The Supreme Court has ruled that a statutory increase in mineral royalty under the Mines and Minerals (Development and Regulation) Act, 1957 prevails over royalty rates contemplated in private contracts, making the enhanced levy payable if minerals are removed after the revised rate comes into force.
A Bench comprising Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh held that royalty liability is determined by the date on which minerals are actually dispatched or removed from the mining area, not by the date of auction, contract execution, or payment.
The Court observed that where mineral movement takes place after a royalty revision, parties cannot rely on pre-existing contractual arrangements to avoid the impact of the statutory amendment. According to the Bench, the law links royalty to the act of removal or consumption of minerals, and any subsequent enhancement becomes applicable to quantities moved after the change.
The dispute stemmed from iron ore stocks sold through e-auctions overseen by a Monitoring Committee established pursuant to judicial directions following the suspension of mining activities in Karnataka’s Bellary mining belt.
M/s BMM Ispat Ltd. emerged as the successful bidder in a June 2014 auction when royalty on iron ore stood at 10 per cent under the Second Schedule of the MMDR Act. The company paid the auction amount along with royalty calculated at that rate. However, before the entire stock could be transported from the mining area, the Central Government amended the Second Schedule with effect from September 1, 2014, increasing royalty on iron ore to 15 per cent.
Subsequently, the State sought payment of the additional royalty on ore removed after the amendment and recovered more than ₹2 crore from the company’s security deposit. The company challenged the recovery, maintaining that its royalty obligation had already crystallised when its bid was accepted and payment had been made.
The Karnataka High Court accepted that contention and ordered a refund of the amount adjusted towards the enhanced royalty. The State then carried the matter to the Supreme Court.
The central question before the apex court was whether royalty should be calculated according to the rate prevailing on the date of auction and payment or according to the rate in force when the mineral was physically removed from the leased area.
Allowing the State’s appeal, the Supreme Court concluded that Section 9 of the MMDR Act unequivocally ties royalty liability to the removal or consumption of minerals. Since the royalty revision took effect before the respondent removed part of the iron ore, the amended statutory rate governed the transaction.
The Bench noted that the purchaser had the opportunity to remove the entire quantity before the royalty enhancement became effective but chose not to do so. Having adopted a staggered approach to transportation, it could not later claim the benefit of the earlier royalty rate.
The Court therefore upheld the State’s action in deducting the additional 5 per cent royalty from the security deposit and set aside the High Court’s ruling.
The judgment was delivered in The Director of Mines and Geology v. M/s BMM Ispat Ltd. & Anr.
