Orissa High Court
Federation Of India Mineral Industries vs State Of Odisha & 3 Others. .... ... on 2 April, 2014
Equivalent citations: AIR 2014 ORISSA 105
Author: A.K.Goel
Bench: A.K.Goel, A.K.Rath
IN THE HIGH COURT OF ORISSA : CUTTACK
W.P.(C) Nos. 20774, 17682, 21482, 21420,
21640, 21664, 16260, 22180 and 21670 of 2013.
W.P.(C) No. 20774 /2013
Federation of India Mineral Industries,
New Delhi & Another. ...... Petitioners
-Versus-
State of Odisha & 3 others. .... Opp.Parties.
For the petitioners ... Mr. A.K.Ganguli, Sr.Advocate,
Mr. Pratap Ch. Mohapatra,
Mr. B.D.Sahoo & R.C.Patnaik
For the opp.parties ... Mr. Ashok Mohanty,
Advocate General
( For opp.party nos. 1 to 3)
Mr. S.D.Das, ASG
( opp. party no.4)
W.P.(C) No. 17682/2013
M/s. SMC Power Generation Ltd
& another. ... Petitioners
-Versus-
State of Odisha & another. .... Opp.Parties.
For the petitioners ... Mr.Subash Ch.Lal, Sr.Advocate,
Mr. S.Lal & B.K.Sharma
For the opp.parties ... Mr. S.D.Das, ASG
( opp. party no.2)
Mr. Ashok Mohanty,
Advocate General
( For opp.party no. 1.)
M/s. Pratap Ch. Mohapatra,
S.C.Samantray,
B.D.Sahu-2 &
R.C.Patnaik
( for intervenor)
-2-
W.P.(C) No. 21482/2013
Nikila Impex Pvt. Ltd ...... Petitioner
-Versus-
State of Odisha & 2 others. .... Opp.Parties.
For the petitioner ... Mr.Alok Kr. Mohapatra,
A.K.Dash, B.Panda,
S.S.Mohapatra, S.K.Mishra,
T.Dash & S.P.Mangaraj
For the opp.parties ... Mr. S.D.Das, ASG
( opp. party no.3)
Mr. R.K.Mohapatra,
Govt.Advocate
( For opp.party nos. 1 & 2.)
W.P.(C) No. 21420/2013
Ankit Metal & Power Ltd. ...... Petitioner
-Versus-
State of Odisha & 3 others. .... Opp.Parties.
For the petitioner ... Mr.S.S.Das, Sr.Advocate,
Kumarika Behera,
S.Modi, P.K.Ghose,
S.S.Pradhan, S.Pradhan
And M.Pattnaik
For the opp.parties ... Mr. S.D.Das, ASG
( opp. party no.2)
Mr. R.K.Mohapatra,
Govt.Advocate
( For opp.party nos. 1 & 3.)
-3-
W.P.(C) No. 21640/2013
M/s. Mark Steels Ltd. ...... Petitioner
-Versus-
State of Odisha & 2 others. .... Opp.Parties.
For the petitioner ... M/s. Rajdipa Behura,
D.Behura, D.Das,
J.Katikia & G.Nayak
For the opp.parties ... Mr. S.D.Das, ASG
( opp. party no.2)
Mr. R.K.Mohapatra,
Govt.Advocate
( For opp.party nos. 1 & 3.)
W.P.(C) No. 21664/2013
M/s. Orissa Steel Trading
Corpn. & another. ...... Petitioners
-Versus-
State of Odisha & 2 others. .... Opp.Parties.
For the petitioners ... M/s. S.N.Jena,
S.C.Dash, M.Mohanty &
R.B.Das
For the opp.parties ... Mr. S.D.Das, ASG
( opp. party no.2)
Mr. R.K.Mohapatra,
Govt.Advocate
( For opp.party nos. 1 & 3.)
-4-
W.P.(C) No. 16260/2013
M/s. Raipur Power and
Steel Limited. ...... Petitioner
-Versus-
State of Odisha & 3 others. .... Opp.Parties.
For the petitioner ... M/s. Digambar Mishra,
S.Satpathy &
P.Swain,
For the opp.parties ... Mr. S.D.Das, ASG
( opp. party no.2)
Mr. R.K.Mohapatra,
Govt.Advocate
( For opp.party nos. 1 & 3.)
M/s. S.P.Panda &
R.R.Swain
( for opp.party no.4)
W.P.(C) No. 22180/2013
M/s. Swastik Stevedores
Private Limited. ...... Petitioner
-Versus-
State of Odisha & Anr. .... Opp.Parties.
For the petitioner ... M/s. B.Mohanty,
B.Sahoo &
A.Tripathy
For the opp.parties ... Mr. R.K.Mohapatra,
Govt.Advocate
( For opp.party no. 1 )
Mr. S.D.Das, ASG
( opp. party no.2)
-5-
W.P.(C) No. 21670/2013
M/s. Korp Resources
Private Limited. ...... Petitioner
-Versus-
State of Odisha & 6 ors. .... Opp.Parties.
For the petitioner ... M/s. Biswanath Rath,
J.Rath, S.K.Jethy,
S.K.Mishra & S.Mishra
For the opp.parties ... Mr. R.K.Mohapatra,
Govt.Advocate
( For opp.party nos.1 & 3 to 7)
Mr. S.D.Das, ASG
( opp. party no.2)
BEFORE
THE HONOURABLE CHIEF JUSTICE MR. A.K.GOEL
THE HON'BLE DR. JUSTICE A.K.RATH
Date of hearing : 06.03.2014
Date of Judgment : 02.04.2014
JUDGMENT AND ORDER
( A.K.Goel, CJ.)
1.The common question raised in this group of writ petitions is about the validity of Memo No. 8620/SM dated 5th December, 2012 issued by the Principal Secretary to Government of Odisha, Steel and Mines Department. While in all other petitions the said memo is sought to be quashed, in W.P.(C) No. 17682 of 2013, the petitioners seeks direction to implement thereof.
The operative part of the memo is as follows:-
" ...the State Government hereby directs that at least 50% of the iron ore lumps and 50% of the fines won -6- from the mines in any month, but not put to captive use by the lessees, shall be sold to the stand alone mineral based industries located in the State, limited to the requirement of such user industries, in an equitable manner, on payment of the prevailing fair market price by the user industries to the mining lessees."
2. The reason for the above direction as mentioned in the impugned order, is that the State based iron ore industries are facing acute shortage of iron ore, seriously affecting the production. Few of them are facing closure and others are experiencing low utilization of their existing capacity. There is likelihood of adverse socio-economic consequences of unemployment, loss of wages and impact on investment climate and industrialization process in the State. Therefore, it became necessary, in the greater public interest, to take measures to make adequate raw material available to the State based industries so as to maintain the pace of industrial growth and avoid adverse socio economic consequences. The exercise of power purports to be under Rule 27(1)(m) of the Mineral Concession Rules, 1960 (MCR) which provides that the State Government shall at all times have the right of pre-emption of the minerals won from the land in respect of which the lease has been granted, on payment of fair market price.
3. The case of the petitioners is that the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) has been enacted with reference to entry no.54 of List-I. Section 2 of the Act declares that it is expedient in public interest that the Union should take under its control the regulation of mines and the development of minerals, to the extent provided under the Act. Thus, the subject of legislation is exclusively covered by the MMDR Act and the State -7- Legislature has no competence to enact any law on the subject nor the State has competence to exercise executive power except in accordance with the Scheme of MMDR Act. Section 13 empowers the Central Government to make rules for regulating the grant of reconnaissance permits, prospecting licences and mining leases for minerals (other than minor minerals) while the power to make rules for regulating the grant of quarry leases, mining leases or mineral concessions in respect of minor minerals is with the State Governments. The mineral in question, not being minor mineral as defined in Section 3(e) of the Act, only such conditions can be prescribed for leases in respect thereof as prescribed by the Central Government under Section 13(2)(g). The MMDR Act or MCR do not provide for exercise of right of pre-emption before any minerals are won from the land in respect of which the lease has been granted. The said right cannot make the grant of mining lease redundant. Clause 21(a) of the Mining Lease (in Form-K) requires the State Government to issue notice for the purpose of exercising the right of pre-emption in absence of which the said right cannot be exercised. The State Government has not undertaken any study of impact of its decision on the national economy. There was ample raw material available for the industries in the State of Orissa where the demand is far less. None of the industries situated within the State of Odisha have the technology to use the iron ore having high magnetite content and as such 50% of the produce from such mine will remain completely unutilized. The demand of iron ore from the Iron and Steel Industry in the State of Odisha is around 12-13 % of the actual demand and thus the mining lessees cannot sell 50% of the iron ore extracted from the -8- mines to the industries situated in the State. For this reason, the Director of Mines, Odisha requested the Principal Secretary, Department of Mines to issue directions for carrying forward the left out stock of iron ore vide letter dated 15th January, 2013. Thus, the lessees are prevented from disposing of even the unutilized quantity which are not capable of being consumed in the State of Odisha. The Central Government vide letter dated 13th February, 2013 advised the State Government to withdraw the impugned memo on the ground that the right of pre- emption vested in the State cannot be transferred to mineral based industries in the State and the condition imposed amounted to a special condition of lease, without approval of the Central Government, as required under Rule 27(3) of the MCR. In view of the impugned memo, the lessees are denied permits for transportation of minerals beyond 50% of the produce. Thus, the impugned condition is an unreasonable restriction on the right of lessees under Article 19(g) and also violates Article 301 of the Constitution of India.
4. A counter affidavit has been filed on behalf of opposite party no.1-State of Odisha. According to the State, it is the owner of mineral resources within its territories and right of pre-emption is in acknowledgment of the State's ownership rights for equitable distribution of the natural resources and greater common good. Mineral resources in the State are being exploited since long by the stand alone miners without commensurate benefit to the State and the community. The benefits to the State from stand alone mining were meager compared to the super normal profits to the lessees. The royalty fixed by the Central Government vis-à-vis the sale price of minerals is inadequate. -9- The State has adopted a policy of value addition to the mineral resources by establishment of mineral based industries in the State, thereby generating employment opportunities and also greater revenues for the State. Many of these steel plants having no captive mining leases were finding it difficult to source iron ore for their plants since most of the iron ore mining leases in the State are held by stand alone miners who have continued to hold mining leases for decades. These miners find it lucrative to export the iron ore produced in their mines instead of supplying to the local industries. Industries are facing the threat of closure due to raw material scarcity which may have negative impact on the investment climate and slow down the process of industrialization. In these circumstances, the State has exercised its power as lessor/owner which is not the power with regard to regulation of mines, but as owner of the mineral. There is no unreasonable restriction on the freedom of trade as against the commercial interest of handful of mining lessees for equitable distribution of material resources of the community to subserve the common good. Prudent utilization and equitable distribution of minerals are vital aspects of mineral development. Use of minerals locally for production of metals is much more beneficial as it obviates the requirement of transportation. The iron and steel industry in the State requires almost 50% of the total iron ore raised in the mines within the State but was not getting adequate supplies. There is no obstruction to the free flow of the minerals. The State Government has issued the Memo after due application of mind and after consideration of relevant facts and circumstances. By exercise of right of pre-emption, the State Government can itself buy the minerals and then distribute the
- 10 -
same to the user industries. To save the Government time and resources, the Memo directs sale by the lessees to user industries at the prevailing market price. Keeping in view the objectives of the National Minerals Policy, 2008 the State Government decided to resort to its right of pre-emption to ensure proper supply of raw material to the iron and steel industries.
5. We have heard Sarvshri A.K.Ganguli, Sr.Advocate, R.K.Rath, Sr.Advocate, S.S.Das, Sr. Advocate, A.K.Mohapatra, Sr.Advocate for the petitioners and Ashok Mohanty, Advocate General and R.K.Mohapatra, Government Advocate for the State of Odisha, S.D.Das, Asst.Solicitor General for the Central Government and S.C.Lal, Sr. Advocate for the petitioner in W.P.(C) No. 17682 of 2013.
6. Sri Ganguli submitted that regulation of mines and minerals vests exclusively under the control of Union. Minerals are national wealth and no State can claim exclusive right to use such mineral. The State Government cannot enforce its own policy regarding mining and use of minerals and has no jurisdiction to channelize sale of iron ore. The right of pre-emption is a limited right which is not transferable. Restriction of sale outside the State of Odisha violates Article 301 of the Constitution of India. The impugned memo issued is in violation of Rule 27(3) of the MCR as, an additional condition of lease cannot be imposed without the consent of the Central Government. The impugned memo is not based on application of mind and no study had been undertaken by the State and the decision is based only on the representation of the local industries which suffers from malice.
- 11 -
7. He has placed reliance on the judgments of the Supreme Court in Hingir-Rampur Coal Co.Ltd. Vs. State of Orissa, AIR 1961 SC 459, State of Orissa vs. M.A.Tulloch & Co., (1964)4 SCR 461 and Orissa Cement Ltd. vs. State of Orissa, 1991 Supp (1)SCC 430 in support of his submission that the State Government exercises its power as a delegate of the Parliament only and has no role to play save and except in the manner prescribed under the MMDR Act. The State is also denuded of its executive power in the matter covered by MMDR Act. Relying on the decision of the Supreme Court in Association of Natural Gas & ors. vs. Union of India and ors, (2004)4 SCC 489 and Sandur Manganese and Iron Ore Ltd. Vs. State of Karnataka, (2010)13 SCC 1, it is submitted that the whole country has a right on the natural resources and the State cannot claim exclusive right to use such mineral. He also relied on the decision of the Supreme Court in State of TN vs. MPP Kavery Chetty, (1995)2 SCC 402 to submit that the State cannot exercise any authority over minerals after they have been excavated. He further relied on a decision of the Supreme Court in Bhoop Alleged son of Sheo vs. Matadin Bhardwaj (dead) by LRs (1991)2 SCC 128 to submit that pre-emption right cannot be transferred to a third party. In support of his submission that restriction of sale of minerals outside the State of Orissa was violative of Article 301 of the Constitution of India, reliance has been placed in the decision of the Supreme Court in Jindal Stainless Steel Vs. State of Haryana, (2006)7 SCC 241.
8. Sri R.K.Rath, Sr.Advocate and Sri S.S.Das, Sr.Advocate reiterated the submission of Sri Ganguli.
- 12 -
9. Sri Ashok Mohanty, learned Advocate General submitted that the impugned memo was in exercise of power as lessor and owner of the minerals and grievance, if any, can be raised by the lessee alone and not by the industries located outside the State of Odisha. He submitted that the MMDR Act and MCR do not affect the State Government's paramount right over the iron ore. Section 4 of MMDR Act only regulates the grant of lease and the Legislative Power of the State is affected only to the extent of control by the Union. He submitted that after review of the entire law on the point the legal position has been recently clarified in the case of Monnet Ispat and Energy Limited Vs. Union of India and others, (2012)11 SCC 1. The right to pre-emption mentioned expressly under Rule 27(1)(m) of MCR is a preferential right to purchase mineral at market price. Though this right is exercised after extraction of minerals, this is a statutory condition of lease itself which is within the scope of the rules. Under these circumstances, there is no violation of right to trade or free flow of trade nor there is transfer of right to preempt. The nature of right under Rule 27(1)(m) of MCR is different from nature of preemption right considered in the judgment relied upon by the petitioners.
10. The following questions arise for consideration:-
(a) Whether the impugned memo is within the competence of the State under Rule 27(1)(m) of the MCR or is an additional condition of lease which is beyond the scope of Rule 27(3) of MCR?
(b) Whether the restriction of sale of 50% iron ore as raw material to the industries within the State violates the right of the lessees under Article 19(1)(g) read with Article 301 of the Constitution of India?
- 13 -
11. After due consideration, we are of the view that the impugned memo is within the competence of the State under Rule 27(1)(m) of the MCR and is not an additional condition of lease which is beyond the scope of Rule 27(3) of MCR, but there is curable procedural deficiency for want of procedure for exercise of right by the State itself and fixation of price and quantity of the minerals in respect of which right of preemption is exercised. The impugned order is neither beyond the scope of competence of the State nor violates the right of lessee under Article 19(1)(g) or under Article 301 of the Constitution of India.
12. The MMDR Act and MCR do not affect the ownership of mines and minerals which is vested in the State. The right of lessees flows only from the lease. The lessees do not have a fundamental right to claim right of mining the minerals which are vested in the State. It is undisputed that Rule 27(1)(m) expressly reserves the right of the State to purchase minerals by way of preemption at a fair market price prevailing at the time of pre-emption. While this right of the State cannot be fettered, it is mandatory to lay down procedure for exercise of the right so as to ensure that exercise of the right is by the State itself and not by a third party either in substance or in form.
13. Rule 27(1)(m) of the MCR is as follows:
"27. Conditions:-
(1) Every mining lease shall be subject to the following conditions:-
(m) the State Government shall at all times have the right of preemption of the minerals won from the land in respect of which the lease has been granted:
Provided that the fair market price
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prevailing at the time of pre-emption shall be paid to the lessee for all such minerals.
Covenant 21 of Part VII of Form K reads as under:
Right of pre-emption:-
21(a) The State Government shall from time to time and all times during the said term have the right (to be exercised by notice in writing to the lessee/lessees) of pre-emption of the said minerals ( and all products thereof) lying in or upon the said lands hereby demised or elsewhere under the control of the lessee/lessees and the lessee/lessees shall with all possible expedition deliver all minerals or products or minerals purchased by the State Government under the power conferred by this provision in the quantities at the times in manner and at the place specified in the notice exercising the said right
(b) Should the right of pre-emption conferred by this present provision be exercised and a vowel chartered to carry the minerals or products thereof procured on behalf of the State Government or the Central Government be detained on demurrage at the port of loading the lessee/lessees shall pay the amount due for demurrage according to the terms (The charter party of such vessel unless the State Government shall be satisfied that the delay is due to causes beyond the control of the lessee/lessees.
(c) The price to be paid for all minerals or products of minerals taken in pre-emption by the State Government in exercise of the right hereby conferred shall be the fair market price prevailing at the time of pre-emption Provided that in order to assist in arriving at the said fair market price the lessee/lessees shall if so required furnish to the State Government for the confidential information of the Government, particulars of the quantities descriptions and prices of the said minerals or products thereof sold to other customers and of charters entered into for freight for carriage of the same and shall produce to such officer or officers as may be directed by the State Government original or authenticated copies of contracts and charter parties entered into for the
- 15 -
sale or freightage of such minerals or products.
(d) In the event of the existence of a state of war or emergency (of which existence and President of India shall be the sole judge and a notification to this effect in the Gazette of India shall be conclusive proof), the State Government with the consent of the Central Government shall from time to time and all times during the said term have the right (to be exercised by a notice in writing to the lessee/lessees forthwith take possession and control of the works, plant, machinery and premises of the lessee/lessees on or in connection with the said lands or operations under this lease and during such possession or control the lessee/lessees shall conform to and obey all directions given by or on behalf of the Central Government or State Government regarding the use or employment of such works, plants, premises and minerals:
Provided that fair compensation which shall be determined in default of agreement by the State Government shall be paid to the lessee/lessees for all loss or damage sustained by him/them by reason or in consequence of the exercise of the powers conferred by this clause and Provided also that the exercise of such powers shall not determine the said term hereby granted or affect the terms and provisions of these presents further than may be necessary to give effect to the provisions of this clause."
14. Pre-emption is "the right of a person to purchase a property in preference to others." (K.J. AIYER'S Judicial Dictionary, 8th Edition 1980, Law book co.) As per the law Lexicon by P. Ramanatha Aiyer, Reprint 2002, WADHWA, "Pre-emption is the right of first buying of a thing."
15. In Vijayalakshmi (Smt), Appellant Versus B.Himantharaja Chetty and another, Respondents, (1996) 9 Supreme Court Cases 376 it was observed:
"The word 'pre-emption' as is well understood is
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a term of law . It is a right of substitution conferred on someone either by statute, custom or contract. The right is to step into the shoes of the vendee preferentially, on the terms of sale already settled between the vendor and the vendee."
Thus, while preemption is preferential right of purchase, its content and procedure for exercise may vary as per a particular statute, custom or contract by which the right is conferred. While exercise of right has to be initially by individual or authority on which right is conferred, its benefit may be transferable.
16. No doubt where nature of right is dependent on particular relationship or qualification such right or benefit thereof cannot be transferred up to the stage it is incohate and has not ripened into vested right. Even in such cases once decree is passed, the right becomes vested right and can be transferred. This is clear even from the judgment in Bhoop Singh relied upon by the petitioner. Therein, the original preemptor transferred the right after decree in his favour. The trial court upheld the objection of the judgment debtor that the decree was rendered inexecutable. The High Court reversed the said view which was upheld by the Hon'ble Supreme Court. Distinction was made in a pre-emption right under the custom where decree also may not be transferable and a statutory right. It was concluded:
"10. On a conjoint reading of the aforesaid provisions of the Code, it seems clear to us that Matadin was entitled in law to execute the decree transferred to him and obtain possession of the land from the judgment debtor. In Jugal Kishore Saraf v. Raw Cotton Co. Ltd. AIR 1955 SC 376, this Court held that a person who claims
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benefit under a decree by reason of its transfer can apply under Section 146 and failing that under Order 21 Rule 16 CPC. In Zila Singh vs. Hazari (1979)3 SCC 265, this Court while disagreeing with the majority view of Punjab and Haryana High Court in Hazari case AIR 1970 P & H 215 held that a transferee of the pre-emptor's right in the land which has vested in him by virtue of Order 20 Rule 14 on compliance of the requirement of payment of the purchase money by the specified date, can maintain an application for execution under Section 146, or Order 21 Rule 16, CPC. In other words it was said that if the transferee of the decree cannot avail of the latter provision he can certainly resort to the former."
To the same effect is law laid down in Habiba Khatoon Vs. Ubaidul Huq & ors (1997)7 SCC 452 and Shyam Sunder & ors vs. Ram Kumar & anr. (2001)8 SCC 24. In Shaym Sunder, it was observed that once decree was passed, vested right accrued to the decree holder which was not affected by subsequent amendment.
17. No decision has been brought to our notice to the effect that after the preemption right is crystallized, benefit or interest thereunder cannot be transferred. In any case, the content of right under rule 27(1)(m) is sui generis. There is no compulsion to read any fetter on transferability of benefit of exercise of such right. Fettering the said right on comparison with a customary right will defeat the object thereof. The State has to be left free to exercise its statutory right to promote public interest subject to well known limitation on exercise of power by a public authority in dealing with the public property in accordance with Article 14 of the Constitution.
18. Thus, having regard to the nature of preemption right in the present context, while right of pre-emption must be exercised by the State, benefit of such right can be transferred, in absence of any
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prohibition. In doing so, there is no violation of any law. Objection of Central Government is also to transfer of exercise of right and not to transfer of benefits of the right. In this view of the matter, only sustainable criticism against the impugned memo is that preferential right of purchase should be exercised by State in the first instance and the State must give notice to the lessee indicating the price and quantum of mineral sought to be purchased in exercise of pre-emption right but in the impugned memo this procedure is not clearly laid down. This being essentially a matter of procedure, can be cured by laying down appropriate mechanism and validity of impugned memo can be upheld subject to the requirement of procedure being followed. The State must work out an appropriate mechanism to determine price and quantum so that there is compliance of procedure of law even when the State has the right. Since exercise of right of purchase has to be by the State while delivery may be taken and price paid by its nominee, the State must work out such mechanism failing which enforcement of the impugned memo may not be permissible.
19. In Monnet Ispat & Energy Limited Vs. Union of India & ors, it was observed:-
139. .......The decisions of this Court in State of Orissa vs. M.A. Tulloch & Co., AIR 1964 SC 1284, Baijnath Kadio vs State of Bihar, (1969) 3 SCC 838, Bharat Coking Coal Ltd. Vs. State of Bihar, (1990) 4 SCC 557 and few other decisions where this Court has held with reference to declaration made by Parliament in Section 2 of the 1957 Act and the provisions of that Act that the whole of the legislative field was covered were in the context of specific State legislations under consideration. In the context of subject State legislation, the whole legislative field was found to be occupied by the Central law. The same is the position in Hingir-Rampur Coal Co.Ltd. vs. State of Orissa, AIR 1961 SC 459 where whole of the legislative field relating to "minerals" was found to be covered by the declaration made
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in Section 2 of the 1948 Act in the context of the State legislation under consideration. In Hingir-Rampur Coal Co. while examining the constitutional validity of the Orissa Mining Areas Development Fund Act, 1952 this Court held that the State Act was covered by the 1948 Act. In M.A. Tulloch & Co. this Court was concerned with the same Orissa Act which was under consideration in Hingir-Rampur Coal Co. and in the light of Section 18(1) of the 1957 Act which was under consideration it was held that the intention of Parliament was to cover the entire field. In Baijnath Kadio this Court was concerned with the constitutional validity of proviso (2) to Section 10(2) added by the Bihar Land Reforms (Amendment) Act, 1964. While examining the constitutional validity of the above provision, the Constitution Bench of this Court analysed the 1957 Act. In the light of List I Entry 54 and List II Entry 23 the observation that whole of the legislative field was covered by the parliamentary declaration read with the 1957 Act was with reference to the State legislations under consideration and the whole of the legislative field was found to be occupied by the 1957 Act. Similar observations in various other decisions by this Court were made in the context of the topic under consideration.
140. I am supported in my view by a three-Judge Bench decision of this Court in Orissa Cement Ltd. Vs State of Orissa, 1991 Supp(1) SCC 430 wherein it was emphatically asserted that in the case of a declaration under Entry 54, the legislative power of the State Legislatures is eroded only to the extent control is assumed by the Union pursuant to such declaration as spelt out by the legislative enactment which makes the declaration. The three-Judge Bench on a careful consideration said: (Orissa Cement Ltd. SCC p. 480, para 49) "49. ...The measure of erosion turns upon the field of the enactment framed in pursuance of the declaration. While the legislation in Hingir-Rampur Coal Co. and M.A. Tulloch & Co. was found to fall within the pale of the prohibition, those in State of Haryana v. Chanan Mal, (1977) 1 SCC 340, Ishwari Khetan Sugar Mills (P) Ltd. Vs. State of U.P. (1980) 4 SCC 136 and Western Coalfields Ltd. Vs. Special Area Development Authority, (1982) 1 SCC 125 were general in nature and traceable to specific entries in the State List and did not encroach on the field of the Central enactment except by way of incidental impact."
141. Secondly, after the enactment of the 1957 Act and the 1960 Rules made thereunder, the Central Government has all throughout understood that the State Governments as owner of mines and minerals within their territory have inherent
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right to reserve any particular area for exploitation in the public sector. This position is reflected from the order of the Central Government that was passed by it and which was under challenge in Amritlal Nathubhai Shah Vs. Union Govt. of India, (1976)4 SCC 108. In its order the Central Government had stated:
"... The State Government had the inherent right to reserve any particular area for exploitation in the public sector. Minerals vest in them and they are owners of minerals ... and the Central Government are in agreement with the State Government insofar as the reservation of areas is concerned...."
144. .......The judgment of this Court in Amritlal Nathubhai Shah establishes the distinction between the power of reservation to exploit a mineral as its own property on the one hand and the regulation of mines and minerals development under the 1957 Act and the 1960 Rules on the other. The authority of the State Government to make reservation of a particular mining area within its territory for its own use is the offspring of ownership; and it is inseparable therefrom unless denied to it expressly by an appropriate law. By the 1957 Act that has not been done by Parliament. Setting aside by a State of land owned by it for its exclusive use and under its dominance and control, in my view, is an incident of sovereignty and ownership. There is no incongruity or inconsistency in the decisions of this Court in Hingir-Rampur Coal Co., M.A. Tulloch & Co., Baijnath Kadio4 and Amritlal Nathubhai Shah. The Bench in Amritlal Nathubhai Shah was alive to the legal position highlighted by this Court in Hingir- Rampur Coal Co., M.A. Tulloch & Co. and Baijnath Kadio although it did not expressly refer to these decisions. This is apparent from the observations made in para 3 wherein it has been stated that in pursuance of its exclusive power to make laws with respect to the matters enumerated in List I Entry 54 in Schedule VII, Parliament specifically declared in Section 2 of the 1957 Act that it was expedient in the public interest that the Union should take under its control, regulation of mines and the development of minerals to the extent provided therein. The Bench noticed that the State Legislature's power under List II Entry 23 was, thus, taken away and regulation of mines and minerals development had therefore to be in accordance with the 1957 Act and the 1960 Rules. The legal position exposited in Amritlal Nathubhai Shah is that even though the field of legislation with regard to regulation of mines and development of minerals has been covered by the declaration of Parliament in Section 2 of the 1957 Act, but that cannot justify the inference that the State Government has lost its right to the minerals which vest in it as a property within its territory and hence no person has a right to exploit the mines other
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than in accordance with the provisions of the 1957 Act and the 1960 Rules. ..."
(emphasis added)
20. The above observations are complete answer to the submissions on behalf of the petitioners as to right of ownership of the State. Moreover, the State is exercising right under the MMDR Act and MCR only and not by an administrative order unbacked by a valid law. This being the undoubted position of law, there could be no violation of Articles 19(1)(g) or 301. The lessee is acting as per statutory obligation under the covenant of lease as per the Act of Parliament to which Article 304 does not apply. Moreover, there is no challenge to the MMDR Act or MCR. The memo cannot be read as being beyond the scope of Rule 27(1)(m) and is not an additional condition.
21. Since we find that the State has undoubted competence to pre-empt the sale of mineral and objection can at best be to the procedure and form and not to the inherent power, instead of quashing the memo as being deficient in respect of procedure, the memo can be upheld by being read as subject to procedure by which the right is exercised by State itself but benefit thereof is transferred to local industry by laying down due procedure. The State can exercise preferential right of purchase at a fair market value and evolve mechanism to enable its nominee to take delivery against price.
22. 'Shooting at sight' is not the rule as held in Maharao Sahib Shri Bhim Singhji Vs. Union of India & ors, (1981)1 SCC 166:
"17. .......To sustain a law by interpretation is the rule. To be trigger-happy in shooting at sight every suspect law is judicial legicide. Courts can and must interpret words and read their meanings so that public good is promoted and power misuse
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is interdicted. 'As Lord Denning said: ' A Judge should not be a servant of the words used. He should not be a mere mechanic in the powerhouse of semantics'."
23. In Hemeedia Hardware Stores, represented by its Partner S.Peer Mohammed vs. B.Mohan Lal Sowcar, (1988) 2 SCC 513 following famous passage that 'ironing' out creases is permissible has been cited with approval:
"11. In Seaford Court Estates Ltd. v. Asher, (1949)2 All ER 155, Lord Denning, L.J. said:
" When a defect appears a Judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament ... and then he must supplement the written word so as to give 'force and life' to the intention of the legislature.... A Judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they should have straightened it out? He must then do as they would have done. A Judge must not alter the material of which the Act is woven, but he can and should iron out the creases."
24. In view of above, contention that no study in respect of local demand had been made or that there is no demand in the local market is rendered insignificant. The mechanism to be worked out will ensure prompt payment of fair market value and taking delivery which will happen only if there is demand. There will be no scope for arbitrary exercise of right to stall sale of mineral which may not be needed in the local market.
25. We sum up our conclusions as follows:
(i) Ownership of mineral is vested in the State and it has statutory preferential right to purchase the mined mineral against fair market price at the time of preemption;
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(ii) Right of preemption must be exercised by State itself and price fixed by it but benefit of such right can be transferred in its discretion;
(iii) Impugned memo lacks procedural mechanism by which State directly exercises its right by fixing price, quantum of mineral to be purchased and beneficiary thereof but this deficiency can be cured by mechanism being laid down which is mandatory for validity of exercise of preemption right.
26. Accordingly, we uphold the impugned memo as being valid exercise of right of pre-emption under rule 27(1)(m) of MCR subject to the State evolving a mechanism to give notice to the lessees of quantum of mineral to be purchased and the price thereof, ensuring taking delivery and payment of price within reasonable time. Such mechanism may be notified within three months. In absence thereof, on expiry of period mentioned above, the impugned memo will cease to operate.
27. The petitions are disposed of accordingly.
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JUDGE CHIEF JUSTICE