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PETITIONER: M/S.  KHAN SAHEB M. HASSANJI & SONS

       Vs.

RESPONDENT: STATE OF MADHYA PRADESH

DATE OF JUDGMENT: 19/11/1962

BENCH:

ACT: Mining  Lease-Realisation of royalty at enhanced rate  under contract-Constitutional Validity-Agreement, if  void--Mininy Rules,  1913,  r.  50-Mines  and  Minerals  (Regulation  and Development)   Act,  1948  (LIII  of  1948),  s.   4-Mineral Concession Rules, 1949-Constitution of India, Art. 31(1).

HEADNOTE: The  appellants  took an assignment of a  mining  lease  for extracting  coal in respect of 189.76 acres of  land.   They were  anxious  to  acquire  other  lands  adjacent  to   the aforesaid area from their respective owners.  The  transfers in favour of the appellants could not take place without the sanction of the State Government.  After protracted  corres- pondence  and negotiations, the Government agreed  to  grant the  necessary sanction subject to the condition  that  they took a consolidated lease in respect of the whole additional area at an enhanced rate of royalty.  The appellants entered into an agreement with the Government on January 11, 1949 by which  the rate of royalty payable to Government was  raised from  Rs. 5/- to Rs. 10/- per ton.  Though no formal  lease- deed was executed, the appellants worked the mines with  the permission  of the Government during the period October  27, 1947, to June 30, 1949 and paid a sum of Rs. 40865/- includ- ing  interest, by way of royalty.  They paid  the  aforesaid sum under protest in February-March, 1960.  The  plaintiffs- appellants  brought a suit before Additional District  judge for  a declaration that they were not bound by the terms  of the agreement dated January 11, 1949 and were not liable  to pay  to  Government any sum in excess of that fixed  by  the lease of 1923 and by the lease of January 21, 1944, and also claimed  other consequential reliefs.  The suit was  decreed on  contest by the Government.  On appeal by the  defendant- respondent, the High Court reversed the judgment and  decree of the trial court and dismissed the suit with costs. Held, that from the agreement dated January 11, 1949, it  is clear that the Governor was in the position of the lessor, 236 hence,  even  assuming that the Mineral Rules  of  1913  had statutory  force  and  applied  to  the  instant  case,  the Governor  having  been the grantor of the lease it  must  be presumed that he decided that the revised terms were in  the interest of the State, and, therefore, the revised terms  of the  lease were binding on the parties;  further  ultimately the  appellants  having  conceded that the  rules  were  not statutory, the agreement aforesaid was not void. The  Mineral  Concession  Rules, 1949 came  into  effect  on October  25,  1949, having no retrospective effect  and  the agreement in question was finalised in January 1949.   There

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were  thus no such Rules in existence which could have  been contravened. Held, further, that since the payment to the Government  was realisable  under  the terms of the contract  which  is  not vitiated, it could not be said that the State deprived  them of  any  property within the meaning of Art. 31 (1)  of  the Constitution.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 645/1961. Appeal from the judgment and decree dated April 20, 1957, of the Madhya Pradesh High Court in First Appeal No. 181/52. Hardayal  Hardy, S. AT.  Andley and Rameshwar Nath, for  the appellant. B. Sen and 1. N. Shroff, for the respondent. 1962.  November 19.  The judgment of the Court was delivered by SINHA,  C.  J.-This appeal on a certificate granted  by  the High Court of Madhya Pradesh at Jabalpur on April 16,  1958, under Art. 133 of the Constitution, is directed against  the judgment and decree of that Court in First Appeal No. 181 of 1962,  reversing  those of the  Additional  District  judge, Chindwara,  in  Civil  Suit  No. 3-A  of  1951,  decided  on September  25, 1952, by which the trial Court had  decreed the plaintiffs’ claim for Rs. 408651-and interest. 237 It  is  necessary to state the following facts in  order  to bring  out  the points in controversy between  the  parties. One  Haji Syed Zahiruddin of Bhopal held a mining  lease-Ex. P-2-dated May 29, 1923 in respect of 189-76 acres of land in the  district  of  Chindwara,  for  extracting  coal.    The appellants took an assignment of that lease by Ex.  PI dated September  4, 1940.  There were coal bearing areas  adjacent to the area covered by the lease aforesaid.  The  appellants were anxious to acquire those adjacent collieries from their respective   owners.   The  transfers  in  favour   of   the appellants could not take place without the sanction of  the State  Government.   After  protracted  correspondence   and negotiations,  the Government agreed to grant the  necessary sanction  to  the transfer of those adjacent  lands  to  the appellants  subject  to  the  condition  that  they  took  a consolidated  lease in respect of the whole additional  area at an enhanced rate of royalty.  The appellants entered into an agreement with the Government on January 11, 1946 (Ex.P3) by  which  the  rate of royalty payable  to  Government  was raised  from  Rs. 5/-to Rs. 10/-per ton.  Though  no  formal lease  deed  was executed, the appellants worked  the  mines with  the  permission of the Government  during  the  period October  27, 1947 to June 30, 1949.  In respect of the  coal thus  extracted, the appellants paid to the  Government  the sum  of Rs. 40865/-, including interest, by way of  royalty. The  plaintiffs  paid  the aforesaid sum  under  protest  in February-March, 1960. The  plaintiffs  commenced the present  action  in  February 1951,  for  a declaration that they were not  bound  by  the terms  of the agreement dated January 11, 1949,  aforesaid,. and  that,  therefore,  they  were  not  liable  to  pay  to Government  any sum in excess of that fixed by the lease  of 1923, and.; by the lease of January 21, 1944, in respect  of lands   transferred  to  them.   They also.   claimed   an injunction against 238 the  defendant, the State of Madhya Pradesh, which  was  the

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sole  defendant,, now respondent.  There wag also  a  prayer for  refund of the said amount of Rs. 40865/- plus  interest amounting  to  Rs. 1985/from the date of  payment  of  those several sums aggregating to Rs. 40865/-.  Interest  pendente lite  and  future  interest at 6 per cent  on  the  decretal amount was also claimed. The  contentions  raised  on behalf  of  the  plaintiffs  in support of their claim were that the agreement aforesaid was void as it was in contravention of r. 50 of the Mining Rules of 1913, as also that the same was in contravention of s.  4 of  the Mines and Minerals (Regulation and Development)  Act (XIII of 1948).  It was also contended that a representation was made by the Government in the correspondence that passed between the parties that Government was going to adopt a new policy  in  respect  of mining leases,  including  grant  of leases  at enhanced royalty.  The agreement, the  plaintiffs further asserted, had been entered into under the  influence of   that   misrepresentation  and   was,   therefore,   not enforceable against them. The suit was contested by the Government on the ground  that the  Mineral Rules of 1913 had no binding effect  after  the Constitution  Act  of  1935, so far as  the  Provinces  were concerned;  those Rules were mere departmental  instructions for the guidance of subordinate officers of the  Government; and that the Government was free to make its own bargain  in respect  of  fresh leases.  It was also contended  that  the Mines and Minerals (Regulation and Development) Act of 1948, read  with the Rules made thereunder, did not apply  to  the leases  in  question as these Rules came into  force  later. The   Government   also   denied   that   there   was    any misrepresentation  made  by Government  to  the  plaintiffs, though   it  was  true  that  Government  had  intended   to promulgate fresh rules 239 which   envisage  revised  scales  of  royalty,  but   which ultimately   did  not  materialise.   It   was,   therefore, contended that the plaintiffs had no cause of action for the reliefs claimed in the plaint. The  learned  Additional District judge, Chindwara,  by  his judgment  and  decree date September 25, 1952,  decreed  the suit with costs holding that the plaintiffs were entitled to the declaration ;,,ought by them, as also to the  consequen- tial  relief  of refund ’of the amount paid by  them  tinder protest,  as  aforesaid,  namely, the  sum  of  Rs.  40865/- together with the sum of Rs. 992/8/- on account of  interest at 3% per annum up to the date of the suit, as also interest pendente  lite  tip to the date of realisation at  the  same rate of 3%. On appeal by the defendant, the state of Madhya Pradesh, the High  Court reversed the judgment and decree passed  by  the trial  Court  and passed a deeree dismissing the  suit  with costs  throughout.  The High Court held that the  Government was  not bound by the Rules of 1913, which had no  statutory force, and that the Rules of 1949 made under the Act of 1948 aforesaid  did  not apply to the  transaction  in  question, because they had no retrospective operation.  The High Court also  held  that  there  was  no  misrepresentation  by  the Government  and  that the plaintiffs were anxious  to  enter into the agreement in order to start their mining operations to take advantage of the High market in respect of coal, and that  they entered into the agreement with their  eyes  open and without any vitiating influence.  The appellants applied for  and  obtained the necessary certificate from  the  High Court.  That is how the matter is before us. In  this  Court it was strenuously argued on behalf  of  the

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appellants  that the Rules of 1913 were in terms  imperative and  had statutory force which bound the  State  Government, and that any lease or 240 agreement  entered into between the parties in violation  of the  terms  of  these Rules would be  wholly  void.   It  is contended  on behalf of the appellants, that the  Government was not entitled to recover the amount at the higher rate of royalty  from the plaintiffs, and that their suit was  well- founded  in  law.   But  it was  argued  on  behalf  of  the respondent   that  those  rules  were  promulgated  by   the Governor  General  in  Council, under the  sanction  of  the Secretary  of St-ate for India in Council, and as such  they were   binding  on  the  officials  of  the  Government   as departmental  instructions,  but  were not  binding  on  the Government itself In our opinion, this contention is:  well- founded.   Rule  1, which runs as follows, itself  makes  it clear that the Government concerned may make an exception to the general rule laid down in the rule               "1.No  license  to prospect  for  minerals  or               lease of. mines and minerals can be granted by               any   Local  Government  otherwise   than   in               accordance  with these rules, except with  the               previous  sanction of the Secretary  of  State               for  India  in Council, or with  that  of  the               Governor-General in Council under any  general               or   special  authority  which  he  may   have               received in’ this behalf from the Secretary of               State in Council." The  general rule is that the Rules have to be  followed  by the  officials of the Government in the matter  of  granting licences  to prospect for minerals, or leases of  mines  and minerals.   But  exception  may be made  with  the  previous sanction  of the- rule making authorities  aforesaid.   This position continued in law until the Government of India  Act of   1935  came  into  operation.   As  a  result   of   the constitutional  changes effected by that Act, the  Secretary of  State and the Governor-General had to be substituted  by the Governor with effect from April 1, 1937.  From that date it would be the 241 Governor  who would be empowered to make the  exceptions  to the general rule laid down.  In this case, it is clear  from Ex.   P.  3--the agreement dated January 11, 1949  that  the Governor was in the position of the lessor.  Hence, even  if we assume that the Rules had statutory force and applied, to the  instant case, the Governor having been the  grantor  of the  lease  it  must be presumed that he  decided  that  the revised  term-,  were  in the interest of  the  State,  and, therefore,  the revised terms of the lease were  binding  on the  parties.  Though in opening the appellants’ case  their counsel was vehement in the assertion that the Rules of 1913 were  statutory,  he was unable to point out  the  statutory source of it.  Ultimately, he had to concede that the  Rules were not statutory.  That being so, there is no force in the contention that the agreement of .January 11, 1949 (Ex.   P. 3.) was void. In   this  connection  it  is  necessary  to  consider   the alternative ground of attack based on the provisions of  the Act  of  1948 and the Rules made thereunder.  The  Act  came into  force on September 8, 1948, and the Rules, called  the Mineral Concession Rules, 1949, were promulgated under s.  5 of the Act.  But these Rules came into effect on October 25, 1949.  These rules apparently have no retrospective  effect. Section 4 of the Act is as under :

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             "No  mining lease shall be granted  after  the               commencement of this Act except in  accordance               with the rules made under this Act." Hence, any mining lease granted on or after October 25, 1949 will  have  to  conform to the  Rules  aforesaid.   But  the agreement in question was the result of negotiations between the parties, extending over several years and was  finalised in  ..January 1949.  The appellants, with the permission  of the Government, carried on mining, operations on the terms 242 insisted  upon  by the Government, and for  the  period  for which  the ’royalty was realised from the  appellants  there were no such Rules in existence, which could be said to have been  contravened.   Hence  we are not  concerned  with  the effect of the Rules which were promulgated in 1949 and  came into effect as already stated, on October 25, 1949.  We need not,  therefore,, stop to consider what the  legal  position would have been if an agreement like the one before us  were questioned  with  reference to its operation  on  and  after October 25, 1949. The  only  other ground on which the enforceability  of  the terms of the agreement has been questioned is that there was a misrepresentation by Government to the effect that it  was going to enhance the rate of royalty all round, and that  it was  under the influence of that belief that the  appellants entered  into  the agreement in question.  It  is  a  little difficult  to  appreciate  this  ’ground  of  attack.    The agreement is not questioned on the ground that there was any undue  influence  or coercion exercised by  the  grantor  in insisting  upon the more onerous terms under the  agreement. As  pointed out by the High Court, the appellants were in  a hurry to take the additional area and work the coal mines on terms  which were mutually agreed between the  parties.   It was  not  alleged that there was any  mutual  mistake  which could  be said to have vitiated the agreement.   But  simply because  the draft amendment to the Mining  Rules  published for  inviting  objections from the public on July  12,  1947 (vide Ex. D13) was not finalised would not afford any  cause of action to the plaintiffs.  They, with their eyes open and after  thoroughly discussing the matter  between  themselves and  the  Government,  had  entered  into  those  terms   of agreement.   Those terms may be more onerous than any  other lease  granted to other lessees, but that would not  vitiate the contract between them. 243 There  was a faint attempt made on behalf of the  appellants to  put their objections on a constitutional basis.  It  was contended that the terms imposed upon the appellants by  the State  would amount to deprivation of property  without  the authority of law.  It is manifest that this ground of attack is  wholly  devoid of any force because the  State  has  not deprived  them of any property.  What they have paid to  the Government was realisable under ,the terms of the  contract, which on the findings recorded above is not vitiated.  Under the agreement which we hold to be enforceable, the defendant may  have struck a hard bargain but that cannot  be  brought under  the prohibition of Art. 31 (1) of  the  Constitution, even   assuming  that  the  Constitution  applied   to   the transaction in question. As all the grounds of attack urged in support of the  appeal fail,  it  is hereby directed that the appeal  be  dismissed with costs. Appeal dismissed. 244

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