Supreme Court: While considering the instant writ petition challenging the validity of Explanation to Rule 38 of the Mineral (Other than Atomic and Hydrocarbons Energy Minerals) Concession Rules, 2016 (“MCR, 2016”) and the Explanation to Rule 45 of the Mineral Conservation and Development Rules, 2017 (“MCDR, 2017”) that stipulates the computation of royalty to be levied for the extraction or consumption of mined ores; the 3-Judge Bench of Dr DY Chandrachud, CJI and JB Pardiwala* and Manoj Misra, JJ., said that although, the computation of royalty for different minerals is purely a matter of policy, yet the Court should not just shut its eyes to the prima-facie anomaly that exists in the very computation mechanism of average sale price for minerals in terms of the aforesaid provisions and the perplexing stance of exclusion of only coal from such mechanism despite the general nature and application of the aforesaid rules.
Hence, declining to declare the impugned provisions as manifestly arbitrary, in light of the fact that Respondents are aware of the anomaly and have already ushered public consultations on the matter; the Court granted one last opportunity to the Respondents to seriously consider the mechanism of computation of average sale for the purposes of determining the rate of royalty for all other minerals in terms of the Explanations to Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017. The Court further directed the Respondents to conclude the process of public consultation in respect of the compounding of royalties and take a well-meaning decision keeping in mind the representations made by the petitioners in the instant case.
The Court further clarified that while examining the challenge to the validity of laws relating to economic activities, the courts must be slow and circumspect. A higher degree of deference needs to be shown in such matters, and sufficient flexibility should be given to the legislature and the executive in dealing with economic matters.
“Complex issues of economic and fiscal nature cannot be construed by any strait-jacket formula or unidirectional approach. This Court has time and again recognised that a judicial hands-off approach must be followed qua economic legislation and that the legislature is to be allowed wide latitude in experimenting with economic legislation, by virtue of it being an extension of the Government’s economic policy”.
Background:
Pursuant to Sections 13 and 18 of Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act), the Government framed Mineral Concession Rules, 1960 which were later replaced by MCR, 2016 for computation and payment of royalty in terms of Section 9 read with Schedule II of the MMDR, Act. Rule 38 of the MCR, 2016 defines the term ‘Sale Value’ as the gross amount payable as per the sale invoice where the sale transaction is on an arms’ length basis and such price is the sole consideration for the sale excluding taxes. The Explanation appended to the said rule further provides that for computation of ‘Sale Value’ there shall no deduction in respect of royalty, payments or contributions towards DMF and NMET.
Thereafter, the Central Government by way of 2015 Amendment Act inter-alia inserted Sections 9B and 9C into the MMDR Act whereby contributions were required to be paid to the District Mineral Foundation (“DMF”), a non-profit body established to work for the interest and benefit of persons and areas affected by mining related operation and to the National Mineral Exploration Trust (“NMET”) a non-profit autonomous body for the purposes of regional and detailed exploration.
Under MCDR, 2017 that was enacted by the Central Government for the conservation and systematic development of minerals, Rule 45(8)(b) provides that the ‘Sale Value’ for the purposes of the said rules is the gross amount payable without any deduction in respect of royalty, DMF and NEMT paid.
The petitioners contended that in view of the Explanation(s) appended to the definition of ‘Sale Value’ in Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017, royalty which has already been paid in the previous month, gets factored again for the purposes of computation of royalty to be paid for the subsequent months. Therefore, “compounding” of royalty by virtue of the aforesaid Explanations is manifestly arbitrary inasmuch as it has led to a cascading effect within the fold of determination of the rate of royalty under Section 9 (3) of the MMDR Act.
The petitioners further contended that petitioners have contended that for the purposes of computation of royalty there exists no intelligible differentia between coal and iron ore and thus, the exclusion of royalty, DMF and NMET contributions for computation of sale value for coal but not for other minerals such as iron is manifestly arbitrary and the aforesaid Explanation(s) to Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017 is in consequence of violation of Article 14 of the Constitution and liable to be struck down.
On 25-5-2021, a notice was issued by a committee of the Ministry of Mines inviting comments and suggestions from all stakeholders on this issue of double calculation of royalty for computation of the ‘average sale price’, and that after receiving the responses, a report dated 31-01-2022 was submitted by the committee to the Ministry of Mines giving its recommendations on the incidence of compounding royalty. Subsequently, Ministry of Mines issued a Notice dated 25-05-2022 for public consultation on amending the MMDR Act to bring reforms in the mining sector by inter-alia proposing amendment to the relevant rules for removing the cascading impact of royalty on royalty in the calculation of the ‘average sale price’.
The petitioner raised the grievance that although the Respondents themselves had acknowledged the compounding of royalty in the computation of ‘average sale price’ yet no action or amendment has been made to the MMDR Act and the relevant rules thereunder in this regard.
Court’s Assessment:
Perusing the afore-said matter, the Court had to consider whether, the Explanation(s) appended to Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017 respectively are unreasonable and manifestly arbitrary and in consequence of violation of Article 14 of the Constitution?
Relying on several relevant precedents, the Court pointed out that policy decisions are the domain of the executive authority of the State and that the courts should not embark on the unchartered ocean of public policy and should not question the efficacy or otherwise of such policy so long the same does not offend any provision of the stature or the Constitution.
The Court explained that it is possible that at the relevant time in respect of some of the minerals, royalty was being computed without inclusion of the royalty, DMF and NEMT contributions previously paid; however, that does not mean that the Central Government’s power is restricted and that the Central Government cannot alter the mode of computation of royalty. Merely, because the methodology or formula for computation of royalty has been altered from what it was under the erstwhile MCR, 1960 will not make the new mechanism or methodology unreasonable or arbitrary and liable to be struck down.
Matters such as computation of royalty or the levy of such royalty on different minerals is entirely a matter of policy making which is beyond the expertise and domain of the courts. The duty of the courts is to confine itself to the question of legality and its concern should be whether a policymaking authority exceeded its powers, whether it committed an error of law or committed a breach of the rules of natural justice or reached a decision which no reasonable authority would have reached or whether it has abused its powers.
The Court also explained that Doctrine of Judicial Restraint emphasizes that courts should exercise caution and avoid involvement in policy decisions, as these are complex judgments that require a balancing of diverse and often competing interests. The Court is tasked with ensuring that policies do not breach constitutional provisions or statutory limits; however, they should not replace policymakers’ judgments with their own unless absolutely necessary.
“Courts should assume that policy-makers act in good faith unless there is clear evidence to the contrary. As long as the policy does not contravene the Constitution or violate statutory provisions, it is not the role of the courts to question the wisdom or fairness of such policy”.
The Court pointed out that there is no doubt that the mechanism for computation of royalty in terms of Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017 devised by the Respondents might have onerous implications in monetary terms on the mining leaseholders inasmuch as there is a compounding effect on the rate of royalty for every subsequent month. However, in absence of anything to show that such policy is in excess of the powers or domain of the respondents herein or in breach of any statutory provision, the Court cannot strike down the same.
Applying principles of interpretation of statutes, the Court pointed out that an Explanation must be read so as to harmonise with and clear up any ambiguity in the main section. It should not be so construed as to widen the ambit of the section. It is axiomatic that an explanation only explains and does not expand or add to the scope of the original section. The purpose of an explanation is, however, not to limit the scope of the main provision.
“The construction of the explanation must depend upon its terms, and no theory of its purpose can be entertained unless it is to be inferred from the language used. An ‘explanation’ must be interpreted according to its own tenor”.
Perusing the Explanations of the impugned provisions, the Court explained that they are merely clarificatory in nature inasmuch as it explains the ambiguities in the main provisions of Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017, and thus, they cannot be said to exceed the ambit of the main provisions or in contravention of the statutory scheme.
Since the MMDR Act and the rules thereunder pertain to the extraction, disposal and sale of natural resources which is an economic policy that entails intricate economic choices and have a direct effect on the macroeconomics, the Court opined that when it comes to computation of royalty the legislature must have greater play in the joints.
The Court further stated that exclusion of royalty, and contributions towards DMF and NMET paid previously for coal but not for other minerals cannot be termed as arbitrary or unreasonable, merely because the computation for one differs from the other in certain aspects.
However, the Court strictly took note of the anomaly pointed out by the petitioner as well as the fact that Respondents initiated public consultations to resolve the same.
Granting a last opportunity the Court reminded the Respondents that it cannot continue to keep the aforesaid issue in limbo on the pretext of ongoing process of public consultation process.
“Merely because it has the discretion to take such policy decision does not mean that it can endlessly keep on prolonging the decision-making process whereby the very discretion is rendered ad-lib and the issue in itself a forgone conclusion”.
Henceforth, the Court directed the Respondents to take suitable actions within 2 months from the date of the instant order.
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