2026 INSC 690 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. OF 2026

[ARISING OUT OF SLP (CIVIL) DIARY NO. 15252 OF 2017]

THE STATE OF HARYANA & ORS. … APPELLANTS

VERSUS

M/S FARIDABAD GURGAON MINERALS & ANR. … RESPONDENTS

WITH

CIVIL APPEAL NO. OF 2026

[ARISING OUT OF SLP (CIVIL) DIARY NO. 30225 OF 2017]

THE STATE OF HARYANA & ORS. … APPELLANTS

VERSUS

M/S. GANPATI ENTERPRISES SLATE MINES … RESPONDENT

J U D G M E N T

DIPANKAR DATTA, J.

1. Delay condoned.

2. Leave granted.

2

PREFACE

3. These two appeals task us to interpret relevant clauses of a mining lease

deed, read with the applicable statutory provisions and the rules framed

thereunder in the context of the power of the lessor (appellant – State

1

)

to increase the rate of royalty and dead rent during the subsistence of

the lease. Notably, the lease deeds executed by and between the State

and the lessees – respondents contain no express provision permitting

such increase.

RELEVANT LAWS

4. To understand the present case better and before we proceed to notice

the facts involved, we find it prudent to inform ourselves of the relevant

laws.

5. For development and regulation of mines and minerals in the country,

the Parliament, in the 8

th

year of the Republic of India, enacted the Mines

and Minerals (Development and Regulation) Act, 1957

2

. The MMDR Act

distinguishes between major and minor minerals. While major minerals

are substantially regulated by the Union, minor minerals are largely

governed by rules framed by the States. Sub-section (1) of Section 15

of the MMDR Act grants power to a State Government to make rules for

regulation, inter alia, of mining leases. Sub-section (3) of section 15

thereof mandates that the consideration (namely, royalty or dead rent,

1

State

2

MMDR Act

3

whichever is more) is to be paid as per the rate prescribed by the State

Government in the rules framed by it.

6. Section 15, to the extent relevant, is reproduced below:

15. Power of State Governments to make rules in respect of minor

minerals.―(1) The State Government may, by notification in the Official

Gazette, make rules for, regulating the grant of quarry leases, mining leases

or other mineral concessions in respect of minor minerals and for purposes

connected therewith.

(1A) …

(2) …

(3) The holder of a mining lease or any other mineral concession granted

under any rule made under sub-section (1) shall pay royalty or dead rent,

whichever is more in respect of minor minerals removed or consumed by

him or by his agent, manager, employee, contractor or sub -lessee at the

rate prescribed for the time being in the rules framed by the State

Government in respect of minor minerals:

Provided that the State Government shall not enhance the rate of

royalty or dead rent in respect of any minor mineral for more than once

during any period of three years.

(emphasis ours)

7. In exercise of the power conferred by Section 15 of the MMDR Act, the

erstwhile State of Punjab framed Punjab Minor Mineral Concession Rules,

1964

3

. Upon reorganisation of the State, the 1964 Rules were adopted

by the State of Haryana (appellant in the present appeals) with some

amendments.

8. Rules 10 and 21 of the 1964 Rules are relevant for the purposes of

deciding the present appeals. In brief, Rule 10 provides that a lease will

be granted by auction to the highest bidder on “annual dead rent” which

will be equivalent to the highest bid amount. The State is enabled to

enhance the dead rent after expiry of a three-year lease period. Sub-

rule (5) of rule 10 mandates that “other terms and conditions” shall be

3

1964 Rules

4

in accordance with Rule 21. Relevant conditions laid down in Rule 21 are

that: (i) the lessee shall pay royalty at rates in accordance with the First

Schedule of the Rules; (ii) the lessee has to pay royalty at rates which

may be revised from time to time; and (iii) the lessee has to pay yearly

dead rent as fixed by the Government in accordance with the second

schedule.

9. Rules 10 and 21 of the 1964 Rules, to the extent relevant, are

reproduced below:

10. Grant of mining lease by auction: -

(1) Notwithstanding anything contained in these rules, any minor mineral

deposit may be granted on mining lease for a period of seven years by

public auction.

(2) The annual dead rent shall be determined by the highest bid offered in

the auction and such dead rent shall be subject to enhancement upto 50%

after the expiry of three years lease period.

(3) …..

(4)…...

(5) Other terms and conditions of the lease shall be in accordance with rule

21 of the said rules.

***

21. Conditions of mining lease.

(1) Every mining lease shall be subject to the following conditions. –

(i)(a)The lessee shall pay royalty on minor minerals dispatched from

the leased area at the rates specified in the First Schedule:

Provided that the lessee shall pay royalty at such revised rates

as may be notified from time to time.

***

(iii) The lessee shall also pay for every year, such yearly dead rent

within the limits specified in second Schedule as may be fixed by the

Government and if the lease permits the working of more than one

minor mineral in the same area the Government may charge

separate dead rent in respect of each minor mineral:

***

(emphasis ours)

10. Annual dead rent and royalty are two stipulations which ordinarily find

place in a mining lease deed. The controversy in the present matter

5

turns on the enhancement of the rates thereof by the State. The principal

question which arises for our consideration is whether such

enhancement was validly effected.

FACTS OF THE LEAD AND THE CONNECTED APPEALS

11. Facts pertaining to the lead appeal

4

are as follows:

a. For the purposes of grant of mining lease for extraction of road metal

and masonry stone in various areas of district Faridabad including the

subject lands

5

, an auction notice dated 12

th

October, 2001

6

was issued

by the Mines & Geology Department, Government of Haryana.

b. M/s Faridabad Gurgaon Minerals

7

, first respondent in the lead appeal,

offered the highest bid and consequently two letters of acceptance

8

dated 6

th

November, 2001 were issued in its favour with respect to the

subject lands. Later, a mining lease deed was executed on 17

th

September, 2002.

c. It is profitable to refer to certain clauses of the AUCTION NOTICE and the

LoA, hereunder.

AUCTION NOTICE:

i. Clauses 3 provides that the mining lease shall be for a period of

seven years from the date of execution/grant of permission for

mining.

4

arising out of SLP (CIVIL) Diary No. 15252 of 2017

5

86.8 hectares of land in village Sirohi and 131.05 hectares of land in village Khori

Jamalpur

6

AUCTION NOTICE

7

M/s. FGM

8

LoA

6

ii. Clause 5 stipulates that the highest bid offered in the auction sale

shall be fixed as ‘dead rent’ per annum.

iii. Clause 6 provides that “[T]he annual dead rent shall be enhanced by

50% after the expiry of every three years period of the lease.”

iv. Clause 13 provides that in addition to the terms and conditions

expressly provided for in the AUCTION NOTICE, other conditions as

contained in Rules 10, 21 and 61 of the 1964 Rules shall also apply:

“Other conditions as applicable to grant of mining lease for minor

minerals as contained in Rules 10, 21 and 61 of Punjab Minor Mineral

Concession Rules, 1964 shall also apply.”

(emphasis ours)

LoA: Clauses 3 and 9 of the LoA are the same as clauses 6 and 13 of

the AUCTION NOTICE and are not repeated for brevity.

d. LEASE DEED: Suffice to note that the mining lease deed executed on 17

th

September, 2002 between the State and M/s. FGM did not contain a

stipulation of applicability of the 1964 Rules or envisage a stipulation of

fluctuating rates of royalty.

e. Vide a notification dated 3

rd

June, 2005

9

, the State in exercise of its

powers under sub-section (1) of section 15 of the MMDR Act amended

the 1964 Rules and enhanced the rates of royalty and dead rent by 50%.

f. Aggrieved by the increase in dead rent and royalty, M/s. FGM instituted

a writ petition

10

before the High Court. An application for amendment

11

was filed, which stood allowed vide order dated 12

th

December, 2007.

9

No. S.0.40/C.S. 67/1957/S.15/2005

10

CWP No.17958 of 2005

11

C.M. No. 20186 of 2007

7

Prayers, as per the amended writ petition, sought quashing of the said

notification on, inter alia, the following grounds:

i. Since the lease deed executed by and between the parties did not

contain any stipulation making the lease subject to other rules

providing for fluctuating or revised rates of royalty, the rights and

obligations of the parties stood confined to the terms of the lease

deed itself. Consequently, any enhancement in the rate of royalty

effected after execution of the lease deed could not operate to alter

or prejudice the rights accruing to the petitioner-lessee under the

lease.

ii. There was no empirical data or rationale premised on which the

increase of royalty was sought to be made.

g. It appears that M/s. FGM also filed an application

12

seeking permission

to rely on additional documents received through invocation of the ‘right

to information’ machinery. By an order dated 14

th

October, 2015, such

application was directed to be “heard with main case”.

h. In the aforesaid application, a reference was made to an additional

affidavit dated 8

th

May, 2010 (not on record) filed by M/s. FGM whereby

it sought to urge a new/additional ground of challenge, viz. the

notification dated 3

rd

June, 2005 stands vitiated for breach of the

mandatory provisions of the Rules of Business of the Government of

Haryana, 1977

13

framed under Article 166 of the Constitution. The plea

12

C.M. 5224 of 2015

13

Rules of Business

8

taken in the additional affidavit and the aforesaid application appears to

be that the notification dated 3

rd

June, 2005 was not preceded by either

the Council of Ministers or the Finance Department’s concurrence of the

proposal for increasing the royalty.

i. Jitender Kumar, respondent no. 2 in the lead appeal, had also filed a writ

petition

14

before the High Court. Despite service, he has not entered

appearance. Since his writ petition before the High Court is not on

record, we proceed on the assumption that he too was aggrieved by the

enhancement of rates.

j. M/s Ganpati Enterprises Slate Mines

15

, respondent in the connected

appeal

16

, in a similar way was granted a mining lease with respect to a

different land

17

on the same date, that is, 17

th

September, 2002.

k. Aggrieved by the increase in royalty (vide notification dated 3

rd

June,

2005), M/s. GESM had priorly instituted a writ petition

18

praying, inter

alia, for quashing of the same.

OUTCOME OF THE PROCEEDINGS

12. The three writ petitions were heard together and allowed vide the

common impugned judgment and order dated 2

nd

June, 2016

19

of the

High Court of Punjab and Haryana at Chandigarh

20

.

14

C.W.P. No.14468 of 2005

15

M/s. GESM

16

arising out of SLP (CIVIL) Diary No. 30225 of 2017

17

232.55 hectares of land in village Majra Manethi, District Rewari

18

Civil Writ Petition No.14306/2005

19

impugned judgment

20

High Court

9

13. The High Court agreed with the arguments advanced by the lessees -

petitioners before it and noted that the mining lease deeds did not

provide for a change in rate of royalty or dead rent and, thus, any further

enhancement by the State would not bind the lessees; enhancement of

rate by 50% was arbitrary as it was not based on any material; and that

the Rules of Business framed by the State under Article 166 of the

Constitution were violated. Curiously, no order seems to have been

recorded by the High Court disposing of the application for permission

to rely on additional documents once it decided the writ petitions of the

respondents finally.

14. Thereafter, the State applied for review

21

of the common impugned

judgment. The said review petitions were dismissed on 3

rd

March, 2017

and 26

th

May, 2017, both on merit as well as on delay. The said orders

have also been impugned before us along with the common impugned

judgment dated 2

nd

June, 2016.

SUBMISSIONS OF THE APPELLANT-STATE

15. Mr. Balbir Singh, learned senior advocate, appeared for the State and

prayed for interference with the impugned judgment which, according

to him, is wholly erroneous apart from being illegal.

16. Points argued on behalf of the State by Mr. Singh are encapsulated

hereunder:

21

RA-CW No.82/2017 in CWP No.17958 of 2005 and RA -CW No.84/2017 in CWP No.14306

of 2005

10

Respondents are bound by the enhancement of royalty/dead rent

a. Referring to the 1964 Rules, particularly Rules 10(5) and 21(1)(i)(a), Mr.

Singh contended that every mining lease is subject to these rules. This

position was reiterated in clause 13 of the AUCTION NOTICE and clause 9

of the LoA. Moreover, clause 3 of Part III of the lease deed itself provides

that “the lessee/lessees shall also pay for every year dead rent at the

rate specified in Schedule II of the Rules …” (emphasis supplied by Mr.

Singh). According to Mr. Singh, these provisions leave no manner of

doubt that the respondents accepted the leases with full knowledge that

the statutory regime under the 1964 Rules governed the same (including

the provisions relating to enhancement of dead rent and royalty) and,

thus, were bound thereby.

b. Next, Mr. Singh contended that Rule 21(1)(i)(a), by using the word

“shall” casts a mandatory obligation on every lessee to pay royalty at

the rates specified in the First Schedule, while its proviso further

mandates payments at rates specified “from time to time”. Although Rule

21 had not been expressly reproduced in the lease deed, its applicability

was expressly incorporated in both the AUCTION NOTICE and the LoA. In

any event, Rule 21 being the statutory edict governing the lease, its

operation cannot be excluded, ignored, or diluted merely because it is

not specifically set out in the lease deed.

c. Inviting our attention to the decision of this Court in Mineral Area

Development Authority v. SAIL

22

[9-J], Mr. Singh submitted that the

22

(2024) 10 SCC 1

11

State acts as the trustee for all minerals and has the constitutional duty

to regulate their exploitation in public interest. “The fact that the State

Government cannot alter the clauses in the mining lease cannot be

understood to mean that all the powers of the State with respect to

regulation of mines and mineral development as well as the power to

tax mineral rights have been extinguished”

23

was referred to with great

emphasis by him.

d. Referring to Section 9 of the MMDR Act, Mr. Singh submitted that it is

the charging provision for royalty but does not itself prescribe the rate

or method of computation. Those are provided in the Second Schedule,

making the charging and computation provisions an integrated statutory

scheme. Reliance was placed on paragraphs 23 and 24 of the decision

in National Mineral Development Corpn. Ltd. v. State of M.P.

24

.

e. Continuing further, Mr. Singh placed paragraph 42 of the decision in

State of Rajasthan Vs. J. K. Synthetics

25

, where this Court held that

when vide amendment in the rules, the rate of interest was enhanced,

then any stipulation in the lease deed prescribing a lower rate of interest

would necessarily yield to the statutory mandate (amended rules)

(emphasis supplied by Mr. Singh).

f. Paragraphs 47 and 48 from the decision in D.K. Trivedi & Sons v. State

of Gujarat

26

was next cited where this Court held that the power of the

23

para 231 of Mineral Area Development Authority (supra)

24

(2004) 6 SCC 281

25

2011 (12) SCC 518

26

1986 Supp SCC 20

12

State Government to prescribe royalty or dead rent under Section 15(1)

by framing rules necessarily carries with it the power to amend, vary,

enhance or reduce the rates so prescribed.

Enhancement in rate of royalty was an informed decision and not a

decision taken without material

g. Mr. Singh submitted that before enhancing the rates, the rates in

neighbouring States were considered. Although a sub -committee was

initially proposed, the matter proceeded on the basis of comparative

material already available. Further, the State Governme nt was

statutorily competent under the MMDR Act to revise the royalty rates

after the expiry of three years. In the present case, although the

previous revision in Haryana was effected in September 1999 with an

enhancement of 100%, the subsequent revision was made only on 3

rd

June, 2005, after a lapse of about five and a half years, and even then

the increase was restricted to 50% and received the approval of the then

Chief Minister.

h. Reliance was placed on paragraph 52 of the decision in Kirloskar

Ferrous Industries Ltd. v. Union of India

27

to contend that policy

matters, including computation and levy of royalty on minerals, fall

within the exclusive domain of the executive and are not to be tested on

merits by courts.

27

(2025) 1 SCC 695

13

There were no violations of the Rules of Business

i. Mr. Singh’s final contention was that the amendment dated 3

rd

June,

2005 cannot be invalidated for alleged non-compliance with the Rules of

Business. The Rules, framed under Article 166 of the Constitution of

India are directory, and not mandatory, and substantial compliance is

sufficient as held in the decision in Narmada Bachao Andolan v. State

of M.P.

28

. Reliance was placed on paragraphs 33-37 of this decision to

support the contention.

j. Alternatively, Mr. Singh submitted that the alleged violations (of Rules

5, 7, 11 and 31) are irrelevant, as those provisions govern executive

action, whereas the present case concerns delegated legislation. In

support, he relied on Rule 4, the opening provision under the heading

"Part I – Disposal of Business", which reads as follows:

The Council shall be collectively responsible for all executive orders issued

in the name of the Governor in accordance with these rules whether such

orders are authorised by an individual Minister on a matter pertaining to his

portfolio or as a result of discussion at a meeting of the Council or

howsoever otherwise.

(emphasis supplied by Mr. Singh)

The above, Mr. Singh pointed out, goes to show that the Rules apply to

“executive orders”. For delegated legislation, such as the 1964 Rules,

rules 48

29

and 49

30

of the Rules of Business only require ordinary

reference to the Law Department.

28

(2011) 12 SCC 333

29

48. Whenever it is proposed in any Department, other than the Law Department:-

(i) to issue a statutory rule, notification or order; or

(ii) ….

(iii) ….

the draft shall ordinarily be referred to the Law Department for opinion and for

revision where necessary.

30

49. (1) All Administrative Departments shall consult the Law Department on-

14

k. Mr. Singh further contended that consultation with the Finance

Department was also not mandatory, as rule 7 of the Rules of Business

requires prior consultation with the Finance Department only when an

“order” will “affect the finances of the State”. Rule 7 reads as follows:

7. (I) No Department shall without previous consultation with the Finance

Department, authorise any orders (other than orders pursuant to any

general delegation made by the Finance Department) which:-

(a) either immediately or by their repercussion will affect the finances of

the State or which, in particular-…

***

(emphasis supplied by Mr. Singh)

l. Since the amendment, by enhancing royalty and dead rent, increased

the State revenue and did not adversely “affect the finances of the

State”, Mr. Singh submitted that there was no requirement to consult

the Finance Department. In this context, reference was again made to

Narmada Bachao Andolan (supra) and it was submitted that

compliance with the Rules of Business may be mandatory when a

decision entails adverse financial implications for the State, particularly

where an expense is not backed by an Appropriation Act, but remain

directory where there is no adverse financial implication and substantial

compliance suffices.

SUBMISSIONS ON BEHALF OF THE RESPONDENTS

17. Mr. Dhruv Mehta and Mr. Yashraj Singh Deora, learned senior counsel,

appeared for M/s. FGM and M/s. GESM, respectively.

(a) the construction of statutes, Acts, regulations and statutory rules, orders and

notifications;

(b) …

(c) ….

15

State (Appellant) is bound by the terms of the lease

a. Mr. Mehta referred to the lease deed to highlight that there was no

provision therein which enabled the State (or reserved its liberty) for

any increase. The parties being bound by the terms of the lease deed,

increase in rates vide notification dated 3

rd

June, 2005 cannot apply to

the respondents.

b. Although the proviso to Rule 21(1)(i)(a) of the 1964 Rules mandates for

payment of royalty at rates notified from “time to time”, Mr. Mehta

highlighted that the deed consciously departed from that formulation by

fixing a specific rate without providing for future increase.

c. Referring to Rule 21(1)(i)(a), it was argued that the said rule contains

no non obstante clause permitting it to override the terms of the lease.

d. Next, it was urged that a contractual stipulation entered into pursuant

to statutory power does not become invalid merely because it limits the

future exercise of another statutory power. Thus, the power to increase

royalty would operate subject to the binding terms of the statutory

contract, and would stand restricted to that extent. Reliance was placed

on paragraphs 14–16 of the decision in Indian Aluminium Co. v.

Kerala State Electricity Board

31

.

e. Parties may waive a statutory benefit, and the State did so by entering

into a lease deed that did not reserve its power to increase royalty. This

31

(1975) 2 SCC 414

16

was the next point urged by Mr. Mehta, placing reliance on paragraphs

7 and 8 of the decision in Sita Ram Gupta vs PNB

32

.

f. Mr. Mehta then argued that reference to Rule 21 in the AUCTION NOTICE

and the LoA is immaterial, since the finally executed lease deed contains

no such stipulation. In this context, reliance was placed on paragraph

54 of the decision in Joshi Technologies International Inc. v. Union

of India

33

, wherein this Court while interpreting the terms of a contract

[Product Sharing Contract (PSC)] held that the benefit (deductions

under Section 42 of the Income Tax Act) cannot be claimed by the

petitioner therein as the same did not form a part of the contract, even

though the other party to the contract had admitted that the said benefit

was not made part of the contract due to an inadvertent error.

g. The repeal of the 1964 Rules and promulgation of the Haryana State

Minor Mineral Concession, Stocking, Transportation of Minerals, and

Prevention of Illegal Mining Rules, 2012

34

, according to Mehta, is

significant. The model form for lease deeds (Form ML-1), appended to

these Rules, specifically provides that the “lessee shall pay royalty … at

the rates as per First Schedule … Rules, 2012 and as may be revised by

the State Government from time to time.” Building upon this, it was

submitted that the very fact that the State found it necessary to amend

the prescribed form of contract/mining lease so as to expressly

incorporate a stipulation for revision of royalty clearly demonstrates that

32

(2008) 5 SCC 711

33

(2015) 7SCC 728

34

2012 Rules

17

under the earlier lease form, no right was reserved to revise royalty

during the subsistence of the lease.

h. Reliance on the decision in D.K. Trivedi & Sons (supra) by the State

was commented to be misplaced as in the said case, the mining lease

itself provided that royalty will be payable "at the rates for the time being

in force under Schedule-I to the Gujarat Mineral Rules, 1966".

Notification dated 3

rd

June, 2005 is bad for violation of the Rules of

Business which mandated prior consultation with the Finance

Department and approval by Council of Ministers

i. In response to the State’s contention that the Rules of Business are

merely directory, it was submitted on behalf of the respondents that they

are mandatory. Reliance was placed on paragraph 92 of the decision in

MRF Limited vs. Manohar Parrikar

35

.

j. In continuation, Mr. Mehta submitted that the argument now advanced

by the State that the Rules of Business framed under Article 166(3) are

directory was also raised in MRF Limited (supra) by placing reliance on

the Constitution Bench decision of this Court in R. Chitralekha vs.

State of Mysore

36

, but was rejected. This Court clarified that R.

Chitralekha (supra) had been misread, as the observations therein

were made in the context of clauses (1) and (2) of Article 166 and not

clause (3). Paragraph 77 from the decision in MRF Limited (supra) was

relied on in this behalf.

35

(2010) 11 SCC 374

36

AIR 1964 SC 1823

18

k. Next, it was submitted that the Rules of Business are applicable not only

to executive actions but also to legislative actions. In this context, our

attention was invited first to Rule 5 of the Rules of Business, which

provides that “Subject to the orders of the Chief Minister under rule 11,

all cases referred to in the Schedule-I shall be brought before the

Council…” and thereafter to cases referred in Schedule-I, which as per

Rule 5 are required to be brought before the Council. The heading of

Schedule-I is “SCHEDULE-I, (See Rules 5 and 11)”. Mr. Mehta highlighted

a few entries in the Schedule to show that some of th em relate to

legislative functions. He sought to impress upon us that proposal for

amendment of rules and regulations (Serial Nos. 2

37

, 4

38

and 7

39

), for

legislation (Serial No. 9

40

), and for imposition of a new tax (Serial No.

10

41

), are all required to be dealt with in accordance with Rules 5 and

11 of the Rules of Business. These cases, it was submitted, are

legislative in nature. Thus, the State’s argument that the Rules apply

only to executive functions is misconceived.

37

Proposals for the making or proposals involving amendment, other than routine

amendment of rules regulating the recruitment and the conditions of service of—

(a) Persons appointed to the Secretariat staff of the Assembly [article 187(3)];

(b) officers and servants of the High Court under article 229, provisos to clauses

(I) and (2);

(c) persons appointed to the public service and posts in connection with the

State(proviso to article-309).

38

Proposals for the making or amending of rules under article 234.

39

Proposals for making or amending regulations under article 318 or under the proviso to

clause (3) of article 320.

40

Proposals for legislation, including the issue of Ordinance under article 213 of the

Constitution.

41

Proposals for the imposition of a new tax, or any change in the method of assessment,

or the pitch of any existing tax, or land revenue, or irrigation rates or for the raising of

loans on the security of revenues of the State, or for giving of a guarantee by the

Government of the State.

19

l. The decision to increase the rate of royalty and dead rent was criticised

by Mr. Mehta as bad for want of consultation with the Finance

Department and for approval by the Council based on the following

points.

i. Any such decision will affect the finances of the State. Rule 7 of the

Rules of Business mandates that no order on a proposal which “will

affect the finances of the State” shall be authorised “without previous

consultation with the Finance Department”. Such consultation was,

therefore, mandatory but was not undertaken.

ii. Further, Rule 5 provides that “all cases referred to in the Schedule-I

shall be brought before the Council”. Entry 11 of Schedule-I covers

“Any proposal which affect the finances of the State which has not

the consent of the Finance Department.” Since the decision to

enhance the rates was likely to affect finances of the State and lacked

consent of the Finance Department, it required approval of the

Council. Instead, it was approved only by the Minister-in-Charge of

Mining, who was then the Chief Minister.

m. The contention that consultation with the Finance Department is

mandatory only where the proposal adversely affects State finances, and

merely directory where it enhances State revenue, it was asserted, is

misconceived. The expression “affect the finances of the State” cannot

be read restrictively to mean “adversely affect”, as that would amount

to adding words to the provision. “Affect” must include both positive and

negative financial consequences. It was further argued that:

20

i. The scheme of the Rules also militates against such an

interpretation. Rule 7 uses the word “affect” in relation to grants,

including mining rights, which may have either a positive or negative

impact on State finances. Likewise, Entry 10 of Schedule-I refers to

proposals for imposition of new taxes, which would ordinarily

augment State revenue. These provisions show that “affect” is used

broadly, not merely in the sense of adverse financial impact.

ii. A word of everyday use, unless defined in the statute, must be

construed in its popular and ordinary sense. There is nothing in the

Rules of Business to indicate that the word “affect” was intended to

mean only “adversely affect”.

iii. Reliance was placed upon the decision of this Court in Haridwar

Singh v. Bagun Sumbrui & Ors.

42

. In that case, a decision which

would have enhanced the revenue of the State had been taken

without consultation with the Finance Department. While considering

Rule 10 of the Business Rules of the State of Bihar, which is pari

materia with Rule 7 in the present case, this Court held that the

requirement was mandatory and that the decision, notwithstanding

its revenue-enhancing effect, necessarily required the approval of

the Finance Department.

iv. Referring to the decision in Daniraiji Vrajlalji, Junagadh v. Vahuji

Maharaj Shri Chandraprabha

43

, Mr. Mehta submitted that this

42

(1973) 3 SCC 889

43

(1975) 1 SCC 612

21

Court recognised that the word “affect” means to alter, influence, or

have an impact on. In the statutory context considered therein, the

Court further held that the expression ordinarily means to touch,

relate to, or concern.

v. In 12

th

Edition of Black's Law Dictionary, the word “affect” has been

defined as "Most generally, to produce an effect on: to influence in

some way…”

n. Thus understood, Mr. Mehta contended that without the Finance

Department’s approval, the decision taken by the Chief Minister alone

could not have been given effect.

o. Reliance on Narmada Bachao Andolan (supra) by the appellant, urged

Mr. Mehta, is misplaced. The issue in that case was whether a decision

taken by a Committee of Ministers, comprising the Ministers in charge

of the concerned Departments and the Chief Minister, in exercise of

powers delegated by the Council of Ministers, was required to conform

to the Business Rules. In that context, MRF Limited (supra) was

distinguished on the ground that it concerned rules involving financial

implications. Even assuming that Narmada Bachao Andolan (supra)

limited the application of MRF Limited (supra), the distinction does not

assist the appellant as Narmada Bachao Andolan (supra) did not

involve any issue relating to consultation with, or approval of, the

Finance Department; whereas here, when the question specifically

concerns the mandatory requirement of approval by the Finance

Department, MRF Limited (supra) will apply with full rigour.

22

p. Finally, paragraphs 22-24 of the decision in Delhi International

Airport Ltd. v. International Lease Finance Corp.

44

were placed

where this Court held that the Business Rules specially relating to the

finances of the State and falling under Article 166(3) are mandatory and

non-compliance with the same vitiates the State action.

Notification dated 3

rd

June, 2005 is arbitrary and suffers from the

vice of non-application of mind

q. Argument advanced by Mr. Mehta was that the State had issued the said

notification and increased the rates, without considering any statutory

criteria or supporting material.

r. Reliance was placed on paragraph 15 of the decision in State of M.P. v.

Mahalaxmi Fabric Mills Ltd.

45

where this Court upheld the delegated

power to enhance royalty. The Court held that Parliament permitted

periodic revision by the Central Government to account for inflation and

the falling value of money. The power was held not to suffer from

excessive delegation, as it was subject to statutory safeguards:

enhancement could be made only after the prescribed interval, had to

be guided by the object of regulation of mines and mineral development,

and was subject to parliamentary oversight under Section 28.

s. Building on the above, Mr. Mehta submitted that after expiry of three

years under the proviso to Section 15(3) of the MMDR Act, the State is

merely enabled, not bound, to revise royalty having regard to inflation

44

(2015) 8 SCC 446

45

1995 Supp (1) SCC 642

23

and the fall in money value. Any enhancement beyond such adjustment

must be supported by relevant material and objective reasons. In the

present case, the 50% increase in royalty was arbitrary, having been

proposed merely because three years had elapsed since the last

revision, without any objective basis for fixing the increase at 50%.

t. It was further submitted that the enhancement disregarded the most

relevant statutory consideration, namely uniform development and

conservation of minerals. Although the State had called for royalty rates

in neighbouring States and found them to be substantially lower, ranging

between Rs. 8–15 per tonne, it ignored this data and enhanced the rate

from Rs. 24 to Rs. 36 per tonne. Neither rate reflected price uniformity

or uniform mineral development. Such disparity would distort mineral

prices, incentivise procurement from adjoining States where minerals

are cheaper, and defeat the objective of uniform mineral development

within Haryana.

u. Even though the State itself contemplated constitution of a Sub -

Committee and even after having found that existing rate in Haryana

(Rs. 24 per tonne) was already higher than neighbouring States, Mr.

Mehta complained that the State, without formulation of such a

committee or placing any fresh material on record, proceeded to

increase the rates.

v. Furthermore, Mr. Mehta commented that any argument of increase in

rates being for the purpose of augmentation of revenue is equally

unsustainable. The record shows that only two leases of the respondents

24

were operational in the District of Faridabad, and the enhancement

would apply only to them. At the same time, the State continued to grant

mining contracts under which no royalty was payable (only a fixed

contractual amount was to be paid). Thus, the decision not being based

on any rational revenue consideration, was an arbitrary exercise of

discretion.

Without prejudice, if the present appeals were to be allowed, a

reasonable interest rate on the arrears of royalty ought to be

awarded.

w. Without prejudice to the above contentions, Mr. Mehta and Mr. Deora

submitted that if this Court were inclined to allow the present appeals,

then the interest rate to be charged on the arrears of royalty ought to

be waived. It was highlighted that the notification dated 3

rd

June, 2005

remained stayed from 4

th

May, 2006 till the High Court’s judgment dated

2

nd

June, 2016. The State thereafter approached this Court after a delay

of 245 days, and the matter has remained pending for years, with

repeated adjournments sought by the State. The mining lease expired

on 5

th

February, 2009 and all commercial transactions related to the

same stand closed. Respondents did not recover the enhanced royalty

from purchasers. Any liability would, therefore, fall directly on the

respondents. Further, the State’s own subsequent rules, i.e., the 2012

Rules, reduced interest on delayed royalty from 15–21% to 12% per

annum, while prevailing bank rates are substantially lower. In these

circumstances, and in light of South Eastern Coalfields Ltd. v. State

25

of M.P.

46

, it was submitted that the respondents be not saddled with

any interest.

ISSUES

18. Having heard learned senior counsel appearing for the parties, the

following issues arise for our consideration:

I. Whether, in the absence of any stipulation in the lease deed

subjecting the lease to statutory rules (providing for fluctuating or

revised rates of royalty and dead rent), the State was precluded from

enhancing the rate of royalty after execution of such deed?

II. Whether the enhancement of royalty was arbitrary and unsustainable

for want of empirical data or rational basis?

III. Whether the decision to enhance royalty stood vitiated for violation

of the Rules of Business?

ANALYSIS

19. We propose to answer the issues in seriatim.

20. However, to avoid prolixity, the multiple precedents relied on by the

parties are not being individually referred to, except when considered

imperative. Nonetheless, we intend to draw guidance from those

precedents to navigate the principles emerging therefrom and maintain

consistency in law while addressing the complexities of the issues

involved.

46

(2003) 8 SCC 648

26

ISSUE I

21. Does a statutory contract entered into by and between the Government

of a State (lessor) and a private party (lessee), containing various terms

and conditions for regulation of mining in the leasehold area, forecloses

the Government’s right to exercise a statutory power which though

otherwise available is not expressly mentioned in the contract? The

answer to this question, ordinarily, would be in the negative. A contract

cannot foreclose the Government from exercising a statutory power is

the settled law. However, there is an exception, i.e., if the statute itself

allows contracting out of that power and giving up that statutory power

by the Government is a part of the agreed terms of the contract.

22. The reason seems to be this. 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.

23. Now, where statutory power is granted for public purposes or regulatory

functions, the Government cannot by entering into a contract surrender,

restrict, or abdicate that power. If the power is statutory and regulatory,

such power would survive despite the contract. The contract would bind

the Government only to the extent it does not conflict with the statute,

on the principle that though the contract governs commercial terms, yet,

the terms cannot restrict the exercise of a statutory power, if available.

27

In two conceivable situations, we would think that the contract could

prevail. First, if the statute itself says that the Government may enter

into agreements and be bound by the terms thereof, irrespective of what

the statute says (which is quite unlikely), and secondly, if the power to

contract is exercised by the Government while acting like a private party

(happens quite often) and where the contract is the complete code, for

example, like in pure business/commercial deals of supply contract,

disposal of property not regulated by statute, taking office space on rent,

making contractual appointments, etc. In such cases, no public element

is likely to be involved except that there too the State action has to be

fair and not arbitrary.

24. 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.

25. Bearing these principles in mind, we proceed to decide the first issue.

26. As discussed under the heading ‘FACTS’, the lease deed in the present

case was preceded by an Auction Notice and the LoA, both of which

specifically contained a stipulation that Rules 10 and 21 of the 1964

Rules shall apply. Be that as it may, the lease deed is silent about

28

application of such Rules. Should applicability of the relevant provisions

of the 1964 Rules be not read into the lease deed? The answer is clearly

‘YES’.

27. In the peculiar facts and circumstances of the present case and for the

reasons that follow, we hold the requirement to comply with Rules 10

and 21 of the 1964 Rules formed an implied condition in the lease deed.

28. 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.

29. According to us, the combined effect of Section 15 of the MMDR Act and

Rules 10 and 21 of the 1964 Rules makes it evident that the liability of

a lessee to pay royalty and dead rent is not frozen on the date of

execution of the mining lease, but remains su bject to revision in

accordance with the statutory rules framed by the State Government.

a. Section 15(1) empowers the State Government to frame rules regulating

the grant of mining leases and other mineral concessions in respect of

29

minor minerals. In exercise of the said power, the 1964 Rules were

framed and later adopted by the State.

b. Section 15(3) further mandates that the holder of a mining lease shall

pay royalty or dead rent “at the rate prescribed for the time being” in

the rules framed by the State Government. The expression “for the time

being” clearly indicates that the rates are dynamic and subject to

revision from time to time. The proviso merely restricts the frequency of

enhancement by stipulating that such enhancement cannot be made

more than once within a period of three years.

c. Rule 10(2), which governs leases granted by public auction, specifically

provides that the annual dead rent determined on the basis of the

highest bid shall be subject to enhancement up to 50% after expiry of

three years of the lease period. Thus, the rule itself incorporates a

statutory condition permitting enhancement of dead rent during the

subsistence of the lease.

d. Further, Rule 21, which prescribes the conditions of every mining lease,

reinforces the same position. Rule 21(1)(i)(a) expressly provides that

the lessee shall pay royalty at the rates specified in the First Schedule

and further stipulates, by way of the proviso, that the lessee shall pay

royalty “at such revised rates as may be notified from time to time.” The

proviso is significant because it expressly reserves to the State

Government the power to revise royalty rates during the subsistence of

the lease, and correspondingly obligates the lessee to pay royalty at the

revised rates.

30

e. Similarly, Rule 21(1)(iii) provides that the lessee shall pay yearly dead

rent “as may be fixed by the Government” within the limits prescribed

in the Second Schedule. The term “as may be fixed by the Government”

indicates that the fixation of dead rent is a statutory determination by

the Government and is not an immutable contractual term.

30. Therefore, 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.

31. Our conclusion is further fortified by the fact that both the AUCTION NOTICE

and the LoA expressly stipulated that the lease would be governed by

Rules 10 and 21 of the 1964 Rules. Thus, at every material stage

preceding execution of the lease deed, the applicability of the said Rules

was made clear to the lessee. The omission of this stipulation from the

lease deed, for reasons best known to the State, was undoubtedly

avoidable, and it would have been desirable for the lease deed to have

incorporated the condition in express terms. However, such omission

cannot efface the statutory character of the lease or dilute the binding

force of the rules under which the lease was granted.

31

32. 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. 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.

33. In J.K. Synthetics Ltd. (supra), though not concerned with

enhancement of royalty or dead rent, this Court recognized the broader

principle that the terms of a mining lease must yield to the statutory

rules governing the lease. In that case, the lease deed provided for

interest at the rate of 10% per annum on delayed payment of royalty.

32

However, Rule 64-A of the Mineral Concession Rules, 1960 was

subsequently amended to prescribe interest at the rate of 24% per

annum. It was held that, from the date of such amendment, any term

in the lease deed prescribing a lesser rate of interest would have to yield

to the amended statutory rule, since the rule would prevail over the

contractual stipulation in the lease deed. The decision proceeds on the

premise that a mining lease, governed by the statutory rules under

which it is granted, cannot be construed as a closed contract immune

from subsequent statutory modifications. Paragraph 42 of the decision

is instructive and, hence, reproduced below:

42. The contesting respondent in the last case (Shree Cement) raised an

additional contention. It was submitted that Clause VI(iii) of the lease deed

in its case provided that any royalty which was not paid within the

prescribed time shall be paid with simple interest at the rate of 10% per

annum. It is therefore contended that the interest on any arrears cannot be

more than 10% per annum in its case. The lease is governed by the Mineral

Concession Rules, 1960 and execution of the lease deed is itself in

compliance with one of the requirement of the Rules, namely, Rule 31. Once

Rule 64-A was amended by Notification dated 20-2-1991 increasing the rate

of interest to 24% per annum, any term in the lease deed prescribing a

lesser rate of interest, shall have to yield to Rule 64-A from that date as the

Rule will prevail over the terms of the lease. This position is evident from

the decision in South Eastern Coalfields [(2003) 8 SCC 648] also.

(emphasis ours)

34. Respondents relied on paragraphs 14 to 16 of the decision in Indian

Aluminium Co. (supra) to contend that since the lease deed in the

present case was executed in exercise of statutory powers, it would

remain valid even if it fettered the future exercise of other statutory

powers, namely, the power to enhance the rate under Rules 10 an d 21.

Relevant portions of those paragraphs are reproduced below:

33

14. ….. The discussion of these two cases shows that the principle that a

public authority cannot by contract fetter the exercise of the statutory

power, which is conferred upon it for the public good, is limited in its

application to those cases where the attempt to do so is otherwise than by

the valid exercise of a statutory power.

15. … To put it differently, where a stipulation in a contract is entered into

by a public authority in exercise of a statutory power, then, even though

such stipulation fetters subsequent exercise of the same statutory power or

future exercise of another statutory power, it would be valid and the

exercise of such statutory power would pro tanto stand restricted. That

would follow on the principle of harmonious construction . The public

authority would not, in such a case, be free to denounce the stipulation as

a nullity and claim to exercise its statutory power in disregard of it. If that

were permissible, it would mean that the stipulation has no binding force

and the public authority has no statutory power to enter into such

stipulation. But that would be plainly contradictory of the premise on which

the argument is based.

16. The distinction must always, therefore, be borne in mind whether the

stipulation by which the public authority is alleged to have fettered in

advance the future exercise of the statutory power, is one which is entered

into as part of “private contract in general terms”, or in exercise of a

statutory power. If it is the former, the stipulation would be bad on the

principle that a public authority cannot by contract fetter the exercise of a

statutory power which is conferred upon it for the public good. But if it is

the latter, the stipulation being in exercise of a statutory power would be

valid and it would not be open to the public authority to disregard the

stipulation and exercise the statutory power inhibited or fettered by it. This

last statement, must, however, be qualified by making it clear that a case

may conceivably arise where there may be an overriding statutory provision

which expressly or by necessary implication authorises the public authority

to set at naught, in certain given circumstances, a stipulation though made

in exercise of a statutory power. Where there is such a statutory provision,

the stipulation would certainly be binding, but when the specified

circumstances arise, the public authority would have the power to override

the stipulation and act in derogation of it. But that again would be a matter

of construction.

(emphasis supplied by Mr. Mehta)

35. 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

34

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.

36. One must also not lose sight of the fact that the lease deed executed in

the present case was in the model form prescribed under the 1964 Rules.

Upon the repeal of those Rules and the introduction of the 2012 Rules,

a more precise model form of mining lease came to be formulated. Form

ML-1, appended to the 2012 Rules, specifically provides that the “lessee

shall pay royalty … at the rates as per First Schedule … Rules, 2012 and

as may be revised by the State Government from time to time.” This

subsequent formulation may indicate that the model form has since been

made more explicit. However, it cannot be interpreted to mean, as the

respondents contend, that under the earlier model form of contract or

mining lease, the State had no authority to revise the rate of royalty

during the subsistence of the lease.

37. Therefore, enhancement of the rates in the present case is neither

unjustified nor illegal. Thus, this issue is answered in favour of the State.

ISSUE II

38. We are unable to accept the contention of the respondents that the

decision to enhance the rates vide notification dated 3

rd

June, 2005

suffers from either arbitrariness or non-application of mind.

35

39. As highlighted by Mr. Singh, the State did not proceed in the absence of

material. Though the State had initially contemplated the constitution of

a sub-committee, such sub-committee was eventually not constituted;

however, that circumstance by itself does not vitiate the decision to

revise the rates. Before such revision, the State had called for and

considered the rates prevailing in the neighbouring States, and once

comparative material was available and taken into account by the

competent authority, that ruled out any allegation of the matter being

dealt with mechanically.

40. 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.

41. In the present case, the enhancement cannot be said to be unreasonable

or disproportionate. The earlier revision had taken place in September

1999. The impugned revision was made only in June 2005, after a lapse

of about five and a half years. Unlike dead rent, which can be increased

36

by a maximum of 50% after every three years, there is no maximum

cap for royalty. Proviso to Rule 21(1)(i)(a) only provides that royalty is

to be paid at “such revised rates as may be specified from time to time”.

Therefore, an enhancement after more than five years, and that too by

50% (which is within the ceiling contemplated for dead rent, if used as

a comparable benchmark) cannot be characterised as excessive or

arbitrary.

42. 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.

43. Assuming that the rates in neighbouring States were lower, this does not

render the State’s decision arbitrary. Comparative rates are a relevant

input, but they do not bind the State to adopt the lowest prevailing rate

in the region. The State was entitled to consider its own circumstances,

its existing rates, the lapse of time since the previous revision, and the

statutory permissibility to revise the rates. Once the decision is shown

to be based on relevant material and to fall within the permissible

statutory limits, the Court would not substitute its own assessment for

that of the competent authority.

44. We, therefore, hold that the notification dated 3

rd

June, 2005 was issued

after due consideration of relevant material, was within the competence

37

of the State, and cannot be struck down on the ground of arbitrariness

or non-application of mind. This issue too is, thus, answered in favour

of the State.

ISSUE III

45. Both Mr. Singh and Mr. Mehta took us through the Rules of Business and

advanced elaborate submissions on whether the said rules are

mandatory or directory, whether they stood violated in the present case,

and whether their mandatory character is attracted only in matters

involving financial implications. However, before adverting to the merits

of these submissions, we deem it appropriate in the passing to refer to

a fundamental flaw in the writ petitions filed by the respondents before

the High Court.

46. Bare perusal of the amended writ petitions reveals absence of any

pleading to the effect that the Rules of Business were violated. It was

only in the application of M/s. FGM seeking permission to rely on

additional documents that such a plea was raised. In such application,

reference was made to an additional affidavit filed earlier on 8

th

May,

2010 (not on record). However, no formal further amendment of the

amended writ petition was sought by M/s. FGM. In the absence of any

such pleading, should the High Court have ventured to decide that

question?

47. If the proceedings before us had arisen from a suit instituted under and

governed by the provisions of the Code of Civil Procedure, 1908, we

38

would naturally have been strict with the rules of pleadings. However, in

the present case, we find from an order dated 22

nd

July, 2015

47

that the

State had filed a reply to the application seeking permission to rely on

additional documents. Therefore, notwithstanding that the writ petition

of M/s. FGM was not further amended, it is not a case where, because

of lack of the requisite pleadings, the State was taken by surprise.

48. Since we have been addressed by the parties quite elaborately, and

independent of the conclusion recorded above as to lack of pleadings,

we wish to examine the issue because of its importance.

49. In MRF Limited (supra), an individual minister had taken a decision

contrary to the Business Rules and without informing either the Council

of Ministers or even the Chief Minister of Goa, who heads the Council.

The declaration of law in MRF Limited (supra) is to the effect that the

Business Rules framed under the provisions of Article 166(3) of the

Constitution are mandatory and must be strictly adhered to and any

decision by the Government in breach of these Rules will be a nullity in

the eye of the law.

50. On facts and in the circumstances found by this Court, certain other

observations were also made which assume importance for a decision

on these appeals as discussed hereafter. The relevant observations

read:

72. … Therefore, if it is held that the non-compliance with these Rules does

not vitiate the decisions taken by an individual Minister concerned alone,

the result would be disastrous. In a democratic set-up the decision of the

47

of the High Court in CWP No. 17958 of 2005

39

State Government must reflect the collective wisdom of the Council of

Ministers or at least that of the Chief Minister who heads the Council .

The fact that the decisions taken by the Minister alone were acted upon by

issuance of notification will not render them decisions of the State

Government even if the State Government chose to remain silent for a

sufficient period of time or the Secretar y concerned to the State

Government did not take any action under Rule 46 of the Business Rules.

If every decision of an individual Minister taken in breach of the Rules are

treated to be those of the State Government within the meaning of Article

154 of the Constitution, the result would be chaotic. The Chief Minister

would remain a mere figure head and every Minister will be free to act on

his own by keeping the Business Rules at bay. Further, it would make it

impossible to discharge the constitutional responsibility of the Chief Minister

of advising the Governor under Article 163. Therefore, it is difficult to accept

the contentions of the appellants that the Business Rules are directory.

(emphasis ours)

51. The declaration of law in MRF Limited (supra) has to be read and

understood bearing in mind the facts of the case before the Court. After

perusing the facts of MRF Limited (supra), we are of the opinion that

the law laid down therein cannot be applied in full to the present case,

as the facts are distinguishable. The decision to revise the rates was not

taken by an individual minister but by the Minister-in-charge of Mining

who was none other than the Chief Minister himself. Thus, the

requirement of approval of the Chief Minister is satisfied in the present

case, unlike in MRF Limited (supra).

52. The insistence by this Court in MRF Limited (supra) on compliance with

the Business Rules in matters having financial implications is

understandable and we are ad idem with the reasoning and conclusion

therein. If any individual minister takes a decision without complying

with the Business Rules in matters of public importance (which must

necessarily depend on the facts of each case) in a manner that affects

the finances of the State and if such decision, expressed in the name of

40

the Governor and authenticated as required by clauses (1) and (2) of

Article 166, is passed off as a decision of the State Government,

obviously such decision cannot be saved by urging that the Business

Rules are directory and not mandatory. Regardless of the technical

character of the Business Rules, matters touching upon the public

exchequer are too vital to be dealt with without the knowledge and

approval of the Chief Minister. What is relevant, therefore, is that

decisions impacting the finances of the State should have the imprimatur

of the Chief Minister.

53. Notwithstanding our concurrence with the decision in MRF Limited

(supra) relied on by the respondents, for the reasons already noted, we

regret, the said decision does not advance their cause.

54. The decisions in Haridwar Singh (supra) and Delhi International

Airport Ltd. (supra) have been perused.

55. In Haridwar Singh (supra), the decision taken by the Minister in-

charge of the Forest Department was held to violate the Business Rules

of Bihar, though it was in furtherance of the financial interest of the

State. We have not found from the discussion the involvement and

approval of the Chief Minister, not to speak of his knowledge, in the chain

of events giving rise to the writ petition.

56. In Delhi International Airport Ltd. (supra), this Court was tasked to

consider Rule 4 of the Government of India (Transaction of Business)

Rules, 1961 which, inter alia, provided for consultation with the Finance

Department; and, the decision reached by multiple departments was

41

held to be bad for want of consultation with the Finance Department. In

the absence of any discussion on the role assigned to the Prime Minister,

we do not consider this decision to be relevant for our consideration.

57. Before concluding the discussion on the contentious issue (the State

contending that the Business Rules are directory and the respondents

contending that they are mandatory when matters pertaining to finances

are concerned), we wish to develop what paragraph 72 of MRF Limited

(supra) intended to convey. Articles 154 and 163 of the Constitution

instruct us that the executive power of the State shall be vested in the

Governor who shall, in the exercise of his functions , be aided and

advised by a Council of Ministers with the Chief Minister at the head.

Financial decisions of the State, by their very nature, form part of the

collective responsibility of the Council and would necessarily require the

knowledge and approval of the Chief Minister. It is a constitutional

necessity. Any purported fiscal decision, even if taken by the Council of

Ministers or the Finance Department ought not to be given effect without

the involvement and approval, or at least the knowledge, of the Chief

Minister. This is what MRF Limited (supra) emphasises. To hold

otherwise would be to permit a parallel centre of power, which the

Constitution does not envisage. This could violate the scheme of

constitutional governance and collective responsibility and, thus, render

such decision susceptible to a successful challenge . Therefore,

irrespective of who the decision maker is or how the decision came to

be made, any decision taken in relation to finances without the Chief

42

Minister at the helm is not to be construed as a decision of the

Government. Whether the Business Rules under clause (3) of Article 166

are mandatory or directory, cannot be decided without keeping this

aspect in mind.

58. 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.”

59. To establish that the decision of the Chief Minister did ‘affect’ the

finances of the State and the proposal for increase did not have the

consent of the Finance Minister, appropriate pleadings in the amended

writ petitions or, even in the application that was filed by M/s. FGM, were

a sine qua non.

60. No such pleadings exist in the amended writ petition.

61. However, there is a faint averment in the application. Relevant excerpt

from the additional affidavit (as reproduced in the application filed by

M/s. FGM seeking permission to rely on additional documents) reads as

follows:

Thus it is apparent from the above, that the notification dated 03.06.2005

providing for increase in royalty by 50% i.e. from Rs. 24/- per tonne to Rs.

36 per tonne, as well as increases in dead rent from Rs.1,000/ - to

Rs.2,000/- per hectare were proposals for the change in "the pitch of any

existing tax" and also affects the finances of the State which had not the

consent of the Finance Department, therefore in terms of the provisions of

Rule 5 read with Rule 11, the said proposal for issuance of the impugned

43

notification had to be approved by the Council of Ministers. The impugned

notification suffers from procedural irregularity and is otherwise bad in law.

The above is the only pleading of the respondents in support of their

contention that the proposal for increase in the rate of royalty and dead

rent affects the finances of the State and there was no consent of the

Finance Department.

62. 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 terms of

Rule 34, the Finance Minister was empowered to call for any paper in a

case in which any of the matters referred to in Rule 7 or Rule 31 is

involved. Both Rules 7 and 31 refer to orders of the Government that

could affect the finances of the State. 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.

63. In light of approval granted by the Chief Minister, deemed consent of the

Finance Minister, increase of dead rent to the maximum limit permissible

under the 1964 Rules and increase of royalty by 50% after 5 (five) years

44

of previous increase [i.e., much after the permissible gap of 3 (three)

years], there is no room to hold that the decision to increase the rates

was vitiated because of absence of express concurrence of the Council

of Ministers or the Finance Department.

64. The contention founded on alleged violation of the Rules of Business, in

our opinion, appears to lack in substance for the foregoing reasons.

65. Thus, the challenge based on the Rules of Business fail s and,

accordingly, we answer this issue also in favour of the State.

CONCLUSION

66. The appeals deserve to be and are allowed, with the result that the

impugned judgment stands set aside.

67. Pending application(s), if any, shall stand disposed of.

68. Parties shall bear their own costs.

LIMITED RELIEF FOR THE RESPONDENTS (M/S FGM, M/S GESM AND JITENDER

KUMAR)

69. Unpaid dead rent or royalty, if any, may be realised by the State from

the respondents, according to law.

70. However, considering the submissions made by the respondents

aforenoted, namely, that the notification dated 3

rd

June, 2005 remained

stayed for a substantial period, that the mining lease itself expired on

5th February, 2009, and that the State’s subsequent statutory regime

provides for a lower rate of interest on delayed royalty, we are of the

opinion that ends of justice would be met if, instead of directing waiver

45

of interest as claimed, rate of interest on arrears of dead rent or royalty,

if imposed, be limited to 12% per annum. Ordered accordingly.

………..…………………J.

(DIPANKAR DATTA)

………… …………..………………J.

(SATISH CHANDRA SHARMA)

NEW DELHI.

July 13, 2026.