of the High Court of Punjab and Haryana, which had accepted the lessees’ challenge to the enhancement of royalty and dead rent on the ground that the mining lease deeds did not contain an express stipulation permitting such increase.

A Bench of Justice Dipankar Datta and Justice Satish Chandra Sharma held: “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.”

The Bench further observed: “A mining lease granted under the 1964 Rules does not stand in isolation as a purely private contract between the State and the lessee; it is a statutory grant, necessarily governed by the MMDR Act and the Rules under which it is executed. Once the lease can be traced to the MMDR Act and the 1964 Rules, the incidents of the lease must be read subject to the statutory regime then in force, including Rules 10 and 21. These provisions, by their very nature, regulate the continuing financial obligations of the lessee and expressly contemplate revision of royalty and dead rent during the subsistence of the lease. Their application, therefore, is not a subsequent imposition upon the lease, but an implied condition inherent in the lease deed itself.”

Senior Advocate Balbir Singh appeared for the State, while Senior Advocate Yashraj Singh Deora appeared for the respondents.

Background

The dispute arose from mining leases granted for the extraction of minor minerals. The auction notice and letters of acceptance contemplated the applicability of Rules 10 and 21 of the 1964 Rules, but the lease deeds did not expressly provide that royalty and dead rent could be revised during the subsistence of the lease.

The State later amended the 1964 Rules and enhanced royalty and dead rent by 50%. The lessees challenged the increase before the High Court, contending that the lease deeds fixed the applicable rates and did not reserve any power of revision. The High Court accepted the challenge, also holding that the enhancement was arbitrary and suffered from a violation of the Rules of Business.

The State approached the Supreme Court, arguing that the leases were statutory grants governed by the MMDR Act and the 1964 Rules, and that the lessees were bound by statutory revisions.

Court’s Observations

The Court began by identifying the governing statutory scheme. It noted that Section 15 of the MMDR Act empowers State Governments to make rules regulating mining leases for minor minerals, while Section 15(3) requires the holder of a mining lease to pay royalty or dead rent at the rate prescribed “for the time being” in the rules framed by the State.

The Court also examined Rule 10 and Rule 21 of the 1964 Rules. Rule 10 permitted enhancement of annual dead rent after expiry of three years, while Rule 21 required payment of royalty at rates specified in the First Schedule and at revised rates notified from time to time.

The Court observed: “When Government enters into a contract, it can wear two hats. First, is the hat of a sovereign. Source of the power is a statute and the purpose of exercise of power would be to advance public good. Second, is the commercial/private hat where source of the power is derived only from the contract. No statute is involved and there is absence of any public regulatory element.”

The Bench held that where statutory power is conferred for public or regulatory purposes, the Government cannot surrender or restrict that power through contract unless the statute itself permits such contracting out.

The Court added: “… a conjoint reading of Section 15(3), Rule 10(2), Rule 21(1)(i)(a) and Rule 21(1)(iii) leads to the inescapable conclusion that enhancement of royalty and dead rent is traceable to statutory power and forms an implied condition of every mining lease granted under the Rules. Consequently, even in the absence of an express clause in the lease deed providing for enhancement, the lessee remains bound by revisions validly made under the statute and the rules framed thereunder.”

The Court emphasised that mineral resources are held by the State in public trust and the lease deed must be read consistently with the statutory scheme governing their exploitation.

The Court underscored: “Looked at from another perspective, the interpretation suggested by the respondents would be wholly inconsistent with the nature of the State’s authority over mineral resources. Minerals are not ordinary commodities; they are held by the State in trust for the people. The State is under a constitutional obligation to ensure that their exploitation subserves the public interest, including securing an appropriate revenue for the public exchequer (emphasis ours). If the lease deed is interpreted to mean that the State is disabled from enhancing royalty or dead rent during the subsistence of the lease merely because such power is not expressly recited therein, the result would be that mineral resources may continue to be exploited at rates which are no longer appropriate, fair or commensurate with their value”.

The court further remarked: “Such a consequence cannot be countenanced. It would not only undermine the State’s obligation to secure a fair return for the exploitation of public resources, but would also run contrary to the object, spirit and statutory philosophy underlying the MMDR Act and the 1964 Rules. The lease deed must, therefore, be read in a manner that preserves the State’s statutory authority to revise such rates in accordance with law, rather than in a manner that renders that authority nugatory.”

The Court also relied on State of Rajasthan v. J.K. Synthetics Ltd. (2011), where it was held that terms of a mining lease must yield to statutory rules governing the lease.

Rejecting the lessees’ reliance on Indian Aluminium Co. v. Kerala State Electricity Board (1975), the Court held that the precedent did not assist them because the present lease deed contained no express clause barring future enhancement.

The Court remarked: “We fail to comprehend how the aforesaid principle aids the respondents. In the present case, the lease deed contains no express stipulation barring future enhancement by the State. It merely fixes a rate, without expressly foreclosing the possibility of subsequent enhancement. The principle laid down in Indian Aluminium Co. (supra) which applies where there is an express stipulation restricting the future exercise of statutory powers, therefore, has no direct application to the present case. We also consider it appropriate to reiterate that having regard to the peculiar facts and circumstances of this case, particularly the prior AUCTION NOTICE and the LoA, both of which expressly contemplated applicability of Rules 10 and 21, the requirement of those rules formed an implied condition of the lease deed.”

The Court accordingly held that the enhancement was neither unjustified nor illegal.

The Court next rejected the argument that the 50% enhancement was arbitrary or showed non-application of mind. It found that the State had considered rates prevailing in neighbouring States and that courts could not sit in appeal over the wisdom of a fiscal policy decision.

The Court stated: “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 also held that the lessees could not claim surprise, since revision was embedded in the statutory framework.

The Bench noted: “Nor can it be said that the respondents were taken by surprise. The possibility of revision was built into the statutory scheme itself. Persons carrying on mining operations were aware, or must be deemed to have been aware, that the rates were liable to be revised after the prescribed period. In that sense, the enhancement was not an unexpected imposition, but an ordinary incident of mining business.”

The Court concluded that the notification enhancing rates was issued after due consideration of relevant material, was within the State’s competence, and could not be struck down for arbitrariness or non-application of mind.

On the allegation that the enhancement violated the Rules of Business, the Court found that the decision had the approval of the Chief Minister, who was also the Minister in charge of Mining. It distinguished MRF Limited v. Manohar Parrikar (2010), where an individual minister had acted without the knowledge of the Council of Ministers or Chief Minister.

The Court observed: “Moving forward, the respondents also argued that since the decision to increase the rates is a decision which “affects the finances” of the State, the Finance Minister should have been consulted before such increase [Entry 11 of Schedule I of the Rules of Business]. It is important to note the language employed in Entry 11. It reads: “11. Any proposal which affects the finances of the State which has not the consent of the Finance Minister.””

Finding no material to show disagreement by the Finance Minister, the Court held: “As we have noted above, the additional affidavit itself has not been placed on record by any of the parties. The annexures forming part of the application too are not on record. This has disabled us to examine the worth of the allegations made in the additional affidavit/application. Even otherwise, importantly, there is nothing on record to suggest that the Finance Minister had any reservation in regard to the decision of the Chief Minister to increase the rate of royalty and dead rent.. In the absence of any evidence of the Finance Minister disagreeing with the Chief Minister and since financial decisions form part of the collective responsibility of the Council of Ministers, we hold in the peculiar facts and circumstances, that there was deemed consent of the Finance Minister to increase in the rates of royalty and dead rent.”

Conclusion

The Supreme Court allowed the State’s appeals and set aside the High Court judgment. It held that unpaid dead rent or royalty, if any, may be recovered by the State in accordance with law.

However, considering that the notification had remained in place for a substantial period, the mining lease had expired, and the later statutory regime provided for a lower rate of interest on delayed royalty, the Court limited the rate of interest on arrears of dead rent or royalty, if imposed, to 12% per annum.

Cause Title: State of Haryana & Ors. v. M/s Faridabad Gurgaon Minerals & Anr a/w State of Haryana & Ors. v. M/s Ganpati Enterprises Slate Mines (Neutral Citation: 2026 INSC 690)

Appearances

Appellants: Senior Advocate Balbir Singh with Senior Additional Advocate General Lokesh Sinhal, Samar Vijay Singh, AOR, and Advocates Madhav Sinhal, Nikunj Gupta, Sabarni Som, Aman Dev Sharma, Yuvika Sharma, Shivansh Pundir and Yashvir Singh Hooda

Respondents: Senior Advocates Yashraj Singh Deora and Dhruv Mehta with Sameer Abhyankar, AOR, Advocates Yachna Sharma, Arushi Chopra, Anupama Dhurve and Priyesh Mohan Srivastava, and M/s Mitter & Mitter Co., AOR

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