State mining commitments: the emerging legal trend

By Ranjana Roy Gawai and Safeena Mendiratta, RRG & Associates
0
759

Mines and minerals constitute national wealth and are vital raw material for infrastructure, capital goods and basic industries. Their conservation, preservation and intelligent use is necessary in view of the public interest involved and companies’ intense drive to exploit them. To achieve this objective, certainty about the binding nature of states’ commitments and a transparent regulatory regime is essential.

Indian regulatory framework

Under article 39(b) of Directive Principles of State Policy, states shall, in particular, direct their policy towards securing that the ownership and control of the material resources of the community are distributed as best to sub-serve the common good. Under article 39(c), the states must ensure that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.

Ranjana Roy Gawai
Ranjana Roy Gawai

The public interest is writ large in the provisions of the Mines and Minerals (Development and Regulation) Act, 1957. Section 2 of the act declares that it is expedient in the public interest that the Union should take under its control the regulation of mines and the development of minerals to the extent provided in the act. The act’s preamble states that it is “an Act to provide for the development and regulation of mines and minerals under the control of the Union”.

Undisputedly, state governments are the owners of the minerals located within their respective boundaries. They grant concessions subject to the provisions of the act and the rules made under it, while the regulation and development of mines and minerals remains under the control of the Union.

MOUs & state commitments

The companies proposing to undertake mining operations often execute a memorandum of understanding (MOU) with the state government, in which the latter agrees to assist and support in handing over the land subject to availability, to recommend to the central government allotment of suitable mining blocks and to assist in obtaining related clearances/approvals. Such MOUs are assurances on part of the state to encourage investments subject to its industrial policy.

Recently, there has been a series of Supreme Court rulings on the distribution of national wealth generally. A few decisions have specifically discussed the enforceability of states’ commitments in such MOUs.

In Sandur Manganese and Iron Ores Limited v State of Karnataka, the Supreme Court while interpreting the provisions of section 11 observed that the state government had no authority under the act to make commitments to any person that it will, in future, grant a mining lease if the person invests in any project.

In Monnet Ispat and Energy Ltd v Union of India and Ors, the Supreme Court affirmed that the state is the “owner of minerals” within its territory and the minerals “vest” in it. It further clarified that an MOU for mining lease is not a contract as contemplated under article 299(1) of India’s constitution. In these circumstances, it was of the view that the overriding public interest prevented the court from invoking the doctrines of promissory estoppel and legitimate expectation to enforce commitments in the MOU.

In contrast, in Bhushan Power and Steel Ltd and Ors v State of Orissa and Anr, the Supreme Court applied the principles of legitimate expectation and permitted enforcement of state commitments to a private party.

Safeena Mendiratta
Safeena Mendiratta

Despite some ambiguity with respect to enforceability of state commitments in the above cases, their ratio holds good as they were made in different factual contexts.

In addition to these rulings, the Ministry of Mines through a recent notification provided that besides other factors MOU cases where a plant/industry has already been set up on the basis of an MOU but a mineral concession is not yet granted may subject to certain conditions be construed as “special reason” for the state government to recommend a mineral concession proposal under section 11(5) of the act. Therefore, if the state itself intends to consider the execution of MOUs as a “special reason”, then MOUs may altogether be declared as legally enforceable just like any other contracts.

Conclusion

In view of the above, clarity is sought as to the power of the states to execute such MOUs and whether this power springs from the fact of ownership. Additionally, any clarification by the Supreme Court as to the interpretation of the words “to the extent provided in the MMDR Act”, in section 2 of the act, would be welcome to ascertain the exact parameters of control exercised by the Union as well as the states in relation to the regulation of mines and the development of minerals.

While such issues are legally settled, it will be important for the Ministry of Mines to list and clarify the above rulings rather than issuing new notifications and guidelines on MOUs thereby adding to the existing uncertainty.

Ranjana Roy Gawai is the managing partner and Safeena Mendiratta is a senior associate at RRG & Associates.

RRG_&_Associates_logo

C-14, Lower Ground Floor

Chirag Enclave

Greater Kailash-I

New Delhi – 110048

Tel: +91 11 4056 3742

Fax: +91 11 4100 5046

Email: [email protected]