State of Haryana & Ors. v. M/s. Faridabad Gurgaon Minerals & Anr.

The Supreme Court began by framing three issues: whether the State was precluded from enhancing royalty in the absence of an express clause in the lease deed; whether the enhancement was arbitrary; and whether the decision was vitiated by violation of the Rules of Business.

On the first issue, the Court held that a mining lease is a statutory grant, not a purely private contract. The State's power to enhance royalty flows from Section 15 of the MMDR Act and Rules 10 and 21 of the 1964 Rules. Section 15(3) mandates payment at rates 'for the time being' prescribed, which clearly indicates dynamic rates subject to revision. Rule 21(1)(i)(a) expressly provides that the lessee shall pay royalty at revised rates notified from time to time. The Court distinguished Indian Aluminium Co. v. Kerala State Electricity Board, noting that the lease deed here did not contain an express stipulation barring future enhancement; it merely fixed a rate without foreclosing revision. The Court further held that the Auction Notice and LoA expressly stipulated the applicability of Rules 10 and 21, making them implied conditions of the lease deed. The omission of this stipulation in the lease deed could not efface the statutory character of the lease. The Court rejected the respondents' argument that the 2012 Rules, which expressly provided for revision, indicated that the earlier rules did not permit revision; the 2012 Rules merely made the position more explicit.

On the second issue, the Court held that the enhancement was neither arbitrary nor based on non-application of mind. The State had considered rates in neighbouring States, and the enhancement was made after five and a half years, well beyond the three-year gap permitted by the proviso to Section 15(3). The 50% increase was within the ceiling contemplated for dead rent and was not excessive. The Court held that judicial review does not extend to the wisdom of the rate; the test is Wednesbury unreasonableness, and the decision could not be characterised as so unreasonable that no reasonable authority could have arrived at it.

On the third issue, the Court held that the Rules of Business under Article 166(3) are mandatory in matters affecting State finances. However, on the facts, the decision was taken by the Chief Minister himself, who was also the Minister-in-charge of Mining. This satisfied the requirement of Chief Minister's approval, distinguishing MRF Limited v. Manohar Parrikar, where an individual minister had acted without the Chief Minister's knowledge. The Court also held that there was deemed consent of the Finance Minister, as there was no evidence of disagreement and the Finance Minister was empowered to call for papers if he had any reservation. The Court noted the absence of pleadings on the violation of Rules of Business, though it proceeded to examine the issue on merits given the elaborate arguments.

The Court concluded that the enhancement was valid, set aside the High Court's judgment, and allowed the appeals. However, considering the long stay on the notification and the expiry of the lease, the Court limited interest on arrears to 12% per annum.