PETITIONER: STATE OF MADHYA PRADESH & ANR. Vs. RESPONDENT: DADABHOY'S NEW CHIRIMIRI PONRI HILL COLLIERY CO. PVT. LTD. DATE OF JUDGMENT29/11/1971 BENCH: SHELAT, J.M. BENCH: SHELAT, J.M. SIKRI, S.M. (CJ) REDDY, P. JAGANMOHAN MITTER, G.K. CITATION: 1972 AIR 614 1972 SCR (2) 609 1972 SCC (1) 278 CITATOR INFO : RF 1976 SC1978 (16) ACT: The Mines & Minerals (Regulation and Development) Act 67 of 1957 as amended by Act 15 of 1958, ss. 9(1), and 30A--Notification issued under Second Part of s. 30A whether can have effect of raising rate of royalty on coal in respect of pre 1949 mining leases above rate of 5% provided in s. 9(1) read with Second Schedule. HEADNOTE: In 1944 the Ruler of the erstwhile Indian State of Korea granted to D a mining lease in respect of an area of 5.25 sq.. miles in the State. According to the terms of the lease the rates of royalty varied from 5% 0 25% according to the price of the coal per tons extracted from the eased area, that is to say, from 4 as. per ton if the price was Rs. 51- per .on to 25% of the price per ton at the pit's head if that price was Rs. 20/or more. On the merger of the Korea State with Madhya Pradesh the leased area became subject to the provisions of the Mines & Minerals (Regulation and Development) Act 53 of 1948 and the Mineral Concorde Rules, 1949., In 1952 D assigned the lease and its benefits to the respondent company. The State of Madhya Pradesh granted its consent to the assignment for the unexpired period of the lease in consideration of the respondent-company agreeing to comply with the terms and conditions of the lease including payment of royalties' On December 28, 1967 Parliament passed the Mines & Minerals (Regulation and Development) Act 67 of 1957 under its power under Entry 54 of List I of the Seventh Schedule to the Constitution. The Act as amended by Act 15 of 1958 was brought into force by a notification of the Central Government with effect from June 1, 1958. Under s. 9(1) of the Act a lessee under a mining lease granted before the commencement of the Act was liable to pay royalty at the rate for the time being specified in the Second Schedule. Under item (1) of the Second Schedule royalty payable in respect of coal was the same as under r. 41 of the Mineral Concession Rules, 1949, that is, 5% of the f.o.r. price, subject to. a minimum of fifty naye paise per ,on. Under s. 30A which had been inserted by Act 15 of 1958 with re- trospective effect, the provisions of s. 9(1) and s. 16(1) were not applicable to mining leases granted before 25th October 1949 in respect of coal, but the Central Government bad power if satisfied that it was expedient to do so, to direct by notification in the Official Gazette, that all or any of the said provisions (including rules made under ss. 13 and 18) shall apply to or in relation to such leases "subject to such exceptions and modifications, if any, as may be specified in that or in any subsequent notification". On December 29. 1961 the Central Government issued a notification in exercise of its power under the second part of s. 30A by which it directed application of s. 9(1) with immediate effect to or in relation to the pre-1949 coal mining leases "subject to the modification that the lessee shall pay royalty at the rate specified in any agreement between the lessee and the lessor or at 2-1/2% of f.o.r. price, whichever is higher, in lieu of the rate of royalty specified in respect of coal in the Second Schedule to the said Act." The Collector served upon the respondent company demand notices to pay the arrears of royalty for the period December 29, 1961 to December 31, 1965 at the rates specified in the lease. The com- 610 pany in a writ petition before the High Court urged that the exception; and modifications under s. 30A had to be and were intended to cushion of soften the burden which would otherwise fall on the lessees under s. 9(1) and the Second Schedule and therefore any modification or exception which would be specified in such notification was intended to reduce rather than increase the rate of royalty payable under s. 9(1). The State Government contended that the respondent-company was bound to pay royalty at the rates provided in its lease, that being higher than the minimum.or 2-1/2% provided in the notification. The High Court rejected the contention raised by the State as being inconsistent with the purpose for which s. 30A was introduced. The State appealed. HELD : The notification was issued in exercise of the powers con feared by s. 30A. That power was to apply by issuing a notification there% under, ss. 9(1) and 16(1) and the rules made under ss. 13 and 18. The notification in terms directed the application of s. 9(1) which meant that on and from December 29, 1961 the company would have to pay royalty as prescribed under that sub-section read with the Second Schedule, that is, at 5%. The notification however applied s. 9(1) subject to one modification, namely. that the lessees under the pre 1949 leases were to pay royalty at the rate provided in their leases or at 21% whichever was higher. The modification was to the rate applicable under s., 9(1) and the Second Schedule, that is, to the rate of 5%. Considering the object with which s. 30A was enacted viz. to phase the rate of 5% and not to impose it at one stroke, the modification could not mean recovery at a rate inconsistent with s. 9(1) and the Second Schedule. that is, at the rate higher than 5% provided thereunder. [620 D-F] Such a modification, if it were to be construed as meaning payment at a rate higher than 5% would be in excess of the power under s.. 30A and also in contravention of the language of s. 9(1) and the Second Schedule. A lateral meaning which the State canvassed for could therefore be accepted only at the cost of invalidating the notification. Where two constructions are possible the one which sustains- the validity of the law must be preferred. [620 G-H; 621 A] On a plain reading of the notification it was clear that what it meant was that instead of the rate flowing from the application of s. 9(1) and the Second Schedule, a modified rate should be applied, that is, 'in lieu of the rate of royalty' specified in the Second Schedule, royalty at the agreed rate should be charged if it was lower than 5% or at 21% minimum, whichever was higher. The notification thus did not empower the State Government to recover royalty at a rate higher than 5% in lieu of the rate chargeable under s. 9(1) and the Second Schedule which provided 5% only. [621 B- C] The High Court was therefore justified in quashing the impugned orders also the demand notices issued in pursuance of that order. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 167 and 168
of 1968.
Appeals from the judgment and orders dated December 20, 1966
of the Madhya Pradesh High Court in Misc. Petition Nos. 139
and 182 of 1966.
I. N. Shroff, for the appellants (in both the appeals).
S. V. Gupte, Suresh A. Shroff, R. K. Thakur, Bhuvanesh
Kumari, K. S. Cooper, M. K. Cooper, J. B. Dadachanji, O. C.
611
Mathur and Ravinder Narain, for respondent No. 1 (in C.A.
No. 167 of 1968).
B. P. Maheshwari, for, respondent No. 1 (in C.A. No. 168
of 1968).
S. P. Nayar, for respondent No. 2 (in both the appeals).
The Judgment of the Court was delivered by
Shelat, J. By an Indenture of Lease, dated January 12, 1944,
made between the then Ruler of Korea State of the one part,
referred to as the lessor therein, and Sir Mukherji B.
Dadabhoy, referred to as the lessee, of the other part, the
lessor granted to the lessee for a term of 30 years, in
consideration of payment of rents and royalties therein
mentioned, a mining lease of an area measuring 5.25 sq.
miles delineated on the plan annexed thereto, with
liberties, powers and privileges and on terms and conditions
therein set out. By cl. (2) of that Indenture, the lessee
agreed to pay during the subsistence of the lease royalties
at the rates and on dates set out therein. The rates of
royalty varied from 5% to 25% according to the price of coal
per ton extracted from the leased area, that is to say, from
4 ans. per ton if the price was Rs. 51/- per ton to 25% of
the price per ton at the pit’s head if that price was Rs.
20/- or more.
On the merger of the Korea State with Madhya Pradesh, into
the events of which it is not necessary for the purposes of
this appeal to go, the leased area became subject to the
provisions of the Mines and Minerals (Regulation and
Development) Act, 53 of 1948 and the Mineral Concession
Rules made thereunder on October 25, 1949. In 1952, Sir
Maneckji agreed to assign the said lease and the benefits,
powers and privileges thereunder provided to the respondent-
company. Since, under that lease, such assignment could not
be made without the previous consent of the lessor and
since, by that time, owing to the merger of the Korea State
with Madhya Pradesh, the State of Madhya Pradesh had
acquired the said area and the rights in respect of it under
the said lease, an agreement was made between the State of
Madhya Pradesh and the respondent-company on November 6,
1952 under which the State of Madhya Pradesh granted its
consent to the said assignment for the unexpired period of
the said lease in consideration of the respondent-company
agreeing to comply with the terms and conditions of the said
lease including I payment of royalties to the State
Government as provided therein. That meant that the
respondent-company had to pay henceforth royalty to the
State of Madhya Pradesh as the lessor at the rates provided
in the original lease.
612
An unexpected development in the meantime took place. Under
an industrial award, called the Mazumdar Award, published on
May 25, 1956, increased wages were awarded to colliery
workers. To meet the consequent increased expenditure which
the collieries had to incur, the Government of India
proportionately increased the controlled coal price. A
representation made by the respondent-company to the
Government of India, dated October 5, 1956 shows that the
increase in respect of the coal extracted by the respondent-
company was from 14.6.0 and Rs. 15.6.0 to Rs. 17.6.0 and Rs.
18.6.0 per ton. That increase, however, resulted in the
respondent-company having to pay royalty at an increased
rate since the rate of royalty payable by the company was on
graded slabs varying according to the price of coal at the
pit’s head. The company’s representation, therefore, was
that the royalty payable by it should be modified so as to
bring it in consonance with that payable under the 1948 Act
read with the Mineral Concession Rules, 1949 and the First
Schedule thereto, namely, at a fixed rate of 5% of the
f.o.r. price subject to the minimum of 8 ans. per ton. (rule
41 (1) (a)). The Government of India referred the
respondent-company to the State Government and advised it to
make a similar representation to that Government.
Thereafter correspondence went on between the Government of
Madhya Pradesh and the respondent-company for a considerable
time. The State, Government, however, was not agreeable to
modify the terms of the said lease and to bring the royalty
payable thereunder in consonance with r. 41 of 1949 Rules
and the First Schedule thereto.
On December 28, 1957, Parliament passed the Mines and
Minerals (Regulation and Development) Act, 67 of 1957 under
its power under Entry 54 of List I of the Seventh Schedule
to the Constitution. Before the Act was brought into force
by a notification as provided by S. 1(3) thereof, an
amending Act, being Act 15 of 1958, was passed on May 15,
1958, By a notification dated May 29, 1958, the Central
Government brought into force the Act with effect from June
1, 1958.
As its long title recites, the Act was passed to provide for
the regulation of mines and the development of minerals
under the control of the Union. Sec. 2 declared that it was
in the public interest that the Union should take under its
control the regulation of mines and the development of
minerals. Secs. 6 and 8 provided for the period and the
area in respect of which mining leases henceforth could be
granted. Sec. 9(1) provided that a lessee under a mining
lease granted before the commencement of the Act shall pay
royalty at the rate for the time being specified in the
Second Schedule. Its sub-sec. 2 provided that a lessee
under a lease granted on or after the commencement of the
Act
613
shall likewise pay royalty in respect of any mineral removed
by him from the area leased to him at the rate for the time
being. specified in the Second Schedule in respect of that
mineral. Sub-sec. (3) authorised the Central Government to
amend the rates of royalty specified in the Second Schedule,
but not so as to exceed twenty per cent. of the sale price
at the pit’s head. Under item (1) of the Second Schedule,
royalty payable in respect of coal was the same as under r.
41 of the Mineral Concession Rules, 1949, that is, 5% of the
f.o.r. price, subject to a minimum of fifty naye paise per
ton.
The effect of sec. 9 was that the rate of royalty was
enhanced in the case of those lessees, who, under the leases
obtained by them before the commencement of the Act, were
paying at a rate lesser than 5%, while the royalty payable
by lessees similarly placed was reduced if they were paying
royalty at a higher rate. Under sec. 9(1) read with the
Second Schedule, the respondent company would have been
required to pay royalty at the reduced, rate of 5 % instead
of at the rates varying from 5 % to 25 % according as the
price fluctuated from time to time. Sec. 1 6 provided that
all mining leases granted before October 25, 1949 should, as
soon as may be, after the commencement of the Act, be
brought into conformity with the provisions of the Act and
the Rules made under sees. 13 and 18.
The Amending Act, 15 of 1958, by its sec. 2, inserted into
the Act sec. 30A with retrospective effect. That section
reads as under
“Notwithstanding anything contained in this
Act, the provisions of sub-section (1) of
section 9 and of sub-section (1) of section
16, shall not apply to or in relation to
mining leases granted before the 25th day of
October, 1949, in respect of coal, but the
Central Government, if it is satisfied that it
is expedient so to do, may, by notification in
the Official Gazette, direct that all or any
of the said provisions (including any rules
made under sections 13 and 18) shall apply to
or in relation to such leases subject to such
exceptions and modifications, if any, as may
be specified in that or in any subsequent
notification.”
The section falls into two parts. Under the first part, the
operation of sections 9(1) and 16(1) was suspended as far as
pre-1949 mining leases for coal were concerned. The second
part, however, empowered the Central Government, on its
satisfaction that it was expedient to do so, to direct that
all or any of those provisions, including rules made under
sees. 13 and 18, should apply to such leases subject to
such exceptions and modi-
614
fications, if any, as might be specified in that or any
subsequent notification. The “exceptions and modifications”
which might be so specified in the notification would
obviously be in regard to the application, when such
application was decided upon, of sees. 9(1) and 16(1) and
the relevant rules.
As a result of the suspension of the operation of sec. 9(1),
and consequently of the Second Schedule, the respondent
company remained liable to pay under its lease royalty at
the graded rates provided therein which, in consequence of
the increase in the controlled price of coal, came to more
than 5% prescribed by the Second Schedule.
On December 29, 1961, the Central Government issued a
notification in exercise of its power under the second part
of sec. 30A, by which it directed application of sec. 9(1)
with immediate effect to or in relation to the pre-1949 coal
mining leases ” subject to the modification that the lessee
shall pay royalty at the rate specified in any agreement
between the lessee and lessor or at 2-1/2% of f.o.r. price,
whichever is higher, in lieu of the rate of royalty
specified in respect of coal in the Second Schedule to the
said Act.” The respondent-company would have been, under
this notification, liable to pay royalty at the rate of 5%
under the Second Schedule. The question is whether the said
modification made any difference.
It appears that the respondent-company continued to press
the Central Government to modify and reduce the royalty pay-
able by it under its lease. This is seen from the Central
Government’s letter, dated July 4, 1962, by which it
informed the company in reply to the company’s letter of May
21, 1962 that the question of the rate of royalty payable,
by the colliery was, in consultation with the State
Government, under consideration and that action in that
connection would shortly be taken. It would seem that as a
result of the company’s representations and consultation by
the Central Government with the State Government, the latter
issued an order, dated September 23, 1963 to the Collector,
Surguja, directing him to recover from the respondent-
,company royalty at the rate of 5% with effect from July 1,
1958 subject to the condition that the royalty amount should
not be less than Rs. 2,47,000/- per year. The Government,
however, directed the Collector to recover the outstanding
royalty due for the period prior to July 1, 1958 at the old
rates, that is, as provided by the lease.
The State Government, however, changed its mind later on,
for, by its order dated October 1, 1965 it partially
suspended its order of September 23, 1963 and directed the
Collector to recover royalty as from December 29, 1961 at
the rates prescribed under the lease “in accordance with the
Government of
615
India’s notification No. S.O. 30, dated 29th December,
1961″. Representations by the respondent-company to the
State Government to charge royalty at 5% proved futile.
However, on January 1, 1966, the Central Government issued a
notification under which it directed the lessees of pre-1949
leases to pay royalty at 5% of the f.o.r. price. Thereupon,
by its order, dated February 11, 1966, the State Government
issued instructions to the Collector to charge royalty at
that rate with effect from 1st of January, 1966. The
controversy between the parties, therefore, is confined to
the rate of royalty at which the company was liable to pay
royalty for the period between December 29, 1961 and
December 31, 1965.
On January 25, 1966, the Collector served upon the respon-
dent-company demand notices to pay the arrears of royalty
for the aforesaid period at the rates provided in the lease.
The company thereupon filed a revision before the Central
Government under the Mineral Concession Rules, 1960. That
revision was pending when the company filed a writ petition
in March 1966 in the High Court of Madhya Pradesh for
quashing the said order, dated October 1, 1965, the
rejection of its representation by the State Government,
dated November 19, 1965 and the said demand notices.
The respondent-company urged that the purpose of suspending
operation of S. 9(1), till a notification applying it was
issued by the Central Government, was not to burden lessees
under pre-1949 leases with royalty at the rate of 5% of the
f.o.r. price for the time being prescribed in the Second
Schedule, and that even when a notification applying sec. 9
was to be issued, the Central Government was empowered to
direct that that section, the Second Schedule and the Rules
made under sees. 13 and 18 would apply with such exceptions
and modifications as may be specified in such or any
subsequent notification. Such exceptions and modifications
had to be and were intended to cushion or soften the burden
which would otherwise fall on the lessees under sec. 9(1)
and the Second Schedule, and therefore, any modification or
exception which would be specified in such notification was
intended to reduce rather than increase the rate of royalty
payable under sec. 9(1). The contention, therefore, was
that the notification, dated December 29, 1961 could not be
read to mean that lessees, such as the respondent-company,
whose leases provided for royalty at a rate higher than 5%
were to pay royalty at a rate higher than the one provided
under sec. 9(1). The State Government, on the other hand,
urged that the language of the notification was clear and
provided treat such lessees were to pay royalty either at
the rate provided in their leases or if the rate provided
therein was less than 2-1/2% at that rate, whichever was
616
higher. Therefore, oil a plain construction of the words of
the notification, the respondent-company was bound to pay
royalty at the rates provided in its lease, that being
higher than the minimum of 2-1/2% provided in the
notification. The High Court rejected the contention raised
by the State as being inconsistent with the purpose for
which sec. 30A was introduced. The High Court observed :
“In our view, the true construction and effect
of the notification dated 29th December 1961
is that in regard to coal mining leases
granted before 25th October 1949 if the rate
of royalty stipulated in the lease was higher
than 5% of f.o.r. price per ton, then the
royalty payable from 29th December 1961 in
respect of coal removed from the leased area
after that date would be the one specified on
that date in the Second Schedule, namely, 5
per cent of f.o.r. price per ton; in relation
to leases where the rate of royalty stipulated
in less than 5 per cent but more than 2-1/2
per cent of f.o.r. price per ton, the rate of
royalty would be the one specified in the
lease agreement; and in respect of leases
where the rate of royalty specified was less
than 2-1/2 per cent of f.o.r. price per ton,
the rate would be 2-1/2 per cent of f.o.r.
price per ton from 29th December 1961. It
follows from this that the petitioner-company
which was, under the terms of its lease liable
to pay royalty at a rate higher than 5 per
cent of f.o.r. price per ton for the period
from 29th December .1961, is rightly entitled
to claim that under the notification dated
29th December 1961, it cannot be called upon
to pay royalty from 29th September 1961 at the
rate stipulated in the lease granted to it but
only at the rate of 5 per cent of f.o.r. price
per ton specified in the Second Schedule.”
The High Court also rejected the State’s contention as
regards its order dated September 23, 1963 that once the
said notification was issued, the State Government could not
charge royalty at a rate lower than the one prescribed in
the said notification, and that therefore, the State acted
properly in rescinding its said order. The High Court held
that order amounted to a modification of the terms of the
lease in consideration of the lessee guaranteeing payment of
the minimum amount of Rs. 2.47,000/- a year, which the State
Government was competent to make, and that therefore, it had
no right to rescind it unilaterally. On this view, it held
that the company’s liability for royalty as from December
29, 1961 would be at the reduced rate of 5% of the f.o.r.
price and not as provided by the original lease deed.
617
As against these conclusions, counsel for the State took us
through the terms of the lease and the provisions of the
Act, and in particular sees. 9 and 30A, and formulated three
contentions for consideration. These were, (1) that the
High Court erred in construing the relevant provisions of
the Act and particularly sec. 30A, (2) that it also erred in
construing the said notification, and (3) that the order of
the State Government of September 23, 1963 was erroneous
having regard to the said notification which fixed the rate
of royalty payable by the lessees under the pre-1949 1eases,
and that order being inconsistent with the notification had
to be rescinded. by its subsequent order of November 19,
1965. Counsel urged that upon precision of its order dated
September 23, 1963, the State Government was entitled to
recover royalty as from the date of the said notification at
the rate agreed to in the lease or at 2-1/2%, whichever was
higher. Therefore, the said demand notices were valid and
had to be complied with.
It is well-known that prior to the enactment of the 1948
Act,’ leases of mining areas had been granted by diverse
authorities on different terms and conditions. The rate of
royalty under those leases were inevitably divergent and
were often fixed at very low rates. The purpose of enacting
the 1948 Act was to bring about uniformity in such leases
and with that lend that Act had made provisions for power to
modify the terms and conditions both in regard to the area
and the period under such leases. The object of such
provisions was to regulate in a systematic and scientific
manner development of mining and minerals. Though under the
Constitution that subject was left to the States, a power
was carved out by entry 54 in List I for the exclusive
exercise of it by the Centre. The consequence was ‘the
enactment of Act 67 of 1957 which was brought into operation
from June 1, 1958.
The purpose of passing that Act is clearly seen from the
declaration required under entry 54, List I, in sec. 2,
namely, that it was necessary for the Union to take under
its control regulation of mines and the development of
minerals. In pursuance of that object the Act made
provisions with regard to the persons to whom prospecting
licences and mining leases should be granted (ss. 4 and 5),
the maximum area for which such licences and leases should
be granted (s. 6), and the period for which a mining lease
should be granted (S. 8). In order that uniformity in
leases granted before and after the commencement of the Act
could be attained, power was also conferred to bring all
mining leases granted before October 25, 1949 into
conformity with the provisions of the Act and the Rules made
thereunder. (ss. 16, 17 and 18). As regards royalty payable
by the lessees under diverse kinds of leases for different
minerals granted before October 25, 1949 uniformity was
sought to be brought about sec. 9(1).
618
In the 1948 Act the Central Government had the power to make
rules for, regulating the grant of mining leases, or for
prohibiting the, grant of such leases in respect of any
mineral including the power to make rules as regards the
terms upon which and the conditions subject to which such
leases would be granted. (s. 5) Under sec. 7 of that Act,
the Central Government also could make rules for modifying
or altering the terms and conditions of leases granted
before the commencement of that Act, that is, before October
25, 1949. In pursuance of the power under sec. 5, the
Central Government framed the Mineral Concession Rules, 1949
and provided by r. 41 thereof read with the First Schedule
thereto that the rate of royalty chargeable under a lease in
respect of coal would be 5% of the f.o.r. price per ton. No
rules, however, were made under sec. 7, and therefore, the
rate of royalty provided by r. 41 did not govern pre-1949
leases, with the result that the lessees thereunder
continued to pay royalty provided in their respective
leases.
Such diversity in the rates of royalty was sought to be done
away with by prescribing uniform rates of royalty in respect
of each mineral through sec. 9. Item 1 in the Second
Schedule prescribed, in respect of coal, the rate of royalty
at 5% of the f.o.r. price subject to a minimum of fifty naye
paise per ton. The result of S. 9 and item I in the Second
Schedule was that all lessees whether their leases were
granted before or after the commencement of the Act became
liable to pay royalty at the uniform rate of 5% in respect
of coal. Since under the 1948 Act the lessees, whose leases
were granted on and after the commencement of that Act, were
liable to pay royalty at 5% under r. 41 of the 1949
Concession Rules, sec. 9 did not make any difference to them
as it prescribed the same rate. But so far as lessees under
the pre1949 leases were concerned, the new rate affected
them, inasmuch as those, who, under their leases were paying
at a lesser rate became liable to pay royalty at 5%, while
those who were paying at a higher rate had to pay at, the
lower rate of 5% only. Besides, the change in the rate of
royalty under sec. 9, pre-1949 leases were liable to be
modified in respect of the area and the period under sec. 16
and the rules made under secs. 13 and 18.
Even before the new Act was brought into force, consequences
of enforcing such uniformity and the resultant automatic
spurt in the rate of royalty, especially in respect of coal,
had been realised. The Central Government, therefore,
itself sponsored the insertion of sec. 30A by sec. 2 of the
Amendment Act, 15 of 1958, with retrospective effect. The
consequences flowing from the attempted uniformity were set
out in the Statement of Objects and Reasons(1) for amending
the Act. The statement acknowledged
(1) Gazette of India, Extra., Part 2, Sec. 2, Jan.-July,
1958, p. 507.
619
that coal, as the basic fuel, occupied a unique position in
the country’s economy and had always, therefore, been
treated differently from other minerals. It also
acknowledged that operation of secs. 9 and 16 would have
“numerous desirable consequences” such as unsettling coal
industry as a whole and retarding the programme of coal
production estimated in the, Second Five Year Plan on
account of the sudden and automatic rise in the royalty
payable by lessees, who under their leases granted before
October 25, 1949 generally had to pay royalty “much below
the rate” prescribed under the Second Schedule. A similar
anxiety was also expressed during the passage of the
Amendment Bill by the concerned Minister stating that if the
automatic enhancement under sec. 9(1) in the rate of royalty
at 5% were to be implemented, the results would be
unfortunate. For, besides affecting the rate of production
of coal, it would also adversely affect the price structure
in other industries, such as cement, steel and other similar
industries, and that for that reason “by this Amending Bill
that mistake is sought to be rectified”. “Instead of giving
those increases automatically power will not be taken to
phase them in such a way that the upward revision is not
pushed up to the maximum limit (i.e. five per cent.) with
one jerk, but it is so phased that it does not cause any
upset in the coal production programme and in the economy of
the country as a whole”.(1). The mischief which the Amending
Act, 1958 sought to avoid was thus to prevent enhancement of
royalty at one stroke to 5%.
As aforesaid, sec. 30A suspended the application of secs.
9(1) and 16(1) in relation to pre-1949 leases and authorised
the Central Government to direct that all or any of the said
provisions (including rules made under secs. 13 and 18)
shall apply to or in relation to such leases subject to such
exceptions and modifications, if any, as may be specified in
a notification. As a result of the suspension of Sec. 9(1),
lessees under pre-1949 leases were relegated to the original
position under which they were liable to pay royalty at
rates agreed to in those leases whether the rate was over or
below 5% provided by sec.9(1). As and when the Central
Government issued the notification envisaged by the second
part, such lessees would be obliged to pay royalty at the
rate of 5% as prescribed for the time being in the Second
Schedule, and even if the Government were, in the meantime,
to enhance the rate as authorised by sec. 9(3) upto the
maximum rate of 20% at such rate but never more than 20%.
The second part thus contemplated payment of royalty, on
sec. 9(1) being made applicable, at the most, at the rate of
5% only, as no increase had till. then been-made under sec.
9(3).
(1) Rajya Sabha Proceedings, dated November
620
On December 29, 1961, the Central Government “in exercise of
the powers conferred by sec. 30A” issued the notification
directing that the provisions of sub-sec. (1) of sec. 9 of
the said Act shall apply with immediate effect to or in
relation to pre-1949 coal mining leases, subject to the
modification that such lessees shall pay royalty at the rate
specified in the agreements between the lessees and the
lessors or at 2-1/2% of f.o.r. price, whichever was higher,
“in lieu of the rate of royalty specified in respect of coal
in the Second Schedule to the said Act”.
The argument urged on behalf of the State both before
the .High Court and before us was that the notification
clearly envisaged payment of royalty at the rate agreed to
between the lessor ,and the lessee or at 2-1/2% whichever
was higher. Since, the agreement in the present case
provided for royalty at graded rates which were higher than
21%, the company had to pay royalty at such agreed rates.
The argument, in our opinion, is untenable :as it is not
borne out by the language of the notification itself and of
sec. 30A and was therefore rightly repelled by the High
Court.
The notification was issued, as it recites, in exercise of
the powers conferred by sec. 30A. That power was to apply,
by issuing a notification thereunder, sees. 9(1) and 16(1)
and the rules made under sees. 13 and 18. The notification
in terms directed the application of sec. 9(1) which meant
that on and from December 29, 1961 the company would have to
pay royalty as prescribed under that sub-section read with
the Second Schedule, that is, at 5%. The notification,
however, applied sec. 9(1) subject to one modification,
namely, that lessees under the pre1949 leases were to pay
royalty at, the rate provided in their leases or at 21%
whichever was higher. The modification was to the rate
applicable under sec. 9(1) and the Second Schedule, that is,
to the rate of 5%. Considering the object with which sec.
30A was enacted, viz., to phase the rate of 5%, and not to
impose it at one stroke, the modification could not mean
recovery at a rate inconsistent with sec. 9(1) and the
Second Schedule, that is, at ,the rate higher than 5%
provided thereunder.
Such a modification, if it were to be construed as meaning
payment at a rate higher than 5% would be in excess of the
power under sec. 30A and also in contravention of the
language of sec. 9(1) and the Second Schedule. A
modification, if any, would be for charging royalty at a
rate lesser than the one provided under sec. 9 (1 ) and the
Second Schedule, and not at a rate higher than such rate. A
construction to the contrary would mean exercise of power in
excess of that conferred by the section and would affect
the validity of the notification. A literal meaning which
the State canvassed for can, therefore, be accepted only at
the cost of invalidating the notification.
621
The rule of construction that a court construing a provision
of law must presume that the intention of the authority
making it was not to exceed its power and to enact it
validly is well-settled. Where, therefore, two
constructions are possible, the one which sustains its
validity must be preferred. On a plain reading of the
notification, however, it is clear that what it meant was
that instead of the rate flowing from the application of
sec. 9(1) and the Second Schedule, a modified rate should be
applied, that is, “in lieu of the rate of royalty” specified
in the Second Schedule, royalty at the agreed rate should be
charged if it was lower than 5%, or at 2-1/2% minimum,
whichever was higher. The notification, thus, did not
-empower the State Government to recover royalty at a rate
higher than 5% in lieu of the rate chargeable under sec.
9(1) and the Second Schedule which provided 5% only.
It appears that the State Government itself understood such
a construction as proper, for, if it had understood
otherwise, it would not have issued its order dated
September 23, 1963 directing the Collector to recover
royalty at 5% pursuant to the correspondence which had
ensued between the company, the Central Government and the
State Government. If it had understood the notification in
the manner now urged by its counsel, it would have at once
pointed out both to the company and the Central Government
in that correspondence that it was entitled to recover
royalty at the rates agreed to in the lease instead of at 5
%. It was only in 1965 that it changed its mind and
cancelled its previous order. On the construction placed by
us on sec. 30A and the said notification, it was not
entitled so to do. The High Court, in our view, was right
in quashing that order as also the demand notices issued in
pursuance of that order.
In view of our decision on the question of construction of
the notification and sec. 30A, it becomes unnecessary to
consider the second contention raised by the company’s
counsel that the order of 1963 amounted to a modification of
the terms of the lease, and that therefore, the State
Government could not unilaterally supersede such
modification by issuing a subsequent order in 1965. For the
reasons aforesaid, we are in agreement with the High Court’s
conclusions.
Civil Appeal No. 168 of 1968 involves the same question and
our decision in that appeal, must, therefore, be governed by
the decision in this appeal.
Both the appeals, therefore, fail and are dismissed with
costs. ‘Mere will, however, be one set of hearing costs as
the arguments in both the appeals have been common.
G.C. Appeals dismissed.
9-L643 Sup CI/72
622
