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PETITIONER: STATE OF MADHYA PRADESH & ANR.

       Vs.

RESPONDENT: DADABHOY’S NEW CHIRIMIRI PONRI HILL COLLIERY  CO. PVT.  LTD.

DATE OF JUDGMENT29/11/1971

BENCH: SHELAT, J.M. BENCH: SHELAT, J.M. SIKRI, S.M. (CJ) REDDY, P. JAGANMOHAN MITTER, G.K.

CITATION:  1972 AIR  614            1972 SCR  (2) 609  1972 SCC  (1) 278  CITATOR INFO :  RF         1976 SC1978  (16)

ACT: The Mines & Minerals (Regulation and Development) Act 67  of 1957   as  amended  by  Act  15  of  1958,  ss.  9(1),   and 30A--Notification issued under Second Part of s. 30A whether can  have  effect  of raising rate of  royalty  on  coal  in respect of pre 1949 mining leases above rate of 5%  provided in s. 9(1) read with Second Schedule.

HEADNOTE: In  1944  the Ruler of the erstwhile Indian State  of  Korea granted  to D a mining lease in respect of an area  of  5.25 sq..  miles  in the State.  According to the  terms  of  the lease  the rates of royalty varied from 5% 0 25%  according to  the price of the coal per tons extracted from the  eased area,  that is to say, from 4 as. per ton if the  price  was Rs.  51-  per .on to 25% of the price per ton at  the  pit’s head if that price was Rs. 20/or more.  On the merger of the Korea  State  with  Madhya Pradesh the  leased  area  became subject   to  the  provisions  of  the  Mines   &   Minerals (Regulation and Development) Act 53 of 1948 and the  Mineral Concorde Rules, 1949., In 1952 D assigned the lease and  its benefits  to  the respondent company.  The State  of  Madhya Pradesh  granted  its  consent to  the  assignment  for  the unexpired  period  of  the lease  in  consideration  of  the respondent-company  agreeing  to comply with the  terms  and conditions  of the lease including payment of royalties’  On December  28,  1967 Parliament passed the Mines  &  Minerals (Regulation and Development) Act 67 of 1957 under its  power under  Entry  54 of List I of the Seventh  Schedule  to  the Constitution.   The  Act as amended by Act 15  of  1958  was brought  into  force  by  a  notification  of  the   Central Government with effect from June 1, 1958.  Under s. 9(1)  of the  Act  a lessee under a mining lease granted  before  the commencement  of  the Act was liable to pay royalty  at  the rate  for the time being specified in the  Second  Schedule. Under  item  (1) of the Second Schedule royalty  payable  in respect  of coal was the same as under r. 41 of the  Mineral Concession  Rules,  1949, that is, 5% of the  f.o.r.  price,

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subject to. a minimum of fifty naye paise per ,on.  Under s. 30A  which  had  been inserted by Act 15 of  1958  with  re- trospective  effect, the provisions of s. 9(1) and s.  16(1) were  not  applicable to mining leases granted  before  25th October 1949 in respect of coal, but the Central  Government bad  power if satisfied that it was expedient to do  so,  to direct by notification in the Official Gazette, that all  or any  of the said provisions (including rules made under  ss. 13  and  18) shall apply to or in relation  to  such  leases "subject  to such exceptions and modifications, if  any,  as may be specified in that or in any subsequent notification". On  December  29.  1961  the  Central  Government  issued  a notification in exercise of its power under the second  part of  s. 30A by which it directed application of s. 9(1)  with immediate  effect  to or in relation to  the  pre-1949  coal mining  leases "subject to the modification that the  lessee shall  pay  royalty at the rate specified in  any  agreement between  the  lessee and the lessor or at 2-1/2%  of  f.o.r. price,  whichever is higher, in lieu of the rate of  royalty specified  in respect of coal in the Second Schedule to  the said Act." The Collector served upon the respondent  company demand notices to pay the arrears of royalty for the  period December  29,  1961  to  December  31,  1965  at  the  rates specified in the lease.  The com- 610 pany in a writ petition before the High Court urged that the exception; and modifications under s. 30A had to be and were intended  to  cushion  of  soften  the  burden  which  would otherwise  fall on the lessees under s. 9(1) and the  Second Schedule  and therefore any modification or exception  which would  be  specified in such notification  was  intended  to reduce  rather  than increase the rate  of  royalty  payable under  s.  9(1).  The State Government  contended  that  the respondent-company  was  bound to pay royalty at  the  rates provided in its lease, that being higher than the minimum.or 2-1/2%  provided  in  the  notification.   The  High   Court rejected  the  contention  raised  by  the  State  as  being inconsistent   with  the  purpose  for  which  s.  30A   was introduced.  The State appealed. HELD : The notification was issued in exercise of the powers con feared by s. 30A.  That power was to apply by issuing  a notification there% under, ss. 9(1) and 16(1) and the  rules made  under  ss.  13  and 18.   The  notification  in  terms directed the application of s. 9(1) which meant that on  and from December 29, 1961 the company would have to pay royalty as  prescribed under that sub-section read with  the  Second Schedule, that is, at 5%.  The notification however  applied s.  9(1)  subject  to one  modification,  namely.  that  the lessees under the pre 1949 leases were to pay royalty at the rate  provided  in  their leases or  at  21%  whichever  was higher.   The modification was to the rate applicable  under s.,  9(1) and the Second Schedule, that is, to the  rate  of 5%.   Considering the object with which s. 30A  was  enacted viz.  to  phase the rate of 5% and not to impose it  at  one stroke,  the modification could not mean recovery at a  rate inconsistent with s. 9(1) and the Second Schedule. that  is, at the rate higher than 5% provided thereunder. [620 D-F] Such  a modification, if it were to be construed as  meaning payment  at a rate higher than 5% would be in excess of  the power  under  s..  30A  and also  in  contravention  of  the language  of  s. 9(1) and the Second  Schedule.   A  lateral meaning  which  the State canvassed for could  therefore  be accepted only at the cost of invalidating the  notification. Where two constructions are possible the one which sustains- the validity of the law must be preferred. [620 G-H; 621 A]

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On  a  plain reading of the notification it was  clear  that what it meant was that instead of the rate flowing from  the application  of s. 9(1) and the Second Schedule, a  modified rate  should  be applied, that is, ’in lieu of the  rate  of royalty’  specified in the Second Schedule, royalty  at  the agreed rate should be charged if it was lower than 5% or  at 21%  minimum, whichever was higher.  The  notification  thus did not empower the State Government to recover royalty at a rate higher than 5% in lieu of the rate chargeable under  s. 9(1) and the Second Schedule which provided 5% only. [621 B- C] The  High  Court  was therefore justified  in  quashing  the impugned orders also the demand notices issued in  pursuance of that order.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 167 and 168 of 1968. Appeals from the judgment and orders dated December 20, 1966 of the Madhya Pradesh High Court in Misc.  Petition Nos. 139 and 182 of 1966. I.   N. Shroff, for the appellants (in both the appeals). S.   V. Gupte, Suresh A. Shroff, R. K. Thakur, Bhuvanesh Kumari, K. S. Cooper, M. K. Cooper, J. B. Dadachanji, O. C.  611 Mathur  and Ravinder Narain, for respondent No. 1  (in  C.A. No. 167 of 1968). B.   P.  Maheshwari, for, respondent No. 1 (in C.A. No.  168 of 1968). S. P. Nayar, for respondent No. 2 (in both the appeals). The Judgment of the Court was delivered by Shelat, J. By an Indenture of Lease, dated January 12, 1944, made between the then Ruler of Korea State of the one  part, referred  to  as  the lessor therein, and  Sir  Mukherji  B. Dadabhoy, referred to as the lessee, of the other part,  the lessor  granted  to the lessee for a term of  30  years,  in consideration  of  payment of rents  and  royalties  therein mentioned,  a  mining lease of an area  measuring  5.25  sq. miles   delineated  on  the  plan  annexed   thereto,   with liberties, powers and privileges and on terms and conditions therein  set out.  By cl. (2) of that Indenture, the  lessee agreed to pay during the subsistence of the lease  royalties at  the  rates and on dates set out therein.  The  rates  of royalty varied from 5% to 25% according to the price of coal per ton extracted from the leased area, that is to say, from 4  ans. per ton if the price was Rs. 51/- per ton to 25%  of the  price per ton at the pit’s head if that price  was  Rs. 20/- or more. On  the merger of the Korea State with Madhya Pradesh,  into the events of which it is not necessary for the purposes  of this  appeal  to go, the leased area became subject  to  the provisions  of  the  Mines  and  Minerals  (Regulation   and Development)  Act,  53 of 1948 and  the  Mineral  Concession Rules  made  thereunder on October 25, 1949.  In  1952,  Sir Maneckji  agreed to assign the said lease and the  benefits, powers and privileges thereunder provided to the respondent- company.  Since, under that lease, such assignment could not be  made  without  the previous consent of  the  lessor  and since, by that time, owing to the merger of the Korea  State with  Madhya  Pradesh,  the  State  of  Madhya  Pradesh  had acquired the said area and the rights in respect of it under the  said lease, an agreement was made between the State  of Madhya  Pradesh  and the respondent-company on  November  6,

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1952  under  which the State of Madhya Pradesh  granted  its consent  to the said assignment for the unexpired period  of the  said lease in consideration of  the  respondent-company agreeing to comply with the terms and conditions of the said lease  including  I  payment  of  royalties  to  the   State Government   as  provided  therein.  That  meant  that   the respondent-company  had  to pay henceforth  royalty  to  the State of Madhya Pradesh as the lessor at the rates  provided in the original lease. 612 An unexpected development in the meantime took place.  Under an industrial award, called the Mazumdar Award, published on May  25,  1956,  increased wages were  awarded  to  colliery workers.  To meet the consequent increased expenditure which the  collieries  had  to  incur,  the  Government  of  India proportionately  increased  the controlled  coal  price.   A representation   made  by  the  respondent-company  to   the Government  of India, dated October 5, 1956 shows  that  the increase in respect of the coal extracted by the respondent- company was from 14.6.0 and Rs. 15.6.0 to Rs. 17.6.0 and Rs. 18.6.0  per  ton.  That increase, however, resulted  in  the respondent-company  having  to pay royalty at  an  increased rate since the rate of royalty payable by the company was on graded  slabs varying according to the price of coal at  the pit’s  head.  The company’s representation,  therefore,  was that  the royalty payable by it should be modified so as  to bring it in consonance with that payable under the 1948  Act read  with the Mineral Concession Rules, 1949 and the  First Schedule  thereto,  namely,  at a fixed rate of  5%  of  the f.o.r. price subject to the minimum of 8 ans. per ton. (rule 41   (1)  (a)).   The  Government  of  India  referred   the respondent-company to the State Government and advised it to make   a   similar  representation   to   that   Government. Thereafter correspondence went on between the Government  of Madhya Pradesh and the respondent-company for a considerable time.  The State, Government, however, was not agreeable  to modify the terms of the said lease and to bring the  royalty payable  thereunder in consonance with r. 41 of  1949  Rules and the First Schedule thereto. On  December  28,  1957, Parliament  passed  the  Mines  and Minerals (Regulation and Development) Act, 67 of 1957  under its  power under Entry 54 of List I of the Seventh  Schedule to the Constitution.  Before the Act was brought into  force by  a  notification  as  provided by  S.  1(3)  thereof,  an amending  Act, being Act 15 of 1958, was passed on  May  15, 1958,  By  a notification dated May 29,  1958,  the  Central Government brought into force the Act with effect from  June 1, 1958. As its long title recites, the Act was passed to provide for the  regulation  of mines and the  development  of  minerals under the control of the Union.  Sec. 2 declared that it was in the public interest that the Union should take under  its control  the  regulation  of mines and  the  development  of minerals.   Secs.  6 and 8 provided for the period  and  the area  in respect of which mining leases henceforth could  be granted.   Sec. 9(1) provided that a lessee under  a  mining lease  granted before the commencement of the Act shall  pay royalty  at  the rate for the time being  specified  in  the Second  Schedule.   Its sub-sec. 2 provided  that  a  lessee under  a lease granted on or after the commencement  of  the Act 613 shall likewise pay royalty in respect of any mineral removed by him from the area leased to him at the rate for the  time being.  specified in the Second Schedule in respect of  that

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mineral.  Sub-sec. (3) authorised the Central Government  to amend the rates of royalty specified in the Second Schedule, but  not so as to exceed twenty per cent. of the sale  price at  the pit’s head.  Under item (1) of the Second  Schedule, royalty payable in respect of coal was the same as under  r. 41 of the Mineral Concession Rules, 1949, that is, 5% of the f.o.r.  price, subject to a minimum of fifty naye paise  per ton. The  effect  of  sec. 9 was that the  rate  of  royalty  was enhanced in the case of those lessees, who, under the leases obtained  by them before the commencement of the  Act,  were paying  at a rate lesser than 5%, while the royalty  payable by lessees similarly placed was reduced if they were  paying royalty  at  a higher rate.  Under sec. 9(1) read  with  the Second  Schedule,  the respondent company  would  have  been required to pay royalty at the reduced, rate of 5 %  instead of  at the rates varying from 5 % to 25 % according  as  the price fluctuated from time to time.  Sec. 1 6 provided  that all mining leases granted before October 25, 1949 should, as soon  as  may  be, after the commencement  of  the  Act,  be brought  into conformity with the provisions of the Act  and the Rules made under sees. 13 and 18. The  Amending Act, 15 of 1958, by its sec. 2, inserted  into the  Act sec. 30A with retrospective effect.   That  section reads as under               "Notwithstanding  anything contained  in  this               Act,  the  provisions of  sub-section  (1)  of               section  9 and of sub-section (1)  of  section               16,  shall  not  apply to or  in  relation  to               mining  leases granted before the 25th day  of               October,  1949,  in respect of coal,  but  the               Central Government, if it is satisfied that it               is expedient so to do, may, by notification in               the  Official Gazette, direct that all or  any               of  the said provisions (including  any  rules               made under sections 13 and 18) shall apply  to               or in relation to such leases subject to  such               exceptions  and modifications, if any, as  may               be  specified  in that or  in  any  subsequent               notification." The section falls into two parts.  Under the first part, the operation of sections 9(1) and 16(1) was suspended as far as pre-1949 mining leases for coal were concerned.  The  second part,  however,  empowered the Central  Government,  on  its satisfaction that it was expedient to do so, to direct  that all  or any of those provisions, including rules made  under sees.  13 and 18, should apply to such leases  subject  to such exceptions and modi- 614 fications,  if  any, as might be specified in  that  or  any subsequent notification.  The "exceptions and modifications" which  might  be  so specified  in  the  notification  would obviously  be  in  regard  to  the  application,  when  such application  was decided upon, of sees. 9(1) and  16(1)  and the relevant rules. As a result of the suspension of the operation of sec. 9(1), and  consequently  of the Second  Schedule,  the  respondent company  remained liable to pay under its lease  royalty  at the  graded rates provided therein which, in consequence  of the  increase in the controlled price of coal, came to  more than 5% prescribed by the Second Schedule. On  December  29,  1961, the  Central  Government  issued  a notification in exercise of its power under the second  part of  sec. 30A, by which it directed application of sec.  9(1) with immediate effect to or in relation to the pre-1949 coal

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mining leases " subject to the modification that the  lessee shall  pay  royalty at the rate specified in  any  agreement between the lessee and lessor or at 2-1/2% of f.o.r.  price, whichever  is  higher,  in  lieu  of  the  rate  of  royalty specified  in respect of coal in the Second Schedule to  the said  Act."  The respondent-company would have  been,  under this  notification, liable to pay royalty at the rate of  5% under the Second Schedule.  The question is whether the said modification made any difference. It  appears that the respondent-company continued  to  press the Central Government to modify and reduce the royalty pay- able  by it under its lease.  This is seen from the  Central Government’s  letter,  dated  July  4,  1962,  by  which  it informed the company in reply to the company’s letter of May 21,  1962 that the question of the rate of royalty  payable, by  the  colliery  was,  in  consultation  with  the   State Government,  under  consideration and that  action  in  that connection would shortly be taken.  It would seem that as  a result of the company’s representations and consultation  by the Central Government with the State Government, the latter issued an order, dated September 23, 1963 to the  Collector, Surguja,  directing  him  to recover  from  the  respondent- ,company royalty at the rate of 5% with effect from July  1, 1958 subject to the condition that the royalty amount should not  be less than Rs. 2,47,000/- per year.  The  Government, however,  directed the Collector to recover the  outstanding royalty due for the period prior to July 1, 1958 at the  old rates, that is, as provided by the lease. The  State Government, however, changed its mind  later  on, for,  by  its  order  dated October  1,  1965  it  partially suspended  its order of September 23, 1963 and directed  the Collector  to recover royalty as from December 29,  1961  at the rates prescribed under the lease "in accordance with the Government of  615 India’s  notification  No.  S.O. 30,  dated  29th  December, 1961".   Representations  by the respondent-company  to  the State  Government  to charge royalty at  5%  proved  futile. However, on January 1, 1966, the Central Government issued a notification under which it directed the lessees of pre-1949 leases to pay royalty at 5% of the f.o.r. price.  Thereupon, by its order, dated February 11, 1966, the State  Government issued  instructions to the Collector to charge  royalty  at that  rate  with  effect from 1st  of  January,  1966.   The controversy  between the parties, therefore, is confined  to the  rate of royalty at which the company was liable to  pay royalty  for  the  period  between  December  29,  1961  and December 31, 1965. On  January 25, 1966, the Collector served upon the  respon- dent-company  demand notices to pay the arrears  of  royalty for the aforesaid period at the rates provided in the lease. The  company thereupon filed a revision before  the  Central Government  under the Mineral Concession Rules, 1960.   That revision was pending when the company filed a writ  petition in  March  1966  in the High Court  of  Madhya  Pradesh  for quashing  the  said  order,  dated  October  1,  1965,   the rejection  of  its representation by the  State  Government, dated November 19, 1965 and the said demand notices. The respondent-company urged that the purpose of  suspending operation  of S. 9(1), till a notification applying  it  was issued by the Central Government, was not to burden  lessees under pre-1949 leases with royalty at the rate of 5% of  the f.o.r.  price  for the time being prescribed in  the  Second Schedule, and that even when a notification applying sec.  9 was  to be issued, the Central Government was  empowered  to

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direct that that section, the Second Schedule and the  Rules made under sees. 13 and 18 would apply with such  exceptions and  modifications  as  may  be specified  in  such  or  any subsequent notification.  Such exceptions and  modifications had to be and were intended to cushion or soften the  burden which  would otherwise fall on the lessees under  sec.  9(1) and the Second Schedule, and therefore, any modification  or exception which would be specified in such notification  was intended to reduce rather than increase the rate of  royalty payable  under  sec. 9(1).  The contention,  therefore,  was that the notification, dated December 29, 1961 could not  be read  to mean that lessees, such as the  respondent-company, whose  leases provided for royalty at a rate higher than  5% were  to pay royalty at a rate higher than the one  provided under  sec. 9(1).  The State Government, on the other  hand, urged  that the language of the notification was  clear  and provided  treat such lessees were to pay royalty  either  at the  rate provided in their leases or if the  rate  provided therein was less than 2-1/2% at that rate, whichever was 616 higher.  Therefore, oil a plain construction of the words of the  notification, the respondent-company was bound  to  pay royalty  at  the  rates provided in its  lease,  that  being higher   than  the  minimum  of  2-1/2%  provided   in   the notification.  The High Court rejected the contention raised by  the  State as being inconsistent with  the  purpose  for which sec. 30A was introduced.  The High Court observed :               "In our view, the true construction and effect               of  the notification dated 29th December  1961               is  that  in  regard  to  coal  mining  leases               granted  before 25th October 1949 if the  rate               of royalty stipulated in the lease was  higher               than  5%  of f.o.r. price per  ton,  then  the               royalty  payable  from 29th December  1961  in               respect  of coal removed from the leased  area               after that date would be the one specified  on               that  date in the Second Schedule,  namely,  5               per cent of f.o.r. price per ton; in  relation               to leases where the rate of royalty stipulated               in  less than 5 per cent but more  than  2-1/2               per cent of f.o.r. price per ton, the rate  of               royalty  would  be the one  specified  in  the               lease  agreement;  and in  respect  of  leases               where  the rate of royalty specified was  less               than  2-1/2 per cent of f.o.r. price per  ton,               the  rate  would be 2-1/2 per cent  of  f.o.r.               price  per  ton from 29th December  1961.   It               follows from this that the  petitioner-company               which was, under the terms of its lease liable               to  pay  royalty at a rate higher than  5  per               cent  of f.o.r. price per ton for  the  period               from 29th December .1961, is rightly  entitled               to  claim  that under the  notification  dated               29th  December 1961, it cannot be called  upon               to pay royalty from 29th September 1961 at the               rate stipulated in the lease granted to it but               only at the rate of 5 per cent of f.o.r. price               per ton specified in the Second Schedule." The  High  Court  also rejected the  State’s  contention  as regards  its  order dated September 23, 1963 that  once  the said notification was issued, the State Government could not charge  royalty at a rate lower than the one  prescribed  in the  said notification, and that therefore, the State  acted properly in rescinding its said order.  The High Court  held that  order amounted to a modification of the terms  of  the

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lease in consideration of the lessee guaranteeing payment of the minimum amount of Rs. 2.47,000/- a year, which the State Government was competent to make, and that therefore, it had no right to rescind it unilaterally.  On this view, it  held that  the company’s liability for royalty as  from  December 29,  1961 would be at the reduced rate of 5% of  the  f.o.r. price and not as provided by the original lease deed.  617 As against these conclusions, counsel for the State took  us through  the  terms of the lease and the provisions  of  the Act, and in particular sees. 9 and 30A, and formulated three contentions  for  consideration.  These were, (1)  that  the High  Court erred in construing the relevant  provisions  of the Act and particularly sec. 30A, (2) that it also erred in construing the said notification, and (3) that the order  of the  State  Government of September 23, 1963  was  erroneous having regard to the said notification which fixed the  rate of royalty payable by the lessees under the pre-1949 1eases, and that order being inconsistent with the notification  had to  be  rescinded. by its subsequent order of  November  19, 1965.  Counsel urged that upon precision of its order  dated September  23,  1963, the State Government was  entitled  to recover royalty as from the date of the said notification at the rate agreed to in the lease or at 2-1/2%, whichever  was higher.   Therefore, the said demand notices were valid  and had to be complied with. It  is  well-known that prior to the enactment of  the  1948 Act,’  leases  of mining areas had been granted  by  diverse authorities on different terms and conditions.  The rate  of royalty  under  those leases were inevitably  divergent  and were often fixed at very low rates.  The purpose of enacting the  1948 Act was to bring about uniformity in such leases and with that lend that Act had made provisions for power to modify  the terms and conditions both in regard to the  area and  the  period  under such leases.   The  object  of  such provisions  was to regulate in a systematic  and  scientific manner development of mining and minerals.  Though under the Constitution  that subject was left to the States,  a  power was  carved  out  by entry 54 in List I  for  the  exclusive exercise  of  it by the Centre.  The  consequence  was  ’the enactment of Act 67 of 1957 which was brought into operation from June 1, 1958. The  purpose  of passing that Act is clearly seen  from  the declaration  required  under entry 54, List I,  in  sec.  2, namely,  that it was necessary for the Union to  take  under its  control  regulation  of mines and  the  development  of minerals.   In  pursuance  of  that  object  the  Act   made provisions  with regard to the persons to  whom  prospecting licences and mining leases should be granted (ss. 4 and  5), the  maximum area for which such licences and leases  should be  granted (s. 6), and the period for which a mining  lease should  be  granted  (S. 8).  In order  that  uniformity  in leases granted before and after the commencement of the  Act could  be  attained, power was also conferred to  bring  all mining   leases  granted  before  October  25,   1949   into conformity with the provisions of the Act and the Rules made thereunder. (ss. 16, 17 and 18).  As regards royalty payable by  the lessees under diverse kinds of leases for  different minerals  granted  before October 25,  1949  uniformity  was sought to be brought about sec. 9(1). 618 In the 1948 Act the Central Government had the power to make rules  for,  regulating the grant of mining leases,  or  for prohibiting  the,  grant of such leases in  respect  of  any mineral  including  the power to make rules as  regards  the

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terms  upon which and the conditions subject to  which  such leases  would be granted. (s. 5) Under sec. 7 of  that  Act, the  Central Government also could make rules for  modifying or  altering  the  terms and conditions  of  leases  granted before the commencement of that Act, that is, before October 25,  1949.   In pursuance of the power under  sec.  5,  the Central Government framed the Mineral Concession Rules, 1949 and  provided by r. 41 thereof read with the First  Schedule thereto that the rate of royalty chargeable under a lease in respect of coal would be 5% of the f.o.r. price per ton.  No rules,  however, were made under sec. 7, and therefore,  the rate  of royalty provided by r. 41 did not  govern  pre-1949 leases,   with  the  result  that  the  lessees   thereunder continued  to  pay  royalty  provided  in  their  respective leases. Such diversity in the rates of royalty was sought to be done away with by prescribing uniform rates of royalty in respect of  each  mineral  through  sec. 9. Item  1  in  the  Second Schedule prescribed, in respect of coal, the rate of royalty at 5% of the f.o.r. price subject to a minimum of fifty naye paise per ton.  The result of S. 9 and item I in the  Second Schedule  was  that all lessees whether  their  leases  were granted  before or after the commencement of the Act  became liable  to pay royalty at the uniform rate of 5% in  respect of coal.  Since under the 1948 Act the lessees, whose leases were granted on and after the commencement of that Act, were liable  to  pay  royalty  at 5% under  r.  41  of  the  1949 Concession Rules, sec. 9 did not make any difference to them as it prescribed the same rate.  But so far as lessees under the  pre1949  leases were concerned, the new  rate  affected them, inasmuch as those, who, under their leases were paying at  a lesser rate became liable to pay royalty at 5%,  while those  who were paying at a higher rate had to pay  at,  the lower  rate of 5% only.  Besides, the change in the rate  of royalty  under  sec. 9, pre-1949 leases were  liable  to  be modified in respect of the area and the period under sec. 16 and the rules made under secs. 13 and 18. Even before the new Act was brought into force, consequences of  enforcing  such uniformity and the  resultant  automatic spurt in the rate of royalty, especially in respect of coal, had  been  realised.   The  Central  Government,  therefore, itself sponsored the insertion of sec. 30A by sec. 2 of  the Amendment  Act, 15 of 1958, with retrospective effect.   The consequences flowing from the attempted uniformity were  set out in the Statement of Objects and Reasons(1) for  amending the Act.  The statement acknowledged (1)  Gazette  of India, Extra., Part 2, Sec.  2,  Jan.-July, 1958, p. 507. 619 that coal, as the basic fuel, occupied a unique position  in the  country’s  economy  and  had  always,  therefore,  been treated   differently   from  other   minerals.    It   also acknowledged  that  operation of secs. 9 and 16  would  have "numerous  desirable consequences" such as  unsettling  coal industry  as  a whole and retarding the  programme  of  coal production  estimated  in  the, Second  Five  Year  Plan  on account  of  the sudden and automatic rise  in  the  royalty payable  by lessees, who under their leases  granted  before October  25, 1949 generally had to pay royalty  "much  below the  rate" prescribed under the Second Schedule.  A  similar anxiety  was  also  expressed  during  the  passage  of  the Amendment Bill by the concerned Minister stating that if the automatic enhancement under sec. 9(1) in the rate of royalty at  5%  were  to  be  implemented,  the  results  would   be unfortunate.  For, besides affecting the rate of  production

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of coal, it would also adversely affect the price  structure in other industries, such as cement, steel and other similar industries, and that for that reason "by this Amending  Bill that mistake is sought to be rectified".  "Instead of giving those  increases automatically power will not be  taken  to phase  them  in such a way that the upward revision  is  not pushed  up to the maximum limit (i.e. five per  cent.)  with one  jerk,  but it is so phased that it does not  cause  any upset in the coal production programme and in the economy of the country as a whole".(1). The mischief which the Amending Act, 1958 sought to avoid was thus to prevent enhancement of royalty at one stroke to 5%. As  aforesaid, sec. 30A suspended the application  of  secs. 9(1) and 16(1) in relation to pre-1949 leases and authorised the Central Government to direct that all or any of the said provisions  (including  rules made under secs.  13  and  18) shall apply to or in relation to such leases subject to such exceptions and modifications, if any, as may be specified in a notification.  As a result of the suspension of Sec. 9(1), lessees under pre-1949 leases were relegated to the original position  under  which they were liable to  pay  royalty  at rates agreed to in those leases whether the rate was over or below  5%  provided  by sec.9(1). As and  when  the  Central Government  issued the notification envisaged by the  second part,  such lessees would be obliged to pay royalty  at  the rate  of 5% as prescribed for the time being in  the  Second Schedule, and even if the Government were, in the  meantime, to  enhance  the rate as authorised by sec.  9(3)  upto  the maximum  rate of 20% at such rate but never more  than  20%. The  second  part thus contemplated payment of  royalty,  on sec. 9(1) being made applicable, at the most, at the rate of 5% only, as no increase had till. then been-made under  sec. 9(3). (1)  Rajya Sabha Proceedings, dated November 620 On December 29, 1961, the Central Government "in exercise of the  powers conferred by sec. 30A" issued  the  notification directing  that the provisions of sub-sec. (1) of sec. 9  of the  said  Act shall apply with immediate effect  to  or  in relation  to  pre-1949 coal mining leases,  subject  to  the modification that such lessees shall pay royalty at the rate specified  in  the agreements between the  lessees  and  the lessors or at 2-1/2% of f.o.r. price, whichever was  higher, "in lieu of the rate of royalty specified in respect of coal in the Second Schedule to the said Act". The  argument  urged  on behalf of  the  State  both  before the  .High  Court and before us was  that  the  notification clearly  envisaged payment of royalty at the rate agreed  to between  the lessor ,and the lessee or at  2-1/2%  whichever was  higher.   Since,  the agreement  in  the  present  case provided for royalty at graded rates which were higher  than 21%,  the company had to pay royalty at such  agreed  rates. The  argument,  in our opinion, is untenable :as it  is  not borne out by the language of the notification itself and  of sec.  30A  and was therefore rightly repelled  by  the  High Court. The  notification was issued, as it recites, in exercise  of the powers conferred by sec. 30A. That power was to  apply, by  issuing a notification thereunder, sees. 9(1) and  16(1) and the rules made under sees. 13 and 18.  The  notification in  terms directed the application of sec. 9(1) which  meant that on and from December 29, 1961 the company would have to pay  royalty as prescribed under that sub-section read  with the  Second  Schedule, that is, at  5%.   The  notification, however,  applied  sec. 9(1) subject  to  one  modification,

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namely,  that lessees under the pre1949 leases were  to  pay royalty  at,  the rate provided in their leases  or  at  21% whichever  was  higher.  The modification was  to  the  rate applicable under sec. 9(1) and the Second Schedule, that is, to  the rate of 5%.  Considering the object with which  sec. 30A  was enacted, viz., to phase the rate of 5%, and not  to impose  it  at one stroke, the modification could  not  mean recovery  at  a  rate inconsistent with sec.  9(1)  and  the Second  Schedule,  that  is, at ,the  rate  higher  than  5% provided thereunder. Such  a modification, if it were to be construed as  meaning payment  at a rate higher than 5% would be in excess of  the power  under  sec.  30A and also  in  contravention  of  the language   of  sec.  9(1)  and  the  Second   Schedule.    A modification,  if  any, would be for charging royalty  at  a rate lesser than the one provided under sec. 9 (1 ) and  the Second Schedule, and not at a rate higher than such rate.  A construction to the contrary would mean exercise of power in excess  of that conferred by the section and  would affect the validity of the notification.  A literal meaning which the State canvassed for can, therefore, be accepted only  at the cost of invalidating the notification.  621 The rule of construction that a court construing a provision of  law  must presume that the intention  of  the  authority making  it  was  not to exceed its power  and  to  enact  it validly    is   well-settled.    Where,    therefore,    two constructions  are  possible,  the one  which  sustains  its validity  must  be  preferred.  On a plain  reading  of  the notification,  however, it is clear that what it  meant  was that  instead  of the rate flowing from the  application  of sec. 9(1) and the Second Schedule, a modified rate should be applied, that is, "in lieu of the rate of royalty" specified in the Second Schedule, royalty at the agreed rate should be charged  if  it  was lower than 5%, or  at  2-1/2%  minimum, whichever  was  higher.   The notification,  thus,  did  not -empower  the State Government to recover royalty at a  rate higher  than  5% in lieu of the rate chargeable  under  sec. 9(1) and the Second Schedule which provided 5% only. It appears that the State Government itself understood  such a  construction  as  proper,  for,  if  it  had   understood otherwise,  it  would  not  have  issued  its  order   dated September  23,  1963  directing  the  Collector  to  recover royalty  at  5%  pursuant to the  correspondence  which  had ensued  between the company, the Central Government and  the State Government.  If it had understood the notification  in the  manner now urged by its counsel, it would have at  once pointed  out both to the company and the Central  Government in  that  correspondence  that it was  entitled  to  recover royalty at the rates agreed to in the lease instead of at  5 %.  It  was  only  in 1965 that  it  changed  its  mind  and cancelled its previous order.  On the construction placed by us  on  sec.  30A  and the said  notification,  it  was  not entitled  so to do.  The High Court, in our view, was  right in quashing that order as also the demand notices issued  in pursuance of that order. In  view of our decision on the question of construction  of the  notification  and sec. 30A, it becomes  unnecessary  to consider  the  second  contention raised  by  the  company’s counsel that the order of 1963 amounted to a modification of the  terms  of  the lease, and  that  therefore,  the  State Government    could   not   unilaterally   supersede    such modification by issuing a subsequent order in 1965.  For the reasons aforesaid, we are in agreement with the High Court’s conclusions.

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Civil Appeal No. 168 of 1968 involves the same question  and our decision in that appeal, must, therefore, be governed by the decision in this appeal. Both  the  appeals, therefore, fail and are  dismissed  with costs.  ’Mere will, however, be one set of hearing costs  as the arguments in both the appeals have been common. G.C.                      Appeals dismissed. 9-L643 Sup CI/72 622