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CASE NO.: Appeal (civil)  3618-3619 of 1999

PETITIONER: Karnataka Rare Earth & Anr.

RESPONDENT: The Sr.Gelt.,Dep.of Mines and Geology & Anr.             

DATE OF JUDGMENT: 23/01/2004

BENCH: R.C.LAHOTI,ASHOK BHAN & B.P. SINGH  

JUDGMENT: JUDGMENT

R.C. Lahoti, J.

       The grant of 203 leases for quarrying granites in government  land under Rule 3 of the Karnataka Minor Mineral Concession Rules  1969, contrary to the prohibition contained in Rule 3A, was  challenged in the Karnataka High Court in public interest litigation.   The writ petitions were allowed by the learned single Judge and all the  grants were quashed.   Writ appeals were dismissed by a Division  Bench of the High Court.  The unsuccessful lessees came up to this  Court  and by judgment dated January 18, 1996 [Alankar Granites  Industries & Ors. Vs. P.G.R. Scindia, MLA & Ors., (1996) 7 SCC  416] this Court directed the appeals to be dismissed by holding that  the grants of leases were made against the prohibition contained in  Rule 3A and were rightly held by the High Court to be invalid.

       The appellants before us were holding two quarry leases and  were amongst the appellants in this Court in the appeals by special  leave referred to hereinabove.  On 19.11.1993, by an interim order,  the Court directed that the renewals or existing grants in favour of the  appellants would continue till the next date of hearing.  On  21.11.1993, the Court modified the previous order by extending its  operation ’to continue till further orders of the Court’.  The appellants  brought to the notice of the Court that in spite of the previous interim  order the appellants were not issued transport permits with the result  that the renewal or grant of leases was of no avail to them as they  were not able to remove the minerals quarried by them.  In the opinion  of the Court such action of the respondents resulted in frustrating the  interim orders.  It was clarified that the appellants in whose favour  interim orders were granted, should be granted transport permits also  by the appropriate authority on payment of royalty and complying  with the rules. On 18.1.1996, the appeals came to be dismissed as  already stated.

       According to the appellants they had operated the quarries and  transported several granite blocks on the strength of the order passed  by this Court.  They had paid the prescribed royalty and exported the  granite blocks.  The quarrying had taken place during the pendency of  the appeals and the export had taken place on 24.1.1996 as the  dismissal of the appeals on 18.1.1996 at Delhi did not come to the  notice of the appellants or the authorities of the State at Karnataka  until after the granite blocks had already been exported. On  14/15.2.1996, the State of Karnataka issued an order calling upon the  appellants to pay the price of the granite blocks calculated at the  minimum rate  per unit volume of minor mineral.  The appellants filed  writ petitions in the High Court laying challenge to the impugned  action of the respondents proposing to recover the price of the granite  blocks which were already exported.  The writ petitions were

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dismissed.  Feeling aggrieved the appellants have filed these appeals  by special leave.

       The substance of the plea, forcefully urged by the learned  counsel for the appellants and highlighted from very many angles, is  that the act of the appellants in quarrying the granite stones and  exporting the same was accompanied by payment of royalty and  issuance of transport permits by the authorities of the State and though  done under the interim orders of this Court was nevertheless a lawful  and bona fide act.  The mining leases in favour of the appellants ought  to be held to be valid, in spite having been invalidated by the High  Court, in view of the interim orders passed by this Court.  The  appellants cannot be held liable for payment of price of the granite  blocks.  The demand of price of the granite blocks is a demand in the  nature of penalty and hence cannot be sustained.  Reliance is placed  by the learned counsel on the decision of this Court in Hindustan  Steel Vs. State of Orissa, (1970) 1 SCR 753 and Consolidated Coffee  Vs. Agricultural Income Tax Office, (2001) 1 SCC 278.

       Having heard Shri K.V. Vishwanathan, the learned counsel for  the appellants and Shri Sanjay R. Hegde, the learned counsel for the  State of Karnataka, we are satisfied that no fault can be found with the  view taken by the High Court and the appeals are devoid of any merit  and hence liable to be dismissed.

       Section 21 of the Mines and Minerals (Development &  Regulation) Act 1957 (hereinafter ’MMDR Act’, for short) reads as  under:- "21. Penalties.__ (1)  Whoever contravenes the  provisions of sub-section (1) or sub-section (1A)  of section 4 shall be punished with imprisonment  for a term which may extend to two years, or with  fine which may extend to twenty-five thousand  rupees, or with both.

       (2)  Any rule made under any provision of  this Act may provide that any contravention  thereof shall be punishable with imprisonment for  a term which may extend to one year, or with fine  which may extend to five thousand rupees, or with  both, and in the case of a continuing contravention,  with an additional fine which may extend to five  hundred rupees for every day during which such  contravention continues after conviction for the  first such contravention.

       (3)  Where any person trespasses into any  land in contravention of the provisions of sub- section (1) of section 4, such trespasser may be  served with an order of eviction by the State  Government or any authority authorised in this  behalf by that Government and the State  Government or such authorised authority may, if  necessary, obtain the help of the police to evict the  trespasser from the land.

       (4)  Whenever any person raises, transports  or causes to be raised or transported, without any  lawful authority, any mineral from any land, and,  for that purpose, uses any tool, equipment, vehicle  or any other thing, such mineral tool, equipment,  vehicle or any other thing shall be liable to be  seized by an officer or authority specially  empowered in this behalf.

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       (4A)  Any mineral, tool, equipment, vehicle  or any other thing seized under sub-section (4),  shall be liable to be confiscated by an order of the  court competent to take cognizance of the offence  under sub-section (1) and shall be disposed of in  accordance with the directions of such court.

       (5)  Whenever any person raises, without  any lawful authority, any mineral from any land,  the State Government may recover from such  person the mineral so raised, or, where such  mineral has already been disposed of, the price  thereof, and may also recover from such person,  rent, royalty or tax, as the case may be, for the  period during which the land was occupied by such  person without any lawful authority.

       (6)  Notwithstanding anything contained in  the Code of Criminal Procedure, 1973 (2 of 1974),  an offence under sub-section (1) shall be  cognizable."

The submission of Shri Vishwanathan is that the impugned demand  by the State of Karnataka has been raised by reference to sub-Section  (5) of Section 21 above-quoted which is nothing but a levy of penalty.   The applicability of the provision is not attracted unless the extraction  and export of the minor mineral by the appellants can be said to be  ’without any lawful authority’, which it is not, in the facts and  circumstances of the case, as already noticed, submitted Shri  Vishwanathan.  

       In our opinion, the demand by the State of  Karnataka of the  price of the mineral cannot be said to be levy of penalty or a penal  action.  The marginal note of the Section __ ’Penalties’, creates a  wrong impression.  A reading of Section 21 shows that it deals with a  variety of situations.  Sub-Sections (1), (2), (4), (4A) and (6) are in the  realm of criminal law. Sub-Section (3) empowers the State  Government or any authority authorized in this behalf to summarily  evict a trespasser.  Sub-Section (5) empowers the State Government to  recover rent, royalty or tax from the person who has raised the mineral  from any land without any lawful authority and also empowers the  State Government to recover the price thereof where such mineral has  already been disposed of inasmuch as the same would not be available  for seizure and confiscation.  The provision as to recovery of price is  in the nature of recovering the compensation and not penalty so also  the power of the State Government to recover rent, royalty or tax in  respect of any mineral raised without any lawful authority can also not  be called a penal action.  The underlying principle of sub-Section (5)  is that a person acting without any lawful authority must not find  himself placed in a position more advantageous than a person raising  minerals with lawful authority.

       The correct principles of law applicable to the facts of the  present case emanating from equity, and statutorily embodied in sub- Section (5) of Section 21 abovesaid, are to be found dealt with  extensively in a recent decision of this Court in South Eastern  Coalfields Ltd. Vs. State of M.P. & Ors. (2003) 8 SCC 648.

       It is true that by the interim orders passed by this Court the  appellants were allowed during the pendency of the earlier appeals to  operate under the mining leases, whether freshly granted or renewed  and to effectuate the interim orders the authorities were also directed  to issue transport permits.  Admittedly, the transport permits were  obtained by the appellants after the dismissal of their appeals.  The  appellants claim that both the parties were ignorant of the dismissal of

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the appeals when the transport permits were issued and the granite  blocks were exported.  It is difficult to accept the plea of the  appellants that the dismissal of the appeals was not in their knowledge  inasmuch as the judgments must have been pronounced in an open  Court and their counsel at Delhi must have gathered the knowledge  thereof.  In any case the appellants cannot be heard taking shelter  behind there own convenient ignorance.  In our opinion, whether they  had the knowledge of the judgment or not and whether the transport  permits were obtained by the appellants before the dismissal of the  appeals during which the interim orders were in operation or after the  dismissal of the appeals when the interim orders had ceased to operate  would not make any difference.  For the purposes of the law it is  enough that the appellants have enjoyed the benefit under the interim  orders of the Court which have stood vacated with the dismissal of  their appeals.  It is also noteworthy that this Court had not, in the  earlier appeals, directed the judgment of the High Court to remain  stayed in its entirety and this is an additional fact or which tells  adversely on the appellants.

       In South Eastern Coalfields Ltd. (supra), this Court dealt with  the effect on the rights of the parties who have acted bona fide,  protected by interim orders of the Court and incurred rights and  obligations while the interim orders stood vacated or reversed at the  end.  The Court referred to the doctrine of actus curiae neminem  gravabit and held that the doctrine was not confined in its application  only to such acts of the Court which were erroneous; the doctrine is  applicable to all such acts as to which it can be held that the Court  would not have so acted had it been correctly apprised of the facts and  the law.  It is the principle of restitution which is attracted.  When on  account of an act of the party, persuading the Court to pass an order,  which at the end is held as not sustainable, has resulted in one party  gaining advantage which it would not have otherwise earned, or the  other party has suffered an impoverishment which it would not have  suffered but for the order of the Court and the act of such party, then  the successful party finally held entitled to a relief, assessable in terms  of money at the end of the litigation, is entitled to be compensated in  the same manner in which the parties would have been if the interim  order of the Court would not have been passed.  The successful party  can demand (a) the delivery of benefit earned by the opposite party  under the interim order of the Court, or (b) to make restitution for  what it has lost.

       In the facts of this case, in spite of the judgment of the High  Court, if the appellants would not have persuaded this Court to pass  the interim orders, they would not have been entitled to operate the  mining leases and to raise and remove and dispose of the minerals  extracted.  But for the interim orders passed by this Court, there is no  difference between the appellants and any person raising, without any  lawful authority, any mineral from any land, attracting applicability of  sub-Section (5) of Section 21.  As the appellants have lost from the  Court they cannot be allowed to retain the benefit earned by them  under the interim orders of the Court.  The High Court has rightly held  the appellants liable to be placed in the same position in which they  would have been if this Court would not have protected them by  issuing interim orders.  All that the State Government is demanding  from the appellants is the price of the minor minerals.  Rent, royalty  or tax has already been recovered by the State Government and,  therefore, there is no demand under that Head.  No penal proceedings,  much less any criminal proceedings, have been initiated against the  appellants.  It is absolutely incorrect to contend that the appellants are  being asked to pay any penalty or are being subjected to any penal  action. It is not the case of the appellants that they are being asked to  pay a price more than what they have realised from the exports or that  the price appointed by the respondent State is in any manner arbitrary  or unreasonable.

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       Is sub-section (5) of Section 21 a penal enactment?  Can the  demand of mineral or its price thereunder be called a penal action or  levy of penalty?         

       A penal statute or penal law is a law that defines an offence and  prescribes its corresponding fine, penalty or punishment. (Blacks Law  Dictionary, Seventh Edition, p.1421).  Penalty is a liability composed  as a punishment on the party committing the breach.  The very use of  the term ’penal’ is suggestive of punishment and may also include any  extraordinary liability to which the law subjects a wrong-doer in  favour of the person wronged, not limited to the damages suffered.  (See, The Law Lexicon, P. Ramanatha Aiyar, Second Edition,  p.1431).

       In support of the submission that the demand for the price of  mineral raised and exported is in the nature of penalty, the learned  counsel for the appellants has relied on the marginal note of Section  21.  According to Justice G.P. Singh on Principles of Statutory  Interpretation (Eighth Edition, 2001, at p.147) though the opinion is  not uniform but the weight of authority is in favour of the view that  the marginal note appended to a Section cannot be used for construing  the Section.  There is no justification for restricting the Section by the  marginal note nor does the marginal note control the meaning of the  body of the Section if the language employed therein is clear and  spells out its own meaning.  In Director of Public Prosecutions Vs.  Schildkamp, (1969) 3 All ER 1640, Lord Reid opined that a side note  is a poor guide to the scope of a section for it can do no more than  indicate the main subject with which the section deals and Lord  Upjohn opined that a side note being a brief pricis of the section  forms a most unsure guide to the construction of the enacting section  and very rarely it might throw some light on the intentions of  Parliament just as a punctuation mark.

       We are clearly of the opinion that the marginal note ’penalties’  cannot be pressed into service for giving such colour to the meaning  of sub-Section (5) as it cannot have in law.  The recovery of price of  the mineral is intended to compensate the State for the loss of the  mineral owned by it and caused by a person who has been held to be  not entitled in law to raise the same.  There is no element of penalty  involved and the recovery of price is not a penal action.  It is just  compensatory.

       The Court while dismissing the appeals filed by the appellants  in the year 1996, which dismissal vacated the interim orders, could  have also relieved the appellants of the consequences logically and  necessarily flowing from the dismissal of the appeals by taking into  consideration the equity of relieving against hardship or could also  have done so in exercise of its jurisdiction conferred by Article 142 of  the Constitution.  So was done in  Samatha Vs. State of A.P. & Ors,  (1997) 8 SCC 191, 277 para 131.  This Court having directed the State  Government to ensure further mining operations by industrialists  concerned in the scheduled area, restrained the lessees of mining  leases not to break fresh mines, but in the meanwhile allowed them to  remove the minerals already extracted and stocked in the reserved  forest area within four months’ time from the date of judgment.  

Neither the appellants prayed for such relief nor the Court has  passed any such order.  What this Court had not done, could not  obviously have been done by the High Court in exercise of its writ  jurisdiction in view of the earlier judgment of this Court having  achieved a finality.

       The two decisions relied on by the learned counsel for the  appellants are not applicable to the facts of the present cases.  

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Hindustan Steel (supra) is a case under the Orissa Sales Tax Act,  1947.  The appellant company was engaged in construction activity.   During the course of such activity the company supplied building  materials to the contractor for construction and adjusted the value of  the goods supplied at the rates specified in the tender.  The Court held  such transaction of supply of building materials to be a sale and,  therefore, the company a ’dealer’ covered by the Act.  However, the  persons incharge of the affairs of the company had not registered the  company as dealer in the honest and genuine belief that the company  was not a dealer.  The Court held that the liability to pay penalty did  not arise merely upon proof of default in registering as a dealer.  An  order imposing penalty for failure to carry out the statutory obligation  is the result of a quasi-criminal proceeding and penalty will not  ordinarily be imposed unless the party obliged has either acted  deliberately in defiance of law or was guilty of conduct contumacious  or dishonest or acted in conscious disregard of its obligation.  Penalty  will not also be imposed merely because it is lawful to do so.  In spite  of a minimum penalty prescribed the authority competent to impose  the penalty may refuse to impose penalty if the breach complained of  was a technical or venial breach or flew from a bona fide though  mistaken belief.  In  Consolidated Coffee (supra), the court was  dealing with Section 42(1) of Karnataka Agricultural Income Tax Act,  1957.  A default by assessee in making payment of tax attracted a  penalty equivalent to one and a one-half percent of the tax remaining  unpaid for the first three months and two and one-half percent of such  tax for each month subsequent thereto.  There was also a provision for  payment of interest on delayed payment of tax.  This Court held that  interest is compensatory while penalty is penal, i.e. punishing in  character.  Where delay in payment of tax was attributable to the order  of stay passed by the Court, it was held that the order of stay placed  the demand for the tax in abeyance and, therefore, during the period of  stay the assessee cannot be said to be in default and hence no penalty  can be imposed on the assessee on the stay being vacated.  However,  still the Court held that a late payment surcharge/interest is necessarily  compensatory in character and a penalty is a punishment.          At the end,  the learned counsel for the appellants submitted  that the appellants may be allowed the liberty of making a  representation to the State Government for some relief at least in the  calculation of the amount of price.  Needless to say that the appellants  are always at liberty to do and we express no opinion thereon.

       The appeals are dismissed though without any order as to the  costs.