A) ABSTRACT / HEADNOTE

This case examines the validity of the Explanation appended to Rule 38 of the Mineral (Other than Atomic and Hydrocarbons Energy Minerals) Concession Rules, 2016 and Rule 45 of the Mineral Conservation and Development Rules, 2017. The petitioners challenged the methodology of royalty computation, arguing it leads to a cascading effect of royalty charges month after month. They contended that the inclusion of previous royalty payments and contributions toward District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) in subsequent months’ royalty calculations violates Article 14 of the Indian Constitution.

The Supreme Court ruled that the revised royalty computation methodology is a policy matter and does not exceed the authority of the Central Government. It emphasized judicial restraint and upheld the separation of powers doctrine. The Court stated that mere economic hardship on mining leaseholders does not render the policy arbitrary or unconstitutional.

Keywords: Royalty computation, Cascading effect, Mineral Concession Rules, DMF contributions, Judicial restraint.

B) CASE DETAILS

i) Judgement Cause Title:
Kirloskar Ferrous Industries Limited & Anr. v. Union of India & Ors.

ii) Case Number:
Writ Petition No. 715 of 2024

iii) Judgement Date:
07 November 2024

iv) Court:
Supreme Court of India

v) Quorum:
Dr. Dhananjaya Y Chandrachud, CJI; J.B. Pardiwala*; Manoj Misra, JJ.

vi) Author:
J.B. Pardiwala, J.

vii) Citation:
[2024] 12 S.C.R. 68

viii) Legal Provisions Involved:

• Mines and Minerals (Development and Regulation) Act, 1957
• Mineral (Development and Regulation) Amendment Act, 2015
• Mineral Concession Rules, 2016 (Rule 38)
• Mineral Conservation and Development Rules, 2017 (Rule 45)
• Article 14 of the Constitution of India

ix) Judgments overruled by the Case (if any):
None.

x) Case is Related to which Law Subjects:
Constitutional Law, Economic Policy, Mining Law.

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The dispute centers on Rule 38 and Rule 45 of the Mineral Rules, which govern royalty computation for mined ores. The introduction of the Explanations disallowed deductions for previously paid royalty, DMF, and NMET contributions, resulting in a cascading impact on royalty rates. The petitioners argued that this method was arbitrary and discriminatory, particularly since coal miners were exempt from this computation anomaly.

The Ministry of Mines acknowledged this cascading impact and initiated public consultations to address the issue. However, no final amendments were made. This prompted the petitioners to challenge the legality of the rules under Article 14, claiming a violation of equality before the law.

D) FACTS OF THE CASE

• Kirloskar Ferrous Industries Limited (Petitioner No. 1) holds mining leases for iron ore in Karnataka.
• The Central Government introduced Rule 38 in the MCR, 2016 and Rule 45 in the MCDR, 2017, defining the “Sale Value” as inclusive of royalty, DMF, and NMET contributions.
• The petitioners contended this inclusion causes a cascading effect by factoring in the previous month’s royalty for subsequent calculations, leading to inflated royalty payments.
• The Ministry of Mines excluded this anomaly for coal but retained it for other minerals.
• Public consultations were initiated to resolve this issue, but no formal changes were implemented.

E) LEGAL ISSUES RAISED

i) Whether the Explanations appended to Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017 are arbitrary and in violation of Article 14?

F) PETITIONER/APPELLANT’S ARGUMENTS

i) The counsels for the Petitioner submitted that:

1. Cascading Impact: The impugned Explanations result in royalty on royalty, creating a compounding effect every month.
2. Article 14 Violation: Excluding coal miners from this computation anomaly while applying it to other minerals like iron ore lacks intelligible differentia.
3. No Statutory Basis: There is no legal prescription for including royalty, DMF, and NMET contributions in the ASP computation.
4. Economic Hardship: The flawed methodology disproportionately burdens mining leaseholders financially.
5. Precedents like Manish Kumar v. Union of India and Pepsi Foods Ltd. were cited to substantiate the challenge under manifest arbitrariness.

G) RESPONDENT’S ARGUMENTS

i) The counsels for Respondent submitted that:

1. Policy Decision: The methodology for royalty computation is a matter of economic policy, beyond judicial review unless unconstitutional.
2. No Cumulative Effect: ASP computations for successive months are independent and not cumulative.
3. Revenue Protection: Any exclusion of royalty, DMF, and NMET contributions would lead to state revenue loss, particularly for already auctioned mines.
4. Judicial Restraint: Courts must respect the separation of powers and refrain from adjudicating economic policy decisions.

H) JUDGEMENT

a) RATIO DECIDENDI

The Court held that:

1. Economic Policy: Royalty computation methodology is a policy matter and falls within the domain of the executive.
2. Judicial Restraint: Courts must limit their review to legality and not assess the wisdom of policies.
3. No Constitutional Breach: The impugned Explanations do not breach statutory or constitutional provisions.
4. Cascading Impact: While the methodology imposes a monetary burden, it does not render the rules arbitrary or illegal.

b) OBITER DICTA

The Court acknowledged the Ministry of Mines’ efforts to address the cascading impact through public consultations. However, until a formal amendment occurs, the existing rules remain valid.

I) CONCLUSION & COMMENTS

The Court upheld the Explanations to Rule 38 and Rule 45, reaffirming the principle of judicial restraint in policy matters. It emphasized that courts should not encroach on the executive’s policymaking role unless there is a clear breach of constitutional provisions.

J) REFERENCES

a) Important Cases Referred

1. Mineral Area Development Authority v. Steel Authority of India Ltd., [2024 SCC OnLine SC 1974].
2. Manish Kumar v. Union of India, (2021) 5 SCC 1.
3. Balco Employees’ Union v. Union of India, (2002) 2 SCC 333.
4. K.P. Varghese v. ITO, (1981) 4 SCC 173.

b) Important Statutes Referred

1. Mines and Minerals (Development and Regulation) Act, 1957.
2. Mineral Concession Rules, 2016.
3. Mineral Conservation and Development Rules, 2017.
4. Article 14, Constitution of India.