M/S. Khan Saheb Ms. Hassanji &
Sons Vs. State of Madhya Pradesh [1962] INSC 324 (19 November 1962)
ACT:
Mining Lease-Realisation of royalty at
enhanced rate under contract-Constitutional Validity-Agreement, if void--Mininy
Rules, 1913, r. 50-Mines and Minerals (Regulation and Development) Act, 1948
(LIII of 1948), s. 4-Mineral Concession Rules, 1949-Constitution of India, Art. 31(1).
HEADNOTE:
The appellants took an assignment of a mining
lease for extracting coal in respect of 189.76 acres of land. They were anxious
to acquire other lands adjacent to the aforesaid area from their respective
owners. The transfers in favour of the appellants could not take place without
the sanction of the State Government. After protracted correspondence and negotiations,
the Government agreed to grant the necessary sanction subject to the condition
that they took a consolidated lease in respect of the whole additional area at
an enhanced rate of royalty. The appellants entered into an agreement with the
Government on January 11, 1949 by which the rate of royalty payable to
Government was raised from Rs. 5/to Rs. 10/per ton. Though no formal leasedeed
was executed, the appellants worked the mines with the permission of the
Government during the period October 27, 1947, to June 30, 1949 and paid a sum
of Rs. 40865/including interest, by way of royalty. They paid the aforesaid sum
under protest in February-March, 1960. The plaintiffs appellants brought a suit
before Additional District judge for a declaration that they were not bound by
the terms of the agreement dated January 11, 1949 and were not liable to pay to
Government any sum in excess of that fixed by the lease of 1923 and by the
lease of January 21, 1944, and also claimed other consequential reliefs. The
suit was decreed on contest by the Government. On appeal by the defendant respondent,
the High Court reversed the judgment and decree of the trial court and
dismissed the suit with costs.
Held, that from the agreement dated January
11, 1949, it is clear that the Governor was in the position of the lessor, 236
hence, even assuming that the Mineral Rules of 1913 had statutory force and
applied to the instant case, the Governor having been the grantor of the lease
it must be presumed that he decided that the revised terms were in the interest
of the State, and, therefore, the revised terms of the lease were binding on
the parties; further ultimately the appellants having conceded that the rules
were not statutory, the agreement aforesaid was not void.
The Mineral Concession Rules, 1949 came into
effect on October 25, 1949, having no retrospective effect and the agreement in
question was finalised in January 1949. There were thus no such Rules in
existence which could have been contravened.
Held, further, that since the payment to the
Government was realisable under the terms of the contract which is not
vitiated, it could not be said that the State deprived them of any property
within the meaning of Art. 31 (1) of the Constitution.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 645/1961.
Appeal from the judgment and decree dated
April 20, 1957, of the Madhya Pradesh High Court in First Appeal No. 181/52.
Hardayal Hardy, S. AT. Andley and Rameshwar
Nath, for the appellant.
B. Sen and 1. N. Shroff, for the respondent.
1962. November 19. The judgment of the Court
was delivered by SINHA, C. J.-This appeal on a certificate granted by the High
Court of Madhya Pradesh at Jabalpur on April 16, 1958, under Art. 133 of the
Constitution, is directed against the judgment and decree of that Court in
First Appeal No. 181 of 1962, reversing those of the Additional District judge,
Chindwara, in Civil Suit No. 3-A of 1951, decided on September 25, 1952, by
which the trial Court had decreed the plaintiffs' claim for Rs. 408651-and
interest.
237 It is necessary to state the following
facts in order to bring out the points in controversy between the parties.
One Haji Syed Zahiruddin of Bhopal held a
mining lease-Ex. P-2-dated May 29, 1923 in respect of 189-76 acres of land in
the district of Chindwara, for extracting coal. The appellants took an
assignment of that lease by Ex. PI dated September 4, 1940. There were coal
bearing areas adjacent to the area covered by the lease aforesaid. The
appellants were anxious to acquire those adjacent collieries from their
respective owners. The transfers in favour of the appellants could not take
place without the sanction of the State Government. After protracted
correspondence and negotiations, the Government agreed to grant the necessary
sanction to the transfer of those adjacent lands to the appellants subject to
the condition that they took a consolidated lease in respect of the whole
additional area at an enhanced rate of royalty. The appellants entered into an
agreement with the Government on January 11, 1946 (Ex.P3) by which the rate of
royalty payable to Government was raised from Rs. 5/-to Rs. 10/-per ton. Though
no formal lease deed was executed, the appellants worked the mines with the
permission of the Government during the period October 27, 1947 to June 30,
1949. In respect of the coal thus extracted, the appellants paid to the
Government the sum of Rs. 40865/-, including interest, by way of royalty.
The plaintiffs paid the aforesaid sum under
protest in February-March, 1960.
The plaintiffs commenced the present action
in February 1951, for a declaration that they were not bound by the terms of
the agreement dated January 11, 1949, aforesaid,.
and that, therefore, they were not liable to
pay to Government any sum in excess of that fixed by the lease of 1923, and.;
by the lease of January 21, 1944, in respect of lands transferred to them. They
also. claimed an injunction against 238 the defendant, the State of Madhya
Pradesh, which was the sole defendant,, now respondent. There wag also a prayer
for refund of the said amount of Rs. 40865/plus interest amounting to Rs.
1985/from the date of payment of those several sums aggregating to Rs. 40865/-.
Interest pendent lite and future interest at 6 per cent on the decretal amount
was also claimed.
The contentions raised on behalf of the
plaintiffs in support of their claim were that the agreement aforesaid was void
as it was in contravention of r. 50 of the Mining Rules of 1913, as also that
the same was in contravention of s. 4 of the Mines and Minerals (Regulation and
Development) Act (XIII of 1948). It was also contended that a representation
was made by the Government in the correspondence that passed between the
parties that Government was going to adopt a new policy in respect of mining
leases, including grant of leases at enhanced royalty. The agreement, the
plaintiffs further asserted, had been entered into under the influence of that
misrepresentation and was, therefore, not enforceable against them.
The suit was contested by the Government on
the ground that the Mineral Rules of 1913 had no binding effect after the
Constitution Act of 1935, so far as the Provinces were concerned; those Rules
were mere departmental instructions for the guidance of subordinate officers of
the Government;
and that the Government was free to make its
own bargain in respect of fresh leases. It was also contended that the Mines
and Minerals (Regulation and Development) Act of 1948, read with the Rules made
there under, did not apply to the leases in question as these Rules came into
force later.
The Government also denied that there was any
misrepresentation made by Government to the plaintiffs, though it was true that
Government had intended to promulgate fresh rules 239 which envisage revised
scales of royalty, but which ultimately did not materialise. It was, therefore,
contended that the plaintiffs had no cause of action for the reliefs claimed in
the plaint.
The learned Additional District judge,
Chindwara, by his judgment and decree date September 25, 1952, decreed the suit
with costs holding that the plaintiffs were entitled to the declaration
;,,ought by them, as also to the consequential relief of refund 'of the amount
paid by them tinder protest, as aforesaid, namely, the sum of Rs. 40865/together
with the sum of Rs. 992/8/on account of interest at 3% per annum up to the date
of the suit, as also interest pendente lite tip to the date of realisation at
the same rate of 3%.
On appeal by the defendant, the state of
Madhya Pradesh, the High Court reversed the judgment and decree passed by the
trial Court and passed a deeree dismissing the suit with costs throughout. The
High Court held that the Government was not bound by the Rules of 1913, which
had no statutory force, and that the Rules of 1949 made under the Act of 1948
aforesaid did not apply to the transaction in question, because they had no
retrospective operation. The High Court also held that there was no
misrepresentation by the Government and that the plaintiffs were anxious to
enter into the agreement in order to start their mining operations to take
advantage of the High market in respect of coal, and that they entered into the
agreement with their eyes open and without any vitiating influence. The
appellants applied for and obtained the necessary certificate from the High
Court. That is how the matter is before us.
In this Court it was strenuously argued on
behalf of the appellants that the Rules of 1913 were in terms imperative and
had statutory force which bound the State Government, and that any lease or 240
agreement entered into between the parties in violation of the terms of these
Rules would be wholly void. It is contended on behalf of the appellants, that
the Government was not entitled to recover the amount at the higher rate of
royalty from the plaintiffs, and that their suit was well founded in law. But
it was argued on behalf of the respondent that those rules were promulgated by
the Governor General in Council, under the sanction of the Secretary of St-ate
for India in Council, and as such they were binding on the officials of the
Government as departmental instructions, but were not binding on the Government
itself In our opinion, this contention is: well founded. Rule 1, which runs as
follows, itself makes it clear that the Government concerned may make an
exception to the general rule laid down in the rule "1.No license to
prospect for minerals or lease of. mines and minerals can be granted by any
Local Government otherwise than in accordance with these rules, except with the
previous sanction of the Secretary of State for India in Council, or with that
of the Governor-General in Council under any general or special authority which
he may have received in' this behalf from the Secretary of State in
Council." The general rule is that the Rules have to be followed by the
officials of the Government in the matter of granting licences to prospect for
minerals, or leases of mines and minerals. But exception may be made with the
previous sanction of the rule making authorities aforesaid. This position
continued in law until the Government of India Act of 1935 came into operation.
As a result of the constitutional changes effected by that Act, the Secretary
of State and the Governor-General had to be substituted by the Governor with
effect from April 1, 1937. From that date it would be the 241 Governor who
would be empowered to make the exceptions to the general rule laid down. In
this case, it is clear from Ex. P. 3--the agreement dated January 11, 1949 that
the Governor was in the position of the lessor. Hence, even if we assume that
the Rules had statutory force and applied, to the instant case, the Governor
having been the grantor of the lease it must be presumed that he decided that
the revised term-, were in the interest of the State, and, therefore, the
revised terms of the lease were binding on the parties. Though in opening the
appellants' case their counsel was vehement in the assertion that the Rules of
1913 were statutory, he was unable to point out the statutory source of it.
Ultimately, he had to concede that the Rules were not statutory. That being so,
there is no force in the contention that the agreement of .January 11, 1949
(Ex. P. 3.) was void.
In this connection it is necessary to consider
the alternative ground of attack based on the provisions of the Act of 1948 and
the Rules made there under. The Act came into force on September 8, 1948, and
the Rules, called the Mineral Concession Rules, 1949, were promulgated under s.
5 of the Act. But these Rules came into effect on October 25, 1949. These rules
apparently have no retrospective effect.
Section 4 of the Act is as under :
"No mining lease shall be granted after
the commencement of this Act except in accordance with the rules made under
this Act." Hence, any mining lease granted on or after October 25, 1949
will have to conform to the Rules aforesaid. But the agreement in question was
the result of negotiations between the parties, extending over several years
and was finalised in ..January 1949. The appellants, with the permission of the
Government, carried on mining, operations on the terms 242 insisted upon by the
Government, and for the period for which the 'royalty was realised from the
appellants there were no such Rules in existence, which could be said to have
been contravened. Hence we are not concerned with the effect of the Rules which
were promulgated in 1949 and came into effect as already stated, on October 25,
1949. We need not, therefore,, stop to consider what the legal position would
have been if an agreement like the one before us were questioned with reference
to its operation on and after October 25, 1949.
The only other ground on which the
enforceability of the terms of the agreement has been questioned is that there was
a misrepresentation by Government to the effect that it was going to enhance
the rate of royalty all round, and that it was under the influence of that
belief that the appellants entered into the agreement in question. It is a
little difficult to appreciate this 'ground of attack. The agreement is not
questioned on the ground that there was any undue influence or coercion
exercised by the grantor in insisting upon the more onerous terms under the
agreement.
As pointed out by the High Court, the appellants
were in a hurry to take the additional area and work the coal mines on terms
which were mutually agreed between the parties. It was not alleged that there
was any mutual mistake which could be said to have vitiated the agreement. But
simply because the draft amendment to the Mining Rules published for inviting
objections from the public on July 12, 1947 (vide Ex. D13) was not finalised
would not afford any cause of action to the plaintiffs. They, with their eyes
open and after thoroughly discussing the matter between themselves and the
Government, had entered into those terms of agreement. Those terms may be more
onerous than any other lease granted to other lessees, but that would not
vitiate the contract between them.
243 There was a faint attempt made on behalf
of the appellants to put their objections on a constitutional basis. It was
contended that the terms imposed upon the appellants by the State would amount
to deprivation of property without the authority of law. It is manifest that
this ground of attack is wholly devoid of any force because the State has not
deprived them of any property. What they have paid to the Government was
realisable under ,the terms of the contract, which on the findings recorded
above is not vitiated. Under the agreement which we hold to be enforceable, the
defendant may have struck a hard bargain but that cannot be brought under the
prohibition of Art. 31 (1) of the Constitution, even assuming that the
Constitution applied to the transaction in question.
As all the grounds of attack urged in support
of the appeal fail, it is hereby directed that the appeal be dismissed with
costs.
Appeal dismissed.
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