The Supreme Court of India holds that in granting a mining site license to a party, the state must undertake the necessary due diligence to determine as to whether the site has been already allotted to another party before allocating it
BLA Industries Private Limited v Union of India and another
Consolidated petitions 63 of 2015, 7 of 2016 and 120 of 2012
Supreme Court of India
NV Ramana, CJ & SCJ; K Murari & H Kohli, SCJJ
August 17, 2022
Reported by Faith Wanjiku and Bonface Nyamweya
Mining law-mineral rights- a mining permit in securing a license area- application for a mining permit- approval of application for a mining permit- procedure of securing a mining permit- where the lessee followed the right procedure in securing a license area for mining- where the state allocated a license area to two parties without undertaking due diligence to establish whether it had been allocated to another party before- what was the lawful procedure for a party seeking to secure a mining site for mining purposes- whether the state or the licensee or lessee was to blame in an instance where it was realised that a mining licence or a mining lease had been allocated to two parties- what remedy was available for the mining site lessee when the procedures of the state issuing the mining licence were proved to be unfair, ambiguous and in gross breach of the guidelines to allocate a mining licence- Forest (Conservation) Act, 1980, section 2; Mineral Concession Rules, 1960, rule 3 (7)(C); Mines and Minerals (Development & Regulation) Act, 1957, section 5(2).
The petitioner raised a grievance against the 1st respondent for having included its name and mining lease area in the schedules appended to the Coal Mines (Special Provisions) Ordinance, 2014, even though, by dint of the screening committee constituted by the Ministry of Coal, the 1st respondent had not allocated any coal block to it.
The petitioner had submitted an application dated November 8, 1994 under section 2 of the Forest (Conservation) Act, 1980 to the district collector for permission to undertake coal mining on the forest land. On November 21, 1994, the petitioner applied to the 2nd respondent in Form-I under the Mineral Concession Rules, 1960 (the Rules) for grant of a mining lease. On April 7, 1995, the petitioner submitted an application to the 1st respondent under section 5(2) of the Mines and Minerals (Development & Regulation) Act, 1957 for approval of the mining plan.
On May 15, 1995, the district collector forwarded the petitioner’s application to the principal secretary of the 2nd respondent with a recommendation for grant of a mining lease in its favour. In reply to a letter dated May 5, 1995 received from the 1st respondent seeking essential details regarding the approval of the mining plan, the petitioner furnished the necessary information under cover of letter dated May 19, 1995. On December 15, 1995, the 1st respondent issued a letter to the petitioner calling upon it to appear before the screening committee in a meeting scheduled on December 20, 1995 for screening the proposals relating to captive mining by power generation companies and companies engaged in the manufacture of iron and steel. The petitioner participated in the 9th meeting held by the screening committee on December 20, 1995.
After passage of almost a decade, a group of petitions in the nature of public interest litigations were filed before the court with the grievance that coal blocks had been arbitrarily allocated between the years 1993 to 2011 without adhering to the mandatory legal procedure prescribed under the Mines and Minerals (Development & Regulation) Act, 1957 and in breach of the relevant provisions of the Coal Mines (Nationalization) Act, 19738, to favour ineligible companies tainted with mala fides and corruption.
The Supreme Court in Manohar Lal Sharma v Principal Secretary and Others  held that the entire allocation of coal blocks, as per the recommendations made by the screening committee constituted by the 1st respondent from July 14, 1993 onwards and the allocations made through the government dispensation route after 1993 suffered from the vice of arbitrariness and were illegal.
The outcome of the illegal allocations was the subject matter of the subsequent judgment dated September 24, 2014 delivered in the same case. After carefully examining all the consequences of cancellation of the coal blocks, as put forth by the 1st respondent and the learned counsel appearing for the allottees, the court divided the coal block allotments in two categories on the basis of the documents that were furnished by the 1st respondent. Out of 46 coal blocks, mentioned in Annexure-1 and Annexure-2, 42 coal blocks were cancelled with a grace period of six months granted for the said cancellation to take effect. Pertinently, the coal blocks allocated to the petitioner were mentioned at Sr. No.22 and 23 of Annexure-1 that was extracted at the end of the second judgment, hence the appeal.
i. What was the lawful procedure for a party seeking to secure a mining site for mining purposes?
ii. Whether the state or the licensee or lesseewas to blame in an instance where it was realised that a mining licence or a mining lease had been allocated to two parties.
iii. What remedy was available for the mining site lessee when the procedures of the state issuing the mining licence were proved to be unfair, ambiguous and in gross breach of the guidelines to allocate a mining licence?
Relevant provisions of law
Constitution of India, 1950
Article 32 –fundamental rights
(1) The right to move the Supreme Court by appropriate proceedings for the enforcement of the rights conferred by this Part is guaranteed.
(2) The Supreme Court shall have power to issue directions or orders or writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, whichever may be appropriate, for the enforcement of any of the rights conferred by this Part.
(3) Without prejudice to the powers conferred on the Supreme Court by clauses (1) and (2), Parliament may by law empower any other court to exercise within the local limits of its jurisdiction all or any of the powers exercisable by the Supreme Court under clause (2).
(4) The right guaranteed by this article shall not be suspended except as otherwise provided for by this Constitution.
Forest (Conservation) Act, 1980
Section 2 – Restriction on the dereservation of forests or use of forest land for non-forest purpose
Notwithstanding anything contained in any other law for the time being in force in a State, no State Government or other authority shall make, except with the prior approval of the Central Government, any order directing—
(i) that any reserved forest (within the meaning of the expression “reserved forest” in any law for the time being in force in that State) or any portion thereof, shall cease to be reserved;
(ii) that any forest land or any portion thereof may be used for any non-forest purpose. 2
(iii) that any forest land or any portion thereof may be assigned by way of lease or otherwise to any private person or to any authority, corporation, agency or any other organization not owned, managed or controlled by Government; (iv) that any forest land or any portion thereof may be cleared of trees which have grown naturally in that land or portion, for the purpose of using it for reafforestation.
Mineral Concession Rules, 1960
Rule 3 (7)(C)- Prospecting licences and mining leases of other minerals
The applications received for grant of prospecting licences or mining leases within the area granted under reconnaissance permit for minerals other than those for which the permit has been granted, shall not be refused on the grounds that the area is not available for grant. The State Government shall dispose of such applications as per provisions of these Rules: Provided that if a prospecting licence or a mining lease for other mineral has been granted to some other applicant within the area granted for a reconnaissance permit and where the reconnaissance permit holder discovers availability of minerals covered under his permit within the area so granted subsequently for prospecting or mining of minerals other than those covered under the reconnaissance permit, he shall have the right to get such areas vacated from the licensee or the lessee, as the case may be, and such licensee or lessee shall not hinder the reconnaissance operations being undertaken by the reconnaissance permit holder.
Mines and Minerals (Development & Regulation) Act, 1957
(2) No mining lease shall be granted by the State Government unless it is satisfied that―
(a) there is evidence to show the existence of mineral contents in the area for which the application for a mining lease has been made in accordance with such parameters as may be prescribed for this purpose by the Central Government;
(b) there is a mining plan duly approved by the Central Government, or by the State Government, in respect of such category of mines as may be specified by the Central Government, for the development of mineral deposits in the area concerned:
Provided that a mining lease may be granted upon the filing of a mining plan in accordance with a system established by the State Government for preparation, certification, and monitoring of such plan, with the approval of the Central Government.
- Legal flaws went to the root of the matter of coal blocks allocation. The entire allocation of the coal blocks in terms of the recommendations made by the screening committee in 36 meetings conducted by it from July 14, 1993 onwards and the consequential allocation through the central government dispensation route were struck down as being unfair, ambiguous and in gross breach of the guidelines.
- The groundwork was done by the Tehsildar and the mining inspector who submitted a report of the proposed area which in turn was confirmed by the mine surveyor. The map of the applied area submitted by the petitioner was also certified by the divisional forest officer and a consent from the chief conservator of the forest was obtained. A mineral analysis report was sought from the petitioner and after all the aforementioned information was gathered and analyzed, the collector addressed a letter dated May 15, 1995 to the principal secretary, mineral resource department stating inter alia that if no government authorized unit was prepared to operate in the area and the petitioner was granted the lease, it would result in development of the area and generation of employment.
- The collector recommended grant of a mining lease for a period of 30 years to the petitioner in accordance with the rules and the policy of the government. Based on the aforesaid input received from the collector, the 2nd respondent wrote a letter dated December 23, 1995 to the 1st respondent specifically stating inter alia that the petitioner had furnished all the relevant information as required under rule 22 (3) (d) (e) (f) and (g) of the Mineral Concession Rules, 1960 along with the coal mining plan of the specified area and after examination, the petitioner was found to be eligible under the rules for grant of a mining lease.
- Participation in the screening meeting could not be taken to mean that the petitioner had applied directly to the 1st respondent for grant of the mining lease. The records revealed that the letter dated June 21, 1996 issued by the 1st respondent stating that the petitioner’s proposal for identification of the captive mining block for supply of coal to the 24 MW captive power plant in Madhya Pradesh was considered in the meeting of the screening committee and was approved, never found its way to the 2nd respondent. That position was borne out on a perusal of the copies of the said letter endorsed by the 1st respondent to different authorities.
- At serial no. (iv), the name of the chief secretary, Government of Maharashtra, Mumbai had been endorsed instead of the chief secretary, Government of Madhya Pradesh which fact stood confirmed from the reply dated April 10, 2015 issued by the 1st respondent to a Right to Information Act, 2005 query received by it. A similar stand had been taken by the 2nd respondent in its reply dated April 6, 2015 to a Right to Information Act, 2005 query received by the concerned department. The petitioner had also clarified that it had applied to the state government for grant of a mining lease through the district collector in the prescribed form and it was the said proposal that had been recommended by the state government to the 1st respondent for the necessary approval.
- The 2nd respondent had affirmed the stand taken by the petitioner that the procedure of allocation of the coal block through the screening committee route had not been followed in the case of the petitioner and therefore there was no illegality in allocation of the specified coal mines in its favour, unlike the other cases. The plea of the 1st respondent that the case of the petitioner was considered by the screening committee in its 9th, 10th, 14th, 15th, 16th and 20th meetings, would not make the allocation illegal.
- No parity could be drawn between the petitioner and the other allottees of the coal blocks when the petitioner followed the correct procedure of applying through proper channel for grant of a mining lease which application on being received, was routed by the office of the collector to the mineral resource department and onwards to the 1st respondent, for prior approval.
- The 1st respondent had issued the letter allocating the coal block to the petitioner and not the other way round. The 1st respondent ought not to have included the name of the petitioner and the coal blocks allotted to it in Annexure – 1 filed before the court that formed a part of the second judgment. Taking the contents of the said Annexures – 1 and 2 filed by the 1st respondent as true and correct, the court passed the consequential order directing payment of compensation as an additional levy. The fact that the petitioner did not get an opportunity to inform the court about the error on the part of the 1st respondent of including its name in Annexure – 1 could be discerned from the observations made in paragraph 24 of the second judgment to the effect that the court had not dealt with any individual case but only with the process of allotment of coal blocks which was found to be fatally flawed.
- The allocation of the coal block made in form of the petitioner did not run foul of the procedure prescribed in the Mines and Minerals (Development & Regulation) Act, 1957 and the Mineral Concession Rules, 1960. The petitioner was not allocated the coal block either through the screening committee route or the central government dispensation route, which fact was not pointed out by the 1st respondent at the appropriate stage, that led to painting the petitioner with the same brush as the other allottee listed in Annexures – 1 and 2.
- The 1st respondent was not entitled to claim payment of an additional levy for the coal extracted by the petitioner from the subject mine. Any such demand raised by the 1st respondent was thereby quashed and set aside. The writ petition was allowed on the aforesaid terms. The contempt petition no.7 of 2016 was thus dismissed as meritless.
- It appeared from the facts of the case that it was the 1st respondent that did not follow the letter of the law. But ultimately, it was the private party that had to suffer the consequences of the careless and callous approach of the 1st respondent.
- The 1st respondent filed an affidavit before the court including the petitioner in the list of errant mine owners, based on its own unlawful conduct. It did not undertake the necessary due diligence to determine as to whether the petitioner had been allotted the mine through the lawful procedure. As a result of that callous, careless and casual approach of the 1st respondent, the petitioner had to suffer loss and ignominy.
Petition granted; litigation costs quantified at ₹ 1,00,000/- (Rupees one lakh) to be paid by the 1st respondent to the petitioner within four weeks.
Relevance to Kenyan jurisprudence
The Constitution of Kenya, 2010, in article 62 (1)(f) talks about public land as including all minerals and mineral oils as defined by law. Article 260 mentions minerals as part of natural resources. Section 4 of the Mineral Act of 2016 defines a mineral to mean a geological substance whether in solid, liquid or gaseous form occurring naturally in or on the earth, in or under water, in mine waste or tailing and includes the minerals specified in the first schedule but does not include petroleum, hydrocarbon gases or groundwater. Further, section 4 explains mineral rights to include a prospecting licence, a retention licence, a mining licence, a prospecting permit, a mining permit, or an artisanal permit. The same section presents a license area as the area or areas of land covered by a prospecting licence, a retention licence or a mining licence under this Act.
In section 117, the Mineral Act explains about a mineral agreement when it states that:
(1) The Cabinet Secretary in consultation with the National Treasury may enter into a mineral agreement with the holder of a mining licence where the proposed investment exceeds five hundred million United States dollars.
(2) A mineral agreement shall include terms and conditions relating to—
(a) the minimum prospecting or mining operations to be carried out and the time table determined for purposes of such operations;
(b) the minimum expenditure in respect of the prospecting or mining operations; (c) the manner in which prospecting or mining operations shall be carried out;
(d) the environmental obligations and liabilities, subject to the requirement of the Environment Management and Co-ordination Act.
In Nyatike Minerals Marketing Co-operative Society Limited v Cabinet Secretary, Ministry of Petroleum and Mining & 5 others  eKLR, the petitioner stated that the 3rd 4th and 5th respondents did not apply for and obtain a licence issued in accordance with the law by the authorized officials. That the mining activities undertaken by the 3rd, 4th and 5th respondents were in utter disregard of legal procedures and processes laid down in the Mining Act No. 12 of 2016 and the Environmental Management and Co-ordination Act No. 8 of 1999 (EMCA).
The court in the case of Peter Nzeki & 14 others v Base Titanium Limited & 4 others  eKLR dismissed the petition holding that:
The crux of the petitioners’ case is that their rights under Article 40 of the Constitution have been violated in that they have not been compensated as required by Section 153 of the Mining Act. The issue in my view can be addressed under the said Act therefore is not a constitutional issue. Secondly, there is nothing to show that the petitioners have any land rights on the area they allege they occupy. The petitioners in their own pleadings admit that the land is owned by an entity known as Kwale Sugar International Limited which is the lease owner of the property. That company is not a party in this case and has not been enjoined even as an interested party. If any compensation were to be made, it ought to be made to that company and not the petitioners who are admittedly mere trespassers on the suit land.
This case is therefore relevant to the Kenyan jurisprudence as it expands on the procedure for application and granting of the mining permit for a license area.